What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-09 compared with 2022-02-11 · 346 added, 253 removed, 620 unchanged (49% of the section changed)

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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, 2022, 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 9, 2023 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for convertible debt instruments as a result of the adoption of Accounting Standards Update (ASU) No.

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), effective January 1, 2022.

Basis for Opinion

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Reserves for government rebates related to product sales

Description of the Matter The Company sells drugs to specialty pharmacies and specialty distributors in the U.S.

(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 programs (“government rebates”).

Description of the Matter The Company sells drugs to specialty pharmacies and specialty distributors in the US (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 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.

In particular, management was required to estimate, for product that remains in the distribution channel at December 31, 2021, the portion of product that is expected to be subject to a government rebate and the applicable contractual government rebate percentage by forecasting the revenue, the payor type underlying the revenue and the applicable rebate amount for the payor type.

How We Addressed the Matter in Our Audit We tested the Company’s internal controls over management’s process for estimating the portion of product that is expected to be subject to a government rebate for product that remains in the distribution channel at December 31, 2021, including controls over management’s forecast of revenue and the accuracy of data used in the calculation.

In particular, management was required to estimate, for product that remains in the distribution channel at December 31, 2022, the portion of product that is expected to be subject to a government rebate and the applicable contractual government rebate percentage by payor type underlying the revenue and the applicable rebate amount applicable for the payor type.

This included controls over management’s review of significant assumptions and other inputs into the estimation of government rebates including the accuracy of data used in the calculation.

To test management’s estimate of government rebate reserves our audit procedures included, among others, evaluating the methodologies used, testing the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by the Company in its analyses.

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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 impact of 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 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 $ 262.9 $ 340.8

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

Debt securities available-for-sale 726.4 370.5

Accounts receivable 350.0 185.5

Inventory 30.5 28.0

Inventories 35.1 30.5

Other current assets 79.1 45.5

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Deferred tax assets 305.9 315.1

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

Debt securities available-for-sale 299.4 560.7

Right-of-use assets 87.0 97.2

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Property and equipment, net 58.6 58.6

Other long-term assets 4.4 6.4

Intangible assets, net 37.2 —

Other assets 25.0 4.4

Total assets $ 2,368.7 $ 2,072.5

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Accounts payable and accrued liabilities $ 347.6 $ 225.8

Convertible senior notes 169.4 —

Other current liabilities 20.7 20.0

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Preferred stock, $ 0.001 par value;

5.0 shares authorized;

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

5.0 million shares authorized;

no shares issued and outstanding

Common stock, $ 0.001 par value;

220.0 shares authorized;

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

220.0 million shares authorized;

96.5 million and 94.9 million shares issued and outstanding, respectively

Additional paid-in capital 2,122.4 2,011.4

Accumulated other comprehensive (loss) income ( 1.7 ) 1.8

Accumulated other comprehensive loss ( 7.9 ) ( 1.7 )

Accumulated deficit ( 406.8 ) ( 635.8 )

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Operating expenses:

Cost of sales 14.3 10.1 7.4

Cost of revenues 23.2 14.3 10.1

Research and development 463.8 328.1 275.0

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Net income 154.5 89.6 407.3

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

Foreign currency translation adjustments 2.9 — —

Unrealized (loss) gain on debt securities available-for-sale, net of tax ( 9.1 ) ( 3.5 ) 0.4

Comprehensive income $ 148.3 $ 86.1 $ 407.7

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Net income — — — — 407.3 407.3

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

Share-based compensation expense — — 75.3 — — 75.3

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

Other comprehensive income, net of tax — — — 0.4 — 0.4

Stock-based compensation expense — — 100.0 — — 100.0

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

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Net income — — — — 89.6 89.6

Unrealized gain on debt securities available-for sale — — — 0.4 — 0.4

Share-based compensation expense — — 100.0 — — 100.0

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

Other comprehensive loss, net of tax — — — ( 3.5 ) — ( 3.5 )

Stock-based compensation expense — — 134.2 — — 134.2

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

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Net income — — — — 154.5 154.5

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

Share-based compensation expense — — 134.2 — — 134.2

Other comprehensive loss, net of tax — — — ( 6.2 ) — ( 6.2 )

Cumulative-effect adjustment due to adoption of ASU 2020-06 — — ( 106.8 ) — 74.5 ( 32.3 )

Stock-based compensation expense — — 173.1 — — 173.1

Issuances of common stock under stock plans 1.6 — 44.7 — — 44.7

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Net income $ 154.5 $ 89.6 $ 407.3

Reconciliation of net income to net cash provided by operating activities:

Share-based compensation expense 134.2 100.0 75.3

Adjustments to reconcile net income to net cash from operating activities:

Stock-based compensation expense 173.1 134.2 100.0

Depreciation 15.1 10.9 8.6

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Amortization of debt issuance costs 1.2 1.1 1.4

Amortization of intangible assets 0.5 — —

Change in fair value of equity securities ( 30.8 ) ( 20.9 ) 17.7

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Other assets and liabilities, net ( 17.2 ) ( 9.2 ) ( 23.6 )

Net cash provided by operating activities 256.5 228.5 147.0

Cash flows from operating activities 339.4 256.5 228.5

Cash flows from investing activities:

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Sales and maturities of debt securities available-for-sale 511.0 697.9 750.5

Acquisition of business, net of cash acquired ( 42.7 ) — —

Purchases of equity securities ( 7.7 ) ( 4.6 ) —

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

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

Capital expenditures ( 16.5 ) ( 23.4 ) ( 10.9 )

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

Cash flows from financing activities:

Issuances of common stock under benefit plans 44.7 27.5 29.1

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

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

Repurchases of convertible senior notes ( 279.0 ) ( 0.1 ) ( 186.9 )

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 and cash equivalents and restricted cash ( 73.3 ) 153.7 74.8

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Organization and Summary of Significant Accounting Policies

Business Activities.

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.

and Neurocrine Europe, Ltd.

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

Organization and Business.

Neurocrine Biosciences, Inc.

and its subsidiaries, or Neurocrine Biosciences, the Company, we, our or us, is a neuroscience-focused biopharmaceutical company focused on discovering, developing and delivering innovative therapies to help ease the burden of debilitating disorders and diseases.

We operate in a single business segment, which includes all activities related to the research, development and commercialization of pharmaceuticals for the treatment of neurological, neuroendocrine and neuropsychiatric disorders.

Principles of Consolidation.

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Actual results could differ from those estimates.

Industry Segment and Geographic Information.

We operate in a single industry segment – the discovery, development and marketing of pharmaceuticals for the treatment of neurological, endocrine and psychiatric-based diseases and disorders.

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

Cash Equivalents.

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Accounts Receivable.

Accounts receivable are recorded net of customer allowances for prompt payment discounts, chargebacks and any allowance for doubtful accounts.

We estimate the allowance for doubtful accounts based on existing contractual payment terms, actual payment patterns of our customers and individual customer circumstances.

To date, an allowance for doubtful accounts has not been material.

Accounts receivable are recorded net of customer allowances for prompt payment discounts, chargebacks, and any allowance for credit losses.

Our estimate for the allowance for credit losses, which has not been significant to date, is determined based on existing contractual payment terms, actual payment patterns of our customers, and individual customer circumstances.

Our exposure to credit losses may increase if our customers are adversely affected by changes in healthcare laws, coverage and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current COVID-19 pandemic, or other customer-specific factors.

It is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables as customers’ cash flows are impacted by their response to the COVID-19 pandemic.

Debt Securities.

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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 $ 2.2 million as of December 31, 2021 and $ 3.7 million as of December 31, 2020.

Accrued interest receivables on debt securities available-for-sale were $ 4.7 million and $ 2.2 million, respectively, as of December 31, 2022 and 2021.

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

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We validate valuations obtained from third-party pricing services by understanding the models used, obtaining market values from other pricing sources and analyzing data in certain instances.

Investments in equity securities of certain companies that are subject to holding period restrictions longer than one year are classified as Level 3 and carried at fair value using an option pricing valuation model.

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.

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.

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Depreciation expense was $ 15.1 million for 2022, $ 10.9 million for 2021 and $ 8.6 million for 2020.

Impairment of Long-Lived Assets.

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

If indicators of impairment exist, we assess the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows.

If the carrying amount is not recoverable, we measure the amount of any impairment by comparing the carrying value of the asset to the present value of the expected future cash flows associated with the use of the asset.

Business Combinations.

Under the acquisition method of accounting, we allocate the fair value of the total consideration transferred to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition.

These valuations require us to make estimates and assumptions, especially with respect to intangible assets.

We record the excess consideration over the aggregate fair value of tangible and intangible assets, net of liabilities assumed, as goodwill.

In addition, costs that we incur to complete the business combination, such as legal and other professional fees, are expensed as selling, general and administrative when incurred.

Goodwill, Intangible Assets and Other Long-Lived Assets.

Assets acquired, including intangible assets and in-process research and development, or IPR&D, and liabilities assumed are measured at fair value as of the acquisition date.

Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of the net assets acquired.

Intangible assets acquired in a business combination that are used for IPR&D activities are considered indefinite lived until the completion or abandonment of the associated research and development efforts.

Upon reaching the end of the relevant research and development project (i.e., upon commercialization), the IPR&D asset is amortized over its estimated useful life.

If the relevant research and development project is abandoned, the IPR&D asset is expensed in the period of abandonment.

Goodwill and IPR&D are not amortized;

however, they are reviewed for impairment at least annually, as of October 1, and more frequently if an event occurs indicating the potential for impairment.

Goodwill and IPR&D are considered to be impaired if the carrying value of the reporting unit or IPR&D asset exceeds its respective fair value.

We perform our goodwill impairment analysis at the reporting unit level, which aligns with our reporting structure and availability of discrete financial information.

During the goodwill impairment review, we assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount, including goodwill.

The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and our overall financial performance.

If, after assessing the totality of these qualitative factors, we determine that it is not more likely than not that the fair value of the reporting unit is less than the carrying amount, then no additional assessment is deemed necessary.

Otherwise, we proceed to compare the estimated fair value of the reporting unit with the carrying value, including goodwill.

If the carrying amount of the reporting unit exceed the fair value, we record an impairment loss based on the difference.

We may elect to bypass the qualitative assessment in a period and proceed to perform the quantitative goodwill impairment test.

Our identifiable intangible assets with a finite life are typically comprised of acquired product rights.

The cost of identifiable intangible assets with finite lives is generally amortized on a straight-line basis over the assets’ respective estimated useful lives.

We perform regular reviews to determine if any event has occurred that may indicate that intangible assets with finite useful lives and other long-lived assets are potentially impaired.

If indicators of impairment exist, an impairment test is performed to assess the recoverability of the affected assets by determining whether the carrying amount of such assets exceeds the undiscounted expected future cash flows.

If the affected assets are not recoverable, we estimate the fair value of the assets and record an impairment loss if the carrying value of the assets exceeds the fair value.

Factors that may indicate potential impairment include a significant decline in our stock price and market capitalization compared to the net book value, significant changes in the ability of a particular asset to generate positive cash flows for our strategic business objectives, and the pattern of utilization of a particular asset.

Foreign currency.

Assets and liabilities are translated into the reporting currency using the exchange rates in effect on the consolidated balance sheet dates.

Equity accounts are translated at historical rates, except for the change in retained earnings during the period, which is the result of the income statement translation process.

Revenue and expense accounts are translated using the weighted average exchange rate during the period.

The cumulative translation adjustments associated with the net assets of foreign subsidiaries are recorded in accumulated other comprehensive income (loss) in the accompanying consolidated statements of stockholders’ equity.

Revenue Recognition.

We recognize revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.

We recognize revenue when the customer obtains control of promised goods or services in an amount that reflects the consideration which we expect to receive in exchange for such goods or services.

Revenue is recognized using a five-step model:

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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.

To help patients afford our products, we offer free trial vouchers to qualifying new patients and financial assistance to qualified patients with prescription drug copay requirements.

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

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

Distributor and Other Fees.

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.

These costs are typically known at the time of sale, resulting in minimal adjustments subsequent to the period of sale.

Costs associated with such services are expensed as selling, general and administrative to the extent we can demonstrate a separable benefit and fair value for such services.

To date, actual distributor and other fees have not differed materially from our estimates.

Product Returns.

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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.

Such estimates are recorded as a reduction of revenue in the period the related sale is recognized.

Once product is returned, it is destroyed.

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Collaboration Revenues.

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:

We have entered into collaboration and license 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 for one or more of the following:

non-refundable, up-front license fees;

development, regulatory, and/or commercial milestone payments;

and royalties on net sales of licensed products.

and royalties on net sales of the out-licensed products.

Licenses of Intellectual Property.

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

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.

At the inception of each arrangement that includes development, regulatory, and/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.

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.

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

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

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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 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.

Cost of Sales.

Cost of sales includes third-party manufacturing, transportation, freight and indirect overhead costs associated with the manufacture and distribution of INGREZZA and ONGENTYS, royalty fees on net sales of ORILISSA and ORIAHNN, and adjustments for excess and obsolete inventory to the extent management determines that the cost cannot be recovered based on estimates about future demand.

Research and Development Expenses.

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.

We have established guidelines to limit our exposure to credit risk by diversifying our investment portfolio with low-risk investment-grade debt securities with maturities of up to three years and by placing our investments with high-credit-quality financial institutions to maintain liquidity.

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

We have entered into agreements for the distribution of INGREZZA with a limited number of specialty pharmacy providers and distributors and all of our product sales of INGREZZA are to these customers.

Four of these customers represented approximately 89 % of our total product sales for 2022 and approximately 95 % of our accounts receivable balance as of December 31, 2022.

Cost of Revenues.

Cost of revenues includes third-party manufacturing, transportation, freight, and indirect overhead costs primarily for the manufacture and distribution of INGREZZA and ONGENTYS drug product sold, manufacturing costs in connection with our supply of valbenazine drug product under our collaboration with Mitsubishi Tanabe Pharma Corporation, royalty fees on net sales of elagolix, amortization of intangible assets, and adjustments for excess and obsolete inventory to the extent management determines that the cost cannot be recovered based on estimates about future demand.

Research and Development, or R&D.

R&D expenses primarily consist of preclinical and clinical trial costs, payroll and benefits costs, including stock-based compensation associated with employees involved in R&D activities, certain facility-based costs, and costs associated with our collaborative arrangements, including event-based milestones.

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 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.

We account for acquisitions of assets (or groups 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 (or group of assets) acquired on the basis of their relative fair value(s) on the measurement date.

No goodwill is recognized in an asset acquisition.

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.

Intangible assets acquired in an asset acquisition for use in R&D activities which have no alternative future use are expensed as 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 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.

Share-Based Compensation.

Advertising costs are expensed as selling, general and administrative when incurred.

Advertising expense was $ 149.7 million for 2022, $ 139.8 million for 2021 and $ 64.8 million for 2020.

Stock-Based Compensation.

We grant stock options to purchase our common stock to eligible employees and directors and also grant certain employees restricted stock units, or RSUs, and performance-based restricted stock units, or PRSUs.

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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;

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 three to four 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 is recognized and amortized on a straight-line basis over the purchase period, which is generally 6 months.

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 six months .

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

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Income Taxes.

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

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

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.

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

We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained upon examination by the tax authorities based on the technical merits of the position.

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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.

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 2.25 % fixed-rate 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, only the shares required to settle any conversion premium are considered dilutive under the if-converted 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, 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 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):

ASU 2020-06 .

In August 2020, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or 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):

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.

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

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

The adoption of ASU 2020-06 prospectively reduces reported interest expense and increases (decreases) reported net income (loss), and resulted in a reclassification of certain conversion feature balance sheet amounts from stockholders’ equity to liabilities as it relates to the 2.25 % fixed-rate convertible senior notes due May 15, 2024, or the 2024 Notes.

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

Under this transition method, the cumulative effect of the accounting change increased the carrying amount of the 2024 Notes by $ 42.2 million, reduced deferred tax liabilities by $ 9.9 million, reduced additional paid-in capital by $ 106.8 million and reduced the accumulated deficit by $ 74.5 million.

Collaboration and License Agreements

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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.

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

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.

In connection with the FDA's acceptance of our investigational new drug application for NBI-1117568 for the treatment of schizophrenia in June 2022, we paid Heptares a milestone of $ 30.0 million, which was expensed as R&D in 2022.

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.

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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.

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.

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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.

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.

In connection with the approval of our clinical trial application for NBI-1070770 for the treatment of major depressive disorder in July 2022, we paid Takeda a milestone of $ 5.0 million, which was expensed as R&D in 2022.

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;

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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 United States, Japan, the European Union and the United Kingdom, or, collectively, the major markets, upon six 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.

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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.

In connection with the agreement, we paid Xenon $ 50.0 million upfront, including a purchase of approximately 1.4 million shares of Xenon common stock (at $ 14.196 per share).

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

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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).

In connection with the European Union’s approval of our 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.

The remaining $ 5.4 million of the milestone payment was expensed as R&D in 2021.

In connection with the FDA's acceptance of our amended KAYAK TM study protocol in January 2022, we paid Xenon a regulatory milestone of $ 15.0 million, including a purchase of approximately 0.3 million shares of Xenon common stock (at $ 31.855 per share).

The purchased shares were recorded at a fair value of $ 7.7 million after considering Xenon’s stock price on the measurement date.

The remaining $ 7.3 million of the milestone payment was expensed as R&D in 2022.

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.

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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.

In connection with the agreement, we paid Voyager $ 165.0 million upfront, including a purchase of approximately 4.2 million shares of Voyager common stock (at $ 11.9625 per share).

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

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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.

We may terminate the agreement upon 180 days’ written notice to Voyager prior to the first commercial sale of any collaboration product or upon one 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.

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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.

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

BIAL may terminate the agreement in the event we fail to meet the minimum sales requirements for any two 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.

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

In December 2020, we entered into a commercial supply agreement with MTPC, pursuant to which we agreed to supply MTPC with valbenazine drug product for commercial use in Japan and other select Asian markets.

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.

In June 2022, MTPC launched DYSVAL ® (valbenazine) in Japan for the treatment of tardive dyskinesia.

In connection with MTPC's first commercial sale of DYSVAL in Japan, we received a milestone payment of $ 20.0 million in 2022.

ASC 606 provides a royalty exception for a sales-based or usage-based royalty promised in exchange for a license of intellectual property.

Under the royalty exception, the milestone would be recognized as revenue only when the later of (1) the subsequent sale or usage occurs or (2) the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied (or partially satisfied).

As the milestone related to a license of intellectual property and was contingent upon MTPC’s first commercial sale of DYSVAL in Japan, the milestone was recognized as revenue in the second quarter of 2022.

In addition, we receive royalties at tiered percentage rates on MTPC net sales of DYSVAL.

Under the terms of our license agreement with MTPC, we may be entitled to receive potential future payments of up to $ 30.0 million upon the achievement of certain sales-based milestones and are entitled to receive royalties at tiered percentage rates on future MTPC net sales of valbenazine for the longer of 10 years or the life of the related patent rights.

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

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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.

In August 2018, AbbVie launched ORILISSA ® (elagolix tablets) in the United States for the treatment of moderate to severe pain associated with endometriosis.

In June 2020, AbbVie launched ORIAHNN ® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) in the United States 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 and recognized elagolix royalty revenue of $ 21.2 million for 2022, $ 22.3 million for 2021 and $ 19.2 million for 2020.

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

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

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

Diurnal Acquisition

On November 1, 2022, we completed our acquisition of Diurnal Group plc, or Diurnal, a United Kingdom-headquartered, specialty pharmaceutical company dedicated to developing hormone therapeutics to aid lifelong treatment for rare and chronic endocrine conditions, including congenital adrenal hyperplasia, adrenal insufficiency, hypogonadism and hypothyroidism.

We believe our acquisition of Diurnal presents an opportunity to accelerate the establishment of our clinical development and commercial capabilities in the United Kingdom to the benefit of patient communities and other stakeholders.

The aggregate purchase price of this acquisition was $ 55.2 million in cash.

The acquisition was accounted for in accordance with FASB ASC 805 as a Business Combinations and, accordingly, Diurnal’s results of operations have been consolidated in Neurocrine Biosciences’ financial statements since the date of acquisition.

Pro forma results of operations for the years ended December 31, 2022 and 2021 would not be materially different as a result of this acquisition and therefore are not presented.

In connection with the acquisition, we recognized transaction costs of $ 1.7 million, which were expensed as selling, general and administrative and primarily consisted of investment banker, advisory, legal and other professional fees.

The following table summarizes the consideration paid for Diurnal and the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.

(in millions) Amount

Consideration

Total consideration transferred $ 55.2

Recognized amounts of identifiable assets acquired and liabilities assumed

Intangible assets 32.6

Acquired in-process research and development 3.2

Other assets 12.4

Accounts payable and other accrued expenses ( 10.7 )

Total identifiable net assets acquired $ 50.0

Goodwill $ 5.2

Debt Securities

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:

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

2022 December 31,

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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.

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,

No allowance for credit losses was recognized as of December 31, 2022 or 2021.

The following table presents debt securities available-for-sale that were in an unrealized loss position as of December 31, 2022, aggregated by major security type and length of time in a continuous loss position.

Less Than 12 Months 12 Months or Longer Total

(in millions) Fair

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Value Unrealized

Commercial paper $ 32.1 $ ( 0.2 ) $ — $ — $ 32.1 $ ( 0.2 )

Corporate debt securities $ 199.5 $ ( 1.9 ) $ 299.1 $ ( 5.6 ) $ 498.6 $ ( 7.5 )

Securities of government-sponsored entities $ 107.7 $ ( 2.5 ) $ 198.4 $ ( 4.5 ) $ 306.1 $ ( 7.0 )

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

The following table presents debt securities available-for-sale that were in an unrealized loss position as of December 31, 2021, aggregated by major security type and length of time in a continuous loss position.

Less Than 12 Months 12 Months or Longer Total

(in millions) Fair

Value Unrealized

Corporate debt securities $ 428.6 $ ( 1.6 ) $ — $ — $ 428.6 $ ( 1.6 )

Securities of government-sponsored entities $ 230.5 $ ( 1.0 ) $ — $ — $ 230.5 $ ( 1.0 )

Fair Value Measurements

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

The following table presents a summary of investments, which were measured at fair value on a recurring basis.

2022 December 31,

Value Fair Value Measurements Using Fair

Value Fair Value Measurements Using

Value Leveling Fair

Value Leveling

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

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Unrealized gain (loss) included in earnings (1)

20.8 20.9 ( 17.7 )

Transfers out of Level 3 (2)

( 31.8 ) ( 52.7 ) —

Balance at end of period $ — $ 11.0 $ 38.2

_________________________

(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.

(1) Unrealized gains and losses on equity security investments which were measured at fair value on a recurring basis using significant unobservable inputs (Level 3) and are included in other income (expense), net.

(2) Certain of our equity security investments were transferred from Level 3 to Level 1 during 2022 and 2021 as the associated holding period restriction expired.

Convertible Senior Notes

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.

On May 2, 2017, we completed a private placement of $ 517.5 million in aggregate principal amount of 2.25 % fixed-rate convertible senior notes due May 15, 2024, or the 2024 Notes, and entered into the 2017 Indenture with respect to the 2024 Notes.

Interest on the 2024 Notes is due semi-annually on May 15 and November 15 of each year.

In accordance with authoritative guidance in effect at the time of issuance, we were required to separately account for the liability and equity components of the 2024 Notes.

The initial carrying value of the liability component of $ 368.3 million was calculated using a 7.50 % assumed borrowing rate, which reflected the market interest rate for a similar non-convertible instrument at the date of issuance.

The equity component of $ 149.2 million, which was treated as a discount on the liability component and amortized over the seven-year term of the 2024 Notes using the effective interest rate method, was determined by deducting the fair value of the liability component from the par value of the 2024 Notes and recorded as an increase to additional paid-in capital on the issuance date.

In addition, we allocated transaction costs of $ 14.7 million related to the issuance of the 2024 Notes to the liability and equity components based on their relative values on the issuance date.

Transaction costs attributable to the liability component were being amortized over the seven-year term of the 2024 Notes using the effective interest rate method, while transaction costs attributable to the equity component were recorded as a reduction to additional paid-in capital on the issuance date.

In the fourth quarter of 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.

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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.

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, which we recognized in 2020.

On January 1, 2022, we adopted ASU 2020-06 using the modified retrospective transition method, which allowed for a cumulative-effect adjustment in the period of adoption and did not require restatement of prior period amounts.

Under this transition method, the cumulative effect of the accounting change increased the carrying amount of the 2024 Notes by $ 42.2 million, reduced deferred tax liabilities by $ 9.9 million, reduced additional paid-in capital by $ 106.8 million, and reduced the accumulated deficit by $ 74.5 million.

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

We accounted for the partial repurchase of the 2024 Notes as a debt extinguishment, which resulted in the recognition of a $ 70.0 million loss on extinguishment in 2022.

The following table presents a summary of the 2024 Notes as of December 31, 2022.

Amount Unamortized Debt Net Carrying

Amount Fair Value

(in millions) Discount Issuance Costs Amount Leveling

2024 Notes $ 170.4 $ — $ ( 1.0 ) $ 169.4 $ 268.0 Level 2

The following table presents a summary of the 2024 Notes as of December 31, 2021.

Amount Unamortized Debt Net Carrying

Amount Fair Value

(in millions) Discount Issuance Costs Amount Leveling

2024 Notes $ 381.2 $ ( 43.2 ) $ ( 2.9 ) $ 335.1 $ 464.7 Level 2

The following table presents a summary of the interest expense of the 2024 Notes.

Year Ended December 31,

(in millions) 2022 2021 2020

Coupon interest $ 5.9 $ 8.5 $ 11.4

Amortization of debt discount and issuance costs 1.2 17.3 21.4

Total $ 7.1 $ 25.8 $ 32.8

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 2017 Indenture), in either cash or shares of our common stock.

The initial conversion rate for the 2024 Notes, which is subject to adjustment in some events (as provided for in the 2017 Indenture), is 13.1711 shares of common stock per $ 1,000 principal amount and equivalent to an initial conversion price of approximately $ 75.92 per share, reflecting a conversion premium of approximately 42.5 % above the closing price of $ 53.28 per share of our common stock on April 26, 2017.

We may redeem for cash all or part of the 2024 Notes if the last reported sale price (as defined in the 2017 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, 2022) 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.

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(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 (equal to $ 98.70 as of December 31, 2022) on each applicable 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;

(ii) during the five business-day period immediately after any five consecutive trading-day period (the measurement period) in which the trading price (as defined in the 2017 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;

(iv) if we call the 2024 Notes for redemption, until the close of business on the business day immediately preceding the redemption date.

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.

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.

At the initial conversion rate, settlement of the 2024 Notes for shares of our common stock would approximate 5.0 million shares.

The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.

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.

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

As the conditional conversion feature described under (i) above 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.

Accordingly, the 2024 Notes have been classified as a current liability as of December 31, 2022.

The future conditional convertibility of the 2024 Notes will be monitored at each quarterly reporting date and analyzed dependent upon market prices of our common stock during the prescribed measurement periods.

Upon conversion, holders will receive the principal amount of their 2024 Notes in cash 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 2017 Indenture), in either cash or shares of our common stock.

If we undergo a fundamental change (as defined in the 2017 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.

In addition, if a ‘‘make-whole fundamental change’’ (as defined in the 2024 Indenture) occurs prior to January 15, 2024, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert their notes in connection with the make-whole fundamental change.

In addition, if a make-whole fundamental change (as defined in the 2017 Indenture) occurs prior to January 15, 2024, we would, in certain circumstances, increase the conversion rate for a holder who elects to convert their notes in connection with the make-whole fundamental change.

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.

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 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.

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 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 2017 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.

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

(in millions) 2021 2020

Principal $ 381.2 $ 381.3

Deferred financing costs ( 2.9 ) ( 4.0 )

Debt discount, net ( 43.2 ) ( 59.4 )

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 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.

Goodwill and Intangible Assets

In connection with our acquisition of Diurnal in November 2022, we recognized goodwill of $ 5.2 million for the excess consideration transferred over the net assets acquired, reflecting the expected revenue and cost synergies of the combined company and assembled workforce.

The following table presents the changes in the carrying amount of goodwill.

(in millions) Amount

Balance as of December 31, 2021 $ —

Goodwill recognized in connection with business combination 5.2

Foreign currency translation adjustments 0.2

Balance as of December 31, 2022 $ 5.4

Intangible Assets

The following table presents information relating to our recognized intangible assets as of December 31, 2022.

(dollars in millions) Useful Life Gross Carrying Amount Accumulated Amortization Net

Carrying Amount

Developed product rights 10 years $ 34.3 $ 0.5 $ 33.8

Acquired IPR&D Indefinite $ 3.4 $ — 3.4

Total intangible assets, net $ 37.2

The following table presents the estimated annual amortization expense for our finite-lived intangible assets.

(in millions) Amount

Year ending December 31, 2023

Year ending December 31, 2024

Year ending December 31, 2025

Year ending December 31, 2026

Year ending December 31, 2027

Thereafter $ 16.3

Other Balance Sheet Details

Inventory consisted of the following:

Inventories consisted of the following:

(in millions) 2022 2021

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Finished goods 17.5 15.7

Total inventory $ 30.5 $ 28.0

Total inventories $ 35.1 $ 30.5

Property and equipment, net, consisted of the following:

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Total accounts payable and accrued liabilities $ 347.6 $ 225.8

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.

The following table presents a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.

(in millions) 2022 2021

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Effect of dilutive securities 3.1 3.3 4.7

Stock options 1.8 2.4 2.6

Restricted stock units 0.3 0.5 0.4

2024 Notes 1.1 1.8 1.1

Diluted 98.9 97.9 97.8

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Shares which have been excluded from diluted per share amounts because their effect would have been anti-dilutive were 4.6 million for 2022, 4.1 million for 2021 and 2.5 million for 2020.

Share-Based Compensation

In May 2011, we adopted the 2011 Equity Incentive Plan, as amended, or the 2011 Plan.

The 2011 Plan authorized 21 million shares of common stock for issuance and allowed for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, or RSUs, performance stock awards, performance-based restricted stock units, or PRSUs, and certain other awards.

During 2020, the 2011 Plan was merged into the 2020 Plan (defined below).

As a result, there were no shares of common stock remaining available for future grant under the 2011 Plan.

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.

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

Stock-Based Compensation

2020 Equity Incentive Plan.

In May 2022, our stockholders approved an amendment and restatement of the 2020 Equity Incentive Plan (as so amended and restated, the Amended 2020 Plan).

The Amended 2020 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards, and other awards.

As of December 31, 2022, 7.9 million shares of common stock remain available for future grant under the Amended 2020 Plan.

Under the terms of the Amended 2020 Plan, the number of shares of common stock available for issuance will be:

(i) reduced by (a) one share for each share issued pursuant to an appreciation award (as defined in the Amended 2020 Plan) granted under the Amended 2020 Plan and (b) 2.13 shares for each share issued pursuant to a full value award (as defined in the Amended 2020 Plan) granted under the Amended 2020 Plan on or after May 18, 2022;

and (ii) increased by (a) one share for each share subject to an appreciation award that becomes available again for issuance under the terms of the Amended 2020 Plan and (b) 2.13 shares for each share subject to a full value award that becomes available again for issuance under the terms of the Amended 2020 Plan on or after May 18, 2022.

2011 Equity Incentive Plan.

In May 2011, we adopted the 2011 Equity Incentive Plan, or the 2011 Plan.

The 2020 Plan authorized 3.3 million shares of common stock for issuance and allows for the grant of stock options, stock appreciation rights, restricted stock awards, RSUs, performance stock awards, PRSUs and certain other awards.

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.

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.

The effect of share-based compensation expense on our consolidated statements of income and comprehensive income by line-item follows:

The 2011 Plan was a stockholder-approved plan pursuant to which outstanding awards have been made, but from which no further awards can or will be made.

2018 Employee Stock Purchase Plan.

In May 2022, our stockholders approved an amendment and restatement of the 2018 Employee Stock Purchase Plan (as so amended and restated, the Amended 2018 ESPP).

As of December 31, 2022, 0.6 million shares of common stock remain available for future issuance under the Amended 2018 ESPP.

Stock-Based Compensation Expense.

The effect of stock-based compensation expense on our consolidated statements of income and comprehensive income by line-item follows:

Year Ended December 31,

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Research and development expense 57.7 48.4 33.7

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

Share-based compensation expense by award-type follows:

Total stock-based compensation expense $ 173.1 $ 134.2 $ 100.0

Stock-based compensation expense by award-type follows:

Year Ended December 31,

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ESPP 4.0 3.6 3.0

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

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:

Total stock-based compensation expense $ 173.1 $ 134.2 $ 100.0

As of December 31, 2022, unrecognized stock-based compensation expense by award-type and the weighted-average period over which such expense is expected to be recognized, as applicable, was as follows:

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

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Stock Options.

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

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

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

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• We have not historically declared or paid dividends and do not intend to do so in the foreseeable future.

A summary of activity related to stock options follows:

The following table presents summary of activity related to stock options.

(in millions, except weighted average data) Number of

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Restricted Stock Units.

RSUs typically vest over a 4-year period.

RSUs typically vest over a four-year period and may be subject to a deferred delivery arrangement at the election of eligible employees.

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

RSUs may be subject to a deferred delivery arrangement at the election of eligible employees.

A summary of activity related to RSUs follows:

The total fair value of RSUs that vested was $ 72.4 million for 2022, $ 64.3 million for 2021 and $ 49.7 million for 2020.

The following table presents a summary of activity related to RSUs.

(in millions, except weighted average data) Number of

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Unvested at December 31, 2021

Granted 1.2 $ 83.01

Released ( 0.8 ) $ 96.40

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2.3 $ 92.61 1.3 years $ 276.6

_________________________

(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 3 to 4 years from the grant date.

PRSUs vest based on the achievement of certain predefined Company-specific performance criteria.

Any unvested PRSUs will expire if it is determined the related performance criteria has not been met during the applicable three to four-year performance period.

The fair value of 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 performance-based criteria is determined to be probable.

A summary of activity related to PRSUs follows:

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

No PRSUs vested during 2021 or 2022.

The following table presents a summary of activity related to PRSUs.

(in millions, except weighted average data) Number of

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Granted 0.1 $ 80.04

Released — $ —

Canceled — $ —

Unvested at December 31, 2022

0.5 $ 101.00 0.8 years $ 60.5

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.

Employee Stock Purchase Plan.

Under the ESPP, eligible employees may purchase shares of our common stock at a discount semi-annually based on a percentage of their annual compensation.

Under the Amended 2018 ESPP, eligible employees may purchase shares of our common stock at a discount semi-annually based on a percentage of their annual compensation.

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 (benefit) for continuing operations were as follows:

The following table presents income before the provision for income taxes from continuing domestic and foreign operations.

Year Ended December 31,

(in millions) 2022 2021 2020

Domestic $ 218.0 $ 101.4 $ 106.7

Foreign ( 4.1 ) — —

Income before provision for income taxes $ 213.9 $ 101.4 $ 106.7

The following table presents the components of the provision for (benefit from) income taxes for continuing operations.

Year Ended December 31,

(in millions) 2022 2021 2020

Federal $ 17.1 $ — $ —

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State income tax, net of federal benefit 11.8 6.2 5.5

Non-deductible expenses 0.2 0.6 0.8

Branded prescription drug fee 6.5 4.8 4.9

Share-based compensation expense ( 11.3 ) ( 6.7 ) ( 12.8 )

Loss on extinguishment of convertible senior notes 12.0 — —

Stock-based compensation expense ( 2.5 ) ( 11.3 ) ( 6.7 )

Officer compensation 9.2 7.0 3.7

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

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

The following table presents the significant components of our deferred tax assets.

(in millions) 2022 2021

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Capitalized research and development 91.1 17.9

Share-based compensation expense 38.9 29.8

Stock-based compensation expense 45.9 38.9

Operating lease assets 26.8 29.3

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Net deferred tax assets $ 305.9 $ 315.1

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, 2022, our deferred tax assets were primarily the result of net operating loss carry forwards, capitalized research costs, acquired intangible assets and tax credit carryforwards.

As of December 31, 2022 and 2021, we recorded a valuation allowance of $ 67.0 million and $ 54.8 million, respectively, against our gross deferred tax asset balance.

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As of December 31, 2022, management determined there was sufficient positive evidence to conclude that it is more likely than not deferred tax assets of $ 305.9 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.

The recorded valuation allowance of $ 67.0 million consisted primarily of state and foreign net operating loss carryforwards and state credit carryforwards for which management cannot conclude it is more likely than not to be realized.

As of December 31, 2022, we had state and foreign income tax net operating loss carryforwards of $ 324.6 million and $ 60.1 million, respectively.

We had no federal income tax operating loss carryforwards as of December 31, 2022.

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

Foreign net operating losses will carry forward indefinitely unless previously utilized.

As of December 31, 2022, we had federal and state R&D tax credit carryforwards of $ 98.2 million and $ 72.5 million, respectively.

Federal R&D tax credits will begin to expire in 2037 unless previously utilized.

California R&D tax credits carry forward indefinitely, while R&D tax credits related to other states will begin to expire in 2033 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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An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.

Our policy is to recognize interest or penalties related to income tax matters in income tax expense.

We recognize interest and penalties related to income tax matters in income tax expense.

As of December 31, 2022, we had accruals for interest and penalties related to income tax matters of $ 0.5 million and $ 0.4 million, respectively.

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

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:

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

Tax years for 2002 for federal, inception for California, 2015 to 2019 for other significant state jurisdictions, and 2019 and forward for foreign are subject to examination by tax authorities due to the carryforward of unutilized net operating losses and R&D tax credits.

The following table presents a summary of activity related to unrecognized tax benefits.

Year Ended December 31,

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Balance at December 31 $ 84.5 $ 64.6 $ 60.8

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 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.

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.

As of December 31, 2022, we had $ 74.8 million of unrecognized tax benefits that, if recognized and realized, would affect the effective tax rate, subject to changes in the valuation allowance.

We do not expect a significant change in our unrecognized tax benefits in the next 12 months.

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.

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.

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

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.

This lease has not commenced for accounting purposes.

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 five years each.

The following tables present supplemental operating lease information.

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

(in millions) December 31,

(in millions) Amount (1)

Year ending December 31, 2023

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Noncurrent operating lease liabilities $ 93.5

_________________________

(1) Amounts presented in the table above exclude $ 17.2 million for 2024, $ 33.3 million for 2025, $ 41.9 million for 2026, and $ 479.7 million thereafter of approximate non-cancelable future minimum lease payments under operating leases that have not yet commenced.

Retirement Plan

2 unchanged sentences

Employer contributions were $ 10.3 million for 2022, $ 8.1 million for 2021 and $ 6.7 million for 2020.

Legal Proceedings

During 2021 and 2022, we received notices from (i) Teva Pharmaceuticals Development, Inc., (ii) Lupin Limited, (iii) Crystal Pharmaceutical (Suzhou) Co.

Ltd., (iv) Sandoz Inc.

and (v) Zydus Pharmaceuticals (USA) Inc.

that each company had filed an abbreviated new drug application, or ANDA, with the FDA seeking approval of a generic version of INGREZZA.

These companies represented that their respective ANDAs each contained a Paragraph IV Patent Certification alleging that certain of our patents covering INGREZZA are invalid and/or will not be infringed by the manufacture, use or sale of the medicine for which the ANDA was submitted.

We filed suit in the United States District Court for the District of Delaware during 2021 and 2022, against (i) Teva Pharmaceuticals, Inc., Teva Pharmaceuticals Development, Inc., Teva Pharmaceuticals USA, Inc.

and Teva Pharmaceutical Industries Ltd.

(entity dismissed), (ii) Lupin Limited, Lupin Pharmaceuticals, Inc., Lupin Inc.

and Lupin Atlantis Holdings S.A., (iii) Crystal Pharmaceutical (Suzhou) Co., Ltd., Crystal Pharmatech Co., Ltd., (iv) Sandoz Inc., Sandoz International GmbH (entity dismissed) and Sandoz AG (entity dismissed) and (v) Zydus Pharmaceuticals (USA) Inc., Zydus Worldwide DMCC, Zydus Lifesciences Limited (formerly known as Cadila Healthcare Limited d/b/a Zydus Cadila) and Zydus Healthcare (USA) LLC (entity dismissed).

has been joined in the cases against Crystal Pharmaceutical (Suzhou) Co., Ltd.

and Crystal Pharmatech Co., Ltd.

These cases have been consolidated in the United States District Court for the District of Delaware and the trial is currently scheduled for January 2, 2024.

We also filed suit in the United States District Court for the District of New Jersey during 2021 and 2022 against Zydus Pharmaceuticals (USA) Inc., Zydus Worldwide DMCC, Zydus Lifesciences Limited (formerly known as Cadila Healthcare Limited d/b/a Zydus Cadila) and Zydus Healthcare (USA) LLC and these cases were dismissed in favor of continued prosecution of the Delaware proceedings against the same entities.

From time to time, we may also become subject to other legal proceedings or claims arising in the ordinary course of our business.

We currently believe that none of the claims or actions pending against us is likely to have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.

Given the unpredictability inherent in litigation, however, we cannot predict the outcome of these matters.

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.

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.

Changes and Disagreements with Accountants on Accounting and Financial Disclosure

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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 8. Financial Statements and Supplementary Data