NEUROCRINE BIOSCIENCES INC 10-Q

Item 1. Financial Statements NEUROCRINE BIOSCIENCES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in millions, except share data) March 31, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 396.3 $ 251.1 Debt securities available-for-sale 814.3 780.5 Accounts receivable 450.7 439.3 Inventory 37.2 38.3 Other current assets 100.5 97.8 Total current assets 1,799.0 1,607.0 Deferred tax assets 378.2 362.6 Debt securities available-for-sale 700.4 687.5 Right-of-use assets 270.8 276.5 Equity security investments 163.5 161.9 Property and equipment, net 75.3 70.8 Intangible assets, net 34.3 35.5 Other noncurrent assets 50.9 49.6 Total assets $ 3,472.4 $ 3,251.4 Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 417.2 $ 448.8 Convertible senior notes, at carrying value ($ 170.4 face value as of March 31, 2024 and December 31, 2023) 122.8 170.1 Convertible senior notes embedded derivative liability 136.2 — Other current liabilities 36.7 35.9 Total current liabilities 712.9 654.8 Noncurrent operating lease liabilities 252.9 258.3 Other noncurrent liabilities 120.5 106.3 Total liabilities 1,086.3 1,019.4 Stockholders’ equity: Preferred stock, $ 0.001 par value; 5.0 million shares authorized; no shares issued and outstanding — — Common stock, $ 0.001 par value; 220.0 shares authorized; 100.6 and 98.7 shares issued and outstanding, respectively 0.1 0.1 Additional paid-in capital 2,496.4 2,382.0 Accumulated other comprehensive income 3.3 7.0 Accumulated deficit ( 113.7 ) ( 157.1 ) Total stockholders’ equity 2,386.1 2,232.0 Total liabilities and stockholders’ equity $ 3,472.4 $ 3,251.4 See accompanying notes to the condensed consolidated financial statements. 3 NEUROCRINE BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (unaudited) Three Months Ended March 31, (in millions, except per share data) 2024 2023 Revenues: Net product sales $ 509.0 $ 415.3 Collaboration revenues 6.3 5.1 Total revenues 515.3 420.4 Operating expenses: Cost of revenues 7.5 8.5 Research and development 159.4 139.5 Acquired in-process research and development 6.0 143.9 Selling, general and administrative 243.1 242.7 Total operating expenses 416.0 534.6 Operating income (loss) 99.3 ( 114.2 ) Other (expense) income: Interest expense ( 1.1 ) ( 1.1 ) Unrealized gain on equity security investments 1.6 2.2 Charges associated with convertible senior notes ( 88.7 ) — Investment income and other, net 23.4 9.8 Total other (expense) income, net ( 64.8 ) 10.9 Income (loss) before benefit from income taxes 34.5 ( 103.3 ) Benefit from income taxes ( 8.9 ) ( 26.7 ) Net income (loss) 43.4 ( 76.6 ) Foreign currency translation adjustments, net of tax ( 0.5 ) 1.2 Unrealized (loss) gain on debt securities available-for-sale, net of tax ( 3.2 ) 4.0 Comprehensive income (loss) $ 39.7 $ ( 71.4 ) Earnings (loss) per share: Basic $ 0.43 $ ( 0.79 ) Diluted $ 0.42 $ ( 0.79 ) Weighted-average shares outstanding: Basic 99.8 97.1 Diluted 103.6 97.1 See accompanying notes to the condensed consolidated financial statements. 4 NEUROCRINE BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) Accumulated Other Comprehensive Income (Loss) Common Stock Additional Paid-In Capital Accumulated Deficit (in millions) Shares $ Total Balance at December 31, 2023 98.7 $ 0.1 $ 2,382.0 $ 7.0 $ ( 157.1 ) $ 2,232.0 Net income — — — — 43.4 43.4 Other comprehensive loss, net of tax — — — ( 3.7 ) — ( 3.7 ) Stock-based compensation expense — — 44.5 — — 44.5 Issuances of common stock under stock plans 1.9 — 69.9 — — 69.9 Balance at March 31, 2024 100.6 $ 0.1 $ 2,496.4 $ 3.3 $ ( 113.7 ) $ 2,386.1 Balance at December 31, 2022 96.5 $ 0.1 $ 2,122.4 $ ( 7.9 ) $ ( 406.8 ) $ 1,707.8 Net loss — — — — ( 76.6 ) ( 76.6 ) Other comprehensive income, net of tax — — — 5.2 — 5.2 Stock-based compensation expense — — 39.9 — — 39.9 Issuances of common stock under stock plans 1.0 — 8.2 — — 8.2 Balance at March 31, 2023 97.5 $ 0.1 $ 2,170.5 $ ( 2.7 ) $ ( 483.4 ) $ 1,684.5 See accompanying notes to the condensed consolidated financial statements. 5 NEUROCRINE BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended March 31, (in millions) 2024 2023 Cash flows from operating activities: Net income (loss) $ 43.4 $ ( 76.6 ) Adjustments to reconcile net income (loss) to net cash from operating activities: Stock-based compensation expense 44.5 39.9 Charges associated with convertible senior notes 88.7 — Depreciation 5.3 4.1 Accretion of discount on investments, net ( 7.1 ) ( 2.1 ) Amortization of intangible assets 0.9 0.9 Changes in fair value of equity investments ( 1.6 ) ( 2.2 ) Deferred income taxes ( 15.6 ) ( 31.6 ) Other 3.4 ( 0.1 ) Change in operating assets and liabilities: Accounts receivable ( 11.3 ) ( 41.7 ) Inventory 1.1 1.8 Accounts payable and accrued liabilities ( 18.6 ) 6.7 Other assets and liabilities, net ( 2.8 ) ( 24.3 ) Cash flows from operating activities 130.3 ( 125.2 ) Cash flows from investing activities: Purchases of debt securities available-for-sale ( 320.1 ) ( 206.2 ) Sales and maturities of debt securities available-for-sale 276.3 203.9 Purchases of equity investments — ( 31.3 ) Capital expenditures ( 11.2 ) ( 8.5 ) Cash flows from investing activities ( 55.0 ) ( 42.1 ) Cash flows from financing activities: Issuances of common stock under benefit plans 69.9 8.2 Cash flows from financing activities 69.9 8.2 Change in cash, cash equivalents and restricted cash 145.2 ( 159.1 ) Cash, cash equivalents and restricted cash at beginning of period 259.1 270.7 Cash, cash equivalents and restricted cash at end of period $ 404.3 $ 111.6 Supplemental disclosures: Non-cash capital expenditures $ 1.1 $ 0.6 Cash paid for income taxes $ 0.2 $ 0.2 See accompanying notes to the condensed consolidated financial statements. 6 NEUROCRINE BIOSCIENCES, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Organization and Significant Accounting Policies Basis of Presentation . The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions of the Securities and Exchange Commission (SEC) on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of our financial position and of the results of operations and cash flows for the periods presented. The accompanying unaudited condensed consolidated financial statements include the accounts of Neurocrine Biosciences and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, included in our Annual Report on Form 10-K, or the 2023 Form 10-K, filed with the SEC. The results of operations for the interim period shown in this report are not necessarily indicative of the results that may be expected for any other interim period or the full year. The condensed consolidated balance sheet as of December 31, 2023, has been derived from the audited financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. There were no significant changes to our significant accounting policies as disclosed in the 2023 Form 10-K. Recently Issued Accounting Pronouncements Not Yet Adopted. In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for annual reporting periods beginning after December 15, 2023, and for interim reporting periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-07. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-09. 2. Collaboration and License Agreements Nxera Pharma UK Limited, or Nxera. In 2021, we entered into a collaboration and license agreement with Nxera (formerly Heptares Therapeutics Limited) to develop and commercialize certain compounds containing sub-type selective muscarinic M1, M4, or dual M1/M4 receptor agonists, which we have the exclusive rights to develop, manufacture and commercialize worldwide, excluding in Japan, where Nxera 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 Nxera, we retain the rights to opt in to profit sharing arrangements, pursuant to which we and Nxera 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 2 clinical trial for such compound or following our receipt from Nxera 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. Under the terms of the agreement, Nxera may be entitled to receive potential future payments of up to $ 2.6 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any collaboration product. 7 Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until the date on which the royalty term for such licensed product has expired in such country. On a licensed product-by-licensed product and country-by-country basis, royalty payments would commence on the first commercial sale of a licensed product and terminate on the later of (i) the expiration of the last patent covering such licensed product in such country, (ii) a number of years from the first commercial sale of such licensed product in such country and (iii) the expiration of regulatory exclusivity for such licensed product in such country. We may terminate the agreement in its entirety or with respect to one or more targets upon 180 days’ written notice to Nxera during the research collaboration term and upon 90 days’ written notice to Nxera following the expiration of the research collaboration term. Following the expiration of the research collaboration term, Nxera may terminate the agreement on a target-by-target basis in the event that we do not conduct any material development activities outside of Japan with respect to a certain compound or licensed product within the applicable target class for a continuous period of not less than 365 days and do not commence any such activities within 120 days of receiving written notice. Either party may terminate the agreement, subject to specified conditions, (i) in the event of material breach by the other party, subject to a cure period, (ii) if the other party challenges the validity or enforceability of certain intellectual property rights, subject to a cure period, or (iii) if the other party becomes insolvent or takes certain actions related to insolvency. Takeda Pharmaceutical Company Limited, or Takeda. In 2020, we entered into an exclusive license agreement with Takeda, pursuant to which we acquired the exclusive rights to develop and commercialize certain early to mid-stage psychiatry compounds, including luvadaxistat, NBI-1070770, NBI-1065845, NBI-1065846 and three non-clinical stage compounds. Luvadaxistat, NBI-1070770, and the three non-clinical stage compounds have each been designated as a royalty-bearing product. NBI-1065845 and NBI-1065846 are currently each designated as a profit-share product. We are responsible for all manufacturing, development and commercialization costs of any royalty-bearing product. With respect to NBI-1065845 and NBI-1065846, we and Takeda will equally share in the operating profits and losses. Takeda retains the rights to opt-out of the profit-sharing arrangements, pursuant to which Takeda would be entitled to receive potential future payments upon the achievement of certain event-based milestones with respect to such compounds and receive royalties on the future net sales of such compounds (in lieu of equally sharing in the operating profits and losses). Takeda may elect to exercise such opt-out right for such compound immediately following the completion of a second Phase 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. Under the terms of the agreement, Takeda may be entitled to receive potential future payments of up to $ 1.9 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any royalty-bearing product. Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until the date on which, (i) for any royalty-bearing product, the royalty term has expired in such country; and (ii) for any profit-share product, for so long as we continue to develop, manufacture, or commercialize such licensed product. On a licensed product-by-licensed product and country-by-country basis, royalty payments would commence on the first commercial sale of a royalty-bearing product and terminate on the later of (i) the expiration of the last patent covering such royalty-bearing product in such country, (ii) a number of years from the first commercial sale of such royalty-bearing product in such country and (iii) the expiration of regulatory exclusivity for such royalty-bearing product in such country. We may terminate the agreement in its entirety or in one or more (but not all) of the United States, Japan, the European Union and the United Kingdom, or, collectively, the major markets, upon six months ’ written notice to Takeda (i) with respect to all licensed products prior to the first commercial sale of the first licensed product for which first commercial sale occurs, or (ii) with respect to all licensed products in one or more given target classes, as defined in the agreement, prior to the first commercial sale of the first licensed product in such target class for which first commercial sale occurs. We may terminate the agreement in its entirety or in one or more (but not all) of the major markets upon 12 months’ written notice to Takeda (i) with respect to all licensed products following the first commercial sale of the first licensed product for which first commercial sale occurs, or (ii) with respect to all licensed products in one or more given target classes following the first commercial sale of the first licensed product in such target class for which first commercial sale occurs. Takeda may terminate the agreement, subject to specified conditions, (i) if we challenge the validity or enforceability of certain Takeda intellectual property rights or (ii) on a target class-by-target class basis, in the event that we do not conduct any material development or commercialization activities with respect to any licensed product within such target class for a specified continuous period. Subject to a cure period, either party may terminate the agreement in the event of any material breach, solely with respect to the target class of a licensed product to which such material breach relates, or in its entirety in the event of any material breach that relates to all licensed products. 8 Idorsia Pharmaceuticals Ltd., or Idorsia. In 2020, we entered into a collaboration and license agreement with Idorsia, pursuant to which we acquired the global rights to NBI-827104, a potent, selective, orally active and brain penetrating T-type calcium channel blocker in clinical development for the treatment of a rare pediatric epilepsy and other potential indications, including essential tremor. We are responsible for all manufacturing, development and commercialization costs of any collaboration product. Under the terms of the agreement, Idorsia may be entitled to receive potential future payments of up to $ 1.7 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any collaboration product. We may terminate the agreement, in its entirety or with respect to a particular compound or development candidate, upon 90 days’ written notice to Idorsia. Further, in the event a party commits a material breach and fails to cure such material breach within 90 days after receiving written notice thereof, the non-breaching party may terminate the agreement in its entirety immediately upon written notice to the breaching party. Xenon Pharmaceuticals Inc., or Xenon. In 2019, we entered into a collaboration and license agreement with Xenon to identify, research and develop sodium channel inhibitors, including NBI-921352 and three preclinical candidates, which compounds we have the exclusive rights to develop and commercialize. We are responsible for all development and manufacturing costs of any collaboration product, subject to certain exceptions. In connection with entering the agreement in 2019, we purchased approximately 1.4 million shares (at $ 14.196 per share) of Xenon common stock (the 2019 Xenon Shares). The 2019 Xenon 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 achievement of a development milestone in 2021, we purchased approximately 0.3 million shares (at $ 19.9755 per share) of Xenon common stock (the 2021 Xenon Shares). The 2021 Xenon 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. In connection with the achievement of a development milestone in 2022, we purchased approximately 0.3 million shares (at $ 31.855 per share) of Xenon common stock (the 2022 Xenon Shares). The 2022 Xenon Shares were recorded at a fair value of $ 7.7 million after considering Xenon’s stock price on the measurement date. Under the terms of the agreement, Xenon may be entitled to receive potential future payments of up to $ 1.7 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any collaboration product. Xenon retains the right to elect to co-develop one product in a major indication, pursuant to which Xenon would receive a mid-single digit percentage increase in royalties earned on the future net sales of such product in the United States and we and Xenon would equally share in the development costs of such product in the applicable indication, except where such development costs relate solely to the regulatory approval of such product outside the United States. Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until the expiration of the royalty term for such product in such country. Upon the expiration of the royalty term for a particular licensed product and country, the license obtained by us with respect to such product and country will become fully paid, royalty free, perpetual and irrevocable. We may terminate the agreement upon 90 days’ written notice to Xenon, provided that such unilateral termination will not be effective for certain products until we have used commercially reasonable efforts to complete certain specified clinical studies. Either party may terminate the agreement in the event of a material breach in whole or in part, subject to specified conditions. Voyager Therapeutics, Inc., or Voyager. 2019 Voyager Agreement. In 2019, we entered into a collaboration and license agreement with Voyager (the 2019 Voyager Agreement), pursuant to which we retain certain rights to develop and commercialize the Friedreich’s ataxia (FA) 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 Voyager 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 Voyager 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. 9 In connection with the selection of a development candidate under the FA program pursuant to our collaboration with Voyager in February 2024, we paid Voyager a milestone of $ 5.0 million, which was expensed as research and development in the first quarter of 2024. 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 clinical trial Parkinson’s disease. However, if we and Voyager elect to focus on an indication other than Parkinson’s disease prior to Voyager’s receipt of top-line data from a first clinical trial for Parkinson’s disease, then Voyager may elect to exercise such co-development and co-commercialization rights after the later of: (i) Voyager’s receipt of top-line data from the first clinical trial of a product that is the subject of the GBA1 Program or (ii) the date we and Voyager decide not to pursue Parkinson’s disease as an indication for development under the GBA1 Program. 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 Voyager 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 Biosciences, was appointed to Voyager's board of directors. Mr. Onyia (or another individual designated by us) will be nominated for election to Voyager's board of directors annually for a maximum duration of 10 years from the effective date of the 2023 Voyager Agreement. As a result, our equity investment in Voyager became subject to the equity method of accounting, and Voyager became a related party, following our purchase of the 2023 Voyager Shares, after which, together with the 2019 Voyager Shares, we owned approximately 19.9 % of the voting stock of Voyager. We elected the fair value option to account for our equity investment in Voyager as we believe it creates greater transparency regarding the investment's fair value at future reporting dates. The 2023 Voyager 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 in-process research and development in the first quarter of 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. We recognized unrealized gains of $ 7.5 million and $ 9.3 million, respectively, on our equity investment in Voyager for the first quarter of 2024 and 2023. As of March 31, 2024, the fair value (Level 1) of our equity investment in Voyager was $ 79.8 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. 10 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. Mitsubishi Tanabe Pharma Corporation, or MTPC. In 2015, we out-licensed the rights to valbenazine in Japan and other select Asian markets to MTPC. 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. 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. Under the terms of our license agreement with MTPC, we may be entitled to receive potential future payments of up to $ 30.0 million upon the achievement of certain sales-based milestones and are entitled to receive royalties at tiered percentage rates on future MTPC net sales of valbenazine for the longer of 10 years or the life of the related patent rights. MTPC may terminate the agreement upon 180 days’ written notice to us. In such event, all out-licensed product rights would revert to us. AbbVie Inc., or AbbVie. In 2010, we out-licensed the global rights to elagolix to AbbVie. AbbVie is responsible for all development and commercialization costs of elagolix. 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 $ 3.0 million and $ 3.7 million, respectively, for the first quarter of 2024 and 2023. Under the terms of our license agreement with AbbVie, we may be entitled to receive potential future payments of up to $ 366.0 million upon the achievement of certain event-based milestones and are entitled to receive royalties at tiered percentage rates on future AbbVie net sales of elagolix for the longer of 10 years or the life of the related patent rights. AbbVie may terminate the agreement upon 180 days’ written notice to us. In such event, all out-licensed product rights would revert to us. 3. Debt Securities The following table presents the amortized cost, unrealized gain and loss recognized in accumulated other comprehensive income (loss) and fair value of debt securities available-for-sale, aggregated by major security type and contractual maturity. March 31, 2024 December 31, 2023 (in millions) Contractual Maturity Amortized Cost Unrealized Gain Unrealized Loss Fair Value Amortized Cost Unrealized Gain Unrealized Loss Fair Value Commercial paper 0 to 1 years $ 58.0 $ — $ — $ 58.0 $ 53.5 $ — $ — $ 53.5 Corporate debt securities 0 to 1 years 419.4 0.1 ( 0.9 ) 418.6 382.1 0.1 ( 1.0 ) 381.2 Securities of government-sponsored entities 0 to 1 years 338.3 — ( 0.6 ) 337.7 346.1 0.2 ( 0.5 ) 345.8 $ 815.7 $ 0.1 $ ( 1.5 ) $ 814.3 $ 781.7 $ 0.3 $ ( 1.5 ) $ 780.5 Corporate debt securities 1 to 3 years $ 530.0 $ 0.9 $ ( 1.3 ) $ 529.6 $ 483.5 $ 2.9 $ ( 0.4 ) $ 486.0 Securities of government-sponsored entities 1 to 3 years 171.4 — ( 0.6 ) 170.8 201.1 0.5 ( 0.1 ) 201.5 $ 701.4 $ 0.9 $ ( 1.9 ) $ 700.4 $ 684.6 $ 3.4 $ ( 0.5 ) $ 687.5 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 March 31, 2024 or December 31, 2023. 11 The following table presents debt securities available-for-sale that were in an unrealized loss position as of March 31, 2024, aggregated by major security type and length of time in a continuous loss position. Less Than 12 Months 12 Months or Longer Total (in millions) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Corporate debt securities $ 555.2 $ ( 1.6 ) $ 90.0 $ ( 0.6 ) $ 645.2 $ ( 2.2 ) Securities of government-sponsored entities $ 383.3 $ ( 0.9 ) $ 16.8 $ ( 0.3 ) $ 400.1 $ ( 1.2 ) The following table presents debt securities available-for-sale that were in an unrealized loss position as of December 31, 2023, aggregated by major security type and length of time in a continuous loss position. Less Than 12 Months 12 Months or Longer Total (in millions) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Corporate debt securities $ 265.1 $ ( 0.4 ) $ 183.8 $ ( 1.0 ) $ 448.9 $ ( 1.4 ) Securities of government-sponsored entities $ 214.6 $ ( 0.2 ) $ 16.7 $ ( 0.4 ) $ 231.3 $ ( 0.6 ) Accrued interest receivables on debt securities available-for-sale totaled $ 12.6 million and $ 11.2 million, respectively, as of March 31, 2024 and December 31, 2023. We do not measure an allowance for credit losses for accrued interest receivables. For the purposes of identifying and measuring an impairment, accrued interest is excluded from both the fair value and amortized cost basis of the debt security. Uncollectible accrued interest receivables associated with an impaired debt security are reversed against interest income upon identification of the impairment. No accrued interest receivables were written off during the first three months of 2024 or 2023. 4. Fair Value Measurements The fair value hierarchy consists of the following three levels: Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 – Unobservable inputs that reflect our own assumptions about the assumptions that market participants would use in pricing the asset or liability when there is little, if any, market activity for the asset or liability at the measurement date. The following table presents a summary of financial assets, which were measured at fair value on a recurring basis. March 31, 2024 December 31, 2023 Fair Value Leveling Fair Value Leveling (in millions) Level 1 Level 2 Level 1 Level 2 Cash and money market funds $ 396.3 $ 396.3 $ — $ 251.1 $ 251.1 $ — Restricted cash 8.0 8.0 — 8.0 8.0 — Commercial paper 58.0 — 58.0 53.5 — 53.5 Corporate debt securities 948.2 — 948.2 867.2 — 867.2 Securities of government-sponsored entities 508.5 — 508.5 547.3 — 547.3 Equity security investments 163.5 163.5 — 161.9 161.9 — $ 2,082.5 $ 567.8 $ 1,514.7 $ 1,889.0 $ 421.0 $ 1,468.0 12 5. Other Balance Sheet Details Inventory consisted of the following: (in millions) March 31, 2024 December 31, 2023 Raw materials $ 18.1 $ 21.5 Work in process 12.0 9.7 Finished goods 7.5 12.3 37.6 43.5 Less inventory reserves ( 0.4 ) ( 5.2 ) Total inventory $ 37.2 $ 38.3 Accounts payable and accrued liabilities consisted of the following: (in millions) March 31, 2024 December 31, 2023 Sales rebates and reserves $ 185.9 $ 139.3 Accrued employee related costs 42.6 86.2 Current branded prescription drug fee 35.3 45.7 Accrued development costs 41.3 44.3 Current income taxes payable 24.8 24.4 Accounts payable and other accrued liabilities 87.3 108.9 Total accounts payable and accrued liabilities $ 417.2 $ 448.8 Other noncurrent liabilities consisted of the following: (in millions) March 31, 2024 December 31, 2023 Noncurrent income taxes payable $ 101.1 $ 96.0 Noncurrent branded prescription drug fee 19.4 10.3 Total other noncurrent liabilities $ 120.5 $ 106.3 The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows. (in millions) March 31, 2024 March 31, 2023 Cash and cash equivalents $ 396.3 $ 103.8 Restricted cash included in other noncurrent assets 8.0 7.8 Total cash, cash equivalents and restricted cash $ 404.3 $ 111.6 6. Goodwill and Intangible Assets The following table presents the changes in the carrying amount of goodwill. Goodwill is included in other noncurrent assets in our condensed consolidated balance sheets. (in millions) Amount Balance as of December 31, 2023 $ 5.8 Foreign currency translation adjustments ( 0.1 ) Balance as of March 31, 2024 $ 5.7 The following table presents information relating to our recognized intangible assets as of March 31, 2024. (dollars in millions) Useful Life Gross Carrying Amount Accumulated Amortization Net Carrying Amount Developed product rights 10 years $ 35.8 $ 5.0 $ 30.8 Acquired IPR&D Indefinite $ 3.5 $ — 3.5 Total intangible assets, net $ 34.3 13 The following table presents approximate future annual amortization expense for our finite-lived intangible assets as of March 31, 2024. (in millions) Amount 2024 (9 months remaining) $ 2.7 2025 $ 3.6 2026 $ 3.6 2027 $ 3.6 2028 $ 3.6 Thereafter $ 13.7 7. Leases 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 right-of-use (ROU) assets or operating lease liabilities. The following table presents supplemental operating lease information for operating leases that have commenced. Three Months Ended March 31, (in millions, except weighted average data) 2024 2023 Operating lease cost $ 9.4 $ 4.1 Sublease income ( 0.4 ) — Net operating lease cost $ 9.0 $ 4.1 Cash paid for amounts included in the measurement of operating lease liabilities $ 6.1 $ 4.4 March 31, 2024 March 31, 2023 Weighted average remaining lease term 10.6 years 7.7 years Weighted average discount rate 5.1 % 5.3 % Restricted cash related to letters of credit issued in lieu of cash security deposits $ 7.8 $ 7.8 The following table presents approximate future non-cancelable minimum lease payments under operating leases and sublease income as of March 31, 2024. (in millions) Operating Leases (1) Sublease Income 2024 (9 months remaining) $ 26.9 $ ( 1.3 ) 2025 34.7 ( 1.7 ) 2026 34.0 ( 1.7 ) 2027 34.8 ( 1.7 ) 2028 35.6 ( 1.7 ) Thereafter 211.4 ( 4.3 ) Total operating lease payments (sublease income) 377.4 $ ( 12.4 ) Less accreted interest 89.5 Total operating lease liabilities 287.9 Less current operating lease liabilities included in other current liabilities 35.0 Noncurrent operating lease liabilities $ 252.9 _________________________ (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 related to our new campus facility that have not yet commenced. 14 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, now serves as our corporate headquarters. The construction of the campus facility is phased. The first phase of construction, consisting of two buildings relating to office space, was completed in December 2023 and resulted in the recognition of ROU assets and operating lease liabilities totaling $ 199.0 million and $ 189.8 million, respectively. 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. Further, ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Corporate ROU assets identified for sublease in connection with excess leased capacity are tested for impairment individually when the cash flows related to the ROU asset are determined to be independent from the cash flows of other assets and liabilities. Corporate ROU assets are otherwise tested for impairment on a consolidated level with consideration given to all cash flows of the company as corporate functions do not generate cash flows and are funded by revenue-producing activities at lower levels of the entity. 8. Convertible Senior Notes On May 2, 2017, we completed a private placement of $ 517.5 million in aggregate principal amount of 2.25 % fixed-rate convertible senior notes due May 15, 2024, or the 2024 Notes, and entered into the 2017 Indenture with respect to the 2024 Notes. Interest on the 2024 Notes is due semi-annually on May 15 and November 15 of each year. In 2020, we repurchased $ 136.2 million aggregate principal amount of the 2024 Notes for an aggregate repurchase price of $ 186.9 million in cash. 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. In January 2024, we provided notice to the holders of the 2024 Notes electing to settle all conversions of the 2024 Notes which occur on or after January 15, 2024 in cash. Consequently, the embedded conversion option of the 2024 Notes (the conversion feature) required bifurcation and separate accounting from the 2024 Notes as it no longer qualified for the equity scope exception under ASC 815. Upon bifurcation of the conversion feature, we recorded a derivative liability at a fair value of $ 126.6 million (Level 3) and a corresponding debt discount that will be accreted over the remaining term of the 2024 Notes using the straight-line method. Subsequent changes in the fair value of the derivative liability and accretion of the debt discount will be recorded in other income (expense), net in our condensed consolidated statements of operations. The following table presents a reconciliation of the beginning and ending balances for the derivative liability measured at fair value using significant unobservable inputs (Level 3). (in millions) Amount Balance as of December 31, 2023 $ — Initial fair value 126.6 Change in fair value 9.6 Balance as of March 31, 2024 $ 136.2 The following table presents a summary of charges recognized in connection with the bifurcation of the conversion feature of the 2024 Notes in the first quarter of 2024. (in millions) Amount Accretion of debt discount $ 79.1 Change in fair value 9.6 Charges associated with convertible senior notes $ 88.7 The following table presents a summary of the 2024 Notes as of March 31, 2024. 15 Principal Amount Unamortized Debt Net Carrying Amount Fair Value (in millions) Issuance Costs Discount Amount Leveling Convertible senior notes $ 170.4 $ ( 0.1 ) $ ( 47.5 ) $ 122.8 $ 309.5 Level 2 The following table presents a summary of the 2024 Notes as of December 31, 2023. Principal Amount Unamortized Debt Net Carrying Amount Fair Value (in millions) Issuance Costs Discount Amount Leveling Convertible senior notes $ 170.4 $ ( 0.3 ) $ — $ 170.1 $ 295.7 Level 2 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. On or after May 15, 2021, we had the ability to redeem for cash all or part of the 2024 Notes if the last reported sale price (as defined in the 2017 Indenture) of our common stock had been at least 130 % of the conversion price then in effect (equal to $ 98.70 as of March 31, 2024) for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending on, and including, the trading day immediately before the date which we provide a notice of redemption. Holders of the 2024 Notes may convert the 2024 Notes at any time prior to the close of business on the business day immediately preceding May 15, 2024, only under the following circumstances: (i) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130 % of the conversion price (equal to $ 98.70 as of March 31, 2024) on each applicable trading day; (ii) during the five business-day period immediately after any five consecutive trading-day period (the measurement period) in which the trading price (as defined in the 2017 Indenture) per $ 1,000 principal amount of the 2024 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (iii) upon the occurrence of specified corporate events, including a merger or a sale of all or substantially all of our assets; or (iv) if we call the 2024 Notes for redemption, until the close of business on the business day immediately preceding the redemption date. Until the close of business on the scheduled trading day immediately preceding May 15, 2024, holders of the 2024 Notes may convert the 2024 Notes at any time. Upon conversion, holders of the 2024 Notes will receive the principal amount of their 2024 Notes and any conversion premium, calculated based on the per share volume-weighted average price (VWAP) 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. In addition, if a make-whole fundamental change (as defined in the 2017 Indenture) occurs prior to January 15, 2024, we would, in certain circumstances, increase the conversion rate for a holder who elects to convert their notes in connection with the make-whole fundamental change. The 2024 Notes are our general unsecured obligations that rank senior in right of payment to all of our indebtedness that is expressly subordinated in right of payment to the 2024 Notes, and equal in right of payment to our unsecured indebtedness. The 2024 Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by us. The 2017 Indenture contains customary events of default with respect to the 2024 Notes, including that upon certain events of default, 100 % of the principal and accrued and unpaid interest on the 2024 Notes will automatically become due and payable. 16 9. Earnings (Loss) per Share Earnings (loss) per share were calculated as follows: Three Months Ended March 31, (in millions, except per share data) 2024 2023 Net income (loss) - basic and diluted $ 43.4 $ ( 76.6 ) Weighted-average common shares outstanding: Basic 99.8 97.1 Effect of dilutive securities 3.8 — Diluted 103.6 97.1 Earnings (loss) per share: Basic $ 0.43 $ ( 0.79 ) Diluted $ 0.42 $ ( 0.79 ) Shares excluded from diluted per share amounts because their effect would have been anti-dilutive 1.7 15.5 17