~~(Former name, former address and former fiscal year, if changed since last report)~~Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was ~~91,286,923~~92,865,121 as of April ~~24, 2019.~~30, 2020.

(in thousands, except per share data)	March 31, 2019			December 31, 2018
(in millions, except per share data)							March 31, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	72,778		$	141,714		$	187.0		$	112.3
Short-term investments, available for sale		451,290			509,199
Debt securities available-for-sale, at fair value (amortized cost $584.1 million at March 31, 2020 and $557.3 million at December 31, 2019)								584.7			558.2
Accounts receivable		71,964			56,240			148.6			126.6
Inventory		13,010			10,864
Inventories								21.2			17.3
Other current assets		24,150			19,760			26.7			16.6
Total current assets		633,192			737,777			968.2			831.0
Debt securities available-for-sale, at fair value (amortized cost $237.8 million at March 31, 2020 and $299.3 million at December 31, 2019)								235.9			299.7
Right-of-use assets								73.3			74.3
Equity securities								39.4			55.9
Property and equipment, net								41.9			41.9
Restricted cash		5,477			5,477			3.2			3.2
Property and equipment, net		36,661			33,869
Long-term investments, available for sale		176,689			216,028
Investment in restricted equity securities		56,400			—
Operating lease assets		49,304			—
Total assets	$	957,723		$	993,151		$	1,361.9		$	1,306.0
blank
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities	$	68,280		$	86,377		$	125.9		$	141.3
Convertible senior notes								—			408.8
Other current liabilities		3,723			1,856			14.4			15.2
Total current liabilities		72,003			88,233			140.3			565.3
Noncurrent operating lease liabilities		67,147			—
Convertible senior notes		393,435			388,496			414.1			—
Operating lease liabilities								85.6			86.7
Other long-term liabilities		15,863			10,231			21.6			17.1
Deferred rent		—			18,114
Deferred gain on sale of real estate		—			7,312
Total liabilities		548,448			512,386			661.6			669.1
blank
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.001 par value; 220,000 shares authorized; issued and outstanding shares were 91,284 as of March 31, 2019 and 90,797 as of December 31, 2018		91			91
Preferred stock, $0.001 par value; 5.0 shares authorized; 0 shares issued and outstanding at March 31, 2020 and December 31, 2019								—			—
Common stock, $0.001 par value; 220.0 shares authorized; issued and outstanding shares were 92.8 at March 31, 2020 and 92.3 at December 31, 2019								0.1			0.1
Additional paid-in capital		1,681,244			1,660,361			1,796.9			1,768.1
Accumulated other comprehensive loss		(233	)		(1,932	)
Accumulated other comprehensive (loss) income								(1.4	)		1.4
Accumulated deficit		(1,271,827	)		(1,177,755	)		(1,095.3	)		(1,132.7	)
Total stockholders’ equity		409,275			480,765			700.3			636.9
Total liabilities and stockholders’ equity	$	957,723		$	993,151		$	1,361.9		$	1,306.0

	For the Three Months Ended March 31,						Three Months Ended March 31,
(in thousands, except per share data)	2019			2018
(in millions, except per share data)							2020			2019
Revenues:
Product sales, net	$	136,431		$	71,086		$	231.1		$	136.4
Collaboration revenue		1,972			—			6.0			2.0
Total revenues		138,403			71,086			237.1			138.4
Operating expenses:
Cost of sales		1,129			950			2.1			1.1
Research and development		37,652			48,947			58.3			37.7
Acquired in-process research and development		113,081			—			—			113.1
Selling, general and administrative		87,538			58,636			117.8			87.5
Total operating expenses		239,400			108,533			178.2			239.4
Operating loss		(100,997	)		(37,447	)
Operating income (loss)								58.9			(101.0	)
Other (expense) income:
Interest expense		(7,853	)		(7,504	)		(8.2	)		(7.9	)
Unrealized gain on investment in restricted equity securities		1,680			—
Unrealized losses (gains) on equity securities								(16.5	)		1.7
Investment income and other, net		4,576			3,133			4.7			4.6
Total other expense, net		(1,597	)		(4,371	)		(20.0	)		(1.6	)
Loss before benefit from income taxes		(102,594	)		(41,818	)
Benefit from income taxes		(479	)		—
Net loss		(102,115	)		(41,818	)
Unrealized gain (loss) on available-for-sale securities, net of tax		1,699			(1,847	)
Comprehensive loss	$	(100,416	)	$	(43,665	)
Net loss per share, basic and diluted	$	(1.12	)	$	(0.47	)
Weighted average common shares outstanding, basic and diluted		91,056			89,526
Income (loss) before provision for (benefit from) income taxes								38.9			(102.6	)
Provision for (benefit from) income taxes								1.5			(0.5	)
Net income (loss)								37.4			(102.1	)
Unrealized (loss) gain on debt securities available-for-sale, net of tax								(2.8	)		1.7
Comprehensive income (loss)							$	34.6		$	(100.4	)
Net income (loss) per share, basic							$	0.40		$	(1.12	)
Net income (loss) per share, diluted							$	0.39		$	(1.12	)
Weighted average common shares outstanding, basic								92.6			91.1
Weighted average common shares outstanding, diluted								97.0			91.1

For the Three Months Ended
March 31,

(in thousands)
2019

2018

Cash Flows from Operating Activities:

Net loss
$
(102,115
)

$
(41,818
)
Reconciliation of net loss to net cash used in operating activities:

Depreciation and amortization

1,566

786

Amortization of debt discount

4,598

4,265

Amortization of debt issuance costs

341

326

(Accretion) amortization of discounts/premiums on investments, net

(290
)

512

Share-based compensation expense

15,764

19,879

Change in fair value of investment in restricted equity securities

(1,680
)

—

Other

116

(229
)
Change in operating assets and liabilities:

Accounts receivable

(15,724
)

(13,497
)
Inventory

(1,753
)

(309
)
Other current assets

(2,110
)

(441
)
Accounts payable and accrued liabilities

(16,567
)

(7,870
)
Other liabilities

5,363

(90
)
Net cash used in operating activities

(112,491
)

(38,486
)
blank

Cash Flows from Investing Activities:

Purchases of investments

(116,307
)

(139,354
)
Sales and maturities of investments

215,936

84,086

Investment in equity securities

(54,720
)

—

Purchases of property and equipment

(3,939
)

(1,800
)
Proceeds from sales of property and equipment

4

18

Net cash provided by (used in) investing activities

40,974

(57,050
)
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Cash Flows from Financing Activities:

Issuance of common stock

2,581

16,135

Net cash provided by financing activities

2,581

16,135

Change in cash and cash equivalents and restricted cash

(68,936
)

(79,401
)
Cash and cash equivalents and restricted cash at beginning of the period

147,191

259,212

Cash and cash equivalents and restricted cash at end of the period
$
78,255

$
179,811

					Three Months Ended March 31,
(in millions)					2020			2019
Cash Flows from Operating Activities:
Net income (loss)					$	37.4		$	(102.1	)
Reconciliation of net income (loss) to net cash provided by (used in) operating activities:
Share-based compensation expense						22.8			15.8
Depreciation						2.1			1.6
Amortization of debt discount						5.0			4.6
Amortization of debt issuance costs						0.3			0.3
Change in fair value of equity security investments						16.5			(1.7	)
Other						0.4			(0.2	)
Change in operating assets and liabilities:
Accounts receivable						(22.1	)		(15.7	)
Inventory						(3.9	)		(1.8	)
Accounts payable and accrued liabilities						(16.2	)		(16.6	)
Other current assets and liabilities, net						(4.1	)		3.3
Net cash provided by (used in) operating activities						38.2			(112.5	)
blank
Cash Flows from Investing Activities:
Purchases of debt securities available-for-sale						(172.0	)		(116.3	)
Sales and maturities of debt securities available-for-sale						206.5			215.9
Purchases of equity securities						—			(54.7	)
Purchases of property and equipment						(1.3	)		(3.9	)
Net cash provided by investing activities						33.2			41.0
blank
Cash Flows from Financing Activities:
Issuance of common stock						3.3			2.6
Net cash provided by financing activities						3.3			2.6
Change in cash and cash equivalents and restricted cash						74.7			(68.9	)
Cash and cash equivalents and restricted cash at beginning of period						115.5			147.2
Cash and cash equivalents and restricted cash at end of period					$	190.2		$	78.3
blank
Supplemental Disclosure:
Non-cash capital expenditures	$	615	$	—	$	0.8		$	0.6

	Common Stock				Additional Paid		Accumulated Other Comprehensive			Accumulated			Total Stockholders’			Common Stock				Additional Paid		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
(in thousands)	Shares		Amount		in Capital		(Loss) Gain			Deficit			Equity
Balance at December 31, 2017		88,794	$	89	$	1,572,765	$	(1,850	)	$	(1,198,866	)	$	372,138
Net loss		—		—		—		—			(41,818	)		(41,818	)
Unrealized loss on available-for-sale investments		—		—		—		(1,847	)		—			(1,847	)
(in millions)																Shares		Amount		in Capital		Income (Loss)			Deficit			Equity
Balance at December 31, 2019																	92.3	$	0.1	$	1,768.1	$	1.4		$	(1,132.7	)	$	636.9
Net income																	—		—		—		—			37.4			37.4
Unrealized loss on debt securities available-for-sale, net of tax																	—		—		—		(2.8	)		—			(2.8	)
Share-based compensation expense		—		—		19,879		—			—			19,879			—		—		22.8		—			—			22.8
Issuance of common stock for vested restricted stock units		343		—		—		—			—			—			0.4		—		—		—			—			—
Issuance of common stock for stock option exercises		745		1		16,134		—			—			16,135			0.1		—		3.3		—			—			3.3
Balance at March 31, 2018		89,882	$	90	$	1,608,778	$	(3,697	)	$	(1,240,684	)	$	364,487
Issuance of common stock for employee stock purchase plan																	—		—		2.7		—			—			2.7
Balance at March 31, 2020																	92.8	$	0.1	$	1,796.9	$	(1.4	)	$	(1,095.3	)	$	700.3
blank
Balance at December 31, 2018		90,797	$	91	$	1,660,361	$	(1,932	)	$	(1,177,755	)	$	480,765			90.8	$	0.1	$	1,660.4	$	(1.9	)	$	(1,177.8	)	$	480.8
Net loss		—		—		—		—			(102,115	)		(102,115	)		—		—		—		—			(102.1	)		(102.1	)
Unrealized gain on available-for-sale investments, net of tax		—		—		—		1,699			—			1,699
Unrealized gain on debt securities available-for-sale, net of tax																	—		—		—		1.7			—			1.7
Share-based compensation expense		—		—		15,764		—			—			15,764			—		—		15.8		—			—			15.8
Cumulative-effect adjustment to equity due to adoption of ASU 2016-02		—		—		—		—			8,043			8,043			—		—		—		—			8.0			8.0
Issuance of common stock for vested restricted stock units		353		—		—		—			—			—			0.4		—		—		—			—			—
Issuance of common stock for stock option exercises		95		—		2,581		—			—			2,581			0.1		—		2.6		—			—			2.6
Issuance of common stock for employee stock purchase plan		39		—		2,538		—			—			2,538			—		—		2.5		—			—			2.5
Balance at March 31, 2019		91,284	$	91	$	1,681,244	$	(233	)	$	(1,271,827	)	$	409,275			91.3	$	0.1	$	1,681.3	$	(0.2	)	$	(1,271.9	)	$	409.3

Description of Business. Neurocrine Biosciences, Inc. ~~(Neurocrine,~~, or Neurocrine Biosciences, the Company, we, our or ~~us)~~us, was incorporated in California in 1992 and reincorporated in Delaware in 1996. Neurocrine Continental, Inc., is a ~~neuroscience-focused,~~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.

We are a commercial-stage biopharmaceutical company ~~with more than 25 years of experience~~focused on discovering and developing innovative and life-changing treatments for ~~people~~patients with serious, challenging and under-addressed neurological, endocrine and psychiatric disorders. We specialize in targeting and interrupting disease-causing mechanisms involving the interconnected pathways of the nervous and endocrine systems.

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

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

In April 2020, we received FDA approval for ONGENTYS^® (opicapone) as an adjunctive therapy to levodopa/DOPA decarboxylase inhibitors in adult Parkinson's disease patients.

Our late-stage pipeline includes crinecerfont (NBI-74788) for the treatment of congenital adrenal hyperplasia, or CAH, in adult patients, elagolix for the treatment of heavy menstrual bleeding, or HMB, associated with uterine fibroids in women, valbenazine for the treatment of chorea in adult patients with Huntington’s disease, or HD, and ~~uterine fibroids.~~NBIb-1817 (VY-AADC) for the treatment of advanced Parkinson’s disease patients with motor fluctuations that are refractory to medical management. Our ~~treatment for endometriosis and our~~ product ~~candidate~~candidates for uterine fibroids and advanced Parkinson’s disease are partnered with AbbVie and Voyager Therapeutics, Inc. ~~(AbbVie).~~ , or Voyager, respectively.

Our early-stage clinical pipeline includes crinecerfont for the treatment of CAH in pediatric patients, elagolix for the treatment of polycystic ovary syndrome, or PCOS, in women, a vesicular monoamine transporter 2, or VMAT2, inhibitor with potential use in the treatment of neurologic and psychiatric disorders and NBI-921352 (XEN901), a clinical-stage candidate with potential in epilepsy. Our product candidate for PCOS is partnered with AbbVie.

In ~~addition, in~~ January ~~2019,~~2020, we ~~entered into~~announced a collaboration and ~~license~~optional licensing agreement with ~~Voyager Therapeutics, Inc. (Voyager), focused on the development~~Idorsia Pharmaceuticals Ltd, granting us an option to license ACT-709478, a potent, selective, orally active and ~~commercialization of four programs using Voyager’s propriety gene therapy platform, including one~~brain penetrating T-type calcium channel blocker, in clinical development ~~program~~ for ~~advanced Parkinson’s disease patients, VY-AADC.~~the treatment of a rare pediatric epilepsy. The option also includes a research collaboration to discover, identify and develop additional novel T-type calcium channel blockers.

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, ~~(GAAP)~~or GAAP, for interim financial information and with the instructions of the Securities and Exchange Commission, ~~(SEC)~~or SEC, on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of our financial position and of the results of operations and cash flows for the periods presented. The accompanying unaudited condensed consolidated financial statements include the accounts of Neurocrine Biosciences and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, ~~2018,~~2019, included in our Annual Report on Form 10-K, ~~(2018~~or the 2019 Form ~~10-K)~~10-K, filed with the SEC. The results of operations for the interim period shown in this report are not necessarily indicative of the results that may be expected for any other interim period or ~~for~~ the full year. The condensed consolidated balance sheet at December 31, ~~2018,~~2019, has been derived from the audited financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

There were no significant changes to our significant accounting policies as disclosed in the ~~2018~~2019 Form ~~10-K.~~10-K, except as set forth below.

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 $4.7 million at March 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. NaN accrued interest receivables were written off during the three months ended March 31, 2020.

Fair Value of Financial Instruments. We record cash equivalents, debt securities available-for-sale and equity securities 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.

The carrying amounts of accounts receivable and accounts payable and accrued liabilities approximate their fair values due to their short-term maturities.

ASU ~~2016-02.~~ ~~In February 2016, the Financial Accounting Standards Board (FASB) issued~~2016-13. On January 1, 2020, we adopted Accounting Standards Update, ~~(ASU) 2016-02, “Leases~~or ASU, 2016-13, Financial Instruments – Credit Losses (Topic ~~842)”, which requires lessees to recognize leases~~326): Measurement of Credit Losses on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. ASU 2016-02 also requires disclosures to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. On January 1, 2019, we adopted ASU 2016-02Financial Instruments, using the modified retrospective transition method. ~~Under this transition method, we~~For debt securities available-for-sale, the standard requires an investor to determine whether a decline in the fair value below the amortized cost basis of the investment is due to credit-related factors. Credit-related impairment is recognized ~~and measured leases that existed at~~as an allowance for credit loss on the ~~application date in our condensed consolidated~~ balance sheet ~~as of January 1, 2019.~~

~~Arrangements~~with a corresponding adjustment to earnings. Credit losses are limited to the amount by which the investment’s amortized cost basis exceeds its fair value and may be subsequently reversed if conditions change. Any impairment that are determined to be operating leases at inception are included in operating lease assets, noncurrent operating lease liabilities, and other current liabilities in our condensed consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As none of our operating leases provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset is adjusted for any prepaid or accrued lease payments and any lease incentives received. Operating lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease paymentsnot credit related is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which we have elected to account for as a single lease component. Further, we have elected to recognize our short-term lease payments in ~~profit~~other comprehensive income or loss, on a straight-line basis over the associated lease term and variable lease payments in the period in which the obligation for those payments is incurred. Short-term and variable lease payments were not material in the first quarteras applicable, net of ~~2019.~~applicable taxes.

~~In connection with the~~The adoption of ASU 2016-02, we elected the package of practical expedients requiring no reassessment of whether any expired or existing contracts are or contain leases, the lease classification of any expired or existing leases, or initial direct costs for any existing leases. We also made accounting policy elections2016-13 did not ~~to apply the recognition requirementsunder ASU 2016-02 to any of our short-term leases and to account for each separate lease and associated nonlease components as a single lease component for all of our leases.~~

In preparation for implementation of ASU 2016-02, we finalized key accounting assessments and updated processes to appropriately recognize and present the associated financial information. Based on these efforts, the adoption of ASU 2016-02 resultedresult in ~~the recognition of~~ (1) ROU assets of $50.0 million and operating lease liabilities of $70.9 million, resulting from leases of office and laboratory space; (2) the derecognition of deferred rent of $20.9 million for certain lease incentives received; and (3) a cumulative-effect adjustment ~~of $8.0 million~~ to ~~the opening balance of the accumulated deficit as of January 1, 2019, resulting from the~~ ~~recognition~~ ~~of an existing deferred gain on sale of real estate.~~retained earnings. The comparative prior period information continues to be reported under the accounting standards in effect during those periods. ~~Further, we expect the adoption of ASU 2016-02 to be immaterial to our condensed consolidated statements of operations and comprehensive loss and statements of cash flows on an ongoing basis.~~

ASU ~~2018-07.~~2019-12. In ~~June 2018,~~December 2019, the FASB issued ASU ~~2018-07, “Compensation-Stock Compensation~~2019-12, Income Taxes (Topic ~~718)~~740): ~~Improvements to Nonemployee Share-Based Payment Accounting”~~Simplifying the Accounting for Income Taxes, which ~~expands~~simplifies the ~~scope~~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 ~~718 to include share-based payment transactions~~740. ASU 2019-12 is effective for ~~acquiring goods~~fiscal years beginning after December 15, 2021, and ~~services from nonemployees and applies to all share-based payment transactions~~interim periods within those fiscal years, with early adoption permitted in any interim period for which ~~a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. On January 1, 2019, we adopted~~financial statements have not yet been made available for issuance. We are currently evaluating the effect that ASU ~~2018-07 using the modified retrospective transition method with no impact~~2017-12 will have on our condensed consolidated financial ~~statements. Further, we expect the adoption of ASU 2018-07 to be immaterial to our condensed consolidated balance sheets,~~ statements ~~of operations~~ and ~~comprehensive loss, and statements of cash flows on an ongoing basis.~~related disclosures.

AbbVie. In June 2010, we entered into an exclusive worldwide collaboration with AbbVie to develop and commercialize elagolix and all next-generation gonadotropin-releasing factor antagonists for women’s and men’s health. In connection with the agreement, AbbVie made an upfront payment of $75.0 million and agreed to make additional development and regulatory event-based milestone payments of up to $480.0 million, of which $135.0 million has been earned, and up to an additional $50.0 million in commercial event-based milestone payments.

Under the terms of the agreement, AbbVie is responsible for all third-party development, marketing, and commercialization costs. We will be entitled to a percentage of worldwide sales of GnRH Compounds for the longer of ten years or the life of the related patent rights. AbbVie may terminate the collaboration at its discretion upon 180 days’ written notice to us.

We evaluated the terms of this agreement under Topic 606, Revenue from Contracts with Customers, and determined that there is one performance obligation, the exclusive worldwide license with rights to develop, manufacture, and commercialize elagolix. At execution, the transaction price included only the $75.0 million up-front consideration received. None of the development or regulatory milestones were included in the transaction price, as all milestone amounts were fully constrained. As part of our evaluation of the constraint, we considered numerous factors, including that achievement of the milestones is outside of our control and contingent upon success in future clinical trials and the licensee’s efforts. Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to AbbVie and therefore have also been excluded from the transaction price. We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

BIAL – Portela & Ca, S.A. In the first quarter of 2017, we entered into an exclusive license agreement with BIAL – Portela & Ca, S.A., or BIAL, for the development and commercialization of ONGENTYS for the treatment of human diseases and conditions, including Parkinson’s disease, in the US and Canada. In connection with the agreement, we paid BIAL an upfront license fee of $30.0 million and agreed to make additional regulatory event-based milestone payments of up to $40.0 million, of which $20.0 million has been paid, and up to an additional $75.0 million in commercial event-based milestone payments.

In April 2020, we received FDA approval for ONGENTYS as an adjunctive therapy to levodopa/DOPA decarboxylase inhibitors in adult Parkinson's disease patients. FDA approval of ONGENTYS for Parkinson’s disease triggered a milestone payment of $20.0 million.

Under the terms of the agreement, we are responsible for the commercialization of ONGENTYS in the US and Canada. Further, we will rely on BIAL for the commercial supply of ONGENTYS. Upon our written request prior to the estimated expiration of the term of a licensed product, the parties shall negotiate a good faith continuation of BIAL’s supply of such licensed product after the term. After the term, and if BIAL is not supplying a certain licensed product, we shall pay BIAL a trademark royalty based on the net sales of such licensed product.

Upon commercialization of ONGENTYS, we will determine certain annual sales forecasts. In the event we fail to meet the minimum sales requirements for a particular 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.

Unless earlier terminated, the agreement will continue on a licensed product-by-product and country-by-country basis until a generic product in respect of such licensed product under the agreement 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.

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. BIAL may terminate the agreement if we fail to use commercially reasonable efforts to submit an NDA for a licensed product by a specified date, in the event we fail to meet the minimum sales requirements for any two 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. We may terminate the agreement at any time for any reason upon nine months’ written notice to BIAL.

Voyager. In ~~January~~the first quarter of 2019, we entered into a collaboration and license agreement with Voyager, a clinical-stage gene therapy company. The agreement is focused on the development and commercialization of four programs using Voyager’s proprietary gene therapy platform. The four programs consist of the ~~VY-AADC~~NBIb-1817 program for Parkinson’s disease, ~~and VY-FXN program for~~the Friedreich’s ataxia program and the rights to two programs to be determined by the parties in the future. The agreement became effective on March 11, 2019 (the date of closing), upon expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.undisclosed programs.

In connection with the agreement, we paid Voyager $115.0 million upfront and purchased $50.0 million of Voyager’s common stock at $11.9625 per share, representing approximately 4.2 million shares. Pursuant to the terms of the agreement, Voyager may also be entitled to an additional $1.7 billion in development, regulatory, and commercial ~~milestones across the four programs,~~milestone payments, as well as royalties on net sales of any collaboration product.

Pursuant to development plans agreed to by us and Voyager, unless Voyager exercises its co-development and co-commercialization rights as provided for in the agreement, we will be responsible for all development costs. Further, upon the occurrence of a specified event for each program, we will assume responsibility for the development, manufacturing, and commercialization activities of such program.

We accounted for the transaction as an asset acquisition as the set of acquired assets did not constitute a business. Our equity investment in Voyager was recorded at a fair value of $54.7 million after considering Voyager’s stock price on the date of closing and certain lock-up and voting provisions applicable to the acquired shares. The remaining $113.1 million of the purchase price, which includes the applicable transaction costs, was expensed as in-process research and development, ~~(IPR&D)~~or IPR&D, in the first quarter of 2019.

In June 2019, we entered into an amendment to the collaboration and license agreement with Voyager. Under the terms of the amendment, we paid Voyager $5.0 million upfront to obtain rights outside the US to the Friedreich’s ataxia program in connection with the early return of those rights to Voyager pursuant to a restructuring of Voyager’s gene therapy relationship with Sanofi Genzyme. The upfront payment was expensed as IPR&D in the ~~general lack~~second quarter of ~~discernable future benefits at~~2019.

Pursuant to development plans agreed to by us and Voyager, unless Voyager exercises its co-development and co-commercialization rights as provided for in the ~~time~~agreement, we will be responsible for all development costs. Further, upon the ~~costs were incurred indicated that~~occurrence of a specified event for each program, we will assume responsibility for the ~~immediate recognition principle~~development, manufacturing, and commercialization activities of ~~expense recognition should apply.~~such program.

We may terminate the collaboration and license agreement with Voyager upon 180 ~~days~~days’ written notice to Voyager prior to the first commercial sale of any collaboration product or upon 1one year after the date of notice if such notice is provided after the first commercial sale of any collaboration product. 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.

~~BIAL – Portela & Ca, S.A.~~Xenon.In ~~February 2017,~~December 2019, we entered into ~~an exclusive~~a license and collaboration agreement with ~~BIAL – Portela & Ca, S.A. (BIAL)~~Xenon Pharmaceuticals Inc., or Xenon, to identify, research, and develop sodium channel inhibitors, including clinical candidate NBI-921352 and three preclinical candidates, which compounds we will have the exclusive right to further develop and commercialize under the terms and conditions set forth in the agreement.

We will be solely responsible, at our sole cost and expense, for all development and manufacturing of the compounds and any pharmaceutical product that contains a compound, subject to Xenon’s right to elect to co-fund the development of one product in a major indication and ~~commercialization~~thus receive a mid-single digit percentage increase in royalties owed on the net sales of ~~opicapone for the treatment of human diseases and conditions, including as an adjunctive therapy to levodopa/DOPA decarboxylase inhibitors in adult Parkinson's disease patients,~~such product in the ~~United States (U.S.)~~US. If Xenon exercises such option, the parties will share equally all reasonable and ~~Canada. We~~documented costs and expenses incurred in connection with the development of such product in the applicable indication, except costs and expenses that are solely related to the development of such product for regulatory approval outside the US.

In connection with the agreement, we paid ~~BIAL an upfront license fee of~~Xenon $30.0 million upfront and ~~have agreed to make additional regulatory event-based payments of up to $40.0~~purchased $20.0 million of ~~which $10.0~~Xenon’s common stockat $14.196 per share, representing approximately 1.4 million ~~has been paid as~~shares. Pursuant to the terms of ~~March 31, 2019, and up~~the agreement, Xenon may also be entitled to an additional ~~$75.0 million~~$1.7 billion in development, regulatory and commercial ~~event-based payments.~~milestone payments, as well as royalties on net sales of any collaboration product.

Unless earlier terminated, the term of the license and collaboration agreement will continue on a product-by-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 product and country, the exclusive license granted by Xenon to us with respect to such product and country will become fully paid, royalty free, perpetual, and irrevocable. We may terminate the license and collaboration agreement by providing at least 90 days’ written notice, 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.

Mitsubishi Tanabe Pharma Corporation. In March 2015, we entered into a collaboration and license agreement with Mitsubishi Tanabe Pharma Corporation, ~~(MTPC)~~or MTPC, for the development and commercialization of INGREZZA for movement disorders in Japan

and other select Asian markets. In connection with the agreement, MTPC made an upfront payment of $30.0 million and ~~has~~ agreed to make an additional $85.0 million in development and regulatory event-based milestone payments, payments for the manufacture of pharmaceutical products and royalties on product sales in select territories in Asia.

Under the terms of the agreement, MTPC is responsible for all third-party development, marketing, and commercialization costs in Japan and other select Asian markets and we would be entitled to a percentage of sales of INGREZZA in Japan and other select Asian markets for the longer of ten years or the life of the related patent rights. Further, the collaboration effort between the parties to advance INGREZZA towards commercialization in Japan and other select Asian markets is governed by joint steering and development committees with representatives from both parties. There are no performance, cancellation, termination, or refund provisions in the agreement that would have a material financial consequence to us. We do not directly control when event-based payments will be achieved or when royalty payments will begin. MTPC may terminate the agreement at its discretion upon 180 days’ written notice to us. In such event, all INGREZZA product rights for Japan and other select Asian markets would revert to us.

We assessed this arrangement in accordance with Topic 606 and identified the following performance obligations: (i) INGREZZA technology license and existing know-how; and (ii) development activities to initiate a clinical study of INGREZZA for Huntington’s chorea. We have the option to participate on the joint steering committee, but since participation is at our option it was deemed to not be a performance obligation. The option for MTPC to engage us to manufacture and supply pharmaceutical products, not at a discount, was not considered a material right and therefore not a performance obligation. Based on these assessments, we identified the license and the development activities as the only performance obligations at the inception of the agreement, which were both deemed to be distinct.

To evaluate the appropriate transaction price, we determined that the up-front payment received constituted the entirety of the consideration to be included in the transaction price and to be allocated to the performance obligations based on our best estimate of their relative stand-alone selling prices. For the license, the stand-alone selling price was calculated using an income approach model and included the following key assumptions: the development timeline, revenue forecast, discount rate and probabilities of technical and regulatory success. The relative selling price of our development activities to initiate a clinical study of INGREZZA for Huntington’s chorea was based on an assessment of costs to perform the study, based upon a peer company analysis for similar studies. We believe a change in the assumptions used to determine our stand-alone selling price for the license most likely would not have a significant effect on the allocation of consideration received (or receivable) to the performance obligations.

At execution, the transaction price included only the $30.0 million up-front consideration received. None of the development or regulatory milestones have been included in the transaction price, as all milestone amounts were fully constrained. As part of our evaluation of the constraint, we considered numerous factors, including that achievement of the milestones is outside of our control

and contingent upon success in future clinical studies and the licensee’s efforts. Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to MTPC and therefore have also been excluded from the transaction price. We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. Under the terms of the agreement, any payment we receive is generally non-refundable.

Since inception of the agreement, we have recognized revenue of ~~$19.8~~$21.9 million associated with the delivery of a technology license and existing know-how and $15.0 million in development event-based payments resulting from MTPC’s initiation of Phase II/III ~~clinical trials~~development of INGREZZA in TD in Asia. In the first quarter of 2020, we recognized revenue of $1.3 million in connection with the ongoing KINECT-HD study, a placebo-controlled Phase III study of valbenazine in adult Huntington’s disease patients with chorea. In accordance with our continuing performance obligations, ~~$10.2~~$8.1 million of the $30.0 million upfront payment received is being deferred toand will be recognized ~~in future periods. Under~~as revenue over the ~~terms of the agreement, there is no general obligation~~KINECT-HD study period using an input method according to ~~return the upfront payment for any non-contingent deliverable.~~

~~AbbVie.~~ ~~In June 2010, we entered into an exclusive worldwide collaboration with AbbVie,~~research and development, or R&D, costs incurred to ~~develop and commercialize elagolix and all next-generation gonadotropin-releasing factor antagonists for women’s and men’s health. AbbVie made an upfront payment of $75.0 million and has agreed~~date relative to make additional development and regulatory event-based payments of up to $480.0 million, of which $115.0 million has been earned as of March 31, 2019, and up to an additional $50.0 million in commercial event-based payments.

~~Available-for-sale securities are carried at~~The following table summarizes the amortized cost, unrealized gain and loss recognized in accumulated other comprehensive loss, allowance for credit losses, and fair value ~~with any unrealized gains and losses reported in comprehensive loss. The amortized cost~~ of debt securities available-for-sale at March 31, 2020, aggregated by major security type and contractual maturity:

(in millions)	Contractual Maturity	Amortized Cost		Unrealized Gain		Unrealized Loss			Allowance for Credit Losses		Fair Value
Commercial paper	Within 1 year	$	129.7	$	0.1	$	(0.1	)	$	—	$	129.7
Corporate debt securities	Within 1 year		323.3		0.3		(0.9	)		—		322.7
Securities of government-sponsored entities	Within 1 year		131.1		1.2		—			—		132.3
blank		$	584.1	$	1.6	$	(1.0	)	$	—	$	584.7
blank
Corporate debt securities	1 to 2 years	$	213.3	$	0.2	$	(2.2	)	$	—	$	211.3
Securities of government-sponsored entities	1 to 2 years		24.5		0.1		—			—		24.6
		$	237.8	$	0.3	$	(2.2	)	$	—	$	235.9

The following table summarizes the amortized cost, unrealized gain and loss recognized in this category is adjusted for the amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in investment income. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in investmentaccumulated other comprehensive income, and other, net. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income and other, net. Further, investments in equity securities of certain companies that are subject to holding period restrictions longer than 1 year are carried at fair value ~~with any unrealized gains or losses reported in other expense, net.~~

debt securities available-for-sale at December 31, 2019, aggregated by major security type and contractual maturity:

~~Investments classified as available-for-sale securities consist of the following:~~

(in thousands)

Contractual
Maturity
(in years)

Amortized
Cost

Gross
Unrealized
Gains⁽¹⁾

Gross
Unrealized
Losses⁽¹⁾

Aggregate
Estimated
Fair
Value

March 31, 2019:

Classified as current assets:

Commercial paper

Less than 1

$
97,517

$
14

$
(41
)

$
97,490

Corporate debt securities

Less than 1

308,363

79

(404
)

308,038

Securities of government-sponsored entities

Less than 1

45,718

65

(21
)

45,762

Total short-term available-for-sale securities

$
451,598

$
158

$
(466
)

$
451,290

Classified as non-current assets:

Corporate debt securities

1 to 2

$
133,179

$
438

$
(40
)

133,577

Securities of government-sponsored entities

1 to 2

42,868

244

—

43,112

Total long-term available-for-sale securities

$
176,047

$
682

$
(40
)

$
176,689

blank

December 31, 2018:

Classified as current assets:

Commercial paper

Less than 1

$
94,617

$
—

$
(45
)

$
94,572

Corporate debt securities

Less than 1

395,385

—

(1,598
)

393,787

Securities of government-sponsored entities

Less than 1

20,887

8

(55
)

20,840

Total short-term available-for-sale securities

$
510,889

$
8

$
(1,698
)

$
509,199

Classified as non-current assets:

Corporate debt securities

1 to 2

$
151,594

$
66

$
(469
)

$
151,191

Securities of government-sponsored entities

1 to 2

64,676

162

(1
)

64,837

Total long-term available-for-sale securities

$
216,270

$
228

$
(470
)

$
216,028

The following table ~~presents gross~~summarizes debt securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded at March 31, 2020, aggregated by major security type and ~~fair value for those available-for-sale investments that~~length of time in a continuous unrealized loss position:

At March 31, 2020, our security portfolio consisted of 187 securities, of which 107 were in an unrealized loss position, related to investments in debt securities available-for-sale, as discussed below:

Commercial paper. Our investments in commercial paper are of high credit quality (rated A1 or higher). 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 costs basis.

Corporate debt securities. Our investments in corporate debt securities are of high credit quality (rated AA- or higher). 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.

The following table summarizes debt securities available-for-sale in an unrealized loss position at December 31, 2019, aggregated by ~~investment category~~major security type and length of time ~~that individual securities have been~~ in a continuous unrealized loss position:

Less Than 12 Months

12 Months or Greater

Total

(in thousands)

Estimated
Fair
Value

Unrealized
Losses

Estimated
Fair
Value

Unrealized
Losses

Estimated
Fair
Value

Unrealized
Losses

March 31, 2019:

Commercial paper

$
31,457

$
(41
)

$
—

$
—

$
31,457

$
(41
)
Corporate debt securities

63,323

(50
)

174,206

(394
)

237,529

(444
)
Securities of government-sponsored entities

—

—

10,979

(21
)

10,979

(21
)
Total

$
94,780

$
(91
)

$
185,185

$
(415
)

$
279,965

$
(506
)
blank

December 31, 2018:

Commercial paper

$
51,927

$
(45
)

$
—

$
—

$
51,927

$
(45
)
Corporate debt securities

274,696

(746
)

234,798

(1,321
)

509,494

(2,067
)
Securities of government-sponsored entities

4,999

(1
)

10,947

(55
)

15,946

(56
)
Total

$
331,622

$
(792
)

$
245,745

$
(1,376
)

$
577,367

$
(2,168
)

Less Than 12 Months

12 Months or Longer

Total

(in millions)

Fair

Value

Unrealized

Loss

Fair

Value

Unrealized

Loss

Fair

Value

Unrealized

Loss

Corporate debt securities

186.1

(0.1

)

—

186.1

(0.1

)

At each reporting date, we perform an evaluation of impairment to determine if any unrealized losses are other-than-temporary. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition of the issuer, and our intent and ability to hold the investment until recovery of the amortized cost basis. We intend and have the ability to hold our investments in unrealized loss positions until their amortized cost basis has been recovered. Further, based on our evaluation, we determined that unrealized losses were not other-than-temporary at March 31, 2019 and December 31, 2018.

~~Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such,~~Investments at March 31, 2020, which were measured at fair value ison a ~~market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a~~recurring basis, ~~for considering such assumptions, a three-tier~~consisted of the following:

			Fair Value Measurements Using
(in millions)	Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents:
Cash and money market funds	$	187.0	$	187.0	$	—	$	—
Total cash and cash equivalents		187.0		187.0		—		—
Restricted cash:
Certificates of deposit		3.2		3.2		—		—
Total restricted cash		3.2		3.2		—		—
Debt securities available-for-sale:
Commercial paper		129.7		—		129.7		—
Corporate debt securities		534.0		—		534.0		—
Securities of government-sponsored entities		156.9		—		156.9		—
Total debt securities available-for-sale		820.6		—		820.6		—
Equity securities:
Equity securities–biotechnology industry		39.4		—		—		39.4
Total equity securities		39.4		—		—		39.4
Total recurring fair value measurements	$	1,050.2	$	190.2	$	820.6	$	39.4

Investments at December 31, 2019, which were measured at fair value ~~hierarchy has been established, which prioritizes~~on a recurring basis, consisted of the ~~inputs used in measuring fair value as follows:~~following:

~~Level 1:~~

~~Observable inputs such as quoted prices in active markets;~~

			Fair Value Measurements Using
(in millions)	Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents:
Cash and money market funds	$	112.3	$	112.3	$	—	$	—
Total cash and cash equivalents		112.3		112.3		—		—
Restricted cash:
Certificates of deposit		3.2		3.2		—		—
Total restricted cash		3.2		3.2		—		—
Debt securities available-for-sale:
Commercial paper		144.5		—		144.5		—
Corporate debt securities		521.9		—		521.9		—
Securities of government-sponsored entities		191.5		—		191.5		—
Total debt securities available-for-sale		857.9		—		857.9		—
Equity securities:
Equity securities–biotechnology industry		55.9		—		—		55.9
Total equity securities		55.9		—		—		55.9
Total recurring fair value measurements	$	1,029.3	$	115.5	$	857.9	$	55.9

We classify our cash equivalents and available-for-sale investments within Level 1 or Level 2. The fair value of our investment grade corporate debt securities is determined using proprietary valuation models and analytical tools, which utilize market pricing or prices for similar instruments that are both objective and publicly available, such as matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, and offers.

The ~~fair value~~following table presents a reconciliation of ~~our investments in restricted~~ equity securities ~~is determined using an option pricing valuation model and classified as Level 3 within~~for the fair value hierarchy. The most significant assumptions within the option pricing valuation model are the term of the restrictions and the stock price volatility, which is based upon the historical volatility of similar companies. Significant changes in any of those inputs in isolation would result in a significantly higher or lower fair value measurement.

The $517.5 million of 2.25% convertible senior notes due May 15, 2024 (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, estimated utilizing market quotations from an over-the-counter trading market (Level 2), was $700.9 million as ofthree months ended March 31, ~~2019 and $616.1 million as of December 31, 2018. Refer to Note 7 for more information.~~

~~We did not reclassify any investments between levels in the fair value hierarchy during the first quarter of 2019 or 2018.~~

~~Investments,~~2020, which were measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

At March 31, 2020, the discount for lack of marketability used in the valuation analysis of equity securities ranged from 18.5% to 30.0% (weighted average of 26.2%). The discount for lack of marketability was weighted by the relative fair value of the instruments. A significant increase (decrease) in the discount for lack of marketability in isolation would result in a significantly lower (higher) fair value measurement. Unrealized gains and losses on equity securities are included in other expense, net.

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Fair Value Measurements Using

(in millions)

Carrying
Value

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

March 31, 2019:

Classified as current assets:

Cash and money market funds

$
72.8

$
72.8

$
—

$
—

Commercial paper

97.5

—

97.5

—

Securities of government-sponsored entities

45.8

—

45.8

—

Corporate debt securities

308.0

—

308.0

—

Subtotal

524.1

72.8

451.3

—

Classified as long-term assets:

Cash and money market funds

1.5

1.5

—

—

Certificates of deposit

4.0

4.0

—

—

Securities of government-sponsored entities

43.1

—

43.1

—

Corporate debt securities

133.6

—

133.6

—

Restricted equity securities

56.4

—

—

56.4

Total

762.7

78.3

628.0

56.4

Less cash and cash equivalents and restricted cash

(78.3
)

(78.3
)

—

—

Total investments

$
684.4

$
—

$
628.0

$
56.4

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December 31, 2018:

Classified as current assets:

Cash and money market funds

$
141.7

$
141.7

$
—

$
—

Commercial paper

94.6

—

94.6

—

Securities of government-sponsored entities

20.8

—

20.8

—

Corporate debt securities

393.8

—

393.8

—

Subtotal

650.9

141.7

509.2

—

Classified as long-term assets:

Cash and money market funds

1.5

1.5

—

—

Certificates of deposit

4.0

4.0

—

—

Securities of government-sponsored entities

64.8

—

64.8

—

Corporate debt securities

151.2

—

151.2

—

Total

872.4

147.2

725.2

—

Less cash and cash equivalents and restricted cash

(147.2
)

(147.2
)

—

—

Total investments

$
725.2

$
—

$
725.2

$
—

(in millions)	March 31, 2020		December 31, 2019
Raw materials	$	17.8	$	14.1
Work in process		1.1		1.5
Finished goods		2.3		1.7
Total inventories	$	21.2	$	17.3

The following table presents a reconciliation of ~~our investment~~cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in ~~restricted equity securities measured at fair value on a quarterly basis using significant unobservable inputs (Level 3):~~the condensed consolidated statements of cash flows.

~~Inventory~~At March 31, 2020, our operating leases consisted of the following:

In December 2007, we closed the sale of our facility and associated real property for a purchase price of $109.0 million. Concurrent with the sale, we retired the entire $47.7 million in mortgage debt previously outstanding with respect to the facility and associated real property and received cash of $61.0 million, net of transaction costs and debt retirement. The ultimate result of this real estate sale was a net deferred gain of $39.1 million, of which the remaining balance was $8.0 million as of December 31, 2018, and which we recognized as a cumulative-effect adjustment to equity upon adoption of Topic 842 on January 1, 2019.

Upon the closing of the sale of the facility and associated real property, we entered into an agreement (original lease) whereby we leased back our corporate headquarters, comprised of two buildings located in San Diego, California, for an initial term of 12 years. In 2008 through 2011, we entered into a series of subsequent amendments to the original lease, whereby we vacated a building and continued to occupy one building.

~~In June 2017, we entered into an amendment to extend the current term of the original lease through December 31, 2029.~~⁽¹⁾ Under the terms of the ~~amendment,~~lease, we ~~will continue~~have 2 options to pay base annual rent (subject to an annual fixed percentage increase), property taxes, and other normal and necessary expenses, such as utilities, repairs, and maintenance. Certain incentives were included inextend the term of the lease ~~including $13.1 million~~for a period of ten years each. We were not reasonably certain to exercise either of these options at lease commencement. As such, neither option was recognized as part of the associated operating lease right-of-use asset or liability. In connection with the lease, in ~~tenant improvement allowances and three months of rent abatement. In~~ lieu of a cash security deposit, Wells Fargo Bank, N.A. ~~(Wells Fargo)~~, or Well Fargo, issued a $3.0 million letter of credit on our behalf, which is secured by a deposit of equal amount with the same bank. We have the right to extend the lease for 2 consecutive 10-year terms and a right of first offer for future rental of adjacent office space owned by the landlord. At commencement of the lease, we were not reasonably certain to exercise either of the two 10-year extension options contained within the lease. As such, these options were not recognized as part of the associated operating lease ROU asset or liability.amount.

~~In May 2018, we entered into an agreement to lease 44,718 square feet of office space in San Diego, California, which commenced on July 1, 2018, for a term of 10 years and 10 months.~~⁽²⁾ Under the terms of the lease, we ~~will pay base annual rent (subject~~do not have the option to ~~an annual fixed percentage increase), plus property taxes, and other normal and necessary expenses, such as utilities, repairs, and maintenance. Certain incentives were included in~~extend the ~~lease, including $4.2 million in tenant improvement allowances and twelve months of rent abatement.~~lease. In lieu of a cash security deposit, Wells Fargo issued a $1.0 million letter of credit on our behalf, which is secured by a deposit of ~~equal amount with the same bank. We do not have the right to extend the lease or right of first offer for future rental of adjacent office space owned by the landlord.~~$0.2 million.

~~In the first quarter of 2019, our~~Our operating lease cost was $2.5 million and $1.9 million for the three months ended March 31, 2020 and ~~cash~~2019, respectively. Cash paid for amounts ~~included~~ in the measurement of lease liabilities for operating cash flows from operating leases was $2.1 million and $1.6 ~~million. As of~~million for the three months ended March 31, 2020 and 2019, ~~we reported operating lease ROU assets and operating lease liabilities of $49.3 million and $70.4 million,~~ respectively. ~~Further, as of March 31, 2019, our~~

Our operating leases had a weighted average remaining lease term of ~~10.57~~11.0 years and 11.4 years at March 31, 2020 and December 31, 2019, respectively, and a weighted average discount rate of ~~6.65%.~~5.8% at March 31, 2020 and December 31, 2019, respectively.

At March 31, ~~2019,~~2020, the approximate future minimum lease payments ~~for our~~under operating ~~lease liabilities~~leases were as follows:

(in thousands)	Operating Leases
(in millions)				Operating Leases
Year Ending December 31,
2019 (9 months remaining)	$	5,777
2020		8,399
2020 (9 months remaining)				$	6.5
2021		8,624			10.6
2022		8,888			10.9
2023		9,160			11.2
2024					11.6
Thereafter		59,462			79.7
Total operating lease payments		100,310			130.5
Less accreted interest		(29,896	)		36.1
Total operating lease liabilities		70,414			94.4
Less current operating lease liabilities		(3,267	)		8.8
Noncurrent operating lease liabilities	$	67,147		$	85.6

13Note: Amounts presented in the table above exclude $28.3 million of non-cancelable future minimum lease payments for operating leases that have not yet commenced.

On May 2, 2017, we completed a private placement of $517.5 million in aggregate principal amount of 2.25% convertible senior notes due 2024 and entered into an indenture agreement, ~~(2024 Indenture)~~or the 2024 Indenture, with respect to the 2024 Notes. 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, beginning on November 15, 2017. The 2024 Notes mature on May 15, 2024. 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.

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:

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.

Upon conversion, holders will receive the principal amount of their 2024 Notes and any excess conversion value, 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). For both the principal and excess conversion value, holders may receive cash, shares of our common stock or a combination of cash and shares of our common stock, at our option.

It is our intent and policy to settle conversions through combination settlement, which essentially involves repayment of an amount of cash equal to the “principal portion” and delivery of the “share amount” in excess of the principal portion in shares of common stock or cash. In general, for each $1,000 in principal, the “principal portion” of cash upon settlement is defined as the lesser of $1,000, and the conversion value during the 25-day observation period as described in the 2024 Indenture. The conversion value is the sum of the daily conversion value which is the product of the effective conversion rate divided by 25 days and the daily volume weighted average price, ~~(VWAP)~~or VWAP, of our common stock. The “share amount” is the cumulative “daily share amount” during the observation period, which is calculated by dividing the daily VWAP into the difference between the daily conversion value (i.e., conversion rate x daily VWAP) and $1,000.

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 6.8 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.

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. In the event that all of the 2024 Notes are converted, we would be required to repay the $517.5 million in principal value and any conversion premium in any combination of cash and shares of our common stock, at our option.

We may not redeem the 2024 Notes prior to May 15, 2021. On or after May 15, 2021, 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 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. The redemption price will equal the sum of (i) 100% of the principal amount of the 2024 Notes being redeemed, plus (ii) accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date. No sinking fund is provided for 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 its 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 are currently classified as a long-term ~~on our condensed consolidated balance sheets,~~liability, the future convertibility and ~~resulting~~associated balance sheet classification ~~of this liability~~ will be monitored at each quarterly reporting date and ~~will be~~ analyzed dependent upon market prices of our common stock during the prescribed measurement periods. In the event that 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 not aware of any current events or market conditions that would allow holders of the 2024 Notes to convert the 2024 Notes.

We are required to separately account for the liability and equity components of the 2024 Notes as they may be settled entirely or partially in cash upon conversion in a manner that reflects our economic interest cost. 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 was recorded in additional paid-in capital on the consolidated balance sheet at the issuance date. That equity component is treated as a discount on the liability component of the 2024 Notes, which is amortized over the seven-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. At March 31, 2020, the remaining period over which the discount on the liability component will be amortized was approximately 4.1 years.

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 seven-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:

(in thousands)	March 31, 2019			December 31, 2018
(in millions)							March 31, 2020			December 31, 2019
Principal	$	517,500		$	517,500		$	517.5		$	517.5
Deferred financing costs		(7,985	)		(8,326	)		(6.6	)		(6.9	)
Debt discount, net		(116,080	)		(120,678	)		(96.8	)		(101.8	)
Net carrying amount	$	393,435		$	388,496		$	414.1		$	408.8

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 seven-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 $677.2 million at March 31, 2020 and $596.8 million at December 31, 2019.

~~In loss periods, basic net loss per share and diluted net loss per share are identical because the otherwise dilutive potential common shares become anti-dilutive and are therefore excluded.~~

Convertible debt instruments that may be settled entirely or partly in cash (such as the 2024 Notes) may, in certain circumstances where the borrower has the ability and intent to settle in cash, be accounted for under the treasury stock method. We issued the 2024 Notes with a combination settlement feature, which we have the ability and intent to use upon conversion of the 2024 Notes, to settle the principal amount of debt for cash and the excess of the principal portion in shares of our common stock. As a result, of the approximately 6.8 million shares underlying the 2024 Notes, only the shares required to settle the excess of the principal portion are considered under the treasury stock method.

Shares which have been excluded from diluted per share amounts because their effect would have been anti-dilutive ~~consisted of~~include the following:

Item 2. 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, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth ~~below~~ in Part II, Item 1A under the caption “Risk Factors.” The interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, ~~2018~~2019 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are contained in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

We are a ~~neuroscience-focused,~~commercial-stage biopharmaceutical company ~~with more than 25 years of experience~~focused on discovering and developing innovative and life-changing treatments for ~~people~~patients with serious, challenging and under-addressed neurological, endocrine and psychiatric disorders. We specialize in targeting and interrupting disease-causing mechanisms involving the interconnected pathways of the nervous and endocrine systems.

~~Our portfolio includes~~ Currently, we are primarily focused on the commercialization of INGREZZA^® (valbenazine) in the United States, or US, our first US Food and Drug Administration, (FDA)-approved treatments for tardive dyskinesia (TD) and endometriosis and clinical development programs in multiple therapeutic areas including Parkinson’s disease, congenital adrenal hyperplasia, and uterine fibroids. Our treatment for endometriosis and our product candidate for uterine fibroids are partnered with AbbVie, Inc. (AbbVie). In addition, in January 2019, we entered into a collaboration and license agreement with Voyager Therapeutics, Inc. (Voyager), focused on the development and commercialization of four programs using Voyager’s propriety gene therapy platform, including one clinical development program for advanced Parkinson’s disease patients, VY-AADC.or FDA, approved product.

In ~~the fourth quarter of~~April 2017, we initiated T-Force GOLD, a Phase IIb study of valbenazine in pediatric patients with Tourette syndrome. In December 2018, we announced that topline data from the T-Force GOLD study failed to meet the primary endpoint. We continue to analyze the complete dataset from the study to determine the next steps for valbenazine in Tourette syndrome.

~~We currently have four major collaborations, two of which involve out-licensing~~received FDA approval of our ~~proprietary technology to pharmaceutical partners. Refer to Note 2 to the condensed consolidated financial statements for more information.~~

~~Voyager.~~ In January 2019, we entered into a collaboration and license agreement with Voyager, a clinical-stage gene therapy company. The agreement is focused on the development and commercialization of four programs using Voyager’s proprietary gene therapy platform. The four programs consist of the VY-AADC program for Parkinson’s disease and VY-FXN program for Friedreich’s ataxia, and the rights to two programs to be determined by the parties in the future.

~~BIAL – Portela & Ca, S.A.~~ In February 2017, we entered into an exclusive license agreement with BIAL – Portela & Ca, S.A. (BIAL) pursuant to which we in-licensed technology from BIAL for the development and commercialization of opicaponefirst marketed product, INGREZZA, for the treatment of ~~human diseases~~adults with tardive dyskinesia, or TD. Shortly after receiving FDA approval, we began commercializing INGREZZA in the US using a specialty sales force primarily focused on educating physicians who treat patients with TD, including psychiatrists and ~~conditions, including~~neurologists.

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

In April 2020, we received FDA approval for ONGENTYS^® (opicapone) as an adjunctive therapy to levodopa/DOPA decarboxylase inhibitors in adult Parkinson's disease patients. FDA approval of ONGENTYS for Parkinson’s disease triggered a milestone payment of $20.0 million. We plan to commercialize ONGENTYS later in 2020 with our existing INGREZZA commercial infrastructure.

Our late-stage pipeline includes crinecerfont (NBI-74788) for the treatment of congenital adrenal hyperplasia, or CAH, in adult patients, elagolix for the treatment of heavy menstrual bleeding, or HMB, associated with uterine fibroids in women, valbenazine for the treatment of chorea in adult patients with Huntington’s disease, or HD, and NBIb-1817 (VY-AADC) for the treatment of advanced Parkinson’s disease patients with motor fluctuations that are refractory to medical management. Our product candidates for uterine fibroids and advanced Parkinson’s disease are partnered with AbbVie and Voyager Therapeutics, Inc., or Voyager, respectively.

Our early-stage clinical pipeline includes crinecerfont for the treatment of CAH in pediatric patients, elagolix for the treatment of polycystic ovary syndrome, or PCOS, in women, a vesicular monoamine transporter 2, or VMAT2, inhibitor with potential use in the ~~U.S.~~treatment of neurologic and ~~Canada.~~psychiatric disorders and NBI-921352 (XEN901), a clinical-stage candidate with potential in epilepsy. Our product candidate for PCOS is partnered with AbbVie.

~~Mitsubishi Tanabe Pharma Corporation.~~In ~~March 2015,~~January 2020, we ~~entered into~~announced a collaboration and ~~license~~optional licensing agreement with ~~Mitsubishi Tanabe Pharma Corporation~~Idorsia Pharmaceuticals Ltd, granting us an option to license ACT-709478, a potent, selective, orally active and brain penetrating T-type calcium channel blocker, in clinical development for the treatment of a rare pediatric epilepsy. The option also includes a research collaboration to discover, identify and develop additional novel T-type calcium channel blockers.

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

In March 2020, the World Health Organization declared the novel coronavirus disease, or COVID-19, outbreak a global pandemic. The pandemic has dramatically changed the ways in which we live and interact with one another. While we adapt to this new shared reality, our mission remains unchanged: to discover and develop life-changing treatments for people with serious, challenging, and under-addressed disorders.

While we are unable to reliably estimate the duration or extent of any potential business disruption or financial impact during this time, including any impacts on INGREZZA^® ~~(valbenazine)~~ product sales or R&D expense, we remain committed to (1) prioritizing the safety, health and well-being of patients, their caregivers, healthcare providers, and our employees; (2) ensuring patients with TD are well supported and have continued uninterrupted access to INGREZZA, for ~~movement disorders~~which we currently do not expect any supply disruption; and (3) advancing ongoing clinical studies. As part of this commitment, we implemented a “Work from Home Policy” in ~~Japan~~early March 2020 for employees not involved in business-critical activities. For employees involved in business-critical activities, we implemented safety measures designed to comply with federal, state, and local guidelines.

Due to the impact of COVID-19, we are temporarily pausing enrollment of new patients in our clinical studies, including our studies related to HD, Parkinson’s disease, and CAH, while also continuing preparations to be well positioned to launch planned clinical studies in the second half of 2020. To date, we have not experienced any interruption of our supply of drug products needed to support our ongoing clinical studies, but we expect that completion and data readouts for several of our ongoing and planned studies will be delayed. Further, with the cancellation of the annual meeting of the Endocrine Society in March 2020, we look forward to sharing data from the Phase II proof-of-concept study of crinecerfont in adults with classic CAH, as well as preparing for a single, global registrational study of crinecerfont in CAH patients in mid-2020.

We continue to believe that existing funds, cash generated from operations, and existing sources of and access to financing are adequate to satisfy our needs for working capital, capital expenditures, debt service requirements, and other ~~select Asian markets.~~business development

initiatives that we ~~entered into an exclusive worldwide collaboration with AbbVie~~plan to ~~develop~~strategically pursue. However, should the COVID-19 pandemic and ~~commercialize elagolix~~any associated recession or depression continue for a prolonged period, our results of operations, financial condition, liquidity, and ~~all next-generation gonadotropin-releasing hormone antagonists.~~cash flows could be materially impacted by lower revenues and profitability and a lower likelihood of effectively and efficiently developing new medicines.

Results of Operations for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019

	Three Months Ended March 31,				Three Months Ended March 31,
(in millions)	2019		2018		2020		2019
INGREZZA product sales, net	$	136.4	$	71.1	$	231.1	$	136.4
Collaboration revenue		2.0		—		6.0		2.0
Total revenues	$	138.4	$	71.1	$	237.1	$	138.4

Net. In April 2017, the FDA approved INGREZZA for the treatment of TD. INGREZZA became available for prescription in late April 2017. Net product sales were $231.1 million and $136.4 million ~~in the first quarter of 2019, compared to $71.1 million in the first quarter of 2018.~~

~~In July 2018, we were notified by AbbVie that FDA approval was granted for ORILISSA~~^® ~~(elagolix)~~ for the ~~management~~three months ended March 31, 2020 and 2019, respectively, primarily reflecting increased INGREZZA net product sales driven by new patient additions.

Collaboration Revenue. Collaboration revenue reflects event-based milestones, royalties, and license fees earned under our collaboration agreements with AbbVie and Mitsubishi Tanabe Pharma Corporation, or MTPC. For the three months ended March 31, 2020 and 2019, we recognized collaboration revenue of ~~moderate to severe endometriosis pain~~$4.7 million and $2.0 million, respectively, in ~~women. We recognized sales-based~~connection with royalties ~~payable to us by our partner AbbVie~~earned at tiered percentage rates on quarterly net sales of ~~ORILISSA, of $2.0 million in the first quarter of 2019.~~ORILISSA.

Sales. Cost of sales was $2.1 million and $1.1 million infor the ~~first quarter of~~three months ended March 31, 2020 and 2019, compared to $1.0 million in the first quarter of 2018, reflecting lower facility validation costs related to achieving supply chain redundancies, offset by increased INGREZZA net product sales in the first quarter of 2019 compared to the first quarter of 2018.respectively.

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

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

Late stage consists of costs incurred related to product candidates in Phase 2II registrational studies and onwards. Early stage consists of costs incurred related to product candidates in post-investigational new drug application, ~~(IND)~~or IND, through Phase 2II non-registrational studies. Research and discovery consists of ~~costs incurred to support our research and discovery activities and includes all~~ pre-IND costs. ~~Milestone expenses represent payments made in connection with our collaborative and other relationships.~~ Payroll and benefits consists of costs incurred for salaries and wages, payroll taxes, benefits, and share-based compensation associated with ~~those individuals~~employees involved in ongoing R&D activities. Share-based compensation may fluctuate from period to period based on factors that are not within our control, such as our stock price on the dates share-based grants are issued.

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

	Three Months Ended March 31,				Three Months Ended March 31,
(in millions)	2019		2018		2020		2019
Late stage	$	3.9	$	3.4	$	13.0	$	5.0
Early stage		8.0		8.3		4.6		6.7
Research and discovery		3.2		1.3		9.2		5.4
Milestone expenses		—		10.0
Payroll and benefits		15.9		21.7		23.9		15.9
Facilities and other		6.7		4.2		7.6		4.7
Total R&D expense	$	37.7	$	48.9	$	58.3	$	37.7

R&D expense ~~decreased $11.2~~was $58.3 million ~~from $48.9 million in the first quarter of 2018 to~~and $37.7 million for the three months ended March 31, 2020 and 2019, respectively, primarily reflecting increased investment in ~~the first quarter of 2019, primarily due~~our gene therapy programs in collaboration with Voyager, increased activity to ~~a non-recurring share-based compensation charge of $7.7 million~~support advancing our expanded clinical portfolio, and ~~milestone~~increased personnel expenses ~~of $10.0 million in connection with our exclusive license agreement with BIAL in the first quarter of 2018.~~on higher headcount.

Development. In connection with the payment of ~~our~~the upfront fee pursuant to our collaboration and license agreement with Voyager, we recorded a charge of $113.1 million, accounted for as in-process research and development, ~~(IPR&D),~~or IPR&D, in the first quarter of 2019.

Administrative. Sales, general and administrative, ~~(SG&A)~~or SG&A, expense ~~increased $28.9~~was $117.8 million ~~from $58.6 million in the first quarter of 2018 to~~and $87.5 million infor the ~~first quarter of~~three months ended March 31, 2020 and 2019, respectively, primarily ~~due to the expansion of our sales force~~reflecting increased personnel expenses on higher headcount and continued investment in ~~the third quarter of 2018, the national launch of~~ our patient-focused ~~disease-state~~disease state awareness campaign, ~~Talk~~“Talk About ~~TD, and an increase in the Branded Pharmaceutical Drug fee expense.~~TD.”

Other expense, net, ~~decreased $2.8~~was $20.0 million ~~from $4.4 million in the first quarter of 2018 to~~and $1.6 million infor the ~~first quarter~~three months ended March 31, 2020 and 2019, respectively, primarily reflecting unrealized losses of ~~2019, primarily due to an unrealized gain of $1.7~~$16.5 million for the three months ended March 31, 2020, to adjust our equity ~~investment~~investments in Voyager and Xenon to fair ~~value as of March 31, 2019.~~value.

Our ~~benefit~~provision for income taxes was $1.5 million for the ~~first quarter~~three months ended March 31, 2020, reflecting estimated current state income taxes. For the three months ended March 31, 2019, we had a benefit from income taxes of ~~2019 was~~ $0.5 million, reflecting $0.6 million of tax benefit recorded to income from continuing operations, with an equal and offsetting tax expense recorded to accumulated other comprehensive loss, offset by $0.1 million of state income tax expense. ~~We used the year-to-date effective~~At March 31, 2020 and 2019, we had full valuation allowances against our net deferred tax ~~rate method to determine~~assets as realization was uncertain. As a result, our ~~interim income~~ tax expense for ~~state jurisdictions where a reliable estimate~~the first quarter of ~~the annual effective tax rate could not be made. The~~2020 and tax benefit ~~recorded differs~~for the first quarter of 2019 vary from the statutory tax rate ~~of 21%~~ primarily due to ~~a full~~changes in our valuation ~~allowance recorded against losses incurred.~~allowances, net of other permanent book/tax differences, tax credits generated and impacts of changes in tax laws.

~~We incurred~~Net income was $37.4 million, or $0.39 diluted earnings per share, for the three months ended March 31, 2020, compared with a net loss of $102.1 million, or $1.12 ~~net~~ loss per share, in the comparable period last year, primarily reflecting increased INGREZZA net product sales and $113.1 million of IPR&D expensed in the first quarter of 2019 ~~compared to a net loss of $41.8 million, or $0.47 net loss per share, in the first quarter of 2018. The increase in net loss was primarily due to a $113.1 million IPR&D charge incurred~~ in connection with our collaboration ~~and license agreement~~ with Voyager, ~~partially~~ offset by ~~increased INGREZZA net product sales~~unrealized losses of $16.5 million for the three months ended March 31, 2020, to adjust our equity investments in ~~the first quarter of 2019 compared~~Voyager and Xenon to ~~the first quarter of 2018.~~fair value.

At March 31, ~~2019,~~2020, our cash and cash equivalents and debt securities available-for-sale ~~investments~~ totaled ~~$700.8 million~~$1.0 billion compared with ~~$866.9~~$970.2 million at December 31, ~~2018.~~2019.

Net cash ~~used in~~provided by operating activities was $38.2 million for the three months ended March 31, 2020, compared with $112.5 million ~~in the first quarter of 2019, compared to $38.5 million in the first quarter of 2018. The increase in~~ net cash used in operating activities ~~was~~in the comparable period last year, primarily ~~due to IPR&D~~reflecting increased INGREZZA net product sales and an upfront payment of $113.1 million in March 2019 in connection with our collaboration ~~and license agreement~~ with ~~Voyager, partially offset by increased INGREZZA net product sales.~~Voyager.

Net cash provided by investing activities was $33.2 million for the three months ended March 31, 2020, compared with $41.0 million in the ~~first quarter of 2019, compared to $57.1 million of net cash used in investing activities in the first quarter of 2018,~~comparable period last year, reflecting timing differences ~~associated with the~~related to purchases, ~~and~~ sales and maturities of ~~our~~debt securities available-for-sale, ~~investments, as well as~~ changes in our portfolio-mix, ~~between cash equivalents~~ and ~~short-term and long-term~~an equity investment ~~holdings, offset by our~~of $54.7 million ~~equity investment~~ in Voyager in ~~the first quarter of~~March 2019.

Net cash provided by financing activities inwas $3.3 million for the ~~quarter of 2019 was~~three months ended March 31, 2020, compared with $2.6 ~~million, compared to $16.1~~ million in the ~~first quarter~~comparable period last year, reflecting proceeds from issuances of ~~2018.~~our common stock.

Statement.In February 2017, we filed an automatic shelf registration statement which immediately became effective by rule of the Securities and Exchange Commission (SEC). For so long as we continue to satisfy the requirements to be deemed a well-known seasoned issuer, this shelf registration statement allows us to issue an unlimited number of securities from time to time.Commission. We sold no securities under this shelf registration statement in 2019 or the first quarter of ~~2019 or 2018.~~2020.

Notes. In May 2017, we issued $517.5 million of 2.25% convertible senior notes due May 15, 2024. ~~Refer to Note 7 to the condensed consolidated financial statements for more information.~~

As of March 31, 2020 or 2019, we did not have any off-balance sheet arrangements.

There were no changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

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 12twelve months. If a 10% change in interest rates were to have occurred on March 31, ~~2019,~~2020, it 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.

For a summary of new accounting pronouncements which may be applicable to us, see Note 1 to the condensed consolidated financial statements included in this report.

This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known by us. Consequently, these forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.

Forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “hopes,” “may,” “will,” “plan,” “intends,” “estimates,” “could,” “should,” “would,” “continue,” “seeks,” “proforma,” or “anticipates,” or other similar

words (including their use in the negative), or by discussions of future matters such as the development of new products, technology enhancements, possible changes in legislation and other statements that are not historical. These statements include but are not limited to statements under the captions “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as other sections in this report. You should be aware that the occurrence of any of the events discussed under the heading in Part II titled “Item 1A. Risk Factors” and elsewhere in this report could substantially harm our business, results of operations and financial condition and that if any of these events occurs, the trading price of our common stock could decline and you could lose all or a part of the value of your shares of our common stock.

The cautionary statements made in this report are intended to be applicable to all related forward-looking statements wherever they may appear in this report. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we assume no obligation to update our forward-looking statements, even if new information becomes available in the future.

A discussion of our exposure to, and management of, market risk appears in Part I, Item 2 of this Quarterly Report on Form 10-Q under the heading “Interest Rate Risk.”

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports required by the Exchange Act of 1934, as amended, 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 quarter 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.

An evaluation was also performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of any changes to our internal control over financial reporting that occurred during our last fiscal quarter and that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our evaluation did not identify significant changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended March 31, ~~2019,~~2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The following information sets forth risk factors that could cause our actual results to differ materially from those contained in forward-looking statements we have made in this Quarterly Report on Form 10-Q and those we may make from time to time. If any of the following risks actually occur, our business, operating results, prospects or financial condition could be harmed. Additional risks not presently known to us, or that we currently deem immaterial, may also affect our business operations. The risk factors set forth below with an asterisk (*) contain changes to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019.

*We may not be able to continue to successfully commercialize INGREZZA, or any of our product candidates if they are approved in the future.

Our ability to produce INGREZZA revenues consistent with expectations ultimately depends on our ability to sell our products and secure adequate third-party reimbursement if and when they are approved by the FDA. Our experience in marketing and selling pharmaceutical products began with INGREZZA’s approval in 2017, when we hired our sales force and established our distribution and reimbursement capabilities, all of which are necessary to successfully commercialize INGREZZA. We have continued to invest in our commercial infrastructure and distribution capabilities in the past three years, including our sales force expansion in late 2018. While our team members and consultants have experience marketing and selling pharmaceutical products, we may face difficulties related to managing the rapid growth of our personnel and infrastructure, and there can be no guarantee that we will be able to maintain the personnel, systems, arrangements and capabilities necessary to successfully commercialize INGREZZA, ONGENTYS or any product candidate approved by the FDA in the future. In addition, our business could be adversely affected by the effects of health epidemics, including the recent COVID-19 outbreak. Most hospitals, community mental health facilities, and other healthcare facilities have implemented policies that limit access of our sales representatives and medical affairs personnel to such facilities. Due to these closures and our work from home decisions, our field force is currently functioning utilizing digital and telephonic

engagement tools and tactics, which may be less effective than our ordinary course sales and marketing programs. If we fail to maintain successful marketing, sales and reimbursement capabilities, ~~or fail to enter into successful marketing arrangements with third parties,~~ our product revenues may suffer.

*If physicians and patients do not continue to accept INGREZZA or do not accept any of our other products, or our sales and marketing efforts are not effective, we may not generate sufficient revenue.

The commercial success of INGREZZA, ONGENTYS or any of our other products, if approved for marketing, will depend upon the acceptance of those products as safe and effective by the medical community and patients.

The market acceptance of INGREZZA, ONGENTYS or any of our other products could be affected by a number of factors, including:

If the medical community and patients do not ultimately accept our products as being safe, effective, superior and/or cost-effective, we may not generate sufficient revenue.

~~Use of our approved products or those of our collaborators, including INGREZZA and ORILISSA, could be associated with side effects or adverse events.~~

As with most pharmaceutical products, use of our approved products or those of our collaborators, including INGREZZA and ORILISSA, could be associated with side effects or adverse events which can vary in severity (from minor adverse reactions to death) and frequency (infrequent or prevalent). Side effects or adverse events associated with the use of our products or those of our collaborators may be observed at any time, including after a product is commercialized, and reports of any such side effects or adverse events may negatively impact demand for our or our collaborators’ products or affect our or our collaborators’ ability to maintain regulatory approval for such products. Side effects or other safety issues associated with the use of our approved products or those of our collaborators could require us or our collaborators to modify or halt commercialization of these products or expose us to product liability lawsuits which will harm our business. We or our collaborators may be required by regulatory agencies to conduct additional studies regarding the safety and efficacy of our products which we have not planned or anticipated. Furthermore, there can be no assurance that we or our collaborators will resolve any issues related to any product related adverse events to the satisfaction of the FDA or any regulatory agency in a timely manner or ever, which could harm our business, prospects and financial condition.

*We currently depend on a limited number of third-party suppliers. The loss of these suppliers, or delays or problems in the supply of INGREZZA, could materially and adversely affect our ability to successfully commercialize INGREZZA.

The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of process controls required to consistently produce the active pharmaceutical ingredients and the finished product in sufficient quantities while meeting detailed product specifications on a repeated basis. Manufacturers of pharmaceutical products may encounter difficulties in production, including difficulties with production costs and yields, process controls, quality control and quality assurance, including testing of stability, impurities and impurity levels and other product specifications by validated test methods, and compliance with strictly enforced U.S., state, and non-U.S. regulations. We depend on a limited number of suppliers for each of the production of INGREZZA and its active pharmaceutical ingredients. If our third-party suppliers for INGREZZA encounter these or any other manufacturing, quality or compliance difficulties, we may be unable to meet commercial demand for INGREZZA, which could materially and adversely affect our ability to successfully commercialize INGREZZA. We also depend on BIAL, and its suppliers, for the production of opicapone drug substance and drug product.

In addition, if our suppliers fail or refuse to supply us with INGREZZA or its active pharmaceutical ingredient for any reason, it would take a significant amount of time and expense to qualify a new supplier. The FDA and similar international regulatory bodies must approve manufacturers of the active and inactive pharmaceutical ingredients and certain packaging materials used in pharmaceutical products. The loss of a supplier could require us to obtain regulatory clearance and to incur validation and other costs associated with the transfer of the active pharmaceutical ingredients or product manufacturing processes. If there are delays in qualifying new suppliers or facilities or a new supplier is unable to meet FDA or a similar international regulatory body’s requirements for approval, there could be a shortage of INGREZZA, which could materially and adversely affect our ability to successfully commercialize INGREZZA. If BIAL is unable or refuses to supply us with opicapone drug product for any reason, we have limited opportunity to qualify a new supplier. The inability to obtain sufficient quantities of opicapone drug product could materially and adversely affect our ability to successfully commercialize opicapone.

*We have no manufacturing capabilities. If third-party manufacturers of INGREZZA or any of our product candidates fail to devote sufficient time and resources to our concerns, or if their performance is substandard, our clinical trials and product introductions may be delayed, and our costs may rise.

We have in the past utilized, and intend to continue to utilize, third-party manufacturers to produce the drug compounds we use in our clinical trials and for the commercialization of our products. We have limited experience in manufacturing products for commercial purposes and do not currently have any manufacturing facilities. Consequently, we depend on, and will continue to depend on, several contract manufacturers for all production of products for development and commercial purposes, including INGREZZA. If we are unable to obtain or retain third-party manufacturers, we will not be able to develop or commercialize our products, including INGREZZA. The manufacture of our products for clinical trials and commercial purposes is subject to specific FDA regulations, including current Good Manufacturing Practice regulations. Our third-party manufacturers might not comply with FDA regulations relating to manufacturing our products for clinical trials and commercial purposes or other regulatory requirements now or in the future. In addition, the manufacture of gene therapy products, which will be necessary under our collaboration and license agreement with Voyager, is technically complex and necessitates substantial expertise and capital investment. Our reliance on contract manufacturers also exposes us to the following risks:

Our current dependence upon third parties for the manufacture of our products may reduce our profit margin, if any, on the sale of INGREZZA or our future products and our ability to develop and deliver products on a timely and competitive basis.

Governmental and third-party payors may impose sales and pharmaceutical pricing controls on our products or limit coverage and/or reimbursement for our products that could limit our product revenues and delay sustained profitability.

Our ability to commercialize any products successfully, including INGREZZA and ONGENTYS, will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available. The continuing efforts of government and third-party payors to contain or reduce the costs of health care through various means may reduce our potential revenues. These payors’ efforts could decrease the price that we receive for any products we may develop and sell in the future.

Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available regardless of whether they are approved by the FDA for that particular use.

Government authorities and other third-party payors are developing increasingly sophisticated methods of controlling healthcare costs, such as by limiting coverage and the amount of reimbursement for particular medications. Further, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors in the ~~U.S.~~US. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. In addition, communications from government officials regarding health care costs and pharmaceutical pricing could have a negative impact on our stock price, even if such communications do not ultimately impact coverage or reimbursement decisions for our products.

There may also be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not successfully commercialize INGREZZA, ONGENTYS or any other product candidate for which we obtain marketing approval. Our inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

We*Our business could ~~face liability~~be adversely affected by the effects of health pandemics or epidemics, including the COVID-19 pandemic, in regions where we or third parties on which we rely have significant sales and marketing efforts or manufacturing facilities, concentrations of clinical trial sites or other business operations, or materially affect our operations, including at our headquarters in California, which is currently subject to a statewide stay at home order, and at our clinical trial sites, as well as the business or operations of our manufacturers, CROs or other third parties with whom we conduct business.

Our business could be adversely affected by the effects of health pandemics or epidemics in regions where we have concentrations of clinical trial sites or other business operations, and could cause significant disruption in the operations of third-party manufacturers and CROs upon whom we rely. As a result of the recent outbreak of novel COVID-19, we may experience disruptions that could severely impact our supply chain, ongoing and future clinical trials and commercialization of INGREZZA and ONGENTYS. For

example, COVID-19 has resulted in increased travel restrictions and the shutdown or delay of business activities in various regions, including San Diego, California, where our headquarters are located. In response to stay at home orders in California and other states, we implemented work-from-home policies for all employees except certain key essential members involved in business-critical activities. The effects of the stay at home order and our work-from-home policies may negatively impact productivity, disrupt our business and delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations due to COVID-19 could negatively impact our business, operating results and financial condition.

Quarantines, stay at home and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases, could impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials, which would disrupt our supply chain.

In addition, clinical site initiation and patient enrollment may be delayed due to concerns for patient safety and prioritization of healthcare resources toward the COVID-19 pandemic. Some patients may not be able to comply with clinical trial protocols if ~~a regulatory authority determines that~~quarantines impede patient movement or interrupt healthcare services. Similarly, our ability to recruit and retain patients, principal investigators and site staff (who as healthcare providers may have heightened exposure to COVID-19) may be hindered, which would adversely impact our clinical trial operations. For example, due to the impact of the COVID-19 pandemic, we are ~~promoting~~temporarily pausing enrollment of new patients in the Phase III study of valbenazine for chorea in Huntington disease, the RESTORE-1 registrational study for NBIb-1817 in Parkinson’s disease patients and the Phase IIa pediatric study of crinecerfont in CAH.

The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, the pandemic is currently resulting in disruption of global financial markets. This disruption, if sustained or recurrent, could make it more difficult for us to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

The global pandemic of COVID-19 continues to rapidly evolve. The ultimate impact of the COVID-19 pandemic or a similar health pandemic or epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems or the global economy as a whole. These effects could have a material impact on our operations.

*Because the development of our product candidates is subject to a substantial degree of technological uncertainty, we may not succeed in developing any of our product candidates.

All of our product candidates are currently in research or clinical development with the exceptions of INGREZZA, which has been approved by the FDA for TD, ONGENTYS, which has been approved by the FDA for Parkinson’s disease, and ORILISSA (partnered with AbbVie), which has been approved by the FDA for the management of moderate to severe endometriosis pain in women. Only a small number of research and development programs ultimately result in commercially successful drugs. In addition, to date the FDA has granted regulatory approval for only a very limited number of gene therapy products. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons. These reasons include the possibilities that the potential products may:

If any of our product candidates ~~that receives regulatory approval, for “off-label” uses.~~

A company may not promote “off-label” uses for its drug products. An off-label use is the use of a product for an indication that is not described in the product’s FDA-approved label in the U.S. or for uses in other jurisdictions that differ from those approved by the applicable regulatory agencies. Physicians, on the other hand, may prescribe products for off-label uses. Although the FDA and other regulatory agencies do not regulate a physician’s choice of drug treatment made in the physician’s independent medical judgment, they do restrict promotional communications from companies or their sales force with respect to off-label uses of products for which marketing clearance has not been issued. A company that is found to have promoted off-label use of its product may be subject to significant liability, including civil and criminal sanctions. We intend to comply with the requirements and restrictions of the FDA and other regulatory agencies with respect to our promotion of our products, including INGREZZA, but we cannot be sure that the FDA or other regulatory agencies will agree that we have not violated their restrictions. As a result, we may be subject to criminal and civil liability. In addition, our management’s attention could be diverted to handle any such alleged violations. A significant number of companies have been the target of inquiries and investigations by various U.S. federal and state regulatory, investigative, prosecutorial and administrative entities in connection with the promotion of products for unapproved uses and other sales practices, including the Department of Justice and various U.S. Attorneys’ Offices, the Office of Inspector General of the Department of Health and Human Services, the FDA, the Federal Trade Commission and various state Attorneys General offices. These investigations have alleged violations of various U.S. federal and state laws and regulations, including claims asserting antitrust violations, violations of the federal civil False Claims Act, the Prescription Drug Marketing Act, anti-kickback laws, and other alleged violations in connection with the promotion of products for unapproved uses, pricing and Medicare and/or Medicaid reimbursement. If the FDA or any other governmental agency initiates an enforcement action against us or if we are the subject of a ~~qui tam~~ suit and it is determined that we violated prohibitions relating to the promotion of products for unapproved uses, we could be subject to substantial civil or criminal fines or damage awards and other sanctions such as consent decrees and corporate integrity agreements pursuant to which our activities would be subject to ongoing scrutiny and monitoring to ensure compliance with applicable laws and regulations. Any such fines, awards or other sanctions would have an adverse effect on our revenue, business, financial prospects, and reputation.

We are subject to ongoing obligations and continued regulatory review for INGREZZA, which may result in significant additional expense and market withdrawal. Additionally, our other product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

We received FDA regulatory approval for INGREZZA in April 2017. This approval and other regulatory approvals for any of our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. With respect to the FDA’s approval of INGREZZA for TD, we are subject to certain post-marketing requirements and commitments. Failure to comply with these post-marketing requirements and commitments could result in withdrawal of our marketing approval for INGREZZA. In addition, with respect to INGREZZA, and any product candidate that the FDA or a comparable foreign regulatory authority approves, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current Good Manufacturing Practices for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency (especially for a product, such as INGREZZA, which has been administered in only a limited patient population to date), or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

The FDA’s policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of any of our product candidates or future indications for currently approved products. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability on a sustained basis.

*If we are unable to retain and recruit qualified scientists or if any of our key senior executives discontinues his or her employment with us, it may delay our development efforts or impact our commercialization of INGREZZA or any product candidate approved by the FDA.

~~We are highly dependent on the principal members of our management and scientific staff. The loss of~~encounters any of these ~~people could impede the achievement of our objectives, including the successful commercialization of INGREZZA or any~~potential problems, we may never successfully market that product candidate approved by the FDA. Furthermore, recruiting and retaining qualified scientific personnel to perform research and development work in the future, along with personnel with experience marketing and selling pharmaceutical products, is critical to our success. We may be unable to attract and retain personnel on acceptable terms given the competition among biotechnology, pharmaceutical and health care companies, universities and non-profit research institutions for experienced scientists and individuals with experience marketing and selling pharmaceutical products. We may face particular retention challenges in light of the recent rapid growth in our personnel and infrastructure and the perceived impact of those changes upon our corporate culture. In addition, we rely on a significant number of consultants to assist us in formulating our research and development strategy and our commercialization strategy. Our consultants may have commitments to, or advisory or consulting agreements with, other entities that may limit their availability to us.candidate.

*If the market opportunities for our products and product candidates are smaller than we believe they are, our revenues may be adversely affected and our business may suffer.

Certain of the diseases that INGREZZA and our product candidates are being developed to address are in underserved and underdiagnosed populations. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who will seek treatment utilizing our products or product candidates, may not be accurate. If our estimates of the prevalence or number of patients potentially on therapy prove to be inaccurate, the market opportunities for INGREZZA and our product candidates may be smaller than we believe they are, our prospects for generating expected revenue may be adversely affected and our business may suffer.

*Our clinical trials may be delayed or fail to demonstrate the safety and efficacy of our product candidates, which could prevent or significantly delay their regulatory approval.

Before obtaining regulatory approval for the sale of any of our potential products, we must subject these product candidates to extensive preclinical and clinical testing to demonstrate their safety and efficacy for humans. Clinical trials are expensive, time-consuming and may take years to complete.

In connection with the clinical trials of our product candidates, we face the risks that:

These risks and uncertainties impact all of our clinical ~~programs. For example,~~programs and any of the clinical, regulatory or operational events described above could change our planned clinical and regulatory ~~activities~~activities. For example, we recently announced that due to the impact of the COVID-19 pandemic, we are temporarily pausing enrollment of new patients in the Phase III study of valbenazine for chorea in Huntington disease, the ~~opicapone program~~RESTORE-1 registrational study for NBIb-1817 in Parkinson’s disease ~~and/or our NBI-74788 program for~~patients and the ~~treatment~~Phase IIa pediatric study of crinecerfont in congenital adrenal hyperplasia, or CAH. Additionally, any of these events described above could result in suspension of a program and/or obviate any filings for necessary regulatory approvals.

In addition, late-stage clinical trials are often conducted with patients having the most advanced stages of disease. During the course of treatment, these patients can die or suffer other adverse medical effects for reasons that may not be related to the pharmaceutical agent being tested but which can nevertheless adversely affect clinical trial results. Any failure or substantial delay in completing clinical trials for our product candidates may severely harm our business.

Even if the clinical trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, approval of our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.

We depend on our current collaborators for the development and commercialization of several of our products and product candidates and may need to enter into future collaborations to develop and commercialize certain of our product candidates.

Our strategy for fully developing and commercializing ORILISSA is dependent upon maintaining our current collaboration agreement with AbbVie. This collaboration agreement provides for significant future payments should certain development, regulatory and commercial milestones be achieved, and royalties on future sales of elagolix. Under this agreement, AbbVie is responsible for, among other things, conducting clinical trials and obtaining required regulatory approvals for elagolix; as well as manufacturing and commercialization of ORILISSA.

Because of our reliance on AbbVie, the commercialization and continued development of ORILISSA could be substantially delayed, and our ability to receive future funding could be substantially impaired, if AbbVie:

In March 2015, we entered into a collaboration and license agreement with MTPC to develop and commercialize INGREZZA in Japan and other select Asian markets. We will rely on MTPC to achieve certain development, regulatory and commercial milestones which, if achieved, could generate significant future revenue for us. Our collaboration with MTPC is subject to risks and uncertainties similar to those described above. In addition, we may need to enter into other out-licensing collaborations to assist in the development and commercialization of other product candidates we are developing now or may develop in the future, and any such future collaborations would be subject to similar risks and uncertainties.

Effective in March 2019, we entered into a collaboration and license agreement with Voyager for the research, development and commercialization of four programs, including NBIb-1817 (VY-AADC) for Parkinson’s disease, the Friedreich’s ataxia program and two undisclosed programs. In December 2019, we entered into a license and collaboration agreement with Xenon, pursuant to which we acquired an exclusive license to NBI-921352 (XEN901), a clinical-stage selective Nav1.6 sodium channel inhibitor with potential in SCN8A development and epileptic encephalopathy, or SCN8A-DEE, and other forms of epilepsy. We also acquired an exclusive license to pre-clinical compounds for development, including selective Nav1.6 and Nav1.2/1.6 inhibitors. Voyager and Xenon could take actions that may be adverse to us, or they could halt, slow, or deprioritize their development and commercialization efforts under

the collaborations. We could also experience disagreements or delays involving the determination of additional programs. In any such instances, our ability to commercialize any product candidate related to the Voyager and Xenon collaborations could be delayed or prohibited.

In 2019, we acquired an option from Idorsia to license ACT-709478, a potent, selective, orally active and brain penetrating T-type calcium channel blocker. The option is exercisable by us following the acceptance by the FDA of the IND for ACT-709478 for the treatment of a rare pediatric epilepsy. Idorsia is solely responsible for the development and filing of the IND for ACT-709478, and we cannot predict if the FDA will accept the NDA, or if the FDA does accept the NDA, if we will exercise our option to license ACT-709478.

These issues and possible disagreements with our current or any future corporate collaborators could lead to delays in the collaborative research, development or commercialization of our product candidates. Furthermore, disagreements with these parties could require or result in litigation or arbitration, which would be time-consuming and expensive. If any of these issues arise, it may delay the development and commercialization of drug candidates and, ultimately, our generation of product revenues.

*We are substantially dependent on BIAL for the commercialization of ONGENTYS as an adjunctive therapy to levodopa/DOPA decarboxylase inhibitors in adult Parkinson's disease patients.

In February 2017, we entered into a license agreement with BIAL for the development and commercialization of ONGENTYS for the treatment of human diseases and conditions, including Parkinson’s disease, in the US and Canada. In June 2019, we submitted an NDA with the FDA for ONGENTYS as an adjunctive therapy to levodopa/DOPA decarboxylase inhibitors in adult Parkinson's disease patients. On April 24, 2020, the FDA completed its review and approved ONGENTYS for Parkinson’s disease. Our strategy for commercializing ONGENTYS is dependent upon maintaining our current collaboration with BIAL. Under the terms of our agreement with BIAL, although we are responsible for the management of all ONGENTYS commercialization activities, we depend on BIAL and its suppliers to supply all drug product for the commercialization of ONGENTYS. BIAL relies on third-party contract manufacturers to produce ONGENTYS. These contract manufacturers may encounter difficulties in achieving volume production, quality control, or quality assurance. As a result, these contract manufacturers may not be able to adequately produce ONGENTYS in commercial quantities when required, which may impact our ability to deliver ONGENTYS on a timely basis. For example, we continue to seek clarity concerning the ability of BIAL to adequately re-supply commercial inventory of ONGENTYS, and as a result, we have delayed the commercial launch of ONGENTYS until later in 2020. In addition, we and BIAL have established a joint steering committee with overall coordination and strategic oversight over activities under the agreement and to provide a forum for regular exchange of information, and BIAL has the right to co-promote licensed products during certain periods of time and to engage in certain marketing-related activities in cooperation with us. Because of our substantial reliance on BIAL, any failure by BIAL to timely or fully comply with its obligations under our agreement, any disagreement with BIAL, or any decision by BIAL to not devote sufficient time and resources to our collaboration, could substantially delay and/or prohibit our ability to commercialize ONGENTYS.

*Use of our approved products or those of our collaborators, including INGREZZA, ONGENTYS and ORILISSA, could be associated with side effects or adverse events.

As with most pharmaceutical products, use of our approved products or those of our collaborators, including INGREZZA, ONGENTYS and ORILISSA, could be associated with side effects or adverse events which can vary in severity (from minor adverse reactions to death) and frequency (infrequent or prevalent). Side effects or adverse events associated with the use of our products or those of our collaborators may be observed at any time, including after a product is commercialized, and reports of any such side effects or adverse events may negatively impact demand for our or our collaborators’ products or affect our or our collaborators’ ability to maintain regulatory approval for such products. Side effects or other safety issues associated with the use of our approved products or those of our collaborators could require us or our collaborators to modify or halt commercialization of these products or expose us to product liability lawsuits which will harm our business. We or our collaborators may be required by regulatory agencies to conduct additional studies regarding the safety and efficacy of our products which we have not planned or anticipated. Furthermore, there can be no assurance that we or our collaborators will resolve any issues related to any product related adverse events to the satisfaction of the FDA or any regulatory agency in a timely manner or ever, which could harm our business, prospects and financial condition.

Gene therapy treatments, which we are developing pursuant to our collaboration and license agreement with Voyager, may be perceived as unsafe or may result in unforeseen adverse events. Negative public opinion and increased regulatory scrutiny of gene therapy may adversely affect our ability to initiate or continue clinical development or obtain regulatory approvals for gene therapy product candidates or the commercialization of gene therapy products.

Gene therapy remains a novel technology, with few gene therapy products approved to date in the ~~U.S.~~US. Public perception may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. As part of our collaboration and license agreement with Voyager, a Phase 2II clinical trial of ~~VY-AADC~~NBIb-1817 is being conducted. There is no guarantee that this program or other collaboration gene therapy product candidates will not be placed on clinical hold by the FDA, as has been the case for many gene therapy clinical programs. Even if we are able to successfully complete clinical development of a gene therapy product and obtain commercial approval, the success of our collaboration with Voyager will depend upon physicians who specialize in the treatment of genetic diseases targeted by gene therapy product candidates, prescribing treatments that involve the use of our product candidates in lieu of, or in addition to, existing treatments with which they are familiar and for which greater clinical data may be available. More restrictive government regulations or negative public opinion related to gene therapy products may delay or impair the development and commercialization of our gene therapy product candidates or demand for any gene therapy products we develop.

*Because the development of our product candidates is subject to a substantial degree of technological uncertainty, we may not succeed in developing any of our product candidates.

All of our product candidates are currently in research or clinical development with the exceptions of INGREZZA, which has been approved by the FDA for TD, and ORILISSA (partnered with AbbVie), which has been approved by the FDA for the management of moderate to severe endometriosis pain in women. Only a small number of research and development programs ultimately result in commercially successful drugs. In addition, to date the FDA has only approved three gene therapy products. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons. These reasons include the possibilities that the potential products may:

~~If any of our product candidates encounters any of these potential problems, we may never successfully market that product candidate.~~

*The limited precedent for gene therapy approvals makes it difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for the product candidates we are developing through our collaboration with Voyager.

The FDA has limited experience in the review and approval of gene therapy products. The limited precedent for gene therapy approvals makes it difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for the product candidates we are developing through our collaboration with Voyager.

Regulatory requirements governing gene therapy products have changed frequently and may continue to change in the future. As a result, the regulatory review process may take longer or cost more than we anticipate, including requirements for additional preclinical studies or clinical trials, and delay or prevent approval and commercialization of our gene therapy product candidates we are developing through our collaboration with Voyager. While the FDA has issued draft guidance for the development of gene therapies and proposed rules that would streamline certain requirements to which gene therapies are currently subject, it remains to be seen as to whether such initiatives will ultimately increase the speed of drug development in gene therapies such as the product candidates we are developing through our collaboration with Voyager.

Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient product revenue, and our business, financial condition, results of operations and prospects would be harmed.

*We ~~do not~~face intense competition, and if we are unable to compete effectively, the demand for our products may be reduced.

The biotechnology and pharmaceutical industries are subject to rapid and intense technological change. We face, and will ~~not have access~~continue to ~~all information regarding~~face, competition in the development and marketing of our products and product candidates ~~we licensed to AbbVie.~~from academic institutions, government agencies, research institutions and biotechnology and pharmaceutical companies.

Developments by others may render our product candidates or technologies obsolete or noncompetitive.

We are commercializing and performing research on or developing products for the treatment of several disorders including endometriosis, TD, uterine fibroids, essential tremor, classic congenital adrenal hyperplasia, pain, Parkinson’s disease, Friedreich’s ataxia, and other neurological and endocrine-related diseases and disorders, and there are a number of competitors to our products and product candidates. If one or more of our competitors’ products or programs are successful, the market for our products may be reduced or eliminated.

Compared to us, many of our competitors and potential competitors have substantially greater:

*We currently have no manufacturing capabilities. If third-party manufacturers of INGREZZA, ONGENTYS or any of our product candidates fail to devote sufficient time and resources to our concerns, or if their performance is substandard, our clinical trials and product introductions may be delayed, and our costs may rise.

We have in the past utilized, and intend to continue to utilize, third-party manufacturers to produce the drug compounds we use in our clinical trials and for the commercialization of our products. We have limited experience in manufacturing products for commercial purposes and do not currently have any manufacturing facilities. Consequently, we depend on, and will continue to depend on, several contract manufacturers for all production of products for development and commercial purposes, including INGREZZA and ONGENTYS. If we are unable to obtain or retain third-party manufacturers, we will not ~~have access~~be able to ~~all information regarding ORILISSA,~~develop or commercialize our products, including ~~potentially material information about commercialization plans, medical information strategies, clinical trial design~~INGREZZA and ~~execution, safety reports from~~ONGENTYS. The manufacture of our products for clinical trials ~~safety reports,~~and commercial purposes is subject to specific FDA regulations, including current Good Manufacturing Practice regulations. Our third-party manufacturers, including BIAL and its suppliers, might not comply with FDA regulations relating to manufacturing our products for clinical trials and commercial purposes or other regulatory ~~affairs, process development, manufacturing and other areas known by AbbVie.~~requirements now or in the future. In addition, ~~we have confidentiality obligations~~the manufacture of gene therapy products, which will be necessary under our collaboration and license agreement with ~~AbbVie. Thus,~~Voyager, is technically complex and necessitates substantial expertise and capital investment. Our reliance on contract manufacturers also exposes us to the following risks:

Our current dependence upon third parties for the manufacture of our products may reduce our profit margin, if any, on the sale of INGREZZA, ONGENTYS, or our future products and our ability to ~~keep our shareholders informed about~~develop and deliver products on a timely and competitive basis.

*We currently depend on a limited number of third-party suppliers. The loss of these suppliers, or delays or problems in the ~~status~~supply of ORILISSA will be limited by the degree to which AbbVie keeps us informed and allows us to disclose such information to the public. If AbbVie fails to keep us informed about commercialization efforts related to ORILISSA,INGREZZA or the status of the clinical development or regulatory approval pathway of other product candidates licensed to it, we may make operational and/or investment decisions that we would not have made had we been fully informed, which mayONGENTYS, could materially and adversely affect our ability to successfully commercialize INGREZZA or ONGENTYS.

The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of process controls required to consistently produce the active pharmaceutical ingredients, or API, and the finished product in sufficient quantities while meeting detailed product specifications on a repeated basis. Manufacturers of pharmaceutical products may encounter difficulties in production, such as difficulties with production costs and yields, process controls, quality control and quality assurance, including testing of stability, impurities and impurity levels and other product specifications by validated test methods, compliance with strictly enforced US, state, and non-US regulations, and disruptions caused by man-made or natural disasters or public health pandemics or epidemics or other business interruptions, including, for example, the COVID-19 pandemic. We depend on a limited number of suppliers for the production of INGREZZA and ~~operations.~~its API. If our third-party suppliers for INGREZZA encounter these or any other manufacturing, quality or compliance difficulties, we may be unable to meet commercial demand for INGREZZA, which could materially and adversely affect our ability to successfully commercialize INGREZZA. We also depend on BIAL, and its suppliers, for the production of ONGENTYS drug substance and drug product. It is unclear whether BIAL will be able to adequately re-supply commercial inventory of ONGENTYS, and as a result we have delayed the commercial launch of ONGENTYS until later this year.

In addition, if our suppliers fail or refuse to supply us with INGREZZA or its API for any reason, it would take a significant amount of time and expense to qualify a new supplier. The FDA and similar international regulatory bodies must approve manufacturers of the active and inactive pharmaceutical ingredients and certain packaging materials used in pharmaceutical products. The loss of a supplier could require us to obtain regulatory clearance and to incur validation and other costs associated with the transfer of the API or product manufacturing processes. If there are delays in qualifying new suppliers or facilities or a new supplier is unable to meet FDA or a similar international regulatory body’s requirements for approval, there could be a shortage of INGREZZA, which could materially and adversely affect our ability to successfully commercialize INGREZZA. If BIAL is unable or refuses to supply us with ONGENTYS drug product for any reason, or does not meet FDA or international regulators’ requirements for approval, we have limited opportunity to qualify a new supplier. This could materially and adversely affect our ability to successfully commercialize ONGENTYS.

The independent clinical investigators and contract research organizations that we rely upon to conduct our clinical trials may not be diligent, careful or timely, and may make mistakes, in the conduct of our trials.

We depend on independent clinical investigators and contract research organizations, ~~(CROs)~~or CROs, to conduct our clinical trials under their agreements with us. The investigators are not our employees, and we cannot control the amount or timing of resources that they devote to our programs. If our independent investigators fail to devote sufficient time and resources to our drug development programs, or if their performance is substandard, or not in compliance with Good Clinical Practices, it may delay or prevent the approval of our FDA applications and our introduction of new drugs. The CROs we contract with for execution of our clinical trials play a significant role in the conduct of the trials and the subsequent collection and analysis of data. Failure of the CROs to meet their obligations could adversely affect clinical development of our products. Moreover, these independent investigators and CROs may also have relationships with other commercial entities, some of which may compete with us. If independent investigators and CROs assist our competitors at our expense, it could harm our competitive position.

25We do not and will not have access to all information regarding the products and product candidates we licensed to AbbVie.

We do not and will not have access to all information regarding elagolix, including potentially material information about commercialization plans, medical information strategies, clinical trial design and execution, safety reports from clinical trials, safety reports, regulatory affairs, process development, manufacturing and other areas known by AbbVie. In addition, we have confidentiality obligations under our agreement with AbbVie. Thus, our ability to keep our shareholders informed about the status of elagolix will be limited by the degree to which AbbVie keeps us informed and allows us to disclose such information to the public. If AbbVie fails to keep us informed about commercialization efforts related to elagolix, or the status of the clinical development or regulatory approval pathway of other product candidates licensed to it, we may make operational and/or investment decisions that we would not have made had we been fully informed, which may materially and adversely affect our business and operations.

*We ~~depend~~are subject to ongoing obligations and continued regulatory review for INGREZZA. Additionally, our other product candidates, if approved, could be subject to labeling and other post-marketing requirements and restrictions.

Regulatory approvals for any of our product candidates may be subject to limitations on ~~our current collaborators~~the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. For example, with respect to the FDA’s approval of INGREZZA for TD in April 2017, we are subject to certain post-marketing requirements and commitments. In addition, with respect to INGREZZA, and any product candidate that the FDA or a comparable foreign regulatory authority approves, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current Good Manufacturing Practices for any clinical trials that we conduct post-approval. Failure to comply with these ongoing regulatory requirements, or later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, may result in, among other things:

The occurrence of any of these events may adversely affect our business, prospects and ability to achieve or sustain profitability on a sustained basis.

*If we are unable to retain and recruit qualified scientists or if any of our key senior executives discontinues his or her employment with us, it may delay our development ~~and~~efforts or impact our commercialization of INGREZZA, ONGENTYS or any product candidate approved by the FDA.

We are highly dependent on the principal members of our management and scientific staff. The loss of any of these people could impede the achievement of our objectives, including the successful commercialization of INGREZZA,ONGENTYS or any product candidate approved by the FDA. Furthermore, recruiting and retaining qualified scientific personnel to perform research and development work in the future, along with personnel with experience marketing and selling pharmaceutical products, is critical to our success. We may be unable to attract and retain personnel on acceptable terms given the competition among biotechnology, pharmaceutical and health care companies, universities and non-profit research institutions for experienced scientists and individuals with experience marketing and selling pharmaceutical products. We may face particular retention challenges in light of the recent rapid growth in our personnel and infrastructure and the perceived impact of those changes upon our corporate culture. In addition, we rely on a significant number of consultants to assist us in formulating our research and development strategy and our commercialization strategy. Our consultants may have commitments to, or advisory or consulting agreements with, other entities that may limit their availability to us.

Certain of the diseases that ~~we out-license~~INGREZZA, ONGENTYS and ~~in-license~~our other product candidates are being developed to address are in underserved and ~~may need to enter into future collaborations to develop and commercialize certain~~underdiagnosed populations. Our projections of ~~our product candidates.~~

Our strategy for fully developing and commercializing ORILISSA is dependent upon maintaining our current collaboration agreement with AbbVie. This collaboration agreement provides for significant future payments should certain development, regulatory and commercial milestones be achieved, and royalties on future salesboth the number of ~~elagolix. Under this agreement, AbbVie is responsible for, among other things, conducting clinical trials and obtaining required regulatory approvals for elagolix;~~people who have these diseases, as well as ~~manufacturing and commercialization~~the subset of ~~ORILISSA.~~

~~Because of~~people with these diseases who will seek treatment utilizing our ~~reliance on AbbVie, the commercialization and continued development of ORILISSA could be substantially delayed, and our ability to receive future funding could be substantially impaired, if AbbVie:~~

In March 2015, we entered into a collaboration and license agreement with Mitsubishi Tanabe to develop and commercialize INGREZZA in Japan and other select Asian markets. We will rely on Mitsubishi Tanabe to achieve certain development, regulatory and commercial milestones which, if achieved, could generate significant future revenue for us. Our collaboration with Mitsubishi Tanabe is subject to risks and uncertainties similar to those described above. In addition, we may need to enter into other out-licensing collaborations to assist in the development and commercialization of other product candidates ~~we are developing now or may develop in the future, and any such future collaborations would be subject to similar risks and uncertainties.~~

In February 2017, we entered into a license agreement with BIAL for the development and commercialization of opicapone for the treatment of human diseases and conditions, including Parkinson’s disease, in the U.S. and Canada. Under the terms of the agreement, we are responsible for the management of all opicapone development and commercialization activities; however, we will depend on BIAL to supply all drug product and investigation medicinal product for our development and commercialization activities. In addition, pursuant to the license agreement, the parties have established a joint steering committee with overall coordination and strategic oversight over activities under the agreement and to provide a forum for regular exchange of information, and BIAL has the right to co-promote licensed products during certain periods of time and to engage in certain marketing-related activities in cooperation with us. Accordingly, our strategy for developing and commercializing opicapone is dependent upon maintaining our current collaboration with BIAL. Because of our reliance on BIAL for certain aspects related to the development and commercialization of opicapone, any disagreement with BIAL, or BIAL’s decision to not devote sufficient time and resources to our collaboration or to not conduct activities in a timely manner, could substantially delay and/or prohibit our ability to develop and commercialize opicapone.

In January 2019, we entered into a collaboration and license agreement with Voyager for the research, development and commercialization of four programs including Voyager’s Parkinson’s disease program, or AADC Program, Voyager’s Friedreich’s ataxia program, or FA Program, and two programs to be determined by us and Voyager at a later date, or the Discovery Programs. Pursuant to development plans to be agreed to by the parties, which will be overseen by a joint steering committee, Voyager has operational responsibility, subject to certain exceptions, for the conduct of each the AADC Program, FA Program and Discovery Programs prior to specified transition events for each program. We have agreed to be responsible for all costs incurred by Voyager in conducting these activities for each program in accordance with an agreed budget. Upon the occurrence of specified events for each program, we have agreed to assume responsibility for development, manufacturing and commercialization activities for such program. Voyager might not be successful in achieving the goals set forth in the development plan prior to the occurrence of the specified events that give rise to us assuming responsibility for development, manufacturing and commercialization activities for such program. Further, Voyager’s objectives in connection with the collaboration may not be consistent with our best interests. Voyager could take actions that may be ~~adverse to us, or it could halt, slow, or deprioritize its development~~smaller than we believe they are, our prospects for generating expected revenue may be adversely affected and ~~commercialization efforts under the collaboration. In any such instances,~~ our ~~ability to commercialize any product candidate related to the AADC Program, FA Program or Development Programs could be delayed or prohibited.~~ business may suffer.

These issues and possible disagreements with AbbVie, Mitsubishi Tanabe, BIAL, Voyager, or any future corporate collaborators could lead to delays in the collaborative research, development or commercialization of our product candidates. Furthermore, disagreements with these parties could require or result in litigation or arbitration, which would be time-consuming and expensive. If any of these issues arise, it may delay the development and commercialization of drug candidates and, ultimately, our generation of product revenues.

*We license some of our core technologies and drug candidates from third parties. If we default on any of our obligations under those licenses, or violate the terms of these licenses, we could lose our rights to those technologies and drug candidates or be forced to pay damages.

We are dependent on licenses from third parties for some of our key technologies. These licenses typically subject us to various commercialization, reporting and other obligations. If we fail to comply with these obligations, we could lose important rights. If we were to default on our obligations under any of our licenses, we could lose some or all of our rights to develop, market and sell products covered by these licenses. For example, BIAL may terminate our license agreement, pursuant to which we have rights to ~~develop and~~ commercialize ~~opicapone,~~ONGENTYS, if we fail to use commercially reasonable efforts, fail to submit an NDA for a licensed product by a specified date, or otherwise breach the license agreement. Pursuant to our collaboration and license agreement with Voyager, Voyager can terminate the agreement if we challenge the validity or enforceability of certain Voyager intellectual property rights or if we commit a material breach in whole or in part of the agreement and do not cure such breach within the agreed upon cure period. Pursuant to our collaboration and license agreement with Xenon, Xenon can terminate the agreement if we commit a material breach in whole or in part or the agreement and do not cure such breach within the agreed upon cure period. In addition, if we were to violate any of the terms of our licenses, we could become subject to damages. Likewise, if we were to lose our rights under a license to use proprietary research tools, it could adversely affect our existing collaborations or adversely affect our ability to form new collaborations. We also face the risk that our licensors could, for a number of reasons, lose patent protection or lose their rights to the technologies we have licensed, thereby impairing or extinguishing our rights under our licenses with them.

Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations.

To date, we have sold $517.5 million aggregate principal amount of 2.25% convertible senior notes due May 15, 2024, ~~(2024 Notes).~~or the 2024 Notes. We may also incur additional indebtedness to meet future financing needs. Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things:

Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under the 2024 Notes and any additional indebtedness that we may incur. In addition, our cash needs may increase in the future. In addition, any future indebtedness that we may incur may contain financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.

*The conditional conversion feature of the 2024 Notes, if triggered, may adversely affect our financial condition, operating results, or liquidity.

In the event the conditional conversion feature of the 2024 Notes is triggered, holders of 2024 Notes will be entitled to convert their 2024 Notes at any time during specified periods at their option. If one or more of the holders of the 2024 Notes elects to convert their notes, unless we satisfy our conversion obligation by delivering only shares of our common stock, we would be required to settle all or a portion of our conversion obligation through the payment of cash, which could adversely affect our liquidity. The conditional convertibility of the 2024 Notes will be monitored at each quarterly reporting date and analyzed dependent upon market prices of our common stock during the prescribed measurement periods.

*We have a history of losses and expect to increase our expenses for the foreseeable future, and we may never achieve sustained profitability.

Since our inception, we have incurred significant net losses and negative cash flow from operations. ~~As a result of historical operating losses,~~At December 31, 2019, we had an accumulated deficit of ~~approximately $1.2~~$1.1 billion as a result of ~~December 31, 2018.~~historical operating losses.

In April 2017, we received FDA approval of INGREZZA for ~~TD, and in~~TD. In July 2018, our partner AbbVie received FDA approval for ORILISSA for the management of moderate to severe endometriosis pain in women. In April 2020, we received FDA approval of ONGENTYS for Parkinson’s disease. However, we have not yet obtained regulatory approvals for any other product candidates. Even if we continue to succeed in commercializing INGREZZA or ONGENTYS, or developing and commercializing any of our other product candidates, we may not be profitable. We also expect to continue to incur significant operating and capital expenditures as we:

We expect to increase our expenses and other investments in the coming years as we fund our operations, in-licensing or acquisition opportunities, and capital expenditures. While we were profitable for the ~~year~~three months ended ~~December~~March 31, ~~2018,~~2020, our future operating results and profitability may fluctuate from period to period due to the factors described above, and we will need to generate significant revenues to achieve and maintain profitability and positive cash flow on a sustained basis. We may not be able to generate these revenues, and we may never achieve profitability on a sustained basis in the future. Our failure to maintain or increase profitability on a sustained basis could negatively impact the market price of our common stock.

*We have recently increased the size of our organization and will need to continue to increase the size of our organization. We may encounter difficulties with managing our growth, which could adversely affect our results of operations.

~~As of December~~At March 31, ~~2018,~~2020, we had approximately ~~585~~750 full-time employees. Although we have substantially increased the size of our organization, we may need to add additional qualified personnel and resources, especially now that we have a commercial sales force. Our current infrastructure may be inadequate to support our development and commercialization efforts and expected growth. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees, and may take time away from running other aspects of our business, including development and commercialization of our product candidates.

Our future financial performance and our ability to commercialize INGREZZA, ONGENTYS and any other product candidates that receive regulatory approval will depend, in part, on our ability to manage any future growth effectively. In particular, as we commercialize INGREZZA and ONGENTYS, we will need to support the training and ongoing activities of our sales force and will likely need to continue to expand the size of our employee base for managerial, operational, financial and other resources. To that end, we must be able to successfully:

We may not be able to accomplish these tasks or successfully manage our operations and, accordingly, may not achieve our research, development, and commercialization goals. Our failure to accomplish any of these goals could harm our financial results and prospects.

We may be subject to claims that we or our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is commonplace in the biotechnology industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

*Because our operating results may vary significantly in future periods, our stock price may decline.

Our quarterly revenues, expenses and operating results have fluctuated in the past and are likely to fluctuate significantly in the future. Our financial results are unpredictable and may fluctuate, for among other reasons, due to seasonality of commercial sales of INGREZZA, timing of the commercial launch of ONGENTYS, royalties from out-licensed products, the impact of Medicare Part D coverage, our achievement of product development objectives and milestones, clinical trial enrollment and expenses, research and development expenses and the timing and nature of contract manufacturing, ~~and~~ contract research ~~payments. In addition, in April 2017 we received regulatory approval from~~payments and disruptions caused by man-made or natural disasters or public health pandemics or epidemics or other business interruptions, including, for example, the ~~FDA for INGREZZA in TD and our revenues will be dependent on our ability to sell INGREZZA and to secure adequate third-party reimbursement.~~COVID-19 pandemic. A high portion of our costs are predetermined on an annual basis, due in part to our significant research and development costs. Thus, small declines in revenue could disproportionately affect financial results in a quarter. While we were profitable for the ~~year~~three months ended ~~December~~March 31, ~~2018,~~2020, our future operating results and profitability may fluctuate from period to period, and even if we become profitable on a quarterly or annual basis, we may not be able to sustain or increase our profitability. Moreover, as our company and our market capitalization have grown, our financial performance has become increasingly subject to

quarterly and annual comparisons with the expectations of securities analysts or investors. The failure of our financial results to meet these expectations, either in a single quarterly or annual period over a sustained period time, could cause our stock price to decline.

~~U.S. federal~~*Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flows, financial condition or results of operations.

New income, sales, use or other tax ~~reform~~laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business and financial condition.

~~On December 22,~~ Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, legislation enacted in 2017, ~~U.S. federal income tax legislation was signed into law (H.R. 1, “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”,~~ informally titled the Tax Cuts and Jobs Act, or the Tax ~~Act). The Tax~~ Act, ~~among other things, contains~~enacted many significant changes to ~~corporate taxation, including reduction of~~ the ~~corporate~~US tax ~~rate~~laws. Future guidance from ~~a top marginal rate of 35%~~the Internal Revenue Service and other tax authorities with respect to ~~a flat rate of 21%, repeal of~~ the ~~alternative minimum tax for corporations, limitation of the tax deduction for interest expense to 30% of adjusted taxable income (except for~~Tax Act may affect us, and certain small businesses), limitation of the deduction for net operating losses generated in taxable years beginning after December 31, 2017, to 80% of current year taxable income, elimination of most carrybacks of net operating losses arising in taxable years ending after December 31, 2017, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impactaspects of the Tax Act ~~is uncertain~~repealed or modified in future legislation. For example, the Coronavirus Aid, Relief, and ~~our business and financial condition could be adversely affected.~~Economic Security Act, or the CARES Act, modified certain provisions of the Tax Act. In addition, it is uncertain if and to what extent various states will conform to the Tax ~~Act. The impact~~Act or any newly enacted federal tax legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings, and the deductibility of expenses under the Tax Act or future reform legislation could have a material impact on ~~holders~~the value of our ~~common stock is also uncertain~~deferred tax assets, could result in significant one-time charges, and could ~~be adverse. We urge~~increase our ~~stockholders to consult with their legal and~~future US tax ~~advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.~~expense.

*Our ability to use net operating loss carryforwards and certain other tax attributes may be limited.

Our net operating loss, or NOL, carryforwards generated in tax years ending on or prior to December 31, 2017, are only permitted to be carried forward for 20 years under applicable ~~U.S.~~US tax law. Under the Tax Act, as modified by the CARES Act, our federal NOLs generated in tax years ~~ending~~beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal NOLs ~~generated~~ in tax years beginning after December 31, ~~2017,~~2020, is ~~limited.~~limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. We do not believe we have experienced any previous ownership changes, but the determination is complex and there can be no assurance we are correct. Furthermore, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control.

As a result, our pre-2018 NOL carryforwards may expire prior to being used and our NOL carryforwards generated ~~thereafter~~in tax years beginning after December 31, 2020, will be subject to a percentage limitation and, if we undergo an ownership change (or if we previously underwent such an ownership change), our ability to use all of our pre-change NOLs and other pre-change tax attributes (such as research tax credits) to offset our post-change income or taxes may be limited. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. As a result, we may be unable to use all or a material portion of our NOLs and other tax attributes, which could adversely affect our future cash flows.

Our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of accrued amounts.

Our effective tax rate is derived from a combination of applicable tax rates in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that will become payable in each of such places. Nevertheless, our effective tax rate may be different than experienced in the past due to numerous factors, including ~~passage of the newly enacted federal income tax law,~~ changes in the mix of our profitability from state to state, the results of examinations and audits of our tax filings, our inability to secure or sustain acceptable agreements with tax authorities, changes in accounting for income taxes and changes in tax laws. Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations and may result in tax obligations in excess of amounts accrued in our financial statements.

The market prices for securities of biotechnology and pharmaceutical companies historically have been highly volatile, and the market for these securities has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. The COVID-19 pandemic, for example, has negatively affected the stock market and investor sentiment and has resulted in significant volatility. Furthermore, especially as we and our market capitalization have grown, the price of our common stock has been increasingly affected by quarterly and annual comparisons with the valuations and recommendations of the analysts who cover our business. If our results do not meet these analysts’ forecasts, the expectations of our investors or the financial guidance we provide to investors in any period, which is based on assumptions that may be incorrect or that may change from quarter to quarter, the market price of our common stock could decline. Over the course of the last 12twelve months, the price of our common stock has ranged from approximately ~~$127.00~~$72 per share to approximately ~~$65.00~~$120 per share. The market price of our common stock may fluctuate in response to many factors, including:

Our customers are concentrated and therefore the loss of a significant customer may harm our business.

We have entered into distribution agreements with a limited number of specialty pharmacy providers and a specialty distributor, and all of our product ~~candidates, if approved,~~sales are to ~~achieve commercial success; and~~

*If we cannot raise additional funding, we may be unable to complete development of our product candidates or establish commercial and manufacturing capabilities in the future.

We may require additional funding to effectively commercialize INGREZZA or ONGENTYS, to continue our research and product development programs, to conduct preclinical studies and clinical trials, for operating expenses, to pursue regulatory approvals for our product candidates, for the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims, if any, and the cost of product in-licensing and any possible acquisitions. In addition, we may require additional funding to establish manufacturing and marketing capabilities in the future. We believe that our existing capital resources, together with investment income, and future payments due under our strategic alliances, will be sufficient to satisfy our current and projected funding requirements for at least the next 12twelve months. However, these resources might be insufficient to conduct research and development programs, the cost of product in-taking and possible acquisitions, fully commercialize products and operate the company to the full extent currently planned. If we cannot obtain adequate funds, we may be required to curtail significantly our commercial plans or one or more of our research and development programs or obtain funds through additional arrangements with corporate collaborators or others that may require us to relinquish rights to some of our technologies or product candidates.

We intend to seek additional funding through strategic alliances and may seek additional funding through public or private sales of our securities, including equity securities. For example, for so long as we continue to satisfy the requirements to be deemed a well-known seasoned issuer, we can utilize a shelf registration statement currently on file with the SEC, to allow us to issue an unlimited number of securities from time to time. In addition, during the second quarter of 2017, we issued the 2024 Notes and we have previously financed capital purchases and may continue to pursue opportunities to obtain additional debt financing in the future. Additional equity or debt financing might not be available on reasonable terms, if at all. In addition, disruptions due to the COVID-19 pandemic could make it more difficult for us to access capital. Any additional equity financings will be dilutive to our stockholders and any additional debt financings may involve operating covenants that restrict our business.

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including ~~the Sarbanes-Oxley Act of 2002,~~ the Dodd-Frank Wall Street Reform and Consumer Protection Act, new SEC regulations and Nasdaq rules, are creating uncertainty for companies such as ours. These laws, regulations and standards are subject to varying interpretations in some cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased sales, general and administrative expenses and management time related to compliance activities. If we fail to comply with these laws, regulations and standards, our reputation may be harmed, and we might be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect our financial results and the market price of our common stock.

*Health care reform measures and other recent legislative initiatives could adversely affect our business.

The business and financial condition of pharmaceutical and biotechnology companies are affected by the efforts of governmental and third-party payors to contain or reduce the costs of health care. In the ~~U.S.,~~US, comprehensive health care reform legislation was enacted by the Federal government and we expect that there will continue to be a number of federal and state proposals to implement government control over the pricing of prescription pharmaceuticals. In addition, increasing emphasis on reducing the cost of health care in the ~~U.S.~~US will continue to put pressure on the rate of adoption and pricing of prescription pharmaceuticals. Moreover, in some foreign jurisdictions, pricing of prescription pharmaceuticals is already subject to government control. Additionally, other ~~recent~~ federal and state legislation imposes new obligations on manufacturers of pharmaceutical products, among others, related to product tracking and tracing. Among the requirements of this new legislation, manufacturers are required to provide certain information regarding the drug product provided to individuals and entities to which product ownership is transferred, label drug product with a product identifier, and keep certain records regarding distribution of the drug product. Further, under this new legislation, manufacturers will have drug product investigation, quarantine, disposition, notification and purchaser license verification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.

Additionally, in March 2010, Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, was signed into law, which was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose taxes and fees on the health industry and impose additional health policy reforms. Among the provisions of the ACA of importance to our potential drug candidates are:

~~Some of the provisions of the ACA have yet to be fully implemented, and there have been~~There remain legal and political challenges to certain aspects of the ACA. Since January 2017, two executive orders and other directives designed to delay, circumvent, or loosen certain requirements mandated by the ACA have been put into place. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. ~~While Congress has not passed repeal legislation,~~Legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act includes a provision that repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a

year that is commonly referred to as the “individual mandate”. On January 22, 2018, a continuing resolution was enacted on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. The Bipartisan Budget Act of 2018, or the BBA, among other things, amended the ACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. In ~~July~~December 2018, the Centers for Medicare ~~and~~& Medicaid Services, or CMS, published a new final rule permitting further collections and payments to and from certain ACA-qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. In addition, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. On December 14, 2018, a ~~U.S.~~US District Court Judge in Texas ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act. ~~While such U.S.~~Additionally, on December 18, 2019, the US Court of Appeals for the 5^th Circuit ruled that the individual mandate was unconstitutional and remanded the case back to the District Court ~~Judge, as well as~~to determine whether the ~~current presidential administration and CMS, have stated that the ruling will have no immediate effect pending appeal~~remaining provisions of the ~~decision, it~~ACA are invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case, and has allotted one hour for oral arguments, which are expected to occur in the fall. It is unclear how ~~this decision, subsequent appeals,~~such litigation and other efforts to repeal and replace the ACA will impact the ACA and our business.

Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013 and, due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through ~~2027~~2029 unless additional Congressional action is taken. However, the Medicare sequester reductions under the BBA will be suspended from May 1, 2020 through December 31, 2020 due to the COVID-19 pandemic. The American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

Additional changes that may affect our business include the expansion of new programs such as Medicare payment for performance initiatives for physicians under the Medicare Access and CHIP Reauthorization Act of 2015, which ~~will be fully implemented in 2019.~~ended the use of the statutory formula, also referred to as the Sustainable Growth Rate, for clinician payment and established a quality payment incentive program, also referred to as the Quality Payment Program. This program provides clinicians with two ways to participate, including through the Advanced Alternative Payment Models, or APMs, and the Merit-based Incentive Payment System, or MIPS. In November 2019, CMS issued a final rule finalizing the changes to the Quality Payment Program. At this time, it is unclear how the introduction of the ~~Medicare quality payment program~~Quality Payment Program will impact overall physician reimbursement.

Also, there has been heightened governmental scrutiny recently over pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the current presidential administration’s budget proposal for the 2021 fiscal year ~~2019 contains further~~includes a $135 billion allowance to support legislative proposals seeking to reduce drug ~~price~~

~~control measures~~prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that ~~could be enacted during the 2019 budget process or in~~would, among other ~~future legislation, including, for example, measures to permit~~things, cap Medicare Part D ~~plans~~beneficiary out-of-pocket pharmacy expenses, provide an option to ~~negotiate the price of certain drugs under~~cap Medicare Part ~~B, to allow some states to negotiate drug prices under Medicaid,~~D beneficiary monthly out-of-pocket expenses, and ~~to eliminate cost sharing for generic drugs for low-income patients.~~place limits on pharmaceutical price increases. Further, the current presidential administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The ~~U.S.~~US Department of Health and Human Services, or HHS, has ~~already started the process of soliciting~~solicited feedback on certain of these measures and, additionally, ~~is immediately implementing~~has implemented others under its existing authority. For example, in September 2018, CMS announced that it will allow Medicare Advantage Plans the option to use step therapy for Part B drugs beginning January 1, 2019, and in October 2018, CMS proposed a new rule that would require direct-to-consumer television advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drug or biological product. On January 31, 2019, the HHS Office of Inspector General proposed modifications to federal Anti-Kickback Statue safe harbors which, among other things, may affect rebates paid by manufacturers to Medicare Part D plans, the purpose of which is to further reduce the cost of drug products to consumers. Although a number of these, and other potential, proposals will require additional authorization to become effective, Congress and the executive branch have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. In particular, it is possible that additional governmental action is taken to address the COVID-19 pandemic. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain sustained profitability or commercialize our drugs.

Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase I clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.

We are currently unable to predict what additional legislation or regulation, if any, relating to the health care industry may be enacted in the future or what effect recently enacted federal legislation or any such additional legislation or regulation would have on our business. The pendency or approval of such proposals or reforms could result in a decrease in our stock price or limit our ability to raise capital or to enter into collaboration agreements for the further development and commercialization of our programs and products.

Any relationships with healthcare professionals, principal investigators, consultants, customers (actual and ifpotential) and third-party payors in connection with our current and future business activities are and will continue to be subject, directly or indirectly, to federal and state healthcare laws. If we are unable to ~~compete effectively, the demand for~~comply, or have not fully complied, with such laws, we could face penalties, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our ~~products~~operations.

~~The biotechnology and pharmaceutical industries are~~directly, or indirectly, subject to ~~rapid~~various federal and ~~intense technological change.~~ state healthcare laws, including without limitation, fraud and abuse laws, false claims laws, data privacy and security laws, as well as transparency laws regarding payments or other items of value provided to healthcare providers. These laws may restrict or prohibit a wide range of business activities, including, but not limited to, research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. These laws may impact, among other things, our current activities with principal investigators and research subjects, as well as current and future sales, marketing, patient co-payment assistance and education programs.

Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. While our interactions with healthcare professionals, including our speaker programs and other arrangements, such as our contributions to patient assistance programs, have been structured to comply with these laws and related guidance, it is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws. If our operations or activities are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to, without limitation, significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate.

In addition, any sales of our product once commercialized outside the US will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

*We could face ~~and will continue to face, competition~~liability if a regulatory authority determines that we are promoting INGREZZA, ONGENTYS or any of our product candidates that receives regulatory approval, for “off-label” uses.

A company may not promote “off-label” uses for its drug products. An off-label use is the use of a product for an indication that is not described in the ~~development~~product’s FDA-approved label in the US or for uses in other jurisdictions that differ from those approved by the applicable regulatory agencies. Physicians, on the other hand, may prescribe products for off-label uses. Although the FDA and other regulatory agencies do not regulate a physician’s choice of drug treatment made in the physician’s independent medical judgment, they do restrict promotional communications from companies or their sales force with respect to off-label uses of products for which

marketing clearance has not been issued. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling. A company that is found to have promoted off-label use of its product may be subject to significant liability, including civil and criminal sanctions. We intend to comply with the requirements and restrictions of the FDA and other regulatory agencies with respect to our promotion of our products, including INGREZZA and ~~product candidates from academic institutions, government agencies, research institutions and biotechnology and pharmaceutical companies.~~

~~Developments~~a qui tam suit brought by ~~others may render our product candidates or technologies obsolete or noncompetitive.~~

~~We are commercializing~~a private plaintiff on behalf of the government, and ~~performing research on or developing~~it is determined that we violated prohibitions relating to the promotion of products for ~~the treatment of several disorders including endometriosis, TD, uterine fibroids, essential tremor, classic congenital adrenal hyperplasia, pain, Parkinson’s disease, Friedreich’s ataxia,~~unapproved uses, we could be subject to substantial civil or criminal fines or damage awards and other ~~neurological~~sanctions such as consent decrees and ~~endocrine-related diseases~~corporate integrity agreements pursuant to which our activities would be subject to ongoing scrutiny and ~~disorders,~~monitoring to ensure compliance with applicable laws and ~~there are a number of competitors to~~regulations. Any such fines, awards or other sanctions would have an adverse effect on our ~~products~~revenue, business, financial prospects, and product candidates. If one or more of our competitors’ products or programs are successful, the market for our products may be reduced or eliminated. For example, in August 2017, Teva received approval for AUSTEDO to treat TD.reputation.

~~Compared to us, many of our competitors and potential competitors have substantially greater:~~

If we are unable to protect our intellectual property, our competitors could develop and market products based on our discoveries, which may reduce demand for our products.

Because of the substantial length of time and expense associated with bringing new products through the development and regulatory approval processes in order to reach the marketplace, the pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Accordingly, we intend to seek patent protection for our proprietary technology and compounds. However, we face the risk that we may not obtain any of these patents and that the breadth of claims we obtain, if any, may not provide adequate protection of our proprietary technology or compounds.

We also rely upon unpatented trade secrets and improvements, unpatented know-how and continuing technological innovation to develop and maintain our competitive position, which we seek to protect, in part, through confidentiality agreements with our commercial collaborators, employees and consultants. We also have invention or patent assignment agreements with our employees and some, but not all, of our commercial collaborators and consultants. However, if our employees, commercial collaborators or consultants breach these agreements, we may not have adequate remedies for any such breach, and our trade secrets may otherwise become known or independently discovered by our competitors.

In addition, although we own a number of patents, the issuance of a patent is not conclusive as to its validity or enforceability, and third parties may challenge the validity or enforceability of our patents. We cannot assure you how much protection, if any, will be given to our patents if we attempt to enforce them and they are challenged in court or in other proceedings. It is possible that a competitor may successfully challenge our patents or that challenges will result in limitations of their coverage. Moreover, competitors may infringe our patents or successfully avoid them through design innovation. To prevent infringement or unauthorized use, we may need to file infringement claims, which are expensive and time-consuming. In addition, in an infringement proceeding a court may decide that a patent of ours is not valid or is unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover its technology. Interference proceedings declared by the ~~U.S.~~US Patent and Trademark Office may be necessary to determine the priority of inventions with respect to our patent applications or those of our licensors. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and be a distraction to management. We cannot assure you that we will be able to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the ~~U.S.~~US.

If we fail to obtain or maintain orphan drug designation or other regulatory exclusivity for some of our product candidates, our competitive position would be harmed.

A product candidate that receives orphan drug designation can benefit from a streamlined regulatory process as well as potential commercial benefits following approval. Currently, this designation provides market exclusivity in the ~~U.S.~~US and the EU for seven years and ten years, respectively, if a product is the first such product approved for such orphan indication. This market exclusivity does not, however, pertain to indications other than those for which the drug was specifically designated in the approval, nor does it prevent other types of drugs from receiving orphan designations or approvals in these same indications. Further, even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the new drug is clinically superior to the orphan product or a market shortage occurs.

In the EU, orphan exclusivity may be reduced to six years if the drug no longer satisfies the original designation criteria or can be lost altogether if the marketing authorization holder consents to a second orphan drug application or cannot supply enough drug, or when a second applicant demonstrates its drug is “clinically superior” to the original orphan drug. We may not be successful obtaining orphan drug designations for any indications and, even if we succeed, such orphan drug designations may fail to result in or maintain orphan drug exclusivity upon approval, which would harm our competitive position.

The technologies we use in our research as well as the drug targets we select may infringe the patents or violate the proprietary rights of third parties.

We cannot assure you that third parties will not assert patent or other intellectual property infringement claims against us or our collaborators with respect to technologies used in potential products. If a patent infringement suit were brought against us or our

collaborators, we or our collaborators could be forced to stop or delay developing, manufacturing or selling potential products that are claimed to infringe a third party’s intellectual property unless that party grants us or our collaborators rights to use its intellectual property. In such cases, we could be required to obtain licenses to patents or proprietary rights of others in order to continue to commercialize our products. However, we may not be able to obtain any licenses required under any patents or proprietary rights of third parties on acceptable terms, or at all. Even if our collaborators or we were able to obtain rights to the third party’s intellectual property, these rights may be non-exclusive, thereby giving our competitors access to the same intellectual property. Ultimately, we may be unable to commercialize some of our potential products or may have to cease some of our business operations as a result of patent infringement claims, which could severely harm our business.

Our employees, independent contractors, principal investigators, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees and independent contractors, such as principal investigators, consultants, commercial partners and vendors, or by employees of our commercial partners could include failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws, to report financial information or data accurately, to maintain the confidentiality of our trade secrets or the trade secrets of our commercial partners, or to disclose unauthorized activities to us. In particular, sales, marketing and other business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. Employee and independent contractor misconduct could also involve the improper use of individually identifiable information, including, without limitation, information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. Any action against our employees, independent contractors, principal investigators, consultants, commercial partners or vendors for violations of these laws could result in significant civil, criminal, and administrative penalties, fines, and imprisonment.

Any relationships with healthcare professionals, principal investigators, consultants, customers (actual and potential) and third-party payors in connection with our current and future business activities are and will continue to be subject, directly or indirectly, to federal and state healthcare laws. If we are unable to comply, or have not fully complied, with such laws, we could face penalties, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations.

Our business operations and activities may be directly, or indirectly, subject to various federal and state healthcare laws, including without limitation, fraud and abuse laws, false claims laws, data privacy and security laws, as well as transparency laws regarding payments or other items of value provided to healthcare providers. These laws may restrict or prohibit a wide range of business activities, including, but not limited to, research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. These laws may impact, among other things, our current activities with principal investigators and research subjects, as well as current and future sales, marketing, patient co-payment assistance and education programs.

Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws. If our operations or activities are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to, without limitation, significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate.

~~In addition, any sales of our product once commercialized outside the U.S. will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.~~

*We face potential product liability exposure far in excess of our ~~limited~~ insurance coverage.

The use of any of our potential products in clinical trials, and the sale of any approved products, including INGREZZA and ONGENTYS, may expose us to liability claims. These claims might be made directly by consumers, health care providers, pharmaceutical companies or others selling our products. We have ~~obtained limited~~ product liability insurance coverage for our clinical trials in the amount of ~~$25~~$35.0 million per occurrence and ~~$25~~$35.0 million in the aggregate. In addition, we have product liability insurance related to the sale of INGREZZA in the amount of $35.0 million per occurrence and $35.0 million in the aggregate. However, our insurance may not reimburse us or may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to ~~liability. Upon FDA approval of INGREZZA we expanded our insurance coverage to include product~~ liability insurance related to the sale of INGREZZA in the amount of $25 million per occurrence and $25 million in the aggregate. However, we may be unable to obtain commercially reasonable product liability insurance forfrom any ~~products~~current or future clinical trials or approved ~~in the future for marketing. On occasion, juries have awarded large judgments in class action lawsuits based on drugs that had unanticipated side effects.~~products. A successful product liability claim, or series of claims, brought against us would decrease our cash reserves and could cause our stock price to fall.Furthermore, regardless of the eventual outcome of a product liability claim, any product liability claim against us may decrease demand for our approved products, including INGREZZA and ONGENTYS, damage our reputation, result in regulatory investigations that could require costly recalls or product modifications, cause clinical trial participants to withdrawal, result in costs to defend the related litigation, decrease our revenue, and divert management’s attention from managing our business.

Our activities involve hazardous materials, and we may be liable for any resulting contamination or injuries.

Our research activities involve the controlled use of hazardous materials. We cannot eliminate the risk of accidental contamination or injury from these materials. If an accident occurs, a court may hold us liable for any resulting damages, which may harm our results of operations and cause us to use a substantial portion of our cash reserves, which would force us to seek additional financing.

*Cyber security breaches and other disruptions could compromise our information, including the theft of our intellectual property, and could expose us to liability, which would cause our business and reputation to suffer.

We are increasingly dependent on information technology systems and infrastructure, including mobile technologies, to operate our business. In the ordinary course of our business, we collect and store confidential and sensitive electronic information on our networks and in our data centers. This information includes, among other things, our intellectual property and proprietary information, the confidential information of our collaborators and licensees, and the personally identifiable information of our employees. It is important to our operations and business strategy that this electronic information remains secure and is perceived to be secure. The size and complexity of our information technology systems, and those of third-party vendors with whom we contract, and the volume of data we retain, make such systems potentially vulnerable to breakdown, malicious intrusion, security breaches and other ~~cyber-~~

~~attacks.~~cyber-attacks. Additionally, natural disasters, public health pandemics or epidemics (including, for example, the COVID-19 pandemic), terrorism, war and telecommunication and electrical failures may result in damage to or the interruption or impairment of key business processes, or the loss or corruption of confidential information, including intellectual property, proprietary business information and personal information. Information security risks have significantly increased in recent years in part due to the proliferation of new technologies and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign private parties and state actors. A security breach or privacy violation that leads to disclosure or modification of or prevents access to personally identifiable information or other protected information could harm our reputation, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, require us to verify the correctness of database contents and otherwise subject us to liability under laws and regulations that protect personal data, resulting in increased costs or loss of revenue. Similarly, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Additionally, theft of our intellectual property or proprietary business information could require substantial expenditures to remedy. If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may suffer loss of reputation, financial loss and other regulatory penalties because of lost or

misappropriated information. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. While we have implemented security measures to protect our data security and information technology systems, such measures may not prevent such events. Significant disruptions of our information technology systems or breaches of data security could have a material adverse effect on our business, financial condition and results of operations.

Compliance with global privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and process data globally, and the failure to comply with such requirements could have a material adverse effect on our business, financial condition or results of operations.

The regulatory framework for the collection, use, safeguarding, sharing, transfer and other processing of information worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. For example, the EU’s General Data Protection Regulation, or GDPR, imposes strict obligations on the processing of personal data, including personal health data, and the free movement of such data. The GDPR applies to any company established in the EU as well as any company outside the EU that processes personal data in connection with the offering of goods or services to individuals in the EU or the monitoring of their behavior. The GDPR enhances data protection obligations for processors and controllers of personal data, including, for example, obligations relating to: processing health and other sensitive data; obtaining consent of individuals; providing notice to individuals regarding data processing activities; responding to data subject requests; taking certain measures when engaging third-party processors; notifying data subjects and regulators of data breaches; implementing safeguards to protect the security and confidentiality of personal data; and transferring personal data to countries outside the EU, including the ~~U.S.~~US. The GDPR imposes substantial fines for breaches of data protection requirements, which can be up to four percent of global revenue or 20 million euros, whichever is greater, and it also confers a private right of action on data subjects for breaches of data protection requirements. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as healthcare data or other personal information from our clinical trials, could require us to change our business practices or lead to government enforcement actions, private litigation or significant penalties against us and could have a material adverse effect on our business, financial condition or results of operations.

Additionally, California recently enacted legislation that has been dubbed the first “GDPR-like” law in the US. Known as the California Consumer Privacy Act, or CCPA, it creates new individual privacy rights for consumers (as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households. The CCPA, which went into effect on January 1, 2020, requires covered companies to provide new disclosures to California consumers, and provides such consumers new ways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the US, which could increase our potential liability and adversely affect our business.

The following exhibits are filed as part of, or incorporated by reference into, this report:

Exhibit ~~Number~~	~~Description~~

3.1	Description:	Certificate of Incorporation, as ~~amended(1)~~amended
	Reference:	Incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q filed on November 5, 2018

3.2	Description:	Bylaws, as ~~amended(2)~~amended
	Reference:	Incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q filed on November 5, 2018

4.1	Description:	Form of Common Stock Certificate ~~(3)~~
	Reference:	Incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration No. 333-03172)

4.2	Description:	Indenture, dated as of May 2, 2017, by and between ~~Neurocrine~~the Company and U.S. Bank National Association, as ~~Trustee(4)~~Trustee
	Reference:	Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on May 2, 2017

4.3	Description:	Form of Note representing ~~Neurocrine’s~~the Company’s 2.25% Convertible Notes due ~~2024(5)~~2024
	Reference:	Incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed on May 2, 2017

~~10.1~~4.4	Description:	~~Collaboration and License Agreement dated January 28, 2019 between Voyager Therapeutics, Inc. and~~Description of Common Stock of the ~~Company(6)~~Company
	Reference:	Incorporated by reference to Exhibit 4.4 of the Company’s Annual Report on Form 10-K filed on February 7, 2020

~~10.2~~	~~Stock Purchase Agreement dated January 28, 2019 between Voyager Therapeutics, Inc. and the Company(7)~~

~~10.3~~	~~Investor Agreement dated January 28, 2019 between Voyager Therapeutics, Inc. and the Company(8)~~

31.1	Description:	Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934

31.2	Description:	Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934

32*	Description:	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	Description:	Inline XBRL Instance Document. – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH	Description:	Inline XBRL Taxonomy Extension Schema Document.

101.CAL	Description:	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF	Description:	Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB	Description:	Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE	Description:	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104	Description:	Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibit 101)

Except as specifically noted above, ~~our~~the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K have a Commission File Number of 000-22705.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delaware		33-0525145
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

12780 El Camino Real, San Diego, California		92130
(Address of principal executive office)		(Zip Code)


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	NBIX	Nasdaq Global Select Market

		PAGE
Part I. Financial Information

~~Item 1. Financial Statements~~		3

~~Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018~~Item 1. Financial Statements		3

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019		3

Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019		4

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019		5

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019		6

Notes to the Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1617

Item 3. Quantitative and Qualitative Disclosures About Market Risk		1920

Item 4. Controls and Procedures		1920

Part II. Other Information		20

Item 1A. Risk Factors		20

Item 6. Exhibits		38

Signatures		39

Address	Type	Square Feet		Commencement Date	Expiration Date
12780 El Camino Real ⁽¹⁾	Office/Laboratory		141,000	August 7, 2019	July 31, 2031
12790 El Camino Real, Suite 130 ⁽¹⁾	Office		2,000	December 1, 2019	July 31, 2031
12790 El Camino Real, Suite 150 ⁽¹⁾	Office		8,000	August 7, 2019	July 31, 2031
12790 El Camino Real, Suite 300 ⁽¹⁾	Office		28,000	December 1, 2019	July 31, 2031
12777 High Bluff Drive ⁽²⁾	Office		45,000	July 1, 2018	July 31, 2029
12790 El Camino Real, Suite 200 ⁽¹⁾	Office		28,000	February 1, 2021	July 31, 2031
12790 El Camino Real, Suite 100 ⁽¹⁾	Office		17,000	February 1, 2021	July 31, 2031

		NEUROCRINE BIOSCIENCES, INC.

Dated: ~~April 29, 2019~~May 6, 2020		/s/ Matthew C. Abernethy
		Matthew C. Abernethy
		Chief Financial Officer
		(Duly authorized officer and ~~Principal~~Principle Financial Officer)

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

	For the Three Months Ended March 31,
(in thousands)	2019			2018
Cash Flows from Operating Activities:
Net loss	$	(102,115	)	$	(41,818	)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization		1,566			786
Amortization of debt discount		4,598			4,265
Amortization of debt issuance costs		341			326
(Accretion) amortization of discounts/premiums on investments, net		(290	)		512
Share-based compensation expense		15,764			19,879
Change in fair value of investment in restricted equity securities		(1,680	)		—
Other		116			(229	)
Change in operating assets and liabilities:
Accounts receivable		(15,724	)		(13,497	)
Inventory		(1,753	)		(309	)
Other current assets		(2,110	)		(441	)
Accounts payable and accrued liabilities		(16,567	)		(7,870	)
Other liabilities		5,363			(90	)
Net cash used in operating activities		(112,491	)		(38,486	)
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Cash Flows from Investing Activities:
Purchases of investments		(116,307	)		(139,354	)
Sales and maturities of investments		215,936			84,086
Investment in equity securities		(54,720	)		—
Purchases of property and equipment		(3,939	)		(1,800	)
Proceeds from sales of property and equipment		4			18
Net cash provided by (used in) investing activities		40,974			(57,050	)
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Cash Flows from Financing Activities:
Issuance of common stock		2,581			16,135
Net cash provided by financing activities		2,581			16,135
Change in cash and cash equivalents and restricted cash		(68,936	)		(79,401	)
Cash and cash equivalents and restricted cash at beginning of the period		147,191			259,212
Cash and cash equivalents and restricted cash at end of the period	$	78,255		$	179,811

(in thousands)	Contractual Maturity (in years)	Amortized Cost		Gross Unrealized Gains⁽¹⁾		Gross Unrealized Losses⁽¹⁾			Aggregate Estimated Fair Value
March 31, 2019:
Classified as current assets:
Commercial paper	Less than 1	$	97,517	$	14	$	(41	)	$	97,490
Corporate debt securities	Less than 1		308,363		79		(404	)		308,038
Securities of government-sponsored entities	Less than 1		45,718		65		(21	)		45,762
Total short-term available-for-sale securities		$	451,598	$	158	$	(466	)	$	451,290
Classified as non-current assets:
Corporate debt securities	1 to 2	$	133,179	$	438	$	(40	)		133,577
Securities of government-sponsored entities	1 to 2		42,868		244		—			43,112
Total long-term available-for-sale securities		$	176,047	$	682	$	(40	)	$	176,689
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December 31, 2018:
Classified as current assets:
Commercial paper	Less than 1	$	94,617	$	—	$	(45	)	$	94,572
Corporate debt securities	Less than 1		395,385		—		(1,598	)		393,787
Securities of government-sponsored entities	Less than 1		20,887		8		(55	)		20,840
Total short-term available-for-sale securities		$	510,889	$	8	$	(1,698	)	$	509,199
Classified as non-current assets:
Corporate debt securities	1 to 2	$	151,594	$	66	$	(469	)	$	151,191
Securities of government-sponsored entities	1 to 2		64,676		162		(1	)		64,837
Total long-term available-for-sale securities		$	216,270	$	228	$	(470	)	$	216,028

	Less Than 12 Months					12 Months or Greater					Total
(in thousands)	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
March 31, 2019:
Commercial paper	$	31,457	$	(41	)	$	—	$	—		$	31,457	$	(41	)
Corporate debt securities		63,323		(50	)		174,206		(394	)		237,529		(444	)
Securities of government-sponsored entities		—		—			10,979		(21	)		10,979		(21	)
Total	$	94,780	$	(91	)	$	185,185	$	(415	)	$	279,965	$	(506	)
blank
December 31, 2018:
Commercial paper	$	51,927	$	(45	)	$	—	$	—		$	51,927	$	(45	)
Corporate debt securities		274,696		(746	)		234,798		(1,321	)		509,494		(2,067	)
Securities of government-sponsored entities		4,999		(1	)		10,947		(55	)		15,946		(56	)
Total	$	331,622	$	(792	)	$	245,745	$	(1,376	)	$	577,367	$	(2,168	)

(in millions)	Equity Securities
Fair value at December 31, 2019	$	55.9
Purchases		—
Unrealized losses included in earnings		(16.5	)
Fair value at March 31, 2020	$	39.4

(in millions)	Equity Securities
Fair value at December 31, 2018	$	—
Purchases		54.7
Unrealized gains included in earnings		1.7
Fair value at March 31, 2019	$	56.4