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Item 7. Management’s Discussion and Analysis

2023-02-09 compared with 2022-02-11 · 129 added, 122 removed, 131 unchanged (66% of the section changed)

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Risk Factors.” See “Forward-Looking Statements” in Part I of this Annual Report on Form 10-K.

At Neurocrine Biosciences, our purpose is simple:

Neurocrine Biosciences is a neuroscience-focused, biopharmaceutical company with a simple purpose:

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.

We are dedicated to discovering and developing life-changing treatments for patients with under-addressed neurological, neuroendocrine and neuropsychiatric disorders.

The Company’s diverse portfolio includes 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 advanced clinical-stage programs in multiple therapeutic areas.

For three decades, we have applied our unique insight into neuroscience and the interconnections between brain and body systems to treat complex conditions and we will continue to relentlessly pursue medicines to ease the burden of debilitating diseases and 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 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 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 for levodopa/carbidopa in patients with Parkinson's disease experiencing motor fluctuations.

INGREZZA net product sales represent nearly all of our total net product sales.

Our partner Mitsubishi Tanabe Pharma Corporation, or MTPC, launched DYSVAL ® (valbenazine) in Japan in June 2022 for the treatment of tardive dyskinesia.

We receive royalties at tiered percentage rates on MTPC net sales of DYSVAL.

Our partner AbbVie launched ORILISSA ® (elagolix tablets) in the United States in August 2018 for the treatment of moderate to severe pain associated with endometriosis and launched ORIAHNN ® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) in the United States in June 2020 for the treatment of heavy menstrual bleeding related to uterine fibroids in premenopausal women.

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

Business Highlights

• INGREZZA net product sales for 2021 increased $88.8 million, or 8.9%, to $1.1 billion, primarily driven by increased total prescriptions reflecting higher customer demand and increased commercial activities.

• 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 and expect to begin subleasing our existing leased facilities.

• INGREZZA net product sales for 2022 increased $345.9 million, or 32.0%, to $1.4 billion, driven by increased new patient starts and increased total prescriptions on higher customer demand and increased commercial activities, including continued investment in our branded direct-to-consumer INGREZZA advertising campaign launched in May 2021 and deployment of our expanded sales force in April 2022.

• Total debt outstanding decreased by $210.8 million to $170.4 million following our repurchase of approximately 55% of total debt outstanding in the second quarter of 2022.

The total aggregate repurchase price of $279.0 million was paid in cash and resulted in the recognition of a $70.0 million loss on extinguishment.

• On November 1, 2022, we acquired Diurnal in an all-cash transaction, for an aggregate value of $55.2 million to accelerate the establishment of our clinical development and commercial capabilities in the United Kingdom to the benefit of patient communities and other stakeholders.

• On January 8, 2023, we entered into a new strategic collaboration with Voyager Therapeutics, Inc., or Voyager, under which we agreed to pay Voyager $175 million upfront, including a $39 million equity investment, to acquire the worldwide rights to Voyager’s GBA1 gene therapy program for Parkinson’s disease and other GBA1-mediated diseases and three gene therapy programs directed to rare central nervous system targets, each enabled by Voyager’s next-generation TRACER TM capsids.

The effectiveness of the collaboration agreement and the closing of the sale and issuance of Voyager common stock are expected to be completed before the end of the first quarter of 2023 and are subject to certain conditions including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary closing conditions.

Pipeline Highlights

• In the fourth quarter of 2021, we announced positive top-line data from the Phase III KINECT-HD study evaluating the efficacy, safety and tolerability of valbenazine in 120 adult patients with chorea in Huntington disease, also known as Huntington chorea.

The study met the primary endpoint of reduction in severity of chorea.

We plan to submit a supplemental new drug application for valbenazine for the treatment of Huntington chorea with the FDA in second half of 2022.

• Completed strategic partnership with Heptares Therapeutics Limited, or Heptares, to expand clinical pipeline for psychiatry disorders.

Upfront fee associated with the agreement totaled $100.0 million, which, including certain transaction-related costs, was expensed as in-process research and development in 2021.

• In 2021, Mitsubishi Tanabe Pharma Corporation, or MTPC, received approvals for marketing authorization for valbenazine for the treatment of tardive dyskinesia in Indonesia, Singapore, South Korea and Thailand.

In addition, MTPC has submitted filings for marketing authorization, which are currently under review, in Japan and Malaysia.

Impact of COVID-19

The 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 purpose remains unchanged:

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

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

• In December 2022, the FDA accepted our supplemental new drug application, or sNDA, for valbenazine for the treatment of chorea associated with Huntington disease.

The agency set a Prescription Drug User Fee Act target action date of August 20, 2023.

• In 2022, we initiated a second Phase III clinical study of valbenazine as adjunctive treatment in patients with schizophrenia who have had an inadequate response to antipsychotics and a Phase II clinical study of NBI-1117568 in patients with schizophrenia who are experiencing an acute exacerbation or relapse of symptoms.

• In December 2022, we announced our Phase II study of NBI-827104 in EE-CSWS did not meet specified endpoints.

We continue to analyze the complete dataset from this study to determine next steps in the further development of NBI-827104.

• In August 2022, we announced the Phase IIa study of NBI-827104 in essential tremor did not meet specified endpoints.

Based on the totality of data from the Phase IIa study, at this time, we do not plan to proceed further with the clinical development of NBI-827104 in essential tremor.

• We recently completed enrollment in our adult and pediatric registrational studies of crinecerfont to treat congenital adrenal hyperplasia with top-line data expected for each study in the second half of 2023.

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 clinical studies.

Most of our field-based employees have resumed in-person interactions in accordance with location-specific guidance.

Our office-based employees have returned to the office under flexible work arrangement guidelines to help balance business needs, employee health, well-being and safety and the evolving work environment.

However, as the effects of the pandemic continue to rapidly evolve with the emergence of new COVID-19 variants, a remote work model may nevertheless need to be reinstated at some point in the future.

We continue to evaluate the impact of global spikes or surges in COVID-19 infection and hospitalization rates, as well as the impact of emerging COVID-19 variants on the efficacy of vaccines.

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 or regions grapple with 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 2022.

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 I 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 luvadaxistat 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 I Item 1A.

Risk Factors.

Inflation Reduction Act.

In August 2022, President Biden signed into law the Inflation Reduction Act of 2022, or the IRA, which, among other things, (1) directs the Secretary of the U.S.

Department of Health and Human Services, or HHS, to negotiate the price of certain high-expenditure, single-source drugs and biologics covered under Medicare, (2) redesigns the Medicare Part D prescription drug benefit to lower patient out-of-pocket costs and increase manufacturer liability and (3) requires drug manufacturers to pay rebates on drugs whose prices increase greater than the rate of inflation.

These provisions will take effect progressively starting in 2023, although they may be subject to legal challenges.

It is currently unclear how the IRA will be implemented;

however, it is likely to have a significant impact on the pharmaceutical industry and prescription drug pricing.

While the IRA targets high-expenditure drugs that have been on the market for several years without generic or biosimilar competition, we have qualified for the small biotech manufacturer exemption that is set to expire in 2029.

However, the qualification for this exemption is subject to various requirements and there is no assurance that we will continue to qualify for this exemption in the future.

Further, the loss of this exemption or the potential loss of this exemption, including as a result of a potential acquisition or strategic transaction, could have an adverse impact on our business.

For more information on the risks and uncertainties associated with the evolving effects of the IRA on our business, refer to Part I Item 1A.

Risk Factors.

Results of Operations

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(in millions) 2022 2021 2020

INGREZZA net product sales $ 1,081.9 $ 993.1 $ 752.9

ONGENTYS net product sales 8.2 1.0 —

INGREZZA $ 1,427.8 $ 1,081.9 $ 993.1

ONGENTYS and other 13.1 8.2 1.0

Total net product sales $ 1,440.9 $ 1,090.1 $ 994.1

For 2021 compared to 2020, the increase in total net product sales primarily reflected increased INGREZZA net product sales mainly driven by increased total prescriptions reflecting higher customer demand and increased commercial activities.

For 2020 compared to 2019, the increase in total net product sales primarily reflected increased INGREZZA net product sales driven by increased total prescriptions.

The increases in total net product sales from 2020 to 2021 and from 2021 to 2022 primarily reflected increased INGREZZA net product sales driven by increased new patient starts and increased total prescriptions on higher customer demand and increased commercial activities.

Collaboration Revenues by Category.

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(in millions) 2022 2021 2020

Elagolix royalties $ 22.3 $ 19.2 $ 14.3

Milestone 15.0 30.0 20.0

Non-cash collaboration revenue and other

Royalties $ 22.3 $ 22.3 $ 19.2

Milestones 20.0 15.0 30.0

Collaboration and other

Total collaboration revenue $ 47.8 $ 43.4 $ 51.8

For 2021, total collaboration revenue primarily reflected the achievement of a $15.0 million milestone associated with MTPC's marketing authorization application submission for valbenazine for the treatment of tardive dyskinesia in Japan and royalties earned on AbbVie net sales of elagolix.

For 2020, total collaboration revenue primarily reflected the achievement of a $30.0 million milestone associated with the FDA’s approval of AbbVie’s ORIAHNN for uterine fibroids in 2020 and royalties earned on AbbVie net sales of elagolix.

For 2019, total collaboration revenue primarily reflected the achievement of a $20.0 million milestone associated with the FDA’s acceptance of AbbVie’s new drug application submission for elagolix for uterine fibroids and royalties earned on AbbVie net sales of elagolix.

For 2022, total collaboration revenue primarily reflected the achievement of a $20.0 million milestone in connection with MTPC's first commercial sale of DYSVAL in Japan in June 2022 and royalties earned on AbbVie net sales of elagolix.

For 2021, total collaboration revenue primarily reflected the achievement of a $15.0 million milestone in connection with MTPC's marketing authorization application submission for valbenazine for the treatment of tardive dyskinesia in Japan and royalties earned on AbbVie net sales of elagolix.

For 2020, total collaboration revenue primarily reflected the achievement of a $30.0 million milestone in connection with AbbVie’s receipt of FDA approval of ORIAHNN for uterine fibroids and royalties earned on AbbVie net sales of elagolix.

Operating Expenses

Cost of Sales.

Cost of Revenues.

Year Ended December 31,

(in millions) 2022 2021 2020

Cost of sales $ 14.3 $ 10.1 $ 7.4

The increase in cost of sales from 2020 to 2021 and 2019 to 2020 reflected increased INGREZZA net product sales driven by increased total prescriptions.

Research and Development, or R&D, Expenses by Category.

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 $ 23.2 $ 14.3 $ 10.1

The increases in cost of revenues from 2020 to 2021 and from 2021 to 2022 primarily reflected increased INGREZZA net product sales driven by increased new patient starts and increased total prescriptions on higher customer demand and increased commercial activities.

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 arrangements.

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

Year Ended December 31,

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Research and discovery 63.7 50.5 43.3

Milestone 5.4 20.0 10.0

Milestones 42.7 5.4 20.0

Payroll and benefits 163.8 129.1 95.4

Facilities and other 43.8 43.5 31.0

Total R&D expense $ 328.1 $ 275.0 $ 200.0

Research and development $ 463.8 $ 328.1 $ 275.0

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

For 2021 compared to 2020, the increase in late stage R&D expense primarily reflected continued investment in Phase III programs for crinecerfont in congenital adrenal hyperplasia and valbenazine in Huntington disease and initiation of a Phase III program for valbenazine as adjunctive treatment of schizophrenia, offset by decreased investment associated with the termination of the NBIb-1817 program for Parkinson’s disease, which became effective in August 2021.

For 2020 compared to 2019, the increase in late stage R&D expense primarily reflected increased investment in Phase III programs for crinecerfont in congenital adrenal hyperplasia and continued enrollment in the Phase III program for valbenazine Huntington disease.

For 2022 compared to 2021, the increase in late stage expenses primarily reflected continued investment in our Phase III programs for crinecerfont in CAH and valbenazine in schizophrenia.

For 2021 compared to 2020, the increase in late stage expenses primarily reflected continued investment in Phase III programs for crinecerfont in CAH and valbenazine in Huntington disease and initiation of a Phase III program for valbenazine in schizophrenia, partially offset by lower spend due to our termination of the NBIb-1817 program in Parkinson’s disease, which became effective in August 2021.

Early Stage .

Consists 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.

For 2021 compared to 2020, the increase in early stage R&D expense primarily reflected continued enrollment in Phase II programs for NBI-827104 in epileptic encephalopathy with continuous spike and wave during sleep and essential tremor and initiation of Phase II programs for NBI-921352 in focal onset seizure and SCN8A developmental epileptic encephalopathy.

For 2020 compared to 2019, the increase in early stage R&D expense primarily reflected increased investment in three in-licensed psychiatry clinical development programs beginning in mid-2020 and two in-licensed epilepsy clinical development programs beginning at the end of 2019.

For 2022 compared to 2021, the increase in early stage expenses primarily reflected continued investment in our Phase II programs for NBI-921352 in epilepsy, luvadaxistat in schizophrenia, and NBI-1065845 and NBI-1065846 in major depressive disorder, and initiation of a Phase II program for NBI-1117568 in schizophrenia.

For 2021 compared to 2020, the increase in early stage expenses primarily reflected continued enrollment in our Phase II programs for NBI-827104 in EE-CSWS and essential tremor and initiation of Phase II programs for NBI-921352 in focal onset seizures and SCN8A-DEE.

Research and Discovery.

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

For 2021 compared to 2020, the increase in research and discovery R&D expense primarily reflected a full year of investment in psychiatry and epilepsy preclinical development programs in-licensed in 2020, offset by decreased investment in preclinical gene therapy programs.

For 2020 compared to 2019, the increase in research and discovery R&D expense primarily reflected increased investment in preclinical gene therapy programs and an epilepsy preclinical development program in-licensed in 2020.

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

In 2021, we expensed a milestone of $5.4 million associated with the European Union’s approval for the NBI-921352 clinical trial application in September 2021.

In 2020, we expensed a milestone of $20.0 million associated the FDA’s approval for ONGENTYS for Parkinson’s disease.

In 2019, we expensed a milestone of $10.0 million associated with the FDA’s acceptance of the new drug application for opicapone as an adjunctive therapy to levodopa/DOPA decarboxylase inhibitors in adult Parkinson's disease patients.

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

For 2022 compared to 2021, the increase in research and discovery expenses reflected continued investment in our preclinical development programs, including psychiatry, epilepsy and gene therapy programs.

For 2021 compared to 2020, the increase in research and discovery expenses primarily reflected a full year of investment in certain of our in-licensed preclinical psychiatry and epilepsy programs, partially offset by lower spend on our preclinical gene therapy programs.

Consist of development and regulatory milestone expenses incurred in connection with our collaborative arrangements.

In 2022, we recognized milestone expenses of $30.0 million in connection with the FDA's acceptance of our investigational new drug application for NBI-1117568 in schizophrenia, $7.3 million in connection with the FDA's acceptance of our amended KAYAK TM study protocol, and $5.0 million in connection with the approval of our clinical trial application for NBI-1070770 in major depressive disorder.

In 2021, we recognized milestone expense of $5.4 million in connection with the European Union’s approval of our clinical trial application for NBI-921352 in epilepsy.

In 2020, we recognized milestone expense of $20.0 million in connection with the FDA’s approval of ONGENTYS for Parkinson’s disease.

Payroll and Benefits.

Consists 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.

For 2021 compared to 2020, the increase in payroll and benefits R&D expense primarily reflected increased personnel expenses on higher headcount and a $14.7 million increase in non-cash share-based compensation expense, including a $6.4 million charge related to the modification of certain share-based awards.

For 2020 compared to 2019, the increase in payroll and benefits R&D expense primarily reflected increased personnel expenses on higher headcount.

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.

For 2022 compared to 2021, the change in payroll and benefits expenses primarily reflected higher headcount, including an increase of $9.3 million in non-cash stock-based compensation expense driven by an August 2021 equity grant of approximately 0.5 million restricted stock units to our full-time employees other than our executive officers, which are vesting over a two-year period, and performance-based restricted stock units to our executive officers for which attainment of the performance-based criteria was achieved in 2022.

For 2021 compared to 2020, the change in payroll and benefits expenses primarily reflected higher headcount, including an increase of $14.7 million in non-cash stock-based compensation expense partially driven by a $6.4 million charge related to the modification of certain stock-based awards.

Facilities and Other.

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

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

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

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(in millions) 2022 2021 2020

IPR&D expense $ 105.3 $ 164.5 $ 154.3

In 2021, we expensed as IPR&D $100.3 million in connection with the payment of the upfront fee pursuant to our collaboration with Heptares.

In 2020, we expensed as IPR&D $46.0 million and $118.5 million, respectively, in connection with the payments of the upfront fees pursuant to our collaborations with Idorsia Pharmaceuticals Ltd, or Idorsia, and Takeda Pharmaceutical Company Limited, or Takeda.

In 2019, we expensed as IPR&D $118.1 million and $36.2 million, respectively, in connection with the payments of the upfront fees pursuant to our collaborations with Voyager Therapeutics, Inc., or Voyager, and Xenon Pharmaceuticals, Inc., or Xenon.

Acquired in-process research and development $ — $ 105.3 $ 164.5

In 2021, we recognized $100.3 million of IPR&D expense in connection with our payment of the upfront fee pursuant to our collaboration with Heptares Therapeutics Limited.

In 2020, we recognized $46.0 million and $118.5 million, respectively, of IPR&D expenses in connection with our payments of the upfront fees pursuant to our collaborations with Idorsia Pharmaceuticals Ltd.

and Takeda Pharmaceutical Limited.

Selling, General and Administrative, or SG&A.

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(in millions) 2022 2021 2020

SG&A expense $ 583.3 $ 433.3 $ 354.1

For 2021 compared to 2020, the increase in SG&A expense primarily reflected increased investment to support our commercial initiatives, including the May 2021 launch of our INGREZZA direct-to-consumer advertising campaign, "TD Spotlight", increased personnel expenses on higher headcount and a $19.5 million increase in non-cash share-based compensation expense.

For 2020 compared to 2019, the increase in SG&A expense primarily reflected increased personnel expenses on higher headcount and continued investment in INGREZZA marketing.

Selling, general and administrative $ 752.7 $ 583.3 $ 433.3

For 2022 compared to 2021, the increase in SG&A expenses was primarily driven by continued investment in our commercial initiatives, including our branded direct-to-consumer INGREZZA advertising campaign launched in May 2021 and deployment of our expanded sales force in April 2022, reflecting increased payroll and benefits expenses on higher headcount, including an increase of $29.6 million in non-cash stock-based compensation expense partially driven by an August 2021 equity grant of approximately 0.5 million restricted stock units to our full-time employees other than our executive officers, which are vesting over a two-year period, and performance-based restricted stock units to our executive officers for which attainment of the performance-based criteria was achieved in 2022.

For 2021 compared to 2020, the increase in SG&A expenses primarily reflected increased investment in support of our commercial initiatives, including the launch of our branded direct-to-consumer INGREZZA advertising campaign in May 2021, and increased payroll and benefits expenses on higher headcount, including an increase of $19.5 million in non-cash stock-based compensation expense.

Other Expense, Net.

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Total other expense, net $ (35.1) $ (1.1) $ (56.3)

For 2021 compared to 2020, the decrease in other expense, net, reflected a net unrealized gain of $20.9 million recognized to adjust our equity investments in Voyager and Xenon to fair value, a non-recurring debt extinguishment charge of $18.4 million in November 2020 associated with the partial repurchase of our convertible senior notes and decreased interest expense resulting from a lower convertible debt balance throughout 2021, partially offset by decreased interest income stemming from lower yields on our debt security investments.

For 2020 compared to 2019, the increase in other expense, net, primarily reflected a debt extinguishment charge of $18.4 million in November 2020 associated with the partial repurchase of our convertible senior notes.

For 2022 compared to 2021, the change in other expense, net, primarily reflected a debt extinguishment charge of $70.0 million in connection with the repurchase of our convertible senior notes in the second quarter of 2022, periodic fluctuations in the fair values of our equity security investments, decreased interest expense on lower total debt outstanding and the adoption of ASU 2020-06 on January 1, 2022, and higher yields on our debt security investments.

For 2021 compared to 2020, the change in other expense, net, primarily reflected periodic fluctuations in the fair values of our equity security investments, lower yields on our debt security investments, and a non-recurring debt extinguishment charge of $18.4 million in connection with the repurchase of our convertible senior notes in the fourth quarter of 2020.

Provision for (Benefit from) Income Taxes.

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Provision for (benefit from) income taxes $ 59.4 $ 11.8 $ (300.6)

For 2021, the effective tax rate was lower than federal and state tax rates primarily due to excess tax benefits associated with share-based compensation and research tax credits.

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 tax rates.

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

For 2022, the effective tax rate varied from the federal and state statutory rates primarily due to credits generated for research activities and certain nondeductible expenses, including the premium paid on the repurchase of our convertible senior notes in the second quarter of 2022.

In addition, all federal net operating loss carry forwards have been fully utilized and we began making federal estimated tax payments in 2022.

For 2021, the effective tax rate varied from the federal and state statutory rates primarily due to excess tax benefits associated with stock-based compensation and credits generated for research activities.

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

Due to our ability to offset any pre-tax income against federal net operating losses, no federal cash tax was paid in 2021.

For 2020, the benefit from income taxes reflected a $296.3 million benefit associated with the release of substantially all of our valuation allowance against our deferred tax assets on December 31, 2020.

The effective tax rate for 2020 varied from the statutory tax rate primarily due to changes in our valuation allowance, net of other permanent book/tax differences, tax credits generated and impacts of changes in tax laws.

For 2019, the provision for income taxes reflected estimated and current state income taxes.

The effective tax rate for 2019 varied from the statutory tax rate primarily due to changes in our valuation allowance, net of other permanent book/tax differences, tax credits generated and impacts of changes in tax laws.

As of December 31, 2019, we had a full valuation allowance against our net deferred tax assets as realization was uncertain.

Net Income and Diluted Earnings per Share.

The effective tax rate for 2020 varied from the statutory rate primarily due to changes in our valuation allowance, net of other permanent book/tax differences, tax credits generated and impacts of changes in tax laws.

Year Ended December 31,

(in millions, except per share data) 2021 2020 2019

(in millions) 2022 2021 2020

Net income $ 154.5 $ 89.6 $ 407.3

Diluted earnings per share $ 0.92 $ 4.16 $ 0.39

For 2021 compared to 2020, the decrease in net income and diluted earnings per share primarily reflected a $296.3 million benefit associated with the release of substantially all of our valuation allowance against our deferred tax assets on December 31, 2020, increased investment to support our commercial initiatives, including the May 2021 launch of our INGREZZA direct-to-consumer advertising campaign, "TD Spotlight", and increased investment in our expanded clinical portfolio, partially offset by increased INGREZZA net product sales and decreased IPR&D expense reflecting lower upfront payments for asset acquisitions.

For 2020 compared to 2019, the increase in net income and diluted earnings per share primarily reflected a $296.3 million benefit associated with the release of substantially all of our valuation allowance against our deferred tax assets on December 31, 2020 and increased INGREZZA net product sales, partially offset by ongoing support for the commercial launch of INGREZZA for tardive dyskinesia and progression of our clinical pipeline.

For 2022 compared to 2021, the change in net income primarily reflected increased INGREZZA net product sales, lower upfront payments for asset acquisitions, continued investment in our commercial initiatives and expanded clinical portfolio, and a debt extinguishment charge of $70.0 million in connection with the repurchase of our convertible senior notes in the second quarter of 2022.

For 2021 compared to 2020, the change in net income primarily reflected increased INGREZZA net product sales driven by increased total prescriptions, decreased milestone expenses in connection with certain of our collaborative arrangements, lower upfront payments for asset acquisitions, a non-recurring debt extinguishment charge of $18.4 million in connection with the repurchase of our convertible senior notes in the fourth quarter of 2020, increased investment in our commercial initiatives and expanded clinical portfolio, and a non-recurring benefit of $296.3 million in 2020 resulting from the release of substantially all of our valuation allowance against our deferred tax assets on December 31, 2020.

Liquidity and Capital Resources

Sources of Liquidity

We believe that our existing capital resources, funds generated by anticipated INGREZZA net product sales and investment income will be sufficient to satisfy our current and projected funding requirements for at least the next twelve 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.

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(in millions) 2022 2021 2020

Net cash provided by operating activities $ 256.5 $ 228.5 $ 147.0

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

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

Cash flows from operating activities $ 339.4 $ 256.5 $ 228.5

Cash flows from investing activities (177.1) (130.2) 4.1

Cash flows from financing activities (234.3) 27.4 (157.8)

Effect of exchange rate changes on cash and cash equivalents (1.3) — —

Change in cash, cash equivalents and restricted cash $ (73.3) $ 153.7 $ 74.8

Net Cash Provided by Operating Activities.

For 2021 compared to 2020, the increase in net cash provided by operating activities primarily reflected increased INGREZZA net product sales and lower upfront payments for asset acquisitions, partially offset by increased investment to support our commercial initiatives and advancing our expanded clinical portfolio.

For 2020 compared to 2019, the increase in net cash provided by operating activities primarily reflected increased INGREZZA net product sales, partially offset by incremental INGREZZA investment and progression of our clinical pipeline.

Net Cash (Used in) Provided by Investing Activities.

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

For 2021, net cash used in investing activities reflected a $4.6 million equity investment in Xenon associated with the European Union’s approval of our clinical trial application in September 2021 for NBI-921352 for the treatment of focal onset seizures in adults.

For 2019, net cash used in investing activities reflected equity investments of $54.7 million in Voyager and $14.2 million in Xenon associated with newly entered into collaboration and license agreements.

Net Cash Provided by (Used in) Financing Activities.

For 2021 and 2019, net cash provided by investing activities reflected proceeds from issuances of our common stock under benefit plans.

For 2020, net cash used in financing activities primarily reflected the partial repurchase of $136.2 million aggregate principal amount of our convertible senior notes for an aggregate repurchase price of $186.9 million in cash, partially offset by proceeds from issuances of our common stock under benefit plans.

Cash Flows from Operating Activities.

For 2022 compared to 2021, the change in cash flows from operating activities primarily reflected increased INGREZZA net product sales, lower upfront payments for asset acquisitions, and continued investment in our commercial initiatives and expanded clinical portfolio.

In addition, we experienced an increase in accounts receivable driven by increased INGREZZA net product sales on extended customer payment terms attributed to the expansion of our distribution network at the end of 2021 and an increase in accrued liabilities driven by increased revenue-related reserves for discounts and allowances on higher INGREZZA net product sales and the timing of payments.

For 2021 compared to 2020, the change in cash flows from operating activities primarily reflected increased INGREZZA net product sales, lower upfront payments for asset acquisitions, lower milestone payments in connection with certain of our collaborative arrangements, and increased investment in our commercial initiatives and expanded clinical portfolio.

Cash Flows from Investing Activities.

For 2022 compared to 2021, the change in cash flows from investing activities primarily reflected our acquisition of Diurnal in November 2022 for $42.7 million in cash, which is net of cash acquired, timing differences in the purchases, sales, and maturities of our marketable security investments, and a $7.7 million equity investment in Xenon associated with the FDA’s acceptance of our amended KAYAK TM study protocol.

For 2021 compared to 2020, the change in cash flows from investing activities primarily reflected timing differences in the purchases, sales, and maturities of our marketable security investments and a $4.6 million equity investment in Xenon associated with the European Union’s approval of our clinical trial application for NBI-921352 in focal onset seizures.

Cash Flows from Financing Activities.

For 2022 compared to 2021, the change in cash flows from financing activities primarily reflected the repurchase of $210.8 million aggregate principal amount of our convertible senior notes for an aggregate repurchase price of $279.0 million in cash in the second quarter of 2022 and increased proceeds from issuances of our common stock under benefit plans.

For 2021 compared to 2020, the change in cash flows from financing activities primarily reflected the non-recurring repurchase of $136.2 million aggregate principal amount of our convertible senior notes for an aggregate repurchase price of $186.9 million in cash in the fourth quarter of 2020.

Material Cash Requirements

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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 R&D and clinical development programs;

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

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

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

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

On November 1, 2022, we acquired Diurnal in an all-cash transaction, for an aggregate value of $55.2 million to accelerate the establishment of our clinical development and commercial capabilities in the United Kingdom to the benefit of patient communities and other stakeholders.

Refer to Note 3 to the consolidated financial statements for more information on our acquisition of Diurnal.

On January 8, 2023, we entered into a new strategic collaboration with Voyager, under which we agreed to pay Voyager $175 million upfront, including a $39 million equity investment, to acquire the worldwide rights to Voyager’s GBA1 gene therapy program for Parkinson’s disease and other GBA1-mediated diseases and three gene therapy programs directed to rare central nervous system targets, each enabled by Voyager’s next-generation TRACER TM capsids.

The effectiveness of the collaboration agreement and the closing of the sale and issuance of Voyager common stock are expected to be completed prior to the end of the first quarter of 2023 and are subject to certain conditions including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary closing conditions.

Convertible Senior Notes.

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

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.

In the fourth quarter of 2020 and second quarter of 2022, we entered into separate, privately negotiated transactions with certain holders of the 2024 Notes to repurchase $136.2 million and $210.8 million, respectively, aggregate principal amount of the 2024 Notes for an aggregate repurchase price of $186.9 million and $279.0 million, respectively, in cash.

As of December 31, 2022, $170.4 million aggregate principal amount of the 2024 Notes remained outstanding.

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

Further, as the conditional conversion feature of the 2024 Notes was triggered as of December 31, 2022, holders of the 2024 Notes may convert the 2024 Notes at any time during the period beginning on January 1, 2023, and ending at the close of business on March 31, 2023.

With respect to the 2024 Notes, unless earlier converted, redeemed, or repurchased, we would be required to pay interest of $3.8 million in 2023 and $1.9 million in 2024 and pay the aggregate principal amount outstanding of $170.4 million upon maturity of the 2024 Notes.

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 notes would become due and payable.

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 December 31, 2021, $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 notes in 2024.

Refer to Note 6 to the consolidated financial statements for more information on the 2024 Notes.

Our operating leases, which have terms that expire beginning 2024 through 2031, 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 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.

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.

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The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosures.

On an on-going basis, we evaluate these estimates, including those related to revenue recognition and share-based compensation.

On an on-going basis, we evaluate these estimates, including those related to revenue recognition.

Estimates are based on historical experience, information received from third parties and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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To date, actual government rebates have not differed materially from our estimates.

Share-Based Compensation.

For purposes of calculating share-based compensation, we estimate the fair value of share-based compensation awards using a Black-Scholes option-pricing model.

The determination of the fair value of share-based compensation awards utilizing the Black-Scholes model is affected by our stock price and a number of assumptions, including but not limited to expected stock price volatility over the term of the awards and the expected term of stock options.

Our stock options have characteristics significantly different from those of traded options, and changes in the assumptions can materially affect the fair value estimates.

For example, an increase in the underlying stock price results in a significant increase in the Black-Scholes option-pricing.

The fair value of performance-based restricted stock units, or PRSUs, is estimated based on the closing sale price of our common stock on the date of grant.

Expense recognition for PRSUs commences when attainment of the associated performance-based criteria is determined to be probable.

If factors change and we employ different assumptions, share-based compensation expense may differ significantly from what we have recorded in the past.

If there is a difference between the assumptions used in determining share-based compensation expense and the actual factors which become known over time, we may change the input factors used in determining share-based compensation expense for future grants.

These changes, if any, may materially impact our results of operations in the period such changes are made.

For actual forfeitures, we recognize the adjustment to compensation expense in the period the forfeitures occur.

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 is computed under the asset and liability method.

Significant estimates are required in determining our income tax provision.

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

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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.

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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 7. Management’s Discussion and Analysis