What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-04 compared with 2021-11-01 · 123 added, 133 removed, 64 unchanged (80% of the section changed)

1 unchanged sentence

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations section contains forward-looking statements, which involve risks and uncertainties.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A under the caption “Risk Factors.” The interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are contained in our Annual Report on Form 10-K for the year ended December 31, 2020 and our Quarterly Report on Form 10-Q for the nine months ended September 30, 2021.

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

Our diverse portfolio includes United States Food and Drug Administration, or FDA, approved treatments for tardive dyskinesia, Parkinson’s disease, endometriosis*, uterine fibroids* and clinical programs in multiple therapeutic areas.

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

(*in collaboration with AbbVie Inc.)

We launched INGREZZA ® (valbenazine) in the United States, or US, in May 2017 as the first FDA-approved drug for the treatment of tardive dyskinesia.

In September 2020, we launched ONGENTYS ® (opicapone) for Parkinson's disease in the US, leveraging our existing INGREZZA commercial infrastructure.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A under the caption “Risk Factors.” The interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are contained in our Annual Report on Form 10-K for the year ended December 31, 2021.

At Neurocrine Biosciences, our purpose is simple:

to relieve suffering for people with great needs, but few options.

For three decades, we have applied our unique insight into neuroscience to advance medicines for neurological, endocrine and psychiatric disorders.

Our efforts have resulted in United States Food and Drug Administration, or FDA, approved treatments for tardive dyskinesia, Parkinson’s disease, endometriosis* and uterine fibroids* and a diversified portfolio of investigational therapies with the potential to address unmet clinical needs of patients worldwide living with neurological, endocrine and psychiatric disorders.

(*in collaboration with AbbVie Inc., or AbbVie)

We launched INGREZZA ® (valbenazine) in the United States in May 2017 as the first FDA-approved drug for the treatment of tardive dyskinesia and launched ONGENTYS ® (opicapone) 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.

INGREZZA net product sales represent the significant majority of our total net product sales.

Our partner AbbVie Inc., or AbbVie, launched ORILISSA ® (elagolix tablets) in the US and Canada in August and November 2018, respectively.

In June 2020, AbbVie launched ORIAHNN ® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) in the US.

Our partner AbbVie launched ORILISSA ® (elagolix tablets) in the United States in August 2018 and launched ORIAHNN ® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) in the United States in June 2020.

We receive royalties at tiered percentage rates on AbbVie net sales of elagolix.

Pipeline Updates:

NBI-921352 (XEN901) :

In September 2021, we received approval of a clinical trial application, or CTA, submitted in the European Union for NBI-921352 for the treatment of focal-onset seizures in adults.

In connection with the approval of the CTA for NBI-921352, we paid Xenon a regulatory milestone of $10.0 million, of which we expensed $4.5 million as research and development in the third quarter of 2021, and purchased 0.3 million shares of Xenon’s common stock (at $19.9755 per share) for $5.5 million.

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.

Further, we recorded a charge of $0.9 million to research and development to reflect the premium paid on our purchase of the shares on the measurement date.

The global COVID-19 pandemic has dramatically changed the ways in which we live and interact with one another.

While we adapt to this new shared reality, our mission remains unchanged:

to discover and develop life-changing treatments for people with serious, challenging and under-addressed disorders.

Although the initial impact of the COVID-19 pandemic has subsided, we are uncertain how more transmissible variants may impact our business.

Business Highlights

In March 2022, Mitsubishi Pharma Tanabe Corporation, or MTPC, received Japanese Ministry of Health, Labour and Welfare approval for DYSVAL ® (valbenazine) for the treatment of tardive dyskinesia in Japan.

Under the terms of our license agreement with MTPC, we are entitled to receive a milestone payment of $20.0 million upon MTPC's first commercial sale of DYSVAL in Japan, which is expected to occur in the second quarter of 2022.

Impacts of Macro-Economic Factors on Our Business

COVID-19 Global Pandemic.

We continue to monitor the impact of the COVID-19 pandemic on our business, including our clinical trials, third-party manufacturers, suppliers and service providers.

We remain committed to (1) prioritizing the safety, health and well-being of patients and their caregivers, healthcare providers, and our employees;

(2) ensuring patients with tardive dyskinesia are well supported and have continued uninterrupted access to INGREZZA, for which we have not experienced and currently do not expect any supply disruption;

and (3) advancing ongoing clinical studies.

Most of our field-based employees have resumed in-person interactions, and certain of our office-based employees began to return to the office, in each case on a voluntary basis and in accordance with location-specific guidance.

We are planning for a larger-scale return of our workforce to our offices before the end of 2021 and have developed flexible work arrangement guidelines to help balance business needs, employee health, well-being and safety and the evolving work environment.

Most hospitals, community mental health facilities, physicians’ offices, pharmacies, and other healthcare facilities have relaxed their policies that limited access of patients and our employees to such facilities and limited the ability of patients, pharmacies, and prescribers to interact with each other.

However, we anticipate these policies may change from time to time as communities grapple with local or regional outbreaks.

The ultimate impact of the COVID-19 pandemic, including any

lasting effects on our revenue and the way we conduct our business, is highly uncertain and subject to continued change.

We recognize that this pandemic will continue to present unique challenges for us throughout 2021, and potentially into 2022.

Results of Operations for the Three and Nine Months Ended September 30, 2021 and 2020

and (3) advancing our clinical studies.

The extent to which COVID-19 may impact our financial condition and results of operations remains uncertain and is dependent on numerous evolving factors, including the measures being taken by authorities to mitigate against the spread of COVID-19, the emergence of new variants and the availability and successful administration of effective vaccines.

For more information on the risks and uncertainties associated with the evolving effects of COVID-19 on our business, our ability to generate sales of and revenues from our approved products and our clinical development and regulatory efforts, refer to Part II Item 1A.

Risk Factors.

Russia/Ukraine Conflict.

In February 2022, Russia commenced a military invasion of Ukraine.

The ongoing geopolitical turmoil and continuing military action in the region, together with widening sanctions imposed on Russia, have caused us to suspend all planned clinical trial activities for valbenazine and NBI-1065844 in Russia and Ukraine.

The duration and impact of the conflict between Russia and Ukraine is highly unpredictable and the extent to which the conflict may impact certain of our clinical development and regulatory efforts remains uncertain.

For more information on the risks and uncertainties associated with the evolving effects of the conflict between Russia and Ukraine on our business and certain of our clinical development and regulatory efforts, refer to Part II Item 1A.

Risk Factors.

Results of Operations for the Three Months Ended March 31, 2022 and 2021

Net Product Sales by Sales Product.

Three Months Ended

September 30, Nine Months Ended

September 30,

( in millions)

2021 2020 2021 2020

INGREZZA net product sales $ 302.6 $ 229.6

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Total net product sales $ 305.0 $ 231.0

• Compared with the comparable period last year, the increase in INGREZZA net product sales for the three months ended September 30, 2021 was primarily driven by record total prescriptions reflecting higher customer demand and increased commercial activities.

Compared with the comparable period last year, INGREZZA net product sales for the three months ended March 31, 2022 primarily reflected increased new patient starts.

Collaboration Revenues by Category.

Three Months Ended

September 30, Nine Months Ended

September 30,

( in millions)

2021 2020 2021 2020

Elagolix royalty revenue $ 4.2 $ 4.5

Milestone revenue — — 15.0 30.0

Other collaboration revenues

1.3 0.5 3.6 1.8

Non-cash collaboration revenue and other

Total collaboration revenues $ 5.6 $ 5.6

• Collaboration revenues for the nine months ended September 30, 2021 primarily reflect the achievement of a $15.0 million milestone associated with MTPC's MAA submission for valbenazine for the treatment of tardive dyskinesia in Japan.

• Collaboration revenues for the nine months ended September 30, 2020 primarily reflect the achievement of a $30.0 million milestone associated with AbbVie’s receipt of FDA approval for ORIAHNN for uterine fibroids in May 2020.

Collaboration revenues for the three months ended March 31, 2022 and 2021 primarily reflected royalties earned on AbbVie net sales of ORILISSA and ORIAHNN.

Operating Expenses

Cost of Sales.

Cost of Revenues.

Three Months Ended

September 30, Nine Months Ended

September 30,

( in millions)

2021 2020 2021 2020

Cost of sales $ 4.2 $ 2.7 $ 10.2 $ 7.2

Research and Development, or R&D.

We support our drug discovery and development efforts through the commitment of significant resources to discovery, R&D programs and business development opportunities.

Cost of revenues $ 4.6 $ 2.9

Compared with the comparable period last year, cost of revenues for the three months ended March 31, 2022 reflected increased INGREZZA net product sales driven by increased new patient starts.

Research and Development by Category.

We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs, and business development opportunities.

Costs are reflected in the applicable development stage based upon the program status when incurred.

Therefore, the same program could be reflected in different development stages in the same reporting period.

For several of our programs, the R&D activities are part of our collaborative and other relationships.

R&D expense categories consist of the following:

• Late Stage.

Consist of costs incurred for product candidates in Phase II registrational studies and all subsequent activities.

• Early Stage.

Consist of costs incurred for product candidates after the approval of an investigational new drug application by the applicable regulatory agency through Phase II non-registrational studies.

• Research and Discovery.

Consist of costs incurred prior to the approval of an investigational new drug application by the applicable regulatory agency.

• Milestones.

Consist of costs incurred for development and/or regulatory milestones in connection with our collaborative arrangements.

• P ayroll and Benefits.

Consist of costs incurred for salaries and wages, payroll taxes, benefits and share-based compensation associated with employees involved in R&D activities.

Share-based compensation may fluctuate from period to period based on factors that are not within our control, such as our stock price on the dates share-based grants are issued.

• Facilities and Other.

Consist of indirect costs incurred for the benefit of multiple programs, including depreciation, information technology, and facility-based expenses, such as rent expense.

The following table presents R&D expense by category.

For several of our programs, the research and development activities are part of our collaborative arrangements.

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021

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Research and discovery 15.9 9.4

Milestones 5.4 — 5.4 20.0

Milestone 7.3 —

Payroll and benefits 37.3 35.5

Facilities and other 10.7 9.8

Total R&D expense $ 92.7 $ 69.1 $ 240.7 $ 208.3

• Late Stage.

Compared with the comparable periods last year, late-stage R&D expense for the three and nine months ended September 30, 2021 primarily reflects decreased investment associated with our termination of the NBIb-1817 program for Parkinson’s disease in February 2021, offset by continued investment in our Phase III programs in congenital adrenal hyperplasia for adults and pediatric patients and our Phase III Huntington Disease trial.

Total research and development $ 102.2 $ 73.2

Consists of expenses incurred for product candidates in Phase II registrational studies and all subsequent activities.

Compared with the comparable period last year, late-stage expenses for the three months ended March 31, 2022 primarily reflected increased investment in our Phase III programs for valbenazine in schizophrenia and dyskinetic cerebral palsy, partially offset by lower spend related to the completion of the Phase III KINECT-HD study in the first quarter of 2022.

Early Stage .

Compared with the comparable periods last year, early-stage R&D expense for the three and nine months ended September 30, 2021 primarily reflects continued enrollment of our Phase II programs in epileptic encephalopathy with continuous spike and wave during sleep, or CSWS, and essential tremor and our initiation of Phase II programs in focal-onset seizure in adults and SCN8A developmental epileptic encephalopathy, or SCN8A-DEE.

• Milestones.

R&D expense for the three and nine months ended September 30, 2021 reflects $5.4 million associated with our receipt of approval for the NBI-921352 CTA in September 2021.

For the nine months ended September 30, 2020, R&D expense reflects $20.0 million associated with our receipt of FDA approval for ONGENTYS for Parkinson’s disease in April 2020.

Consists of expenses incurred for product candidates after the approval of an investigational new drug application by the applicable regulatory agency through Phase II non-registrational studies.

Compared with the comparable period last year, early-stage expenses for the three months ended March 31, 2022 primarily reflected increased investment in support of our advancing Phase II epilepsy and neuropsychiatry programs.

Research and Discovery.

Consists of expenses incurred prior to the approval of an investigational new drug application by the applicable regulatory agency.

Compared with the comparable period last year, research and discovery expenses for the three months ended March 31, 2022 primarily reflected increased investment in our preclinical development programs.

Consists of expenses incurred for development and regulatory milestones in connection with our collaborative arrangements.

Compared with the comparable period last year, milestone expenses for three months ended March 31, 2022 reflected $7.3 million of expense recognized in connection with the FDA's acceptance of our amended KAYAK TM study protocol in January 2022.

Payroll and Benefits.

Compared with the comparable periods last year, payroll and benefits R&D expense for the three and nine months ended September 30, 2021 reflects higher personnel expenses primarily driven by increased headcount.

Payroll and benefits R&D expense for the nine months ended September 30, 2021 also reflects a non-cash share-based compensation charge of $6.4 million related to the modification of certain share-based awards.

Acquired In-Process Research and Development, or IPR&D.

Three Months Ended

September 30, Nine Months Ended

September 30,

( in millions)

2021 2020 2021 2020

IPR&D expense $ — $ 118.5 $ 5.0 $ 164.5

• IPR&D expense for the three and nine months ended September 30, 2020 reflects $118.5 million of upfront fees paid pursuant to our exclusive license agreement with Takeda Pharmaceutical Company Limited, or Takeda.

IPR&D expense for the nine months ended September 30, 2020 also reflects $46.0 million of upfront fees paid pursuant to our collaboration and license agreement with Idorsia.

Selling, General and Administrative, or SG&A.

Consists of costs incurred for salaries and wages, payroll taxes, benefits and stock-based compensation associated with employees involved in research and development activities.

Stock-based compensation may fluctuate from period to period based on factors that are not within our control, such as our stock price on the dates stock-based grants are issued.

Compared with the comparable period last year, payroll and benefits expenses for three months ended March 31, 2022 primarily reflected increased personnel expenses driven by higher headcount, partially offset by a non-cash stock-based compensation charge of $6.4 million in the comparable period last year related to the modification of certain share-based awards.

Selling, General and Administrative.

Three Months Ended

September 30, Nine Months Ended

September 30,

( in millions)

2021 2020 2021 2020

SG&A expense $ 154.6 $ 112.5 $ 426.8 $ 326.8

• Compared with the comparable periods last year, SG&A expense for the three and nine months ended September 30, 2021 primarily reflects increased investment to support our commercial initiatives, including the May 2021 launch of our INGREZZA direct-to-consumer advertising campaign, "TD Spotlight".

Other Expense, Net.

Sales, general and administrative $ 200.7 $ 129.0

Compared with the comparable period last year, sales, general and administrative expense for the three months ended March 31, 2022 primarily reflected increased investment in ongoing commercial initiatives, including our TD Spotlight-branded direct-to-consumer INGREZZA advertising campaign which launched in May 2021 and deployment of our expanded salesforce, and increased personnel expenses driven by higher headcount and increased non-cash stock-based compensation.

Other Income (Expense), Net.

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021

Interest expense $ (2.6) $ (6.4)

Unrealized loss on equity securities (8.2) (7.0) (7.5) (12.2)

Unrealized gain on equity securities 19.9 0.7

Investment income and other, net 1.0 1.4

Total other expense, net $ (14.0) $ (12.8) $ (23.6) $ (26.2)

• Compared to the comparable periods last year, other expense, net, for the three and nine months ended September 30, 2021 reflects periodic fluctuations in unrealized losses recognized to adjust our equity investments in Voyager and Xenon to fair value and decreased interest expense resulting from the November 2020 repurchase of $136.2 million aggregate principal amount of the 2.25% convertible senior notes due May 15, 2024, or the 2024 Notes, for an aggregate repurchase price of $186.9 million in cash.

Provision for Income Taxes.

Total other income (expense), net $ 18.3 $ (4.3)

Compared to the comparable period last year, other income, net, for the three months ended March 31, 2022 primarily reflected periodic fluctuations in the fair values of our equity security investments.

Provision for (Benefit from) Income Taxes.

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021

Provision for income taxes $ 8.0 $ 0.5 $ 18.3 $ 5.6

• The effective tax rate for the three and nine months ended September 30, 2021 was lower than federal and state statutory rates primarily due to excess tax benefits related to share-based compensation.

• On December 31, 2020, we released substantially all of our valuation allowance against our net operating losses and other deferred tax assets.

Beginning in the first quarter of 2021, we began recording a provision for income taxes using an effective tax rate approximating federal and state statutory rates.

Due to the ability to offset any pre-tax income against previously benefited federal net operating losses, no federal cash tax is expected in 2021.

Net Income (Loss) and Diluted Earnings (Loss) per Share.

Provision for (benefit from) income taxes $ 7.5 $ (4.9)

The provision for income taxes for the three months ended March 31, 2022 reflected an effective tax rate that was higher than the federal and statutory rates primarily due to excess tax expense related to stock-based compensation.

The benefit from income taxes for the comparable period last year reflected an effective tax rate that was lower than federal and statutory rates primarily due to excess tax benefits related to stock-based compensation.

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021

Net income (loss) $ 22.5 $ (57.6) $ 96.9 $ 59.4

Diluted earnings (loss) per share $ 0.23 $ (0.62) $ 0.99 $ 0.61

• Compared with the comparable periods last year, net income and diluted earnings per share for the three and nine months ended September 30, 2021 primarily reflect increased investment to support our commercial initiatives, including the May 2021 launch of our INGREZZA direct-to-consumer advertising campaign, "TD Spotlight", increased investment in our expanded clinical portfolio offset by prior year IPR&D costs.

Net income $ 13.9 $ 32.1

Diluted earnings per share $ 0.14 $ 0.33

Compared with the comparable period last year, net income for the three months ended March 31, 2022 primarily reflected increased INGREZZA net product sales driven by increased new patient starts, offset by increased investment in ongoing commercial initiatives, including our TD Spotlight-branded direct-to-consumer INGREZZA advertising campaign which launched in May 2021 and deployment of our expanded salesforce, and increased investment in support of our expanded and advancing clinical portfolio.

Liquidity and Capital Resources

Sources of Liquidity

We believe that our existing capital resources and anticipated revenues will be sufficient to satisfy our current and projected funding requirements for at least the next 12 months.

However, we cannot guarantee that our existing capital resources and anticipated revenues will be sufficient to conduct and complete all of our research and development programs or commercialization activities as planned.

We may seek to access the public or private equity markets whenever conditions are favorable or pursue opportunities to obtain additional debt financing in the future.

We may also seek additional funding through strategic alliances or other financing mechanisms.

However, we cannot provide assurance that adequate funding will be available on terms acceptable to us, if at all.

In addition, the disruption of global financial markets caused by the COVID-19 pandemic, if sustained or recurrent, could make it more difficult for us to access capital, which could in the future negatively affect our liquidity.

Information Regarding Our Financial Condition.

(in millions) March 31,

2022 December 31,

Total cash, cash equivalents and marketable securities

$ 1,205.9 $ 1,272.0

Working Capital:

Total current assets $ 1,018.2 $ 972.8

Less total current liabilities 253.5 245.8

Total working capital $ 764.7 $ 727.0

Information Regarding Our Cash Flows.

Nine Months Ended

September 30,

Three Months Ended

(in millions) 2022 2021

Net cash provided by operating activities $ 252.3 $ 134.0

Net cash (used in) provided by operating activities $ (40.5) $ 87.3

Net cash (used in) provided by investing activities (31.6) 63.1

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Change in cash, cash equivalents and restricted cash $ (66.0) $ 165.5

• Compared with the comparable period last year, net cash provided by operating activities for the nine months ended September 30, 2021 primarily reflects increased INGREZZA net product sales and lower upfront payments associated with our collaborations with Idorsia and Takeda, partially offset by increased investment to support our commercial initiatives and advancing our expanded clinical portfolio.

• Periodic fluctuations in net cash (used in) provided by investing activities primarily reflect timing differences related to purchases, sales, and maturities of debt security investments and changes in our portfolio-mix.

Net cash used in investment

activities for the nine months ended September 30, 2021 also reflects a $5.5 million equity investment in Xenon associated with our receipt of approval for the NBI-921352 CTA in September 2021.

• Net cash provided by financing activities primarily reflects proceeds from issuances of our common stock for all periods presented.

Net Cash (Used in) Provided by Operating Activities.

Compared with the comparable period last year, net cash used in operating activities for the three months ended March 31, 2022 primarily reflected increased investment in ongoing commercial initiatives, including our TD Spotlight-branded direct-to-consumer INGREZZA advertising campaign which launched in May 2021 and deployment of our expanded salesforce, and increased investment in support of our expanded and advancing clinical portfolio.

In addition, we experienced an increase in accounts receivable due to extended customer payment terms attributed to the expansion of our distribution network at the end of 2021.

Net Cash (Used in) Provided by Investing Activities.

Periodic fluctuations in net cash (used in) provided by investing activities primarily reflected timing differences related to purchases, sales and maturities of debt security investments and changes in our portfolio-mix.

Net cash used in investment activities for the three months ended March 31, 2022 also reflected a $7.7 million equity investment in Xenon in connection with the FDA's acceptance of our amended KAYAK TM study protocol in January 2022.

Net Cash Provided by Financing Activities.

Net cash provided by financing activities primarily reflected proceeds from issuances of our common stock for all periods presented.

Material Cash Requirements

In the pharmaceutical industry, it can take a significant amount of time and capital resources to successfully complete all stages of research and development and commercialize a product candidate, which ultimate length of time and spend required cannot be accurately estimated as it varies substantially according to the type, complexity, novelty and intended use of a product candidate.

The funding necessary to execute our business strategies is subject to numerous uncertainties and we may be required to make substantial expenditures if unforeseen difficulties arise in certain areas of our business.

In particular, our future capital requirements will depend on many factors, including:

• the commercial success of INGREZZA, ONGENTYS, ORILISSA and/or ORIAHNN;

• continued scientific progress in our research and clinical development programs;

• the magnitude and complexity of our research and development programs;

• progress with preclinical testing and clinical trials;

• the time and costs involved in obtaining regulatory approvals;

• the cost of commercialization activities and arrangements, including our advertising campaigns;

• the cost of manufacturing of our product candidates;

• the costs involved in filing and pursuing patent applications, enforcing patent claims, or engaging in interference proceedings or other patent litigation;

• competing technological and market developments;

• developments related to any future litigation;

• the impact of the COVID-19 pandemic on our business.

In addition to the foregoing factors, we have significant future capital requirements, including:

External Business Developments.

In addition to our independent efforts to develop and market products, we may enter into collaboration and license agreements or acquire businesses from time-to-time to enhance our drug development and commercial capabilities.

With respect to our existing collaboration and license agreements, we may be required to make potential future payments of up to $10.8 billion upon the achievement of certain event-based milestones.

Refer to Note 2 to the condensed consolidated financial statements for more information on our significant collaboration and license agreements.

Convertible Senior Notes.

In May 2017, we completed a private placement of $517.5 million in aggregate principal amount of the 2024 Notes.

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.

As of September 30, 2021, $381.2 million aggregate principal amount of the 2024 Notes remained outstanding.

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 (equal to $98.70 as of September 30, 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.

On May 2, 2017, we completed a private placement of $517.5 million in aggregate principal amount of 2.25% fixed-rated convertible senior notes due May 15, 2024, or the 2024 Notes.

At our election, we may redeem all or any portion of the 2024 Notes under certain circumstances.

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.

There are 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.

There are 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 notes would become due and payable.

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.

As of March 31, 2022, $381.2 million aggregate principal amount of the 2024 Notes remained outstanding.

With respect to the 2024 Notes, unless earlier converted, redeemed, or repurchased, we would be required to pay interest of $8.6 million in 2022, $8.6 million in 2023, and $4.3 million in 2024 and pay the aggregate principal amount outstanding of $381.2 million upon maturity of the 2024 Notes.

Refer to Note 8 to the condensed consolidated financial statements for more information on the 2024 Notes.

Our operating leases that have commenced have terms that expire beginning 2024 through 2031 and consist of office space and research and development laboratories, including our corporate headquarters.

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 six-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 and expect to begin subleasing our existing leased facilities.

Refer to Note 7 to the condensed consolidated financial statements for more information on our leases, including a presentation of our approximate future minimum lease payments under non-cancelable operating leases.

Critical Accounting Policies and Estimates

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Interest Rate Risk

We are exposed to interest rate risk on our short-term investments.

The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk.

To achieve this objective, we invest in highly liquid and high-quality government and other debt securities.

To minimize our exposure due to adverse shifts in interest rates, we invest in short-term securities and ensure that the maximum average maturity of our investments does not exceed twelve months.

If a 1% change in interest rates were to have occurred on September 30, 2021, it would not have had a material effect on the fair value of our investment portfolio as of that date.

Due to the short holding period of our investments, we have concluded that we do not have a material financial market risk exposure.

Recently Issued Accounting Pronouncements

For a summary of new accounting pronouncements which may be applicable to us, see Note 1 to the condensed consolidated financial statements included in this report.

We maintain a diversified investment portfolio consisting of low-risk, investment-grade debt securities with maturities of up to three years, including investments in commercial paper, securities of government-sponsored entities and corporate bonds that are subject to interest rate risk.

The primary objective of our investment activities is to preserve principal and maintain liquidity.

If a 1% unfavorable change in interest rates were to have occurred on March 31, 2022, it would not have had a material effect on the fair value of our investment portfolio as of that date.

Forward-Looking Statements

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The cautionary statements made in this report are intended to be applicable to all related forward-looking statements wherever they may appear in this report.

We urge you not to place undue reliance on these forward-looking statements, which

speak only as of the date of this report.

We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

Except as required by law, we assume no obligation to update our forward-looking statements, even if new information becomes available in the future.

2 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis