Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis ofFinancial Condition and Results of Operations

The following should be read in conjunction with our consolidated financial statements and related notes beginning on page F-1 of this Annual Report. The following discussion contains forward-looking statements. Actual results may differ significantly from those projected in the forward-looking statements. See "Cautionary Note Concerning Forward-Looking Statements" on page 3of this Annual Report. Factors that might cause future results to differ materially from those projected in the forward-looking statements also include, but are not limited to, those discussed in "Item 1A-Risk Factors" and elsewhere in this Annual Report. A detailed discussion of our 2023 financial condition and results of operations, and of 2024 year-over-year changes as compared to 2023, can be found in "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 12, 2025.

Overview

We have a portfolio of proprietary products that we manufacture, market and/or sell in the U.S., which in 2025 was comprised of ARISTADA, ARISTADA INITIO, LYBALVI and VIVITROL. We also earned manufacturing and/or royalty revenues on net sales of products commercialized by our licensees, the most significant of which in 2025 were the long-acting INVEGA products and VUMERITY. We expect ARISTADA, ARISTADA INITIO, LYBALVI, VIVITROL and VUMERITY, and our new product, LUMRYZ, which we acquired and began to market and sell in the U.S. in February 2026, to generate significant revenues for us in the near- and medium-term as we believe these products are singular or competitively advantaged products in their classes.

In 2025, our net income from continuing operations was $241.7 million, as compared to $372.1 million in 2024. The decrease in net income from continuing operations of $130.5 million was primarily due to an increase in total expenses of $84.9 million and a decrease of $182.8 million in manufacturing and royalty revenues. These items were partially offset by an increase in product sales, net of $101.1 million and a decrease in our income tax provision of $21.8 million. These items are discussed in further detail within the "Results of Operations" section below.

Business Update

In October 2025, we entered into the Transaction Agreement with Avadel, which was subsequently amended in November 2025, pursuant to which we agreed to acquire the entire issued and to be issued ordinary share capital of Avadel for consideration of (i) $21.00 per Avadel Share, payable in cash at closing and (ii) a non-transferable CVR entitling holders of Avadel Shares to a potential additional cash payment of $1.50 per Avadel Share, contingent upon achievement of a certain specified milestone. On February 12, 2026, we successfully completed the Avadel Acquisition, adding both LUMRYZ to our portfolio of proprietary commercial products and a commercial organization with experience in narcolepsy. During the three months ended December 31, 2025, we incurred costs of approximately $10.0 million in connection with the Avadel Acquisition.

In May 2024, we completed the sale of the Athlone Facility to Novo and entered into subcontracting arrangements to continue certain development and manufacturing activities performed at the Athlone Facility, which concluded by the end of 2025.

Results of Operations

Product Sales, Net

Our product sales, net, consisted of sales of ARISTADA, ARISTADA INITIO, LYBALVI and VIVITROL, primarily to wholesalers, specialty distributors and pharmacies. The following table presents the adjustments deducted from product sales, gross to arrive at product sales, net, for sales of these products during the years ended December 31, 2025 and 2024:

The increase in product sales, gross was due to a 19% increase in the number of units sold for LYBALVI and a 3% price increase for each of LYBALVI, ARISTADA/ARISTADA INITIO and VIVITROL that went into effect in January 2025, partially offset by decreases of 3% and 2% in the number of units sold for VIVITROL and ARISTADA/ARISTADA INITIO, respectively.

The decrease in Medicaid rebates as a percentage of sales was primarily due to gross-to-net favorability, as actual Medicaid rebates related to VIVITROL and ARISTADA/ARISTADA INITIO were lower than original estimates by approximately $26.7 million and $13.6 million, respectively.

The following table compares product sales, net earned during the years ended December 31, 2025 and 2024:

A number of companies currently market and/or are developing products to treat addiction, including alcohol and opioid dependence, that may compete with, and negatively impact, future sales of VIVITROL. In addition, the latest to expire of our patents covering VIVITROL will expire in 2029 in the U.S. and we expect generic versions of VIVITROL to enter the market in 2027. Pursuant to the terms of a confidential settlement and license agreement entered into in August 2023 with Teva, we granted Teva a non-exclusive, royalty-free, non-transferable, non-sublicensable limited license under the remaining patent covering VIVITROL to market and sell a generic version of VIVITROL in the U.S. beginning on the First Entry Date, or earlier under certain circumstances. Under the terms of a settlement and license agreement entered into in July 2019 with Amneal, we granted Amneal a non-exclusive license under certain patents covering VIVITROL, including the remaining patent covering VIVITROL in the U.S., to market and sell a generic formulation of VIVITROL in the U.S. beginning on the earlier of the First Entry Date, sometime in 2028 or earlier under certain circumstances, and in September 2025, entered into an authorized generic product supply agreement (the "AG Agreement") with Amneal, pursuant to which we granted Amneal certain rights to distribute and sell in the U.S. an authorized generic version of VIVITROL for a one-year term beginning on the date of a Third Party ANDA Product Launch (as defined in the AG Agreement), subject to certain conditions set forth in the AG Agreement. Increased competition may lead to reduced unit sales of VIVITROL and increased pricing pressure.

A number of companies currently market and/or are developing products to treat schizophrenia and/or bipolar I disorder that may compete with and negatively impact future sales of ARISTADA, ARISTADA INITIO and LYBALVI. Increased competition may lead to reduced unit sales of ARISTADA, ARISTADA INITIO and LYBALVI and increased pricing pressure. The latest to expire of our patents covering ARISTADA and ARISTADA INITIO in the U.S. will expire in 2039; and, as such, we do not anticipate any generic versions of these products to enter the market in the near term. The latest to expire of our patents covering LYBALVI in the U.S. will expire in 2041. We are currently engaged in Paragraph IV litigation with certain entities in respect of certain of the Company's patents related to LYBALVI with expiration dates between 2032 and 2041. For a discussion of these legal proceedings, see Note 19, Commitments and Contingent Liabilitiesin the "Notes to Consolidated Financial Statements" in this Annual Report and for information regarding the risks relating to these legal proceedings, see "Risks Related to our Intellectual Property-Uncertainty

over IP in the biopharmaceutical industry has been the source of litigation and other legal proceedings, and we and our licensees have previously and may in the future face claims against IP rights covering our products and competition from generic drug manufacturers".

Manufacturing and Royalty Revenues

Substantially all of our manufacturing revenue was recognized at the point in time that the product has been fully manufactured. Royalties earned on our licensees' net sales of products using our proprietary technologies and our licensed product were recognized in the period such products were sold by our licensees. The following table compares manufacturing and royalty revenues earned in the years ended December 31, 2025 and 2024:

The decrease in royalty revenues related to the long-acting INVEGA products was primarily due to the expiration of our royalty on net sales of INVEGA SUSTENNA in the U.S. in August 2024. Although we expect royalty revenues related to U.S. net sales of INVEGA TRINZA and INVEGA HAFYERA through certain specified dates in 2030, total royalty revenues from net sales of the long-acting INVEGA products have been, and we expect will continue to be lower as the royalty revenues related to U.S. net sales of INVEGA SUSTENNA comprised a significant portion of the overall royalty revenues from the long-acting INVEGA products. In addition, INVEGA SUSTENNA is currently subject to Paragraph IV litigation in response to companies seeking to market generic versions of such product. Though we no longer receive royalties from INVEGA SUSTENNA in the U.S., increased competition from new products or generic versions of any one or more of the long-acting INVEGA products may lead to reduced unit sales of all of the long-acting INVEGA products, including those not yet genericized, and increased pricing pressure.

For additional discussion of our agreements with Janssen related to the long-acting INVEGA products, including the royalty provisions set forth therein and the related completed arbitration proceedings and outcome, see the section entitled "Collaborative Arrangements-Janssen" in "Item 1-Business" in this Annual Report.

The decrease in VUMERITY revenue was due to a $22.8 million decrease in manufacturing revenue, primarily due to a reduction in the number of batches manufactured for sale to Biogen, partially offset by a $19.2 million increase in royalty revenue, due to an increase in end-market sales of the product. For a discussion of our agreements with Biogen related to VUMERITY, including the manufacturing and royalty revenue provisions set forth therein, see the section entitled "Collaborative Arrangements-Biogen" in "Item 1-Business" in this Annual Report.

The decrease in revenue related to RISPERDAL CONSTA was primarily due to a $3.6 million decrease in manufacturing revenue, primarily due to a decrease in the number of batches made available to Janssen for sale in the U.S., which has a higher selling price than product sold outside of the U.S. We expect revenues from RISPERDAL CONSTA to continue to decrease as patents covering RISPERDAL CONSTA continue to expire in markets where end-market net sales of RISPERDAL CONSTA occur. We are aware of generic and other competition to RISPERDAL CONSTA that may lead to reduced unit sales and increased pricing pressure. For a discussion of our agreements with Janssen related to RISPERDAL CONSTA, including the manufacturing provisions set forth therein, see the section entitled "Collaborative Arrangements-Janssen" in "Item 1-Business" in this Annual Report.

The decrease in Other manufacturing and royalty revenue was primarily due to a $36.6 million decrease in revenue from FAMPYRA, as our manufacturing obligations for FAMPYRA concluded on December 31, 2024, and a $10.5 million decrease in manufacturing revenue from certain of our other legacy products.

Certain of our manufacturing and royalty revenues are earned in countries outside of the U.S. and are denominated in currencies in which the product is sold. See "Item 7A-Quantitative and Qualitative Disclosures about Market Risk" in this Annual Report for information on currency exchange rate risk related to our revenues and "Item 1A-Risk Factors" in this Annual Report, and specifically the section entitled "Currency exchange rates may affect revenues and expenses" for risks related to currency exchange rates.

Costs and Expenses

Cost of Goods Manufactured and Sold

The decrease in the cost of goods manufactured and sold was primarily related to a $43.7 million decrease in the cost of goods manufactured for certain legacy products following the sale of the Athlone Facility in May 2024. We also had decreases in the cost of goods sold for certain of our proprietary products, primarily due to decreases in costs related to out-of-specification batches and investigation costs. These decreases were partially offset by an increase in the cost of goods sold for LYBALVI due to an increase in the number of units sold, as discussed above.

Research and Development Expenses

For each of our R&D programs, we incur both external and internal expenses. External R&D expenses include fees for clinical and preclinical activities performed by CROs, consulting fees, and costs related to laboratory services, the purchase of drug product materials and third-party manufacturing development activities. Internal R&D expenses include employee-related expenses, occupancy costs, depreciation and general overhead. We track external R&D expenses for each of our development programs; however, internal R&D expenses are not tracked by individual program as they can benefit multiple development programs or our products or technologies in general.

The following table sets forth our external R&D expenses for the years ended December 31, 2025 and 2024 relating to our then-current development programs and our internal R&D expenses, listed by the nature of such expenses:

These amounts are not necessarily predictive of future R&D expenses. In an effort to allocate our spending most effectively, we continually evaluate our products under development based on the performance of such products in preclinical and/or clinical trials, our expectations regarding the likelihood of their regulatory approval and our view of their future potential commercial viability, among other factors.

The increase in expenses related to alixorexton was primarily due to increased spend related to the advancement of the development program for the product, including initiation of our Vibrance-3 phase 2 clinical study, costs related to the completion of our Vibrance-1 and Vibrance-2 phase 2 studies, startup costs related to planning for our phase 3 clinical program and costs related to our long-term extension study for the product. The increase in other external R&D expenses was primarily due to activities associated with our preclinical development programs. We expect R&D expense to increase in 2026, as we plan to initiate the phase 3 program for alixorexton and as ALKS 4510 and ALKS 7290, two internal early-stage development candidates which entered the clinic in 2025, advance.

The increase in employee-related expenses was primarily due to increases in labor and benefits expense related to a 7% increase in R&D-related headcount during 2025.

Selling, General and Administrative Expenses

The increase in selling and marketing expense was primarily due to increases of $33.3 million and $9.4 million in employee-related expenses and certain sales and marketing-related training programs and materials, respectively, due to a 10% increase in sales and marketing-related headcount, partially offset by a $9.5 million decrease in marketing spend, primarily related to decreases in media spend for our proprietary products.

The increase in general and administrative expense was primarily due to a $12.5 million increase in employee-related expenses, primarily due to a 9% increase in general and administrative-related headcount and a $10.7 million increase in professional service fees, primarily related to the Avadel Acquisition.

Other Income, Net

Interest income consists of interest earned on our cash and available-for-sale investments. Interest expense consisted, in 2025, of financing costs related to the amended and restated bridge term loan credit agreement that we entered into on November 18, 2025, which provided for a senior secured bridge term loan facility in an aggregate amount of up to approximately $1.5 billion to fund the Avadel Acquisition (the "Bridge Credit Agreement") and, in 2024, of previously outstanding term loans (the "Former Term Loans") that were scheduled to become due in 2026 under our former amended and restated credit agreement, which we prepaid in full and terminated in December 2024. See Note 11, Long-Term Debt in the "Notes to Consolidated Financial Statements" in this Annual Report for additional information regarding the Bridge Credit Agreement and Former Term Loans.

Income Tax Provision

The income tax provisions in 2025 and 2024 were primarily due to taxes on income earned in Ireland. Our effective tax rate during the year ended December 31, 2025 was 17.1%, which exceeds the Irish statutory tax rate of 12.5%, primarily due to non-deductible expenses and income that was taxable at rates higher than the Irish statutory tax rate. Our effective tax rate during the year ended December 31, 2024 was 16.1%. The increase in the effective tax rate was primarily due to an increase in income taxable at rates higher than the Irish statutory tax rate. The new corporate minimum tax rate of 15% did not have a material impact on our business in 2025 and 2024.

Cumulative unremitted earnings of U.S. subsidiaries totaled approximately $965.7 million as of December 31, 2025. In the event of a repatriation of those earnings in the form of dividends or otherwise, we may be liable for income taxes, subject to adjustment, if any, for foreign tax credits and foreign withholding taxes payable to foreign tax authorities. We estimate that approximately $70.0 million of income taxes would be payable on the repatriation of the unremitted earnings to Ireland.

As of December 31, 2025, we had $210.2 million of Irish NOL carryforwards, $13.6 million of U.S. federal NOL carryforwards, $43.2 million of state NOL carryforwards and $35.2 million of state tax credits which will either expire on various dates through 2040 or can be carried forward indefinitely. These loss and credit carryforwards are available to reduce certain future Irish and foreign taxable income and tax. These loss and credit carryforwards are subject to review and possible adjustment by the appropriate taxing authorities, and may be subject to limitations based upon changes in the ownership of our ordinary shares. Included within these loss and credit carryforwards are $13.6 million of U.S. federal NOL carryforwards and $5.3 million of state NOL carryforwards, acquired as part of the acquisition of Rodin Therapeutics, Inc. in November 2019, each of which are subject to a $0.5 million annual limitation.

Liquidity and Capital Resources

Our financial condition is summarized as follows:

At December 31, 2025, our investments consisted of the following:

Sources and Uses of Cash

We generated $520.8 million and $439.1 million of cash from operating activities during the years ended December 31, 2025 and 2024, respectively. In connection with the Avadel Acquisition, we placed $731.2 million in escrow to finance the portion of the consideration in excess of the commitments secured under the Bridge Credit Agreement. In December 2024, we prepaid our previously outstanding long-term debt without penalty in the amount of $289.5 million and, during the course of 2024, repurchased approximately $200.0 million of our ordinary shares. We expect that our existing cash, cash equivalents, restricted cash and investments will be sufficient to finance our anticipated working capital and other cash requirements, including debt services and capital expenditures, for at least the twelve months following the date from which our financial statements were issued. Subject to market conditions, interest rates and other factors, we may pursue opportunities to obtain financing in the future, including debt and equity offerings, corporate collaborations, bank borrowings, arrangements relating to assets or other financing methods or structures.

Our investment objectives are, first, to preserve liquidity and conserve capital and, second, to generate investment income. We mitigate credit risk in our cash reserves by maintaining a well-diversified portfolio that limits the amount of investment exposure as to institution, maturity and investment type. Our available-for-sale investments consist primarily of short and long-term U.S. government and agency debt securities and corporate debt securities. Our held-to-maturity investments consist of investments that are held as collateral under certain letters of credit related to certain of our lease agreements.

We classify available-for-sale investments in an unrealized loss position that do not mature within 12 months as long-term investments. We have the intent and ability to hold these investments until recovery, which may be at maturity, and it is more-likely-than-not that we would not be required to sell these securities before recovery of their amortized cost.

We have no off-balance sheet arrangements that are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources in the next 12 months.

Information about our cash flows, by category, is presented in the accompanying consolidated statements of cash flows. The discussion of our cash flows that follows does not include the impact of any adjustments to remove discontinued operations and is stated on a total company consolidated basis. The following table summarizes our cash flows for the years ended December 31, 2025 and 2024:

Operating Activities

Cash flows provided by operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net income for non-cash operating items such as depreciation, amortization and share-based compensation and changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in our results of operations.

Cash flows provided by operating activities during 2025 primarily consisted of net income of $241.7 million, adjusted for non-cash items, including share-based compensation of $98.7 million, depreciation and amortization of $27.2 million, deferred income taxes of $28.8 million and $119.1 million of changes in working capital.

Cash flows provided by operating activities during 2024 primarily consisted of net income of $367.1 million, adjusted for non-cash items, including share-based compensation of $96.6 million, depreciation and amortization of $28.5 million and deferred income taxes of $40.5 million, partially offset by changes in working capital of $97.4 million.

Investing Activities

Cash flows provided by investing activities during 2025 primarily consisted of $333.1 million of net proceeds from the sale and maturities of investments, partially offset by the purchase of $40.4 million of property, plant and equipment. Cash flows used in investing activities during 2024 primarily consisted of $176.2 million in net purchases of investments and the purchase of $33.5 million of property, plant and equipment. These outflows were partially offset by proceeds from the sale of the Athlone Facility and related business of $97.9 million.

We expect to spend approximately $40.0 million to $50.0 million during the year ending December 31, 2026 for capital expenditures. We continue to evaluate our manufacturing capacity based on expectations of demand for the products that we manufacture and will continue to record such amounts within construction in progress until such time as the underlying assets are placed into service, or we determine we have sufficient existing capacity and the assets are no longer required, at which time we would recognize an impairment charge. We continue to periodically evaluate whether facts and circumstances indicate that the carrying value of these long-lived assets to be held and used may not be recoverable.

Financing Activities

Cash flows provided by financing activities during 2025 were due to $43.4 million of cash that we received upon exercises of employee stock options, partially offset by $31.0 million of employee taxes paid related to the net share settlement of equity awards. Cash flows used in financing activities during 2024 primarily related to the prepayment of our previously outstanding long-term debt in the full amount of $289.5 million, payment for the repurchase of our ordinary shares and related expenses in the amount of $200.3 million, and $29.6 million of employee taxes paid related to net share settlements of equity awards, partially offset by $27.6 million of cash that we received upon exercises of employee stock options.

Debt

On February 12, 2026, in connection with the Avadel Acquisition, we entered into a credit agreement (the "Credit Agreement"), by and among Alkermes plc, as the TopCo Borrower, Alkermes, Inc., as the U.S. Borrower, Alkermes Finance LLC, as the U.S. Co-Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, Joint Lead Arranger and Joint Bookrunner, BofA Securities, Inc., as Joint Lead Arranger and Joint Bookrunner, and the lenders party thereto. The Credit Agreement provides for (i) a senior secured term loan A facility in an aggregate principal amount of up to $750.0 million (the "TLA Facility") and (ii) a senior secured term loan B facility in an aggregate principal amount of up to $775.0 million (the "TLB Facility" and together with the TLA Facility, the "Facilities"). The TLA Facility matures on February 12, 2031, and the TLB Facility matures on August 12, 2031. On the closing date of the Facilities (the "Closing Date"), we borrowed the full $1.525 billion available under the Facilities.

Borrowings under the TLA Facility will bear interest at an annual rate of, at our option, either (i) the Term SOFR Rate (as defined in the Credit Agreement) plus a Secured Net Leverage Ratio (as defined in the Credit Agreement)-based margin, which will initially be 2.75% per annum or (ii) the Alternate Base Rate (as defined in the Credit Agreement) plus a Secured Net Leverage Ratio-based margin, which will initially be 1.75% per annum. Borrowings under the TLB Facility will bear interest at an annual rate of, at our option, either (i) the Term SOFR Rate plus a margin of 2.75% per annum or (ii) the Alternate Base Rate plus a margin of 1.75% per annum. We have agreed to pay certain fees and expenses in connection with the Facilities, as set forth in the Credit Agreement and certain related fee letters.

The Credit Agreement (other than with respect to the TLB Facility) requires the maintenance of a maximum Secured Net Leverage Ratio and a minimum Consolidated Interest Coverage Ratio (as defined in the Credit Agreement), in each case, with the levels set forth in the Credit Agreement, as of the last day of any of our fiscal quarters ending after the Closing Date. In addition, the Credit Agreement contains customary affirmative and negative covenants that apply after the Closing Date, including limitations on indebtedness, liens, mergers, consolidations, sales of assets, investments, transactions with affiliates, restricted payments and sales and leasebacks. The Credit Agreement also contains certain customary events of default, including upon a change of control.

The Credit Agreement is guaranteed by subsidiary guarantors and secured by a lien on substantially all of the assets of the borrowers and the subsidiary guarantors, whether owned as of the Closing Date or thereafter acquired.

Also on February 12, 2026, in connection with completion of the Avadel Acquisition and our entry into the Credit Agreement, we terminated the Bridge Credit Agreement entered into in order to fund the Avadel Acquisition, as the commitments under the Credit Agreement, together with our cash on hand, were sufficient to fund the Avadel Acquisition.

In December 2024, we prepaid in full all Former Term Loans under the Company's then-in-effect amended and restated credit agreement (the "Former Credit Agreement") for a total of $289.5 million and terminated the agreement. We did not incur any early termination penalties in connection with the termination of the Former Credit Agreement (other than customary breakage costs). All liens on the collateral securing the obligations under the Former Credit Agreement were released in connection with the termination. Such prepayment was accounted for as a debt extinguishment. See Note 11, Long-Term Debt, in the "Notes to Consolidated Financial Statements" in this Annual Report for additional discussion related to our Former Term Loans.

Discontinued Operations

Net loss from discontinued operations consists of the results of our former oncology business and is reported as a separate component of income. For additional information, see Note 15, Discontinued Operations, in the "Notes to Consolidated Financial Statements" in this Annual Report.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments based on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review these accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, of the "Notes to Consolidated Financial Statements" in this Annual Report. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effects of matters that are inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with the audit and risk committee of our board of directors.

Revenue from Contracts with Customers

We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenue following the five-step model prescribed under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, ("Topic 606"): (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the performance obligations.

Product Sales, Net

Our product sales, net in 2025 and 2024 consisted of sales in the U.S. of ARISTADA, ARISTADA INITIO, LYBALVI and VIVITROL primarily to wholesalers, specialty distributors and pharmacies. Product sales, net are recognized when the customer obtains control of the product, which is when the product has been received by the customer.

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers, healthcare providers or payers. Our process for estimating reserves established for these variable consideration components does not differ materially from historical practices. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment. The following are our significant categories of sales discounts and allowances:

A rollforward of our provisions for sales and allowances is as follows:

Manufacturing Revenue

We recognize manufacturing revenues from the sale of products we manufacture for resale by our licensees. Substantially all of our manufacturing revenues are recognized at a point in time when control of the product passes to the licensee. The sales price for certain of our manufacturing revenues is based on the end-market sales price earned by our licensees. As end-market sales generally occur after we have recorded manufacturing revenue, we estimate the sales price for such products based on information supplied to us by our licensees, our historical transaction experience and other third-party data. Differences between actual manufacturing revenues and estimated manufacturing revenues are reconciled and adjusted for in the period in which they become known, which is generally within the same quarter. The differences between our actual and estimated manufacturing revenues have not been material to date.

Royalty Revenue

We recognize royalty revenues related to the sale by our licensees of products that incorporate our technology. All of our royalties qualify for the sales-and-usage exemption under Topic 606 as (i) such royalties are based strictly on the sales-and-usage by the licensee; and (ii) a license of IP is the sole or predominant item to which such royalties relate. Based on this exemption, such royalties are earned in the period the products are sold by our licensees and we have a present right to payment.

Certain of our royalty revenues are recognized based on information supplied to us by our licensees and require estimates to be made. Differences between actual royalty revenues and estimated royalty revenues are reconciled and adjusted for in the period in which they become known, which is generally within the same quarter. The differences between our actual and estimated royalty revenues have not been material to date.

Discontinued Operations

We determined that the separation of our former oncology business, which was completed on November 15, 2023, represented a disposal plan that met the criteria for classification of the oncology business as a discontinued operation in accordance with ASC 205-20, Discontinued Operations. Accordingly, the accompanying consolidated financial statements for all periods have been updated to present the assets and liabilities associated with the oncology business separately as discontinued operations on the consolidated balance sheet and the results of such discontinued operations reported as a separate component of income in the consolidated statements of operations and comprehensive income.

For additional information related to discontinued operations, see Note 15, Discontinued Operations, in our "Notes to Consolidated Financial Statements" in this Annual Report.

Impairment of Long-Lived Assets

Long-lived assets, other than goodwill which is separately tested for impairment, are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset to the asset's estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset's estimated fair value, which may be based on estimated future cash flows (discounted and with interest charges). We recognize an impairment loss if the amount of the asset's carrying value exceeds the asset's estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated over the remaining useful life of that asset.

When reviewing long-lived assets for impairment, we group long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.

Valuation of Deferred Tax Assets

We evaluate the need for deferred tax asset valuation allowances based on a more-likely-than-not standard. The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. We consider the following possible sources of taxable income when assessing the realization of deferred tax assets:

The assessment regarding whether a valuation allowance is required or should be adjusted also considers all available positive and negative evidence factors including, but not limited to:

We utilize a rolling three years of actual and current year anticipated results as the primary measures of cumulative income (losses) in recent years. For additional information related to our assessment of our valuation allowance, see Note 17, Income Taxesin the "Notes to Consolidated Financial Statements" in this Annual Report.

The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns and future profitability. Our accounting for deferred tax consequences represents our best estimate of those future events. Changes in our current estimates, due to unanticipated events or otherwise, could have a material effect on our financial condition and results of operations. For information related to risks surrounding our deferred tax assets, see "Item 1A-Risk Factors" in this Annual Report and specifically the section entitled "Our deferred tax assets may not be realized."

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, "New Accounting Pronouncements" in our "Notes to Consolidated Financial Statements" in this Annual Report for discussion, if any, of new accounting standards.