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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, 2024

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 25, 2024, there were 57,031,297 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

26

Item 3. Quantitative and Qualitative Disclosures About Market Risk

41

Item 4. Controls and Procedures

41

Part II. Other Information

42

Item 1. Legal Proceedings

42

Item 1A. Risk Factors

42

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

42

Item 3. Defaults upon Senior Securities

42

Item 4. Mine Safety Disclosures

42

Item 5. Other Information

43

Item 6. Exhibits

44

Signatures

45

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

    

September 30, 

    

December 31, 

    

2024

    

2023

ASSETS

 

  

 

  

CURRENT ASSETS:

 

  

 

  

Cash and cash equivalents

$

387,367

$

311,660

Investments, short-term

23,109

41,800

Trade receivables, net

 

81,502

 

74,140

Inventory, net

 

6,915

 

5,363

Prepaid expenses

 

16,057

 

12,570

Other current assets

 

7,455

 

5,537

Total current assets

 

522,405

 

451,070

NONCURRENT ASSETS:

 

  

 

  

Property and equipment, net

 

750

 

371

Restricted cash

 

270

 

270

Investments, long-term

94,222

72,169

Intangible assets, net

 

119,225

 

137,108

Deferred tax asset

185,016

144,162

Other noncurrent assets

 

6,247

 

6,298

Total noncurrent assets

 

405,730

 

360,378

TOTAL ASSETS

$

928,135

$

811,448

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

CURRENT LIABILITIES:

 

  

 

  

Trade payables

$

10,532

$

17,730

Accrued compensation

 

14,224

 

23,747

Accrued expenses

 

109,673

 

99,494

Current portion of long-term debt

15,000

15,000

Other current liabilities

 

11,850

 

7,810

Total current liabilities

 

161,279

 

163,781

NONCURRENT LIABILITIES:

 

  

 

  

Long-term debt, net

 

167,847

 

178,566

Other noncurrent liabilities

 

2,205

 

2,109

Total noncurrent liabilities

 

170,052

 

180,675

TOTAL LIABILITIES

 

331,331

 

344,456

COMMITMENTS AND CONTINGENCIES (Note 13)

 

  

 

  

STOCKHOLDERS’ EQUITY:

 

  

 

  

Common stock—$0.00001 par value; 500,000,000 shares authorized at September 30, 2024 and December 31, 2023, respectively; 57,030,897 and 56,769,081 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively

 

1

 

1

Additional paid in capital

 

643,563

 

610,266

Accumulated other comprehensive (loss) income

499

2

Accumulated deficit

 

(47,259)

 

(143,277)

TOTAL STOCKHOLDERS’ EQUITY

 

596,804

 

466,992

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

928,135

$

811,448

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

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HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARIES

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, 

    

2024

    

2023

    

2024

    

2023

Net product revenue

$

186,038

$

160,268

$

513,467

$

413,610

Cost of product sold

 

42,778

 

32,296

 

102,406

 

78,084

Gross profit

 

143,260

 

127,972

 

411,061

 

335,526

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

25,387

 

17,499

 

111,159

 

45,757

Sales and marketing

 

27,576

 

23,418

 

83,316

 

70,518

General and administrative

 

28,587

 

22,546

 

81,487

 

67,417

Total operating expenses

 

81,550

 

63,463

 

275,962

 

183,692

Operating income

 

61,710

 

64,509

 

135,099

 

151,834

Loss on debt extinguishment

 

 

(9,766)

 

 

(9,766)

Other (expense) income, net

 

(124)

 

(5)

 

(228)

 

(34)

Interest expense

(4,348)

(7,012)

(13,287)

 

(18,961)

Interest income

 

4,932

 

4,106

 

14,065

 

10,634

Income before income taxes

 

62,170

 

51,832

 

135,649

 

133,707

Income tax expense

 

(16,077)

 

(13,371)

 

(39,631)

 

(31,461)

Net income

$

46,093

$

38,461

$

96,018

$

102,246

Unrealized (loss) income on investments

 

733

 

6

 

497

 

(365)

Comprehensive income

$

46,826

$

38,467

$

96,515

$

101,881

EARNINGS PER SHARE:

 

  

 

  

 

  

 

  

Basic

$

0.81

$

0.64

$

1.69

$

1.71

Diluted

$

0.79

$

0.63

$

1.66

$

1.68

Weighted average number of shares of common stock - basic

 

56,870,234

 

59,863,102

 

56,815,167

 

59,856,941

Weighted average number of shares of common stock - diluted

 

58,103,963

 

60,681,676

 

57,754,016

 

60,892,992

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

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HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARIES

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, 2023

 

56,769,081

$

1

$

610,266

$

2

$

(143,277)

$

466,992

Net income

 

 

 

 

96,018

 

96,018

Unrealized loss on investments

497

497

Exercise of options and restricted stock units

 

261,816

 

 

767

 

 

767

Stock-based compensation

 

 

 

32,530

 

 

32,530

Balance as of September 30, 2024

 

57,030,897

$

1

$

643,563

$

499

$

(47,259)

$

596,804

Accumulated

Additional

other

Total

Common Stock

paid-in

comprehensive

Accumulated

stockholders’

   

Shares

   

Amount

   

capital

   

(loss) income

   

deficit

   

equity

Balance as of June 30, 2024

56,833,771

$

1

$

632,168

$

(234)

$

(93,352)

$

538,583

Net income

 

 

 

 

46,093

 

46,093

Unrealized loss on investments

733

733

Exercise of options

 

197,126

 

 

347

 

 

347

Stock-based compensation

 

 

 

11,048

 

 

11,048

Balance as of September 30, 2024

 

57,030,897

$

1

$

643,563

$

499

$

(47,259)

$

596,804

    

    

  

    

  

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 stock options

 

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

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

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HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share data)

    

Nine Months Ended September 30, 

    

2024

    

2023

CASH FLOWS FROM OPERATING ACTIVITIES

 

  

 

  

Net income

$

96,018

$

102,246

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

 

 

  

Depreciation

 

261

 

350

Intangible amortization

 

17,883

 

17,884

Acquired in-process research & development (IPR&D) expense

42,595

Stock-based and employee stock purchase compensation expense

 

32,530

 

22,842

Stock appreciation rights market adjustment

 

315

 

(531)

Debt issuance costs amortization

 

531

 

2,089

Deferred taxes

(22,586)

(14,542)

Amortization of premiums and accretion of discounts on Investment securities

(1,770)

(2,031)

Loss on debt extinguishment

9,766

Other non-cash expenses

1,619

1,258

Change in operating assets and liabilities:

 

 

  

Trade receivables

 

(7,362)

 

(12,524)

Inventory

 

(1,552)

 

(790)

Prepaid expenses and other assets

 

(4,851)

 

(1,759)

Trade payables

 

(8,596)

 

2,753

Other liabilities

 

(776)

 

15,711

Net cash provided by operating activities

 

144,259

 

142,722

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Purchase of investment securities

(69,604)

(105,856)

Proceeds from maturities and sales of investment securities

68,516

95,687

Purchase of property and equipment

 

(640)

 

(205)

Acquisition of Epygenix Therapeutics, Inc., net of cash acquired

 

(33,069)

 

Payment of license fee

 

(25,500)

 

Net cash used in investing activities

 

(60,297)

 

(10,374)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

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

(11,250)

(1,000)

Repurchase of common stock

(50,000)

Payments of employee withholding taxes related to stock-based awards

(269)

(514)

Proceeds from exercised options

 

3,264

 

4,828

Net cash (used in) provided by financing activities

 

(8,255)

 

(52,029)

NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

75,707

 

80,319

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

 

311,930

 

244,534

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

$

387,637

$

324,853

Supplemental Disclosure of Cash Flow Information:

 

  

 

  

Cash paid during the year for interest

$

13,170

$

15,653

Cash paid during the year for taxes

58,549

36,543

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

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HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARIES

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 subsidiaries (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 subsidiaries, Harmony Biosciences, LLC (“Harmony”), and Harmony Biosciences Management, Inc. The Company is a commercial-stage pharmaceutical company focused on developing and commercializing innovative therapies for patients living with rare neurological disorders as well as patients living with other neurological diseases who have unmet medical needs. The Company is headquartered in Plymouth Meeting, Pennsylvania.

On October 10, 2023, the Company completed a tender offer to acquire all of the outstanding shares of common stock of Zynerba Pharmaceuticals, Inc. (together with its subsidiary, Zynerba Pharmaceutical Pty, Ltd., “Zynerba”). Zynerba was a clinical-stage pharmaceutical company focused on innovative pharmaceutically produced transdermal cannabidiol therapies for orphan neurobehavioral disorders, including Fragile X Syndrome. As of July 1, 2024, Zynerba was renamed and is known as Harmony Biosciences Management, Inc.

On April 30, 2024, the Company acquired all of the issued and outstanding capital stock of Epygenix Therapeutics, Inc., a Wyoming corporation (“Epygenix”). As a result, the Company now has an exclusive license relating to the use of clemizole, initially for the treatment of Dravet Syndrome and Lennox-Gastaut Syndrome.

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 $47,259 and $143,277, as of September 30, 2024, and December 31, 2023, respectively. As of September 30, 2024, the Company had cash, cash equivalents and investments of $504,698.

The Company believes that its existing cash, cash equivalents and investments on hand as of September 30, 2024, as well as additional cash generated from operating and financing activities will meet its operational liquidity needs and fund potential 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, 2024, the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2024, and 2023, 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, 2024, and 2023, are

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unaudited. The balance sheet as of December 31, 2023, was derived from audited financial statements as of and for the year ended December 31, 2023. 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, 2023, 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, 2024, and the results of its operations and its cash flows for the three and nine months ended September 30, 2024, and 2023. 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, 2023.

Reclassifications

Certain prior period amounts within the unaudited condensed consolidated statements of operations and comprehensive income have been reclassified to conform to current period presentation. In particular, interest expense and interest income were previously classified together as interest expense, net and are now separately classified as interest expense and interest income, respectively. The reclassification of these items had no impact on net income, earnings per share or accumulated deficit in current or prior periods.

Significant Risks and Uncertainties

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to, clinical trial results of the Company’s product candidates; the Company’s ability to obtain regulatory approval to market its products; competition from products manufactured and sold or being developed by other companies, including generic competition; the price of, and demand for, the Company’s products, if approved; the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its product candidates.

The Company currently has one commercially approved product, WAKIX, and there can be no assurance that the Company’s research and development efforts will result in successfully commercialized products in addition to WAKIX. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting intellectual property.

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.

Operating Segments

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Makers in deciding how to allocate resources to an individual segment and in assessing performance. The Company has determined it operates in a single operating segment and has one reportable segment. The Company holds all its tangible assets, conducts its operations, and generates its revenue in the United States.

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Fair Value of Financial Instruments

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.

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, 2024, or December 31, 2023.

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, 

2024

2023

Cash and cash equivalents

$

387,367

$

311,660

Restricted cash

 

270

 

270

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

$

387,637

$

311,930

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

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component of accumulated comprehensive income in stockholders’ equity. Interest income earned on cash and investment balances, accretion of the discount on investments in debt securities, amortization of premiums and realized gains and losses, if any, are recorded in interest income 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 five 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. 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, 2024, three customers accounted for 100% of gross accounts receivable; Caremark LLC (“CVS Caremark”), which accounted for 34% of gross accounts receivable; Accredo Health Group, Inc. (“Accredo”), which accounted for 34% of gross accounts receivable; and PANTHERx Specialty Pharmacy LLC (“Pantherx”), which accounted for 32% of gross accounts receivable. As of December 31, 2023, three customers accounted for 100% of gross accounts receivable; Accredo, which accounted for 39% of gross accounts receivable, CVS Caremark, which accounted for 32% of gross accounts receivable; and Pantherx, which accounted for 29% of gross accounts receivable.

For the nine months ended September 30, 2024, three customers accounted for 100% of gross product revenue; CVS Caremark accounted for 40% of gross product revenue; Accredo accounted for 33% of gross product revenue; and Pantherx accounted for 27% of gross product revenue. For the nine months ended September 30, 2023, three customers accounted for 100% of gross product revenue; CVS Caremark accounted for 37% of gross product revenue; Accredo accounted for 32% of gross product revenue; and Pantherx accounted for 31% of gross product revenue.

The Company depends on a single supplier of the active pharmaceutical ingredient (“API”) for its commercial product, WAKIX, and single API suppliers for each of its potential product candidates.

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.

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Business Combinations

Business combinations and asset acquisitions are accounted for in accordance with FASB ASC 805 Business Combinations. Refer to Note 4, Acquisitions, for a more detailed discussion of the Company’s acquisitions of Zynerba and Epygenix.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 is intended to improve reportable segment disclosures primarily through enhanced disclosure of reportable segment expenses and requires that a public entity that has a single reportable segment provide all the disclosures required by ASU 2023-07 and all existing segment disclosures in Topic 280. This ASU is effective for annual reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 is required to be applied retrospectively to all prior periods presented in the financial statements. The Company has one reportable segment and is currently evaluating the impact that ASU 2023-07 will have on its condensed consolidated financial statements.

In December 2023, the FASB issued Accounting Standards Update (“ASU”) No 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 expands disclosures in the rate reconciliation and requires disclosure of income taxes paid by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that ASU 2023-09 will have on its condensed consolidated financial statements.

4. ACQUISITIONS

Acquisition of Zynerba

In October 2023, the Company completed a tender offer to purchase the outstanding common stock of Zynerba (“Zynerba Common Stock”) for (i) $1.1059 per share of Zynerba Common Stock (the “Common Cash Amount”), the aggregate amount of which was $60,000 and was paid at closing, plus (ii) one contingent value right (each, a “CVR”) per share of Zynerba Common Stock (the “Common CVR Amount”), which represents the right to receive up to approximately $2.5444 per share of Zynerba Common Stock, subject to the achievement of certain clinical, regulatory and sales-based milestones. The Common CVR Amounts are to be paid in cash, subject to any applicable withholding of taxes and without interest. The aggregate amount of consideration to acquire Zynerba Common Stock was $60,000, excluding transaction related fees of $2,645 and was paid by the Company using cash on hand.

The Zynerba Acquisition was accounted for as an asset acquisition under ASC Topic 805, Business Combinations, because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable IPR&D asset, ZYN002, Zynerba’s lead asset. ZYN002 is the first and only pharmaceutically manufactured, synthetic cannabidiol, devoid of THC, formulated as a patent-protected permeation-enhanced gel for transdermal delivery through the skin and into the circulatory system and is currently in Phase III clinical trial for the potential treatment of Fragile X Syndrome. The Company recognized the acquired assets and assumed liabilities based on the consideration paid, including transaction costs, on a relative fair value basis, and after first allocating the preliminary excess of the fair value of net assets acquired over the purchase price consideration to certain qualifying assets, principally, the IPR&D asset.

Acquisition of Epygenix

On April 30, 2024, the Company acquired all of the issued and outstanding capital stock of Epygenix pursuant to the terms of a stock purchase agreement. The Company paid the former stockholders of Epygenix up front consideration of $35,000 less a working capital adjustment. In addition, the Company will be obligated

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to pay up to $130,000 upon the achievement of development and regulatory milestones and up to $515,000 upon the achievement of certain sales-based milestones, in each case to Epygenix’s former stockholders. As a result, the Company now has an exclusive license relating to the use of clemizole, initially for the treatment of Dravet Syndrome and Lennox-Gastaut Syndrome.

The total purchase consideration for Epygenix was as follows:

Cash consideration paid to selling shareholders and to settle restricted stock units ("RSUs")

$

32,686

Transaction costs

450

Total purchase consideration

$

33,136

The acquisition of Epygenix was accounted for as an asset acquisition under ASC Topic 805, Business Combinations. The Company did not acquire any outputs and there was not an acquired substantive process in place to create outputs. The Company recognized the acquired assets and assumed liabilities based on the consideration paid, including transaction costs, on a relative fair value basis, and after first allocating the preliminary excess of the fair value of net assets acquired over the purchase price consideration to certain qualifying assets, principally, the IPR&D asset. In accordance with the accounting for asset acquisitions, an entity that acquires IPR&D assets in an asset acquisition follows the guidance in ASC Topic 730, Research and Development, which requires that both tangible and intangible identifiable research and development assets with no alternative future use be allocated a portion of the consideration transferred and recorded as research and development expense at the acquisition date. As a result, the Company recorded a charge of $17,095 related to acquired in-process research and development expense during the nine months ended September 30, 2024.

The following table shows the allocation of the purchase consideration based on the relative fair value of assets acquired and liabilities assumed by the Company, after reducing the excess fair value of the IPR&D asset as described above:

Assets acquired

Acquired in-process research and development

$

17,095

Deferred tax asset

18,268

Other assets

590

Total assets acquired

$

35,953

Total liabilities assumed

$

2,817

Net assets acquired

$

33,136

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5. 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, 2024

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

Short-term:

Commercial paper

$

10,259

21

$

10,280

Corporate debt securities

12,804

25

12,829

Total short-term investments

$

23,063

46

$

23,109

Long-term:

Corporate debt securities

67,722

453

(3)

68,172

U.S. government securities

26,047

24

(21)

26,050

Total long-term investments

$

93,769

477

(24)

$

94,222

December 31, 2023

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

Short-term:

Commercial paper

$

23,832

36

(3)

$

23,865

Corporate debt securities

15,968

28

15,996

U.S. government securities

1,940

(1)

1,939

Total short-term investments

$

41,740

64

(4)

$

41,800

Long-term:

Commercial paper

$

744

$

744

Corporate debt securities

42,688

81

(28)

42,741

U.S. government securities

28,795

7

(118)

28,684

Total long-term investments

$

72,227

88

(146)

$

72,169

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, 2024, and December 31, 2023, respectively.

6. FAIR VALUE MEASUREMENTS

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, 2024, or December 31, 2023.

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

September 30, 2024

December 31, 2023

Total

Level 1

Level 2

Total

Level 1

Level 2

Assets

Cash equivalents

$

296,384

296,384

$

244,569

243,685

884

Commercial paper

10,280

10,280

24,609

24,609

Corporate debt securities

81,001

81,001

58,737

58,737

U.S. government securities

26,050

26,050

30,623

30,623

Total

$

413,715

296,384

117,331

$

358,538

243,685

114,853

7. INVENTORY

Inventory, net consisted of the following:

    

As of

    

September 30, 

    

December 31, 

2024

2023

Raw materials

$

1,033

$

1,060

Work in process

 

2,549

 

2,020

Finished goods

 

3,333

 

2,283

Total inventory, net

$

6,915

$

5,363

8. 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, 2024, the remaining useful life was 5.0 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, 2024, the remaining useful life was 5.0 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, 2024, the remaining useful life was 5.0 years.

Amortization expense was $5,961 and $5,962 for the three months ended September 30, 2024, and 2023, respectively, and $17,883 and $17,884 for the nine months ended September 30, 2024, and 2023, respectively, and is recorded in general and administrative on the unaudited condensed consolidated statements of operations and comprehensive income.

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

Years ending December 31, 

    

2024 (excluding the nine months ended September 30, 2024)

$

5,961

2025

 

23,845

2026

 

23,845

2027

 

23,845

2028

 

23,845

Thereafter

17,884

Total

$

119,225

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

    

As of

    

September 30, 

    

December 31, 

2024

2023

Gross Carrying Amount

$

215,000

$

215,000

Accumulated Amortization

 

(95,775)

 

(77,892)

Net Book Value

$

119,225

$

137,108

9. LICENSE AGREEMENTS AND ASSET PURCHASE AGREEMENTS

Bioprojet 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 $40,295 and $29,665 for the three months ended September 30, 2024, and 2023, respectively, and $95,232 and $71,267 for the nine months ended September 30, 2024, and 2023, respectively, for sales-based, trademark and tiered royalties recognized as cost of product sold. As of September 30, 2024, and December 31, 2023, the Company had accrued $40,295 and $40,419, respectively, for sales-based, trademark and tiered royalties.  

In July 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

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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.

In April 2024, the Company announced that it entered into a sublicense agreement with Bioprojet for an orexin-2 receptor agonist (OX2R) (the “Licensed Compound”) to be evaluated for the treatment of narcolepsy and other potential indications (the “Sublicense”). Under the Sublicense, the Company obtained the exclusive right to develop, manufacture and commercialize the Licensed Compound in the United States and Latin American territories (the “Licensed Territories”), which are rights that Bioprojet originally licensed from Teijin Pharma, the innovator of the Licensed Compound. The Licensed Compound is currently in pre-clinical development with a Clinical Trial Application currently anticipated in mid-2025. Under the Sublicense, the Company paid Bioprojet an upfront license fee of $25,500, which the Company recognized as an IPR&D charge recorded in research and development within the unaudited condensed consolidated statements of operations and comprehensive income for the nine months ended September 30, 2024, and will also be obligated to pay up to $127,500 upon achievement of development and regulatory milestones and up to $240,000 upon achievement of sales-based milestones, as well as royalty rates in the mid-teens on any sales of product using the Licensed Compound in the Licensed Territories.

ConSynance Agreement

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. In September 2024, the Company achieved a milestone for preclinical proof-of-concept, which triggered a $1,000 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 three and nine months ended September 30, 2024. There are additional payments due under the APA upon the achievement of certain milestones including $19,000 for development milestones, $44,000 for regulatory milestones and $110,000 for sales milestones.

10. ACCRUED EXPENSES

Accrued expenses consist of the following:

    

As of

    

September 30, 

    

December 31, 

2024

2023

Royalties due to Bioprojet

$

40,295

$

40,419

Rebates and other sales deductions

 

45,837

 

38,842

Interest

2,941

3,354

Sales and marketing

 

3,507

 

2,354

Research and development

 

8,011

 

9,835

Milestone payments

 

1,000

 

Professional fees, consulting, and other services

 

5,241

 

2,195

Other expenses

 

2,841