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Item 7. Management’s Discussion and Analysis

2024-02-09 compared with 2023-02-09 · 89 added, 120 removed, 140 unchanged (60% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations section contains forward-looking statements pertaining to, among other things, the commercialization of our product and product candidates, the expected continuation of our collaborative agreements, the receipt of research and development payments thereunder, the future achievement of various milestones in product development and the receipt of payments related thereto, the potential receipt of royalty payments, preclinical testing and clinical trials of potential products, the period of time that our existing capital resources will meet our funding requirements, and our financial results of operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations section contains forward-looking statements pertaining to, among other things, the commercialization of our product and product candidates, the expected continuation of our collaborative agreements, the progress, timing, results or implications of clinical trials and other development activities, our plans and timing with respect to seeking regulatory approvals, the period of time that our existing capital resources will meet our funding requirements, and our financial results of operations.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various risks and uncertainties, including those set forth in this Annual Report on Form 10-K under the heading “Item 1A.

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

The Company’s diverse portfolio includes United States Food and Drug Administration, or FDA, approved treatments for tardive dyskinesia, Parkinson’s disease, endometriosis* and uterine fibroids* and a diversified portfolio of advanced clinical-stage programs in multiple therapeutic areas.

For three decades, we have applied our unique insight into neuroscience and the interconnections between brain and body systems to treat complex conditions and we will continue to relentlessly pursue medicines to ease the burden of debilitating diseases and disorders.

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

We launched INGREZZA ® (valbenazine) in the United States in May 2017 as the first FDA-approved drug for the treatment of tardive dyskinesia and launched ONGENTYS ® (opicapone) in the United States in September 2020 as an FDA-approved add-on treatment for levodopa/carbidopa in patients with Parkinson's disease experiencing motor fluctuations.

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

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

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

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

The Company’s diverse portfolio includes U.S.

Food and Drug Administration (FDA) approved treatments for tardive dyskinesia, chorea associated with Huntington's disease, adrenal insufficiency, and endometriosis and uterine fibroids in collaboration with AbbVie Inc.

(AbbVie), a European Medicines Agency (EMA) approved treatment for classic congenital adrenal hyperplasia (CAH) and a diversified portfolio of advanced clinical-stage programs in multiple therapeutic areas.

We launched INGREZZA ® (valbenazine) in the U.S.

as the first FDA-approved drug for the treatment of tardive dyskinesia in May 2017 and for the treatment of adults with chorea associated with Huntington's disease in August 2023.

INGREZZA net product sales totaled $1.8 billion for 2023 and accounted for approximately 99% of our total net product sales for 2023.

Our partner Mitsubishi Tanabe Pharma Corporation (MTPC) launched DYSVAL ® (valbenazine) in Japan for the treatment of tardive dyskinesia in June 2022 and subsequently in other select Asian markets, where it is marketed as REMLEAS ® (valbenazine).

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

Our partner AbbVie launched ORILISSA ® (elagolix tablets) in the U.S.

for the treatment of moderate to severe pain associated with endometriosis in August 2018 and ORIAHNN ® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) in the U.S.

for the treatment of heavy menstrual bleeding due to uterine fibroids in June 2020.

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

Business Highlights

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

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

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

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

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

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

• INGREZZA net product sales for 2023 increased $0.4 billion, or 28.6%, to $1.8 billion, reflecting higher prescription demand and increased commercial activities, including continued investment in our branded direct-to-consumer INGREZZA advertising campaign and benefit from the expansion of our sales force completed in April 2022.

• In the fourth quarter of 2023, we announced that all patent litigation brought by Neurocrine Biosciences against the companies that filed an Abbreviated New Drug Application (ANDA) to the FDA seeking approval to market generic versions of INGREZZA prior to the expiration of the Orange Book listed patents have been resolved.

Pursuant to the terms of the respective settlement agreements, such companies have the right to sell generic versions of INGREZZA in the U.S.

beginning March 1, 2038, or earlier under certain circumstances.

Pipeline Highlights

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

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

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

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

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

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

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

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

Impacts of Macro-Economic Factors on Our Business

COVID-19 Global Pandemic.

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

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

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

and (3) advancing our clinical studies.

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

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

Risk Factors.

Russia/Ukraine Conflict.

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

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

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

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

Risk Factors.

Inflation Reduction Act.

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

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

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

It is currently unclear how the IRA will be implemented;

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

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

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

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

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

Risk Factors.

• Announced positive top-line data from the Phase 3 clinical studies of crinecerfont in adults and pediatrics with CAH.

Crinecerfont subsequently received Breakthrough Therapy designation from the FDA for the treatment of CAH.

Data from the Phase 3 studies will support a New Drug Application (NDA) submission to the FDA in the second quarter of 2024.

• Expanded strategic partnership with Voyager Therapeutics Inc.

(Voyager) to advance multiple gene therapy programs, each enabled by Voyager's next-generation TRACER TM capsids, for the treatment of neurological diseases.

Upfront fee associated with the agreement totaled $175.0 million, including an equity investment valued at $31.3 million on the transaction date, with the remaining $143.9 million of the purchase price, which includes the applicable transaction costs, expensed as in-process research and development in 2023.

• In the third quarter of 2023, we announced the FDA accepted the NDA for INGREZZA oral granules, a new sprinkle formulation of INGREZZA capsules for oral administration.

The agency set a Prescription Drug User Fee Act target action date of April 30, 2024.

• In the third quarter of 2023, the FDA approved INGREZZA for the treatment of adults with chorea associated with Huntington's disease.

• In the fourth quarter of 2023, we announced the Phase 2 clinical studies of NBI-921352 in focal onset seizures and NBI-1065846 for anhedonia in major depressive disorder (MDD) did not meet their primary endpoints.

No further development of NBI-921352 in focal onset seizures or NBI-1065846 for anhedonia in MDD is planned at this time.

Results of Operations

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INGREZZA $ 1,836.0 $ 1,427.8 $ 1,081.9

ONGENTYS and other 13.1 8.2 1.0

Other 24.6 13.1 8.2

Total net product sales $ 1,860.6 $ 1,440.9 $ 1,090.1

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

The increases in total net product sales from 2021 to 2022 and from 2022 to 2023 were primarily driven by increased INGREZZA net product sales on higher prescription demand and increased commercial activities, including continued investment in our branded direct-to-consumer INGREZZA advertising campaign and benefit from the expansion of our sales force completed in April 2022.

Collaboration Revenues by Category.

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Total collaboration revenue $ 26.5 $ 47.8 $ 43.4

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

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

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

Royalties reflect revenue earned on AbbVie net sales of elagolix for all periods presented and MTPC net sales of valbenazine beginning in June 2022.

For 2022, total collaboration revenue also reflected the achievement of a $20.0 million milestone in connection with MTPC's first commercial sale of DYSVAL in Japan.

For 2021, total collaboration revenue also reflected the achievement of a $15.0 million milestone in connection with MTPC's marketing authorization application submission for valbenazine for the treatment of tardive dyskinesia in Japan.

Operating Expenses

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Cost of revenues $ 39.7 $ 23.2 $ 14.3

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

For 2023 compared to 2022, the increase in cost of revenues was primarily driven by increased INGREZZA and other net product sales, increased amortization costs related to intangible assets, increased reserves for ONGENTYS inventory obsolescence in connection with the termination of our license agreement with BIAL, and increased manufacturing costs in connection with our supply of valbenazine drug product under our collaboration with MTPC.

For 2022 compared to 2021, the increase in cost of revenues was primarily driven by increased INGREZZA net product sales.

Research and Development by Category.

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Research and development $ 565.0 $ 463.8 $ 328.1

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

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

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

Consists of costs incurred for product candidates in Phase 2 registrational studies and all subsequent activities.

The increases in late stage expenses from 2021 to 2022 and from 2022 to 2023 primarily reflected increased investment in the Phase 3 programs for crinecerfont in CAH and valbenazine in schizophrenia and Phase 2 program for EFMODY in CAH.

Early Stage .

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

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

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

Consists of costs incurred for product candidates after the approval of an investigational new drug application by the applicable regulatory agency through Phase 2 non-registrational studies.

For 2023 compared to 2022, the increase in early stage expenses primarily reflected increased investment in the Phase 2 program for NBI-1117568 in schizophrenia and other advancing Phase 2 programs in psychiatry, partially offset by decreased spend on early stage programs in epilepsy.

For 2022 compared to 2021, the increase in early stage expenses primarily reflected increased investment in advancing Phase 2 programs in epilepsy and psychiatry.

Research and Discovery.

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

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

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

For 2023 compared to 2022, the increase in research and discovery expenses primarily reflected increased investment in preclinical development programs including muscarinic agonists, gene therapies, and second generation VMAT2 inhibitors.

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

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

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

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

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

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

In 2021, we recognized milestone expense of $5.4 million in connection with the regulatory approval of the clinical trial application in Europe for NBI-921352 in epilepsy.

Payroll and Benefits.

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

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

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

For 2023 compared to 2022, the increase in payroll and benefits expenses primarily reflected higher headcount and an increase of $10.3 million in non-cash stock-based compensation expense primarily driven by an incremental charge related to a change in equity grant agreement terms.

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

Facilities and Other.

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Acquired in-process research and development $ 143.9 $ — $ 105.3

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

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

and Takeda Pharmaceutical Limited.

In 2023, we recognized $143.9 million of IPR&D expense in connection with our payment of the upfront fee pursuant to our expanded strategic partnership with Voyager.

In 2021, we recognized $105.3 million of IPR&D expense, of which $100.3 million was in connection with our payment of the upfront fee pursuant to our collaboration with Heptares Therapeutics Limited.

Selling, General and Administrative, or SG&A.

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Selling, general and administrative $ 887.6 $ 752.7 $ 583.3

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

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

Other Expense, Net.

For 2023 compared to 2022, the increase in SG&A expenses was primarily driven by increased investment in our commercial initiatives, including our branded direct-to-consumer INGREZZA advertising campaign and deployment of our expanded salesforce completed in April 2022, and increased payroll and benefits expenses on higher headcount and an increase of $10.9 million in non-cash stock-based compensation expense primarily driven by an incremental charge related to a change in equity grant agreement terms.

For 2022 compared to 2021, the increase in SG&A expenses was primarily driven by increased investment in our commercial initiatives and increased payroll and benefits expenses on higher headcount and an increase of $29.6 million in non-cash stock-based compensation expense driven by an August 2021 equity grant of approximately 0.5 million restricted stock units to our full-time employees other than our executive officers and performance-based restricted stock units to our executive officers for which attainment of the performance-based criteria was achieved in 2022.

Other Income (Expense), Net.

Year Ended December 31,

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Interest expense $ (4.6) $ (7.1) $ (25.8)

Unrealized gain (loss) on equity securities 30.8 20.9 (17.7)

Unrealized gain on equity securities

28.4 30.8 20.9

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

Investment income and other, net 57.4 11.2 3.8

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

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

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

Provision for (Benefit from) Income Taxes.

Total other income (expense), net $ 81.2 $ (35.1) $ (1.1)

The change in other income (expense), net from 2021 to 2022 and from 2022 to 2023 primarily reflected debt extinguishment charges in connection with the repurchase of our convertible senior notes in 2022, periodic fluctuations in the fair values of our equity security investments, increased interest income on our debt security investments and decreased interest expense on lower total debt outstanding.

The change in other expense, net from 2021 to 2022 also reflected decreased interest expense due to the adoption of ASU 2020-06 on January 1, 2022.

Provision for Income Taxes.

Year Ended December 31,

(in millions) 2023 2022 2021

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

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

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

Provision for income taxes $ 82.4 $ 59.4 $ 11.8

For 2023, the effective tax rate varied from the federal and state statutory rates primarily due to credits generated for research activities, certain nondeductible expenses, the impact of changes in the state effective rate, and losses incurred in foreign jurisdictions for which no tax benefit was recorded as management cannot conclude that it is more likely than not that the tax benefit of such losses will be realized in the future.

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

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

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

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

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

Year Ended December 31,

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Net income $ 249.7 $ 154.5 $ 89.6

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

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

For 2023 compared to 2022, the increase in net income primarily reflected increased INGREZZA net product sales, decreased debt extinguishment charges in connection with the repurchase of our convertible senior notes in 2022, and decreased milestone expenses in connection with our collaborations, partially offset by increased upfront payments in connection with our expanded strategic partnership with Voyager and increased investment in our commercial initiatives and expanded clinical portfolio.

For 2022 compared to 2021, the increase in net income primarily reflected increased INGREZZA net product sales and lower upfront payments for asset acquisitions, partially offset by increased debt extinguishment charges in connection with the repurchase of our convertible senior notes in 2022 and increased investment in our commercial initiatives and expanded clinical portfolio.

Liquidity and Capital Resources

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

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

Information Regarding Our Financial Condition.

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Cash Flows from Operating Activities.

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

For 2023 compared to 2022, the change in cash flows from operating activities primarily reflected increased INGREZZA net product sales and lower milestone payments in connection with our collaborations, partially offset by higher upfront payments in connection with our expanded strategic partnership with Voyager and increased investment in our commercial initiatives and expanded clinical portfolio.

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

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

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

Cash Flows from Investing Activities.

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

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

Periodic fluctuations in cash flows from investing activities for all periods presented reflected timing differences related to our purchases, sales, and maturities of debt security investments and changes in our portfolio-mix.

For 2023, cash flows from investing activities also reflected a $31.3 million equity investment in Voyager.

For 2022, cash flows from investing activities also reflected the acquisition of Diurnal Group plc for $42.7 million in cash, which is net of cash acquired, and a $7.7 million equity investment in Xenon Pharmaceuticals Inc.

Cash Flows from Financing Activities.

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

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

Cash flows from financing activities for all periods presented reflected proceeds from issuances of our common stock.

For 2022, cash flows from financing activities also reflected the repurchase of $210.8 million aggregate principal amount of our convertible senior notes for an aggregate repurchase price of $279.0 million in cash.

Material Cash Requirements

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

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

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

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

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• developments related to any future litigation.

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

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

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

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

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

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

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

Our operating leases that have commenced have terms that expire beginning 2025 through 2036 and consist of office space and research and development laboratories, including our corporate headquarters.

On February 8, 2022, we entered into a lease agreement for a four-building campus facility to be constructed in San Diego, California, including a six-year option for the construction of a fifth building.

This campus facility, comprised of office space and research and development laboratories, will serve as our new corporate headquarters.

The construction of the campus facility is phased.

The first phase of construction relating to office space was completed in December 2023.

As we begin to occupy our new campus facility, we will sublease certain of our existing leased premises when we determine there is excess leased capacity.

Refer to Note 11 to the consolidated financial statements for more information on our leases, including a presentation of our approximate future minimum lease payments under non-cancelable operating leases.

Convertible Senior Notes.

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

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

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

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.

As of December 31, 2023, $170.4 million aggregate principal amount of the 2024 Notes remained outstanding.

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

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

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

In addition, holders of the 2024 Notes may convert the 2024 Notes at any time until the close of business on the scheduled trading day immediately preceding May 15, 2024.

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

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

The 2024 Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by us.

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Refer to Note 5 to the consolidated financial statements for more information on the 2024 Notes.

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

On February 8, 2022, we entered into a lease agreement for a four-building campus facility to be constructed in San Diego, California, pursuant to which we also secured a six-year option for the construction of a fifth building and an option to purchase the entire campus facility, which will consist of office space and research and development laboratories, in the future.

Upon completion of construction, we expect to utilize the campus facility as our new corporate headquarters and expect to begin subleasing our existing leased facilities.

Refer to Note 12 to the consolidated financial statements for more information on our leases, including a presentation of our approximate future minimum lease payments under non-cancelable operating leases.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon financial statements that we have prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP.

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

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The items in our financial statements requiring significant estimates and judgments are as follows:

Net Product Sales.

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers, payors and other third parties.

The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenue recognized will not occur in a future period.

Actual amounts may ultimately differ from our estimates.

If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment.

Government Rebates.

We are obligated to pay rebates for mandated discounts under the Medicaid Drug Rebate Program.

The liability for such rebates consists of invoices received for claims from prior quarters that remain unpaid, or for which an invoice has not been received, and estimated rebates for the current applicable reporting period, which are primarily based on actual historical rebates, estimated payor mix, state and federal regulations and related contractual terms.

Estimated rebates are recorded as a reduction of revenue in the period the related sale is recognized.

Reserves for Government Rebates.

We recognize revenues from product sales of INGREZZA net of reserves established for applicable discounts and allowances that are offered within contracts with our customers, payors, and other third parties.

Such reserves include estimates for government rebates that we are obligated to pay for discounts including under the Medicaid Drug Rebate Program and Medicare Part D.

Such estimates require us to project the magnitude of our sales that will be subject to such rebates and are based on actual historical rebates by state, estimated payor mix, state and federal regulations, and relevant contractual terms, as supplemented by management’s judgement.

There is a significant time-lag in our receiving rebate notices from each state (generally, several months or longer after a sale is recognized).

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

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Significant judgment is required in making this assessment and, to the extent that a reversal of any portion of our valuation allowance against our deferred tax assets is deemed appropriate, a tax benefit will be recognized against our income tax provision in the period of such reversal.

On December 31, 2020, based on our evaluation of various factors, such as our achievement of a cumulative three-year income position as of December 31, 2020, as well as our consideration of forecasts of future operating results and utilization of net operating losses and tax credits prior to their expiration, we released substantially all of our valuation allowance against our deferred tax assets and recorded a corresponding income tax benefit.

We continue to maintain a valuation allowance against our California state deferred tax assets.

Additional Information

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

What changed 10-K

Item 7. Management’s Discussion and Analysis