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Table of Contents

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, 2022

OR

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

For the transition period from                      to

Commission File Number: 001-39450

HARMONY BIOSCIENCES HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

82-2279923

(State or other jurisdiction of
incorporation or organization)

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

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

19462

(Address of principal executive offices)

(Zip Code)

(484) 539-9800

(Registrant’s telephone number, including area code)

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

Title of each class

    

Trading
Symbol(s)

    

Name of each exchange
on which registered

Common Stock, par value $0.00001 value per share

 

HRMY

 

The Nasdaq Stock Market LLC
(Nasdaq Global Market)

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of July 29, 2022, there were 59,161,397 shares of the registrant’s common stock, par value $0.00001 value per share, outstanding.

Table of Contents

TABLE OF CONTENTS

Page

Part I. Financial Information

3

Item 1. Financial Statements

3

Condensed Consolidated Balance Sheets (Unaudited)

3

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

4

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

5

Condensed Consolidated Statements of Cash Flows (Unaudited)

6

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

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

21

Item 3. Quantitative and Qualitative Disclosures About Market Risk

34

Item 4. Controls and Procedures

35

Part II. Other Information

35

Item 1. Legal Proceedings

35

Item 1A. Risk Factors

35

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

35

Item 3. Defaults upon Senior Securities

36

Item 4. Mine Safety Disclosures

36

Item 5. Other Information

36

Item 6. Exhibits

37

Signatures

38

2

Table of Contents

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)

    

June 30, 

    

December 31, 

    

2022

    

2021

ASSETS

 

  

 

  

CURRENT ASSETS:

 

  

 

  

Cash and cash equivalents

$

236,533

$

234,309

Investments, short-term

17,638

Trade receivables, net

 

49,822

 

34,843

Inventory, net

 

4,208

 

4,432

Prepaid expenses

 

10,827

 

7,637

Other current assets

 

3,674

 

3,218

Total current assets

 

322,702

 

284,439

NONCURRENT ASSETS:

 

  

 

  

Property and equipment, net

 

695

 

820

Restricted cash

 

750

 

750

Investments, long-term

4,747

Intangible assets, net

 

172,876

 

143,919

Other noncurrent assets

 

3,264

 

3,515

Total noncurrent assets

 

182,332

 

149,004

TOTAL ASSETS

$

505,034

$

433,443

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

CURRENT LIABILITIES:

 

  

 

  

Trade payables

$

6,661

$

1,001

Accrued compensation

 

7,213

 

9,165

Accrued expenses

 

45,626

 

40,249

Current portion of long-term debt

2,000

2,000

Other current liabilities

 

4,264

 

1,360

Total current liabilities

 

65,764

 

53,775

NONCURRENT LIABILITIES:

 

  

 

  

Long-term debt, net

 

189,807

 

189,984

Other noncurrent liabilities

 

2,930

 

3,177

Total noncurrent liabilities

 

192,737

 

193,161

TOTAL LIABILITIES

 

258,501

 

246,936

COMMITMENTS AND CONTINGENCIES (Note 12)

 

  

 

  

STOCKHOLDERS’ EQUITY:

 

  

 

  

Common stock—$0.00001 par value; 500,000,000 shares authorized at June 30, 2022 and December 31, 2021, respectively; 59,117,749 shares and 58,825,769 issued and outstanding at June 30, 2022 and December 31, 2021, respectively

 

1

 

1

Additional paid in capital

 

655,143

 

640,104

Accumulated other comprehensive income (loss)

(29)

Accumulated deficit

 

(408,582)

 

(453,598)

TOTAL STOCKHOLDERS’ EQUITY

 

246,533

 

186,507

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

505,034

$

433,443

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

3

Table of Contents

HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except share and per share data)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Net product revenues

$

107,028

$

73,821

$

192,341

$

133,495

Cost of product sold

 

18,921

 

12,687

 

33,637

 

23,097

Gross profit

 

88,107

 

61,134

 

158,704

 

110,398

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

12,668

 

6,498

 

20,246

 

11,177

Sales and marketing

 

20,160

 

17,022

 

37,743

 

32,529

General and administrative

 

22,163

 

14,302

 

40,043

 

28,848

Total operating expenses

 

54,991

 

37,822

 

98,032

 

72,554

Operating income

 

33,116

 

23,312

 

60,672

 

37,844

Other expense, net

 

42

 

4

 

40

 

(15)

Interest expense, net

 

(3,927)

 

(7,227)

 

(8,096)

 

(14,354)

Income before income taxes

 

29,231

 

16,089

 

52,616

 

23,475

Income tax expense

 

(5,700)

 

(1,972)

 

(7,600)

 

(1,972)

Net income

$

23,531

$

14,117

$

45,016

$

21,503

Unrealized loss on investments

 

(29)

 

 

(29)

 

Comprehensive income

$

23,502

$

14,117

$

44,987

$

21,503

EARNINGS PER SHARE:

 

  

 

  

 

  

 

  

Basic

$

0.40

$

0.25

$

0.76

$

0.38

Diluted

$

0.39

$

0.24

$

0.74

$

0.37

Weighted average number of shares of common stock - basic

 

59,063,358

 

56,940,840

 

58,986,370

 

56,916,282

Weighted average number of shares of common stock - diluted

 

60,922,672

 

58,592,876

 

60,759,026

 

58,635,195

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 STOCKHOLDERS’ EQUITY

(In thousands, except share and per share data)

Accumulated

Additional

other

Total

Common Stock

paid-in

comprehensive

Accumulated

stockholders’

   

Shares

   

Amount

   

capital

   

income (loss)

   

deficit

   

equity

Balance as of December 31, 2021

 

58,825,769

$

1

$

640,104

$

$

(453,598)

$

186,507

Net income

 

 

 

 

45,016

 

45,016

Unrealized loss on investments

(29)

(29)

Exercise of options

 

291,980

 

 

3,133

 

 

3,133

Stock-based compensation

 

 

 

11,906

 

 

11,906

Balance as of June 30, 2022

 

59,117,749

$

1

$

655,143

$

(29)

$

(408,582)

$

246,533

Accumulated

Additional

other

Total

Common Stock

paid-in

comprehensive

Accumulated

stockholders’

   

Shares

   

Amount

   

capital

   

income (loss)

   

deficit

   

equity

Balance as of March 31, 2022

59,030,148

$

1

$

646,615

$

$

(432,113)

$

214,503

Net income

 

 

 

 

23,531

 

23,531

Unrealized loss on investments

(29)

(29)

Exercise of options

 

87,601

 

 

1,250

 

 

1,250

Stock-based compensation

 

 

 

7,278

 

 

7,278

Balance as of June 30, 2022

 

59,117,749

$

1

$

655,143

$

(29)

$

(408,582)

$

246,533

Additional

Total

Common Stock

paid-in

Accumulated

stockholders’

    

Shares

    

Amount

    

capital

    

deficit

    

equity

Balance as of December 31, 2020

 

56,890,569

$

1

$

585,374

$

(488,195)

$

97,180

Net income

 

 

 

 

21,503

 

21,503

Exercise of stock options

 

109,570

 

 

660

 

 

660

Stock-based compensation

 

 

 

7,208

 

 

7,208

Balance as of June 30, 2021

 

57,000,139

$

1

$

593,242

$

(466,692)

$

126,551

Additional

Total

Common Stock

paid-in

Accumulated

stockholders’

    

Shares

    

Amount

    

capital

    

deficit

    

equity

Balance as of March 31, 2021

 

56,892,406

$

1

$

588,687

$

(480,809)

$

107,879

Net income

 

 

 

 

14,117

 

14,117

Exercise of options

 

107,733

 

 

648

 

 

648

Stock-based compensation

 

 

 

3,907

 

 

3,907

Balance as of June 30, 2021

 

57,000,139

$

1

$

593,242

$

(466,692)

$

126,551

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)

    

Six Months Ended June 30, 

    

2022

    

2021

CASH FLOWS FROM OPERATING ACTIVITIES

 

  

 

  

Net income

$

45,016

$

21,503

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

 

 

  

Depreciation

 

211

 

200

Intangible amortization

 

11,043

 

9,208

Stock-based and employee stock purchase compensation expense

 

11,906

 

7,208

Stock appreciation rights market adjustment

 

361

 

(130)

Debt issuance costs amortization

 

823

 

1,361

Other non-cash expenses

770

Change in operating assets and liabilities:

 

 

  

Trade receivables

 

(14,979)

 

(9,019)

Inventory

 

224

 

(1,128)

Prepaid expenses and other assets

 

(3,707)

 

(622)

Trade payables

 

5,660

 

(550)

Accrued expenses and other current liabilities

 

5,407

 

2,606

Other non-current liabilities

 

(152)

 

(37)

Net cash provided by operating activities

 

62,583

 

30,600

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Purchase of investment securities

(22,406)

Purchase of property and equipment

 

(86)

 

(205)

Milestone payments

 

(40,000)

 

(100,000)

Net cash used in investing activities

 

(62,492)

 

(100,205)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Principal repayment of long term debt

(1,000)

Proceeds from exercised options

 

3,133

 

660

Net cash provided by financing activities

 

2,133

 

660

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

 

2,224

 

(68,945)

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

 

235,059

 

229,381

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

$

237,283

$

160,436

Supplemental Disclosure of Cash Flow Information:

 

  

 

  

Cash paid during the year for interest

$

7,524

$

13,092

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

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

Initial Public Offering

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

2. LIQUIDITY AND CAPITAL RESOURCES

The unaudited condensed consolidated financial statements have been prepared as though the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $408,582 and $453,598, as of June 30, 2022 and December 31, 2021, respectively. As of June 30, 2022, the Company had cash and cash equivalents of $236,533.

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

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

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

Use of Estimates

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

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

Cash, Cash Equivalents and Restricted Cash

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

    

As of

    

June 30, 

    

December 31, 

2022

2021

Cash and cash equivalents

$

236,533

$

234,309

Restricted cash

 

750

 

750

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

$

237,283

$

235,059

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

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Investments

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

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

Concentrations of Risk

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

The Company is also subject to credit risk from its trade receivables related to its product sales. The Company extends credit to specialty pharmaceutical distribution companies within the United States. Customer creditworthiness is monitored and collateral is not required. Historically, the Company has not experienced credit losses on its accounts receivable. The Company monitors its exposure within accounts receivable and would record a reserve against uncollectible accounts receivable if necessary As of June 30, 2022, three customers accounted for 100% of gross accounts receivable; Caremark LLC (“CVS Caremark”), which accounted for 38% of gross accounts receivable; PANTHERx Specialty Pharmacy LLC (“Pantherx”, which accounted for 34% of gross accounts receivable: and, Accredo Health Group, Inc. (“Accredo”), which accounted for 28% of gross accounts receivable. As of December 31, 2021, three customers accounted for 100% of gross accounts receivable; Accredo, which accounted for 40% of gross accounts receivable; Pantherx, which accounted for 31% of gross accounts receivable; and CVS Caremark, which accounted for 29% of gross accounts receivable.

For the six months ended June 30, 2022, three customers accounted for 100% of gross product revenues; CVS Caremark accounted for 39% of gross product revenues; Pantherx accounted for 32% of gross product revenues; and Accredo accounted for 29% of gross product revenues. For the six months ended June 30, 2021 three customers accounted for 100% of gross product revenues; CVS Caremark accounted for 37% of gross product revenues; Pantherx accounted for 35% of gross product revenues; and Accredo accounted for 28% of gross product revenues.

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

Recently Issued Accounting Pronouncements

ASU 2020-04, Reference Rate Reform (Topic 848). In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides guidance related to reference rate reform. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative

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

4. INVESTMENTS

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

June 30, 2022

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

Short-term:

Commercial paper

$

959

1

(1)

$

959

Corporate debt securities

14,344

3

(18)

14,329

U.S. government securities

2,354

1

(5)

2,350

Total short-term investments

$

17,657

5

(24)

$

17,638

Long-term:

Corporate debt securities

$

4,503

1

(11)

$

4,493

U.S. government securities

254

254

Total long-term investments

$

4,757

1

(11)

$

4,747

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

5. FAIR VALUE MEASUREMENTS

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

It is the Company’s policy, 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.

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.

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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 understanding the models that are used and obtaining market values from other pricing sources. The Company did not classify any assets or liabilities as Level 3 as of June 30, 2022 or December 31, 2021.

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

June 30, 2022

December 31, 2021

Total

Level 1

Level 2

Total

Level 1

Level 2

Assets

Cash equivalents

$

172,183

172,183

$

156,782

156,782

Commercial paper

959

959

Corporate debt securities

18,822

18,822

U.S. government securities

2,604

2,604

Total

$

194,568

172,183

22,385

$

156,782

156,782

6. INVENTORY

Inventory, net consisted of the following:

    

As of

    

June 30, 

    

December 31, 

2022

2021

Raw materials

$

606

$

986

Work in process

 

1,809

 

1,787

Finished goods

 

2,242

 

2,108

Inventory, gross

 

4,657

 

4,881

Reserve for excess inventory

 

(449)

 

(449)

Total inventory, net

$

4,208

$

4,432

7. INTANGIBLE ASSETS

In August 2019, the Company received FDA approval of WAKIX® (pitolisant) for the treatment of excessive daytime sleepiness (“EDS”) in adult patients with narcolepsy. This event triggered a milestone payment of $75,000 under the provisions of the License Agreement (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, 2022 the remaining useful life was 7.3 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 License Agreement which the Company capitalized as an intangible asset

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and paid in January of 2021. The Company determined a useful life of 9 years for such intangible asset, and, as of June 30, 2022 the remaining useful life was 7.3 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 License Agreement 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, 2022 the remaining useful life was 7.3 years.

Amortization expense was $5,961 and $4,629 for the three months ended June 30, 2022 and 2021, respectively, and $11,043 and $9,208 for the six months ended June 30, 2022 and 2021, respectively, and is recorded in general and administrative expenses on the unaudited condensed consolidated statements of operations and comprehensive income.

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

Years ending December 31, 

    

2022 (Excluding the six months ended June 30, 2022)

$

11,923

2023

 

23,845

2024

 

23,845

2025

 

23,845

2026

 

23,845

Thereafter

65,573

Total

$

172,876

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

    

As of

    

June 30, 

    

December 31, 

2022

2021

Gross Carrying Amount

$

215,000

$

175,000

Accumulated Amortization

 

(42,124)

 

(31,081)

Net Book Value

$

172,876

$

143,919

8. LICENSE AND ASSET PURCHASE AGREEMENTS

In July 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 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 License Agreement 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 $17,125 and $11,812 for the three months ended June 30, 2022 and 2021, respectively, and $30,797 and $21,359 for the six months ended June 30, 2022 and 2021,

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respectively, for sales-based, trademark and tiered royalties recognized as cost of product sold. As of June 30, 2022 and December 31, 2021, the Company had accrued $17,125 and $16,396, respectively, for sales-based, trademark and tiered royalties.  

Agreement Related to Intellectual Property

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

9. ACCRUED EXPENSES

Accrued expenses consist of the following:

    

As of

    

June 30, 

    

December 31, 

2022

2021

Royalties due to third parties

$

17,125

$

16,396

Rebates and other sales deductions

 

22,558

 

17,141

Interest

2,198

2,125

Selling and marketing

 

1,644

 

1,983

Research and development

 

253

 

658

Professional fees, consulting, and other services

 

928

 

1,645

Other expenses

 

920

 

301

$

45,626

$

40,249

10. DEBT

Credit Agreements

Blackstone Credit Agreement

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

The repayment schedule for the Initial Term Loan consists of quarterly $500 principal payments, which commenced on December 31, 2021 and increasing to quarterly $5,000 principal payments beginning on March 31, 2024, with a $145,500 payment due on the maturity date of August 9, 2026 (“Maturity Date”). Interest is payable quarterly, which commenced on November 9, 2021 and continues through the Maturity Date. The Initial Term Loan bears interest at a per annum rate equal to LIBOR, subject to a 1.00% floor, plus 6.50%.

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Net cash received related to the Initial Term Loan as a result of the transaction, less debt issuance costs of $8,151, was $191,849. The debt issuance costs related to the Initial Term Loan will be amortized as additional interest expense over the five-year loan term of the Blackstone Credit Agreement. In addition, the Company paid $1,000 in debt issuance costs relating the DDTL, which are recorded in other current assets within the unaudited condensed consolidated balance sheet. The fair value of the Initial Term Loan as of June 30, 2022 was $142,459.

Long-term debt, net consists of the following:

    

June 30, 

    

December 31, 

2022

2021

Liability component - principal

$

198,500

$

199,500

Unamortized debt discount associated with debt financing costs

 

(6,693)

 

(7,516)

Liability component - net carrying value

191,807

191,984

Less current portion

(2,000)

(2,000)

Long-term debt, net

$

189,807

$

189,984

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

Years ending December 31, 

2022 (Excluding the six months ended June 30, 2022)

$

1,000

2023

 

2,000

2024

 

20,000

2025

 

20,000

2026

 

155,500

Thereafter

Total

$

198,500

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

Three Months Ended

Six Months Ended

June 30, 

June 30,

2022

    

2021

2022

    

2021

Interest on principal balance

$

3,773

$

6,582

$

7,597

$

13,092

Amortization of deferred financing costs

 

411

 

697

 

823

 

1,361

Total term loan interest expense

$

4,184

$

7,279

$

8,420

$

14,453

11. LEASES

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

Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future lease payments using our incremental borrowing rate. Leases with an initial term of 12

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months or less are not recorded on the balance sheet. Our leases have remaining lease terms of less than 1 year to 3 years, some of which may include the option to extend or terminate the leases.

The Company recorded operating lease costs of $392 and $293 for the three months ended June 30, 2022 and 2021, respectively, and $777 and $557 for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, the weighted-average remaining lease term for operating leases was 2.1 years and the weighted-average discount rate for operating leases was 3.8%.

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

Leases

Classification

June 30, 2022

December 31, 2021

Assets

Operating lease right-of-use assets

Other noncurrent assets

$

2,985

$

3,298

Liabilities

Operating lease liability, current portion

Other current liabilities

$

1,581

$

1,527

Operating lease liability, long-term

Other long-term liabilities

1,777

2,233

Total operating lease liabilities

$

3,358

$

3,760

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

June 30, 2022

June 30, 2021

Operating cash flows from operating leases

$

872

$

538

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

$

465

$

2,961

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

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

Years ending December 31, 

    

2022 (Excluding the six months ended June 30, 2022)

$

840

2023

 

1,672

2024

 

951

2025

 

30

2026

 

Thereafter

 

Total lease payments

3,493

Less: imputed interest

(135)

Total lease liabilities

$

3,358

12. 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. As of June 30, 2022, there were no material claims or suits outstanding.

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13. STOCKHOLDERS’ EQUITY

Common Stock

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.

14. STOCK INCENTIVE PLAN AND STOCK-BASED COMPENSATION

2020 Stock Incentive Plan

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. 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 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).  As of June 30, 2022, there were 5,003,096 shares of common stock available for issuance under the 2020 Plan. The number of shares that may be issued under the 2020 Plan will automatically increase on January 1 of each year in an amount equal to the lesser of (i) 4.0% of the shares of the Company’s common stock outstanding on December 31 of the preceding year or (ii) an amount determined by the Company’s board of directors.

2017 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. Following the adoption of the 2020 Plan, no further grants have been, or 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.

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Stock Options

The following table summarizes stock option activity for the six months ended June 30, 2022:

    

    

    

Weighted-

Weighted-

Average

Average

Remaining

Number of

Exercise

Contractual

    

Awards

    

Price

    

Term

Awards outstanding—December 31, 2021

 

5,716,597

$

22.53

 

8.09

Awards issued

 

1,463,367

$

48.90

 

  

Awards exercised

 

(278,305)

$

9.87

 

  

Awards forfeited

 

(87,330)

$

28.95

 

  

Awards outstanding—June 30, 2022

 

6,814,329

$

28.63

 

8.12

Stock Appreciation Rights

The following table summarizes SARs activity for the six months ended June 30, 2022:

    

    

    

Weighted-

Weighted-

Average

Average

Remaining

Number of

Exercise

Contractual

    

Awards

    

Price

    

Term

Awards outstanding—December 31, 2021

 

49,294

$

9.24

 

7.29

Awards issued

 

$

 

  

Awards exercised

 

(