Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

At Neurocrine Biosciences, our purpose is simple: to relieve suffering for people with great needs, but few options. For three decades, we have applied our unique insight into neuroscience to advance medicines for neurological, endocrine and psychiatric disorders. Our efforts have resulted in United States Food and Drug Administration, or FDA, approved treatments for tardive dyskinesia, Parkinson’s disease, endometriosis* and uterine fibroids* and a diversified portfolio of investigational therapies with the potential to address unmet clinical needs of patients worldwide living with neurological, endocrine and psychiatric disorders. (*in collaboration with AbbVie Inc., or AbbVie)

We launched INGREZZA® (valbenazine) in the United States in May 2017 as the first FDA-approved drug for the treatment of tardive dyskinesia and launched ONGENTYS® (opicapone) in the United States in September 2020 as an FDA-approved add-on treatment to levodopa/carbidopa in patients with Parkinson's disease experiencing motor fluctuations. INGREZZA net product sales represent the significant majority of our total net product sales.

Our partner AbbVie launched ORILISSA® (elagolix tablets) in the United States in August 2018 and launched ORIAHNN® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) in the United States in June 2020. We receive royalties at tiered percentage rates on AbbVie net sales of elagolix.

Business Highlights

•INGREZZA net product sales for 2021 increased $88.8 million, or 8.9%, to $1.1 billion, primarily driven by increased total prescriptions reflecting higher customer demand and increased commercial activities.

•On February 8, 2022, we entered into a lease agreement for a four-building campus facility to be constructed in San Diego, California, pursuant to which we also secured a 6-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.

Pipeline Highlights

•In the fourth quarter of 2021, we announced positive top-line data from the Phase III KINECT-HD study evaluating the efficacy, safety and tolerability of valbenazine in 120 adult patients with chorea in Huntington disease, also known as Huntington chorea. The study met the primary endpoint of reduction in severity of chorea. We plan to submit a supplemental new drug application for valbenazine for the treatment of Huntington chorea with the FDA in second half of 2022.

•Completed strategic partnership with Heptares Therapeutics Limited, or Heptares, to expand clinical pipeline for psychiatry disorders. Upfront fee associated with the agreement totaled $100.0 million, which, including certain transaction-related costs, was expensed as in-process research and development in 2021.

•In 2021, Mitsubishi Tanabe Pharma Corporation, or MTPC, received approvals for marketing authorization for valbenazine for the treatment of tardive dyskinesia in Indonesia, Singapore, South Korea and Thailand. In addition, MTPC has submitted filings for marketing authorization, which are currently under review, in Japan and Malaysia.

Impact of COVID-19

The COVID-19 pandemic has dramatically changed the ways in which we live and interact with one another. While we adapt to this new shared reality, our purpose remains unchanged: to relieve suffering for people with great needs, but few options.

Although the initial impact of the pandemic has subsided, we are uncertain as to how more transmissible variants may impact our business. 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 clinical studies.

Most of our field-based employees have resumed in-person interactions in accordance with location-specific guidance. Our office-based employees have returned to the office under flexible work arrangement guidelines to help balance business needs, employee health, well-being and safety and the evolving work environment. However, as the effects of the pandemic continue to rapidly evolve with the emergence of new COVID-19 variants, a remote work model may nevertheless need to be reinstated at some point in the future. We continue to evaluate the impact of global spikes or surges in COVID-19 infection and hospitalization rates, as well as the impact of emerging COVID-19 variants on the efficacy of vaccines.

Most hospitals, community mental health facilities, physicians’ offices, pharmacies and other healthcare facilities have relaxed their policies that limited access of patients and our employees to such facilities and limited the ability of patients, pharmacies and prescribers to interact with each other. However, we anticipate these policies may change from time to time as communities or regions grapple with outbreaks. The ultimate impact of the COVID-19 pandemic, including any lasting effects on our revenue and the way we conduct our business, is highly uncertain and subject to continued change. We recognize that this pandemic will continue to present unique challenges for us throughout 2022.

Results of Operations

Revenues

Net Product Sales by Sales Product.

Year Ended December 31,

ONGENTYS net product sales 8.2 1.0 —

For 2021 compared to 2020, the increase in total net product sales primarily reflected increased INGREZZA net product sales mainly driven by increased total prescriptions reflecting higher customer demand and increased commercial activities.

For 2020 compared to 2019, the increase in total net product sales primarily reflected increased INGREZZA net product sales driven by increased total prescriptions.

Collaboration Revenues by Category.

Year Ended December 31,

Non-cash collaboration revenue and other 6.1 2.6 0.9

Total collaboration revenue $ 43.4 $ 51.8 $ 35.2

For 2021, total collaboration revenue primarily reflected the achievement of a $15.0 million milestone associated with MTPC's marketing authorization application submission for valbenazine for the treatment of tardive dyskinesia in Japan and royalties earned on AbbVie net sales of elagolix.

For 2020, total collaboration revenue primarily reflected the achievement of a $30.0 million milestone associated with the FDA’s approval of AbbVie’s ORIAHNN for uterine fibroids in 2020 and royalties earned on AbbVie net sales of elagolix.

For 2019, total collaboration revenue primarily reflected the achievement of a $20.0 million milestone associated with the FDA’s acceptance of AbbVie’s new drug application submission for elagolix for uterine fibroids and royalties earned on AbbVie net sales of elagolix.

Operating Expenses

Cost of Sales.

Year Ended December 31,

The increase in cost of sales from 2020 to 2021 and 2019 to 2020 reflected increased INGREZZA net product sales driven by increased total prescriptions.

Research and Development, or R&D, Expenses by Category.

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 arrangements.

Year Ended December 31,

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

For 2021 compared to 2020, the increase in late stage R&D expense primarily reflected continued investment in Phase III programs for crinecerfont in congenital adrenal hyperplasia and valbenazine in Huntington disease and initiation of a Phase III program for valbenazine as adjunctive treatment of schizophrenia, offset by decreased investment associated with the termination of the NBIb-1817 program for Parkinson’s disease, which became effective in August 2021.

For 2020 compared to 2019, the increase in late stage R&D expense primarily reflected increased investment in Phase III programs for crinecerfont in congenital adrenal hyperplasia and continued enrollment in the Phase III program for valbenazine Huntington disease.

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 2021 compared to 2020, the increase in early stage R&D expense primarily reflected continued enrollment in Phase II programs for NBI-827104 in epileptic encephalopathy with continuous spike and wave during sleep and essential tremor and initiation of Phase II programs for NBI-921352 in focal onset seizure and SCN8A developmental epileptic encephalopathy.

For 2020 compared to 2019, the increase in early stage R&D expense primarily reflected increased investment in three in-licensed psychiatry clinical development programs beginning in mid-2020 and two in-licensed epilepsy clinical development programs beginning at the end of 2019.

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

For 2021 compared to 2020, the increase in research and discovery R&D expense primarily reflected a full year of investment in psychiatry and epilepsy preclinical development programs in-licensed in 2020, offset by decreased investment in preclinical gene therapy programs.

For 2020 compared to 2019, the increase in research and discovery R&D expense primarily reflected increased investment in preclinical gene therapy programs and an epilepsy preclinical development program in-licensed in 2020.

Milestone. Consists of costs incurred for development and/or regulatory milestones in connection with our collaborative arrangements.

In 2021, we expensed a milestone of $5.4 million associated with the European Union’s approval for the NBI-921352 clinical trial application in September 2021.

In 2020, we expensed a milestone of $20.0 million associated the FDA’s approval for ONGENTYS for Parkinson’s disease.

In 2019, we expensed a milestone of $10.0 million associated with the FDA’s acceptance of the new drug application for opicapone as an adjunctive therapy to levodopa/DOPA decarboxylase inhibitors in adult Parkinson's disease patients.

Payroll and Benefits. Consists of costs incurred for salaries and wages, payroll taxes, benefits and share-based compensation associated with employees involved in 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.

For 2021 compared to 2020, the increase in payroll and benefits R&D expense primarily reflected increased personnel expenses on higher headcount and a $14.7 million increase in non-cash share-based compensation expense, including a $6.4 million charge related to the modification of certain share-based awards.

For 2020 compared to 2019, the increase in payroll and benefits R&D expense primarily reflected increased personnel expenses on higher headcount.

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

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

Year Ended December 31,

In 2021, we expensed as IPR&D $100.3 million in connection with the payment of the upfront fee pursuant to our collaboration with Heptares.

In 2020, we expensed as IPR&D $46.0 million and $118.5 million, respectively, in connection with the payments of the upfront fees pursuant to our collaborations with Idorsia Pharmaceuticals Ltd, or Idorsia, and Takeda Pharmaceutical Company Limited, or Takeda.

In 2019, we expensed as IPR&D $118.1 million and $36.2 million, respectively, in connection with the payments of the upfront fees pursuant to our collaborations with Voyager Therapeutics, Inc., or Voyager, and Xenon Pharmaceuticals, Inc., or Xenon.

Selling, General and Administrative, or SG&A.

Year Ended December 31,

For 2021 compared to 2020, the increase in SG&A expense primarily reflected increased investment to support our commercial initiatives, including the May 2021 launch of our INGREZZA direct-to-consumer advertising campaign, "TD Spotlight", increased personnel expenses on higher headcount and a $19.5 million increase in non-cash share-based compensation expense.

For 2020 compared to 2019, the increase in SG&A expense primarily reflected increased personnel expenses on higher headcount and continued investment in INGREZZA marketing.

Other Expense, Net.

Year Ended December 31,

Unrealized gain (loss) on equity securities 20.9 (17.7) (13.0)

Loss on extinguishment of convertible senior notes — (18.4) —

Investment income and other, net 3.8 12.6 19.2

Total other expense, net $ (1.1) $ (56.3) $ (25.8)

For 2021 compared to 2020, the decrease in other expense, net, reflected a net unrealized gain of $20.9 million recognized to adjust our equity investments in Voyager and Xenon to fair value, a non-recurring debt extinguishment charge of $18.4 million in November 2020 associated with the partial repurchase of our convertible senior notes and decreased interest expense resulting from a lower convertible debt balance throughout 2021, partially offset by decreased interest income stemming from lower yields on our debt security investments.

For 2020 compared to 2019, the increase in other expense, net, primarily reflected a debt extinguishment charge of $18.4 million in November 2020 associated with the partial repurchase of our convertible senior notes.

Provision for (Benefit from) Income Taxes.

Year Ended December 31,

Provision for (benefit from) income taxes $ 11.8 $ (300.6) $ 9.5

For 2021, the effective tax rate was lower than federal and state tax rates primarily due to excess tax benefits associated with share-based compensation and research tax credits. Beginning in the first quarter of 2021, we began recording a provision for income taxes using an effective tax rate approximating federal and state statutory tax rates. Due to the ability to offset any pre-tax income against previously benefited federal net operating losses, no federal cash tax was incurred in 2021.

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 tax 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.

For 2019, the provision for income taxes reflected estimated and current state income taxes. The effective tax rate for 2019 varied from the statutory tax 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. As of December 31, 2019, we had a full valuation allowance against our net deferred tax assets as realization was uncertain.

Net Income and Diluted Earnings per Share.

Year Ended December 31,

Diluted earnings per share $ 0.92 $ 4.16 $ 0.39

For 2021 compared to 2020, the decrease in net income and diluted earnings per share primarily 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, increased investment to support our commercial initiatives, including the May 2021 launch of our INGREZZA direct-to-consumer advertising campaign, "TD Spotlight", and increased investment in our expanded clinical portfolio, partially offset by increased INGREZZA net product sales and decreased IPR&D expense reflecting lower upfront payments for asset acquisitions.

For 2020 compared to 2019, the increase in net income and diluted earnings per share primarily 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 and increased INGREZZA net product sales, partially offset by ongoing support for the commercial launch of INGREZZA for tardive dyskinesia and progression of our clinical pipeline.

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 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 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,

Total cash, cash equivalents and marketable securities $ 1,272.0 $ 1,028.1

Working Capital:

Less total current liabilities 245.8 186.5

Information Regarding Our Cash Flows.

Year Ended December 31,

Net cash provided by operating activities $ 256.5 $ 228.5 $ 147.0

Net cash (used in) provided by investing activities (130.2) 4.1 (211.1)

Net cash provided by (used in) financing activities 27.4 (157.8) 32.4

Change in cash, cash equivalents and restricted cash $ 153.7 $ 74.8 $ (31.7)

Net Cash Provided by Operating Activities.

For 2021 compared to 2020, the increase in net cash provided by operating activities primarily reflected increased INGREZZA net product sales and lower upfront payments for asset acquisitions, partially offset by increased investment to support our commercial initiatives and advancing our expanded clinical portfolio.

For 2020 compared to 2019, the increase in net cash provided by operating activities primarily reflected increased INGREZZA net product sales, partially offset by incremental INGREZZA investment and progression of our clinical pipeline.

Net Cash (Used in) Provided by Investing Activities.

Periodic fluctuations in net cash (used in) provided by investing activities are generally driven by timing differences related to the purchases, sales and maturities of debt security investments and changes in our portfolio-mix.

For 2021, net cash used in investing activities reflected a $4.6 million equity investment in Xenon associated with the European Union’s approval of our clinical trial application in September 2021 for NBI-921352 for the treatment of focal onset seizures in adults.

For 2019, net cash used in investing activities reflected equity investments of $54.7 million in Voyager and $14.2 million in Xenon associated with newly entered into collaboration and license agreements.

Net Cash Provided by (Used in) Financing Activities.

For 2021 and 2019, net cash provided by investing activities reflected proceeds from issuances of our common stock under benefit plans.

For 2020, net cash used in financing activities primarily reflected the partial repurchase of $136.2 million aggregate principal amount of our convertible senior notes for an aggregate repurchase price of $186.9 million in cash, partially offset by proceeds from issuances of our common stock under benefit plans.

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 and/or ORIAHNN;

•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;

•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;

•the impact of the COVID-19 pandemic on our business; and

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 $10.9 billion upon the achievement of certain event-based milestones.

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

Convertible Senior Notes.In May 2017, we completed a private placement of $517.5 million in aggregate principal amount of 2.25% convertible senior notes due May 15, 2024, or the 2024 Notes. 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 notes would become due and payable. In November 2020, we entered into separate, privately negotiated transactions with certain holders of the 2024 Notes to repurchase $136.2 million aggregate principal amount of the 2024 Notes for an aggregate repurchase price of $186.9 million in cash. As of December 31, 2021, $381.2 million aggregate principal amount of the 2024 Notes remained outstanding. With respect to the 2024 Notes, unless earlier converted, redeemed or repurchased, we would be required to pay interest of $8.6 million in 2022, $8.6 million in 2023 and $4.3 million in 2024 and pay the aggregate principal amount outstanding of $381.2 million upon maturity of the notes in 2024.

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

Leases.Our operating leases, which have terms that expire beginning 2024 through 2031, 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, pursuant to which we also secured a 6-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 10 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 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:

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.

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 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.

Income Taxes. Our income tax benefit (provision) is computed under the asset and liability method. Significant estimates are required in determining our income tax benefit (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. Prior to 2020, we recorded a valuation allowance that fully offset our deferred tax assets. 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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to interest rate risk on our short-term investments. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid and high-quality government and other debt securities. To minimize our exposure due to adverse shifts in interest rates, we invest in short-term securities and ensure that the maximum average maturity of our investments does not exceed twelve months. If a 1% change in interest rates were to have occurred on December 31, 2021, this change would not have had a material effect on the fair value of our investment portfolio as of that date. Due to the short holding period of our investments, we have concluded that we do not have a material financial market risk exposure.

Item 8. Financial Statements and Supplementary Data

NEUROCRINE BIOSCIENCES, INC.

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 60

Consolidated Balance Sheets 62

Consolidated Statements of Income and Comprehensive Income 63

Consolidated Statements of Stockholders’ Equity 64

Consolidated Statements of Cash Flows 65

Notes to the Consolidated Financial Statements 66

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Neurocrine Biosciences, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Neurocrine Biosciences, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 11, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Reserves for government rebates related to product sales

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1992.

San Diego, California

February 11, 2022

NEUROCRINE BIOSCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

December 31,

(in millions, except per share data) 2021 2020

Assets

Current assets:

Cash and cash equivalents $ 340.8 $ 187.1

Property and equipment, net 58.6 44.6

Other long-term assets 4.4 6.4

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable and accrued liabilities $ 225.8 $ 168.7

Other current liabilities 20.0 17.8

Noncurrent operating lease liabilities 105.3 94.4

Other long-term liabilities 12.3 9.7

Stockholders’ equity:

Accumulated other comprehensive (loss) income (1.7) 1.8

Total liabilities and stockholders’ equity $ 2,072.5 $ 1,734.7

See accompanying notes to consolidated financial statements.

NEUROCRINE BIOSCIENCES, INC.

CONSOLIDATED STATEMENTS INCOME

AND COMPREHENSIVE INCOME

Year Ended December 31,

Revenues:

Operating expenses:

Acquired in-process research and development 105.3 164.5 154.3

Other (expense) income:

Unrealized gain (loss) on equity securities 20.9 (17.7) (13.0)

Loss on extinguishment of convertible senior notes — (18.4) —

Investment income and other, net 3.8 12.6 19.2

Total other expense, net (1.1) (56.3) (25.8)

Income before provision for (benefit from) income taxes 101.4 106.7 46.5

Provision for (benefit from) income taxes 11.8 (300.6) 9.5

Unrealized (loss) gain on debt securities available-for-sale (3.5) 0.4 3.4

Earnings per share, basic $ 0.95 $ 4.38 $ 0.40

Earnings per share, diluted $ 0.92 $ 4.16 $ 0.39

Weighted average common shares outstanding, basic 94.6 93.1 91.6

Weighted average common shares outstanding, diluted 97.9 97.8 95.7

See accompanying notes to consolidated financial statements.

NEUROCRINE BIOSCIENCES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in millions) Shares $

Unrealized gain on debt securities available-for-sale — — — 3.4 — 3.4

Share-based compensation expense — — 75.3 — — 75.3

Issuances of common stock under stock plans 1.5 — 32.4 — — 32.4

Unrealized gain on debt securities available-for sale — — — 0.4 — 0.4

Share-based compensation expense — — 100.0 — — 100.0

Issuances of common stock under stock plans 1.2 — 29.1 — — 29.1

Share-based compensation expense — — 134.2 — — 134.2

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

See accompanying notes to consolidated financial statements.

NEUROCRINE BIOSCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

Cash Flows from Operating Activities:

Reconciliation of net income to net cash provided by operating activities:

Amortization of debt issuance costs 1.1 1.4 1.4

Change in fair value of equity securities (20.9) 17.7 13.0

Deferred income taxes 4.3 (310.7) —

Loss on extinguishment of convertible senior notes — 18.4 —

Changes in operating assets and liabilities:

Accounts payable and accrued liabilities 56.8 26.9 54.0

Other assets and liabilities, net (9.2) (23.6) 16.8

Cash Flows from Investing Activities:

Purchases of debt securities available-for-sale (800.1) (735.5) (797.2)

Sales and maturities of debt securities available-for-sale 697.9 750.5 669.7

Purchases of equity securities (4.6) — (68.9)

Purchases of property and equipment (23.4) (10.9) (14.7)

Net cash (used in) provided by investing activities (130.2) 4.1 (211.1)

Cash Flows from Financing Activities:

Issuances of common stock under benefit plans 27.5 29.1 32.4

Partial repurchase of convertible senior notes (0.1) (186.9) —

Net cash provided by (used in) financing activities 27.4 (157.8) 32.4

Change in cash and cash equivalents and restricted cash 153.7 74.8 (31.7)

Supplemental Disclosure:

Non-cash capital expenditures $ 1.9 $ 1.4 $ 1.0

Right-of-use assets acquired through operating leases $ 23.4 $ 12.8 $ 77.1

Cash paid for interest $ 8.6 $ 11.6 $ 11.6

Cash paid for income taxes $ 5.1 $ 15.3 $ 0.5

See accompanying notes to consolidated financial statements.

NEUROCRINE BIOSCIENCES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Business Activities. Neurocrine Biosciences, Inc., or Neurocrine Biosciences, the Company, we, our or us, was incorporated in California in 1992 and reincorporated in Delaware in 1996. Neurocrine Continental, Inc., is a Delaware corporation and a wholly owned subsidiary of Neurocrine Biosciences. We also have two wholly-owned Irish subsidiaries, Neurocrine Therapeutics, Ltd. and Neurocrine Europe, Ltd. both of which were formed in December 2014 and are inactive.

Principles of Consolidation. The consolidated financial statements include the accounts of Neurocrine Biosciences as well as our wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

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

Industry Segment and Geographic Information. We operate in a single industry segment – the discovery, development and marketing of pharmaceuticals for the treatment of neurological, endocrine and psychiatric-based diseases and disorders. We had no foreign-based operations during any of the years presented.

Cash Equivalents. We consider all highly liquid investments that are readily convertible into cash without penalty and have an original maturity of three months or less at the time of purchase to be cash equivalents.

Accounts Receivable. Accounts receivable are recorded net of customer allowances for prompt payment discounts, chargebacks and any allowance for doubtful accounts. We estimate the allowance for doubtful accounts based on existing contractual payment terms, actual payment patterns of our customers and individual customer circumstances. To date, an allowance for doubtful accounts has not been material.

Debt Securities. Debt securities consist of investments in certificates of deposit, corporate debt securities and securities of government-sponsored entities. We classify debt securities as available-for-sale. Debt securities available-for-sale are recorded at fair value, with unrealized gains and losses included in other comprehensive income or loss, net of tax. We exclude accrued interest from both the fair value and amortized cost basis of debt securities. A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a debt security placed on nonaccrual status is reversed against interest income.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on debt securities are amortized using the effective interest rate method. Gains and losses on sales of debt securities are recorded on the trade date in investment income and other, net, and determined using the specific identification method.

Allowance for Credit Losses. For debt securities available-for-sale in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through earnings. For debt securities available-for-sale that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes in interest rates, and any changes to the rating of the security by a rating agency, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income or loss, as applicable.

Accrued interest receivables on debt securities available-for-sale totaled $2.2 million as of December 31, 2021 and $3.7 million as of December 31, 2020. We do not measure an allowance for credit losses for accrued interest receivables. For the purposes of identifying and measuring an impairment, accrued interest is excluded from both the fair value and amortized cost basis of the debt security. Uncollectible accrued interest receivables associated with an impaired debt security are reversed against interest income upon identification of the impairment. No accrued interest receivables were written off during 2021, 2020 or 2019.

Fair Value of Financial Instruments. We record cash equivalents, debt securities available-for-sale and equity security investments at fair value based on a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). The fair value hierarchy consists of the following three levels:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 – Unobservable inputs that reflect our own assumptions about the assumptions that market participants would use in pricing the asset or liability when there is little, if any, market activity for the asset or liability at the measurement date.

Investments in debt securities available-for-sale are classified as Level 2 and carried at fair value. We estimate the fair value of debt securities available-for-sale by utilizing third-party pricing services. These pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. Such inputs include market pricing based on real-time trade data for similar instruments, issuer credit spreads, benchmark yields, broker/dealer quotes and other observable inputs. We validate valuations obtained from third-party pricing services by understanding the models used, obtaining market values from other pricing sources and analyzing data in certain instances.

Investments in equity securities of certain companies that are subject to holding period restrictions longer than one year are classified as Level 3 and carried at fair value using an option pricing valuation model. The most significant assumptions within the option pricing valuation model are the stock price volatility, which is based on the historical volatility of similar companies and the discount for lack of marketability related to the term of the restrictions.

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

Inventory. Inventory is valued at the lower of cost or net realizable value. We determine the cost of inventory using the standard-cost method, which approximates actual cost based on the first-in, first-out method. We assess the valuation of our inventory on a quarterly basis and adjust the value for excess and obsolete inventory to the extent management determines that the cost cannot be recovered based on estimates about future demand. Inventory costs resulting from these adjustments are recognized as cost of sales in the period in which they are incurred. When future commercialization is considered probable and the future economic benefit is expected to be realized, based on management’s judgment, we capitalize pre-launch inventory costs prior to regulatory approval.

Property and Equipment. Property and equipment are stated at cost and depreciated over the estimated useful lives of the assets using the straight-line method. Equipment is depreciated over an average estimated useful life of 3 to 7 years. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the remaining lease term. Depreciation expense was $10.9 million for 2021, $8.6 million for 2020 and $7.4 million for 2019.

Impairment of Long-Lived Assets. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If indicators of impairment exist, we assess the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If the carrying amount is not recoverable, we measure the amount of any impairment by comparing the carrying value of the asset to the present value of the expected future cash flows associated with the use of the asset.

Revenue Recognition. We recognize revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. Revenue is recognized using a five-step model: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.

Net Product Sales. In the United States, we sell INGREZZA® (valbenazine) primarily to specialty pharmacy providers and distributors and ONGENTYS® (opicapone) primarily to wholesale distributors. We recognize net product sales when the customer obtains control of our product, which occurs at a point in time, typically upon delivery of our product to the customer.

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. Such estimates are based on information received from external sources (such as written or oral information obtained from our customers with respect to their period-end inventory levels and sales to end-users during the reporting period), as supplemented by management’s judgement. Our process for estimating reserves established for these variable consideration components does not differ materially from historical practices. 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 at the time of sale, 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.

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. Such estimates are based on actual historical rebates by state, estimated payor mix, state and federal regulations and relevant contractual terms, as supplemented by management’s judgement. Our rebate accrual calculations require us to project the magnitude of our sales that will be subject to these rebates. There is a significant time-lag in our receiving rebate notices from each state (generally, several months or longer after a sale is recognized). 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.

Chargebacks. The difference between the list price, or the price at which we sell our products to our customers, and the contracted price, or the price at which our customers sell our products 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 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.

Patient Financial Assistance. To help patients afford our products, we offer financial assistance to qualified patients with prescription drug co-payments required by insurance as well as free trial vouchers to qualifying new patients. We accrue for patient financial 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 and free trial vouchers have not differed materially from our estimates.

Distributor and Other Fees. In connection with the sales of our products, we pay distributor and other fees, which are generally recorded as a reduction of revenue, to certain customers that provide us with inventory management, data and distribution services. To the extent we can demonstrate a separable benefit and fair value for these services, we classify the associated costs in selling, general and administrative expenses. These costs are typically known at the time of sale, resulting in minimal adjustments subsequent to the period of sale.

Product Returns. We offer our customers product return rights primarily limited to errors in shipment, damaged product and expiring product, provided it is within a specified period of the product expiration date, as set forth in the associated distribution agreement. Where actual returns history is not available, we estimate a returns allowance based on benchmarking data for similar products and industry experience. We record this estimate as a reduction of revenue in the period the related sale is recognized. Once product is returned, it is destroyed. To date, actual product returns have not differed materially from our estimates.

Collaboration Revenues. We have entered into collaboration and licensing agreements under which we out-license certain rights to our product candidates to third parties. The terms of these arrangements typically include payment to us of one or more of the following: non-refundable, up-front license fees; development, regulatory and/or commercial milestone payments; and royalties on net sales of licensed products.

Licenses of Intellectual Property. If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, we assess the nature of the combined performance obligation to determine whether it is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

Milestones. At the inception of each arrangement that includes developmental, regulatory or commercial milestones, we evaluate whether achieving the milestones is considered probable and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price. Amounts for milestones that are not within our control, such as where achievement of the specified event is dependent on the development activities of a third party or approvals from regulators, are not considered probable of being achieved until the specified event occurs. Revenue is recognized from the satisfaction of performance obligations in the amount billable to the customer.

Royalties. For arrangements that include sales-based royalties, and under which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Each quarterly period, sales-based royalties are recorded based on estimated quarterly net sales of the associated collaboration products. Differences between actual results and estimated amounts are adjusted for in the period in which they become known, which typically follows the quarterly period in which the estimate was made. To date, actual royalties received have not differed materially from our estimates.

Concentration of Credit Risk. Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash equivalents and debt securities available-for-sale. We have established guidelines to limit our exposure to credit risk by diversifying our investment portfolio and by placing investments with high credit quality financial institutions and maturities that maintain safety and liquidity. To date, we have not experienced any credit losses and do not believe we are exposed to any significant credit risk in relation to these financial instruments.

We are also subject to credit risk from our accounts receivable related to our product sales. Our two largest customers represented approximately 82% of our total product revenues for 2021 and approximately 86% for both 2020 and 2019, as well as the significant majority of our accounts receivable balances at December 31, 2021 and 2020. To date, we have not experienced any significant losses with respect to the collection of these accounts receivable.

Cost of Sales. Cost of sales includes third-party manufacturing, transportation, freight and indirect overhead costs associated with the manufacture and distribution of INGREZZA and ONGENTYS, royalty fees on net sales of ORILISSA and ORIAHNN, and adjustments for excess and obsolete inventory to the extent management determines that the cost cannot be recovered based on estimates about future demand.

Research and Development Expenses. Research and development, or R&D, expenses consist primarily of salaries, payroll taxes, employee benefits and share-based compensation charges for those individuals involved in ongoing R&D efforts; as well as scientific consulting fees, preclinical and clinical trial costs, R&D facilities costs, laboratory supply costs and depreciation of scientific equipment. All such costs are expensed as R&D when incurred. These expenses result from our independent R&D efforts, as well as efforts associated with collaborations, in-licenses and third-party funded research arrangements, including event-based milestones.

Asset Acquisitions. We account for acquisitions of an asset that does not (or a group of assets that do not) meet the definition of a business using the cost accumulation method, whereby the cost of the acquisition, including certain transaction costs, is allocated to the asset (or assets) acquired on the basis of its (or their) relative fair value(s) on the measurement date. No goodwill is recognized in an asset acquisition. Intangible assets acquired in an asset acquisition for use in R&D activities which have no alternative future use are expensed as in-process research and development, or IPR&D, on the acquisition date. Future costs to develop these assets are expensed as R&D when incurred.

Advertising Expense. Advertising costs are expensed when services are performed or goods are delivered and are included in selling, general and administrative expense in our consolidated statements of income. We incurred advertising costs related to INGREZZA and ONGENTYS of $139.8 million for 2021, $64.8 million for 2020 and $40.6 million for 2019.

Share-Based Compensation. We grant stock options to purchase our common stock to eligible employees and directors and also grant certain employees restricted stock units, or RSUs, and performance-based restricted stock units, or PRSUs. Additionally, we allow employees to participate in an employee stock purchase plan, or ESPP.

We estimate the fair value of stock options and shares to be issued under the ESPP using the Black-Scholes option-pricing model on the date of grant. RSUs are valued based on the closing price of our common stock on the date of grant. The fair value of equity instruments expected to vest is recognized and amortized on a straight-line basis over the requisite service period of the award, which is generally 3 to 4 years; however, certain provisions in our equity compensation plans provide for shorter vesting periods under certain circumstances. The fair value of shares to be issued under the ESPP is recognized and amortized on a straight-line basis over the purchase period, which is generally 6 months. PRSUs vest upon the achievement of certain predefined company-specific performance-based criteria. Expense related to PRSUs is generally recognized ratably over the expected performance period once the predefined performance-based criteria for vesting becomes probable.

Income Taxes. Our income tax provision (benefit) is computed under the asset and liability method. Significant estimates are required in determining our income tax provision (benefit). 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. Prior to 2020, we recorded a valuation allowance that fully offset our deferred tax assets. 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. Refer to Note 9 to the consolidated financial statements for more information.

We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained upon examination by the tax authorities based on the technical merits of the position. An adverse resolution of one or more of these uncertain tax positions in any period could have a material impact on the results of operations for that period.

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

Convertible debt instruments that may be settled entirely or partly in cash may, in certain circumstances where the borrower has the ability and intent to settle in cash, be accounted for under the treasury stock method. In December 2021, we entered into the First Supplemental Indenture, dated as of May 2, 2017, by and between the Company and U.S. Bank National Association, as Trustee, or the 2017 Indenture, pursuant to which we irrevocably elected to settle the principal amount of the 2.25% convertible senior notes due May 15, 2024, or the 2024 Notes, in cash upon conversion and to settle any conversion premium in either cash or shares of our common stock. As a result, and consistent with historical practice, only the shares required to settle any conversion premium would be considered dilutive under the treasury stock method. Further, PRSUs for which the performance condition has not been achieved are excluded from the calculation of diluted earnings per share.

Recently Adopted Accounting Pronouncements.

ASU 2019-12.On January 1, 2021, we adopted Accounting Standards Update, or ASU, 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, using the modified retrospective transition method. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application of Topic 740. The adoption of ASU 2019-12 did not result in a cumulative-effect adjustment to retained earnings. The comparative prior period information continues to be reported under the accounting standards in effect during those periods. The impact of the adoption is expected to be immaterial to our financial position, results of operations and cash flows on an ongoing basis.

Recently Issued Accounting Pronouncements.

ASU 2020-06. In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity's own equity. Among other changes, ASU 2020-06 removes the separation models for convertible instruments with cash or beneficial conversion features. Instead, entities will account for convertible debt instruments wholly as debt, unless certain other conditions are met. The adoption of ASU 2020-06 is expected to prospectively reduce reported interest expense and increase reported net income, and result in a reclassification of certain conversion feature balance sheet amounts from stockholders’ equity to liabilities as it relates to the 2024 Notes. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We will adopt ASU 2020-06 on January 1, 2022 using the modified retrospective transition method, which allows for a cumulative-effect adjustment in the period of adoption and does not require restatement of prior period amounts. Under this transition method, the cumulative effect of the accounting change is expected to increase the carrying amount of the 2024 Notes by $42.2 million, reduce deferred tax liabilities by $10.0 million, reduce the accumulated deficit by $74.6 million, reduce additional paid-in capital by $106.8 million.

2. Collaboration and License Agreements

Under the terms of our existing collaboration and license agreements, we may be required to make potential future payments of up to $10.9 billion upon the achievement of certain event-based milestones. Such contingent payments are recorded when paid or payable.

Heptares Therapeutics Limited, or Heptares. We entered into a collaboration and license agreement with Heptares, which became effective in December 2021, to develop and commercialize certain compounds containing sub-type selective muscarinic M1, M4, or dual M1/M4 receptor agonists, which compounds we have the exclusive rights to develop, manufacture and commercialize worldwide, excluding in Japan, where Heptares retains the rights to develop, manufacture, and commercialize all compounds comprised of M1 receptor agonists, subject to certain exceptions. We are responsible for all development, manufacturing, and commercialization costs. With respect to such rights retained by Heptares, we retain the rights to opt in to profit sharing arrangements, pursuant to which we and Heptares will equally share in the operating profits and losses for such compounds in Japan. Subject to specified conditions, we may elect to exercise such opt-in rights with respect to each such compound either before initiation of the first proof of concept Phase II clinical trial for such compound or following our receipt from Heptares of the top-line data from such clinical trial for such compound. In addition, we have entered into a 2-year research collaboration with Heptares that, unless extended by the parties, is scheduled to expire in December 2023.

In connection with the agreement, we paid Heptares $100.0 million upfront, which, including certain transaction-related costs, was expensed as IPR&D in 2021. We accounted for the transaction as an asset acquisition as the set of acquired assets did not constitute a business. Under the terms of the agreement, Heptares may be entitled to receive potential future payments of up to $2.6 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any collaboration product.

Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until the date on which the royalty term for such licensed product has expired in such country. On a licensed product-by-licensed product and country-by-country basis, royalty payments would commence on the first commercial sale of a licensed product and terminate on the later of (i) the expiration of the last patent covering such licensed product in such country, (ii) a number of years from the first commercial sale of such licensed product in such country and (iii) the expiration of regulatory exclusivity for such licensed product in such country.

We may terminate the agreement in its entirety or with respect to one or more targets upon 180 days’ written notice to Heptares during the research collaboration term and upon 90 days’ written notice to Heptares following the expiration of the research collaboration term. Following the expiration of the research collaboration term, Heptares may terminate the agreement on a target-by-target basis in the event that we do not conduct any material development activities outside of Japan with respect to a certain compound or licensed product within the applicable target class for a continuous period of not less than 365 days and do not commence any such activities within 120 days of receiving written notice. Either party may terminate the agreement, subject to specified conditions, (i) in the event of material breach by the other party, subject to a cure period, (ii) if the other party challenges the validity or enforceability of certain intellectual property rights, subject to a cure period, or (iii) if the other party becomes insolvent or takes certain actions related to insolvency.

Takeda Pharmaceutical Company Limited, or Takeda.In 2020, we entered into an exclusive license agreement with Takeda, pursuant to which we acquired the exclusive rights to develop and commercialize certain early to mid-stage psychiatry compounds, including luvadaxistat, NBI-1065845, NBI-1065846 and four non-clinical stage compounds. Luvadaxistat and the 4 non-clinical stage compounds have each been designated as a royalty-bearing product. NBI-1065845 and NBI-1065846 are currently each designated as a profit-share product. We are responsible for all manufacturing, development and commercialization costs of any royalty-bearing product.

In connection with the agreement, we paid Takeda $120.0 million upfront, which, including certain transaction-related costs, was expensed as IPR&D in 2020. We accounted for the transaction as an asset acquisition as the set of acquired assets did not constitute a business. Under the terms of the agreement, Takeda may be entitled to receive potential future payments of up to $1.9 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any royalty-bearing product.

With respect to NBI-1065845 and NBI-1065846, we and Takeda will equally share in the operating profits and losses. Takeda retains the rights to opt-out of the profit-sharing arrangements, pursuant to which Takeda would be entitled to receive potential future payments upon the achievement of certain event-based milestones with respect to such compounds and receive royalties on the future net sales of such compounds (in lieu of equally sharing in the operating profits and losses). Takeda may elect to exercise such opt-out right for such compound immediately following the completion of a second Phase II clinical trial for such compound, or, under certain circumstances related to the development and commercialization activities to be performed by us, before the initiation of a Phase III clinical trial for such compound.

Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until the date on which, (i) for any royalty-bearing product, the royalty term has expired in such country; and (ii) for any profit-share product, for so long as we continue to develop, manufacture, or commercialize such licensed product.On a licensed product-by-licensed product and country-by-country basis, royalty payments would commence on the first commercial sale of a royalty-bearing product and terminate on the later of (i) the expiration of the last patent covering such royalty-bearing product in such country, (ii) a number of years from the first commercial sale of such royalty-bearing product in such country and (iii) the expiration of regulatory exclusivity for such royalty-bearing product in such country.

We may terminate the agreement in its entirety or in one or more (but not all) of the United States, Japan, the European Union and the United Kingdom, or, collectively, the major markets, upon 6 months’ written notice to Takeda (i) with respect to all licensed products prior to the first commercial sale of the first licensed product for which first commercial sale occurs, or (ii) with respect to all licensed products in one or more given target classes, as defined in the agreement, prior to the first commercial sale of the first licensed product in such target class for which first commercial sale occurs. We may terminate the agreement in its entirety or in one or more (but not all) of the major markets upon 12 months’ written notice to Takeda (i) with respect to all licensed products following the first commercial sale of the first licensed product for which first commercial sale occurs, or (ii) with respect to all licensed products in one or more given target classes following the first commercial sale of the first licensed product in such target class for which first commercial sale occurs. Takeda may terminate the agreement, subject to specified conditions, (i) if we challenge the validity or enforceability of certain Takeda intellectual property rights or (ii) on a target class-by-target class basis, in the event that we do not conduct any material development or commercialization activities with respect to any licensed product within such target class for a specified continuous period. Subject to a cure period, either party may terminate the agreement in the event of any material breach, solely with respect to the target class of a licensed product to which such material breach relates, or in its entirety in the event of any material breach that relates to all licensed products.

Idorsia Pharmaceuticals Ltd, or Idorsia.In 2020, we entered into a collaboration and license agreement with Idorsia, pursuant to which we acquired the global rights to NBI-827104, a potent, selective, orally active and brain penetrating T-type calcium channel blocker in clinical development for the treatment of a rare pediatric epilepsy and other potential indications, including essential tremor. We are responsible for all manufacturing, development and commercialization costs of any collaboration product.

In connection with the agreement, we paid Idorsia $45.0 million upfront, which was expensed as IPR&D in 2020. We accounted for the transaction as an asset acquisition as the set of acquired assets did not constitute a business. Under the terms of the agreement, Idorsia may be entitled to receive potential future payments of up to $1.7 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any collaboration product.

We may terminate the agreement, in its entirety or with respect to a particular compound or development candidate, upon 90 days’ written notice to Idorsia. Further, in the event a party commits a material breach and fails to cure such material breach within 90 days after receiving written notice thereof, the non-breaching party may terminate the agreement in its entirety immediately upon written notice to the breaching party.

Xenon Pharmaceuticals Inc., or Xenon. In 2019, we entered into a collaboration and license agreement with Xenon to identify, research and develop sodium channel inhibitors, including NBI-921352 and three preclinical candidates, which compounds we have the exclusive rights to develop and commercialize. We are responsible for all development and manufacturing costs of any collaboration product, subject to certain exceptions.

Under the terms of the agreement, Xenon may be entitled to receive potential future payments of up to $1.7 billion upon the achievement of certain event-based milestones and would be entitled to receive royalties on the future net sales of any collaboration product. Xenon retains the right to elect to co-develop one product in a major indication, pursuant to which Xenon would receive a mid-single digit percentage increase in royalties earned on the future net sales of such product in the United States and we and Xenon would equally share in the development costs of such product in the applicable indication, except where such development costs relate solely to the regulatory approval of such product outside the United States.

In connection with the agreement, we paid Xenon $30.0 million upfront and purchased approximately 1.4 million shares of Xenon common stock (at $14.196 per share) for $20.0 million. We accounted for the transaction as an asset acquisition as the set of acquired assets did not constitute a business. The purchased shares were recorded at a fair value of $14.1 million after considering Xenon’s stock price on the measurement date and certain transfer restrictions applicable to the shares. The remaining $36.2 million of the purchase price, which includes certain transaction-related costs, was expensed as IPR&D in 2019.

In connection with the European Union’s approval for the clinical trial application for NBI-921352 for the treatment of focal onset seizures in adults in September 2021, we paid Xenon a regulatory milestone of $10.0 million, including a purchase of approximately 0.3 million shares of Xenon common stock (at $19.9755 per share). The purchased shares were recorded at a fair value of $4.6 million after considering Xenon’s stock price on the measurement date and certain transfer restrictions applicable to the shares. The remaining $5.4 million of the milestone payment was expensed as R&D.

Unless earlier terminated, the agreement will continue on a licensed product-by-licensed product and country-by-country basis until the expiration of the royalty term for such product in such country. Upon the expiration of the royalty term for a particular licensed product and country, the license obtained by us with respect to such product and country will become fully paid, royalty free, perpetual and irrevocable. We may terminate the agreement upon 90 days’ written notice to Xenon, provided that such unilateral termination will not be effective for certain products until we have used commercially reasonable efforts to complete certain specified clinical studies. Either party may terminate the agreement in the event of a material breach in whole or in part, subject to specified conditions.

Voyager Therapeutics, Inc., or Voyager.In 2019, we entered into a collaboration and license agreement with Voyager, pursuant to which we acquired certain rights to develop and commercialize the NBIb-1817 for Parkinson’s disease program, Friedreich’s ataxia program and two undisclosed programs. We are responsible for all development costs of any collaboration product, subject to certain co-development and co-commercialization rights retained by Voyager. In February 2021, we notified Voyager of our termination of the NBIb-1817 for Parkinson’s disease program, which became effective August 2, 2021. The termination did not apply to any program other than the NBIb-1817 for Parkinson’s disease program.

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

In connection with the agreement, we paid Voyager $115.0 million upfront and purchased approximately 4.2 million shares of Voyager common stock (at $11.9625 per share) for $50.0 million. We accounted for the transaction as an asset acquisition as the set of acquired assets did not constitute a business. The purchased shares were recorded at a fair value of $54.7 million after considering Voyager’s stock price on the measurement date and certain transfer restrictions applicable to the shares. The remaining $113.1 million of the purchase price, which includes certain transaction-related costs, was expensed as IPR&D in 2019. In addition, we paid Voyager $5.0 million upfront, which was expensed as IPR&D in 2019, to acquire the rights outside the United States to the Friedreich’s ataxia program.

Unless terminated earlier, the agreement will continue in effect until the expiration of the last to expire royalty term with respect to any collaboration product or the last expiration or termination of any exercised co-development and co-commercialization rights by Voyager as provided for in the agreement. We may terminate the agreement upon 180 days’ written notice to Voyager prior to the first commercial sale of any collaboration product or upon 1 year after the date of notice if such notice is provided after the first commercial sale of any collaboration product.

BIAL – Portela & Ca, S.A., or BIAL. We acquired the United States and Canada rights to ONGENTYS® (opicapone) from BIAL in 2017, and launched ONGENTYS in the United States in September 2020 as an FDA-approved add-on treatment to levodopa/carbidopa in patients with Parkinson's disease experiencing motor fluctuations. We are responsible for all commercialization costs of ONGENTYS in the United States and Canada and rely on BIAL for the commercial supply of ONGENTYS.

Under the terms of the license agreement, BIAL may be entitled to receive potential future payments of up to $75.0 million upon the achievement of certain event-based milestones. In addition, with respect to ONGENTYS, in the event we fail to meet certain minimum sales requirements for a particular year in comparison to our annual sales forecast for such year, we would be obligated to pay BIAL an amount equal to the difference between the actual net

sales and minimum sales requirements for such year. Further, upon our written request to BIAL 12 months prior to the estimated expiration of the term of a licensed product, we will negotiate the continuation of BIAL’s supply of such licensed product after the term. After the term, and if BIAL is no longer supplying such licensed product, BIAL would be entitled to receive a low double-digit royalty on our future quarterly net sales of such licensed product.

In connection with the FDA’s approval for ONGENTYS for Parkinson’s disease in April 2020, we paid BIAL a regulatory milestone of $20.0 million, which was expensed as R&D in 2020. In connection with the FDA’s acceptance of the NDA for opicapone for Parkinson’s disease in 2019, we paid BIAL a regulatory milestone of $10.0 million, which was expensed as R&D in 2019.

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

We may terminate the agreement upon 9 months’ written notice to BIAL. BIAL may terminate the agreement in the event we fail to meet the minimum sales requirements for any 2 years, or under certain circumstances involving a change of control of Neurocrine Biosciences. Under certain circumstances where BIAL elects to terminate the agreement in connection with a change of control of Neurocrine Biosciences, BIAL would be obligated to pay us a termination fee. Either party may terminate the agreement if the other party materially breaches the agreement and does not cure the breach within a specified notice period, or upon the other party’s insolvency.

Mitsubishi Tanabe Pharma Corporation, or MTPC.We out-licensed the rights to valbenazine in Japan and other select Asian markets to MTPC in 2015. MTPC is responsible for all development, manufacturing and commercialization costs of valbenazine in such markets.

Under the terms of the license agreement, we may be entitled to receive potential future payments of up to $55.0 million upon the achievement of certain event-based milestones and would be entitled to receive royalties at tiered percentage rates on MTPC’s future net sales of valbenazine for the longer of 10 years or the life of the related patent rights.

In connection with MTPC’s submission of a filing for marketing authorization for valbenazine for the treatment of tardive dyskinesia in Japan in April 2021, we received a regulatory milestone of $15.0 million, which was recognized as collaboration revenue in 2021.

We are currently conducting the KINECT-HD study, a placebo-controlled Phase III study of valbenazine in adult Huntington disease patients with chorea. In connection with our performance of the study, we recognized non-cash collaboration revenue of $5.7 million for 2021, $2.6 million for 2020 and $0.9 million for 2019. As of December 31, 2021, $1.0 million of revenue is being deferred in connection with our continuing performance obligations under the collaboration and will be recognized as non-cash collaboration revenue over the remaining study period using an input method according to costs incurred to-date relative to estimated total costs associated with the study.

MTPC may terminate the agreement upon 180 days’ written notice to us. In such event, all out-licensed product rights would revert to us.

AbbVie Inc., or AbbVie. We out-licensed the global rights to elagolix to AbbVie in 2010. AbbVie is responsible for all development and commercialization costs of elagolix.

Under the terms of the license agreement, we may be entitled to receive potential future payments of up to $366.0 million upon the achievement of certain event-based milestones and will continue to receive royalties at tiered percentage rates on AbbVie’s quarterly net sales of elagolix for the longer of 10 years or the life of the related patent rights.

AbbVie launched ORILISSA® (elagolix tablets) in the United States in August 2018 as an FDA-approved oral medication for the management of moderate to severe endometriosis pain in women. In June 2020, AbbVie launched ORIAHNN® (elagolix, estradiol and norethindrone acetate capsules and elagolix capsules) in the United States as an FDA-approved oral medication for the management of heavy menstrual bleeding associated with uterine fibroids in pre-menopausal women. We recognized elagolix royalty revenue of $22.3 million for 2021, $19.2 million for 2020 and $14.3 million for 2019.

In connection with the FDA’s approval for AbbVie’s ORIAHNN for uterine fibroids in May 2020, we received a regulatory milestone of $30.0 million, which was recognized as collaboration revenue in 2020. In connection with the FDA’s acceptance of AbbVie’s NDA for ORIAHNN for uterine fibroids in 2019, we received a regulatory milestone of $20.0 million, which was recognized as collaboration revenue in 2019.

AbbVie may terminate the agreement upon 180 days’ written notice to us. In such event, all out-licensed product rights would revert to us.

3. Debt Securities

The following table summarizes the amortized cost, unrealized gain and loss recognized in accumulated other comprehensive income (loss) and fair value of debt securities available-for-sale at December 31, 2021, aggregated by major security type and contractual maturity:

As of December 31, 2021, our security portfolio consisted of 164 debt securities available-for-sale, including 136 such securities that were in an unrealized loss position but of high credit quality. Unrealized losses on these investments were primarily due to changes in interest rates. We do not intend to sell these investments and it is not more likely than not that we will be required to sell these investments before recovery of their amortized cost basis. We did not recognize an allowance for credit losses as of December 31, 2021 or 2020.

The following table summarizes debt securities available-for-sale in an unrealized loss position for less than 12 months, aggregated by major security type. There were no debt securities available-for-sale in an unrealized loss position for longer than 12 months as of December 31, 2021 or 2020.

(in millions) FairValue UnrealizedLoss FairValue UnrealizedLoss

Corporate Debt Securities $ 428.6 $ (1.6) $ — $ —

Securities of government-sponsored entities 230.5 (1.0) 95.0 (0.1)

4. Fair Value Measurements

Investments, which were measured at fair value on a recurring basis, consisted of the following:

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

Cash and cash equivalents:

Restricted cash:

Certificates of deposit 3.2 3.2 — — 3.2 3.2 — —

Debt securities available-for-sale:

Equity securities:

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

Year Ended December 31,

Balance at beginning of period $ 38.2 $ 55.9 $ —

Unrealized gain (loss) included in earnings 20.9 (17.7) (13.0)

Transfers out of Level 3 (2) (52.7) — —

_________________________

(1) In September 2021, we purchased 0.3 million shares of Xenon's common stock, valued at $4.6 million on the date of purchase, in connection with the European Union’s approval of the clinical trial application for NBI-921352.

(2) In the fourth quarter of 2021, our equity security investment in Xenon was transferred from Level 3 to Level 1 as the associated holding period restriction expired.

As of December 31, 2021, the discount for lack of marketability used in the valuation analysis of our Voyager equity security investment was 2.5%. Unrealized gains and losses on equity security investments are included in other income (expense), net.

5. Convertible Senior Notes

On May 2, 2017, we completed a private placement of $517.5 million in aggregate principal amount of the 2024 Notes and entered into the 2017 Indenture with respect to the 2024 Notes. The net proceeds from the issuance of the 2024 Notes were approximately $502.8 million, after deducting commissions and the offering expenses payable by us. The 2024 Notes accrue interest at a fixed rate of 2.25% per year, payable semiannually in arrears on May 15 and November 15 of each year, and mature on May 15, 2024.

In November 2020, we entered into separate, privately negotiated transactions with certain holders of the 2024 Notes to repurchase $136.2 million aggregate principal amount of the 2024 Notes for an aggregate repurchase price of $186.9 million in cash. We accounted for the partial repurchase of the 2024 Notes as a debt extinguishment. As a result, we attributed $130.7 million of the aggregate repurchase price to the liability component based on the fair value of the liability component immediately before extinguishment. The fair value of the liability component was calculated at settlement using a discounted cash flow analysis with a discount rate of 3.37%, which was the market rate for similar notes that have no conversion rights. The difference of $56.3 million between the fair value of the aggregate consideration remitted to certain holders of the 2024 Notes and the fair value of the liability component was attributed to the reacquisition of the equity component and recognized as a reduction to additional paid-in capital. The carrying amount of the liability of $112.4 million at settlement was recognized as a reduction to the 2024 Notes and resulted in an $18.4 million loss on extinguishment.

We may redeem for cash all or part of the 2024 Notes if the last reported sale price (as defined in the 2024 Indenture) of our common stock has been at least 130% of the conversion price then in effect (equal to $98.70 as of December 31, 2021) for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending on, and including, the trading day immediately before the date which we provide notice of redemption.

Holders of the 2024 Notes may convert the 2024 Notes at any time prior to the close of business on the business day immediately preceding May 15, 2024, only under the following circumstances:

(i)during any calendar quarter (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130% of the conversion price (equal to $98.70 as of December 31, 2021) on each applicable trading day;

(ii)during the 5 business-day period immediately after any 5 consecutive trading-day period (the measurement period) in which the trading price (as defined in the 2024 Indenture) per $1,000 principal amount of the 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;

(iii)upon the occurrence of specified corporate events, including a merger or a sale of all or substantially all of our assets; or

(iv)if we call the 2024 Notes for redemption, until the close of business on the business day immediately preceding the redemption date.

On or after January 15, 2024, until the close of business on the scheduled trading day immediately preceding May 15, 2024, holders may convert their 2024 Notes at any time.

In December 2021, we entered into the First Supplemental Indenture to the 2017 Indenture, pursuant to which we irrevocably elected to settle the principal amount of the 2024 Notes in cash upon conversion and to settle any conversion premium, calculated based on the per share volume-weighted average price for each of the 30 consecutive trading days during the observation period (as more fully described in the 2024 Indenture), in either cash or shares of our common stock. In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest, and the possibility of further stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2024 Notes will be paid pursuant to the terms of the 2024 Indenture.

The initial conversion rate for the 2024 Notes is 13.1711 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $75.92 per share of our common stock. At the initial conversion rate, settlement of the 2024 Notes for shares of our common stock would approximate 5.0 million shares. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. The initial conversion price of the 2024 Notes represented a premium of approximately 42.5% to the closing sale price of $53.28 per share of our common stock on the Nasdaq Global Select Market on April 26, 2017, the date that we priced the private offering of the 2024 Notes.

If we undergo a fundamental change, as defined in the 2024 Indenture, subject to certain conditions, holders of the 2024 Notes may require us to repurchase for cash all or part of their 2024 Notes at a repurchase price equal to 100% of the principal amount of the 2024 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if a ‘‘make-whole fundamental change’’ (as defined in the 2024 Indenture) occurs prior to January 15, 2024, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert their notes in connection with the make-whole fundamental change.

The 2024 Notes are our general unsecured obligations that rank senior in right of payment to all of our indebtedness that is expressly subordinated in right of payment to the 2024 Notes, and equal in right of payment to our unsecured indebtedness.

While the 2024 Notes were classified as a long-term liability as of December 31, 2021, the future convertibility and associated balance sheet classification will be monitored at each quarterly reporting date and analyzed dependent upon market prices of our common stock during the prescribed measurement periods. In the event that we have the election to redeem the 2024 Notes or the holders of the 2024 Notes have the election to convert the 2024 Notes at any time during the prescribed measurement period, the 2024 Notes would then be considered a current obligation and classified as such.

We are required to separately account for the liability and equity components of the 2024 Notes. The liability component of the instrument was valued in a manner that reflects the market interest rate for a similar nonconvertible instrument at the date of issuance. The initial carrying value of the liability component of $368.3 million was calculated using a 7.5% assumed borrowing rate. The equity component of $149.2 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 2024 Notes and recorded in additional paid-in capital on the consolidated balance sheet on the issuance date. The equity component is treated as a discount on the liability component of the 2024 Notes, which is currently being amortized over the 7-year term of the 2024 Notes using the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. As of December 31, 2021, the remaining period over which the discount on the liability component will be amortized was approximately 2.4 years. We plan to adopt ASU 2020-06 on January 1, 2022 using the modified retrospective transition method. Among other changes, ASU 2020-06 removes the separation models for convertible instruments with cash or beneficial conversion features. Refer to Note 1 to the consolidated financial statements for more information.

We allocated the total transaction costs of approximately $14.7 million related to the issuance of the 2024 Notes to the liability and equity components of the 2024 Notes based on their relative values. Transaction costs attributable to the liability component are amortized to interest expense over the 7-year term of the 2024 Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity.

The 2024 Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by us. The 2024 Indenture contains customary events of default with respect to the 2024 Notes, including that upon certain events of default, 100% of the principal and accrued and unpaid interest on the 2024 Notes will automatically become due and payable.

The 2024 Notes, net of discounts and deferred financing costs, consisted of the following:

December 31,

Deferred financing costs (2.9) (4.0)

Debt discount, net (43.2) (59.4)

The 2024 Notes were recorded at the estimated value of a similar non-convertible instrument on the date of issuance and accretes to the face value of the 2024 Notes over their 7-year term. The fair value of the 2024 Notes, which was estimated utilizing market quotations from an over-the-counter trading market (Level 2), was $464.7 million as of December 31, 2021 and $514.3 million as of December 31, 2020.

6. Other Balance Sheet Details

Inventory consisted of the following:

December 31,

Work in process 3.6 2.4

Property and equipment, net, consisted of the following:

December 31,

Tenant improvements $ 34.9 $ 29.5

Furniture and fixtures 5.9 3.7

Less accumulated depreciation (51.9) (41.7)

Total property and equipment, net $ 58.6 $ 44.6

Accounts payable and accrued liabilities consisted of the following:

December 31,

Accrued employee related costs $ 50.6 $ 38.2

Revenue-related reserves for discounts and allowances 62.7 34.6

Accrued development costs 32.4 32.9

Current branded prescription drug fee 28.6 23.6

Accounts payable and other accrued liabilities 51.5 39.4

Total accounts payable and accrued liabilities $ 225.8 $ 168.7

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

December 31,

Cash and cash equivalents $ 340.8 $ 187.1

Restricted cash 3.2 3.2

Total cash, cash equivalents and restricted cash $ 344.0 $ 190.3

7. Earnings Per Share

Earnings per share were calculated as follows:

Year Ended December 31,

Net income - basic and diluted $ 89.6 $ 407.3 $ 37.0

Weighted-average common shares outstanding:

Effect of dilutive securities:

Restricted stock units 0.3 0.5 0.4

Earnings per share:

Shares which have been excluded from diluted per share amounts because their effect would have been anti-dilutive were 4.1 million for 2021, 2.5 million for 2020 and 2.1 million for 2019.

8. Share-Based Compensation

In May 2011, we adopted the 2011 Equity Incentive Plan, as amended, or the 2011 Plan. The 2011 Plan authorized 21 million shares of common stock for issuance and allowed for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, or RSUs, performance stock awards, performance-based restricted stock units, or PRSUs, and certain other awards. During 2020, the 2011 Plan was merged into the 2020 Plan (defined below). As a result, there were no shares of common stock remaining available for future grant under the 2011 Plan.

In May 2018, we adopted the 2018 Employee Stock Purchase Plan, or ESPP, pursuant to which 0.3 million shares of common stock are authorized for issuance. As of December 31, 2021, 0.1 million shares of common stock remain available for future grant under the 2018 ESPP.

In May 2020, we adopted the 2020 Equity Incentive Plan, or the 2020 Plan. The 2020 Plan authorized 3.3 million shares of common stock for issuance and allows for the grant of stock options, stock appreciation rights, restricted stock awards, RSUs, performance stock awards, PRSUs and certain other awards. The 2011 Plan was merged into the 2020 Plan and, as a result, all remaining shares in the 2011 Plan were transferred into the 2020 Plan. As of December 31, 2021, 5.4 million shares of common stock remain available for future grant under the 2020 Plan.

Share-Based Compensation Expense. The effect of share-based compensation expense on our consolidated statements of income and comprehensive income by line-item follows:

Year Ended December 31,

Selling, general and administrative expense $ 85.8 $ 66.3 $ 49.5

Research and development expense 48.4 33.7 25.8

Total share-based compensation expense $ 134.2 $ 100.0 $ 75.3

Share-based compensation expense by award-type follows:

Year Ended December 31,

Total share-based compensation expense $ 134.2 $ 100.0 $ 75.3

As of December 31, 2021, unrecognized share-based compensation expense by award-type and the weighted-average period over which such expense is expected to be recognized, as applicable, were as follows:

(dollars in millions) Unrecognized Expense Weighted-Average Recognition Period

Stock options $ 101.7 2.5 years

Stock Options. Typically, stock options have a 10-year term and vest over a 3 to 4-year period. The exercise price of stock options granted is equal to the closing price of our common stock on the date of grant. We estimate the fair value of stock options using the Black-Scholes option-pricing model on the date of grant. The Black-Scholes option-pricing model incorporates various and highly sensitive assumptions including expected volatility, term and interest rates. The weighted-average grant-date fair values of stock options granted were $45.02 for 2021, $45.67 for 2020 and $41.74 for 2019.

The fair value of each stock option granted was estimated on the date of grant using the Black-Scholes option-pricing valuation model with the following weighted-average assumptions:

Year Ended December 31,

Risk-free interest rate 0.6 % 1.4 % 2.4 %

Expected volatility of common stock 45.9 % 48.5 % 54.8 %

Dividend yield 0.0 % 0.0 % 0.0 %

Expected option term 5.2 years 5.3 years 5.4 years

The weighted-average valuation assumptions were determined as follows:

•The expected volatility of common stock is estimated based on the historical volatility of our common stock over the most recent period commensurate with the estimated expected term of our stock options.

•The expected option term is estimated based on historical experience as well as the status of the employee. For example, directors and officers have a longer expected option term than all other employees.

•The risk-free interest rate for periods within the contractual life of a stock option is based upon observed interest rates appropriate for the expected term of our employee stock options.

•We have not historically declared or paid dividends and do not intend to do so in the foreseeable future.

A summary of activity related to stock options follows:

The total intrinsic value of stock options exercised was $58.0 million for 2021, $40.2 million for 2020 and $64.3 million for 2019. Cash received from stock option exercises was $20.7 million for 2021, $23.5 million for 2020 and $27.3 million for 2019.

Restricted Stock Units. RSUs typically vest over a 4-year period. The fair value of RSUs is based on the closing sale price of our common stock on the date of issuance. RSUs may be subject to a deferred delivery arrangement at the election of eligible employees.

A summary of activity related to RSUs follows:

_________________________

(1) In August 2021, our board of directors approved an equity grant of approximately 0.5 million RSUs, which will vest over a 2-year period, to our full-time employees other than our executive officers.

The total fair value of RSUs that vested was $64.3 million for 2021, $49.7 million for 2020 and $36.1 million for 2019.

Performance-Based Restricted Stock Units. PRSUs vest based on the achievement of certain predefined Company-specific performance criteria and expire 3 to 4 years from the grant date. The fair value of 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 performance-based criteria is determined to be probable.

A summary of activity related to PRSUs follows:

As of December 31, 2021, unrecognized share-based compensation expense for PRSUs was $32.0 million. The total fair value of PRSUs that vested was $13.5 million for 2020. No PRSUs vested during 2021 or 2019.

Employee Stock Purchase Plan. Under the ESPP, eligible employees may purchase shares of our common stock at a discount semi-annually based on a percentage of their annual compensation. The discounted purchase price is equal to the lower of 85% of (i) the market value per share of the common stock on the first day of the offering period or (ii) the market value per share of common stock on the purchase date.

9. Income Taxes

Components of income tax expense (benefit) for continuing operations were as follows:

Year Ended December 31,

Current:

Federal $ — $ — $ —

Deferred:

Total deferred taxes 5.5 (310.7) —

Provision for (benefit from) income taxes $ 11.8 $ (300.6) $ 9.5

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

Year Ended December 31,

State income tax, net of federal benefit 6.2 5.5 4.0

Non-deductible expenses 0.2 0.6 0.8

Branded prescription drug fee 4.8 4.9 3.7

Share-based compensation expense (11.3) (6.7) (12.8)

Officer compensation 7.0 3.7 3.1

Change in tax rate 0.2 3.3 (4.1)

Expired tax attributes 0.6 1.1 1.2

Change in valuation allowance 5.0 (296.3) 13.9

Provision for (benefit from) income taxes $ 11.8 $ (300.6) $ 9.5

Significant components of our deferred tax assets as of December 31, 2021 and 2020 are listed below.

December 31,

Deferred tax assets:

Research and development credits 129.7 109.6

Capitalized research and development 17.9 24.7

Share-based compensation expense 38.9 29.8

Operating lease assets 29.3 25.2

Deferred tax liabilities:

Convertible senior notes (9.9) (13.8)

Operating lease liabilities (23.3) (19.9)

Total deferred tax liabilities (43.9) (42.1)

Net of deferred tax assets and liabilities 369.9 369.2

Valuation allowance (54.8) (49.8)

As of December 31, 2021, our deferred tax assets were primarily the result of federal net operating loss carry forwards, capitalized research costs, acquired intangible assets and tax credit carryforwards. As of December 31, 2021 and 2020, we recorded a valuation allowance of $54.8 million and $49.8 million, respectively, against our gross deferred tax asset balance.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its assessment of the future realizability of our deferred tax assets. As of December 31, 2021, management determined there was sufficient positive evidence to conclude that it is more likely than not deferred tax assets of $315.1 million are realizable. The recorded valuation allowance of $54.8 million consisted primarily of state net operating loss and credit carryforwards for which management could not conclude it is more likely than not to be realized.

As of December 31, 2021, we had federal and state income tax net operating loss carryforwards of $421.1 million and $329.9 million, respectively. The federal net operating losses will begin to expire in 2028, unless previously utilized.

California net operating losses will begin to expire in 2031 unless previously utilized and the net operating losses related to other states will begin to expire in 2026.

In addition, we had federal and state R&D tax credit carryforwards of $107.3 million and $66.3 million, respectively. A portion of the federal R&D tax credit carryforwards expired in 2021. The remaining federal R&D tax credits will continue to expire beginning in 2022, unless previously utilized. The California R&D tax credits carry forward indefinitely and the R&D tax credits related to other states will begin to expire in 2022, unless previously utilized.

Additionally, the future utilization of our net operating loss and R&D tax credit carryforwards to offset future taxable income may be subject to an annual limitation, pursuant to Internal Revenue Code Sections 382 and 383, as a result of ownership changes that could occur in the future. No ownership changes have occurred through December 31, 2021.

The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.

Our policy is to recognize interest or penalties related to income tax matters in income tax expense. Interest and penalties related to income tax matters were not material for 2021, 2020 or 2019.

We are subject to taxation in the United States and various state jurisdictions. Our tax years for 2001 for federal and since inception for California and forward are subject to examination by federal and state tax authorities due to the carryforward of unutilized net operating losses and R&D tax credits.

A summary of activity related to unrecognized tax benefits follows:

Year Ended December 31,

Increase (decrease) related to prior year tax positions 0.6 (5.7) 0.3

Increase related to current year tax positions 4.9 3.9 9.5

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

We excluded those deferred tax assets that are not more-likely-than-not to be sustained under the technical merits of the tax position. Such unrecognized tax benefits totaled $4.9 million for current year tax positions, as reflected in the table above.

As of December 31, 2021, we had $57.4 million of unrecognized tax benefits that, if recognized and realized, would affect the effective tax rate, subject to the valuation allowance. We do not expect a significant change in our unrecognized tax benefits in the next twelve months.

10. Leases

Our corporate headquarters, for which we have operating leases with terms that expire beginning 2024 through 2031, are located in San Diego, California, and consist of office space and research and development laboratories. Certain of these lease agreements contain clauses for renewal at our option. As we were not reasonably certain to exercise any such options at commencement of these leases, no such options were recognized as part of the associated lease liabilities or right-of-use assets.

The following tables present supplemental operating lease information.

Year Ended December 31,

December 31,

(in millions, except weighted average data) 2021 2020

Weighted average remaining lease term 8.8 years 10.3 years

Weighted average discount rate 5.2 % 5.6 %

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

Total operating lease payments 154.3

Less accreted interest 32.5

Total operating lease liabilities 121.8

Noncurrent operating lease liabilities $ 105.3

11. Retirement Plan

We have a 401(k) defined contribution savings plan, or the 401(k) Plan. The 401(k) Plan is for the benefit of all qualifying employees and permits voluntary contributions by employees up to 60% of base salary limited by the IRS-imposed maximum. Employer contributions were $8.1 million for 2021, $6.7 million for 2020 and $4.9 million for 2019.

12. Subsequent Events

Under the terms of the lease, on a building-by-building basis, base rent will be subject to a 10-month rent abatement period following the respective lease commencement date, which dates will be determined in the future based upon achievement of substantial completion of construction with respect to each such building in the condition suitable for the installation of our furniture, fixtures and equipment, and on which date we will record a lease liability, corresponding right-of-use asset, and begin lease expense recognition with respect to each such building. After the rent abatement period, monthly base rent will be $6 per square foot, subject to annual escalations of 3% during the initial 13.6-year lease term, which term we have the option to renew for two additional terms of 5 years each.

Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the timelines specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the year covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Report on Internal Control Over Financial Reporting

Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the company.

Management has used the framework set forth in the report entitled Internal Control-Integrated Framework (2013 framework) published by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2021. Ernst & Young, LLP, our independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as of December 31, 2021, which is included herein.

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Neurocrine Biosciences, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Neurocrine Biosciences, Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Neurocrine Biosciences, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income and comprehensive income, stockholders‘ equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 11, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

San Diego, California

February 11, 2022

Item 9B. Other Information

On February 8, 2022, we entered into a lease agreement, or the Lease, with Gemdale Aperture Phase I, LLC for the lease of approximately 535,000 gross square feet of office, laboratory and ancillary space, or the Premises, on a 15.72-acre campus located at 6040 Edgewood Bend Court, San Diego, California 92130, or the Property, for our future principal executive offices, and laboratory space for research and development and related uses. The Premises will be delivered to us in two phases, with the initial Premises consisting of two buildings containing a total of approximately 240,000 gross square feet, or Phase 1, and the subsequent premises consisting of two buildings containing a total of approximately 295,000 gross square feet, or Phase 2. We also have the option to expand into a to-be-constructed fifth building, which would contain approximately 121,000 gross square feet, subject to the terms set forth in the Lease. Subject to certain conditions set forth in the Lease, we also have a right of first refusal to purchase the Property.

The commencement date for Phase 1 is expected to occur on or around March 28, 2023, or the Phase 1 Commencement Date, and the commencement date for Phase 2 is expected to occur on or around February 1, 2025. The Lease will have an initial term of approximately 13 years and 7 months, commencing on the Phase 1 Commencement Date, unless terminated earlier, or the Term. We have two options to extend the Term by five years each. Base rent for each of Phase 1 and Phase 2 will be abated for 10 months following the Phase 1 Commencement Date and Phase 2 Commencement Date, respectively. Following the abatement period for Phase 1, the base rent payable for Phase 1 will be $6.00 per gross square foot, or approximately $1.4 million per month, which amount will increase by 3% per year over the Term. Following the abatement period for Phase 2, the per gross square foot base rent payable for Phase 2 will be equal to the per gross square foot base rent being paid for the Phase 1 Premises at such time. We will also enter into a letter of credit equal to base rent due for the Premises during the last month of the initial Term.

Upon vacating our current principal executive offices at 12780 El Camino Real, San Diego, California 92130, we intend to sublet such facilities.

The foregoing description of the material terms of the Lease is qualified in its entirety by reference to the full text of the Lease, a copy of which will be filed as an exhibit to a subsequent filing with the SEC.

PART III

NBIX US Equity

NBIX · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

NBIX US Equity☆

NBIX · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

NBIX US Equity