10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-50768

 

ACADIA PHARMACEUTICALS INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

06-1376651

(State of Incorporation)

(I.R.S. Employer Identification No.)

 

12830 El Camino Real, Suite 400

San Diego, California

92130

(Address of Principal Executive Offices)

(Zip Code)

 

(858) 558-2871

(Registrant’s Telephone Number, Including Area Code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $0.0001 per share

ACAD

The Nasdaq Stock Market LLC

 

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, 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.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

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

Total shares of registrant’s common stock outstanding as of the close of business on April 30, 2024:

 

Class

 

Number of Shares Outstanding

Common Stock, $0.0001 par value

 

165,220,884

 

 


 

ACADIA PHARMACEUTICALS INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

PAGE NO.

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

5

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

25

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

27

 

 

 

 

 

Item 1A.

 

Risk Factors

 

27

 

 

 

 

 

Item 5.

 

Other Information

 

61

 

 

 

 

 

Item 6.

 

Exhibits

 

62

 

 

 

SIGNATURES

 

63

 

i


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ACADIA PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

 

 

March 31,
2024

 

 

December 31,
2023

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

204,745

 

 

$

188,657

 

Investment securities, available-for-sale

 

 

265,775

 

 

 

250,208

 

Accounts receivable, net

 

 

94,701

 

 

 

98,267

 

Interest and other receivables

 

 

5,378

 

 

 

4,083

 

Inventory

 

 

61,936

 

 

 

35,819

 

Prepaid expenses

 

 

42,761

 

 

 

39,091

 

Total current assets

 

 

675,296

 

 

 

616,125

 

Property and equipment, net

 

 

4,370

 

 

 

4,612

 

Operating lease right-of-use assets

 

 

54,280

 

 

 

51,855

 

Intangible assets, net

 

 

110,204

 

 

 

65,490

 

Restricted cash

 

 

5,770

 

 

 

5,770

 

Long-term inventory

 

 

4,707

 

 

 

4,628

 

Other assets

 

 

476

 

 

 

476

 

Total assets

 

$

855,103

 

 

$

748,956

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Accounts payable

 

$

19,332

 

 

$

17,543

 

Accrued liabilities

 

 

311,265

 

 

 

236,711

 

Total current liabilities

 

 

330,597

 

 

 

254,254

 

Operating lease liabilities

 

 

49,189

 

 

 

47,800

 

Other long-term liabilities

 

 

11,273

 

 

 

15,147

 

Total liabilities

 

 

391,059

 

 

 

317,201

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 5,000,000 shares authorized at March 31, 2024
   and December 31, 2023;
no shares issued and outstanding at March 31, 2024 and
   December 31, 2023

 

 

 

 

 

 

Common stock, $0.0001 par value; 225,000,000 shares authorized at March 31, 2024
   and December 31, 2023;
164,959,736 shares and 164,650,219 shares issued and
   outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

16

 

 

 

16

 

Additional paid-in capital

 

 

2,878,539

 

 

 

2,862,552

 

Accumulated deficit

 

 

(2,414,282

)

 

 

(2,430,837

)

Accumulated other comprehensive income (loss)

 

 

(229

)

 

 

24

 

Total stockholders’ equity

 

 

464,044

 

 

 

431,755

 

Total liabilities and stockholders’ equity

 

$

855,103

 

 

$

748,956

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1


 

ACADIA PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Revenues

 

 

 

 

 

 

Product sales, net

 

$

205,831

 

 

$

118,462

 

Total revenues

 

 

205,831

 

 

 

118,462

 

Operating expenses

 

 

 

 

 

 

Cost of product sales

 

 

22,951

 

 

 

1,667

 

Research and development

 

 

59,679

 

 

 

69,144

 

Selling, general and administrative

 

 

107,991

 

 

 

101,235

 

Total operating expenses

 

 

190,621

 

 

 

172,046

 

Income (loss) from operations

 

 

15,210

 

 

 

(53,584

)

Interest income, net

 

 

5,506

 

 

 

3,800

 

Other income

 

 

286

 

 

 

4,845

 

Income (loss) before income taxes

 

 

21,002

 

 

 

(44,939

)

Income tax expense (benefit)

 

 

4,447

 

 

 

(1,918

)

Net income (loss)

 

$

16,555

 

 

$

(43,021

)

Earnings (net loss) per share:

 

 

 

 

 

 

Basic

 

$

0.10

 

 

$

(0.27

)

Diluted

 

$

0.10

 

 

$

(0.27

)

Weighted average common shares outstanding:

 

 

 

 

 

 

Basic

 

 

164,798

 

 

 

162,263

 

Diluted

 

 

166,623

 

 

 

162,263

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2


 

ACADIA PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net income (loss)

 

$

16,555

 

 

$

(43,021

)

Other comprehensive income (loss):

 

 

 

 

 

 

Unrealized (loss) gain on investment securities

 

 

(258

)

 

 

757

 

Foreign currency translation adjustments

 

 

5

 

 

 

(2

)

Comprehensive income (loss)

 

$

16,302

 

 

$

(42,266

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3


 

ACADIA PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities

 

 

 

 

 

 

Net income (loss)

 

$

16,555

 

 

$

(43,021

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

14,750

 

 

 

14,705

 

Amortization of premiums and accretion of discounts on investment securities

 

 

(1,786

)

 

 

(2,267

)

Amortization of intangible assets

 

 

5,286

 

 

 

 

Gain on strategic investment

 

 

 

 

 

(4,845

)

Loss on sale of investment securities

 

 

 

 

 

505

 

Depreciation

 

 

242

 

 

 

426

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

3,566

 

 

 

(3,720

)

Interest and other receivables

 

 

(1,295

)

 

 

(3,450

)

Inventory

 

 

(16,648

)

 

 

481

 

Prepaid expenses

 

 

(3,670

)

 

 

(2,234

)

Operating lease right-of-use assets

 

 

1,759

 

 

 

1,726

 

Accounts payable

 

 

1,789

 

 

 

4,676

 

Accrued liabilities

 

 

12,193

 

 

 

24,510

 

Operating lease liabilities

 

 

212

 

 

 

(1,656

)

Long-term liabilities

 

 

(3,874

)

 

 

(3,769

)

Net cash provided by (used in) operating activities

 

 

29,079

 

 

 

(17,933

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of investment securities

 

 

(80,154

)

 

 

(66,892

)

Sale and maturity of investment securities

 

 

66,115

 

 

 

259,410

 

Net cash (used in) provided by investing activities

 

 

(14,039

)

 

 

192,518

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

1,043

 

 

 

1,466

 

Net cash provided by financing activities

 

 

1,043

 

 

 

1,466

 

Effect of exchange rate changes on cash

 

 

5

 

 

 

(2

)

Net increase in cash, cash equivalents and restricted cash

 

 

16,088

 

 

 

176,049

 

Cash, cash equivalents and restricted cash

 

 

 

 

 

 

Beginning of period

 

 

194,427

 

 

 

120,616

 

End of period

 

$

210,515

 

 

$

296,665

 

Supplemental disclosure of noncash information:

 

 

 

 

 

 

Accrued inventory purchases

 

$

9,354

 

 

$

 

Accrued milestone and contingent payments in connection with asset acquisition

 

$

50,000

 

 

$

69,583

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4


 

ACADIA PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)

 

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Total stockholders’ equity, beginning balances

 

$

431,755

 

 

$

400,413

 

Common stock:

 

 

 

 

 

 

Beginning balance

 

 

16

 

 

 

16

 

Ending balance

 

 

16

 

 

 

16

 

Additional paid-in capital:

 

 

 

 

 

 

Beginning balance

 

 

2,862,552

 

 

 

2,770,923

 

Issuance of common stock from exercise of stock options
   and units

 

 

1,043

 

 

 

1,466

 

Stock-based compensation

 

 

14,944

 

 

 

14,645

 

Ending balance

 

 

2,878,539

 

 

 

2,787,034

 

Accumulated deficit:

 

 

 

 

 

 

Beginning balance

 

 

(2,430,837

)

 

 

(2,369,551

)

Net income (loss)

 

 

16,555

 

 

 

(43,021

)

Ending balance

 

 

(2,414,282

)

 

 

(2,412,572

)

Other comprehensive (loss) income:

 

 

 

 

 

 

Beginning balance

 

 

24

 

 

 

(975

)

Other comprehensive (loss) income

 

 

(253

)

 

 

755

 

Ending balance

 

 

(229

)

 

 

(220

)

 

 

 

 

 

 

Total stockholders’ equity, ending balances

 

$

464,044

 

 

$

374,258

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5


 

ACADIA PHARMACEUTICALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Business

Acadia Pharmaceuticals Inc. (the Company), based in San Diego, California, is a biopharmaceutical company focused on the development and commercialization of innovative medicines to address unmet medical needs in central nervous system (CNS) disorders and rare diseases.

In April 2016, the U.S. Food and Drug Administration (FDA) approved the Company’s first drug, NUPLAZID® (pimavanserin), for the treatment of hallucinations and delusions associated with Parkinson’s disease psychosis (PDP). NUPLAZID became available for prescription in the United States in May 2016.

In March 2023, the FDA approved the Company’s second drug, DAYBUE™ (trofinetide), for the treatment of Rett syndrome in adults and pediatric patients 2 years of age and older. DAYBUE became available for prescription in the United States in April 2023.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K (Annual Report) filed with the Securities and Exchange Commission (the SEC). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair statement of the financial position, results of operations, cash flows, and stockholders’ equity for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and the accompanying notes. Actual results could differ materially from those estimates.

 

Risk and Uncertainties

Global economic and business activities continue to face widespread macroeconomic uncertainties, including labor shortages, inflation and monetary supply shifts, recession risks, recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures and potential disruptions from the ongoing Russia-Ukraine conflict and related sanctions, and the ongoing conflict in Israel. The Company continues to actively monitor the impact of these macroeconomic factors on its financial condition, liquidity, operations and workforce. The extent of the impact of these factors on the Company’s operational and financial performance, including its ability to execute its business strategies and initiatives in the expected time frame, will depend on future developments, which are uncertain and cannot be predicted; however, any continued or renewed disruption resulting from these factors could negatively impact the Company’s business.

6


 

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated statements of cash flows that sum to the total of the same such amounts shown in the unaudited condensed consolidated statements of cash flows (in thousands):

 

 

 

March 31, 2024

 

 

March 31, 2023

 

 

 

Beginning of
period

 

 

End of
period

 

 

Beginning of
period

 

 

End of
period

 

Cash and cash equivalents

 

$

188,657

 

 

$

204,745

 

 

$

114,846

 

 

$

290,895

 

Restricted cash

 

 

5,770

 

 

 

5,770

 

 

 

5,770

 

 

 

5,770

 

Total cash, cash equivalents and restricted cash shown in
   the unaudited condensed consolidated statements of cash flows

 

$

194,427

 

 

$

210,515

 

 

$

120,616

 

 

$

296,665

 

Accounts Receivable

Accounts receivable are recorded net of customer allowances for distribution fees, prompt payment discounts, chargebacks, and credit losses. Allowances for distribution fees, prompt payment discounts and chargebacks are based on contractual terms. The Company estimated the current expected credit losses of its accounts receivable by assessing the risk of loss and available relevant information about collectability, including historical credit losses, existing contractual payment terms, actual payment patterns of its customers, individual customer circumstances, and reasonable and supportable forecast of economic conditions expected to exist throughout the contractual life of the receivable. The Company has not historically experienced significant credit losses. Based on its assessment, as of March 31, 2024 the Company determined that an allowance for credit loss was not required.

Revenues

The Company operates in one business segment. Results of its operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. Revenues consist of net product sales to customers, all of which are sales in the U.S. Revenues by product are as follows (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

NUPLAZID

 

$

129,923

 

 

$

118,462

 

DAYBUE

 

$

75,908

 

 

 

 

   Product sales, net

 

$

205,831

 

 

$

118,462

 

License Fees and Royalties

The Company expenses amounts paid to acquire licenses associated with products under development when the ultimate recoverability of the amounts paid is uncertain and the technology has no alternative future use when acquired. Acquisitions of technology licenses are charged to expense or capitalized based upon management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. The Company has determined that technological feasibility for its product candidates is reached when the requisite regulatory approvals are obtained to make the product available for sale.

The Company has capitalized a total of $119.6 million as intangible assets following the FDA approval and sale of DAYBUE pursuant to its 2018 license agreement with Neuren Pharmaceuticals Limited (Neuren), as disclosed in Note 9. The intangible assets are amortized on a straight-line basis over the estimated useful life of the licensed patents through early 2036. The Company recorded total amortization expense related to these intangible assets of $5.3 million for the three months ended March 31, 2024. As of March 31, 2024, estimated future amortization expense related to the Company’s intangible assets was $7.0 million for the remainder of 2024, and $9.4 million for each subsequent year.

Royalties incurred in connection with the Company’s license agreement with Neuren, as disclosed in Note 9, are expensed to cost of product sales as revenue from product sales is recognized.

7


 

Intangible Assets

Finite-lived intangible assets are recorded at cost, net of accumulated amortization, and, if applicable, impairment charges. Amortization of finite-lived intangible assets is recorded over the assets’ estimated useful lives on a straight-line basis or based on the pattern in which economic benefits are consumed, if reliably determinable. We review our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such intangible assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of intangible the assets exceeds the estimated fair value of the intangible assets. No impairment loss was recorded on intangible assets during the three months ended March 31, 2024 and 2023.

3. Earnings (Net Loss) Per Share

Basic earnings (net loss) per share is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (net loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares and common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of diluted earnings (net loss) per share calculation, equity awards and employee stock purchase plan rights are considered to be common stock equivalents.

 

 

Three Months Ended March 31,

 

(in thousands, except per share data)

 

2024

 

 

2023

 

Net income (loss) - basic and diluted

 

 

16,555

 

 

 

(43,021

)

Weighted average shares outstanding:

 

 

 

 

 

 

Basic

 

 

164,798

 

 

 

162,263

 

Effect of potentially dilutive common shares from:

 

 

 

 

 

 

Equity awards

 

 

1,729

 

 

 

 

Employee stock purchase plan rights

 

 

96

 

 

 

 

Diluted

 

 

166,623

 

 

 

162,263

 

 

 

 

 

 

 

 

Earnings (net loss) per share:

 

 

 

 

 

 

Basic

 

$

0.10

 

 

$

(0.27

)

Diluted

 

$

0.10

 

 

$

(0.27

)

 

 

 

 

 

 

 

Potentially dilutive shares excluded from per share amounts as their effect
   would have been anti-dilutive

 

 

15,081

 

 

 

20,764

 

 

4. Stock-Based Compensation

The following table summarizes the total stock-based compensation expense included in the Company’s unaudited condensed consolidated statements of operations for the periods presented (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cost of product sales

 

$

153

 

 

$

168

 

Research and development

 

 

4,093

 

 

 

3,972

 

Selling, general and administrative

 

 

10,504

 

 

 

10,565

 

 

 

$

14,750

 

 

$

14,705

 

The fair value of each employee stock option and each employee stock purchase plan right granted is estimated on the grant date under the fair value method using the Black-Scholes valuation model, which requires the Company to make a number of assumptions including the estimated expected life of the award and related volatility. The fair value of restricted stock units is estimated based on the market price of the Company’s common stock on the date of grant. The estimated fair values of stock options, purchase plan rights, and restricted stock units are then expensed over the requisite service period, which is generally the vesting period. For restricted stock units requiring satisfaction of both market and service conditions, the estimated fair values are generally expensed over the longest of the explicit, implicit and derived service periods. Performance-based stock awards vest upon the achievement of certain pre-defined company-specific performance-based criteria. Expense related to these performance-based stock awards is generally recognized ratably over the expected performance period once the pre-defined performance-based criteria for vesting becomes probable.

8


 

5. Balance Sheet Details

Inventory consisted of the following (in thousands):

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Finished goods

 

$

7,576

 

 

$

5,001

 

Work in process

 

 

5,549

 

 

 

4,134

 

Raw material

 

 

53,518

 

 

 

31,312

 

 

 

$

66,643

 

 

$

40,447

 

Reported as:

 

 

 

 

 

 

    Inventory

 

$

61,936

 

 

$

35,819

 

    Long-term inventory

 

 

4,707

 

 

 

4,628

 

    Total

 

$

66,643

 

 

$

40,447

 

Amount reported as long-term inventory consisted of raw materials as of March 31, 2024 and December 31, 2023. The Company has raw materials beyond a one year production plan that help limit the exposures from potential supply interruption. Those raw materials beyond the one year production plan were classified as long-term inventory.

Accrued liabilities consisted of the following (in thousands):

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Accrued sales allowances

 

$

122,436

 

 

$

90,718

 

Accrued contingent payments

 

 

79,583

 

 

 

29,583

 

Accrued compensation and benefits

 

 

26,061

 

 

 

42,718

 

Accrued research and development services

 

 

23,878

 

 

 

32,883

 

Accrued consulting and professional fees

 

 

19,684

 

 

 

18,804

 

Current portion of lease liabilities

 

 

10,453

 

 

 

9,405

 

Current portion of accrued branded prescription drug fees

 

 

7,836

 

 

 

718

 

Accrued royalties

 

 

7,591

 

 

 

8,710

 

Other

 

 

13,743

 

 

 

3,172

 

 

 

$

311,265

 

 

$

236,711

 

 

6. Investments

The carrying value and amortized cost of the Company’s investments, summarized by major security type, consisted of the following (in thousands):

 

 

 

March 31, 2024

 

 

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Estimated
Fair
Value

 

U.S. Treasury notes

 

$

112,854

 

 

$

3

 

 

$

(115

)

 

$

112,742

 

Government sponsored enterprise securities

 

 

153,153

 

 

 

7

 

 

 

(127

)

 

 

153,033

 

 

 

$

266,007

 

 

$

10

 

 

$

(242

)

 

$

265,775

 

 

 

 

December 31, 2023

 

 

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Estimated
Fair
Value

 

U.S. Treasury notes

 

$

75,315

 

 

$

47

 

 

$

(28

)

 

$

75,334

 

Government sponsored enterprise securities

 

 

174,867

 

 

 

119

 

 

 

(112

)

 

 

174,874

 

 

 

$

250,182

 

 

$

166

 

 

$

(140

)

 

$

250,208

 

The Company has classified all of its available-for-sale investment securities as current assets on its unaudited condensed consolidated balance sheets based on the highly liquid nature of the investment securities and because these investment securities are considered available for use in current operations. The Company has classified all equity securities as other assets on its unaudited condensed consolidated balance sheets.

9


 

At March 31, 2024 and December 31, 2023, the Company had 30 and 21 available-for-sale investment securities, respectively, in an unrealized loss position. The following table presents gross unrealized losses and fair value for those available-for-sale investment securities that were in an unrealized loss position as of March 31, 2024 and December 31, 2023, aggregated by investment category and length of time that the individual securities have been in a continuous loss position (in thousands):

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

 

Estimated
Fair Value

 

 

Unrealized
Losses

 

 

Estimated
Fair Value

 

 

Unrealized
Losses

 

 

Estimated
Fair Value

 

 

Unrealized
Losses

 

 

March 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury notes

 

$

80,951

 

 

$

(115

)

 

$

 

 

$

 

 

$

80,951

 

 

$

(115

)

 

Government sponsored enterprise securities

 

 

141,536

 

 

 

(127

)

 

 

 

 

 

 

 

 

141,536

 

 

 

(127

)

 

Total

 

$

222,487

 

 

$

(242

)

 

$

 

 

$

 

 

$

222,487

 

 

$

(242

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

 

Estimated
Fair Value

 

 

Unrealized
Losses

 

 

Estimated
Fair Value

 

 

Unrealized
Losses

 

 

Estimated
Fair Value

 

 

Unrealized
Losses

 

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury notes

 

$

41,366

 

 

$

(28

)

 

$

 

 

$

 

 

$

41,366

 

 

$

(28

)

 

Government sponsored enterprise securities

 

 

108,587

 

 

 

(112

)

 

 

 

 

 

 

 

 

108,587

 

 

 

(112

)

 

Total

 

$

149,953

 

 

$

(140

)

 

$

 

 

$

 

 

$

149,953

 

 

$

(140

)

 

At each reporting date, the Company performs an evaluation of impairment to determine if any unrealized losses are the result of credit losses. Impairment is assessed at the individual security level. Factors considered in determining whether a loss resulted from a credit loss or other factors include the Company’s intent and ability to hold the investment until the recovery of its amortized cost basis, the extent to which the fair value is less than the amortized cost basis, the length of time and extent to which fair value has been less than the cost basis, the financial condition of the issuer, any historical failure of the issuer to make scheduled interest or principal payments, any changes to the rating of the security by a rating agency, any adverse legal or regulatory events affecting the issuer or issuer’s industry, any significant deterioration in economic conditions.

As of March 31, 2024, the Company did not intend to sell the investments in unrealized loss position and it was unlikely that the Company will be required to sell the investments before the recovery of their amortized cost basis. The Company has not historically experienced significant losses on its investments. Based on its evaluation, the Company determined its year-to-date credit losses related to its available-for-sale securities were immaterial at March 31, 2024.

7. Fair Value Measurements

The Company’s investments include cash equivalents, available-for-sale investment securities consisting of money market funds, municipal bonds, and government sponsored enterprises in accordance with the Company’s investment policy, and equity securities. The Company’s investment policy defines allowable investment securities and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity. All investment securities have a credit rating of at least Aa3/AA- or better, or P-1/A-1 or better, as determined by Moody’s Investors Service or Standard & Poor’s.

The Company’s cash equivalents, available-for-sale investment securities and equity securities are classified within the fair value hierarchy as defined by authoritative guidance. The Company’s investment securities and equity securities classified as Level 1 are valued using quoted market prices. The Company obtains the fair value of its Level 2 financial instruments from third-party pricing services. The pricing services utilize industry standard valuation models whereby all significant inputs, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, or other market-related data, are observable. The Company validates the prices provided by the third-party pricing services by reviewing their pricing methods and matrices, and obtaining market values from other pricing sources. After completing the validation procedures, the Company did not adjust or override any fair value measurements provided by these pricing services as of March 31, 2024 and December 31, 2023.

10


 

In November 2021, the Company established a plan whereby substantially all full-time employees excluding executive management are eligible to receive a series of cash bonuses based on achievement of certain conditions as described in more detail in Note 8 to the unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q (this Quarterly Report). The Company estimated the fair value of the cash awards using a Monte Carlo simulation, which utilizes level 3 inputs such as volatility, probabilities of success, and other inputs that are not observable in active markets. The cash awards are required to be measured at fair value on a recurring basis each reporting period, with changes in the fair value recognized as compensation cost over the derived service period of the awards.

The Company has not transferred any investment securities between the classification levels.

The recurring fair value measurements of the Company’s financial assets and liabilities measured at March 31, 2024 and December 31, 2023 consisted of the following (in thousands):

 

 

 

 

 

 

Fair Value Measurements at
Reporting Date Using

 

 

 

March 31,
2024

 

 

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

 

 

Significant
Other
Observable
Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs
(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

51,877

 

 

$

51,877

 

 

$

 

 

$

 

U.S. Treasury notes

 

 

112,741

 

 

 

112,741

 

 

 

 

 

 

 

Government sponsored enterprise securities

 

 

153,033

 

 

 

 

 

 

153,033

 

 

 

 

    Total

 

$

317,651

 

 

$

164,618

 

 

$

153,033

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Cash awards

 

$

200

 

 

$

 

 

$

 

 

$

200

 

    Total

 

$

200

 

 

$

 

 

$

 

 

$

200

 

 

 

 

 

 

 

Fair Value Measurements at
Reporting Date Using

 

 

 

December 31,
2023

 

 

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

 

 

Significant
Other
Observable
Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs
(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

64,586

 

 

$

64,586

 

 

$

 

 

$

 

U.S. Treasury notes

 

 

75,334

 

 

 

75,334

 

 

 

 

 

 

 

Government sponsored enterprise securities

 

 

174,874

 

 

 

 

 

 

174,874

 

 

 

 

    Total

 

$

314,794

 

 

$

139,920

 

 

$

174,874

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Cash awards

 

$

4,506

 

 

$

 

 

$

 

 

$

4,506

 

    Total

 

$

4,506

 

 

$

 

 

$

 

 

$

4,506

 

Changes in estimated fair value of contingent cash awards during the three months ended March 31, 2024 are as follows (in thousands):

Balance as of December 31, 2023

 

$

4,506

 

Vesting of awards

 

 

(142

)

Expense forfeited

 

 

(117

)

Change in fair value

 

 

(4,047

)

Balance as of March 31, 2024

 

$

200

 

 

11


 

8. Stockholders’ Equity

Performance Stock Units

In March 2024, the Company began to issue performance stock units (PSU) with a market condition that are earned based on the Company’s relative total stockholder return (rTSR) as compared to a peer group of companies measured over a three-year performance period and continued employment through the performance period. Depending on the actual performance over the measurement period, a rTSR PSU award recipient could receive up to 150% of the granted award. The grant date fair value of such awards is estimated using a Monte Carlo simulation, which includes assumptions such as expected volatility, risk-free interest rate and dividend yield. These unobservable inputs represent a Level 3 measurement because they are supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value. The compensation expense for the awards is recognized over the requisite service period regardless of whether the market conditions are achieved and will only be adjusted for pre-vesting forfeitures due to the termination of the recipient’s employment with the Company prior to the end of the performance period. As of March 31, 2024, there were approximately 374,603 PSU with a rTSR market condition outstanding, representing the maximum 150% of the original grant that could be received.

Contingent Cash Awards

In November 2021, the Company established a plan whereby substantially all full-time employees excluding executive management are eligible to receive a series of cash bonuses over certain periods based on continued employment and the Company’s stock price reaching a pre-specified target. The maximum potential payout of the cash awards at the grant date was $15.1 million. The Company has determined that the cash awards were classified as liabilities pursuant to ASC Topic 718, Compensation – Stock Compensation. The Company estimates the fair value of the awards at each reporting period using a Monte Carlo simulation, which is recognized as compensation cost over the derived service period. Total fair value of the awards at the grant date was $4.4 million. The maximum potential payout at March 31, 2024 after adjusting for forfeitures was $9.9 million. The fair value of the awards at March 31, 2024 was approximately $0.2 million. During the three months ended March 31, 2024, the Company recorded a reversal of $4.3 million of compensation cost related to the awards. During the three months ended March 31, 2023, the Company recorded $0.3 million of compensation cost related to the awards.

2023 Inducement Plan

The Board adopted the Company’s 2023 Inducement Plan (Inducement Plan) on February 1, 2023. The Inducement Plan permits the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards and other stock-related awards. Stock awards granted under the Inducement Plan may only be made to individuals who did not previously serve as employees or non-employee directors of the Company or an affiliate of the Company. In addition, stock awards must be approved by either a majority of the Company’s independent directors or the Compensation Committee. The terms of the Inducement Plan are otherwise substantially similar to the Company’s 2010 Equity Incentive Plan. The maximum number of shares of Company common stock that may be issued under the Inducement Plan is 1,750,000 shares. At March 31, 2024, there were 408,356 shares available for new grants.

9. Commitments and Contingencies

Collaboration, License and Merger Agreements

The Company has entered into various collaboration, licensing and merger agreements which provide the Company with rights to certain know-how, technology and patent rights. The agreements generally include upfront license fees, development and commercial milestone payments upon achievement of certain clinical and commercial development and annual net sales milestones, as well as royalties calculated as a percentage of product revenues, with rates that vary by agreement. As of March 31, 2024, the Company may be required to make milestone payments up to $3.4 billion in the aggregate for candidates in its pipeline, of which, $50.0 million was deemed probable of occurring and may be paid in the next 12 months for the first calendar year in which annual net sales of trofinetide in North America for the treatment of Rett syndrome exceeds $250.0 million pursuant to the 2018 license agreement with Neuren as described below. As of March 31, 2024, the Company capitalized the $50.0 million milestone payment as an intangible asset and began amortizing it on a straight-line basis over the estimated useful life of the licensed patents with a cumulative catch-up from the date of regulatory approval to March 31, 2024.

12


 

In August 2018, the Company entered into a license agreement with Neuren and obtained exclusive North American rights to develop and commercialize trofinetide for Rett syndrome and other indications. Under the terms of the agreement, the Company paid Neuren an upfront license fee of $10.0 million and it may be required to pay up to an additional $455.0 million in milestone payments based on the achievement of certain development and annual net sales milestones. In addition, the Company will be required to pay Neuren tiered, escalating, double-digit percentage royalties based on net sales. The license agreement was accounted for as an asset acquisition and the upfront cash payment of $10.0 million was expensed to research and development in the third quarter of 2018 as there is no alternative use for the asset. In connection with the FDA approval of DAYBUE, the Company paid a milestone payment of $40.0 million to Neuren following the first commercial sale of DAYBUE pursuant to the license agreement. The Company capitalized the $40.0 million milestone payment as an intangible asset as it was deemed probable of occurring as of March 31, 2023. In addition, the Company was granted a Rare Pediatric Disease PRV following the FDA approval of DAYBUE. Pursuant to the license agreement, the Company is required to pay Neuren one third of the value of the PRV at the time of sale or use of the PRV. The Company capitalized the $29.6 million for the estimated PRV value owed to Neuren as an intangible asset.

In July 2023, the Company expanded its licensing agreement for trofinetide with Neuren to acquire rights to the drug outside of North America as well as global rights in Rett syndrome and Fragile X syndrome to Neuren’s development candidate NNZ-2591. Under the terms of the expanded agreement, Neuren received an upfront payment of $100.0 million and is eligible to receive up to an additional $426.3 million in milestone payments based on the achievement of certain commercial and sales milestones for trofinetide outside of North America and up to $831.3 million in milestone payments based on the achievement of certain development and sales milestones for NNZ-2591. In addition, the Company will be required to pay Neuren tiered royalties from the mid-teens to low-twenties percent of trofinetide net sales outside of North America. Percentage royalties related to NNZ-2591 net sales are identical to the trofinetide in each of North America and outside North America. The expanded license agreement was accounted for as an asset acquisition and the upfront cash payment of $100.0 million was expensed to research and development in the third quarter of 2023 as there is no alternative use for the asset.

In January 2022, the Company entered into a license and collaboration agreement with Stoke Therapeutics, Inc. (Stoke) to discover, develop and commercialize novel RNA-based medicines for the potential treatment of severe and rare genetic neurodevelopmental diseases of the CNS. The collaboration includes SYNGAP1 syndrome, Rett syndrome (MECP2), and an undisclosed neurodevelopmental target. For the SYNGAP1 program, the two companies will jointly share global research, development and commercialization responsibilities and share 50/50 in all worldwide costs and future profits. In addition, Stoke is eligible to receive potential development, regulatory, first commercial sales and sales milestones. For the MECP2 program and the undisclosed neurodevelopmental program, the Company acquired an exclusive worldwide license to develop and commercialize MECP2 program and the undisclosed neurodevelopmental program. Stoke will lead research and pre-clinical development activities, while the Company will lead clinical development and commercialization activities. The Company will fund research and pre-clinical development activities related to these two targets and Stoke is eligible to receive potential development, regulatory, first commercial sales and sales milestones as well as tiered royalty payments on worldwide sales starting in the mid-single digit range and escalating to the mid-teens based on revenue levels. Under the terms of the agreement, the Company paid Stoke a $60.0 million upfront payment which was accounted for as an asset acquisition and was expensed to research and development in the first quarter of 2022 as there is no alternative use for the asset. The Company may be required to pay up to an additional $907.5 million in milestones as well as royalties on future sales.

Corporate Credit Card Program

In connection with the Company’s credit card program, the Company established a letter of credit for $2.0 million, which has automatic annual extensions and is fully secured by restricted cash.

Fleet Program

In connection with the Company’s fleet program, the Company established a letter of credit for $0.4 million, which has automatic annual extensions and is fully secured by restricted cash.

Legal Proceedings

Patent Infringement

On July 24, 2020, the Company filed complaints against (i) Aurobindo Pharma Limited and its affiliate Aurobindo Pharma USA, Inc. and (ii) Teva Pharmaceuticals USA, Inc. and its affiliate Teva Pharmaceutical Industries Ltd., and on July 30, 2020, the Company filed complaints against (i) Hetero Labs Limited and its affiliates Hetero Labs Limited Unit-V and Hetero USA Inc., (ii) MSN Laboratories Private Ltd. and its affiliate MSN Pharmaceuticals, Inc., and (iii) Zydus Pharmaceuticals (USA) Inc. and its affiliate Cadila Healthcare Limited. These complaints, which were filed in the United States District Court for the District of

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Delaware, allege infringement of certain of the Company’s Orange Book-listed patents covering NUPLAZID (Pimavanserin I Cases). The cases have been assigned to the Honorable Richard G. Andrews. On September 1, 2020, Aurobindo filed its answer and counterclaims seeking declaratory judgments of noninfringement and invalidity. On September 22, 2020, the Company filed its answer to Aurobindo’s counterclaims. On August 31, 2020, Teva filed its answer and counterclaims seeking declaratory judgments of noninfringement and invalidity. On September 21, 2020, the Company filed its answer to Teva’s counterclaims. On October 5, 2020, Hetero filed its answer and counterclaims seeking declaratory judgments of noninfringement and invalidity. On October 26, 2020, the Company filed its answer to Hetero’s counterclaims. On September 30, 2020, MSN filed its answer and counterclaims seeking declaratory judgments of noninfringement and invalidity regarding certain of the Company’s Orange Book-listed patents covering NUPLAZID. On November 5, 2020, the Company filed its first amended complaint against MSN in the United States District Court for the District of Delaware, alleging infringement of certain of the Company’s Orange Book-listed patents covering NUPLAZID. On November 19, 2020, MSN filed its answer and counterclaims seeking declaratory judgments of noninfringement and invalidity regarding certain of the Company’s Orange Book-listed patents covering NUPLAZID. On December 10, 2020, the Company filed its answer to MSN’s counterclaims. On November 2, 2020, Zydus filed its answer and counterclaims seeking declaratory judgments of noninfringement and invalidity. On November 23, 2020, the Company filed its answer to Zydus’s counterclaims. On December 8, 2020, the parties’ joint proposed scheduling order was entered by Judge Andrews. On April 7, 2021, the Company filed its first amended complaints against Hetero and Teva and its second amended complaint against MSN, to include an additional Orange Book-listed patent covering NUPLAZID. On April 8, 2021, the Company filed its first amended complaint against Zydus and on April 9, 2021, the Company filed its first amended complaint against Aurobindo. On April 20, 2021, MSN filed its answer, affirmative defenses, and counterclaims to the Company’s second amended complaint, seeking declaratory judgments of noninfringement and invalidity regarding certain of the Company’s Orange Book-listed patents covering NUPLAZID. On April 21, 2021, Teva filed its answer, affirmative defenses, and counterclaims to the Company’s first amended complaint, seeking declaratory judgments of noninfringement and invalidity. On April 22, 2021, Zydus filed its answer, affirmative defenses, and counterclaims to the Company’s first amended complaint, seeking declaratory judgments of noninfringement and invalidity.

On April 22, 2021, Aurobindo filed its answer, affirmative defenses, and counterclaims to the Company’s first amended complaint, seeking declaratory judgments of noninfringement and invalidity. On May 11, 2021, the Company filed its answer to MSN’s counterclaims. On May 12, the Company filed its answer to Teva’s counterclaims. On May 13, the Company filed its answer to Zydus’s counterclaims and its answer to Aurobindo’s counterclaims. The Company entered into an agreement effective April 22, 2021 with Hetero settling all claims and counterclaims in the litigation. The agreement allows Hetero to launch its generic pimavanserin product on February 27, 2038, subject to certain triggers for earlier launch. The Hetero case was dismissed by joint agreement on May 3, 2021.

On August 27, 2021, the Company filed its second amended complaint against Zydus to include an additional Orange Book-listed patent covering NUPLAZID. On September 10, 2021, Zydus filed its answer, affirmative defenses, and counterclaims to the Company’s second amended complaint, seeking declaratory judgments of noninfringement and invalidity. Also on September 10, 2021, the parties filed their Joint Claim Construction Chart. On October 1, 2021, the Company filed its answer to Zydus’s counterclaims. On November 30, 2021, the Company filed a stipulation and proposed order to dismiss two of its Orange Book-listed patents covering NUPLAZID against Teva, which was ordered by the Court on December 1, 2021. On January 28, 2022, the parties filed their Joint Claim Construction Brief and Appendix. On February 23, 2022, the Court heard oral argument on claim construction. On April 6, 2022, the Court issued a Memorandum Opinion construing several terms at issue, adopting the Company’s construction on two terms, Defendants’ construction on two terms, and one agreed-upon construction. On February 28, 2022, the Company filed a stipulation and proposed order to dismiss one patent against MSN, which was ordered by the Court on March 1, 2022. On March 10, 2022, the Company filed a stipulation and proposed order to dismiss one patent against Teva, which was ordered by the Court on March 10, 2022. On March 22, 2022, the Company filed a stipulation and proposed order to dismiss seven patents against Aurobindo, which was ordered by the Court on March 22, 2022. On March 30, 2022, the Company filed a stipulation and proposed order to dismiss two patents against Zydus, which was ordered by the Court on March 31, 2022. On April 22, 2022, the Company filed a stipulation and proposed order of non-infringement against Aurobindo regarding certain of the Company’s Orange Book-listed patents covering NUPLAZID, which was ordered by the Court on April 22, 2022. On April 26, 2022, the Company filed a stipulation and proposed order of non-infringement against MSN regarding certain of the Company’s Orange Book-listed patents covering NUPLAZID, which was ordered by the Court on April 26, 2022. On April 26, 2022, the Company filed a stipulation and proposed order of non-infringement against Teva regarding certain of the Company’s Orange Book-listed patents covering NUPLAZID, which was ordered by the Court on April 27, 2022. On May 10, 2022, the Company filed its second amended complaint against Teva to include an additional Orange Book-listed patent covering NUPLAZID. On May 18, 2022, the Company filed a stipulation and proposed order of non-infringement against Zydus regarding certain of the Company’s Orange Book-listed patents covering NUPLAZID, which was ordered by the Court on May 19, 2022. On May 24, 2022, Teva filed its answer, affirmative defenses, and counterclaims to the Company’s second amended complaint, seeking declaratory judgments of noninfringement and invalidity regarding certain of the Company’s Orange Book-listed patents covering NUPLAZID. On June 1, 2022, the Company filed its second amended complaint against Aurobindo alleging infringement of certain of the Company’s Orange Book-listed patents covering NUPLAZID. On June 2, 2022, the Company filed its third amended complaint against Zydus alleging infringement of certain of the

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Company’s Orange Book-listed patents covering NUPLAZID. On June 14, 2022, the Company filed its answer to Teva’s counterclaims. June 15, 2022, Aurobindo filed its answer, affirmative defenses, and counterclaims to the Company’s second amended complaint, seeking declaratory judgments of noninfringement and invalidity regarding certain of the Company’s Orange Book-listed patents covering NUPLAZID. On June 16, 2022, Zydus filed its answer, affirmative defenses, and counterclaims to the Company’s third amended complaint, seeking declaratory judgments of noninfringement and invalidity regarding certain of the Company’s Orange Book-listed patents covering NUPLAZID. On July 6, 2022, the Company filed its answer to Aurobindo’s counterclaims.

On September 7, 2022, the consolidated cases were reassigned to the Honorable Judge Gregory B. Williams. On September 30, 2022, the Company filed a stipulation and proposed order to stay the claims currently asserted against Teva and for Teva to be bound by the result of the litigation rendered against the remaining Defendants, which was ordered by the Court on October 4, 2022. On October 21, 2022, the Company filed complaints against Aurobindo, MSN and Zydus in the United States District Court for the District of Delaware alleging infringement of an additional Orange Book-listed patent covering NUPLAZID (Pimavanserin II Cases).

On March 29, 2023, following Aurobindo’s conversion of various patent certifications from Paragraph IV certifications to Paragraph III certifications in connection with the Pimavanserin I Case, the Company filed a stipulation and proposed order in the Pimavanserin I Case to dismiss the remaining asserted patents against Aurobindo. This stipulation was ordered by the Court on March 30, 2023.

The Company entered into an agreement, effective March 31, 2023, with Zydus settling all claims and counterclaims in the Pimavanserin I Cases and Pimavanserin II Cases. The agreement allows Zydus to launch its generic pimavanserin 10 mg products on September 23, 2036 and 34 mg products on February 27, 2038, subject to certain triggers for earlier launch. On April 4, 2023, the Company filed a stipulation and proposed order to dismiss all claims and counterclaims between the Company and Zydus in the Pimavanserin I Cases and Pimavanserin II Cases, which was ordered by the Court on April 5, 2023.

As a result of the above, only MSN remained as an active defendant in the Pimavanserin I Cases. On April 6, 2023, the Company and MSN filed a stipulation and proposed order requesting adjournment of the final pre-trial conference and trial, and requesting resolution of the remaining issue – MSN’s validity challenge of the sole patent in suit – through summary judgment briefing by the parties, which was ordered by the Court on April 10, 2023. Briefing was completed on June 28, 2023 and oral argument took place on September 27, 2023. On December 13, 2023, the Court ruled in the Company’s favor on the summary judgment motions – denying MSN’s motion for summary judgment of invalidity and granting the Company’s cross-motion for no invalidity. MSN had previously stipulated to infringement of the patent-in-suit. On January 11, 2024, the District Court entered final judgment in the Company’s favor that MSN’s submission of ANDA No. 214925 was an act of infringement in the Pimavanserin I Case. On January 18, 2024, MSN filed a Notice of Appeal to the United States Court of Appeals for the Federal Circuit from the December 13, 2023 Memorandum Order of the United States District Court for the District of Delaware, and final judgment entered on January 11, 2024. On February 12, 2024, the Company filed an Entry of Appearance for the appeal to the United States Court of Appeals for the Federal Circuit. MSN’s Opening Appeal Brief was filed on March 29, 2024, with Company’s Response Brief due on May 29, 2024 and MSN’s Reply Brief due 60 days thereafter.

In connection with the Pimavanserin II cases, MSN and Aurobindo are the remaining defendants. On December 13, 2023, the Court issued a claim construction order finding in favor of the Company on all disputed terms of the patent-in-suit. Fact discovery closed on March 21, 2024. Trial is scheduled in the matter for December 3, 2024 to December 5, 2024.

Securities Class Action

On April 19, 2021, a purported stockholder of the Company filed a putative securities class action complaint (captioned Marechal v. Acadia Pharmaceuticals, Inc., Case No. 21-cv-0762) in the U.S. District Court for the Southern District of California against the Company and certain of the Company’s current executive officers. On September 29, 2021, the Court issued an order designating lead plaintiff and lead counsel. On December 10, 2021, lead plaintiff filed an amended complaint. The amended complaint generally alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, by failing to disclose that the materials submitted in support of its Supplemental New Drug Application (sNDA) seeking approval of pimavanserin for the treatment of hallucinations and delusions associated with dementia-related psychosis contained statistical and design deficiencies and that the FDA was unlikely to approve the sNDA in its current form. The amended complaint seeks unspecified monetary damages and other relief. On March 11, 2024, the Court granted plaintiffs’ motion for class certification and appointment of class representatives and class counsel. The parties are currently engaged in discovery. The cutoff for fact discovery is July 15, 2024.

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Opt Out Litigation

On March 7, 2024, a purported stockholder of the Company filed a complaint (captioned Alger Dynamic Opportunities Fund v. Acadia Pharmaceuticals, Inc., Case No. 24-cv-00451) in the U.S. District Court for the Southern District of California against the Company and one executive officer. The complaint, which is based on the same underlying allegations as the Securities Class Action, asserts claims under federal and state securities laws, and for common law fraud and negligent misrepresentations. Defendants deadline to respond to the complaint is May 13, 2024.

Derivative Suit

On December 15, 2023, a purported stockholder of the Company filed a derivative action (captioned Kanner et al v. Biggar et al., Case No. 23-cv-2293) in the U.S. District Court for the Southern District of California against certain of the Company’s current directors. The Company is named as a nominal defendant. The complaint is based on the same alleged misconduct as the Securities Class Action, and asserts state law claims, on behalf of the Company, against the individual defendants for breach of fiduciary duty, unjust enrichment, abuse of control, waste of corporate assets, and insider trading. The complaint also asserts federal claims under sections 10(b), 21D, and 14(a) of the Securities Exchange Act of 1934, as amended. On December 27, 2023, the action was reassigned to District Judge William Q. Hayes and Magistrate Judge Michael S. Berg due to its relation to the Securities Class Action. On January 30, 2024, the parties jointly requested a stay of the action. The Court granted that request and the action was stayed on February 20, 2024, pending the outcome of our Demand Review Committee’s investigation into the underlying claims.

Given the unpredictability inherent in litigation, the Company cannot predict the outcome of these matters. The Company is unable to estimate possible losses or ranges of losses that may result from these matters, and therefore it has not accrued any amounts in connection with these matters other than attorneys’ fees incurred to date.

10. Leases

The Company leases facilities and certain equipment under noncancelable operating leases with remaining lease terms of 0.7 years to 7.2 years, some of which include options to extend for up to two five-year terms. These optional periods were not considered in the determination of the right-of-use asset or the lease liability as the Company did not consider it reasonably certain that it would exercise such options.

The operating lease costs were as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating lease cost

 

$

2,810

 

 

$

2,181

 

Operating sublease income

 

 

(286

)

 

 

 

Net operating lease cost

 

$

2,524

 

 

$

2,181

 

Supplemental cash flow information related to the Company’s leases were as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

2,405

 

 

$

2,370

 

Right-of-use assets obtained in exchange for operating lease obligations:

 

 

4,184

 

 

 

304

 

The balance sheet classification of the Company’s lease liabilities was as follows (in thousands):

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Operating lease liabilities

 

 

 

 

 

 

Current portion included in accrued liabilities

 

$

10,453

 

 

$

9,405

 

Operating lease liabilities

 

 

49,189

 

 

 

47,800

 

Total operating lease liabilities

 

$

59,642

 

 

$

57,205

 

 

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Maturities of lease liabilities were as follows (in thousands):

 

 

 

Operating Leases

 

Remainder of 2024

 

$

8,067

 

Years ending December 31,

 

 

 

2025

 

 

10,818

 

2026

 

 

10,182

 

2027

 

 

9,940

 

2028

 

 

9,520

 

Thereafter

 

 

20,606