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, 2023

☐	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 27, 2023, there were 58,571,944 shares of the registrant’s common stock, par value $0.00001 value per share, outstanding.

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TABLE OF CONTENTS


	Page
Part I. Financial Information	3
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets (Unaudited)	3
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)	4
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	5
Condensed Consolidated Statements of Cash Flows (Unaudited)	6
Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures About Market Risk	36
Item 4. Controls and Procedures	37
Part II. Other Information	37
Item 1. Legal Proceedings	37
Item 1A. Risk Factors	38
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	38
Item 3. Defaults upon Senior Securities	38
Item 4. Mine Safety Disclosures	39
Item 5. Other Information	39
Item 6. Exhibits	39
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)


	September 30,		December 31,
	2023		2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	324,603	$	243,784
Investments, short-term		46,071		79,331
Trade receivables, net		67,264		54,740
Inventory, net		5,087		4,297
Prepaid expenses		14,269		9,347
Other current assets		5,704		8,786
Total current assets		462,998		400,285
NONCURRENT ASSETS:
Property and equipment, net		428		573
Restricted cash		250		750
Investments, long-term		67,700		22,568
Intangible assets, net		143,069		160,953
Deferred tax asset		100,485		85,943
Other noncurrent assets		2,836		2,798
Total noncurrent assets		314,768		273,585
TOTAL ASSETS	$	777,766	$	673,870
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payables	$	6,539	$	3,786
Accrued compensation		10,322		11,532
Accrued expenses		72,761		59,942
Current portion of long-term debt		15,000		2,000
Other current liabilities		7,786		1,624
Total current liabilities		112,408		78,884
NONCURRENT LIABILITIES:
Long-term debt, net		182,131		189,647
Other noncurrent liabilities		1,895		2,501
Total noncurrent liabilities		184,026		192,148
TOTAL LIABILITIES		296,434		271,032
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS’ EQUITY:
Common stock—$0.00001 par value; 500,000,000 shares authorized at September 30, 2023 and December 31, 2022, respectively; 58,571,944 shares and 59,615,731 issued and outstanding at September 30, 2023 and December 31, 2022, respectively		1		1
Additional paid in capital		651,731		675,118
Accumulated other comprehensive (loss) income		(516)		(151)
Accumulated deficit		(169,884)		(272,130)
TOTAL STOCKHOLDERS’ EQUITY		481,332		402,838
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	777,766	$	673,870

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,
	2023		2022		2023		2022
Net product revenues	$	160,268	$	117,206	$	413,610	$	309,547
Cost of product sold		32,296		22,959		78,084		56,596
Gross profit		127,972		94,247		335,526		252,951
Operating expenses:
Research and development		17,499		40,548		45,757		60,794
Sales and marketing		23,418		20,467		70,518		58,210
General and administrative		22,546		21,331		67,417		61,374
Total operating expenses		63,463		82,346		183,692		180,378
Operating income		64,509		11,901		151,834		72,573
Loss on debt extinguishment		(9,766)		—		(9,766)		—
Other (expense) income, net		(5)		56		(34)		96
Interest expense, net		(2,906)		(3,990)		(8,327)		(12,086)
Income before income taxes		51,832		7,967		133,707		60,583
Income tax (expense) benefit		(13,371)		79,976		(31,461)		72,376
Net income	$	38,461	$	87,943	$	102,246	$	132,959
Unrealized income (loss) on investments		6		(149)		(365)		(178)
Comprehensive income	$	38,467	$	87,794	$	101,881	$	132,781
EARNINGS PER SHARE:
Basic	$	0.64	$	1.48	$	1.71	$	2.25
Diluted	$	0.63	$	1.44	$	1.68	$	2.18
Weighted average number of shares of common stock - basic		59,863,102		59,234,720		59,856,941		59,070,063
Weighted average number of shares of common stock - diluted		60,681,676		61,207,625		60,892,992		60,921,482

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		(loss) income		deficit		equity
Balance as of December 31, 2022	59,615,731	$	1	$	675,118	$	(151)	$	(272,130)	$	402,838
Net income	—		—		—		—		102,246		102,246
Unrealized loss on investments	—		—		—		(365)		—		(365)
Repurchase of common stock	(1,439,792)		—		(50,543)		—		—		(50,543)
Exercise of options and restricted stock units	396,005		—		4,314		—		—		4,314
Stock-based compensation	—		—		22,842		—		—		22,842
Balance as of September 30, 2023	58,571,944	$	1	$	651,731	$	(516)	$	(169,884)	$	481,332


						Accumulated
				Additional		other				Total
	Common Stock			paid-in		comprehensive		Accumulated		stockholders’
	Shares	Amount		capital		(loss) income		deficit		equity
Balance as of June 30, 2023	59,999,658	$	1	$	694,038	$	(522)	$	(208,345)	$	485,172
Net income	—		—		—		—		38,461		38,461
Unrealized loss on investments	—		—		—		6		—		6
Repurchase of common stock	(1,439,792)		—		(50,543)		—		—		(50,543)
Exercise of options	12,078		—		245		—		—		245
Stock-based compensation	—		—		7,991		—		—		7,991
Balance as of September 30, 2023	58,571,944	$	1	$	651,731	$	(516)	$	(169,884)	$	481,332


						Accumulated
				Additional		other				Total
	Common Stock			paid-in		comprehensive		Accumulated		stockholders’
	Shares	Amount		capital		(loss) income		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 stock 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		(loss) income		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

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,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	102,246	$	132,959
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation		350		312
Intangible amortization		17,884		17,005
Stock-based and employee stock purchase compensation expense		22,842		18,913
Stock appreciation rights market adjustment		(531)		321
Debt issuance costs amortization		2,089		1,241
Deferred taxes		(14,542)		(81,679)
Amortization of premiums and accretion of discounts on Investment securities		(2,031)		—
Loss on debt extinguishment		9,766		—
Other non-cash expenses		1,258		1,042
Change in operating assets and liabilities:
Trade receivables		(12,524)		(20,222)
Inventory		(790)		532
Prepaid expenses and other assets		(1,759)		(4,704)
Trade payables		2,753		9,048
Accrued expenses and other current liabilities		15,714		43,171
Other non-current liabilities		(3)		(151)
Net cash provided by operating activities		142,722		117,788
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities		(105,856)		(55,637)
Proceeds from maturities and sales of investment securities		95,687		872
Purchase of property and equipment		(205)		(172)
Milestone payments		—		(40,000)
Net cash used in investing activities		(10,374)		(94,937)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		—		408
Proceeds from long term debt		200,000		—
Debt issuance costs		(2,997)		—
Extinguishment of debt		(196,500)		—
Extinguishment of debt exit fees		(5,846)		—
Principal repayment of long term debt		(1,000)		(1,500)
Repurchase of common stock		(50,000)		—
Payments of employee withholding taxes related to stock-based awards		(514)		—
Proceeds from exercised options		4,828		5,275
Net cash (used in) provided by financing activities		(52,029)		4,183
NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH		80,319		27,034
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period		244,534		235,059
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period	$	324,853	$	262,093
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest	$	15,653	$	11,334
Cash paid during the year for taxes		36,543		9,702

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.

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 $169,884 and $272,130, as of September 30, 2023 and December 31, 2022, respectively. As of September 30, 2023, the Company had cash, cash equivalents and investments of $438,374.

The Company believes that its existing cash, cash equivalents and investments on hand as of September 30, 2023, 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, 2023, the unaudited condensed consolidated statements of cash flows for the three and nine months ended September 30, 2023, and 2022, and the unaudited condensed 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, 2023 and 2022, are unaudited. The balance sheet as of December 31, 2022, was derived from audited financial statements as of and for the year ended December 31, 2022. 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, 2022, 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, 2023, and the results of its operations and its cash flows for the three and nine months ended September 30, 2023 and 2022. 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

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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, 2022.

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.

Cash, Cash Equivalents and Restricted Cash

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


	As of
	September 30,		December 31,
	2023		2022
Cash and cash equivalents	$	324,603	$	243,784
Restricted cash		250		750
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	324,853	$	244,534

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

Investments

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

Interest income generated from our investments and cash equivalents, which is included in interest expense, net, was $3,384 and $8,537 for the three and nine months ended September 30, 2023, respectively, compared to $828 and $1,145 for the three and nine months ended September 30, 2022, respectively.

Concentrations of Risk

Substantially all of the Company’s cash and money market funds are held in four financial institutions. Due to their size, the Company believes these financial institutions represent minimal credit risk. Deposits may

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exceed the amount of insurance provided on such deposits by the Federal Deposit Insurance Corporation for U.S. institutions. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company believes that it is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

The Company is subject to credit risk from its trade receivables related to its product sales. The Company extends credit to specialty pharmaceutical distribution companies within the United States. Customer creditworthiness is monitored, and collateral is not required. Historically, the Company has not experienced credit losses on its accounts receivable. The Company monitors its exposure within accounts receivable and would record a reserve against uncollectible accounts receivable if necessary. As of September 30, 2023, three customers accounted for 100% of gross accounts receivable; Caremark LLC (“CVS Caremark”), which accounted for 37% of gross accounts receivable; Accredo Health Group, Inc. (“Accredo”), which accounted for 37% of gross accounts receivable; and PANTHERx Specialty Pharmacy LLC (“Pantherx”), which accounted for 26% of gross accounts receivable. As of December 31, 2022, three customers accounted for 100% of gross accounts receivable; CVS Caremark, which accounted for 41% of gross accounts receivable, Accredo, which accounted for 35% of gross accounts receivable; and Pantherx, which accounted for 24% of gross accounts receivable.

For the nine months ended September 30, 2023, three customers accounted for 100% of gross product revenues; CVS Caremark accounted for 37% of gross product revenues; Accredo accounted for 32% of gross product revenues; and Pantherx accounted for 31% of gross product revenues. 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.

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

Share Repurchases

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

Recently Issued Accounting Pronouncements

The Company did not adopt any new accounting pronouncements that had a material effect on its condensed consolidated financial statements during the three and nine months ended September 30, 2023.

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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, 2023
		Amortized	Unrealized	Unrealized		Fair
		Cost	Gains	Losses		Value
Short-term:
Commercial paper	$	27,717	1	(13)	$	27,705
Corporate debt securities		16,456	3	(7)		16,452
U.S. government securities		1,915	—	(1)		1,914
Total short-term investments	$	46,088	4	(21)	$	46,071

Long-term:
Commercial paper	$	1,623	—	(2)	$	1,621
Corporate debt securities		39,497	14	(155)		39,356
U.S. government securities		27,079	—	(356)		26,723
Total long-term investments	$	68,199	14	(513)	$	67,700

	December 31, 2022
		Amortized	Unrealized	Unrealized		Fair
		Cost	Gains	Losses		Value
Short-term:
Commercial paper	$	26,553	15	(34)	$	26,534
Corporate debt securities		49,213	9	(73)		49,149
U.S. government securities		3,658	—	(10)		3,648
Total short-term investments	$	79,424	24	(117)	$	79,331

Long-term:
Commercial paper	$	853	1	—	$	854
Corporate debt securities		21,516	11	(68)		21,459
U.S. government securities		257	—	(2)		255
Total long-term investments	$	22,626	12	(70)	$	22,568

The Company classifies investments with an original maturity of less than one year as current and investments with an original maturity date of greater than one year as noncurrent on its unaudited condensed consolidated balance sheet. The investments classified as noncurrent have original maturity dates ranging from 1-2 years. The Company did not have any available-for-sale debt security investments in a continuous unrealized loss position of greater than 12 months as of September 30, 2023 and December 31, 2022, respectively.

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.

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

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

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

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

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

Money market funds are classified as Level 1 fair value instruments. Investments in available-for-sale debt securities are classified as Level 2 and carried at fair value, which we estimate utilizing a third-party pricing service. The pricing service utilizes industry standard valuation models whereby all significant inputs, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, or other market-related data, are observable. We validate valuations obtained from third-party services by obtaining market values from other pricing sources. The Company did not classify any assets or liabilities as Level 3 as of September 30, 2023 or December 31, 2022.

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


	September 30, 2023				December 31, 2022
		Total	Level 1	Level 2		Total	Level 1	Level 2
Assets
Cash equivalents	$	198,135	198,135	—	$	184,977	184,977	—
Commercial paper		29,326	—	29,326		27,388	—	27,388
Corporate debt securities		55,808	—	55,808		70,608	—	70,608
U.S. government securities		28,637	—	28,637		3,903	—	3,903
Total	$	311,906	198,135	113,771	$	286,876	184,977	101,899

6. INVENTORY

Inventory, net consisted of the following:


	As of
	September 30,		December 31,
	2023		2022
Raw materials	$	932	$	838
Work in process		1,833		1,513
Finished goods		2,611		2,565
Inventory, gross		5,376		4,916
Reserve for excess inventory		(289)		(619)
Total inventory, net	$	5,087	$	4,297

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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, 2023, the remaining useful life was 6.0 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, 2023, the remaining useful life was 6.0 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 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, 2023, the remaining useful life was 6.0 years.

Amortization expense was $5,962 and $5,961 for the three months ended September 30, 2023 and 2022, respectively, and $17,884 and $17,005 for the nine months ended September 30, 2023 and 2022, respectively, and is recorded in general and administrative expenses on the unaudited condensed consolidated statements of operations and comprehensive income.

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


Years ending December 31,
2023 (Excluding the nine months ended September 30, 2023)	$	5,961
2024		23,845
2025		23,845
2026		23,845
2027		23,845
Thereafter		41,728
Total	$	143,069

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


	As of
	September 30,		December 31,
	2023		2022
Gross Carrying Amount	$	215,000	$	215,000
Accumulated Amortization		(71,931)		(54,047)
Net Book Value	$	143,069	$	160,953

8. LICENSE AGREEMENTS AND ASSET PURCHASE AGREEMENTS

License Agreements

In July 2017, Harmony entered into a License Agreement (the “2017 LCA”) with Bioprojet Société Civile de Recherche (“Bioprojet”) whereby Harmony acquired the exclusive right to commercialize the pharmaceutical compound pitolisant for the treatment, and/or prevention, of narcolepsy, obstructive sleep apnea, idiopathic hypersomnia, and Parkinson’s disease as well as any other indications unanimously agreed by the parties in the United States and its territories. A milestone payment of $50,000 was due upon acceptance by the FDA of

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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 $29,665 and $20,944 for the three months ended September 30, 2023 and 2022, respectively, and $71,267 and $51,741 for the nine months ended September 30, 2023 and 2022, respectively, for sales-based, trademark and tiered royalties recognized as cost of product sold. As of September 30, 2023 and December 31, 2022, the Company had accrued $29,665 and $25,367, 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 new products based on pitolisant in the United States and Latin America, with the potential to add additional indications and formulations upon agreement of both parties. Harmony paid an initial, non-refundable $30,000 licensing fee in October 2022 and additional payments of up to $155,000 are potentially due under the 2022 LCA upon the achievement of certain future development and sales-based milestones. In addition, there are other payments due upon achievement of development milestones for new indications and formulations as agreed upon by both parties. The 2022 LCA also requires a fixed trademark royalty and a tiered royalty based on net sales upon commercialization, which will be payable to Bioprojet on a quarterly basis.

Agreement Related to Intellectual Property

In August 2021, the Company entered into an asset purchase agreement with ConSynance Therapeutics, Inc. (the “APA”) to acquire HBS-102 (formerly referred to as “CSTI-100”), a potential first-in-class molecule with a novel mechanism of action. Under the terms of the APA, the Company acquired full development and commercialization rights globally, with the exception of Greater China, for $3,500. The Company accounted for the transaction as an asset acquisition as substantially all of the fair value of the assets acquired was concentrated in a single identified asset. In March 2023, the Company achieved a preclinical milestone, which triggered a $750 payment under the provisions of the APA, which the Company recognized as an IPR&D charge recorded in research and development within the unaudited condensed consolidated statement of operations and comprehensive income for the nine months ended September 30, 2023. There are additional payments due under the APA upon the achievement of certain milestones including $1,000 for preclinical milestones, $19,000 for development milestones, $44,000 for regulatory milestones and $110,000 for sales milestones.

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9. ACCRUED EXPENSES

Accrued expenses consist of the following:


	As of
	September 30,		December 31,
	2023		2022
Royalties due to Bioprojet	$	29,665	$	25,367
Rebates and other sales deductions		31,853		27,860
Interest		3,140		3,286
Selling and marketing		2,253		1,135
Research and development		2,190		358
Professional fees, consulting, and other services		1,841		1,163
Other expenses		1,819		773
	$	72,761	$	59,942

10. DEBT

Term Loan A Credit Agreement

On July 26, 2023, the Company entered into a Credit Agreement (the “TLA Credit Agreement”) with JPMorgan Chase Bank, N.A., as “Administrative Agent”, and certain lenders. The TLA Credit Agreement provides for a five-year senior secured term loan (the “TLA Term Loan”) in an aggregate principal amount of $185,000.

On September 21, 2023, the Company entered into the First Incremental Amendment (the “First Incremental Amendment”) with the Administrative Agent and Bank of America, N.A., as incremental lender. The First Incremental Amendment provides for an incremental senior secured term loan (the “Incremental Term Loan”) in an aggregate principal amount of $15,000. The First Incremental Amendment amends the TLA Credit Agreement and provides that the Incremental Term Loan will have identical terms as the TLA Term Loan.

The repayment schedule for both the TLA Term Loan and the Incremental Term Loan (together, the “Term Loans”) consists of quarterly $3,750 principal payments, which commence on December 31, 2023, increasing to quarterly $5,000 principal payments beginning on December 31, 2025, with a $115,000 payment due on the maturity date of July 26, 2028. The Term Loans bear interest at a per annum rate equal to, at the Company’s option, (i) a base rate plus a specified margin ranging from 2.50% to 3.00%, based on the Company’s senior secured net leverage ratio (as defined in the TLA Credit Agreement) or (ii) Term SOFR plus a credit spread adjustment of 0.10% plus a specified margin ranging from 3.50% to 4.00%, based on the Company’s senior secured net leverage ratio.

The net cash received related to the Term Loans as a result of the transactions, less debt issuance costs of $2,997, was $197,003. The debt issuance costs related to the Term Loans will be amortized as additional interest expense over the loan term of the TLA Credit Agreement. The fair value of the Term Loans as of September 30, 2023 was $199,820.

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Blackstone Credit Agreement

In August 2021, the Company entered into the Blackstone Credit Agreement that provided 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”). 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 would pay a ticking fee at a rate of 1% per annum on the undrawn portion of the DDTL (the “Ticking Fee”), which commenced on August 10, 2022.

Net cash received from the Initial Term Loan was $191,849, net of debt issuance costs of $8,151. In addition, the Company paid $1,000 in debt issuance costs relating to the DDTL, which was initially recorded in other current assets within the unaudited condensed consolidated balance sheet.

In connection with the TLA Credit Agreement, the Company extinguished the Blackstone Credit Agreement, which required a payoff amount of $207,308 consisting of principal repayment, interest, exit fees, Ticking Fee and a prepayment premium. The Company recognized a loss on extinguishment of debt of $9,766 relating to the Blackstone Credit Agreement within the Company’s unaudited condensed consolidated statements of operation and comprehensive income for the three and nine months ended September 30, 2023. In addition, the Company recognized $1,972 relating to unamortized debt issuance costs relating to the DDTL and the Ticking Fee, which was recorded in interest expense, net within the unaudited condensed consolidated statement of operations and comprehensive income for the three and nine months ended September 30, 2023.

Long-term debt, net consists of the following:


	September 30,		December 31,
	2023		2022
Liability component - principal	$	200,000	$	197,500
Unamortized debt discount associated with debt financing costs		(2,869)		(5,853)
Liability component - net carrying value		197,131		191,647
Less current portion		(15,000)		(2,000)
Long-term debt, net	$	182,131	$	189,647

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Future minimum payments relating to long-term debt, net as of September 30, 2023, for the periods indicated below consists of the following: