NEUROCRINE BIOSCIENCES, INC. 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
Neurocrine Biosciences is a neuroscience-focused, biopharmaceutical company with a simple purpose: 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 includesUnited States Food and Drug Administration , or FDA, approved treatments for tardive dyskinesia, Parkinson's disease, endometriosis* and uterine fibroids* and a diversified portfolio of advanced clinical-stage programs in multiple therapeutic areas. For three decades, we have applied our unique insight into neuroscience and the interconnections between brain and body systems to treat complex conditions and we will continue to relentlessly pursue medicines to ease the burden of debilitating diseases and disorders. (*in collaboration with AbbVie Inc., or AbbVie) We launched INGREZZA® (valbenazine) inthe United States inMay 2017 as the first FDA-approved drug for the treatment of tardive dyskinesia and launched ONGENTYS® (opicapone) inthe United States inSeptember 2020 as an FDA-approved add-on treatment for levodopa/carbidopa in patients with Parkinson's disease experiencing motor fluctuations. INGREZZA net product sales represent nearly all of our total net product sales. Our partnerMitsubishi Tanabe Pharma Corporation , or MTPC, launched DYSVAL® (valbenazine) inJapan inJune 2022 for the treatment of tardive dyskinesia. We receive royalties at tiered percentage rates on MTPC net sales of DYSVAL. Our partner AbbVie launched ORILISSA® (elagolix tablets) inthe United States inAugust 2018 for the treatment of moderate to severe pain associated with endometriosis and launched ORIAHNN® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) inthe United States inJune 2020 for the treatment of heavy menstrual bleeding related to uterine fibroids in premenopausal women. We receive royalties at tiered percentage rates on AbbVie net sales of elagolix. Business Highlights •INGREZZA net product sales for 2022 increased$345.9 million , or 32.0%, to$1.4 billion , driven by increased new patient starts and increased total prescriptions on higher customer demand and increased commercial activities, including continued investment in our branded direct-to-consumer INGREZZA advertising campaign launched inMay 2021 and deployment of our expanded sales force inApril 2022 . •Total debt outstanding decreased by$210.8 million to$170.4 million following our repurchase of approximately 55% of total debt outstanding in the second quarter of 2022. The total aggregate repurchase price of$279.0 million was paid in cash and resulted in the recognition of a$70.0 million loss on extinguishment. •OnNovember 1, 2022 , we acquired Diurnal in an all-cash transaction, for an aggregate value of$55.2 million to accelerate the establishment of our clinical development and commercial capabilities in theUnited Kingdom to the benefit of patient communities and other stakeholders. 52 -------------------------------------------------------------------------------- •OnJanuary 8, 2023 , we entered into a new strategic collaboration with Voyager Therapeutics, Inc., or Voyager, under which we agreed to pay Voyager$175 million upfront, including a$39 million equity investment, to acquire the worldwide rights to Voyager's GBA1 gene therapy program for Parkinson's disease and other GBA1-mediated diseases and three gene therapy programs directed to rare central nervous system targets, each enabled by Voyager's next-generation TRACERTM capsids. The effectiveness of the collaboration agreement and the closing of the sale and issuance of Voyager common stock are expected to be completed before the end of the first quarter of 2023 and are subject to certain conditions including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary closing conditions.
Pipeline Highlights
•InDecember 2022 , the FDA accepted our supplemental new drug application, or sNDA, for valbenazine for the treatment of chorea associated with Huntington disease. The agency set a Prescription Drug User Fee Act target action date ofAugust 20, 2023 . •In 2022, we initiated a second Phase III clinical study of valbenazine as adjunctive treatment in patients with schizophrenia who have had an inadequate response to antipsychotics and a Phase II clinical study of NBI-1117568 in patients with schizophrenia who are experiencing an acute exacerbation or relapse of symptoms. •InDecember 2022 , we announced our Phase II study of NBI-827104 in EE-CSWS did not meet specified endpoints. We continue to analyze the complete dataset from this study to determine next steps in the further development of NBI-827104. •InAugust 2022 , we announced the Phase IIa study of NBI-827104 in essential tremor did not meet specified endpoints. Based on the totality of data from the Phase IIa study, at this time, we do not plan to proceed further with the clinical development of NBI-827104 in essential tremor. •We recently completed enrollment in our adult and pediatric registrational studies of crinecerfont to treat congenital adrenal hyperplasia with top-line data expected for each study in the second half of 2023.
Impacts of Macro-Economic Factors on Our Business
COVID-19 Global Pandemic.
We continue to monitor the impact of the COVID-19 pandemic on our business, including our clinical trials, third-party manufacturers, suppliers and service providers. We remain committed to (1) prioritizing the safety, health and well-being of patients and their caregivers, healthcare providers, and our employees; (2) ensuring patients with tardive dyskinesia are well supported and have continued uninterrupted access to INGREZZA, for which we have not experienced and currently do not expect any supply disruption; and (3) advancing our clinical studies. The extent to which COVID-19 may impact our financial condition and results of operations remains uncertain and is dependent on numerous evolving factors, including the measures being taken by authorities to mitigate against the spread of COVID-19, the emergence of new variants and the availability and successful administration of effective vaccines. For more information on the risks and uncertainties associated with the evolving effects of COVID-19 on our business, our ability to generate sales of and revenues from our approved products and our clinical development and regulatory efforts, refer to Part I Item 1A. Risk Factors.
InFebruary 2022 ,Russia commenced a military invasion ofUkraine . The ongoing geopolitical turmoil and continuing military action in the region, together with widening sanctions imposed onRussia , have caused us to suspend all planned clinical trial activities for valbenazine and luvadaxistat inRussia andUkraine . The duration and impact of the conflict betweenRussia andUkraine is highly unpredictable and the extent to which the conflict may impact certain of our clinical development and regulatory efforts remains uncertain. For more information on the risks and uncertainties associated with the evolving effects of the conflict betweenRussia andUkraine on our business and certain of our clinical development and regulatory efforts, refer to Part I Item 1A. Risk Factors. 53 --------------------------------------------------------------------------------
Inflation Reduction Act.
InAugust 2022 ,President Biden signed into law the Inflation Reduction Act of 2022, or the IRA, which, among other things, (1) directs the Secretary of theU.S. Department of Health and Human Services , or HHS, to negotiate the price of certain high-expenditure, single-source drugs and biologics covered under Medicare, (2) redesigns the Medicare Part D prescription drug benefit to lower patient out-of-pocket costs and increase manufacturer liability and (3) requires drug manufacturers to pay rebates on drugs whose prices increase greater than the rate of inflation. These provisions will take effect progressively starting in 2023, although they may be subject to legal challenges. It is currently unclear how the IRA will be implemented; however, it is likely to have a significant impact on the pharmaceutical industry and prescription drug pricing. While the IRA targets high-expenditure drugs that have been on the market for several years without generic or biosimilar competition, we have qualified for the small biotech manufacturer exemption that is set to expire in 2029. However, the qualification for this exemption is subject to various requirements and there is no assurance that we will continue to qualify for this exemption in the future. Further, the loss of this exemption or the potential loss of this exemption, including as a result of a potential acquisition or strategic transaction, could have an adverse impact on our business. For more information on the risks and uncertainties associated with the evolving effects of the IRA on our business, refer to Part I Item 1A. Risk Factors.
Results of Operations
Revenues
Net Product Sales by Sales Product.
Year Ended December 31,
(in millions) 2022 2021 2020
INGREZZA $ 1,427.8 $ 1,081.9 $ 993.1
ONGENTYS and other 13.1 8.2 1.0
Total net product sales $ 1,440.9 $ 1,090.1 $ 994.1
The increases in total net product sales from 2020 to 2021 and from 2021 to 2022
primarily reflected increased INGREZZA net product sales driven by increased new
patient starts and increased total prescriptions on higher customer demand and
increased commercial activities.
Collaboration Revenues by Category.
Year Ended December 31,
(in millions) 2022 2021 2020
Royalties $ 22.3 $ 22.3 $ 19.2
Milestones 20.0 15.0 30.0
Collaboration and other 5.5 6.1 2.6
Total collaboration revenue $ 47.8 $ 43.4 $ 51.8 For 2022, total collaboration revenue primarily reflected the achievement of a
For 2021, total collaboration revenue primarily reflected the achievement of a$15.0 million milestone in connection with MTPC's marketing authorization application submission for valbenazine for the treatment of tardive dyskinesia inJapan and royalties earned on AbbVie net sales of elagolix. For 2020, total collaboration revenue primarily reflected the achievement of a$30.0 million milestone in connection with AbbVie's receipt of FDA approval of ORIAHNN for uterine fibroids and royalties earned on AbbVie net sales of elagolix. 54 --------------------------------------------------------------------------------
Operating Expenses
Cost of Revenues.
Year Ended December 31,
(in millions) 2022 2021 2020
Cost of revenues $ 23.2 $ 14.3 $ 10.1
The increases in cost of revenues from 2020 to 2021 and from 2021 to 2022
primarily reflected increased INGREZZA net product sales driven by increased new
patient starts and increased total prescriptions on higher customer demand and
increased commercial activities.
Research and Development by Category.
We support our drug discovery and development efforts through the commitment of
significant resources to discovery, research and development 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 research and development
activities are part of our collaborative arrangements.
Year Ended December 31,
(in millions) 2022 2021 2020
Late stage $ 68.7 $ 55.7 $ 55.1
Early stage 81.1 43.9 30.2
Research and discovery 63.7 50.5 43.3
Milestones 42.7 5.4 20.0
Payroll and benefits 163.8 129.1 95.4
Facilities and other 43.8 43.5 31.0
Research and development $ 463.8 $ 328.1 $ 275.0 Late Stage. Consists of costs incurred for product candidates in Phase II registrational studies and all subsequent activities.
For 2022 compared to 2021, the increase in late stage expenses primarily reflected continued investment in our Phase III programs for crinecerfont in CAH and valbenazine in schizophrenia.
For 2021 compared to 2020, the increase in late stage expenses primarily
reflected continued investment in Phase III programs for crinecerfont in CAH and
valbenazine in Huntington disease and initiation of a Phase III program for
valbenazine in schizophrenia, partially offset by lower spend due to our
termination of the NBIb-1817 program in Parkinson's disease, which became
effective in
Early Stage. Consists of costs incurred for product candidates after the approval of an investigational new drug application by the applicable regulatory agency through Phase II non-registrational studies.
For 2022 compared to 2021, the increase in early stage expenses primarily reflected continued investment in our Phase II programs for NBI-921352 in epilepsy, luvadaxistat in schizophrenia, and NBI-1065845 and NBI-1065846 in major depressive disorder, and initiation of a Phase II program for NBI-1117568 in schizophrenia.
For 2021 compared to 2020, the increase in early stage expenses primarily reflected continued enrollment in our Phase II programs for NBI-827104 in EE-CSWS and essential tremor and initiation of Phase II programs for NBI-921352 in focal onset seizures and SCN8A-DEE.
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--------------------------------------------------------------------------------Research and Discovery. Consists of expenses incurred prior to the approval of an investigational new drug application by the applicable regulatory agency.
For 2022 compared to 2021, the increase in research and discovery expenses reflected continued investment in our preclinical development programs, including psychiatry, epilepsy and gene therapy programs.
For 2021 compared to 2020, the increase in research and discovery expenses primarily reflected a full year of investment in certain of our in-licensed preclinical psychiatry and epilepsy programs, partially offset by lower spend on our preclinical gene therapy programs.
Milestones. 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 theFDA's acceptance of our investigational new drug application for NBI-1117568 in schizophrenia,$7.3 million in connection with theFDA's acceptance of our amended KAYAKTM study protocol, and$5.0 million in connection with the approval of our clinical trial application for NBI-1070770 in major depressive disorder. In 2021, we recognized milestone expense of$5.4 million in connection with theEuropean Union's approval of our clinical trial application for NBI-921352 in epilepsy.
In 2020, we recognized milestone expense of
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 2022 compared to 2021, the change in payroll and benefits expenses primarily reflected higher headcount, including an increase of$9.3 million in non-cash stock-based compensation expense driven by anAugust 2021 equity grant of approximately 0.5 million restricted stock units to our full-time employees other than our executive officers, which are vesting over a two-year period, and performance-based restricted stock units to our executive officers for which attainment of the performance-based criteria was achieved in 2022. For 2021 compared to 2020, the change in payroll and benefits expenses primarily reflected higher headcount, including an increase of$14.7 million in non-cash stock-based compensation expense partially driven by a$6.4 million charge related to the modification of certain stock-based awards. 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.
Year Ended December 31,
(in millions) 2022 2021
2020
Acquired in-process research and development $ -$ 105.3
In 2021, we recognized
In 2020, we recognized$46.0 million and$118.5 million , respectively, of IPR&D expenses in connection with our payments of the upfront fees pursuant to our collaborations withIdorsia Pharmaceuticals Ltd. and Takeda Pharmaceutical Limited. 56 --------------------------------------------------------------------------------
Selling, General and Administrative, or SG&A.
Year Ended December 31,
(in millions) 2022 2021 2020
Selling, general and administrative
For 2022 compared to 2021, the increase in SG&A expenses was primarily driven by continued investment in our commercial initiatives, including our branded direct-to-consumer INGREZZA advertising campaign launched inMay 2021 and deployment of our expanded sales force inApril 2022 , reflecting increased payroll and benefits expenses on higher headcount, including an increase of$29.6 million in non-cash stock-based compensation expense partially driven by anAugust 2021 equity grant of approximately 0.5 million restricted stock units to our full-time employees other than our executive officers, which are vesting over a two-year period, and performance-based restricted stock units to our executive officers for which attainment of the performance-based criteria was achieved in 2022. For 2021 compared to 2020, the increase in SG&A expenses primarily reflected increased investment in support of our commercial initiatives, including the launch of our branded direct-to-consumer INGREZZA advertising campaign inMay 2021 , and increased payroll and benefits expenses on higher headcount, including an increase of$19.5 million in non-cash stock-based compensation expense. Other Expense, Net. Year Ended December 31, (in millions) 2022 2021 2020 Interest expense$ (7.1) $ (25.8) $ (32.8) Unrealized gain (loss) on equity securities 30.8 20.9
(17.7)
Loss on extinguishment of convertible senior notes (70.0) -
(18.4)
Investment income and other, net 11.2 3.8 12.6 Total other expense, net$ (35.1) $ (1.1) $ (56.3) For 2022 compared to 2021, the change in other expense, net, primarily reflected a debt extinguishment charge of$70.0 million in connection with the repurchase of our convertible senior notes in the second quarter of 2022, periodic fluctuations in the fair values of our equity security investments, decreased interest expense on lower total debt outstanding and the adoption of ASU 2020-06 onJanuary 1, 2022 , and higher yields on our debt security investments. For 2021 compared to 2020, the change in other expense, net, primarily reflected periodic fluctuations in the fair values of our equity security investments, lower yields on our debt security investments, and a non-recurring debt extinguishment charge of$18.4 million in connection with the repurchase of our convertible senior notes in the fourth quarter of 2020.
Provision for (Benefit from) Income Taxes.
Year Ended December 31,
(in millions) 2022 2021 2020
Provision for (benefit from) income taxes
For 2022, the effective tax rate varied from the federal and state statutory
rates primarily due to credits generated for research activities and certain
nondeductible expenses, including the premium paid on the repurchase of our
convertible senior notes in the second quarter of 2022. In addition, all federal
net operating loss carry forwards have been fully utilized and we began making
federal estimated tax payments in 2022.
For 2021, the effective tax rate varied from the federal and state statutory
rates primarily due to excess tax benefits associated with stock-based
compensation and credits generated for research activities. In the first quarter
of 2021, we began recording a provision for income taxes using an effective tax
rate that approximated federal and state statutory rates. Due to our ability to
offset any pre-tax income against federal net operating losses, no federal cash
tax was paid in 2021.
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For 2020, the benefit from income taxes reflected a $296.3 million benefit
associated with the release of substantially all of our valuation allowance
against our deferred tax assets on December 31, 2020 . The effective tax rate for
2020 varied from the statutory rate primarily due to changes in our valuation
allowance, net of other permanent book/tax differences, tax credits generated
and impacts of changes in tax laws.
Net Income.
Year Ended December 31,
(in millions) 2022 2021 2020
Net income $ 154.5 $ 89.6 $ 407.3
For 2022 compared to 2021, the change in net income primarily reflected
increased INGREZZA net product sales, lower upfront payments for asset
acquisitions, continued investment in our commercial initiatives and expanded
clinical portfolio, and a debt extinguishment charge of $70.0 million in
connection with the repurchase of our convertible senior notes in the second
quarter of 2022.
For 2021 compared to 2020, the change in net income primarily reflected
increased INGREZZA net product sales driven by increased total prescriptions,
decreased milestone expenses in connection with certain of our collaborative
arrangements, lower upfront payments for asset acquisitions, a non-recurring
debt extinguishment charge of $18.4 million in connection with the repurchase of
our convertible senior notes in the fourth quarter of 2020, increased investment
in our commercial initiatives and expanded clinical portfolio, and a
non-recurring benefit of $296.3 million in 2020 resulting from the release of
substantially all of our valuation allowance against our deferred tax assets on
December 31, 2020 .
Liquidity and Capital Resources
Sources of Liquidity
We believe that our existing capital resources, funds generated by anticipated INGREZZA net product sales and investment income will be sufficient to satisfy our current and projected funding requirements for at least the next 12 months. However, we cannot guarantee that our existing capital resources and anticipated revenues will be sufficient to conduct and complete all of our research and development programs or commercialization activities as planned. We may seek to access the public or private equity markets whenever conditions are favorable or pursue opportunities to obtain additional debt financing in the future. We may also seek additional funding through strategic alliances or other financing mechanisms. However, we cannot provide assurance that adequate funding will be available on terms acceptable to us, if at all. In addition, the disruption of global financial markets caused by the COVID-19 pandemic, if sustained or recurrent, could make it more difficult for us to access capital, which could in the future negatively affect our liquidity.
Information Regarding Our Financial Condition.
December 31,
(in millions) 2022
2021
Total cash, cash equivalents and marketable securities$ 1,288.7 $ 1,272.0 Working Capital: Total current assets$ 1,453.5 $
972.8
Less total current liabilities 537.7 245.8 Total working capital$ 915.8 $ 727.0 58
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Information Regarding Our Cash Flows.
Year Ended December 31,
(in millions) 2022 2021 2020
Cash flows from operating activities $ 339.4 $ 256.5 $ 228.5
Cash flows from investing activities (177.1) (130.2) 4.1
Cash flows from financing activities (234.3) 27.4 (157.8)
Effect of exchange rate changes on cash and cash
equivalents (1.3) - -
Change in cash, cash equivalents and restricted cash
Cash Flows from Operating Activities.
For 2022 compared to 2021, the change in cash flows from operating activities primarily reflected increased INGREZZA net product sales, lower upfront payments for asset acquisitions, and continued investment in our commercial initiatives and expanded clinical portfolio. In addition, we experienced an increase in accounts receivable driven by increased INGREZZA net product sales on extended customer payment terms attributed to the expansion of our distribution network at the end of 2021 and an increase in accrued liabilities driven by increased revenue-related reserves for discounts and allowances on higher INGREZZA net product sales and the timing of payments. For 2021 compared to 2020, the change in cash flows from operating activities primarily reflected increased INGREZZA net product sales, lower upfront payments for asset acquisitions, lower milestone payments in connection with certain of our collaborative arrangements, and increased investment in our commercial initiatives and expanded clinical portfolio.
Cash Flows from Investing Activities.
For 2022 compared to 2021, the change in cash flows from investing activities primarily reflected our acquisition of Diurnal inNovember 2022 for$42.7 million in cash, which is net of cash acquired, timing differences in the purchases, sales, and maturities of our marketable security investments, and a$7.7 million equity investment in Xenon associated with theFDA's acceptance of our amended KAYAKTM study protocol. For 2021 compared to 2020, the change in cash flows from investing activities primarily reflected timing differences in the purchases, sales, and maturities of our marketable security investments and a$4.6 million equity investment in Xenon associated with theEuropean Union's approval of our clinical trial application for NBI-921352 in focal onset seizures.
Cash Flows from Financing Activities.
For 2022 compared to 2021, the change in cash flows from financing activities primarily reflected the repurchase of$210.8 million aggregate principal amount of our convertible senior notes for an aggregate repurchase price of$279.0 million in cash in the second quarter of 2022 and increased proceeds from issuances of our common stock under benefit plans. For 2021 compared to 2020, the change in cash flows from financing activities primarily reflected the non-recurring repurchase of$136.2 million aggregate principal amount of our convertible senior notes for an aggregate repurchase price of$186.9 million in cash in the fourth quarter of 2020. 59 --------------------------------------------------------------------------------
Material Cash Requirements
In the pharmaceutical industry, it can take a significant amount of time and capital resources to successfully complete all stages of research and development and commercialize a product candidate, which ultimate length of time and spend required cannot be accurately estimated as it varies substantially according to the type, complexity, novelty and intended use of a product candidate. The funding necessary to execute our business strategies is subject to numerous uncertainties and we may be required to make substantial expenditures if unforeseen difficulties arise in certain areas of our business. In particular, our future capital requirements will depend on many factors, including:
•the commercial success of INGREZZA, ONGENTYS, ORILISSA, ORIAHNN and/or DYSVAL;
•continued scientific progress in our research 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;
•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;
•competing technological and market developments;
•developments related to any future litigation; and
•the impact of the COVID-19 pandemic on our business.
In addition to the foregoing factors, we have significant future capital requirements, including:
External Business Developments. 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
OnNovember 1, 2022 , we acquired Diurnal in an all-cash transaction, for an aggregate value of$55.2 million to accelerate the establishment of our clinical development and commercial capabilities in theUnited Kingdom to the benefit of patient communities and other stakeholders. Refer to Note 3 to the consolidated financial statements for more information on our acquisition of Diurnal. OnJanuary 8, 2023 , we entered into a new strategic collaboration with Voyager, under which we agreed to pay Voyager$175 million upfront, including a$39 million equity investment, to acquire the worldwide rights to Voyager's GBA1 gene therapy program for Parkinson's disease and other GBA1-mediated diseases and three gene therapy programs directed to rare central nervous system targets, each enabled by Voyager's next-generation TRACERTM capsids. The effectiveness of the collaboration agreement and the closing of the sale and issuance of Voyager common stock are expected to be completed prior to the end of the first quarter of 2023 and are subject to certain conditions including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary closing conditions. 60 -------------------------------------------------------------------------------- Convertible Senior Notes. OnMay 2, 2017 , we completed a private placement of$517.5 million in aggregate principal amount of 2.25% fixed-rated convertible senior notes dueMay 15, 2024 , or the 2024 Notes. In the fourth quarter of 2020 and second quarter of 2022, we entered into separate, privately negotiated transactions with certain holders of the 2024 Notes to repurchase$136.2 million and$210.8 million , respectively, aggregate principal amount of the 2024 Notes for an aggregate repurchase price of$186.9 million and$279.0 million , respectively, in cash. As ofDecember 31, 2022 ,$170.4 million aggregate principal amount of the 2024 Notes remained outstanding. At our election, we may redeem all or any portion of the 2024 Notes under certain circumstances. Further, as the conditional conversion feature of the 2024 Notes was triggered as ofDecember 31, 2022 , holders of the 2024 Notes may convert the 2024 Notes at any time during the period beginning onJanuary 1, 2023 , and ending at the close of business onMarch 31, 2023 . With respect to the 2024 Notes, unless earlier converted, redeemed, or repurchased, we would be required to pay interest of$3.8 million in 2023 and$1.9 million in 2024 and pay the aggregate principal amount outstanding of$170.4 million upon maturity of the 2024 Notes. 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 notes would become due and payable.
Refer to Note 6 to the consolidated financial statements for more information on the 2024 Notes.
Leases. Our operating leases that have commenced have terms that expire beginning 2024 through 2031 and consist of office space and research and development laboratories, including our corporate headquarters.
OnFebruary 8, 2022 , we entered into a lease agreement for a four-building campus facility to be constructed inSan Diego, California , pursuant to which we also secured a six-year option for the construction of a fifth building and an option to purchase the entire campus facility, which will consist of office space and research and development laboratories, in the future. Upon completion of construction, we expect to utilize the campus facility as our new corporate headquarters and expect to begin subleasing our existing leased facilities. Refer to Note 12 to the consolidated financial statements for more information on our leases, including a presentation of our approximate future minimum lease payments under non-cancelable operating leases.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon financial statements that we have prepared in accordance with accounting principles generally accepted inthe 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. 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:
Net Product Sales. Revenues from product sales are recorded net of reserves
established for applicable discounts and allowances that are offered within
contracts with our customers, payors and other third parties. The transaction
price, which includes variable consideration reflecting the impact of discounts
and allowances, may be subject to constraint and is included in the net sales
price only to the extent that it is probable that a significant reversal of the
amount of the cumulative revenue recognized will not occur in a future period.
Actual amounts may ultimately differ from our estimates. If actual results vary,
we adjust these estimates, which could have an effect on earnings in the period
of adjustment.
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Government Rebates. We are obligated to pay rebates for mandated discounts under
the Medicaid Drug Rebate Program. The liability for such rebates consists of
invoices received for claims from prior quarters that remain unpaid, or for
which an invoice has not been received, and estimated rebates for the current
applicable reporting period, which are primarily based on actual historical
rebates, estimated payor mix, state and federal regulations and related
contractual terms. Estimated rebates are recorded as a reduction of revenue in
the period the related sale is recognized. 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. Significant estimates are required in determining our income tax
provision. Some of these estimates are based on interpretations of existing tax
laws or regulations. We recognize deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined on the basis of the difference between the tax basis
of assets and liabilities and their respective financial reporting amounts
(temporary differences) at enacted tax rates in effect for the years in which
the differences are expected to reverse. A valuation allowance is established
for deferred tax assets for which it is more likely than not that some portion
or all of the deferred tax assets, including net operating losses and tax
credits, will not be realized. We periodically re-assess the need for a
valuation allowance against our deferred tax assets based on various factors
including our historical earnings experience by taxing jurisdiction, and
forecasts of future operating results and utilization of net operating losses
and tax credits prior to their expiration. Significant judgment is required in
making this assessment and, to the extent that a reversal of any portion of our
valuation allowance against our deferred tax assets is deemed appropriate, a tax
benefit will be recognized against our income tax provision in the period of
such reversal. On December 31, 2020 , based on our evaluation of various factors,
such as our achievement of a cumulative three-year income position as of
December 31, 2020 , as well as our consideration of forecasts of future operating
results and utilization of net operating losses and tax credits prior to their
expiration, we released substantially all of our valuation allowance against our
deferred tax assets and recorded a corresponding income tax benefit. We continue
to maintain a valuation allowance against our California state deferred tax
assets.
Additional Information
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.
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