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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Neurocrine Biosciences, Inc.    NBIX

NEUROCRINE BIOSCIENCES, INC.

(NBIX)
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NEUROCRINE BIOSCIENCES : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

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02/07/2020 | 06:03am EDT
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations section contains forward-looking statements pertaining to,
among other things, the commercialization of our product and product candidates,
the expected continuation of our collaborative agreements, the receipt of
research and development payments thereunder, the future achievement of various
milestones in product development and the receipt of payments related thereto,
the potential receipt of royalty payments, preclinical testing and clinical
trials of potential products, the period of time that our existing capital
resources will meet our funding requirements, and our financial results of
operations. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of various risks and uncertainties,
including those set forth in this Annual Report on Form 10-K under the heading
"Item 1A. Risk Factors." See "Forward-Looking Statements" in Part I of this
Annual Report on Form 10-K.

Overview


We are a commercial-stage biopharmaceutical company focused on discovering and
developing innovative and life-changing treatments for patients with serious,
challenging and under-addressed neurological, endocrine and psychiatric
disorders. We specialize in targeting and interrupting disease-causing
mechanisms involving the interconnected pathways of the nervous and endocrine
systems. Currently, we are primarily focused on the commercialization of
INGREZZA® (valbenazine) in the United States, or U.S., our first U.S. Food and
Drug Administration, or FDA, approved product.

In April 2017, we received FDA approval of our first product, INGREZZA, for the
treatment of adults with tardive dyskinesia, or TD. Shortly after receiving FDA
approval, we began commercializing INGREZZA in the U.S. using a specialty sales
force primarily focused on educating physicians who treat patients with TD,
including psychiatrists and neurologists.

In addition to our first marketed product, our collaboration partner, AbbVie
Inc., or AbbVie, received approval of ORILISSA® (elagolix) for the management of
moderate to severe endometriosis pain in women from the FDA in July 2018 and
Health Canada in October 2018. We receive royalties at tiered percentage rates
on any net sales of ORILISSA.

Our late-stage pipeline includes opicapone as an adjunctive therapy to
levodopa/DOPA decarboxylase inhibitors in adult Parkinson's disease patients,
elagolix for the treatment of heavy menstrual bleeding, or HMB, associated with
uterine fibroids in women, valbenazine for the treatment of chorea in adult
patients with Huntington's disease, or HD, and NBIb-1817 (VY-AADC) for the
treatment of advanced Parkinson's disease patients with motor fluctuations that
are refractory to medical management. Our product candidates for uterine
fibroids and advanced Parkinson's disease are partnered with AbbVie and Voyager
Therapeutics, Inc., or Voyager, respectively.

In the third quarter of 2019, the FDA accepted our new drug application, or NDA,
for opicapone for the treatment of Parkinson's disease with a Prescription Drug
User Fee Act, or PDUFA, target action date of April 26, 2020. Also, in the third
quarter of 2019, the FDA accepted AbbVie's NDA for elagolix for the treatment of
uterine fibroids with a PDUFA target action date in the second quarter of 2020.

Our early-stage clinical pipeline includes crinecerfont (NBI-74788) for the treatment of congenital adrenal hyperplasia, or CAH, elagolix for the treatment of polycystic ovary syndrome, or PCOS, in women and a vesicular monoamine transporter 2, or VMAT2, inhibitor with potential use in the treatment of neurologic and psychiatric disorders. Our product candidate for PCOS is partnered with AbbVie.


In December 2019, we entered into a license and collaboration agreement with
Xenon Pharmaceuticals Inc, or Xenon, a clinical-stage biopharmaceutical company.
Pursuant to the terms of the agreement, we acquired an exclusive license to
NBI-921352 (XEN901), a clinical-stage candidate with potential in epilepsy.

In January 2020, we announced a collaboration and optional licensing agreement
with Idorsia Pharmaceuticals Ltd, granting us an option to license ACT-709478, a
potent, selective, orally active and brain penetrating T-type calcium channel
blocker, in clinical development for the treatment of a rare pediatric epilepsy.
The option also includes a research collaboration to discover, identify and
develop additional novel T-type calcium channel blockers.

Going forward, we expect to augment our product pipeline by acquiring, through
license or otherwise, additional drug candidates for research and development,
or R&D, and potential commercialization.



Results of Operations

Revenues

The following table presents our revenues by category.




                                   Year Ended December 31,
(in thousands)                2019          2018          2017
INGREZZA product sales, net $ 752,900$ 409,608$ 116,626
Collaboration revenue          35,187        41,632        45,000
Total revenues              $ 788,087$ 451,240$ 161,626




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Product Sales, net

In April 2017, the FDA approved INGREZZA for the treatment of TD. INGREZZA became available for prescription in late April 2017. Net product sales were $752.9 million for 2019, $409.6 million for 2018 and $116.6 million for 2017.

Collaboration Revenue


Collaboration revenue reflects event-based milestones, royalties and license
fees earned under our collaboration agreements with AbbVie and Mitsubishi Tanabe
Pharma Corporation, or MTPC.

In the third quarter of 2019, we recognized a $20.0 million event-based
milestone as revenue upon the FDA's acceptance of AbbVie's NDA submission of
elagolix for the treatment of uterine fibroids. In the third quarter of 2018, we
recognized a $40.0 million event-based milestone as revenue upon the
FDA-approval of AbbVie's ORILISSA for the management of moderate to severe
endometriosis pain in women. In the third quarter of 2017, AbbVie's NDA
submission for elagolix in endometriosis was accepted as filed by the FDA,
resulting in the achievement of a $30.0 million event-based milestone, which we
recognized as revenue in the fourth quarter of 2017. We also recognized $15.0
million in development event-based payments as revenue in 2017, resulting from
Mitsubishi Tanabe Pharma Corporation's, or MTPC's, initiation of Phase II/III
development of INGREZZA in TD in Asia.

We are eligible to receive royalties at tiered percentage rates on any net sales
of ORILISSA. We recognized royalty revenues on net sales of ORILISSA of $14.3
million for 2019 and $1.6 million for 2018. We recognized no royalty revenues in
2017.

Operating Expenses

Cost of Sales

Cost of sales was $7.4 million for 2019, $4.9 million for 2018 and $1.3 million for 2017.


Research and Development

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


Costs are reflected in the applicable development stage based upon the program
status when incurred. Therefore, the same program could be reflected in
different development stages in the same reporting period. For several of our
programs, the R&D activities are part of our collaborative and other
relationships.

Late stage consists of costs incurred related to product candidates in Phase II
registrational studies and onwards. Early stage consists of costs incurred
related to product candidates in post-investigational new drug application, or
IND, through Phase II non-registrational studies. Research and discovery
consists of pre-IND costs. Milestone expenses reflect payments made in
connection with our collaborative and other relationships. Payroll and benefits
consists of costs incurred for salaries and wages, payroll taxes, benefits, and
share-based compensation associated with employees involved in ongoing R&D
activities. Share-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
share-based grants are issued.

Facilities and other consists of indirect costs incurred in support of overall R&D activities and non-specific programs, including activities that benefit multiple programs, such as management costs, as well as depreciation, information technology, and facility-based expenses. These costs are not allocated to a specific program or stage.

The following table presents R&D expense by category:



                             Year Ended December 31,
(in thousands)           2019          2018          2017
Late stage             $  43,673$  14,237$  6,423
Early stage               25,260        41,659       18,917
Research and discovery    24,642        17,047       11,173
Milestone payments        10,000        10,000            -
Payroll and benefits      71,347        61,950       42,180
Facilities and other      25,120        10,881       13,134
Total R&D expense      $ 200,042$ 155,774$ 91,827




R&D expense was $200.0 million in 2019, $155.8 million in 2018 and $91.8 million
in 2017. The increase in R&D expense from 2018 to 2019 was primarily due to
funding of development activities in connection with our collaboration with
Voyager, ongoing progression of our product candidate pipeline and increased
personnel expenses on higher headcount. The increase in R&D expense from 2017 to
2018 was primarily due to the ongoing progression of our product candidate
pipeline and increased personnel expenses on higher headcount.

Acquired In-Process Research and Development


In-process research and development, or IPR&D, was $154.3 million for 2019, $4.8
million for 2018 and $30.0 million for 2017. In connection with the payment of
the upfront fee pursuant to our collaboration and license agreement with
Voyager, we recorded a

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charge of $113.1 million, accounted for as IPR&D, in the first quarter of 2019.
In the second quarter of 2019, we entered into an amendment to the collaboration
and license agreement with Voyager, pursuant to which we paid Voyager $5.0
million upfront, accounted for as IPR&D, to obtain outside the U.S. rights to
the Friedreich's ataxia program. In connection with the payment of the upfront
fee pursuant to our collaboration with Xenon, we recorded a charge of $36.2
million, accounted for as IPR&D, in the fourth quarter of 2019. In the third
quarter of 2018, we entered into a research collaboration with Jnana
Therapeutics Inc., or Jnana, pursuant to which we paid Jnana $4.8 million
upfront, accounted for as IPR&D, to obtain access to their proprietary drug
discovery platform. In connection with the payment of the upfront fee pursuant
to our exclusive license agreement with BIAL - Portela & Ca, S.A., we recorded a
charge of $30.0 million, accounted for as IPR&D, in the first quarter of 2017.

Sales, General and Administrative


Sales, general and administrative, or SG&A, expense was $354.1 million in 2019,
$248.9 million in 2018 and $169.9 million in 2017. The increase in SG&A expense
from 2018 to 2019 was primarily due to the sales force expansion completed in
the third quarter of 2018, the national launch of a patient-focused disease
state awareness campaign, Talk About TD, and an increase in the Branded
Pharmaceutical Drug fee expense. The increase in SG&A expense from 2017 to 2018
was primarily due to our commercial launch for INGREZZA in April 2017 and the
subsequent sales force expansion in the third quarter of 2018.

Other Expense


Other expense, net, was $25.7 million in 2019, $15.1 million in 2018 and $11.2
million in 2017. The increase in other expense, net, from 2018 to 2019 was
primarily due to an unrealized loss of $13.0 million to adjust our equity
investments in Voyager and Xenon to fair value as of December 31, 2019. The
increase in other expense, net, from 2017 to 2018 was primarily due to higher
interest expense resulting from our issuance of $517.5 million of 2.25%
convertible senior notes due May 15, 2024, or the 2024 Notes, in May 2017.

Provision for Income Taxes


Our provision for income taxes was $9.5 million for 2019 and $0.7 million for
2018, reflecting estimated current state income taxes for both periods. We did
not have a provision for income taxes for 2017. At December 31, 2019 and 2018,
we had full valuation allowances against our net deferred tax assets as
realization was uncertain. As a result, our tax expense for both periods varies
from the statutory tax rate primarily due to changes in our valuation
allowances, net of other permanent book/tax differences, tax credits generated
and impacts of changes in tax laws.

Net Income (Loss)


Net income was $37.0 million, or $0.39 diluted earnings per share, for 2019 and
$21.1 million, or $0.22 diluted earnings per share, for 2018. We incurred a net
loss of $142.5 million, or $1.62 net loss per share, for 2017. The change from
2018 to 2019 was primarily the result of increased INGREZZA net product sales,
offset by $154.3 million of IPR&D in connection with our collaborations with
Voyager and Xenon, ongoing support for the commercial launch of INGREZZA for TD
and progression of our clinical pipeline. The change from 2017 to 2018 was
primarily the result of increased INGREZZA net product sales, offset by ongoing
support for the commercial launch of INGREZZA for TD and progression of our
clinical pipeline.

Liquidity and Capital Resources

At December 31, 2019, our cash, cash equivalents and marketable securities totaled $970.2 million, compared with $866.9 million at December 31, 2018.


Net cash provided by operating activities was $152.1 million for 2019 and $101.4
million for 2018. Net cash used in operating activities was $94.3 million for
2017. The increase in positive cash flow from 2018 to 2019 was primarily driven
by increased INGREZZA net product sales, partially offset by incremental
INGREZZA investment and upfront payments of $118.1 million and $36.2 million in
connection with our collaborations with Voyager and Xenon, respectively. The
significant change to positive cash flow generated from operations from 2017 to
2018 was primarily driven by increased INGREZZA net product sales and the
achievement of a $40.0 million event-based milestone related to the FDA's
approval of ORILISSA.

Net cash used in investing activities was $211.1 million for 2019, $242.9
million for 2018 and $251.3 million for 2017. The change in net cash used in
investing activities for all periods presented resulted primarily from timing
differences in purchases, sales and maturities of marketable securities and
changes in our portfolio-mix between cash equivalents and short-term and
long-term investment holdings. Net cash used in investing activities for 2019
also reflects equity investments of $54.7 million in Voyager in the first
quarter of 2019 and $14.2 million in Xenon in the fourth quarter of 2019.

Net cash provided by financing activities was $27.3 million for 2019, $29.5
million for 2018 and $516.6 million in 2017. Net cash provided by financing
activities for 2019 and 2018 reflected proceeds from stock option issuances. Net
cash provided by financing activities for 2017 primarily reflected net proceeds
of $502.8 million associated with our issuance of the 2024 Notes in May 2017.

Shelf Registration Statement. In February 2017, we filed an automatic shelf registration statement which immediately became effective by rule of the Securities and Exchange Commission, or SEC. We sold no securities under this shelf registration statement in 2019, 2018 or 2017.


Convertible Senior Notes. In May 2017, we issued $517.5 million of 2.25%
convertible senior notes due May 15, 2024, or the 2024 Notes. At December 31,
2019, the conditional conversion feature of the 2024 Notes had been triggered,
allowing holders of 2024

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Notes to convert their 2024 Notes at any time during the period beginning on January 2, 2020 and ending at the close of business on March 31, 2020.

Off-Balance Sheet Arrangements

As of December 31, 2019, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates


Our discussion and analysis of our financial condition and results of operations
is based upon financial statements that we have prepared in accordance with
accounting principles generally accepted in the United States of America, or
GAAP. The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities
and expenses, and related disclosures. On an on-going basis, we evaluate these
estimates, including those related to revenue recognition and share-based
compensation. Estimates are based on historical experience, information received
from third parties and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Historically, revisions to
our estimates have not resulted in a material change to the financial
statements. The items in our financial statements requiring significant
estimates and judgments are as follows:

Product Sales, Net


Our product sales, net consist of sales of INGREZZA in the U.S. to a limited
network of specialty pharmacy providers, which delivers INGREZZA to patients by
mail, and a specialty distributor, which distributes INGREZZA primarily to
closed-door pharmacies and government facilities. Product sales, net are
recognized at the time the customer takes possession of the product.

Revenues from product sales are recorded net of reserves established for
applicable discounts and allowances that are offered within contracts with our
customers, payors and other third parties. The transaction price, which includes
variable consideration reflecting the impact of discounts and allowances, may be
subject to constraint and is included in the net sales price only to the extent
that it is probable that a significant reversal of the amount of the cumulative
revenue recognized will not occur in a future period. Actual amounts may
ultimately differ from our estimates. If actual results vary, we adjust these
estimates, which could have an effect on earnings in the period of adjustment.

Our significant categories of sales discounts and allowances are as follows:


Product discounts - product discounts are based on payment terms extended to our
customers, which include incentives offered for prompt payment. We maintain a
reserve for product discounts based on our historical experience, including the
timing of customer payments. To date, actual product discounts have not differed
materially from our estimates.

Product returns - our contracts with customers provide for product returns only
if the product is damaged or there has been an error in shipment. Returns based
on product expiry are not permitted. To date, product returns have not been
significant, and a reserve has not been established.

Government rebates - we are obligated to pay rebates for mandated discounts
under the Medicaid Drug Rebate Program. The liability for such rebates consist
of invoices received for claims from prior quarters that remain unpaid or for
which an invoice has not been received and estimated rebates for the current
applicable reporting period. Such rebates are primarily estimated based upon
actual historical rebates, estimated payor mix, state and federal regulations
and related contractual terms and are recorded as a reduction of product sales
in the same period the related revenue is recognized. To date, actual government
rebates have not differed materially from our estimates.

Chargebacks - the difference between the list price, or the price at which we
sell INGREZZA product to our customers, and the contracted price, or the price
at which our customers sell INGREZZA product to qualified healthcare
professionals, is charged back to us by our customers. In addition to actual
chargebacks received, we maintain a reserve for chargebacks based on estimated
contractual discounts on INGREZZA product inventory levels on hand in our
distribution channel. To date, actual chargebacks have not differed materially
from our estimates.

Payor and pharmacy rebates - we are obligated to pay rebates as a percentage of
sales under payor and pharmacy contracts. We estimate these rebates based on
actual historical rebates, contractual rebate percentages, sales made through
the payor channel and purchases made by pharmacies. To date, actual payor and
pharmacy rebates have not differed materially from our estimates.

Copay assistance - we offer qualified patients financial assistance with
prescription drug co-payments required by insurance. We accrue for copay
assistance based on estimated claims and the cost per claim we expect to receive
associated with inventory that remains in the distribution channel at period
end. To date, actual copay assistance has not differed materially from our
estimates.

Share-Based Compensation


For purposes of calculating share-based compensation, we estimate the fair value
of share-based compensation awards using a Black-Scholes option-pricing model.
The determination of the fair value of share-based compensation awards utilizing
the Black-Scholes model is affected by our stock price and a number of
assumptions, including but not limited to expected stock price volatility over
the term of the awards and the expected term of stock options. Our stock options
have characteristics significantly different from those of traded options, and
changes in the assumptions can materially affect the fair value estimates. For
example, an increase in the underlying stock price results in a significant
increase in the Black-Scholes option-pricing. The fair value of
performance-based

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restricted stock units, or PRSUs, is estimated based on the closing sale price of our common stock on the date of grant. Expense recognition for PRSUs commences when attainment of the associated performance-based criteria is determined to be probable.


If factors change and we employ different assumptions, share-based compensation
expense may differ significantly from what we have recorded in the past. If
there is a difference between the assumptions used in determining share-based
compensation expense and the actual factors which become known over time, we may
change the input factors used in determining share-based compensation expense
for future grants. These changes, if any, may materially impact our results of
operations in the period such changes are made. For actual forfeitures, we
recognize the adjustment to compensation expense in the period the forfeitures
occur.

Additional Information

Refer to Note 1 to the consolidated financial statements for information on accounting pronouncements that have impacted or are expected to materially impact our consolidated financial condition, results of operations, or cash flows.

Factors That May Affect Future Financial Condition and Liquidity


The funding necessary to execute our business strategies is subject to numerous
uncertainties, which may adversely affect our liquidity and capital resources.
Marketing of approved pharmaceuticals and completion of clinical trials may take
several years or more, but the length of time generally varies substantially
according to the type, complexity, novelty and intended use of a product
candidate. It is also important to note that if a clinical candidate is
identified, the further development of that candidate can be halted or abandoned
at any time due to a number of factors. These factors include, but are not
limited to, funding constraints, safety or a change in market demand.

The nature and efforts required to develop our product candidates into
commercially viable products include research to identify a clinical candidate,
preclinical development, clinical testing, FDA approval and commercialization.
In the pharmaceutical industry, total R&D spend for a drug candidate that
successfully completes all stages of R&D and is commercialized may exceed
$2 billion. Further, it can take in excess of ten years to complete all stages
of R&D for a drug candidate.

We test our potential product candidates in numerous preclinical studies to
identify disease indications for which our product candidates may show efficacy.
We may conduct multiple clinical trials to cover a variety of indications for
each product candidate. As we obtain results from trials, we may elect to
discontinue clinical trials for certain product candidates or for certain
indications in order to focus our resources on more promising product candidates
or indications. The duration and the cost of clinical trials may vary
significantly over the life of a project as a result of differences arising
during the clinical trial protocol, including, among others, the following:

• we or the FDA or similar foreign regulatory authorities may suspend the

trials;

• we may discover that a product candidate may cause harmful side effects;


  • patient recruitment may be slower than expected; and


  • patients may drop out of the trials.


For each of our programs, we periodically assess the scientific progress and
merits of the programs to determine if continued R&D is economically viable.
Certain of our programs have been terminated due to the lack of scientific
progress and lack of prospects for ultimate commercialization. Because of the
uncertainties associated with R&D of these programs, we may not be successful in
achieving commercialization. As such, the ultimate timeline and costs to
commercialize a product cannot be accurately estimated.

Our in-license, research and clinical development agreements are generally
cancelable with written notice within 180 days or less. We may be required to
pay up to $4.9 billion in milestone payments, plus sales royalties, in the event
that all scientific research, development and commercialization milestones under
these agreements are achieved.

Other than INGREZZA, which has been approved by the FDA for the treatment of TD,
and ORILISSA (partnered with AbbVie), which has been approved by the FDA for the
management of moderate to severe endometriosis pain in women, our product
candidates have not yet achieved FDA regulatory approval, which is required
before we can market them as therapeutic products in the U.S. In order to
proceed to subsequent clinical trial stages and to ultimately achieve regulatory
approval, the FDA must conclude that our clinical data establish safety and
efficacy. We must satisfy the requirements of similar regulatory authorities in
foreign countries in order to market products in those countries. The results
from preclinical testing and early clinical trials may not be predictive of
results in later clinical trials. It is possible for a candidate to show
promising results in clinical trials, but subsequently fail to establish
sufficient safety and efficacy data necessary to obtain regulatory approvals.

As a result of the uncertainties discussed above, among others, the duration and
completion costs of our R&D projects, clinical trials, and post-marketing
studies are difficult to estimate and are subject to considerable variation. Our
inability to complete our R&D projects in a timely manner or our failure to
enter into collaborative agreements, when appropriate, could significantly
increase our capital requirements and could adversely impact our liquidity.
These uncertainties could force us to seek additional, external sources of
financing from time to time in order to continue with our business strategy. Our
inability to raise additional capital, or to do so on terms reasonably
acceptable to us, would jeopardize the future success of our business.

We currently have limited experience in marketing and selling pharmaceutical
products. If we fail to maintain successful marketing, sales, and reimbursement
capabilities, or fail to enter into successful arrangements with third parties,
our product revenues may suffer. We also may be required to make further
substantial expenditures if unforeseen difficulties arise in other areas of our
business. In particular, our future capital requirements will depend on many
factors, including:

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  • the commercial success of INGREZZA and/or ORILISSA;


  • debt service obligations on the 2024 Notes;

• continued scientific progress in our R&D and clinical development programs;

• the magnitude and complexity of our research and development programs;


  • progress with preclinical testing and clinical trials;


  • the time and costs involved in obtaining regulatory approvals;

• whether the FDA approves opicapone for the treatment of Parkinson's disease

and elagolix for the treatment of uterine fibroids, both of which have a

PDUFA target action date in the second quarter of 2020;

• the costs involved in filing and pursuing patent applications, enforcing

patent claims, or engaging in interference proceedings or other patent

      litigation;


  • competing technological and market developments;


  • the establishment of additional strategic alliances;


  • developments related to any future litigation;

• the cost of commercialization activities and arrangements, including

      manufacturing of our product candidates; and


  • the cost of product in-licensing and any possible acquisitions.


We believe that our existing capital resources, funds generated by anticipated
INGREZZA net product sales and investment income will be sufficient to satisfy
our current and projected funding requirements for at least the next
twelve months. 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 require additional funding to effectively commercialize INGREZZA, to
continue our research and product development programs, to conduct preclinical
studies and clinical trials, for operating expenses, to pursue regulatory
approvals for our product candidates, for the costs involved in filing and
prosecuting patent applications and enforcing or defending patent claims, if
any, the cost of product in-licensing and any possible acquisitions, and we may
require additional funding to establish manufacturing and marketing capabilities
in the future. We may seek to access the public or private equity markets
whenever conditions are favorable. For example, we have an effective shelf
registration statement on file with the SEC which allows us to issue an
unlimited number of shares of our securities from time to time. In addition, we
issued $517.5 million of convertible debt in May 2017 and we have previously
financed capital purchases and may continue to pursue opportunities to obtain
additional debt financing in the future. We may also seek additional funding
through strategic alliances or other financing mechanisms. We cannot assure you
that adequate funding will be available on terms acceptable to us, if at all.
Any additional equity financings will be dilutive to our stockholders and any
additional debt may involve operating covenants that may restrict our business.
If adequate funds are not available through these means, we may be required to
curtail significantly one or more of our research or development programs or
obtain funds through arrangements with collaborators or others. This may require
us to relinquish rights to certain of our technologies, products or product
candidates. To the extent that we are unable to obtain third-party funding for
such expenses, we expect that increased expenses will result in increased cash
flow losses from operations. We cannot assure you that we will successfully
develop our products under development or that our approved products will
generate revenues sufficient to enable us to earn a profit.

Contractual Obligations

Our contractual obligations as of December 31, 2019, are as follows:




                                                                                              2024 and
(in millions)               Total         2020         2021         2022         2023        Thereafter
2024 Notes and related
interest (1)               $  569.7$   11.6$   11.6$   11.6$   11.6$      523.3
Operating leases (2)          160.9          8.6         10.8         13.1         13.9            114.5
Total contractual
obligations                $  730.6$   20.2$   22.4$   24.7$   25.5$      637.8




(1) In May 2017, we completed a private placement of $517.5 million in aggregate
principal amount of 2.25% convertible senior notes scheduled to mature on May
15, 2024, unless earlier converted, redeemed, or repurchased. At December 31,
2019, the conditional conversion feature of the 2024 Notes had been triggered,
allowing holders of 2024 Notes to convert their 2024 Notes at any time during
the period beginning on January 2, 2020 and ending at the close of business on
March 31, 2020. We may not redeem the 2024 Notes prior to May 15, 2021. On or
after this date, at our election, we may redeem all, or any portion, of the 2024
Notes under certain circumstances. 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 will automatically become due and payable.
Amounts for the 2024 Notes and related interest in the table above assume that
the 2024 Notes will be held until maturity.

(2) We lease our corporate headquarters, which consist of laboratory and office
space located San Diego, California, under various operating lease agreements.
In addition to minimum rental commitments, these operating leases may require us
to pay additional amounts for taxes, insurance, maintenance and other operating
expenses. The non-cancelable lease terms for these operating leases expire at
various dates between 2029 and 2031 and do not include renewal options. Amounts
for operating leases presented in the

                                       40

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table above reflect future minimum rental commitments under non-cancelable operating leases as of December 31 for each of the periods presented.

© Edgar Online, source Glimpses

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