What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-10 · 128 added, 113 removed, 268 unchanged (47% of the section changed)

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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, the anticipated impact of the novel coronavirus (“COVID-19”) pandemic on our business, 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.

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, the anticipated impact of the COVID-19 pandemic on our business, 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.

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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.

statements, including the factors described under the section in our most recent Annual Report on Form 10-K entitled “ Item 1A.

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.”

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Company Overview

We are a commercial-stage, rare disease pharmaceutical company focused on developing and commercializing innovative therapies for patients living with rare neurological disorders 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 H 3 receptors.

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commercial launch was initiated in November 2019.

On October 13, 2020, WAKIX was approved by the FDA for the treatment of cataplexy in adult patients with narcolepsy.

On October 13, 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 Drug Enforcement Administration (the “DEA”).

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We anticipate providing an update on the path forward in the coming months.

We believe that pitolisant’s ability to regulate histamine gives it the potential to provide therapeutic benefit in other rare neurological disorders that are mediated through H 3 receptors and histamine signaling.

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 H 3 receptors and histamine signaling.

Beyond narcolepsy, we are initially focusing on the treatment of EDS associated with Prader-Willi Syndrome (“PWS”) and myotonic dystrophy, otherwise known as dystrophia myotonica (“DM”).

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In June 2021, we initiated a Phase 2 clinical trial to evaluate pitolisant for the treatment of EDS, fatigue and cognitive dysfunction in adult patients with DM1 and anticipate topline results in the second half of 2022.

In addition to these

indications, we intend to further explore pitolisant in other rare neurological disorders in which EDS, fatigue and /or cognitive impairment are prominent symptoms with significant impact on daily functioning.

We also seek to expand our pipeline through the acquisition of additional assets that focus on addressing the unmet needs of patients with rare neurological disorders.

We intend to target assets that will be complementary to WAKIX and/or our expanding list of potential new indications for WAKIX, and/or target 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.

In addition to these indications, we intend to further explore pitolisant in other rare neurological diseases in which EDS, fatigue and/or cognitive impairment are prominent symptoms with significant impact on daily functioning.

We also seek to expand our pipeline through the acquisition of additional assets that focus on addressing the unmet needs of patients with rare neurological diseases and 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, on August 4, 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.

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We acquired full development and commercialization rights globally, but we have provided a grant-back license to ConSynance for the development and commercialization of the Compound in Greater China.

We intend to focus development efforts for HBS-102 on the treatment of narcolepsy, including the symptoms of Rapid Eye Movement (“REM”) sleep dysregulation, such as cataplexy, hallucinations and sleep paralysis.

We are currently assessing potential clinical targets for HBS-102 which will inform our development strategy going forward.

Pitolisant was developed by Bioprojet and approved by the European Medicines Agency (“EMA”) in 2016 for the treatment of narcolepsy in adult patients with or without cataplexy.

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In February 2020, we changed our name to Harmony Biosciences Holdings, Inc.

Our operations to date have consisted of building and staffing our organization, acquiring the rights to pitolisant, raising capital, opening an investigational new drug applications (“IND”) for pitolisant in narcolepsy, conducting an Expanded Access Program (“EAP”) for pitolisant for appropriate patients with narcolepsy in the United States, preparing and submitting our NDA for pitolisant, gaining NDA approval for WAKIX for the treatment of EDS or cataplexy in adult patients with narcolepsy, and launching and commercializing WAKIX in the United States.

launching and commercializing WAKIX in the United States.

In addition, we have opened INDs for development programs in PWS and DM and have initiated clinical trials in PWS and DM in pursuit of potential new indications in those rare disease patient populations.

Liquidity and Sources of Funding

For the six months ended June 30, 2021, we generated $133.5 million of net product revenues.

We have financed our operations primarily with (a) proceeds from sales of our convertible preferred stock, (b) borrowings under (i) our multi-draw term loan agreement (the “Loan Agreement”) with CRG Servicing LLC (“CRG”) and (ii) our credit agreement (the “Credit Agreement”) with OrbiMed Royalty & Credit Opportunities III, LP (“OrbiMed”), and (c) proceeds from our initial public offering (“IPO”) in August 2020.

As of June 30, 2021, we had cash, cash equivalents and restricted cash of $160.4 million and accumulated deficit of $466.7 million.

As of June 30, 2021, we had outstanding debt, net of issuance costs, of $195.6 million.

We believe that our anticipated cash from operating and financing activities and existing cash and cash equivalents will enable us to meet our operational liquidity needs and fund planned investing activities for the next twelve months.

For the nine months ended September 30, 2021, we generated $214 million of net product revenues.

We have financed our operations primarily with (a) proceeds from sales of our convertible preferred stock, (b) borrowings under (i) our credit agreement (the “Credit Agreement”) with OrbiMed Royalty & Credit Opportunities III, LP (“OrbiMed”), and (ii) our credit agreement (the “Blackstone Credit Facility”) with Blackstone Alternative Credit Advisors LP (“Blackstone”), (c) proceeds from our initial public offering (“IPO”) in August 2020, and (d) proceeds from the sale of common stock to Blackstone.

We have based this estimate on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we expect.

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● conduct earlier stage research and development activities for pitolisant;

● conduct earlier stage research and development activities for HBS-102;

● support independent investigator-initiated research for which there is a valid scientific rationale;

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● incur interest expenses in conjunction with our debt facility;

seek regulatory approvals for additional indications for pitolisant or any additional product candidates that successfully complete clinical development;

● seek regulatory approvals for additional indications for pitolisant, HBS-102, or any additional product candidates that successfully complete clinical development;

● acquire or in-license other assets and technologies;

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Commercial Launch Metrics

As of June 30, 2021, over 37% of unique healthcare professionals (“HCPs”) (out of a total of approximately 8,000 HCPs who treat approximately 90% of diagnosed narcolepsy patients) have prescribed WAKIX since it became available in November 2019.

The average number of patients on WAKIX at June 30, 2021 was approximately 3,200.

Additionally, as of June 30, 2021, we have secured and maintained formulary access for approximately 80% of all insured lives (Commercial, Medicare and Medicaid) in the United States.

Within these covered lives, we have continued to observe additional favorable access to WAKIX subsequent to the expanded approval of WAKIX for the treatment of cataplexy in adult patients with narcolepsy in October 2020.

As of September 30, 2021, approximately 40% of unique healthcare professionals (“HCPs”) (out of a total of approximately 8,000 HCPs who treat the majority of the diagnosed narcolepsy patient population) have prescribed WAKIX since it became available in November 2019.

The average number of patients on WAKIX at September 30, 2021 was approximately 3,500.

Additionally, as of September 30, 2021, we have secured and maintained formulary access for approximately 80% of all insured lives (Commercial, Medicare and Medicaid) in the United States.

Within these covered lives, we have continued to observe additional favorable access to WAKIX for type 1 narcolepsy patients subsequent to the expanded approval of WAKIX for the treatment of cataplexy in adult patients with narcolepsy in October 2020.

COVID-19 Business Update

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Commercialization

With respect to our commercialization activities, we believe the COVID-19 pandemic has put pressure on top-line prescription demand for WAKIX, primarily due to (i) our field sales team’s reduced ability to access

HCPs in person, and (ii) fewer patients seeing HCPs for prescriptions or treatments.

The impact on demand for WAKIX may have also be en related to a reduced ability of prescribers to diagnose narcolepsy patients given the limitations in access to sleep testing, the reduced ability to see patients due to (i) cancelled appointments and (ii) the reprioritization of healthcare resources toward the treatment of COVID-19, both of which lead to fewer prescriptions.

Despite these challenges, we continue d to engage and educate HCPs virtually on the overall benefit/risk profile of WAKIX and continue d to provide support for people living with narcolepsy.

As offices, clinics and institutions have begun to allow in-person interactions pursuant to health authority and local government guidelines, our field teams are re-initiat ing in-person interactions with HCPs and customers, but the timing and level of engagement may vary by account and region and may be adversely impacted in the future where reemergence or future outbreaks of COVID-19 may occur.

Alt hough we are beginning to see increased access to HCPs for our sales team and the economy is beginning to open up, we are still in a transition phase and expect continued, but decreasing, pressure on top line demand in future quarters as the challenges presented by COVID -19 begin to subside.

The impact on demand for WAKIX may have also been related to a reduced ability of prescribers to diagnose narcolepsy patients given the limitations in access to sleep testing, the reduced ability to see patients due to (i) cancelled appointments and (ii) the reprioritization of healthcare resources toward the treatment of COVID-19, both of which lead to fewer prescriptions.

Despite these challenges, we continued to engage and educate HCPs virtually on the overall benefit/risk profile of WAKIX and continued to provide support for people living with narcolepsy.

As offices, clinics and institutions have increased in-person interactions pursuant to health authority and local government guidelines, our field teams are re-initiating in-person interactions with HCPs and customers, but the timing and level of engagement may vary by account and region and may be adversely impacted in the future where reemergence or future outbreaks of COVID-19, including the rise of variants, may occur.

Although we are beginning to see increased access to HCPs for our sales team and the economy is beginning to open up, we are still in a transition phase and expect continued, but decreasing, pressure on top line demand in future quarters as the challenges presented by COVID-19 begin to subside.

During the pandemic, elevated unemployment and the corresponding loss of health insurance caused some eligible patients to shift from commercial insurance to free drug and patient assistance programs, which impacted our ability to convert demand into revenue.

Given the high unemployment rates and resulting loss of employer-sponsored insurance coverage, some patients also shifted from commercial payor coverage to government payor coverage, which may have impacted, and may continue to impact, our net revenue.

Given the high unemployment rates and resulting loss of

employer-sponsored insurance coverage, some patients also shifted from commercial payor coverage to government payor coverage, which may have impacted, and may continue to impact, our net revenue.

We currently expect to have adequate supply of WAKIX through the fourth quarter of 2022, with additional API on-hand inventory to support at least 24 months beyond this time frame.

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The COVID-19 pandemic has negatively impacted the pharmaceutical industry’s ability to conduct clinical trials.

While we initially experienced some challenges due to the COVID-19 pandemic, we have taken measures and put contingency plans in place in order to advance our clinical development programs.

As a result of some challenges that we have experienced due to the COVID-19 pandemic, we have taken measures and put contingency plans in place in order to advance our clinical development programs.

We implemented remote and virtual approaches to clinical trials, including using telemedicine for remote clinic visits to perform efficacy assessments and sending out licensed HCPs to each patient to collect safety assessments (e.g.

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These measures were instituted with the intent of maintaining patient safety and trial continuity while preserving study integrity.

One unique challenge we faced was the ability to access sleep labs during the COVID-19 pandemic in order to conduct objective sleep testing, which is required for some of our clinical trials.

In addition, we relied on contract research organizations (“CROs”) or other third parties to assist us with clinical trials, and we could not guarantee that they would continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic.

If there is a subsequent outbreak of COVID-19 or any variant thereof or if it reemerges for an extended period of time in the future, we may experience significant delays in our clinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects.

One unique challenge we continue to face is the ability to access sleep labs during the COVID-19 pandemic in order to conduct objective sleep testing, which is required for some of our clinical trials.

In addition, we rely on contract research organizations (“CROs”) or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic.

In addition, the COVID-19 pandemic has resulted in a significant increase in FDA workload as well as the need to reprioritize the projects under review.

As a result, we may experience delays in FDA timelines along the course of the regulatory process (e.g.

milestone meetings) and PDUFA action dates.

adversely affect our business, financial condition, results of operations and growth prospects.

Corporate Development and Other Financial Impacts

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In addition, the pandemic limited our ability to conduct in-person due diligence and other interactions to identify new opportunities.

If there is a subsequent outbreak of COVID-19 or any variant thereof or if it reemerges for an extended period of time, we may be unable to access additional capital, which could

negatively affect our ability to execute on certain corporate development transactions or other important investment opportunities.

If there is a subsequent outbreak of COVID-19 or any variant thereof or if it reemerges for an extended period of time, we may be unable to access additional capital, which could negatively affect our ability to execute on certain corporate development transactions or other important investment opportunities.

The COVID-19 pandemic has also affected, and may continue to affect, our business operations and financial results.

The extent of the impact of the COVID-19 pandemic or the potential impact of a reemergence or outbreak of the pandemic on our ability to generate sales of, and revenues from, our approved products, our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time.

for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time.

Corporate Responsibility Impact

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Our current product, WAKIX, was approved by the FDA for the treatment of EDS in adult patients with narcolepsy in August 2019, became commercially available in November 2019 and was approved by the FDA for the treatment of cataplexy in adult patients with narcolepsy in October 2020.

For the six months ended June 30, 2021 and 2020, we had $133.5 million and $57.8 million, respectively, of net product revenue.

The increase was due to the growing commercial sales of WAKIX which was launched on November 1, 2019 and the price increase of WAKIX in connection with the cataplexy indication approval in the fourth quarter of 2020.

Total revenue consists of net sales of WAKIX.

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Cost of Product Sales

Cost of product sales includes manufacturing and distribution costs, the cost of the drug substance, FDA program fees, royalties due to third parties on net product sales, freight, shipping, handling, storage costs and salaries of emplo y ees involved with production.

We began capitalizing inventory upon FDA approval of WAKIX.

Excluded from cost of product sold is amortization of acquired developed technology of $9.2 million and $3.7 million in the six months ended June 30, 2021 and 2020, respectively.

Previously expensed inventory that was manufactured in anticipation for commercialization preapproval has not had a material impact on our historical results of operations and is not expected to have a material impact on future results of operations.

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Our research and development expenses have been applied toward the license of the rights to pitolisant, the conduct of an Expanded Access Program (“EAP”) to provide appropriate patients with pitolisant at no cost as part of a clinical trial to assess safety prior to the approval of WAKIX, the preparation of the NDA, and the initiation of development programs for potential new indications for pitolisant in patients with PWS and DM.

We also have 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 with clinical data presentations to payors upon request.

We also have 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 with clinical data presentations 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 increase d our research and development efforts as we advance our clinical programs in PWS and DM , and assess other product candidates to expand our pipeline .

We have significantly increased our research and development efforts as we advance our clinical programs in PWS and DM and assess other product candidates to expand our pipeline.

Research and development expenses include:

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● amortization expense for assets used in research and development activities.

Currently, WAKIX is our only product and we do not currently track our internal research and development expenses on an indication-by-indication basis.

Currently, we do not track research and development expenses on an indication-by-indication basis.

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.

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Product candidates in later stages of clinical development generally have higher development costs 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 as well as potential new product candidates.

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.

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These increases will likely include increased costs related to 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.

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We are also party to a right-of-use agreement with 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 June 30, 2021, we paid de minimis fees pursuant to this agreement.

For the three months ended September 30, 2021, we paid de minimis fees pursuant to this agreement.

Loss on Debt Extinguishment

Loss on debt extinguishment consists primarily of costs of extinguishment of debt during the period related to the prepayment of the Loan Agreement with CRG.

Other Income / Expense, Net

Other income / expense, net consists primarily of costs of the fair value of the warrants associated with the Credit Agreement we entered into with OrbiMed.

Interest Income / Interest Expense

Interest income / expense, net consists primarily of interest expense on debt facilities and amortization of debt issuance costs offset by interest income earned on our cash balances.

Loss on debt extinguishment consists primarily of costs of extinguishment of debt during the period related to the prepayment of our credit agreements.

Other Expense, Net

Other expense, net consists primarily of costs of the fair value of the warrants associated with the Credit Agreement we entered into with OrbiMed.

Interest Expense, net

Interest expense, net consists primarily of interest expense on debt facilities and amortization of debt issuance costs offset by interest income earned on our cash balances.

Results of Operations

The following table sets forth selected items in our condensed consolidated statements of operations for the periods presented:

Three Months Ended June 30,

Six Months Ended June 30,

The following table sets forth selected items in our unaudited condensed consolidated statements of operations for the periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

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Total operating expenses

Operating income (loss)

Operating income

Loss on debt extinguishment

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Interest expense, net

Net income (loss) before provision for income taxes

Provision for income taxes

Net income (loss)

Net (loss) income before provision for income taxes

Income tax benefit (expense)

Net (loss) income

Net Product Revenue

Net product revenue increased by $35.8 million, or 94.2%, for the three months ended June 30, 2021 and $75.7 million, or 130.8%, for the six months ended June 30, 2021 compared to the same periods in 2020.

Net product revenue increased by $35.1 million, or 77.0%, for the three months ended September 30, 2021 and $110.8 million, or 107.1%, for the nine months ended September 30, 2021 compared to the same periods in 2020.

The increase for both comparable periods was due to the growing commercial sales of WAKIX which was launched on November 1, 2019 and the price increase of WAKIX in connection with the cataplexy indication approval in the fourth quarter of 2020.

Cost of Product Sales

Cost of product sales increased by $6.2 million, or 96.5%, for the three months ended June 30, 2021 and $13.2 million, or 132.6%, for the six months ended June 30, 2021 compared to the same periods in 2020.

Cost of product sales increased by $6.7 million, or 85.1%, for the three months ended September 30, 2021 and $19.9 million, or 111.6%, for the nine months ended September 30, 2021 compared to the same periods in 2020.

The increase was due to the growing commercial sales of WAKIX, which was launched on November 1, 2019.

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Research and Development Expenses

Research and development expenses increased by $2.3 million, or 55.9%, for the three months ended June 30, 2021 and $3.6 million, or 47.1%, for the six months ended June 30, 2021 as compared to the same periods in 2020.

The increase was primarily due to clinical development work associated with PWS and DM.

Research and development expenses increased by $7.5 million, or 177.5%, for the three months ended September 30, 2021 and $11.1 million, or 93.7%, for the nine months ended September 30, 2021 as compared to the same periods in 2020.

The increase for both comparable periods was primarily due to $3.5 million asset acquisition of HBS-102, clinical development work associated with PWS and DM and an increase to stock compensation associated with new awards.

Sales and Marketing Expenses

Sales and marketing expenses increased by $4.6 million, or 36.8% for the three months ended June 30, 2021 and $6.8 million, or 26.6%, for the six months ended June 30, 2021 as compared to the same periods in 2020.

The increase was primarily due to patient engagement and marketing activities and an increase in the number of stock-based awards.

Sales and marketing expenses increased by $3.9 million, or 30.8% for the three months ended September 30, 2021 and $10.7 million, or 28.0%, for the nine months ended September 30, 2021 as compared

to the same periods in 2020.

The increase for both comparable periods was primarily due to patient engagement and marketing activities and an increase to stock-compensation expense associated with new awards.

General and Administrative Expenses

General and administrative expenses increased by $6.7 million, or 87.5% for the three months ended June 30, 2021 and $13.1 million, or 82.9%, for the six months ended June 30, 2021 as compared to the same periods in 2020.

This is primarily due to intangible asset amortization of the milestone payment made in connection with the FDA’s approval of WAKIX for the treatment of cataplexy in adult patients with narcolepsy in October 2020, stock compensation associated with new awards, and the additional cost of public company insurance, offset by fees paid to Paragon.

General and administrative expenses increased by $6.3 million, or 60.4% for the three months ended September 30, 2021 and $19.4 million, or 73.9%, for the nine months ended September 30, 2021 as compared to the same periods in 2020.

This is primarily due to intangible asset amortization of the milestone payment made in connection with the FDA’s approval of WAKIX for the treatment of cataplexy in adult patients with narcolepsy in October 2020, an increase to stock compensation associated with new awards, and the additional cost of public company insurance, offset by fees paid to Paragon.

Additionally, general expenses have increased due to an increase in headcount year-over-year as well as additional spend in 2021 following the COVID-19 pandemic in 2020.

Loss on Debt Extinguishment

Loss on debt extinguishment decreased $22.6 million, or 100%, for the six months ended June 30, 2021 as compared to the same period in 2020 due to costs of extinguishment of debt during the period related to the prepayment of the Loan Agreement with CRG.

Loss on debt extinguishment increased $26.1 million, or 100%, for the three months ended September 30, 2021 and increased $3.5 million, or 15.5%, for the nine months ended September 30, 2021 as compared to the same period in 2020.

The three month increase was due to costs of extinguishment of debt during the period related to the prepayment of the OrbiMed Loan Agreement.

The nine month increase was due increased costs relating to the OrbiMed debt extinguishment as compared to the extinguishment of debt pertaining to the Loan Agreement with the multi-draw loan with CRG Servicing LLC (the “CRG Loan”), which occurred in 2020.

Other Expense, Net

Other expense decreased by $0.4 million, or 101.0%, for the three months ended June 30, 2021 and $1.5 million, or 99.0% for the six months ended June 30, 2021, as compared to the same periods in 2020.

Other expense decreased by $1.5 million, or 100.0%, for the three months ended September 30, 2021 and $3.1 million, or 99.5% for the nine months ended September 30, 2021, as compared to the same periods in 2020.

This is primarily due to the change in the fair value of the warranty liability in 2020.

Interest Expense, Net

Interest expense increased by $0.3 million, or 4.2%, or the three months ended June 30, 2021 and $1.0 million, or 7.9%, for the six months ended June 30, 2021, as compared to the same period in 2020 primarily due to payment of interest on the Loan Agreement and amortization of debt issuance costs compared to the payment of interest on the Credit Agreement and amortization of debt issuance costs.

Interest expense decreased by $1.5 million, or 21.8%, or the three months ended September 30, 2021 and $0.5 million, or 2.3%, for the nine months ended September 30, 2021, as compared to the same period in 2020 primarily due to lower interest rates as a result of entering into the Blackstone Credit Agreement in August 2021, partially offset by an increase in amortization of deferred financing costs.

For interim periods, we estimate the annual effective income tax rate and apply the estimated rate to the year-to-date income or loss before income taxes.

The effective income tax rate was 8.4% and 0.0% for the six months ended June 30, 2021 and 2020, respectively.

The effective income tax rate was 8.3% and 0.0% for the nine months ended September 30, 2021 and 2020, respectively.

Currently, we have recorded a full valuation allowance against our net deferred tax assets, primarily related to federal and state net operating losses.

Liquidity and Capital Resources

To date, we have financed our operations primarily with (a) proceeds from sales of our convertible preferred stock, (b) borrowings under (i) our Loan Agreement with CRG and (ii) our Credit Agreement with OrbiMed, and (c) the proceeds from our IPO.

From our inception through June 30, 2021, we have received aggregate proceeds of $345.0 million from sales of our convertible preferred stock.

To date, we have financed our operations primarily with (a) proceeds from sales of our convertible preferred stock;

(b) borrowings under our (i) CRG Loan, (ii) our Credit Agreement with OrbiMed and (iii) our Blackstone Credit Agreement;

and (v) the proceeds from the sale of common stock to Blackstone.

From our inception through September 30, 2021, we have received aggregate proceeds of $345.0 million from sales of our convertible preferred stock.

On August 21, 2020, we completed the IPO of our common stock, in which we sold 6,151,162 shares of our common stock, including 802,325 shares of our common stock pursuant to the underwriters’ over-allotment option.

The shares began trading on the Nasdaq Global Market on August 19, 2020.

The shares began trading on the Nasdaq

Global Market on August 19, 2020.

The shares were sold at a price of $24.00 per share for net proceeds of approximately $135.4 million.

As of June 30, 2021, we had cash, cash equivalents and restricted cash of $160.4 million and accumulated deficit of $466.7 million.

As of June 30, 2021, we had outstanding debt, net of issuance costs, of $195.6 million.

On August 9, 2021, the Company entered into a Credit Agreement (the “New Credit Facility”) with Blackstone Alternative Credit Advisors LP (“Blackstone”) and the other lenders party thereto from time to time and Wilmington Trust, National Association , as administrative agent (the “Administrative Agent”), that provides for (i) a senior secured term loan facility in an aggregate original principal amount of $200.0 million (the “Initial Term Loan”) and (b) a senior secured delayed draw term loan facility in an aggregate principal amount up to $100.0 million (the “DDTL” and, together with the Initial Term Loans, the “Loans”).

In connection with the New Credit Facility, the Company also sold 1,048,951 shares of the Company’s common stock at a price per share of $28.60 for gross proceeds of $30.0 million.

See “Part II – Item 5 – Other Information” below for a further discussion of the New Credit Facility and sale of common stock.

The 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 have incurred operating losses and negative cash flows from operations since inception resulting in an accumulated deficit of $466.7 million as of June 30, 2021.

We believe that our anticipated cash from operating and financing activities, including as a result of potential availability under the DDTL, and existing cash and cash equivalents will enable us to meet our operational liquidity needs and fund our planned investing activities for the next 12 months.

As of September 30, 2021, we had cash, cash equivalents and restricted cash of $190.5 million and accumulated deficit of $476.3 million.

As of September 30, 2021, we had outstanding debt, net of issuance costs, of $192.1 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 anticipated cash from operating and financing activities, including as a result of potential availability under the DDTL (defined below), and existing cash and cash equivalents will enable us to meet our operational liquidity needs and fund our planned investing activities for the next 12 months.

We have based this estimate on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we expect.

See “—Overview—Liquidity and Sources of Funding.”

Blackstone Credit Agreement

On August 9, 2021, the Company entered into the Blackstone Credit Agreement that provides for (i) a senior secured term loan facility in an aggregate original principal amount of $200.0 million (the “Initial Term Loan”) and (ii) a senior secured delayed draw term loan facility in an aggregate principal amount up to $100.0 million (the “DDTL” and, together with the Initial Term Loans, the “Loans”).

The DDTL will become available on August 9, 2022.

We used substantially all of the proceeds from the Blackstone Credit Agreement, and the related sale of our common stock, to repay the balance of the OrbiMed Loan.

The repayment schedule for the Initial Loan consists of quarterly $0.5 million principal payments commencing on December 31, 2021 and increasing to quarterly $5 million payments beginning on March 31, 2024, with a $145.5 million payment due on the maturity date of August 9, 2026 (“Maturity Date”).

Interest is payable quarterly commencing on November 9, 2021 and continuing through the Maturity Date.

The Initial Loan bears interest at a per annum rate equal to LIBOR, subject to a 1.00% floor, plus 6.50%.The Loans are and will be guaranteed by our subsidiary Harmony Biosciences, LLC and certain of our future subsidiaries that are required to become a party thereto as guarantors.

The Blackstone Credit Agreement contains affirmative and negative covenants, including limitations on our ability, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions and enter into affiliate transactions, in each case, subject to certain exceptions.

In addition, the Blackstone Credit Agreement contains a financial covenant that requires us to maintain at all times cash and cash equivalents in certain deposit accounts in an amount at least equal to $10.0 million.

OrbiMed Credit Agreement

On February 28, 2019, we entered into the Loan Agreement with CRG for an aggregate of $200.0 million of which $102.5 million was outstanding as of December 31, 2019.

On January 9, 2020, we entered into the Credit Agreement with OrbiMed for an aggregate of $200.0 million and paid off all of our obligations under the Loan Agreement.

On February 28, 2019, we entered into the CRG Loan for an aggregate of $200.0 million of which $102.5 million was outstanding as of December 31, 2019.

On January 9, 2020, we entered into the Credit Agreement with OrbiMed for an aggregate of $200.0 million and paid off all of our obligations under the CRG Loan.

Borrowings under the Credit Agreement are collateralized by all of the Company’s assets, excluding the intellectual property licensed through the Bioprojet License Agreement.

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We have been in compliance with the financial covenants under the Credit Agreement since it was entered into on January 9,

assets, liquidate or dissolve, amend certain material agreements, enter into sale and leaseback transactions, enter into various other specified transactions, and change our name, location, executive office or executive management without notice.

On August 9, 2021, we used substantially all of the proceeds from the New Credit Facility and the related sale of our common stock to repay the balance of the OrbiMed Loan together with the payment of fees and expenses under the OrbiMed Loan and the New Credit Facility.

See “Part II – Item 5 – Other Information” below for a further discussion of the New Credit Facility and sale of common stock.

The Credit Agreement also contains certain negative restrictive covenants that either limit our ability to, or require a mandatory prepayment in the event we, engage in new lines of business, incur additional indebtedness or liens, make certain investments, make certain payments, pay cash dividends, merge with other companies or consummate certain changes of control, acquire other companies, transfer or dispose of certain assets, liquidate or dissolve, amend certain material agreements, enter into sale and leaseback transactions, enter into various other specified transactions, and change our name, location, executive office or executive management without notice.

Agreement Related to Intellectual Property

In August 2021, the Company entered into an asset purchase agreement with ConSynance Therapeutics, Inc.

to acquire HBS-102 (formerly “CSTI-100”), a potential first-in-class molecule with a novel mechanism of action.

Under the terms of the agreement, the Company acquired full development and commercialization rights globally, with the exception of Greater China, for $3.5 million, which was recorded in research and development within the accompanying unaudited condensed consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2021.

Additionally, there are payments due upon the achievement of certain milestones including $1.8 million for preclinical milestones, $19 million for development milestones, $44 million for regulatory milestones and $110 million for sales milestones.

Recent Milestone Payment

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On January 6, 2021, we made the $100.0 million Cataplexy Milestone Payment in full to Bioprojet.

The following table sets forth a summary of our cash flows for the three months ended June 30, 2021 and 2020:

Six Months Ended June 30,

(In thousands)

The following table sets forth a summary of our cash flows for the three months ended September 30, 2021 and 2020:

Nine Months Ended September 30,

Selected cash flow data

(In thousands)

Cash provided by (used in):

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Operating Activities

Net cash provided by operating activities increased to $30.6 million for the six months ended June 30, 2021 as compared to net cash used in operating activities of $21.9 million for the same period in 2020.

This increase was primarily attributable to company revenue growth and net income associated with the commercialization of WAKIX.

Net cash provided by operating activities for the six months ended June 30, 2021 consisted of our net income of $21.5 million adjusted for non-cash items of $7.2 million related to stock compensation expense and $9.2 million related to intangible amortization and fair value of warrants.

Net cash used in operating activities for the six months ended June 30, 2020 consisted of our net loss of $38.6 million adjusted for non-cash items of $22.6 million associated with loss on extinguishment of debt and $3.7 million related to intangible amortization and fair value of warrants.

Net cash provided by operating activities for the nine months ended September 30, 2021 consisted of our net income of $11.8 million adjusted for non-cash items of $26.1 million related to loss on extinguishment of debt, $14.0 million related to intangible amortization and depreciation and $11.7 million related to stock-based compensation expense.

Net working capital excluding cash decreased by $4.6 million.

Net cash used in operating activities for the nine months ended September 30, 2020 consisted of our net loss of $36.7 million adjusted for non-cash items of $22.6 million associated with loss on extinguishment of debt and $8.7 million related to intangible amortization and fair value of warrants.

Net working capital excluding cash decreased by $11.2 million due to company growth and the commercial launch of WAKIX.

Investing Activities

Net cash used in investing activities increased to $100.2 million for the six months ended June 30, 2021 as compared to $0.0 million for the same period in 2020.

This change was primarily attributable to the $100.0 million milestone payment associated with the Bioprojet License Agreement.

Net cash used in investing activities for the nine months ended September 30, 2021 was $100.3 million, which was primarily attributable to the $100.0 million milestone payment associated with the Bioprojet License Agreement.

There were no significant investing activities for the nine months ended September 30, 2020.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2021 was $0.7 million, as compared to $73.7 million for the same period in 2020.

This change was primarily attributable to $194.2 million associated with the OrbiMed Credit Agreement net of issuance, offset with $120.6 million of repayment and exit fees associated with the CRG Loan Agreement.

Net cash provided by financing activities for the nine months ended September 30, 2021 was $0.3 million, which primarily consisted of $190.9 million in proceeds associated with the Blackstone Credit Agreement, net of issuance costs, and $29.7 million in proceeds associated with issuance of common stock to Blackstone, net of issuance costs.

These proceeds were partially offset by $222.0 million in payments of principal and exit fees associated with the extinguishment of the OrbiMed Credit Agreement.

Net cash provided by financing activities for the nine months ended September 30, 2020 was $210.3 million, which primarily consisted of $194.2 million associated with the OrbiMed Credit Agreement net of issuance costs and net proceeds from our IPO of $135.4 million, offset with $120.6 million of repayment and exit fees associated with the CRG Loan.

Off-Balance Sheet Arrangements

For the six months ended June 30, 2021 and 2020, we did not have any off-balance sheet arrangements, as defined under SEC rules.

For the nine months ended September 30, 2021 and 2020, we did not have any off-balance sheet arrangements, as defined under SEC rules.

Critical Accounting Policies and Significant Judgments and Estimates

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Recent Accounting Pronouncements

See Note 3 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for more information.

See Note 3 to our unaudited condensed consolidated financial statements for recent accounting pronouncements.

We are an “emerging growth company”, or EGC, as defined in the Jumpstart Our Business Startups Act, or JOBS Act, of 2012.

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We will remain an EGC until the earliest of (i) the last day of our fiscal year (a) following the fifth anniversary of the completion of the initial public offering of our common stock, (b) in which we have total annual gross revenues of at least $1.07 billion or (ii) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30 th and (iii) the date on which we have issued more than $1.0 billion in non-convertible debt securities over a three-year period.

We will no longer be an ECG as of December 31, 2021, after which we will not be able to take advantage of the reduced disclosure requirements applicable to an ECG.

Non-GAAP Financial Measures

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We believe that the presentation of these measures provides important supplemental information to management and investors regarding our performance.

These measurements are not a substitute for GAAP measurements, and the manner in which we calculate adjusted net income and adjusted

net income per share may not be identical to the manner in which other companies calculate a djusted net income and a djusted net income per share.

M anagement uses these n on-GAAP measurements as an aid in monitoring our on-going financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against comparable companies.

These measurements are not a substitute for GAAP measurements, and the manner in which we calculate adjusted net income and adjusted net income per share may not be identical to the manner in which other companies calculate adjusted net income and adjusted net income per share.

Management uses these non-GAAP measurements as an aid in monitoring our on-going financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against comparable companies.

EBITDA is intended to provide a measure of the Company’s operating performance as it eliminates the effects of financing and capital expenditures.

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(i) interest expense, (ii) income tax provision, (iii) depreciation and (iv) amortization of intangibles.

Non-GAAP adjusted net income (loss) and non-GAAP adjusted net income (loss) per share are intended to provide an enduring, normalized view of net income and our broader business operations that we expect to experience on an ongoing basis by removing items which may be irregular, one-time, or non-recurring from net income.

Non-GAAP adjusted net income and non-GAAP adjusted net income (loss) per share are intended to provide an enduring, normalized view of net income and our broader business operations that we expect to experience on an ongoing basis by removing items which may be irregular, one-time, or non-recurring from net income.

This enables us to identify underlying trends in our business that could otherwise be masked by such items.

Non-GAAP adjusted net income (loss) consists of GAAP net loss excluding:

Non-GAAP adjusted net income consists of GAAP net loss excluding:

(i) interest expense, (ii) income tax provision, (iii) depreciation, (iv) amortization of intangibles, (v) stock-based compensation, (vi) loss on debt extinguishment, and (vii) warrant expense.

A reconciliation of GAAP net loss to non-GAAP adjusted net income (loss) appears in the table below (in thousands except share and per share data):

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss)

Three Months Ended September 30,

Nine Months Ended September 30,

Net (loss) income

Non-GAAP Adjustments:

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Warrant expense

Non-GAAP adjusted net income (loss)

Non-GAAP adjusted net income

Accumulation of yield on preferred stock

Non-GAAP adjusted net income (loss) available to common stockholders

GAAP reported net income (loss) per diluted share

GAAP reported net (loss) income per diluted share

Non-GAAP adjusted net income (loss) per diluted share

Weighted average number of shares of common stock used in non-GAAP diluted per share (1)

(1) The difference in diluted shares compared to the US GAAP computation for the three months ended September 30, 2021, is because all stock options and warrants have been excluded from the computation of diluted weighted-average shares outstanding.

See Note 14 to the unaudited condensed consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis