CORCEPT THERAPEUTICS INC

1. Basis of Presentation and Summary of Significant Accounting Policies

Description of Business and Basis of Presentation

Corcept Therapeutics Incorporated (collectively, “Corcept,” the “Company,” “we,” “us” and “our”) is a commercial-stage pharmaceutical company engaged in the discovery and development of medications to treat severe endocrinologic, oncologic, metabolic and neurologic disorders by modulating the effects of the hormone cortisol. In 2012, the United States Food and Drug Administration (“FDA”) approved Korlym (“mifepristone”) 300 mg tablets, as a once-daily oral medication for the treatment of hyperglycemia secondary to hypercortisolism in adult patients with endogenous Cushing’s syndrome who have type 2 diabetes mellitus or glucose intolerance and have failed surgery or are not candidates for surgery. We have discovered and patented four structurally distinct series of selective cortisol modulators, consisting of more than 1,000 compounds. We are developing compounds from these series as potential treatments for a broad range of serious disorders.

We were incorporated in the State of Delaware in May 1998. Our headquarters are located in Menlo Park, California.

Basis of Presentation

The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

Principles of Consolidation

Our consolidated financial statements include the financial position and results of operations of Corcept Therapeutics UK Limited, our wholly owned subsidiary, which we incorporated in the United Kingdom in March 2017. All material intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

We reevaluate our estimates and assumptions each quarter, including those related to revenue recognition, recognition and measurement of income tax assets and liabilities, inventory, allowances for doubtful accounts and other accrued liabilities, including our bonus accrual, clinical trial accruals and stock-based compensation.

Fair Value Measurements

We value financial instruments using assumptions we believe third-party market participants would use. When choosing which assumptions to make when determining the value of a financial instrument, we look first for quoted prices in active markets for identical instruments (“Level 1 inputs”). If no Level 1 inputs are available, we consider (i) quoted prices in non-active markets for identical instruments; (ii) active markets for similar instruments; (iii) inputs other than quoted prices for the instrument; and (iv) inputs that are not directly observable, but that can be corroborated by observable data (“Level 2 inputs”). In the absence of Level 2 inputs, we rely on unobservable inputs, such as our estimates of the assumptions market participants would use in pricing the instrument (“Level 3 inputs”).

Cash and Cash Equivalents and Marketable Securities

We consider highly liquid investments that will mature in three months or less from the time we purchase them to be cash equivalents. Cash equivalents are valued using Level 1 inputs, which approximate our cost.

We invest the majority of our funds in marketable securities, primarily corporate notes, U.S. Treasury and government agency securities, asset-backed securities and commercial paper. We classify our marketable securities as available-for-sale securities and report them at fair value as “cash equivalents” or “marketable securities” on our consolidated balance sheet, with related unrealized gains and losses included in stockholders' equity. Realized gains and losses and permanent declines in value are included in “interest and other income (expense)” on our consolidated statements of income.

Credit and Concentration Risks

Our cash, cash equivalents and marketable securities are held in four financial institutions. We are subject to credit risk from our cash equivalents and marketable securities. We limit our investments to U.S. Treasury obligations and high-grade corporate debt and asset-backed securities with less than a 36-month maturity at the time of purchase. These investments are diversified and do not expose us to concentrations of credit risk. We have never experienced a loss in, or lack of access to, our operating or investment accounts.

We have an agreement with one third-party manufacturer to supply mifepristone, the active pharmaceutical ingredient (“API”), in Korlym.

We have a concentration of risk in regard to the distribution of our product. A single specialty pharmacy, Optime Care, Inc. (“Optime”), dispenses Korlym to patients for us. Optime is an independent third party. Its unwillingness or inability to dispense Korlym to patients in a timely manner would harm our business.

We sell Korlym that Optime dispenses directly to patients, with title to the medicine passing directly from us to the patient upon the patient’s receipt of the drug. Our receivables risk is spread among various third-party payers – pharmacy benefit managers, insurance companies, government programs and private charities. We monitor our exposure and record an allowance against uncollectible trade receivables as necessary. To date, we have not recorded an allowance for credit losses.

Inventory and Cost of Sales

Regulatory approval of product candidates is uncertain. Because product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained, we record the cost of manufacturing our product candidates as research and development expense at the time such costs are incurred. Once a product candidate is approved by the FDA, we begin capitalizing manufacturing costs. We capitalize to inventory manufacturing costs related to Korlym.

We value inventory at the lower of cost or net realizable value and determine the cost of inventory we sell using the specific identification method, which approximates a first-in, first-out basis. We assess our inventory levels at each reporting period and write down inventory that is either expected to be at risk of expiration prior to sale, has a cost basis in excess of its expected net realizable value, or for which there are inventory quantities in excess of expected requirements. We destroy expired inventory and recognize the related costs as cost of sales in that period’s statement of income.

Cost of sales also includes the cost of manufacturing Korlym, including materials, third-party manufacturing costs and indirect personnel and other overhead costs, based on the number of Korlym tablets for which we recognize revenue, as well as costs of stability testing, logistics and distribution.

We classify inventory we do not expect to sell within 12 months of the balance sheet date as strategic inventory, a non-current asset.

Net Product Revenue

We sell Korlym directly to patients through a single specialty pharmacy. We also sell Korlym to a specialty distributor (“SD”), for which we recognize revenue at the time the SD receives Korlym. SD sales were less thanone percent of our net revenue in each of the years ended December 31, 2023, 2022 and 2021.

To determine our revenue from the sale of Korlym, we (i) identify our contract with each customer; (ii) identify the obligations of Corcept and the customer under the contract; (iii) determine the contracted transaction price; (iv) allocate the transaction price to the contract’s performance obligations, which in our case consists of delivering Korlym to the customer; and (v) recognize revenue once Korlym has been delivered, provided we deem it probable that we will collect the payment due to us.

Confirmation of coverage by private or government insurance or by a third-party charity is a prerequisite for selling Korlym to a patient.

To determine net product revenue, we deduct from sales the cost of our patient co-pay assistance program and our estimates of (a) government chargebacks and rebates, (b) discounts provided to our SD for prompt payment and (c) reserves for expected returns. We record these estimates at the time we recognize revenue and update them as new information becomes available. Our estimates take into account our understanding of the range of possible outcomes. If results differ from our estimates, we adjust our estimates, which changes our net product revenue and earnings. We report any changes in the period they become known, even if they concern transactions occurring in prior periods.

Government Rebates: Korlym is eligible for purchase by, or qualifies for reimbursement from, Medicaid, Medicare and other government programs that are eligible for rebates on the price they pay for Korlym. To determine the appropriate amount to reserve against these rebates, we identify Korlym sold to patients covered by government-funded programs, apply the applicable government discount to these sales, then estimate utilization of such programs by government payors. We (i) deduct this reserve from revenue in the period to which the rebates relate and (ii) include in accrued expenses on our consolidated balance sheet a current liability of an equal amount.

Chargebacks: Although we sell Korlym to the SD at full price, some of the government entities to which the SD sells receive a discount. The SD recovers the full amount of any related discounts by reducing its payment to us (this reduction is called a “chargeback”). Chargebacks sometimes relate to Korlym purchased by the SD in prior periods. We deduct from our revenue in each period chargebacks claimed by the SD for Korlym it purchased in that period. We also create a reserve for chargebacks we estimate the SD will claim in future periods against Korlym it purchased in the current period but has not yet resold. We determine the amount of this reserve based on our experience with SD chargebacks and our understanding of the SD’s customer base and business practices. We deduct this reserve from revenue and include in accrued expenses on our consolidated balance sheet a current liability of equal amount.

Patient Assistance Program and Charitable Support: It is our policy that no patient be denied Korlym due to inability to pay. We provide financial assistance to eligible patients whose insurance policies have high deductibles or co-payments and deduct the amount of such assistance from gross revenue. We determine the assistance we provide each patient by applying our program guidelines to that patient’s financial position and their insurance policy’s co-payment and deductible requirements for the purchase of Korlym. We donate cash to charities that help patients with financial need pay for the treatment of Cushing’s syndrome. We do not include payments from these charities in revenue, but as a deduction to selling, general and administrative expenses. We provide Korlym at no cost to uninsured patients who do not qualify for charitable support.

Sales Returns: Federal law prohibits the return of Korlym sold to patients. Sales to our SD are subject to return. We deduct the amount of Korlym we estimate the SD will return from each period’s gross revenue. We base our estimates on quantitative and qualitative information including, but not limited to, historical return rates, the amount of Korlym held by the SD and projected demand. If we cannot reasonably estimate returns with respect to a particular sale, we defer recognition of revenue until we can make a reasonable estimate. To date, returns have not been significant.

The following table summarizes activity in each of the product revenue allowance and reserve categories for the years ended December 31, 2023, 2022 and 2021:

Research and Development

Research and development expense includes the direct cost of discovering and screening new compounds, pre-clinical studies, clinical trials, manufacturing development, submissions to regulatory agencies and related overhead costs. We expense nonrefundable payments and the cost of technologies and materials used in research and development as we incur them.

We base our accruals for discovery research, preclinical studies and clinical trials on our estimates of work completed, milestones achieved, patient enrollment and past experience with similar activities. Our estimates include assessments of information from contract research organizations and the status of our own research, development and administrative activities.

Segment Reporting

We determine our operating segments based on the way we organize our business, make decisions and assess performance. We haveone operating segment, which is the discovery, development and commercialization of pharmaceutical products.

Stock-Based Compensation

We recognize stock-based compensation expense for stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”), net of estimated forfeitures, on a straight-line basis over the period during which an employee is required to provide services in exchange for the award (the vesting period of the award). We estimate future forfeitures during the first quarter of each fiscal year, and revise the estimates, if necessary, in subsequent periods if actual forfeitures differ significantly from those estimates.

We determine the fair value of stock options based on the value of the award at the grant date, using the Black-Scholes model. We recognize stock-based compensation expense over the applicable vesting period, net of estimated forfeitures. If actual forfeitures differ from our estimates, we adjust stock-based compensation expense accordingly.

In addition, we have issued RSAs in connection with our Employee Stock Purchase Plan (“ESPP”) that vest on the condition that the participating employee hold the corresponding shares purchased under the ESPP forone year from the purchase date. The participating employee is grantedone RSA for each share purchased in the ESPP. We initially measure the fair value of these RSAs based on the grant date fair value determined using the closing price of our common stock on the date the purchase of the corresponding ESPP shares is made. This fair value of the RSA is amortized over theone-year holding period. As a result of the RSA’s being reported as liability-classified awards, they must be remeasured at each reporting date until settlement. Ultimately, the compensation cost recognized for the RSA award will equal the fair value of the Company’s common stock on the date the RSA is fully vested and settled. See Note 7, Preferred Stock and Stockholders’ Equity regarding our ESPP.

Income Taxes

We account for income taxes in accordance with ASC 740, Income Taxes(“ASC 740”), which requires recognition of deferred tax assets and liabilities for the expected tax consequences of our future financial and operating activities. Under ASC 740, we determine deferred tax assets and liabilities based on the temporary difference between the financial statement and tax bases of assets and liabilities using the tax rates in effect for the year in which we expect such differences to reverse. If we determine that it is more likely than not that we will not generate sufficient taxable income to realize the value of some or all of our deferred tax assets (net of our deferred tax liabilities), we establish a valuation allowance offsetting the amount we do not expect to realize. We perform this analysis each reporting period and reduce our measurement of deferred taxes if the likelihood we will realize them becomes uncertain.

The deferred tax assets that we record each period depend primarily on our ability to generate future taxable income in the United States. Each period, we evaluate the need for a valuation allowance against our deferred tax assets and, if necessary, adjust the valuation allowance so that net deferred tax assets are recorded only to the extent we conclude it is more likely than not that these deferred tax assets will be realized. If our outlook for future taxable income changes significantly, our assessment of the need for, and the amount of, a valuation allowance may also change.

We are also required to evaluate and quantify other sources of taxable income, such as the possible reversal of future deferred tax liabilities, should any arise, and the implementation of tax planning strategies. Evaluating and quantifying these amounts is difficult and involves significant judgment, based on all of the available evidence and assumptions about our future activities.

We account for uncertain tax positions in accordance with ASC 740, which requires us to adjust our consolidated financial statements to reflect only those tax positions that are more-likely-than-not to be sustained upon review by federal or state examiners. We recognize in the consolidated financial statements the largest expected tax benefit that has a greater than 50 percent likelihood of being sustained on examination by the taxing authorities. We report interest and penalties related to unrecognized tax benefits as income tax expense.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. This ASU is effective for public companies with annual periods beginning after December 15, 2024, with early adoption permitted. We plan to adopt this guidance for the fiscal year ending December 31, 2025. We are currently evaluating the effects adoption of this guidance will have on the consolidated financial statements.

In November 2023, the FASB issued ASU No. 2023-07, to improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses. The standard is effective for public companies with annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted. We plan to adopt this guidance for the fiscal year ending December 31, 2024. We are currently evaluating the effects adoption of this guidance will have on the consolidated financial statements.

2. Significant Agreements

Commercial Agreement

In August 2017, we entered into a distribution services agreement with an independent third party, Optime, to provide exclusive specialty pharmacy and patient services programs for Korlym beginning August 10, 2017. Under the terms of this agreement, Optime acts as the exclusive specialty pharmacy distributor of Korlym in the United States, subject to certain exceptions. Optime provides services related to pharmacy operations; patient intake, access and reimbursement; patient support; claims management and accounts receivable; and data and reporting. We provide Korlym to Optime, which it dispenses to patients. Optime does not purchase Korlym from us and it does not take title to the product. Title passes directly from us to the patient at the time the patient receives the medicine.

The initial term of our agreement with Optime wasfive years. In August 2022, we amended our agreement to extend its term to September 30, 2022. In September 2022, we amended our agreement to further extend its term to March 31, 2024, unless terminated earlier by us upon 90 days’ notice. The agreement contains additional customary termination provisions, representations, warranties and covenants. Subject to certain limitations, we have agreed to indemnify Optime for certain third-party claims related to the product, and we have each agreed to indemnify the other for certain breaches of representations, warranties, covenants and other specified matters.

3. Available for Sale Marketable Securities and Fair Value Measurements

The available-for-sale securities in our Consolidated Balance Sheets are as follows:

The following table presents our available-for-sale securities grouped by asset type:

We estimate the fair value of marketable securities classified as Level 1 using quoted market prices obtained from a commercial pricing service for these or identical investments. We estimate the fair value of marketable securities classified as Level 2 using inputs that may include benchmark yields, reported trades, broker/dealer quotes and issuer spreads.

We periodically review our debt securities to determine if any of our investments is impaired due to the issuer’s poor credit or other reasons. If the fair value of our investment is less than our amortized cost, we evaluate quantitative and subjective factors – including, but not limited to, the nature of security, changes in credit ratings and analyst reports concerning the security’s issuer and industry, and interest rate fluctuations and general market conditions – to determine whether an allowance for credit losses is appropriate.

None of our investments, including those with unrealized losses, are impaired. Unrealized losses on our investments are due to interest rate fluctuations. We do not intend to sell investments that currently have unrealized losses and it is highly unlikely that we will sell any investment before recovery of its amortized cost basis, which may be at maturity. Accordingly, we have not recorded an allowance for credit losses for these investments.

We classified accrued interest on our marketable securities of $1.7 million and $1.8 million as of December 31, 2023 and 2022, respectively, as prepaid and other current assets on our consolidated balance sheets.

As of December 31, 2023, all our marketable securities had original maturities of no more than 27 months and all our marketable securities classified as short-term have maturities of less thanone year. The weighted-average maturity of our holdings wasseven months. As of December 31, 2023, our long-term marketable securities had remaining maturities between 13 months and 22 months. None of our marketable securities changed from one fair value hierarchy to another during the year ended December 31, 2023.

4. Composition of Certain Balance Sheet Items

Inventory

Because we rely on one manufacturer to produce Korlym’s API, we have purchased and hold significant quantities of API, included in work in progress inventory. We classify inventory we do not expect to sell within 12 months of the balance sheet date as “Strategic inventory,” a non-current asset.

Accrued and other liabilities

Other assets

As of December 31, 2023 and 2022, other assets included $6.4 million and $4.9 million of deposits for clinical trials, respectively.

5. Leases

We lease our office facilities in Menlo Park, California. On April 1, 2023, we signed an amendment to extend our lease through June 30, 2024. As a result of this amendment, we recognized an additional right-of-use asset and corresponding lease liability of $0.3 million in the year ended December 31, 2023. The right-of-use asset and lease liability recognized equals the present value of the remaining payments due under our amended lease.

As the operating lease for our facilities does not expressly state an interest rate, we calculated the present value of remaining lease payments using a discount rate equal to the interest rate we would pay on a collateralized loan with monthly payments and a term equal to the monthly payments and remaining term of our lease. We recognize operating lease payments as expenses using the straight-line method over the term of the lease.

Operating lease expense for the years ended December 31, 2023, 2022 and 2021 was $2.4 million, $2.3 million and $2.1 million, respectively.

Our right-of-use assets and related lease liabilities were as follows (in thousands, except weighted average amounts):

As of December 31, 2023, future minimum lease payments under non-cancelable operating leases were as follows (in thousands):

As of December 31, 2023, future minimum lease payments under non-cancellable short-term leases were $1.1 million for 2024. We do not recognize right-of-use assets or lease liabilities for leases with a term of twelve months or less, rather, we recognize the associated lease payments in the condensed consolidated statements of income on a straight-line basis over the lease term.

6. Related Party Transactions

There were no related party transactions during the years ended December 31, 2023, 2022, and 2021.

7. Preferred Stock and Stockholders’ Equity

Preferred Stock

Our Board of Directors is authorized, subject to any limitations prescribed by law, without stockholder approval, to issue up to an aggregate of 10.0 million shares of preferred stock at $0.001 par value in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon the preferred stock, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences. The rights of the holders of common stock will be subject to the rights of holders of any preferred stock that may be issued in the future. As of December 31, 2023 and 2022, we hadno outstanding shares of preferred stock.

Treasury Stock

In March 2023, we announced that our Board of Directors approved a tender offer to purchase up to 7.5 million shares of our common stock. The tender offer commenced on March 6, 2023 and expired on March 31, 2023. On April 5, 2023, we purchased 6.6 million shares through the tender offer at a price of $22.00 per share for an aggregate purchase price of $145.4 million, excluding related fees and expenses. We recorded purchased shares as treasury stock on our condensed consolidated balance sheet at cost.

In November 2021, we announced that our Board of Directors approved a tender offer to purchase up to 10 million shares of our common stock. The tender offer commenced on November 8, 2021 and expired on December 15, 2021. We repurchased 10 million shares through the tender offer at a price of $20.75 per share for an aggregate purchase price of $207.5 million, excluding fees and expenses relating to the tender offer.

In November 2020, we announced that our Board of Directors approved a program to repurchase up to $200 million of our common stock (the “Stock Repurchase Program”). The terms of this program did not require us to acquire any shares and allowed for repurchases by a variety of methods, including open market purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions or any combination of such methods. The Stock Repurchase Program expired by its terms on September 30, 2021. During the year ended December 31, 2021, we purchased 3.9 million shares of common stock under the Stock Repurchase Program in open market transactions at an average price of $22.88 per share, for aggregate purchase price of $88.5 million.

During the years ended December 31, 2023, 2022 and 2021, we issued 2.4 million,3.7 million and 4.6 million shares, respectively, of our common stock upon the exercise of stock options. Some option holders exercised their options on a “net exercise” basis, pursuant to which they surrendered to us, and we purchased from them, at the then current market price, shares equal in value to the associated exercise price and tax withholding obligations. During the years ended December 31, 2023, 2022 and 2021, we purchased 1.2 million,1.8 million and 1.6 million shares, respectively, in connection with such option net exercises and paid $7.4 million, $21.3 million and $22.8 million, respectively, to satisfy associated tax withholding obligations.

We recorded purchased shares as treasury stock on our consolidated balance sheets, at cost. It has not been determined whether purchased shares will be retired or sold.

We have never declared or paid any dividends.

Incentive Award Plan

We haveone stock option plan – the Corcept Therapeutics Incorporated 2012 Incentive Award Plan (the “2012 Plan”).

In 2012, our Board of Directors and stockholders approved the 2012 Plan. Under the 2012 Plan, we can issue options, stock purchase and stock appreciation rights, and restricted stock awards to our employees, officers, directors and consultants. The 2012 Plan provides that the exercise price for incentive stock options will be no less than 100 percent of the fair value of our common stock as of the date of grant. Options granted under the 2012 Plan carry a contractual term often years and are expected to vest over periods ranging fromone year tofour years. We assume the vesting period of the options that we grant under the 2012 Plan to be equal to the option grantee’s period of service.

As of December 31, 2023, we had 7.7 million shares available for future issuance under the 2012 plan.

Stock Option activity during 2023

The following table summarizes option activity under the 2012 Plan:

The total intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021 was $36.0 million, $63.4 million and $78.9 million, respectively, based on the difference between the closing price of our common stock on the date of exercise and the exercise price.

The total fair value of options that vested during the years ended December 31, 2023, 2022 and 2021 was $42.4 million, $43.2 million and $40.4 million, respectively.

As of December 31, 2023, we had $67.3 million of unrecognized compensation expense for options outstanding, which had a weighted-average remaining vesting period of 2.35 years.

RSA and RSU (collectively, “restricted stock”) activity during 2023

The following table summarizes restricted stock activity under the 2012 Plan:

As of December 31, 2023, we had $14.9 million of unrecognized compensation expense for restricted stock outstanding, which had a weighted-average remaining vesting period of 2.66 years.

ESPP

In February 2022, we adopted an ESPP that allows employees to set aside, by means of payroll deductions, up toten percent of their annual compensation for the purchase of our common stock. Shares are issued to participating employees from the 2012 Plan on March 1st and September 1st of each year (or, if those dates fall on holidays or weekends, on the first business day thereafter) at the then-current fair market value of our stock, as determined at the close of trading on those days. Payroll deductions for participating employees began April 1, 2022, and the first purchase under the plan took place on September 1, 2022.

In January 2023, we increased the number of ESPP purchase dates to occur quarterly on March 1st, June 1st, September 1st and December 1st (or, if those dates fall on holidays or weekends, on the first business day thereafter).

For each purchased share, the participating employee will receiveone matching share, also issued from the 2012 Plan, if certain conditions are met. There is no vesting requirement for shares issued pursuant to the ESPP purchase. The matching share will be granted in the form of a RSA that will vest on theone-year anniversary of the respective ESPP purchase date, net of applicable tax withholding. The vesting condition on the RSA is that the participating employee hold the corresponding share purchased under the ESPP forone year from the purchase date. Shares purchased pursuant to the ESPP and any matching shares issued upon satisfaction of theone-year holding requirement may be held, sold or transferred at the employee’s sole discretion.

As of December 31, 2023 and 2022, we recorded $3.2 million and $0.2 million, respectively, of stock-based compensation related to RSAs granted in connection with our ESPP in “Accrued and other liabilities” on our consolidated balance sheet.

Option Valuation Assumptions

The following table summarizes the weighted-average assumptions and resultant fair value-based measurements for options granted.

The expected term of options reflected in the table above is based on a formula that considers the expected service period and expected post-vesting termination behavior depending on whether the option holder is an employee, officer or director.

The expected volatility of our stock used in determining the fair value-based measurement of option grants to employees, officers and directors is based on the volatility of our stock price. The volatility is based on historical data of the price for our common stock for periods of time equal to the expected term of these grants.

We calculate employee stock-based compensation expense using the number of options we expect to vest, based on our estimate of the option grantees’ average length of employment, and reduced by our estimate of option forfeitures. We estimate forfeitures at the time of option grant and revise this estimate in subsequent periods if actual forfeitures differ from our estimates.

Stock-based Compensation

The following table summarizes our stock-based compensation by financial statement classification.

8. Net Income Per Share

We compute our basic and diluted net income per share in conformity with the two-class method required for companies with participating shares. Under the two-class method, net income is determined by allocating net income between common stock and unvested RSAs. We compute basic net income per share by dividing our net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period. We compute diluted net income per share by dividing our net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period, including potentially dilutive stock options and unvested RSUs, less unvested RSAs. We use the treasury stock method to determine the number of dilutive shares of common stock resulting from stock options and unvested RSUs.

The following table shows the computation of net income per share for each period:

We excluded from the computation of diluted net income per share, on a weighted-average basis,9.1 million stock options and unvested RSUs outstanding during the year ended December 31, 2023, and 7.3 million and 4.5 million stock options outstanding during the years ended December 31, 2022 and 2021, respectively, because including them would have reduced dilution.

9. Income Taxes

The domestic and foreign components of income before income taxes were as follows:

The income tax expense for the years ended December 31, 2023, 2022, and 2021 consisted of the following:

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the right to deduct research and development expenditures for tax purposes in the period the expenses were incurred and instead requires all U.S. and foreign research and development expenditures to be amortized over five and fifteen tax years, respectively. Congress has considered legislation that would defer the amortization requirement to later years, but as of December 31, 2023, the requirement has not been modified. Accordingly, we have capitalized our research and development expenses for tax purposes, resulting in higher cash paid for taxes as compared to prior years.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows:

Each quarter, we assess the likelihood that we will generate sufficient taxable income to use our federal and state deferred tax assets. Except for the valuation allowances that offset our California net deferred tax assets, we have determined that it is more likely than not we will realize the benefit related to all other deferred tax assets. To the extent we increase a valuation allowance, we will include an expense in the Consolidated Statement of Income in the period in which such determination is made.

The valuation allowance increased by $1.1 million, $1.9 million and $1.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2023, we had California net operating loss carryforwards of $55.6 million, which will begin to expire in the year 2032, and net operating loss carryforwards from other states of $0.7 million, which will begin to expire in the year 2035 if not utilized.

As of December 31, 2023, we also had California research and development credits of $16.8 million, which have no expiration date.

The following table presents a reconciliation from the statutory federal income tax rate to the effective rate.

We maintain liabilities for uncertain tax positions. The measurement of these liabilities involves considerable judgment and estimation and are continuously monitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases, and other pertinent information.

The aggregate annual changes in the balance of gross unrecognized tax benefits are as follows:

As of December 31, 2023, the amount of unrecognized tax benefits that would favorably impact the effective tax rate were approximately $10.2 million, and approximately $2.8 million of unrecognized tax benefits would be offset by a change in the valuation allowance. A valuation allowance is maintained on the remaining tax benefits related to California deferred tax assets and would not impact the effective tax rate. We hadno or insignificant amounts of accrued interest andno accrued penalties related to unrecognized tax benefits as of December 31, 2023, 2022 and 2021. We do not expect our unrecognized tax benefits to change materially over the next 12 months.

While we believe we have adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than the recorded position. Accordingly, our provisions on federal and state tax-related matters to be recorded in the future may change as revised estimates are made or the underlying matters are settled or otherwise resolved.

The Company’s primary tax jurisdiction is the United States. For federal tax purposes, the years 2022 through 2023 remain open and subject to tax examination. For US state tax purposes, the years 2004 through 2023 generally remain open and subject to tax examination by the appropriate state taxing authorities.

10. Commitments and Contingencies

Manufacturing Agreements

We have an agreement with one third-party manufacturer to supply mifepristone, the active pharmaceutical ingredient (“API”) in Korlym, and two additional third-party manufacturers to produce and bottle Korlym tablets.

As of December 31, 2023, we had a $0.7 million remaining obligation in connection with commitments to purchase API from these third-party manufacturers. In January 2024, to ensure we have sufficient API to meet future demand of Korlym tablets, we committed to purchase an additional $3.0 million of API.

Taxes

As of December 31, 2023, we have recorded non-current taxes payable of$10.3 million related to uncertain tax positions.

In the ordinary course of business, we may be subject to legal claims and regulatory actions that could have a material adverse effect on our business or financial position. We assess our potential liability in such situations by analyzing the possible outcomes of various litigation, regulatory and settlement strategies. If we determine a loss is probable and its amount can be reasonably estimated, we accrue an amount equal to the estimated loss.

Melucci Litigation and Settlement

On March 14, 2019, a purported securities class action complaint was filed in the United States District Court for the Northern District of California by Nicholas Melucci (Melucci v. Corcept Therapeutics Incorporated, et al., Case No. 5:19-cv-01372-LHK) (the “Melucci litigation”). The complaint named us and certain of our executive officers as defendants asserting violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder and alleges that the defendants made false and materially misleading statements and failed to disclose adverse facts about our business, operations and prospects. The complaint asserts a putative class period extending from August 2, 2017 to February 5, 2019 and seeks unspecified monetary relief, interest and attorneys’ fees. On October 7, 2019, the Court appointed a lead plaintiff and lead counsel. The lead plaintiff’s consolidated complaint was filed on December 6, 2019.

On February 8, 2023, we reached an agreement in principle (the “Proposed Settlement”) to resolve all claims in the Melucci litigation. Under the Proposed Settlement, we have agreed to make a one-time payment of $14.0 million, which will be covered in full by our insurers. In connection with the Proposed Settlement, we recorded a settlement expense of $14.0 million and corresponding insurance recovery of $14.0 million in Operating Expenses on our Consolidated Statement of Income in the fourth quarter of 2022. Accordingly, we recorded an accrued liability of $14.0 million for this settlement and a corresponding insurance recovery receivable of $14.0 million on our Consolidated Balance Sheet. The Court granted preliminary approval of the Proposed Settlement on January 4, 2024, following which we paid $14.0 million into escrow. Our insurers reimbursed us in full. Payment of any funds out of the designated escrow is pending the Court’s final approval of the Proposed Settlement, a hearing for which is scheduled for June 6, 2024.

No other losses andno other provisions for a loss contingency have been recorded to date.

11. Subsequent Events

On January 8, 2024, our Board of Directors approved a program authorizing the repurchase of up to $200 million of our common stock. Purchases under this program may be made in the open market, in privately negotiated transactions or otherwise. The timing and amount of any repurchases will be determined based on market conditions, our stock price and other factors. The program does not require us to repurchase any specific number of shares of its common stock and may be modified, suspended or discontinued at any time without notice.