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Item 7. Management’s Discussion and Analysis

2025-02-10 compared with 2024-02-09 · 113 added, 98 removed, 131 unchanged (62% of the section changed)

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to relieve suffering for people with great needs, but few options.

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

The Company’s diverse portfolio includes U.S.

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

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

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

Our portfolio of products includes U.S.

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

In addition, we have a diversified portfolio of multiple compounds in mid- to late-phase development across our core therapeutic areas and an expanding early-phase pipeline that includes a range of modalities including small molecules, peptides, proteins, antibodies, and gene therapy.

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

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

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

as the first FDA-approved drug for the treatment of tardive dyskinesia in May 2017 and for the treatment of chorea associated with Huntington's disease in August 2023 and launched CRENESSITY TM (crinecerfont) in the U.S.

as a first-in-class FDA-approved treatment of CAH in December 2024.

We estimate that tardive dyskinesia affects approximately 800,000 people in the U.S., that approximately 90% of the 40,000 people in the U.S.

affected by Huntington’s disease will develop chorea, and that CAH affects approximately 30,000 people in the U.S.

Key elements of our commercial strategy include maximizing the opportunities in INGREZZA and CRENESSITY through consistent and effective commercial execution, continued development of valbenazine as the best-in-class treatment for new patient populations, and to lead the evolving understanding of VMAT2 biology and its role in disease.

INGREZZA net product sales totaled $2.3 billion for 2024, $1.8 billion for 2023, and $1.4 billion for 2022 and accounted for substantially all of our total net product sales during each of these years.

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

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

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

for the treatment of 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.

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Business Highlights

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

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

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

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

• INGREZZA net product sales for 2024 increased $477.5 million, or 26.0%, to $2.3 billion, reflecting strong underlying patient demand and improved gross-to-net dynamics.

• In December 2024, we received FDA approval for CRENESSITY capsules and oral solution as an adjunctive treatment of CAH and launched CRENESSITY in the U.S.

as a first-in-class FDA-approved treatment of CAH.

We estimate that CAH affects approximately 30,000 people in the U.S.

• Kevin Gorman, Ph.D., retired as Chief Executive Officer (CEO) effective October 11, 2024.

Kyle Gano, Ph.D., formerly Neurocrine’s Chief Business Development and Strategy Officer, succeeded Dr.

Gorman in the CEO role and also joined the Company’s Board of Directors at that time.

Gorman continues to serve on the Company’s Board.

• Received notification from the Centers for Medicare and Medicaid Services that INGREZZA qualified for the Specified Small Manufacturer Exception pertaining to the Part D redesign of the Inflation Reduction Act.

• Settled the convertible senior notes due May 15, 2024 (the 2024 Notes) in full in cash upon maturity.

• Deployed expanded INGREZZA psychiatry and long-term care sales teams to better serve patients by accelerating the number of people who are diagnosed and treated for tardive dyskinesia and chorea associated with Huntington's disease with INGREZZA.

• Repurchased and retired an initial delivery of 2.0 million shares of the Company’s common stock pursuant to previously announced $300.0 million accelerated share repurchase (ASR) program.

The program was completed in February 2025, at which time we became contractually entitled to receive an additional 0.3 million shares upon settlement.

Pipeline Highlights

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

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

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

• Expanded strategic partnership with Voyager Therapeutics Inc.

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

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

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

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

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

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

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

• Announced the initiation of the Phase 3 program for osavampator (formerly NBI-1065845), a potential first-in-class alpha-amino-3-hydroxy-5-methyl-4-isoxazole propionic acid (AMPA) positive allosteric modulator (PAM) in development for patients with inadequate response to treatment of major depressive disorder (MDD).

• Announced amendment to strategic collaboration with Takeda Pharmaceutical Company Limited (Takeda) to develop and commercialize osavampator.

Under the amended agreement, we will retain exclusive rights for all indications to develop and commercialize osavampator in all territories worldwide except Japan, where Takeda will have exclusive rights.

Under the terms of the updated agreement, each company is responsible for development costs in their respective region, and both companies are eligible to receive royalty payments.

• Announced the initiation of the Phase 1 clinical study to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of investigational compound NBI-921355 in healthy adult participants.

NBI-921355 is an investigational, selective inhibitor of voltage-gated sodium channels Nav1.2 and Nav1.6 and in development for the potential treatment of certain types of epilepsy.

• Presented subgroup analyses and data from the KINECT ® -HD study showing the impact of INGREZZA capsules on emotional health and psychiatric stability in patients with chorea associated with Huntington's disease.

The subgroup analysis showed consistent efficacy in reducing chorea compared to placebo across all identified subgroups, categorized by demographics and baseline assessment scores.

A separate data analysis showed improvements in some aspects of emotional health with no worsening of psychiatric symptoms.

• Presented data from more than 300 patients diagnosed with tardive dyskinesia and treated with INGREZZA capsules.

These data showed significant improvements in functional, social, emotional, and health-related quality of life measures in Phase 3 and 4 studies and improvements in functional, social, independence, emotional, and physical aspects of patients' lives and antipsychotic adherence in real-world practice.

• Announced positive topline data for the Phase 2 study of NBI-1117568, a first-in-class, orally active, highly selective investigational M4 agonist, in development as a potential treatment for schizophrenia.

The successful completion of the Phase 2 study triggered a $35.0 million milestone payment to Nxera Pharma UK Limited (Nxera) in 2024.

We expect to advance NBI-1117568 into Phase 3 development in the first half of 2025, which would trigger an additional $15.0 million milestone payment to Nxera upon initiation of the Phase 3 study.

• Announced positive topline data for the Phase 2 SAVITRI™ study.

This randomized, double-blind, placebo-controlled dose-finding study assessed the efficacy and safety of osavampator in adult subjects with MDD.

• At the Endocrine Society Annual Meeting (ENDO 2024), presented new Phase 3 clinical study data from the CAHtalyst™ registrational studies of crinecerfont in pediatric and adult patients with CAH.

In parallel, announced that the primary study results from the CAHtalyst™ registrational studies of crinecerfont in pediatric and adult patients with CAH have been published in The New England Journal of Medicine.

• Initiated Phase 2 study of NBI-1070770 in adults with MDD.

NBI-1070770 is a novel, selective, and orally active, negative allosteric modulator (NAM) of the NR2B subunit-containing N-methyl-D-aspartate (NMDA NR2B) receptor.

• Initiated Phase 1 study of NBI-1117567 in healthy adult participants.

NBI-1117567 is an investigational, oral, M1/M4 (M1 preferring) selective muscarinic agonist for the potential treatment of neurological and neuropsychiatric conditions.

• Initiated Phase 1 study of NBI-1076968 in healthy adult participants.

NBI-1076968 is an investigational, oral, M4 subtype-selective muscarinic antagonist for the potential treatment of movement disorders.

• Received approval from the FDA for INGREZZA ® SPRINKLE (valbenazine) capsules, a new oral granules formulation of INGREZZA capsules, and subsequently launched new sprinkle formulation of INGREZZA capsules for the treatment of adults with tardive dyskinesia and chorea associated with Huntington’s disease.

• Presented KINECT ® -HD2 interim data at the 2024 MDS International Congress of Parkinson’s Disease and Movement Disorders demonstrating robust and sustained improvements in chorea associated with Huntington’s disease through week 104 irrespective of antipsychotic use.

• Announced the ERUDITE™ Phase 2 study of luvadaxistat (NBI-1065844) in cognitive impairment associated with schizophrenia (CIAS) did not meet its primary endpoint.

In addition, we provided Takeda with written notice of termination of the license agreement to develop and commercialize luvadaxistat and NBI-1065846.

The termination is anticipated to be effective in April 2025.

• Provided Idorsia Pharmaceuticals Ltd.

with written notice of termination of the license agreement to develop and commercialize NBI-827104.

The termination became effective in January 2025.

Results of Operations

Net Product Sales by Sales Product.

Net Product Sales

Year Ended December 31,

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Total net product sales $ 2,330.6 $ 1,860.6 $ 1,440.9

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

For 2024 compared to 2023, the increase primarily reflected increased INGREZZA net product sales driven by strong underlying patient demand and improved gross-to-net dynamics.

For 2023 compared to 2022, the increase primarily reflected increased INGREZZA net product sales on higher prescription demand and increased commercial activities, including continued investment in our branded direct-to-consumer INGREZZA advertising campaign and benefit from the expansion of our sales force completed in April 2022.

Collaboration Revenues by Category

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(in millions) 2024 2023 2022

Royalties $ 21.2 $ 22.3 $ 22.3

Royalty revenue $ 18.6 $ 21.2 $ 22.3

Milestones — — 20.0

Collaboration and other

Total collaboration revenue $ 26.5 $ 47.8 $ 43.4

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

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

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

Total collaboration revenues $ 24.7 $ 26.5 $ 47.8

Total collaboration revenues for all periods presented primarily reflected royalty revenue earned on AbbVie net sales of elagolix and MTPC net sales of valbenazine.

For 2023 compared to 2022, the decrease reflected the achievement of a $20.0 million milestone in 2022 in connection with MTPC's first commercial sale of DYSVAL in Japan.

Operating Expenses

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Cost of revenues $ 34.0 $ 39.7 $ 23.2

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

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

Research and Development by Category.

For 2024 compared to 2023, the decrease primarily reflected the impact of decreased ONGENTYS ® (opicapone) net product sales and lower ONGENTYS inventory reserves in connection with the termination of our license agreement with BIAL, which became effective in December 2023, partially offset by the impact of increased INGREZZA net product sales.

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

Research and Development

We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs, and business development opportunities.

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Research and development $ 731.1 $ 565.0 $ 463.8

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

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

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

For 2024 compared to 2023, the decrease primarily reflected the successful completions of the Phase 3 programs for crinecerfont in CAH and Phase 2 program for EFMODY in CAH, partially offset by increased investments in advancing Phase 3 programs for osavampator in MDD and NBI-1117568 in schizophrenia.

For 2023 compared to 2022, the increase primarily reflected increased investments in the Phase 3 programs for crinecerfont in CAH and valbenazine in schizophrenia and Phase 2 program for EFMODY in CAH.

Early Stage .

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

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

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

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

For 2024 compared to 2023, the decrease primarily reflected lower spend on certain early-stage programs in epilepsy and psychiatry, including the successful completions of the Phase 2 programs for osavampator in MDD and NBI-1117568 in schizophrenia, partially offset by increased investments in the Phase 2 program for NBI-1070770 in MDD and certain early-stage muscarinic programs.

For 2023 compared to 2022, the increase primarily reflected increased investments in certain early-stage programs in psychiatry, partially offset by lower spend on early-stage programs in epilepsy.

Research and Discovery .

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

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

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

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

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

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

Research and discovery consists of costs incurred prior to the approval of an investigational new drug application by the applicable regulatory agency.

For 2024 compared to 2023, the increase reflected increased investments in gene therapy and other preclinical development programs.

For 2023 compared to 2022, the increase reflected increased investments in preclinical development programs, including muscarinic agonists, gene therapy, and second generation VMAT2 inhibitors.

Milestones consists of costs incurred in connection with the achievement of development milestones under our collaborative arrangements.

For 2024 compared to 2023, the increase reflected increased expense recognized in connection with development milestones achieved under our collaborations with Nxera, Takeda, and Voyager Therapeutics, Inc.

For 2023 compared to 2022, the decrease primarily reflected decreased expense recognized in connection with development milestones achieved under our collaborations with Nxera, Xenon Pharmaceuticals Inc.

(Xenon), and Takeda.

Payroll and Benefits.

Consists of costs incurred for salaries and wages, payroll taxes, benefits and stock-based compensation associated with employees involved in research and development activities.

Payroll and benefits consists of costs incurred for salaries and wages, payroll taxes, benefits and stock-based compensation associated with employees involved in research and development activities.

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

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

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

For 2024 compared to 2023, the increase primarily reflected higher headcount.

For 2023 compared to 2022, the increase primarily reflected higher headcount and increased non-cash stock-based compensation expense primarily driven by a charge related to a change in equity grant agreement terms in 2023.

Facilities and Other.

Consists of indirect costs incurred for the benefit of multiple programs, including depreciation, information technology, and other facility-based expenses, such as rent expense.

Acquired In-Process Research and Development, or IPR&D.

Facilities and other consists of indirect costs incurred for the benefit of multiple programs, including depreciation, information technology, and other facility-based expenses, such as rent expense.

For 2024 compared to 2023, the increase primarily reflected increased facility-based expenses related to our new campus facility.

Acquired In-Process Research and Development (IPR&D)

Year Ended December 31,

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Acquired in-process research and development $ 12.5 $ 143.9 $ —

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

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

Selling, General and Administrative, or SG&A.

For 2024, IPR&D expense primarily reflected the payment of a $6.0 million upfront fee pursuant to our collaboration with Biocytogen Pharmaceuticals (Beijing) Co., Ltd.

For 2023, IPR&D expense reflected the payment of a $143.9 million upfront fee pursuant to the expansion of our collaboration with Voyager.

Selling, General, and Administrative (SG&A)

Year Ended December 31,

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Selling, general, and administrative $ 1,007.2 $ 887.6 $ 752.7

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

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

Other Income (Expense), Net.

For 2024 compared to 2023, the increase primarily reflected continued investment in our commercial organization, including the recent expansion of our psychiatry and long-term care sales team in September 2024, pre-launch CRENESSITY activities, increased facility expenses related to our new campus facility, and impairment charges of $14.0 million associated with leased office space that has been vacated as we continue to occupy our new campus facility.

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

Other (Expense) Income, Net

Year Ended December 31,

(in millions) 2024 2023 2022

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

Unrealized gain on equity securities

28.4 30.8 20.9

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

Unrealized (loss) gain on equity investments $ (37.1) $ 28.4 $ 30.8

Charges associated with convertible senior notes (138.4) — (70.0)

Investment income and other, net 91.0 52.8 4.1

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

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

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

Total other (expense) income, net $ (84.5) $ 81.2 $ (35.1)

For 2024 compared to 2023, the increase in total other expense, net, primarily reflected $138.4 million of expense recognized in connection with conversions of the 2024 Notes upon maturity in May 2024 and periodic fluctuations in the fair values of our equity investments, partially offset by increased interest income on our debt security investments.

For 2023 compared to 2022, the increase in total other income, net, primarily reflected increased interest income on our debt security investments and decreased debt extinguishment charges in connection with the repurchase of the 2024 Notes in 2022.

Provision for Income Taxes

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Provision for income taxes $ 144.7 $ 82.4 $ 59.4

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

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

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

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

For 2024 and 2023, the effective tax rate varied from the federal and state statutory rates primarily due to credits generated for research activities, certain nondeductible expenses, excess tax benefits related to stock-based compensation, and losses incurred in foreign jurisdictions for which no tax benefit was recorded as management cannot conclude that it is more likely than not that the tax benefit of such losses will be realized in the future.

Additionally, in 2024, we incurred a loss on the extinguishment of debt that was nondeductible for tax purposes.

Year Ended December 31,

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Net income $ 341.3 $ 249.7 $ 154.5

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

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

For 2024 compared to 2023, the increase primarily reflected increased INGREZZA net product sales and decreased total payments for upfront fees and development milestones achieved in connection with our collaborations, partially offset by $138.4 million of expense recognized in connection with conversions of the 2024 Notes upon maturity in May 2024, periodic fluctuations in the fair values of our equity investments, and continued investments in our commercial organization, including pre-launch CRENESSITY activities, and expanded pre-clinical and clinical portfolios.

For 2023 compared to 2022, the increase primarily reflected increased INGREZZA net product sales, increased interest income on our debt security investments, and decreased debt extinguishment charges in connection with the repurchase of the 2024 Notes in 2022, partially offset by increased total payments for upfront fees and development milestones achieved in connection with our collaborations and increased investments in our commercial initiatives and expanded clinical portfolio.

Liquidity and Capital Resources

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However, we cannot guarantee that our existing capital resources and anticipated revenues will be sufficient to conduct and complete all of our research and development programs or commercialization activities as planned.

We may seek to access the public or private equity markets whenever conditions are favorable or pursue opportunities to obtain additional debt financing in the future.

We may seek to access the public or private equity markets whenever conditions are favorable or pursue opportunities to obtain debt financing in the future.

We may also seek additional funding through strategic alliances or other financing mechanisms.

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Cash Flows from Operating Activities

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

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

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

For 2024 compared to 2023, the increase primarily reflected increased INGREZZA net product sales and decreased total payments for upfront fees and development milestones achieved in connection with our collaborations, partially offset by increased payments for income taxes and continued investments in our commercial organization, including pre-launch CRENESSITY activities, and expanded pre-clinical and clinical portfolios.

For 2023 compared to 2022, the increase primarily reflected increased INGREZZA net product sales, partially offset by increased total payments for upfront fees and development milestones achieved in connection with our collaborations and increased investment in our commercial initiatives and expanded clinical portfolio.

Cash Flows from Investing Activities

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

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

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

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

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

Cash Flows from Financing Activities

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

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

For 2024 compared to 2023, cash flows from financing activities also reflected a $300.0 million payment to a third-party financial institution to repurchase shares of the Company’s common stock under a share repurchase program that was authorized by our Board of Directors in October 2024 and the settlement of the 2024 Notes in full for $308.8 million in cash.

For 2023 compared to 2022, cash flows from financing activities also reflected the repurchase of $210.8 million aggregate principal amount of the 2024 Notes for an aggregate repurchase price of $279.0 million in cash.

Material Cash Requirements

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

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

• the commercial success of INGREZZA and CRENESSITY;

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

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• the time and costs involved in obtaining regulatory approvals;

• the cost of commercialization activities and arrangements, including our advertising campaigns;

• the cost of manufacturing of our product candidates;

• the costs involved in filing and pursuing patent applications, enforcing patent claims, or engaging in interference proceedings or other patent litigation;

• costs associated with securing adequate coverage and reimbursement for our products;

• competing technological and market developments;

• developments related to any future litigation;

• the cost of commercialization activities and arrangements, including our advertising campaigns;

• the cost of manufacturing our product candidates.

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

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In addition to our independent efforts to develop and market products, we may enter into collaboration and license agreements or acquire businesses from time-to-time to enhance our drug development and commercial capabilities.

With respect to our existing collaboration and license agreements, we may be required to make potential future payments of up to $17.0 billion upon the achievement of certain event-based milestones.

With respect to our existing collaboration and license agreements, we may be required to make potential future payments of up to $17.7 billion upon the achievement of certain milestones.

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

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

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

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

The construction of the campus facility is phased.

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

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

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

Convertible Senior Notes.

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

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

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

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

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

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

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

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

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

There are 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 would become due and payable.

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

Critical Accounting Policies and Estimates

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

Income Taxes.

Our income tax provision is computed under the asset and liability method.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis