What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-09 compared with 2023-02-09 · 220 added, 229 removed, 737 unchanged (38% of the section changed)

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 9, 2024 expressed an unqualified opinion thereon.

Adoption of ASU No.

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

2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), effective January 1, 2022.

Basis for Opinion

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Reserves for government rebates related to product sales

Description of the Matter The Company sells drugs to specialty pharmacies and specialty distributors in the US (collectively, “customers”).

Description of the Matter The Company sells product to specialty pharmacies and specialty distributors in the US (collectively, “customers”).

As described in Note 1 to the consolidated financial statements, the Company recognizes revenues for sales of INGREZZA to its customers after deducting management’s estimates of reserves, including drug coverage gap rebates, it will provide under government rebate programs (“government rebates”).

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Auditing the estimates of government rebates was complex and judgmental due to the level of uncertainty involved in management’s assumptions used in the measurement process.

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

How We Addressed the Matter in Our Audit We tested the Company’s internal controls over management’s process for estimating the portion of product that is expected to be subject to a government rebate for product that remains in the distribution channel at December 31, 2022.

In particular, management was required to estimate at December 31, 2023, the portion of product that is expected to be subject to a government rebate, the applicable contractual government rebate percentage by payor type underlying the revenue and the applicable rebate amount applicable for the payor type.

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

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

Specifically, we compared the significant assumptions to third-party reports used by the Company to estimate product remaining in the distribution channel at December 31, 2022.

Specifically, we compared the significant assumptions to third-party reports used by the Company to estimate government rebate reserves at December 31, 2023.

In addition, we compared the underlying government rebate percentages used in the Company’s analyses to those published by the applicable government entity.

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Debt securities available-for-sale 780.5 726.4

Accounts receivable 350.0 185.5

Inventories 35.1 30.5

Accounts receivable, net

Inventory, net

Other current assets 97.8 79.1

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Total current liabilities 654.8 537.7

Convertible senior notes — 335.1

Noncurrent operating lease liabilities 258.3 93.5

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Preferred stock, $ 0.001 par value;

5.0 million shares authorized;

5.0 shares authorized;

no shares issued and outstanding

Common stock, $ 0.001 par value;

220.0 million shares authorized;

96.5 million and 94.9 million shares issued and outstanding, respectively

220.0 shares authorized;

98.7 and 96.5 shares issued and outstanding, respectively

Additional paid-in capital 2,382.0 2,122.4

Accumulated other comprehensive loss ( 7.9 ) ( 1.7 )

Accumulated other comprehensive income (loss)

Accumulated deficit ( 157.1 ) ( 406.8 )

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(in millions, except per share data) 2023 2022 2021

Product sales, net $ 1,440.9 $ 1,090.1 $ 994.1

Net product sales

$ 1,860.6 $ 1,440.9 $ 1,090.1

Collaboration revenue 26.5 47.8 43.4

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Operating income 250.9 249.0 102.5

Other (expense) income:

Other income (expense):

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 )

Income before provision for (benefit from) income taxes 213.9 101.4 106.7

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

Total other income (expense), net

81.2 ( 35.1 ) ( 1.1 )

Income before provision for income taxes 332.1 213.9 101.4

Provision for income taxes 82.4 59.4 11.8

Net income 249.7 154.5 89.6

Foreign currency translation adjustments 2.9 — —

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

Foreign currency translation adjustments, net of tax

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

12.5 ( 9.1 ) ( 3.5 )

Comprehensive income $ 264.6 $ 148.3 $ 86.1

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Net income — — — — 89.6 89.6

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

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

Stock-based compensation expense — — 134.2 — — 134.2

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

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

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

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

Stock-based compensation expense — — 173.1 — — 173.1

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Net income — — — — 249.7 249.7

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

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

Other comprehensive income, net of tax — — — 14.9 — 14.9

Stock-based compensation expense — — 194.3 — — 194.3

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Depreciation 17.8 15.1 10.9

(Accretion) amortization of (discount) premium on investments, net

( 18.3 ) 3.7 7.4

Amortization of debt discount — — 16.2

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Amortization of intangible assets 3.5 0.5 —

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

Changes in fair value of equity securities

( 28.4 ) ( 30.8 ) ( 20.9 )

Deferred income taxes

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Accounts receivable ( 89.3 ) ( 162.2 ) ( 28.4 )

Inventories ( 2.6 ) ( 2.5 ) ( 10.7 )

5.4 ( 2.6 ) ( 2.5 )

Accounts payable and accrued liabilities 64.3 114.6 56.8

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Change in cash and cash equivalents and restricted cash ( 11.6 ) ( 73.3 ) 153.7

Cash and cash equivalents and restricted cash at beginning of period 344.0 190.3 115.5

Cash and cash equivalents and restricted cash at end of period $ 270.7 $ 344.0 $ 190.3

Cash, cash equivalents and restricted cash at beginning of period

270.7 344.0 190.3

Cash, cash equivalents and restricted cash at end of period

$ 259.1 $ 270.7 $ 344.0

Supplemental Disclosure:

Non-cash capital expenditures $ 2.5 $ 0.7 $ 1.9

Right-of-use assets acquired through operating leases $ — $ 23.4 $ 12.8

Right-of-use assets obtained in exchange for new operating lease liabilities

$ 200.8 $ — $ 23.4

Cash paid for interest $ 3.8 $ 6.6 $ 8.6

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Neurocrine Biosciences, Inc.

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

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

We operate in a single business segment, which includes all activities related to the research, development and commercialization of pharmaceuticals for the treatment of neurological, neuroendocrine and neuropsychiatric disorders and reflects the way in which internally-reported financial information is regularly reviewed by our chief operating decision maker to analyze performance, make decisions and allocate resources.

Principles of Consolidation.

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Use of Estimates.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes.

Actual results could differ from those estimates.

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

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

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

Inventory is valued at the lower of cost or net realizable value.

We determine the cost of inventory using the standard-cost method, which approximates actual cost based on the first-in, first-out method.

We perform an assessment of the recoverability of our inventory on a quarterly basis and write down any excess and obsolete inventory to its net realizable value in the period in which the impairment is first identified.

When future commercialization is considered probable and the future economic benefit is expected to be realized, based on management’s judgment, we capitalize pre-launch inventory costs prior to regulatory approval.

Debt Securities.

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We deem transfers between levels of the fair value hierarchy to have occurred at the end of the reporting period during which the event or change in circumstances that caused the transfer occurred.

Inventory is valued at the lower of cost or net realizable value.

We determine the cost of inventory using the standard-cost method, which approximates actual cost based on the first-in, first-out method.

We assess the valuation of our inventory on a quarterly basis and adjust the value for excess and obsolete inventory to the extent management determines that the cost cannot be recovered based on estimates about future demand.

Inventory costs resulting from these adjustments are recognized as cost of sales in the period in which they are incurred.

Equity 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 in publicly traded companies 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.

Property and Equipment.

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Goodwill, Intangible Assets and Other Long-Lived Assets.

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

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

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

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

We determine if an arrangement is a lease at contract inception.

Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease.

ROU assets and operating lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

When determining the lease term, we include options to extend or terminate the lease when it is reasonably certain that such options will be exercised.

As none of our operating leases provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Our incremental borrowing rate is determined using a secured borrowing rate for the same currency and term as the associated lease.

The lease payments used to determine our ROU assets may include prepaid or accrued lease payments and any lease incentives received and are recognized in ROU assets in our consolidated balance sheets.

Our lease agreements may include both lease and non-lease components, which we account for as a single lease component when the payments are fixed.

Variable payments included in lease agreements are expensed as incurred.

Our operating leases are reflected in ROU assets, noncurrent operating lease liabilities, and other current liabilities in our consolidated balance sheets.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Foreign currency.

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Net Product Sales.

In the United States, we sell INGREZZA ® (valbenazine) primarily to specialty pharmacy providers and distributors and ONGENTYS ® (opicapone) primarily to wholesale distributors.

In the U.S., we sell INGREZZA ® (valbenazine) primarily to specialty pharmacy providers and distributors.

We recognize net product sales when the customer obtains control of our product, which occurs at a point in time, typically upon delivery of our product to the customer.

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Government Rebates.

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

We are obligated to pay rebates for discounts including under the Medicaid Drug Rebate Program and Medicare Part D.

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.

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Patient Financial Assistance.

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

To help patients afford our products, we offer financial assistance to qualified patients with prescription drug copay requirements.

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

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Concentration of Credit Risk.

Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash equivalents and debt securities available-for-sale.

Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash equivalents, accounts receivable and debt securities available-for-sale.

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

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Cost of Revenues.

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

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

Research and Development, or R&D.

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Stock-Based Compensation.

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

Additionally, we allow employees to participate in an employee stock purchase plan, or ESPP.

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

Additionally, we allow employees to participate in an employee stock purchase plan (ESPP).

We estimate the fair value of stock options and shares to be issued under the ESPP using the Black-Scholes option-pricing model on the date of grant.

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Basic earnings per share are computed using the weighted average number of common shares outstanding during the period.

Diluted earnings per share are computed using the treasury stock method and reflect the weighted average number of common and potentially dilutive shares outstanding during the period, excluding those which effect would be anti-dilutive.

In December 2021, we entered into the First Supplemental Indenture to the 2017 Indenture, pursuant to which we irrevocably elected to settle the principal amount of the 2.25 % fixed-rate convertible senior notes due May 15, 2024, or the 2024 Notes, in cash upon conversion and to settle any conversion premium in either cash or shares of our common stock.

Diluted earnings per share are computed using the treasury stock and if-converted methods and reflect the weighted average number of common and potentially dilutive shares outstanding during the period, excluding those which effect would be anti-dilutive.

In 2021, we entered into the First Supplemental Indenture to the 2017 Indenture, pursuant to which we irrevocably elected to settle the principal amount of the 2.25 % fixed-rate convertible senior notes due May 15, 2024 in cash upon conversion and to settle any conversion premium in either cash or shares of our common stock.

As a result, only the shares required to settle any conversion premium are considered dilutive under the if-converted method.

Further, PRSUs for which the performance condition has not been achieved are excluded from the calculation of diluted earnings per share.

Recently Adopted Accounting Pronouncements.

ASU 2020-06 .

In August 2020, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity's Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity's own equity.

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

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

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

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

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

Collaboration and License Agreements

Under the terms of our existing collaboration and license agreements, we may be required to make potential future payments of up to $ 10.8 billion upon the achievement of certain event-based milestones.

Such contingent payments are recorded when paid or payable.

Heptares Therapeutics Limited, or Heptares.

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

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

With respect to such rights retained by Heptares, we retain the rights to opt in to profit sharing arrangements, pursuant to which we and Heptares will equally share in the operating profits and losses for such compounds in Japan.

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.

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 2 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.

In connection with the agreement, we paid Heptares $ 100.0 million upfront, which, including certain transaction-related costs, was expensed as IPR&D in 2021.

In connection with the agreement, we paid Heptares $ 100.0 million upfront, which, including certain transaction-related costs, was expensed as IPR&D in 2021 as the license had no foreseeable alternative future use.

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

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In 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 4 non-clinical stage compounds have each been designated as a royalty-bearing product.

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.

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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 2022.

Takeda may elect to exercise such opt-out right for such compound immediately following the completion of a second Phase 2 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 3 clinical trial for such compound.

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

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On a licensed product-by-licensed product and country-by-country basis, royalty payments would commence on the first commercial sale of a royalty-bearing product and terminate on the later of (i) the expiration of the last patent covering such royalty-bearing product in such country, (ii) a number of years from the first commercial sale of such royalty-bearing product in such country and (iii) the expiration of regulatory exclusivity for such royalty-bearing product in such country.

We may terminate the agreement in its entirety or in one or more (but not all) of the United States, Japan, the European Union and the United Kingdom, or, collectively, the major markets, upon 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 U.S., Japan, the European Union (EU) and the United Kingdom (UK) (collectively, the major markets) upon six months ’ written notice to Takeda (i) with respect to all licensed products prior to the first commercial sale of the first licensed product for which first commercial sale occurs, or (ii) with respect to all licensed products in one or more given target classes, as defined in the agreement, prior to the first commercial sale of the first licensed product in such target class for which first commercial sale occurs.

We may terminate the agreement in its entirety or in one or more (but not all) of the major markets upon 12 months’ written notice to Takeda (i) with respect to all licensed products following the first commercial sale of the first licensed product for which first commercial sale occurs, or (ii) with respect to all licensed products in one or more given target classes following the first commercial sale of the first licensed product in such target class for which first commercial sale occurs.

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We are responsible for all 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.

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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 applicable to the shares.

In connection with the agreement, we purchased approximately 1.4 million shares (at $ 14.196 per share) of Xenon common stock in 2019.

The purchased shares were recorded at a fair value of $ 14.1 million after considering Xenon’s stock price and certain transfer restrictions that were applicable to the shares on the measurement date.

In connection with the regulatory approval of our clinical trial application in Europe for NBI-921352 for the treatment of focal onset seizures in adults in 2021, we paid Xenon a regulatory milestone of $ 10.0 million, including a purchase of approximately 0.3 million shares (at $ 19.9755 per share) of Xenon common stock.

The purchased shares were recorded at a fair value of $ 4.6 million after considering Xenon’s stock price and certain transfer restrictions that were applicable to the shares on the measurement date.

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).

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

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

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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.

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 U.S.

Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until the expiration of the royalty term for such product in such country.

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Voyager Therapeutics, Inc., or Voyager.

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

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

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

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

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

2019 Voyager Agreement.

In 2019, we entered into a collaboration and license agreement with Voyager (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 purchased approximately 4.2 million shares (at $ 11.9625 per share) of Voyager common stock (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).

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.

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 2023, we entered into a collaboration and license agreement with Voyager (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 (GBA1) for the treatment of Parkinson's disease and other diseases associated with GBA1 (the GBA1 Program), and three gene therapy programs directed to rare central nervous system (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 U.S., 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 U.S.

(in lieu of Voyager being entitled to receive potential future payments of certain event-based milestones upon their achievement in the U.S.

and receive royalties on the future net sales of such products in the U.S.), following Voyager’s receipt of the top-line data from a first Phase 1 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 U.S.

and would be entitled to receive royalties on the future net sales of any such product outside the U.S.

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

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

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

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

As a result, our strategic investment in Voyager became subject to the equity method of accounting, and Voyager became a related party under ASC 850, 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 2023 as the license had no foreseeable alternative future use.

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

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

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

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

Under the terms of the agreement, Voyager may be entitled to receive potential future payments of up to $ 1.3 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any collaboration product.

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

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

We recognized unrealized gains of $ 15.5 million for 2023 and $ 14.5 million for 2022 and an unrealized loss of $ 8.7 million for 2021 on our strategic investment in Voyager.

As of December 31, 2023, the fair value (Level 1) of our strategic investment in Voyager was $ 72.4 million.

Under the terms of the 2023 Voyager Agreement, Voyager may be entitled to receive potential future payments of up to $ 6.1 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any collaboration product, subject to certain co-development and co-commercialization rights retained by Voyager.

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

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

BIAL – Portela & Ca, S.A., or BIAL.

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

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

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

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

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

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

Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until a generic product with respect to such licensed product is sold in a country and sales of such generic product are greater than a specified percentage of total sales of such licensed product in such country.

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

BIAL may terminate the agreement in the event we fail to meet the minimum sales requirements for any two years, or under certain circumstances involving a change of control of Neurocrine Biosciences.

Under certain circumstances where BIAL elects to terminate the agreement in connection with a change of control of Neurocrine Biosciences, BIAL would be obligated to pay us a termination fee.

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

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

We launched ONGENTYS in the U.S.

as an FDA-approved add-on treatment to levodopa/carbidopa in patients with Parkinson's disease experiencing motor fluctuations in 2020.

In 2023, we provided BIAL with written notice of termination of the license agreement to commercialize and market ONGENTYS in the U.S.

and Canada, and recognized reserves for ONGENTYS inventory obsolescence totaling $ 5.2 million in cost of revenues in connection with the termination, which became effective in December 2023, as management determined the cost cannot be recovered.

Mitsubishi Tanabe Pharma Corporation, or MTPC .

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

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

In 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.

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.

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

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

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

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

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

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.

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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.

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 and recognized elagolix royalty revenue of $ 16.7 million for 2023, $ 21.2 million for 2022 and $ 22.3 million for 2021.

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

Diurnal Acquisition

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

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

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

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

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

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

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

(in millions) Amount

Consideration

Total consideration transferred $ 55.2

Recognized amounts of identifiable assets acquired and liabilities assumed

Intangible assets 32.6

Acquired in-process research and development 3.2

Other assets 12.4

Accounts payable and other accrued expenses ( 10.7 )

Total identifiable net assets acquired $ 50.0

Goodwill $ 5.2

Debt Securities

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$ 684.6 $ 3.4 $ ( 0.5 ) $ 687.5 $ 304.5 $ 0.2 $ ( 5.3 ) $ 299.4

As of December 31, 2022, our security portfolio consisted of 253 debt securities available-for-sale, including 199 such securities that were in an unrealized loss position but of high credit quality.

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

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

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 December 31, 2023 or 2022.

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Value Unrealized

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

Corporate debt securities $ 265.1 $ ( 0.4 ) $ 183.8 $ ( 1.0 ) $ 448.9 $ ( 1.4 )

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Value Unrealized

Commercial paper

$ 32.1 $ ( 0.2 ) $ — $ — $ 32.1 $ ( 0.2 )

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

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Fair Value Measurements

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

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

2023 December 31,

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Value Leveling

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

Cash and cash equivalents:

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

Cash and money market funds $ 251.1 $ 251.1 $ — $ 262.9 $ 262.9 $ —

Restricted cash 8.0 8.0 — 7.8 7.8 —

Certificates of deposit 7.8 7.8 — — 3.2 3.2 — —

Debt securities available-for-sale:

Commercial paper 53.5 — 53.5 156.0 — 156.0

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Equity securities

Equity securities–biotechnology industry 102.1 102.1 — — 63.7 52.7 — 11.0

161.9 161.9 — 102.1 102.1 —

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

Year Ended December 31,

(in millions) 2022 2021 2020

Balance at beginning of period $ 11.0 $ 38.2 $ 55.9

Purchases — 4.6 —

Unrealized gain (loss) included in earnings (1)

$ 1,889.0 $ 421.0 $ 1,468.0 $ 1,398.6 $ 372.8 $ 1,025.8

Transfers out of Level 3 (2)

( 31.8 ) ( 52.7 ) —

Balance at end of period $ — $ 11.0 $ 38.2

_________________________

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

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

Convertible Senior Notes

On May 2, 2017, we completed a private placement of $ 517.5 million in aggregate principal amount of 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.

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 (the 2024 Notes) and entered into the 2017 Indenture with respect to the 2024 Notes.

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

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

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

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

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

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

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

We accounted for the partial repurchase of the 2024 Notes as a debt extinguishment.

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

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

The difference of $ 56.3 million between the fair value of the aggregate consideration remitted to certain holders of the 2024 Notes and the fair value of the liability component was attributed to the reacquisition of the equity component and recorded as a reduction to additional paid-in capital.

The carrying amount of the liability of $ 112.4 million at settlement was recognized as a reduction to the 2024 Notes and resulted in an $ 18.4 million loss on extinguishment, which we recognized in 2020.

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

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

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

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

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, which resulted in the recognition of a $ 70.0 million loss on extinguishment.

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

Amount Unamortized Debt Net Carrying

Amount Unamortized Issuance Costs Net Carrying

Amount Fair Value

(in millions) Discount Issuance Costs Amount Leveling

(in millions) Amount Leveling

2024 Notes $ 170.4 $ ( 0.3 ) $ 170.1 $ 295.7 Level 2

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

Amount Unamortized Debt Net Carrying

Amount Unamortized Issuance Costs Net Carrying

Amount Fair Value

(in millions) Discount Issuance Costs Amount Leveling

(in millions) Amount Leveling

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

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Amortization of debt discount and issuance costs 0.7 1.2 17.3

Total $ 7.1 $ 25.8 $ 32.8

In December 2021, we entered into the First Supplemental Indenture to the 2017 Indenture, pursuant to which we irrevocably elected to settle the principal amount of the 2024 Notes in cash upon conversion and to settle any conversion premium, calculated based on the per share volume-weighted average price for each of the 30 consecutive trading days during the observation period (as more fully described in the 2017 Indenture), in either cash or shares of our common stock.

Total interest expense

$ 4.6 $ 7.1 $ 25.8

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.

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(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.

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

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

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

Upon conversion, holders will receive the principal amount of their 2024 Notes in cash and any excess conversion value, calculated based on the per share volume-weighted average price for each of the 30 consecutive trading days during the observation period (as more fully described in the 2017 Indenture), in either cash or shares of our common stock.

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.

On January 4, 2024, we provided notice to the holders of the 2024 Notes electing to settle all conversions of the 2024 Notes in cash.

As such, 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.

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.

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Goodwill and Intangible Assets

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

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

Goodwill is included in other assets in our consolidated balance sheets.

(in millions) Amount

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Balance as of December 31, 2022 5.4

Intangible Assets

Foreign currency translation adjustments 0.4

Balance as of December 31, 2023 $ 5.8

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

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Total intangible assets, net $ 35.5

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

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

(in millions) Amount

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Other Balance Sheet Details

Inventories consisted of the following:

Inventory, net, consisted of the following:

(in millions) 2023 2022

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Finished goods 12.3 17.5

Total inventories $ 35.1 $ 30.5

Less inventory reserves

Total inventory, net

$ 38.3 $ 35.1

Property and equipment, net, consisted of the following:

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(in millions) 2023 2022

Sales rebates and reserves $ 139.3 $ 131.9

Accrued employee related costs 86.2 72.8

Revenue-related reserves for discounts and allowances 131.9 62.7

Accrued development costs 39.1 32.4

Current branded prescription drug fee 45.7 27.5

Accrued development costs 44.3 39.1

Current income taxes payable

Accounts payable and other accrued liabilities 108.9 67.3

Total accounts payable and accrued liabilities $ 448.8 $ 347.6

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

Other long-term liabilities consisted of the following:

(in millions) 2023 2022

Noncurrent income taxes payable

$ 96.0 $ 19.8

Noncurrent branded prescription drug fee

Total other long-term liabilities

$ 106.3 $ 29.7

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

(in millions) 2023 2022

Cash and cash equivalents $ 251.1 $ 262.9

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2020 Equity Incentive Plan.

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

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

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

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2011 Equity Incentive Plan.

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

In May 2011, we adopted the 2011 Equity Incentive Plan (the 2011 Plan).

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

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The discounted purchase price is equal to the lower of 85 % of (i) the market value per share of the common stock on the first day of the offering period or (ii) the market value per share of common stock on the purchase date.

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

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

Year Ended December 31,

(in millions) 2023 2022 2021

Domestic $ 218.0 $ 101.4 $ 106.7

$ 409.2 $ 218.0 $ 101.4

Foreign ( 77.1 ) ( 4.1 ) —

Income before provision for income taxes $ 332.1 $ 213.9 $ 101.4

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

The following table presents the components of income tax expense (benefit) for continuing operations.

Year Ended December 31,

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State 28.1 20.3 6.3

Total current taxes 37.4 6.3 10.1

Current income taxes 143.1 37.4 6.3

Federal ( 45.2 ) 27.5 5.9

State ( 15.5 ) ( 5.5 ) ( 0.4 )

Total deferred taxes 22.0 5.5 ( 310.7 )

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

The provision for (benefit from) income taxes on earnings subject to income taxes differs from the statutory federal rate due to the following:

Deferred income taxes

( 60.7 ) 22.0 5.5

Provision for income taxes $ 82.4 $ 59.4 $ 11.8

The provision for income taxes on earnings subject to income taxes differs from the statutory federal rate due to the following:

Year Ended December 31,

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Other 3.1 1.3 —

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

Provision for income taxes $ 82.4 $ 59.4 $ 11.8

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

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Deferred tax liabilities:

Convertible senior notes — ( 9.9 )

Operating lease liabilities ( 66.3 ) ( 21.0 )

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California net operating losses will begin to expire in 2029 unless previously utilized and the net operating losses related to other states will begin to expire in 2026.

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

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

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

Swiss net operating losses will begin to expire in 2030 unless previously utilized.

UK net operating losses will carry forward indefinitely.

As of December 31, 2023, we had state R&D tax credit carryforwards of $ 85.6 million.

California R&D tax credits carry forward indefinitely, while R&D tax credits related to other states will begin to expire in 2033 unless previously utilized.

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

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

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

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

We had accruals for interest related to income tax matters of $ 3.1 million and $ 1.2 million, respectively, as of December 31, 2023 and 2022.

We had accruals for penalties relates to income tax matters of $ 2.2 million and $ 0.4 million, respectively, as of December 31, 2023 and 2022.

Accruals for interest and penalties related to income tax matters were not material as of December 31, 2021.

We are subject to taxation in the U.S.

and various state and foreign jurisdictions.

Tax years for 2020 for federal, inception for California, 2016 to 2020 for other significant state jurisdictions, and 2021 and forward for foreign are subject to examination by tax authorities due to the carryforward of unutilized net operating losses and R&D tax credits.

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Balance at January 1 $ 84.5 $ 64.6 $ 60.8

Increase (decrease) related to prior year tax positions 4.7 0.6 ( 5.7 )

Increase related to prior year tax positions 3.4 4.7 0.6

Increase related to current year tax positions 36.7 15.2 4.9

Settlements related to prior year tax positions — — ( 0.2 )

Decrease related to prior year tax positions

Expiration of the statute of limitations for the assessment of taxes — — ( 1.7 )

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

In 2021, the OECD announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%.

Subsequently, multiple sets of administrative guidance have been issued.

Many non-U.S.

tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 (including EU Member States) with the adoption of additional components in later years or announced their plans to enact legislation in future years.

We are continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-U.S.

tax jurisdictions we operate in.

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.

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.

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

Upon completion of construction, we expect to utilize the campus facility as our new corporate headquarters.

This lease has not commenced for accounting purposes.

Under the terms of the lease, on a building-by-building basis, base rent will be subject to a 10-month rent abatement period following the respective lease commencement date, which dates will be determined in the future based upon achievement of substantial completion of construction with respect to each such building in the condition suitable for the installation of our furniture, fixtures, and equipment, and on which date we will record a lease liability, corresponding right-of-use asset, and begin lease expense recognition with respect to each such building.

After the rent abatement period, monthly base rent will be $ 6 per square foot, subject to annual escalations of 3 % during the initial 13.6-year lease term, which term we have the option to renew for two additional terms of five years each.

The following tables present supplemental operating lease information.

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 ROU assets or operating lease liabilities.

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

Year Ended December 31,

(in millions) 2022 2021 2020

(in millions, except weighted average data) 2023 2022 2021

Operating lease cost $ 17.1 $ 16.3 $ 15.3

Sublease income ( 0.7 ) — —

Net operating lease cost $ 16.4 $ 16.3 $ 15.3

Cash paid for amounts included in the measurement of operating lease liabilities $ 17.9 $ 16.9 $ 12.6

(in millions, except weighted average data) 2022 2021

2023 December 31,

Weighted average remaining lease term

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Restricted cash related to letters of credit issued in lieu of cash security deposits $ 7.8 $ 7.8

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

(in millions) Amount (1)

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

(in millions) Operating

Year ending December 31, 2024

$ 33.0 $ ( 1.7 )

Year ending December 31, 2025

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Thereafter 211.4 ( 4.3 )

Total operating lease payments 137.3

Total operating lease payments (sublease income)

383.5 $ ( 12.8 )

Less accreted interest 93.2

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_________________________

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

(1) Amounts presented in the table above exclude $ 15.4 million for 2025, $ 23.6 million for 2026, $ 24.3 million for 2027, $ 25.1 million for 2028 and $ 223.5 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 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.

We recognized ROU assets of $ 199.0 million and operating lease liabilities of $ 189.8 million in association with the commencement of operating leases following the completion of the first phase of construction relating to office space 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.

Certain of these subleases contain both lease and non-lease components.

Sublease income is recognized as an offset to operating expense on a straight-line basis over the lease term.

Income related to non-lease components is recognized in operating expenses as a reduction to costs we incur in relation to the primary lease.

Retirement Plan

We have a 401(k) defined contribution savings plan, or the 401(k) Plan.

The 401(k) Plan is for the benefit of all qualifying employees and permits voluntary contributions by employees up to 60 % of base salary limited by the IRS-imposed maximum.

We have a 401(k) defined contribution savings plan for the benefit of all qualifying employees and permits voluntary contributions by employees up to 60 % of base salary limited by the IRS-imposed maximum.

Employer contributions were $ 12.5 million for 2023, $ 10.3 million for 2022 and $ 8.1 million for 2021.

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and (v) Zydus Pharmaceuticals (USA) Inc.

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

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

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

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

We filed suit in the U.S.

District Court for the District of Delaware during 2021, 2022 and 2023, against (i) Teva Pharmaceuticals, Inc., Teva Pharmaceuticals Development, Inc., Teva Pharmaceuticals USA, Inc.

and Teva Pharmaceutical Industries Ltd.

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

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

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

and Crystal Pharmatech Co., Ltd.

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

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

(entity dismissed), collectively, "Teva", (ii) Lupin Limited, Lupin Pharmaceuticals, Inc., Lupin Inc.

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

We also filed suit in the U.S.

District Court for the District of New Jersey during 2021, 2022 and 2023 against Zydus.

In 2023 we entered into settlement agreements resolving the foregoing litigation with each of (i) Sandoz and Crystal, collectively, the “Sandoz Parties”, (ii) Teva, (iii) Lupin and (iv) Zydus.

Pursuant to the terms of the respective agreements with the Sandoz Parties, Teva, Lupin, and Zydus, each of Teva, the Sandoz Parties, Lupin, and Zydus has the right to sell generic versions of INGREZZA in the United States beginning March 1, 2038, or earlier under certain circumstances.

The settlements with Teva, the Sandoz Parties, Lupin and Zydus resolve all patent litigation brought by us against the companies that filed ANDAs seeking approval to market generic INGREZZA, and all cases have been dismissed.

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

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

Subsequent Events

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

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

Changes and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data