Harmony Biosciences Holdings, Inc. [HRMY] Filings

10-Q 1 hrmy-20240630x10q.htm 10-Q

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 June 30, 2024

☐	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 August 2, 2024, there were 56,834,745 shares of the registrant’s common stock, par value $0.00001 value per share, outstanding.

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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	23
Item 3. Quantitative and Qualitative Disclosures About Market Risk	37
Item 4. Controls and Procedures	38
Part II. Other Information	38
Item 1. Legal Proceedings	38
Item 1A. Risk Factors	40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3. Defaults upon Senior Securities	40
Item 4. Mine Safety Disclosures	40
Item 5. Other Information	40
Item 6. Exhibits	41
Signatures	42

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	June 30,		December 31,
	2024		2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	317,296	$	311,660
Investments, short-term		29,614		41,800
Trade receivables, net		83,157		74,140
Inventory, net		5,643		5,363
Prepaid expenses		16,127		12,570
Other current assets		6,507		5,537
Total current assets		458,344		451,070
NONCURRENT ASSETS:
Property and equipment, net		754		371
Restricted cash		270		270
Investments, long-term		87,178		72,169
Intangible assets, net		125,186		137,108
Deferred tax asset		180,186		144,162
Other noncurrent assets		6,465		6,298
Total noncurrent assets		400,039		360,378
TOTAL ASSETS	$	858,383	$	811,448
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payables	$	22,683	$	17,730
Accrued compensation		9,641		23,747
Accrued expenses		91,644		99,494
Current portion of long-term debt		15,000		15,000
Other current liabilities		7,614		7,810
Total current liabilities		146,582		163,781
NONCURRENT LIABILITIES:
Long-term debt, net		171,422		178,566
Other noncurrent liabilities		1,796		2,109
Total noncurrent liabilities		173,218		180,675
TOTAL LIABILITIES		319,800		344,456
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS’ EQUITY:
Common stock—$0.00001 par value; 500,000,000 shares authorized at June 30, 2024 and December 31, 2023, respectively; 56,833,771 and 56,769,081 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively		1		1
Additional paid in capital		632,168		610,266
Accumulated other comprehensive (loss) income		(234)		2
Accumulated deficit		(93,352)		(143,277)
TOTAL STOCKHOLDERS’ EQUITY		538,583		466,992
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	858,383	$	811,448

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

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HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except share and per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net product revenue	$	172,814	$	134,216	$	327,429	$	253,342
Cost of product sold		32,144		25,008		59,628		45,788
Gross profit		140,670		109,208		267,801		207,554
Operating expenses:
Research and development		63,583		14,969		85,772		28,258
Sales and marketing		28,507		24,528		55,740		47,100
General and administrative		27,224		22,809		52,900		44,871
Total operating expenses		119,314		62,306		194,412		120,229
Operating income		21,356		46,902		73,389		87,325
Other (expense) income, net		37		(31)		(104)		(29)
Interest expense		(4,404)		(6,218)		(8,939)		(11,949)
Interest income		4,705		3,442		9,133		6,528
Income before income taxes		21,694		44,095		73,479		81,875
Income tax expense		(10,103)		(9,795)		(23,554)		(18,090)
Net income	$	11,591	$	34,300	$	49,925	$	63,785
Unrealized (loss) income on investments		(63)		(491)		(236)		(371)
Comprehensive income	$	11,528	$	33,809	$	49,689	$	63,414
EARNINGS PER SHARE:
Basic	$	0.20	$	0.57	$	0.88	$	1.07
Diluted	$	0.20	$	0.56	$	0.87	$	1.05
Weighted average number of shares of common stock - basic		56,802,357		59,974,123		56,786,873		59,853,808
Weighted average number of shares of common stock - diluted		57,541,696		60,743,953		57,571,570		60,997,410

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

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HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARIES

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		(loss) income		deficit		equity
Balance as of December 31, 2023	56,769,081	$	1	$	610,266	$	2	$	(143,277)	$	466,992
Net income	—		—		—		—		49,925		49,925
Unrealized loss on investments	—		—		—		(236)		—		(236)
Exercise of options and restricted stock units	64,690		—		420		—		—		420
Stock-based compensation	—		—		21,482		—		—		21,482
Balance as of June 30, 2024	56,833,771	$	1	$	632,168	$	(234)	$	(93,352)	$	538,583


						Accumulated
				Additional		other				Total
	Common Stock			paid-in		comprehensive		Accumulated		stockholders’
	Shares	Amount		capital		(loss) income		deficit		equity
Balance as of March 31, 2024	56,791,214	$	1	$	620,507	$	(171)	$	(104,943)	$	515,394
Net income	—		—		—		—		11,591		11,591
Unrealized loss on investments	—		—		—		(63)		—		(63)
Exercise of options	42,557		—		573		—		—		573
Stock-based compensation	—		—		11,088		—		—		11,088
Balance as of June 30, 2024	56,833,771	$	1	$	632,168	$	(234)	$	(93,352)	$	538,583


						Accumulated
				Additional		other				Total
	Common Stock			paid-in		comprehensive		Accumulated		stockholders’
	Shares	Amount		capital		(loss) income		deficit		equity
Balance as of December 31, 2022	59,615,731	$	1	$	675,118	$	(151)	$	(272,130)	$	402,838
Net income	—		—		—		—		63,785		63,785
Unrealized loss on investments	—		—		—		(371)		—		(371)
Exercise of stock options	383,927		—		4,069		—		—		4,069
Stock-based compensation	—		—		14,851		—		—		14,851
Balance as of June 30, 2023	59,999,658	$	1	$	694,038	$	(522)	$	(208,345)	$	485,172


						Accumulated
				Additional		other				Total
	Common Stock			paid-in		comprehensive		Accumulated		stockholders’
	Shares	Amount		capital		(loss) income		deficit		equity
Balance as of March 31, 2023	59,954,618	$	1	$	685,716	$	(31)	$	(242,645)	$	443,041
Net income	—		—		—		—		34,300		34,300
Unrealized loss on investments	—		—		—		(491)		—		(491)
Exercise of options	45,040		—		674		—		—		674
Stock-based compensation	—		—		7,648		—		—		7,648
Balance as of June 30, 2023	59,999,658	$	1	$	694,038	$	(522)	$	(208,345)	$	485,172

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

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HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share data)


	Six Months Ended June 30,
	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	49,925	$	63,785
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation		254		206
Intangible amortization		11,922		11,922
Acquired in-process research & development (IPR&D) expense		42,595		—
Stock-based and employee stock purchase compensation expense		21,482		14,851
Stock appreciation rights market adjustment		(85)		(497)
Debt issuance costs amortization		356		840
Deferred taxes		(17,756)		(7,635)
Amortization of premiums and accretion of discounts on Investment securities		(1,220)		(1,312)
Other non-cash expenses		1,126		799
Change in operating assets and liabilities:
Trade receivables		(9,017)		(9,072)
Inventory		(280)		(557)
Prepaid expenses and other assets		(4,004)		2,227
Trade payables		3,555		2,777
Other liabilities		(25,095)		1,288
Net cash provided by operating activities		73,758		79,622
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities		(46,317)		(72,847)
Proceeds from maturities and sales of investment securities		44,481		63,491
Purchase of property and equipment		(637)		(205)
Acquisition of Epygenix Therapeutics, Inc., net of cash acquired		(33,069)		—
Payment of license fee		(25,500)		—
Net cash used in investing activities		(61,042)		(9,561)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayment of long term debt		(7,500)		(1,000)
Payments of employee withholding taxes related to stock-based awards		(269)		(514)
Proceeds from exercised options		689		4,584
Net cash (used in) provided by financing activities		(7,080)		3,070
NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH		5,636		73,131
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period		311,930		244,534
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period	$	317,566	$	317,665
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest	$	8,944	$	10,691
Cash paid during the year for taxes		42,093		19,890

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

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HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARIES

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 subsidiaries (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 subsidiaries, Harmony Biosciences, LLC (“Harmony”), and Harmony Biosciences Management, Inc. The Company is a commercial-stage pharmaceutical company focused on developing and commercializing innovative therapies for patients living with rare neurological disorders as well as patients living with other neurological diseases who have unmet medical needs. The Company is headquartered in Plymouth Meeting, Pennsylvania.

On October 10, 2023, the Company completed a tender offer to acquire all of the outstanding shares of common stock of Zynerba Pharmaceuticals, Inc. (together with its subsidiary, Zynerba Pharmaceutical Pty, Ltd., “Zynerba”). Zynerba is a clinical-stage pharmaceutical company focused on innovative pharmaceutically produced transdermal cannabidiol therapies for orphan neurobehavioral disorders, including Fragile X Syndrome. As of July 1, 2024, Zynerba was renamed and is known as Harmony Biosciences Management, Inc.

On April 30, 2024, the Company acquired all of the issued and outstanding capital stock of Epygenix Therapeutics, Inc., a Wyoming corporation (“Epygenix”). As a result, the Company now has an exclusive license relating to the use of clemizole, initially for the treatment of Dravet Syndrome and Lennox-Gastaut Syndrome.

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 $93,352 and $143,277, as of June 30, 2024, and December 31, 2023, respectively. As of June 30, 2024, the Company had cash, cash equivalents and investments of $434,088.

The Company believes that its existing cash, cash equivalents and investments on hand as of June 30, 2024, 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 June 30, 2024, the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2024, and 2023, and the unaudited condensed consolidated statements of operations and comprehensive income and the unaudited condensed consolidated statements of shareholders’ equity for the three and six months ended June 30, 2024, and 2023, are unaudited. The

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balance sheet as of December 31, 2023, was derived from audited financial statements as of and for the year ended December 31, 2023. 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, 2023, 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 June 30, 2024, and the results of its operations and its cash flows for the three and six months ended June 30, 2024, and 2023. 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, 2023.

Reclassifications

Certain prior period amounts within the unaudited condensed consolidated statements of operations and comprehensive income have been reclassified to conform to current period presentation. In particular, interest expense and interest income were previously classified together as interest expense, net and are now separately classified as interest expense and interest income, respectively. The reclassification of these items had no impact on net income, earnings per share or accumulated deficit in current or prior periods.

Significant Risks and Uncertainties

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to, clinical trial results of the Company’s product candidates; the Company’s ability to obtain regulatory approval to market its products; competition from products manufactured and sold or being developed by other companies; the price of, and demand for, the Company’s products, if approved; the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its product candidates.

The Company currently has one commercially approved product, WAKIX, and there can be no assurance that the Company’s research and development efforts will result in successfully commercialized products in addition to WAKIX. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting intellectual property.

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.

Operating Segments

The Company holds all its tangible assets, conducts its operations, and generates its revenue in the United States. Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Makers in deciding how to allocate resources to an individual segment and in assessing performance. The Company has determined it operates in a single operating segment and has one reportable segment.

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Fair Value of Financial Instruments

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.

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 June 30, 2024, or December 31, 2023.

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 and the statements of cash flows.


	As of
	June 30,		December 31,
	2024		2023
Cash and cash equivalents	$	317,296	$	311,660
Restricted cash		270		270
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	317,566	$	311,930

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.

Investments

The Company’s investments consist of debt securities that are classified as available-for-sale. Short-term and long-term investments are carried at fair value and unrealized gains and losses are recorded as a

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component of accumulated comprehensive income in stockholders’ equity. Interest income earned on cash and investment balances, accretion of the discount on investments in debt securities, amortization of premiums and realized gains and losses, if any, are recorded in interest income 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 five 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. The Company believes that it 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 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 June 30, 2024, three customers accounted for 100% of gross accounts receivable; Caremark LLC (“CVS Caremark”), which accounted for 41% of gross accounts receivable; Accredo Health Group, Inc. (“Accredo”), which accounted for 35% of gross accounts receivable; and PANTHERx Specialty Pharmacy LLC (“Pantherx”), which accounted for 24% of gross accounts receivable. As of December 31, 2023, three customers accounted for 100% of gross accounts receivable; Accredo, which accounted for 39% of gross accounts receivable, CVS Caremark, which accounted for 32% of gross accounts receivable; and Pantherx, which accounted for 29% of gross accounts receivable.

For the six months ended June 30, 2024, three customers accounted for 100% of gross product revenue; CVS Caremark accounted for 40% of gross product revenue; Accredo accounted for 33% of gross product revenue; and Pantherx accounted for 27% of gross product revenue. For the six months ended June 30, 2023, three customers accounted for 100% of gross product revenue; CVS Caremark accounted for 35% of gross product revenue; Pantherx accounted for 33% of gross product revenue; and Accredo accounted for 32% of gross product revenue.

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

Share Repurchases

The Company accounts for share repurchases as constructive retirements, whereby it reduces common stock and additional paid-in capital by the amount of the original issuance, with any excess purchase price recorded as a reduction to retained earnings. Under this method, issued and outstanding shares of common stock are reduced by the amount of shares of common stock repurchased, and no treasury stock is recognized on the condensed consolidated financial statements.

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Business Combinations

Business combinations and asset acquisitions are accounted for in accordance with FASB ASC 805 Business Combinations. Refer to Note 4, Acquisitions, for a more detailed discussion of the Company’s acquisitions of Zynerba and Epygenix.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 is intended to improve reportable segment disclosures primarily through enhanced disclosure of reportable segment expenses and requires that a public entity that has a single reportable segment provide all the disclosures required by ASU 2023-07 and all existing segment disclosures in Topic 280. This ASU is effective for annual reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 is required to be applied retrospectively to all prior periods presented in the financial statements. The Company has one reportable segment and is currently evaluating the impact that ASU 2023-07 will have on its condensed consolidated financial statements.

In December 2023, the FASB issued Accounting Standards Update (“ASU”) No 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 expands disclosures in the rate reconciliation and requires disclosure of income taxes paid by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that ASU 2023-09 will have on its condensed consolidated financial statements.

4. ACQUISITIONS

Acquisition of Zynerba

In October 2023, the Company completed a tender offer to purchase the outstanding common stock of Zynerba (“Zynerba Common Stock”) for (i) $1.1059 per share of Zynerba Common Stock (the “Common Cash Amount”), the aggregate amount of which was $60,000 and was paid at closing, plus (ii) one contingent value right (each, a “CVR”) per share of Zynerba Common Stock (the “Common CVR Amount”), which represents the right to receive up to approximately $2.5444 per share of Zynerba Common Stock, subject to the achievement of certain clinical, regulatory and sales-based milestones. The Common CVR Amounts are to be paid in cash, subject to any applicable withholding of taxes and without interest. The aggregate amount of consideration to acquire Zynerba Common Stock was $60,000, excluding transaction related fees of $2,645 and was paid by the Company using cash on hand.

The Zynerba Acquisition was accounted for as an asset acquisition under ASC Topic 805, Business Combinations, because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable IPR&D asset, ZYN002, Zynerba’s lead asset. ZYN002 is the first and only pharmaceutically manufactured, synthetic cannabidiol, devoid of THC, formulated as a patent-protected permeation-enhanced gel for transdermal delivery through the skin and into the circulatory system and is currently in Phase III clinical trial for the potential treatment of Fragile X Syndrome. The Company recognized the acquired assets and assumed liabilities based on the consideration paid, including transaction costs, on a relative fair value basis, and after first allocating the preliminary excess of the fair value of net assets acquired over the purchase price consideration to certain qualifying assets, principally, the IPR&D asset.

Acquisition of Epygenix

On April 30, 2024, the Company acquired all of the issued and outstanding capital stock of Epygenix pursuant to the terms of a stock purchase agreement. In connection with the closing of the transaction, the Company paid the former stockholders of Epygenix up front consideration of $35,000 less a working capital

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adjustment. In addition, the Company will be obligated to pay up to $130,000 upon the achievement of development and regulatory milestones and up to $515,000 upon the achievement of certain sales-based milestones, in each case to Epygenix’s former stockholders. As a result, the Company now has an exclusive license relating to the use of clemizole, initially for the treatment of Dravet Syndrome and Lennox-Gastaut Syndrome.

The total purchase consideration for Epygenix was as follows:


Cash consideration paid to selling shareholders and to settle restricted stock units ("RSUs")	$	32,686
Transaction costs		450
Total purchase consideration	$	33,136

The acquisition of Epygenix was accounted for as an asset acquisition under ASC Topic 805, Business Combinations. The Company did not acquire any outputs and there was not an acquired substantive process in place to create outputs. The Company recognized the acquired assets and assumed liabilities based on the consideration paid, including transaction costs, on a relative fair value basis, and after first allocating the preliminary excess of the fair value of net assets acquired over the purchase price consideration to certain qualifying assets, principally, the IPR&D asset. In accordance with the accounting for asset acquisitions, an entity that acquires IPR&D assets in an asset acquisition follows the guidance in ASC Topic 730, Research and Development, which requires that both tangible and intangible identifiable research and development assets with no alternative future use be allocated a portion of the consideration transferred and recorded as research and development expense at the acquisition date. As a result, the Company recorded a charge of $17,095 related to acquired in-process research and development expense during the three and six months ended June 30, 2024.

The following table shows the allocation of the purchase consideration based on the relative fair value of assets acquired and liabilities assumed by the Company, after reducing the excess fair value of the IPR&D asset as described above:


Assets acquired
Acquired in-process research and development	$	17,095
Deferred tax asset		18,268
Other assets		590
Total assets acquired	$	35,953
Total liabilities assumed	$	2,817

Net assets acquired	$	33,136

5. 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:


	June 30, 2024
		Amortized	Unrealized	Unrealized		Fair
		Cost	Gains	Losses		Value
Short-term:
Commercial paper	$	16,175	1	(5)	$	16,171
Corporate debt securities		13,443	4	(4)		13,443
Total short-term investments	$	29,618	5	(9)	$	29,614

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Long-term:
Corporate debt securities		59,793	37	(87)		59,743
U.S. government securities		27,615	—	(180)		27,435
Total long-term investments	$	87,408	37	(267)	$	87,178

	December 31, 2023
		Amortized	Unrealized	Unrealized		Fair
		Cost	Gains	Losses		Value
Short-term:
Commercial paper	$	23,832	36	(3)	$	23,865
Corporate debt securities		15,968	28	—		15,996
U.S. government securities		1,940	—	(1)		1,939
Total short-term investments	$	41,740	64	(4)	$	41,800

Long-term:
Commercial paper	$	744	—	—	$	744
Corporate debt securities		42,688	81	(28)		42,741
U.S. government securities		28,795	7	(118)		28,684
Total long-term investments	$	72,227	88	(146)	$	72,169

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 original maturity dates ranging from 1-2 years. The Company did not have any available-for-sale debt security investments in a continuous unrealized loss position of greater than 12 months as of June 30, 2024, and December 31, 2023, respectively.

6. FAIR VALUE MEASUREMENTS

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


	June 30, 2024				December 31, 2023
		Total	Level 1	Level 2		Total	Level 1	Level 2
Assets
Cash equivalents	$	270,989	270,989	—	$	244,569	243,685	884
Commercial paper		16,171	—	16,171		24,609	—	24,609
Corporate debt securities		73,186	—	73,186		58,737	—	58,737
U.S. government securities		27,435	—	27,435		30,623	—	30,623
Total	$	387,781	270,989	116,792	$	358,538	243,685	114,853

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7. INVENTORY

Inventory, net consisted of the following:


	As of
	June 30,		December 31,
	2024		2023
Raw materials	$	1,135	$	1,060
Work in process		1,744		2,020
Finished goods		2,764		2,283
Total inventory, net	$	5,643	$	5,363

8. 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 June 30, 2024, the remaining useful life was 5.3 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 June 30, 2024, the remaining useful life was 5.3 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 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 June 30, 2024, the remaining useful life was 5.3 years.

Amortization expense was $5,961 for each of the three months ended June 30, 2024, and 2023, respectively, and $11,922 for each of the six months ended June 30, 2024, and 2023, respectively, and is recorded in general and administrative on the unaudited condensed consolidated statements of operations and comprehensive income.

The Company expects the future annual amortization expense for the unamortized intangible assets to be as follows:


Years ending December 31,
2024 (excluding the six months ended June 30, 2024)	$	11,923
2025		23,845
2026		23,845
2027		23,845
2028		23,845
Thereafter		17,883
Total	$	125,186

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


	As of
	June 30,		December 31,
	2024		2023
Gross Carrying Amount	$	215,000	$	215,000
Accumulated Amortization		(89,814)		(77,892)
Net Book Value	$	125,186	$	137,108

9. LICENSE AGREEMENTS AND ASSET PURCHASE AGREEMENTS

License 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 $30,199 and $22,542 for the three months ended June 30, 2024, and 2023, respectively, and $54,937 and $41,602 for the six months ended June 30, 2024, and 2023, respectively, for sales-based, trademark and tiered royalties recognized as cost of product sold. As of June 30, 2024, and December 31, 2023, the Company had accrued $30,199 and $40,419, respectively, for sales-based, trademark and tiered royalties.

In July 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 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 paid an initial, non-refundable $30,000 licensing fee in October 2022 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 other 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.

In April 2024, the Company announced that it entered into a sublicense agreement with Bioprojet for an orexin-2 receptor agonist (OX2R) (the “Licensed Compound”) to be evaluated for the treatment of narcolepsy and other potential indications (the “Sublicense”). Under the Sublicense, the Company obtained the exclusive right to develop, manufacture and commercialize the Licensed Compound in the United States and Latin American territories (the “Licensed Territories”), which are rights that Bioprojet originally licensed from Teijin Pharma, the innovator of the Licensed Compound. The Licensed Compound is currently in pre-clinical development with a Clinical Trial Application currently anticipated in mid-2025. Under the Sublicense, the Company paid Bioprojet an upfront license fee of $25,500, which the Company recognized as an IPR&D charge recorded in research and development within the unaudited condensed consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2024, and will also be obligated to pay up to $127,500 upon achievement of development and regulatory milestones and up to $240,000 upon

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achievement of sales-based milestones, as well as royalty rates in the mid-teens on any sales of product using the Licensed Compound in the Licensed Territories.

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. In March 2023, the Company achieved a preclinical milestone, which triggered a $750 payment under the provisions of the APA, which the Company recognized as an IPR&D charge recorded in research and development within the unaudited condensed consolidated statement of operations and comprehensive income for the six months ended June 30, 2023. There are additional payments due under the APA upon the achievement of certain milestones including $1,000 for preclinical milestones, $19,000 for development milestones, $44,000 for regulatory milestones and $110,000 for sales milestones.

10. ACCRUED EXPENSES

Accrued expenses consist of the following:


	As of
	June 30,		December 31,
	2024		2023
Royalties due to Bioprojet	$	30,199	$	40,419
Rebates and other sales deductions		43,570		38,842
Interest		2,993		3,354
Sales and marketing		3,343		2,354
Research and development		7,201		9,835
Professional fees, consulting, and other services		2,053		2,195
Other expenses		2,285		2,495
	$	91,644	$	99,494

11. DEBT

Term Loan A Credit Agreement

In July 2023, the Company entered into a Credit Agreement (the “TLA Credit Agreement”) with JPMorgan Chase Bank, N.A., as “Administrative Agent”, and certain lenders. The TLA Credit Agreement provides for a five-year senior secured term loan (the “TLA Term Loan”) in an aggregate principal amount of $185,000.

In September 2023, the Company entered into the First Incremental Amendment (the “First Incremental Amendment”) with the Administrative Agent and Bank of America, N.A., as incremental lender. The First Incremental Amendment provides for an incremental senior secured term loan (the “Incremental Term Loan”) in an aggregate principal amount of $15,000. The First Incremental Amendment amends the TLA Credit Agreement and provides that the Incremental Term Loan will have identical terms as the TLA Term Loan.

The repayment schedule for both the TLA Term Loan and the Incremental Term Loan (together, the “Term Loans”) consists of quarterly $3,750 principal payments, which commence on December 31, 2023, increasing to quarterly $5,000 principal payments beginning on December 31, 2025, with a $115,000 payment due on the maturity date of July 26, 2028. The Term Loans bear interest at a per annum rate equal to, at the Company’s option, (i) a base rate plus a specified margin ranging from 2.50% to 3.00%, based on the

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Company’s senior secured net leverage ratio (as defined in the TLA Credit Agreement) or (ii) Term SOFR plus a credit spread adjustment of 0.10% plus a specified margin ranging from 3.50% to 4.00%, based on the Company’s senior secured net leverage ratio.

The net cash received related to the Term Loans as a result of the transactions, less debt issuance costs of $2,997, was $197,003. The debt issuance costs related to the Term Loans will be amortized as additional interest expense over the loan term of the TLA Credit Agreement. The fair value of the Term Loans as of June 30, 2024, was $187,863.

Long-term debt, net consists of the following:


	June 30,		December 31,
	2024		2023
Principal amount	$	188,750	$	196,250
Unamortized debt discount associated with debt financing costs		(2,328)		(2,684)
Total debt, net		186,422		193,566
Less current portion		(15,000)		(15,000)
Long-term debt, net	$	171,422	$	178,566

Future minimum payments relating to total debt, net as of June 30, 2024, for the periods indicated below consists of the following: