ACADIA Pharmaceuticals Annual Report 2022

Plain-text annual report

2022 ANNUAL REPORT Monumental new medicines for patients. Seminal achievements for Acadia. ACADIA IS ADVANCING BREAKTHROUGHS IN NEUROSCIENCE TO ELEVATE LIFE. For almost 30 years, we have been working at the forefront of healthcare to bring vital solutions to people who need them most. With the approval of our second FDA-approved therapy, DAYBUE™, for treating Rett syndrome, we have broadened our treatment areas to include rare central nervous system (CNS) disorders. • NUPLAZID® (pimavanserin) is the ﬁrst and only FDA-approved treatment for hallucinations and delusions associated with Parkinson's disease psychosis. • DAYBUETM (troﬁnetide) is the ﬁrst and only FDA-approved treatment for Rett syndrome. Acadia's clinical-stage development efforts focus on treating the negative symptoms of schizophrenia, Alzheimer's disease psychosis, and neuropsychiatric symptoms in central nervous system disorders. DEAR SHAREHOLDERS, With the recent FDA approval of DAYBUE™ (troﬁnetide) for Rett syndrome in March 2023, I am proud to share that Acadia has now developed and commercialized two ﬁrst-and-only FDA approved products for central nervous system (CNS) disorders with high unmet need. Acadia has proven its ability to bring meaningful new drugs to the market through both internal and external discovery. Pimavanserin was originally developed by Acadia and has been successfully commercialized as NUPLAZID® for the treatment of Parkinson’s disease psychosis (PDP) since April 2016. Troﬁnetide was identiﬁed and licensed through our business development team. Our clinical development team conducted a positive pivotal program, and our commercial team has just launched DAYBUE as a treatment for Rett syndrome. As we build the foundation for sustained long term growth, we are focused on: • • • The successful launch of DAYBUE for the treatment of Rett syndrome. Continuing to grow and maximize the proﬁtability of our NUPLAZID franchise for PDP. Developing the next wave of CNS breakthroughs by advancing our pipeline programs which include potential treatments for the negative symptoms of schizophrenia, Alzheimer's disease psychosis, and rare genetic neurodevelopmental diseases. Delivering DAYBUE to the Rett Syndrome Community The successful FDA approval of DAYBUE was a seminal moment for Acadia and represents newfound hope for the Rett syndrome community. Rett syndrome is a profoundly debilitating and complex, rare, neurodevelopmental disorder, typically caused by a genetic mutation on the MECP2 gene. It is characterized by a period of normal development until six to 18 months of age, followed by signiﬁcant developmental regression that can lead to an array of unpredictable symptoms throughout the course of a patient’s life requiring round-the-clock care. Rett syndrome is believed to affect 6,000 to 9,000 patients in the U.S., with 4,500 U.S. patients who are currently diagnosed and cared for today. The FDA approval of DAYBUE was supported by results from the positive pivotal Phase 3 LAVENDER study. The study achieved statistical signiﬁcance on both of its co-primary endpoints, demonstrating meaningful improvement on the Rett Syndrome Behaviour Questionnaire (RSBQ) total score (p=0.018), a caregiver assessment of Rett syndrome, and the Clinical Global Impression-Improvement (CGI-I) scale score (p=0.003) at week 12, a caregiver assessment. As the ﬁrst FDA-approved drug for the treatment of Rett syndrome, DAYBUE now offers the potential to make meaningful differences in the lives of patients and their families who have lacked options to address the range of core behavioral, communication and motor symptoms of Rett syndrome. Our commercial organization is well-prepared to educate the Rett community on the potential beneﬁts of DAYBUE. ﬁeld base reps who will promote DAYBUE to healthcare providers and institutions. Supporting our efforts will be our team of Medical Science Liaisons who will help deliver important scientiﬁc information and clinical education about DAYBUE. We have expanded our Acadia Connect® support services hub to provide ongoing support to patients and their families. Our commitment is to be there for our patients, families and healthcare providers from the very beginning and throughout their DAYBUE treatment journey. Building on the Foundation of NUPLAZID (pimavanserin) in PDP Over the past few years, we've strategically grown and maximized the proﬁtability of our NUPLAZID franchise despite operating in a Parkinson’s market that was disproportionately affected by the global pandemic. As a result, we have been able to deliver steady prescription volumes in a smaller Parkinson’s population while concurrently optimizing and reducing our NUPLAZID expense base. As a result, we have signiﬁcantly grown cash ﬂow from this franchise every year since it turned proﬁtable in 2019. As we look ahead, there are two opportunities that support the NUPLAZID business: • • One is a change in the pandemic conditions related to the PDP market, which we believe is a temporal situation and will normalize at some point in the future. Two, is the assimilation in the medical community of three very important new publications that demonstrate the beneﬁts of pimavanserin as a ﬁrst-line treatment option for PDP. Two studies1,2 describe a lower mortality risk between treatment with NUPLAZID as compared to off-label antipsychotics. A third study3 highlights the differences in healthcare utilization when treating with NUPLAZID as compared to off-label antipsychotics, including lower all-cause hospitalizations and emergency room visits. We have invested in expanding our commercial organization to successfully launch this ﬁrst-in-class, ﬁrst-to-market drug for a rare disease with such a high unmet need. We have hired experienced These data allow us to engage in a meaningful dialogue with physicians and provide us with a patient-focused and critically important message to further differentiate NUPLAZID. Advancing Our Pipeline Pimavanserin for Negative Symptoms of Schizophrenia Pimavanserin is in Phase 3 development for treating the negative symptoms of schizophrenia - patients whose hallucinations, delusions, and paranoia are adequately controlled but still suffer from persistent social withdrawal and lack of emotional response. We have completed one positive pivotal study, ADVANCE-1, where pimavanserin demonstrated statistically signiﬁcant improvement of negative symptoms compared placebo. Today we are focused on completing enrollment in our second pivotal study, ADVANCE-2, with results expected in early 2024. If the ADVANCE-2 study results are positive, we plan to submit a supplemental New Drug Application for pimavanserin in this indication. ACP-204 for Alzheimer's Disease Psychosis ACP-204 is our leading second-generation 5-HT2A blocker designed to leverage our learnings and experience with pimavanserin. Like pimavanserin, ACP-204 is designed to provide anti-psychotic relief with a favorable tolerability proﬁle. Additional design features include a faster onset of action while reducing or eliminating QT prolongation, a common trait of anti-psychotic therapies. We are completing Phase 1 development and look forward to advancing ACP-204 into Phase 2 studies later in 2023. RNA-Based Treatments for Rare Genetic Neurodevelopmental Diseases Combining Acadia's neurology drug development and commercialization expertise with our partner, Stoke Therapeutics’ research platform, we are advancing novel RNA-based medicines for treating rare genetic neurodevelopmental diseases. Stoke Therapeutics is a biotechnology company dedicated to addressing the underlying cause of severe diseases by upregulating protein expression with RNA-based medicines. This collaboration includes SYNGAP1 syndrome, Rett syndrome (MECP2), and an undisclosed neurodevelopmental target of mutual interest. Our Mission…Elevate Life Developing breakthroughs in neuroscience is challenging. We are proud to have brought two ﬁrst-and-only FDA approved products to market for difficult-to-treat central nervous system disorders and are driven by the opportunity to improve lives in these vulnerable populations. Our pipeline of new opportunities is exciting, and our future is bright. I'm forever grateful for the employees, physicians, patients, and families, together with our shareholders, who support our mission to elevate life! Stephen R. Davis Chief Executive Officer April 2023 References: 1 Mosholder AD, et al. Am J Psychiatry. 2022;179(8):553-561. Medicare beneﬁciaries (Parts A,B,D) – Apr.’16-Mar.’19 2 Layton JB, et al. Drug Safety. Published online 14 Dec 22. Medicare beneﬁciaries (Parts A,B,D) MDS 3.0 assessment – Apr. ‘16-Dec.’19 3 Kumar S. et al., Journal of Medical Economics 2023 Vol. 26 No.1,34-42. Retrospective cohort analysis of Parts A, B, and D claims from 100% Medicare sample from Jan.’13-Dec.’19 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiff scal year ended December 31, 2022 Or ☐ TRARR NSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period frff om to Commission File Number: 000-50768 ACADIA PHARMACEUTICALS INC. (Exact Name of Registrant as Specififf ed in Its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 12830 El Camino Real, Suite 400 San Diego, Califorff nia (Address of Principal Executive Offff iff ces) 06-1376651 (I.R.S. Employer Identififf cation Number) 92130 (Zip Code) Registrant’s telephone number, including area code: (858) 558-2871 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, par value $0.0001 per share Trading Symbol(s) ACAD Securities registered pursuant to Section 12(g) of the Act: None Name of each exchange on which registered The Nasdaq Stock Market LLC Indicate by check mark if the registrant is a well-known seasoned issuer, as defiff ned in RulRR e 405 of the Securities Act. Yes ☒ No ☐ Indicate by check mark if the registrant is not required to fiff le reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has fiff led all reports required to be fiff led by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past such shorter period that the registrant was required to fiff le such reports), and (2) has been subject to such fiff ling requirements forff the preceding 12 months (or forff 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically everyrr Regulation S-T (§ 232.405 of this chapta er) during the preceding 12 months (or forff No ☐ Interactive Data File required to be submitted pursuant to RulRR e 405 of such shorter period that the registrant was required to submit such fiff les). Yes ☒ Indicate by check mark whether the registrant is a large accelerated fiff ler, an accelerated fiff ler, a non-accelerated fiff ler, a smaller reporting company, or an emerging growth company. See defiff nitions of “large accelerated fiff ler”, “accelerated fiff ler”, “smaller reporting company” and “emerging growth company” in RuRR le 12b-2 of the Securities Exchange Act of 1934: Large accelerated fiff ler ☒ Non-accelerated fiff ler ☐ (Do not check if a smaller reporting company) Accelerated fiff ler ☐ 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 forff complying with any new or revised fiff nancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has fiff led a report on and attestation to its management’s assessment of the effff eff ctiveness of its internal control over fiff nancial reporting under Section 404(b) of the Sarbar nes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting fiff rm that prepared or issued its audit report. ☒ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive oﬃcers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the registrant is a shell company (as defiff ned in RulRR e 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒ As of June 30, 2022, the last business day of the registrant’s most recently completed second fiff scal quarter, the aggregate market value of the registrant’s common stock held by non-affff iff liates of the registrant was appr Select Market on June 30, 2022 of $14.09 per share. a oximately $1.7 billion, based on the closing price of the registrant’s common stock on the Nasdaq Global As of Februarr ryrr 21, 2023, 162,230,184 shares of the registrant’s common stock, $0.0001 par value, were outstanding. DOCUMENTS INCORPORARR TED BY REFERENCE Portions of the registrant’s defiff nitive Proxy Statement to be fiff led with the Securities and Exchange Commission by May 1, 2023 are incorpor rr ated by refeff rence into Part III of this report. ACADIA PHARMACEUTICALS INC. TABLE OF CONTENTS FORM 10-K For the Year Ended December 31, 2022 PART I Item 1. Business. .......................................................................................................................................................... Item 1A. Risk Factors. .................................................................................................................................................... Item 1B. Unresolved Staff Comments. Properties. ........................................................................................................................................................ Item 2. Item 3. Legal Proceedings............................................................................................................................................ Item 4. Mine Safety Disclosures ................................................................................................................................. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.......................................................................................................................................................... Item 6. [Reserved] ........................................................................................................................................................ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.......................... Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Financial Statements and Supplementary Data................................................................................................ Item 8. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure......................... Item 9A. Controls and Procedures. ................................................................................................................................. Item 9B Other Information ............................................................................................................................................ Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections............................................................. Item 10. Directors, Executive Officers and Corporate Governance. ............................................................................. Item 11. Executive Compensation. ................................................................................................................................ Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. ...... Item 13. Certain Relationships and Related Transactions, and Director Independence. ............................................... Principal Accountant Fees and Services. ......................................................................................................... Item 14. PART III Item 15. Exhibits and Financial Statement Schedules. .................................................................................................. Form 10-K Summary ....................................................................................................................................... Item 16. PART IV Page 3 17 52 53 53 54 55 56 56 66 66 66 67 69 69 69 69 69 69 69 70 73 i PART I FORWARD-LOOKING STATEMENTS This report and the inforff mation incorpor r ated herein by refeff rence contain forff ward-looking statements that involve a number of risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to diffff eff r materially frff om those expressed or implied by such forff ward-looking statements. Although our forff ward- looking statements reflff ect the good faff ith judgment of our management, these statements can only be based on faff cts and faff ctors currently known by us. Consequently, forff ward-looking statements are inherently subject to risks and uncertainties, and actuat l results and outcomes may diffff eff r materially frff om results and outcomes discussed in the forff ward-looking statements. In addition, statements that “we believe” and similar statements reflff ect our beliefsff and opinions on the relevant subject. These statements are based upon inforff mation availabla e to us as of the date of this report, and while we believe such inforff mation forff ms a reasonabla e basis forff should not be read to indicate that we have conducted an exhaustive inquiryrr relevant inforff mation. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements. such statements, such inforff mation may be limited or incomplete, and our statements into, or review of,ff all potentially availabla e t ties forff candidates, the potential market opportuni the commercialization of NUPLAZID, our plans forff pimavanserin, trofiff netide and our other drugrr exploring and developing pimavanserin forff Forward-looking statements can be identififf ed by the use of forff ward-looking words such as “believes,” “expects,” “hopes,” “may,” “will,” “plans,” “intends,” “estimates,” “could,” “should,” “would,” “continue,” “seeks,” “aims,” “projects,” “predicts,” “pro forff ma,” “anticipates,” “potential” or other similar words (including their use in the negative), or by discussions of futff urt e matters such as the benefiff ts to be derived frff om NUPLAZID® (pimavanserin), trofiff netide and frff om our candidates, our strategy drugr forff indications other than Parkinson’s disease psychosis, our plans and timing with respect to seeking regulatoryrr appr commercialization of any of our drugr of clinical trials and other development activities involving pimavanserin, trofiff netide and our other drugr strategy forff a collabor futff urt e expenses and need forff These statements include but are not limited to statements under the capta ions “Business,” “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 capta ion “Risk Factors” and elsewhere in this report could substantially harm our business, results of operations and fiff nancial condition and cause our results to diffff eff r materially frff om those expressed or implied by our forff ward-looking statements. 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. ations, our estimates of futff urt e payments, revenues and profiff tabia lity, our estimates regarding our capia tal requirements, additional fiff nancing, possible changes in legislation, and other statements that are not historical. ovals, the potential oval, the progress, timing, results or implications candidates, our candidates, our existing and potential futff urt e candidates that receive regulatoryrr appr discovering, developing and, if appr oved, commercializing drugrr a a a The cautionaryrr statements made in this report are intended to be appl a icabla e to all related forff ward-looking statements a ar in this report. We urge you not to place undue reliance on these forff ward-looking statements, which wherever they may appe speak only as of the date of this report. We undertake no obligation to update any forff ward-looking statements made in this report to reflff ect events or circumstances aftff er the date of this report or to reflff ect new inforff mation or the occurrence of unanticipated events, except as required by law. We faff ce risks and uncertainties related to our business, many of which are beyond our control. In particular, risks associated with our business include: Summary of Risk Factors • • Our prospects are highly dependent on the continued successfulff we cannot maintain or increase sales of NUPLAZID, our business, fiff nancial condition and results of operations may be materially adversely affff eff cted and the price of our common stock may decline. commercialization of NUPLAZID. To the extent Our prospects are also dependent on the success of trofiff netide. To the extent regulatoryrr appr delayed or not granted or, if appr oved, trofiff netide is not commercially successfulff condition and results of operations may be materially adversely affff eff cted and the price of our common stock may decline. , our business, fiff nancial oval of trofiff netide is a a 1 • • • • • • • • • • • • • • • • • • The terms of the FDA’s appr with PDP may limit its commercial potential. Additionally, NUPLAZID is still subject to an ongoing post- marketing commitment. the treatment of hallucinations and delusions associated oval of NUPLAZID forff a We have historically relied on a limited internal commercial team and a limited network of third-party distributors and pharmacies to market and sell NUPLAZID, our only commercial product. If this appr to be effff eff ctive, our commercialization of NUPLAZID may be adversely affff eff cted, and NUPLAZID may not be profiff tabla e. a oach ceases If we do not obtain regulatoryrr appr the U.S., we will not be abla e to market pimavanserin forff commercial revenues. oval of pimavanserin forff a other indications in addition to treatment of PDP in other indications in the U.S., which will limit our If we are unabla e to effff eff ctively train and equip our sales forff ce, our abia lity to successfulff NUPLAZID and trofiff netide, if appr oved, will be harmed. a ly commercialize NUPLAZID may not gain maximal acceptance among physicians, patients, and the medical community, thereby limiting our potential to generate revenues. Our abia lity to generate product revenues will be diminished if NUPLAZID’s coverage frff om payors is decreased or if patients have unacceptabla y high co-pay amounts. Delays, suspensions and terminations in our clinical trials could result in increased costs to us and delay our abia lity to generate product revenues. Healthcare reforff m measures may negatively impact our abia lity to sell NUPLAZID or our product candidates, if a appr oved, profiff tabla y. If we are unabla e to attract, retain, and motivate key management, research and development, and sales and marketing personnel, our drugrr commercialization plans may be delayed and we may be unabla e to successfulff develop our product candidates. development programs, our research and discoveryrr effff orff ly commercialize our products, or ts, and our We expect our net losses to continue forff when we will become profiff tabla e, if ever. the next feff w years and are unabla e to predict the extent of futff urt e losses or If we faff il to obtain the capia tal necessaryrr development and commercialization of NUPLAZID or successfulff product candidates. ff to fund our operations, we will be unabla e to successfulff ly continue the ly develop and commercialize our other We expect that our results of operations will flff uctuat perforff mance frff om period to period. te, which may make it diffff iff cult to predict our futff urt e Unfaff vorabla e global economic conditions could adversely affff eff ct our business, fiff nancial condition or results of operations. Public health threats, including the continuing COVID-19 pandemic, have impacted our clinical trials and could have an adverse effff eff ct on our operations and fiff nancial results, or may cause us to modifyff or suspend our fiff nancial guidance. ations with third parties to develop and We previously have depended, and in the futff urt e may depend, on collabor commercialize selected product candidates other than pimavanserin, and we have limited control over how those third parties conduct development and commercialization activities forff such product candidates. a We currently depend, and in the futff urt e will continue to depend, on third parties to manufaff cturt e NUPLAZID, ators with trofiff netide and any other product candidates. If these manufaff cturt ers faff il to provide us or our collabor adequate supplies of clinical trial materials and commercial product or faff il to comply with the requirements of regulatoryrr authorities, we may be unabla e to develop or commercialize NUPLAZID, trofiff netide or any other product candidates. a If we faff il to comply with the obligations in agreements under which we license intellectuat third parties, we could lose license rights to certain of our product candidates. l property rights frff om Our abia lity to compete may decline if we do not adequately protect our proprietaryrr rights. 2 • • If our competitors develop and market products that are more effff eff ctive than NUPLAZID, trofiff netide or our other product candidates, they may reducd e or eliminate our commercial opportuni ty. t Our stock price historically has been, and is likely to remain, highly volatile. Item 1. Businii ess. Company Overview We are a biopharmaceutical company focff used on the development and commercialization of innovative medicines that address unmet medical needs in central nervous system (CNS) disorders and rare diseases. We have a portfolff commercial stage products, in-development product opportuni signififf cant unmet needs in CNS disorders and rare diseases. In order to achieve signififf cant long-term growth, we will develop our current portfolff io, expand our pipeline of early and late-stage programs through strategic business development, and invest in targeted internal research effff off rts. ties, and research programs that are designed to address io of t We developed and successfulff ly commercialized NUPLAZID (pimavanserin), which was appr a oved by the U.S. Food the treatment of hallucinations and delusions associated with Parkinson’s and Drugrr Administration (FDA) in April 2016 forff disease psychosis (PDP), and is the fiff rst and only drugr selective serotonin inverse agonist/tt antagonist, prefeff rentially targeting 5-HT2A receptors with no appr dopaminergic, histaminergic, or muscarinic receptors. Through this novel mechanism, NUPLAZID demonstrated signififf cant effff iff cacy in reducing the hallucinations and delusions associated with PDP without negatively impacting motor func tion in our Phase 3 pivotal trial. NUPLAZID has the potential to avoid many of the debilitating side effff eff cts of existing antipsychotics, none of which are appr pimavanserin. the treatment of PDP. We hold worldwide commercialization rights to this condition. NUPLAZID is a eciabla e affff iff nity forff oved in the United States forff oved by the FDA forff a appr a a ff Through its unique mechanism and the clinical studi t es conducted to date, we believe that pimavanserin has the potential to address important unmet medical needs in neurological and psychiatric disorders in addition to PDP. Today we are evaluating pimavanserin forff the treatment of the negative symptoms of schizophrenia in a Phase 3 clinical development program. The negative symptoms of schizophrenia have been associated with poor long-term outcomes and disabia lity even when the positive symptoms are well-controlled, and today there are no FDA-appr 2019 we announced positive results frff om our pivotal ADVANA CE study pivotal study, negative symptoms of schizophrenia who have achieved adequate control of positive symptoms with their existing antipsychotic treatment. We expect that enrollment in ADVANAA CE-2 will be completed this year and that top-line results will be availabla e in early 2024. and in the third quarter of 2020, we initiated a second ADVANAA CE-2. The Phase 3 program is evaluating the effff iff cacy of pimavanserin in patients with predominantly oved therapia es. In the four th quarter of a ff t t In addition, we recently announced that we are developing an internally discovered new molecule, ACP-204, which builds upon the learnings of pimavanserin in the treatment of neuropsychiatric symptoms, and is currently being evaluated in a Phase 1 clinical program. Upon completion of our Phase 1 work, we plan to initiate studi ACP-204 in patients with Alzheimer’s disease psychosis (ADP). ACP-204 is a new chemical entity forff which we hold the worldwide rights. es evaluating various doses of t In August 2018, we acquired an exclusive North American license to develop and commercialize trofiff netide forff Rett lowing appa rently normal development forff syndrome and other indications frff om Neuren Pharmaceuticals Limited (Neuren). Rett syndrome is a debilitating neurological a disorder that occurs predominantly in feff males folff Typically, between six to eighteen months of age, patients experience a period of rapia d decline with loss of purpos use and spoken communication and inabia lity to independently conduct activities of daily living. Symptoms also include seizures, disorganized breathing patterns, scoliosis and sleep disturt bar nces. Currently, there are no appr trofiff netide, an investigational new drugr treatment of Rett syndrome. We are currently in registration forff Rett syndrome, a rare genetic neurodevelopmental disorder. If appr a appr a which the treatment of Rett syndrome in July 2022 based on the positive results frff om our pivotal Phase 3 Lavender™ studyt both co-primaryrr endpoints as well as the key secondaryrr demonstrated statistically signififf cant improvement over placebo forff endpoint. The FDA fiff led the NDA in September 2022 and assigned a Prescription Drugr User Fee Act (PDUFA) target action date of March 12, 2023. this condition. We submitted to the FDA a New Drugr Application (NDA) forff the fiff rst six months of lifeff . efulff oved, trofiff netide would be the fiff rst and only drugrr oved in the United States forff oved medicines forff the treatment of trofiff netide forff hand the forff a r 3 In Januaryrr 2022, we entered into a license and collabor a ation agreement with Stoke Therapea utics, Inc. (Stoke) to discover, develop and commercialize novel RNRR A-based medicines forff neurodevelopmental diseases of the CNS. The collabor 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 futff urt e profiff ts. For the Rett syndrome (MECP2) and the undisclosed neurodevelopmental program, Stoke will lead research and pre-clinical development activities, while we will lead clinical development and commercialization activities. ation includes SYNGAP1 syndrome, Rett syndrome (MECP2), and an the potential treatment of severe and rare genetic a Corporate Inforff mation We were originally incorpor r ated in Vermont in 1993 as Receptor Technologies, Inc. We reincorpor r ated in Delaware in 1997 and our headquarters are in San Diego, Califorff nia. We maintain a website at www.acadia.com, to which we regularly post copies of our press releases as well as additional inforff mation about Commission (SEC), are availabla e frff ee of charge through our website as soon as reasonabla y practicabla e aftff er being electronically fiff led with or furff nished to the SEC. Interested persons can subscribe on our website to email alerts that are sent automatically when we issue press releases, fiff le our reports with the SEC or post certain other inforff mation to our website. Inforff mation contained in our website does not constitutt e a part of this report or our other fiff lings with the SEC. us. Our fiff lings with the Securities and Exchange a We own or have rights to various trademarks, copyrights and trade names used in our business, including Acadia® and NUPLAZID®. Our logos and trademarks are the property of Acadia Pharmaceuticals Inc. All other brand names or trademarks appe trademarks, trade dress, or products in this report is not intended to, and does not, imply a relationship with, or endorsement or sponsorship of us, by the trademark or trade dress owners. aring in this report are the property of their respective holders. Use or display by us of other parties’ a Our Strategy Our strategy is to identify,ff develop and commercialize innovative therapia es that address unmet medical needs in CNS disorders and rare diseases. Key elements of our strategy are to: • • • • a oved by the FDA in April 2016 forff izii e thtt e successfs uff l commercialill zii atitt on of NUPUU LPP ALL ZIZZ DII MaxiMM mii StSS attt ett s. NUPLAZID was appr associated with PDP. We launched NUPLAZID in the United States in May 2016 and an important objective is to establa ish NUPLAZID as the standard of care forff PDP. We employ U.S. sales specialists that are focff used on promoting NUPLAZID to physicians who treat PDP patients, including neurologists, psychiatrists and long-term care physicians. The NUPLAZID frff anchise has been cash flff ow positive since 2019, and as such we are focff used on maximizing market share, balancing top-line growth with long-term profiff tabia lity. thtt e UnUU itii ett d the treatment of hallucinations and delusions forff ParPP kirr nii son’s’ disii ease psys chosisii inii Delill ver trtt ofiff nii etitt de tott to the FDA an NDA forff a 12, 2023. If appr thtt e markerr t forff trofiff netide forff thtt e trtt eatmtt ent of pat itt entstt witii htt Retttt sys ndrome.ee In July 2022, we submitted the treatment of Rett syndrome. Our PDUFA target action date is March ff oved, trofiff netide will be the fiff rst FDA-appr a oved treatment forff Rett syndrome. opportunitii ytt tt Advance our latll ett -stage program evaluating pimavanserin forff expected in early 2024. itt ve sys mptm omtt e inii negat the treatment of negative symptoms of schizophrenia with top-line results s of schizii ophrenia. We have an ongoing Phase 3 our earlyll -stage Developll development with ACP-204 as a treatment forff ADP and plan to complete Phase 1 in the fiff rst half of 2023. We es evaluating various doses of ACP-204 in ADP patients later this year. plan to initiate studi inii ADPDD and othtt er potett ntitt al inii dicatitt ons. We are currently in Phase 1 opportunitii ytt t tt 4 Our Pipeline NUPUU LPP ALL ZIZZ DII (pi(( mii avanserinii )n oved by the FDA in April 2016 forff Pimavanserin is a new chemical entity that we discovered and that was appr treatment of hallucinations and delusions associated with PDP. It is the only drugrr oved in the United States forff a appr condition and is marketed under the tradename NUPLAZID in the United States. NUPLAZID is a selective serotonin inverse agonist/tt antagonist prefeff rentially targeting the 5-HT2A receptor, a key serotonin receptor that plays an important role in psychosis. Through this novel mechanism, NUPLAZID demonstrated signififf cant effff iff cacy in reducing the hallucinations and tion in our Phase 3 pivotal trial. NUPLAZID has the delusions associated with PDP without negatively impacting motor func oved by the FDA in potential to avoid many of the debilitating side effff eff cts of existing antipsychotics, none of which are appr the treatment of PDP. We hold worldwide commercialization rights to NUPLAZID forff all indications and have establa ished a broad patent portfolff io, which includes numerous issued patents in the United States, Europe, and several additional countries. NUPLAZID is availabla e in 34 mg capsa ule and 10 mg tabla et dosage forff ms. this the a a ff NUPUU LPP ALL ZIZZ DII as a TrTT eatmtt ent forff Parkrr inson’s Disii ease PsPP ys chosisii Parkinson’s disease is the second most common neurodegenerative disorder aftff er Alzheimer’s disease. According to the Parkinson’s Disease Foundation, about suffff eff r frff om this disease. Approximately 50% of Parkinson’s patients will experience psychosis over the course of their disease. Parkinson’s disease is more common in people over 60 years of age and the prevalence of this disease is expected to increase signififf cantly as the population ages. one million people in the United States and more than 10 million people globally a PDP is a debilitating disorder commonly characterized by visual hallucinations and delusions that affff lff icts about the one million Parkinson’s disease patients in the United States. The development of psychosis in patients with Parkinson’s disease substantially contributes to the burden of Parkinson’s disease and deeply affff eff cts their quality of lifeff . PDP is associated with a diminished quality of lifeff , nursing home placement, and increased caregiver stress and burden. 40% of a As the fiff rst and only drugrr appr oved by the FDA forff a NUPLAZID provides an innovative appr a avoiding many of the debilitating side effff eff cts of existing antipsychotics. oach to the treatment of PDP without compromising motor control and potentially the treatment of hallucinations and delusions associated with PDP, 5 In connection with the FDA appr a commitments have been fulff es in predominantly frff ail and elderly patients, remains ongoing. oval of NUPLAZID, we have agreed to four fiff lled within the agreed upon timelines. The four ff ff ff the four t or studi post-marketing commitments. Three of th commitment, which requires a study t Pimavanserin as a TrTT eatmtt ent forff e the NeNN gat ive Symptm oms of Schizii ophrenia Schizophrenia is a severe chronic mental illness that involves disturt bar nces in cognition, perception, emotion, and other aspects of behavior. These disturt bar nces may include positive symptoms, such as hallucinations and delusions, and a range of negative symptoms, including loss of interest and emotional withdrawal. Schizophrenia is associated with persistent impairment of a patient’s social func schizophrenia frff om readjusting to society. As a result, patients with schizophrenia are normally required to be under medical care forff population suffff eff rs frff om schizophrenia. their entire lives. According to the National Institutt e of Mental Health (NIMH), appr tioning and productivity. Cognitive disturt bar nces oftff en prevent patients with oximately 1% of the U.S. a ff Most patients with schizophrenia in the United States today are treated with second-generation, or atypical, antipsychotics, which induce feff wer motor disturt bar nces than typical, or fiff rst-generation, antipsychotics, but still faff il to fulff address some of the negative symptoms of schizophrenia forff treatments have either negligible effff eff cts on cognitive symptoms of schizophrenia or may even furff perforff mance. It is believed that the effff iff cacy of atypical antipsychotics is due to their interactions with dopamine and 5-HT2A receptors. Despite their commercial success, current antipsychotic drugs effff iff cacy and severe side effff eff cts. The side effff eff cts associated with these atypical agents may include weight gain, type 2 diabea ic, sexual and cardiovascular side effff eff cts, movement disturt bar nces or sedation. have substantial limitations, including inadequate a signififf cant portion of patients. In addition, currently prescribed ther impair cognitive tes, metabol ly a rr In November 2016, we announced that we initiated ADVANAA CE, a Phase 2 study t to evaluate pimavanserin forff adjunctive treatment in patients with negative symptoms of schizophrenia. Studi schizophrenia patients suffff eff r frff om prominent negative symptoms. While currently availabla e antipsychotic treatments forff schizophrenia mainly target positive symptoms, many patients remain func tionally impaired because of residual negative and cognitive symptoms that are harder to treat with atypical antipsychotics. The residual negative and cognitive symptoms limit social func ff schizophrenia. the treatment of the negative symptoms of tioning. There is currently no drugrr oved by the FDA forff es show that about 40% to 50% of a appr a ff t t a 403 patients were randomized to receive once-daily ADVANA CE was a Phase 2, 26-week, randomized, double-blind, placebo-controlled, multi-center, international study designed to examine the effff iff cacy and safeff ty of pimavanserin in patients with schizophrenia who have predominant negative symptoms while on a stabla e background antipsychotic therapy. pimavanserin (n=201) or placebo (n=202) as an adjunct treatment to their ongoing antipsychotic in a flff exible dosing regimen. The starting daily dose of 20 mg of pimavanserin at baseline could have been adjusted to 34 mg or 10 mg during the fiff rst eight weeks of treatment. 53.8% of patients who were randomized to receive pimavanserin completed the trial on 34 mg, was the change frff om baseline to week 26 on the 44.7% on 20 mg, and 1.5% on 10 mg. The primaryrr endpoint of the study NSA-16 total score. In November 2019, we announced positive top-line results frff om the ADVANAA CE study. In this study, pimavanserin demonstrated a statistically signififf cant improvement on the study’ to week 26 on the Negative Symptom Assessment-16 (NSA-16) total score, compared to placebo (p=0.043). A greater improvement in the NSA-16 total score compared to placebo was observed in patients who received the highest pimavanserin dose of 34 mg (n=107; unadjusted p=0.0065). Pimavanserin did not separate frff om placebo on the key secondaryrr endpoint, the Personal and Social Perforff mance (PSP) scale. In the third quarter of 2020, we initiated a second pivotal study, ADVANA CE-2. will evaluate the effff iff cacy of pimavanserin 34 mg once daily compared to placebo in appr The Phase 3 study patients with predominantly negative symptoms of schizophrenia who have achieved adequate control of positive symptoms with their existing antipsychotic treatment. We anticipate announcing top-line results frff om the Phase 3 ADVANA CE-2 study in early 2024. t s primaryrr endpoint, the change frff om baseline oximately 386 a t t t t t t TrTT ofiff nii etitt de as a TrTT eatmtt ent forff Retttt SySS ndrome Trofiff netide is a novel synthetic analog of the amino‐terminal tripeptide of insulin-like growth faff ctor 1 (IGF-1) designed to treat the core symptoms of Rett syndrome by reducing neuroinflff ammation and supporting synapta ic func has been granted FDA Fast Track Statust n Drugrr Designation in the U.S. and Orpha rr and Orpha ff r n Designation in Europe. tion. Trofiff netide 6 Rett syndrome is a debilitating neurological disorder that occurs primarily in feff males folff lowing appa a rently normal the fiff rst six months of lifeff . Rett syndrome has been most oftff en misdiagnosed as autism, cerebral palsy, or development forff non-specififf c developmental delay. Rett syndrome is caused by mutations on the X chromosome on a gene called MECP2. on the MECP2 gene that interfeff re with its abia lity to generate a normal There are more than 200 diffff eff rent mutations found a gene product. Rett syndrome occurs worldwide in appr oximately one of everyrr 10,000 to 15,000 feff male births causing tion. Typically, ff cognitive, sensory,rr problems in brain func emotional, motor and autonomic func between six to eighteen months of age, patients experience a period of rapia d decline with loss of purpos hand use and efulff spoken communication and inabia lity to independently conduct activities of daily living. Symptoms also include seizures, disorganized breathing patterns, an abnor there are no appr mal side-to-side curvaturt e of the spine (scoliosis) and sleep disturt bar nces. Currently, a oved medicines appr the treatment of Rett syndrome. tion that are responsible forff oved forff a a ff ff r t a In October 2019, we initiated the Phase 3 LAVENDER study, a randomized, doubu le-blind placebo-controlled studyt oximately 180 girls and young women 5 to 20 years of age with Rett syndrome. Half of studyt evaluating trofiff netide in appr participants will receive trofiff netide and half will receive placebo. Co-primaryrr effff iff cacy endpoints of the study will measure symptom improvement using the Rett Syndrome Behavior Questionnaire (RSBQ), a caregiver assessment, and the Clinical Global Impression Scale-Improvement (CGI-I), a clinician assessment. In December 2021, we announced positive top-line results frff om the study. demonstrated a statistically signififf cant improvement over placebo forff both endpoints. On the RSBQ, change frff om baseline to week 12 was -5.1 vs. -1.7 (p=0.0175; effff eff ct size=0.37). The CGI-I score at week 12 was 3.5 vs. 3.8 (p=0.0030; effff eff ct size=0.47). Additionally, trofiff netide demonstrated a statistically signififf cant separation over placebo on the key secondaryrr endpoint, the Communication and Symbolic Behavior Scales Developmental Profiff le™ Infaff nt-Toddler Checklist–Stt ocial composite score (CSBS-DP-IT–Social) change frff om baseline to week 12 was -0.1 vs. -1.1 (p=0.0064; effff eff ct size=0.43). The placebo-controlled study t t t Studyt treatment discontinuation rates related to treatment emergent adverse events (TEAEs) were 17.2% in the trofiff netide group as compared to 2.1% in the placebo group. The most common adverse events were diarrhea (80.6% with trofiff netide vs. 19.1% with placebo), of which 97.3% in the trofiff netide arm were characterized as mild-to-moderate, and vomiting (26.9% with trofiff netide vs. 9.6% with placebo), of which 96% in the trofiff netide arm were characterized as mild-to- moderate. Serious adverse events were observed in 3.2% of studt Patients completing the LAVENDER studyt and LILAC-2 extension studi the LILAC open-labea es. More than 95% of participants who completed the LAVENDER study y participants in both the trofiff netide and placebo groups. ty to continue to receive trofiff netide in the open-labea had the opportuni l extension study. elected to roll-over to l LILAC t t t t We submitted to the FDA an NDA forff trofiff netide forff the treatment of Rett syndrome in July 2022. The FDA fiff led the NDA in September 2022 with a PDUFA target action date of March 12, 2023. Trofiff netide has been granted Fast Track Statust and Orpha n Drugrr Designation forff Rett syndrome. Trofiff netide has also been granted Rare Pediatric Disease (RPD) rr designation by the FDA. An NDA with Fast Track and/or Orpha RPD designation we would expect to be awarded a RPD Priority Review Voucher if appr by the FDA. oved, subject to fiff nal determination n Drugr Designation is eligible forff priority review. With an a r ACPCC -PP 204 as a TrTT eatmtt ent forff Alzll heimii er’s’ Disii ease PsPP ys chosisii An estimated over 6.0 million people in the United States are living with Alzheimer’s disease dementia and studi es oximately 30% of patients, or 1.8 million people, have psychosis, commonly consisting of delusions and suggest that appr hallucinations. Approximately 900 thousand patients in the United States are currently treated forff ADP and of those treated, a appr oximately two-thirds are treated with offff -ff labea l anti-psychotics. a t Symptoms of ADP are oftff en persistent and may occur with increasing frff equency with progression of disease as patients a oved treatments forff ADP. Offff -ff labea become more impaired. Serious consequences have been associated with persistent or severe psychosis in persons with dementia such as repeated hospital admissions, earlier progression to nursing home care, severe dementia, and death. There l use of typical and atypical antipsychotics is associated with are currently no FDA-appr modest and oftff en equivocal effff iff cacy in these patients. In addition, use of currently availabla e antipsychotics is associated with a signififf cant acceleration in cognitive decline in patients with dementia as well as numerous offff -ff target toxicities, thus negatively impacting the primaryrr the National Institutt e of Mental Health Clinical Antipsychotic Trials of Intervention Effff eff ctiveness–Alzheimer’s Disease (CATIE-AD) study. func ff func ff receptors. Atypical antipsychotics are associated with a number of offff -ff target and dose-limiting side effff eff cts, such as tion compared to patients on placebo. This pronounced negative impact of currently used antipsychotics on cognitive tion is believed to be associated with the common pharmacologic property of these drugs illness. The cognitive effff eff cts of treatment with an atypical antipsychotic were evaluated in , patients on any atypical antipsychotic had signififf cantly greater rates of decline in cognitive , namely blocking of dopamine In this study r t t 7 extrapyr amidal symptoms, orthostatic hypotension, hematologic abnor a effff eff cts. These offff -ff target toxicities are associated with increased risk forff serious complications in this vulnerabla e patient population. With no appr ADP and current offff -ff labea decline and other offff target toxicities, we believe that ADP represents an area of high unmet need. malities, and metabol a a a faff lls, infeff ction, aspiration pneumonia, and other the treatment of patients with oved therapia es forff l use of atypical antipsychotics carryirr ng signififf cant morbir dity risks including worsening in cognitive ic, gastrointestinal and sedative ACP-204 is a new molecule which is designed to leverage the learnings frff om pimavanserin. For several years we have sought to build upon our pimavanserin frff anchise by investigating and developing other molecules focff used on the serotonergic system. Virtuat lly all of the antipsychotics on the market today are thought to work predominantly through blocking dopamine and in particular, the dopamine D2 receptor. Pimavanserin is thought to work entirely through serotonin, which we believe can provide a veryrr diffff eff rent and faff vorabla e safeff ty and tolerabia lity profiff le. Specififf cally with ACP-204, we believe we may have an opportuni ty to maximize the effff iff cacy potential, while reducing the risk of QT prolongation. We are currently in Phase 1 development and plan to complete Phase 1 in the fiff rst half of 2023. We plan to initiate studi es evaluating various doses of ACP-204 in ADP patients later this year. t t Antitt sii ense Olill goni uclell otitt de (A(( SO)O PrPP ograms In Januaryrr 2022, we entered into a collabor a ation with Stoke Therapea utics to discover, develop and commercialize novel ation includes SYNGAP1, MECP2 (Rett syndrome) and an undisclosed CNS target of mutuat l interest. The programs the potential treatment of severe and rare genetic neurodevelopmental diseases of the CNS. The RNRR A-based medicines forff collabor a are currently in various stages of pre-clinical development. Competition We faff ce, and will continue to faff ce, intense competition frff om pharmaceutical and biotechnology companies, as well as numerous academic and research institutt ions and governmental agencies, both in the United States and abra oad. We compete, or will compete, with existing and new products being developed by our competitors. Some of these competitors are pursuing the development of pharmaceuticals that target the same diseases and conditions that our research and development programs target. For example, the use of NUPLAZID forff , including the generic drugs rr r drugs the treatment of PDP competes with offff -ff labea l use of various antipsychotic quetiapia ne, clozapia ne, risperidone, aripiprazole, and olanzapia ne. Pimavanserin forff the treatment of negative symptoms of schizophrenia, if appr a oved forff l use of Vraylar, marketed by Allergan, Rexulti, marketed by Otsuka Pharmaceutical Co., Ltd., Latuda with offff -ff labea by Sunovion Pharmaceuticals Inc., Capla yta, marketed by IntraCellular Therapea utics and various generic drugs quetiapia ne, clozapia ne, risperidone, aripiprazole, and olanzapia ne. t , including r that indication, would compete , marketed Several academic institutt ions and pharmaceutical companies are currently conducting clinical trials forff the treatment of various symptoms of Rett syndrome. Trofiff netide, if appr with offff -ff labea including antiepileptics, antipsychotics, antidepressants and benzodiazepines. oved forff a l usage of branded and generic prescription medications targeted at individual symptoms of Rett syndrome, the treatment of Rett syndrome, would compete indirectly Other competitors may have a variety of drugs r in development or awaiting appr a oval frff om the FDA or comparabla e icabla e disorder. Our competitors may also develop alternative therapia es that could furff the forff eign regulatoryrr authorities that could reach the market and become establa ished beforff e we have a product to sell forff appl r any drugs a that we may develop. Many of our competitors are using technologies or methods diffff eff rent or similar to ours to identifyff and validate drugr signififf cantly greater experience than we do in the folff targets and to discover novel small molecule drugs . Many of our competitors and their collabor ther limit the market forff rr lowing: ators have a • • • preclinical studi t es and clinical trials of potential pharmaceutical products; obtaining FDA and other regulatoryrr appr a ovals; and commercializing pharmaceutical products. 8 In addition, many of our competitors and their collabor a ators have substantially greater advantages in the folff lowing areas: • • • • • capia tal resources; research and development resources; manufaff cturt ing capaa bia lities; sales and marketing; and production faff cilities. Smaller companies also may prove to be signififf cant competitors, particularly through proprietaryrr research discoveries a a oved or are in advanced development and may develop superior technologies . We faff ce competition from other targets and to discover novel small molecule drugs ative arrangements with pharmaceutical and biotechnology companies, in recruir ative arrangements with large pharmaceutical and establa ished biotechnology companies. Many of our and collabor competitors have products that have been appr or methods to identifyff and validate drugrr companies, academic institutt collabor a scientififf c, sales and marketing, and management personnel and forff either alone or with their collaboa more affff orff dabla e, or more easily administered than ours and may achieve patent protection or commercialize drugs than us. Our competitors may also develop alternative therapia es that could furff develop. Our faff ilure to compete effff eff ctively could have a material adverse effff eff ct on our business. ions, governmental agencies and other public and private research organizations forff rators, may succeed in developing technologies or drugs licenses to additional technologies. Our competitors, ting and retaining highly qualififf ed that are more effff eff ctive, safeff r, and ther limit the market forff sooner that we may rr any drugs rr r rr Intellectual Property intellectuat l property rights are an essential element of our business. Our strategy is to fiff le patent appl ications in that represents an important potential commercial market to us. In addition, we seek We currently hold 47 issued U.S. patents and a signififf cant number of related issued forff eign patents. We have also exclusively licensed rights to an additional 28 issued U.S. patents, and a number of related forff eign patents. Patents and other proprietaryrr the United States and any other countryrr to protect our technology and inventions (and improvements to inventions) that are important to the development of our business. Our patent appl assays, novel compounds, compositions, forff mulations and methods of treatment. We also rely upon trade secrets, including technologies that may be used to discover and validate targets, to identifyff and develop novel drugs or clinical development technologies, among others. We protect our trade secrets by, among other things, requiring employees and third parties who have access to our proprietaryrr agreements. We are a party to various license agreements that give us rights to use certain technologies in our research and development, subject to certain limitations. technology, including chemical synthetic or manufaff cturt inforff mation to sign confiff dentiality and nondisclosure ications claim proprietaryrr , as well as manufaff cturt ing methods, drugr ing a a rr PiPP mii avanserinii To date, 36 U.S. patents have been issued to us that relate to pimavanserin, NUPLAZID and methods of use. Fourteen oved indication, and cover the of these are Orange Book-listed patents that relate to pimavanserin, NUPLAZID and our appr general forff mula of the compound, the composition of matter, with claims specififf cally directed to pimavanserin and salts thereof,ff the specififf c polymorphrr a a appr oved by the U.S. Patent and Trademark Offff iff ce. The patents covering the date in 2030, including a patent term extension appr polymorphr oved indication are currently set to expire between 2024 and 2028. These patent terms include adjustments made by the U.S. Patent and Trademark Offff iff ce, but not extensions. oved indication. The composition of matter patent covering pimavanserin and salts thereof currently has an expiration forff m and the use of pimavanserin or NUPLAZID forff oved forff mulations, and the use thereof forff forff m of pimavanserin, the appr treating our a our appr a a In the United States, under the Drugrr Price Competition and Patent Term Restoration Act of 1984, commonly known as “Hatch-Waxman,” we are permitted to extend the term of one U.S. patent forff may be subject to change not only due to potential patent term extensions but also to any terminal disclaimer that reduces patent term, as well as other faff ctors. Because the U.S. patent laws and judicial interprrr etations thereof change, modififf cations or new interprr etations of the laws may impact our patent terms. pimavanserin or the use thereof.ff Patent terms 9 The remaining 22 U.S. patents relating to pimavanserin that have been issued to us cover methods of use of , among other things, treating AD Psychosis, Alzheimer’s disease indications, schizophrenia, bipolar pimavanserin forff disorder, Lewy body dementia, sleep disorders, hallucinations and delusions, other indications and methods of producing pimavanserin. We also have a signififf cant number of related issued forff eign patents that specififf cally cover pimavanserin and polymorphs thereof in Europe and Asia as well as in Australia, Canada, Mexico and other countries. r We continue to fiff le and prosecute patent appl ications directed to pimavanserin, forff mulations of pimavanserin, methods ing, and to methods of treating various diseases using pimavanserin, either alone or in combination with other of manufaff cturt agents, worldwide. For example, in late 2019 and in 2020, we obtained and listed in the Orange Book six additional U.S. issued patents, two patents directed to method of use forff 34 mg capsa ule forff mulation, each expiring in 2038. our 10 mg tabla et, expiring in 2037, and four patents directed to our a ff TrTT ofiff nii etitt de To date, 10 U.S. patents have been issued and exclusively licensed to us frff om Neuren Pharmaceuticals that relate to ing and methods of use of trofiff netide. Several U.S. patents would be eligible forff Orange treating Rett trofiff netide, methods of manufaff cturt Book listing, including a patent claiming the use of trofiff netide forff syndrome has an expiration date in 2032. treating Rett syndrome. The use patent forff Under the license agreement with Neuren, we continue to fiff le and prosecute patent appl a ications directed to trofiff netide, forff mulations of trofiff netide, methods of manufaff cturt ing and methods of treating Rett syndrome using trofiff netide. Government Regulation Our business activities, including the manufaff cturt ing and marketing of NUPLAZID, trofiff netide, if appr a oved, and our potential products and our ongoing research and development activities, are subject to extensive regulation by numerous governmental authorities in the United States and other countries. Beforff e marketing in the United States, any new drugr developed by us must undergo rigorous preclinical testing, clinical trials and an extensive regulatoryrr clearance process implemented by the FDA under the Federal Food, Drug, things, the development, testing, manufaff cturt e, safeff ty, effff iff cacy, record keeping, labea promotion, import, export, sale and distribution of biopharmaceutical products. The regulatoryrr which includes preclinical testing and clinical trials of each product candidate, is lengthy, expensive and uncertain. Moreover, government coverage and reimbursement policies will both directly and indirectly impact our abia lity to successfulff commercialize NUPLAZID and any futff urt e appr impacted by enacted and any appl pricing measures. In addition, we are subject to state and feff deral laws, including, among others, anti-kickback laws, faff lse claims laws, data privacy and security laws, and transparency laws that restrict certain business practices in the pharmaceutical industry.rr oved products, and such coverage and reimbursement policies will be and Cosmetic Act, as amended. The FDA regulates, among other icabla e futff urt e healthcare reforff m and drugrr ling, storage, appr oval, advertising, review and appr oval process, ly a a a a rr In the United States, drugrr product candidates intended forff human use undergo labor a atoryrr and animal testing until adequate proof of safeff ty is establa ished. Clinical trials forff new product candidates are then typically conducted in humans in three sequential phases that may overlap.a Phase 1 trials involve the initial introduction of the product candidate into healthy human volunteers. The emphasis of Phase 1 trials is on testing forff ism, distribution, excretion and clinical pharmacology. Phase 2 involves studi es in a limited patient population to determine the initial effff iff cacy of the compound forff specififf c targeted indications, to determine dosage tolerance and optimal dosage, and to identifyff possible adverse side effff eff cts and safeff ty risks. Once a compound shows initial evidence of effff eff ctiveness and is found to have an acceptabla e safeff ty profiff le in Phase 2 evaluations, Phase 3 trials are undertaken to more fulff outcomes. Beforff e commencing clinical investigations in humans, we or our collabor Drugr Application (IND), to the FDA. safeff ty or adverse effff eff cts, dosage, tolerance, metabol ff ly evaluate clinical ators must submit an Investigational New a a t Regulatoryrr authorities, Institutt ional Review Boards and Data Monitoring Committees may require additional data ies to commence, continue or proceed frff om one phase to another, and could demand that the es be discontinued or suspended at any time if there are signififf cant safeff ty issues. Clinical testing must also meet beforff e allowing the clinical studt studi t requirements forff and good clinical practices (GCPs). Additionally, the manufaff ctut re of our drugr current good manufaff cturt clinical trial registration, institutt ing practices (GMPs). ional review board oversight, inforff med consent, health inforff mation privacy, product must be done in accordance with 10 a a ies. Generating the oval to market a each indication forff which the led. The data and inforff mation are submitted to the FDA in the forff m of a New Drugr Application (NDA), To establa ish a new product candidate’s safeff ty and effff iff cacy, the FDA requires companies seeking appr product to submit extensive preclinical and clinical data, along with other inforff mation, forff an NDA takes many years and requires the expenditurt e of substantial resources. lowing submission of the NDA. If deemed suffff iff ciently complete to permit a substantive review, the FDA will “fiff le” the e to fiff le any NDA that it deems incomplete or not properly reviewabla e. The FDA has establa ished drugr product will be labea which must be accompanied by payment of a signififf cant user feff e unless a waiver or exemption appl required data and inforff mation forff Inforff mation generated in this process is susceptible to varyirr ng interprr etations that could delay, limit or prevent regulatoryrr appr oval at any stage of the process. The faff ilure to demonstrate adequately the quality, safeff ty and effff iff cacy of a product a candidate under development would delay or prevent regulatoryrr appr and FDA regulations, each NDA submitted forff FDA appr folff NDA. The FDA can refusff internal goals of eight months frff om submission forff maja or advances in treatment or provide a treatment where no adequate therapya standard review of NDAs. However, the FDA is not legally required to complete its review within these periods, these perforff mance goals may change over time and the review is oftff en extended by FDA requests forff l appr clarififf cation. Moreover, the outcome of the review, even if generally faff vorabla e, may not be an actuat a “complete response letter” that describes additional work that must be done beforff e the NDA can be appr a appr a the product unless the manufaff cturt been conducted to determine compliance with GCPs and data integrity. The FDA’s review of an NDA may also involve review and recommendations by an independent FDA advisoryrr committee, particularly forff bound by the recommendation of an advisoryrr committee. priority review of NDAs that cover new product candidates that offff eff r exists, and 12 months frff om submission forff oving an NDA, the FDA can choose to inspect the faff cilities at which the product is manufaff cturt ed and will not appr oval is given an internal administrative review within 60 days oval of the product candidate. Under appl ing faff cility complies with GMPs. The FDA may also audit sites at which clinical trials have novel indications. The FDA is not oval but a oved. Beforff e additional inforff mation or icabla e laws ove the a a a a In addition, delays or reje ections may be encountered based upon changes in regulatoryrr policy, regulations or statutt es governing product appr a oval during the period of product development and regulatoryrr agency review. t Beforff e receiving FDA appr a ators must demonstrate through oval to market a potential product, we or our collabor a es that the potential product is safeff and effff eff ctive in the patient population that will adequate and well-controlled clinical studi be treated. In addition, under the Pediatric Research Equity Act (PREA), an NDA or supplement to an NDA must contain data or a plan to collect such data to assess the safeff ty and effff eff ctiveness of the drugr pediatric subpopulations and to support dosing and administration forff a safeff and effff eff ctive, unless a waiver appl limited to those disease states and conditions forff which the product is appr unappr a management, including post-marketing, or Phase 4, studi payment of a signififf cant annual program user feff e and continuing review and periodic inspections by the FDA. Discoveryrr of previously unknown problems with a product, manufaff cturt er or faff cility may result in restrictions on the product or manufaff cturt er, including labea a oved. Marketing or promoting a drugrr oved indication is generally prohibited. Furthermore, FDA appr oval may entail ongoing requirements forff a the claimed indications in all relevant each pediatric subpopulation forff which the product is ling changes, warning letters, costly recalls or withdrawal of the product frff om the market. oval of a potential product is granted, this appr oval will be forff an risk oval is obtained, each marketed product, is subject to ies. If regulatoryrr appr es. Even if appr forff a a a t Any drugr is likely to produce some toxicities or undesirabla e side effff eff cts in animals and in humans when administered suffff iff ciently long periods of time. Unacceptabla e toxicities or side effff eff cts may occur at any at suffff iff ciently high doses and/or forff dose level at any time in the course of studi known as toxicological studi toxicity or side effff eff ct could cause us or regulatoryrr authorities to interrupt product candidates. Further, such unacceptabla e toxicity or side effff eff cts could ultimately prevent a potential product’s appr by the FDA or forff eign regulatoryrr authorities forff acceptance, even if the product is appr es, or during clinical trials of our potential products. The appe a es in animals designed to identifyff unacceptabla e effff eff cts of a product candidate, t the development of any of our oval a ling claims and market any or all targeted indications or limit any labea arance of any unacceptabla e , limit, delay or abor oved. a a r t t In addition, as a condition of appa roval, the FDA may require an appl a icant to develop a risk evaluation and mitigation ling to ensure that the benefiff ts of strategy (REMS). A REMS uses risk minimization strategies beyond the profeff ssional labea the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the producd t, seriousness of the disease, expected benefiff t of the product, expected duration of treatment, seriousness of known or potential adverse events, and whether the product is a new molecular entity. REMS can include medication guides, physician communication plans forff (ETASU). ETASU may include, but are not limited to, special training or certififf cation forff dispensing only under certain circumstances, special monitoring, and the use of patient registries. The FDA may require a REMS beforff e appr a requirement forff oval if it becomes aware of a serious risk associated with use of the product. The a REMS can materially affff eff ct the potential market and profiff tabia lity of a product. healthcare profeff ssionals, and elements to assure safeff use prescribing or dispensing, oval or post-appr a 11 We and our collabor a ators and contract manufaff cturt ers also are required to comply with the appl a icabla e FDA GMP regulations. GMP regulations include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Manufaff cturt These faff cilities must be appr oved beforff e we can use them in commercial manufaff cturt maintain ongoing compliance foff r commercial product manufaff ctut re. The FDA may conclude that we or our collabor contract manufaff cturt ers are not in compliance with appl which may result in delay or faff ilure to appr penalties. requirements, a ications, warning letters, product recalls and/or imposition of fiff nes or a ove appl ing of our potential products and must ators or icabla e GMP requirements and other FDA regulatoryrr ing faff cilities are subject to inspection by the FDA. a a a If a product is appr a oved, we must also comply with post-marketing requirements, including, but not limited to, compliance with advertising and promotion laws enforff ced by various government agencies, including the FDA’s Offff iff ce of Prescription Drugr e laws, including anti-kickback and faff lse claims laws, healthcare inforff mation privacy and security laws, post-marketing safeff ty surveillance, and disclosure of payments or other transfeff rs of value to healthcare profeff ssionals and entities. In addition, we are subject to other feff deral and state regulation including, forff Promotion, and through such laws as feff deral and state anti-frff aud and abus example, the implementation of corpor ate compliance programs. a r In order to distribute products commercially, we must comply with state laws that require the registration of manufaff cturt ers and wholesale distributors of pharmaceutical products in a state, including, in certain states, manufaff cturt ers and distributors who ship products into the state even if such manufaff cturt ers or distributors have no place of business within the state. Some states also impose requirements on manufaff cturt ers and distributors to establa ish the pedigree of product in the chain of distribution, including some states that require manufaff cturt ers and others to adopt new technology capaa bla e of tracking and tracing product as it moves through the distribution chain. a Outside of the United States, our abia lity to market a product is contingent upon receiving a marketing authorization opriate regulatoryrr authorities. The requirements governing the conduct of clinical trials, marketing frff om the appr authorization, pricing and reimbursement varyrr widely frff om countryrr adequate evidence of safeff ty, quality and effff iff cacy has been presented, marketing authorization will be granted. This forff eign . In addition, regulatoryrr appr icabla e post-marketing requirements, including safeff ty surveillance, anti-frff aud and abus forff eign regulations may include appl e laws, and implementation of corpor ate compliance programs and reporting of payments or other transfeff rs of value to healthcare profeff ssionals and entities. oval process involves all of the risks associated with FDA marketing appr If the regulatoryrr authority is satisfiff ed that oval discussed above to country.rr a a a a a rr CovCC erage and Reimii bursrr ement Sales of NUPLAZID and of trofiff netide or our other product candidates, if appr a oved, depend and will depend, in part, a drugr product does not imply that an adequate reimbursement rate will be appr on the extent to which such products will be covered by third-party payors, such as government health care programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly limiting coverage and/or reducing reimbursements forff medical products and services. A third-party payor’s decision to provide coverage forff drugr oved. Further, one payor’s determination to provide coverage forff Coverage policies and third-party payor reimbursement rates may change at any time. In addition, the U.S. government, state legislaturt es and forff eign governments have continued implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements forff ion of generic products. Adoption of price controls and cost- containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could furff not cover NUPLAZID, trofiff netide, if appr products, and have a material adverse effff eff ct on our sales, results of operations and fiff nancial condition. ther limit our net revenue and results. Decreases in third-party payor reimbursement or a decision by a third-party payor to product does not ensure that other payors will also provide coverage forff oved products could reduce physician usage of our oved, or any other futff urt e appr substitutt the drugrr product. a a a a In the United States, the Medicare Part D program provides a voluntaryrr outpat tient drugrr benefiff t to Medicare coverage under Medicare Part D, but the individual Part D certain products. NUPLAZID is availabla e forff benefiff ciaries forff plans offff eff r coverage subject to various faff ctors such as those described above historically included “all or substantially all” drugs forff mularies: anticonvulsants, antidepressants, antineoplastics, antipsychotics, antiretrovirals, and immunosuppressants, the Centers forff Medicare & Medicaid Services (CMS), has in the past proposed, but not adopted, changes to this policy. If this policy is changed in the futff urt e and if CMS no longer considers the antipsychotic class to be of “clinical concern”, Medicare Part D plans would have signififf cantly more discretion to reduce the number of products covered in that class, including coverage of NUPLAZID. Furthermore, private third-party payors oftff en folff low Medicare coverage policies and payment limitations in setting their own coverage policies. lowing designated classes of “clinical concern” on their . In addition, while Medicare Part D plans have in the folff a r 12 HeHH altll htt care Laws and Regue latll itt ons We are subject to healthcare regulation and enforff cement by the feff deral government and the states and forff eign governments in which we conduct our business. The healthcare laws and regulations that may affff eff ct our abia lity to operate include the folff lowing: • • • • • The feff deral Anti-Kickback Statutt e makes it illegal forff indirectly, solicit, receive, offff eff r, or pay any remuneration that is in exchange forff business, including the purchase, order, lease of any good, faff cility, item or service forff which payment may be made under a feff deral healthcare program, such as Medicare or Medicaid. The term “remuneration” has been broadly interprr eted to include anything of value. any person or entity to knowingly and willfulff or to induce the refeff rral of ly, directly or Federal faff lse claims and faff lse statement laws, including the feff deral civil False Claims Act, and civil monetaryrr penalties laws, prohibit, among other things, any person or entity frff om knowingly presenting, or causing to be presented, forff or services, including drugs oval by, feff deral programs, including Medicare and Medicaid, claims forff payment to, or appr r , that are faff lse or frff audulent. a items The U.S. feff deral Health Insurance Portabia lity and Accountabia lity Act of 1996 (HIPAA), created additional feff deral criminal statutt es that prohibit among other actions, knowingly and willfulff execute, a scheme to defrff aud any healthcare benefiff t program, including private third-party payors or making any faff lse, fiff ctitious or frff audulent statement in connection with the deliveryrr of or payment forff items or services. ly executing, or attempting to healthcare benefiff ts, HIPAA, as amended by the Health Inforff mation Technology forff Economic and Clinical Health Act of 2009 (HITECH), and their implementing regulations, imposes obligations on covered entities, including certain healthcare providers, health plans, and healthcare clearinghouses, and their respective business associates that create, receive, maintain or transmit individually identififf abla e health inforff mation forff or on behalf of a covered entity as well as their covered subcontractors, with respect to safeff guarding the privacy, security and transmission of individually identififf abla e health inforff mation. In addition, the European Union (EU) and United Kingdom (UK) have each establa ished their own data security and privacy legal frff amework, including but not limited to the EU’s General Data Protection Regulation (EU) 2016/79 and the so-called “UK GDPR” (together, the GDPR), which contain provisions specififf cally directed at the processing of health inforff mation, higher sanctions than previously appl icabla e data protection laws and extra-territoriality measures intended to bring non-EU/-UK companies’ a processing operations under the scope of these regulations in certain circumstances (including where the relevant processing relates to the monitoring of behaviors of individuals in the EU/UK – such as in the context of the conduct of a clinical trial). We currently conduct clinical trials in the EU and the UK and will need to be compliant with these requirements. We anticipate that over time we may expand our business operations to include additional operations in the EU and/or UK. With such expansion, we would be subject to increased governmental regulation in the territories in which we might operate, including the GDPR. The feff deral Physician Payments Sunshine Act requires certain manufaff cturt ers of drugs , devices, biologics and medical supplies forff which payment is availabla e under Medicare, Medicaid or the Children’s Health Insurance Program, with specififf c exceptions, to report annually to CMS inforff mation related to payments or other transfeff rs of value made to physicians (as defiff ned to include doctors of medicine, dentists, optometrists, podiatrists and chiropractors by such law), other healthcare profeff ssionals (such as physician assistants and nurse practitioners), and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate faff mily members. rr Also, many states have similar laws and regulations, such as anti-kickback and faff lse claims laws that may be broader in a y regardless of payor, in addition to items and services reimbursed under Medicaid and other state scope and may appl programs. Additionally, we may be subject to state laws that require pharmaceutical companies to comply with the feff deral government’s and/or pharmaceutical industry’rr to report inforff mation related to payments and other transfeff rs of value to physicians and other healthcare providers or marketing expenditurt es, state laws that require drugr manufaff cturt ers to report inforff mation on the pricing of certain drugs , state r and local laws that require the registration of pharmaceutical sales representatives, as well as state and forff eign laws governing the privacy and security of health inforff mation, many of which diffff eff r frff om each other in signififf cant ways and oftff en are not preempted by HIPAA. s voluntaryrr compliance guidelines, state laws that require drugr manufaff cturt ers 13 If we are found ff to be in violation of any of these laws or any other feff deral or state regulations, we may be subject to signififf cant administrative, civil and/or criminal penalties, damages, fiff nes, disgorgement, imprisonment, exclusion frff om feff deral health care programs, additional reporting requirements and/or oversight, and the curtailment or restrucr operations. turt ing of our Additionally, to the extent that our product is sold in a forff eign country,rr we may be subject to similar forff eign laws. HeHH altll htt care Refe orff mrr The United States and some forff eign jurisdictions are considering or have enacted a number of legislative and regulatoryrr proposals to change the healthcare system in ways that could affff eff ct our abia lity to sell our products profiff tabla y. By way of example, in March 2010, Patient Protection and Affff orff dabla e Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the ACA) was signed into law, which intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against frff aud and abus e, add transparency requirements forff the healthcare and health insurance industries, impose taxes and feff es on the health industryrr and impose additional health policy reforff ms. a Among the provisions of the ACA of importance to NUPLAZID, trofiff netide and our other product candidates are: • • • • • • • • an annual, nondeductible feff e on any entity that manufaff cturt es or imports specififf ed branded prescription drugs biologic agents, appor healthcare programs; tioned among these entities according to their market share in certain government a r and an increase in the statutt oryrr minimum rebates a manufaff cturt er must pay under the Medicaid Drugr Rebate Program to 23.1% and 13.0% of the average manufaff cturt er price forff branded and generic drugs , respectively; r extension of a manufaff cturt er’s Medicaid rebate liabia lity to covered drugs enrolled in Medicaid managed care organizations; r dispensed to individuals who are expansion of eligibility criteria forff Medicaid programs by, among other things, allowing states to offff eff r Medicaid coverage to certain individuals with income at or below 133% of the feff deral poverty level, thereby potentially increasing a manufaff cturt er’s Medicaid rebate liabia lity; a Medicare Part D coverage gapa discount program, in which manufaff cturt ers must now agree to offff eff r 70% point- of-ff sale discounts to negotiated prices of appl period, as a condition forff to eligible benefiff ciaries during their coverage gapa icabla e brand drugs r tient drugs to be covered under Medicare Part D; a manufaff cturt er’s outpat a rr expansion of the entities eligible forff discounts under the Public Health Service pharmaceutical pricing program; a requirement to annually report drugr samples that manufaff cturt ers and distributors provide to physicians; and a Patient-Centered Outcomes Research Institutt e to oversee, identifyff priorities in, and conduct comparative clinical effff eff ctiveness research, along with fundi such research. ng forff ff r purpos There have been executive, judicial and Congressional challenges to certain aspects of the ACA. For example, on June 17, 2021 the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitut tional in its entirety because the “individual mandate” was repealed by Congress. Thus, the ACA will remain in effff eff ct in its current forff m. Prior to the U.S. Supreme Court rulr ing, on Januaryrr 28, 2021, President Biden issued an executive order that initiated a special es of obtaining health insurance coverage through the ACA marketplt ace. The executive order enrollment period forff also instrucr ted certain governmental agencies to review and reconsider their existing policies and rulr es that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessaryrr barriers to obtaining access to health insurance coverage through Medicaid or the ACA. On August 16, 2022, President Biden signed the Inflff ation Reduction Act of 2022 (IRARR ) into law, which among other things, extends enhanced subsidies forff individuals purchasing health insurance coverage in ACA marketplt aces through plan year 2025. The IRARR also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by signififf cantly lowering the benefiff ciaryrr maximum out-of-ff pocket cost and creating a new manufaff cturt er discount program. It is possible that the ACA will be subject to judicial or Congressional challenges in the futff urt e. It is unclear how such challenges and the healthcare reforff m measures of the Biden administration will impact the ACA. Other legislative changes have been proposed and adopted in the United States since the ACA. Through the process created by the Budget Control Act of 2011, there are automatic reductions of Medicare payments to providers up to 2% per turt e fiff scal year, which went into effff eff ct in April 2013 and, due to subsequent legislative amendments, including the Infrff astrucrr 14 disease 2019 (COVID-19) relief support legislation suspended the 2% Medicare sequester frff om May 1, 2020 Investment and Jobs Act, will remain in effff eff ct through 2031 unless additional Congressional action is taken. However, coronavirusrr through March 31, 2022. Under current legislation the actuat up to 4% in the fiff nal fiff scal year of this sequester. Additionally, on March 11, 2021, President Biden signed the American rebate cap,a Rescue Plan Act of 2021 into law, which eliminates the statutt oryrr Medicaid drugr r , beginning Januaryrr 1, 2024. In Januaryrr single source and innovator multiple source drugs average manufaff cturt er price, forff 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, furff reduced Medicare payments to certain providers. l reduction in Medicare payments will varyrr currently set at 100% of a drug’ frff om 1% in 2022 to ther r s r r drugs Prices that outlines principles forff Moreover, recently there has been heightened governmental scrutr pricing, review the relationship under Medicare, and reforff m government iny over the manner in which manufaff cturt ers set prices their commercial products. There have been several recent U.S. Congressional inquiries and proposed and enacted feff deral . For example, in July 2021, the Biden administration released an executive . In response forff and state legislation designed to, among other things, bring more transparency to drugr between pricing and manufaff cturt er patient programs, reduce the cost of drugs program reimbursement methodologies forff order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs to Biden’s executive order, on September 9, 2021, the U.S. Department of Health and Human Services (HHS) released a Comprehensive Plan forff Addressing High Drugr of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. In addition, the IRARR , among other things, (1) directs HHS to negotiate the price of certain single- source drugs and biologics covered under Medicare and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpat ce inflff ation. These provisions will take effff eff ct progressively starting in fiff scal year 2023, although they may be subject to legal challenges. It is currently unclear how the IRARR will be implemented but is likely to have a signififf cant impact on the pharmaceutical industry.rr Further, the Biden administration released an additional executive order on October 14, 2022, directing HHS to submit a report on how the Center forff Medicare and Medicaid Innovation can be furff unclear whether this executive order or similar policy initiatives will be implemented in the futff urt e. At the state level, legislaturt es 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 frff om other countries and bulk purchasing. costs forff Medicare and Medicaid benefiff ciaries. However, it is ther leveraged to test new models forff pricing reforff m and sets out a variety lowering drugr drugr r r We expect that healthcare reforff m measures that may be adopted in the futff urt e may result in more rigorous coverage criteria and lower reimbursement, and additional downward pressure on the price that we receive forff NUPLAZID and any futff urt e appr 19 pandemic. We cannot predict what healthcare reforff m initiatives may be adopted in the futff urt e. oved products. Further, it is possible that additional governmental action will be taken in response to the COVID- a Manufacff turing and Distribution We currently outsource, and plan to continue to outsource, manufaff cturt ing activities forff NUPLAZID, as well as forff trofiff netide and our other existing and futff urt e product candidates forff manufaff cturt development of pimavanserin without devoting the substantial resources and capia tal required to build manufaff cturt faff cilities. ing strategy will enabla e us to direct our fiff nancial resources to our commercial activities and to the ongoing development and commercial purpos ing r es. We believe this We licensed worldwide intellectuat l property rights related to pimavanserin in certain indications to Acadia Pharmaceuticals GmbH, our wholly-owned Swiss subsidiaryrr has been manufaff cturt ed in Switzerland forff over 10 years and we anticipate continuing to manufaff cturt e in Switzerland. Acadia GmbH manages the worldwide supply chain of our pimavanserin API, and maintains suffff iff cient materials to manufaff cturt e our API beyond our one-year production plan. (Acadia GmbH). Our active pharmaceutical ingredient (API) Acadia GmbH has contracted with Siegfrff ied AG (Siegfrff ied), to manufaff cturt e our API to be used in NUPLAZID forff ing agreement, Acadia GmbH has agreed to purchase frff om Siegfrff ied specififf ed commercial sale. Under the manufaff cturt percentages of our commercial requirements of API forff futff urt e on additional services under the manufaff cturt activities. The term of the manufaff cturt automatically renew forff unless the manufaff cturt agreement prior to expiration upon an uncured material breach by the other party, upon the dissolution or liquidation of the the United States and Europe. The parties may also agree in the ing agreement with respect to non-commercial supply or development a two-year term and will subsequent two-year terms unless either party provides timely notice of its intent not to renew, or ing agreement is terminated earlier pursuant to its terms. Either party may terminate the manufaff cturt ing agreement ended in December 2021 and renewed forff ing 15 ntment of any receiver, trusr other party, the commencement of insolvency procedures that are not dismissed within a certain period of time, the tee or assignee to take possession of the properties of the other party or the cessation of all a appoi or substantially all of the other party's business operations, upon certain continuing patent infrff ingement, regulatoryrr litigation or other legal proceedings involving the manufaff cturt e of our API, upon a continuing forff ce maja eure affff eff cting the other party, or if no services are currently being provided under the manufaff cturt development services under the manufaff cturt reasonabla e effff orff manufaff cturt manufaff cturt ts to achieve the goals of such services faff il. Acadia GmbH also may terminate any services under the any reason on 90 days’ prior notice to Siegfrff ied, subject to the requirements of the ing agreement, the parties may terminate such services by mutuat ing agreement. Additionally, if the parties agree on ing agreement forff ing agreement. l agreement if product forff product forff commercial use in the United States. Under the We have contracted with Patheon Pharmaceuticals Inc. (Patheon), to manufaff cturt e NUPLAZID 10 mg tabla et and 34 mg ing commercial use in the United States. We have also contracted with a second contract manufaff cturt ing agreement with Patheon, we have agreed to purchase frff om Patheon a specififf ed percentage of our commercial the United States. Under the agreement, Patheon will also perforff m specififf ed validation ing agreement ends in the fiff rst quarter of 2023 and will automatically renew forff capsa ule drugr organization to manufaff cturt e NUPLAZID 34 mg drugrr manufaff cturt requirements of NUPLAZID forff services. The term of the manufaff cturt subsequent two-year terms unless either party provides timely notice of its intent not to renew, or unless the manufaff cturt agreement is terminated early pursuant to its terms. Each party may terminate the manufaff cturt expiration upon the uncured material breach by the other party, upon event of a continuing forff ce maja eure event affff eff cting the other party. The manufaff cturt provide notice to Patheon that we no longer require manufaff cturt Additionally, we may terminate the manufaff cturt any action or raises any objection that prevents us frff om continuing to commercialize NUPLAZID or takes an enforff cement ing site that relates to NUPLAZID or could reasonabla y be expected to adversely affff eff ct action against Patheon’s manufaff cturt Patheon’s abia lity to supply NUPLAZID, if we determine to discontinue commercialization of NUPLAZID forff effff iff cacy reasons, or if Patheon uses any debarred person in perforff ming its service obligations under the manufaff cturt agreement. We also may terminate the manufaff cturt Patheon may terminate the manufaff cturt manufaff cturt ing agreement forff ing agreement if we assign the manufaff cturt ing agreement prior to cy or insolvency of the other party or in the ing agreement will also terminate if we any other reason on three years’ prior notice to Patheon. ing agreement or any of our rights under the ing agreement, subject to certain limitations, if any regulatoryrr authority takes ing services because NUPLAZID has been discontinued. ing agreement to a Patheon competitor. safeff ty or ing the bankrupt ing u r We sell NUPLAZID to a limited number of specialty pharmacies (SPs), and specialty distributors (SDs), which we collectively refeff r to as our customers. SPs subsequently dispense NUPLAZID to patients based on the fulff prescription and SDs subsequently sell NUPLAZID to government faff cilities, long-term care pharmacies, and in-patient hospital pharmacies. Four customers, each based in the United States, accounted forff forff related to the distribution of NUPLAZID, including warehousing, customer service, order-taking, invoicing, collections, and shipment and returt ns processing. the year ended December 31, 2022. We have retained third-party service providers to perforff m a variety of func oximately 73% of our total revenue fiff llment of a tions a appr ff We have contracted with manufaff cturt ers to produce supplies of trofiff netide to support the development program and forff trofiff netide products at specififf ed prices and subsequent two-year ing agreement with Patheon commercial sale. Under these agreements, we have the right to purchase API forff volumes. The term of the latest to expire agreement will end in 2027 and will automatically renew forff terms unless either party provides timely notice of its intent not to renew. Under the manufaff cturt described above , we also have the right to purchase trofiff netide products forff commercial use. a Under the manufaff cturt commercial use. products forff ing agreement with Patheon described above a , we also have the right to purchase trofiff netide If any other product candidate is appr a to contract with a third party to manufaff cturt e such products forff Sales and Marketing oved by the FDA or other regulatoryrr agencies forff commercial sale, we will need commercial sale in the U.S. and/or in such other jurisdictions. We have U.S. sales specialists that are focff used on promoting NUPLAZID to physicians who treat PDP patients, including neurologists, psychiatrists and long-term care physicians. This sales forff ce is supported by an experienced sales leadership team. Our experienced commercial team is comprised of experienced profeff ssionals in marketing, key account management, patient access services, commercial operations, and sales forff ce planning and management. In addition, our commercial infrff astrucr compliance. ing, health outcomes, medical affff aff irs, quality control, and turt e includes capaa bia lities in manufaff cturt 16 We launched NUPLAZID in May 2016, and our focff us is to continue to establa ish NUPLAZID as the standard of care patients with PDP. In order to help us achieve this goal, we are continuing to increase awareness of NUPLAZID’s forff benefiff ts in PDP with a prescriber and patient education campaign consisting of key opinion leader speaker programs, attendance at medical meetings, digital outreach, multimedia campaigns, and direct-to-patient programs. In selected markets outside of the United States in which NUPLAZID may be appr commercialize NUPLAZID independently or by establa ishing one or more strategic alliances. a oved, if any, we may choose to We have begun expanding our commercial team to support the commercialization of trofiff netide. Long-Lived Assets Our tangible long-lived assets are comprised of intangible assets and property and equipment. Our property and equipment totaled $6.0 million, $8.0 million, and $9.2 million as of December 31, 2022, 2021 and 2020, respectively. All of our tangible long-lived assets are located in the United States. Our intangible assets, comprised of right-of-ff use assets and other intangibles acquired, totaled $55.6 million, $58.3 million and $48.4 million as of December 31, 2022, 2021 and 2020, respectively. Employees and Human Capital EmEE plm oyees. At December 31, 2022, we had a total of 513 employees, 511 of whom were fulff l-time. We employ physicians, scientists and profeff ssionals in research and development, clinical, regulatory,rr manufaff cturt fiff nance, legal and other func certain instances in order to maximize our employment flff exibility in light of our business needs. Additionally, when we think it is in the best interest of our business, we will rely upon external advisers and consultants rather than our employees. tions that are important to our business. We also will continue to use temporaryrr workers in ing, marketing, sales, ff EE EmEE plm oyee Engage ment,t Benefe iff tstt & Development. We believe that our futff urt e success is dependent upon our abia lity to t, hire and retain exceptional employees. We provide our employees with competitive cash compensation, opportuni recruir to own equity, and an employee benefiff t program that promotes well-being, including wellness programs, healthcare, retirement planning and paid vacation time. We also provide employees with opportuni growth, including leadership development and tuit evaluate our level of employee engagement, we regularly conduct employee surveys. ties to continue their education and tion reimbursement. In order to receive feff edback frff om our employees and t t ties Diversrr itytt ,yy Equitytt & IncII lusion. We value diversity, equity, and inclusion across our workforff ce, in our communities, and in the work that we do. We will continue to focff us on diversity, equity, and inclusion initiatives that support a culturt e that is centered on belonging while aligning with our shared corpor ate mission and values. rr Item 1A. Risii k FacFF tortt srr . YouYY the folff should consider carefe ulff e inforff mation contained in thisii Annual Repor risii kskk actuallyll occursrr , our business, fiff nancial condition, resultstt of operations, and futff ure growth prospes materiallyll and adversrr elyll affff eff cted. InII lowing inforff mation about the risii kskk described below,w together with the other t and in our other public fiff lings, in evaluating our business. IfII any of the folff these circumstances, the markrr ekk t price of our common stock would likekk lyll decline. ctstt wouldl likekk lyll be lyll lowing Risks Related to Our Business ctstt are highi Our prospes cannot mainii matett riallll yll adversrr elyll affff eff ctett d and thtt e price of our common stoctt k may declill nii e.ee lyll depeee ndent on thtt e contitt nii ued successfs uff l commercialill zii atitt on of NUPUU LPP ALL ZIZZ DII . ToTT thtt e extee ett nt we taitt nii or inii crease salell s of NUPUU LPP ALL ZIZZ DII ,D our businii ess,s fiff nii ancial conditii itt on and resultll stt of operatitt ons may be NUPLAZID is our only drugrr that has been appr a oved forff sale and it has only been appr a oved forff the treatment of hallucinations and delusions associated with PDP, in the U.S. since April 2016. In recent years, we have focff used most of our activities and resources on NUPLAZID, because we believe that our prospects are highly dependent on, and the vast maja ority of the value of our company relates to, our abia lity to continue the successfulff commercialization of NUPLAZID in the U.S. Continued successfulff commercialization of NUPLAZID is subject to many risks, and there is no guarantee that we will be abla e to maintain or increase sales of NUPLAZID or to successfulff oved indications beyond PDP. There are numerous examples of faff ilures to meet high expectations of market potential, including ly commercialize NUPLAZID forff additional appr a 17 ly in developing our commercial team, there additional indications. Even if we are successfulff ther expand and develop the team in order to successfulff , including a number of faff ctors that are outside our control. Because no drugr has previously the treatment of hallucinations and delusions associated with PDP, it is especially diffff iff cult to by pharmaceutical companies with more experience and resources than us. While we have establa ished our commercial team and have hired our U.S. sales forff ce, we may need to furff commercialize NUPLAZID forff are many faff ctors that could negatively impact our sales of NUPLAZID or cause the continued commercialization of NUPLAZID to be unsuccessfulff oved by the FDA forff a been appr estimate NUPLAZID’s market potential forff oved indication and potential additional indications, if any. The continued commercial success of NUPLAZID currently depends on the extent to which patients and physicians recognize and diagnose PDP and accept and adopt NUPLAZID as a treatment forff know whether our or others’ estimates in this regard will be accurate. We have changed, and may continue to change, the price of NUPLAZID frff om time to time. Physicians may not prescribe NUPLAZID and patients may be unwilling to use NUPLAZID if coverage is not provided, coverage changes in the futff urt e or reimbursement is inadequate to cover a signififf cant portion of the cost. Additionally, any negative publicity related to NUPLAZID, or negative development forff NUPLAZID in our post-marketing commitments, in clinical development in additional indications, or in regulatoryrr processes in other jurisdictions, may adversely impact the commercial results and potential of NUPLAZID. Thus, signififf cant uncertainty remains regarding the commercial potential of NUPLAZID. hallucinations and delusions associated with PDP, and we do not a its appr If the continued commercialization of NUPLAZID or futff urt e sales are less successfulff than expected or perceived as nting, our stock price could decline signififf cantly and the long-term success of the product and our company could be a disappoi harmed. ctstt are alsll o depeee ndent on thtt e success of trtt ofiff nii etitt de.ee ToTT thtt e extee ett nt regue Our prospes ed or not grantett d or,r ifi approved, trtt ofiff nii etitt de isii not commerciallll yll successfs uff l,ll our businii ess,s fiff nii ancial conditii itt on and resultll stt of operatitt ons may be matett riallll yll advdd ersrr elyll affff eff ctett d and thtt e price of our common stoctt k may declill nii e.ee yr approval of trtt ofiff nii etitt de isii delayll latll ortt The research, testing, manufaff cturt ing, labea a ling, appr oval, sale, import, export, marketing, and distribution of pharmaceutical product candidates are subject to extensive regulation by the FDA and other regulatoryrr authorities in the U.S. and other countries. We have focff used a signififf cant portion of our activities and resources on the development of trofiff netide, and we believe our prospects are also dependent on our abia lity to obtain regulatoryrr appr commercialize trofiff netide in the U.S. The regulatoryrr appr many risks, including those discussed in other risk faff ctors, and trofiff netide may not receive appr results or timing of regulatoryrr actions or decisions related to trofiff netide do not meet our or others’ expectations, the market price of our common stock could decline signififf cantly. fiff lings, the regulatoryrr process, regulatoryrr developments, commercialization, or other activities, commercialization of trofiff netide is subject to oval frff om the FDA. If the oval and successfulff and successfulff oval forff ly a a a In December 2021, we announced positive results frff om our pivotal Phase 3 LAVENDER study. t t The study demonstrated a statistically signififf cant improvement over placebo forff endpoint. We submitted to the FDA an NDA forff accepted the NDA fiff ling in September 2022 with a PDUFA target action date of March 12, 2023. trofiff netide forff the treatment of Rett syndrome in July 2022.The FDA both co-primaryrr endpoints as well as key secondaryrr The FDA retains complete discretion in deciding whether to appr a ove the NDA forff trofiff netide and there are many components to an NDA fiff ling beyond the effff iff cacy and safeff ty data provided to the FDA. For example, the FDA will review our internal systems and processes, as well as those of our vendors, related to our development of trofiff netide, including those pertaining to our clinical trials and manufaff cturt trofiff netide forff ing processes. No assurances can be given that the FDA will appr the treatment of Rett syndrome, or that if appr ly commercialize trofiff netide. oved, we will successfulff ove a a ThTT e tett rmrr may lill mii s of thtt e FDFF ADD ’s’ approval of NUPUU LPP ALL ZIZZ DII itii itii stt commercial potett ntitt al.ll Additii itt onallll yll ,yy NUPUU LPP ALL ZIZZ DII thtt e trtt eatmtt ent of hallll ucinii atitt ons and delusions associatett d witii htt PDPP PDD titt nii g commitii mtt ent.tt isii stitt lii lll subject tott an ongoinii g post-tt markerr forff The scope and terms of the FDA’s appr a oval of NUPLAZID may limit our abia lity to commercialize NUPLAZID and, thereforff e, our abia lity to generate substantial sales revenues. The FDA has appr hallucinations and delusions associated with PDP. The labea patients with DRP treated with antipsychotic drugs oved forff the treatment of patients with DRP unrelated to the hallucinations and delusions associated with PDP. This “boxed” warning may discourage physicians frff om prescribing NUPLAZID to patients diagnosed with PDP, including those with dementia. the treatment of oved NUPLAZID only forff l forff NUPLAZID also contains a “boxed” warning that elderly are at an increased risk of death, and that NUPLAZID is not appr a a r In connection with the FDA appr a oval, we agreed to four ff post-marketing commitments (PMCs): (i) a randomized withdrawal trial of pimavanserin 34 mg/day compared to placebo, (ii) a placebo-controlled trial (or trials) of pimavanserin 34 18 eight weeks in at least 500 predominantly frff ail and elderly subjects, (iii) a drug- mg/day forff the effff eff ct of a strong CYP3A4 inducer on the exposure to pimavanserin, and (iv) re-analysis of tissue samples frff om certain previously conducted preclinical studi elderly subjects is in process and expected to be completed in accordance with the timeline agreed with the FDA. Failure to complete the remaining PMC may result in regulatoryrr action by the FDA. The results of any post-marketing study the FDA to update the labea t es or require risk mitigation plans. fiff lled three PMCs; the PMC covering a trial (or trials) in frff ail and l and/or cause the FDA to request additional studi interaction study es. We have fulff drugrr to measure may cause rr t t t The manufaff cturt ing processes, labea ling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping forff NUPLAZID will also continue to be subject to extensive and ongoing regulatoryrr requirements. These requirements include submissions of safeff ty and other post-marketing inforff mation and reports, registration, as well as continued compliance with cGMPs, good clinical practices, international council forff guidelines and good labor a nonclinical and clinical development and forff atoryrr practices, each of which are regulations and guidelines enforff ced by the FDA forff any clinical trials that we conduct post-appr oval. a harmonization all of our Discoveryrr of any issues post-appr a oval, including any safeff ty concerns, such as unexpected side effff eff cts or drug- r drugrr interaction problems, adverse events of unanticipated severity or frff equency, or concerns over misuse or abus e of the product, problems with the faff cilities where the product is manufaff cturt ed, packaged or distributed, or faff ilure to comply with regulatoryrr requirements, may result in, among other things, restrictions on NUPLAZID or on us, including: a • • • • • • • • withdrawal of appr a oval, addition of warnings or narrowing of the appr a oved indication in the product labea l; requirement of a Risk Evaluation and Mitigation Strategy to mitigate the risk of offff -ff labea where the FDA may believe that the potential risks of use may outweigh its benefiff ts; l use in populations voluntaryrr or mandatoryrr recalls; warning letters; suspension of any ongoing clinical studi t es; refusff a appl al by the FDA or other regulatoryrr authorities to appr ications fiff led by us, or suspension or revocation of product appr a ove pending appl ovals; a a ications or supplements to appr a oved restrictions on operations, including restrictions on the marketing or manufaff cturt imposition of costly new manufaff cturt ing requirements; or ing of the product or the seizure or detention, or refusff al to permit the import or export of products. If any of these actions were to occur, we may have to discontinue the commercialization of NUPLAZID, limit our sales and marketing effff orff t clinical studi es, and/or discontinue or change any other ongoing or planned es, which in turt n could result in signififf cant expense and delay or limit our abia lity to generate sales revenues. ts, conduct furff ther post-appr oval studi a t itii ett d number of pat NUPUU LPP ALL ZIZZ DII has onlyll been studidd ed inii a lill mii ell commercialill zii e NUPUU LPP ALL ZIZZ DII ,D itii isii becominii g availii abl we do not know whethtt er thtt e resultll stt of NUPUU LPP ALL ZIZZ DII use inii consisii tett nt witii htt thtt e resultll stt frff om our clill nii ical studies. tott a much larll ger such larll ger ff ll itt entstt and inii itii ett d populatll lill mii r number of pat r number of pat itt ons. As we contitt nii ue tott itt entstt and inii broader populatll itt entstt and broader populatll ff ff itt ons,s and itt ons wilii lll be Prior to commencing our commercial launch of NUPLAZID in May 2016, NUPLAZID was administered only to a t es, including our successfulff pivotal -020 Phase 3 trial the treatment of PDP. We do not know whether the results, when broader populations are exposed to es of oval. For instance, we have an ongoing post-marketing commitment to the es in predominantly frff ail and elderly patients. New data relating to NUPLAZID, including limited number of patients and in limited populations in clinical studi with NUPLAZID forff NUPLAZID, including results related to safeff ty and effff iff cacy, will be consistent with the results frff om the clinical studi NUPLAZID that served as the basis forff t FDA to conduct a study frff om adverse event reports and post-marketing studi frff om other ongoing clinical studi withdrawal of NUPLAZID frff om the market. The FDA and regulatoryrr authorities in other jurisdictions may also consider the indications other than in PDP and/or in other jurisdictions, or new data in reviewing NUPLAZID marketing appl impose additional post-appr oval requirements. If any of these actions were to occur, it could result in signififf cant expense and delay or limit our abia lity to generate sales revenues. es in the U.S. (including our ongoing post-marketing commitment), and es, may result in changes to the product labea l and may adversely affff eff ct sales, or result in ications forff t or studi a its appr a a t t t 19 icallll yll relill ed on a lill mii WeWW have hisii tortt t and sellll NUPUU LPP ALL ZIZZ DII ,D our onlyll commercial product.tt IfII thtt pharmrr acies tott markerr commercialill zii atitt on of NUPUU LPP ALL ZIZZ DII may be adversrr elyll affff eff ctett d, and NUPUU LPP ALL ZIZZ DII may not be profiff tii abl tett rnal commercial tett am and a lill mii - irii d-par isii approach ceases tott be efe fff eff ctitt ve,e our itii ett d netwtt orkrr of thtt tytt disii trtt ibutortt itii ett d inii ell .ee tt srr and NUPLAZID is our only drugrr that has been appr a oved forff sale by any regulatoryrr body, and it became availabla e forff prescription in the U.S. in May 2016. We employ our own internal specialty sales forff ce to commercialize NUPLAZID forff treatment of PDP as part of our commercialization strategy in the U.S. If we receive marketing appr pimavanserin in any other indication, we will need to increase our U.S. sales forff ce signififf cantly, and expand our commercial, medical affff aff irs and general and administrative support func tions to support commercialization forff other pharmaceutical and biotechnology companies to recruir expensive and time consuming, and we cannot be certain that we will be abla e to successfulff tional teams. develop our sales forff ce and related func t, hire, train and retain such personnel. These effff orff that indication. We will be competing with ly expand, refiff ne and furff ts will be ther oval forff the a ff ff Additionally, our strategy in the U.S. includes distributing NUPLAZID solely through a limited network of third-party specialty distributors and specialty pharmacies. While we have entered into agreements with each of these distributors and pharmacies to distribute NUPLAZID in the U.S., they may not perforff m as agreed or they may terminate their agreements with us. Also, we may need to enter into agreements with additional distributors or pharmacies, and there is no guarantee that we will be abla e to do so on commercially reasonabla e terms or at all. In the event we are unabla e to maintain, or expand, if needed, our commercial team, including our U.S. sales forff ce, or maintain and, if needed, expand, our network of third-party specialty distributors and specialty pharmacies, our abia lity to continue commercializing NUPLAZID would be limited, and NUPLAZID may not be profiff tabla e. IfII we do not obtaitt nii we wilii lll not be ablell regue latll ortt tott markerr oval of pi yr appr a t pimii avanserinii ff mii avanserinii forff forff othtt er inii dicatitt ons inii othtt er inii dicatitt ons inii additii itt on tott thtt e U.SUU .,SS which wilii lll lill mii trtt eatmtt ent of PDPP PDD inii itii our commercial revenues. thtt e U.SUU .,SS a a the treatment of hallucinations and delusions any other indications, and it has not been appr oved in the U.S. by the FDA forff oved by the FDA forff any other indication. In order to market pimavanserin forff While pimavanserin has been appr associated with PDP, it has not been appr this indication or forff other jurisdiction forff oval forff other jurisdictions, we must obtain regulatoryrr appr jurisdictions, and we may never be abla e to obtain such appr a hallucinations and delusions associated with PDP does not ensure that NUPLAZID will be appr other indication. For example, foff llowing the successfulff sNDA to the FDA forff that the FDA had completed its review of the appl Februar delusions associated with ADP. On August 4, 2022 we received a CRL frff om the FDA regarding our ADP sNDA resubmission. At this time, we are not planning to conduct any additional studi the treatment of DRP on June 3, 2020. On April 2, 2021, we received a CRL frff om the FDA, indicating oved in its present forff m. In ication and determined that it could not be appr ryrr 2022, we resubmitted the aforff ementioned sNDA refiff ning the proposed indication to treatment of hallucinations and each of those indications and in each of the appl oval. Approval of NUPLAZID by the FDA forff other indications or in icabla e the treatment of completion of our Phase 3 HARMONY study, pimavanserin in ADP. oved by the FDA forff we submitted an oved in any es forff any a a a a a a t t We initiated a Phase 3 program forff pimavanserin as an adjunctive treatment forff maja or depressive disorder (MDD) in April 2019. In July 2020, we announced that our Phase 3 CLARITY study, placebo-controlled studi plan on initiating any additional Phase 3 studi inhibitor (SSRI)/ serotonin-norepinephrine reuptake inhibitor (SNRI) drugs r t t es, did not achieve statistical signififf cance on the primaryrr endpoint. As a result, at this time we do not adjunctive use with selective serotonin reuptake es to evaluate pimavanserin forff t which combined two identical, double-blind, forff the treatment of MDD. We initiated the Phase 3 ADVANA CE-2 study of pimavanserin forff schizophrenia in August 2020. We project completing the enrollment this year with top-line results in the fiff rst half of 2024. There is no guarantee that our ongoing study jurisdictions will appr , or that the FDA or any regulatoryrr authority in forff eign the treatment of the negative symptoms of ove pimavanserin forff will be successfulff that indication. a t t The research, testing, manufaff cturt ing, labea a ling, appr oval, sale, import, export, marketing, and distribution of pharmaceutical product candidates are subject to extensive regulation by the FDA and other regulatoryrr authorities in the U.S. to country.rr We will be required to comply with diffff eff rent and other countries, whose regulations diffff eff r frff om countryrr regulations and policies of the jurisdictions where we seek appr our product candidates, and we have not yet a identififf ed all of the requirements that we will need to satisfyff other jurisdictions. This will require additional time, expertise and expense, including the potential need to conduct additional studi other jurisdictions beyond the work that we have conducted to support our NDA submission t in PDP. If we do not receive marketing appr any other indication, we will never be abla e to es or development work forff to submit NUPLAZID forff oval forff NUPLAZID forff other indications or in oval forff oval forff a appr a 20 commercialize NUPLAZID forff may not be successfulff in commercializing those opportuni t ties. any other indication in the U.S. Even if we do receive additional regulatoryrr appr a ovals, we If the results or timing of regulatoryrr fiff lings, the regulatoryrr process, regulatoryrr developments, clinical trials or t es, or other activities, actions or decisions related to NUPLAZID do not meet our or others’ expectations, the preclinical studi market price of our common stock could decline signififf cantly and the long-term success of the product and our company could be harmed. IfII we are unablell trtt ofiff nii etitt de,e ifi approved, wilii lll be harmrr ed. tott efe fff eff ctitt velyll trtt ainii and equipii our salell s forff ce,e our abilii ill tii ytt tott successfs uff llll yll commercialill zii e NUPUU LPP ALL ZIZZ DII and NUPLAZID is the fiff rst drugr a appr oved by the FDA forff the treatment of hallucinations and delusions associated with a a trofiff netide forff icabla e laws in marketing NUPLAZID forff PDP, and the FDA fiff led our NDA forff the treatment of Rett syndrome in September 2022. As a result, we are and will continue to be required to expend signififf cant time and resources to train our sales forff ce to be credible, persuasive, the treatment of hallucinations and delusions associated and compliant with appl with PDP and trofiff netide, if appr oved, forff physicians in long-term care faff cilities and other healthcare providers, as appr consistent and appr oved, are being delivered to our potential a customers by our sales forff ce. If we are unabla e to effff eff ctively train our sales forff ce and equip them with current, effff eff ctive materials, including medical and sales literaturt e to help them inforff m and educate potential customers about NUPLAZID and trofiff netide, if appr NUPLAZID and trofiff netide, if appr product revenues. oved, and their proper administration, our effff orff oved, could be put in jeopardy, which would negatively impact our abia lity to generate the treatment of Rett syndrome to neurologists, psychiatrists, pharmacists, opriate. In addition, we must ensure that NUPLAZID and trofiff netide, if appr opriate messages about ly commercialize ts to successfulff the benefiff ts of a a a a a a NUPUU LPP ALL ZIZZ DII may not gainii maximii al acceptee antt our potett ntitt al tott generatett revenues. ce among phyh sicians,s patitt entstt ,s and thtt e medical communitii ytt ,yy thtt ereby lill mii itii itt nii g The degree of market acceptance by physicians, healthcare profeff ssionals and third-party payors of NUPLAZID, and any other product forff which we obtain regulatoryrr appr faff ctors, including: a oval, and our profiff tabia lity and growth, will depend on a number of • • • • • • • • • • • the abia lity to provide acceptabla e evidence of safeff ty and effff iff cacy; the scope of the appr a oved indication(s) forff the product; the inclusion of any warnings or contraindications in the product labea l; the relative convenience and ease of administration; the prevalence and severity of any adverse side effff eff cts; the availabia lity of alternative treatments; the willingness of the target patient population to tryrr new therapia es and of physicians to prescribe these therapia es, and our abia lity to increase awareness of our appr oved products through marketing effff orff ts; a pricing and cost effff eff ctiveness, which may be subject to regulatoryrr control; effff eff ctiveness of our or our collabor a ators’ sales and marketing strategy; publicity concerning us, our products or competing products and treatments; and our abia lity to obtain suffff iff cient third-party insurance coverage or adequate reimbursement levels. If a product does not provide a treatment regimen that is at least as benefiff cial as the current standard of care or otherwise does not provide patient benefiff t, that product will not achieve market acceptance and will not generate suffff iff cient revenues to achieve or maintain profiff tabia lity. With respect to NUPLAZID specififf cally, successfulff commercialization will depend on whether and to what extent physicians, long-term care faff cilities and pharmacies, over whom we have no control, determine to utilize NUPLAZID. NUPLAZID is availabla e to treat hallucinations and delusions associated with PDP, an indication forff which no other FDA- appr oved pharmaceutical treatment currently exists. Because of this, it is particularly diffff iff cult to estimate NUPLAZID’s a market potential and how physicians, payors and patients will respond to changes in the price of NUPLAZID. Additionally, 21 the near- and long-term market potential of NUPLAZID, and a variety of assumptions directly the growth of NUPLAZID net sales was negatively impacted due to the COVID-19 pandemic, and the continuing effff eff cts of COVID-19 on NUPLAZID net sales are diffff iff cult to assess or predict at this time. Industryrr sources and analysts have a divergence of estimates forff impact the estimates forff NUPLAZID’s market potential, including assumptions regarding the prevalence of PDP, the rate of diagnosis of PDP, the prevalence and rate of hallucinations and delusions in patients diagnosed with PDP, the rate of physician adoption of NUPLAZID, the potential impact of payor restrictions regarding NUPLAZID, and patient adherence and compliance rates. Small diffff eff rences in these assumptions can lead to widely divergent estimates of the market potential of NUPLAZID. For example, certain research suggests that patients with Parkinson’s disease may be hesitant to report symptoms of PDP to their treating physicians forff to mental illness. Research also suggests that physicians who typically treat patients with Parkinson’s disease may not ask or identifyff symptoms of PDP. For these reasons, even if PDP occurs in high rates among patients with Parkinson’s a about disease, it may be underdiagnosed. Even if PDP is diagnosed, physicians may not prescribe treatment forff delusions associated with PDP, and if they do prescribe treatment, they may prescribe other drugs appr oved in PDP, instead of NUPLAZID. In addition, even if NUPLAZID is prescribed forff a and delusions associated with PDP, issues may arise with respect to patient adherence and compliance rates. If patients do not adhere to the recommended dosing of NUPLAZID, patients and physicians may believe that NUPLAZID is less effff eff ctive, and as a result they may stop taking it and prescribing it. hallucinations and , even though they are not the treatment of hallucinations a variety of reasons, including appr societal stigmas relating ehension about a a r oved forff The labea are at an increased risk of death, and that NUPLAZID is not appr l forff NUPLAZID also contains a “boxed” warning that elderly patients with DRP treated with antipsychotic a drugs the treatment of patients with DRP unrelated r to the hallucinations and delusions associated with PDP. There has also been attention to publicly reported deaths of patients that were prescribed NUPLAZID, and the FDA conducted an evaluation of availabla e inforff mation about September 20, 2018 the FDA issued a statement concluding: “The U.S. FDA has completed a review of all post marketing reports of deaths and serious adverse events (SAEs) reported with the use of NUPLAZID. Based on an analysis of all availabla e data, FDA did not identifyff any new or unexpected safeff ty fiff ndings with NUPLAZID, or fiff ndings that are l. Aftff er a thorough review, FDA’s inconsistent with the establa ished safeff ty profiff le currently described in the drugr conclusion remains unchanged that the drug’ patients with hallucinations and delusions of s benefiff ts outweigh its risks forff Parkinson’s disease psychosis.” Although the FDA did not identifyff any new or unexpected safeff ty risks, the FDA indicated that some potentially concerning prescribing patterns were observed, such as the concomitant use of other antipsychotic drugs that can cause QT prolongation, a potential cause of heart rhythm disorder. The FDA reminded healthcare r providers to be aware of the risks described in the NUPLAZID prescribing inforff mation and that none of the other antipsychotic medications are appr unfounde d, may discourage physicians frff om prescribing or patients frff om taking NUPLAZID. the treatment of PDP. Regardless, perceptions that NUPLAZID is unsafeff , even if NUPLAZID. On oved forff r or drugs labea a a r ff The commercial success of NUPLAZID depends on acceptance by patients and physicians, and there are a number of faff ctors that could skew our or others’ estimates about acceptance of patients and physicians, or if our estimates are inaccurate, these events could negatively impact our business, results of operations, fiff nancial condition and prospects. prescribing behaviors and market adoption. If we faff il to gain the a Our abilii ill tii ytt patitt entstt have unacceptee abl tt yll highi - co-pay amountstt . tott generatett product revenues wilii lll be dimii inii isii hed ifi NUPUU LPP ALL ZIZZ DII ’s’ coverage frff om payorsrr isii decreased or ifi Patients who are prescribed medicine forff the treatment of their conditions generally rely on third-party payors, including governmental healthcare programs, such as Medicare and Medicaid, managed care organizations and commercial . Coverage and adequate payors, among others, to reimburse all or part of the costs associated with their prescription drugs reimbursement frff om third-party payors is critical to product acceptance. Coverage decisions may depend upon clinical and economic standards that disfaff vor drugr become availabla e. Even with coverage forff NUPLAZID, or other products we may market, the resulting reimbursement payment rates might not be adequate or may require co-payments that patients fiff nd unacceptabla y high. Patients may not use NUPLAZID if coverage is not provided or reimbursement is inadequate to cover a signififf cant portion of its cost. products when lower cost therapea utic alternatives are already availabla e or subsequently r In addition, the market forff NUPLAZID depends signififf cantly on access to third-party payors’ drugr forff mularies, or lists of medications forff which third-party payors provide coverage and reimbursement. The industryrr competition to be included in such forff mularies oftff en leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refusff less costly alternative is availabla e, even if not appr in their forff mularies or otherwise restrict patient access to a branded drugr when a the indication forff which NUPLAZID is appr e to include a particular branded drugr oved forff oved. a a 22 Third-party payors, whether governmental or commercial, are developing increasingly sophisticated methods of a opriate. Selling NUPLAZID at less than an optimized price would impact our revenues and could impact our controlling healthcare costs. The current environment is putting pressure on companies to price products below what they may feff el is appr overall success as a company. We have changed, and may continue to change, the price of NUPLAZID frff om time to time, however, we do not know if the price we have selected, or may select in the futff urt e, forff NUPLAZID is or will be the optimized price. Additionally, we do not know whether and to what extent third-party payors will react to any possible futff urt e changes in the price of NUPLAZID. In the U.S., no uniforff m policy of coverage and reimbursement forff among third-party payors. Further, one payor’s determination to provide coverage and reimbursement forff ensure that other payors will also provide coverage and reimbursement forff reimbursement forff NUPLAZID may diffff eff r signififf cantly frff om payor to payor. As a result, the coverage determination process is oftff en a time-consuming and costly process that will require us to provide scientififf c and clinical support forff NUPLAZID to each payor separately, with no assurance that coverage will be obtained. Coverage policies and third-party payor reimbursement rates may change at any time. Thereforff e, even if faff vorabla e coverage and reimbursement statust attained, less faff vorabla e coverage policies and reimbursement rates may be implemented in the futff urt e. If we are unabla e to , NUPLAZID or any other products we may market to third-party payors, obtain coverage of,ff and adequate payment levels forff physicians may limit how much or under what circumstances they will prescribe or administer them and patients may decline to purchase them. This in turt n could affff eff ct our abia lity to successfulff may market, and thereby adversely impact our profiff tabia lity, results of operations, fiff nancial condition, and futff urt e success. ly commercialize NUPLAZID, or any other products we products exists a product does not the product. Thereforff e, coverage and the use of drugrr is WeWW are solell lyll respons siblell forff thtt e developmll ent and commercialill zii atitt on ofo pff imii avanserinii . l responsibility forff the pimavanserin program throughout the world. We expect our research and additional indications, we would need to add signififf cant resources, and possibly raise additional capia tal, in ther commercialize pimavanserin, and to conduct the necessaryrr sales and marketing activities, and to conduct continued development of pimavanserin to be substantial. We are currently undertaking ongoing pimavanserin, including clinical trials of pimavanserin forff We have fulff development costs forff development work forff of appr oval forff a order to furff furff hallucinations and delusions associated with PDP in the U.S. using our specialty sales forff ce focff used primarily on neurologists, a small group of psychiatrists, and pharmacists and physicians in long-term care faff cilities who treat PDP patients. If we are appr a more strategic alliances in the futff urt e forff U.S. and abra oad, we might not be abla e to realize the fulff ther development activities. Our current strategy is to continue to commercialize NUPLAZID forff oved to commercialize NUPLAZID in markets outside of the U.S., we may need to establa ish one or e. Without futff urt e additional resources or collabor indications other than in PDP. In the event l value of NUPLAZID. ation partners in the the treatment of that purpos a r Furthermore, even though NUPLAZID is appr forff a PDP, a faff ilure in a subsequent pimavanserin study any additional studi forff we are unabla e to develop pimavanserin forff and that could have a material adverse effff eff ct on our futff urt e revenues and our success as a company. the treatment of hallucinations and delusions associated with PDP or could lead to it being withdrawn frff om the market. If other indications, we may not be abla e to maximize the potential of the compound the treatment of hallucinations and delusions associated with in schizophrenia, or ly market NUPLAZID another indication, including our ongoing study es, or a faff ilure in our post-marketing studi es could harm our abia lity to successfulff oved forff t t t t Drugu developmll ent isii a lonll ee g, expe nsive and unprn edictabl ell process witii htt a highi tt risii k of fff aiff lii ure.ee Preclinical testing and clinical trials are long, expensive and unpredictabla e processes that can be subject to delays. It and may take several years to complete the preclinical testing and clinical development necessaryrr delays or faff ilure can occur at any stage. Preliminary,rr predict fiff nal results and such results may change as more patient data become availabla e and are subject to audit and verififf cation procedures that could result in material changes in the fiff nal results. In addition, success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successfulff . A number of companies in the pharmaceutical and biotechnology industries have suffff eff red signififf cant setbat earlier trials. initial, top-line or interim results of clinical trials do not necessarily cks in advanced clinical trials even aftff er promising results in to commercialize a drug, rr Our drugr development programs are at various stages of development and the historical rate of faff ilures forff product candidates is extremely high. In faff ct, we had an unsuccessfulff Phase 3 trial with NUPLAZID in 2009. An unfaff vorabla e outcome in any of our ongoing or futff urt e development effff orff maja or set-back forff the program and forff the post-marketing studi eliminate this program and could have a material adverse effff eff ct on us and the value of our common stock. es may require us to delay, devote additional substantial resources to, reduce the scope of,ff or us, generally. In particular, an unfaff vorabla e outcome in our NUPLAZID program or in ts or in the post-marketing studi es forff NUPLAZID could be a t t 23 In addition, based on positive top-line results frff om CLARITY, a Phase 2 studyt evaluating pimavanserin as an adjunctive treatment forff MDD, we initiated our Phase 3 CLARITY program, consisting of two Phase 3 studi and CLARITY-3, evaluating pimavanserin as an adjunctive treatment with SSRI/SNRI drugs results observed in the Phase 2 CLARITY study, primaryrr endpoint. In July 2019, we announced top-line results frff om the Phase 3 ENHANA CE studyt as a treatment in inadequate response schizophrenia. In this studt either the primaryrr endpoint or the key secondaryrr endpoint. es, CLARITY-2 forff MDD. Despite the positive did not achieve statistical signififf cance on the y, pimavanserin did not achieve statistical signififf cance on our Phase 3 CLARITY study, evaluating pimavanserin r t t t Following the successfulff completion of our Phase 3 HARMONY study, t we submitted an sNDA to the FDA forff the treatment of DRP on June 3, 2020. On April 2, 2021, we received a CRL indicating that the FDA had ryrr 2022, pimavanserin forff completed its review of the appl we resubmitted the aforff ementioned DRP sNDA with updated labea ling forff associated with ADP to the FDA based on previously submitted studi t CRL frff om the FDA regarding our submission of the sNDA. At this time, we are not planning to conduct any additional t studi oved in its present forff m. In Februar a the treatment of hallucinations and delusions es and new analyses. On August 4, 2022, we received a the treatment of hallucinations and delusions associated with ADP. ication and determined that it could not be appr pimavanserin forff es forff a We are currently conducting several studi es, including early stage studi as ACP-204, which is akin to pimavanserin, and may conduct additional studi t t es of an internally-developed compound known es in the futff urt e. t In connection with clinical trials, we faff ce risks that: • • • • a product candidate may not prove to be effff iff cacious or safeff ; patients may die or suffff eff r other adverse effff eff cts forff candidate being tested; reasons that may or may not be related to the product the results may not be consistent with positive results of earlier trials; and the results may not meet the level of statistical signififf cance required by the FDA or other regulatoryrr agencies. If we do not successfulff ly complete preclinical and clinical development, we will be unabla e to market and sell products derived frff om our product candidates and to generate product revenues. Even if we do successfulff those results are not necessarily predictive of results of additional trials that may be needed beforff e an NDA may be submitted in development, only a small percentage result in the submission of an NDA to the to the FDA. Of the large number of drugs FDA and even feff wer are appr ly complete clinical trials, commercialization. r oved forff a s,s suspes nsions and tett rmrr Delayll generatett product revenues. inii atitt ons inii our clill nii ical trtt ialsll couldll resultll inii inii creased coststt tott us and delayll our abilii ill tii ytt tott The commencement of clinical trials can be delayed forff a variety of reasons, including delays in: • • • • • • • demonstrating suffff iff cient safeff ty and effff iff cacy to obtain regulatoryrr appr a oval to commence a clinical trial; reaching agreement on acceptabla e terms with prospective contract research organizations (CROs) and clinical trial sites; manufaff cturt ing suffff iff cient quantities of a product candidate; obtaining clearance frff om the FDA to commence clinical trials pursuant to an Investigational New Drugrr a appl ication; obtaining appr and local regulations (e.g., EU Clinical Trials Regulation (EU No. 536/2014)); oval to conduct clinical trials in countries outside the United States pursuant to evolving regional a obtaining institutt ional review board appr a oval to conduct a clinical trial at a prospective clinical trial site; and tment, which is a func patient recruir the protocol, the proximity of patients to clinical trial sites, the availabia lity of effff eff ctive treatments forff disease and the eligibility criteria forff tion of many faff ctors, including the size of the patient population, the naturt e of the relevant the clinical trial. ff 24 Once a clinical trial has begun, it may be delayed, suspended or terminated due to a number of faff ctors, including: • • • • • • • • • • competition forff allocate to other programs; internal and external resources, including clinical sites and study t patients, that we may choose to ongoing discussions with regulatoryrr authorities regarding the scope or design of our clinical trials or requests by them forff supplemental inforff mation with respect to our clinical trial results; imposition of clinical holds by regulatoryrr authorities or institutt ional review boards; faff ilure to conduct clinical trials in accordance with regulatoryrr requirements; inabia lity to monitor patients adequately during or aftff er treatment; diffff iff culty monitoring multiple studyt sites; patient enrollment, which is a func the protocol, the proximity of patients to clinical trial sites, the availabia lity of effff eff ctive treatments forff disease and the eligibility criteria forff tion of many faff ctors, including the size of the patient population, the naturt e of the relevant the clinical trial; ff lower than anticipated screening or retention rates of patients in clinical trials; serious adverse events or side effff eff cts experienced by participants; and insuffff iff cient supply or defiff cient quality of product candidates or other materials necessaryrr clinical trials. forff the conduct of our In addition, enrollment and retention of patients in, or the abia lity to receive results frff om, clinical trials could be ed by geopolitical or macroeconomic developments. For example, as a result of the ongoing conflff ict between Ukraine disrupt r and RusRR sia, we experienced temporaryrr delays in accessing historical records of certain clinical trial sites located in RusRR sia. Also, as a result of the COVID-19 pandemic, we temporarily paused enrollment of new patients in our ongoing clinical trials, as well as the commencement of new trials. However, we have re-initiated enrollment in clinical trials on a study- and site-by-site basis. It is possible that futff urt e enrollment in these studi es, could be impacted due to the same or similar geopolitical or macroeconomic developments. If patients withdraw frff om our trials, miss scheduled doses or folff due to such developments, the integrity of data frff om our trials may be compromised or not accepted by the FDA or other regulatoryrr authorities, which would represent a signififf cant setbat low trial protocols, or if our trial results are otherwise disrupt low-up visits or otherwise faff il to folff es, or enrollment in futff urt e studi icabla e program. ed or disputed t by-study a the appl ck forff rr t t t Many of these faff ctors may also ultimately lead to denial of regulatoryrr appr a oval of a current or potential product candidate. If we experience delays, suspensions or terminations in a clinical trial, the commercial prospects forff product candidate will be harmed, and our abia lity to generate product revenues will be delayed. the related IfII we are unablell persrr onnel,ll our drugu developmll ed and we may be unablell delayll tott atttt rtt act,tt retatt inii , and motitt vatett keye management,tt research and developmll ent programs,s our research and disii coveryr efe fff orff tott successfs uff llll yll commercialill zii e our productstt ,s or developll tstt ,s and our commercialill zii atitt on planll our product candidatett s. ent,tt and salell s and markerr titt nii g s may be Our success depends on our abia lity to attract, retain, and motivate highly qualififf ed management, scientififf c, and ts forff pimavanserin and trofiff netide, and commercial activities forff NUPLAZID. We faff ce competition forff commercial personnel. In particular, our development programs depend on our abia lity to attract and retain highly skilled development personnel, especially in the fiff elds of CNS disorders, including neuropsychiatric and related disorders. We are currently hiring, and in the futff urt e we expect to need to continue to hire, additional personnel as we expand our research and development effff orff experienced scientists, clinical operations personnel, commercial and other personnel frff om numerous companies and qualififf ed personnel is particularly intense in the San Diego, academic and other research institutt qualififf ed Califorff nia area. Many of the other biotechnology and pharmaceutical companies with whom we compete forff personnel have greater fiff nancial and other resources, diffff eff rent risk profiff les and longer histories in the industryrr They also may provide more diverse opportuni may be more appe retain high quality personnel, the rate and success at which we can develop and commercialize products and product candidates will be limited. If we are unabla e to attract and retain the necessaryrr personnel, it will signififf cantly impede our commercialization effff orff objectives. aling to high quality candidates than that which we have to offff eff r. If we are unabla e to continue to attract and oved, and the achievement of our research and development career advancement. Some of these characteristics ts forff NUPLAZID and trofiff netide, if appr ties and better chances forff ions. Competition forff than we do. a a t 25 All of our employees are “at will” employees, which means that any employee may quit at any time and we may terminate any employee at any time. We do not carryrr “key person” insurance covering members of senior management. IfII we receive approval of NUPUU LPP ALL ZIZZ DII tott contitt nii ue tott couldll adversrr elyll affff eff ct our resultll stt of operatitt ons. inii crease thtt e sizii e of our organr inii additii itt onal inii dicatitt ons,s or apa ppp roval of trtt ofiff nii etitt de inii Retttt sys ndrome,e we may need izii atitt on. WeWW may encountett r difi fff iff cultll itt es witii htt managinii g our growthtt , which As of December 31, 2022, we employed appr to support our development and commercialization effff orff responsibilities on members of management, including the need to identify,ff retain existing employees, and may take time away frff om runni commercialization of our product candidates. a r oximately 510 employees. Our current infrff astrucr turt e may be inadequate ts and expected growth. Futurt e growth will impose signififf cant added t, and integrate additional employees and ng other aspects of our business, including development and recruir Our futff urt e fiff nancial perforff mance and our abia lity to commercialize NUPLAZID and any other product candidates that receive regulatoryrr appr effff eff ctively. In particular, as we commercialize NUPLAZID, we will need to support the training and ongoing activities of our sales forff ce. To that end, we must be abla e to: oval and to compete effff eff ctively will depend, in part, on our abia lity to manage any futff urt e growth a • • • • manage our development effff orff ts effff eff ctively; integrate additional management, administrative and manufaff cturt ing personnel; develop our marketing and sales organization; and maintain suffff iff cient administrative, accounting and management inforff mation systems and controls. We may not be abla e to accomplish these tasks or successfulff ly manage our operations and, accordingly, may not achieve our research, development, and commercialization goals. Our faff ilure to accomplish any of these goals could harm our fiff nancial results and prospects. ll lii tott develop, itii ett d. Even ifi we obtaitt nii IfII we faiff lill mii realill zii e thtt e antitt cipat tstt righi ett d benefe iff tii stt . ii acquirii e or inii -lill cense othtt er product candidatdd ett s or productstt ,s our businii ess and prospes ctstt wouldll be tott othtt er product candidatett s or productstt ,s we wilii lll inii cur a varietytt of coststt and may never A key element of our strategy is to develop, acquire or in-license businesses, technologies, product candidates or the treatment of neurological disorders, or forff development and commercial capaa bia lities and expertise and our abia lity to identify,ff products that we believe are a strategic fiff t with our business. The success of this strategy depends in large part on the combination of our regulatory,rr acquire or in-license clinically-enabla ed product candidates forff indications that complement or augment our current product candidates, or that otherwise fiff t into our development or strategic plans on terms that are acceptabla e to us. Identifyiff ng, selecting and acquiring or in-licensing promising product candidates requires substantial technical, fiff nancial and human resources expertise, and we have limited experience in identifyiff ng acquisition targets, successfulff technologies, services or products into our current infrff astrucr in-license of a particular product candidate, potentially resulting in a diversion of our management’s time and the expenditurt e of our resources with no resulting benefiff t. If we are unabla e to identify,ff candidates frff om third parties on terms acceptabla e to us, our business and prospects will be limited. In particular, if we are unabla e to add additional commercial products to our portfolff organization that we have assembled forff ly completing proposed acquisitions and integrating any acquired businesses, select and acquire or license suitabla e product the marketing and sale of NUPLAZID. ts to do so may not result in the actuat io, we may not be abla e to successfulff ly leverage our commercial l acquisition or therapea utic turt e. Effff orff select and The process of integrating any acquired business, technology, service, or product may result in unforff eseen operating diffff iff culties and expenditurt es and may divert signififf cant management attention frff om our ongoing business operations. As a result, we will incur a variety of costs in connection with an acquisition and may never realize its anticipated benefiff ts. Moreover, any product candidate we identify,ff icabla e, and extensive clinical t development or regulatoryrr effff orff testing and appr icabla e forff eign regulatoryrr authorities. All product candidates are prone to the risk of faff ilure that is inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be suffff iff ciently safeff and/or effff eff ctive forff any such products that are appr accepted in the marketplt ace or be more effff eff ctive or desired than other commercially availabla e alternatives. select and acquire or license may require additional, time-consuming oval by regulatoryrr authorities. In addition, we cannot assure you that oved will be manufaff cturt ed or produced economically, successfulff ts prior to commercial sale, including preclinical studi ly commercialized or widely oval by the FDA and appl a es, if appl a appr a a a 26 In addition, if we faff il to successfulff ly commercialize and furff ther develop NUPLAZID or other product candidates, there is a greater likelihood that we will faff il to successfulff prospects would thereforff e be harmed. ly develop a pipeline of other product candidates, and our business and WeWW expe ee we wilii lll become profiff tii abl ct our net losll tt ell ,e ifi ever.rr ses tott contitt nii ue forff thtt e nextee feff w yearsrr and are unablell tott predict thtt e extee ett nt of fff uff ture losll ses or when We have experienced signififf cant net losses since our inception. As of December 31, 2022, we had an accumulated a defiff cit of appr oximately $2.4 billion. We expect to incur net losses over the next feff w years as we invest in the commercialization of NUPLAZID and advance our development programs, including developing additional internal systems and infrff astrucr expenses in the coming years. Thus, our futff urt e operating results and profiff tabia lity may flff uctuat will need to generate signififf cant revenues to achieve and maintain profiff tabia lity and positive cash flff ow on a sustained basis. turt e and hiring additional personnel. We also expect such investments and advancements will increase our te frff om period to period, and we We expect that our revenues over the next feff w years will be entirely dependent on our abia lity to generate product sales. Substantially all of our revenues since May 2016 were frff om net product sales of NUPLAZID. To the extent that we cannot generate signififf cant revenues frff om the sale of NUPLAZID to cover our expenses, including the signififf cant expenses associated with commercializing NUPLAZID and continuing to develop pimavanserin in additional indications, we may never achieve profiff tabia lity and/or may have to reduce our commercialization and/or research and development activities to become profiff tabla e, which would harm our futff urt e growth prospects. Additionally, to obtain revenues frff om product candidates other than NUPLAZID, we must succeed, either alone or with others, in developing, obtaining regulatoryrr appr manufaff cturt may never generate revenues frff om our commercialization of NUPLAZID, or frff om other product candidates that may be a appr ing and marketing compounds with signififf cant market potential. We may never succeed in these activities and oved, that are signififf cant enough to achieve profiff tabia lity. oval forff a , lii tott obtaitt nii thtt e capitii altt necessaryr tott fuff nd our operatitt ons,s we wilii lll be unablell tott successfs uff llll yll contitt nii ue thtt e ent and commercialill zii atitt on of NUPUU LPP ALL ZIZZ DII or successfs uff llll yll developll and commercialill zii e our othtt er product IfII we faiff developmll candidatett s. We have consumed substantial amounts of capia tal since our inception. Our cash, cash equivalents, and investment securities totaled $416.8 million at December 31, 2022. While we believe that our existing cash resources will be suffff iff cient to our cash requirements through at least the next twelve months, we may require signififf cant additional fiff nancing in the ff fund futff urt e to continue to fundff a result of,ff many faff ctors including: our operations. Our futff urt e capia tal requirements will depend on, and could increase signififf cantly as • • • • • • • • • • the progress in, and the costs of,ff our ongoing and planned development activities forff marketing studi activities forff NUPLAZID, and other research and development programs; es forff NUPLAZID to be conducted over the next several years, ongoing and planned commercial pimavanserin, post- t the costs of our development activities forff candidates; trofiff netide, our early-stage pipeline programs and any other product the costs of commercializing NUPLAZID, including the maintenance and development of our sales and marketing capaa bia lities; the costs of establa ishing, or contracting forff , sales and marketing capaa bia lities forff other product candidates; the amount of U.S. product sales frff om NUPLAZID; the costs of preparing appl and in additional indications other than in PDP, and forff support review of such appl regulatoryrr appr ications forff ications; a a a ovals forff NUPLAZID in jurisdictions other than the U.S., other product candidates, as well as the costs required to the costs of manufaff cturt ing and distributing NUPLAZID forff commercial use in the U.S.; our abia lity to obtain regulatoryrr appr jurisdictions other than the U.S. or in additional indications other than in PDP, or frff om trofiff netide, our early-stage pipeline programs and any other product candidates; , and subsequently generate product sales frff om, NUPLAZID in oval forff a the costs of acquiring additional product candidates or research and development programs; the scope, prioritization and number of our research and development programs; 27 • • • • • • the abia lity of our collabor a payments under our collabor these agreements; a ators and us to reach the milestones and other events or developments triggering ation or license agreements, or our collabor a ators’ abia lity to make payments under our abia lity to enter into new collabor a ation and license agreements; the extent to which we are obligated to reimburse collabor ation agreements; costs under collabor a a ators or collabor a ators are obligated to reimburse us forff the costs involved in fiff ling, prosecuting, enforff cing, and defeff nding patent claims and other intellectuat rights; l property the costs of maintaining or securing manufaff cturt production of pimavanserin, trofiff netide or other product candidates; and ing arrangements and supply forff clinical or commercial the costs associated with litigation, including the costs incurred in defeff nding against any product liabia lity claims that may be brought against us related to NUPLAZID. Unless and until we can generate signififf cant cash frff om our operations, we expect to satisfyff our futff urt e cash needs ff a ations, public or private sales of our ng, or by licensing all or a portion of our product candidates or technology. In the past, through our existing cash, cash equivalents and investment securities, strategic collabor securities, debt fiff nancings, grant fundi periods of turt moil and volatility in the fiff nancial markets have adversely affff eff cted the market capia talizations of many biotechnology companies, and generally made equity and debt fiff nancing more diffff iff cult to obtain. For example, as a result of geopolitical and macroeconomic developments, including the ongoing conflff ict between Ukraine and RusRR sia, related sanctions, the COVID-19 pandemic and actions taken to slow its spread, the global credit and fiff nancial markets have experienced extreme volatility and disrupt confiff dence, declines in economic growth, increases in unemployment rates and uncertainty about events, coupled with other faff ctors, may limit our access to additional fiff nancing in the futff urt e. This could have a material adverse effff eff ct on our abia lity to access suffff iff cient fundi on acceptabla e terms, or at all. If funds more of our research or development programs or our commercialization effff orff greater or all rights to product candidates at an earlier stage of development or on less faff vorabla e terms than we would otherwise choose. Additional fundi the price of our stock. ions, including diminished liquidity and credit availabia lity, declines in consumer economic stabia lity. These ng will be availabla e to us are not availabla e, we will be required to delay, reduce the scope of,ff or eliminate one or ng, if obtained, may signififf cantly dilute existing stockholders and could negatively impact ng. We cannot be certain that additional fundi ts. We also may be required to relinquish a ff ff r ff ff WeWW expe ee period tott period. ct thtt at our resultll stt of operatitt ons wilii lll flff uctuatett ,e which may make itii difi fff iff cultll tott predict our fuff ture perfr orff mrr ance frff om Our operating results have flff uctuat ted in the past and are likely to do so in futff urt e periods. Some of the faff ctors that could cause our operating results to flff uctuat te frff om period to period include: • • • • • • • • the success of our commercialization of NUPLAZID in the U.S. forff associated with PDP; the treatment of hallucinations and delusions the impact of geopolitical and macroeconomic developments, such as general political, health and economic conditions, including the Ukraine-RusRR sia conflff ict, the COVID-19 pandemic, economic slowdowns, recessions, inflff ation, rising interest rates and tightening of credit markets on our business; the impact of the COVID-19 pandemic on our business, including the abia lity of our fiff eld sales forff ce to meet with healthcare providers, visit physician’s offff iff ces, hospitals and other healthcare faff cilities (including long-term care and skilled nursing faff cilities); the statust and cost of our post-marketing commitments forff NUPLAZID; the variation in our gross-to-net adjustments frff om quarter to quarter, primarily because of the flff uctuat share of the donut hole forff Medicare Part D patients; tion in our the statust and cost of development and commercialization of pimavanserin forff indications other than in PDP; the statust developed under our collabor a ations; and cost of development and commercialization of our product candidates, including compounds being whether we acquire or in-license additional product candidates or products, and the statust commercialization of such product candidates or products; of development and 28 • • • • • • • • • whether we generate revenues or reimbursements by achieving specififf ed research, development or commercialization milestones under any agreements or otherwise receive potential payments under these agreements; whether we are required to make payments due to achieving specififf ed milestones under any licensing or similar agreements or otherwise make payments under these agreements; the incurrence of preclinical or clinical expenses that could flff uctuat including reimbursement obligations pursuant to our collabor a ation agreements; te signififf cantly frff om period to period, the initiation, termination, or reduction in the scope of our collabor a collabor ations; a ations or any disputes regarding these the timing of our satisfaff ction of appl a icabla e regulatoryrr requirements; the rate of expansion of our clinical development, other internal research and development effff orff commercial and commercial effff orff ts; ts, and pre- the effff eff ct of competing technologies and products and market developments; the costs associated with litigation, including the costs incurred in defeff nding against any product liabia lity claims that may be brought against us related to NUPLAZID; and general and industry-rr specififf c economic conditions. We believe that comparisons frff om period to period of our fiff nancial results are not necessarily meaningfulff and should not be relied upon as indications of our futff urt e perforff mance. From time to time, we provide guidance relating to our expectations forff NUPLAZID net sales and certain expense line items based on estimates and the judgment of management. If,ff forff materially frff om our guidance, we may have to revise our previously announced fiff nancial guidance. If we change, update or faff il to meet any element of such guidance, our stock price could decline. l net sales or expenses diffff eff r any reason, our actuat ChCC anges inii taxtt on our businii ess,s cash flff owll s or regue lawll ,w fiff nii ancial conditii itt on or resultll stt of operatitt ons. latll itt ons thtt at are applill ed adversrr elyll tott us or our customtt ersrr may have a matett rial adversrr e efe fff eff ct New income, sales, use or other tax laws, statutt es, rulrr es, regulations or ordinances could be enacted at any time, which a ied adversely to us. For example, legislation enacted could adversely affff eff ct our business operations and fiff nancial perforff mance. Further, existing tax laws, statutt es, rulr es, regulations or ordinances could be interprrr eted, changed, modififf ed or appl in 2017 inforff mally titled the Tax Cuts and Jobs Act, the Coronavirusr Aid, Relief,ff and Economic Security Act and the Inflff ation Reduction Act enacted many signififf cant changes to the U.S. tax laws. Effff eff ctive Januaryrr 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenses forff r and requires taxpayers to capia talize and subsequently amortize such expenses over fiff ve years forff in the United States and over 15 years forff Department of the Treasuryrr ication of this provision to a smaller subset of our research a and development expenses or the provision is defeff rred, modififf ed, or repealed by Congress, we expect a decrease in our cash flff ows frff om operations and an offff sff etting similarly sized increase in our net defeff rred tax assets over these amortization periods. The actuat expenses we will incur and whether we conduct our research and development activities inside or outside the United States. Futurt e guidance frff om the Internal Revenue Service and other tax authorities with respect to such legislation may affff eff ct us, and certain aspects of such legislation could be repealed or modififf ed in futff urt e legislation. In addition, it is uncertain if and to what extent various states will conforff m to feff deral tax laws. Futurt e tax reforff m legislation could have a material impact on the value of our defeff rred tax assets, could result in signififf cant one-time charges, and could increase our futff urt e U.S. tax expense. l impact of this provision will depend on multiple faff ctors, including the amount of research and development research activities conducted outside the United States. Unless the United States es in the year incurred research activities conducted issues regulations that narrow the appl tax purpos Our abilii ill tii ytt itii ett d. lill mii tott use net operatitt nii g losll ses and certaitt nii othtt er taxtt atttt rtt ibui ell tett s tott offff sff et fuff ture taxabl tt inii come or taxe tt s may be Portions of our net operating loss carryfrr orff wards could expire unused and be unavailabla e to offff sff et futff urt e income tax liabia lities. Under current law, feff deral net operating losses incurred in tax years beginning aftff er December 31, 2017, may be carried forff ward indefiff nitely, but the deductibility of such feff deral net operating losses is limited to 80% of taxabla e income. It is uncertain if and to what extent various states will conforff m to feff deral tax laws. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code), and corresponding provisions of state law, if a corpor ation r 29 rr undergoes an “ownership change,” which is generally defiff ned as a greater than 50 percent change, by value, in its equity ation’s abia lity to use its pre-change net operating loss carryfrr orff wards and other ownership over a three-year period, the corpor pre-change tax attributes to offff sff et its post-change income or taxes may be limited. We have experienced ownership changes in the past and we may experience additional ownership changes in the futff urt e as a result of subsequent shiftff s in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our abia lity to use our net operating loss carryfrr orff wards is materially limited, it would harm our futff urt e operating results by effff eff ctively increasing our futff urt e tax obligations. In addition, at the state level, there may be periods during which the use of net operating loss carryfrr orff wards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. As a result, if we earn net taxabla e income, we may be unabla e to use all or a material portion of our net operating loss carryfrr orff wards and other tax attributes, which could potentially result in increased futff urt e tax liabia lity to us and adversely affff eff ct our futff urt e cash flff ows. TaxTT ell authtt oritii itt es couldll reallll ocll atett our taxabl tt inii come among our subsidiaries,s which couldll inii crease our overallll taxtt lill abilii ill tii ytt .yy In 2015, we licensed worldwide intellectuat l property rights related to pimavanserin in certain indications to Acadia pimavanserin, include building a platforff m forff (Acadia GmbH), and in July 2020 we licensed additional related the establa ishment of Acadia GmbH, and the licensing of worldwide intellectuat Pharmaceuticals GmbH, our wholly owned Swiss subsidiaryrr rights to Acadia GmbH. Our goals forff property rights forff long-term operational and fiff nancial effff iff ciencies, including tax-related effff iff ciencies. Futurt e changes in U.S. and non-U.S. tax laws, including implementation of international tax reforff m relating to the tax treatment of multinational corpor effff iff ciencies that we hoped to achieve by establa ishing this operational strucrr turt e. Additionally, taxing authorities, such as the U.S. Internal Revenue Service, may audit and otherwise challenge these types of arrangements, and have done so with other companies in the pharmaceutical industry.rr l property rights forff intellectuat affff eff ct our business. If any such changes in tax law are enacted, or our licensing of worldwide ations, if enacted, may reduce or eliminate any potential fiff nancial is otherwise challenged, this could materially adversely pimavanserin to our Swiss subsidiaryrr r l UnUU fn avff orablell global ll economic conditii itt ons couldll adversrr elyll affff eff ct our businii ess,s fiff nii ancial conditii itt on or resultll stt of operatitt ons. Our results of operations could be adversely affff eff cted by general conditions in the U.S. and global economies, the U.S. r and global fiff nancial markets and adverse macroeconomic developments. U.S. and global market and economic conditions have been, and continue to be, disrupt ed and volatile due to many faff ctors, including the ongoing COVID-19 pandemic and actions taken to slow its spread, material shortages and related supply chain challenges, geopolitical developments such as the conflff ict between Ukraine and RusRR sia and related sanctions, and increasing inflff ation rates and the responses by central banking authorities to control such inflff ation, among others. General business and economic conditions that could affff eff ct our business, fiff nancial condition or results of operations include flff uctuat markets, liquidity of the global fiff nancial markets, the availabia lity and cost of credit, investor and consumer confiff dence, and the strength of the economies in which we, our collabor ators, our manufaff cturt ers and our suppliers operate. tions in economic growth, debt and equity capia tal a A severe or prolonged global economic downturt n could result in a variety of risks to our business. For example, inflff ation rates, particularly in the United States, have increased recently to levels not seen in years, and increased inflff ation r costs), reduced liquidity and limits on our abia lity to access may result in increases in our operating costs (including our laboa credit or otherwise raise capia tal on acceptabla e terms, if at all. In addition, the U.S. Federal Reserve has raised, and may again raise, interest rates in response to concerns about in fiff nancial markets may have the effff eff ct of furff in Europe, which is undergoing a continued severe economic prolonged global economic downturt n are particularly truer crisis. A weak or declining economy could also strain our suppliers and manufaff cturt ers, possibly resulting in supply and clinical trial disrupt current economic climate and fiff nancial market conditions could adversely impact our business. inflff ation, which coupled with reduced government spending and volatility ther increasing economic uncertainty and heightening these risks. Risks of a ion. Any of the forff egoing could harm our business and we cannot anticipate all of the ways in which the a rr Publill c healtll htt adversrr e efe fff eff ct on our operatitt ons and fiff nii ancial resultll stt ,s or may cause us tott modifi yff or suspes nd our fiff nii ancial guidance.ee thtt reatstt ,s inii cludinii g thtt e contitt nii uinii g COC VIVV DII -19 pandemic,c have imii pacm tett d our clill nii ical trtt ialsll and couldll have an The COVID-19 pandemic has had a maja or impact on the fiff nancial markets, the global economy and the economies of particular countries or regions, and led to, among other things, travel restrictions, quarantines, “work-at-home” and “shelter- in-place” orders imposed by authorities and the extended shutdown of certain non-essential businesses in the U.S. throughout the world, including in countries where we have planned or active clinical trials. In an effff orff of our employees, our community, and our stakeholders, we have developed dynamic pandemic and workplace health policies appl icabla e to all of our employees. These policies are localized based on current COVID-19 conditions, regulatoryrr t to protect the health and safeff ty a 30 guidance, public health and scientififf c recommendations, and feff deral, state, and local laws. We have reopened our offff iff ces to tion. We may faff ce several challenges or allow employees to returt n, but will continue to closely monitor the COVID-19 situat disrupt ions upon a returt n back to the workplace, including re-integration challenges by our employees and distractions to r management related to such transition. The effff eff cts and duration of such measures could have a material adverse impact on our business, results of operations, fiff nancial condition and prospects. Our sales forff ce had physical access to hospitals, clinics, long-term care and skilled nursing faff cilities, healthcare providers and pharmacies curtailed, and we are still assessing the effff eff cts such curtailment had on our sales or may have on our futff urt e sales. Currently, healthcare providers are conducting patient visits in-person and through telemedicine and our sales forff ce has been abla e to call upon medical clinics, hospitals, long-term care faff cilities and skilled nursing faff cilities either in person in accordance with appl our fiff eld employees to faff cilitate remote meetings with healthcare providers that are unabla e to meet in-person, we cannot ensure that these methods will be effff eff ctive. Additionally, patients who are currently using NUPLAZID or who are eligible to use NUPLAZID, may be unabla e to meet with their healthcare providers in person, which may reduce the number of prescription refiff lls or new patient starts, affff eff cting our revenues both in our currently appr impacting our anticipated launches in other indications, if appr icabla e regulatoryrr guidance and local policies or virtuat lly. While digital tools are availabla e to oved indication and potentially oved. a a a Our clinical trials were impacted by the COVID-19 pandemic as we temporarily paused enrollment in our ongoing clinical trials as well as commencement of new trials, and experienced delays in our data collection and site monitoring activities While we have re-initiated enrollment in clinical trials and related activities on a study- basis, it is possible that our studi es could be impacted due to COVID-19 in the futff urt e. t by-study and site-by-site t t Since the beginning of the pandemic the growth of sales of NUPLAZID have been negatively impacted by ongoing conditions related to the pandemic, including a reduction in patient offff iff ce visits, continuing reduced occupancy rates at long- term care faff cilities, and reduced access to healthcare profeff ssionals. While we observed incremental improvements in some of these faff ctors since 2021, their levels are still below where they were pre-pandemic. It remains diffff iff cult to predict the duration of the pandemic’s impact and the pace of,ff and no assurances can be given that the pandemic will not continue to have additional negative impacts on our business, results of operations, fiff nancial condition and prospects. - ThTT e geo-pol sanctitt ons imii posm ed on Russia, has caused signi ill tii itt cal turmrr oilii resultll itt nii g frff om Russia’s’ inii vasion of UkrUU ainii e,e inii cludinii g thtt e widesprs ead and signi ifi iff cant economic ifi iff cant disii ruptu itt ons of our clill nii ical trtt ial actitt vitii itt es inii Russia and UkrUU ainii e.ee We have engaged clinical research organizations (CROs) to conduct clinical trials worldwide. Certain of our trials have ting and screening were not complete at the time ions, including ther new enrollment of patients at our clinical trial sites in Ukraine and RusRR sia. Existing patients may a limited number of clinical sites in RusRR sia and Ukraine where patient recruir of RusRR sia’s militaryrr aggression in Ukraine. The resulting geo-political turt moil has caused signififf cant disrupt the suspension of furff have been evacuated or relocated faff r frff om clinical sites, making it diffff iff cult forff personnel and/or CRO personnel may be unavailabla e or otherwise unabla e to conduct clinical trial activities. Furthermore, the widespread sanctions imposed on RusRR sia have affff eff cted clinical sites in RusRR sia managed by our CROs. In addition, clinical sites, their personnel and patients may not be abla e to continue in the trials and we may need to suspend or terminate the trials in RusRR sia. While we have a limited number of clinical sites in Ukraine and RusRR sia, these signififf cant disrupt suspension/termination of clinical trial activities could potentially delay the completion of enrollment in our clinical trials and complicate the analysis of data, as affff eff cted clinical sites might not be abla e to have their data be validated or protocol assessments may be missed. Even if data collection can be completed, the FDA may be unabla e to audit clinical trial sites in ther delay our clinical development and the potential authorization Ukraine or RusRR sia. Interrupt or appr a product sales and generate revenues. oval of our product candidates, which could materially increase our costs and adversely affff eff ct our abia lity to commence participation in our clinical trials. Site ions of clinical trials may furff ions and the r r r Earthtt quake or fiff ri e damage tott our facff businii ess. ilii ill tii itt es couldll delayll our research and developmll ent efe fff orff tstt and adversrr elyll affff eff ct our Our headquarters and research and development faff cilities in San Diego are located in a seismic zone, and we faff ce the ive to our operations and result in delays in our research and possibility of one or more earthquakes, which could be disrupt development effff orff possibility of futff urt e fiff res in the area. In the event of an earthquake or fiff re, if our faff cilities or the equipment in our faff cilities is signififf cantly damaged or destroyed forff damaged equipment in a timely manner and our business, fiff nancial condition, and results of operations could be materially damages resulting frff om earthquakes. While we do have fiff re insurance and adversely affff eff cted. We do not have insurance forff ts. In addition, while our faff cilities have not been adversely impacted by local wildfiff res, there is the any reason, we may not be abla e to rebuild or relocate our faff cilities or replace any r 31 forff development effff orff our property and equipment located in San Diego, any damage sustained in a fiff re could cause a delay in our research and ts and our results of operations could be materially and adversely affff eff cted. Our businii ess inii volvll es the use of hazardous materials, and we and our third-party manufacturers and suppliers must comply with environmental, health and safety laws and regulations, which can be expensive and restrict how we do, or interrupt our, business. Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the generation, storage, use and disposal of hazardous materials, including the components of our products and product candidates and other hazardous compounds and wastes. We and our manufacturers and suppliers are subject to environmental, health and safety laws and regulations governing, among other matters, the use, manufacture, generation, storage, handling, transportation, discharge and disposal of these hazardous materials and wastes and worker health and safety. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination or injury, which could result in an interruption of our commercialization efforts, research and development efforts and business operations, damages and significant cleanup costs and liabilities under applicable environmental, health and safety laws and regulations. We also cannot guarantee that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials and wastes generally comply with the standards prescribed by these laws and regulations. We may be held liable for any resulting damages costs or liabilities, which could exceed our resources, and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental, health and safety laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. Failure to comply with these environmental, health and safety laws and regulations may result in substantial fines, penalties or other sanctions. We do not currently carry hazardous waste insurance coverage. Risks Related to Our Relationships with Third Parties ll WeWW previouslyll have depeee nded, and inii commercialill zii e selell ctett d product candidatett s othtt er thtt an pimii avanserinii , and we have lill mii partitt es conduct developmll ent and commercialill zii atitt on actitt vitii itt es forff thtt e fuff ture may depeee nd, on collll abor atitt ons witii htt such product candidatett s. irii d partitt es tott developll thtt itii ett d contrtt ol over how thtt ose thtt iri d and In the past, we have selectively entered into collabor ation agreements with third parties. We relied on our collabor a financial resources and forff forff we had limited control over the amount and timing of resources that our collabor may choose to rely on collabor candidates, or forff ations in the futff urt e forff the commercialization of NUPLAZID in certain territories outside of the U.S. and commercialization expertise forff a a certain portions of our pimavanserin program or other product ators selected product candidates and ators devoted to our product candidates. We a development, regulatory,rr Our collabor technologies because they: a ators may faff il to develop or effff eff ctively commercialize products using our product candidates or • • • • • • • do not have suffff iff cient resources or decide not to devote the necessaryrr as limited cash or human resources or a change in strategic focff us; resources due to internal constraints such may not properly maintain, enforff ce or defeff nd our intellectuat inforff mation in a manner that could jeopardize or invalidate our proprietaryrr litigation; l property rights or may use our proprietaryrr inforff mation or expose us to potential terminate the arrangement or allow it to expire, which would delay the development and commercialization and may increase the cost of developing and commercializing our products or product candidates; may sell, transfeff r or divest assets or programs related to our partnered product or product candidates; may not pursue furff arrangement; ther development and commercialization of products resulting frff om the strategic collabor a ation decide to pursue a competitive product developed outside of the collabor a ation; or cannot obtain the necessaryrr regulatoryrr appr a ovals. a Collabor new collabor a search forff ations are complex and time-consuming to negotiate and document. We also will faff ce competition in our ators, if we seek a new partner forff our pimavanserin program or other programs. Given the current 32 economic and industryrr environment, it is possible that competition forff have been a signififf cant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential fuff turt e collabor basis, on acceptabla e terms, or at all. If we are unabla e to fiff nd new collabor our programs alone. a ations, we may not be abla e to continue advancing ators. We may not be abla e to negotiate additional collabor ators may increase. In addition, there ations on a timely new collabor a a a IfII confn lff ill ctstt arisii e witii htt our collll abor ll atortt srr ,s thtt eye may act inii thtt eirii selfll -ff inii tett reststt ,s which may be adversrr e tott our inii tett reststt . Conflff icts may arise in our collabor a ations due to one or more of the folff lowing: • • • • • • • disputes or breaches with respect to payments that we believe are due under the appl particularly in the current environment when companies, including large establa ished ones, may be seeking to reduce external payments; icabla e agreements, a disputes on strategy as to what development or commercialization activities should be pursued under the a appl icabla e agreements; disputes as to the responsibility forff a appl icabla e collabor a ation, including the payment of costs related thereto; conducting development and commercialization activities pursuant to the disagreements with respect to ownership of intellectuat l property rights; unwillingness on the part of a collabor commercialization activities, or to permit public disclosure of these activities; ator to keep us inforff med regarding the progress of its development and a delay or reduction of a collabor candidates; or a ator’s development or commercialization effff orff ts with respect to our product termination or non-renewal of the collabor a ation. Conflff icts arising with our collabor a ators could impair the progress of our product candidates, harm our reputation, result in a loss of revenues, reduce our cash position, and cause a decline in our stock price. In addition, in our past collabor a ations, we generally have agreed not to conduct independently, or with any third party, ations we any research that is directly competitive with the research conducted under the appl establa ish in the futff urt e may have the effff eff ct of limiting the areas of research that we may pursue, either alone or with others. Conversely, the terms of any collabor developing, either alone or with others, products in related fiff elds that are competitive with the products or potential products that are the subject of these collabor a collabor withdrawal of support forff ators or to which our ators to competing products and their ators have rights, may result in the allocation of resources by our collabor our product candidates or may otherwise result in lower demand forff ation we may establa ish in the futff urt e might not restrict our collabor ations. Competing products, either developed by our collabor icabla e program. Any collabor our potential products. ators frff om a a a a a a a WeWW relyll on thtt and delayll irii d partitt es tott conduct our clill nii ical trtt ialsll and perfr orff mrr datatt collll ell ctitt on and analyll sisii ,s which may resultll inii coststt s thtt at prevent us frff om successfs uff llll yll commercialill zii inii g product candidd datett s. Although we design and manage our current preclinical studi t our product candidates on our own. We rely on CROs, medical institutt to conduct clinical trials forff a and contract labor rely on third parties to assist with our preclinical studi metabol a as a result of the COVID-19 pandemic and thereforff e may be unabla e to provide the level of service that we have received in the past. es, including studi ism, and excretion of product candidates. Some of these third parties may experience shutdowns or other disrupt atories to perforff m data collection and analysis and other aspects of our clinical trials. In addition, we also ion, es regarding biological activity, safeff ty, absa orptr es and clinical trials, we currently do not have the abia lity ions, clinical investigators, ions r t t Our preclinical activities or clinical trials may be delayed, suspended, or terminated if:ff • • • these third parties do not successfulff expected deadlines; ly carryrr out their contractuat l duties or faff il to meet regulatoryrr obligations or these third parties need to be replaced; or the quality or accuracy of the data obtained by these third parties is compromised due to their faff ilure to adhere to our clinical protocols or regulatoryrr requirements or forff other reasons. 33 Failure to perforff m by these third parties may increase our development costs, delay our abia lity to obtain regulatoryrr oval, and delay or prevent the commercialization of our product candidates. We currently use several CROs to perforff m a appr services forff es and clinical trials. While we believe that there are numerous alternative sources to provide these services, in the event that we seek such alternative sources, we may not be abla e to enter into replacement arrangements without delays or additional expenditurt es, any of which could affff eff ct our business, results of operations, fiff nancial condition and prospects. our preclinical studi t Even ifi we or our collll abor faiff ll othtt er reasons. lii forff atortt srr successfs uff llll yll complm ell tett thtt e clill nii ical trtt ialsll of prff oduct candidatett s,s thtt e product candidatett s may Of the large number of product candidates in development, only a small percentage result in the submission of an NDA fiff ling to regulatoryrr authorities in other jurisdictions, and even feff wer are appr to the FDA or comparabla e regulatoryrr marketing. We cannot assure you that, even if clinical trials are completed, either we or our collabor ications forff appl a a reviewed and appr successfulff candidates, such as pimavanserin, may faff il forff ly complete the clinical trials of product candidates and appl required authorizations to manufaff cturt e and/or market potential products or that any such appl ication will be ators a such required authorizations, the product opriate regulatoryrr authorities in a timely manner, if at all. Even if we or our collabor other reasons, including the possibility that the product candidates will: ators will submit oved by the appr oved forff y forff a a a a a • • • • • faff il to receive the regulatoryrr clearances required to market them as drugs r ; be subject to proprietaryrr rights held by others requiring the negotiation of a license agreement prior to marketing; be diffff iff cult or expensive to manufaff cturt e on a commercial scale; have adverse side effff eff cts that make their use less desirabla e; or faff il to compete with product candidates or other treatments commercialized by competitors. WeWW currentltt yll depeee nd, and inii and anyn othtt er product candidatett s. IfII thtt ese manufu acff clill nii be unablell ical trtt ial matett rialsll and commercial product or faiff tott developll thtt e fuff ture wilii lll contitt nii ue tott depeee nd, on thtt turersrr faiff lii tott complm yll witii htt iri d partitt es tott manufu acff lii tott provide us or our collll abor ture NUPUU LPP ALL ZIZZ DII ,D trtt ofiff nii etitt de srr witii htt adequatett supplu atortt latll ortt thtt e requirii ementstt of regue yr authtt oritii itt es,s we may ill es of ll or commercialill zii e NUPUU LPP ALL ZIZZ DII ,D trtt ofiff nii etitt de or anyn othtt er product candidatett s. We have no manufaff cturt ing faff cilities and only limited experience as an organization in the manufaff cturt r ing of drugs ation ing processes. We have contracted with third-party manufaff cturt ers to produce, in collabor a or in designing drug- with us, NUPLAZID, trofiff netide and our other product candidates. rr manufaff cturt product forff commercial use in the U.S. Additionally, we have contracted with Siegfrff ied We have contracted with Patheon Pharmaceuticals Inc. to manufaff cturt e NUPLAZID 10 mg tabla et and 34 mg capsa ule ing organization to product forff commercial use in the U.S. We have also contracted with a second contract manufaff cturt drugr manufaff cturt e NUPLAZID 34 mg drugrr AG to manufaff cturt e active pharmaceutical ingredient (API), to be used in the manufaff cturt e of NUPLAZID drugr commercial use. However, we have not entered into any agreements with any alternate suppliers forff product or NUPLAZID API, and we may faff ce delays or increased costs in our supply chain that could jeopardize the commercialization of NUPLAZID. While we currently have suffff iff cient API and NUPLAZID fiff nished product on hand to continue our commercial and clinical operations as planned, depending on the effff eff cts of geopolitical and macroeconomic developments and whether such developments cause disrupt ions, we may faff ce such delays or costs in futff urt e years. If any third party in our supply or distribution chain forff materials or fiff nished product is adversely impacted by geopolitical and macroeconomic developments, such as the ongoing conflff ict between Ukraine and RusRR sia or the COVID-19 pandemic, r including staffff iff ng shortages, production slowdowns and disrupt rr limiting our abia lity to manufaff cturt e and distribute NUPLAZID forff our clinical trials and research and development operations. Additionally, if NUPLAZID is appr jurisdictions outside the U.S., we will need to contract with a third party to manufaff cturt e such products forff the U.S. and/or in such other jurisdictions. We may not be abla e to enter into such contracts in a timely manner or on acceptabla e terms, if at all. ions in deliveryrr systems, our supply chain may be disrupt commercial sales and our product candidates forff 10 mg NUPLAZID drugr commercial sale in commercial sale in product forff oved forff ed, a r We have contracted with manufaff cturt ers to produce clinical supplies of trofiff netide to support the development program. If trofiff netide or any other product candidate is appr will need to contract with a third party to manufaff cturt e such products forff jurisdictions. We may not be abla e to enter into such a contract in a timely manner or on acceptabla e terms, if at all. commercial sale, we commercial sale in the U.S. and/or in such other oved by the FDA or other regulatoryrr agencies forff a 34 Even though we have agreements with Patheon forff the manufaff cturt e of NUPLAZID 10 mg tabla et and agreements with a product, and with Siegfrff ied forff the manufaff cturt e of 34 mg capsa ule drugr commercial use, and even if we successfulff ly enter into long-term agreements with other Patheon and another manufaff cturt er forff of NUPLAZID API forff manufaff cturt ers, the FDA may not appr ove the faff cilities of such manufaff cturt ers, the manufaff cturt ers may not perforff m as agreed, or the manufaff cturt ers may terminate their agreements with us. Presently, we have only one supplier of API, two suppliers forff the 10mg tabla et of NUPLAZID. If any of the forff egoing circumstances occur, we may the 34 mg capsa ule and one supplier forff ing faff cilities, which would signififf cantly impact our abia lity to develop, maintain or obtain, need to fiff nd alternative manufaff cturt as appl or market NUPLAZID or trofiff netide or any other product candidates. While we believe icabla e, regulatoryrr appr a that there will be alternative sources availabla e to manufaff cturt e NUPLAZID and trofiff netide and any other product candidates, in the event that we seek such alternative sources, we may not be abla e to enter into replacement arrangements without delays or additional expenditurt es. We cannot estimate these delays or costs with certainty but, if they were to occur, they could cause a delay in our development and commercialization effff orff the manufaff cturt e oval forff ts. a a a oval by the FDA. If any of our third-party manufaff cturt ers are unabla e to successfulff oved by the FDA pursuant to inspections that will be conducted prior to any grant of The manufaff cturt ers of NUPLAZID and trofiff netide and any other product candidates, including Patheon and Siegfrff ied, are obliged to operate in accordance with FDA-mandated cGMPs, and we have limited control over the abia lity of third-party manufaff cturt ers to maintain adequate quality control, quality assurance and qualififf ed personnel to ensure compliance with cGMPs. In addition, the faff cilities used by our third-party manufaff cturt ers to manufaff cturt e NUPLAZID and trofiff netide and any other product candidates must be appr regulatoryrr appr conforff ms to our specififf cations and the FDA’s strict regulatoryrr abla e to secure or maintain appr manufaff cturt ers to establa ish and folff in clinical trials or in obtaining regulatoryrr appr of NUPLAZID and trofiff netide and any other product candidate that receives regulatoryrr appr commercialization of NUPLAZID, or lead to signififf cant delays in the launch and commercialization of trofiff netide or any other products we may have in the futff urt e. Failure by our third-party manufaff cturt ers or us to comply with appl icabla e regulations could result in sanctions being imposed on us, including fiff nes, injunctions, civil penalties, faff ilure of the government to grant pre-market appr products, operating restrictions, and criminal prosecutions. low cGMPs or to document their adherence to such practices may lead to signififf cant delays oval oval of product candidates, or result in issues maintaining regulatoryrr appr oval, negatively impact our ly manufaff cturt e material that inspection, they will not be ing faff cilities. Additionally, a faff ilure by any of our third-party , delays, suspension or withdrawal of appr requirements, or pass regulatoryrr ovals, seizures or recalls of the manufaff cturt oval of drugs oval forff a a a a a a a r The manufaff cturt e of pharmaceutical products requires signififf cant capia tal investment, including the development of ing diffff iff culties due to resource constraints or as a result of labor ing techniques and process controls. Manufaff cturt ers of pharmaceutical products oftff en encounter advanced manufaff cturt diffff iff culties in production. These problems include diffff iff culties with production costs and yields, quality control, including stabia lity of the product, quality assurance testing, shortages of qualififf ed personnel, as well as compliance with strictly enforff ced feff deral, state and forff eign regulations. We cannot assure you that any issues relating to the manufaff cturt e of NUPLAZID or trofiff netide or any other product candidates will not occur in the futff urt e. Additionally, our manufaff cturt ers may disputes or unstabla e political experience manufaff cturt environments. If our manufaff cturt ers were to encounter any of these diffff iff culties, or otherwise faff il to comply with their contractuat candidates to patients in clinical trials, would be jeopardized. Any delay or interrupt demand forff NUPLAZID and any other appr affff eff ct our abia lity to gain market acceptance forff trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely. l obligations, our abia lity to commercialize NUPLAZID in the U.S., or provide trofiff netide or any other product ion in our abia lity to meet commercial oved products will result in the loss of potential revenues and could adversely these products. In addition, any delay or interrupt ion in the supply of clinical a a rr r Failures or diffff iff culties faff ced at any level of our supply chain could materially adversely affff eff ct our business and delay or impede the development and commercialization of NUPLAZID or trofiff netide or any other product candidates and could have a material adverse effff eff ct on our business, results of operations, fiff nancial condition and prospects. If we fail to comply with the obligations in agreements under which we license intellectual property rights from third parties, we could lose license rights to certain of our product candidates. In August 2018, we entered into a license agreement with Neuren, and obtained exclusive North American rights to develop and commercialize trofiff netide forff Rett syndrome and other indications. In Januaryrr 2022, we entered into a license and collabor potential treatment of severe and rare genetic neurodevelopmental diseases of the CNS. ation agreement with Stoke to discover, develop and commercialize novel RNRR A-based medicines forff the a 35 Our agreements with Neuren and Stoke impose, and we expect that future agreements where we in-license intellectual property will impose, various development, regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations. If we fail to comply with our obligations under these agreements, or we are subject to bankruptcy-related proceedings, the licensor may have the right to terminate the license, in which event we would not be able to market products covered by the license. Disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including: • • • • the scope of rights granted under the license agreement and other interpretation-related issues; whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; our right to sublicense patents and other rights to third parties; our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations; our right to transfer or assign the license; and the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners. If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may not be able to successfully develop and commercialize the related product candidates, which would have a material adverse effect on our business. WeWW may not be ablell imii paim rii couldll tott contitt nii ue or fuff llll yll expl ee oill tii our collll abor ll atitt ons witii htt outstt ide scientitt fi iff c and clill nii ical advisii orsrr ,s which thtt e progress of our clill nii ical trtt ialsll and our research and developmll ent efe fff orff tstt . We work with scientififf c and clinical advisors at academic and other institutt disorders. They assist us in our research and development effff orff advisors are not our employees and may have other commitments that would limit their futff urt e availabia lity to us. Although our scientififf c and clinical advisors generally agree not to engage in competing work, if a conflff ict of interest arises between their work forff delay the development or commercialization of our product candidates. another entity, we may lose their services, which may impair our reputation in the industryrr and ts and advise us with respect to our clinical trials. These ions who are experts in the fiff eld of CNS us and their work forff Risks Related to Our Intellectual Property Our abilii ill tii ytt tott compem tett may declill nii e ifi we do not adequatett lyll protett ct our proprietartt yr righi tstt . Our commercial success depends on obtaining and maintaining intellectuat l property rights to our products and product a challenges to, or misappr ly defeff nding these rights against third-party opriation of,ff our intellectual property could enabla e competitors to quickly ss our technological achievements, thus eroding our competitive position in our market. To protect our l property, we rely on a combination of patents, trade secret protection and contracts requiring confiff dentiality and candidates, including NUPLAZID, and technologies, as well as successfulff challenges. Successfulff duplicate or surparr intellectuat ly challenged, we may faff ce generic competition prior to the expiration dates of our nondisclosure. If our patents are successfulff U.S. Orange Book listed patents. In addition, potential competitors have in the past and may in the futff urt e fiff le an Abbreviated New Drugrr Application (ANAA DA) with the FDA forff oval prior to the expiration of our patents. In response, we have fiff led complaints against these companies alleging infrff ingement of certain of our Orange Book-listed patents covering NUPLAZID. For a more detailed description of these matters, see section capta ioned “Legal Proceedings” elsewhere in this report. While we intend to defeff nd the validity of such patents vigorously, and will seek to use all appr a decrease in the revenue and income derived frff om NUPLAZID would have an adverse effff eff ct on our results of operations. opriate methods to prevent their infrff ingement, such effff orff ts are expensive and time consuming. Any substantial generic versions of NUPLAZID, seeking appr a 36 With regard to patents, although we have fiff led numerous patent appl a ications resulted in an issued patent, or they resulted in an issued patent that is susceptible to not all of our patent appl challenge by a third party. Our abia lity to obtain, maintain, and/or defeff nd our patents covering our product candidates and technologies is uncertain due to a number of faff ctors, including: ications worldwide with respect to pimavanserin, a • • • • • • • • • • • • we may not have been the fiff rst to make the inventions covered by our pending patent appl patents; a ications or issued we may not have been the fiff rst to fiff le patent appl upon; a ications forff our product candidates or the technologies we rely others may develop similar or alternative technologies or design around our patent claims to produce competitive products that faff ll outside of the scope of our patents; our disclosures in patent apa plications may not be suffff iff cient to meet the statutt oryrr requirements forff patentabia lity; we may not seek or obtain patent protection in all countries that will eventuat opportuni ty; t lly provide a signififf cant business any patents issued to us or our collabor provide us with any competitive advantages, or are easily susceptible to challenges by third parties; ators may not provide a basis forff commercially viabla e products, may not a our proprietaryrr technologies may not be patentabla e; changes to patent laws that limit the exclusivity rights of patent holders or make it easier to render a patent invalid; recent decisions by the U.S. Supreme Court limiting patent-eligible subject matter; litigation regarding our patents may include challenges to the validity, enforff ceabia lity, scope and term of one or more patents; the passage of The Leahy-Smith America Invents Act (the America Invents Act), introduced new procedures forff challenging pending patent appl ications and issued patents; and a technology that we may in-license may become important to some aspects of our business; however, we generally would not control the patent prosecution, maintenance or enforff cement of any such in-licensed technology. Even if we have or obtain patents covering our product candidates or technologies, we may still be barred frff om making, using and selling our product candidates or technologies because of the patent rights of others. Others have or may have fiff led, and in the futff urt e are likely to fiff le, patent appl therapea utic products that are similar or identical to ours. There are many issued U.S. and forff eign patents relating to genes, nucleic acids, polypeptides, chemical compounds or therapea utic products, and some of these may encompass reagents utilized compounds or compounds that we desire to commercialize. Numerous U.S. and forff eign in the identififf cation of candidate drugr ications owned by others exist in the area of CNS disorders and the other fiff elds in issued patents and pending patent appl which we are developing products. These could materially affff eff ct our frff eedom to operate. Moreover, because patent appl a in issued patents that our product candidates or technologies may infrff inge. These patent appl patent appl ications, unknown to us, that may later result ications may have priority over ications can take many years to issue, there may be currently pending appl ications covering compounds, assays, genes, gene products or ications fiff led by us. a a a a a We regularly conduct searches to identifyff patents or patent appl a ications that may prevent us frff om obtaining patent ications. Disputes may arise regarding the ownership or inventorship of our inventions. For appl our proprietaryrr compounds or that could limit the rights we have claimed in our patents and patent protection forff appl a claims are entitled to a priority date beforff e March 16, 2013, an interfeff rence proceeding can be provoked by a third-party or institutt ed by the U.S. Patent and Trademark Offff iff ce (U.S. PTO), to determine who was the fiff rst to invent the invention at issue. It is diffff iff cult to determine how such disputes would be resolved. Applications containing a claim not entitled to priority beforff e March 16, 2013, are not subject to interfeff rence proceedings due the change brought by the America Invents Act to a “fiff rst-to-fiff le” system. However, a derivation proceeding can be brought by a third-party alleging that the inventor derived the invention frff om another. ications in which all a 37 Periodic maintenance feff es on any issued patent are due to be paid to the U.S. PTO and forff eign patent agencies in ication process. While an inadvertent lapsa several stages over the lifeff time of the patent. The U.S. PTO and various forff eign governmental patent agencies require compliance with a number of procedural, documentary,rr appl a accordance with the appl patent or patent appl events that could result in abaa ndonment or lapsa ication include, but are not limited to, faff ilure to e of a patent or patent appl respond to offff iff cial actions within prescribed time limits, non-payment of feff es and faff ilure to properly legalize and submit forff mal documents. In such an event, our competitors might be abla e to enter the market, which would have a material adverse effff eff ct on our business. a e of the ication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance e can in many cases be cured by payment of a late feff e or by other means in tions in which noncompliance can result in abaa ndonment or lapsa feff e payment and other similar provisions during the patent icabla e rulr es, there are situat a a Some of our academic institutt ional licensors, research collabor a ators and scientififf c advisors have rights to publish data and inforff mation to which we have rights. We generally seek to prevent our collabor discoveries until we have the opportuni relatively short periods to review a proposed publication and fiff le a patent appl confiff dentiality of our technology and other confiff dential inforff mation in connection with our collabor receive patent protection or protect our proprietaryrr inforff mation may be impaired. ty to fiff le patent appl a a a a t ication. If we cannot maintain the ators frff om disclosing scientififf c ications on such discoveries, but in some cases, we are limited to ations, then our abia lity to ConCC fn iff dentitt alill tii ytt agreementstt witii htt emplm oyll othtt er proprietartt compem tett .ee yr inii fn orff mrr atitt on and may not adequatett lyll protett ct our inii ees and othtt ersrr may not adequatett lyll prevent disii closll ure of our trtt ade secretstt and itii our abilii ill tii ytt tett llll ell ctual propertytt ,yy which couldll lill mii tott r a , we rely l property assignment agreements with our discoveryrr and development of small molecule drugs technology and processes. However, trade secrets are ators, sponsored researchers, and other advisors. These ate partners, employees, consultants, outside scientififf c collabor Because we operate in the highly technical fiff eld of drugr in part on trade secret protection in order to protect our proprietaryrr diffff iff cult to protect. We enter into confiff dentiality, nondisclosure, and intellectuat corpor r agreements generally require that the other party keep confiff dential and not disclose to third parties all confiff dential inforff mation developed by the party or made known to the party by us during the course of the party’s relationship with us. These agreements also generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effff eff ctively assign intellectuat l property rights to us. Enforff cing a claim that a party illegally obtained and is using our trade secrets is diffff iff cult, expensive and time consuming and the outcome is unpredictabla e. In addition, courts outside the U.S. may be less willing to protect trade secrets. We also have not entered into any noncompete agreements with any of our employees. Although each of our employees is required to sign a confiff dentiality agreement with us at the time of hire, we cannot guarantee that the confiff dential inforff mation will be maintained in the course of futff urt e employment with any of our competitors. If naturt e of our proprietaryrr we are unabla e to prevent unauthorized material disclosure of our intellectuat l property to third parties, we will not be abla e to establa ish or maintain a competitive advantage in our market, which could materially adversely affff eff ct our business, operating results and fiff nancial condition. A disii pus tett concerninii g thtt e inii fn rff inii gement or misii appropriatitt on of our proprietartt couldll be titt mii e-consuminii g and costltt yll ,yy and an unfn avff orablell outctt ome couldll harmrr our businii ess. yr righi tstt or thtt e proprietartt yr righi tstt of othtt ersrr There is a substantial amount of litigation involving patents and other intellectuat and pharmaceutical industries, as well as administrative proceedings forff proceedings beforff e the U.S. PTO or oppositions and other comparabla e proceedings in forff eign jurisdictions. l property rights in the biotechnology challenging patents, including post-issuance review Central provisions of the America Invents Act went into effff eff ct on September 16, 2012 and on March 16, 2013. The a ications are being fiff led, prosecuted and litigated. For example, the America Invents Act enacted America Invents Act includes a number of signififf cant changes to U.S. patent law. These changes include provisions that affff eff ct the way patent appl proceedings involving post-issuance patent review procedures, such as inter partes review (IPR), and post-grant review, that allow third parties to challenge the validity of an issued patent in frff ont of the U.S. PTO Patent Trial and Appeal Board. Each proceeding has diffff eff rent eligibility criteria and diffff eff rent patentabia lity challenges that can be raised. IPRs permit any person (except a party who has been litigating the patent forff more than a year) to challenge the validity of the patent on the grounds that it was anticipated or made obvious by prior art. Patents covering pharmaceutical products have been subject to attack in IPRs frff om generic drugr . If it is within nine months of the issuance of the challenged patent, a third party can petition the U.S. PTO forff post-grant review, which can be based on any invalidity grounds and is not limited to prior art patents or printed publications. companies and frff om hedge funds ff 38 In post-issuance proceedings, U.S. PTO rulrr es and regulations generally tend to faff vor patent challengers over patent owners. For example, unlike in district court litigation, claims challenged in post-issuance proceedings are given their broadest reasonabla e meaning, which increases the chance a claim might be invalidated by prior art or lack support in the patent specififf cation. As another example, unlike in district court litigation, there is no presumption of validity forff patent, and thus, a challenger’s burden to prove invalidity is by a preponderance of the evidence, as opposed to the heightened clear and convincing evidence standard. As a result of these rulrr es and others, statistics released by the U.S. PTO show a high percentage of claims being invalidated in post-issuance proceedings. Moreover, with feff w exceptions, there is no standing requirement to petition the U.S. PTO forff have not been charged with infrff ingement or that lack commercial interest in the patented subject matter can still petition the U.S. PTO forff challenged and ultimately not provide us with suffff iff cient protection against competitive products or processes. review of an issued patent. Thus, even where we have issued patents, our rights under those patents may be inter partes review or post-grant review. In other words, companies that an issued We may be exposed to futff urt e litigation by third parties based on claims that our product candidates, technologies or l property rights of others. In particular, there are many patents relating to specififf c genes, activities infrff inge the intellectuat nucleic acids, polypeptides or the uses thereof to identifyff product candidates. Some of these may encompass genes or polypeptides that we utilize in our drugrr to infrff inge any such patents, and such patents are held to be valid and enforff ceabla e, we may have to pay signififf cant damages or seek licenses to such patents. A patentee could prevent us frff om using the patented genes or polypeptides forff development of drugr compounds are found signififf cant damages or seek licenses to such patents. A patentee could prevent us frff om making, using or selling the patented compounds. compounds. There are also many patents relating to chemical compounds and the uses thereof.ff If our to infrff inge any such patents, and such patents are held to be valid and enforff ceabla e, we may have to pay development activities. If our drugr development activities are found the identififf cation or ff ff In addition to the patent infrff ingement lawsuits that we have recently initiated against the fiff lers of ANAA DAs pertaining to NUPLAZID, we may need to resort to litigation to enforff ce other patents issued to us, protect our trade secrets or determine the scope and validity of third-party proprietaryrr employed by other companies involved in one or more areas similar to the activities conducted by us. Either we or these opriation or other similar claims as a result of their prior a individuals may be subject to allegations of trade secret misappr affff iff liations. If we become involved in litigation, it could consume a substantial portion of our managerial and fiff nancial resources, regardless of whether we win or lose. We may not be abla e to affff orff d the costs of litigation. Any legal action against us or our collabor rights. From time to time, we may hire scientififf c personnel forff merly ators could lead to: a • • • payment of damages, which could potentially be trebled if we are found patent rights; ff to have willfulff ly infrff inged a party’s injunctive or other equitabla e relief that may effff eff ctively block our abia lity to furff sell products; or ther develop, commercialize, and we or our collabor acceptabla e terms, or at all. a ators having to enter into license arrangements that may not be availabla e on commercially As a result, we could be prevented frff om commercializing current or futff urt e products. Furthermore, because of the substantial amount of pre-trial document and witness discoveryrr required in connection l property litigation, there is a risk that some of our confiff dential inforff mation could be compromised by with intellectuat disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effff eff ct on the trading price of our common stock. ThTT e patett nt applill catitt ons of phff questitt ons,s which, ifi detett rmrr armrr aceutitt cal and biotett chnology ll inii ed adversrr elyll tott us,s couldll negat e itt velyll companm ies inii volvll e highi imii pacm t our patett nt positii itt on. lyll complm ell xee lell gal e and facff tual The strength of patents in the pharmaceutical and biotechnology fiff eld can be highly uncertain and involve complex l questions. For example, some of our patent appl a legal and faff ctuat patentabia lity of gene sequences and the use of gene sequences has been seriously undermined by recent decisions of the U.S. Supreme Court. The U.S. PTO’s interprrr etation of the Supreme Court’s decisions and the standards forff forff certainty. Patents, if issued, may be challenged, invalidated or circumvented. U.S. patents and patent appl th are uncertain and could change in the futff urt e. Consequently, the issuance and scope of patents cannot be predicted with ications may cover the uses of gene sequences. The patentabia lity it sets ications may also be a 39 a , and U.S. patents may be subject to reexamination and post-issuance ication or loss or reduction in the scope of one or more of the claims of the patent or patent appl subject to interfeff rence proceedings as mentioned above proceedings in the U.S. PTO (and forff eign patents may be subject to opposition or comparabla e proceedings in the corresponding forff eign patent offff iff ce), which proceedings could result in either loss of the patent or denial of the patent appl ication. Similarly, a opposition or invalidity proceedings could result in loss of rights or reduction in the scope of one or more claims of a patent in forff eign jurisdictions. In addition, such interfeff rence, reexamination, post-issuance and opposition proceedings may be costly. Accordingly, rights under any issued patents may not provide us with suffff iff cient protection against competitive products or processes. a l property rights, including patents and patent appl In addition, changes in or diffff eff rent interprr etations of patent laws in the U.S. and forff eign countries may permit others to use our discoveries or to develop and commercialize our technology and products without providing any compensation to us or may limit the number of patents or claims we can obtain. In particular, there have been proposals to shorten the exclusivity periods availabla e under U.S. patent law that, if adopted, could substantially harm our business. The product candidates that we are developing are protected by intellectuat product candidates becomes a marketabla e product, we will rely on our exclusivity under patents to sell the compound and recoup our investments in the research and development of the compound. If the exclusivity period forff then our abia lity to generate revenues without competition will be reduced and our business could be materially adversely impacted. The laws of some countries do not protect intellectuat l property rights to the same extent as U.S. laws and those countries may lack adequate rulr es and procedures forff including many in Europe, do not grant patent claims directed to methods of treating humans and, in these countries, patent protection may not be availabla e at all to protect our product candidates. In addition, U.S. patent laws may change which could prevent or limit us frff om fiff ling patent appl exclusivity periods that are availabla e to patent holders. For example, the America Invents Act (2012) included a number of signififf cant changes to U.S. patent law. These included changes to transition frff om a “fiff rst-to-invent” system to a “fiff rst-to-fiff le” system and to the way issued patents are challenged. These changes may faff vor larger and more establa ished companies that ication fiff ling and prosecution. It is still not clear what, if any, impact the have more resources to devote to patent appl a America Invents Act will ultimately have on the cost of prosecuting our patent appl a based on our discoveries and our abia lity to enforff ce or defeff nd our issued patents. ications or patent claims to protect our products and/or technologies or limit the l property rights. For example, some countries, ications, our abia lity to obtain patents defeff nding our intellectuat ications. If any of our patents is shortened, a a If we faff il to obtain and maintain patent protection and trade secret protection of our product candidates, proprietaryrr technologies and their uses, we could lose our competitive advantage and competition we faff ce would increase, reducing our potential revenues and adversely affff eff cting our abia lity to attain or maintain profiff tabia lity. Risks Related to Government Regulation and Our Industry HeHH altll htt care refe orff mrr measures may negat tt profiff tii abl yll .yy e itt velyll imii pacm t our abilii ill tii ytt tott sellll NUPUU LPP ALL ZIZZ DII or our product candidatett s,s ifi approved, In both the U.S. and certain forff eign jurisdictions, there have been a number of legislative and regulatoryrr proposals to change the healthcare system in ways that could impact our abia lity to sell NUPLAZID, and any other potential products, as described in greater detail in the Government Regulation section of our Annual Report. r drugs a any appr rebates forff For example, the Patient Protection and Affff orff dabla e Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively the ACA), as well as other healthcare reforff m measures that may be adopted in the futff urt e, may result in more rigorous coverage criteria and in additional downward pressure on the price that we may receive forff oved product, including NUPLAZID. With respect to pharmaceutical products, the ACA, among other things, covered by Medicaid and made changes to the coverage requirements expanded and increased industryrr under Medicare Part D, Medicare’s prescription drugrr benefiff ts program. There have been legal and political challenges to certain aspects of the ACA. Furthermore, on June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutt Moreover, prior to the U.S. Supreme Court rulrr initiated a special enrollment period forff rr purpos which began on Februar governmental agencies to review and reconsider their existing policies and rulr es that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessaryrr barriers to obtaining access to health insurance coverage through Medicaid or the ACA. Further, on August 16, 2022, President Biden signed the Inflff ation Reduction Act of 2022 (IRARR ) into law, which among other individuals purchasing health insurance coverage in ACA marketplt aces through plan things, extends enhanced subsidies forff ional in its entirety because the “individual mandate” was repealed by Congress. ing, on Januaryrr 28, 2021, President Biden issued an executive order that es of obtaining health insurance coverage through the ACA marketplt ace, ryrr 15, 2021 and remained open through August 15, 2021. The executive order also instrucrr ted certain 40 year 2025. The IRARR also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by signififf cantly lowering the benefiff ciaryrr maximum out-of-ff pocket cost and through a newly establa ished manufaff cturt er discount program. It is possible that the ACA will be subject to judicial or Congressional challenges in the futff urt e. It is unclear how any such challenges and additional healthcare reforff m measures of the Biden administration will impact the ACA and our business. Other legislative changes have been proposed and adopted in the U.S. since the ACA. Through the process created by the Budget Control Act of 2011, there are automatic reductions of Medicare payments to providers up to 2% per fiff scal year, which went into effff eff ct in April 2013 and, due to subsequent legislative amendments, including the Infrff astrucr turt e Investment and Jobs Act, will remain in effff eff ct through 2031 unless additional Congressional action is taken. However, COVID-19 pandemic relief legislation suspended the 2% Medicare sequester frff om May 1, 2020 through March 31, 2022. Under current frff om 1% in 2022 to up to 4% in the fiff nal fiff scal year of this legislation the actuat sequester. Additionally, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutt oryrr Medicaid drugr source and innovator multiple source drugs the American Taxpayer Relief Act of 2012, which, among other things, furff providers, and increased the statutt e of limitations period forff to fiff ve years. In addition, Congress is considering additional health reforff m measures as part of the budget reconciliation process. single , beginning Januaryrr 1, 2024. In Januaryrr 2013, President Obama signed into law the government to recover overpar yments to providers frff om three l reduction in Medicare payments will varyrr ther reduced Medicare payments to certain s average manufaff cturt er price, forff currently set at 100% of a drug’ rebate cap,a r r An expansion in the government’s role in the U.S. healthcare industryrr may increase existing congressional or r a rr drugs under Medicare, and reforff m Prices that outlines principles forff providers using NUPLAZID or any products, lower reimbursements forff oval, reduce product utilization and adversely affff eff ct our business and iny on price increases, such as the ones we have implemented forff NUPLAZID, cause general . For example, in July 2021, the Biden administration released . In response to Biden’s executive order, on governmental agency scrutr downward pressure on the prices of prescription drugr other product forff which we obtain regulatoryrr appr results of operations. There have been several recent U.S. presidential executive orders, Congressional inquiries and proposed and enacted feff deral and state legislation designed to, among other things, bring more transparency to drugr pricing, review the relationship between pricing and manufaff cturt er patient programs, reduce the cost of drugs government program reimbursement methodologies forff an executive order that included multiple provisions aimed at prescription drugs September 9, 2021, the Department of Health and Human Services (HHS) released a Comprehensive Plan forff Addressing High Drugr pricing reforff m. The plan sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. In addition, the IRARR , among other things, (1) directs HHS to negotiate the price of certain single-source drugs under Medicare and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpat inflff ation. These provisions will take effff eff ct progressively starting in fiff scal year 2023, although they may be subject to legal challenges. It is currently unclear how the IRARR will be implemented but is likely to have a signififf cant impact on the pharmaceutical industry.rr Further, the Biden administration released an additional executive order on October 14, 2022, directing HHS to submit a report on how the Center forff Medicare and Medicaid Innovation can be furff new models forff or similar policy initiatives will be implemented in the futff urt e. Individual states in the U.S. have also increasingly passed legislation and implemented regulations designed to control pharmaceutical 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 frff om other countries and bulk purchasing. costs forff Medicare and Medicaid benefiff ciaries. It is unclear whether these this executive order and biologics covered ther leveraged to test lowering drugr drugr ce r r The implementation of cost-containment measures or other healthcare reforff ms may prevent us frff om being abla e to generate revenue, attain profiff tabia lity, or commercialize NUPLAZID or any other products forff which we may receive regulatoryrr appr pandemic. oval. It is also possible that additional governmental action may be taken in response to the COVID-19 a WeWW are subject,tt dirii ectltt yll and inii diri ectltt yll ,yy tott frff aud and abuse lawll lawll securitii ytt sw ,s falff s. IfII we are unablell sll e claill mii feff deral,ll stattt ett and forff healtll htt care lawll s and regue latll itt ons,s inii cludinii g healtll htt care s lawll s,s phyh sician payment trtt anspar tott complm yll ,yy or have not fuff llll yll complm ill ed, witii htt encyc lawll s and healtll htt such lawll s,s we couldll inii fn orff mrr atitt on privacyc and e substantt facff titt al penaltll itt es. eigni s Our operations are directly, and indirectly through our customers and third-party payors, subject to various U.S. feff deral and state healthcare laws and regulations, including, without limitation, the U.S. feff deral Anti-Kickback Statutt e, the U.S. feff deral False Claims Act, and physician payment sunshine laws and regulations. These laws may impact, among other things, our clinical research, sales, marketing, grants, charitabla e donations, and education programs and constrain the business or fiff nancial arrangements with healthcare providers, physicians, charitabla e founda generally, and other parties that have the abia lity to directly or indirectly inflff uence the prescribing, ordering, marketing, or tions that support Parkinson’s disease patients ff 41 ators, partners or service providers are or may become subject to data privacy and security regulation by both the y to our distribution of our products forff which we obtain marketing appr a collabor U.S. feff deral government and the states in which we conduct our business, including laws and regulations that appl processing of personal data or the processing of personal data on our behalf.ff Finally, we may be subject to additional healthcare, statutt oryrr and regulatoryrr we conduct our business. The laws that may affff eff ct our abia lity to operate include: requirements and enforff cement by forff eign regulatoryrr authorities in jurisdictions in which oval. In addition, we and any current or potential futff urt e a a • • • • • • • the U.S. feff deral Anti-Kickback Statutt e, which prohibits, among other things, persons or entities frff om knowingly ly soliciting, offff eff ring, receiving or paying any remuneration (including any kickback, bribe, or certain and willfulff rebates), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in returt n forff , either the refeff rral of an individual, or the purchase, lease, order or recommendation of any good, faff cility, item or service, forff which payment may be made, in whole or in part, under U.S. feff deral and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actuat violate it in order to have committed a violation; l knowledge of the statutt e or specififf c intent to the U.S. feff deral civil and criminal faff lse claims laws, including the civil False Claims Act, which can be enforff ced through civil whistleblower or qui tam actions, and civil monetaryrr penalties laws, which impose criminal and , among other things, knowingly presenting, or causing to be presented civil penalties on individuals or entities forff to the U.S. feff deral government, claims forff payment or appr making a faff lse statement to avoid, decrease or conceal an obligation to pay money to the U.S. feff deral government. In addition, the government may assert that a claim including items and services resulting frff om a violation of the U.S. feff deral Anti-Kickback Statutt e constitutt es a faff lse or frff audulent claim forff False Claims Act; oval that are faff lse or frff audulent or frff om knowingly es of the rr purpos a , among other things, knowingly and willfulff the U.S. feff deral Health Insurance Portabia lity and Accountabia lity Act of 1996 (HIPAA), which imposes criminal and civil liabia lity forff ly executing, or attempting to execute, a scheme to defrff aud any healthcare benefiff t program or obtain, by means of faff lse or frff audulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of,ff any healthcare benefiff t ly faff lsifyiff ng, concealing or program, regardless of the payor (e.g., public or private) and knowingly and willfulff covering up by any trick or device a material faff ct or making any materially faff lse statement, in connection with the deliveryrr of,ff or payment forff Statutt e, a person or entity does not need to have actuat order to have committed a violation; , healthcare benefiff ts, items or services. Similar to the U.S. feff deral Anti-Kickback l knowledge of the statutt e or specififf c intent to violate it in HIPAA, and its implementing regulations, and as amended again by the Final HIPAA Omnibus RulRR e, Modififf cations to the HIPAA Privacy, Security, Enforff cement and Breach Notififf cation RulRR es Under the Health Inforff mation Technology forff Economic and Clinical Health Act (HITECH) and the Genetic Inforff mation Nondiscrimination Act; Other Modififf cations to the HIPAA RulRR es, published in Januaryrr 2013, which imposes certain obligations, including mandatoryrr contractuat l terms, with respect to safeff guarding the privacy, security and transmission of individually identififf abla e health inforff mation on covered entities subject to the rulr e, such as health plans, healthcare clearinghouses and certain healthcare providers as well as their business associates, individuals or entities that perforff m certain services involving the use or disclosure of individually identififf abla e health inforff mation on behalf of a covered entity and their subcontractors that use, disclose or otherwise process individually identififf abla e health inforff mation; the U.S. Federal Food, Drugr misbranding of drugs r , biologics and medical devices; and Cosmetic Act (FDCA), which prohibits, among other things, the adulteration or r , devices, biologics and medical supplies forff which payment is availabla e under Medicare, the U.S. feff deral physician payment transparency requirements, sometimes refeff rred to as the “Physician Payments Sunshine Act”, which was enacted as part of the ACA and its implementing regulations and requires certain manufaff cturt ers of drugs Medicaid, or the Children’s Health Insurance Program to report annually to the Centers forff Medicare and Medicaid Services (CMS) inforff mation related to certain payments and other transfeff rs of value made to physicians (as defiff ned to include doctors of medicine, dentists, optometrists, podiatrists and chiropractors under such law), other healthcare profeff ssionals (such as physician assistants and nurse practitioners), and teaching hospitals, as well as inforff mation regarding ownership and investment interests held by physicians and their immediate faff mily members; and analogous state and local laws and regulations, including: state anti-kickbk ack and faff lse claims laws, which may appl a arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including y to our business practices, including but not limited to, research, distribution, sales and marketing 42 private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’rr voluntaryrr compliance guidelines and the relevant compliance guidance promulgated by the U.S. feff deral government, or otherwise restrict payments that may be made to healthcare providers and other potential refeff rral sources; state and local laws and regulations that require drugrr manufaff cturt ers to fiff le reports relating to pricing and marketing inforff mation, which requires tracking giftff s and other remuneration and items of value provided to healthcare profeff ssionals and entities and/or the registration of pharmaceutical sales representatives; and state laws governing the privacy and security of health inforff mation in certain circumstances, many of which diffff eff r frff om ts. each other in signififf cant ways and oftff en are not preempted by HIPAA, thus complicating compliance effff orff s Ensuring that our internal operations and futff urt e business arrangements with third parties comply with appl a icabla e ff ff ff a to be in violation of any of the laws described above iny, and we could faff ce action if a feff deral or state governmental tions that support Parkinson’s disease patients generally or any other governmental y to us, we may be subject to signififf cant penalties, including civil, criminal and ff healthcare laws and regulations could involve substantial costs. It is possible that governmental authorities will conclude that icabla e frff aud and our business practices do not comply with current or futff urt e statutt es, regulations or case law interprrr eting appl a abus tions are a current e or other healthcare laws and regulations. For example, contributions to third-party charitabla e founda a area of signififf cant governmental and congressional scrutr authority were to conclude that our charitabla e contributions to founda are not compliant. If our operations are found laws and regulations that may appl administrative penalties, damages, fiff nes, exclusion frff om U.S. government-funde Medicaid, disgorgement, imprisonment, contractuat requirements and/or oversight, and the curtailment or restrucrr party payors directly and our customers make the ultimate decision on how to submit claims, frff om time-to-time, forff NUPLAZID, and any other product candidates that may be appr oved, we may provide reimbursement guidance to patients a and healthcare providers. If a government authority were to conclude that we provided improper advice and/or encouraged reimbursement, we could faff ce action against us by government authorities. If any of the the submission of a faff lse claim forff physicians or other providers or entities with whom we expect to do business is found a laws, they may be subject to criminal, civil or administrative sanctions, including exclusions frff om government-funde healthcare programs and imprisonment. If any of the above and our results of operations. In addition, the appr candidates that may be appr a mentioned above oved, outside the U.S. will also likely subject us to forff eign equivalents of the healthcare laws l damages, reputational harm, diminished profiff ts, additional reporting occur, it could adversely affff eff ct our abia lity to operate our business oval and commercialization of NUPLAZID, or any other product ing of our operations. Moreover, while we do not bill third- d healthcare programs, such as Medicare and to be not in compliance with appl , among other forff eign laws. turt d a a a a ff ff icabla e WeWW are subject tott strtt inii gent and evolvll inii g U.SUU .SS and forff othtt er oblill gat couldll repuee lell ad tott regue itt onal harmrr latll ortt ; losll tattt i i itt ons relatll ett d tott datatt privacyc and securitii ytt .yy Our actual or perceived faiff eigni lawll s,s regue latll itt ons,s rulell s,s contrtt actual oblill gat lii ure tott complm yll witii htt itt ons,s polill cies and itt ons i such oblill gat i yr inii vestitt gat s of revenue or profiff tii stt ; and othtt er adversrr e businii ess consequences. itt ons or actitt ons; lill tii itt gat i itt on; fiff nii es and penaltll itt es; didd sii ruptu itt ons of our businii ess operatitt ons; In the ordinaryrr course of business, we collect, receive, store, process, generate, use, transfeff r, disclose, make accessible, protect, secure, dispose of,ff transmit, and share (collectively, processing) personal data and other sensitive inforff mation, including proprietaryrr and confiff dential business data, trade secrets, intellectuat participants in connection with clinical trials, sensitive third-party data, business plans, transactions, fiff nancial inforff mation and medical inforff mation collected by our patient access management team (collectively, sensitive data). Our data processing activities may subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industryrr standards, external and internal privacy and security policies, contractuat to data privacy and security. l requirements, and other obligations relating l property, data we collect about trial a a ng laws). For example, HIPAA, as amended by HITECH, In the United States, feff deral, state, and local governments have enacted numerous data privacy and security laws, including data breach notififf cation laws, personal data privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and other similar laws (e.g., wiretappi imposes specififf c requirements relating to the privacy, security, and transmission of individually identififf abla e health inforff mation. For example, the Califorff nia Consumer Privacy Act of 2018 (CCPA) requires businesses to provide specififf c disclosures in privacy notices and honor requests of Califorff nia residents to exercise certain privacy rights. The CCPA provides forff recover signififf cant statutt oryrr damages. Although the CCPA exempts some data processed in the context of clinical trials, the CCPA may increase compliance costs and potential liabia lity with respect to other personal data we may maintain about Califorff nia residents. In addition, the Califorff nia Privacy Rights Act of 2020 (CPRARR ), which became operative Januaryrr 1, 2023, expands the CCPA’s requirements, including appl employees and establa ishing a new regulatoryrr agency to implement and enforff ce the law. Other states, such as Virginia and Colorado, have also passed comprehensive privacy laws, and similar laws are being considered in several other states, as well civil penalties of up to $7,500 per violation and allows private litigants affff eff cted by certain data breaches to ying to personal inforff mation of business representatives and a a 43 as at the feff deral and local levels. While these states, like the CCPA, also exempt some data processed in the context of clinical trials, these developments furff and the third parties upon whom we rely. ts and increase legal risk and compliance costs forff ther complicate compliance effff orff us Outside the United States, an increasing number of laws, regulations, and industryrr standards may govern data privacy and security. For example, the EU GDPR, UK GDPR, Brazil’s General Data Protection Law (Lei Geral de Proteção de Dados Pessoais, or LGPD) (Law No. 13,709/2018), and China’s Personal Inforff mation Protection Law (PIPL) impose strict requirements forff processing personal data. For example, companies may faff ce temporaryrr or defiff nitive bans on data processing and other corrective actions; fiff nes of up to 20 million Euros under the EU GDPR / 17.5 million pounds sterling under the UK GDPR or 4% of annual global revenue, whichever is greater; or private litigation related to processing of personal data brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests. In addition, we may be unabla e to transfeff r personal data frff om Europe and other jurisdictions to the United States or other countries due to data localization requirements or limitations on cross-border data flff ows. Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfeff r of personal data to other countries. In particular, the European Economic Area (EEA) and the UK have signififf cantly restricted the transfeff r of personal data to the United States and other countries whose privacy laws it believes are inadequate. Other jurisdictions may adopt similarly stringent interprr etations of their data localization and cross-border data transfeff r laws. Although there are currently various mechanisms that may be used to transfeff r personal data frff om the EEA and UK to the United States in compliance with law, such as the EEA and UK’s standard contractuat assurance that we can satisfyff or rely on these measures to lawfulff lawfulff manner forff requirements forff limiting our abia lity to conduct clinical trial activities in Europe and elsewhere, the interrupt operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at signififf cant expense, increased exposure to regulatoryrr actions, substantial fiff nes and penalties, the inabia lity to transfeff r data and work with partners, vendors and other third parties, and injunctions against our processing or transfeff rring of personal data necessaryrr to operate our business. Some European regulators have ordered certain companies to suspend or permanently cease certain transfeff rs of personal data to recipients outside Europe forff limitations. Additionally, companies that transfeff r personal data to recipients outside of the EEA and/or UK to other jurisdictions, particularly to the United States, are subject to increased scrutr activist groups. us to transfeff r personal data frff om the EEA, the UK, or other jurisdictions to the United States, or if the a legally-compliant transfeff r are too onerous, we could faff ce signififf cant adverse consequences, including by l clauses, these mechanisms are subject to legal challenges, and there is no allegedly violating the EU GDPR’s cross-border data transfeff r ly transfeff r personal data to the United States. If there is no iny frff om regulators individual litigants and ion or degradation of our r In addition to data privacy and security laws, we may be contractuat lly subject to industryrr standards adopted by industryrr l obligations groups and may become subject to such obligations in the futff urt e. We may also be bound by other contractuat related to data privacy and security, and our effff orff . We may publish privacy policies, marketing materials, and other statements, such as compliance with certain certififf cations or self-ff regulatoryrr principles, regarding data privacy and security. If these policies, materials or statements are found to be defiff cient, lacking in transparency, deceptive, unfaff ir, or misrepresentative of our practices, we may be subject to investigation, enforff cement actions by regulators, or other adverse consequences. ts to comply with such obligations may not be successfulff ff Obligations related to data privacy and security are quickly changing, becoming increasingly stringent, and creating ications and interprr etations, which regulatoryrr uncertainty. Additionally, these obligations may be subject to diffff eff ring appl may be inconsistent or conflff ict among jurisdictions. Preparing forff signififf cant resources and may necessitate changes to our services, inforff mation technologies, systems, and practices and to those of any third parties that process personal data on our behalf.ff and complying with these obligations requires us to devote a We may at times faff il (or be perceived to have faff iled) in our effff orff ts to comply with our data privacy and security ts, our personnel or third parties on whom we rely on may faff il to comply with such obligations. Moreover, despite our effff orff obligations, which could negatively impact our business operations. If we or the third parties on which we rely faff il, or are perceived to have faff iled, to address or comply with appl consequences, including but not limited to: government enforff cement actions (e.g., investigations, fiff nes, penalties, audits, inspections, and similar); litigation (including class-action claims); additional reporting requirements and/or oversight; bans on processing personal data; and orders to destroy or not use personal data. Any of these events could have a material adverse effff eff ct on our reputation, business, or fiff nancial condition, including but not limited to loss of customers; inabia lity to process personal data or to operate in certain jurisdictions; limited abia lity to develop or commercialize our products; expenditurt e of time and resources to defeff nd any claim or inquiry;rr model or operations. adverse publicity; or substantial changes to our business icabla e data privacy and security obligations, we could faff ce signififf cant a 44 lii tott complm yll witii htt our repee ortitt nii g and payment oblill gat i itt ons under thtt e MeMM dicaid Drugu Rebatett PrPP ogram or othtt er thtt e U.SUU .,SS we couldll be subject tott additii itt onal reimii bursrr ement requirii ementstt ,s fiff nii es,s s which couldll have a matett rial adversrr e efe fff eff ct on our businii ess,s resultll stt of operatitt ons IfII we faiff governmentaltt sanctitt ons and expos and fiff nii ancial conditii itt on. pricinii g programs inii ee ure under othtt er lawll We participate in the Medicaid Drugrr Rebate Program, as administered by CMS, and other feff deral and state government rr pricing programs in the U.S., and we may participate in additional government pricing programs in the futff urt e. These programs generally require us to pay rebates or otherwise provide discounts to government payors in connection with drugs that are dispensed to benefiff ciaries/recipients of these programs. In some cases, such as with the Medicaid Drugr Rebate Program, the rebates are based on pricing that we report on a monthly and quarterly basis to the government agencies that administer the programs. Pricing requirements and rebate/discount calculations are complex, varyrr among products and programs, and are oftff en subject to interprr etation by governmental or regulatoryrr agencies and the courts. The requirements of these programs, including, by way of example, their respective terms and scope, change frff equently. For example, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutt oryrr Medicaid rebate cap,a drugr multiple source drugs complexity of compliance will be time consuming. Invoicing forff lag of up to several months between the sales to which rebate notices relate and our receipt of those notices, which furff forff complicates our abia lity to accurately estimate and accruer individual states. Thus, there can be no assurance that we will be abla e to identifyff all faff ctors that may cause our discount and rebate payment obligations to varyrr l results may diffff eff r signififf cantly frff om our estimated allowances forff business, results of operations and fiff nancial condition. , beginning Januaryrr 1, 2024. Responding to current and futff urt e changes may increase our costs, and the rebates is provided in arrears, and there is frff equently a time discounts and rebates. Changes in estimates and assumptions may have a material adverse effff eff ct on our currently set at 100% of a drug’ rr rebates related to the Medicaid program as implemented by s average manufaff cturt er price (AMP), forff frff om period to period, and our actuat single source and innovator ther r In addition, the HHS Offff iff ce of Inspector General and other Congressional, enforff cement and administrative bodies have errors associated with our submission of pricing data and forff products, including, but not limited to the methodologies used by compliance with reporting requirements under the Medicaid Drugr recently increased their focff us on pricing requirements forff manufaff cturt ers to calculate AMP, and best price (BP), forff Rebate Program. We are liabla e forff government payors. For example, faff ilure to submit monthly/quarterly AMP and BP data on a timely basis could result in signififf cant civil monetaryrr penalties forff disclosures and/or to identifyff overpar yments could result in allegations against us under the civil False Claims Act and other laws and regulations. Any required refunds enforff cement action would be expensive and time consuming and could have a material adverse effff eff ct on our business, results of operations and fiff nancial condition. In addition, in the event that the CMS were to terminate our rebate agreement, no feff deral payments would be availabla e under Medicaid or Medicare forff each day the submission is late beyond the due date. Failure to make necessaryrr to the U.S. government or responding to a government investigation or any overcharging of our covered outpat tient drugs ff rr . ThTT e FDFF ADD grantett d markerr PDPP PDD ,PP and we couldll ll labe l” uses. facff titt nii g approval of NUPUU LPP ALL ZIZZ DII thtt e trtt eatmtt ent of hallll ucinii atitt ons and delusions associatett d witii htt e lill abilii ill tii ytt ifi a regue latll ortt inii es thtt at we are promotitt nii g NUPUU LPP ALL ZIZZ DII forff anyn “offff -ff forff yr authtt oritii ytt detett rmrr A company may not promote “offff -ff labea l” uses forff its drugr products. An offff -ff labea a l use is the use of a product forff an uses in other a a offff -ff labea oved labea oved by the appl l in the U.S. or forff to have promoted offff -ff labea icabla e regulatoryrr agencies. Physicians, on the other hand, may l uses. Although the FDA and other regulatoryrr agencies do not regulate a physician’s choice of treatment made in the physician’s independent medical judgment, they do restrict promotional communications frff om l uses of products forff which marketing clearance has l use of its product may be subject to signififf cant liabia lity, indication or patient population that is not described in the product’s FDA-appr jurisdictions that diffff eff r frff om those appr prescribe products forff drugr pharmaceutical companies or their sales forff ce with respect to offff -ff labea not been issued. A company that is found ff including civil and criminal sanctions. We intend to comply with the requirements and restrictions of the FDA and other regulatoryrr agencies with respect to our promotion of NUPLAZID and any other products we may market, but we cannot be sure that the FDA or other regulatoryrr agencies will agree that we have not violated their restrictions. As a result, we may be subject to criminal and civil liabia lity. In addition, our management’s attention could be diverted to handle any such alleged violations. A signififf cant number of pharmaceutical companies have been the target of inquiries and investigations by various U.S. feff deral and state regulatory,rr investigative, prosecutorial and administrative entities in connection with the promotion of oved uses and other sales practices, including the Department of Justice (DOJ), and various U.S. a unappr products forff Attorneys’ Offff iff ces, the HHS Offff iff ce of Inspector General, the FDA, the Federal Trade Commission and various state Attorneys General offff iff ces. These investigations have alleged violations of various U.S. feff deral and state laws and regulations, including claims asserting antitrusr Marketing Act, anti-kickback laws, and other alleged violations in connection with the promotion of products forff t violations, violations of the FDCA, the civil False Claims Act, the Prescription Drugrr a unappr oved 45 uses, pricing and Medicare and/or Medicaid reimbursement. If the FDA, DOJ, or any other governmental agency initiates an enforff cement 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 forff damage awards and other sanctions such as consent decrees and corpor activities would be subject to ongoing scrutr icabla e laws and regulations. Any such fiff nes, awards or other sanctions would have an adverse effff eff ct on our revenue, business, fiff nancial prospects, and reputation. oved uses, we could be subject to substantial civil or criminal fiff nes or ate integrity agreements pursuant to which our iny and monitoring to ensure compliance with appl a unappr a r ChCC anges at thtt e FDFF ADD and othtt er governrr ment agencies couldll delayll commercialill zii ed inii a titt mii elyll manner or othtt erwisii e prevent thtt ose agencies frff om perfr orff mrr operatitt on of our businii ess may relyll ,yy which couldll negat imii pacm t our businii ess. itt velyll e or prevent new productstt frff om beinii g develope ll d or inii g normrr al fuff nctitt ons on which thtt e The abia lity of the FDA to review and appr a ove new products can be affff eff cted by a variety of faff ctors, including ff government budget and fundi regulatory,rr government fundi development activities is subject to the political process, which is inherently flff uid and unpredictabla e. and policy changes. Average review times at the agency have flff uctuat ff ng of other government agencies on which our operations may rely, including those that fund ng levels, abia lity to hire and retain key personnel and accept payment of user feff es, and statutt ory,rr ted in recent years as a result. In addition, research and ff r Disrupt ions at the FDA and other agencies may also slow the time necessaryrr forff new drugs r to be reviewed and/or oved by necessaryrr government agencies, which would adversely affff eff ct our business. For example, over the last several appr a years, including beginning on December 22, 2018 and ending on Januaryrr 25, 2019, the U.S. government has shut down several times and certain regulatoryrr agencies, such as the FDA, have had to furff lough critical government employees and stop critical activities. If repeated or prolonged government shutdowns occur, it could signififf cantly impact the abia lity of the FDA to timely review and process our regulatoryrr submissions, and negatively impact other government operations on which we rely, which could have a material adverse effff eff ct on our business. WeWW are subject tott strtt inii gent regue frff om our product candidatett s,s which couldll delayll itt on inii connectitt on witii htt latll thtt e markerr titt nii g of NUPUU LPP ALL ZIZZ DII and anyn othtt er productstt derived thtt e developmll ent and commercialill zii atitt on of our productstt . The pharmaceutical industryrr is subject to stringent regulation by the FDA and other regulatoryrr agencies in the U.S. and a by comparabla e authorities in other countries. Neither we nor our collabor including NUPLAZID, in the U.S. until it has completed rigorous preclinical testing and clinical trials and an extensive regulatoryrr clearance process implemented by the FDA. Satisfaff ction of regulatoryrr depends upon the type, complexity and novelty of the product, and requires substantial resources. Even if regulatoryrr appr is obtained, the FDA and other regulatoryrr agencies may impose signififf cant restrictions on the indicated uses, conditions forff use, labea including additional research and development and clinical trials. These limitations may limit the size of the market forff product or result in the incurrence of additional costs. Any delay or faff ilure in obtaining required appr ovals could have a material adverse effff eff ct on our abia lity to generate revenues frff om the particular product candidate. ling, advertising, promotion, and/or marketing of such products, and requirements forff ators can market a pharmaceutical product, requirements typically takes many years, oval studi a post-appr the es, a a t oval Outside the U.S., the abia lity to market a product is contingent upon receiving appr a oval frff om the appr a opriate regulatoryrr authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing, and reimbursement varyrr widely frff om countryrr opriate regulatoryrr authority is satisfiff ed that adequate evidence of safeff ty, quality, and effff iff cacy has been presented will it grant a marketing authorization. Approval by the FDA does not automatically lead to the appr outside the U.S. will not automatically lead to FDA appr oval by regulatoryrr authorities outside the U.S. and, similarly, appr to country.rr Only aftff er the appr oval by regulatoryrr authorities oval. a a a a In addition, U.S. and forff eign government regulations control access to and use of some human or other tissue samples in our research and development effff orff ts. U.S. and forff eign government agencies may also impose restrictions on the use of data derived frff om human or other tissue samples. Accordingly, if we faff il to comply with these regulations and restrictions, the commercialization of our product candidates may be delayed or suspended, which may delay or impede our abia lity to generate product revenues. IfII our compem titt tii ortt candidatett s,s thtt eye may reduce or elill mii srr developll and markerr inii atett our commercial opportunitii ytt .yy t productstt thtt at are more efe fff eff ctitt ve thtt an NUPUU LPP ALL ZIZZ DII ,D trtt ofiff nii etitt de or our othtt er product Competition in the pharmaceutical and biotechnology industries is intense and expected to increase. We faff ce competition frff om pharmaceutical and biotechnology companies, as well as numerous academic and research institutt ions and 46 governmental agencies, both in the U.S. and abra oad. Some of these competitors have products or are pursuing the development of drugs that target the same diseases and conditions that are the focff us of our drugrr development programs. r quetiapia ne, clozapia ne, risperidone, aripiprazole, and olanzapia ne. Pimavanserin forff the treatment of PDP competes with offff -ff labea For example, the use of NUPLAZID forff , including the generic drugs rr drugs r treatment of negative symptoms of schizophrenia, if appr Vraylar, marketed by Allergan, Rexulti, marketed by Otsuka Pharmaceutical Co., Ltd., Latuda Pharmaceuticals Inc., Capla yta, marketed by IntraCellular Therapea utics and various generic drugs r clozapia ne, risperidone, aripiprazole, and olanzapia ne. In addition, trofiff netide, if appr labea antiepileptics, antipsychotics, antidepressants and benzodiazepines. Several academic institutt companies are currently conducting clinical trials forff oved forff a a t the treatment of various symptoms of Rett syndrome. l use of various antipsychotic the l use of , marketed by Sunovion , including quetiapia ne, l usage of branded and generic prescription medications targeted at individual symptoms of Rett syndrome, including that indication, would compete with offff -ff labea ions and pharmaceutical oved would compete indirectly with offff -ff Many of our competitors and their collabor a ators have signififf cantly greater experience than we do in the folff lowing: • • • • • identifyiff ng and validating targets; screening compounds against targets; preclinical studi t es and clinical trials of potential pharmaceutical products; obtaining FDA and other regulatoryrr appr a ovals; and commercializing pharmaceutical products. In addition, many of our competitors and their collabor a ators have substantially greater capia tal and research and ing, sales and marketing capaa bia lities, and production faff cilities. Smaller companies also oved or are in advanced development and may develop superior technologies or methods to identifyff and validate drugrr development resources, manufaff cturt may prove to be signififf cant competitors, particularly through proprietaryrr with large pharmaceutical and establa ished biotechnology companies. Many of our competitors have products that have been a appr targets and to discover novel small molecule drugs developing drugs patent protection or commercialize drugs furff effff eff ct on our business. sooner than us. Our competitors may also develop alternative therapia es that could that we may develop. Our faff ilure to compete effff eff ctively could have a material adverse that are more effff eff ctive, safeff r, more affff orff dabla e, or more easily administered than ours and may achieve . Our competitors, either alone or with their collabor research discoveries and collabor ther limit the market forff rr r any drugs ators, may succeed in ation arrangements a a r r oduct lill abilii ill tii ytt IfII prff commercialill zii atitt on of NUPUU LPP ALL ZIZZ DII or anyn othtt er product forff which we obtaitt nii commercialill zii atitt on of our product candidatett s. suitii stt are broughu t againii st us,s we may inii cur substantt lawll titt al lill abilii ill tii itt es and may be requirii ed tott yr approval,ll or developmll latll ortt regue lill mii itii ent or We faff ce an inherent risk of product liabia lity as a result of the commercial sales of NUPLAZID in the U.S. and the ff a to be otherwise unsuitaba le forff lowing commercial launch of NUPLAZID in oved, or if we engage in the clinical testing of new product candidates or commercialize any clinical testing of our product candidates, and will faff ce an even greater risk folff additional jurisdictions, if appr additional products. For example, we may be sued if NUPLAZID or any other product we develop allegedly causes injuryrr or is found of defeff cts in manufaff cturt or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfulff defeff nd ourselves against product liabia lity claims, we may incur substantial liabia lities or be required to limit commercialization of our product candidates. Even successfulff resources. Regardless of the merits or eventuat administration in humans. Any such product liabia lity claims may include allegations ing, defeff cts in design, a faff ilure to warn of dangers inherent in the product, negligence, strict liabia lity defeff nse would require signififf cant fiff nancial and management l outcome, liabia lity claims may result in: ly • • • • • • decreased demand forff our products or product candidates that we may develop; injuryrr to our reputation; withdrawal of clinical trial participants; initiation of investigations by regulators; costs to defeff nd the related litigation; a diversion of management’s time and our resources; 47 • • • • • • substantial monetaryrr awards to trial participants or patients; product recalls, withdrawals or labea ling, marketing or promotional restrictions; loss of revenue; exhaustion of any availabla e insurance and our capia tal resources; the inabia lity to commercialize our products or product candidates; and a decline in our stock price. Although we currently have product liabia lity insurance that covers our clinical trials and the commercialization of a oved forff commercial sale. This insurance may be prohibitively expensive or may not fulff NUPLAZID, we may need to increase and expand this coverage, including if we commence larger scale trials and if other product candidates are appr ly cover our potential liabia lities. Inabia lity to obtain suffff iff cient insurance coverage at an acceptabla e cost or otherwise to protect against potential product liabia lity claims could prevent or inhibit the commercialization of products that we or our collabor develop. If we determine that it is prude increased coverage on acceptabla e terms or at all. Our insurance policies also have various exclusions, and we may be subject to a product liabia lity claim forff which we have no coverage. Our liabia lity could exceed our total assets if we do not prevail in a lawsuit frff om any injuryrr caused by our drugr business and results of operations. nt to increase our product liabia lity coverage, we may be unabla e to obtain such products. Product liabia lity claims could have a material adverse effff eff ct on our ators a rr IfII our inii fn orff mrr atitt on tett chnology couldll expe ee i inii vestitt gat disii ruptu itt ons of our businii ess operatitt ons,s and a losll or thtt ose of thtt rience adversrr e consequences resultll itt nii g frff om such comprm omisii e,e inii cludinii g but not lill mii i , lill tii itt gat itt ons or actitt ons,s inii tett rruptu itt ons tott operatitt ons or clill nii s of customtt ical trtt ialsll ,s repuee ersrr or salell s. iri d partitt es uponu sys stett ms or data,tt itt onal harmrr tattt ll which we relyll ,yy are or were comprm omisii ed, we itii ett d tott regue itt on, fiff nii es and penaltll itt es,s yr latll ortt In the ordinaryrr course of our business, we , or the third parties upon which we rely, process, collect, receive, store, use, confiff dential, and sensitive data, transmit, transfeff r, make accessible, protect, secure, dispose of,ff disclose and share proprietary,rr including personal data (such as health-related data), intellectuat l property, and trade secrets. Cyberattacks, malicious internet-based activity, online and offff lff ine frff aud and other similar activities threaten the confiff dentiality, integrity, and availabia lity of our sensitive inforff mation and inforff mation technology systems, and those of the third parties upon which we rely. These threats are prevalent, continue to rise, and are becoming increasingly diffff iff cult to detect. These threats come frff om a variety of sources, including traditional computer “hackers,” threat actors, personnel misconduct or error (such as through theftff or misuse), organized criminal threat actors, sophisticated nation-states, and nation-state-supported actors. Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors forff During times of war and other maja or conflff icts, we and the third parties upon which we rely may be vulnerabla e to a heightened risk of these attacks, including retaliatoryrr cyber-attacks, that could materially disrupt supply chain, and abia lity to producd e, sell and distribute our goods and services. geopolitical reasons and in conjunction with militaryrr conflff icts and defeff nse activities. our systems and operations, r We and the third parties upon which we rely are subject to a variety of evolving threats, including but not limited to, social engineering attacks (including through phishing attacks), malicious code (such as virusrr (including as a result of advanced persistent threat intrusrr personnel misconduct or error, ransomware attacks, supply-chain attacks, softff ware bugs, server malfunc hardware faff ilures, loss of data or other inforff mation technology assets, adware, telecommunications faff ilures, earthquakes, fiff re, flff ood, and other similar threats. ions), denial-of-ff service attacks (such as credential stuft fff iff ng), tion, softff ware or es and worms), malware ff Ransomware attacks, including by organized criminal threat actors, nation-states, and nation-state-supported actors, are ions, delays, or outages in our operations, ion of clinical trials, loss of data (including data related to clinical trials) and income, signififf cant extra expenses to ff becoming increasingly prevalent and severe and can lead to signififf cant interrupt disrupt r restore data or systems, reputational harm and the diversion of funds of a ransomware attack, but we may be unwilling or unabla e to make such payments (including, forff laws or regulations prohibit such payments). The COVID-19 pandemic and our partially remote workforff ce poses increased risks to our inforff mation technology systems and data, as more of our employees work frff om home, utilizing network connections outside our premises. Futurt e or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabia lities, as our systems could be negatively affff eff cted by vulnerabia lities present in acquired or integrated entities’ systems and technologies. Furthermore, we may discover security issues that were not found . Extortion payments may alleviate the negative impact example, if appl icabla e a ff r 48 during due diligence of such acquired or integrated entities, and it may be diffff iff cult to integrate companies into our inforff mation technology environment and security program. rr ion and authentication technology, employee email, content deliveryrr We rely on third-party service providers and technologies to operate critical business systems to process sensitive suppliers, data center ff inforff mation in a variety of contexts, including, without limitation, cloud-based infrff astrucrr tions. Our faff cilities, encrypt abia lity to monitor these third parties’ inforff mation security practices is limited, and these third parties may not have adequate inforff mation security measures in place. In addition, supply-chain attacks have increased in frff equency and severity, and we cannot guarantee that third parties’ infrff astrucr compromised. For example, in May 2021, a key drugrr however, to date we found turt e in our supply chain or our third-party partners’ supply chains have not been supplier notififf ed us of a ransomware attack on our supplier’s systems; no indication that our personal data was exposed. to customers, and other func turt e, drugrr ff Any of the previously identififf ed or similar threats could cause a security incident or other interrupt ion that could result , or accidental acquisition, modififf cation, destrucrr in unauthorized, unlawfulff access to our sensitive inforff mation or our inforff mation technology systems, or those of the third parties upon whom we rely. A security incident or other interrupt products. our abia lity (and that of third parties upon whom we rely) to provide our ion, disclosure of,ff or ion could disrupt r r rr tion, loss, alteration, encrypt rr We may expend signififf cant resources, funda ff mentally change our business activities and practices (including our to protect against security incidents. Certain data privacy and security obligations may require us to clinical trials) to tryrr implement and maintain specififf c security measures or industry-rr standard or reasonabla e security measures to protect our inforff mation technology systems and sensitive inforff mation. While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effff eff ctive. We may be unabla e in the futff urt e to detect vulnerabia lities in our inforff mation technology systems (including our products) because such threats and techniques change frff equently, are oftff en sophisticated in naturt e, and may not be detected until aftff er a security incident has occurred. Further, we may experience delays in developing and deploying remedial measures designed to address any such identififf ed vulnerabia lities. Applicabla e data privacy and security obligations may require us to notifyff relevant stakeholders of security incidents. Such disclosures are costly, and the disclosure or the faff ilure to comply with such requirements could lead to adverse consequences. If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences. These consequences may include: government enforff cement actions (forff example, investigations, fiff nes, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive inforff mation (including personal data); litigation (including class claims); indemnififf cation obligations; negative publicity; reputational harm; monetaryrr (including availabia lity of data); fiff nancial loss; and other similar harms. Security incidents and attendant consequences may cause customers to stop using our products, deter new customers frff om using our products, and negatively impact our abia lity to grow and operate our business. ions in our operations diversions; interrupt ff fund rr Our contracts may not contain limitations of liabia lity, and even where they do, there can be no assurance that limitations of liabia lity in our contracts are suffff iff cient to protect us frff om liabia lities, damages, or claims related to our data privacy and security obligations. In addition, our insurance coverage may not be adequate or suffff iff cient in type or amount to protect us frff om or to mitigate liabia lities arising out of our privacy and security practices. The successfulff against us that exceeds our availabla e insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effff eff ct on our business. assertion of one or more large claims Risks Related to Our Common Stock Our stoctt k price hisii tortt icallll yll has been, and isii lill keii lyll tott remainii , highi lyll volatll itt lii ell .ee The market prices forff securities of biotechnology companies in general, and drugr discoveryrr and development companies in particular, have been highly volatile and may continue to be highly volatile in the futff urt e. From the period between Januaryrr 3, 2022 to Februar share to a high of $27.50 per share. Furthermore, especially as we and our market capia talization have grown, the price of our common stock has been increasingly affff eff cted by quarterly and annual comparisons with the valuations and recommendations ryrr 24, 2023, the closing price of our common stock has ranged frff om a low of $13.01 per 49 of the analysts who cover our business. The folff have a signififf cant impact on the market price of our common stock: lowing faff ctors, in addition to other risk faff ctors described in this section, may • • • • • • • • • • • • • • • • • • • • the success of our commercialization of NUPLAZID in the U.S. forff associated with PDP; the treatment of hallucinations and delusions the statust developed under our collabor a ations; and cost of development and commercialization of our product candidates, including compounds being whether we acquire or in-license additional product candidates or products, and the statust commercialization of such product candidates or products; of development and the statust including ADP, and in jurisdictions other than the U.S.; and cost of development and commercialization of pimavanserin forff indications other than in PDP, any other communications or guidance frff om the FDA or other regulatoryrr authorities that pertain to NUPLAZID or our product candidates; the statust and cost of our post-marketing commitments forff NUPLAZID; the initiation, termination, or reduction in the scope of our collabor regarding our collabor ations; a a ations or any disputes or developments market conditions or trends related to biotechnology and pharmaceutical industries, or the market in general; announcements of technological innovations, new products, or other material events by our competitors or us, including any new products that we may acquire or in-license; disputes or other developments concerning our proprietaryrr and intellectuat l property rights; changes in, or faff ilure to meet, securities analysts’ or investors’ expectations of our fiff nancial perforff mance; our faff ilure to meet appl Nasdaq Stock Market; a icaba le Nasdaq listing standards and the possible delisting of our common stock frff om the additions or departurt es of key personnel; discussions of our business, products, fiff nancial perforff mance, prospects, or stock price by the fiff nancial and scientififf c press and online investor communities such as blogs and chat rooms; public concern as to, and legislative action with respect to, genetic testing or other research areas of biopharmaceutical companies, the pricing and availabia lity of prescription drugs rr deliveryrr , or the safeff ty of drugs techniques; rr and drugr regulatoryrr developments in the U.S. and in forff eign countries; changes in the strucr turt e of healthcare payment systems; the announcement of,ff or developments in, any litigation matters; ions caused by geopolitical or macroeconomic developments or other business interrupt disrupt rr example, the ongoing conflff ict between Ukraine and RusRR sia, related sanctions and the COVID-19 pandemic; and ions, including, forff r economic and political faff ctors, including but not limited to economic and fiff nancial crises, wars, terrorism, and political unrest. In the past, folff lowing periods of volatility in the market price of a particular company’s securities, securities class action litigation has oftff en been brought against that company. For example, we, and certain of our current and forff mer offff iff cers and directors, are subject to numerous lawsuits related to prior statements about oval the treatment of hallucinations and delusions associated with DRP, as described in “Legal Proceedings”. of pimavanserin forff If we are not successfulff in defeff nse of these claims, we may have to make signififf cant payments to, or other settlements with, our stockholders and their attorneys. Even if such claims are not successfulff divert our management’s attention and resources, which could have a material adverse effff eff ct on our business, operating results or fiff nancial condition. , the litigation could result in substantial costs and NUPLAZID and our sNDA seeking appr a a 50 IfII we or our stoctt kholdell declill nii e.ee rsrr sellll substantt titt al amountstt of our common stoctt k, thtt e markerr t price of our common stoctt k may A signififf cant number of shares of our common stock are held by a small number of stockholders. Sales of a signififf cant the shares of our common stock held by entities affff iff liated with one of our principal stockholders and these rights. Under the registration rights agreement, we have agreed that, if at any time and frff om time number of shares of our common stock, or the expectation that such sales may occur, could signififf cantly reduce the market price of our common stock. In connection with our March 2014 public offff eff ring of common stock, we agreed to provide resale registration rights forff two of our directors, Julian C. Baker and Dr. Stephen R. Biggar, which we refeff r to as the Baker Entities. In connection with our Januaryrr 2016 public offff eff ring of common stock, we entered into a forff mal registration rights agreement with the Baker Entities to provide forff to time, the Baker Entities demand that we register their shares of our common stock forff would be obligated to effff eff ct such registration. On May 3, 2019, we fiff led a registration statement covering the sale of up to 40,203,111 shares of our common stock, which includes 489,269 shares of our common stock issuabla e upon the exercise of warrants that were owned by the Baker Entities as of April 29, 2019, and which represented appr oximately 28 percent of our outstanding shares at the time. Our registration obligations under this registration rights agreement, which cover all shares now held or later acquired by the Baker Entities, will be in effff eff ct forff up to 10 years, and include our obligation to faff cilitate certain underwritten public offff eff rings of our common stock by the Baker Entities in the futff urt e. If the Baker Entities sell a large number of our shares, or the market perceives that the Baker Entities intend to sell a large number of our shares, this could adversely affff eff ct the market price of our common stock. We also may elect to sell frff om time to time an indeterminate number of shares on our own behalf pursuant to a registration statement or in a private placement. Our stock price may decline as a result of the sale of the shares of our common stock included in any of these registration statements or futff urt e fiff nancings. resale under the Securities Act, we a IfII our offff iff cersrr ,s diri ectortt management and operatitt ons,s actitt nii g inii srr ,s and larll ger st stoctt kholdell thtt eiri best inii rsrr choose tott act toge tt tett reststt and not necessarilii yll thtt er,r thtt eye may be ablell tott signi ifi iff cantltt yll thtt ose of our othtt er stoctt kholdell inii fn lff uence our rsrr . Our directors, executive offff iff cers and holders of 5% or more of our outstanding common stock and their affff iff liates benefiff cially own a substantial portion of our outstanding common stock. As a result, these stockholders, acting together, have a the abia lity to signififf cantly inflff uence all matters requiring appr board members, amendments to our certififf cate of incorpor ation, going-private transactions, and the appr other business combination transactions. The interests of this group of stockholders may not always coincide with our interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of our other stockholders. oval by our stockholders, including the election of all of our oval of mergers or a r Antitt -ii take tt complm ill catett d and may make thtt e removal and replee acll over provisii ions inii our chartett r documentstt and under Delawll ement of our dirii ectortt srr and management more difi fff iff cultll .tt are lawll may make an acquisii itii itt on of us more Our amended and restated certififf cate of incorpor r ation and amended and restated bylaws contain provisions that may delay or prevent a change in control, discourage bids at a premium over the market price of our common stock and adversely affff eff ct the market price of our common stock and the voting and other rights of the holders of our common stock. These provisions may also make it diffff iff cult forff provisions: stockholders to remove and replace our board of directors and management. These • • • • • • establa ish that members of the board of directors may be removed only forff stockholders owning at least a maja ority of our capia tal stock; cause upon the affff iff rmative vote of authorize the issuance of “blank check” prefeff rred stock that could be issued by our board of directors to increase the number of outstanding shares and prevent or delay a takeover attempt; limit who may call a special meeting of stockholders; establa ish advance notice requirements forff matters that can be acted upon at stockholder meetings; nominations forff election to the board of directors or forff proposing prohibit our stockholders frff om making certain changes to our amended and restated certififf cate of incorpor or amended and restated bylaws except with 662/3% stockholder appr oval; and a r ation provide forff a board of directors with staggered terms. 51 We are also subject to provisions of the Delaware corpor r ation law that, in general, prohibit any business combination oved in advance by our board of directors. Although we believe these provisions collectively provide forff with a benefiff cial owner of 15% or more of our common stock forff appr a to receive higher bids by requiring potential acquirors to negotiate with our board of directors, they would appl offff eff r may be considered benefiff cial by some stockholders. three years unless the holder’s acquisition of our stock was an opportuni ty y even if the a t WeWW do not inii appreciatitt on forff anyn returnrr on your inii vestmtt ent.tt tett nd tott pay dividends on our common stoctt k inii thtt e forff eseeablell fuff ture; as such, you must relyll on stoctt k To date, we have not paid any cash dividends on our common stock, and we do not intend to pay any dividends in the the development and growth of our business. For eciation of our common stock, forff eseeabla e futff urt e. Instead, we intend to retain any futff urt e earnings to fund this reason, the success of an investment in our common stock, if any, will depend on the appr which may not occur. There is no guarantee that our common stock will appr stock may not realize a returt n on his or her investment. eciate, and thereforff e, a holder of our common a a ff General Risk Factors Our management has broad disii cretitt on over thtt e use of our cash and we may not use our cash efe fff eff ctitt velyll ,yy which couldll adversrr elyll affff eff ct our resultll stt of operatitt ons. Our management has signififf cant flff exibility in appl ate es that do not increase our market value, or in ways with which our stockholders may not agree. We may use our cash ying our cash resources and could use these resources forff rr corpor a es that do not yield a signififf cant returt n or any returt n at all forff our stockholders, which may purpos rr resources forff r corpor cause our stock price to decline. ate purpos r WeWW have inii curred, and expe rr corpor ee atett governance and othtt er matttt ett rsrr . ct tott contitt nii ue tott inii cur,r signi ifi iff cant coststt as a resultll of lawll s and regue latll itt ons relatll itt nii g tott Laws and regulations affff eff cting public companies, including provisions of the Dodd-Frank Wall Street Reforff m and Consumer Protection Act that was enacted in July 2010, the provisions of the Sarbar nes-Oxley Act of 2002 (SOX), and rulr es adopted or proposed by the SEC and by The Nasdaq Stock Market, have resulted in, and will continue to result in, signififf cant costs to us as we evaluate the implications of these rulr es and respond to their requirements. In the futff urt e, if we are not abla e to issue an evaluation of our internal control over fiff nancial reporting, as required, or we or our independent registered public accounting fiff rm determine that our internal control over fiff nancial reporting is not effff eff ctive, this shortcoming could have an adverse effff eff ct on our business and fiff nancial results and the price of our common stock could be negatively affff eff cted. New rulr es could make it more diffff iff cult or more costly forff us to obtain certain types of insurance, including director and offff iff cer liabia lity insurance, and we may be forff ced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the coverage that is the same or similar to our current coverage. The impact of these events could also make it more diffff iff cult forff executive offff iff cers. We cannot predict or estimate the total amount of the costs we may incur or the timing of such costs to comply with these rulrr es and regulations. us to attract and retain qualififf ed persons to serve on our board of directors and board committees, and as our Adversrr e securitii itt es and creditii markerr t conditii itt ons may signi ifi iff cantltt yll affff eff ct our abilii ill tii ytt .ll tott raisii e capitii altt Historically, turt moil and volatility in the fiff nancial markets (including recent volatility as a result of geopolitical and macroeconomic developments such as the ongoing conflff ict between Ukraine and RusRR sia and the COVID-19 pandemic) have adversely affff eff cted the market capia talizations of many biotechnology companies, and generally made equity and debt fiff nancing more diffff iff cult to obtain. These events, coupled with other faff ctors, may limit our access to fiff nancing in the futff urt e. ng on acceptabla e terms, or at all, and our stock price This could have a material adverse effff eff ct on our abia lity to access fundi may suffff eff r furff ther as a result. ff Item 1B. UnUU resolvll ed StSS aftt fff ComCC mentstt . This item is not appl a icabla e. 52 Item 2. PrPP opertitt es. As of December 31, 2022, our primaryrr faff cility consists of appr a oximately 98,000 square feff et of offff iff ce space in San Diego, Califorff nia. We also lease a faff cility in Princeton, New Jersey that covers appr space, which is leased through Januaryrr 2025. a oximately 25,000 square feff et of offff iff ce Item 3. Legal e PrPP oceedinii gs. a judgments of noninfrff ingement and invalidity. On September 22, 2020, we fiff led our answer to judgments of noninfrff ingement and invalidity regarding certain of our Orange Book-listed patents atories Private Ltd. and its affff iff liate MSN Pharmaceuticals, Inc., and (iii) Zydus Pharmaceuticals (USA) Inc. and the District On July 24, 2020, we fiff led complaints against (i) Aurobindo Pharma Limited and its affff iff liate Aurobindo Pharma USA, Inc. and (ii) Teva Pharmaceuticals USA, Inc. and its affff iff liate Teva Pharmaceutical Industries Ltd., and on July 30, 2020, we fiff led complaints against (i) Hetero Labsa Limited and its affff iff liates Hetero Labsa Limited Unit-V and Hetero USA Inc., (ii) MSN Labor its affff iff liate Cadila Healthcare Limited. These complaints, which were fiff led in the United States District Court forff of Delaware, allege infrff ingement of certain of our Orange Book-listed patents covering NUPLAZID. The cases have been assigned to the Honorabla e Richard G. Andrews. On September 1, 2020, Aurobindo fiff led its answer and counterclaims seeking declaratoryrr Aurobindo’s counterclaims. On August 31, 2020, Teva fiff led its answer and counterclaims seeking declaratoryrr judgments of noninfrff ingement and invalidity. On September 21, 2020, we fiff led our answer to Teva’s counterclaims. On October 5, 2020, judgments of noninfrff ingement and invalidity. On October 26, Hetero fiff led its answer and counterclaims seeking declaratoryrr 2020, we fiff led our answer to Hetero’s counterclaims. On September 30, 2020, MSN fiff led its answer and counterclaims seeking declaratoryrr covering NUPLAZID. On November 5, 2020, we fiff led our fiff rst amended complaint against MSN in the United States District Court forff the District of Delaware, alleging infrff ingement of certain of our Orange Book-listed patents covering NUPLAZID. On November 19, 2020, MSN fiff led its answer and counterclaims seeking declaratoryrr invalidity regarding certain of our Orange Book-listed patents covering NUPLAZID. On December 10, 2020, we fiff led our answer to MSN’s counterclaims. On November 2, 2020, Zydus fiff led its answer and counterclaims seeking declaratoryrr judgments of noninfrff ingement and invalidity. On November 23, 2020, we fiff led our answer to Zydus’s counterclaims. On December 8, 2020, the parties’ joint proposed scheduling order was entered by Judge Andrews. On April 7, 2021, we fiff led our fiff rst amended complaints against Hetero and Teva and our second amended complaint against MSN, to include an additional Orange Book-listed patent covering NUPLAZID. On April 8, 2021, we fiff led our fiff rst amended complaint against Zydus and on April 9, 2021, we fiff led our fiff rst amended complaint against Aurobindo. On April 20, 2021, MSN fiff led its answer, affff iff rmative defeff nses, and counterclaims to our second amended complaint, seeking declaratoryrr noninfrff ingement and invalidity regarding certain of our Orange Book-listed patents covering NUPLAZID. On April 21, 2021, Teva fiff led its answer, affff iff rmative defeff nses, and counterclaims to our fiff rst amended complaint, seeking declaratoryrr judgments of noninfrff ingement and invalidity. On April 22, 2021, Zydus fiff led its answer, affff iff rmative defeff nses, and counterclaims to our fiff rst amended complaint, seeking declaratoryrr judgments of noninfrff ingement and invalidity. judgments of noninfrff ingement and judgments of On April 22, 2021, Aurobindo fiff led its answer, affff iff rmative defeff nses, and counterclaims to our fiff rst amended complaint, judgments of noninfrff ingement and invalidity. On May 11, 2021, we fiff led our answer to MSN’s seeking declaratoryrr counterclaims. On May 12, we fiff led our answer to Teva’s counterclaims. On May 13, we fiff led our answer to Zydus’s counterclaims and our answer to Aurobindo’s counterclaims. A joint trial in the matters is scheduled forff May 15, 2023. We entered into an agreement effff eff ctive April 22, 2021 with Hetero settling all claims and counterclaims in the litigation. The agreement allows Hetero to launch its generic pimavanserin product on July 27, 2038, subject to certain triggers forff launch. The Hetero case was dismissed by joint agreement on May 3, 2021. earlier On August 27, 2021, we fiff led our second amended complaint against Zydus to include an additional Orange Book- tion Chart. On October 1, 2021, we fiff led our answer to Zydus’s listed patent covering NUPLAZID. On September 10, 2021, Zydus fiff led its answer, affff iff rmative defeff nses, and counterclaims to our second amended complaint, seeking declaratoryrr judgments of noninfrff ingement and invalidity. Also on September 10, 2021, the parties fiff led their Joint Claim Construcr counterclaims. On November 30, 2021, we fiff led a stipulation and proposed order to dismiss two of our Orange Book-listed patents covering NUPLAZID against Teva, which was ordered by the Court on December 1, 2021. On Januaryrr 28, 2022, the parties fiff led their Joint Claim Construcr claim construcrr our construcrr 2022, we fiff led 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, we fiff led 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, we fiff led 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, we fiff led a stipulation tion. On April 6, 2022, the Court issued a Memorandum Opinion construir ng several terms at issue, adopting ryrr 28, tion on two terms, and one agreed-upon construcr ryrr 23, 2022, the Court heard oral argument on tion on two terms, Defeff ndants’ construcr tion Brief and Appendix. On Februarr tion. On Februarr 53 and proposed order to dismiss two patents against Zydus, which was ordered by the Court on March 31, 2022. On April 22, 2022, we fiff led a stipulation and proposed order of non-infrff ingement against Aurobindo regarding certain of our Orange Book-listed patents covering NUPLAZID, which was ordered by the Court on April 22, 2022. On April 26, 2022, we fiff led a stipulation and proposed order of non-infrff ingement against MSN regarding certain of our Orange Book-listed patents covering NUPLAZID, which was ordered by the Court on April 26, 2022. On April 26, 2022, we fiff led a stipulation and proposed order of non-infrff ingement against Teva regarding certain of our Orange Book-listed patents covering NUPLAZID, which was ordered by the Court on April 27, 2022. On May 10, 2022, we fiff led our second amended complaint against Teva to include an additional Orange Book-listed patent covering NUPLAZID. On May 18, 2022, we fiff led a stipulation and proposed order of non-infrff ingement against Zydus regarding certain of our Orange Book-listed patents covering NUPLAZID, which was ordered by the Court on May 19, 2022. On May 24, 2022, Teva fiff led its answer, affff iff rmative defeff nses, and counterclaims to our second amended complaint, seeking declaratoryrr certain of our Orange Book-listed patents covering NUPLAZID. On June 1, 2022, we fiff led our second amended complaint against Aurobindo alleging infrff ingement of certain of our Orange Book-listed patents covering NUPLAZID. On June 2, 2022, we fiff led our third amended complaint against Zydus alleging infrff ingement of certain of our Orange Book-listed patents covering NUPLAZID. On June 14, 2022, we fiff led our answer to Teva’s counterclaims. June 15, 2022, Aurobindo fiff led its answer, affff iff rmative defeff nses, and counterclaims to our second amended complaint, seeking declaratoryrr noninfrff ingement and invalidity regarding certain of our Orange Book-listed patents covering NUPLAZID. On June 16, 2022, Zydus fiff led its answer, affff iff rmative defeff nses, and counterclaims to our third amended complaint, seeking declaratoryrr judgments of noninfrff ingement and invalidity regarding certain of our Orange Book-listed patents covering NUPLAZID. On July 6, 2022, we fiff led our answer to Aurobindo’s counterclaims. judgments of noninfrff ingement and invalidity regarding judgments of On September 7, 2022, the consolidated cases were reassigned to the Honorabla e Judge Gregoryrr B. Williams. On September 30, 2022, we fiff led a stipulation and proposed order to stay the claims currently asserted against Teva and forff Teva to be bound by the result of the litigation rendered against the remaining Defeff ndants, which was ordered by the Court on October 4, 2022. On October 21, 2021, we fiff led complaints against Aurobindo, MSN and Zydus in the United States District Court forff the District of Delaware alleging infrff ingement of an additional Orange Book-listed patent covering NUPLAZID. On April 19, 2021, a purpor rr ted stockholder of us fiff led a putative securities class action complaint (capta ioned Marechal a oval of pimavanserin forff the Southern District of Califorff nia v. Acadia Pharmaceuticals, Inc., Case No. 21-cv-0762) in the U.S. District Court forff against us and certain of our current executive offff iff cers. The complaint generally alleges that defeff ndants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by faff iling to disclose that the materials submitted in support of our the treatment of hallucinations and delusions associated with dementia-related sNDA seeking appr psychosis contained statistical and design defiff ciencies and that the FDA was unlikely to appr forff m. The complaint seeks unspecififf ed monetaryrr damages and other relief.ff On September 29, 2021, the Court issued an order designating lead plaintiffff and lead counsel. On December 10, 2021, lead plaintiffff fiff led an amended complaint. Defeff ndants fiff led a motion to dismiss the amended complaint on Februar motion to dismiss on April 18, 2022, and Defeff ndants fiff led a reply on June 2, 2022. On September 27, 2022, the Court issued an order denying Defeff ndants’ motion to dismiss. Defeff ndants fiff led their answer to the amended complaint on October 19, 2022, and fiff led a motion forff the motion forff ryrr 15, 2022. Lead plaintiffff fiff led an opposition to Defeff ndants’ reconsideration on October 25, 2022. On Februar ryrr 3, 2023, the Court issued an order denying ove the sNDA in our current reconsideration. a We currently believe that none of the forff egoing claims or actions pending against us as of December 31, 2022 is likely to have, individually or in the aggregate, a material adverse effff eff ct on our business, liquidity, fiff nancial position, or results of operations. Given the unpredictabia lity inherent in litigation, however, we cannot predict the outcome of these matters. We are unabla e to estimate possible losses or ranges of losses that may result frff om these matters, and thereforff e we have not accruer d any amounts in connection with these matters other than attorneys’ feff es incurred to date. Item 4. MiMM nii e SafSS eff tytt Disii closll ures. This item is not appl a icabla e. 54 PART II Item 5. MarMM kerr t forff Regie sii trtt ant’s’ ComCC mon Equitii ytt ,yy Relatll ett d StSS octt kholdell r MatMM ttt ett rsrr and IsII suer Purchases of Equitii ytt SeSS curitii itt es. Market Inforff mation Our common stock is traded on the Nasdaq Global Select Market under the symbol “ACAD”. Holders As of Februarr ryrr 21, 2023, there were 162,230,184 shares of common stock outstanding held by appr a oximately 32 stockholders of record. Many stockholders hold their shares in street name and thus, the actuat of such shares is not known or included in the forff egoing number; however, we believe that there are appr benefiff cial owners of our common stock. l number of benefiff cial owners oximately 49,000 a Dividends To date, we have not paid any cash dividends on our common stock, and we do not intend to pay any dividends in the forff eseeabla e futff urt e. Instead, we intend to retain any futff urt e earnings to fund ff the development and growth of our business. Securities Authorized forff Issuance Under Equity Compensation Plans The inforff mation required by this Item regarding equity compensation plans is incorpor r ated herein by refeff rence to Item 12 of Part III of this Annual Report on Form 10-K. Purchases of Equity Securities by the Issuer and Affff iff liated Purchasers None. Recent Sales of Unregistered Securities a Not appl icabla e. Perforff mance Graph The folff lowing grapha shows a comparison of the total cumulative returt ns of an investment of $100 in cash frff om December 31, 2017 through December 31, 2022 in (i) our common stock, (ii) the Nasdaq Biotechnology Index, and (iii) the Nasdaq U.S. Benchmark TR Index. The comparisons in the grapha be indicative of the possible futff ut re perforff mance of our common stock. The grapha reinvested (to date, we have not declared any dividends). are required by the SEC and are not intended to forff ecast or assumes that all dividends have been 55 Item 6. [Reserved] Item 7. ManMM agement’s’ Disii cussion and Analyll sisii of FiFF nii ancial ConCC ditii itt on and Resultll stt of OpeOO ratitt ons. t a a a ties forff The folff candidates, our strategy forff discovering, developing and, if appr candidates that receive regulatoryrr appr ovals, the potential commercialization of any of our drugr the candidates, the potential market candidates, our strategy forff the commercialization of NUPLAZID, our plans forff indications other than Parkinson’s disease psychosis, trofiff netide as a treatment forff lowing discussion and analysis of our consolidated fiff nancial condition and results of operations should be read in conjunction with our consolidated fiff nancial statements and related notes included elsewhere in this report. Past operating results are not necessarily indicative of results that may occur in futff urt e periods. This discussion contains forff ward-looking statements, which involve a number of risks and uncertainties. Such forff ward-looking statements include statements about benefiff ts to be derived frff om NUPLAZID® (pimavanserin), trofiff netide and frff om our other drugrr opportuni pimavanserin and our drugrr exploring and developing pimavanserin forff Rett syndrome, ACP-204 as a treatment forff ADP and our ASO programs, our plans and timing with respect to seeking regulatoryrr appr progress, timing, results or implications of clinical trials and other development activities involving pimavanserin, trofiff netide candidates, and our other drugr ations, our estimates of futff urt e payments, revenues and profiff tabia lity, our estimates our existing and potential futff urt e collabor regarding our capia tal requirements, futff urt e expenses and need forff additional fiff nancing, the potential or expected impacts of geopolitical and macroeconomic developments, possible changes in legislation, and other statements that are not historical faff cts, including statements which may be preceded by the words “believes,” “expects,” “hopes,” “may,” “will,” “plans,” “intends,” “estimates,” “could,” “should,” “would,” “continues,” “seeks,” “aims,” “projects,” “predicts,” “pro forff ma,” “anticipates,” “potential” or similar words. In addition, statements that “we believe” and similar statements reflff ect our beliefsff and opinions on the relevant subject. These statements are based upon inforff mation availabla e to us as of the date of this report, and while we believe such inforff mation forff ms a reasonabla e basis forff incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiryrr of,ff all potentially availabla e relevant inforff mation. These statements are inherently uncertain. For forff ward-looking statements, we claim the protection of the Private Securities Litigation Reforff m Act of 1995. Readers of this report are cautioned not to place undue reliance on these forff ward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise publicly any forff ward-looking statements. Forward-looking statements are not guarantees of perforff mance. Actuat l results or events may diffff eff r materially frff om those anticipated in our forff ward-looking statements as a result of various faff ctors, including those set forff report. Inforff mation in the folff year. th under the section capta ioned “Risk Factors” elsewhere in this such statements, such inforff mation may be limited or the year ended December 31 of the indicated oved, commercializing drugrr a yearly period means forff lowing discussion forff into, or review oval, the a a Overview Background We are a biopharmaceutical company focff used on the development and commercialization of innovative medicines that address unmet medical needs in CNS disorders and rare diseases. We have a portfolff development product opportuni disorders and rare diseases. In order to achieve signififf cant long-term growth, we will develop our current portfolff our pipeline of early and late-stage programs through strategic business development, and invest in targeted internal research effff orff io of commercial stage products, in- ties, and research programs that are designed to address signififf cant unmet needs in CNS io, expand ts. t We developed and successfulff ly commercialized NUPLAZID (pimavanserin), which was appr a oved by the FDA, in a the treatment of hallucinations and delusions associated with PDP, and is the fiff rst and only drugr this condition. NUPLAZID is a selective serotonin inverse agonist/tt antagonist, prefeff rentially targeting 5- April 2016 forff the United States forff HT2Areceptors with no appr mechanism, NUPLAZID demonstrated signififf cant effff iff cacy in reducing the hallucinations and delusions associated with PDP tion in our Phase 3 pivotal trial. NUPLAZID has the potential to avoid many of the ff without negatively impacting motor func debilitating side effff eff cts of existing antipsychotics, none of which are appr the treatment of PDP. We hold worldwide commercialization rights to pimavanserin. NUPLAZID is availabla e in 34 mg capsa ules and 10 mg tabla ets dosage forff ms. dopaminergic, histaminergic, or muscarinic receptors. Through this novel oved by the FDA forff eciabla e affff iff nity forff oved in a appr a We are currently in registration forff trofiff netide, an investigational new drugrr genetic neurodevelopmental disorder. If appr a forff syndrome and other indications frff om Neuren in August of 2018. We submitted to the FDA an NDA forff this condition. We acquired an exclusive North American license to develop and commercialize trofiff netide forff Rett trofiff netide forff oved, trofiff netide would be the fiff rst and only drugr the treatment of Rett syndrome, a rare oved in the United States a appr the forff 56 treatment of Rett syndrome in July 2022 based on the positive results frff om our pivotal Phase 3 Lavender™ studyt demonstrated statistically signififf cant improvement over placebo forff endpoint. The FDA fiff led the NDA in September 2022 and assigned a PDUFA target action date of March 12, 2023. both co-primaryrr endpoints as well as the key secondaryrr which Through its unique mechanism and the clinical studi t es conducted to date, we believe that pimavanserin has the potential to address important unmet medical needs in neurological and psychiatric disorders in addition to PDP. Today we are evaluating pimavanserin forff the treatment of the negative symptoms of schizophrenia in a Phase 3 clinical development program. The negative symptoms of schizophrenia have been associated with poor long-term outcomes and disabia lity even when the positive symptoms are well-controlled, and today there are no FDA-appr 2019 we announced positive results frff om our pivotal ADVANA CE study pivotal study, negative symptoms of schizophrenia who have achieved adequate control of positive symptoms with their existing antipsychotic treatment. We projo ect completing the enrollment this year with top-line results in early 2024. and in the third quarter of 2020, we initiated a second ADVANAA CE-2. The Phase 3 program is evaluating the effff iff cacy of pimavanserin in patients with predominantly oved therapia es. In the four th quarter of a ff t t In addition, we recently announced that we are developing an internally discovered new molecule, ACP-204, which builds upon the learnings of pimavanserin in the treatment of neuropsychiatric symptoms, and is currently being evaluated in a Phase 1 clinical program. Upon completion of our Phase 1 work, we plan to initiate studi ACP-204 in patients with Alzheimer’s disease psychosis. ACP-204 is a new chemical entity forff which we hold the worldwide rights. es evaluating various doses of t In Januaryrr 2022, we entered into a license and collabor a ation agreement with Stoke to discover, develop and the potential treatment of severe and rare genetic neurodevelopmental ation includes SYNGAP1 syndrome, Rett syndrome (MECP2), and an undisclosed commercialize novel RNRR A-based medicines forff diseases of the CNS. The collabor 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 futff urt e profiff ts. For the Rett syndrome (MECP2) and the undisclosed neurodevelopmental program, Stoke will lead research and pre-clinical development activities, while we will lead clinical development and commercialization activities. a We have incurred substantial operating losses since our inception due in large part to expenditurt es forff our research and development activities. As of December 31, 2022, we had an accumulated defiff cit of $2.4 billion. Contingent on the level of business development activities we may complete as well as pipeline programs we may advance, we may continue to incur operating losses forff a appr the next feff w years as we incur signififf cant research and development costs and costs forff oval and commercialization of trofiff netide forff the treatment of Rett syndrome. potential ImII pacm t of COC VIVV DII -19 on our Businii ess As a result of the COVID-19 pandemic, there have been changes in the practice of medical care and medical education. For example, many health care providers initially expanded their utilization of telemedicine to conduct patient visits, and in many regions within the United States the abia lity of our commercial and medical fiff eld teams to call upon medical clinics, hospitals, long-term care faff cilities and skilled nursing faff cilities was restricted or converted to virtuat access our customers both in person and virtuat through telemedicine and our sales forff ce has been abla e to call upon medical clinics, hospitals, long-term care faff cilities and lly. skilled nursing faff cilities either in person in accordance with appl a Most medical congresses, an important means forff medical education, are being conducted both in person and virtuat lly and enrollment in clinical trials is being assessed based on local COVID-19 conditions and regional regulation and public health guidance. lly. Currently, health care providers are conducting patient visits in-person and icabla e regulatoryrr guidance and local policies or virtuat l access. We continue to In an effff orff t to protect the health and safeff ty of our employees, our community, and our stakeholders, we have developed dynamic pandemic and workplace health policies appl current COVID-19 conditions, regulatoryrr guidance, public health and scientififf c recommendations, and feff deral, state, and local laws. Some examples of these policies include a mandatoryrr COVID-19 vaccination policy and increasing systemic precautions in our offff iff ces. In addition, we have expanded our wellness programs to support the overall health and wellbeing of our employees. icabla e to all of our employees. These policies are localized based on a Since the beginning of the pandemic, we have been abla e to provide an uninterrupt r ed supply of NUPLAZID to patients. We are monitoring our supply chain closely and do not anticipate disrupt NUPLAZID to patients. r ions in our abia lity to continue delivering 57 Since the beginning of the pandemic the growth of sales of NUPLAZID have been negatively impacted by ongoing conditions related to the pandemic, including a reduction in patient offff iff ce visits, continuing reduced occupancy rates at long- term care faff cilities, and reduced access to healthcare profeff ssionals. While we observed incremental improvements in some of these faff ctors since 2021, their levels are still meaningfulff predict the duration of the pandemic’s impact and the pace of recovery,rr will not continue to have additional negative impacts on our business, results of operations, fiff nancial condition and prospects. ly below where they were pre-pandemic. It remains diffff iff cult to and no assurances can be given that the pandemic Financial Operations Overview PrPP oduct and ColCC lll abor ll atitt ve Revenues Product sales, net consist of sales of NUPLAZID, our fiff rst and only commercial product to date. The FDA appr the treatment of hallucinations and delusions associated with PDP, and we launched the a oved NUPLAZID in April 2016 forff product in the United States in May 2016. CosCC t of PrPP oduct SalSS ell s Cost of product sales consists of third-party manufaff cturt ing costs, frff eight, and indirect overhead costs associated with sales of NUPLAZID. Cost of product sales may also include period costs related to certain inventoryrr manufaff cturt excess or obsolete inventoryrr adjustment charges, unabsa orber d manufaff cturt ing and overhead costs, and manufaff cturt variances. ing services, ing License FeFF es and Royaltll itt es License feff es and royalties consist of milestone payments expensed or capia talized and subsequently amortized under our 2006 license agreement with the Ipsen Group. License feff es and royalties also include royalties of 2% due to the Ipsen Group based upon net sales of NUPLAZID. This obligation terminated in October 2021. Research and Developmll ent ExpEE enses Our research and development expenses have consisted primarily of feff es paid to external service providers, salaries and t es of pimavanserin forff oval of NUPLAZID, we committed to conduct four related personnel expenses, faff cilities and equipment expenses, and other costs incurred related to pre-commercial product candidates. We charge all research and development expenses to operations as incurred. Our research and development activities have focff used on pimavanserin, trofiff netide, ACP-204 and other early-stage programs. We currently are responsible all costs incurred in the ongoing development of pimavanserin and we expect to continue to make substantial investments forff the treatment of the negative symptoms of schizophrenia. In connection with the FDA in clinical studi appr a placebo-controlled eight-week study safeff ty databaa costs incurred forff t Rett syndrome in July 2022, at this time, due to the risks in the regulatoryrr and appr the costs we might incur forff the NDA. In addition, we expect to incur increased research and development expenses as a result of advancement of our early-stage development pipeline programs. ff es in predominantly frff ail and elderly patients that would add to the NUPLAZID all se by exposing an aggregate of at least 500 patients to NUPLAZID, remains ongoing. We are responsible forff es. While we submitted an NDA to the FDA forff any additionally required development activities to support the review and potential appr the treatment of oval processes, it is diffff iff cult to estimate th commitment, a randomized, these post-marketing studi post-marketing studi trofiff netide forff es. The four t or studi oval of a a ff t t We use external service providers to manufaff cturt e our product candidates and forff the maja ority of the services perforff med in connection with the preclinical and clinical development of pimavanserin, trofiff netide, and our early-stage programs. Historically, we have used our internal research and development resources, including our employees and discoveryrr turt e, across several projo ects and many of our costs have not been attributabla e to a specififf c project. Accordingly, we infrff astrucr have not reported our internal research and development costs on a project basis. To the extent that external expenses are not attributabla e to a specififf c project, they are included in other early-stage programs. 58 The folff lowing tabla e summarizes our research and development expenses forff the years ended December 31, 2022, 2021, and 2020 (in thousands): Costs of external service providers: NUPLAZID (pimavanserin) Trofiff netide Early stage programs Upfrff ont and milestone payments* Subtotal Internal costs Stock-based compensation Total research and development expenses _____________________ Years Ended December 31, 2021 2020 2022 $ $ 62,746 62,300 64,786 88,741 278,573 60,422 22,580 361,575 $ $ 73,696 39,814 35,964 10,999 160,473 56,973 21,969 239,415 $ $ 96,705 47,614 14,691 72,666 231,676 56,140 31,314 319,130 * Includes upfrff ont and milestone consideration as well as transaction costs associated with acquired in-process research and development. Although NUPLAZID was appr a oved by the FDA forff the treatment of hallucinations and delusions associated with requirements and clinical development, we are unabla e to estimate oval and commercialization of trofiff netide forff the negative symptoms the treatment of Rett syndrome, roval timelines, probabia lity of success, and development costs varyrr widely. While our current ther development of our early-stage pipeline programs. Due to these same faff ctors, we are unabla e to the ongoing or additional development of pimavanserin forff a PDP, at this time, due to the risks inherent in regulatoryrr with certainty the costs we will incur forff of schizophrenia, to support the potential appr as well as the furff determine with any certainty the anticipated completion dates forff development and regulatoryrr appa development effff orff the treatment of the negative symptoms of schizophrenia and the development of ACP-204, we anticipate that we will make determinations as to which programs to pursue and how much fundi ng to direct to each program on an ongoing basis in response to the scientififf c and clinical success of each product candidate, as well as an ongoing assessment of the commercial potential of each opportuni and our fiff nancial position. We cannot forff ecast with any degree of certainty which product opportuni futff urt e collabor arrangements would affff eff ct our development plans and capia tal requirements. Similarly, we are unabla e to estimate with certainty the costs we will incur forff of NUPLAZID. ts are primarily focff used on advancing the development of pimavanserin forff es that we committed to conduct in connection with FDA appr ative or licensing arrangements, when such arrangements will be secured, if at all, and to what degree any such our current research and development programs. Clinical ties will be subject to post-marketing studi oval ty a a ff t t t We expect our research and development expenses continue to be substantial as we conduct studi t es pursuant to our post-marketing commitments and pursue the development of pimavanserin forff trofiff netide forff the treatment of Rett syndrome as well as the furff programs. The lengthy process of completing clinical trials and supporting development activities and seeking regulatoryrr a appr completing clinical trials, or in obtaining regulatoryrr appr increase and, in turt n, have a material adverse effff eff ct on our results of operations. ties requires the expenditurt e of substantial resources. Any faff ilure by us or delay in ovals, could cause our research and development expenses to the negative symptoms of schizophrenia and ther development of ACP-204 and other early-stage pipeline our product opportuni oval forff a t SeSS llll ill nii g, GeG neral and Adminii isii trtt atitt ve ExpeEE nses Our selling, general and administrative expenses consist of salaries and other related costs, including stock-based our commercial personnel, including our specialty sales forff ce, our medical education ff compensation expense, forff profeff ssionals, and our personnel serving in executive, fiff nance, business development, and business operations func tions. Also included in selling, general and administrative expenses are feff es paid to external service providers to support our commercial activities associated with NUPLAZID, profeff ssional feff es associated with legal and accounting services, costs associated with patents and patent appl that support Parkinson’s disease patients generally. Changes in selling, general and administrative expenses in futff urt e periods a are subject to the evolving PDP market dynamics, the regulatoryrr and appr development of pimavanserin in additional indications other than PDP. l property and charitabla e donations to independent charitabla e founda oval processes of trofiff netide and our furff our intellectuat ications forff tions ther a ff 59 Critical Accounting Policies and Estimates A summaryrr of the signififf cant accounting policies is provided in Note 2 to our Consolidated Financial Statements. The preparation of fiff nancial statements in accordance with GAAP requires us to make estimates and assumptions that affff eff ct the reported amounts of assets and liabia lities, the disclosure of assets and liabia lities at the date of the fiff nancial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis. Our estimates are based on historical experience and on various other assumptions and faff ctors that we believe to be reasonabla e under the circumstances, the results of which forff m the basis forff making judgments about the carryirr ng values of assets and liabia lities and the reported amounts of revenues and expenses that are not readily appa Actuat l results may diffff eff r frff om those estimates under diffff eff rent assumptions and conditions. a rent frff om other sources. a Management considers an accounting estimate to be critical if:ff • • it requires a signififf cant level of estimation uncertainty; and changes in the estimate are reasonabla y likely to have a material effff eff ct on our fiff nancial condition or results of operations. We believe the folff lowing critical accounting policies and estimates describe the more signififf cant judgments and estimates used in the preparation of our consolidated fiff nancial statement. PrPP oduct SalSS ell s,s NeNN t We sell our product through SPs and SDs. SPs dispense product to a patient based on the fulff fiff llment of a prescription and SDs sell product to government faff cilities, long-term care pharmacies, or in-patient hospital pharmacies. Product shipping and handling costs are included in cost of product sales. We recognize revenue frff om product sales at the net sales price (the “transaction price”) which includes estimates of variabla e consideration forff which reserves are establa ished and reflff ects each of these as either a reduction to the related account receivabla e or as an accruerr d liabia lity, depending on how the amount payabla e is settled. Overall, these reserves reflff ect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. Actuat consideration ultimately received may diffff eff r frff om our estimates. If actuat need to adjust our estimates, which would affff eff ct net revenue in the period of adjustment. The folff allowances involve a substantial degree of judgment: frff om estimates, we may lowing sales discounts and l results in the futff urt e varyrr l amounts of Rebates: Allowances forff rebates include mandated discounts under the Medicaid Drugr Rebate Program and the the current quarter’s activity, plus an accruar benefiff t. Rebates are amounts owed aftff er the fiff nal dispensing of the product to a benefiff t l agreements with, or statutt oryrr requirements pertaining to, Medicaid and rebates is based on statutt oryrr discount rates and expected utilization. Our expected utilization of rebates is based on historical data received frff om the SPs and SDs since product launch. l balance consists of an estimate of the amount expected prior quarters’ unpaid rebates still estimated to be rebates also include amounts due under the Inflff ation Reduction act of 2022 forff Medicare Part D unit Medicare Part D prescription drugrr plan participant and are based upon contractuat Medicare benefiff t providers. The allowance forff estimates forff Rebates are generally invoiced and paid in arrears so that the accruar to be incurred forff incurred. Allowances forff sales with appl a twelve months on October 1 of each year, with the initial appl period AMP price is Januaryrr 1, 2021 through September 30, 2021. Our estimates are based Medicare Part D sales as a percentage of gross sales and the rate AMP forff the current period will be in excess the benchmark period. We regularly monitor our estimates and record adjustments when rebate trends, rebate programs and contract terms, legislative changes, or other signififf cant events indicate that a change in the estimates is appr materially frff om actuat which could also materially affff eff ct our balance sheet and results of operations. icabla e period will be icabla e period beginning on October 1, 2022. The benchmark l rebates. However, subsequent changes in estimates may result in a material change in our accruar ce inflff ation over the benchmark period. The appl opriate. To date, our estimates have not diffff eff red icabla e period AMP increases that outpat l balance forff ls, a a a CharCC ger backskk : Chargebacks are discounts and feff es that relate to contracts with government and other entities purchasing frff om the SDs at a discounted price. The SDs charge back to us the diffff eff rence between the price initially paid by the SDs and the discounted price paid to the SDs by these entities. We also incur group purchasing organization feff es forff transactions through certain purchasing organizations. We estimate sales with these entities and accruer chargebacks and organization feff es, based on the appl anticipated l terms. To date, our estimates have not diffff eff red icabla e contractuat forff a 60 materially frff om the actuat material change in our accruar l chargebacks and organization feff es. However, subsequent changes in estimates may result in a ls, which could also materially affff eff ct our balance sheet and results of operations. Research and Developmll ent Accrualsll We estimate certain costs and expenses and accruerr forff these liabia lities as part of our process of preparing fiff nancial of the trial or services provided, and the invoices received frff om our external service providers. In the case of statements. Examples of areas in which subjective judgments may be required include, among other things, costs associated with services provided by contract organizations forff ing of our product candidates and clinical trials, and personnel related expenses. We accruer the statust clinical trials, a portion of the estimated cost normally relates to the projected cost to treat a patient in the trials, and this cost is recognized based on the number of patients enrolled in the trial. Other indirect costs are generally recognized on a straight- line basis over the estimated period of the study. estimates have not diffff eff red materially frff om the actuat a material change in our accruar ls, which could also materially affff eff ct our balance sheet and results of operations l costs incurred. However, subsequent changes in estimates may result in costs incurred as the services are being provided by monitoring l costs become known to us, we adjust our accruar preclinical development, manufaff cturt ls. To date, our As actuat forff t StSS octt k-B- ased ComCC pem nsatitt on The faff ir value of each employee stock option and each employee stock purchase plan right granted is estimated on the grant date under the faff ir value method using the Black-Scholes valuation model, which requires us to make a number of assumptions including the estimated expected lifeff of the award and related volatility. The faff ir value of restricted stock units is estimated based on the market price of our common stock on the date of grant. The estimated faff ir values of stock options, purchase plan rights, and regular restricted stock units are then expensed over the vesting period. For restricted stock units requiring satisfaff ction of both market and service conditions, the estimated faff ir values are generally expensed over the longest of the explicit, implicit and derived service periods. Perforff mance-based stock awards vest upon the achievement of certain pre-defiff ned company-specififf c perforff mance-based criteria. Expense related to these perforff mance-based stock awards is generally recognized ratabla y over the expected perforff mance period once the pre-defiff ned perforff mance-based criteria forff vesting becomes probabla e. See also Item 15 of Part IV, “Notes to Consolidated Financial Statements—Note 2—Summaryrr of Signififf cant Accounting Policies” forff compensation. ther discussion of our assumptions and estimates related to our stock-based furff Results of Operations FlFF uctuatitt ons inii OpeOO ratitt nii g Resultll stt Our results of operations have flff uctuat ted signififf cantly frff om period to period in the past and are likely to continue to do the forff eseeabla e futff urt e the treatment of Rett syndrome, our development of pimavanserin forff ther development of the early-stage pipeline programs and the progress and timing of expenditurt es so in the futff urt e. We anticipate that our quarterly and annual results of operations will be impacted forff by several faff ctors, including the progress and timing of expenditurt es related to our commercial activities associated with NUPLAZID and the extent to which we generate revenue frff om product sales, our potential appr of trofiff netide forff schizophrenia, our furff related to studi t allowances to varyrr of purchases eligible forff impacted by potential futff urt e price increases and other faff ctors. We cannot predict with certainty what the fulff macroeconomic developments, including the ongoing conflff ict between Ukraine and RusRR sia and the COVID-19 pandemic, may have on our business, results of operations, fiff nancial condition and prospects. Due to these flff uctuat the period-to-period comparisons of our operating results are not a good indication of our futff urt e perforff mance. tions in our Medicare Part D Coverage Gapa liabia lity and the volume government mandated discounts and rebates, as well as changes in discount percentages that may be es of NUPLAZID in PDP pursuant to our post-marketing commitments. Further, we expect our sales frff om quarter to quarter due to flff uctuat oval and commercialization the negative symptoms of tions, we believe that l impact that a ComCC parm isii on of thtt e YeYY arsrr EnE ded December 31, 2022 and 2021 Product Sales, NeNN t Product sales, net, comprised of NUPLAZID, were $517.2 million and $484.1 million in 2022 and 2021, respectively. Product sales, net forff primarily due to a higher average gross selling price of NUPLAZID in 2022 as compared to 2021. the year ended December 31, 2022 increased as compared to the year ended December 31, 2021 61 The folff lowing tabla e provides a summaryrr of activity with respect to our sales allowances and accruar ls forff the year ended December 31, 2022 (in thousands): Balance at December 31, 2021 Provision related to current period sales Credits/pa/ yments forff Credits/pa/ yments forff current period sales prior period sales Balance at December 31, 2022 CosCC t of Product Sales Distribution Fees, Discounts & Chargebacks $ $ 8,467 80,836 (69,913) (8,467) 10,923 $ $ Co-Pay Assistance (202) 3,087 (3,427) 202 (340) Rebates, Data Fees & Returns 15,717 $ 51,872 (25,826) (15,717) 26,046 $ Total 23,982 135,795 (99,166) (23,982) 36,629 $ $ Cost of product sales was $10.2 million and $10.8 million in 2022 and 2021, respectively, or appr oximately 2% of product sales, net in both years. The cost of product sales as a percentage of product sales, net stayed flff at during 2022 as compared to 2021. a License FeFF es and Royalties License feff es and royalties were $0 and $8.3 million in 2022 and 2021, respectively, and in 2021 include royalties due to the Ipsen Group of two percent of net sales of NUPLAZID and amortization related to the milestone paid to the Ipsen Group upon FDA appr primaryrr a the decrease in license feff es and royalties during 2022 as compared to 2021. reason forff oval of NUPLAZID in 2016. The royalty obligation terminated in October 2021 which was the Research and Development ExEE pex nses Research and development expenses increased to $361.6 million in 2022, including $22.6 million in stock-based compensation, frff om $239.4 million in 2021, including $22.0 million in stock-based compensation. The increase in research and development expenses was mainly due to the $60 million upfrff ont payment made to Stoke forff collabor a well as increased costs of our development activities forff ation agreement and the $10 million milestone to Neuren in 2022 upon acceptance of the trofiff netide NDA fiff ling, as trofiff netide, ACP-204 and other early-stage programs. the license and Selling, General and Adminisii trative ExEE pex nses Selling, general and administrative expenses decreased to $369.1 million in 2022, including $44.5 million in stock- based compensation expense, frff om $396.0 million in 2021, including $40.4 million in stock-based compensation expense. The decrease in selling, general and administrative expenses was primarily related to the continued reduction and optimization of commercial spend related to NUPLAZID, leading to a reduction in overall advertising and promotional costs, offff sff et by investments in preparing forff the launch of trofiff netide. ComCC parm isii on of thtt e YeYY arsrr EnE ded December 31, 2021 and 2020 Product Sales, NeNN t Product sales, net, comprised of NUPLAZID, were $484.1 million and $441.8 million in 2021 and 2020, respectively. Product sales, net forff primarily due to a higher average gross selling price of NUPLAZID in 2021 as compared to 2020 as well as the growth in NUPLAZID unit sales of appr the year ended December 31, 2021 increased as compared to the year ended December 31, 2020 oximately 3% in 2021 as compared to 2020. a 62 The folff lowing tabla e provides a summaryrr of activity with respect to our sales allowances and accruar ls forff the year ended December 31, 2021 (in thousands): Balance at December 31, 2020 Provision related to current period sales Credits/pa/ yments forff Credits/pa/ yments forff current period sales prior period sales Balance at December 31, 2021 CosCC t of Product Sales Distribution Fees, Discounts & Chargebacks $ $ 4,221 72,011 (63,544) (4,221) 8,467 $ $ Co-Pay Assistance (152) 1,794 (1,996) 152 (202) Rebates, Data Fees & Returns 14,116 $ 40,490 (24,773) (14,116) 15,717 $ Total 18,185 114,295 (90,313) (18,185) 23,982 $ $ Cost of product sales was $10.8 million and $10.2 million in 2021 and 2020, respectively, or appr oximately 2% of product sales, net in both years. The cost of product sales as a percentage of product sales, net stayed flff at during 2021 as compared to 2020. a License FeFF es and Royalties License feff es and royalties were $8.3 million and $10.3 million in 2021 and 2020, respectively, and include royalties due to the Ipsen Group of two percent of net sales of NUPLAZID and amortization related to the milestone paid to the Ipsen Group upon FDA appr primaryrr a the decrease in license feff es and royalties during 2021 as compared to 2020. reason forff oval of NUPLAZID in 2016. The royalty obligation terminated in October 2021 which was the Research and Development ExEE pex nses Research and development expenses decreased to $239.4 million in 2021, including $22.0 million in stock-based compensation expense, frff om $319.1 million in 2020, including $31.3 million in stock-based compensation expense. The decrease in research and development expenses was due to a decrease of $71.2 million in external costs and a decrease of $8.4 million in personnel and related costs resulting frff om attrition. The decrease in external costs was primarily due to the $52.8 million in upfront consideration and transaction costs paid forff the M1 PAM program in 2020. payment to Vanderbir the acquisition of CerSci and $10.0 million upfront lt University forff Selling, General and Adminisii trative ExEE pex nses Selling, general and administrative expenses increased to $396.0 million in 2021, including $40.4 million in stock- based compensation expense, frff om $388.7 million in 2020, including $50.5 million in stock-based compensation expense. The increase in selling, general and administrative expenses was primarily due to an increase of $16.4 million in personnel and related costs, partially offff sff et by a decrease of $10.1 million in stock compensation expense. Liquidity and Capital Resources We have funde ff d our operations primarily through sales of our equity securities, payments received under our ation agreements, debt fiff nancings, interest income, and, since 2016, with revenues frff om sales of NUPLAZID. We te in futff urt e periods depending on the levels of spend forff our a collabor anticipate that the level of cash used in our operations will flff uctuat ongoing and planned commercial activities forff NUPLAZID, our potential appr the treatment of Rett syndrome, our ongoing and planned development activities forff of schizophrenia, studi development activities forff expect that our cash, cash equivalents, and investment securities will be suffff iff cient to fund least the next 12 months. a ff t es to be conducted pursuant to our post-marketing commitments, our ongoing and planned the early-stage pipeline programs and any potential futff urt e business development activities. We oval and commercialization of trofiff netide forff pimavanserin forff the negative symptoms our planned operations through at 63 We may require signififf cant additional fiff nancing in the futff urt e to fund ff our operations. Our futff urt e capia tal requirements will depend on, and could increase signififf cantly as a result of,ff many faff ctors, including: • • • • • • • • • • • • • • • • • • the progress in, and the costs of,ff our ongoing and planned development activities forff marketing studi commercial activities forff NUPLAZID; pimavanserin, post- es forff NUPLAZID to be conducted over the next several years, and ongoing and planned t the costs of our development activities forff trofiff netide forff the treatment of Rett syndrome; the costs of our development activities forff ACP-204 and our other early-stage pipeline programs; the costs of commercializing NUPLAZID, including the maintenance and development of our sales and marketing capaa bia lities; the costs of establa ishing, or contracting forff , sales and marketing capaa bia lities forff other product candidates; the amount of U.S. product sales frff om NUPLAZID; the costs of preparing appl PDP and forff a ications forff regulatoryrr appr a ovals forff NUPLAZID in additional indications other than other product candidates, as well as the costs required to support review of such appl a ications; the costs of manufaff cturt ing and distributing NUPLAZID forff commercial use in the U.S.; the costs of manufaff cturt ing and distributing trofiff netide forff potential commercial use in the U.S.; our abia lity to obtain regulatoryrr appr the negative symptoms of schizophrenia, frff om trofiff netide forff and frff om our other product candidates; oval forff a , and subsequently generate product sales frff om, pimavanserin forff the treatment of Rett syndrome, frff om ACP-204 the costs of acquiring additional product candidates or research and development programs; the scope, prioritization and number of our research and development programs; the abia lity of our collabor payments under our collabor a these agreements; a ators and us to reach the milestones and other events or developments triggering ation or license agreements, or our collabor a ators’ abia lity to make payments under our abia lity to enter into new collabor a ation and license agreements; the extent to which we are obligated to reimburse collabor forff costs under collabor ation agreements; a a ators or collabor a ators are obligated to reimburse us the costs involved in fiff ling, prosecuting, enforff cing, and defeff nding patent claims and other intellectuat rights; l property the costs of maintaining or securing manufaff cturt pimavanserin, trofiff netide or other product candidates; and ing arrangements forff clinical or commercial production of the costs associated with litigation, including the costs incurred in defeff nding against any product liabia lity claims that may be brought against us related to NUPLAZID. Unless and until we can generate signififf cant cash frff om our operations, we expect to satisfyff our futff urt e cash needs a through our existing cash, cash equivalents and investment securities, public or private sales of our securities, debt fiff nancings, or strategic collabor ations. In the past, periods of turt moil and volatility in the fiff nancial markets have adversely affff eff cted the market capia talizations of many biotechnology companies, and generally made equity and debt fiff nancing more diffff iff cult to obtain. For example, due to macroeconomic developments, including the Ukraine-RusRR sia conflff ict, the COVID-19 pandemic and actions taken to slow its spread, the global credit and fiff nancial markets have experienced extreme volatility and disrupt ions, including diminished liquidity and credit availabia lity, declines in consumer confiff dence, declines in economic r growth, increases in unemployment rates and uncertainty about may limit our access to additional fiff nancing in the futff urt e. We cannot be certain that additional fundi on acceptabla e terms, or at all. If adequate funds of,ff or eliminate one or more of our research or development programs or our commercialization effff orff required to relinquish greater or all rights to product candidates at an earlier stage of development or on less faff vorabla e terms than we would otherwise choose. Additional fundi negatively impact the price of our stock. economic stabia lity. These events, coupled with other faff ctors, ng will be availabla e to us ff are not availabla e when needed, we will be required to delay, reduce the scope ng, if obtained, may signififf cantly dilute existing stockholders and could ts. We also may be a ff ff 64 We have invested a substantial portion of our available cash in money market funds, U.S. treasury notes, and high quality, marketable debt instruments of corporations and government sponsored enterprises in accordance with our investment policy. Our investment policy defines allowable investments and establishes guidelines relating to credit quality, diversification, and maturities of our 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. Our investment portfolio has not been adversely impacted by the disruptions in the credit markets that have occurred in the past. However, if there are future disruptions in the credit markets, there can be no assurance that our investment portfolio will not be adversely affected. MatMM erial CasCC h Requirementstt Our material cash requirements in the short and long term consist of the operational, manufaff cturt ing, and capia tal expenditurt es, a portion of which contain contractuat with our current fiff nancial resources together with our anticipated receipts frff om product sales. On a long-term basis, we manage futff urt e cash requirements relative to our long-term business plans. l or other obligations. We plan to fund our material cash requirements ff Our primaryrr uses of cash and operating expenses relate to paying employees and consultants, administering clinical trials, marketing our products, and providing technology and faff cility infrff astrucrr investments in our offff iff ce and labor faff cilities to enabla e continued expansion of our business. atoryrr a turt e to support our operations. We also make The folff lowing is a summaryrr of our long-term contractuat l obligations as of December 31, 2022 (in thousands): Operating leases Other long-term contractuat Total l obligations Total $ 73,391 2,000 $ 75,391 Less than 1 Year $ 9,562 1,000 $ 10,562 1-3 Years $ 18,304 1,000 $ 19,304 3-5 Years $ 16,838 — $ 16,838 More than 5 Years $ 28,687 — $ 28,687 In addition to operating leases, we enter into certain other long-term commitments forff goods and services that are periods greater than one year. To the extent these long-term commitments are noncancelabla e, they are tabla e. We also enter into short-term agreements with various vendors and suppliers of goods and a outstanding forff reflff ected in the above services in the normal course of operations through purchase orders or other documentation, or that are undocumented except forff payments upon deliveryrr of goods and services. The naturt e of the work being conducted under these agreements is such that, in most cases, the services may be stopped on short notice. In such event, we would not be liabla e forff agreement and thereforff e these amounts are not reflff ected in the above an invoice. Such short-term agreements are generally outstanding forff periods less than a year and are settled by cash l amount of the the fulff tabla e. a a We have entered into various collabor ation, licensing and merger agreements which generally include upfrff ont license feff es, 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 varyrr by agreement. As of December 31, 2022, we may be required to make milestone payments up to $1.6 billion in the aggregate. These payments are contingent upon achieving futff urt e development, regulatoryrr and commercial milestones. We are also required to make royalty payments in connection with the sale of products developed under those agreements. We have not included any such milestone or royalty payments in the above collabor a treatment of severe and rare genetic neurodevelopmental diseases of the CNS. Under the terms of the agreement, we may be required to pay up to $907.5 million in milestone payments based on the achievement of certain clinical and commercial development and annual net sales milestones. ation agreement with Stoke to discover, develop and commercialize novel RNRR A-based medicines forff tabla e. In Januaryrr 2022, we entered into a license and the potential a CasCC h FlFF owsww At December 31, 2022, we had $416.8 million in cash, cash equivalents, and investment securities, compared to $520.7 million at December 31, 2021. This $103.9 million decrease in cash, cash equivalents, and investment securities during 2022 was primarily due to net cash used in operating activities, offff sff et in part by cash proceeds frff om the exercise of employee stock options. 65 Net cash used in operating activities decreased to $114.0 million in 2022 compared to $125.7 million in 2021 and $136.2 million in 2020. The decrease in net cash used in operating activities in 2022 relative to 2021 was primarily due to an increase in our net revenues as well as decreased sales and marketing costs, partially offset by increased research and development costs. The decrease in net cash used in operating activities in 2021 relative to 2020 was due to an increase in our net revenues as well as decreased research and development costs and sales and marketing costs. Net cash provided by investing activities totaled $73.2 million in 2022 compared to net cash used in investing activities of $71.1 million in 2021 and net cash provided by investing activities of $192.5 million in 2020. The increase in net cash provided by investing activities in 2022 compared to 2021 was primarily dud e to increased net maturt securities. The increase in net cash used in investing activities in 2021 compared to 2020 was primarily due to increased net purchases of investment securities. ities of investment Net cash provided by fiff nancing activities decreased to $8.2 million in 2022 compared to $18.2 million in 2021 and $81.0 million in 2020. The decrease in net cash provided by fiff nancing activities in 2022 relative to 2021 and in 2021 relative to 2020 was primarily due to a decrease in proceeds resulting frff om the exercise of employee stock options. OfO fff -ff Balance Sheet Arrangementstt To date, we have not had any relationships with unconsolidated entities or fiff nancial partnerships, such as entities refeff rred to as strucr sheet arrangements or other contractuat fiff nancing, liquidity, market or credit risk that could arise if we had engaged in these relationships. r the purpos es. As such, we are not materially exposed to any e entities, which are establa ished forff turt ed fiff nance or special purpos lly narrow or limited purpos e of faff cilitating offff -ff balance r r Recent Accounting Pronouncements See Item 15 of Part IV, “Notes to Consolidated Financial Statements—Note 2—Summaryrr of Signififf cant Accounting Policies.” Item 7A. Quantitt tii attt itt ve and Qualill tii attt itt ve Disii closll ures About MarMM kerr t Risii k Interest Rate Risk ents of corpor We invest our excess cash in investment-grade, interest-bearing securities. The primaryrr objective of our investment . U.S. treasuryrr activities is to preserve principal and liquidity. To achieve this objective, we invest in money market funds l ises with contractuat notes, and high quality marketabla e debt instrumr ity dates of generally less than one year. All investment securities have a credit rating of at least Aa3/AA- or better, or maturt P-1/A-1 or better, as determined by Moody’s Investors Service or Standard & Poor’s. We do not have any direct investments in auction-rate securities or securities that are collateralized by assets that include mortgages or subprime debt. If a 10 percent change in interest rates were to have occurred on December 31, 2022 and 2021, this change would not have had a material effff eff ct on the faff ir value of our investment portfolff io as of each such date. Although we are seeing, and expect to continue to see, increased interest rates, due to our investment in investment-grade, interest-bearing securities, as of the date of this Annual Report on Form 10-K, we do not expect anticipated changes in interest rates to have a material effff eff ct on our interest rate risk in futff urt e reporting periods. ff ations and government sponsored enterprr r Item 8. FiFF nii ancial StSS attt ett mentstt and Supplu ell mentartt yr Data.tt The consolidated fiff nancial statements required pursuant to this item are included in Item 15 of this report and are presented beginning on page F-1. Item 9. ChCC anges inii and Disii agreementstt WiWW tii htt Accountantt tstt on Accountitt nii g and FiFF nii ancial Disii closll ure.ee None. 66 Item 9A. ConCC trtt olsll and PrPP ocedures. Disii closure ContCC rolsll and Procedures We maintain disclosure controls and procedures that are designed to ensure that inforff mation required to be disclosed in a opriate, to allow timely decisions regarding required disclosure. In designing and our periodic and current reports that we fiff le with the SEC is recorded, processed, summarized and reported within the time periods specififf ed in the SEC’s rulr es and forff ms, and that such inforff mation is accumulated and communicated to our management, including our Chief Executive Offff iff cer and Chief Financial Offff iff cer (our principal executive offff iff cer and principal fiff nancial offff iff cer, respectively), as appr evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonabla e and not absa olute assurance of achieving the desired control objectives. In reaching a reasonabla e level of assurance, management necessarily was required to appl evaluating the cost-benefiff t relationship of possible controls and procedures. In addition, the design of any system of controls is based in part upon certain assumptions about the likelihood of futff urt e events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential futff ut re conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effff eff ctive control system, misstatements due to error or frff aud may occur and not be detected. y its judgment in a a As of December 31, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Offff iff cer and Chief Financial Offff iff cer, of the effff eff ctiveness of the design and operation of our disclosure controls and procedures, as defiff ned in RulRR es 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Executive Offff iff cer and Chief Financial Offff iff cer concluded that our disclosure controls and procedures were effff eff ctive at the reasonabla e assurance level as of December 31, 2022. MM Manage ment’s Repor e t on IntII ernal ContCC rol Over FiFF nancial Repor e ting Our management is responsible forff establa ishing and maintaining adequate internal control over fiff nancial reporting. Internal control over fiff nancial reporting is a process designed by, or under the supervision and with the participation of,ff our Chief Executive Offff iff cer and Chief Financial Offff iff cer (our principal executive offff iff cer and principal fiff nancial offff iff cer, respectively), and effff eff cted by our board of directors, management and other personnel, to provide reasonabla e assurance regarding the reliabia lity of fiff nancial reporting and the preparation of fiff nancial statements forff with accounting principles generally accepted in the United States of America. external purpos es in accordance r As of December 31, 2022, our management assessed the effff eff ctiveness of our internal control over fiff nancial reporting, th by the as defiff ned in RulRR es 13a-15(f)ff and 15d-15(f)ff under the Exchange Act of 1934, as amended, using the criteria set forff Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on this assessment, management, under the supervision and with the participation of our Chief Executive Offff iff cer and Chief Financial Offff iff cer, concluded that, as of December 31, 2022, our internal control over fiff nancial reporting was effff eff ctive based on those criteria. The effff eff ctiveness of our internal control over fiff nancial reporting as of December 31, 2022 has been audited by Ernst & Young LLP, an independent registered public accounting fiff rm, as stated in its report, which is included herein. CC Change s in IntII ernal ContCC rol Over FiFF nancial Repor e ting An evaluation was also perforff med under the supervision and with the participation of our management, including our Chief Executive Offff iff cer and Chief Financial Offff iff cer(our principal executive offff iff cer and principal fiff nancial offff iff cer, respectively), of any changes in our internal control over fiff nancial reporting that occurred during our last fiff scal quarter and that has materially affff eff cted, or is reasonabla y likely to materially affff eff ct, our internal control over fiff nancial reporting. That evaluation did not identifyff any change in our internal control over fiff nancial reporting that occurred during our latest fiff scal quarter and that has materially affff eff cted, or is reasonabla y likely to materially affff eff ct, our internal control over fiff nancial reporting. 67 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Acadia Pharmaceuticals Inc. Opinion on Internal Control Over Financial Reporting We have audited Acadia Pharmaceuticals Inc.’s internal control over fiff nancial reporting as of December 31, 2022, based on criteria establa ished in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 frff amework) (the COSO criteria). In our opinion, Acadia Pharmaceuticals Inc. (the Company) maintained, in all material respects, effff eff ctive internal control over fiff nancial reporting as of December 31, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Publu ic Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Acadia Pharmaceuticals Inc. as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, cash flff ows and stockholders’ equity forff the period ended December 31, 2022, and the related notes and the fiff nancial statement schedule listed in the Index at Item ryrr 27, 2023 expressed an unqualififf ed opinion thereon. 15(a)2 and our report dated Februar each of the three years in Basis forff Opinion The Company’s management is responsible forff maintaining effff eff ctive internal control over fiff nancial reporting and forff its assessment of the effff eff ctiveness of internal control over fiff nancial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over fiff nancial reporting based on our audit. We are a public accounting fiff rm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. feff deral securities laws and the appl rulr es and regulations of the Securities and Exchange Commission and the PCAOB. a icabla e We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perforff m the audit to obtain reasonabla e assurance about whether effff eff ctive internal control over fiff nancial reporting was maintained in all material respects. a Our audit included obtaining an understanding of internal control over fiff nancial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effff eff ctiveness of internal control based on the assessed risk, and perforff ming such other procedures as we considered necessaryrr in the circumstances. We believe that our audit provides a reasonabla e basis forff our opinion. Defiff nition and Limitations of Internal Control Over Financial Reporting A company’s internal control over fiff nancial reporting is a process designed to provide reasonabla e assurance regarding the es in accordance with generally reliabia lity of fiff nancial reporting and the preparation of fiff nancial statements forff accepted accounting principles. A company’s internal control over fiff nancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonabla e detail, accurately and faff irly reflff ect the transactions and dispositions of the assets of the company; (2) provide reasonabla e assurance that transactions are recorded as necessaryrr permit preparation of fiff nancial statements in accordance with generally accepted accounting principles, and that receipts and expenditurt es of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonabla e assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effff eff ct on the fiff nancial statements. external purpos to r Because of its inherent limitations, internal control over fiff nancial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effff eff ctiveness to futff urt e periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Diego, Califorff nia Februar ryrr 27, 2023 68 Item 9B. Othtt er InII fn orff mrr atitt on None. Item 9C. Disii closll ure Regar e dinii g ForFF eigni Jurisii dictitt ons thtt at PrPP event InII spes ctitt ons a Not appl icabla e. Item 10. Dirii ectortt srr ,s ExeEE cutitt ve OfO fff iff cersrr and CorCC por rr PART III atett Governance. The inforff mation required by this Item and not set forff th below will be set forff th in the section headed “—Election of Directors,” “Inforff mation Regarding the Board of Directors and Corpor Reports,” if any, in our defiff nitive Proxy Statement forff May 1, 2023 (our “Proxy Statement”) and is incorpor rr r ated in this report by refeff rence. ate Governance” and “Delinquent Section 16(a) our 2023 Annual Meeting of Stockholders to be fiff led with the SEC by We have adopted a code of ethics forff directors, offff iff cers (including our principal executive offff iff cer, principal fiff nancial offff iff cer and principal accounting offff iff cer) and employees, known as the Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is availabla e on our website at http:tt of our Investors page. We will promptly disclose on our website (i) the naturt e of any amendment to the policy that appl our principal executive offff iff cer, principal fiff nancial offff iff cer, principal accounting offff iff cer or controller, or persons perforff ming similar func to one of these specififf ed individuals, the name of such person who is granted the waiver and the date of the waiver. Stockholders may request a frff ee copy of the Code of Business Conduct and Ethics frff om our compliance department c/o Acadia Pharmaceuticals Inc., 12830 El Camino Real, Suite 400, San Diego, CA 92130. tions and (ii) the naturt e of any waiver, including an implicit waiver, frff om a provision of the policy that is granted ate Governance section ies to //// w// ww.acadia.com under the Corpor a ff r Item 11. ExeEE cutitt ve ComCC pem nsatitt on. The inforff mation required by this Item will be set forff th in the section headed “Executive Compensation” in our Proxy Statement and is incorpor rr ated in this report by refeff rence. Item 12. SeSS curitii ytt Ownersrr hipii of CeCC rtaitt nii Benefe iff cial Ownersrr and ManMM agement and Relatll ett d StSS octt kholdell r MatMM ttt ett rsrr . The inforff mation required by this Item will be set forff Owners and Management” in our Proxy Statement and is incorpor r ated in this report by refeff rence. th in the section headed “Security Ownership of Certain Benefiff cial Inforff mation regarding our equity compensation plans will be set forff th in the section headed “Executive Compensation” in our Proxy Statement and is incorpor rr ated in this report by refeff rence. Item 13. CeCC rtaitt nii Relatll itt onshipsii and Relatll ett d TrTT ansactitt ons,s and Dirii ectortt InII depeee ndence. The inforff mation required by this Item will be set forff r our Proxy Statement and is incorpor ated in this report by refeff rence. th in the section headed “Transactions With Related Persons” in Item 14. PrPP inii cipal ii Accountantt t FeFF es and SeSS rvices. The inforff mation required by this Item will be set forff Independent Registered Public Accounting Firm” in our Proxy Statement and is incorpor th in the section headed “—Ratififf cation of Selection of rr ated in this report by refeff rence. 69 Item 15. Exhibits and Financial Statement Schedules. (a)(( Documentstt fiff led as part of thisii repor e t. PART IV 1. The folff lowing fiff nancial statements of Acadia Pharmaceuticals Inc. and Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, are included in this report: Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) ........................................................ Consolidated Balance Sheets Consolidated Statements of Operations.................................................................................................................... Consolidated Statements of Comprehensive Loss.................................................................................................... Consolidated Statements of Cash Flows................................................................................................................... Consolidated Statements of Stockholders’ Equity ................................................................................................... Notes to Consolidated Financial Statements ............................................................................................................ Page Number F-1 F-3 F-4 F-5 F-6 F-7 F-8 2. List of fiff nancial statement schedules: Schedule II – Valuation and Qualifyiff ng Accounts Schedules not listed above the fiff nancial statements or notes thereto. a have been omitted because they are not appl a icabla e or the required inforff mation is shown in 3. List of Exhibits required by Item 601 of Regulation S-K. See part (b) below. (b)(( ExEE hibitstt . Exhibit Number Description 3.1 3.2 3.3 4.1 4.2 4.3 10.1a 10.2a 10.3a 10.4a Amended and Restated Certificate of Incorporation, as Amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q, filed August 6, 2015). Certificate of Amendment of Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K, filed February 25, 2021). Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed September 12, 2013). Form of common stock certificate of the Registrant (incorporated by reference to Exhibit 4.1 to Registration Statement No. 333-52492). Form of Amended and Restated Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K, filed February 26, 2019). Description of the Registrant’s Common Stock (incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K, filed February 27, 2020). Form of Indemnity Agreement for directors and officers (incorporated by reference to Exhibit 10.1 to Registration Statement No. 333-113137). 2004 Equity Incentive Plan and forms of agreement thereunder (incorporated by reference to Exhibit 10.3 to Registration Statement No. 333-113137). 2010 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-K, filed August 9, 2022). Forms of agreement under the 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K, filed February 29, 2016). 70 10.5a 10.6a 10.7a a 10.9a 10.10a 10.11a 10.12a a 10.14a 10.15a 10.16b 2004 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed June 29, 2020). Offerings under the 2004 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K, filed February 28, 2017). Employment Agreement, dated September 1, 2015, between the Registrant and Stephen Davis (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed September 3, 2015). Employment Offer Letter, dated October 28, 2015, between the Registrant and Srdjan Stankovic (incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K, filed February 29, 2016). Employment Offer Letter, dated June 26, 2018, between the Registrant and Brendan Teehan (incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K, filed March 1, 2022). Employment Offer Letter, dated July 2, 2018, between the Registrant and Austin D. Kim (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed November 6, 2018). Employment Offer Letter, dated April 28, 2020, between the Registrant and Mark Schneyer (incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K, filed March 1, 2022). Employment Offer Letter, dated December 19, 2022, between the Registrant and Doug Williamson. Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K, filed June 29, 2020). Management Severance Benefit Plan (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed December 15, 2015). Amended and Restated Change in Control Severance Benefit Plan (incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K, filed December 15, 2015). Master Manufacturing Services Agreement and Product Agreement, dated August 3, 2015, by and between the Registrant and Patheon Pharmaceuticals Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed November 5, 2015). b First Amendment to Product Agreement, dated April 25, 2016, by and between the Registrant and Patheon Pharmaceuticals Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10- Q, filed August 4, 2016). 10.18b 10.19b c 10.21c 10.22c 10.23c Second Amendment to Product Agreement, dated October 6, 2016, by and between the Registrant and Patheon Pharmaceuticals Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10- Q, filed November 7, 2016). Third Amendment to Product Agreement, dated December 11, 2017, by and between the Registrant and Patheon Pharmaceuticals Inc (incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report on Form 10- K, filed February 27, 2018. Master Services Agreement, dated December 15, 2016, by and between Acadia Pharmaceuticals GmbH and Siegfried AG and its affiliates, and Attachment #1, Attachment #2 and Attachment #3 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed November 3, 2022). Change Order #1 to Master Services Agreement Attachment #1, dated January 3, 2017, by and between Acadia Pharmaceuticals GmbH and Siegfried AG (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed November 3, 2022). Attachment #4, Attachment #5 and Attachment #6, each dated May 12, 2017, to the Master Services Agreement, dated December 15, 2016, by and between Acadia Pharmaceuticals GmbH and Siegfried AG and its affiliates (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, filed November 3, 2022). Attachment #7, dated September 30, 2020, to the Master Services Agreement, dated December 15, 2016, by and between Acadia Pharmaceuticals GmbH and Siegfried AG and its affiliates (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly report on Form 10-Q, filed November 4, 2020). 71 10.24 10.25 10.26 b 10.27b 10.28c 10.29c 10.30 a a a Registration Rights Agreement, dated January 6, 2016, between the Registrant and the investors listed on Schedule A thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed January 7, 2016). Assignment of Brann Intellectual Property Rights, dated January 29, 1997, by Mark R. Brann in favor of the Registrant (incorporated by reference to Exhibit 10.17 to Registration Statement No. 333-52492). License Agreement, dated August 6, 2018, by and between the Registrant and Neuren Pharmaceuticals Ltd. (incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K, filed February 27, 2019). Lease Agreement, effective October 4, 2018, by and between the Registrant and Kilroy Realty, L.P. (incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K, filed February 27, 2019). First Amendment to Office Lease, dated December 23, 2019, between the Registrant and Kilroy Realty, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly report on Form 10-Q, filed May 8, 2020). Second Amendment to Office Lease, dated March 12, 2020, between the Registrant and Kilroy Realty, L.P. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly report on Form 10-Q, filed May 8, 2020). Acadia Pharmaceuticals Inc. 2023 Inducement Plan (incorporated by reference to Exhibit 99.1 to Registration Statement No. 333-269611). Forms of Stock Option Grant Notice and Stock Option Agreement under Acadia Pharmaceuticals Inc. 2023 Inducement Plan (incorporated by reference to Exhibit 99.2 to Registration Statement No. 333-269611). Forms of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under Acadia Pharmaceuticals Inc. 2023 Inducement Plan (incorporated by reference to Exhibit 99.3 to Registration Statement No. 333-269611). 10.33c Lease Agreement, effective May 15, 2018, by and between the Registrant and Boston Properties Limited Partnership. 21.1 23.1 24.1 31.1 31.2 32.2 101 List of subsidiaries of the Registrant. Consent of Independent Registered Public Accounting Firm. Power of Attorney (see signature page hereto). Certification of Stephen Davis, Chief Executive Officer, pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Mark Schneyer, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a- 14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Stephen Davis, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Mark Schneyer, Executive Vice President 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. lowing fiff nancial statements frff om this Annual Report, forff matted in iXBRL (Inline Extensible Business The folff Reporting Language), are fiff led herewith: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Stockholders’ Equity, and (vi) Notes to Consolidated Financial Statements. 104 Cover Page Interactive Data File (forff matted as inline XBRL and contained in Exhibit 101) a Indicates management contract or compensatoryrr plan or arrangement. b We have requested or received confiff dential treatment of certain portions of this agreement, which have been omitted and fiff led separately with the SEC pursuant to RulRR e 406 under the Securities Act of 1933, as amended, or RulRR e 24b-2 of the Securities Exchange Act of 1934, as amended. 72 c Pursuant to Item 601(b)(10) of Regulation S-K, certain portions of this exhibit have been omitted (indicated by “[***]” or “[…***…]”) because the Company has determined that the inforff mation is both not material and is the type that the Company treats as private or confiff dential. Item 16. ForFF mrr 10-K- Summaryr None. 73 Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES Date: Februar ryrr 27, 2023 ACADIA PHARMACEUTICALS INC. /s/ STEPHEN R. DAVIS Stephen R. Davis Chief Executive Offff iff cer (on behalf of the registrant and as the registrant’s Principal Executive Offff iff cer) 74 KNKK OW ALL PERSONS BY THESE PRESENTS, that each individual whose signaturt e appe nts Stephen R. Davis his truer ars below constitutt es and him and in his or attorney-in-faff ct and agent, with fulff cities, to sign any and all amendments to this Annual Report on Form 10-K, and and lawfulff a appoi her name, place and stead, in any and all capaa to fiff le the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-faff ct and agent fulff thing requisite and necessaryrr could do in person, hereby ratifyff ing and confiff rming all that said attorney-in-faff ct and agent, or his or her substitutt e or substitutt es, may lawfulff l power and authority to do and perforff m each and everyrr act and ly do or cause to be done by virtuet ly to all intents and purpos es as he or she might or to be done in and about l power of substitutt the premises, as fulff ion, forff hereof.ff a a rr Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the folff lowing persons on behalf of the registrant and in the capaa cities and on the dates indicated. Signature Title Date /S/ STEPHEN R. DAVIS Stephen R. Davis /S/ MARK C. SCHNEYER Mark C. Schneyer /S/ JAMES K. KIHARAR James K. Kihara Chief Executive Offff iff cer and Director (Principal Executive Offff iff cer) Februarr ryrr 27, 2023 Executive Vice President and Chief Financial Offff iff cer (Principal Financial Offff iff cer) Februarr ryrr 27, 2023 Vice President, Chief Accounting Offff iff cer and Controller (Principal Accounting Offff iff cer) Februarr ryrr 27, 2023 /S/ STEPHEN R. BIGGAR Chairman of the Board Februarr ryrr 27, 2023 Stephen R. Biggar /S/ JULIANAA C. BAKER Director Februarr ryrr 27, 2023 Julian C. Baker /S/ LAURARR A. BREGE Director Februarr ryrr 27, 2023 Laura A. Brege /S/ JAMES M. DALY Director Februarr ryrr 27, 2023 James M. Daly /S/ ELIZABETH A. GAROFALO Director Februarr ryrr 27, 2023 Elizabeth A. Garofalff o /S/ EDMUNUU D P. HARRIGANAA Director Februarr ryrr 27, 2023 Edmund P. Harrigan /S/ ADORARR NDU Director Februarr ryrr 27, 2023 Adora Ndu /S/ DANAA IEL B. SOLANAA D Director Februarr ryrr 27, 2023 Daniel B. Soland 75 [THIS PAGE INTENTIONALLY LEFT BLANK] Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Acadia Pharmaceuticals Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Acadia Pharmaceuticals Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, cash flff ows and stockholders’ equity forff each of the three years in the period ended December 31, 2022, and the related notes and the fiff nancial statement schedule listed in the Index at Item 15(a)2 (collectively refeff rred to as the “consolidated fiff nancial statements”). In our opinion, the consolidated fiff nancial statements present faff irly, in all material respects, the fiff nancial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flff ows forff three years in the period ended December 31, 2022, in conforff mity with U.S. generally accepted accounting principles. each of the We also have audited, in accordance with the standards of the Publu ic Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over fiff nancial reporting as of December 31, 2022, based on criteria establa ished in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 frff amework), and our report dated Februar ryrr 27, 2023 expressed an unqualififf ed opinion thereon. Basis forff Opinion These fiff nancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s fiff nancial statements based on our audits. We are a pubu lic accounting fiff rm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. feff deral securities laws and the a appl icabla e rulr es and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perforff m the audit to obtain reasonabla e assurance about to error or frff aud. Our audits included perforff ming procedures to assess the risks of material misstatement of the fiff nancial statements, whether due to error or frff aud, and perforff ming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the fiff nancial statements. Our audits also included evaluating the accounting principles used and signififf cant estimates made by management, as well as evaluating the overall presentation of the fiff nancial statements. We believe that our audits provide a reasonabla e basis forff whether the fiff nancial statements are frff ee of material misstatement, whether due our opinion. a Critical Audit Matter The critical audit matter communicated below is a matter arising frff om the current period audit of the fiff nancial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the fiff nancial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated fiff nancial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-1 ion of thett Descripti MatMM ter HowHH WeWW Addressed the MatMM ter in Our Audit Allll owll ance forff MeMM dicare ParPP t D rebatett s As described in Note 2 to the consolidated fiff nancial statements under the capta ion “Revenue Recognition”, the Company establa ishes provisions forff sales rebates in the same period the related product is sold. At December 31, 2022, the Company had $24.2 million in sales rebates accruer d, which includes rebates provided forff Medicare Part D drugrr estimated its rebates based upon the identififf cation of the products subject to a rebate, the appl rebate terms and the estimated lag time between the sale and payment of the rebate. plan. In order to establa ish these sales rebate accruarr ls, the Company icabla e price, a ls was complex and required signififf cant auditor ls consider multiple subjective estimates and assumptions. These estimates Auditing the Medicare Part D sales rebate accruarr judgment because the accruarr and assumptions included the estimated inventoryrr between the sale to the customer and payment of the rebate, and the fiff nal payer related to product sales, which impacts the appl Company used both internal and external sources of inforff mation to estimate product in the distribution channels, payer mix, prescription volumes and historical experience. Management supplemented its historical data analysis with qualitative adjustments based upon changes in rebate trends, rebate programs and contract terms, legislative changes, or other signififf cant events which indicate a change in the reserve a is appr icabla e price and rebate terms. In deriving these estimates and assumptions, the in the distribution channel, which impacts the lag time opriate. a ls forff Medicare Part D rebates. This included testing controls over We obtained an understanding, evaluated the design, and tested the operating effff eff ctiveness of controls over the Company’s sales rebate accruarr management’s review of the signififf cant assumptions described above calculation. For example, we tested controls over actuat utilization and payer mix. The testing was inclusive of management’s controls to evaluate the accuracy of its reserve judgments to actuat the data used to evaluate and support the signififf cant assumptions was complete, accurate and, where a appl l rebates paid, rebate validation and processing, and controls to ensure that l sales and the accuracy of forff ecasting expected icabla e, verififf ed to external data sources. and inputs into the rebate a ls forff Medicare Part D, our audit procedures included, among others, To test the sales rebate accruarr understanding and evaluating the signififf cant assumptions and underlying data used in management’s calculations. Our testing of signififf cant assumptions included a lookback analysis to evaluate the historical accuracy of management’s estimates by comparing actuat l activity to previous estimates and perforff med sensitivity analyses over the subjective assumptions to evaluate the completeness of the reserves. As a part of our procedures, we evaluated the reasonabla eness of the Company’s assumptions considering recent sales trends and regulatoryrr faff ctors. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2015. San Diego, Califorff nia Februar ryrr 27, 2023 F-2 ACADIA PHARMACEUTICALS INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) -sale Assets Cash and cash equivalents Investment securities, availabla e-forff Accounts receivabla e, net Interest and other receivabla es Inventoryrr Prepaid expenses Total current assets Property and equipment, net Operating lease right-of-ff use assets Restricted cash Long-term inventoryrr Other assets Total assets Liabilities and stockholders’ equity Accounts payabla e Accruer d liabia lities Total current liabia lities Operating lease liabia lities Other long-term liabia lities Total liabia lities Commitments and contingencies (Note 9) Stockholders’ equity: Prefeff rred stock, $0.0001 par value; 5,000,000 shares authorized at December 31, 2022 and 2021; no shares issued and outstanding at December 31, 2022 and 2021 Common stock, $0.0001 par value; 225,000,000 shares authorized at December 31, 2022 and 2021; 162,064,872 shares and 161,012,695 shares issued and outstanding at December 31, 2022 and 2021, respectively Additional paid-in capia tal Accumulated defiff cit Accumulated other comprehensive loss Total stockholders’ equity Total liabia lities and stockholders’ equity December 31, 2022 2021 $ $ $ 114,846 301,977 62,195 885 6,636 21,398 507,937 6,021 55,573 5,770 4,924 7,587 587,812 12,746 112,884 125,630 52,695 9,074 187,399 147,435 373,271 64,366 978 7,881 23,892 617,823 8,047 58,268 5,770 6,217 3,997 700,122 6,876 89,192 96,068 56,126 7,034 159,228 — — 16 2,770,923 (2,369,551) (975) 400,413 587,812 $ 16 2,694,646 (2,153,576) (192) 540,894 700,122 $ $ $ $ The accompanying notes are an integral part of these consolidated fiff nancial statements. F-3 ACADIA PHARMACEUTICALS INC. CONSOLIDATED STATEMENTS OF OPERARR TIONS (in thousands, except per share amounts) Revenues Product sales, net Total revenues Operating expenses Cost of product sales License feff es and royalties Research and development Selling, general and administrative Total operating expenses Loss frff om operations Interest income, net Other income (expense) Loss beforff e income taxes Income tax expense Net loss Net loss per common share, basic and diluted Weighted average common shares outstanding, basic and diluted Years Ended December 31, 2021 2020 2022 $ 517,235 517,235 $ 484,145 484,145 $ 441,755 441,755 10,166 — 361,575 369,090 740,831 (223,596) 6,610 3,542 (213,444) 2,531 (215,975) $ (1.34) $ 10,843 8,298 239,415 396,028 654,584 (170,439) 591 2,329 (167,519) 351 (167,870) $ (1.05) $ 161,683 160,493 10,211 10,339 319,130 388,661 728,341 (286,586) 6,610 (997) (280,973) 611 (281,584) (1.79) 157,331 $ $ The accompanying notes are an integral part of these consolidated fiff nancial statements. F-4 ACADIA PHARMACEUTICALS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Net loss Other comprehensive (loss) income : Unrealized loss on investment securities Foreign currency translation adjustments Comprehensive loss Years Ended December 31, 2021 (167,870) $ 2022 (215,975) $ $ (789) 6 (235) 7 $ (216,758) $ (168,098) $ 2020 (281,584) (253) (8) (281,845) The accompanying notes are an integral part of these consolidated fiff nancial statements. F-5 ACADIA PHARMACEUTICALS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Cash flff ows frff om operating activities Net loss Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation Amortization of premiums and accretion of discounts on investment securities Amortization of intangible assets (Gain) loss on strategic investment Depreciation Loss on disposal of assets Non-cash in-process research and development Changes in operating assets and liabia lities: Accounts receivabla e, net Interest and other receivabla es Inventoryrr Prepaid expenses and other current assets Operating lease right-of-ff use assets Other assets Accounts payabla e Accruerr d liabia lities Operating lease liabia lities Long-term liabia lities Net cash used in operating activities Cash flff ows frff om investing activities Purchases of investment securities Maturt ities of investment securities Net purchases of property and equipment Net cash provided by (used in) investing activities Cash flff ows frff om fiff nancing activities Proceeds frff om issuance of common stock, net of issuance costs Net cash provided by fiff nancing activities Effff eff ct of exchange rate changes on cash Net (decrease) increase in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash Beginning of year End of year Supplemental disclosure of cash flff ow inforff mation: Cash paid forff Supplemental disclosure of noncash inforff mation: Property and equipment purchases in accounts payabla e and accruerr d liabia lities Value of common stock issued in connection with asset acquisition income taxes $ $ $ $ Years Ended December 31, 2021 2022 2020 $ (215,975) $ (167,870) $ (281,584) 68,201 63,615 (2,736) — (3,542) 2,026 — — 2,171 93 2,415 2,494 6,566 (48) 5,870 24,306 (7,916) 2,040 (114,035) (363,174) 436,415 — 73,241 8,199 8,199 6 (32,589) 2,404 1,108 (2,329) 2,236 — — (16,119) 1,057 (4,210) 1,802 6,287 10 (1,617) (8,455) (5,433) 1,854 (125,660) (492,797) 422,817 (1,122) (71,102) 18,162 18,162 7 (178,593) 153,205 120,616 2,190 $ $ 331,798 153,205 1,038 $ $ 84,422 1,470 1,477 997 1,455 281 44,280 (12,466) 58 (3,320) (7,088) 4,280 182 1,271 27,569 (1,769) 2,319 (136,166) (339,908) 540,004 (7,587) 192,509 80,996 80,996 (8) 137,331 194,467 331,798 1,113 — $ — $ — $ — $ 130 44,280 The accompanying notes are an integral part of these consolidated fiff nancial statements. F-6 ACADIA PHARMACEUTICALS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts) Balances at December 31, 2019 Issuance of common stock in public offff eff ring, net of issuance costs Issuance of common stock frff om exercise of stock options and units Issuance of common stock pursuant to employee stock purchase plan Net loss Stock-based compensation Other comprehensive income Balances at December 31, 2020 Issuance of common stock frff om exercise of stock options Issuance of common stock pursuant to employee stock purchase plan Net loss Stock-based compensation Other comprehensive income Balances at December 31, 2021 Issuance of common stock frff om exercise of stock options and units Issuance of common stock pursuant to employee stock purchase plan Net loss Stock-based compensation Other comprehensive income Balances at December 31, 2022 Common Stock Shares 155,275,300 $ Amount 15 $ Additional Paid-in Capital 2,402,945 Accumulated Defiff cit $ (1,704,122) Accumulated Other Comprehensive Income (Loss) 297 $ Total Stockholders’ Equity $ 699,135 1,156,626 2,827,586 378,259 — — — 159,637,771 1,078,074 296,850 — — 161,012,695 721,652 330,525 — — — 162,064,872 $ — 1 — — — — 16 — — — — — 16 — — — — — 16 44,280 73,833 — — 7,162 — 84,443 — 2,612,663 — (281,584) — — (1,985,706) 12,850 — 5,312 63,821 — (167,870) — 2,694,646 (2,153,576) — — — — — (261) 36 — — — (228) (192) 44,280 73,834 7,162 (281,584) 84,443 (261) 627,009 12,850 5,312 (167,870) 63,821 (228) 540,894 3,705 — — 3,705 4,494 — 68,078 — 2,770,923 — (215,975) — — $ (2,369,551) $ $ — — — (783) (975) $ 4,494 (215,975) 68,078 (783) 400,413 The accompanying notes are an integral part of these consolidated fiff nancial statements. F-7 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Business Acadia Pharmaceuticals Inc. (the Company), based in San Diego, Califorff nia, is a biopharmaceutical company focff used on the development and commercialization of innovative medicines that address unmet medical needs in CNS disorders and rare disease. The Company is incorpor ated in Delaware. r In April 2016, the U.S. Food and Drugr Administration (FDA) appr NUPLAZID® a the treatment of hallucinations and delusions associated with Parkinson’s disease psychosis (PDP). oved the Company’s fiff rst drug, r (pimavanserin), forff NUPLAZID became availabla e forff prescription in the United States in May 2016. 2. Summary of Signififf cant Accounting Policies Signififf cant accounting policies folff lowed in the preparation of these fiff nancial statements are as folff lows: PrPP inii ciplii ell s of ConCC solill datitt on The accompanying consolidated fiff nancial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. UsUU e of EsEE titt mii atett s The preparation of fiff nancial statements in conforff mity with GAAP requires management to make estimates and assumptions that affff eff ct the reported amounts of assets and liabia lities, the disclosure of assets and liabia lities at the date of the fiff nancial statements and the reported amounts of revenues and expenses during the reporting period. Actuat diffff eff r frff om these estimates. l results could CasCC h and CasCC h Equivalell ntstt The Company considers all highly liquid investments with a maturt ity date at the date of purchase of three months or less to be cash equivalents. The folff lowing tabla e provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flff ows (in thousands). Cash and cash equivalents Restricted cash Total cash, cash equivalents and restricted Twelve Months Ended December 31, 2022 Twelve Months Ended December 31, 2021 Beginning of period 147,435 $ 5,770 $ End of period 114,846 5,770 Beginning of period 326,028 $ 5,770 $ End of period 147,435 5,770 cash shown in the statements of cash flff ows $ 153,205 $ 120,616 $ 331,798 $ 153,205 InII vestmtt ent SeSS curitii itt es Currently, all of the Company’s investment securities are debt securities. The Company has classififf ed all of its -sale as the sale of such securities may be required prior to maturt investment securities as availabla e-forff ity to implement management strategies, and accordingly, carries these investments at faff ir value. Unrealized gains and losses, if any, are reported as a separate component of stockholders’ equity. The cost of investment securities classififf ed as availabla e-forff adjusted forff ity. Such amortization and accretion are included in interest income. Realized gains and losses, if any, are also included in interest income. The cost of securities sold is based on the specififf c identififf cation method. amortization of premiums and accretion of discounts to maturt -sale is F-8 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) FaiFF ri ValVV ue of FiFF nii ancial InII strtt umentstt The carryirr ng values of the Company’s fiff nancial instrumr interest and other receivabla es, restricted cash, and accounts payabla e and accruer d liabia lities, appr relative short-term naturt e of these instrumr ents. ents, consisting of cash and cash equivalents, trade receivabla es, oximate faff ir value due to the a As disclosed in Note 4, the Company classififf es its cash equivalents and availabla e-forff -sale investment securities within the faff ir value hierarchy as defiff ned by authoritative guidance: Level 1 Input II stt — Quoted prices forff identical instrumr ents in active markets. stt — Quoted prices forff II ents in markets that are not active; and model-derived valuations in which all signififf cant inputs and ents in active markets; quoted prices forff similar instrumr identical or similar Level 2 Input instrumr signififf cant value drivers are observabla e. II Level 3 Input signififf cant value drivers are unobservabla e. stt — Valuation derived frff om valuation techniques in which one or more signififf cant inputs or Accountstt Receivablell Accounts receivabla e are recorded net of customer allowances forff distribution feff es, prompt payment discounts, distribution feff es, prompt payment discounts and chargebacks are based on chargebacks, and credit losses. Allowances forff l terms. The Company adopted FASB Accounting Standards Codififf cation 326-20, FiFF nancial InsII contractuat Losses (ASC 326-20) as of Januaryrr 1, 2020. The Company estimated the current expected credit losses of its accounts receivabla e by assessing the risk of loss and availabla e relevant inforff mation about losses, existing contractuat reasonabla e and supportabla e forff ecast of economic conditions expected to exist throughout the contractuat receivabla e. Based on its assessment, as of December 31, 2022, the Company determined that an allowance forff not required. the collectabia lity, including historical credit l payment patterns of its customers, individual customer circumstances, and l payment terms, actuat trumentstt – CrCC edit l lifeff of the credit loss was a Although the Company has not historically experienced signififf cant credit losses, the Company’s exposure may increase due to uncertainties associated with the global economic recession and other disrupt 19 pandemic. rr ions resulting frff om the COVID- yr InII ventortt Inventoryrr is stated at the lower of cost or net realizabla e value under the fiff rst-in, fiff rst-out method (FIFO). The Company oximates actuat l costing methodologies to determine the cost basis forff l costs. Inventoryrr consists of raw material, work in process, and fiff nished goods, including third-party ing costs, frff eight, and indirect overhead costs. The Company capia talizes inventoryrr costs associated with its uses a combination of standard and actuat appr a manufaff cturt products upon regulatoryrr appr and the futff urt e economic benefiff t is expected to be realized; otherwise, such costs are expensed. Prior to FDA appr NUPLAZID in April 2016, all costs related to the manufaff cturt expense in the period incurred. oval when, based on management’s judgment, futff urt e commercialization is considered probabla e ing of NUPLAZID were charged to research and development its inventories which oval of a a The Company periodically reviews inventoryrr and reduces the carryirr ng value of items to net realizabla e value forff potentially excess, dated or obsolete inventoryrr based on an analysis of forff ecasted demand compared to quantities on hand and any fiff rm purchase orders, as well as product shelf lifeff . During the years ended December 31, 2022, 2021 and 2020, the Company recorded charges of $0.6 million, $1.3 million and $0.4 million, respectively, to reduce certain fiff nished goods and work in process inventoryrr to its net realizabla e value. F-9 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) PrPP opertytt and Equipmii ent Property and equipment are recorded at cost and depreciated over their estimated usefulff lives using the straight-line method. Leasehold improvements are amortized over the shorter of their estimated usefulff lives or the term of the lease by use property, equipment or improvements that of the straight-line method. Construcr have not been placed in service. Maintenance and repair costs are expensed as incurred. When assets are retired or sold, the assets and accumulated depreciation are removed frff om the respective accounts and any gain or loss is recognized. Estimated usefulff tion-in-process reflff ects amounts incurred forff lives by maja or asset categoryrr are as folff lows: Machineryrr and equipment Computers and softff ware Furniturt e and fiff xturt es ImII paim rii mrr ent of Long-L- ived Assetstt Usefuff l Lives 5 to 7 years 3 years 10 years The Company reviews its long-lived assets forff impairment whenever events or changes in circumstances indicate that the carryirr ng amount of an asset may not be recoverabla e. Recoverabia lity is measured by a comparison of the carryirr ng amount of an asset to estimated undiscounted futff urt e cash flff ows expected to be generated by the asset. If the carryirr ng amount of an asset exceeds its estimated futff urt e cash flff ows, an impairment charge is recognized by the amount by which the carryirr ng amount of the asset exceeds the faff ir value of the asset. Through December 31, 2022, no such impairment losses have been recorded by the Company. License FeFF es and Royaltll itt es The Company expenses amounts paid to acquire licenses associated with products under development when the ultimate recoverabia lity of the amounts paid is uncertain and the technology has no alternative futff urt e use when acquired. Acquisitions of technology licenses are charged to expense or capia talized based upon management’s assessment regarding the ultimate recoverabia lity of the amounts paid and the potential forff technological feff asibility forff the product availabla e forff alternative futff urt e use. The Company has determined that ovals are obtained to make a its product candidates is reached when the requisite regulatoryrr appr sale. In connection with the FDA appr a oval of NUPLAZID in April 2016, the Company made a one-time milestone payment l property rights that complement its patent portfolff of $8.0 million pursuant to its 2006 license agreement with the Ipsen Group in which the Company licensed certain intellectuat Company capia talized the $8.0 million payment as an intangible asset and is amortizing the asset on a straight-line basis over the estimated usefulff expense related to its intangible asset forff million and $1.5 million forff ly amortized. was fulff lifeff which ended during the year ended December 31, 2021. The Company recorded no amortization the years ended December 31, 2021 and 2020. As of December 31, 2021, the intangible asset the year ended December 31, 2022 and recorded amortization expense of $1.1 its serotonin platforff m, including NUPLAZID. The io forff Acquisii itii itt ons The Company accounts forff acquisitions of an asset or group of similar identififf abla e assets that do not meet the defiff nition of a business as asset acquisition using the cost accumulation method, whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of their relative faff ir values. No goodwill is recognized in an asset acquisition. Intangible assets acquired in an asset acquisition forff use in research and development activities which have no alternative futff urt e use are expensed as in-process research and development on the acquisition date. Intangible assets acquired forff research and development. Futurt e costs to develop these assets are recorded to research and development expense as they are incurred. Contingent milestone payments associated with asset acquisitions are recognized when probabla e and estimabla e. These amounts are expensed to research and development if there is no alternative futff urt e use associated with the asset, or capia talized as an intangible asset if alternative futff urt e use of the asset exists. use in research and development activities which have an alternative futff urt e use are capia talized as in-process F-10 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Advertitt sii inii g ExpeEE nse In connection with the FDA appr a oval and commercial launch of NUPLAZID in 2016, the Company began to incur advertising costs. Advertising costs are expensed when services are perforff med or goods are delivered. The Company incurred $5.5 million, $41.8 million and $51.1 million in advertising costs during the years ended December 31, 2022, 2021 and 2020, respectively, related to NUPLAZID. No advertising costs were capia talized as prepaid expenses at December 31, 2022 or 2021. Revenue Recognitii itt on Product Sales, NeNN t those goods or services. To lowing fiff ve steps: (i) identifyff the contract(s) with a customer; (ii) identifyff contracts with its customers in accordance with Revenue frff om ContCC ractstt with CusCC tomersrr The Company accounts forff c 606). The Company recognizes revenue when its customer obtains control of promised goods or services, in an (T(( opiTT amount that reflff ects the consideration which the Company expects to receive in exchange forff arrangements that the Company determines are within the scope of Topic 606, the determine revenue recognition forff Company perforff ms the folff the perforff mance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the perforff mance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfiff es a perforff mance obligation. The Company only appl is entitled to in exchange forff determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract, determines those that are perforff mance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective perforff mance obligation when (or as) the perforff mance obligation is satisfiff ed. Payment terms diffff eff r by customer, but typically range frff om 31 to 35 days frff om the date of shipment. Revenue forff the effff eff cts of a fiff nancing component as the Company expects, at contract inception, that the period between when the Company transfeff rs control of the product and when the Company receives payment will be one year or less. ies the fiff ve-step model to contracts when it is probabla e that the Company will collect the consideration it the goods or services it transfeff rs to the customer. At contract inception, once the contract is the Company’s product sales has not been adjusted forff a The Company’s product sales, net consist of U.S. sales of NUPLAZID. NUPLAZID was appr a oved by the FDA in April 2016 and the Company commenced shipments of NUPLAZID to SPs and SDs in late May 2016. SPs dispense product to a patient based on the fulff in-patient hospital pharmacies. Product shipping and handling costs are included in cost of product sales. fiff llment of a prescription and SDs sell product to government faff cilities, long-term care pharmacies, or The Company recognizes revenue frff om product sales at the net sales price (the “transaction price”) which includes estimates of variabla e consideration forff which reserves forff sales discounts and allowance are establa ished and reflff ects each of these as either a reduction to the related account receivabla e or as an accruerr d liabia lity, depending on how the amount payabla e is settled. Overall, these reserves reflff ect the Company’s best estimates of the amount of consideration to which the Company is entitled based on the terms of the contract. The amount of variabla e consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probabla e that a signififf cant reversal in the amount of the cumulative revenue recognized will not occur in a futff urt e period. Actuat received may diffff eff r frff om the Company’s estimates. If actuat l results in the futff urt e varyrr to adjust its estimates, which would affff eff ct net revenue in the period of adjustment. The folff signififf cant categories of sales discounts and allowances: l amounts of consideration ultimately frff om estimates, the Company may need lowing are the Company’s Disii tribution FeFF es: Distribution feff es include distribution service feff es paid to the SPs and SDs based on a contractuat lly fiff xed percentage of the wholesale acquisition cost (WAC), feff es forff recorded as an offff sff et to revenue based on contractuat l terms at the time revenue frff om the sale is recognized. data, and prompt payment discounts. Distribution feff es are Rebates: Allowances forff rebates include mandated discounts under the Medicaid Drugr Rebate Program and the benefiff t. Rebates are amounts owed aftff er the fiff nal dispensing of the product to a benefiff t Medicare Part D prescription drugrr plan participant and are based upon contractuat Medicare benefiff t providers. The allowance forff utilization. The Company’s estimates forff and SDs since product launch. Rebates are generally invoiced and paid in arrears so that the accruar estimate of the amount expected to be incurred forff unpaid rebates still estimated to be incurred. Allowances forff expected utilization of rebates are based on historical data received frff om the SPs l balance consists of an prior quarters’ l agreements with, or statutt oryrr rebates is based on statutt oryrr discount rates, estimated payor mix, and expected rebates also include amounts due under the Inflff ation Reduction the current quarter’s activity, plus an accruar requirements pertaining to, Medicaid and l balance forff F-11 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) a icabla e period will be twelve months on October 1 of each year, with the initial appl act of 2022 forff Medicare Part D unit sales with appl period. The appl on October 1, 2022. The benchmark period AMP price is Januaryrr 1, 2021 through September 30, 2021. The Company’s estimates are based Medicare Part D sales as a percentage of gross sales and the rate AMP foff r the current period will be in excess the benchmark period. ce inflff ation over the benchmark icabla e period beginning icabla e period AMP increases that outpat a a CharCC ger backskk : Chargebacks are discounts and feff es that relate to contracts with government and other entities purchasing frff om the SDs at a discounted price. The SDs charge back to the Company the diffff eff rence between the price initially paid by the SDs and the discounted price paid to the SDs by these entities. The Company also incurs group purchasing organization feff es forff these entities and accruer transactions through certain purchasing organizations. The Company estimates sales with anticipated chargebacks and organization feff es, based on the appl icabla e contractuat l terms. s forff a Co-CC Payment Assisii tance: The Company offff eff rs co-payment assistance to commercially insured patients meeting certain eligibility requirements. Co-payment assistance is accruer d forff program redemption using data provided by third-party administrators. based on actuat l program participation and estimates of th in the appl product that has been dispensed to a patient. As the Company receives inventoryrr Product Returns: Consistent with industryrr practice, the Company offff eff rs the SPs and SDs limited product returt nr rights damages, shipment errors, and expiring product; provided that the returt n is within a specififf ed period around the product icabla e individual distribution agreement. The Company does not allow product returt ns forff expiration date as set forff forff the abia lity to control the amount of product that is sold to the SPs and SDs, it is abla e to make a reasonabla e estimate of futff urt e potential product returt ns based on this on-hand channel inventoryrr data and sell-through data obtained frff om the SPs and SDs. In arriving at its estimate forff product returt ns, the Company also considers historical product returt ns, the underlying product demand, and industryrr data specififf c to the specialty pharmaceutical distribution industry.rr reports frff om the SPs and SDs and has a Research and Developmll ent ExpEE enses Research and development expenses are charged to operations as incurred. Research and development expenses include costs associated with services provided by contract organizations forff manufaff cturt expense, and faff cilities and equipment expenses. The upfrff ont consideration and transaction costs associated with acquired in- process research and development are also included in the research and development expenses. ing expenses, and clinical trials, salaries and related personnel expenses including stock-based compensation preclinical development, pre-commercialization s forff The Company accruer costs incurred as the services are being provided by monitoring the statust of the trial or services provided and the invoices received frff om its external service providers. When the Company makes payments in advance of services being provided, it records those amounts as prepaid expenses on its consolidated balance sheets and expense them as the services are rendered. In the case of clinical trials, a portion of the estimated cost normally relates to the projected cost to treat a patient in the trials, and this cost is recognized based on the number of patients enrolled in the trial. l costs Other indirect costs are generally recognized on a straight-line basis over the estimated period of the study. become known, the Company adjusts its accruarr ls accordingly. As actuat t ConCC centrtt atitt on Risii k Financial instrumr ents, which potentially subject the Company to concentrations of credit risk, principally consist of ff , U.S. treasuryrr notes, and high quality, marketabla e debt instrumr cash, cash equivalents, investment securities, accounts receivabla e, and restricted cash. The Company invests its excess cash primarily in money market funds government sponsored enterprr defiff nes allowabla e investments and establa ishes guidelines relating to credit quality, diversififf cation, and maturt 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. Further, the Company specififf es credit quality standards forff party. ises in accordance with the Company’s investment policy. The Company’s investment policy its customers that are designed to limit the Company’s credit exposure to any single ents of corpor ations and ities of its r F-12 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company does not currently have any of its own manufaff ctut ring faff cilities, and thereforff e it depends on an outsourced manufaff cturt product candidates forff drugr Although there are potential sources of supply other than the Company’s existing suppliers, any new supplier would be required to qualifyff under appl ing strategy forff clinical trials. The Company has contracts in place with two third-party manufaff cturt ers of commercial a product and one third-party manufaff cturt er of drugr the production of NUPLAZID API. the production of NUPLAZID forff commercial use and forff substance that is appr the production of its icabla e regulatoryrr requirements. oved forff a The Company has entered into distribution agreements with a limited number of SPs and SDs, and all of the a oximately 73% of the Company’s product revenue and 74% of the Company’s accounts Company’s product sales are to these customers. For the year ended December 31, 2022, the Company’s four customers represented appr receivabla e balance at December 31, 2022. For the year ended December 31, 2021, the Company’s four represented appr at December 31, 2021. For the year ended December 31, 2020, the Company’s four a appr 31, 2020. oximately 74% of the Company’s product revenue and 75% of the Company’s accounts receivabla e balance at December oximately 74% of the Company’s product revenue and 77% of the Company’s accounts receivabla e balance largest customers represented largest customers largest a ff ff ff StSS octt k-B- ased ComCC pem nsatitt on The faff ir value of each employee stock option and each employee stock purchase right granted is estimated on the grant date under the faff ir value method using the Black-Scholes valuation model. The estimated faff ir value of each stock option and purchase right is then expensed over the requisite service period, which is generally the vesting period. The folff weighted-average assumptions were used during these periods: lowing Stock Options: Expected volatility Risk-frff ee interest rate Expected dividend yield Expected lifeff of options in years Employee Stock Purchase Plan: Expected volatility Risk-frff ee interest rate Expected dividend yield Expected lifeff in years Years Ended December 31, 2021 2020 2022 68% 3% 0% 5.4 64% 1% 0% 5.4 63% 1% 0% 5.5 2022 Years Ended December 31, 2021 2020 62%-82% 1.5%-4.6% 49%-100% 0.0%-0.5% 50%-76% 0.1%-0.2% 0% 0.5-2.0 0% 0.5-2.0 0% 0.5-2.0 ExEE pex expected volatility. cted VolVV atilitytt . The Company considers its historical volatility and implied volatility when determining the Risii k-kk FrFF ee IntII erest Rate. The Company determines its risk-frff ee interest rate assumption based on the U.S. Treasuryrr yield forff obligations with contractuat l terms similar to the expected term of the stock option or purchase right being valued. ExEE pex cted Dividend YiYY eld. The Company has never paid any dividends and currently has no plans to do so. ExEE pex cted Lifi eff . In determining the expected lifeff forff stock options, the Company considers, among other faff ctors, its historical exercise experience to date as well as the mean time remaining to fulff mean time remaining to the end of the contractuat employee stock purchase rights is based upon the terms of each offff eff ring period. l term of all outstanding options. The estimated lifeff forff the Company’s l vesting of all outstanding options and the F-13 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) ff The faff ir value of RSUs is estimated based on the closing market price of the Company’s common stock on the date of grant. RSUs generally vest over a four -year period. Certain RSUs also have an accelerated vesting clause based on specififf ed market condition target and continued employment through a minimum vesting period. The faff ir value of RSUs expected to vest are recognized and amortized on a straight-line basis over the requisite service period, which is generally the vesting period. For those RSUs requiring satisfaff ction of both market and service conditions, the requisite service period is the longest of the explicit, implicit and derived service periods. The faff ir value of perforff mance-based stock units (PSUs) is estimated based on the closing market price of the Company’s common stock on the date of grant. PSUs vest upon the achievement of certain pre-defiff ned company-specififf c perforff mance-based criteria. Expense related to these PSUs is recognized ratabla y over vesting becomes probabla e. During the the expected perforff mance period once the pre-defiff ned perforff mance-based criteria forff years ended December 31, 2022 and 2021, the Company had a change in estimate related to the achievement of certain perforff mance-based criteria forff expenses by appr perforff mance-based stock awards which resulted in a reduction in stock-based compensation oximately $0 and $6.8 million. a The tabla e below summarizes the total stock-based compensation expense included in the Company’s statements of operations forff the periods presented (in thousands): Cost of product sales Research and development Sales, general and administrative s InII come TaxeTT Years Ended December 31, 2021 2022 2020 $ $ 1,106 22,580 44,515 68,201 $ $ 1,286 21,969 40,360 63,615 $ $ 2,632 31,314 50,476 84,422 Current income tax expense or benefiff t represents the amount of income taxes expected to be payabla e or refunda bla e forff ff the current year. A defeff rred income tax asset or liabia lity is computed forff the fiff nancial reporting and income tax bases of assets and liabia lities and forff tax credits and loss carryfrr orff wards. Defeff rred income tax expense or benefiff t represents the net change during the year in the defeff rred income tax asset or liabia lity. Defeff rred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the defeff rred tax assets will not be realized. the expected futff urt e impact of diffff eff rences between the expected futff urt e tax benefiff t to be derived frff om The Company recognizes the impact of a tax position in the fiff nancial statements only if that position is more likely than not to be sustained upon examination by taxing authorities, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions will be reflff ected in income tax expense. NeNN t Loss PePP r ShSS are Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares the period, without consideration forff common stock equivalents. Diluted net loss per share is computed by outstanding forff the dividing the net loss by the weighted average number of common shares and common stock equivalents outstanding forff period determined using the treasuryrr stock method. For purpos es of this calculation, stock options, employee stock purchase r rights, RSUs, and warrants are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share forff potentially dilutive securities. More specififf cally, at December 31, periods presented and there were no reconciling items forff 2022, 2021 and 2020, options, employee stock purchase rights, RSUs, PSUs, and warrants covering a total of appr oximately 21,185,000 shares, 17,535,000 shares and 19,331,000 shares, respectively, were excluded frff om the calculation of diluted net loss per share as their effff eff ct would have been anti-dilutive. the periods presented as their effff eff ct would be antidilutive. The Company incurred net losses forff all a SeSS gme ee ent Repor titt nii g Management has determined that the Company operates in one business segment which is the development and the years ended December 31, 2022, 2021 and 2020 were commercialization of innovative medicines. All revenues forff generated frff om customers in the United States. F-14 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 3. Investments The carryirr ng value and amortized cost of the Company’s investments, summarized by maja or security type, consisted of lowing (in thousands): the folff December 31, 2022 U.S. Treasuryrr notes Government sponsored enterprr Municipal bonds Commercial papea r ise securities U.S. Treasuryrr notes Government sponsored enterprr Corpor ate debt securities r Commercial papea r ise securities Amortized Cost $ 15,956 81,216 20,873 184,923 $ 302,968 Amortized Cost $ 140,287 49,512 26,006 157,670 Unrealized Gains Unrealized Losses $ $ — $ 16 — 30 46 $ Estimated Fair Value (11) $ 15,945 80,941 (291) 20,775 (98) 184,316 (637) (1,037) $ 301,977 December 31, 2021 Unrealized Gains Unrealized Losses $ — $ — — 9 Estimated Fair Value (100) $ 140,187 49,474 (38) 25,984 (22) 157,626 (53) The Company has classififf ed all of its availabla e-forff -sale investment securities, including those with maturt ities beyond $ 373,475 $ 9 $ (213) $ 373,271 one year, as current assets on its consolidated balance sheets based on the highly liquid naturt e of the investment securities and because these investment securities are considered availabla e forff 2021, all of the Company’s availabla e-forff Company has classififf ed all equity securities as other assets on its consolidated balance sheets. use in current operations. As of December 31, 2022 and ity dates of less than one year. The -sale investment securities have contractuat l maturt At December 31, 2022 and 2021, the Company had 43 and 39 securities, respectively, in an unrealized loss position. -sale investments that were in an lowing tabla e presents gross unrealized losses and faff ir value forff The folff unrealized loss position as of December 31, 2022 and December 31, 2021, aggregated by investment categoryrr and length of time that individual securities have been in a continuous loss position (in thousands): those availabla e-forff December 31, 2022 .S. Treasuryrr notes Government sponsored enterprr Municipal bonds Commercial papea Total r ise securities December 31, 2021: .S. Treasuryrr notes Government sponsored enterprr ate debt securities r Corpor Commercial papea Total r ise securities Less Than 12 Months 12 Months or Greater Total Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses $ 15,945 58,254 20,775 135,200 $ 230,174 $ (11) $ (291) (98) (637) $ (1,037) $ $ 140,287 49,512 26,006 75,192 $ 290,997 $ $ (100) $ (38) (22) (53) (213) $ — $ — — — — $ — $ — — — — $ — $ 15,945 58,254 — — 20,775 — 135,200 — $ 230,174 $ (11) (291) (98) (637) $ (1,037) — $ 140,287 49,512 — 26,006 — — 75,192 — $ 290,997 $ $ (100) (38) (22) (53) (213) F-15 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) At each reporting date, the Company perforff ms 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 frff om a credit loss or other faff ctors include the Company’s intent and abia lity to hold the investment until the recoveryrr of its amortized cost basis, the extent to which the faff ir value is less than the amortized cost basis, the length of time and extent to which faff ir value has been less than the cost basis, the fiff nancial condition of the issuer, any historical faff ilure 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 regulatoryrr events affff eff cting the issuer or issuer’s industry,rr conditions. any signififf cant deterioration in economic The Company does not intend to sell the investment in unrealized loss position and it is unlikely that the Company will be required to sell the investment beforff e the recoveryrr of its amortized cost basis. Based on its evaluation, the Company determined its year-to-date credit losses related to its availabla e-forff -sale securities were immaterial at December 31, 2022. Although the Company has not historically experienced signififf cant losses on its investments, the Company’s exposure may increase due to uncertainties associated with geopolitical and macroeconomic developments, including, without limitation, a global economic recession, the Ukraine-RusRR sia conflff ict and related sanctions, and the COVID-19 pandemic. 4. Fair Value Measurements ff , U.S. treasuryrr notes, and marketabla e debt instrumr The Company’s investments include cash equivalents, availabla e-forff r -sale investment securities consisting of money market funds ations and government sponsored enterprr accordance with the Company’s investment policy, and equity investments. The Company’s investment policy defiff nes allowabla e investment securities and establa ishes guidelines relating to credit quality, diversififf cation, and maturt ities 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. ents of corpor ises in The Company’s cash equivalents, availabla e-forff -sale investment securities, and equity securities are classififf ed within the faff ir value hierarchy as defiff ned by authoritative guidance. The Company’s investment securities and equity securities classififf ed as Level 1 are valued using quoted market prices. The Company obtains the faff ir value of its Level 2 fiff nancial instrumr ents frff om third-party pricing services. The pricing services utilize industryrr standard valuation models whereby all signififf cant inputs, including benchmark yields, reported trades, broker/rr dealer quotes, issuer spreads, bids, offff eff rs, or other market-related data, are observabla e. The Company validates the prices provided by the third-party pricing services by reviewing their pricing methods and matrices and obtaining market values frff om other pricing sources. Aftff er completing the validation procedures, the Company did not adjust or override any faff ir value measurements provided by these pricing services as of December 31, 2022 and 2021, respectively. In November 2021, the Company establa ished a plan whereby substantially all fulff l-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 6 to the consolidated fiff nancial statements included in this Annual Report. The Company estimated the faff ir value of the cash awards using a Monte Carlo simulation, which utilizes level 3 inputs such as volatility, probabia lities of success, and other inputs that are not observabla e in active markets. The cash awards are required to be measured at faff ir value on a recurring basis each reporting period, with changes in the faff ir value recognized as compensation cost over the derived service period of the awards. The Company has not transfeff rred any investment securities between the classififf cation levels. F-16 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The recurring faff ir value measurements of the Company’s cash equivalents, availabla e-forff -sale investment securities, and equity securities at December 31, 2022 and 2021 consisted of the folff lowing (in thousands): ff Assetstt Money market fund U.S. Treasuryrr notes Equity securities Government sponsored enterprr Municipal bonds Commercial papea Total r ise securities Liabilii ill tii itt es Cash awards Total ff Assetstt Money market fund U.S. Treasuryrr notes Equity securities Government sponsored enterprr ate debt securities r Corpor Commercial papea Total r ise securities Liabilii ill tii itt es Cash awards Total Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets forff Identical Assets (Level 1) Signififf cant Other Observable Inputs (Level 2) Signififf cant Unobservable Inputs (Level 3) December 31, 2022 $ $ $ $ 72,578 15,945 7,180 94,803 20,775 184,316 395,597 898 898 $ $ $ $ 72,578 15,945 7,180 — — — 95,703 $ $ — $ — — 94,803 20,775 184,316 299,894 $ — — — — — — — — $ — $ — $ — $ 898 898 Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets forff Identical Assets (Level 1) Signififf cant Other Observable Inputs (Level 2) Signififf cant Unobservable Inputs (Level 3) December 31, 2021 $ $ $ $ 122,876 140,187 3,638 49,474 25,984 157,626 499,785 603 603 $ $ $ $ 122,876 140,187 3,638 — — — 266,701 $ $ — $ — — 49,474 25,984 157,626 233,084 $ — — — — — — — — $ — $ — $ — $ 603 603 Changes in estimated faff ir value of contingent cash awards during the twelve months ended December 31, 2022 are as folff lows (in thousands): Balance as of December 31, 2021 Vesting of awards Expense forff feff ited Change in faff ir value Balance as of December 31, 2022 $ $ 603 1,798 (117) (1,386) 898 F-17 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 5. Balance Sheet Details Inventoryrr consisted of the folff lowing (in thousands): Finished goods Work in process Raw material Reported as: Inventoryrr Long-term inventoryrr Total December 31, 2022 2021 $ $ $ $ 1,926 4,427 5,207 11,560 6,636 4,924 11,560 $ $ $ $ 1,114 6,767 6,217 14,098 7,881 6,217 14,098 Amount reported as long-term inventoryrr consisted of raw materials as of December 31, 2022 and 2021. The Company has raw materials beyond its one-year production plan that prevent the Company frff om potential supply interrupt raw materials maintained beyond the one-year production plan were classififf ed as long-term inventory.rr r ion. Those Property and equipment, net, consisted of the folff lowing (in thousands): Computers and softff ware Leasehold improvements Furniturt e and fiff xturt es Machineryrr and equipment Accumulated depreciation December 31, 2022 2021 5,873 3,696 4,549 — 14,118 (8,097) 6,021 $ $ 5,873 3,696 4,549 113 14,231 (6,184) 8,047 $ $ Depreciation of property and equipment was $2.0 million, $2.2 million, and $1.5 million forff the years ended December 31, 2022, 2021, and 2020, respectively. For the year ended December 31, 2022, the Company retired $0.1 million of fulff ly depreciated property and equipment. For the year ended December 31, 2021, the Company did not retire any fulff depreciated property and equipment. During 2020, the Company retired $3.1 million of fulff equipment. ly depreciated property and ly Accruerr d liabia lities consisted of the folff lowing (in thousands): Accruer d research and development services Accruer d compensation and benefiff ts Accruer d sales allowances Accruer d consulting and profeff ssional feff es Current portion of lease liabia lities Other December 31, 2022 2021 $ $ 35,048 28,023 26,046 11,377 9,305 3,085 112,884 $ $ 27,270 25,896 15,717 9,319 8,304 2,686 89,192 F-18 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 6. Stockholders’ Equity StSS octt k OfO fff eff rinii gs r In August 2020, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with CerSci ated (CerSci), pursuant to which one of the Company’s wholly owned subsidiaries merged with and Therapea utics Incorpor into CerSci, with CerSci as the surviving corpor million shares of the Company’s common stock with a value of $44.3 million were issued to CerSci’s forff mer equity holders. The Company fiff led a registration statement on Form S-3 with the SEC to register the resale of the shares of the Company’s common stock issued in connection with its acquisition of CerSci. ation and the Company’s wholly owned subsidiary.rr Approximately 1.2 r Equitii ytt Awards The Company’s 2010 Equity Incentive Plan, as amended to date (the 2010 Plan), permits the grant of options to employees, directors and consultants. In addition, the 2010 Plan permits the grant of stock bonuses, rights to purchase restricted stock, and other stock awards. The exercise price of options granted under the 2010 Plan cannot be less than 100 percent of the faff ir market value of the common stock on the date of grant and the maximum term of any option is 10 years. Options granted under the 2010 Plan generally vest over a four the Company’s 2004 Equity Incentive Plan (the 2004 Plan) at the time of appr oval of the 2010 Plan were transfeff rred to the 2010 Plan. The 2010 Plan share reserve also has been, and may be, increased by the number of shares that otherwise would have reverted to the 2004 Plan reserve aftff er June 2010. In June 2015, June 2016, June 2017, June 2018, June 2019 and June 2022, the Company’s stockholders appr number of shares of common stock authorized forff issuance under the plan by 5,000,000 shares, 3,000,000 shares, 5,500,000 shares, 6,700,000 shares, 8,300,000 shares and 6,000,000 shares, respectively. At December 31, 2022, there were 32,635,412 shares of common stock authorized forff Plan. oved amendments to its 2010 Plan to, among other things, increase the aggregate issuance, of which 12,108,840 shares were availabla e forff -year period. All shares that remained eligible forff new grants under the 2010 grant under a a ff Stock OptO ions The 2010 Plan provided forff the grant of options to employees, directors and consultants. The exercise price of options granted under the 2010 Plan was at 100 percent of the faff ir market value of the common stock on the date of grant and the -year period. maximum term of any option was 10 years. Options granted under the 2010 Plan generally vested over a four ff The folff lowing tabla e summarizes the Company’s stock option activity during the year ended December 31, 2022: Outstanding at December 31, 2021 Granted Exercised Cancelled/forff Outstanding at December 31, 2022 Vested and exercisabla e at December 31, 2022 Unvested at December 31, 2022 feff ited Weighted- Average Remaining Contractual Term (years) Weighted- Average Exercise Price Aggregate Intrinsic Value (in thousands) 31.58 22.79 16.32 32.68 29.83 30.70 27.82 5.7 4.5 8.3 $ $ $ 1,052 725 327 Number of Shares $ 15,086,141 3,393,568 $ (226,943) $ (1,913,301) $ $ 16,339,465 $ 11,386,596 $ 4,952,869 The aggregate intrinsic value of options exercisabla e as of December 31, 2022 is calculated as the diffff eff rence between the exercise price of the underlying options and the closing market price of the Company’s common stock on that date, which was $15.92 per share. The aggregate intrinsic value of options exercised during the years ended December 31, 2022, 2021, and 2020 was appr The Company received $3.7 million and $12.9 million in cash frff om options exercised during the year ended December 31, 2022 and 2021, respectively. oximately $1.7 million, $8.0 million, and $55.5 million, respectively, determined as of the date of exercise. a F-19 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The weighted average per share faff ir value of options granted during the years ended December 31, 2022, 2021, and oximately $13.66, $24.07, and $24.16, respectively. As of December 31, 2022 and 2021, total unrecognized a 2020 was appr compensation cost related to stock options was appr period over which this cost is expected to be recognized is appr a a oximately $63.9 million and $66.0 million, and the weighted average oximately 2.7 years and 2.3 years, respectively. Restricted Stock The Company grants RSUs and PSUs, both of which are considered restricted stock, pursuant to the 2010 Plan and satisfiff es such grants through the issuance of new shares. RSUs are share awards that, upon vesting, will deliver to the holder shares of the Company’s common stock. RSUs generally vest over a four -year period. Certain RSUs also have an accelerated vesting clause based on specififf ed market condition target and continued employment through the vesting period. PSUs forff which the number of shares issuabla e at the end of perforff mance period can reach up to 200% of the shares appr oved in the award based on the achievement of certain pre-defiff ned Acadia-specififf c perforff mance criteria and continued employment through the vesting period. a ff The folff lowing tabla e summarizes the Company’s restricted stock activity during the year ended December 31, 2022: Outstanding at December 31, 2021 Granted Vested Cancelled/forff Outstanding at December 31, 2022 feff ited Weighted Average Grant Number of Date Fair Value Shares 34.41 $ 2,680,790 24.14 2,534,557 $ 35.82 (494,709) $ 22.92 (533,531) $ 29.49 $ 4,187,107 Aggregate Intrinsic Value (in thousands) $ 48,581 There were 2,055,574 and 1,276,936 PSUs outstanding at December 31, 2022 and 2021, respectively. During the years ended 2022 and 2021, 986,739 and 918,434 PSUs were granted, respectively, none of which were vested. During the years ended December 31, 2022 and 2021, total intrinsic value of PSUs outstanding was $32.7 million and $29.8 million, respectively. Total unrecognized compensation cost related to RSUs was appr oximately $44.6 million and $39.8 million forff the years ended December 31, 2022 and 2021, respectively, and the weighted average period over which the cost is expected to be recognized is appr PSUs was appr a the weighted average remaining contractuat oximately 2.7 years and 2.3 years, respectively. Total unrecognized compensation cost related to l term related to outstanding PSUs was 3.0 years and 3.3 years, respectively. the years ended December 31, 2022 and 2021, respectively, and oximately $12.7 million and $11.5 million forff a a EmEE plm oyee Stock Purchase Plan The Company’s 2004 Employee Stock Purchase Plan (the Purchase Plan) became effff eff ctive upon the closing of the issuance under the plan by 400,000 shares, 600,000 shares and 3,000,000 shares, respectively. At oved an amendment to the Purchase Plan to, among other things, increase the aggregate number of shares of common Company’s initial public offff eff ring in June 2004. In June 2016, June 2019 and June 2020, the Company’s stockholders a appr stock authorized forff December 31, 2022, a total of 5,525,000 shares of common stock had been reserved forff December 31, 2022, 2,479,620 shares of common stock remained availabla e forff Eligible employees who elect to participate in an offff eff ring under the Purchase Plan may have up to 15 percent of their earnings withheld, subject to certain limitations, to purchase shares of common stock pursuant to the Purchase Plan. The price of common stock purchased under the Purchase Plan is equal to 85 percent of the lower of the faff ir market value of the common stock at the commencement date of each offff eff ring period or the relevant purchase date. issuance pursuant to the Purchase Plan. issuance under the Purchase Plan. At During the years ended December 31, 2022, 2021, and 2020, a total of 330,525, 296,850, and 377,963 shares of common stock were issued under the Purchase Plan at average per share prices of $13.60, $17.89, and $18.94, respectively. The weighted average per share faff ir value of purchase rights granted during the years ended December 31, 2022, 2021, and 2020 was $13.91, $23.97, and $22.47, respectively. During the years ended December 31, 2022, 2021, and 2020, the Company recorded cash received frff om the exercise of purchase rights of $4.5 million, $5.3 million, and $7.2 million, respectively. F-20 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) ConCC titt nii gent CasCC h Awards In November 2021, the Company establa ished a plan whereby substantially all fulff l-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-specififf ed 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 classififf ed as liabia lities pursuant to ASC Topic 718, ComCC pem nsation – Stock ComCC pem nsation. The Company estimates the faff ir value of the awards at each reporting period using the Monte Carlo simulation, which is recognized as compensation cost over the derived service period. Total faff ir value of the awards at the grant date was $4.4 million. The maximum potential payout at December 31, 2022 aftff er adjusting forff forff compared to $5.6 million at December 31, 2021. The estimated liabia lity included on the December 31, 2022 and 2021 consolidated balance sheet was $0.9 million and $0.6 million. During years ended December 31, 2022 and 2021, the Company recorded a total of $0.3 million and $0.6 million compensation cost related to the awards. feff iturt es was $11.8 million. The total faff ir value of the awards at December 31, 2022 was appr oximately $1.8 million, a 7. 401(k) Plan Effff eff ctive Januaryrr 1997, the Company establa ished a defeff rred compensation plan (the 401(k) Plan) pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended (the Code), whereby substantially all employees are eligible to contribute up to 60 percent of their pretax earnings, not to exceed amounts allowed under the Code. The Company makes discretionaryrr contributions to the 401(k) Plan equal to 100 percent of each employee’s pretax contributions up to 5 percent of his or her eligible compensation, subject to limitations under the Code. The Company’s total contributions to the 401(k) Plan were $5.1 million, $5.8 million, and $5.1 million forff the years ended December 31, 2022, 2021, and 2020, respectively. 8. Income Taxes Domestic and forff eign pre-tax loss is as folff lows (in thousands): Domestic Foreign Years Ended December 31, 2021 (138,913) $ (28,606) (167,519) $ 2022 (233,216) $ 19,772 (213,444) $ $ $ 2020 (238,885) (42,088) (280,973) At December 31, 2022, the Company had feff deral, state, and forff eign net operating loss (NOL) carryfrr orff wards of the years ended December 31, 2022, 2021 and 2020, oximately $480.2 million, $486.4 million, and $1,130.3 million, respectively. The Company recognized state income tax a appr provisions of $2.5 million, $0.4 million and $0.4 million forff respectively. The Company recognized forff eign income tax in the amount of $0.2 million forff 2020. These tax liabia lities were associated with minimum taxes and state tax liabia lities in excess of net operating losses in the current year and a patent box entryrr (R&D) credit carryfrr orff wards may be subject to a substantial annual limitation due to ownership change limitations that have occurred or that could occur in the futff urt e, as required by Section 382 of the Code, as well as similar state and forff eign provisions. These ownership changes may limit the amount of NOL and R&D credit carryfrr orff wards that can be utilized annually to offff sff et futff urt e taxabla e income and tax, respectively. In general, an “ownership change” as defiff ned by Section 382 of the Code results frff om a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or pubu lic groups. tax forff Switzerland. Utilization of the domestic NOL and research and development the year ended December 31, The Company previously completed a study t to assess whether an ownership change, as defiff ned by Section 382 of the Code, had occurred frff om the Company’s forff mation through December 31, 2013. Based upon this study, determined that several ownership changes had occurred. Accordingly, the Company reduced its defeff rred tax assets related to the feff deral NOL carryfrr orff wards and the feff deral R&D credit carryfrr orff wards that are anticipated to expire unused as a result of these ownership changes. These tax attributes were excluded frff om defeff rred tax assets with a corresponding reduction of the valuation allowance with no net effff eff ct on income tax expense or the effff eff ctive tax rate. The Company completed a study through December 31, 2021 and concluded no additional ownership changes occurred. Futurt e ownership changes may furff limit the Company’s abia lity to utilize its remaining tax attributes. the Company ther t t F-21 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Federal and state NOL carryfrr orff wards of $19.2 million and $143.4 million will expire in 2031 and 2024 respectively unless utilized. The remaining feff deral and state NOL carryfrr orff wards will begin to expire in 2032 and 2025, respectively. At December 31, 2022, the Company had feff deral and state charitabla e contribution carryfrr orff wards of $179.8 million which will begin to expire in 2023 unless utilized. At December 31, 2022, the Company had $74.2 million of feff deral R&D credit carryfrr orff wards, of which $0.3 million will expire in 2023 unless utilized, and the remaining feff deral R&D credit carryfrr orff wards will begin to expire in 2024. At December 31, 2022, the Company had state R&D credit carryfrr orff wards of appr oximately $3.2 million that will begin to expire in 2025 and $19.1 million that have no expiration date. At December 31, 2022, the Company had forff eign NOL carryfrr orff wards of appr oximately $266.5 million that will expire in 2023 unless utilized and $4.4 million that have no expiration date. The Company continues to record the defeff rred tax assets related to these attributes, subject to valuation allowance, until expiration occurs. a a The components of the defeff rred tax assets are as folff lows (in thousands): Defeff rred tax assets NOL carryfrr orff wards R&D credit carryfrr orff wards Stock-based compensation Charitabla e contributions Capia talized R&D Intangibles Lease liabia lities Other Total defeff rred tax assets Valuation allowance Defeff rred tax liabia lities Right-of-ff use assets Property and equipment Total defeff rred tax liabia lities Total net defeff rred tax assets December 31, 2022 2021 $ $ 225,993 83,074 51,661 42,677 38,507 24,030 14,730 13,770 494,442 (481,210) (13,203) (29) (13,232) $ — $ 229,476 74,702 51,170 41,355 — 6,741 15,550 11,700 430,694 (416,630) (14,063) (1) (14,064) — Realization of defeff rred tax assets is dependent upon futff urt e earnings, if any, the timing and amount of which are a uncertain. Accordingly, the defeff rred tax assets have been fulff increased by appr capia talization of research and development expenses, R&D credits and stock-based compensation and limitation on futff urt e executive stock compensation, offff sff et in part by the expiration of Switzerland NOLs, and the remeasurement of defeff rred tax balance forff oximately $64.6 million in 2022 primarily due to an increase in defeff rred tax assets generated frff om ly offff sff et by a valuation allowance. The valuation allowance changes in state tax rates. An accounting policy may be selected to either (i) treat taxes due on futff urt e U.S. inclusions in taxabla e income related to global intangible low-taxed income (“GILTI”) as a current-period expense when incurred or (ii) faff ctor such amounts into a company’s measurement of its defeff rred taxes. We have elected to account forff GILTI as a period cost. During 2019, Switzerland implemented tax reforff m that is effff eff ctive forff tax years 2020 and forff ward. As a result, the Company has remeasured the defeff rred tax assets, primarily comprised of NOL carryfrr orff wards, at the amount and rate in which it is anticipated they will reverse. The adjustments made to the defeff rred tax assets are offff sff et by a valuation allowance. F-22 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) A reconciliation of income taxes to the amount computed by appl a ying the statutt oryrr feff deral income tax rate to the pretax loss is summarized as folff lows (in thousands): feff deral rate Amounts computed at statutt oryrr Stock-based compensation and other permanent diffff eff rences Write-offff of IP R&D R&D credits Change in valuation allowance State taxes Contingencies Foreign rate diffff eff rential Limitation on executive compensation Defeff rred rate adjustment Switzerland tax reforff m Expiration of attributes GILTI Other Income tax expense $ $ Years Ended December 31, 2021 (35,179) $ 6,696 1,277 (11,727) 36,099 (2,617) 3,879 2,857 1,808 (2,424) (923) — — 605 351 2022 (44,823) $ 9,050 2,449 (9,974) 11,227 (2,232) 6,993 (1,971) 3,918 922 — 16,142 10,804 26 2,531 $ $ 2020 (59,004) 991 9,565 (17,909) 5,925 (5,038) 2,665 4,208 3,705 2,130 53,045 — — 328 611 The tax years 2003-2021 remain open to examination by the maja or taxing jurisdictions to which the Company is subject. the years ended December 31, 2022, 2021 and 2020, respectively. Due to the valuation allowance The Company recognizes a tax benefiff t frff om an uncertain tax position when it is more likely than not that the position will be sustained upon examination. The Company recorded an uncertain tax position reserve of $5.1 million, $4.1 million and $2.9 million forff recorded against the Company’s defeff rred tax assets, appr December 31, 2022 would reduce the annual effff eff ctive tax rate if recognized. The Company does not anticipate that the amount of unrecognized tax benefiff ts as of December 31, 2022 will signififf cantly change within the next twelve months. The Company’s practice is to recognize interest and/or penalties related to uncertain income tax positions in income tax expense. The Company had no material interest and/or penalties accruer d on the Company’s consolidated balance sheets at December 31, 2022 or 2021, respectively. Further, the Company recognized an immaterial amount of interest and/or penalties in the statement of operations forff positions. the years ended December 31, 2022, 2021 and 2020, respectively, related to uncertain tax oximately $1.2 million of the total unrecognized tax benefiff ts as of a The folff lowing tabla e provides a reconciliation of changes in unrecognized tax benefiff ts (in thousands): Years Ended December 31, 2021 2020 2022 $ 13,923 5,140 38 (37) $ 19,064 $ 9,843 3,973 140 (33) $ 13,923 $ $ 6,945 2,722 212 (36) 9,843 Balance at beginning of period Additions related to current period tax positions Additions related to prior period tax positions Reductions related to prior period tax positions Balance at end of period F-23 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 9. Commitments and Contingencies License and MeMM rger r Agreementstt The Company has entered into various collabor a ation, licensing and merger agreements which provide the Company with rights to certain know-how, technology and patent rights. The agreements generally include upfrff ont license feff es, 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 varyrr by agreement. The Company incurred $88.7 million, $11.0 million and $72.7 million in upfrff ont and license payments in the years ended December 31, 2022, 2021 and 2020, respectively. These upfrff ont and license payments were included in the research and development expenses in the consolidated statements of operations as there was no alternative futff urt e use associated with the payments. As of December 31, 2022, the Company may be required to make milestone payments up to $1.6 billion in the aggregate, of which, $40.0 million may be paid in the next 12 months forff trofiff netide in North America if the FDA appr the treatment of Rett syndrome. the fiff rst commercial sale of oves trofiff netide forff a In May 2018, the Company signed an Exclusivity Deed (the Deed) with Neuren that provided forff exclusive 1,330,000 shares of Neuren and paid $0.9 million forff a period of three months frff om the date of the Deed. Under the terms of the Deed, the Company invested $3.1 negotiations forff million to subscribe forff Neuren, which was recorded in selling, general and administrative expenses in the consolidated statements of operations in the second quarter of 2018. At December 31, 2022, the Company continues to hold the equity securities as a strategic investment in which the Company does not have a controlling interest or signififf cant inflff uence. Publicly held equity securities are measured using quoted prices in their respective active markets with changes recorded through other expense on the statements of operations. Net gain on the strategic investments recognized in other income in the consolidated statements of operations forff the year ended December 31, 2021 was $2.3 million and net loss on strategic investments recognized forff the year ended December 31, 2020 was $1.0 million. As of December 31, 2022 and 2021, the aggregate carryirr ng amount of the Company’s strategic equity investment was $7.2 million and $3.6 million, respectively, included in other assets on the consolidated balance sheets. the year ended December 31, 2022 was $3.5 million, net gain on strategic investments recognized forff the exclusive right to negotiate a deal with In August 2018, the Company entered into a license agreement with Neuren and obtained exclusive North American rights to develop and commercialize trofiff netide forff Rett syndrome and other indications. Under the terms of the agreement, Neuren received an upfrff ont payment of $10.0 million and is eligible to receive milestone payments of up to $455.0 million, based on the achievement of certain development and annual net sales milestones, including a $40.0 million payment upon the Company’s fiff rst commercial sale of trofiff netide in North America. In addition, Neuren is eligible to receive tiered, escalating, double-digit percentage royalties based on net sales. The license agreement was accounted forff as an asset acquisition and the upfrff ont cash payment of $10.0 million was recorded in research and development expenses in the consolidated statements of operations in the third quarter of 2018, as there is no alternative use forff the asset. Under the license agreement, Neuren and its non-Company licensees and sublicensees are prohibited frff om developing or commercializing any other product (including Neuren’s other existing compounds) forff Rett syndrome, or forff indication being developed pursuant to the agreement, in North America. Furthermore, with respect to Neuren’s development or commercial activities outside North America, (i) if Neuren is developing trofiff netide forff Company, Neuren is obligated to use commercially reasonabla e effff orff any adverse impact on trofiff netide in North America, and (ii) if Neuren is developing trofiff netide forff Neuren may not undertake such activities if the Company believes, and the joint steering committee determines, they would be reasonabla y likely to materially adversely affff eff ct the development and commercialization of trofiff netide in North America. ts to conduct such activities in a manner that minimizes the same indication as the a diffff eff rent indication, any other In Januaryrr 2022, the Company entered into a license and collabor a ation agreement with Stoke to discover, develop and a the potential treatment of severe and rare genetic neurodevelopmental ation includes SYNGAP1 syndrome, Rett syndrome (MECP2), and an undisclosed commercialize novel RNRR A-based medicines forff diseases of the CNS. The collabor 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 futff urt e profiff ts. In addition, Stoke is eligible to receive potential development, regulatory,rr 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 ff development, regulatory,rr research and pre-clinical development activities related to these two targets and Stoke is eligible to receive potential fiff rst commercial sales and sales milestones as well as tiered royalty payments on worldwide sales fiff rst commercial sales and sales milestones. For the MECP2 program and the F-24 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) starting in the mid-single digit range and escalating to the mid-teens based on revenue levels. Under the terms of the as an asset acquisition and agreement, the Company paid Stoke a $60.0 million upfrff ont payment which was accounted forff was expensed to research and development in the fiff rst quarter of 2022 as there is no alternative use forff the asset. The Company may be required to pay up to an additional $907.5 million in milestones as well as royalties on futff urt e sales. rr CorCC por atett CrCC editii CarCC d PrPP ogram In connection with the Company’s credit card program, the Company establa ished a letter of credit in 2016 forff $2.0 million, which has automatic annual extensions and is fulff ly secured by restricted cash. FlFF ell et PrPP ogram In connection with the Company’s flff eet program, the Company establa ished a letter of credit forff ly secured by restricted cash. automatic annual extensions and is fulff $0.4 million, which has e Legal PrPP oceedinii gs a judgments of noninfrff ingement and invalidity. On atories Private Ltd. and its affff iff liate MSN Pharmaceuticals, Inc., and (iii) Zydus the District of Delaware, allege infrff ingement of certain of the Company’s Orange Book-listed On July 24, 2020, the Company fiff led complaints against (i) Aurobindo Pharma Limited and its affff iff liate Aurobindo Pharma USA, Inc. and (ii) Teva Pharmaceuticals USA, Inc. and its affff iff liate Teva Pharmaceutical Industries Ltd., and on July 30, 2020, the Company fiff led complaints against (i) Hetero Labsa Limited and its affff iff liates Hetero Labsa Limited Unit-V and Hetero USA Inc., (ii) MSN Labor Pharmaceuticals (USA) Inc. and its affff iff liate Cadila Healthcare Limited. These complaints, which were fiff led in the United States District Court forff patents covering NUPLAZID. The cases have been assigned to the Honorabla e Richard G. Andrews. On September 1, 2020, Aurobindo fiff led its answer and counterclaims seeking declaratoryrr September 22, 2020, the Company fiff led its answer to Aurobindo’s counterclaims. On August 31, 2020, Teva fiff led its answer and counterclaims seeking declaratoryrr judgments of noninfrff ingement and invalidity. On September 21, 2020, the Company fiff led its answer to Teva’s counterclaims. On October 5, 2020, Hetero fiff led its answer and counterclaims seeking declaratoryrr judgments of noninfrff ingement and invalidity. On October 26, 2020, the Company fiff led its answer to Hetero’s counterclaims. On September 30, 2020, MSN fiff led its answer and counterclaims seeking declaratoryrr invalidity regarding certain of the Company’s Orange Book-listed patents covering NUPLAZID. On November 5, 2020, the Company fiff led its fiff rst amended complaint against MSN in the United States District Court forff the District of Delaware, alleging infrff ingement of certain of the Company’s Orange Book-listed patents covering NUPLAZID. On November 19, 2020, MSN fiff led its answer and counterclaims seeking declaratoryrr judgments of noninfrff ingement and invalidity regarding certain of the Company’s Orange Book-listed patents covering NUPLAZID. On December 10, 2020, the Company fiff led its answer to MSN’s counterclaims. On November 2, 2020, Zydus fiff led its answer and counterclaims seeking declaratoryrr judgments of noninfrff ingement and invalidity. On November 23, 2020, the Company fiff led 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 fiff led its fiff rst 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 fiff led its fiff rst amended complaint against Zydus and on April 9, 2021, the Company fiff led its fiff rst amended complaint against Aurobindo. On April 20, 2021, MSN fiff led its answer, affff iff rmative defeff nses, and counterclaims to the Company’s second amended complaint, seeking declaratoryrr Book-listed patents covering NUPLAZID. On April 21, 2021, Teva fiff led its answer, affff iff rmative defeff nses, and counterclaims to the Company’s fiff rst amended complaint, seeking declaratoryrr judgments of noninfrff ingement and invalidity. On April 22, 2021, Zydus fiff led its answer, affff iff rmative defeff nses, and counterclaims to the Company’s fiff rst amended complaint, seeking declaratoryrr judgments of noninfrff ingement and invalidity regarding certain of the Company’s Orange judgments of noninfrff ingement and invalidity. judgments of noninfrff ingement and On April 22, 2021, Aurobindo fiff led its answer, affff iff rmative defeff nses, and counterclaims to the Company’s fiff rst judgments of noninfrff ingement and invalidity. On May 11, 2021, the Company fiff led amended complaint, seeking declaratoryrr its answer to MSN’s counterclaims. On May 12, the Company fiff led its answer to Teva’s counterclaims. On May 13, the Company fiff led its answer to Zydusd ’s counterclaims and its answer to Aurobindo’s counterclaims. A joint trial in the matters is scheduled forff May 15, 2023. The Company entered into an agreement effff eff ctive April 22, 2021 with Hetero settling all claims and counterclaims in the litigation. The agreement allows Hetero to launch its generic pimavanserin product on July earlier launch. The Hetero case was dismissed by joint agreement on May 3, 2021. 27, 2038, subject to certain triggers forff F-25 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) On August 27, 2021, the Company fiff led its second amended complaint against Zydus to include an additional Orange ryrr tion. On Februar tion Chart. On October 1, 2021, the tion on two terms, Defeff ndants’ construcr Book-listed patent covering NUPLAZID. On September 10, 2021, Zydus fiff led its answer, affff iff rmative defeff nses, and counterclaims to the Company’s second amended complaint, seeking declaratoryrr judgments of noninfrff ingement and invalidity. Also on September 10, 2021, the parties fiff led their Joint Claim Construcr Company fiff led its answer to Zydusd ’s counterclaims. On November 30, 2021,the Company fiff led 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 Januaryrr 28, 2022, the parties fiff led their Joint Claim Construcr tion Brief and Appendix. On Februar 23, 2022, the Court heard oral argument on claim construcr tion. On April 6, 2022, the Court issued a Memorandum Opinion tion on two terms, construir ng several terms at issue, adopting the Company’s construcr and one agreed-upon construcr ryrr 28, 2022, the Company fiff led 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 fiff led 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 fiff led 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 fiff led 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 fiff led a stipulation and proposed order of non-infrff ingement 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 fiff led a stipulation and proposed order of non-infrff ingement 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 fiff led a stipulation and proposed order of non-infrff ingement 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 fiff led its second amended complaint against Teva to include an additional Orange Book-listed patent covering NUPLAZID. On May 18, 2022, the Company fiff led a stipulation and proposed order of non-infrff ingement 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 fiff led its answer, affff iff rmative defeff nses, and counterclaims to the Company’s second amended complaint, seeking declaratoryrr patents covering NUPLAZID. On June 1, 2022, the Company fiff led its second amended complaint against Aurobindo alleging infrff ingement of certain of the Company’s Orange Book-listed patents covering NUPLAZID. On June 2, 2022, the Company fiff led its third amended complaint against Zydus alleging infrff ingement of certain of the Company’s Orange Book-listed patents covering NUPLAZID. On June 14, 2022, the Company fiff led its answer to Teva’s counterclaims. June 15, 2022, Aurobindo fiff led its answer, affff iff rmative defeff nses, and counterclaims to the Company’s second amended complaint, seeking declaratoryrr covering NUPLAZID. On June 16, 2022, Zydus fiff led its answer, affff iff rmative defeff nses, and counterclaims to the Company’s third amended complaint, seeking declaratoryrr Company’s Orange Book-listed patents covering NUPLAZID. On July 6, 2022, the Company fiff led its answer to Aurobindo’s counterclaims. judgments of noninfrff ingement and invalidity regarding certain of the Company’s Orange Book-listed patents judgments of noninfrff ingement and invalidity regarding certain of the Company’s Orange Book-listed judgments of noninfrff ingement and invalidity regarding certain of the On September 7, 2022, the consolidated cases were reassigned to the Honorabla e Judge Gregoryrr B. Williams. On September 30, 2022, the Company fiff led a stipulation and proposed order to stay the claims currently asserted against Teva and forff Teva to be bound by the result of the litigation rendered against the remaining Defeff ndants, which was ordered by the Court on October 4, 2022. On October 21, 2021, the Company fiff led complaints against Aurobindo, MSN and Zydus in the United States District Court forff the District of Delaware alleging infrff ingement of an additional Orange Book-listed patent covering NUPLAZID. On April 19, 2021, a purpor rr ted stockholder of the Company fiff led a putative securities class action complaint (capta ioned a Marechal v. Acadia Pharmaceuticals, Inc., Case No. 21-cv-0762) in the U.S. District Court forff Califorff nia against the Company and certain of the Company’s current executive offff iff cers. The complaint generally alleges that defeff ndants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by faff iling to disclose that the materials submitted in support of its sNDA seeking appr associated with dementia-related psychosis contained statistical and design defiff ciencies and that the FDA was unlikely to appr ove the sNDA in its current forff m. The complaint seeks unspecififf ed monetaryrr damages and other relief.ff On September a 29, 2021, the Court issued an order designating lead plaintiffff and lead counsel. On December 10, 2021, lead plaintiffff fiff led an ryrr 15, 2022. Lead plaintiffff fiff led amended complaint. Defeff ndants fiff led a motion to dismiss the amended complaint on Februar an opposition to Defeff ndants’ motion to dismiss on April 18, 2022, and Defeff ndants fiff led a reply on June 2, 2022. On September 27, 2022, the Court issued an order denying Defeff ndants’ motion to dismiss. Defeff ndants fiff led their answer to the amended complaint on October 19, 2022, and fiff led a motion forff ryrr 3, 2023, the Court issued an order denying the motion forff reconsideration on October 25, 2022. On Februarr the treatment of hallucinations and delusions oval of pimavanserin forff the Southern District of reconsideration. F-26 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Management currently believes that none of the forff egoing claims or other actions pending against the Company as of December 31, 2022 is likely to have, individually or in the aggregate, a material adverse effff eff ct on the Company’s business, liquidity, fiff nancial position, or results of operations. Given the unpredictabia lity inherent in litigation, however, the Company cannot predict the outcome of these matters. The Company is unabla e to estimate possible losses or ranges of losses that may result frff om these matters, and thereforff e it has not accruerr d any amounts in connection with these matters other than attorneys’ feff es incurred to date. 10. Leases The Company leases faff cilities and certain equipment under noncancelabla e operating leases that expire at various dates through Februarr property taxes, insurance and normal maintenance costs. ryrr 2031. Under the terms of the faff cilities leases, the Company is required to pay its proportionate share of In 2015, the Company entered into a master lease agreement giving the Company the abia lity to lease vehicles under operating leases with initial terms of 36 months frff om the date of delivery.rr new master lease agreement was entered into with a new vendor giving the Company the abia lity to lease vehicles under operating leases with initial terms ranging frff om 12 to 50 months frff om the date of delivery.rr In 2021, the Company entered into a new master lease agreement giving the Company the abia lity to lease vehicles under operating leases with initial terms of 60 months frff om the date of delivery.rr In 2018, the lease agreement was terminated and a The Company leases faff cilities and certain equipment under noncancelabla e operating leases with remaining lease terms of 1.0 year to 8.4 years, some of which include options to extend the lease forff periods were not considered in the determination of the right-of-ff use asset or the lease liabia lity as the Company did not consider it reasonabla y certain that it would exercise such options. up to two fiff ve-year terms. These optional The operating lease costs were as folff lows (in thousands): Operating lease cost 2022 Years Ended December 31, 2021 2020 $ 8,095 $ 8,874 $ 6,917 Supplemental cash flff ow inforff mation related to the Company’s leases were as folff lows (in thousands): Cash paid forff amounts included in the measurement of lease liabia lities: Operating cash flff ows frff om operating leases Right-of-ff use assets obtained in exchange forff operating lease obligations: Years Ended December 31, 2022 2021 $ $ 9,083 3,871 5,303 17,272 The balance sheet classififf cation of the Company’s lease liabia lities was as folff lows (in thousands): Operating lease liabilities Current portion included in accruer d liabia lities Operating lease liabia lities Total operating lease liabia lities December 31, 2022 December 31, 2021 $ $ 9,305 52,695 62,000 $ $ 8,304 56,126 64,430 F-27 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Maturt ities of lease liabia lities were as folff lows (in thousands): Years ending December 31, 2023 2024 2025 2026 2027 Thereaftff er Total lease payments Less: Imputed interest Total operating lease liabia lities Operating Leases $ $ 9,562 9,112 9,192 8,556 8,282 28,687 73,391 (11,391) 62,000 Operating lease liabia lities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the inforff mation availabla e at the lease commencement date. As of December 31, 2022 and 2021, the weighted average remaining lease term was 7.9 years and 9.0 years, respectively, and the weighted average discount rate used to determine the operating lease liabia lity was 4.4% and 4.3%, respectively. In the four ff th quarter of 2018, the Company entered into an agreement to lease the 4th and 5th flff oors of corpor r ate offff iff ce ate offff iff ce space in San Diego, Califorff nia with total minimum lease payments of $25.3 million over an initial term of oximately 10 years and 7 months. In March 2020, the Company entered into the second amendment to the lease space in San Diego, Califorff nia with total minimum lease payments of $50.4 million over an initial term of 10 years and 9 months. In Februarr ryrr 2020, the Company entered into the fiff rst amendment to the lease agreement to lease the 2nd flff oor of corpor r a appr agreement which increased the total minimum lease payments of the original corpor third quarter of 2020, the lease forff the 4th and 5th flff oors of corpor right of use asset and related lease liabia lity of $40.3 million. In the fiff rst quarter of 2021, the lease forff corpor r million. In connection with this lease and the amendment, the Company establa ished a letter of credit forff has automatic annual extensions and is fulff ate offff iff ce space commenced and the Company capia talized a right of use asset and related lease liabia lity of $19.2 ate offff iff ce space to $51.4 million. In the ate offff iff ce space commenced and the Company capia talized a ly secured by restricted cash. $3.1 million, which the 2nd flff oor of r r 11. Selected Quarterly Financial Data (Unaudited) The folff lowing fiff nancial inforff mation reflff ects all normal recurring adjustments, which are, in the opinion of management, necessaryrr ended December 31, 2022 and 2021 are as folff forff lows (in thousands, except per share data): a faff ir statement of the results of the interim periods. Summarized quarterly data forff the years Revenues Gross profiff t(1) Net loss Basic and diluted net loss per share(2) Revenues Gross profiff t(1) Net loss Basic and diluted net loss per share(2) 1st $ 115,468 $ 112,518 $ (113,056) $ (0.70) $ $ Fiscal Year 2022 Quarters 2nd $ 134,563 $ 131,896 3rd $ 130,714 $ 128,578 (34,011) $ (0.21) $ (27,183) $ (0.17) $ 4th $ 136,490 $ 134,076 Total 517,235 $ $ 507,068 (41,725) $ (215,975) (1.34) (0.26) $ Fiscal Year 2021 Quarters 2nd $ 115,221 $ 112,695 3rd $ 131,612 $ 127,924 (66,448) $ (43,871) $ (0.27) $ (0.42) $ (14,457) $ (0.09) $ 1st $ 106,554 $ 104,369 $ $ 4th $ 130,758 $ 128,314 $ $ (43,094) $ (0.27) $ Total 484,145 473,302 (167,870) (1.05) (1) (2) Determined by subtracting cost of product sales frff om product sales, net. Basic and diluted net loss per common share are computed independently forff l year based upon respective average shares outstanding. Thereforff e, the sum of the quarterly net loss per common share amounts may not equal the annual amounts reported. each quarter and the fulff F-28 SCHEDULE II – Valuation and Qualifyiff ng Accounts (in thousands) Additions Deductions Balance at Beginning of Period Provision Related to Current Period Sales Actual Distribution Fees, Discounts and Chargebacks Related to Current Period Sales Actual Distribution Fees, Discounts and Chargebacks Related to Prior Period Sales Balance at End of Period distribution feff es, discounts Allowance forff and chargebacks: For the year ended December 31, 2020 For the year ended December 31, 2021 For the year ended December 31, 2022 $ $ $ 2,576 4,221 8,467 $ $ $ 51,684 72,011 80,836 $ $ $ (47,463) $ (63,544) $ (69,913) $ (2,576) $ (4,221) $ (8,467) $ 4,221 8,467 10,923 [THIS PAGE INTENTIONALLY LEFT BLANK] MANAGEMENT TEAM Stephen R. Davis Chief Executive Officer Julie Fisher Senior Vice President, Marketing and Commercial Strategy Austin D. Kim Executive Vice President, General Counsel and Secretary Parag Meswani Senior Vice President, Troﬁnetide – Rare Disease Franchise Mark Schneyer Executive Vice President, Chief Financial Officer Bob Mischler Senior Vice President, Strategy and Technology Operations Brendan Teehan Executive Vice President, Chief Operating Officer, Head of Commercial Sanjeev Pathak Senior Vice President, Head of Clinical Development Doug Williamson Executive Vice President, Head of Research and Development Rob Ackles Senior Vice President, Chief People Officer Kathie M. Bishop Senior Vice President, Chief Scientiﬁc Officer, Head of Rare Disease Ponni Subbiah, M.D., M.P.H. Senior Vice President, Global Head of Medical Affairs and Chief Medical Officer Benir Ruano Senior Vice President, Technical Development and Operations Holly Valdiviez Senior Vice President, Head of Sales BOARD OF DIRECTORS Stephen R. Biggar, M.D., Ph.D. Chairman of the Board, Partner Baker Brothers Investments Julian C. Baker Managing Partner Baker Brothers Investments Laura A. Brege Managing Director Cervantes Life Science Partners Elizabeth Garofalo, M.D. Principal EAG Pharma Consulting LLC. Edmund P. Harrigan, M.D. Former Senior Vice President, Worldwide Safety and Regulatory Pﬁzer Inc. Adora Ndu, Pharm.D., J.D. Director, Chief Regulatory Officer BridgeBio James M. Daly Former Executive Vice President and Chief Commercial Officer Incyte Corporation Daniel B. Soland Senior Vice President and Chief Operating Officer Idera Pharmaceuticals Stephen R. Davis Chief Executive Officer Acadia Pharmaceuticals Inc. CORPORATE HEADQUARTERS 12830 El Camino Real, Suite 400 San Diego, CA 92130 Telephone: (858) 558-2871 Fax: (858) 212-0513 www.acadia-pharm.com ANNUAL STOCKHOLDERS’ MEETING Acadia Pharmaceuticals’ Virtual Annual Stockholders’ Meeting will be held online at noon PT on June 1. See the enclosed Notice of Annual Meeting for details STOCK TRANSFER AGENT AND REGISTRAR Computershare Trust Company, N.A. 462 South 4th Street Suite 1600 Louisville, KY 40202 Telephone: (800) 851-3061 www.computershare.com/us INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP STOCKHOLDERS’ INQUIRIES Stockholders may obtain copies of our news releases, Securities and Exchange Commission ﬁlings, including Forms 10-K, 10-Q, and 8-K, and other company information by accessing our website at www.acadia-pharm.com. Stockholders may also contact Investor Relations at (858)558-2871. FORWARD-LOOKING STATEMENTS Statements in this report that are not strictly historical in nature are forward-looking statements. These statements include but are not limited to statements related to the potential opportunity for future growth in sales of NUPLAZID; the timing of ongoing and future clinical studies for pimavanserin; the development and commercialization of DAYBUE troﬁnetide; and guidance for full-year 2023 NUPLAZID net sales and certain expense line items. These statements are only predictions based on current information and expectations and involve a number of risks and uncertainties. Actual events or results may differ materially from those projected in any of such statements due to various factors, including the risks and uncertainties inherent in drug development, approval and commercialization, and the fact that past results of clinical trials may not be indicative of future trial results. For a discussion of these and other factors, please refer to Acadia’sannual report on Form 10-K for the year ended December 31, 2022 as well as Acadia’s subsequent ﬁlings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date here of. This caution is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All forward-looking statements are qualiﬁed in their entirety by this cautionary statement and Acadia undertakes no obligation to revise or update this report to reﬂect events or circumstances after the date hereof, except as required by law. Acadia Pharmaceuticals Inc. 12830 El Camino Real, Suite 400 San Diego, CA 92130 www.acadia-pharm.com

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