UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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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
As of April 26, 2024, there were
TABLE OF CONTENTS
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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)
| March 31, |
| December 31, | |||
| 2024 |
| 2023 | |||
ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents | $ | | $ | | ||
Investments, short-term | | | ||||
Trade receivables, net |
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Inventory, net |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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NONCURRENT ASSETS: |
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Property and equipment, net |
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Restricted cash |
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Investments, long-term | | | ||||
Intangible assets, net |
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Deferred tax asset | | | ||||
Other noncurrent assets |
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Total noncurrent assets |
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TOTAL ASSETS | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Trade payables | $ | | $ | | ||
Accrued compensation |
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Accrued expenses |
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Current portion of long-term debt | | | ||||
Other current liabilities |
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Total current liabilities |
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NONCURRENT LIABILITIES: |
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Long-term debt, net |
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Other noncurrent liabilities |
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Total noncurrent liabilities |
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TOTAL LIABILITIES |
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COMMITMENTS AND CONTINGENCIES (Note 13) |
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STOCKHOLDERS’ EQUITY: |
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Common stock—$ |
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Additional paid in capital |
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Accumulated other comprehensive (loss) income | ( | | ||||
Accumulated deficit |
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TOTAL STOCKHOLDERS’ EQUITY |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | | $ | | ||
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 March 31, | |||||||
| 2024 |
| 2023 |
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$ | | $ | | ||||
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Operating income |
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Other (expense) income, net |
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Interest expense | ( | ( | |||||
Interest income |
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Income before income taxes |
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Income tax expense |
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Net income | $ | | $ | | |||
Unrealized (loss) income on investments |
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Comprehensive income | $ | | $ | | |||
EARNINGS PER SHARE: |
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Basic | $ | | $ | | |||
Diluted | $ | | $ | | |||
Weighted average number of shares of common stock - basic |
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Weighted average number of shares of common stock - diluted |
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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 |
| | $ | | $ | | $ | | $ | ( | $ | | |||||
Net income |
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Unrealized loss on investments | — | — | — | ( | — | ( | |||||||||||
Exercise of options and restricted stock units |
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Stock-based compensation |
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Balance as of March 31, 2024 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
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Additional | other | Total | |||||||||||||||
Common Stock | paid-in | comprehensive | Accumulated | stockholders’ | |||||||||||||
| Shares |
| Amount |
| capital | (loss) income |
| deficit |
| equity | |||||||
Balance as of December 31, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
Net income |
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Unrealized loss on investments | — | — | — | | — | | |||||||||||
Exercise of stock options |
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Stock-based compensation |
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Balance as of March 31, 2023 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
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)
| Three Months Ended March 31, | |||||
| 2024 |
| 2023 | |||
CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash used in operating activities: |
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Depreciation |
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Intangible amortization |
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Stock-based and employee stock purchase compensation expense |
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Stock appreciation rights market adjustment |
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Debt issuance costs amortization |
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Deferred taxes | ( | ( | ||||
Amortization of premiums and accretion of discounts on Investment securities | ( | ( | ||||
Other non-cash expenses | | | ||||
Change in operating assets and liabilities: |
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Trade receivables |
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Inventory |
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Prepaid expenses and other assets |
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Trade payables |
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Other liabilities |
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Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of investment securities | ( | ( | ||||
Proceeds from maturities and sales of investment securities | | | ||||
Purchase of property and equipment |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Principal repayment of long term debt | ( | ( | ||||
Proceeds from exercised options |
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Net cash (used in) provided by financing activities |
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NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH |
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CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period |
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CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period | $ | | $ | | ||
Supplemental Disclosure of Cash Flow Information: |
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Cash paid during the year for interest | $ | | $ | | ||
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 subsidiary, Harmony Biosciences, LLC (“Harmony”), and Zynerba Pharmaceuticals, 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 is a clinical-stage pharmaceutical company focused on innovative pharmaceutically produced transdermal cannabidiol therapies for orphan neuropsychiatric disorders, including Fragile X 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 $
The Company believes that its existing cash, cash equivalents and investments on hand as of March 31, 2024, 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 March 31, 2024, the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 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 months ended March 31, 2024, and 2023, are 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 March 31, 2024, and the results of
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its operations and its cash flows for the three months ended March 31, 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; 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
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
The Company holds all its tangible assets, conducts its operations, and generates its revenue in the United States. Operating segments are defined as comp
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.
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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 March 31, 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.
| As of | |||||
| March 31, |
| December 31, | |||
2024 | 2023 | |||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash |
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Total cash, cash equivalents, and restricted cash shown in the statements of cash flows | $ | | $ | | ||
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. 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.
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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
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 March 31, 2024,
For the three months ended March 31, 2024,
The Company depends on a single supplier for its product and a single supplier for its 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.
Business Combinations
Business combinations and asset acquisitions are accounted for in accordance with FASB ASC 805 Business Combinations. Refer to Note 4, Acquisition, for a more detailed discussion of the Zynerba Acquisition.
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
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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
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. ACQUISITION
In October 2023, the Company completed a tender offer to purchase the outstanding common stock of Zynerba (“Zynerba Common Stock”) for (i) $
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, a non-euphoric cannabidiol, 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.
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:
March 31, 2024 | |||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||
Cost | Gains | Losses | Value | ||||||
Short-term: | |||||||||
Commercial paper | $ | | | ( | $ | | |||
Corporate debt securities | | | ( | | |||||
Total short-term investments | $ | | | ( | $ | | |||
Long-term: | |||||||||
Corporate debt securities | | | ( | | |||||
U.S. government securities | | — | ( | | |||||
Total long-term investments | $ | | | ( | $ | | |||
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December 31, 2023 | |||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||
Cost | Gains | Losses | Value | ||||||
Short-term: | |||||||||
Commercial paper | $ | | | ( | $ | | |||
Corporate debt securities | | | — | | |||||
U.S. government securities | | — | ( | | |||||
Total short-term investments | $ | | | ( | $ | | |||
Long-term: | |||||||||
Commercial paper | $ | | — | — | $ | | |||
Corporate debt securities | | | ( | | |||||
U.S. government securities | | | ( | | |||||
Total long-term investments | $ | | | ( | $ | | |||
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
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 March 31, 2024, or December 31, 2023.
The Company’s assets measured at fair value consisted of the following:
March 31, 2024 | December 31, 2023 | ||||||||||||
Total | Level 1 | Level 2 | Total | Level 1 | Level 2 | ||||||||
Assets | |||||||||||||
Cash equivalents | $ | | | — | $ | | | | |||||
Commercial paper | | — | | | — | | |||||||
Corporate debt securities | | — | | | — | | |||||||
U.S. government securities | | — | | | — | | |||||||
Total | $ | | | | $ | | | | |||||
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7. INVENTORY
Inventory, net consisted of the following:
| As of | |||||
| March 31, |
| December 31, | |||
2024 | 2023 | |||||
Raw materials | $ | | $ | | ||
Work in process |
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Finished goods |
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Total inventory, net | $ | | $ | | ||
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 $
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 $
In February 2022, the Company attained $
Amortization expense was $
The Company expects the future annual amortization expense for the unamortized intangible assets to be as follows:
Years ending December 31, |
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2024 (excluding the three months ended March 31, 2024) | $ | | |
2025 |
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2026 |
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2027 |
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2028 |
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Thereafter | | ||
Total | $ | |
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The gross carrying amount and net book value of the intangible asset is as follows:
| As of | |||||
| March 31, |
| December 31, | |||
2024 | 2023 | |||||
Gross Carrying Amount | $ | | $ | | ||
Accumulated Amortization |
| ( |
| ( | ||
Net Book Value | $ | | $ | | ||
9. 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 $
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 $
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 $
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additional payments due under the APA upon the achievement of certain milestones including $
10. ACCRUED EXPENSES
Accrued expenses consist of the following:
| As of | |||||
| March 31, |
| December 31, | |||
2024 | 2023 | |||||
Royalties due to Bioprojet | $ | | $ | | ||
Rebates and other sales deductions |
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Interest | | | ||||
Sales and marketing |
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Research and development |
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Professional fees, consulting, and other services |
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Other expenses |
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$ | | $ | | |||
11. DEBT
Term Loan A Credit Agreement
In July 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
In September 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 $
The repayment schedule for both the TLA Term Loan and the Incremental Term Loan (together, the “Term Loans”) consists of quarterly $
The net cash received related to the Term Loans as a result of the transactions, less debt issuance costs of $
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Long-term debt, net consists of the following:
| March 31, |
| December 31, | |||
2024 | 2023 | |||||
Principal amount | $ | | $ | | ||
Unamortized debt discount associated with debt financing costs |
| ( |
| ( | ||
Total debt, net | | | ||||
Less current portion | ( | ( | ||||
Long-term debt, net | $ | | $ | | ||
Future minimum payments relating to total debt, net as of March 31, 2024, for the periods indicated below consists of the following:
Years ending December 31, | |||
2024 (excluding the three months ended March 31, 2024) | $ | | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
2028 |
| | |
Thereafter | — | ||
Total | $ | |
Interest expense related to the Company’s long-term debt, net, is included in interest expense within the unaudited condensed consolidated statements of operations and comprehensive income and consists of the following:
Three Months Ended | ||||||
March 31, | ||||||
2024 |
| 2023 | ||||
Interest on principal balance | $ | | $ | | ||
Amortization of deferred financing costs |
| |
| | ||
Total term loan interest expense | $ | | $ | | ||
12. LEASES
In June 2018, the Company entered into an operating lease for approximately
Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future lease payments using our incremental borrowing rate. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Our leases have remaining lease terms of less than
The Company recorded operating lease costs of $
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As of March 31, 2024, the weighted-average remaining lease term for operating leases was
Supplemental balance sheet information related to operating leases was as follows:
Leases | Classification | March 31, 2024 |
| December 31, 2023 | ||
Assets | ||||||
Operating lease right-of-use assets | $ | | $ | | ||
Liabilities | ||||||
Operating lease liability, current portion | $ | | $ | | ||
Operating lease liability, long-term | | | ||||
Total operating lease liabilities | $ | | $ | |
Supplemental cash flow information related to operating leases was as follows:
March 31, 2024 | March 31, 2023 | ||||
Operating cash flows from operating leases | $ | | $ | | |
Right of use assets obtained in exchange for operating lease obligations | $ | | $ | |
Future payments under noncancelable operating leases with initial terms of one year or more as of March 31, 2024, consisted of the following:
Years ending December 31, |
| ||
2024 (excluding the three months ended March 31, 2024) | $ | | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
2028 |
| - | |
Thereafter |
| - | |
Total lease payments | | ||
Less: imputed interest | ( | ||
Total lease liabilities | $ | |
13. COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, the Company is subject to claims and suits arising in the ordinary course of business. The Company accrues such liabilities when they are known, if they are deemed probable and can be reasonably estimated. As of March 31, 2024, there were no material claims or suits outstanding.
14. STOCKHOLDERS’ EQUITY
Common Stock
The holders of common stock are entitled to
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Share Repurchase Program
In October 2023, the Company’s Board of Directors approved a share repurchase program (the “October 2023 Repurchase Program”) providing for the repurchase of shares of common stock in an aggregate amount of up to $
15. STOCK INCENTIVE PLAN AND STOCK-BASED COMPENSATION
2020 Stock Incentive Plan
In August 2020, the Company adopted, and its stockholders approved, the 2020 Incentive Award Plan (the “2020 Plan”), in order to facilitate the grant of cash and equity incentives to directors, employees (including the Company’s named executive officers) and consultants of the Company and its subsidiaries. The 2020 Plan provides for the grant of stock options, including incentive stock options (“ISOs”) and non-qualified stock options (“NSOs”), SARs, restricted stock, dividend equivalents, restricted stock units (“RSUs”) and other stock or cash-based awards.
Stock options and stock appreciation rights under the 2020 Plan have a contractual term and vest over the vesting period specified in the applicable award agreement, at achievement of a performance requirement, or upon change of control (as defined in the applicable plan). RSUs vest over the vesting period specified in the applicable award agreement, at achievement of a performance requirement, or upon change of control (as defined in the applicable plan). As of March 31, 2024, there were
2017 Stock Incentive Plan
In August 2017, the Company adopted an equity incentive plan (the “2017 Plan”). Under the 2017 Plan, directors, officers, employees, consultants, and advisors of the Company can be paid incentive compensation measured by the value of the Company’s shares of common stock through grants of stock options, stock appreciation rights (“SARs”), or restricted stock. Following the adoption of the 2020 Plan, no further grants have been, or will be, made under the 2017 Plan. However, the 2017 Plan will continue to govern the terms and conditions of outstanding awards granted under it.
Stock Options
The following table summarizes stock option activity for the three months ended March 31, 2024:
|
|
| Weighted- | ||||
Weighted- | Average | ||||||
Average | Remaining | ||||||
Number of | Exercise | Contractual | |||||
| Awards |
| Price |
| Term | ||
Awards outstanding—December 31, 2023 |
| | $ | |
| ||
Awards issued |
| | $ | |
|
| |
Awards exercised |
| ( | $ | |
|
| |
Awards forfeited |
| ( | $ | |
|
| |
Awards outstanding—March 31, 2024 |
| | $ | |
| ||
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Stock Appreciation Rights
The following table summarizes SARs activity for the three months ended March 31, 2024:
|
|
| Weighted- | ||||
Weighted- | Average | ||||||
Average | Remaining | ||||||
Number of | Exercise | Contractual | |||||
| Awards |
| Price |
| Term | ||
Awards outstanding—December 31, 2023 |
| | $ | |
| ||
Awards issued |
| — | $ | — |
|
| |
Awards exercised |
| — | $ | — |
|
| |
Awards forfeited |
| — | $ | — |
|
| |
Awards outstanding—March 31, 2024 |
| | $ | |
| ||
Restricted Stock Units
The following table summarizes RSU activity for the three months ended March 31, 2024:
|
| ||||
Weighted- | |||||
Average | |||||
Number of | Grant Date | ||||
| Awards |
| Fair Value | ||
Awards outstanding—December 31, 2023 |
| | $ | | |
Awards issued |
| | $ | | |
Awards vested |
| ( | $ | | |
Awards forfeited |
| ( | $ | | |
Awards outstanding—March 31, 2024 |
| | $ | | |
As of March 31, 2024, and December 31, 2023, stock awards issued under the 2017 and 2020 Plans of
Value of Stock Options and SARs
The Company values options and SARs using the Black-Scholes option-pricing model. The Company lacks sufficient historical company-specific volatility information. Therefore, the Company estimates expected stock volatility based on historical volatility of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. For SARs, the expected term is based upon the weighting of certain future events. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for the time periods approximately equal to the expected term of the award. An expected dividend yield of
The assumptions used to value the awards are summarized in the following table.
As of | |||||
| March 31, |
| December 31, | ||
| 2024 |
| 2023 | ||
Dividend yield |
| | % | | % |
Expected volatility |
| % | % | ||
Risk-free interest rate |
| % | % | ||
Lack of marketability discount |
| | % | | % |
Expected term (years) |
|
| |||
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Value of RSUs
The fair value of RSUs is equal to the value of the Company’s common stock on the grant date.
The weighted average per share fair value of awards issued under the 2017 Plan and 2020 Plan was $
Stock-Based Compensation Expense
Stock-based compensation expense for the three months ended March 31, 2024, and 2023, was recorded in the unaudited condensed consolidated statements of operations and comprehensive income in the following line items:
| Three Months Ended March 31, | |||||
| 2024 |
| 2023 | |||
Research and development expense | $ | | $ | | ||
Sales and marketing expense |
| |
| | ||
General and administrative expense |
| |
| | ||
$ | | $ | | |||
Stock-based compensation expense related to options and RSUs issued under the 2017 Plan and 2020 Plan is included in stockholder’s equity, and a liability for SARs is included in other non-current liabilities, in the Company’s unaudited condensed consolidated balance sheet. As of March 31, 2024, the total unrecognized stock-based compensation expense was $
Employee Stock Purchase Plan
The 2020 Employee Stock Purchase Plan (“ESPP”) was adopted by the Company’s Board of Directors on April 30, 2021. The ESPP permits eligible employees to purchase shares of the Company’s common stock at a
16. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted net income per share of common is computed under the treasury stock method by using the weighted average number of shares of common stock outstanding, plus, for periods with net income, the potential dilutive effects of stock options, stock appreciation rights and restricted stock units.
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The following table sets forth the computation of basic and diluted net income per share:
| Three Months Ended March 31, | |||||
2024 |
| 2023 | ||||
Numerator |
|
|
|
| ||
Net income | $ | | $ | | ||
Denominator |
|
|
|
| ||
Net income per share of common stock - basic | $ | | $ | | ||
Net income per share of common stock- diluted | $ | | $ | | ||
Weighted average number of shares of common stock - basic |
| |
| | ||
Weighted average number of shares of common stock - diluted |
| |
| | ||
Securities outstanding that were included in the computation above, utilizing the treasury stock method are as follows:
| Three Months Ended March 31, | |||||
2024 |
| 2023 | ||||
Stock options, SARs, and RSUs to purchase common stock | | | ||||
Potential shares of common stock issuable that were excluded from the computation of diluted weighted-average shares outstanding excluded from the numerator, are as follows:
| Three Months Ended March 31, | |||||
2024 |
| 2023 | ||||
Stock options, SARs, and RSUs to purchase common stock |
| |
| | ||
17. INCOME TAXES
A reconciliation between the statutory federal income tax rate and the Company’s effective income tax rate for the three months ended March 31, 2024, and 2023 is as follows:
Three Months Ended March 31, | ||||
2024 |
| 2023 | ||
Federal income tax rate | | % | | % |
Stock-based compensation | — | ( | ||
State taxes | | | ||
Credits | ( | ( | ||
Other | | | ||
Valuation allowance | | — | ||
Total | | % | | % |
18. RELATED-PARTY TRANSACTIONS
The Company was party to a management agreement for professional services provided by a related party, Paragon Biosciences, LLC (“Paragon”). Paragon is an entity that shares common ownership with the Company. In addition, the Chairman of the Company’s board of directors is the Founder, Chairman and CEO of Paragon. The Company is also party to a right of use agreement with Paragon whereby it has access to and the right to use certain office space leased by Paragon in Chicago, IL. The Company incurred $
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19. SUBSEQUENT EVENTS
On April 11, 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 an Investigational New Drug application currently anticipated in the second half 2025. Under the Sublicense, the Company paid Bioprojet an upfront license fee of $
On April 30, 2024, the Company announced that its subsidiary, Zynerba, acquired all of the issued and outstanding capital stock of Epygenix Therapeutics, Inc., a Wyoming corporation (“Epygenix”), pursuant to the terms of a stock purchase agreement. In connection with the closing of the transaction, Zynerba paid the former stockholders of Epygenix up front consideration of $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy, products, prospective products, product approvals, research and development costs, anticipated timing and likelihood of success of clinical trials, expected timing of the release of clinical trial data, the plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, statements about:
| ● | our commercialization efforts and strategy for WAKIX; |
| ● | the rate and degree of market acceptance and clinical utility of pitolisant in additional indications, if approved, and any other product candidates we may develop or acquire, if approved; |
| ● | our research and development plans, including our plans to explore the therapeutic potential of pitolisant in additional indications; |
| ● | our ongoing and planned clinical trials; |
| ● | our ability to expand the scope of our license agreements with Bioprojet Société Civile de Recherche (“Bioprojet”); |
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| ● | the availability of favorable insurance coverage and reimbursement for WAKIX; |
| ● | the timing of, and our ability to obtain, regulatory approvals for pitolisant for other indications as well as any other product candidates; |
| ● | our estimates regarding expenses, future revenue, capital requirements and additional financing needs; |
| ● | our ability to identify, acquire and integrate additional products or product candidates with significant commercial potential that are consistent with our commercial objectives; |
| ● | our commercialization, marketing and manufacturing capabilities and strategy; |
| ● | significant competition in our industry; |
| ● | our intellectual property position; |
| ● | loss or retirement of key members of management; |
| ● | failure to successfully execute our growth strategy, including any delays in our planned future growth; |
| ● | our failure to maintain effective internal controls; and |
| ● | the impact of government laws and regulations. |
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the section in our most recent Annual Report on Form 10-K entitled “Item 1A. Risk Factors” and the sections in this Quarterly Report on Form 10-Q titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.
Unless otherwise indicated, information contained in this Quarterly Report on Form 10-Q concerning our industry, including industry statistics and forecasts, competitive position and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data, and our experience in, and knowledge of, such industry and markets, which we believe to be reasonable. In addition, projections, forecasts, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed and forecasts in the estimates made by the independent parties and by us.
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You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
As used herein, the terms “Harmony,” “we,” “us,” “our” and “the Company” refer to Harmony Biosciences Holdings, Inc., a Delaware corporation and our operating subsidiary, Harmony Biosciences, LLC.
Further, we have in-licensed from Bioprojet the registered trademark product name WAKIX® in the United States. We also have registered trademark protection in the United States for KNOW NARCOLEPSY®, REM AT THE WRONG TIME® and NON-REM AT THE WRONG TIME®, as well as our brand and logo HB®, HB HARMONY BIOSCIENCES® and HARMONY BIOSCIENCES®. This report also includes trademarks, service marks and trade names of other companies. Trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.
Company Overview
We are 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. Our product, WAKIX (pitolisant), is a first-in-class molecule with a novel mechanism of action (“MOA”) specifically designed to increase histamine signaling in the brain by binding to H3 receptors. In August 2019, WAKIX was approved by the U.S. Food and Drug Administration (the “FDA”) for the treatment of excessive daytime sleepiness (“EDS”) in adult patients with narcolepsy, and its U.S. commercial launch was initiated in November 2019. In October 2020, WAKIX was approved by the FDA for the treatment of cataplexy in adult patients with narcolepsy. WAKIX is the first-and-only approved product for patients with narcolepsy that is not scheduled as a controlled substance by the U.S. Drug Enforcement Administration (the “DEA”).
We believe that pitolisant’s ability to regulate histamine gives it the potential to provide therapeutic benefit in other rare neurological diseases that are mediated through H3 receptors and histamine signaling. We are taking a mechanism-based approach to managing the life cycle of pitolisant and identified idiopathic hypersomnia (“IH”), another central disorder of hypersomnolence like narcolepsy, as our next potential new indication for WAKIX, which received orphan drug designation by the FDA in September 2023 and Fast Track Designation in November 2023. In April 2022, we initiated a Phase 3 registrational trial, the INTUNE Study, to evaluate the efficacy and safety of pitolisant in adult patients with IH. We completed enrollment in the INTUNE study in May 2023 and we announced topline data in October 2023. While the primary endpoint did not meet statistical significance, we believe the totality of the data showed favorable numerical trends for pitolisant in the treatment of adult patients with IH and we met with the FDA in March 2024 to discuss the path forward for IH. Following our meeting with the FDA, we plan to submit a supplemental NDA (“sNDA”) for IH in the second half of 2024 based on the totality of the data obtained from the INTUNE study and from other sources. We are focusing our development efforts on other rare neurological disorders in which EDS is a prominent symptom, including Prader-Willi Syndrome (“PWS”) and myotonic dystrophy, otherwise known as dystrophia myotonica (“DM”). Based on the positive signals from the data from our Phase 2 proof-of-concept signal detection clinical trial to evaluate pitolisant for the treatment of EDS and other key symptoms in patients with PWS, an end-of-phase 2 meeting with the FDA was held in June 2023. We aligned with the FDA on the proposed Phase 3 registration study design to support further investigation of pitolisant as a potential treatment to address the unmet medical need for children, adolescents and adults with PWS experiencing EDS, for which there is currently no approved treatment. In October 2023, we received FDA alignment regarding the protocol for the Phase 3 TEMPO study in patients with PWS, which we believe will satisfy the requirements for both the registrational trial and one of the two requirements for pediatric exclusivity for pitolisant. In February 2024, the FDA granted Orphan Drug designation to pitolisant for the treatment of PWS. The Phase 3 registrational trial, the TEMPO study, was initiated in March 2024. In June 2021, we initiated a Phase 2 proof-of-concept signal
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detection clinical trial to evaluate pitolisant for the treatment of EDS, fatigue and cognitive dysfunction in adult patients with DM1 and announced topline results from this trial in the fourth quarter of 2023, in which clinically meaningful improvements were demonstrated in EDS and fatigue. The safety profile was consistent with the established safety profile of pitolisant.
Our partner, Bioprojet completed a Phase 3 trial in pediatric patients with narcolepsy and submitted the trial data to the European Medicines Agency (the “EMA”) seeking approval for a pediatric narcolepsy indication. In January 2023, Bioprojet received a positive opinion from the EMA’s Committee for Medicinal Products for Human Use (“CHMP”) and in March 2023, the EMA granted approval for the marketing authorization of WAKIX for the treatment of narcolepsy in children 6 and older. Based on the data from the positive Phase 3 trial conducted by Bioprojet, we submitted an sNDA for pediatric narcolepsy in December 2023. On February 21, 2024, we announced that the FDA has granted priority review of our pediatric narcolepsy sNDA and has set a Prescription Drug User Fee Act, or target action date, of June 21, 2024.
We remain committed to obtaining pediatric exclusivity for WAKIX. The initiation of the PWS Phase 3 registrational trial, the TEMPO study, and pediatric narcolepsy sNDA are supportive of our efforts in obtaining pediatric exclusivity for WAKIX.
We also seek to expand our pipeline through the acquisition of additional assets that focus on addressing the unmet needs of patients living with rare neurological diseases as well as patients living with other neurological diseases who have unmet medical needs. We are targeting assets that will allow us to further leverage the expertise and infrastructure that we have successfully built at Harmony so we can optimize the benefit of internal synergies. Consistent with this objective, in July 2022, we entered into a License and Commercialization Agreement (the “2022 LCA”) with Bioprojet whereby we obtained exclusive rights to manufacture, develop 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 the agreement of both parties. We have made progress in the development of two new formulations of pitolisant, Next Gen 1 (“NG1”) and Next Gen 2 (“NG2”). Both formulations entered clinical studies in the fourth quarter of 2023. We received data from the NG1 pilot bioequivalence study, which supports further development of NG1. We anticipate data from the NG2 pilot pharmacokinetics study in the second half of 2024. These formulations are expected to generate new IP to extend the pitolisant franchise out beyond 2040.
In addition, in October 2023, we completed the acquisition of Zynerba Pharmaceuticals, Inc. (together with its subsidiary, Zynerba Pharmaceutical Pty, Ltd., “Zynerba”), a clinical-stage pharmaceutical company focused on innovative pharmaceutically produced transdermal cannabidiol therapies for orphan neuropsychiatric disorders. Zynerba’s drug candidate is ZYN002, the first and only pharmaceutically-produced synthetic cannabidiol gel, devoid of THC, and formulated as a patent protected, permeation-enhanced gel for transdermal delivery. ZYN002 is currently in a pivotal Phase 3 trial, the RECONNECT study, for the treatment of Fragile X Syndrome (“FXS”). Topline data from this Phase 3 study is anticipated in mid-2025. ZYN002 has patent protection for the treatment of FXS until 2038.
In August 2021, we acquired HBS-102, a Melanin-concentrating hormone receptor 1 (MCHR1) antagonist previously developed as CSTI-100/ALB-127258(a)/ALB-127258 (the “Compound”), along with intellectual property and other assets related to the development, manufacture, and commercialization of the Compound from ConSynance Therapeutics, Inc. We acquired full development and commercialization rights for HBS-102 globally, but we have provided an indication-limited grant-back license to ConSynance for the development and commercialization of the Compound in Greater China. We are conducting a preclinical proof-of-concept study to assess the effect of HBS-102 on hyperphagia, weight gain and other metabolic parameters in a mouse model of PWS. We anticipate data from both studies in the first half of 2024. A 13-week toxicology study is completed and the preliminary results are encouraging.
In April 2024, we 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,
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manufacture and commercialize the Licensed Compound in the United States and Latin American territories, which are rights that Bioprojet originally licensed from Teijin Pharma, the innovator of the Licensed Compound.
Pitolisant was developed by Bioprojet and approved by the EMA in 2016 for the treatment of narcolepsy in adult patients with or without cataplexy and in 2021 for the treatment of EDS in adult patients with obstructive sleep apnea. We acquired an exclusive license to develop, manufacture and commercialize pitolisant in the United States pursuant to our license agreement with Bioprojet (as amended, the “2017 LCA”) in July 2017. Pitolisant was granted Orphan Drug Designation for the treatment of narcolepsy by the FDA in 2010. It received Breakthrough Therapy designation for the treatment of cataplexy in patients with narcolepsy and Fast Track status for the treatment of EDS and cataplexy in patients with narcolepsy in April 2018.
Our operations are conducted by our wholly owned subsidiaries, Harmony Biosciences, LLC and Zynerba.
Commercial Performance Metrics
As of March 31, 2024, we continued to see growth in the number of unique healthcare professional (“HCP”) prescribers of WAKIX since it became available in November 2019. The average number of patients on WAKIX for the three months ended March 31, 2024, was approximately 6,300. Additionally, as of March 31, 2024, we have secured formulary access for more than 80% of all insured lives (Commercial, Medicare and Medicaid) in the United States. Within these covered lives, we have observed favorable access to WAKIX subsequent to the expanded approval of WAKIX for the treatment of cataplexy in adult patients with narcolepsy in October 2020.
Financial Operations Overview
Net Product Revenue
Net product revenue includes gross product shipments less provisions for sales discounts and allowances, which includes trade allowances, rebates to government and commercial entities, and other discounts. Although we expect net sales to increase over time, provisions for sales discounts and allowances may fluctuate based on the mix of sales to different customer segments and/or changes in our estimates.
Cost of Product Sales
Cost of product sales includes manufacturing and distribution costs, the cost of API, FDA program fees, royalties due to third parties on net product sales, freight, shipping, handling, storage costs and salaries of employees involved with oversight of production. We expect the cost of product sales to increase as we continue to ramp up production in order to meet future demand for WAKIX and diversify our supply chain for WAKIX.
The shelf life of WAKIX is three years from date of manufacture, with the earliest expiration of current inventory expected to be June 2025. We regularly review our inventory levels and expect write-offs from time to time. We will continue to assess inventory levels in future periods as demand for WAKIX and the rate of inventory turnover evolves. We currently have adequate supply of WAKIX to cover demand into the third quarter of 2025, with additional API on-hand inventory to support at least 36 months beyond this time frame.
Research and Development Expenses
Research and development expenses primarily include development programs for potential new indications for pitolisant in patients with IH, PWS, DM and the development of ZYN002 in patients with FXS. We also incur research and development expenses related to our team of Medical Science Liaisons (“MSLs”) who interact with key opinion leaders, with a focus on the science, the role of histamine in sleep-wake state stability and the novel mechanism of action of pitolisant. In addition, our MSLs support our market access team
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with the presentation of clinical data to payors upon request and our clinical development team to identify potential clinical trial sites. Research and development costs are expensed as incurred. We have significantly increased our research and development efforts as we advance our clinical programs and assess other product candidates to expand our pipeline. Research and development expenses also include:
| ● | employee-related expenses, such as salaries, share-based compensation, benefits and travel expenses for our research and development personnel; |
| ● | direct third-party costs such as expenses incurred under agreements with CROs, and contract manufacturing organizations (“CMOs”); |
| ● | manufacturing costs in connection with producing materials for use in conducting clinical trials; |
| ● | costs related to packaging and labelling of clinical supplies; |
| ● | other third-party expenses (e.g., consultants, advisors) directly attributable to the development of our product candidates; |
| ● | acquired in-process research and development; and |
| ● | amortization expense for assets used in research and development activities. |
A significant portion of our research and development costs are external costs, such as fees paid to CROs and CMOs, central laboratories, contractors, and consultants in connection with our clinical development programs. Internal expenses primarily relate to personnel who are deployed across multiple programs.
Product candidates in later stages of clinical development generally have higher development costs in the current period than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials, milestone payments, and the cost of submitting an NDA to the FDA (and/or other regulatory authorities). We expect our research and development expenses to be significant over the next several years as we advance our current clinical development programs and prepare to seek regulatory approval for additional indications for pitolisant, complete the Phase 3 clinical trial for ZYN002, and advance NG1, NG2, ZYN002 and HBS-102 to develop toward new indications.
At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of any additional indications for pitolisant or other product candidates that we move forward for regulatory approval. There are numerous risks and uncertainties associated with developing product candidates, including uncertainty related to:
| ● | the duration, costs and timing of clinical trials of our current development programs and any further clinical trials related to new product candidates; |
| ● | the sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials; |
| ● | the impact of the COVID-19 pandemic, including any future resurgence or new variants, on the ability to initiate new clinical trials and/or maintain the continuity of ongoing clinical trials, including our ability to access sleep labs in order to conduct objective sleep testing, that could be impacted by future shelter-in-place orders and needs of the health care system to focus on managing patients affected by COVID-19; |
| ● | receiving Bioprojet’s consent to pursue additional indications for pitolisant; |
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| ● | the acceptance of INDs for our planned clinical trials or future clinical trials; |
| ● | the successful and timely enrollment and completion of clinical trials; |
| ● | the successful completion of preclinical studies and clinical trials; |
| ● | successful data from our clinical programs that support an acceptable risk-benefit profile of our product candidates in the intended populations; |
| ● | the receipt and maintenance of regulatory and marketing approvals from applicable regulatory authorities; |
| ● | establishing agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidate is approved; |
| ● | the entry into collaborations to further the development of our product candidates; |
| ● | obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates; and |
| ● | successfully launching our product candidates and achieving commercial sales, if and when approved. |
A change in the outcome of any of these variables with respect to the development of any of our programs or any product candidate we develop would significantly change the costs, timing and viability associated with the development and/or regulatory approval of such programs or product candidates.
Sales and Marketing Expenses
Our sales and marketing expenses primarily relate to the market development and commercialization activities of WAKIX for the treatment of EDS and cataplexy in adult patients with narcolepsy. Market development and commercial activities account for a significant portion of our operating expenses and are expensed as incurred. We expect our sales and marketing expenses to increase in the near- and mid-term to support WAKIX’s indications for the treatment of EDS or cataplexy in adult patients with narcolepsy and to expand our portfolio with the anticipated growth from potential additional indications.
Sales and marketing expenses include:
| ● | employee-related expenses, such as salaries, share-based compensation, benefits and travel expenses for our sales, marketing and market access personnel; |
| ● | healthcare professional-related expenses, including marketing programs, healthcare professional promotional medical education, disease education, conference exhibits and market research; |
| ● | patient-related expenses, including patient awareness and education programs, disease awareness education, patient reimbursement programs, patient support services and market research; |
| ● | market access expenses, including payor education, specialty pharmacy programs and services to support the continued commercialization of WAKIX; and |
| ● | secondary data purchases (i.e., patient claims and prescription data), data warehouse development and data management. |
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In addition, sales and marketing expenses include external costs such as website development, media placement fees, agency fees for patient, medical education and promotional expenses, market research, analysis of secondary data, conference fees and consulting fees.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related expenses, such as salaries, share-based compensation, benefits and travel expenses for our personnel in executive, legal, finance and accounting, human resources, investor relations, and other administrative departments. General and administrative expenses also consist of office leases, and professional fees, including legal, tax and accounting and consulting fees.
We anticipate that our general and administrative expenses will increase in the future to support our continued commercialization efforts, ongoing and future potential research and development activities, and increased costs of operating as a public company. These increases will likely be driven by costs associated with the hiring of additional personnel and fees paid to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with the requirements of Nasdaq and the SEC, insurance and investor relations costs. If any of our current or future indication expansion programs or new product candidates obtain U.S. regulatory approval, we expect that we would incur significantly increased expenses associated with building a sales and marketing team.
Paragon Agreement
We are party to a right-of-use agreement with Paragon Biosciences, LLC (“Paragon”) whereby we have access to and the right to use certain office space leased by Paragon in Chicago, Illinois. For the three months ended March 31, 2024, we paid fees of $0.1 million pursuant to this agreement.
Interest Expense
Interest expense consists primarily of interest expense on debt facilities, amortization of debt issuance costs and amortization of premiums on our debt securities.
Interest Income
Interest income consists primarily of cash interest earned on our cash and investment balances and accretion of the discount on our investments in debt securities.
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Results of Operations
The following table sets forth selected items in our unaudited condensed consolidated statements of operations for the periods presented:
Three Months Ended March 31, | ||||||
| 2024 |
| 2023 | |||
(In thousands) | ||||||
Net product revenue | $ | 154,615 | $ | 119,126 | ||
Cost of product sales |
| 27,484 |
| 20,780 | ||
Gross profit |
| 127,131 |
| 98,346 | ||
Operating expenses: |
|
|
|
| ||
Research and development |
| 22,189 |
| 13,289 | ||
Sales and marketing |
| 27,233 |
| 22,572 | ||
General and administrative |
| 25,676 |
| 22,062 | ||
Total operating expenses |
| 75,098 |
| 57,923 | ||
Operating income |
| 52,033 |
| 40,423 | ||
Other (expense) income, net |
| (141) |
| 2 | ||
Interest expense | (4,535) | (5,731) | ||||
Interest income |
| 4,428 |
| 3,086 | ||
Net income before provision for income taxes |
| 51,785 |
| 37,780 | ||
Income tax (expense) benefit |
| (13,451) |
| (8,295) | ||
Net income | $ | 38,334 | $ | 29,485 | ||
Net Product Revenue
Net product revenue increased by $35.5 million, or 29.8%, for the three months ended March 31, 2024 compared to the same period in 2023. The increase was primarily due to a 28.3% increase in the number of units shipped, and the impact of a 7% price increase partially offset by higher rebates to commercial entities, which resulted in a decrease to net product revenue of approximately 4%. The price increase occurred in January 2024.
Cost of Product Sales
Cost of product sales increased by $6.7 million, or 32.3%, for the three months ended March 31, 2024, compared to the same period in 2023. Cost of product sales as a percentage of net product revenue was 17.8% for the three months ended March 31, 2024, compared to 17.4% for the three months ended March 31, 2023. The increase in cost of product sales in the period was due to higher sales of WAKIX.
Research and Development Expenses
The following table is a summary of our research and development expenses:
Three Months Ended March 31, | |||||||||
2024 |
| 2023 | Change | ||||||
(in thousands) | |||||||||
Pitolisant | $ | 9,110 | $ | 6,187 | $ | 2,923 | |||
ZYN002 | 3,879 | - | 3,879 | ||||||
Other research and development | 2,446 | 1,774 | 672 | ||||||
IPR&D | - | 750 | (750) | ||||||
Personnel expenses | 5,383 | 3,602 | 1,781 | ||||||
Stock-based compensation | 1,371 | 976 | 395 | ||||||
Total | $ | 22,189 | $ | 13,289 | $ | 8,900 | |||
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Research and development expenses increased by $8.9 million, or 67.0%, for the three months ended March 31, 2024, compared to the same period in 2023. The increase for the three months ended March 31, 2024 was primarily driven by $3.9 million in research and development expenses for ZYN002, which did not have any expenses in the prior year, a $2.9 million increase in clinical development and regulatory work associated with pitolisant, driven by increases for PWS and DM indications, a $1.8 million increase in personnel costs associated with higher headcount and a $0.4 million increase in stock compensation associated with new awards, partially offset by a $0.8 million IPR&D charge related to preclinical milestones achieved for HBS-102 during the three months ended March 31, 2023.
Sales and Marketing Expenses
Sales and marketing expenses increased by $4.7 million, or 20.6%, for the three months ended March 31, 2024, compared to the same period in 2023. The increase for the three months ended March 31, 2024, was primarily due to a $2.7 million increase in patient engagement and marketing activities, a $0.9 million increase in personnel costs, and a $0.9 million increase in stock compensation associated with new awards. The increase in patient engagement and marketing activities for the period was driven by our continued growth of WAKIX and the increase in personnel costs for the period was related to increased headcount.
General and Administrative Expenses
General and administrative expenses increased by $3.6 million, or 16.4%, for the three months ended March 31, 2024, compared to the same period in 2023. The increase in the three months ended March 31, 2024, was primarily due to a $2.6 million increase in stock compensation associated with new awards and a $0.8 million increase in legal fees, primarily associated with patent lawsuits.
Interest Expense
Interest expense decreased by $1.2 million, or 20.9%, for the three months ended March 31, 2024, compared to the same period in 2023. The decrease for the three months ended March 31, 2024, was primarily due to lower interest rates as a result of refinancing into the TLA Credit Agreement (defined below).
Interest Income
Interest income increased by $1.3 million, or 43.5%, for the three months ended March 31, 2024, compared to the same period in 2023. The increase for the three months ended March 31, 2024, was primarily a result of having higher invested balances, and higher investment yields on those balances, compared to the prior year period.
Income Taxes
Income tax expense was $13.5 million, representing a 26.0% effective tax rate, for the three months ended March 31, 2024, compared to $8.3 million, representing a 22.0% effective tax rate, for the three months ended March 31, 2023. The increase in our effective tax rate was due to a 2.8% tax benefit from the exercise of stock options in the prior year period and a 1.9% benefit from estimated tax credits. The effective tax rate of 26.0% for the three months ended March 31, 2024, included 5.1% for state income taxes, partially offset by a 1.0% benefit from credits.
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Liquidity, Sources of Funding and Capital Resources
Overview
As of March 31, 2024, we had cash, cash equivalents, and investments of $453.6 million, outstanding debt of $192.5 million and an accumulated deficit of $104.9 million.
The unaudited condensed consolidated financial statements have been prepared as though we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
We believe that our existing cash, cash equivalents and investments on hand as of March 31, 2024, will enable us to meet our operational liquidity needs and fund our planned investing activities for the next 12 months. We have based our liquidity and cash flow projections on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we expect.
Term Loan A Credit Agreement
In July 2023, we 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 $185.0 million.
In September 2023, we 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 $15.0 million. 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 $3.8 million quarterly principal payments, which commence on December 31, 2023, increasing to $5.0 million quarterly principal payments beginning on December 31, 2025, with a $115.0 million payment due on the maturity date of July 26, 2028. The Term Loans bear interest at a per annum rate equal to, at our option, (i) a base rate plus a specified margin ranging from 2.50% to 3.00%, based on our 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 our senior secured net leverage ratio.
The TLA Credit Agreement contains customary affirmative and negative covenants, financial covenants, representations and warranties, events of default and other provisions. We were in compliance with all covenants as of March 31, 2024.
Share Repurchases
In October 2023, the Company’s Board of Directors approved a share repurchase program (the “October 2023 Repurchase Program”) providing for the repurchase of shares of common stock in an aggregate amount of up to $200,000, excluding commissions and transaction fees. The October 2023 Repurchase Program may be suspended, terminated, or modified at any time for any reason. During the three months ended March 31, 2024, the Company repurchased and cancelled no shares of common under the October 2023 Repurchase Program. As of March 31, 2024, the remaining amount of common stock authorized for repurchases was $150.0 million.
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Zynerba Acquisition
In October 2023, we completed a tender offer (the “Tender Offer”) to acquire all of the outstanding shares of common stock of Zynerba (“Zynerba Common Stock”).
Under the terms of the Tender Offer, we paid (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 consideration we paid to acquire the Zynerba Common Stock upon completion of the Tender Offer was $60 million, exclusive of transaction related fees. We financed the acquisition with cash on hand.
Asset Purchase Agreement
In August 2021, we entered into an asset purchase agreement with ConSynance Therapeutics, Inc. (the (APA”) to acquire HBS-102, a potential first-in-class molecule with a novel mechanism of action. Under the terms of the APA, we acquired full development and commercialization rights globally, with the exception of Greater China, for $3.5 million. Additionally, there are payments due upon the achievement of certain milestones below, including $1.0 million for additional preclinical milestones (see “Recent Milestone Payments”), $19.0 million for development milestones, $44.0 million for regulatory milestones and $110.0 million for sales milestones.
License Agreements
In April 2024, we 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 an Investigational New Drug application currently anticipated in the second half 2025. Under the Sublicense, the Company will pay Bioprojet an upfront license fee of $25.5 million and will also be obligated to pay up to $127.5 million upon achievement of development and regulatory milestones and up to $240.0 million upon achievement of sales-based milestones, as well as royalty rates in the mid-teens on potential sales in the Licensed Territories.
In July 2022, we entered into the 2022 LCA with Bioprojet whereby we obtained exclusive rights to manufacture, develop 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 the agreement of both parties. We paid an initial, non-refundable $30.0 million licensing fee in October 2022 and additional payments of up to $155.0 million are potentially due under the 2022 LCA upon the achievement of certain future development and sales-based milestones. In addition, certain payments will become due upon the achievement of development milestones for new indications and formulations as agreed upon by both parties. The 2022 LCA also includes a fixed trademark royalty and a tiered royalty based on net sales of any new products commercialized, which will be payable to Bioprojet on a quarterly basis.
Recent Milestone Payments
In March 2023, we achieved a preclinical milestone, which triggered a $0.8 million payment under the provisions of the APA, which was paid in April 2023.
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Cash Flows
The following table sets forth a summary of our cash flows for the three months ended March 31, 2024, and 2023:
Three Months Ended March 31, | ||||||
| 2024 |
| 2023 | |||
Selected cash flow data | (In thousands) | |||||
Cash provided by (used in): |
|
|
|
| ||
Operating activities | $ | 31,141 | $ | 42,559 | ||
Investing activities |
| (6,186) |
| (1,790) | ||
Financing activities |
| (3,634) |
| 3,409 | ||
Operating Activities
Net cash provided by operating activities for the three months ended March 31, 2024, primarily consisted of net income of $38.3 million adjusted for non-cash items of $10.4 million related to stock-based compensation expense, $6.1 million related to intangible amortization and depreciation, and $3.5 million related to deferred tax assets. Net working capital excluding cash decreased by $20.3 million.
Net cash provided by operating activities of $42.6 million for the three months ended March 31, 2023, consisted of net income of $29.5 million adjusted for non-cash items of $3.4 million related to deferred tax assets, $6.1 million related to intangible amortization and depreciation and $6.6 million related to stock-based compensation expense. Net working capital excluding cash increased by $3.7 million.
Investing Activities
Net cash used in investing activities for the three months ended March 31, 2024, was $6.2 million, which was primarily attributable to $25.1 million in purchases of debt securities, partially offset by $18.9 million from maturities of investments.
Net cash used in investing activities for the three months ended March 31, 2023, was $1.8 million, which was primarily attributable to $47.8 million in purchases of debt securities, partially offset by $46.0 million from sales and maturities of investments.
Financing Activities
Net cash used in financing activities for the three months ended March 31, 2024, was $3.6 million, which primarily consisted of $3.7 million in principal payments associated with the TLA Credit Agreement, partially offset by $0.1 million in proceeds from the exercise of stock options.
Net cash provided by financing activities for the three months ended March 31, 2023, was $3.4 million, which primarily consisted of $3.9 million in proceeds from the exercise of stock options partially offset by a $0.5 million principal payment associated with the Blackstone Credit Agreement.
Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of expenses during the reporting periods. In accordance with GAAP, we evaluate our estimates and judgments on an ongoing basis.
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Significant estimates include assumptions used in the determination of the amount of revenue recognized on sales of WAKIX, costs incurred under services type agreements related to the performance of research and development activities, and the measurement of compensation expense pursuant to stock-based awards. We base our estimates on contractual terms, historical experience, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We define our critical accounting policies as those under GAAP that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. During the quarter covered by this report, there were no material changes to the accounting policies and assumptions previously disclosed, except as disclosed in Note 3 to the unaudited condensed consolidated financial statements contained herein.
Recent Accounting Pronouncements
See Note 3 to our unaudited condensed consolidated financial statements for recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Fluctuation Risk
We are exposed to market risk related to changes in interest rates. We invest a portion of our cash in investment-grade, interest-bearing securities. The primary objectives of our investment activities are to preserve principal, maintain liquidity and maximize total return. In order to achieve these objectives, we invest in money market funds, U.S. government and agency securities, corporate bonds and commercial paper in accordance with our investment policy. Our investment policy defines allowable investments and establishes guidelines relating to credit quality, diversification, and maturities of our investments to preserve principal and maintain liquidity. All investment securities have a credit rating of at least A-2/P-2/F2 from at least two National Recognized Statistical Rating Organizations. We do not have any direct investments in asset-backed securities, collateralized debt or loan obligations, or structured investment vehicles. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. Based on our $384.7 million of investments in money market funds, U.S. treasury notes, corporate bonds and municipal obligations as of March 31, 2024, an immediate 10% change in market interest rates would not have a material impact on the fair market value of our investment portfolio or on our financial position or results of operations.
As of March 31, 2024, we had $192.5 million in borrowings outstanding. The Term Loans bear interest at a per annum rate equal to, at our option, (i) a base rate plus a specified margin ranging from 2.50% to 3.00%, based on our 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 our senior secured net leverage ratio. Based on the $192.5 million of principal outstanding as of March 31, 2024, an immediate 10% change in the SOFR would not have a material impact on our debt-related obligations, financial position or results of operations.
Foreign Currency Fluctuation Risk
We are not currently exposed to significant market risk related to changes in foreign currency exchange rates; however, we have contracted with and may continue to contract with foreign vendors that are located in Europe. Our operations may be subject to fluctuations in foreign currency exchange rates in the future.
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Inflation Fluctuation Risk
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations for each of the three months ended March 31, 2024, and 2023.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, including our principal executive officer and our principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of March 31, 2024. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2024, our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in litigation relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations or financial condition.
ANDA Litigation
On September 27, 2023, we and our licensor, Bioprojet, received notice from Lupin Limited (“Lupin”) pursuant to 21 U.S.C. § 355(j) et seq. and 21 C.F.R. § 314.95 et seq. (the “Lupin Notice Letter”) that Lupin has submitted ANDA No. 218846 (the “Lupin ANDA”) to the FDA and is seeking regulatory approval to market a generic version of WAKIX® before the expiration of U.S. Patent Nos. 8,486,947 (“’947 patent”) and 8,207,197 (“’197 patent”). On September 27, 2023, we and Bioprojet received notice from Novugen Pharma Sdn. Bhd. (“Novugen”) pursuant to 21 U.S.C. § 355(j) et seq. and 21 C.F.R. § 314.95 et seq. (the “Novugen Notice Letter”) that Novugen has submitted ANDA No. 218834 (the “Novugen ANDA”) to the FDA and is seeking regulatory
36
approval to market a generic version of WAKIX® before the expiration of the ’947 patent and ’197 patent. The ’947 patent and the ‘197 patent are listed with respect to WAKIX® in the FDA’s Orange Book and will expire in September 2029 and March 2030, respectively. The Lupin Notice Letter and the Novugen Notice Letter assert that their generic product will not infringe the ’947 patent and the ‘197 patent and/or that the ’947 patent and the ‘197 patent are invalid or unenforceable. On November 9, 2023, we, Bioprojet and Bioprojet’s wholly owned subsidiary, Bioprojet Pharma SAS (“Bioprojet Pharma”), filed a complaint for patent infringement of the ’947 patent and the ‘197 patent against Lupin, Novugen and certain of their affiliates and agents in the United States District Court for the District of Delaware in response to the filing of their respective ANDAs with the FDA.
On October 12, 2023, we and Bioprojet received notice from Novitium Pharma LLC (“Novitium”), pursuant to 21 U.S.C. § 355(j) et seq. and 21 C.F.R. § 314.95 et seq. (the “Novitium Notice Letter”), that Novitium has submitted ANDA No. 218495 (the “Novitium ANDA”) to the FDA and is seeking regulatory approval to market a generic version of WAKIX® before the expiration of U.S. Patent No. 8,354,430 (the “’430 patent”), which is also listed with respect to WAKIX® in the FDA’s Orange Book and will expire in February 2026, ’947 patent, and ’197 patent. On October 12, 2023, we and Bioprojet received notice from Zenara Pharma Pvt. Ltd. (“Zenara”), pursuant to 21 U.S.C. § 355(j) et seq. and 21 C.F.R. § 314.95 et seq. (the “Zenara Notice Letter”), that Zenara has submitted ANDA No. 218796 (the “Zenara ANDA”) to the FDA and is seeking regulatory approval to market a generic version of WAKIX® before the expiration of the ’430 patent, ’947 patent and the ’197 patent. On October 14, 2023, we and Bioprojet received notice from AET Pharma US, Inc. (“AET”), pursuant to 21 U.S.C. § 355(j) et seq. and 21 C.F.R. § 314.95 et seq. (the “AET Notice Letter”), that AET has submitted ANDA No. 218892 (the “AET ANDA”) to the FDA and is seeking regulatory approval to market a generic version of WAKIX® before the expiration of the ’947 patent and the ’197 patent. On October 16, 2023, we and Bioprojet received notice from Annora Pharma Private Limited (“Annora”), pursuant to 21 U.S.C. § 355(j) et seq. and 21 C.F.R. § 314.95 et seq. (the “Annora Notice Letter”), that Annora has submitted ANDA No. 218832 (the “Annora ANDA”) to the FDA and is seeking regulatory approval to market a generic version of WAKIX® before the expiration of the ’430 patent, the ’947 patent and the ’197 patent. AET’s Notice Letter asserts that AET’s generic product will not infringe the ’947 patent and the ‘197 patent and/or that ’947 patent and the ‘197 patent are invalid or unenforceable. The Annora Notice Letter asserts that its generic product will not infringe the ‘430 patent, ’947 patent and the ‘197 patent and/or that the ‘430 patent, ’947 patent and the ‘197 patent are invalid or unenforceable. The Novitium Notice Letter asserts that its generic product will not infringe the ‘430 patent, ’947 patent and the ‘197 patent and/or that the ‘430 patent, ’947 patent and the ‘197 patent are invalid or unenforceable. The Zenara Notice Letter asserts that its generic product will not infringe the ‘430 patent, ’947 patent and the ‘197 patent and/or that the ‘430 patent, ’947 patent and the ‘197 patent are invalid or unenforceable. On November 21, 2023, we, Bioprojet and Bioprojet Pharma filed a complaint for patent infringement of the ’947 patent and the ‘197 patent against AET, Annora, Novitium and Zenara and certain of their affiliates and agents and for patent infringement of the ’430 patent against Annora, Novitium and Zenara and certain of their affiliates and agents in the United States District Court for the District of Delaware in response to their filing of their respective ANDAs with the FDA.
In October 2023, MSN Pharmaceuticals Inc. (“MSN Pharma”) sent correspondence to us and Bioprojet stating that MSN Pharma has submitted ANDA No. 218873 (the “MSN ANDA”) to the FDA and is seeking regulatory approval to market a generic version of WAKIX®. On December 8, 2023, MSN Laboratories Private Limited (“MSN”) filed a declaratory judgment action in the United States District Court for the Eastern District of Virginia against Bioprojet claiming that the ‘430 patent, the ’947 patent and the ‘197 patent will not be infringed by MSN’s generic version of WAKIX® and that the ‘947 patent is invalid. On December 11, 2023, we, Bioprojet and Bioprojet Pharma filed a complaint in the United States District Court for the District of Delaware for patent infringement of the ‘430 patent, the ’947 patent and the‘197 patent against MSN and MSN Pharma. On January 12, 2024, the declaratory judgment action was transferred from the United States District Court for the Eastern District of Virginia to the United States District Court for the District of Delaware.
On April 15, 2024, the United States District Court for the District of Delaware issued a scheduling order consolidating the cases described above for all purposes up to and including trial (the “Scheduling Order”). The Scheduling Order set March 27, 2025 as the date for the hearing on claim construction and scheduled a four-day bench trial beginning on February 17, 2026.
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Item 1A. Risk Factors.
In addition to the other information included in this report, you should carefully consider the discussion of risk factors affecting the Company as set forth in Part I, Item 1A "Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect our business, financial condition or future results. The risks described in these reports are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, and operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Rule 10b5-1 Trading Arrangements
On
During the three months ended March 31, 2024, no director or officer of the Company
Epygenix Acquisition
On April 30, 2024, the Company announced that its subsidiary Zynerba Pharmaceuticals, Inc. (“Zynerba”) acquired all of the issued and outstanding capital stock of Epygenix Therapeutics, Inc., a Wyoming corporation (“Epygenix”), pursuant to the terms of a stock purchase agreement. In connection with the closing of the transaction, Zynerba paid the former stockholders of Epygenix up front consideration of $35 million (which amount is subject to adjustment following the closing). In addition, Zynerba will also be obligated to pay up to $130 million upon the achievement of development and regulatory milestones and up to $515 million upon the achievement of certain sales-based milestones, in each case to Epygenix’s former stockholders. Epygenix has an exclusive license relating to the use of clemizole for the treatment of Dravet Syndrome and Lennox-Gestaut Syndrome.
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Item 6. Exhibits.
Exhibit | Incorporated by Reference | |||||||
No. |
| Exhibit Description |
| Form |
| Date |
| Number |
2.1+ | 8-K/A | September 14, 2023 | 2.1 | |||||
3.1 | Amended and Restated Certificate of Incorporation of Harmony Biosciences Holdings, Inc. | 8-K | August 21, 2020 | 3.1 | ||||
3.2 | 8-K | August 21, 2020 | 3.2 | |||||
10.1* | ||||||||
10.2* | ||||||||
31.1* | ||||||||
31.2* | ||||||||
32.1** | ||||||||
32.2** | ||||||||
101* | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023 formatted in Inline XBRL: (i) Balance Sheets, (ii) Statements of Operations, (iii) Statements of Stockholders’ Equity and (vi) Notes to Financial Statements, tagged as blocks of text and including detailed tags. | |||||||
104* | Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
* | Filed herewith. |
** | Furnished herewith. This certification is deemed furnished, and not filed, with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Harmony Biosciences Holdings, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing. |
+ | Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 for any schedules so furnished. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HARMONY BIOSCIENCES HOLDINGS, INC. | |||
By: | /s/ Jeffrey M. Dayno | ||
Name: |
| Jeffrey M. Dayno | |
Title: | President, Chief Executive Officer and Director (principal executive officer) | ||
Date: |
| April 30, 2024 | |
By: |
| /s/ Sandip Kapadia | |
Name: |
| Sandip Kapadia | |
Title: | Chief Financial Officer and Chief Administrative Officer (principal financial officer) | ||
Date: |
| April 30, 2024 | |
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