10-Q 1 hrmy-20220930x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended September 30, 2022

OR

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

For the transition period from                      to

Commission File Number: 001-39450

HARMONY BIOSCIENCES HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

82-2279923

(State or other jurisdiction of
incorporation or organization)

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

630 W. Germantown Pike, Suite 215, Plymouth Meeting, PA

19462

(Address of principal executive offices)

(Zip Code)

(484) 539-9800

(Registrant’s telephone number, including area code)

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

Title of each class

    

Trading
Symbol(s)

    

Name of each exchange
on which registered

Common Stock, par value $0.00001 value per share

 

HRMY

 

The Nasdaq Stock Market LLC
(Nasdaq Global Market)

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of October 28, 2022, there were 59,317,554 shares of the registrant’s common stock, par value $0.00001 value per share, outstanding.

TABLE OF CONTENTS

Page

Part I. Financial Information

3

Item 1. Financial Statements

3

Condensed Consolidated Balance Sheets (Unaudited)

3

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

4

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

5

Condensed Consolidated Statements of Cash Flows (Unaudited)

6

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

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

21

Item 3. Quantitative and Qualitative Disclosures About Market Risk

35

Item 4. Controls and Procedures

35

Part II. Other Information

36

Item 1. Legal Proceedings

36

Item 1A. Risk Factors

36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

36

Item 3. Defaults upon Senior Securities

36

Item 4. Mine Safety Disclosures

36

Item 5. Other Information

36

Item 6. Exhibits

37

Signatures

38

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

    

September 30, 

    

December 31, 

    

2022

    

2021

ASSETS

 

  

 

  

CURRENT ASSETS:

 

  

 

  

Cash and cash equivalents

$

261,343

$

234,309

Investments, short-term

46,420

Trade receivables, net

 

55,065

 

34,843

Inventory, net

 

3,900

 

4,432

Prepaid expenses

 

11,246

 

7,637

Other current assets

 

4,108

 

3,218

Total current assets

 

382,082

 

284,439

NONCURRENT ASSETS:

 

  

 

  

Property and equipment, net

 

680

 

820

Restricted cash

 

750

 

750

Investments, long-term

8,280

Intangible assets, net

 

166,914

 

143,919

Deferred tax asset

81,679

Other noncurrent assets

 

3,079

 

3,515

Total noncurrent assets

 

261,382

 

149,004

TOTAL ASSETS

$

643,464

$

433,443

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

CURRENT LIABILITIES:

 

  

 

  

Trade payables

$

10,049

$

1,001

Accrued compensation

 

8,331

 

9,165

Accrued expenses

 

85,606

 

40,249

Current portion of long-term debt

2,000

2,000

Other current liabilities

 

1,371

 

1,360

Total current liabilities

 

107,357

 

53,775

NONCURRENT LIABILITIES:

 

  

 

  

Long-term debt, net

 

189,725

 

189,984

Other noncurrent liabilities

 

2,498

 

3,177

Total noncurrent liabilities

 

192,223

 

193,161

TOTAL LIABILITIES

 

299,580

 

246,936

COMMITMENTS AND CONTINGENCIES (Note 12)

 

  

 

  

STOCKHOLDERS’ EQUITY:

 

  

 

  

Common stock—$0.00001 par value; 500,000,000 shares authorized at September 30, 2022 and December 31, 2021, respectively; 59,304,408 shares and 58,825,769 issued and outstanding at September 30, 2022 and December 31, 2021, respectively

 

1

 

1

Additional paid in capital

 

664,700

 

640,104

Accumulated other comprehensive income (loss)

(178)

Accumulated deficit

 

(320,639)

 

(453,598)

TOTAL STOCKHOLDERS’ EQUITY

 

343,884

 

186,507

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

643,464

$

433,443

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

3

HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except share and per share data)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

Net product revenues

$

117,206

$

80,732

$

309,547

$

214,227

Cost of product sold

 

22,959

 

14,604

 

56,596

 

37,701

Gross profit

 

94,247

 

66,128

 

252,951

 

176,526

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

40,548

 

11,739

 

60,794

 

22,916

Sales and marketing

 

20,467

 

16,480

 

58,210

 

49,009

General and administrative

 

21,331

 

16,856

 

61,374

 

45,704

Total operating expenses

 

82,346

 

45,075

 

180,378

 

117,629

Operating income

 

11,901

 

21,053

 

72,573

 

58,897

Loss on debt extinguishment

 

 

(26,146)

 

 

(26,146)

Other expense (income), net

 

56

 

 

96

 

(15)

Interest expense, net

 

(3,990)

 

(5,429)

 

(12,086)

 

(19,783)

Income (loss) before income taxes

 

7,967

 

(10,522)

 

60,583

 

12,953

Income tax benefit (expense)

 

79,976

 

902

 

72,376

 

(1,070)

Net income

$

87,943

$

(9,620)

$

132,959

$

11,883

Unrealized loss on investments

 

(149)

 

 

(178)

 

Comprehensive income

$

87,794

$

(9,620)

$

132,781

$

11,883

EARNINGS PER SHARE:

 

  

 

  

 

  

 

  

Basic

$

1.48

$

(0.17)

$

2.25

$

0.21

Diluted

$

1.44

$

(0.17)

$

2.18

$

0.20

Weighted average number of shares of common stock - basic

 

59,234,720

 

57,722,163

 

59,070,063

 

57,188,101

Weighted average number of shares of common stock - diluted

 

61,207,625

 

57,722,163

 

60,921,482

 

58,776,158

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

4

HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share and per share data)

Accumulated

Additional

other

Total

Common Stock

paid-in

comprehensive

Accumulated

stockholders’

   

Shares

   

Amount

   

capital

   

income (loss)

   

deficit

   

equity

Balance as of December 31, 2021

 

58,825,769

$

1

$

640,104

$

$

(453,598)

$

186,507

Net income

 

 

 

 

132,959

 

132,959

Unrealized loss on investments

(178)

(178)

Issuance of common stock

8,050

408

408

Exercise of options

 

470,589

 

 

5,275

 

 

5,275

Stock-based compensation

 

 

 

18,913

 

 

18,913

Balance as of September 30, 2022

 

59,304,408

$

1

$

664,700

$

(178)

$

(320,639)

$

343,884

Accumulated

Additional

other

Total

Common Stock

paid-in

comprehensive

Accumulated

stockholders’

   

Shares

   

Amount

   

capital

   

income (loss)

   

deficit

   

equity

Balance as of June 30, 2022

59,117,749

$

1

$

655,143

$

(29)

$

(408,582)

$

246,533

Net income

 

 

 

 

87,943

 

87,943

Unrealized loss on investments

(149)

(149)

Issuance of common stock

8,050

408

408

Exercise of options

 

178,609

 

 

2,143

 

 

2,143

Stock-based compensation

 

 

 

7,006

 

 

7,006

Balance as of September 30, 2022

 

59,304,408

$

1

$

664,700

$

(178)

$

(320,639)

$

343,884

Additional

Total

Common Stock

paid-in

Accumulated

stockholders’

    

Shares

    

Amount

    

capital

    

deficit

    

equity

Balance as of December 31, 2020

 

56,890,569

$

1

$

585,374

$

(488,195)

$

97,180

Net income

 

 

 

 

11,883

 

11,883

Issuance of common stock

1,270,462

29,700

29,700

Exercise of stock options

 

253,515

 

 

1,794

 

 

1,794

Stock-based compensation

 

 

 

11,461

 

 

11,461

Balance as of September 30, 2021

 

58,414,546

$

1

$

628,329

$

(476,312)

$

152,018

Additional

Total

Common Stock

paid-in

Accumulated

stockholders’

    

Shares

    

Amount

    

capital

    

deficit

    

equity

Balance as of June 30, 2021

 

57,000,139

$

1

$

593,242

$

(466,692)

$

126,551

Net income

 

 

 

 

(9,620)

 

(9,620)

Issuance of common stock

1,270,462

29,700

29,700

Exercise of options

 

143,945

 

 

1,134

 

 

1,134

Stock-based compensation

 

 

 

4,253

 

 

4,253

Balance as of September 30, 2021

 

58,414,546

$

1

$

628,329

$

(476,312)

$

152,018

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

5

HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share data)

    

Nine Months Ended September 30, 

    

2022

    

2021

CASH FLOWS FROM OPERATING ACTIVITIES

 

  

 

  

Net income

$

132,959

$

11,883

Adjustments to reconcile net income to net cash used in operating activities:

 

 

  

Depreciation

 

312

 

299

Intangible amortization

 

17,005

 

13,781

Stock-based and employee stock purchase compensation expense

 

18,913

 

11,461

Stock appreciation rights market adjustment

 

321

 

261

Debt issuance costs amortization

 

1,241

 

1,820

Deferred taxes

(81,679)

Investment securities interest income

(225)

Loss on debt extinguishment

26,146

Other non-cash expenses

1,042

916

Change in operating assets and liabilities:

 

 

  

Trade receivables

 

(20,222)

 

(11,030)

Inventory

 

532

 

(982)

Prepaid expenses and other assets

 

(4,479)

 

(3,715)

Trade payables

 

9,048

 

1,623

Accrued expenses and other current liabilities

 

43,171

 

8,545

Other non-current liabilities

 

(151)

 

16

Net cash provided by operating activities

 

117,788

 

61,024

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Purchase of investment securities

(55,637)

Proceeds from maturities and sales of investment securities

872

Purchase of property and equipment

 

(172)

 

(298)

Milestone payments

 

(40,000)

 

(100,000)

Net cash used in investing activities

 

(94,937)

 

(100,298)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Proceeds from issuance of common stock

408

30,000

Common stock issuance costs

(300)

Proceeds from long term debt

 

 

200,000

Debt issuance costs

 

 

(9,147)

Extinguishment of debt

 

 

(200,000)

Extinguishment of debt exit fees

 

 

(22,000)

Principal repayment of long term debt

(1,500)

Proceeds from exercised options

 

5,275

 

1,794

Net cash provided by financing activities

 

4,183

 

347

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

27,034

 

(38,927)

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period

 

235,059

 

229,381

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period

$

262,093

$

190,454

Supplemental Disclosure of Cash Flow Information:

 

  

 

  

Cash paid during the year for interest

$

11,334

$

15,997

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

6

HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

The Company

Harmony Biosciences Holdings, Inc., and its consolidated subsidiary (the “Company”) was founded in July 2017 as Harmony Biosciences II, LLC, a Delaware limited liability company. The Company converted to a Delaware corporation named Harmony Biosciences II, Inc. in September 2017 and, in February 2020, the Company changed its name to Harmony Biosciences Holdings, Inc. The Company’s operations are conducted in its wholly owned subsidiary, Harmony Biosciences, LLC (“Harmony”), which was formed in May 2017. The Company is a commercial-stage pharmaceutical company focused on developing and commercializing innovative therapies for patients living with rare neurological diseases as well as patients living with other neurological diseases who have unmet medical needs. The Company is headquartered in Plymouth Meeting, Pennsylvania.

Initial Public Offering

In August 2020, the Company completed its initial public offering (“IPO”) of common stock, in which it sold 6,151,162 shares, including 802,325 shares pursuant to the underwriters’ over-allotment option. The shares were sold at a price of $24.00 per share for net proceeds of approximately $135,435, after deducting underwriting discounts and commissions and offering expenses of approximately $12,193 payable by the Company. Upon the closing of the IPO, all outstanding shares of the Company’s convertible preferred stock were automatically converted into shares of common stock and the accrued dividend payable to holders of the convertible preferred stock was paid out in shares of common stock, resulting in a total of 42,926,630 shares of common stock being issued to former holders of the Company’s convertible preferred stock. Warrants exercisable for convertible preferred stock were automatically converted into warrants exercisable for a total of 410,239 shares of common stock.

2. LIQUIDITY AND CAPITAL RESOURCES

The unaudited condensed consolidated financial statements have been prepared as though the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $320,639 and $453,598, as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022, the Company had cash, cash equivalents and investments of $316,043.

The Company believes that its existing cash and cash equivalents on hand as of September 30, 2022, as well as additional cash generated from operating and financing activities will meet its operational liquidity needs and fund its planned investing activities for the next twelve months from the date of issuance of these unaudited condensed consolidated financial statements.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented. All intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated balance sheet as of September 30, 2022, the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2022, and 2021, and the unaudited condensed

7

consolidated statements of operations and comprehensive income and the unaudited condensed consolidated statements of shareholders’ equity for the three and nine months ended September 30, 2022 and 2021, are unaudited. The balance sheet as of September 30, 2022, was derived from audited financial statements as of and for the year ended December 31, 2021. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements as of and for the year ended December 31, 2021, and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2022, and the results of its operations and its cash flows for the nine months ended September 30, 2022 and 2021. The unaudited condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted under the SEC’s rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The Company has updated certain prior period disclosures within Note 11 in order to conform with current period presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the unaudited condensed consolidated financial statements, including the notes thereto, and elsewhere in this report. Actual results may differ significantly from estimates, which include rebates due pursuant to commercial and government contracts, accrued research and development expenses, stock-based compensation expense and income taxes.

Uncertainties related to the magnitude and duration of COVID-19, the extent to which it will impact our future financial results, worldwide macroeconomic conditions including interest rates, employment rates, consumer spending and health insurance coverage, the speed of the anticipated recovery and governmental and business reactions to the pandemic have increased the complexity of developing estimates and assumptions used in the preparation of the unaudited condensed consolidated financial statements, including the carrying amounts of long-lived assets, and the intangible asset. Actual results may differ significantly from our estimates as a result of COVID-19.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents and restricted cash consist of cash and, if applicable, highly liquid investments with an original maturity of three months or less when purchased, including investments in Money Market Funds and debt securities that approximate fair value. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheet that equal the amount reflected in the statements of cash flows.

    

As of

    

September 30, 

    

December 31, 

2022

2021

Cash and cash equivalents

$

261,343

$

234,309

Restricted cash

 

750

 

750

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

$

262,093

$

235,059

Restricted cash includes amounts required to be held as a security deposit in the form of letters of credit for the Company’s credit card program and the fleet program.

8

Investments

The Company’s investments consist of debt securities that are classified as available-for-sale. The short-term and long-term investments are carried at fair value and unrealized gains and losses are recorded as a component of accumulated comprehensive income in stockholders’ equity. The amortization of premiums and accretion of discounts adjust the carrying value of investments and are recorded in interest expense, net, on the unaudited condensed consolidated statements of operations and comprehensive income. Interest income and realized gains and losses, if any, are also recorded in interest expense, net, on the unaudited condensed consolidated statement of operations and comprehensive income. Realized gains and losses that result from the sale of investments are determined on a specific identification basis.

At each reporting period, the Company reviews any unrealized losses position to determine if the decline in the fair value of the underlying investments is a result of credit losses or other factors. If the assessment indicates that a credit loss exists, any impairment is recognized as an allowance for credit losses in our consolidated statement of operations.

Concentrations of Risk

Substantially all of the Company’s cash and money market funds are held in two financial institutions. Due to their size, the Company believes these financial institutions represent minimal credit risk. Deposits may exceed the amount of insurance provided on such deposits by the Federal Deposit Insurance Corporation for U.S. institutions. The Company has not experienced any losses on its deposits of cash and cash equivalents. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

The Company is also subject to credit risk from its trade receivables related to its product sales. The Company extends credit to specialty pharmaceutical distribution companies within the United States. Customer creditworthiness is monitored and collateral is not required. Historically, the Company has not experienced credit losses on its accounts receivable. The Company monitors its exposure within accounts receivable and would record a reserve against uncollectible accounts receivable if necessary As of September 30, 2022, three customers accounted for 100% of gross accounts receivable; Caremark LLC (“CVS Caremark”), which accounted for 47% of gross accounts receivable; Accredo Health Group, Inc. (“Accredo”), which accounted for 30% of gross accounts receivable; and, PANTHERx Specialty Pharmacy LLC (“Pantherx”, which accounted for 23% of gross accounts receivable. As of December 31, 2021, three customers accounted for 100% of gross accounts receivable; Accredo, which accounted for 40% of gross accounts receivable; Pantherx, which accounted for 31% of gross accounts receivable; and CVS Caremark, which accounted for 29% of gross accounts receivable.

For the nine months ended September 30, 2022, three customers accounted for 100% of gross product revenues; CVS Caremark accounted for 40% of gross product revenues; Pantherx accounted for 30% of gross product revenues; and Accredo accounted for 30% of gross product revenues. For the nine months ended September 30, 2021, three customers accounted for 100% of gross product revenues; CVS Caremark accounted for 36% of gross product revenues; Pantherx accounted for 36% of gross product revenues; and Accredo accounted for 28% of gross product revenues.

The Company depends on a single source supplier for each of its product and active pharmaceutical ingredient.

Recently Issued Accounting Pronouncements

ASU 2020-04, Reference Rate Reform (Topic 848). In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides guidance related to reference rate reform. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market

9

transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. The Company is currently evaluating the impact of the transition from LIBOR to alternative reference rates but does not expect a significant impact to its condensed consolidated financial statements.

4. INVESTMENTS

The carrying value and amortized cost of the Company’s available-for-sale debt securities, summarized by type of security, consisted of the following:

September 30, 2022

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

Short-term:

Commercial paper

$

12,089

1

(35)

$

12,055

Corporate debt securities

30,077

4

(80)

30,001

U.S. government securities

4,382

(18)

4,364

Total short-term investments

$

46,548

5

(133)

$

46,420

Long-term:

Corporate debt securities

$

8,074

3

(50)

$

8,027

U.S. government securities

256

(3)

253

Total long-term investments

$

8,330

3

(53)

$

8,280

The Company classifies investments with an original maturity of less than one year as current and investments with an original maturity date of greater than one year as noncurrent on its unaudited condensed consolidated balance sheet. The investments classified as noncurrent have maturity dates ranging from 1-2 years.

5. FAIR VALUE MEASUREMENTS

The Company’s unaudited condensed consolidated financial statements include cash, cash equivalents, restricted cash, accounts payable, and accrued liabilities, all of which are short term in nature and, accordingly, approximate fair value.

It is the Company’s policy to measure non-financial assets and liabilities at fair value on a nonrecurring basis. These non-financial assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (such as evidence of impairment), which, if material, are disclosed in the accompanying footnotes.

The Company measures certain assets and liabilities at fair value based on the fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three levels based on the source of inputs as follows:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.

10

Level 3—Valuations based on unobservable inputs and models that are supported by little or no market activity.

Money market funds are classified as Level 1 fair value instruments. Investments in available-for-sale debt securities are classified as Level 2 and carried at fair value, which we estimate utilizing a third-party pricing service. The pricing service utilizes industry standard valuation models whereby all significant inputs, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, or other market-related data, are observable. We validate valuations obtained from third-party services by obtaining market values from other pricing sources. The Company did not classify any assets or liabilities as Level 3 as of September 30, 2022 or December 31, 2021.

The Company’s assets measured at fair value consisted of the following:

September 30, 2022

December 31, 2021

Total

Level 1

Level 2

Total

Level 1

Level 2

Assets

Cash equivalents

$

180,513

180,513

$

156,782

156,782

Commercial paper

12,055

12,055

Corporate debt securities

38,028

38,028

U.S. government securities

4,617

4,617

Total

$

235,213

180,513

54,700

$

156,782

156,782

6. INVENTORY

Inventory, net consisted of the following:

    

As of

    

September 30, 

    

December 31, 

2022

2021

Raw materials

$

605

$

986

Work in process

 

1,802

 

1,787

Finished goods

 

2,137

 

2,108

Inventory, gross

 

4,544

 

4,881

Reserve for excess inventory

 

(644)

 

(449)

Total inventory, net

$

3,900

$

4,432

7. INTANGIBLE ASSETS

In August 2019, the Company received FDA approval of WAKIX® (pitolisant) for the treatment of excessive daytime sleepiness (“EDS”) in adult patients with narcolepsy. This event triggered a milestone payment of $75,000 under the provisions of the 2017 LCA (defined below) which the Company capitalized as an intangible asset. The Company determined a useful life of 10 years for such intangible asset, and, as of September 30, 2022, the remaining useful life was 7.0 years.

In October 2020, the Company received FDA approval for the New Drug Application (“NDA”) for WAKIX for the treatment of cataplexy in adult patients with narcolepsy. This event triggered a milestone payment of $100,000 under the provisions of the 2017 LCA which the Company capitalized as an intangible asset and paid in January of 2021. The Company determined a useful life of 9 years for such intangible asset, and, as of September 30, 2022, the remaining useful life was 7.0 years.

In February 2022, the Company attained $500,000 in life-to-date aggregate net sales of WAKIX in the United States. This event triggered a final $40,000 payment under the provisions of the 2017 LCA which the

11

Company capitalized as an intangible asset and paid in March of 2022. The Company determined a useful life of 7.6 years for such intangible asset, and, as of September 30, 2022, the remaining useful life was 7.0 years.

Amortization expense was $5,962 and $4,573 for the three months ended September 30, 2022 and 2021, respectively, and $17,005 and $13,781 for the nine months ended September 30, 2022 and 2021, respectively, and is recorded in general and administrative expenses on the unaudited condensed consolidated statements of operations and comprehensive income.

Future amortization expense relating to unamortized intangible assets as of September 30, 2022 for the periods indicated below consists of the following:

Years ending December 31, 

    

2022 (Excluding the nine months ended September 30, 2022)

$

5,961

2023

 

23,845

2024

 

23,845

2025

 

23,845

2026

 

23,845

Thereafter

65,573

Total

$

166,914

The gross carrying amount and net book value of the intangible assets is as follows:

    

As of

    

September 30, 

    

December 31, 

2022

2021

Gross Carrying Amount

$

215,000

$

175,000

Accumulated Amortization

 

(48,086)

 

(31,081)

Net Book Value

$

166,914

$

143,919

8. LICENSE AND ASSET PURCHASE AGREEMENTS

In July 2017, Harmony entered into a License Agreement (“the 2017 LCA”) with Bioprojet Société Civile de Recherche (“Bioprojet”) whereby Harmony acquired the exclusive right to commercialize the pharmaceutical compound pitolisant for the treatment, and/or prevention, of narcolepsy, obstructive sleep apnea, idiopathic hypersomnia, and Parkinson’s disease as well as any other indications unanimously agreed by the parties in the United States and its territories. A milestone payment of $50,000 was due upon acceptance by the FDA of pitolisant’s NDA, which was achieved in February 2019 and was expensed within research and development for the year ended December 31, 2019. A milestone payment of $77,000, which included a $2,000 fee that is described below, was due upon FDA approval of WAKIX (pitolisant) for treatment of EDS in adult patients with narcolepsy, which was achieved in August 2019. The $2,000 payment and $75,000 milestone payment were paid in August and November 2019, respectively. In addition, a milestone payment of $102,000, which included a $2,000 fee was due upon the FDA approval of the NDA for WAKIX for the treatment of cataplexy in adult patients with narcolepsy. The $2,000 payment was paid in October 2020 and a $100,000 milestone payment was paid in January 2021. A final $40,000 milestone payment was paid to Bioprojet in March 2022 upon WAKIX attaining $500,000 in aggregate net sales in the United States. The 2017 LCA also requires a fixed trademark royalty and a tiered royalty based on net sales, which is payable to Bioprojet on a quarterly basis. The Company incurred $ 20,944 and $13,202 for the three months ended September 30, 2022 and 2021, respectively, and ­$51,741 and $34,561 for the nine months ended September 30, 2022 and 2021, respectively, for sales-based, trademark and tiered royalties recognized as cost of product sold. As of September 30, 2022 and December 31, 2021, the Company had accrued $20,944 and $16,396, respectively, for sales-based, trademark and tiered royalties.  

On July 31, 2022, Harmony entered into a License and Commercialization Agreement (the “2022 LCA”) with Bioprojet whereby Harmony obtained exclusive rights to manufacture, use and commercialize one or more

12

new products based on pitolisant in the United States and Latin America, with the potential to add additional indications and formulations upon agreement of both parties. Harmony will pay an initial, non-refundable $30,000 licensing fee and additional payments of up to $155,000 are potentially due under the 2022 LCA upon the achievement of certain future development and sales-based milestones. In addition, there are certain payments due upon achievement of development milestones for new indications and formulations as agreed upon by both parties. The 2022 LCA also requires a fixed trademark royalty and a tiered royalty based on net sales upon commercialization, which will be payable to Bioprojet on a quarterly basis. Upon the closing of the 2022 LCA on September 28, 2022, the $30,000 licensing fee was recorded in research and development within the unaudited condensed consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2022.

Agreement Related to Intellectual Property

In August 2021, the Company entered into an asset purchase agreement with ConSynance Therapeutics, Inc. (the “APA”) to acquire HBS-102 (formerly referred to as “CSTI-100”), a potential first-in-class molecule with a novel mechanism of action. Under the terms of the APA, the Company acquired full development and commercialization rights globally, with the exception of Greater China, for $3,500. The Company accounted for the transaction as an asset acquisition as substantially all of the fair value of the assets acquired was concentrated in a single identified asset. Additionally, there are payments due under the APA upon the achievement of certain milestones including $1,750 for preclinical milestones, $19,000 for development milestones, $44,000 for regulatory milestones and $110,000 for sales milestones.

9. ACCRUED EXPENSES

Accrued expenses consist of the following:

    

As of

    

September 30, 

    

December 31, 

2022

2021

Royalties due to third parties

$

20,944

$

16,396

Rebates and other sales deductions

 

25,214

 

17,141

Interest

3,041

2,125

Selling and marketing

 

2,326

 

1,983

Research and development

 

1,852

 

658

Professional fees, consulting, and other services

 

1,229

 

1,645

Licensing fee

30,000

Other expenses

 

1,000

 

301

$

85,606

$

40,249

10. DEBT

Blackstone Credit Agreement

In August 2021, the Company entered into the Blackstone Credit Agreement that provides for (i) a senior secured term loan facility in an aggregate original principal amount of $200,000 (the “Initial Term Loan”) and (ii) a senior secured delayed draw term loan facility in an aggregate principal amount up to $100,000 (the “DDTL” and, together with the Initial Term Loan, the “Loans”). The DDTL was initially available to draw down through August 9, 2022. In August 2022, the Company entered into an agreement to extend the expiration date of the DDTL to August 9, 2023, for which the Company will pay a ticking fee at a rate of 1% per annum on the undrawn portion of the DDTL, which commenced on August 10, 2022.

The repayment schedule for the Initial Term Loan consists of quarterly $500 principal payments, which commenced on December 31, 2021, and increasing to quarterly $5,000 principal payments beginning on March 31, 2024, with a $145,500 payment due on the maturity date of August 9, 2026 (“Maturity Date”). Interest is

13

payable quarterly, which commenced on November 9, 2021, and continues through the Maturity Date. The Initial Term Loan bears interest at a per annum rate equal to LIBOR, subject to a 1.00% floor, plus 6.50%.

Net cash received from the Initial Term Loan as a result of the transaction, less debt issuance costs of $8,151, was $191,849. The debt issuance costs related to the Initial Term Loan are being amortized as additional interest expense over the five-year loan term of the Blackstone Credit Agreement. In addition, the Company paid $1,000 in debt issuance costs relating the DDTL, which are recorded in other current assets within the unaudited condensed consolidated balance sheet. The fair value of the Initial Term Loan as of September 30, 2022 was $149,226.

Long-term debt, net consists of the following:

    

September 30, 

    

December 31, 

2022

2021

Liability component - principal

$

198,000

$

199,500

Unamortized debt discount associated with debt financing costs

 

(6,275)

 

(7,516)

Liability component - net carrying value

191,725

191,984

Less current portion

(2,000)

(2,000)

Long-term debt, net

$

189,725

$

189,984

Future minimum payments relating to long-term debt, net as of September 30, 2022, for the periods indicated below consists of the following:

Years ending December 31, 

2022 (Excluding the nine months ended September 30, 2022)

$

500

2023

 

2,000

2024

 

20,000

2025

 

20,000

2026

 

155,500

Thereafter

Total

$

198,000

Interest expense related to the Company’s long-term debt, net, is included in interest expense, net in the unaudited condensed consolidated statements of operations and comprehensive income and consists of the following:

Three Months Ended

Nine Months Ended

September 30, 

September 30,

2022

    

2021

2022

    

2021

Interest on principal balance

$

4,513

$

5,030

$

12,110

$

18,122

Amortization of deferred financing costs

 

418

 

459

 

1,241

 

1,820

Total term loan interest expense

$

4,931

$

5,489

$

13,351

$

19,942

11. LEASES

In June 2018, the Company entered into an operating lease for approximately fifteen thousand square feet of office space in Plymouth Meeting, PA, which expires in May 2024. In December 2020, the Company entered into an operating lease for approximately thirteen thousand square feet of additional office space in Plymouth Meeting, PA, which expires in May 2024. The terms of the lease payments provide for rental payments on a monthly basis and on a graduated scale. The Company also leases a fleet of automobiles that are used by its sales representatives and are classified as operating leases.

14

Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future lease payments using our incremental borrowing rate. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Our leases have remaining lease terms of less than 1 year to 3 years, some of which may include the option to extend or terminate the leases.

The Company recorded operating lease costs of $378 and $359 for the three months ended September 30, 2022 and 2021, respectively, and $1,155 and $916 for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, the weighted-average remaining lease term for operating leases was 1.9 years and the weighted-average discount rate for operating leases was 3.8%.

Supplemental balance sheet information related to operating leases was as follows:

Leases

Classification

September 30, 2022

December 31, 2021

Assets

Operating lease right-of-use assets

Other noncurrent assets

$

2,658

$

3,298

Liabilities

Operating lease liability, current portion

Other current liabilities

$

1,598

$

1,527

Operating lease liability, long-term

Other long-term liabilities

1,384

2,233

Total operating lease liabilities

$

2,982

$

3,760

Supplemental cash flow information related to operating leases was as follows:

September 30, 2022

September 30, 2021

Operating cash flows from operating leases

$

1,297

$

833

Right of use assets obtained in exchange for operating lease obligations (1)

$

485

$

3,365

(1)Including the balance recognized on January 1, 2021, upon adoption of ASU No. 2016-02.

Future payments under noncancelable operating leases with initial terms of one year or more as of September 30, 2022 consisted of the following:

Years ending December 31, 

    

2022 (Excluding the nine months ended September 30, 2022)

$

419

2023

 

1,679

2024

 

958

2025

 

34

2026

 

Thereafter

 

Total lease payments

3,090

Less: imputed interest

(108)

Total lease liabilities

$

2,982