hrmy-10q_20210331.htm

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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 March 31, 2021

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:


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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 May 4, 2021, there were 56,900,991 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

 

4

Item 1. Financial Statements

 

4

Condensed Consolidated Balance Sheets (Unaudited)

 

4

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

 

5

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited)

 

6

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

8

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

 

22

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

36

Item 4. Controls and Procedures

 

36

Part II. Other Information

 

37

Item 1. Legal Proceedings

 

37

Item 1A. Risk Factors

 

37

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

 

37

Item 3. Defaults upon Senior Securities

 

37

Item 4. Mine Safety Disclosures

 

37

Item 5. Other Information

 

37

Item 6. Exhibits

 

38

Signatures

 

40

 

 

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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)

 

 

 

March 31,

2021

 

 

December 31,

2020

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

141,169

 

 

$

228,631

 

Trade receivables, net

 

 

23,615

 

 

 

22,176

 

Inventory, net

 

 

4,405

 

 

 

3,823

 

Prepaid expenses

 

 

7,089

 

 

 

6,959

 

Other current assets

 

 

1,466

 

 

 

1,302

 

Total current assets

 

 

177,744

 

 

 

262,891

 

NONCURRENT ASSETS:

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

842

 

 

 

938

 

Restricted cash

 

 

750

 

 

 

750

 

Intangible assets, net

 

 

157,764

 

 

 

162,343

 

Other noncurrent assets

 

 

152

 

 

 

152

 

Total noncurrent assets

 

 

159,508

 

 

 

164,183

 

TOTAL ASSETS

 

$

337,252

 

 

$

427,074

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Trade payables

 

$

4,391

 

 

$

2,556

 

Accrued compensation

 

 

4,523

 

 

 

8,942

 

Accrued expenses

 

 

24,261

 

 

 

122,727

 

Other current liabilities

 

 

262

 

 

 

314

 

Total current liabilities

 

 

33,437

 

 

 

134,539

 

NONCURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Deferred rent

 

 

192

 

 

 

212

 

Long term debt, net

 

 

194,913

 

 

 

194,250

 

Other noncurrent liabilities

 

 

831

 

 

 

893

 

Total noncurrent liabilities

 

 

195,936

 

 

 

195,355

 

TOTAL LIABILITIES

 

 

229,373

 

 

 

329,894

 

COMMITMENTS AND CONTINGENCIES (Note 9)

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Preferred stock - $0.00001 par value; 10,000,000 shares and 0 shares authorized at March 31, 2021 and December 31, 2020, respectively; 0 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

 

 

 

 

Common stock—$0.00001 par value; 500,000,000 shares authorized at March 31, 2021 and December 31, 2020, respectively;  56,892,406 shares and 56,890,569 issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

1

 

 

 

1

 

Additional paid in capital

 

 

588,687

 

 

 

585,374

 

Accumulated deficit

 

 

(480,809

)

 

 

(488,195

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

107,879

 

 

 

97,180

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

337,252

 

 

$

427,074

 

 

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

 

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HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Net product revenues

 

$

59,674

 

 

$

19,840

 

Cost of product sold

 

 

10,409

 

 

 

3,474

 

Gross profit

 

 

49,265

 

 

 

16,366

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

4,679

 

 

 

3,431

 

Sales and marketing

 

 

15,506

 

 

 

13,254

 

General and administrative

 

 

14,547

 

 

 

9,290

 

Total operating expenses

 

 

34,732

 

 

 

25,975

 

Operating income (loss)

 

 

14,533

 

 

 

(9,609

)

Loss on debt extinguishment

 

 

 

 

 

(22,639

)

Other expense, net

 

 

(20

)

 

 

 

Interest expense, net

 

 

(7,127

)

 

 

(6,372

)

Income (loss) before income taxes

 

 

7,386

 

 

 

(38,620

)

Income taxes

 

 

 

 

 

 

Net income (loss) and comprehensive income (loss)

 

$

7,386

 

 

$

(38,620

)

Accumulation of dividends on preferred stock

 

 

 

 

 

(10,445

)

Net income (loss) available to common stockholders

 

$

7,386

 

 

$

(49,065

)

EARNINGS (LOSS) PER SHARE:

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

 

$

(6.30

)

Diluted

 

$

0.13

 

 

$

(6.30

)

Weighted average number of shares of common stock - basic

 

 

56,891,451

 

 

 

7,790,667

 

Weighted average number of shares of common stock -

   diluted

 

 

58,805,285

 

 

 

7,790,667

 

 

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

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HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share and per share data)

 

 

 

Common Stock

 

 

Additional

paid-in

 

 

Accumulated

 

 

Total

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

equity

 

Balance as of December 31, 2020

 

 

56,890,569

 

 

$

1

 

 

$

585,374

 

 

$

(488,195

)

 

$

97,180

 

Net income

 

 

 

 

 

 

 

 

 

 

 

7,386

 

 

 

7,386

 

Exercise of stock options

 

 

1,837

 

 

 

 

 

 

12

 

 

 

 

 

 

12

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,301

 

 

 

 

 

 

3,301

 

Balance as of March 31, 2021

 

 

56,892,406

 

 

$

1

 

 

$

588,687

 

 

$

(480,809

)

 

$

107,879

 

 

 

 

 

 

Convertible Preferred

Stock

Series A, B, & C

 

 

 

Common Stock

 

 

Additional

paid-in

 

 

Accumulated

 

 

Total

stockholders’ equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

(deficit)

 

Balance as of December 31, 2019

 

 

318,510,205

 

 

$

411,275

 

 

 

 

7,787,470

 

 

$

 

 

$

 

 

$

(422,862

)

 

$

(422,862

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38,620

)

 

 

(38,620

)

Preferred stock dividend, Series A

 

 

 

 

 

8,844

 

 

 

 

 

 

 

 

 

 

(519

)

 

 

(8,325

)

 

 

(8,844

)

Preferred stock accretion, Series A

 

 

 

 

 

776

 

 

 

 

 

 

 

 

 

 

 

 

 

(776

)

 

 

(776

)

Preferred stock dividend, Series B

 

 

 

 

 

302

 

 

 

 

 

 

 

 

 

 

 

 

 

(302

)

 

 

(302

)

Preferred stock accretion, Series B

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

(6

)

Preferred stock dividend, Series C

 

 

 

 

 

1,299

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,299

)

 

 

(1,299

)

Preferred stock accretion, Series C

 

 

 

 

 

140

 

 

 

 

 

 

 

 

 

 

 

 

 

(140

)

 

 

(140

)

Exercise of stock options

 

 

 

 

 

 

 

 

 

18,378

 

 

 

 

 

 

151

 

 

 

 

 

 

151

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

368

 

 

 

 

 

 

368

 

Balance as of March 31, 2020

 

 

318,510,205

 

 

$

422,642

 

 

 

 

7,805,848

 

 

$

 

 

$

 

 

$

(472,330

)

 

$

(472,330

)

 

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

 

 

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HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share data)

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income (loss)

 

$

7,386

 

 

$

(38,620

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

100

 

 

 

97

 

Intangible amortization

 

 

4,579

 

 

 

1,786

 

Stock-based compensation expense

 

 

3,301

 

 

 

368

 

Stock appreciation rights market adjustment

 

 

(50

)

 

 

107

 

Warrant expense

 

 

 

 

 

1,146

 

Debt issuance costs amortization

 

 

664

 

 

 

340

 

Loss on debt extinguishment

 

 

 

 

 

22,639

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables

 

 

(1,439

)

 

 

(7,053

)

Inventory

 

 

(582

)

 

 

(783

)

Prepaid expenses and other assets

 

 

(296

)

 

 

(4,111

)

Other non-current assets

 

 

 

 

 

732

 

Trade payables

 

 

1,835

 

 

 

(1,509

)

Accrued expenses and other current liabilities

 

 

(2,936

)

 

 

(1,929

)

Other non-current liabilities

 

 

(32

)

 

 

88

 

Net provided by (cash used) in operating activities

 

 

12,530

 

 

 

(26,702

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(4

)

 

 

 

Milestone and acquisition of intangible asset

 

 

(100,000

)

 

 

 

Net cash used in investing activities

 

 

(100,004

)

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from long term debt

 

 

 

 

 

200,000

 

Debt issuance costs

 

 

 

 

 

(5,804

)

Extinguishment of debt

 

 

 

 

 

(102,538

)

Extinguishment of debt exit fees

 

 

 

 

 

(18,047

)

Proceeds from exercised options

 

 

12

 

 

 

151

 

Net cash provided by financing activities

 

 

12

 

 

 

73,762

 

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

 

 

(87,462

)

 

 

47,060

 

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

 

 

229,381

 

 

 

25,207

 

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

 

$

141,919

 

 

$

72,267

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Cash paid during the year for interest

 

$

6,510

 

 

$

6,214

 

Cash paid during the year for milestones

 

 

100,000

 

 

 

 

Supplemental Disclosures of Noncash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Series A Preferred Stock accrued return

 

 

 

 

 

8,844

 

Series A accretion of issuance costs

 

 

 

 

 

776

 

Series B Preferred Stock accrued return

 

 

 

 

 

302

 

Series B accretion of issuance costs

 

 

 

 

 

6

 

Series C Preferred Stock accrued return

 

 

 

 

 

1,299

 

Series C accretion of issuance costs

 

 

 

 

 

140

 

Warrant financing

 

 

 

 

 

2,359

 

 

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

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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

Our operating subsidiary, Harmony Biosciences, LLC (“Harmony”), was formed on May 17, 2017. Harmony Biosciences Holdings, Inc. (the “Company”) was founded on July 25, 2017 as Harmony Biosciences II, LLC, a Delaware limited liability company, and the Company converted to a Delaware corporation named Harmony Biosciences II, Inc. on September 19, 2017. On February 3, 2020, the Company changed its name to Harmony Biosciences Holdings, Inc. The Company is a holding company and has no operations. The Company’s operations are conducted in its wholly owned subsidiary, Harmony. The Company is a commercial-stage pharmaceutical company focused on developing and commercializing innovative therapies for patients living with rare neurological disorders who have unmet medical needs. The Company is headquartered in Plymouth Meeting, Pennsylvania.

Initial Public Offering

On August 21, 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 began trading on the Nasdaq Global Market on August 19, 2020. The shares were sold at an IPO 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.

Reverse Stock Split

On August 11, 2020, the Company implemented a 1-for-8.215 reverse stock split of the Company’s common stock. All share and per share data shown in the accompanying financial statements and related notes have been retroactively revised to reflect the reverse stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of common stock reserved for issuance upon the conversion of the Company’s Preferred Stock and preferred dividend were proportionately reduced. All references in the accompanying condensed consolidated financial statements and related notes to the number of shares of common stock, convertible preferred stock, warrants and options to purchase common stock and per share data reflect the effect of the reverse stock split.

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 has an accumulated deficit of $480,809 and $488,195, as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, the Company had cash and cash equivalents of $141,169.

On August 21, 2020, the Company received aggregate proceeds from a common stock offering of approximately $135,435, net of underwriting discounts and commissions and other estimated offering expenses (see Note 11). Additionally, on January 9, 2020, the Company received aggregate proceeds of approximately $200,000 through the loan agreement with OrbiMed Royalty & Credit Opportunities, LP. This capital raise and debt issuance has resolved the Company’s significant risks and uncertainties regarding sources of liquidity, which previously raised substantial doubt about the Company’s ability to continue as a going concern.

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The Company believes that its anticipated cash from operating and financing activities and existing cash and cash equivalents will enable the Company to 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 condensed consolidated balance sheet as of March 31, 2021, and the condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020, and condensed consolidated statements of operations and comprehensive income (loss) and the condensed consolidated statements of convertible preferred stock and shareholders’ equity (deficit) for the three months ended March 31, 2021 and 2020, are unaudited. The balance sheet as of December 31, 2020 was derived from audited financial statements as of and for the year ended December 31, 2020. 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, 2020, and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statements of the Company’s financial position as of March 31, 2020, and the results of its operations and its cash flows for the three months ended March 31, 2021 and 2020. The condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and note disclosures of the Company normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted under the SEC’s rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes thereto for the year ended December 31, 2020. The balance sheet data as of December 31, 2020 was derived from the Company’s audited financial statements for the year ended December 31, 2020.

 

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 Condensed Consolidated Financial Statements, including the notes thereto, and elsewhere in this report.  Uncertainties related to the magnitude and duration of COVID-19, the extent to which it will impact our estimated 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 these estimates, including the carrying amounts of long-lived assets, and the intangible asset. Actual results may differ significantly from our estimates, including as a result of COVID-19.

 

Fair Value of Financial Instruments

The Company’s unaudited condensed consolidated financial statements include cash, cash equivalents, accounts payable, and accrued liabilities, all of which are short term in nature and, accordingly, approximate fair value. Additionally, prior to the IPO, the Company’s condensed consolidated financial statements included a warrant liability that was carried at fair value and was re-measured at each balance sheet date until it would be exercised or expired. In connection with the IPO, the Warrants were re-evaluated under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480 Distinguishing Liabilities from Equity and reclassified to equity. See Note 13 for a further discussion of the warrants.

It is the Company’s policy, in general, to measure non-financial assets and liabilities at fair value on a nonrecurring basis. The instruments 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.

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The Company measures certain assets and liabilities at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date. The guidance in ASC 820 outlines a valuation framework and creates a fair value hierarchy that serves to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value, the Company maximizes the use of quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. The fair value hierarchy is broken down 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.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents 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. 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

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Cash and cash equivalents

 

$

141,169

 

 

$

228,631

 

Restricted cash

 

 

750

 

 

 

750

 

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

   of cash flows

 

$

141,919

 

 

$

229,381

 

 

Amounts included in restricted cash represent those 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.

Concentrations of Risk

Substantially all of the Company’s cash and money market funds are held with a single financial institution. Due to its size, the Company believes this financial institution represents minimal credit risk. Deposits in this institution 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 monitors its exposure within accounts receivable and records a reserve against uncollectible accounts receivable as necessary. 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. As of March 31, 2021, three customers accounted for 100% of gross accounts receivable, Caremark LLC (“CVS Caremark”), which accounted for 34% of gross accounts receivable; PANTHERx Specialty Pharmacy LLC (“Pantherx”), which accounted for 36% of gross accounts receivable; and Accredo Health Group, Inc. (“Accredo”), which accounted for 30% of gross accounts receivable. As of December 31, 2020, three customers accounted for 100% of gross accounts receivable, CVS Caremark, which accounted for 44% of gross accounts receivable; Pantherx, which accounted for 23% of gross accounts receivable; and Accredo, which accounted for 33% of gross accounts receivable.

For the three months ended March 31, 2021, three customers accounted for 100% of gross product revenues; CVS Caremark accounted for 35% of gross product revenues; Pantherx accounted for 38% of gross product revenues; and Accredo accounted for 27% of gross product revenues. For the three months ended March 31, 2020 three customers accounted for 100% of gross product revenues; CVS Caremark accounted for 42% of

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gross product revenues; Pantherx accounted for 35% of gross product revenues; and Accredo accounted for 23% of gross product revenues.

 

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

Cost of Product Sold

Cost of product sold includes manufacturing and distribution costs, the cost of drug substance, FDA program fees, royalties due to third parties on net product sales, freight, shipping, handling, storage costs, and salaries of employees involved with production. The Company began capitalizing inventory upon FDA approval of WAKIX®. Excluded from cost of product sold shown and included in general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss is amortization of acquired developed technology of $4,579 and $1,786 for the three months ended March 31, 2021 and 2020, respectively.

Advertising Expenses

We expensed the costs of advertising, including promotional expenses, as incurred. Advertising expense was $1,653 and $2,454 for the three months ended March 31, 2021 and 2020, respectively.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued amended guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities in the balance sheet and disclosing key information about leasing arrangements. The new guidance clarifies the criteria for distinguishing between a finance lease and operating lease, as well as classification between the two types of leases, which is substantially unchanged from the previous lease guidance. Further, the new guidance requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset, initially measured at the present value of the lease payments. For finance leases, a lessee should recognize interest on the lease liability separately from amortization of the right-of-use asset. For operating leases, a lessee should recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. The new standard will become effective for the Company’s fiscal year ending December 31, 2022. The Company is currently assessing the impact of this amended guidance and the timing of adoption.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 for companies deemed to be small reporting companies as of November 15, 2019, with early adoption permitted. The Company is currently evaluating the potential impact of adoption of this standard on its results of operations, financial position and cash flows and related disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in the existing guidance for income taxes and making other minor improvements. The amendments are effective for annual reporting periods beginning after December 15, 2020 with early adoption permitted. The Company is currently evaluating the impact of adopting this new accounting guidance.

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 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 our condensed consolidated financial statements.

 

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4. INVENTORY

Inventory, net consisted of the following:

 

 

 

As of

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Raw materials

 

$

773

 

 

$

396

 

Work in process

 

 

1,585

 

 

 

2,660

 

Finished goods

 

 

2,356

 

 

 

941

 

Inventory, gross

 

 

4,714

 

 

 

3,997

 

Reserve for obsolescence

 

 

(309

)

 

 

(174

)

Total inventory, net

 

$

4,405

 

 

$

3,823

 

 

5. INTANGIBLE ASSETS

On August 15, 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 associated with the License Agreement (discussed below) which the Company capitalized as an intangible asset and paid in November of 2019. The Company determined a useful life of 10 years for such intangible asset, and, as of December 31, 2020 the remaining useful life was 8.5 years. Prior to this event, all other milestones associated with the License Agreement were expensed through research and development as they did not meet the criteria to be recognized as an intangible asset.

On October 13, 2020, the Company received notice that the FDA approved 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 associated with the License Agreement 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 December 31, 2020 the remaining useful life was 8.5 years. Amortization expense for the three months ended March 31, 2021 and 2020 was $4,579 and $1,786, respectively and is recorded in general and administrative expenses on the condensed consolidated statements of operations and comprehensive income (loss).

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

Years ending December 31,

 

 

 

 

2021 (excluding the three months ended March 31, 2021)

 

$

13,927

 

2022

 

 

18,569

 

2023

 

 

18,569

 

2024

 

 

18,569

 

2025

 

 

18,569

 

Total

 

$

88,203

 

 

 

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

 

 

 

As of

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Gross Carrying Amount

 

$

175,000

 

 

$

175,000

 

Accumulated Amortization

 

 

(17,236

)

 

 

(12,657

)

Net Book Value

 

$

157,764

 

 

$

162,343

 

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6. LICENSE AGREEMENT

On July 28, 2017, Harmony entered into the License Agreement (“the License Agreement”) 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 on February 12, 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 on August 14, 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. An additional $40,000 milestone payment is due to Bioprojet upon WAKIX attaining $500,000 in aggregate net sales in the United States. The License Agreement also requires sales-based milestone payments, a fixed trademark royalty and a tiered royalty, all based on net sales, which become due and payable to Bioprojet on a quarterly basis. During the three months ended March 31, 2021 and 2020, the Company incurred $9,547 and $3,277, respectively, for sales-based, trademark and tiered royalties recognized as cost of product sold. As of March 31, 2021 and December 31, 2020, the Company had accrued $9,512 and $9,006, respectively, for sales-based, trademark and tiered royalties. At December 31, 2020, the Company had accrued $100,000 for the milestone payment to Bioprojet.

7. ACCRUED EXPENSES

Accrued expenses consist of the following:

 

 

 

As of

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Royalties due to third parties

 

 

9,512

 

 

 

9,006

 

Rebates and other sales deductions

 

 

9,492

 

 

 

7,803

 

Selling and marketing

 

 

1,891

 

 

 

1,905

 

Professional fees, consulting, and other services

 

 

1,478

 

 

 

1,081

 

Other expenses

 

 

1,006

 

 

 

746

 

Research and development

 

 

882

 

 

 

2,186

 

Milestone payment

 

$

 

 

$

100,000

 

 

 

$

24,261

 

 

$

122,727

 

 

8. DEBT

Credit Agreements

On February 28, 2019, the Company entered into a multi-draw loan agreement with CRG Servicing LLC for an aggregate of $200,000 (the “CRG Loan”), which would have matured in March 2025. The CRG Loan bore a fixed rate of 12%. The CRG Loan required compliance with certain financial covenants. The Company could draw three tranches of the CRG Loan based on achieving specific milestones and dates. The Company could elect to pay the interest on the outstanding principal amount as follows: (i) only 7.5% of the 12% per annum in cash, paid quarterly, starting in March 2019, and (ii) 4.5% of the 12% per annum interest as compounded interest, added to the aggregate outstanding principal balance quarterly; the amount of any such compounded interest being a paid-in-kind loan.

As of December 31, 2019, the Company had borrowed $100,000, resulting in cash proceeds received of $94,816, net of issuance costs. The issuance costs of $5,184 were being amortized over the six-year loan term of the CRG Loan.

On January 9, 2020, the Company entered into a credit agreement with OrbiMed Royalty & Credit Opportunities, LP for an aggregate amount of $200,000 (the “OrbiMed Loan”), which matures in January 2026. Borrowings under the OrbiMed Loan are collateralized by all of the Company’s assets, excluding the

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intellectual property licensed through the License Agreement. The OrbiMed Loan bears an interest rate equal to the sum of (i) the greater of (a) 1-month LIBOR or (b) 2.00% per annum, plus (ii) 11.00% per annum, paid in cash monthly in arrears on the last day of each month starting in January 2020. At the time of prepayment or repayment of all or any portion of the principal of the OrbiMed Loan, the Company is required to pay an exit fee of 7.0% of the principal amount of the OrbiMed Loan prepaid, repaid, or required to be prepaid or repaid.  The Company recorded the exit fee as a liability and debt discount at the origination of the term loan.

In addition to entering into the OrbiMed Loan, the Company extinguished the CRG Loan which required a payoff amount of $120,893 consisting of principal repayment, interest, and exit fees. In connection with extinguishment of the CRG Loan, we recognized a loss on extinguishment of $22,639, which included an exit fee of $18,047 and the write-off of the remaining unamortized debt issuance costs of $4,592. The loss on extinguishment of debt was recorded in loss on debt extinguishment within the Company’s condensed consolidated statements of operations. The net cash received as a result of the transaction, less debt issuance costs of $5,804, was $73,313. These debt issuance costs will be amortized as additional interest expense over the six-year loan term of the OrbiMed Loan. The fair value of the OrbiMed loan as of March 31, 2021 was $260,328.

 

In connection with the OrbiMed Loan, the Company issued warrants (the “Warrants”) to OrbiMed Royalty & Credit Opportunities, LP on January 9, 2020. See Note 13 for further discussion of the Warrants. Pursuant to the Warrants, OrbiMed Royalty & Credit Opportunities, LP, may purchase up to 410,239 shares of the Company’s Common Stock for an initial exercise price of $16.10 at any time from the date of execution of the Warrants through the expiration date, defined within the Warrants as the earlier of (i) January 9, 2027 and (ii) the closing date of a Corporate Reorganization. The fair value of the Warrants using the Black-Scholes option-pricing model was $2,359 at January 9, 2020. The portion of the OrbiMed Loan proceeds allocated to the warrant liability resulted in a debt discount, which is presented in the condensed consolidated balance sheets as a direct deduction from the carrying value of the debt and is being amortized as additional interest expense over the six-year loan term of the OrbiMed Loan. The unamortized debt discount as of March 31, 2021 is $2,031 and is presented in the condensed consolidated balance sheets as a direct deduction from the carrying value of the debt.

The balances of the OrbiMed Loan as of March 31, 2021 and December 31, 2020 were as follows:

 

 

March 31,

2021

 

 

December 31,

2020

 

Liability component - principal

 

$

200,000

 

 

$

200,000

 

Exit fee

 

 

14,000

 

 

 

14,000

 

Unamortized debt discount associated with the exit fee, debt financing costs and discount with warrant financing

 

 

(19,087

)

 

 

(19,750

)

Liability component - net carrying value

 

$

194,913

 

 

$

194,250

 

 

Interest expense related to the OrbiMed Loan and CRG Loan were included in interest expense, net in the Condensed Consolidated Statements of Operations as follows:

 

 

 

For the Three Months Ended March 31,

 

 

 

 

2021

 

 

 

2020

 

Interest on principal balance

 

$

6,510

 

 

$

6,214

 

Amortization of deferred financing costs

 

 

664

 

 

 

340

 

   Total term loan interest expense

 

$

7,174

 

 

$

6,554

 

 

9. COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, the Company is subject to claims and suits arising in the ordinary course of business. The Company accrues such liabilities when they are known, if they are deemed probable and can be reasonably estimated.

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Lease Agreements

In April 2018, the Company entered into an operating lease for approximately nine thousand square feet of office space in Northbrook, IL, which expired in January 2020.

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 term will not commence until the Company takes occupancy in mid-2021.

The terms of the lease payments provide for rental payments on a monthly basis and on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not paid. In addition, tenant improvement allowances recorded are amortized as a reduction to rent expense on a straight-line basis over the lease term. Rent expense was $136 for the three months ended March 31, 2021, compared to $204 for the three months ended March 31, 2020. The following table sets forth the lease payment obligations as of March 31, 2021, for the periods indicated below:

 

Years ending December 31,

 

 

 

 

2021 (excluding the three months ended March 31, 2021)

 

$

401

 

2022

 

 

875

 

2023

 

 

892

 

2024

 

 

334

 

2025

 

 

 

Thereafter

 

 

 

Total

 

$

2,502

 

 

10. CONVERTIBLE PREFERRED STOCK

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.

Series A Preferred Stock

On September 22, 2017, the Company issued 270,000,000 shares of Series A convertible preferred stock for a purchase price of $1.00 per share, or $270,000 in the aggregate. On January 8, 2018, the Company issued an additional 15,000,000 shares of Series A convertible preferred stock for a purchase price of $1.00 per share, or $15,000 in the aggregate. As of March 31, 2020, there were 286,000,000 Series A convertible preferred stock authorized of which 285,000,000 were issued and outstanding. Each outstanding share of Series A convertible preferred stock accrued dividends at 10% per annum of the Series A original issue price, subject to adjustment for stock splits, combinations, recapitalizations, stock dividends and similar transactions. Preferred dividends on the Series A convertible preferred stock were cumulative and were compounded annually.

Series B Preferred Stock

On January 8, 2018, the Company issued 8,000,000 shares of Series B convertible preferred stock for a purchase price of $1.25 per share, or $10,000 in the aggregate. As of March 31, 2020, there were 8,030,000 shares of Series B convertible preferred stock authorized, of which 8,000,000 were issued and outstanding. Each outstanding share of Series B convertible preferred stock accrued dividends at 10% per annum of the Series B original issue price, subject to adjustment for stock splits, combinations, recapitalizations, stock dividends and similar transactions. Preferred dividends on the Series B convertible preferred stock were cumulative and were compounded annually.

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Series C Preferred Stock

On August 9, 2019, the Company issued 25,510,205 shares of Series C convertible preferred stock for a purchase price of $1.96 per share, or $50,000 in the aggregate. As March 31, 2020, there were 25,600,000 shares of Series C convertible preferred stock authorized, of which 25,510,205 were issued and outstanding. Each outstanding share of Series C convertible preferred stock accrued dividends at 10% per annum of the Series C original issue price, subject to adjustment for stock splits, combinations, recapitalizations, stock dividends and similar transactions. Preferred dividends on the Series C convertible preferred stock were cumulative and were compounded annually.

Dividends

The holders of Series A, Series B, and Series C convertible preferred stock were entitled to receive, when and if declared by the board of directors of the Company, cumulative dividends equal to a 10% per annum of Series A, Series B, and Series C convertible preferred stock. In addition, the holders of the outstanding shares of Series A, Series B, and Series C convertible preferred stock were entitled to receive, when and if declared by the board of directors of the Company, a dividend at least equal to any dividend payable on the Company’s common stock as if all convertible preferred stock had been converted to common stock. No dividends were declared as of December 31, 2019. As part of the Company’s IPO, the Company’s accrued cumulative dividend was paid out to holders of Series A, Series B, and Series C convertible preferred stock in shares of the Company’s common stock and reflects the reverse stock split in connection with the mandatory conversion of the Series A, Series B, and Series C convertible preferred stock into shares of the Company’s common stock.

11. STOCKHOLDERS’ EQUITY (DEFICIT)

Common Stock

On August 11, 2020, the Company implemented a 1-for-8.215 reverse stock split of the Company’s common stock. All share and per share data shown in the accompanying financial statements and related notes have been retroactively revised to reflect the reverse stock split with the exception of the preferred stock. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of common stock reserved for issuance upon the conversion of the Company’s Preferred Stock were proportionately reduced. As of August 11, 2020, all outstanding shares of preferred stock and preferred stock dividend were convertible into shares of common stock on a 1-for-8.215 basis. On August 21, 2020, the Company completed its 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 began trading on the Nasdaq Global Market on August 19, 2020. The shares were sold at an IPO 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 incurred by the Company.

The holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of the Company’s stockholders. The holders of common stock do not have any cumulative voting rights. Holders of common stock are entitled to receive ratably any dividends declared by the Company’s board of directors out of funds legally available for that purpose, subject to any preferential dividend rights of any outstanding preferred stock. The Company’s common stock has no preemptive rights, conversion rights or other subscription rights or redemption or sinking fund provisions.  

12. STOCK INCENTIVE PLAN AND STOCK-BASED COMPENSATION

Stock Incentive Plan

On August 7, 2017, the Company adopted an equity incentive plan (the “2017 Plan”). Under the 2017 Plan, directors, officers, employees, consultants, and advisors of the Company can be paid incentive compensation measured by the value of the Company’s common shares through grants of stock options, stock appreciation rights (“SARs”), or restricted stock.

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In connection with the Company’s IPO, the board of directors adopted, and its stockholders approved, the 2020 Incentive Award Plan (the “2020 Plan”), in order to facilitate the grant of cash and equity incentives to directors, employees (including the Company’s named executive officers) and consultants of the Company and its subsidiaries. Upon the effectiveness of the 2020 Plan, no further grants will be made under the 2017 Plan. However, the 2017 Plan will continue to govern the terms and conditions of outstanding awards granted under it. The 2020 Plan provides for the grant of stock options, including incentive stock options (“ISOs”) and non-qualified stock options (“NSOs”), SARs, restricted stock, dividend equivalents, restricted stock units (“RSUs”) and other stock or cash-based awards. 

Stock options and stock appreciation rights under the 2017 Plan and the 2020 Plan have a 10-year contractual term and vest over the vesting period specified in the applicable award agreement, at achievement of a performance requirement, or upon change of control (as defined in the applicable plan). RSUs vest over the vesting period specified in the applicable award agreement, at achievement of a performance requirement, or upon change of control (as defined in the applicable plan).

Changes in stock options granted under the 2017 and 2020 Plans for the three months ended March 31, 2021 is as follows:

 

 

 

Number of

Awards

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term

 

Awards outstanding—December 31, 2020

 

 

5,210,832

 

 

$

17.66

 

 

 

8.63

 

Awards issued

 

 

1,112,606

 

 

$

35.44

 

 

 

 

 

Awards exercised

 

 

(1,837

)

 

$

8.22

 

 

 

 

 

Awards forfeited

 

 

(55,690

)

 

$

8.22

 

 

 

 

 

Awards outstanding—March 31, 2021

 

 

6,265,911

 

 

$

20.90

 

 

 

8.65

 

Changes in SARs granted under the 2017 Plan for the three months ended March 31, 2021 is as follows:

 

 

Number of

Awards

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term

 

Awards outstanding—December 31, 2020

 

 

49,294

 

 

$

9.24

 

 

 

8.29

 

Awards issued

 

 

 

 

$

 

 

 

 

 

Awards exercised

 

 

 

 

$

 

 

 

 

 

Awards forfeited

 

 

 

 

$

 

 

 

 

 

Awards outstanding—March 31, 2021

 

 

49,294

 

 

$

9.24

 

 

 

8.04

 

Changes in RSUs granted under the 2020 Plan for the three months ended March 31, 2021 is as follows:

 

 

Number of

Awards

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term

 

Awards outstanding—December 31, 2020

 

 

 

 

$

 

 

 

 

Awards issued

 

 

60,000

 

 

$

29.03

 

 

 

 

 

Awards exercised

 

 

 

 

$

 

 

 

 

 

Awards forfeited

 

 

 

 

$

 

 

 

 

 

Awards outstanding—March 31, 2021

 

 

60,000

 

 

$

29.03

 

 

 

10.00

 

As of March 31, 2021 and December 31, 2020, stock awards issued under the 2017 and 2020 Plans of 1,143,791 and 987,538 common shares, respectively, were vested. The Company has elected early adoption of ASU No. 2016-09 to recognize forfeitures as they occur. As a result of the adoption, for the three months ended March 31, 2020 the Company reversed $10 out of stock-based compensation previously recorded.

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Value of Stock Options and SARs

The Company has valued awards for each of the plans included herein using the Black-Scholes option-pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, the Company estimates its expected stock volatility based on historical volatility of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. For SARs, the expected term is based upon the weighting of certain future events. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for the time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

The assumptions used to value the awards are summarized in the following table.

 

 

 

As of

 

 

 

 

March 31, 2021

 

 

 

December 31,

2020

 

 

Dividend yield

 

 

0.00

 

%

 

 

0.00

 

%

Expected volatility

 

 

60.00

 

%

 

55.00 - 95.80

 

%

Risk-free interest rate

 

0.66 - 1.19

 

%

 

0.32 - 0.56

 

%

Lack of marketability discount

 

 

0.00

 

%

 

0.00 - 20.48

 

%

Expected term (years)

 

4.9 - 6.3

 

 

 

5.4 - 6.5

 

 

Value of RSUs

The fair value of RSUs is equal to the value of the Company’s common stock on the grant date.

 

The weighted average per share fair value of awards issued under the 2017 Plan and 2020 Plan was $11.99 and $10.06 on March 31, 2021 and December 31, 2020, respectively.

Stock-based compensation expense, net was $3,251 and $475 for the three months ended March 31, 2021 and 2020, respectively, and was recorded in the condensed consolidated statements of operations and comprehensive loss in the following line items:

 

 

 

For the Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Research and development expense

 

$

420

 

 

$

80

 

Sales and marketing expense

 

 

620

 

 

 

108

 

General and administrative expense

 

 

2,211

 

 

 

287

 

 

 

$

3,251

 

 

$

475

 

Options and RSUs issued under the 2017 Plan and 2020 Plan are reflected as a component of equity in these condensed consolidated financial statements. Stock appreciation rights are reflected as other non-current liability. The Company will recognize compensation expense for these awards as summarized in the following table.

 

Years Ending December 31,

 

Stock

Compensation

Expense

 

2021 (excluding the three months ended March 31, 2021)

 

$

12,920

 

2022

 

 

16,867

 

2023

 

 

15,880

 

2024

 

 

14,900

 

2025

 

 

5,831

 

 

 

 

 

 

 

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13. WARRANTS

In connection with the OrbiMed Loan, the Company issued Warrants to OrbiMed Royalty & Credit Opportunities, LP on January 9, 2020. Pursuant to the Warrants, OrbiMed Royalty & Credit Opportunities, LP, may purchase up to 410,239 shares of the Company’s Common Stock for an initial exercise price of $16.10 at any time from the date of execution of the Warrants through the expiration date, defined within the Warrants as the earlier of (i) January 9, 2027 and (ii) the closing date of a Corporate Reorganization. The fair value of the Warrants using the Black-Scholes option-pricing model was $2,359 on January 9, 2020 and was initially recorded as a warrant liability which was included in warrant liability in the condensed consolidated balance sheet. The portion of the OrbiMed Loan proceeds allocated to the warrant liability resulted in a debt discount, which is presented in the condensed consolidated balance sheets as a direct deduction from the carrying value of the debt and is being amortized as additional interest expense over the six-year loan term of the OrbiMed Loan. The unamortized debt discount as of March 31, 2021 and December 31, 2020 was $2,031 and $2,102, respectively, and is presented in the condensed consolidated balance sheet as a direct deduction from the carrying value of the debt. During the three months ended March 31, 2020, a loss of $1,146 was recorded in other expense in the condensed consolidated statements of operations due to the change in the fair value of the warrant liability. See Note 15 for the fair value of the Warrants.

In connection with the IPO, the financial instrument underlying the warrants was converted from the Company’s Series C Preferred Stock to the Company’s Common Stock.  As a result of this conversion the Warrants were re-evaluated under ASC 480 Distinguishing Liabilities from Equity and ASC 815 Derivatives and Hedging and reclassified to equity.

 

14. EARNINGS PER SHARE

For the three months ended March 31, 2020, the Company used the two-class method to compute net loss per common share because the Company has issued securities (convertible preferred stock) that entitle the holder to participate in dividends and earnings of the Company. Under this method, net income is reduced by the amount of any dividends earned and the accretion of convertible preferred stock to its redemption value during the period. The remaining earnings (undistributed earnings) are allocated to common stock and each series of convertible preferred stock to the extent that each preferred security may share in the earnings as if all of the earnings for the period had been distributed. The total earnings allocated to common stock is then divided by the number of outstanding shares to which the earnings are allocated to determine the earnings per share. The two-class method is not applicable during periods with a net loss, as the holders of the convertible preferred stock have no obligation to fund losses.

The Company has reported a net loss for the three months ended March 31, 2020, and the weighted average number of shares utilized for basic and diluted net loss per share attributable to common stockholders are the same for these periods because all convertible preferred stock and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact. Additionally, the fair value adjustment for the warrants was excluded from the computation of diluted net loss for the three months ended March 31, 2020 since the additional income would have an antidilutive impact.

The Company has reported net income for the three months ended March 31, 2021. Diluted net income (loss) per common share is computed under the treasury stock method by using the weighted average number of shares of common stock outstanding, plus, for periods with net income attributable to common stockholders, the potential dilutive effects of stock options, stock appreciation rights, restricted stock units and warrants. In addition, the Company analyzes the potential dilutive effects of the outstanding convertible preferred stock under the ‘if-converted’ method when calculating diluted earnings per share, in which it is assumed that the outstanding convertible preferred stock converts into common stock at the beginning of the period or when issued if later. The Company reports the more dilutive of the approaches (treasury stock or ‘if converted’) as their diluted net income per share during the period.

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The following table sets forth the computation of basic and diluted net loss per share:

 

 

 

For the Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Numerator