NEUROCRINE BIOSCIENCES INC 10-Q

Item 1. Financial Statements NEUROCRINE BIOSCIENCES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in millions, except share data) June 30, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 160.2 $ 262.9 Debt securities available-for-sale 816.5 726.4 Accounts receivable 387.6 350.0 Inventories, net 31.7 35.1 Other current assets 100.6 79.1 Total current assets 1,496.6 1,453.5 Deferred tax assets 379.0 305.9 Debt securities available-for-sale 342.6 299.4 Right-of-use assets 83.5 87.0 Equity security investments 173.0 102.1 Property and equipment, net 65.6 58.6 Intangible assets, net 36.9 37.2 Other assets 35.9 25.0 Total assets $ 2,613.1 $ 2,368.7 Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 391.6 $ 347.6 Convertible senior notes 169.7 169.4 Other current liabilities 21.2 20.7 Total current liabilities 582.5 537.7 Noncurrent operating lease liabilities 89.1 93.5 Other long-term liabilities 88.5 29.7 Total liabilities 760.1 660.9 Stockholders’ equity: Preferred stock, $ 0.001 par value; 5.0 million shares authorized; no shares issued and outstanding — — Common stock, $ 0.001 par value; 220.0 million shares authorized; 97.6 million and 96.5 million shares issued and outstanding, respectively 0.1 0.1 Additional paid-in capital 2,241.9 2,122.4 Accumulated other comprehensive loss ( 1.1 ) ( 7.9 ) Accumulated deficit ( 387.9 ) ( 406.8 ) Total stockholders’ equity 1,853.0 1,707.8 Total liabilities and stockholders’ equity $ 2,613.1 $ 2,368.7 See accompanying notes to the condensed consolidated financial statements. 3 NEUROCRINE BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (unaudited) Three Months Ended June 30, Six Months Ended June 30, (in millions, except per share data) 2023 2022 2023 2022 Revenues: Net product sales $ 446.3 $ 352.0 $ 861.6 $ 657.0 Collaboration revenues 6.4 26.2 11.5 31.8 Total revenues 452.7 378.2 873.1 688.8 Operating expenses: Cost of revenues 11.5 4.8 20.0 9.4 Research and development 145.8 135.9 285.3 238.1 Acquired in-process research and development — — 143.9 — Selling, general and administrative 221.8 182.8 464.5 383.5 Total operating expenses 379.1 323.5 913.7 631.0 Operating income (loss) 73.6 54.7 ( 40.6 ) 57.8 Other income (expense): Interest expense ( 1.3 ) ( 2.2 ) ( 2.4 ) ( 4.8 ) Unrealized gain (loss) on equity security investments 37.3 ( 7.4 ) 39.5 12.5 Loss on extinguishment of convertible senior notes — ( 70.0 ) — ( 70.0 ) Investment income and other, net 12.0 1.6 21.8 2.6 Total other income (loss), net 48.0 ( 78.0 ) 58.9 ( 59.7 ) Income (loss) before provision for (benefit from) income taxes 121.6 ( 23.3 ) 18.3 ( 1.9 ) Provision for (benefit from) income taxes 26.1 ( 6.4 ) ( 0.6 ) 1.1 Net income (loss) 95.5 ( 16.9 ) 18.9 ( 3.0 ) Foreign currency translation adjustments, net of tax 0.9 — 2.1 — Unrealized gain (loss) on debt securities available-for-sale, net of tax 0.7 ( 2.9 ) 4.7 ( 10.5 ) Comprehensive income (loss) $ 97.1 $ ( 19.8 ) $ 25.7 $ ( 13.5 ) Earnings (loss) per share: Basic $ 0.98 $ ( 0.18 ) $ 0.19 $ ( 0.03 ) Diluted $ 0.95 $ ( 0.18 ) $ 0.19 $ ( 0.03 ) Weighted-average shares outstanding: Basic 97.6 95.6 97.4 95.4 Diluted 100.2 95.6 100.3 95.4 See accompanying notes to the condensed consolidated financial statements. 4 NEUROCRINE BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) Accumulated Other Comprehensive Income (Loss) Common Stock Additional Paid-In Capital Accumulated Deficit (in millions) Shares $ Total Balances at March 31, 2023 97.5 $ 0.1 $ 2,170.5 $ ( 2.7 ) $ ( 483.4 ) $ 1,684.5 Net income — — — — 95.5 95.5 Other comprehensive income, net of tax — — — 1.6 — 1.6 Stock-based compensation expense — — 68.5 — — 68.5 Issuances of common stock under stock plans 0.1 — 2.9 — — 2.9 Balances at June 30, 2023 97.6 $ 0.1 $ 2,241.9 $ ( 1.1 ) $ ( 387.9 ) $ 1,853.0 Balances at March 31, 2022 95.5 $ 0.1 $ 1,947.7 $ ( 9.3 ) $ ( 547.4 ) $ 1,391.1 Net loss — — — — ( 16.9 ) ( 16.9 ) Other comprehensive loss, net of tax — — — ( 2.9 ) — ( 2.9 ) Stock-based compensation expense — — 49.5 — — 49.5 Issuances of common stock under stock plans 0.1 — 2.6 — — 2.6 Balances at June 30, 2022 95.6 $ 0.1 $ 1,999.8 $ ( 12.2 ) $ ( 564.3 ) $ 1,423.4 Balance at December 31, 2022 96.5 $ 0.1 $ 2,122.4 $ ( 7.9 ) $ ( 406.8 ) $ 1,707.8 Net income — — — — 18.9 18.9 Other comprehensive income, net of tax — — — 6.8 — 6.8 Stock-based compensation expense — — 108.4 — — 108.4 Issuances of common stock under stock plans 1.1 — 11.1 — — 11.1 Balance at June 30, 2023 97.6 $ 0.1 $ 2,241.9 $ ( 1.1 ) $ ( 387.9 ) $ 1,853.0 Balance at December 31, 2021 94.9 $ 0.1 $ 2,011.4 $ ( 1.7 ) $ ( 635.8 ) $ 1,374.0 Net loss — — — — ( 3.0 ) ( 3.0 ) Other comprehensive loss, net of tax — — — ( 10.5 ) — ( 10.5 ) Cumulative-effect adjustment due to adoption of ASU 2020-06 — — ( 106.8 ) — 74.5 ( 32.3 ) Stock-based compensation expense — — 86.5 — — 86.5 Issuances of common stock under stock plans 0.7 — 8.7 — — 8.7 Balance at June 30, 2022 95.6 $ 0.1 $ 1,999.8 $ ( 12.2 ) $ ( 564.3 ) $ 1,423.4 See accompanying notes to the condensed consolidated financial statements. 5 NEUROCRINE BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months Ended June 30, (in millions) 2023 2022 Cash flows from operating activities: Net income (loss) $ 18.9 $ ( 3.0 ) Adjustments to reconcile net income (loss) to net cash from operating activities: Stock-based compensation expense 108.4 86.5 Depreciation 8.3 7.2 Amortization of debt issuance costs 0.4 0.8 Amortization of intangible assets 1.8 — Changes in fair value of equity security investments ( 39.5 ) ( 12.5 ) Deferred income taxes ( 73.1 ) ( 3.4 ) Loss on extinguishment of convertible senior notes — 70.0 Other ( 6.7 ) 2.3 Change in operating assets and liabilities: Accounts receivable ( 37.5 ) ( 93.5 ) Inventories 3.4 1.2 Accounts payable and accrued liabilities 22.9 44.2 Other assets and liabilities, net 47.1 ( 2.2 ) Cash flows from operating activities 54.4 97.6 Cash flows from investing activities: Purchases of debt securities available-for-sale ( 530.0 ) ( 253.7 ) Sales and maturities of debt securities available-for-sale 408.6 277.6 Purchases of equity security investments ( 31.3 ) ( 7.7 ) Capital expenditures ( 15.3 ) ( 16.4 ) Cash flows from investing activities ( 168.0 ) ( 0.2 ) Cash flows from financing activities: Issuances of common stock under benefit plans 11.1 8.7 Repurchase of convertible senior notes — ( 279.0 ) Cash flows from financing activities 11.1 ( 270.3 ) Change in cash, cash equivalents and restricted cash ( 102.5 ) ( 172.9 ) Cash, cash equivalents and restricted cash at beginning of period 270.7 344.0 Cash, cash equivalents and restricted cash at end of period $ 168.2 $ 171.1 Supplemental disclosures: Non-cash capital expenditures $ 0.8 $ 0.9 Right-of-use assets acquired through operating leases $ 1.8 $ — Cash paid for interest $ 1.9 $ 4.6 Cash paid for income taxes $ 3.4 $ 3.1 See accompanying notes to the condensed consolidated financial statements. 6 NEUROCRINE BIOSCIENCES, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Organization and Significant Accounting Policies Basis of Presentation . The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial information and with the instructions of the Securities and Exchange Commission, or SEC, on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of our financial position and of the results of operations and cash flows for the periods presented. The accompanying unaudited condensed consolidated financial statements include the accounts of Neurocrine Biosciences and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022, included in our Annual Report on Form 10-K, or the 2022 Form 10-K, filed with the SEC. The results of operations for the interim period shown in this report are not necessarily indicative of the results that may be expected for any other interim period or the full year. 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 currently 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 2022-03. 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. 2. 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, 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. 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. We are responsible for all development, manufacturing and commercialization costs of any collaboration product. 7 In connection with the agreement, we paid Heptares $ 100.0 million upfront, which, including certain transaction-related costs, was expensed as in-process research and development, or 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 United States Food and Drug Administration's, or 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 research and development, or R&D, in the second quarter of 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. Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until the date on which the royalty term for such licensed product has expired in such country. On a licensed product-by-licensed product and country-by-country basis, royalty payments would commence on the first commercial sale of a licensed product and terminate on the later of (i) the expiration of the last patent covering such licensed product in such country, (ii) a number of years from the first commercial sale of such licensed product in such country and (iii) the expiration of regulatory exclusivity for such licensed product in such country. We may terminate the agreement in its entirety or with respect to one or more targets upon 180 days’ written notice to Heptares during the research collaboration term and upon 90 days’ written notice to Heptares following the expiration of the research collaboration term. Following the expiration of the research collaboration term, Heptares may terminate the agreement on a target-by-target basis in the event that we do not conduct any material development activities outside of Japan with respect to a certain compound or licensed product within the applicable target class for a continuous period of not less than 365 days and do not commence any such activities within 120 days of receiving written notice. Either party may terminate the agreement, subject to specified conditions, (i) in the event of material breach by the other party, subject to a cure period, (ii) if the other party challenges the validity or enforceability of certain intellectual property rights, subject to a cure period, or (iii) if the other party becomes insolvent or takes certain actions related to insolvency. Takeda Pharmaceutical Company Limited, or Takeda. In 2020, we entered into an exclusive license agreement with Takeda, pursuant to which we acquired the exclusive rights to develop and commercialize certain early to mid-stage psychiatry compounds, including luvadaxistat, NBI-1065845, NBI-1065846 and four non-clinical stage compounds. Luvadaxistat and the four non-clinical stage compounds have each been designated as a royalty-bearing product. NBI-1065845 and NBI-1065846 are currently each designated as a profit-share product. We are responsible for all manufacturing, development and commercialization costs of any royalty-bearing product. With respect to NBI-1065845 and NBI-1065846, we and Takeda will equally share in the operating profits and losses. Takeda retains the rights to opt-out of the profit-sharing arrangements, pursuant to which Takeda would be entitled to receive potential future payments upon the achievement of certain event-based milestones with respect to such compounds and receive royalties on the future net sales of such compounds (in lieu of equally sharing in the operating profits and losses). Takeda may elect to exercise such opt-out right for such compound immediately following the completion of a second Phase II clinical trial for such compound, or, under certain circumstances related to the development and commercialization activities to be performed by us, before the initiation of a Phase III clinical trial for such compound. 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 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. Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until the date on which, (i) for any royalty-bearing product, the royalty term has expired in such country; and (ii) for any profit-share product, for so long as we continue to develop, manufacture, or commercialize such licensed product. On a licensed product-by-licensed product and country-by-country basis, royalty payments would commence on the first commercial sale of a royalty-bearing product and terminate on the later of (i) the expiration of the last patent covering such royalty-bearing product in such country, (ii) a number of years from the first commercial sale of such royalty-bearing product in such country and (iii) the expiration of regulatory exclusivity for such royalty-bearing product in such country. 8 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. Takeda may terminate the agreement, subject to specified conditions, (i) if we challenge the validity or enforceability of certain Takeda intellectual property rights or (ii) on a target class-by-target class basis, in the event that we do not conduct any material development or commercialization activities with respect to any licensed product within such target class for a specified continuous period. Subject to a cure period, either party may terminate the agreement in the event of any material breach, solely with respect to the target class of a licensed product to which such material breach relates, or in its entirety in the event of any material breach that relates to all licensed products. Idorsia Pharmaceuticals Ltd., or Idorsia. In 2020, we entered into a collaboration and license agreement with Idorsia, pursuant to which we acquired the global rights to NBI-827104, a potent, selective, orally active and brain penetrating T-type calcium channel blocker in clinical development for the treatment of a rare pediatric epilepsy and other potential indications, including essential tremor. We are responsible for all manufacturing, development and commercialization costs of any collaboration product. In connection with the agreement, we paid Idorsia $ 45.0 million upfront, which was expensed as IPR&D in 2020. We accounted for the transaction as an asset acquisition as the set of acquired assets did not constitute a business. Under the terms of the agreement, Idorsia may be entitled to receive potential future payments of up to $ 1.7 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any collaboration product. We may terminate the agreement, in its entirety or with respect to a particular compound or development candidate, upon 90 days’ written notice to Idorsia. Further, in the event a party commits a material breach and fails to cure such material breach within 90 days after receiving written notice thereof, the non-breaching party may terminate the agreement in its entirety immediately upon written notice to the breaching party. Xenon Pharmaceuticals Inc., or Xenon. In 2019, we entered into a collaboration and license agreement with Xenon to identify, research and develop sodium channel inhibitors, including NBI-921352 and three preclinical candidates, which compounds we have the exclusive rights to develop and commercialize. We are responsible for all development and manufacturing costs of any collaboration product, subject to certain exceptions. 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. The purchased shares were recorded at a fair value of $ 14.1 million after considering Xenon’s stock price on the measurement date and certain transfer restrictions applicable to the shares. The remaining $ 36.2 million of the purchase price, which includes certain transaction-related costs, was expensed as IPR&D in 2019. In connection with the European Union’s approval 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 that were applicable to the shares. 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 the first quarter of 2022. 9 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. Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until the expiration of the royalty term for such product in such country. Upon the expiration of the royalty term for a particular licensed product and country, the license obtained by us with respect to such product and country will become fully paid, royalty free, perpetual and irrevocable. We may terminate the agreement upon 90 days’ written notice to Xenon, provided that such unilateral termination will not be effective for certain products until we have used commercially reasonable efforts to complete certain specified clinical studies. Either party may terminate the agreement in the event of a material breach in whole or in part, subject to specified conditions. Voyager Therapeutics, Inc., or Voyager. 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 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 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. 10 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. Mr. 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 unrealized gains of $ 32.1 million and $ 41.3 million, respectively, on our strategic investment in Voyager for the second quarter and first six months of 2023. As of June 30, 2023, the fair value (Level 1) of our strategic investment in Voyager was $ 98.2 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. 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. 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 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 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. 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. In such event, all out-licensed product rights would revert to us. AbbVie Inc., or AbbVie. We out-licensed the global rights to elagolix to AbbVie in 2010. AbbVie is responsible for all development and commercialization costs of elagolix. 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 $ 4.2 million and $ 5.2 million, respectively, for the second quarter of 2023 and 2022 and $ 7.9 million and $ 9.4 million, respectively, for the first six months of 2023 and 2022. 11 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. 3. Debt Securities 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. June 30, 2023 December 31, 2022 (in millions) Contractual Maturity Amortized Cost Unrealized Gain Unrealized Loss Fair Value Amortized Cost Unrealized Gain Unrealized Loss Fair Value Commercial paper 0 to 1 years $ 223.7 $ — $ — $ 223.7 $ 156.2 $ — $ ( 0.2 ) $ 156.0 Corporate debt securities 0 to 1 years 263.7 — ( 2.4 ) 261.3 296.2 — ( 3.2 ) 293.0 Securities of government-sponsored entities 0 to 1 years 333.7 — ( 2.2 ) 331.5 283.4 — ( 6.0 ) 277.4 $ 821.1 $ — $ ( 4.6 ) $ 816.5 $ 735.8 $ — $ ( 9.4 ) $ 726.4 Corporate debt securities 1 to 3 years $ 268.5 $ 0.1 $ ( 2.9 ) $ 265.7 $ 259.5 $ 0.2 $ ( 4.3 ) $ 255.4 Securities of government-sponsored entities 1 to 3 years 78.1 — ( 1.2 ) 76.9 45.0 — ( 1.0 ) 44.0 $ 346.6 $ 0.1 $ ( 4.1 ) $ 342.6 $ 304.5 $ 0.2 $ ( 5.3 ) $ 299.4 Unrealized losses on our available-for-sale debt security investments were primarily due to changes in interest rates. These investments are of high credit quality, and 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 June 30, 2023 or December 31, 2022. The following table presents debt securities available-for-sale that were in an unrealized loss position as of June 30, 2023, 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 Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Corporate debt securities $ 248.0 $ ( 2.4 ) $ 225.8 $ ( 2.9 ) $ 473.8 $ ( 5.3 ) Securities of government-sponsored entities $ 262.8 $ ( 2.3 ) $ 76.3 $ ( 1.1 ) $ 339.1 $ ( 3.4 ) 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 Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss 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 $ 5.6 million and $ 4.7 million, respectively, as of June 30, 2023 and December 31, 2022. We do not measure an allowance for credit losses for accrued interest receivables. For the purposes of identifying and measuring an impairment, accrued interest is excluded from both the fair value and amortized cost basis of the debt security. 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 first six months of 2023 or 2022. 12 4. Fair Value Measurements The fair value hierarchy consists of the following three levels: Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 – Unobservable inputs that reflect our own assumptions about the assumptions that market participants would use in pricing the asset or liability when there is little, if any, market activity for the asset or liability at the measurement date. The following table presents a summary of investments, which were measured at fair value on a recurring basis. June 30, 2023 December 31, 2022 Fair Value Leveling Fair Value Leveling (in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Cash and money market funds $ 160.2 $ 160.2 $ — $ — $ 262.9 $ 262.9 $ — $ — Restricted cash 8.0 8.0 — — 7.8 7.8 — — Commercial paper 223.7 — 223.7 — 156.0 — 156.0 — Corporate debt securities 527.0 — 527.0 — 548.4 — 548.4 — Securities of government-sponsored entities 408.4 — 408.4 — 321.4 — 321.4 — Equity security investments 173.0 173.0 — — 102.1 102.1 — — $ 1,500.3 $ 341.2 $ 1,159.1 $ — $ 1,398.6 $ 372.8 $ 1,025.8 $ — 5. Inventories, net Inventories, net, consisted of the following: (in millions) June 30, 2023 December 31, 2022 Raw materials $ 10.4 $ 12.0 Work in process 6.3 5.6 Finished goods 15.0 17.5 Total inventories, net $ 31.7 $ 35.1 6. 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 $ 5.4 Foreign currency translation adjustments 0.3 Balance as of June 30, 2023 $ 5.7 The following table presents information relating to our recognized intangible assets as of June 30, 2023. (dollars in millions) Useful Life Gross Carrying Amount Accumulated Amortization Net Carrying Amount Developed product rights 10 years $ 35.7 $ 2.3 $ 33.4 Acquired IPR&D Indefinite $ 3.5 $ — 3.5 Total intangible assets, net $ 36.9 13 The following table presents approximate future annual amortization expense for our finite-lived intangible assets as of June 30, 2023. (in millions) Amount 2023 (6 months remaining) $ 1.8 2024 $ 3.6 2025 $ 3.6 2026 $ 3.6 2027 $ 3.6 Thereafter $ 17.2 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) June 30, 2023 June 30, 2022 Cash and cash equivalents $ 160.2 $ 163.3 Restricted cash included in other assets 8.0 7.8 Total cash, cash equivalents and restricted cash $ 168.2 $ 171.1 8. Leases Our operating leases that have commenced have terms that expire beginning 2025 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 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. 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. Six Months Ended June 30, (in millions, except weighted average data) 2023 2022 Operating lease cost $ 8.2 $ 8.2 Cash paid for amounts included in the measurement of operating lease liabilities $ 8.8 $ 8.2 June 30, 2023 June 30, 2022 Weighted average remaining lease term 7.4 years 8.3 years Weighted average discount rate 5.4 % 5.3 % 14 The following table presents approximate non-cancelable future minimum lease payments under operating leases as of June 30, 2023. (in millions) Amount (1) 2023 (6 months remaining) $ 9.1 2024 18.5 2025 17.0 2026 15.7 2027 16.0 Thereafter 54.4 Total operating lease payments 130.7 Less accreted interest 23.9 Total operating lease liabilities 106.8 Less current operating lease liabilities included in other current liabilities 17.7 Noncurrent operating lease liabilities $ 89.1 _________________________ (1) Amounts presented in the table above exclude $ 17.2 million for 2024, $ 33.3 million for 2025, $ 41.9 million for 2026, $ 43.2 million for 2027 and $ 436.5 million thereafter of approximate non-cancelable future minimum lease payments under operating leases that have not yet commenced. New Campus Facility. On February 8, 2022, we entered into a lease agreement for a new four-building campus facility in San Diego, California. This campus facility, comprised of office space and research and development laboratories, will serve as our new corporate headquarters upon completion of its construction. Under the terms of the lease, we also secured a six-year option for the construction of a fifth building and an option to purchase the entire campus in the future. 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. 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 commencement of this lease for accounting purposes will be determined for each building based upon its readiness for occupancy. On a building-by-building basis, we will recognize a lease liability, corresponding right-of-use asset, and initiate lease expense recognition when this condition has been met. 9. Convertible Senior Notes 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 2020, we repurchased $ 136.2 million aggregate principal amount of the 2024 Notes for an aggregate repurchase price of $ 186.9 million in cash, which resulted in the recognition of an $ 18.4 million loss on extinguishment. 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, 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 June 30, 2023. Principal Amount Unamortized Issuance Costs Net Carrying Amount Fair Value (in millions) Amount Leveling 2024 Notes $ 170.4 $ ( 0.7 ) $ 169.7 $ 215.7 Level 2 The following table presents a summary of the 2024 Notes as of December 31, 2022. Principal Amount Unamortized Issuance Costs Net Carrying Amount Fair Value (in millions) Amount Leveling 2024 Notes $ 170.4 $ ( 1.0 ) $ 169.4 $ 268.0 Level 2 15 The following table presents a summary of the interest expense of the 2024 Notes. Three Months Ended June 30, Six Months Ended June 30, (in millions) 2023 2022 2023 2022 Coupon interest $ 1.1 $ 1.8 $ 2.0 $ 4.0 Amortization of debt discount and issuance costs 0.2 0.4 0.4 0.8 Total interest expense $ 1.3 $ 2.2 $ 2.4 $ 4.8 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 June 30, 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 June 30, 2023) 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; (iii) upon the occurrence of specified corporate events, including a merger or a sale of all or substantially all of our assets; or (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 of the 2024 Notes may convert the 2024 Notes at any time. 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. 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. 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. 16 10. Earnings (Loss) per Share Earnings (loss) per share was calculated as follows: Three Months Ended June 30, Six Months Ended June 30, (in millions, except per share data) 2023 2022 2023 2022 Net income (loss) - basic and diluted $ 95.5 $ ( 16.9 ) $ 18.9 $ ( 3.0 ) Weighted-average shares outstanding: Basic 97.6 95.6 97.4 95.4 Effect of dilutive securities: Stock options 1.6 — 1.7 — Restricted stock 0.5 — 0.6 — 2024 Notes 0.5 — 0.6 — Diluted 100.2 95.6 100.3 95.4 Earnings (loss) per share, basic $ 0.98 $ ( 0.18 ) $ 0.19 $ ( 0.03 ) Earnings (loss) per share, diluted $ 0.95 $ ( 0.18 ) $ 0.19 $ ( 0.03 ) Shares excluded from diluted per share amounts because their effect would have been anti-dilutive 6.7 12.5 5.6 12.2 17