What changed in this filing

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Item 1. Financial Statements

2023-05-03 compared with 2022-11-01 · 125 added, 164 removed, 323 unchanged (47% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data) September 30,

(in millions, except share data) March 31,

2023 December 31,

9 unchanged sentences

Right-of-use assets 84.4 87.0

Equity securities 94.9 63.7

Equity security investments 135.7 102.1

Property and equipment, net 62.8 58.6

Intangible assets, net 37.2 37.2

Other assets 24.9 25.0

7 unchanged sentences

Convertible senior notes 169.5 —

Operating lease liabilities 96.6 105.3

Noncurrent operating lease liabilities 90.4 93.5

Other long-term liabilities 41.3 29.7

14 unchanged sentences

NEUROCRINE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE (LOSS) INCOME

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions, except per share data) 2023 2022

8 unchanged sentences

Total operating expenses 534.6 307.5

Operating income 87.8 44.5 145.6 138.8

Operating (loss) income ( 114.2 ) 3.1

Other income (expense):

Interest expense ( 1.1 ) ( 2.6 )

Unrealized gain (loss) on equity securities 11.1 ( 8.2 ) 23.6 ( 7.5 )

Loss on extinguishment of convertible senior notes — — ( 70.0 ) —

Unrealized gain on equity security investments 2.2 19.9

Investment income and other, net 9.8 1.0

Total other income (expense), net 10.1 ( 14.0 ) ( 49.6 ) ( 23.6 )

Income before provision for income taxes 97.9 30.5 96.0 115.2

Provision for income taxes 29.4 8.0 30.5 18.3

Net income 68.5 22.5 65.5 96.9

Unrealized loss on debt securities available-for-sale, net of tax ( 1.8 ) ( 0.3 ) ( 12.3 ) ( 1.4 )

Comprehensive income $ 66.7 $ 22.2 $ 53.2 $ 95.5

Earnings per share:

Total other income, net 10.9 18.3

(Loss) income before (benefit from) provision for income taxes ( 103.3 ) 21.4

(Benefit from) provision for income taxes ( 26.7 ) 7.5

Net (loss) income ( 76.6 ) 13.9

Foreign currency translation adjustments, net of tax 1.2 —

Unrealized gain (loss) on debt securities available-for-sale, net of tax 4.0 ( 7.6 )

Comprehensive (loss) income $ ( 71.4 ) $ 6.3

(Loss) earnings per share:

Basic $ ( 0.79 ) $ 0.15

9 unchanged sentences

(in millions) Shares $ Total

Balances at June 30, 2022

95.6 $ 0.1 $ 1,999.8 $ ( 12.2 ) $ ( 564.3 ) $ 1,423.4

Net income — — — — 68.5 68.5

Unrealized loss on debt securities available-for-sale, net of tax — — — ( 1.8 ) — ( 1.8 )

Stock-based compensation expense — — 43.1 — — 43.1

Issuances of common stock under stock plans 0.5 — 11.4 — — 11.4

Balances at September 30, 2022

96.1 $ 0.1 $ 2,054.3 $ ( 14.0 ) $ ( 495.8 ) $ 1,544.6

Balances at June 30, 2021

94.6 $ 0.1 $ 1,929.4 $ 0.7 $ ( 651.0 ) $ 1,279.2

Net income — — — — 22.5 22.5

Unrealized loss on debt securities available-for-sale, net of tax — — — ( 0.3 ) — ( 0.3 )

Stock-based compensation expense — — 37.1 — — 37.1

Issuances of common stock under stock plans 0.2 — 7.5 — — 7.5

Balances at September 30, 2021

94.8 $ 0.1 $ 1,974.0 $ 0.4 $ ( 628.5 ) $ 1,346.0

Balance at December 31, 2022

96.5 $ 0.1 $ 2,122.4 $ ( 7.9 ) $ ( 406.8 ) $ 1,707.8

Net income — — — — 65.5 65.5

Unrealized loss on debt securities available-for-sale, net of tax — — — ( 12.3 ) — ( 12.3 )

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

Net loss — — — — ( 76.6 ) ( 76.6 )

Other comprehensive income, net of tax — — — 5.2 — 5.2

Stock-based compensation expense — — 39.9 — — 39.9

Issuances of common stock under stock plans 1.0 — 8.2 — — 8.2

Balances at September 30, 2022

Balance at March 31, 2023

97.5 $ 0.1 $ 2,170.5 $ ( 2.7 ) $ ( 483.4 ) $ 1,684.5

2 unchanged sentences

Net income — — — — 13.9 13.9

Unrealized loss on debt securities available-for-sale, net of tax — — — ( 1.4 ) — ( 1.4 )

Other comprehensive loss, net of tax — — — ( 7.6 ) — ( 7.6 )

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

Stock-based compensation expense — — 37.0 — — 37.0

Issuances of common stock under stock plans 0.6 — 6.1 — — 6.1

Balance at September 30, 2021

Balance at March 31, 2022

95.5 $ 0.1 $ 1,947.7 $ ( 9.3 ) $ ( 547.4 ) $ 1,391.1

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30,

Three Months Ended

(in millions) 2023 2022

Cash flows from operating activities:

Net income $ 65.5 $ 96.9

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

Net (loss) income $ ( 76.6 ) $ 13.9

Adjustments to reconcile net (loss) income to net cash from operating activities:

Stock-based compensation expense 39.9 37.0

Loss on extinguishment of convertible senior notes 70.0 —

Depreciation 4.1 3.3

Amortization of debt discount — 12.1

Amortization of debt issuance costs 0.2 0.4

Change in fair value of equity security investments ( 23.6 ) 7.5

Amortization of intangible assets 0.9 —

Changes in fair value of equity security investments ( 2.2 ) ( 19.9 )

Deferred income taxes ( 31.6 ) ( 0.3 )

9 unchanged sentences

Sales and maturities of debt securities available-for-sale 203.9 176.5

Purchases of equity securities ( 7.7 ) ( 4.6 )

Purchases of equity security investments ( 31.3 ) ( 7.7 )

Capital expenditures ( 8.5 ) ( 7.6 )

2 unchanged sentences

Issuances of common stock under benefit plans 8.2 6.1

Repurchase of convertible senior notes ( 279.0 ) ( 0.1 )

Cash flows from financing activities 8.2 6.1

4 unchanged sentences

Non-cash capital expenditures $ 0.6 $ 2.8

Right-of-use assets acquired through operating leases $ — $ 21.6

Cash paid for interest $ 4.6 $ 4.3

Cash paid for income taxes $ 0.2 $ —

12 unchanged sentences

The condensed consolidated balance sheet as of December 31, 2022, has been derived from the audited financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

There were no significant changes to our significant accounting policies as disclosed in the 2022 Form 10-K, except as set forth below.

Strategic investments.

We account for certain equity investments subject to the equity method of accounting, or through which we have the ability to exercise significant influence (but not control) over the operating and financial policies of an investee, under the fair value option.

In assessing whether we exercise significant influence, we consider the nature and magnitude of such an investment, the voting and protective rights we hold, any participation in the governance of the investee and other relevant factors, such as the presence of a collaborative or other business relationship.

Such investments are classified within Level 1 of the fair value hierarchy and carried at fair value, with any changes in the fair value of such investments recognized in earnings.

Recently Adopted Accounting Pronouncements.

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 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.

In June 2022, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The ASU also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and introduces certain disclosure requirements for equity securities subject to such restrictions.

The amendments in ASU 2022-03 should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption.

We adopted ASU 2022-03 on January 1, 2023 with no significant impact on our condensed consolidated financial statements.

Collaboration and License Agreements

Heptares Therapeutics Limited, or Heptares.

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

We 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, for which 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.

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.

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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 the third quarter of 2022.

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.

In connection with the approval of our clinical trial application for NBI-1070770 for the treatment of major depressive disorder in July 2022, a milestone of $ 5.0 million was expensed as R&D in the third quarter of 2022, which we expect to pay to Takeda in the fourth quarter of 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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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 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 that were applicable to the shares.

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

9 unchanged sentences

Voyager Therapeutics, Inc., or Voyager.

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

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

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

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

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).

2019 Voyager Agreement.

In 2019, we entered into a collaboration and license agreement with Voyager, or the 2019 Voyager Agreement, pursuant to which we retain certain rights to develop and commercialize the Friedreich’s ataxia program and two undisclosed programs.

We are responsible for all development and commercialization costs of any collaboration product under the 2019 Voyager Agreement, subject to certain co-development and co-commercialization rights retained by Voyager.

In connection with the 2019 Voyager 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), or the 2019 Purchased Shares, which are subject to certain transfer, beneficial ownership, and voting restrictions for a period of up to three years from the effective date of the 2023 Voyager Agreement (defined below).

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

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

The 2019 Purchased Shares were recorded at a fair value of $ 54.7 million after considering Voyager’s stock price and certain transfer restrictions that were applicable to the shares on the measurement date.

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

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

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.

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 one year after the date of notice if such notice is provided after the first commercial sale of any collaboration product.

Under the terms of the 2019 Voyager 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, subject to certain co-development and co-commercialization rights retained by Voyager.

Unless terminated earlier, the 2019 Voyager Agreement will continue in effect until the expiration of the last to expire royalty term with respect to any collaboration product under the agreement or the last expiration or termination of any exercised co-development and co-commercialization rights by Voyager as provided for in the 2019 Voyager Agreement.

We may terminate the 2019 Voyager Agreement upon 180 days’ written notice to Voyager prior to the first commercial sale of any collaboration product under the 2019 Voyager Agreement or upon one year after the date of notice if such notice is provided after the first commercial sale of any collaboration product under the 2019 Voyager Agreement.

2023 Voyager Agreement.

In the first quarter of 2023, we entered into a collaboration and license agreement with Voyager, or the 2023 Voyager Agreement, pursuant to which we acquired the global rights to the gene therapy products directed to the gene that encodes glucosylceramidase beta 1, or GBA1, for the treatment of Parkinson's disease and other diseases associated with GBA1, or the GBA1 Program, and three gene therapy programs directed to rare central nervous system, or CNS, targets, each enabled by Voyager's next-generation TRACER TM capsids.

With respect to collaboration products subject to the GBA1 Program, we are responsible for all development and commercialization costs of any such products, including in the United States, where Voyager retains certain co-development and co-commercialization rights.

Voyager may elect to exercise such rights, pursuant to which we and Voyager would equally share in the operating profits and losses of such products in the United States (in lieu of Voyager being entitled to receive potential future payments of certain event-based milestones upon their achievement in the United States and receive royalties on the future net sales of such products in the United States), following Voyager’s receipt of the top-line data from a first Phase I clinical trial for each such product.

Irrespective of Voyager’s election to exercise such rights, Voyager may be entitled to receive potential future payments upon the achievement of certain event-based milestones outside the United States and would be entitled to receive royalties on the future net sales of any such product outside the United States.

With respect to collaboration products subject to the three gene therapy programs directed to rare CNS targets, we are responsible for all development and commercialization costs for any such products.

In connection with the 2023 Voyager Agreement, we paid Voyager $ 175.0 million upfront, including a purchase of approximately 4.4 million shares of Voyager common stock (at $ 8.88 per share), or the 2023 Purchased Shares, which are subject to certain transfer, beneficial ownership, and voting restrictions for a period of up to three years from the effective date of the 2023 Voyager Agreement.

In addition, as part of the collaboration, Jude Onyia, Ph.D., Chief Scientific Officer of Neurocrine, was appointed to Voyager's board of directors with an initial term expiring in 2024.

Onyia (or another individual designated by us) will be nominated for election to Voyager's board of directors annually for a maximum duration of 10 years from the effective date of the 2023 Voyager Agreement.

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

Our strategic investment in Voyager became subject to the equity method of accounting following our purchase of the 2023 Purchased Shares, after which, together with the 2019 Purchased Shares, we owned approximately 19.9 % of the voting stock of Voyager.

We elected the fair value option to account for our strategic investment in Voyager as we believe it creates greater transparency regarding the investment's fair value at future reporting dates.

The 2023 Purchased Shares were recorded at a fair value of $ 31.3 million after considering Voyager’s stock price on the measurement date.

The remaining $ 143.9 million of the purchase price, which includes certain transaction-related costs, was expensed as IPR&D in the first quarter of 2023 as the license had no foreseeable alternative future use.

We recognized an unrealized gain of $ 9.3 million on our strategic investment in Voyager for the first quarter of 2023.

As of March 31, 2023, the fair value (Level 1) of our strategic investment in Voyager was $ 66.1 million.

Under the terms of the 2023 Voyager Agreement, Voyager may be entitled to receive potential future payments of up to $ 6.1 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, subject to certain co-development and co-commercialization rights retained by Voyager.

Unless terminated earlier, the 2023 Voyager Agreement will continue in effect until the expiration of the last to expire royalty term with respect to any collaboration product under the 2023 Voyager Agreement or the last expiration or termination of any exercised co-development and co-commercialization rights by Voyager as provided for in the 2023 Voyager Agreement.

We may terminate the 2023 Voyager Agreement upon 180 days’ written notice to Voyager prior to the first commercial sale of any collaboration product under the 2023 Voyager Agreement or upon one year after the date of notice if such notice is provided after the first commercial sale of any collaboration product under the 2023 Voyager Agreement.

BIAL – Portela & Ca, S.A., or BIAL.

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

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

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

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

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

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

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 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.

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

In 2017, we received from BIAL a license to commercialize and market ONGENTYS ® (opicapone) in the United States and Canada.

We launched ONGENTYS in the United States in September 2020 as an FDA-approved add-on treatment to levodopa/carbidopa in patients with Parkinson's disease experiencing motor fluctuations.

In the first quarter of 2023, we provided BIAL with written notice of termination of the license agreement to commercialize and market ONGENTYS in the United States and Canada.

The termination is anticipated to be effective in December 2023.

Subject to certain conditions set forth in the license agreement, we may be required to continue to fulfill orders of ONGENTYS for a certain period of time following the date of notice of termination, or provide BIAL with the right to purchase our remaining inventory of ONGENTYS.

At BIAL’s discretion, for licensed products sold by us or our affiliates after the effective date of termination, we shall continue to make payments to BIAL in accordance with the terms and conditions of the agreement.

To the extent that BIAL does not intend to purchase such inventory, we will have the ability to sell such inventory subject to certain conditions set forth in the license agreement.

Mitsubishi Tanabe Pharma Corporation, or MTPC.

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.

In December 2020, we entered into a commercial supply agreement with MTPC, pursuant to which we supply MTPC with valbenazine drug product for commercial use in such markets.

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

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 the second quarter of 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 connection with MTPC's first commercial sale of DYSVAL in Japan, we recognized milestone revenue of $ 20.0 million in the second quarter of 2022.

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

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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 $ 6.1 million and $ 15.5 million, respectively, for the three and nine months ended September 30, 2022 and $ 5.9 million and $ 16.3 million, respectively, for the three and nine months ended September 30, 2021.

We receive royalties at tiered percentage rates on AbbVie net sales of elagolix and recognized elagolix royalty revenue of $ 3.7 million and $ 4.2 million, respectively, for the three months ended March 31, 2023 and 2022.

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.

3 unchanged sentences

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.

September 30,

2023 December 31,

13 unchanged sentences

$ 246.8 $ 0.6 $ ( 2.8 ) $ 244.6 $ 304.5 $ 0.2 $ ( 5.3 ) $ 299.4

As of September 30, 2022, our security portfolio consisted of 193 debt securities available-for-sale, including 183 such securities that were in an unrealized loss position but of high credit quality.

As of March 31, 2023, our security portfolio consisted of 251 debt securities available-for-sale, including 177 such securities that were in an unrealized loss position but of high credit quality.

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

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

No allowance for credit losses was recognized as of September 30, 2022 or December 31, 2021.

The following table presents debt securities available-for-sale that were in an unrealized loss position as of September 30, 2022, aggregated by major security type and length of time in a continuous loss position.

No allowance for credit losses was recognized as of March 31, 2023 or December 31, 2022.

The following table presents debt securities available-for-sale that were in an unrealized loss position as of March 31, 2023, aggregated by major security type and length of time in a continuous loss position.

Less Than 12 Months 12 Months or Longer Total

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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 )

Accrued interest receivables on debt securities available-for-sale totaled $ 3.9 million and $ 2.2 million, respectively, as of September 30, 2022 and December 31, 2021.

Accrued interest receivables on debt securities available-for-sale totaled $ 4.4 million and $ 4.7 million, respectively, as of March 31, 2023 and December 31, 2022.

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

1 unchanged sentence

Uncollectible accrued interest receivables associated with an impaired debt security are reversed against interest income upon identification of the impairment.

No accrued interest receivables were written off during the nine months ended September 30, 2022 or 2021.

No accrued interest receivables were written off during the three months ended March 31, 2023 or 2022.

Fair Value Measurements

4 unchanged sentences

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

September 30,

2023 December 31,

2 unchanged sentences

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

Cash and cash equivalents:

Cash and money market funds $ 103.8 $ 103.8 $ — $ — $ 262.9 $ 262.9 $ — $ —

Restricted cash 7.8 7.8 — — 7.8 7.8 — —

Certificates of deposit 7.8 7.8 — — 3.2 3.2 — —

Debt securities available-for-sale:

Commercial paper 211.2 — 211.2 — 156.0 — 156.0 —

1 unchanged sentence

Securities of government-sponsored entities 312.8 — 312.8 — 321.4 — 321.4 —

Equity securities:

Equity securities–biotechnology industry 94.9 94.9 — — 63.7 52.7 — 11.0

$ 1,264.7 $ 314.9 $ 949.8 $ — $ 1,338.9 $ 396.7 $ 931.2 $ 11.0

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

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021 2022 2021

Balance at beginning of period $ — $ 38.9 $ 11.0 $ 38.2

Purchases — 4.6 — 4.6

Unrealized gain (loss) included in earnings (1)

— ( 8.2 ) 20.8 ( 7.5 )

Transfers out of Level 3 (2)

— — ( 31.8 ) —

Balance at end of period $ — $ 35.3 $ — $ 35.3

Equity security investments 135.7 135.7 — — 102.1 102.1 — —

$ 1,282.7 $ 247.3 $ 1,035.4 $ — $ 1,398.6 $ 372.8 $ 1,025.8 $ —

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

(2) In the first quarter of 2022, our equity security investment in Voyager was transferred from Level 3 to Level 1 as the associated holding period restriction expired.

Inventories consisted of the following:

(in millions) September 30,

(in millions) March 31,

2023 December 31,

3 unchanged sentences

Total inventories $ 33.4 $ 35.1

Goodwill and Intangible Assets

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

(in millions) Amount

Balance as of December 31, 2022

Foreign currency translation adjustments 0.2

Balance as of March 31, 2023

Intangible Assets

The following table presents information relating to our recognized intangible assets as of March 31, 2023.

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

Carrying Amount

Developed product rights 10 years $ 35.1 $ 1.4 $ 33.7

Acquired IPR&D Indefinite $ 3.5 $ — 3.5

Total intangible assets, net $ 37.2

The following table presents approximate future annual amortization expense for our finite-lived intangible assets as of March 31, 2023.

(in millions) Amount

2023 (9 months remaining)

Thereafter $ 16.7

Cash, Cash Equivalents and Restricted Cash

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

(in millions) September 30,

2022 September 30,

(in millions) March 31,

2023 March 31,

Cash and cash equivalents $ 103.8 $ 270.2

9 unchanged sentences

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.

In connection with our operating leases, in lieu of a cash security deposits, Wells Fargo Bank, N.A., issued letters of credit on our behalf, which are secured by deposits totaling $ 7.8 million.

In connection with our operating leases, in lieu of a cash security deposits, Wells Fargo Bank, N.A.

issued letters of credit on our behalf, which are secured by deposits totaling $ 7.8 million.

The following table presents supplemental operating lease information for operating leases that have commenced.

Nine Months Ended

September 30,

Three Months Ended

(in millions, except weighted average data) 2023 2022

1 unchanged sentence

Cash paid for amounts included in the measurement of operating lease liabilities $ 4.4 $ 4.0

September 30,

2022 September 30,

2023 March 31,

Weighted average remaining lease term

1 unchanged sentence

Weighted average discount rate 5.3 % 5.2 %

The following table presents approximate non-cancelable future minimum lease payments under operating leases as of September 30, 2022.

The following table presents approximate non-cancelable future minimum lease payments under operating leases as of March 31, 2023.

(in millions) Amount (1)

11 unchanged sentences

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.

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

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

The difference of $ 56.3 million between the fair value of the aggregate consideration remitted to certain holders of the 2024 Notes and the fair value of the liability component was attributed to the reacquisition of the equity component and recorded 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, which we recognized in the fourth quarter of 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 the second quarter of 2022.

The following table presents a summary of the 2024 Notes as of September 30, 2022.

Amount Unamortized Debt Net Carrying

In 2020, we repurchased $ 136.2 million aggregate principal amount of the 2024 Notes for an aggregate repurchase price of $ 186.9 million in cash.

In 2022, we repurchased $ 210.8 million aggregate principal amount of the 2024 Notes for an aggregate repurchase price of $ 279.0 million in cash.

The following table presents a summary of the 2024 Notes as of March 31, 2023.

Amount Unamortized Issuance Costs Net Carrying

Amount Fair Value

(in millions) Discount Issuance Costs Amount Leveling

(in millions) Amount Leveling

2024 Notes $ 170.4 $ ( 0.9 ) $ 169.5 $ 229.5 Level 2

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

Amount Unamortized Debt Net Carrying

Amount Unamortized Issuance Costs Net Carrying

Amount Fair Value

(in millions) Discount Issuance Costs Amount Leveling

(in millions) Amount Leveling

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

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022

1 unchanged sentence

Amortization of debt discount and issuance costs 0.2 0.4

Total $ 1.2 $ 6.6 $ 6.0 $ 19.2

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.

Total interest expense $ 1.1 $ 2.6

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 September 30, 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.

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 March 31, 2023) for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending on, and including, the trading day immediately before the date which we provide notice of redemption.

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

(i) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130 % of the conversion price (equal to $ 98.70 as of September 30, 2022) on each applicable 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;

2 unchanged sentences

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 September 30, 2022, holders of the 2024 Notes may convert the 2024 Notes at any time during the period beginning on October 3, 2022, and ending at the close of business on December 30, 2022.

Accordingly, the 2024 Notes have been classified as a current liability as of September 30, 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.

Upon conversion, holders will receive the principal amount of their 2024 Notes in cash and 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.

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.

3 unchanged sentences

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.

Earnings per Share

Earnings per share was calculated as follows:

(Loss) Earnings per Share

(Loss) earnings per share was calculated as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions, except per share data) 2023 2022

Net income - basic and diluted $ 68.5 $ 22.5 $ 65.5 $ 96.9

Net (loss) income - basic and diluted $ ( 76.6 ) $ 13.9

Weighted-average shares outstanding:

5 unchanged sentences

Diluted 97.1 97.6

Earnings per share, basic $ 0.72 $ 0.24 $ 0.69 $ 1.03

Earnings per share, diluted $ 0.69 $ 0.23 $ 0.67 $ 0.99

(Loss) earnings per share, basic $ ( 0.79 ) $ 0.15

(Loss) earnings per share, diluted $ ( 0.79 ) $ 0.14

Shares excluded from diluted per share amounts because their effect would have been anti-dilutive 15.5 6.0

Subsequent Events

On November 1, 2022, we acquired Diurnal Group plc in an all-cash transaction, for an aggregate value of approximately £ 48.3 million GBP, or approximately $ 56 million USD.

We believe the transaction 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.

We are currently in the process of finalizing the accounting for this transaction.

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

What changed 10-Q

Item 1. Financial Statements