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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 September 30, 2023

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 October 27, 2023, there were 58,571,944 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

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

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)

    

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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