SEC Filing | Harmony Biosciences

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended September 30, 2022

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

For the transition period from to

Commission File Number: 001-39450

HARMONY BIOSCIENCES HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware	82-2279923
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


630 W. Germantown Pike, Suite 215, Plymouth Meeting, PA	19462
(Address of principal executive offices)	(Zip Code)

(484) 539-9800

(Registrant’s telephone number, including area code)

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

Title of each class

Trading
Symbol(s)

Name of each exchange
on which registered

Common Stock, par value $0.00001 value per share

HRMY

The Nasdaq Stock Market LLC
(Nasdaq Global Market)

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

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

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



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

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

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TABLE OF CONTENTS


	Page
Part I. Financial Information	3
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets (Unaudited)	3
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)	4
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	5
Condensed Consolidated Statements of Cash Flows (Unaudited)	6
Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3. Quantitative and Qualitative Disclosures About Market Risk	35
Item 4. Controls and Procedures	35
Part II. Other Information	36
Item 1. Legal Proceedings	36
Item 1A. Risk Factors	36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3. Defaults upon Senior Securities	36
Item 4. Mine Safety Disclosures	36
Item 5. Other Information	36
Item 6. Exhibits	37
Signatures	38

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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)


	September 30,		December 31,
	2022		2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	261,343	$	234,309
Investments, short-term		46,420		—
Trade receivables, net		55,065		34,843
Inventory, net		3,900		4,432
Prepaid expenses		11,246		7,637
Other current assets		4,108		3,218
Total current assets		382,082		284,439
NONCURRENT ASSETS:
Property and equipment, net		680		820
Restricted cash		750		750
Investments, long-term		8,280		—
Intangible assets, net		166,914		143,919
Deferred tax asset		81,679		—
Other noncurrent assets		3,079		3,515
Total noncurrent assets		261,382		149,004
TOTAL ASSETS	$	643,464	$	433,443
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payables	$	10,049	$	1,001
Accrued compensation		8,331		9,165
Accrued expenses		85,606		40,249
Current portion of long-term debt		2,000		2,000
Other current liabilities		1,371		1,360
Total current liabilities		107,357		53,775
NONCURRENT LIABILITIES:
Long-term debt, net		189,725		189,984
Other noncurrent liabilities		2,498		3,177
Total noncurrent liabilities		192,223		193,161
TOTAL LIABILITIES		299,580		246,936
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS’ EQUITY:
Common stock—$0.00001 par value; 500,000,000 shares authorized at September 30, 2022 and December 31, 2021, respectively; 59,304,408 shares and 58,825,769 issued and outstanding at September 30, 2022 and December 31, 2021, respectively		1		1
Additional paid in capital		664,700		640,104
Accumulated other comprehensive income (loss)		(178)		—
Accumulated deficit		(320,639)		(453,598)
TOTAL STOCKHOLDERS’ EQUITY		343,884		186,507
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	643,464	$	433,443

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

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HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except share and per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net product revenues	$	117,206	$	80,732	$	309,547	$	214,227
Cost of product sold		22,959		14,604		56,596		37,701
Gross profit		94,247		66,128		252,951		176,526
Operating expenses:
Research and development		40,548		11,739		60,794		22,916
Sales and marketing		20,467		16,480		58,210		49,009
General and administrative		21,331		16,856		61,374		45,704
Total operating expenses		82,346		45,075		180,378		117,629
Operating income		11,901		21,053		72,573		58,897
Loss on debt extinguishment		—		(26,146)		—		(26,146)
Other expense (income), net		56		—		96		(15)
Interest expense, net		(3,990)		(5,429)		(12,086)		(19,783)
Income (loss) before income taxes		7,967		(10,522)		60,583		12,953
Income tax benefit (expense)		79,976		902		72,376		(1,070)
Net income	$	87,943	$	(9,620)	$	132,959	$	11,883
Unrealized loss on investments		(149)		—		(178)		—
Comprehensive income	$	87,794	$	(9,620)	$	132,781	$	11,883
EARNINGS PER SHARE:
Basic	$	1.48	$	(0.17)	$	2.25	$	0.21
Diluted	$	1.44	$	(0.17)	$	2.18	$	0.20
Weighted average number of shares of common stock - basic		59,234,720		57,722,163		59,070,063		57,188,101
Weighted average number of shares of common stock - diluted		61,207,625		57,722,163		60,921,482		58,776,158

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

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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	—		—		—		—		132,959		132,959
Unrealized loss on investments	—		—		—		(178)		—		(178)
Issuance of common stock	8,050		—		408		—		—		408
Exercise of options	470,589		—		5,275		—		—		5,275
Stock-based compensation	—		—		18,913		—		—		18,913
Balance as of September 30, 2022	59,304,408	$	1	$	664,700	$	(178)	$	(320,639)	$	343,884


						Accumulated
				Additional		other				Total
	Common Stock			paid-in		comprehensive		Accumulated		stockholders’
	Shares	Amount		capital		income (loss)		deficit		equity
Balance as of June 30, 2022	59,117,749	$	1	$	655,143	$	(29)	$	(408,582)	$	246,533
Net income	—		—		—		—		87,943		87,943
Unrealized loss on investments	—		—		—		(149)		—		(149)
Issuance of common stock	8,050		—		408		—		—		408
Exercise of options	178,609		—		2,143		—		—		2,143
Stock-based compensation	—		—		7,006		—		—		7,006
Balance as of September 30, 2022	59,304,408	$	1	$	664,700	$	(178)	$	(320,639)	$	343,884


				Additional				Total
	Common Stock			paid-in		Accumulated		stockholders’
	Shares	Amount		capital		deficit		equity
Balance as of December 31, 2020	56,890,569	$	1	$	585,374	$	(488,195)	$	97,180
Net income	—		—		—		11,883		11,883
Issuance of common stock	1,270,462		—		29,700		—		29,700
Exercise of stock options	253,515		—		1,794		—		1,794
Stock-based compensation	—		—		11,461		—		11,461
Balance as of September 30, 2021	58,414,546	$	1	$	628,329	$	(476,312)	$	152,018


				Additional				Total
	Common Stock			paid-in		Accumulated		stockholders’
	Shares	Amount		capital		deficit		equity
Balance as of June 30, 2021	57,000,139	$	1	$	593,242	$	(466,692)	$	126,551
Net income	—		—		—		(9,620)		(9,620)
Issuance of common stock	1,270,462		—		29,700		—		29,700
Exercise of options	143,945		—		1,134		—		1,134
Stock-based compensation	—		—		4,253		—		4,253
Balance as of September 30, 2021	58,414,546	$	1	$	628,329	$	(476,312)	$	152,018

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

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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)


	Nine Months Ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	132,959	$	11,883
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation		312		299
Intangible amortization		17,005		13,781
Stock-based and employee stock purchase compensation expense		18,913		11,461
Stock appreciation rights market adjustment		321		261
Debt issuance costs amortization		1,241		1,820
Deferred taxes		(81,679)		—
Investment securities interest income		(225)		—
Loss on debt extinguishment		—		26,146
Other non-cash expenses		1,042		916
Change in operating assets and liabilities:
Trade receivables		(20,222)		(11,030)
Inventory		532		(982)
Prepaid expenses and other assets		(4,479)		(3,715)
Trade payables		9,048		1,623
Accrued expenses and other current liabilities		43,171		8,545
Other non-current liabilities		(151)		16
Net cash provided by operating activities		117,788		61,024
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities		(55,637)		—
Proceeds from maturities and sales of investment securities		872		—
Purchase of property and equipment		(172)		(298)
Milestone payments		(40,000)		(100,000)
Net cash used in investing activities		(94,937)		(100,298)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		408		30,000
Common stock issuance costs		—		(300)
Proceeds from long term debt		—		200,000
Debt issuance costs		—		(9,147)
Extinguishment of debt		—		(200,000)
Extinguishment of debt exit fees		—		(22,000)
Principal repayment of long term debt		(1,500)		—
Proceeds from exercised options		5,275		1,794
Net cash provided by financing activities		4,183		347
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH		27,034		(38,927)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period		235,059		229,381
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period	$	262,093	$	190,454
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest	$	11,334	$	15,997

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

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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 $320,639 and $453,598, as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022, the Company had cash, cash equivalents and investments of $316,043.

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

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

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

Use of Estimates

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

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

Cash, Cash Equivalents and Restricted Cash

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


	As of
	September 30,		December 31,
	2022		2021
Cash and cash equivalents	$	261,343	$	234,309
Restricted cash		750		750
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	262,093	$	235,059

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

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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 September 30, 2022, three customers accounted for 100% of gross accounts receivable; Caremark LLC (“CVS Caremark”), which accounted for 47% of gross accounts receivable; Accredo Health Group, Inc. (“Accredo”), which accounted for 30% of gross accounts receivable; and, PANTHERx Specialty Pharmacy LLC (“Pantherx”, which accounted for 23% of gross accounts receivable. As of December 31, 2021, three customers accounted for 100% of gross accounts receivable; Accredo, which accounted for 40% of gross accounts receivable; Pantherx, which accounted for 31% of gross accounts receivable; and CVS Caremark, which accounted for 29% of gross accounts receivable.

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

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

Recently Issued Accounting Pronouncements

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

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

4. INVESTMENTS

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


	September 30, 2022
		Amortized	Unrealized	Unrealized		Fair
		Cost	Gains	Losses		Value
Short-term:
Commercial paper	$	12,089	1	(35)	$	12,055
Corporate debt securities		30,077	4	(80)		30,001
U.S. government securities		4,382	—	(18)		4,364
Total short-term investments	$	46,548	5	(133)	$	46,420

Long-term:
Corporate debt securities	$	8,074	3	(50)	$	8,027
U.S. government securities		256	—	(3)		253
Total long-term investments	$	8,330	3	(53)	$	8,280

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

5. FAIR VALUE MEASUREMENTS

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

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

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

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

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

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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 obtaining market values from other pricing sources. The Company did not classify any assets or liabilities as Level 3 as of September 30, 2022 or December 31, 2021.

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


	September 30, 2022				December 31, 2021
		Total	Level 1	Level 2		Total	Level 1	Level 2
Assets
Cash equivalents	$	180,513	180,513	—	$	156,782	156,782	—
Commercial paper		12,055	—	12,055		—	—	—
Corporate debt securities		38,028	—	38,028		—	—	—
U.S. government securities		4,617	—	4,617		—	—	—
Total	$	235,213	180,513	54,700	$	156,782	156,782	—

6. INVENTORY

Inventory, net consisted of the following:


	As of
	September 30,		December 31,
	2022		2021
Raw materials	$	605	$	986
Work in process		1,802		1,787
Finished goods		2,137		2,108
Inventory, gross		4,544		4,881
Reserve for excess inventory		(644)		(449)
Total inventory, net	$	3,900	$	4,432

7. INTANGIBLE ASSETS

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

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

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

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

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

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


Years ending December 31,
2022 (Excluding the nine months ended September 30, 2022)	$	5,961
2023		23,845
2024		23,845
2025		23,845
2026		23,845
Thereafter		65,573
Total	$	166,914

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


	As of
	September 30,		December 31,
	2022		2021
Gross Carrying Amount	$	215,000	$	175,000
Accumulated Amortization		(48,086)		(31,081)
Net Book Value	$	166,914	$	143,919

8. LICENSE AND ASSET PURCHASE AGREEMENTS

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

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

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

Agreement Related to Intellectual Property

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

9. ACCRUED EXPENSES

Accrued expenses consist of the following:


	As of
	September 30,		December 31,
	2022		2021
Royalties due to third parties	$	20,944	$	16,396
Rebates and other sales deductions		25,214		17,141
Interest		3,041		2,125
Selling and marketing		2,326		1,983
Research and development		1,852		658
Professional fees, consulting, and other services		1,229		1,645
Licensing fee		30,000		—
Other expenses		1,000		301
	$	85,606	$	40,249

10. DEBT

Blackstone Credit Agreement

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

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

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

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

Long-term debt, net consists of the following:


	September 30,		December 31,
	2022		2021
Liability component - principal	$	198,000	$	199,500
Unamortized debt discount associated with debt financing costs		(6,275)		(7,516)
Liability component - net carrying value		191,725		191,984
Less current portion		(2,000)		(2,000)
Long-term debt, net	$	189,725	$	189,984

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


Years ending December 31,
2022 (Excluding the nine months ended September 30, 2022)	$	500
2023		2,000
2024		20,000
2025		20,000
2026		155,500
Thereafter		—
Total	$	198,000

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Interest on principal balance	$	4,513	$	5,030	$	12,110	$	18,122
Amortization of deferred financing costs		418		459		1,241		1,820
Total term loan interest expense	$	4,931	$	5,489	$	13,351	$	19,942

11. LEASES

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

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

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

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

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


Leases	Classification		September 30, 2022		December 31, 2021
Assets
Operating lease right-of-use assets	Other noncurrent assets	$	2,658	$	3,298
Liabilities
Operating lease liability, current portion	Other current liabilities	$	1,598	$	1,527
Operating lease liability, long-term	Other long-term liabilities		1,384		2,233
Total operating lease liabilities		$	2,982	$	3,760

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


		September 30, 2022		September 30, 2021
Operating cash flows from operating leases	$	1,297	$	833
Right of use assets obtained in exchange for operating lease obligations (1)	$	485	$	3,365

(1)

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

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


Years ending December 31,
2022 (Excluding the nine months ended September 30, 2022)	$	419
2023		1,679
2024		958
2025		34
2026		—
Thereafter		—
Total lease payments		3,090
Less: imputed interest		(108)
Total lease liabilities	$	2,982

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 September 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 September 30, 2022, there were 4,932,502 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.