What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-11 compared with 2021-02-05 · 322 added, 391 removed, 551 unchanged (56% of the section changed)

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INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Neurocrine Biosciences, Inc.

To the Stockholders and the Board of Directors of Neurocrine Biosciences, Inc.

Opinion on the Financial Statements

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 11, 2022 expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases effective January 1, 2019, due to the adoption of Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842), and the related amendments.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

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(collectively, “customers”).

As described in Note 1 to the consolidated financial statements, the Company recognizes revenues for sales of INGREZZA to its customers after deducting management’s estimates of reserves, including drug coverage gap rebates, it will provide under government rebate programs (“government rebates”).

Estimated government rebates are presented within accounts payable and accrued liabilities on the consolidated balance sheets.

As described in Note 1 to the consolidated financial statements, the Company recognizes revenues for sales of INGREZZA to its customers after deducting management’s estimates of reserves, including drug coverage gap rebates it will provide under government programs (“government rebates”).

Estimated government rebates are presented within accounts payable and accrued liabilities on the consolidated balance sheet.

Auditing the estimates of government rebates was complex and judgmental due to the level of uncertainty involved in management’s assumptions used in the measurement process.

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In addition, we compared the underlying government rebate percentages used in the Company’s analyses to those published by the applicable government entity.

We assessed the historical accuracy of management’s rebate estimates, tested payments of rebates and performed a sensitivity analysis of significant assumptions to evaluate the changes in the rebate allowance that would result from changes in the assumptions.

We assessed the historical accuracy of management’s rebate estimates, tested payments of rebates and performed a sensitivity analysis of significant assumptions to evaluate the impact of changes in the rebate allowance that would result from changes in the assumptions.

/s/ Ernst & Young LLP

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Cash and cash equivalents $ 340.8 $ 187.1

Debt securities available-for-sale (amortized cost $ 612.4 million at December 31, 2020 and $ 557.3 million at December 31, 2019)

Debt securities available-for-sale (amortized cost was $ 370.6 and $ 612.4 as of December 31, 2021 and 2020, respectively)

Accounts receivable 185.5 157.1

Inventories 28.0 17.3

Inventory 30.5 28.0

Other current assets 45.5 30.1

Total current assets 972.8 1,016.2

Debt securities available-for-sale (amortized cost $ 226.7 million at December 31, 2020 and $ 299.3 million at December 31, 2019)

Deferred tax assets 315.1 319.4

Debt securities available-for-sale (amortized cost was $ 563.2 and $ 226.7 as of December 31, 2021 and 2020, respectively)

Right-of-use assets 97.2 82.8

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Property and equipment, net 58.6 44.6

Deferred tax assets 319.4 —

Restricted cash 3.2 3.2

Other long-term assets 4.4 6.4

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Accounts payable and accrued liabilities $ 225.8 $ 168.7

Convertible senior notes — 408.8

Other current liabilities 20.0 17.8

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5.0 shares authorized;

no shares issued and outstanding at December 31, 2020 and 2019

no shares issued and outstanding as of December 31, 2021 and 2020

Common stock, $ 0.001 par value;

220.0 shares authorized;

issued and outstanding shares were 93.5 million and 92.3 million at December 31, 2020 and 2019, respectively

94.9 and 93.5 shares issued and outstanding as of December 31, 2021 and 2020, respectively

Additional paid-in capital 2,011.4 1,849.7

Accumulated other comprehensive income 1.8 1.4

Accumulated other comprehensive (loss) income ( 1.7 ) 1.8

Accumulated deficit ( 635.8 ) ( 725.4 )

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Interest expense ( 25.8 ) ( 32.8 ) ( 32.0 )

Unrealized loss on restricted equity securities ( 17.7 ) ( 13.0 ) —

Unrealized gain (loss) on equity securities 20.9 ( 17.7 ) ( 13.0 )

Loss on extinguishment of convertible senior notes — ( 18.4 ) —

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Total other expense, net ( 1.1 ) ( 56.3 ) ( 25.8 )

Income before (benefit from) provision for income taxes 106.7 46.5 21.8

(Benefit from) provision for income taxes ( 300.6 ) 9.5 0.7

Income before provision for (benefit from) income taxes 101.4 106.7 46.5

Provision for (benefit from) income taxes 11.8 ( 300.6 ) 9.5

Net income 89.6 407.3 37.0

Unrealized gain (loss) on debt securities available-for-sale 0.4 3.4 ( 0.1 )

Unrealized (loss) gain on debt securities available-for-sale ( 3.5 ) 0.4 3.4

Comprehensive income $ 86.1 $ 407.7 $ 40.4

Net income per share, basic $ 4.38 $ 0.40 $ 0.23

Net income per share, diluted $ 4.16 $ 0.39 $ 0.22

Earnings per share, basic $ 0.95 $ 4.38 $ 0.40

Earnings per share, diluted $ 0.92 $ 4.16 $ 0.39

Weighted average common shares outstanding, basic 94.6 93.1 91.6

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Net income — — — — 37.0 37.0

Unrealized loss on debt securities available-for-sale — — — ( 0.1 ) — ( 0.1 )

Unrealized gain on debt securities available-for-sale — — — 3.4 — 3.4

Share-based compensation expense — — 75.3 — — 75.3

Issuance of common stock for vested restricted stock units 0.4 — — — — —

Issuance of common stock for stock option exercises 1.6 — 29.5 — — 29.5

Cumulative-effect adjustment to equity due to adoption of ASU 2016-02 — — — — 8.0 8.0

Issuances of common stock under stock plans 1.5 — 32.4 — — 32.4

Balances at December 31, 2019 92.3 $ 0.1 $ 1,768.1 $ 1.4 $ ( 1,132.7 ) $ 636.9

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Share-based compensation expense — — 100.0 — — 100.0

Cumulative-effect adjustment to equity due to adoption of ASU 2016-02 — — — — 8.0 8.0

Issuance of common stock for vested restricted stock units 0.4 — — — — —

Issuance of common stock for stock option exercises 1.0 — 27.3 — — 27.3

Issuance of common stock for employee stock purchase plan 0.1 — 5.1 — — 5.1

Equity component of repurchased convertible senior notes, net — — ( 47.5 ) — — ( 47.5 )

Issuances of common stock under stock plans 1.2 — 29.1 — — 29.1

Balances at December 31, 2020 93.5 $ 0.1 $ 1,849.7 $ 1.8 $ ( 725.4 ) $ 1,126.2

Net income — — — — 89.6 89.6

Unrealized gain on debt securities available-for-sale, net of tax — — — 0.4 — 0.4

Unrealized loss on debt securities available-for-sale, net of tax — — — ( 3.5 ) — ( 3.5 )

Share-based compensation expense — — 134.2 — — 134.2

Equity component of repurchased convertible senior notes, net — — ( 47.5 ) — — ( 47.5 )

Issuance of common stock for vested restricted stock units 0.5 — — — — —

Issuance of common stock for stock option exercises 0.6 — 23.5 — — 23.5

Issuance of common stock for employee stock purchase plan 0.1 — 5.6 — — 5.6

Issuances of common stock under stock plans 1.4 — 27.5 — — 27.5

Balances at December 31, 2021 94.9 $ 0.1 $ 2,011.4 $ ( 1.7 ) $ ( 635.8 ) $ 1,374.0

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Change in fair value of equity securities ( 20.9 ) 17.7 13.0

Deferred income taxes (including benefit from valuation allowance release)

Deferred income taxes

4.3 ( 310.7 ) —

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Purchases of property and equipment ( 23.4 ) ( 10.9 ) ( 14.7 )

Net cash provided by (used in) investing activities 4.1 ( 211.1 ) ( 242.9 )

Net cash (used in) provided by investing activities ( 130.2 ) 4.1 ( 211.1 )

Cash Flows from Financing Activities:

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Partial repurchase of convertible senior notes ( 0.1 ) ( 186.9 ) —

Net cash (used in) provided by financing activities ( 157.8 ) 32.4 29.5

Net cash provided by (used in) financing activities 27.4 ( 157.8 ) 32.4

Change in cash and cash equivalents and restricted cash 153.7 74.8 ( 31.7 )

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Business Activities.

Neurocrine Biosciences, Inc., or Neurocrine, the Company, we, our or us, was incorporated in California in 1992 and reincorporated in Delaware in 1996.

Neurocrine Continental, Inc., is a Delaware corporation and a wholly owned subsidiary of Neurocrine.

Neurocrine Biosciences, Inc., or Neurocrine Biosciences, the Company, we, our or us, was incorporated in California in 1992 and reincorporated in Delaware in 1996.

Neurocrine Continental, Inc., is a Delaware corporation and a wholly owned subsidiary of Neurocrine Biosciences.

We also have two wholly-owned Irish subsidiaries, Neurocrine Therapeutics, Ltd.

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both of which were formed in December 2014 and are inactive.

We are a neuroscience-focused biopharmaceutical company dedicated to discovering, developing and delivering life-changing treatments for patients with serious, challenging and under-addressed neurological, endocrine and psychiatric disorders.

Our diverse portfolio includes FDA-approved treatments for tardive dyskinesia, Parkinson’s disease, endometriosis*, uterine fibroids* and clinical programs in multiple therapeutic areas.

For nearly three decades, we specialize in targeting and interrupting disease-causing mechanisms involving the interconnected pathways of the nervous and endocrine systems.

(*in collaboration with AbbVie Inc.)

Principles of Consolidation.

The consolidated financial statements include the accounts of Neurocrine as well as our wholly owned subsidiaries.

The consolidated financial statements include the accounts of Neurocrine Biosciences as well as our wholly owned subsidiaries.

All intercompany transactions and balances have been eliminated in consolidation.

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We had no foreign-based operations during any of the years presented.

Reclassifications.

Certain amounts in prior year periods have been reclassified to conform with the presentation adopted in the current year.

Cash Equivalents.

We consider all highly liquid investments that are readily convertible into cash and have an original maturity of three months or less at the time of purchase to be cash equivalents .

We consider all highly liquid investments that are readily convertible into cash without penalty and have an original maturity of three months or less at the time of purchase to be cash equivalents .

Accounts Receivable.

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In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes in interest rates, and any changes to the rating of the security by a rating agency, among other factors.

assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income or loss, as applicable.

Accrued interest receivables on debt securities available-for-sale totaled $ 3.7 million at December 31, 2020.

Accrued interest receivables on debt securities available-for-sale totaled $ 2.2 million as of December 31, 2021 and $ 3.7 million as of December 31, 2020.

We do not measure an allowance for credit losses for accrued interest receivables.

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Fair Value of Financial Instruments.

We record cash equivalents, debt securities available-for-sale and equity securities at fair value based on a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs).

We record cash equivalents, debt securities available-for-sale and equity security investments at fair value based on a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs).

The fair value hierarchy consists of the following three levels:

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The most significant assumptions within the option pricing valuation model are the stock price volatility, which is based on the historical volatility of similar companies and the discount for lack of marketability related to the term of the restrictions.

The carrying amounts of accounts receivable and accounts payable and accrued liabilities approximate their fair values due to their short-term maturities.

There were no transfers between levels in the fair value hierarchy during 2020 or 2019.

We deem transfers between levels of the fair value hierarchy to have occurred at the end of the reporting period during which the event or change in circumstances that caused the transfer occurred.

Inventory is valued at the lower of cost or net realizable value.

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Property and equipment are stated at cost and depreciated over the estimated useful lives of the assets using the straight-line method.

Equipment is depreciated over an average estimated useful life of three to seven years .

Equipment is depreciated over an average estimated useful life of 3 to 7 years.

Leasehold improvements are depreciated over the shorter of their estimated useful lives or the remaining lease term.

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We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.

Product Sales, Net.

In the U.S., our product sales, net consist of sales of INGREZZA, primarily to specialty pharmacy providers and a specialty distributor, and sales of ONGENTYS, primarily to wholesale distributors.

We recognize product sales, net when the customer obtains control of our product, which occurs at a point in time, typically upon delivery of our product to the customer.

Net Product Sales.

In the United States, we sell INGREZZA ® (valbenazine) primarily to specialty pharmacy providers and distributors and ONGENTYS ® (opicapone) primarily to wholesale distributors.

We recognize net product sales when the customer obtains control of our product, which occurs at a point in time, typically upon delivery of our product to the customer.

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers, payors and other third parties.

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Such estimates are based on actual historical rebates by state, estimated payor mix, state and federal regulations and relevant contractual terms, as supplemented by management’s judgement.

Our rebate accrual calculations require us to project the magnitude of our sales, by state, that will be subject to these rebates.

Our rebate accrual calculations require us to project the magnitude of our sales that will be subject to these rebates.

There is a significant time-lag in our receiving rebate notices from each state (generally, several months or longer after a sale is recognized).

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To date, actual payor and pharmacy rebates have not differed materially from our estimates.

Co-payment Assistance.

We offer financial assistance to qualified patients with prescription drug co-payments required by insurance.

We accrue for copay assistance based on estimated claims and the cost per claim we expect to receive associated with inventory that remains in the distribution channel at period end.

To date, actual copay assistance has not differed materially from our estimates.

Patient Financial Assistance.

To help patients afford our products, we offer financial assistance to qualified patients with prescription drug co-payments required by insurance as well as free trial vouchers to qualifying new patients.

We accrue for patient financial assistance based on estimated claims and the cost per claim we expect to receive associated with inventory that remains in the distribution channel at period end.

To date, actual copay assistance and free trial vouchers have not differed materially from our estimates.

Distributor and Other Fees.

In connection with the sales of our products, we pay distributor and other fees to certain customers that provide us with inventory management, data and distribution services, which are generally recorded as a reduction of revenue.

In connection with the sales of our products, we pay distributor and other fees, which are generally recorded as a reduction of revenue, to certain customers that provide us with inventory management, data and distribution services.

To the extent we can demonstrate a separable benefit and fair value for these services, we classify the associated costs in selling, general and administrative expenses.

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Product Returns.

For INGREZZA, we offer our customers product return rights primarily limited to errors in shipment and damaged product.

We do not permit returns of INGREZZA for expiring or expired product.

Accordingly, we have limited return risk resulting from INGREZZA product sales and therefore do not record an associated returns allowance.

For ONGENTYS, we offer our customers product return rights primarily limited to errors in shipment, damaged product, and expiring or expired product, provided it is within a specified period around the product expiration date, as set forth in the associated distribution agreement.

Once product is returned, it is destroyed.

Where actual returns history is not available, we estimate the associated returns allowance based on benchmarking data for similar products and industry experience.

We offer our customers product return rights primarily limited to errors in shipment, damaged product and expiring product, provided it is within a specified period of the product expiration date, as set forth in the associated distribution agreement.

Where actual returns history is not available, we estimate a returns allowance based on benchmarking data for similar products and industry experience.

We record this estimate as a reduction of revenue in the period the related sale is recognized.

Once product is returned, it is destroyed.

To date, actual product returns have not differed materially from our estimates.

Collaboration Revenues.

We have entered into collaboration and licensing agreements under which we license certain rights to our product candidates to third parties.

We have entered into collaboration and licensing agreements under which we out-license certain rights to our product candidates to third parties.

The terms of these arrangements typically include payment to us of one or more of the following:

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If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.

For licenses that are bundled with other promises, we use judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees.

For licenses that are bundled with other promises, we assess the nature of the combined performance obligation to determine whether it is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees.

We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

Milestone Payments.

At the inception of each arrangement that includes developmental, regulatory or commercial milestone payments, we evaluate whether achieving the milestones is considered probable and estimate the amount to be included in the transaction price using the most likely amount method.

At the inception of each arrangement that includes developmental, regulatory or commercial milestones, we evaluate whether achieving the milestones is considered probable and estimate the amount to be included in the transaction price using the most likely amount method.

If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price.

Milestone payments that are not within our control, such as approvals from regulators or where attainment of the specified event is dependent on the development activities of a third party, are not considered probable of being achieved until those approvals are received or the specified event occurs.

Amounts for milestones that are not within our control, such as where achievement of the specified event is dependent on the development activities of a third party or approvals from regulators, are not considered probable of being achieved until the specified event occurs.

Revenue is recognized from the satisfaction of performance obligations in the amount billable to the customer.

Royalty Revenues.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

For arrangements that include sales-based royalties, and under which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Each quarterly period, sales-based royalties are recorded based on estimated quarterly net sales of the associated collaboration products.

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Concentration of Credit Risk.

Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash, cash equivalents and marketable securities.

We have established guidelines to limit our exposure to credit risk by diversifying our investment portfolio and by placing investments with high credit quality financial

institutions and maturities that maintain safety and liquidity.

Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash equivalents and debt securities available-for-sale.

We have established guidelines to limit our exposure to credit risk by diversifying our investment portfolio and by placing investments with high credit quality financial institutions and maturities that maintain safety and liquidity.

To date, we have not experienced any credit losses and do not believe we are exposed to any significant credit risk in relation to these financial instruments.

We are also subject to credit risk from our accounts receivable related to our product sales.

Our two largest customers represented approximately 86 % of our product revenues for both 2020 and 2019, and the significant majority of our accounts receivable balances at December 31, 2020 and 2019.

For 2018, our three largest customers represented approximately 93 % of our product revenue and substantially all of our accounts receivable balance at December 31, 2018.

Our two largest customers represented approximately 82 % of our total product revenues for 2021 and approximately 86 % for both 2020 and 2019, as well as the significant majority of our accounts receivable balances at December 31, 2021 and 2020.

To date, we have not experienced any significant losses with respect to the collection of these accounts receivable.

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Research and Development Expenses.

R&D expenses consist primarily of salaries, payroll taxes, employee benefits and share-based compensation charges for those individuals involved in ongoing R&D efforts;

Research and development, or R&D, expenses consist primarily of salaries, payroll taxes, employee benefits and share-based compensation charges for those individuals involved in ongoing R&D efforts;

as well as scientific consulting fees, preclinical and clinical trial costs, R&D facilities costs, laboratory supply costs and depreciation of scientific equipment.

All such costs are charged to R&D expense as incurred.

All such costs are expensed as R&D when incurred.

These expenses result from our independent R&D efforts, as well as efforts associated with collaborations, in-licenses and third-party funded research arrangements, including event-based milestones.

Asset Acquisitions.

We account for acquisitions of an asset or group of assets that do not meet the definition of a business using the cost accumulation method, whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of their relative fair values.

We account for acquisitions of an asset that does not (or a group of assets that do not) meet the definition of a business using the cost accumulation method, whereby the cost of the acquisition, including certain transaction costs, is allocated to the asset (or assets) acquired on the basis of its (or their) relative fair value(s) on the measurement date.

No goodwill is recognized in an asset acquisition.

Intangible assets that are acquired in an asset acquisition for use in R&D activities which have no alternative future use are expensed as in-process research and development, or IPR&D, on the acquisition date.

Future costs to develop these assets are recorded to R&D expense as they are incurred.

Intangible assets acquired in an asset acquisition for use in R&D activities which have no alternative future use are expensed as in-process research and development, or IPR&D, on the acquisition date.

Future costs to develop these assets are expensed as R&D when incurred.

Advertising Expense.

Advertising costs are expensed when services are performed, or goods are delivered.

Advertising costs are expensed when services are performed or goods are delivered and are included in selling, general and administrative expense in our consolidated statements of income.

We incurred advertising costs related to INGREZZA and ONGENTYS of $ 139.8 million for 2021, $ 64.8 million for 2020 and $ 40.6 million for 2019.

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We estimate the fair value of stock options and shares to be issued under the ESPP using the Black-Scholes option-pricing model on the date of grant.

Restricted stock units are valued based on the closing price of our common stock on the date of grant.

The fair value of equity instruments expected to vest are recognized and amortized on a straight-line basis over the requisite service period of the award, which is generally three to four years ;

RSUs are valued based on the closing price of our common stock on the date of grant.

The fair value of equity instruments expected to vest is recognized and amortized on a straight-line basis over the requisite service period of the award, which is generally 3 to 4 years;

however, certain provisions in our equity compensation plans provide for shorter vesting periods under certain circumstances.

The fair value of shares to be issued under the ESPP are recognized and amortized on a straight-line basis over the purchase period, which is generally six months .

Additionally, we granted certain PRSUs that vest upon the achievement of certain predefined company-specific performance-based criteria.

Expense related to these PRSUs is generally recognized ratably over the expected performance period once the predefined performance-based criteria for vesting becomes probable.

The fair value of shares to be issued under the ESPP is recognized and amortized on a straight-line basis over the purchase period, which is generally 6 months.

PRSUs vest upon the achievement of certain predefined company-specific performance-based criteria.

Expense related to PRSUs is generally recognized ratably over the expected performance period once the predefined performance-based criteria for vesting becomes probable.

Income Taxes.

Our income tax benefit (provision) is computed under the asset and liability method.

Significant estimates are required in determining our income tax benefit (provision).

Our income tax provision (benefit) is computed under the asset and liability method.

Significant estimates are required in determining our income tax provision (benefit).

Some of these estimates are based on interpretations of existing tax laws or regulations.

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A valuation allowance is established for deferred tax assets for which it is more likely than not that some portion or all of the deferred tax assets, including net operating losses and tax credits, will not be realized.

We periodically re-assess the need for a valuation allowance against our deferred tax assets based on various factors including our historical earnings experience by

taxing jurisdiction, and forecasts of future operating results and utilization of net operating losses and tax credits prior to their expiration.

We periodically re-assess the need for a valuation allowance against our deferred tax assets based on various factors including our historical earnings experience by taxing jurisdiction, and forecasts of future operating results and utilization of net operating losses and tax credits prior to their expiration.

Significant judgment is required in making this assessment and, to the extent that a reversal of any portion of our valuation allowance against our deferred tax assets is deemed appropriate, a tax benefit will be recognized against our income tax provision in the period of such reversal.

Prior to 2020, we recorded a valuation allowance that fully offset our deferred tax assets.

On December 31, 2020, based on our evaluation of various factors, such as our achievement of a cumulative three-year income position as of December 31, 2020, as well as our consideration of forecasts of future operating results and utilization of net operating losses and tax credits prior to their expiration, we released substantially all of our valuation allowance against our deferred tax assets and recorded a corresponding income tax benefit.

their expiration, we released substantially all of our valuation allowance against our deferred tax assets and recorded a corresponding income tax benefit.

Refer to Note 9 to the consolidated financial statements for more information.

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An adverse resolution of one or more of these uncertain tax positions in any period could have a material impact on the results of operations for that period.

Net Income Per Share.

Basic net income per share is computed using the weighted average number of common shares outstanding during the period.

Diluted net income per share is computed using the weighted average number of common and potentially dilutive shares outstanding during the period, including the potentially dilutive shares resulting from the conversion of the 2024 Notes and excluding the effect of stock options and restricted stock outstanding for periods when their effect is anti-dilutive, using the treasury stock method.

Convertible debt instruments that may be settled entirely or partly in cash (such as the 2024 Notes) may, in certain circumstances where the borrower has the ability and intent to settle in cash, be accounted for under the treasury stock method.

We issued the 2024 Notes with a combination settlement feature, which we have the ability and intent to use upon conversion of the 2024 Notes, to settle the principal amount of debt for cash and the excess of the principal portion in shares of our common stock.

As a result, of the approximately 5.0 million shares underlying the 2024 Notes at December 31, 2020, only the shares required to settle the excess of the principal portion would be considered dilutive under the treasury stock method.

Further, approximately 0.2 million PRSUs were excluded from the calculation of diluted net income per share as the performance condition has not been achieved.

In loss periods, basic net loss per share and diluted net loss per share are identical because the otherwise dilutive potential common shares become anti-dilutive and are therefore excluded.

Earnings Per Share.

Basic earnings per share are computed using the weighted average number of common shares outstanding during the period.

Diluted earnings per share are computed using the treasury stock method and reflect the weighted average number of common and potentially dilutive shares outstanding during the period, excluding those which effect would be anti-dilutive.

Convertible debt instruments that may be settled entirely or partly in cash may, in certain circumstances where the borrower has the ability and intent to settle in cash, be accounted for under the treasury stock method.

In December 2021, we entered into the First Supplemental Indenture, dated as of May 2, 2017, by and between the Company and U.S.

Bank National Association, as Trustee, or the 2017 Indenture, pursuant to which we irrevocably elected to settle the principal amount of the 2.25 % convertible senior notes due May 15, 2024, or the 2024 Notes, in cash upon conversion and to settle any conversion premium in either cash or shares of our common stock.

As a result, and consistent with historical practice, only the shares required to settle any conversion premium would be considered dilutive under the treasury stock method.

Further, PRSUs for which the performance condition has not been achieved are excluded from the calculation of diluted earnings per share.

Recently Adopted Accounting Pronouncements.

On January 1, 2020, we adopted Accounting Standards Update, or ASU, 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, using the modified retrospective transition method.

For debt securities available-for-sale, the standard requires an investor to determine whether a decline in the fair value below the amortized cost basis of the investment is due to credit-related factors.

Credit-related impairment is recognized as an allowance for credit loss on the balance sheet with a corresponding adjustment to earnings.

Credit losses are limited to the amount by which the investment’s amortized cost basis exceeds its fair value and may be subsequently reversed if conditions change.

Any impairment that is not credit related is recognized in other comprehensive income or loss, as applicable, net of applicable taxes.

On January 1, 2021, we adopted Accounting Standards Update, or ASU, 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , using the modified retrospective transition method.

ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application of Topic 740.

The adoption of ASU 2019-12 did not result in a cumulative-effect adjustment to retained earnings.

The comparative prior period information continues to be reported under the accounting standards in effect during those periods.

The impact of the adoption is expected to be immaterial to our financial position, results of operations and cash flows on an ongoing basis.

Recently Issued Accounting Pronouncements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application of Topic 740.

ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted in any interim period for which financial statements have not yet been made available for issuance.

We are currently evaluating the effect ASU 2019-12 will have on our condensed consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity's Own Equity (Subtopic 815-40):

for Convertible Instruments and Contracts in an Entity's Own Equity , which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments, and amends existing earnings-per-share, or EPS, guidance by requiring that an entity use the if-converted method when calculating diluted EPS for convertible instruments.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

We plan to adopt ASU 2020-06 effective January 1, 2022 and are currently evaluating the effect ASU 2020-06 will have on our consolidated financial statements and related disclosures.

License and Collaboration Agreements

Under the terms of the following license and collaboration agreements, we may be required to make milestone payments upon achievement of certain development and regulatory activities of up to $ 8.5 billion and pay royalties on future sales, if any, of commercial products resulting from these agreements.

Takeda Pharmaceutical Company Limited .

We entered into an exclusive license agreement with Takeda Pharmaceutical Company Limited, or Takeda, which became effective in July 2020, to develop and commercialize certain compounds in Takeda’s early to mid-stage psychiatry pipeline.

Specifically, Takeda granted us an exclusive license to the following seven assets:

(i) NBI-1065844 (TAK-831) for schizophrenia, (ii) NBI-1065845 (TAK-653) for treatment-resistant depression, (iii) NBI-1065846 (TAK-041) for anhedonia (which together with the NBI-1065845 are referred to as the Phase II Ready Assets), and (iv) four non-clinical stage assets, or the Non-Clinical Assets.

NBI-1065844 is deemed a royalty-bearing product under the license agreement pursuant to which we will be responsible for all costs and expenses associated with the development, manufacture, and commercialization of such asset, subject to certain exceptions, and Takeda will be eligible to receive development and commercial milestones and royalties with respect to such asset, or a Royalty-Bearing Product, and Takeda will retain the right to opt-in to a profit sharing arrangement pursuant to which we and Takeda will equally share in the operating profits and losses related to such asset, subject to certain exceptions, in lieu of receiving milestones and royalties, or a Profit-Share Product.

Subject to specified conditions, Takeda may elect to exercise such opt-in right for NBI-1065844 before we initiate a Phase III clinical trial.

Each of the Phase II Ready Assets is deemed a Profit-Share Product and Takeda will retain the right to opt-out of the profit-sharing arrangement for such asset pursuant to which such asset would become a Royalty-Bearing Product.

Takeda may elect to exercise such opt-out rights with respect to a Phase II Ready Asset immediately following the completion of the second Phase II clinical trial for such Phase II Ready Asset.

In addition, under certain circumstances related to the development and commercialization activities to be performed by us, Takeda may elect to opt-out of the profit-sharing arrangement for a Profit-Share Product before the initiation of a Phase III clinical trial for such product.

Each of the Non-Clinical Assets will be Royalty-Bearing Products pursuant to which we will be responsible for all costs and expenses associated with the development, manufacture, and commercialization of such assets, subject to certain exceptions.

In connection with the agreement, we paid Takeda $ 120.0 million upfront , which, including certain transaction related costs, was expensed as in-process research and development, or IPR&D, in the third quarter of 2020 .

Pursuant to the terms of the agreement, Takeda may also be entitled to receive additional payments of up to $ 1.9 billion upon the achievement of certain event-based milestones associated with Royalty-Bearing Products, as well as receive royalties on the future net sales of Royalty-Bearing Products.

On a country-by-country and product-by-product basis, royalty payments would commence on the first commercial sale of a Royalty-Bearing Product and terminate on the later of (i) the expiration of the last patent covering such Royalty-Bearing Product in such country, (ii) a number of years from the first commercial sale of such Royalty-Bearing Product in such country and (iii) the expiration of regulatory exclusivity for Royalty-Bearing Product in such country.

Idorsia Pharmaceuticals Ltd.

In May 2020, we entered a collaboration and licensing agreement with Idorsia Pharmaceuticals Ltd, or Idorsia, to license the global rights to NBI-827104 (ACT-709478), a potent, selective, orally active and brain penetrating T-type calcium channel blocker, in clinical development for the treatment of a rare pediatric epilepsy.

The agreement also includes a research collaboration to discover and identify additional novel T-type calcium channel blockers as development candidates.

In connection with the exercise of the option, we paid Idorsia $ 45.0 million upfront, which we expensed as IPR&D in the second quarter of 2020.

Further, as part of the research collaboration, we provided Idorsia with an incremental $ 7.2 million in funding, which we recorded as a prepaid asset and is being expensed over the two-year research collaboration term.

Pursuant to the terms of the agreement, upon the achievement of certain development and regulatory milestones, Idorsia may be entitled to receive additional payments of up to $ 365.0 million with respect to NBI-827104 and $ 620.0 million with respect to the development candidates.

Idorsia may also be entitled to receive additional payments of up to $ 750.0 million upon the achievement of certain commercial milestones, as well as receive royalties on the future net sales of any collaboration product.

Further, we will be responsible for all manufacturing, development and commercialization costs of any collaboration product.

Xenon Pharmaceuticals, Inc.

In December 2019, we entered into a license and collaboration agreement with Xenon Pharmaceuticals Inc., or Xenon, to identify, research, and develop sodium channel inhibitors, including clinical candidate NBI-921352 (XEN901) and three preclinical candidates, which compounds we will have the exclusive right to further develop and commercialize under the terms and conditions set forth in the agreement.

We will be solely responsible, at our sole cost and expense, for all development and manufacturing of the compounds and any pharmaceutical product that contains a compound, subject to Xenon’s right to elect to co-fund the development of one product in a major indication and thus receive a mid-single digit percentage increase in royalties owed on the net sales of such product in the U.S.

If Xenon exercises such option, the parties will share equally all reasonable and documented costs and expenses incurred in connection with the development of such product in the applicable indication, except costs and expenses that are solely related to the development of such product for regulatory approval outside the U.S.

In connection with the agreement, we paid Xenon $ 30.0 million upfront and purchased $ 20.0 million of Xenon’s common stock at $ 14.196 per share, representing approximately 1.4 million shares.

Pursuant to the terms of the agreement, Xenon may also be entitled to receive additional payments of up to $ 1.7 billion upon the achievement of certain event-based milestones, as well as receive royalties on the future net sales of any collaboration product.

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity's own equity.

Among other changes, ASU 2020-06 removes the separation models for convertible instruments with cash or beneficial conversion features.

Instead, entities will account for convertible debt instruments wholly as debt, unless certain other conditions are met.

The adoption of ASU 2020-06 is expected to prospectively reduce reported interest expense and increase reported net income, and result in a reclassification of certain conversion feature balance sheet amounts from stockholders’ equity to liabilities as it relates to the 2024 Notes.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

We will adopt ASU 2020-06 on January 1, 2022 using the modified retrospective transition method, which allows for a cumulative-effect adjustment in the period of adoption and does not require restatement of prior period amounts.

Under this transition method, the cumulative effect of the accounting change is expected to increase the carrying amount of the 2024 Notes by $ 42.2 million, reduce deferred tax liabilities by $ 10.0 million, reduce the accumulated deficit by $ 74.6 million, reduce additional paid-in capital by $ 106.8 million.

Collaboration and License Agreements

Under the terms of our existing collaboration and license agreements, we may be required to make potential future payments of up to $ 10.9 billion upon the achievement of certain event-based milestones.

Such contingent payments are recorded when paid or payable.

Heptares Therapeutics Limited, or Heptares.

We entered into a collaboration and license agreement with Heptares, which became effective in December 2021, to develop and commercialize certain compounds containing sub-type selective muscarinic M1, M4, or dual M1/M4 receptor agonists, which compounds we have the exclusive rights to develop, manufacture and commercialize worldwide, excluding in Japan, where Heptares retains the rights to develop, manufacture, and commercialize all compounds comprised of M1 receptor agonists, subject to certain exceptions.

We are responsible for all development, manufacturing, and commercialization costs.

With respect to such rights retained by Heptares, we retain the rights to opt in to profit sharing arrangements, pursuant to which we and Heptares will equally share in the operating profits and losses for such compounds in Japan.

Subject to specified conditions, we may elect to exercise such opt-in rights with respect to each such compound either before initiation of the first proof of concept Phase II clinical trial for such compound or following our receipt from Heptares of the top-line data from such clinical trial for such compound.

In addition, we have entered into a 2-year research collaboration with Heptares that, unless extended by the parties, is scheduled to expire in December 2023.

In connection with the agreement, we paid Heptares $ 100.0 million upfront, which, including certain transaction-related costs, was expensed as IPR&D in 2021.

We accounted for the transaction as an asset acquisition as the set of acquired assets did not constitute a business.

Our equity investment in Xenon was recorded at a fair value of $ 14.1 million after considering Xenon’s stock price on the date of closing and certain lock-up and voting provisions applicable to the acquired shares.

The remaining $ 36.2 million of the purchase price, which includes the applicable transaction costs, was expensed as IPR&D in the fourth quarter of 2019.

Voyager Therapeutics, Inc.

We entered into a collaboration and license agreement with Voyager Therapeutics, Inc., or Voyager, which became effective in March 2019, to develop and commercialize four programs using Voyager’s proprietary gene therapy platform.

The four programs consist of the NBIb-1817 (VY-AADC) program for Parkinson’s disease, the Friedreich’s ataxia program and the rights to two undisclosed programs.

In connection with the agreement, we paid Voyager $ 115.0 million upfront and purchased $ 50.0 million of Voyager’s common stock at $ 11.9625 per share, representing approximately 4.2 million shares.

Pursuant to the terms of the agreement, Voyager may also be entitled to receive additional payments of up to $ 1.7 billion upon the achievement of certain event-based milestones, as well as receive royalties on the future net sales of any collaboration product.

Pursuant to development plans agreed to by us and Voyager, unless Voyager exercises its co-development and co-commerci alization rights as provided for in the agreement, we will be responsible for all development costs.

Further, upon the occurrence of a specified event for each program, we will assume responsibility for the development, manufacturing, and commercialization activit ies of such program.

Under the terms of the agreement, Heptares may be entitled to receive potential future payments of up to $ 2.6 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any collaboration product.

Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until the date on which the royalty term for such licensed product has expired in such country.

On a licensed product-by-licensed product and country-by-country basis, royalty payments would commence on the first commercial sale of a licensed product and terminate on the later of (i) the expiration of the last patent covering such licensed product in such country, (ii) a number of years from the first commercial sale of such licensed product in such country and (iii) the expiration of regulatory exclusivity for such licensed product in such country.

We may terminate the agreement in its entirety or with respect to one or more targets upon 180 days’ written notice to Heptares during the research collaboration term and upon 90 days’ written notice to Heptares following the expiration of the research collaboration term.

Following the expiration of the research collaboration term, Heptares may terminate the agreement on a target-by-target basis in the event that we do not conduct any material development activities outside of Japan with respect to a certain compound or licensed product within the applicable target class for a continuous period of not less than 365 days and do not commence any such activities within 120 days of receiving written notice.

Either party may terminate the agreement, subject to specified conditions, (i) in the event of material breach by the other party, subject to a cure period, (ii) if the other party challenges the validity or enforceability of certain intellectual property rights, subject to a cure period, or (iii) if the other party becomes insolvent or takes certain actions related to insolvency.

Takeda Pharmaceutical Company Limited, or Takeda.

In 2020, we entered into an exclusive license agreement with Takeda, pursuant to which we acquired the exclusive rights to develop and commercialize certain early to mid-stage psychiatry compounds, including luvadaxistat, NBI-1065845, NBI-1065846 and four non-clinical stage compounds.

Luvadaxistat and the 4 non-clinical stage compounds have each been designated as a royalty-bearing product.

NBI-1065845 and NBI-1065846 are currently each designated as a profit-share product.

We are responsible for all manufacturing, development and commercialization costs of any royalty-bearing product.

In connection with the agreement, we paid Takeda $ 120.0 million upfront, which, including certain transaction-related costs, was expensed as IPR&D in 2020.

We accounted for the transaction as an asset acquisition as the set of acquired assets did not constitute a business.

Our equity investment in Voyager was recorded at a fair value of $ 54.7 million after considering Voyager’s stock price on the date of closing and certain lock-up and voting provisions applicable to the acquired shares.

The remaining $ 113.1 million of the purchase price, which includes the applicable transaction costs, was expensed as in-process research and development, or IPR&D, in the first quarter of 2019.

In June 2019, we entered into an amendment to the collaboration and license agreement with Voyager.

Under the terms of the amendment, we paid Voyager $ 5.0 million upfront to obtain rights outside the U.S.

to the Friedreich’s ataxia program in connection with the early return of those rights to Voyager pursuant to a restructuring of Voyager’s gene therapy relationship with Sanofi Genzyme.

The upfront payment was expensed as IPR&D in the second quarter of 2019.

On February 2, 2021, we notified Voyager of our termination of the NBIb-1817 for Parkinson’s disease program.

The effective date of this termination will be August 2, 2021.

The termination does not apply to any other development program other than NBIb-1817 for Parkinson’s disease, and our collaboration and license agreement with Voyager will otherwise continue in effect.

BIAL – Portela & Ca, S.A.

We acquired the U.S.

and Canada rights to ONGENTYS ® from BIAL in the first quarter of 2017.

We launched ONGENTYS in the U.S.

in September 2020, after receiving FDA approval for ONGENTYS as an adjunctive therapy to levodopa/DOPA decarboxylase inhibitors in adult Parkinson's disease patients in April 2020.

FDA approval for ONGENTYS for Parkinson’s disease resulted in a $ 20.0 million event-based payment to BIAL, which we expensed as R&D in the second quarter of 2020.

We further recognized R&D expense of $ 10.0 million in each 2019 and 2018 in connection with BIAL’s achievement of certain regulatory event-based milestones related to then ongoing development of ONGENTYS.

Pursuant to the terms of the agreement, BIAL may also be entitled to receive additional payments of up to $ 75.0 million upon the achievement of certain event-based milestones.

Under the terms of the agreement, we are responsible for the commercialization of ONGENTYS in the U.S.

Further, we rely on BIAL for the commercial supply of ONGENTYS.

Upon our written request prior to the estimated expiration of the term of a licensed product, the parties shall negotiate a good faith continuation of BIAL’s supply of such licensed product after the term.

After the term, and if BIAL is not supplying a certain licensed product, we shall pay BIAL a trademark royalty based on the net sales of such licensed product.

Upon commercialization of ONGENTYS, we determined certain annual sales forecasts.

In the event we fail to meet the minimum sales requirements for a particular year, we would be obligated to pay BIAL an amount equal to the difference between the actual net sales and minimum sales requirements for such year.

Mitsubishi Tanabe Pharma Corporation .

In March 2015, we entered into a collaboration and license agreement with Mitsubishi Tanabe Pharma Corporation, or MTPC, for the development and commercialization of INGREZZA for movement disorders in Japan and other select Asian markets.

Since inception of the agreement, we have recognized revenue of $ 19.8 million associated with the delivery of a technology license and existing know-how and $ 15.0 million associated with the achievement of a certain event-based milestone.

We further recognized revenue of $ 2.7 million in 2020 and $ 0.9 million in 2019 in connection with the ongoing KINECT-HD study, a placebo-controlled Phase III study of valbenazine in adult Huntington’s disease patients with chorea.

In accordance with our continuing performance obligations, $ 6.7 million of the $ 30.0 million upfront payment received from MTPC is being deferred and will be recognized as revenue over the ongoing study period using an input method according to costs incurred to-date relative to estimated total costs associated with the study.

Pursuant to the terms of the agreement, we may also be entitled to receive additional payments of up to $ 70.0 million upon the achievement of certain event-based milestones, receive payments for the manufacture of certain pharmaceutical products, as well as receive royalties on the future net sales of any collaboration product in select territories in Asia.

Under the terms of the agreement, MTPC is responsible for all third-party development, marketing, and commercialization costs in Japan and other select Asian markets and we would be entitled to a percentage of sales of INGREZZA in Japan and other select Asian markets for the longer of ten years or the life of the related patent rights.

Further, the collaboration effort between the parties to advance INGREZZA towards commercialization in Japan and other select Asian markets is governed by joint steering and development committees with representatives from both parties.

In June 2010, we entered into an exclusive worldwide collaboration with AbbVie Inc., or AbbVie, to develop and commercialize elagolix and all next-generation gonadotropin-releasing factor, or GnRH, antagonists and collectively, GnRH Compounds, for women’s and men’s health.

AbbVie received approval for ORILISSA for the management of moderate to severe endometriosis pain in women from the FDA in July 2018 and Health Canada in October 2018.

In May 2020, AbbVie received FDA approval for ORIAHNN for the management of heavy menstrual bleeding associated with uterine fibroids in pre-menopausal women.

We recognized sales-based royalties on AbbVie net sales of ORILISSA and ORIAHNN of $ 19.2 million in 2020, $ 14.3 million in 2019 and $ 1.6 million in 2018.

FDA approval for ORIAHNN for uterine fibroids resulted in the achievement of a $ 30.0 million event-based milestone, which we recognized as collaboration revenue in the second quarter of 2020.

In 2019, we recognized collaboration revenue of $ 20.0 million in connection with the FDA’s acceptance of AbbVie’s NDA submission for the approval of ORIAHNN for uterine fibroids.

In 2018, we recognized collaboration revenue of $ 40.0 million in connection with the FDA’s approval for ORILISSA for endometriosis.

Since inception of the agreement, we have recognized revenue of $ 75.0 million associated with the delivery of a technology license and existing know-how and $ 165.0 million associated with the achievement of certain event-based milestones.

Pursuant to the terms of the agreement, we may also be entitled to receive additional payments of up to $ 366.0 million upon the achievement of certain event-based milestones.

Under the terms of the agreement, AbbVie is responsible for all third-party development, marketing, and commercialization costs.

We are entitled to a percentage of worldwide sales of GnRH Compounds for the longer of ten years or the life of the related patent rights.

Under the terms of the agreement, Takeda may be entitled to receive potential future payments of up to $ 1.9 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any royalty-bearing product.

With respect to NBI-1065845 and NBI-1065846, we and Takeda will equally share in the operating profits and losses.

Takeda retains the rights to opt-out of the profit-sharing arrangements, pursuant to which Takeda would be entitled to receive potential future payments upon the achievement of certain event-based milestones with respect to such compounds and receive royalties on the future net sales of such compounds (in lieu of equally sharing in the operating profits and losses).

Takeda may elect to exercise such opt-out right for such compound immediately following the completion of a second Phase II clinical trial for such compound, or, under certain circumstances related to the development and commercialization activities to be performed by us, before the initiation of a Phase III clinical trial for such compound.

Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until the date on which, (i) for any royalty-bearing product, the royalty term has expired in such country;

and (ii) for any profit-share product, for so long as we continue to develop, manufacture, or commercialize such licensed product.

On a licensed product-by-licensed product and country-by-country basis, royalty payments would commence on the first commercial sale of a royalty-bearing product and terminate on the later of (i) the expiration of the last patent covering such royalty-bearing product in such country, (ii) a number of years from the first commercial sale of such royalty-bearing product in such country and (iii) the expiration of regulatory exclusivity for such royalty-bearing product in such country.

We may terminate the agreement in its entirety or in one or more (but not all) of the United States, Japan, the European Union and the United Kingdom, or, collectively, the major markets, upon 6 months’ written notice to Takeda (i) with respect to all licensed products prior to the first commercial sale of the first licensed product for which first commercial sale occurs, or (ii) with respect to all licensed products in one or more given target classes, as defined in the agreement, prior to the first commercial sale of the first licensed product in such target class for which first commercial sale occurs.

We may terminate the agreement in its entirety or in one or more (but not all) of the major markets upon 12 months’ written notice to Takeda (i) with respect to all licensed products following the first commercial sale of the first licensed product for which first commercial sale occurs, or (ii) with respect to all licensed products in one or more given target classes following the first commercial sale of the first licensed product in such target class for which first commercial sale occurs.

Takeda may terminate the agreement, subject to specified conditions, (i) if we challenge the validity or enforceability of certain Takeda intellectual property rights or (ii) on a target class-by-target class basis, in the event that we do not conduct any material development or commercialization activities with respect to any licensed product within such target class for a specified continuous period.

Subject to a cure period, either party may terminate the agreement in the event of any material breach, solely with respect to the target class of a licensed product to which such material breach relates, or in its entirety in the event of any material breach that relates to all licensed products.

Idorsia Pharmaceuticals Ltd, or Idorsia.

In 2020, we entered into a collaboration and license agreement with Idorsia, pursuant to which we acquired the global rights to NBI-827104, a potent, selective, orally active and brain penetrating T-type calcium channel blocker in clinical development for the treatment of a rare pediatric epilepsy and other potential indications, including essential tremor.

We are responsible for all manufacturing, development and commercialization costs of any collaboration product.

In connection with the agreement, we paid Idorsia $ 45.0 million upfront, which was expensed as IPR&D in 2020.

We accounted for the transaction as an asset acquisition as the set of acquired assets did not constitute a business.

Under the terms of the agreement, Idorsia may be entitled to receive potential future payments of up to $ 1.7 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any collaboration product.

We may terminate the agreement, in its entirety or with respect to a particular compound or development candidate, upon 90 days’ written notice to Idorsia.

Further, in the event a party commits a material breach and fails to cure such material breach within 90 days after receiving written notice thereof, the non-breaching party may terminate the agreement in its entirety immediately upon written notice to the breaching party.

Xenon Pharmaceuticals Inc., or Xenon.

In 2019, we entered into a collaboration and license agreement with Xenon to identify, research and develop sodium channel inhibitors, including NBI-921352 and three preclinical candidates, which compounds we have the exclusive rights to develop and commercialize.

We are responsible for all development and manufacturing costs of any collaboration product, subject to certain exceptions.

Under the terms of the agreement, Xenon may be entitled to receive potential future payments of up to $ 1.7 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any collaboration product.

Xenon retains the right to elect to co-develop one product in a major indication, pursuant to which Xenon would receive a mid-single digit percentage increase in royalties earned on the future net sales of such product in the United States and we and Xenon would equally share in the development costs of such product in the applicable indication, except where such development costs relate solely to the regulatory approval of such product outside the United States.

In connection with the agreement, we paid Xenon $ 30.0 million upfront and purchased approximately 1.4 million shares of Xenon common stock (at $ 14.196 per share) for $ 20.0 million.

We accounted for the transaction as an asset acquisition as the set of acquired assets did not constitute a business.

The purchased shares were recorded at a fair value of $ 14.1 million after considering Xenon’s stock price on the measurement date and certain transfer restrictions applicable to the shares.

The remaining $ 36.2 million of the purchase price, which includes certain transaction-related costs, was expensed as IPR&D in 2019.

In connection with the European Union’s approval for the clinical trial application for NBI-921352 for the treatment of focal onset seizures in adults in September 2021, we paid Xenon a regulatory milestone of $ 10.0 million, including a purchase of approximately 0.3 million shares of Xenon common stock (at $ 19.9755 per share).

The purchased shares were recorded at a fair value of $ 4.6 million after considering Xenon’s stock price on the measurement date and certain transfer restrictions applicable to the shares.

The remaining $ 5.4 million of the milestone payment was expensed as R&D.

Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until the expiration of the royalty term for such product in such country.

Upon the expiration of the royalty term for a particular licensed product and country, the license obtained by us with respect to such product and country will become fully paid, royalty free, perpetual and irrevocable.

We may terminate the agreement upon 90 days’ written notice to Xenon, provided that such unilateral termination will not be effective for certain products until we have used commercially reasonable efforts to complete certain specified clinical studies.

Either party may terminate the agreement in the event of a material breach in whole or in part, subject to specified conditions.

Voyager Therapeutics, Inc., or Voyager.

In 2019, we entered into a collaboration and license agreement with Voyager, pursuant to which we acquired certain rights to develop and commercialize the NBIb-1817 for Parkinson’s disease program, Friedreich’s ataxia program and two undisclosed programs.

We are responsible for all development costs of any collaboration product, subject to certain co-development and co-commercialization rights retained by Voyager.

In February 2021, we notified Voyager of our termination of the NBIb-1817 for Parkinson’s disease program, which became effective August 2, 2021.

The termination did not apply to any program other than the NBIb-1817 for Parkinson’s disease program.

Under the terms of the agreement, Voyager may be entitled to receive potential future payments of up to $ 1.3 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any collaboration product.

In connection with the agreement, we paid Voyager $ 115.0 million upfront and purchased approximately 4.2 million shares of Voyager common stock (at $ 11.9625 per share) for $ 50.0 million.

We accounted for the transaction as an asset acquisition as the set of acquired assets did not constitute a business.

The purchased shares were recorded at a fair value of $ 54.7 million after considering Voyager’s stock price on the measurement date and certain transfer restrictions applicable to the shares.

The remaining $ 113.1 million of the purchase price, which includes certain transaction-related costs, was expensed as IPR&D in 2019.

In addition, we paid Voyager $ 5.0 million upfront, which was expensed as IPR&D in 2019, to acquire the rights outside the United States to the Friedreich’s ataxia program.

Unless terminated earlier, the agreement will continue in effect until the expiration of the last to expire royalty term with respect to any collaboration product or the last expiration or termination of any exercised co-development and co-commercialization rights by Voyager as provided for in the agreement.

We may terminate the agreement upon 180 days’ written notice to Voyager prior to the first commercial sale of any collaboration product or upon 1 year after the date of notice if such notice is provided after the first commercial sale of any collaboration product.

BIAL – Portela & Ca, S.A., or BIAL.

We acquired the United States and Canada rights to ONGENTYS ® (opicapone) from BIAL in 2017, and launched ONGENTYS in the United States in September 2020 as an FDA-approved add-on treatment to levodopa/carbidopa in patients with Parkinson's disease experiencing motor fluctuations.

We are responsible for all commercialization costs of ONGENTYS in the United States and Canada and rely on BIAL for the commercial supply of ONGENTYS.

Under the terms of the license agreement, BIAL may be entitled to receive potential future payments of up to $ 75.0 million upon the achievement of certain event-based milestones.

In addition, with respect to ONGENTYS, in the event we fail to meet certain minimum sales requirements for a particular year in comparison to our annual sales forecast for such year, we would be obligated to pay BIAL an amount equal to the difference between the actual net

sales and minimum sales requirements for such year.

Further, upon our written request to BIAL 12 months prior to the estimated expiration of the term of a licensed product, we will negotiate the continuation of BIAL’s supply of such licensed product after the term.

After the term, and if BIAL is no longer supplying such licensed product, BIAL would be entitled to receive a low double-digit royalty on our future quarterly net sales of such licensed product.

In connection with the FDA’s approval for ONGENTYS for Parkinson’s disease in April 2020, we paid BIAL a regulatory milestone of $ 20.0 million, which was expensed as R&D in 2020.

In connection with the FDA’s acceptance of the NDA for opicapone for Parkinson’s disease in 2019, we paid BIAL a regulatory milestone of $ 10.0 million, which was expensed as R&D in 2019.

Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until a generic product with respect to such licensed product is sold in a country and sales of such generic product are greater than a specified percentage of total sales of such licensed product in such country.

We may terminate the agreement upon 9 months’ written notice to BIAL.

BIAL may terminate the agreement in the event we fail to meet the minimum sales requirements for any 2 years, or under certain circumstances involving a change of control of Neurocrine Biosciences.

Under certain circumstances where BIAL elects to terminate the agreement in connection with a change of control of Neurocrine Biosciences, BIAL would be obligated to pay us a termination fee.

Either party may terminate the agreement if the other party materially breaches the agreement and does not cure the breach within a specified notice period, or upon the other party’s insolvency.

Mitsubishi Tanabe Pharma Corporation, or MTPC .

We out-licensed the rights to valbenazine in Japan and other select Asian markets to MTPC in 2015.

MTPC is responsible for all development, manufacturing and commercialization costs of valbenazine in such markets.

Under the terms of the license agreement, we may be entitled to receive potential future payments of up to $ 55.0 million upon the achievement of certain event-based milestones and would be entitled to receive royalties at tiered percentage rates on MTPC’s future net sales of valbenazine for the longer of 10 years or the life of the related patent rights.

In connection with MTPC’s submission of a filing for marketing authorization for valbenazine for the treatment of tardive dyskinesia in Japan in April 2021, we received a regulatory milestone of $ 15.0 million, which was recognized as collaboration revenue in 2021.

We are currently conducting the KINECT-HD study, a placebo-controlled Phase III study of valbenazine in adult Huntington disease patients with chorea.

In connection with our performance of the study, we recognized non-cash collaboration revenue of $ 5.7 million for 2021, $ 2.6 million for 2020 and $ 0.9 million for 2019.

As of December 31, 2021, $ 1.0 million of revenue is being deferred in connection with our continuing performance obligations under the collaboration and will be recognized as non-cash collaboration revenue over the remaining study period using an input method according to costs incurred to-date relative to estimated total costs associated with the study.

MTPC may terminate the agreement upon 180 days’ written notice to us.

In such event, all out-licensed product rights would revert to us.

AbbVie Inc., or AbbVie.

We out-licensed the global rights to elagolix to AbbVie in 2010.

AbbVie is responsible for all development and commercialization costs of elagolix.

Under the terms of the license agreement, we may be entitled to receive potential future payments of up to $ 366.0 million upon the achievement of certain event-based milestones and will continue to receive royalties at tiered percentage rates on AbbVie’s quarterly net sales of elagolix for the longer of 10 years or the life of the related patent rights.

AbbVie launched ORILISSA ® (elagolix tablets) in the United States in August 2018 as an FDA-approved oral medication for the management of moderate to severe endometriosis pain in women.

In June 2020, AbbVie launched ORIAHNN ® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) in the United States as an FDA-approved oral medication for the management of heavy menstrual bleeding associated with uterine fibroids in pre-menopausal women.

We recognized elagolix royalty revenue of $ 22.3 million for 2021, $ 19.2 million for 2020 and $ 14.3 million for 2019.

In connection with the FDA’s approval for AbbVie’s ORIAHNN for uterine fibroids in May 2020, we received a regulatory milestone of $ 30.0 million, which was recognized as collaboration revenue in 2020.

In connection with the FDA’s acceptance of AbbVie’s NDA for ORIAHNN for uterine fibroids in 2019, we received a regulatory milestone of $ 20.0 million, which was recognized as collaboration revenue in 2019.

AbbVie may terminate the agreement upon 180 days’ written notice to us.

In such event, all out-licensed product rights would revert to us.

Debt Securities

The following table summarizes the amortized cost, unrealized gain and loss recognized in accumulated other comprehensive income (loss), allowance for credit losses, and fair value of debt securities available-for-sale at December 31, 2020, aggregated by major security type and contractual maturity:

The following table summarizes the amortized cost, unrealized gain and loss recognized in accumulated other comprehensive income (loss) and fair value of debt securities available-for-sale at December 31, 2021, aggregated by major security type and contractual maturity:

2021 December 31,

(in millions) Contractual

Maturity Amortized

Cost Unrealized

Gain Unrealized

Loss Allowance for Credit Losses Fair

Commercial paper Within 1 year $ 82.2 $ — $ — $ — $ 82.2

Corporate debt securities Within 1 year 299.3 1.4 — — 300.7

Securities of government-sponsored entities

Within 1 year 230.9 0.1 — — 231.0

$ 612.4 $ 1.5 $ — $ — $ 613.9

Cost Unrealized Gain Unrealized Loss Fair

Value Amortized

Cost Unrealized Gain Unrealized Loss Fair

Commercial paper 0 to 1 years $ 204.8 $ — $ — $ 204.8 $ 82.2 $ — $ — $ 82.2

Corporate debt securities 0 to 1 years 128.2 — ( 0.1 ) 128.1 299.3 1.4 — 300.7

Securities of government-sponsored entities

1 to 2 years 81.9 0.1 ( 0.1 ) — 81.9

$ 226.7 $ 0.5 $ ( 0.1 ) $ — $ 227.1

The following table summarizes the amortized cost, unrealized gain and loss recognized in accumulated other comprehensive income, and fair value of debt securities available-for-sale at December 31, 2019, aggregated by major security type and contractual maturity:

(in millions) Contractual

Maturity Amortized

Cost Unrealized

Gain Unrealized

Commercial paper Within 1 year $ 144.5 $ — $ — $ 144.5

Corporate debt securities Within 1 year 270.5 0.5 — 271.0

Securities of government-sponsored entities Within 1 year 142.3 0.4 — 142.7

Securities of government-sponsored entities 0 to 1 years 37.6 — — 37.6 230.9 0.1 — 231.0

$ 370.6 $ — $ ( 0.1 ) $ 370.5 $ 612.4 $ 1.5 $ — $ 613.9

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$ 563.2 $ — $ ( 2.5 ) $ 560.7 $ 226.7 $ 0.5 $ ( 0.1 ) $ 227.1

The following table summarizes debt securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded at December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position:

Less Than 12 Months 12 Months or Longer Total

(in millions) Fair

Value Unrealized

Securities of government-sponsored entities $ 95.0 $ ( 0.1 ) $ — $ — $ 95.0 $ ( 0.1 )

At December 31, 2020, our security portfolio consisted of 148 securities related to investments in debt securities available-for-sale, of which 30 securities were in an unrealized loss position.

Our investments in corporate debt securities in an unrealized loss position at December 31, 2020 are of high credit quality (rated A or higher).

As of December 31, 2021, our security portfolio consisted of 164 debt securities available-for-sale, including 136 such securities that were in an unrealized loss position but of high credit quality.

Unrealized losses on these investments were primarily due to changes in interest rates.

We do not intend to sell these investments and it is not more likely than not that we will be required to sell these investments before recovery of their amortized cost basis.

The following table summarizes debt securities available-for-sale in an unrealized loss position at December 31, 2019, aggregated by major security type and length of time in a continuous unrealized loss position:

Less Than 12 Months 12 Months or Longer Total

We did not recognize an allowance for credit losses as of December 31, 2021 or 2020.

The following table summarizes debt securities available-for-sale in an unrealized loss position for less than 12 months, aggregated by major security type.

There were no debt securities available-for-sale in an unrealized loss position for longer than 12 months as of December 31, 2021 or 2020.

2021 December 31,

(in millions) Fair

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Value Unrealized

Corporate Debt Securities $ 428.6 $ ( 1.6 ) $ — $ —

Fair Value Measurements

Investments at December 31, 2020, which were measured at fair value on a recurring basis, consisted of the following:

Fair Value Measurements Using

(in millions) Fair Value Level 1 Level 2 Level 3

Cash and cash equivalents:

Cash and money market funds $ 187.1 $ 187.1 $ — $ —

Total cash and cash equivalents 187.1 187.1 — —

Restricted cash:

Certificates of deposit 3.2 3.2 — —

Total restricted cash 3.2 3.2 — —

Debt securities available-for-sale:

Commercial paper 82.2 — 82.2 —

Corporate debt securities 445.9 — 445.9 —

Securities of government-sponsored entities 230.5 ( 1.0 ) 95.0 ( 0.1 )

Total debt securities available-for-sale 841.0 — 841.0 —

Equity securities:

Equity securities–biotechnology industry 38.2 — — 38.2

Total equity securities 38.2 — — 38.2

Total recurring fair value measurements $ 1,069.5 $ 190.3 $ 841.0 $ 38.2

Investments at December 31, 2019, which were measured at fair value on a recurring basis, consisted of the following:

Fair Value Measurements Using

(in millions) Fair Value Level 1 Level 2 Level 3

$ 659.1 $ ( 2.6 ) $ 95.0 $ ( 0.1 )

Fair Value Measurements

Investments, which were measured at fair value on a recurring basis, consisted of the following:

2021 December 31,

Value Fair Value Measurements Using Fair

Value Fair Value Measurements Using

(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

Cash and cash equivalents:

Cash and money market funds $ 340.8 $ 340.8 $ — $ — $ 187.1 $ 187.1 $ — $ —

Total cash and cash equivalents 112.3 112.3 — —

Restricted cash:

Certificates of deposit 3.2 3.2 — — 3.2 3.2 — —

Total restricted cash 3.2 3.2 — —

Debt securities available-for-sale:

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Securities of government-sponsored entities 240.9 — 240.9 — 312.9 — 312.9 —

Total debt securities available-for-sale 857.9 — 857.9 —

Equity securities:

Equity securities–biotechnology industry 63.7 52.7 — 11.0 38.2 — — 38.2

Total equity securities 55.9 — — 55.9

Total recurring fair value measurements $ 1,029.3 $ 115.5 $ 857.9 $ 55.9

The following table presents a reconciliation of equity securities, which were measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

$ 1,338.9 $ 396.7 $ 931.2 $ 11.0 $ 1,069.5 $ 190.3 $ 841.0 $ 38.2

The following table presents a reconciliation of equity security investments, which were measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

Year Ended December 31,

(in millions) 2021 2020 2019

Beginning balance $ 55.9 $ — $ —

Balance at beginning of period $ 38.2 $ 55.9 $ —

Purchases (1)

Unrealized loss included in earnings ( 17.7 ) ( 13.0 ) —

Ending balance $ 38.2 $ 55.9 $ —

At December 31, 2020, the discount for lack of marketability used in the valuation analysis of equity securities ranged from 15.0 % to 34.0 % (weighted average of 24.8 %).

The discount for lack of marketability was weighted by the relative fair value of the instruments.

A significant increase (decrease) in the discount for lack of marketability in isolation would result in a significantly lower (higher) fair value measurement.

Unrealized gains and losses on equity securities are included in other income (expense), net.

Unrealized gain (loss) included in earnings 20.9 ( 17.7 ) ( 13.0 )

Transfers out of Level 3 (2)

Balance at end of period $ 11.0 $ 38.2 $ 55.9

_________________________

(1) In September 2021, we purchased 0.3 million shares of Xenon's common stock, valued at $ 4.6 million on the date of purchase, in connection with the European Union’s approval of the clinical trial application for NBI-921352.

(2) In the fourth quarter of 2021, our equity security investment in Xenon was transferred from Level 3 to Level 1 as the associated holding period restriction expired.

As of December 31, 2021, the discount for lack of marketability used in the valuation analysis of our Voyager equity security investment was 2.5 %.

Unrealized gains and losses on equity security investments are included in other income (expense), net.

Convertible Senior Notes

On May 2, 2017, we completed a private placement of $ 517.5 million in aggregate principal amount of 2.25 % convertible senior notes due 2024, or the 2024 Notes, and entered into an indenture agreement, or the 2024 Indenture, with respect to the 2024 Notes.

The 2024 Notes accrue interest at a fixed rate of 2.25 % per year, payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2017.

The 2024 Notes mature on May 15, 2024.

On May 2, 2017, we completed a private placement of $ 517.5 million in aggregate principal amount of the 2024 Notes and entered into the 2017 Indenture with respect to the 2024 Notes.

The net proceeds from the issuance of the 2024 Notes were approximately $ 502.8 million, after deducting commissions and the offering expenses payable by us.

The 2024 Notes accrue interest at a fixed rate of 2.25 % per year, payable semiannually in arrears on May 15 and November 15 of each year, and mature on May 15, 2024.

In November 2020, we entered into separate, privately negotiated transactions with certain holders of the 2024 Notes to repurchase $ 136.2 million aggregate principal amount of the 2024 Notes for an aggregate repurchase price of $ 186.9 million in cash.

We accounted for the partial repurchase of the 2024 Notes as a debt extinguishment.

As a result, we attributed $ 130.7 million of the aggregate repurchase price to the liability component based on the fair value of the liability component immediately before extinguishment.

The fair value of the liability component was calculated at settlement using a discounted cash flow analysis with a discount rate of 3.37 %, which was the market rate for similar notes that have no conversion rights.

The difference of $ 56.3 million between the fair value of the aggregate consideration remitted to certain holders of the 2024 Notes and the fair value of the liability component was attributed to the reacquisition of the equity component and recognized as a reduction to additional paid-in capital.

The carrying amount of the liability of $ 112.4 million at settlement was recognized as a reduction to the 2024 Notes and resulted in an $ 18.4 million loss on extinguishment.

We may redeem for cash all or part of the 2024 Notes if the last reported sale price (as defined in the 2024 Indenture) of our common stock has been at least 130 % of the conversion price then in effect (equal to $ 98.70 as of December 31, 2021) for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending on, and including, the trading day immediately before the date which we provide notice of redemption.

Holders of the 2024 Notes may convert the 2024 Notes at any time prior to the close of business on the business day immediately preceding May 15, 2024, only under the following circumstances:

(i) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130 % of the conversion price on each applicable trading day;

2024 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;

(ii) during the 5 business-day period immediately after any 5 consecutive trading-day period (the measurement period) in which the trading price (as defined in the 2024 Indenture) per $ 1,000 principal amount of the 2024 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;

(iii) upon the occurrence of specified corporate events, including a merger or a sale of all or substantially all of our assets;

1 unchanged sentence

On or after January 15, 2024, until the close of business on the scheduled trading day immediately preceding May 15, 2024, holders may convert their 2024 Notes at any time.

Upon conversion, holders will receive the principal amount of their 2024 Notes and any excess conversion value, calculated based on the per share volume-weighted average price for each of the 30 consecutive trading days during the observation period (as more fully described in the 2024 Indenture).

For both the principal and excess conversion value, holders may receive cash, shares of our common stock or a combination of cash and shares of our common stock, at our option.

It is our intent and policy to settle conversions through combination settlement, which essentially involves repayment of an amount of cash equal to the “principal portion” and delivery of the “share amount” in excess of the principal portion in shares of common stock or cash.

In general, for each $ 1,000 in principal, the “principal portion” of cash upon settlement is defined as the lesser of $ 1,000 , and the conversion value during the 25-day observation period as described in the notes.

The conversion value is the sum of the daily conversion value which is the product of the effective conversion rate divided by 25 days and the daily volume-weighted average price, or VWAP, of our common stock.

The “share amount” is the cumulative “daily share amount” during the observation period, which is calculated by dividing the daily VWAP into the difference between the daily conversion value (i.e., conversion rate x daily VWAP) and $ 1,000 .

In December 2021, we entered into the First Supplemental Indenture to the 2017 Indenture, pursuant to which we irrevocably elected to settle the principal amount of the 2024 Notes in cash upon conversion and to settle any conversion premium, calculated based on the per share volume-weighted average price for each of the 30 consecutive trading days during the observation period (as more fully described in the 2024 Indenture), in either cash or shares of our common stock.

In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest, and the possibility of further stock price appreciation.

Upon the receipt of conversion requests, the settlement of the 2024 Notes will be paid pursuant to the terms of the 2024 Indenture.

The initial conversion rate for the 2024 Notes is 13.1711 shares of common stock per $ 1,000 principal amount, which is equivalent to an initial conversion price of approximately $ 75.92 per share of our common stock.

2 unchanged sentences

The initial conversion price of the 2024 Notes represented a premium of approximately 42.5 % to the closing sale price of $ 53.28 per share of our common stock on the Nasdaq Global Select Market on April 26, 2017, the date that we priced the private offering of the 2024 Notes.

In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest and the possibility of further stock price appreciation.

Upon the receipt of conversion requests, the settlement of the 2024 Notes will be paid pursuant to the terms of the 2024 Indenture.

In the event that all of the 2024 Notes are converted, we would be required to repay the outstanding principal value and any conversion premium in any combination of cash and shares of its common stock (at our option).

We may not redeem the 2024 Notes prior to May 15, 2021.

On or after May 15, 2021, we may redeem for cash all or part of the 2024 Notes if the last reported sale price (as defined in the 2024 Indenture) of our common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending on, and including, the trading day immediately before the date which we provide notice of redemption.

The redemption price will equal the sum of (i) 100 % of the principal amount of the 2024 Notes being redeemed, plus (ii) accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date.

No sinking fund is provided for the 2024 Notes.

If we undergo a fundamental change, as defined in the 2024 Indenture, subject to certain conditions, holders of the 2024 Notes may require us to repurchase for cash all or part of their 2024 Notes at a repurchase price equal to 100 % of the principal amount of the 2024 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

1 unchanged sentence

The 2024 Notes are our general unsecured obligations that rank senior in right of payment to all of our indebtedness that is expressly subordinated in right of payment to the 2024 Notes, and equal in right of payment to our unsecured indebtedness.

We are required to separately account for the liability and equity components of the 2024 Notes, as they may be settled entirely or partially in cash upon conversion in a manner that reflects our economic interest cost.

While the 2024 Notes were classified as a long-term liability as of December 31, 2021, the future convertibility and associated balance sheet classification will be monitored at each quarterly reporting date and analyzed dependent upon market prices of our common stock during the prescribed measurement periods.

In the event that we have the election to redeem the 2024 Notes or the holders of the 2024 Notes have the election to convert the 2024 Notes at any time during the prescribed measurement period, the 2024 Notes would then be considered a current obligation and classified as such.

We are required to separately account for the liability and equity components of the 2024 Notes.

The liability component of the instrument was valued in a manner that reflects the market interest rate for a similar nonconvertible instrument at the date of issuance.

The initial carrying value of the liability component of $ 368.3 million was calculated using a 7.5 % assumed borrowing rate.

The equity component of $ 149.2 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 2024 Notes and was recorded in additional paid-in capital on the consolidated balance sheet at the issuance date.

That equity component is treated as a discount on the liability component of the 2024 Notes, which is amortized over the seven-year term of the 2024 Notes using the effective interest rate method.

The equity component of $ 149.2 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 2024 Notes and recorded in additional paid-in capital on the consolidated balance sheet on the issuance date.

The equity component is treated as a discount on the liability component of the 2024 Notes, which is currently being amortized over the 7-year term of the 2024 Notes using the effective interest rate method.

The equity component is not re-measured as long as it continues to meet the conditions for equity classification.

At December 31, 2020, the remaining period over which the discount on the liability component will be amortized was approximately 3.4 years.

As of December 31, 2021, the remaining period over which the discount on the liability component will be amortized was approximately 2.4 years.

We plan to adopt ASU 2020-06 on January 1, 2022 using the modified retrospective transition method.

Among other changes, ASU 2020-06 removes the separation models for convertible instruments with cash or beneficial conversion features.

Refer to Note 1 to the consolidated financial statements for more information.

We allocated the total transaction costs of approximately $ 14.7 million related to the issuance of the 2024 Notes to the liability and equity components of the 2024 Notes based on their relative values.

Transaction costs attributable to the liability component are amortized to interest expense over the seven-year term of the 2024 Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity.

Transaction costs attributable to the liability component are amortized to interest expense over the 7-year term of the 2024 Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity.

The 2024 Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by us.

The 2024 Indenture contains customary events of default with respect to the 2024 Notes, including that upon certain events of default, 100 % of the principal and accrued and unpaid interest on the 2024 Notes will automatically become due and payable.

We accounted for the partial repurchase of the 2024 Notes as a debt extinguishment.

As a result, we attributed $ 130.7 million of the aggregate repurchase price to the liability component based on the fair value of the liability component immediately before extinguishment.

The carrying amount of the liability of $ 112.4 million at settlement was recognized as a reduction to convertible senior notes and resulted in an $ 18.4 million loss on extinguishment.

The 2024 Notes, net of discounts and deferred financing costs, consisted of the following:

4 unchanged sentences

Net carrying amount $ 335.1 $ 317.9

The 2024 Notes were recorded at the estimated value of a similar non-convertible instrument on the date of issuance and accretes to the face value of the 2024 Notes over their seven-year term.

The fair value of the 2024 Notes, which was estimated utilizing market quotations from an over-the-counter trading market (Level 2), was $ 514.3 million and $ 596.8 million at December 31, 2020 and 2019, respectively.

The 2024 Notes were recorded at the estimated value of a similar non-convertible instrument on the date of issuance and accretes to the face value of the 2024 Notes over their 7-year term.

The fair value of the 2024 Notes, which was estimated utilizing market quotations from an over-the-counter trading market (Level 2), was $ 464.7 million as of December 31, 2021 and $ 514.3 million as of December 31, 2020.

Other Balance Sheet Details

Inventories consisted of the following:

Inventory consisted of the following:

(in millions) 2021 2020

2 unchanged sentences

Finished goods 15.7 9.0

Total inventories $ 28.0 $ 17.3

Total inventory $ 30.5 $ 28.0

Property and equipment, net, consisted of the following:

11 unchanged sentences

Accrued development costs 32.4 32.9

Accrued Branded Prescription Drug Fee 23.6 4.9

Current branded prescription drug fee 28.6 23.6

Accounts payable and other accrued liabilities 51.5 39.4

5 unchanged sentences

Total cash, cash equivalents and restricted cash $ 344.0 $ 190.3

Net Income Per Share

Net income per share was calculated as follows:

Earnings Per Share

Earnings per share were calculated as follows:

Year Ended December 31,

8 unchanged sentences

Diluted 97.9 97.8 95.7

Net income per share:

Earnings per share:

Basic $ 0.95 $ 4.38 $ 0.40

Diluted $ 0.92 $ 4.16 $ 0.39

Shares which have been excluded from diluted per share amounts because their effect would have been anti-dilutive were 2.5 million, 2.1 million and 0.9 million for 2020, 2019 and 2018, respectively.

Shares which have been excluded from diluted per share amounts because their effect would have been anti-dilutive were 4.1 million for 2021, 2.5 million for 2020 and 2.1 million for 2019.

Share-Based Compensation

4 unchanged sentences

In May 2018, we adopted the 2018 Employee Stock Purchase Plan, or ESPP, pursuant to which 0.3 million shares of common stock are authorized for issuance.

At December 31, 2020, 0.2 million shares of common stock remain available for future grant under the 2018 ESPP.

As of December 31, 2021, 0.1 million shares of common stock remain available for future grant under the 2018 ESPP.

In May 2020, we adopted the 2020 Equity Incentive Plan, or the 2020 Plan.

1 unchanged sentence

The 2011 Plan was merged into the 2020 Plan and, as a result, all remaining shares in the 2011 Plan were transferred into the 2020 Plan.

At December 31, 2020, 8.2 million shares of common stock remain available for future grant under the 2020 Plan.

As of December 31, 2021, 5.4 million shares of common stock remain available for future grant under the 2020 Plan.

Share-Based Compensation Expense.

13 unchanged sentences

Total share-based compensation expense $ 134.2 $ 100.0 $ 75.3

At December 31, 2020, unrecognized share-based compensation expense by award-type and the weighted-average period over which such expense is expected to be recognized, as applicable, were as follows:

As of December 31, 2021, unrecognized share-based compensation expense by award-type and the weighted-average period over which such expense is expected to be recognized, as applicable, were as follows:

(dollars in millions) Unrecognized Expense Weighted-Average Recognition Period

2 unchanged sentences

Stock Options.

Typically, stock options have a ten-year term and vest over a three to four-year period.

Typically, stock options have a 10-year term and vest over a 3 to 4-year period.

The exercise price of stock options granted is equal to the closing price of our common stock on the date of grant.

1 unchanged sentence

The Black-Scholes option-pricing model incorporates various and highly sensitive assumptions including expected volatility, term and interest rates.

The weighted-average grant-date fair values of stock options granted were $ 45.67 , $ 41.74 and $ 43.42 for 2020, 2019 and 2018, respectively.

The weighted-average grant-date fair values of stock options granted were $ 45.02 for 2021, $ 45.67 for 2020 and $ 41.74 for 2019.

The fair value of each stock option granted was estimated on the date of grant using the Black-Scholes option-pricing valuation model with the following weighted-average assumptions:

19 unchanged sentences

Canceled ( 0.2 ) $ 103.30

Outstanding at December 31, 2020 6.8 $ 62.98 6.4 years $ 235.4

Exercisable at December 31, 2020 4.7 $ 49.80 5.5 years $ 218.2

The total intrinsic value of stock options exercised during 2020, 2019 and 2018 was $ 40.2 million, $ 64.3 million and $ 117.0 million, respectively.

Cash received from stock option exercises during 2020, 2019 and 2018 was $ 23.5 million, $ 27.3 million and $ 29.5 million, respectively.

Outstanding at December 31, 2021

7.7 $ 76.38 6.5 years $ 136.4

Exercisable at December 31, 2021

5.2 $ 63.53 5.5 years $ 134.7

The total intrinsic value of stock options exercised was $ 58.0 million for 2021, $ 40.2 million for 2020 and $ 64.3 million for 2019.

Cash received from stock option exercises was $ 20.7 million for 2021, $ 23.5 million for 2020 and $ 27.3 million for 2019.

Restricted Stock Units.

Typically, RSUs vest over a four-year period.

RSUs typically vest over a 4-year period.

The fair value of RSUs is based on the closing sale price of our common stock on the date of issuance.

5 unchanged sentences

Unvested at December 31, 2020

Granted 0.7 $ 102.92

Released ( 0.6 ) $ 82.22

Canceled ( 0.1 ) $ 101.71

Unvested at December 31, 2020 1.5 $ 89.60 1.3 years $ 147.5

The total fair value of RSUs that vested during 2020, 2019 and 2018 was $ 49.7 million, $ 36.1 million and $ 35.5 million, respectively.

Unvested at December 31, 2021

2.0 $ 99.96 1.3 years $ 174.1

_________________________

(1) In August 2021, our board of directors approved an equity grant of approximately 0.5 million RSUs, which will vest over a 2-year period, to our full-time employees other than our executive officers.

The total fair value of RSUs that vested was $ 64.3 million for 2021, $ 49.7 million for 2020 and $ 36.1 million for 2019.

Performance-Based Restricted Stock Units.

PRSUs vest based on the achievement of certain predefined Company-specific performance criteria and expire four to five years from the grant date.

PRSUs vest based on the achievement of certain predefined Company-specific performance criteria and expire 3 to 4 years from the grant date.

The fair value of PRSUs is estimated based on the closing sale price of our common stock on the date of grant.

6 unchanged sentences

Granted 0.2 $ 114.68

Released ( 0.1 ) $ 82.04

Canceled ( 0.2 ) $ 45.67

Unvested at December 31, 2020 0.2 $ 102.90 2.2 years $ 15.8

At December 31, 2020, unrecognized share-based compensation expense for PRSUs was $ 17.0 million.

The total fair value of PRSUs that vested during 2020 was $ 13.5 million.

Unvested at December 31, 2021

0.4 $ 109.31 1.2 years $ 30.9

As of December 31, 2021, unrecognized share-based compensation expense for PRSUs was $ 32.0 million.

The total fair value of PRSUs that vested was $ 13.5 million for 2020.

No PRSUs vested during 2021 or 2019.

2 unchanged sentences

The discounted purchase price is equal to the lower of 85 % of (i) the market value per share of the common stock on the first day of the offering period or (ii) the market value per share of common stock on the purchase date.

Components of income tax expense for continuing operations were as follows:

Components of income tax expense (benefit) for continuing operations were as follows:

Year Ended December 31,

6 unchanged sentences

Total deferred taxes 5.5 ( 310.7 ) —

(Benefit from) provision for income taxes $ ( 300.6 ) $ 9.5 $ 0.7

The provision for income taxes on earnings subject to income taxes differs from the statutory federal rate due to the following:

Provision for (benefit from) income taxes $ 11.8 $ ( 300.6 ) $ 9.5

The provision for (benefit from) income taxes on earnings subject to income taxes differs from the statutory federal rate due to the following:

Year Ended December 31,

(in millions) 2021 2020 2019

Federal income taxes at 21 % for 2020, 2019, 2018

Federal income taxes at 21 %

$ 21.3 $ 22.4 $ 9.8

9 unchanged sentences

Other ( 0.2 ) ( 0.1 ) 0.3

(Benefit from) provision for income taxes $ ( 300.6 ) $ 9.5 $ 0.7

Provision for (benefit from) income taxes $ 11.8 $ ( 300.6 ) $ 9.5

Significant components of our deferred tax assets as of December 31, 2021 and 2020 are listed below.

17 unchanged sentences

Net deferred tax assets $ 315.1 $ 319.4

At December 31, 2020, our deferred tax assets were primarily the result of federal net operating loss carry forwards, capitalized research costs, acquired intangible assets and tax credit carryforwards.

At December 31, 2020 and 2019, we recorded a valuation allowance of $ 49.8 million and $ 346.0 million, respectively, against our gross deferred tax asset balance.

At each reporting date, management considers new evidence, both positive and negative, that could affect its assessment of the future realizability of our deferred tax assets.

At December 31, 2020, in part because we achieved three years of cumulative pretax income, management determined there is sufficient positive evidence to conclude that it is more likely than not deferred tax assets of $ 319.4 million are realizable.

Accordingly, we recorded a net valuation release of $ 296.3 million on the basis of management’s assessment.

The remaining valuation allowance of $ 49.8 million consists primarily of state net operating loss and credit carryforwards for which management cannot conclude it is more likely than not to be realized.

The release of the valuation allowance is reported under continuing operations as a benefit to income tax expense.

At December 31, 2020, we had federal and state income tax net operating loss carryforwards of $ 518.2 million and $ 340.8 million, respectively.

As of December 31, 2021, our deferred tax assets were primarily the result of federal net operating loss carry forwards, capitalized research costs, acquired intangible assets and tax credit carryforwards.

As of December 31, 2021 and 2020, we recorded a valuation allowance of $ 54.8 million and $ 49.8 million, respectively, against our gross deferred tax asset balance.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its assessment of the future realizability of our deferred tax assets.

As of December 31, 2021, management determined there was sufficient positive evidence to conclude that it is more likely than not deferred tax assets of $ 315.1 million are realizable.

The recorded valuation allowance of $ 54.8 million consisted primarily of state net operating loss and credit carryforwards for which management could not conclude it is more likely than not to be realized.

As of December 31, 2021, we had federal and state income tax net operating loss carryforwards of $ 421.1 million and $ 329.9 million, respectively.

The federal net operating losses will begin to expire in 2028, unless previously utilized.

California net operating losses will begin to expire in 2031 unless previously utilized and the net operating losses related to other states will begin to expire in 2026.

In addition, we have federal and California R&D tax credit carryforwards of $ 92.1 million and $ 56.4 million, respectively.

In addition, we had federal and state R&D tax credit carryforwards of $ 107.3 million and $ 66.3 million, respectively.

A portion of the federal R&D tax credit carryforwards expired in 2021.

The remaining federal R&D tax credits will continue to expire beginning in 2022, unless previously utilized.

The California R&D tax credits carry forward indefinitely.

The California R&D tax credits carry forward indefinitely and the R&D tax credits related to other states will begin to expire in 2022, unless previously utilized.

Additionally, the future utilization of our net operating loss and R&D tax credit carryforwards to offset future taxable income may be subject to an annual limitation, pursuant to Internal Revenue Code Sections 382 and 383, as a result of ownership changes that could occur in the future.

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Interest and penalties related to income tax matters were not material for 2021, 2020 or 2019.

We are subject to taxation in the U.S.

and various state jurisdictions.

Our tax years for 2001 (federal) and 2008 (California) and forward are subject to examination by federal and state tax authorities due to the carryforward of unutilized net operating losses and R&D tax credits.

We are subject to taxation in the United States and various state jurisdictions.

Our tax years for 2001 for federal and since inception for California and forward are subject to examination by federal and state tax authorities due to the carryforward of unutilized net operating losses and R&D tax credits.

A summary of activity related to unrecognized tax benefits follows:

2 unchanged sentences

Balance at January 1 $ 60.8 $ 63.9 $ 54.8

(Decrease) increase related to prior year tax positions ( 5.7 ) 0.3 6.1

Increase (decrease) related to prior year tax positions 0.6 ( 5.7 ) 0.3

Increase related to current year tax positions 4.9 3.9 9.5

3 unchanged sentences

We excluded those deferred tax assets that are not more-likely-than-not to be sustained under the technical merits of the tax position.

Such unrecognized tax benefits total $ 3.9 million for current year tax positions, as reflected in the table above.

At December 31, 2020, we had $ 53.9 million of unrecognized tax benefits that, if recognized and realized, would affect the effective tax rate, subject to the valuation allowance.

Such unrecognized tax benefits totaled $ 4.9 million for current year tax positions, as reflected in the table above.

As of December 31, 2021, we had $ 57.4 million of unrecognized tax benefits that, if recognized and realized, would affect the effective tax rate, subject to the valuation allowance.

We do not expect a significant change in our unrecognized tax benefits in the next twelve months.

We have operating leases for our office and laboratory facilities, including our corporate headquarters, with terms that expire from 2025 through 2031.

We have two options to extend the term of the operating lease for our corporate headquarters for a period of ten years each.

However, as we were not reasonably certain to exercise either of those options at lease commencement, neither option was recognized as part of the associated operating lease right-of-use, or ROU, asset or liability.

In connection with our operating leases, in lieu of cash security deposits, Wells Fargo Bank, N.A., issued letters of credit on our behalf, which are secured by deposits totaling $ 3.2 million.

Our operating lease cost was $ 10.1 million for 2020 and $ 8.1 million for 2019.

Cash paid for amounts included in the measurement of lease liabilities was $ 8.6 million for 2020 and $ 7.7 million for 2019.

Our operating leases had a weighted-average remaining lease term of approximately 10.3 years and 11.2 years at December 31, 2020 and 2019, respectively, and a weighted-average discount rate of 5.6 % and 5.8 % at December 31, 2020 and 2019, respectively.

Our corporate headquarters, for which we have operating leases with terms that expire beginning 2024 through 2031, are located in San Diego, California, and consist of office space and research and development laboratories.

Certain of these lease agreements contain clauses for renewal at our option.

As we were not reasonably certain to exercise any such options at commencement of these leases, no such options were recognized as part of the associated lease liabilities or right-of-use assets.

The following tables present supplemental operating lease information.

Year Ended December 31,

(in millions) 2021 2020 2019

Operating lease cost $ 15.3 $ 10.1 $ 8.1

Cash paid for amounts included in the measurement of operating lease liabilities $ 12.6 $ 8.6 $ 7.7

(in millions, except weighted average data) 2021 2020

Weighted average remaining lease term

8.8 years 10.3 years

Weighted average discount rate 5.2 % 5.6 %

Restricted cash related to letters of credit issued in lieu of cash security deposits $ 3.2 $ 3.2

Approximate future minimum lease payments under operating leases were as follows:

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Total operating lease liabilities 121.8

Less current operating lease liabilities 10.3

Less current operating lease liabilities included in other current liabilities 16.5

Noncurrent operating lease liabilities $ 105.3

Amounts presented in the table above exclude $ 19.7 million of non-cancelable future minimum lease payments for operating leases that have not yet commenced.

Current operating lease liabilities are included in other current liabilities on the consolidated balance sheets.

Retirement Plan

1 unchanged sentence

The 401(k) Plan is for the benefit of all qualifying employees and permits voluntary contributions by employees up to 60 % of base salary limited by the IRS-imposed maximum.

Employer contributions were $ 6.7 million, $ 4.9 million, and $ 1.8 million for 2020, 2019 and 2018, respectively.

Selected Quarterly Financial Data (Unaudited)

A summary of our quarterly results follows:

(in millions, except per share data) First

Quarter Second

Quarter Third

Quarter Fourth

Year Ended December 31, 2020:

Total revenues $ 237.1 $ 302.4 $ 258.5 $ 247.9

Total operating expenses (1)

$ 178.2 $ 225.8 $ 302.8 $ 176.1

Net income (loss) (1)

$ 37.4 $ 79.6 $ ( 57.6 ) $ 347.9

Net income (loss) per share, basic (1)

$ 0.40 $ 0.86 $ ( 0.62 ) $ 3.72

Net income (loss) per share, diluted (1)

$ 0.39 $ 0.81 $ ( 0.62 ) $ 3.58

Weighted average common shares outstanding, basic 92.6 93.0 93.3 93.5

Weighted average common shares outstanding, diluted 97.0 98.2 93.3 97.2

Year Ended December 31, 2019:

Total revenues $ 138.4 $ 183.5 $ 222.1 $ 244.1

Total operating expenses (2)

$ 239.4 $ 149.1 $ 132.0 $ 195.3

Net (loss) income (2)

$ ( 102.1 ) $ 51.3 $ 53.8 $ 34.0

Net (loss) income per share, basic (2)

$ ( 1.12 ) $ 0.56 $ 0.59 $ 0.37

Net (loss) income per share, diluted (2)

$ ( 1.12 ) $ 0.54 $ 0.56 $ 0.35

Weighted average common shares outstanding, basic 91.1 91.4 91.9 92.2

Weighted average common shares outstanding, diluted 91.1 94.8 96.1 97.2

(1) In connection with the payment of the upfront fee pursuant to our collaboration and license agreement with Idorsia, we recorded a charge of $ 46.0 million, accounted for as IPR&D, in the second quarter of 2020.

In connection with the payment of the upfront fee pursuant to our collaboration with Takeda, we recorded a charge of $ 118.5 million, accounted for as IPR&D, in the third quarter of 2020.

(2) In connection with the payment of the upfront fee pursuant to our collaboration and license agreement with Voyager, we recorded a charge of $ 113.1 million, accounted for as IPR&D, in the first quarter of 2019.

In the second quarter of 2019, we entered into an amendment to the collaboration and license agreement with Voyager, pursuant to which we paid Voyager $ 5.0 million upfront, accounted for as IPR&D, to obtain outside the U.S.

rights to the Friedreich’s ataxia program.

In connection with the payment of the upfront fee pursuant to our collaboration with Xenon, we recorded a charge of $ 36.2 million, accounted for as IPR&D, in the fourth quarter of 2019.

Employer contributions were $ 8.1 million for 2021, $ 6.7 million for 2020 and $ 4.9 million for 2019.

Subsequent Events

On February 8, 2022, we entered into a lease agreement for a four-building campus facility to be constructed in San Diego, California, pursuant to which we also secured a 6-year option for the construction of a fifth building and an option to purchase the entire campus facility, which will consist of office space and research and development laboratories, in the future.

Upon completion of construction, we expect to utilize the campus facility as our new corporate headquarters.

Under the terms of the lease, on a building-by-building basis, base rent will be subject to a 10-month rent abatement period following the respective lease commencement date, which dates will be determined in the future based upon achievement of substantial completion of construction with respect to each such building in the condition suitable for the installation of our furniture, fixtures and equipment, and on which date we will record a lease liability, corresponding right-of-use asset, and begin lease expense recognition with respect to each such building.

After the rent abatement period, monthly base rent will be $ 6 per square foot, subject to annual escalations of 3 % during the initial 13.6-year lease term, which term we have the option to renew for two additional terms of 5 years each.

Changes and Disagreements with Accountants on Accounting and Financial Disclosure

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data