Harmony Biosciences Holdings, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. ​ Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 93 Consolidated Balance Sheets 95 Consolidated Statements of Operations and Comprehensive Income (Loss ) 96 Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) 97 Consolidated Statements of Cash Flows 98 Notes to Consolidated Financial Statements 99 ​ ​ ​ ​ 92 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Harmony Biosciences Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Harmony Biosciences Holdings, Inc. and subsidiary (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), convertible preferred stock and stockholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting. Change in Accounting Principle As discussed in Note 3 to the financial statements, effective January 1, 2021, the Company adopted Financial Accounting Standards Board Accounting Standards Update 2016-02, Leases (Topic 842) , using the modified retrospective approach which does not require prior periods to be restated. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ​ 93 Table of Contents Gross to Net Rebate Accrual for Medicaid – “Refer to Note 3-Product Sales, Net” to the financial statements Critical Audit Matter Description As more fully disclosed in Note 3 to the financial statements, the Company reduces gross product sales from list price at the time revenue is recognized for expected charge-backs, discounts, rebates, and sales allowances, which are referred to as gross-to-net (“GTN”) adjustments. These reductions are attributed to various commercial arrangements, managed healthcare organizations, and government programs that mandate various reductions from list price. Charge-backs and cash discounts are reflected as a reduction to receivables and settled through the issuance of credits to the customer. All other rebates, discounts and adjustments, are reflected as a liability and settled through cash payments. The GTN liability related to the U.S. Medicaid government program (the “Medicaid rebate accrual”) involves the use of significant assumptions and judgments in the Company’s calculation. These significant assumptions and judgments include consideration of legal interpretations of applicable laws and regulations, historical claims experience, payer channel mix, current contract prices, unbilled claims, claims submission time lags, and inventory levels in the distribution channel. Given the complexity involved in determining the significant assumptions used in calculating the Medicaid rebate accrual, auditing these estimates involved especially subjective judgment. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Medicaid rebate accrual included the following, among others: ● We evaluated the appropriateness and consistency of the Company’s methods and assumptions used to calculate the Medicaid rebate accrual. ● We tested the effectiveness of internal controls over the review of the Company’s estimation model, including underlying assumptions and key inputs into the Company’s process to calculate the Medicaid rebate accrual. ● We tested the mathematical accuracy of the Medicaid rebate accrual. ● We tested significant assumptions and key inputs used to calculate the Medicaid rebate accrual. ● We evaluated the Company’s ability to estimate the Medicaid rebate accrual accurately by comparing actual amounts incurred for the Medicaid rebate accrual to historical estimates. ● We tested the overall reasonableness of the Medicaid rebate accrual recorded at period end by developing an expectation for comparison to actual recorded balances. /s/ Deloitte & Touche LLP Chicago, Illinois February 28, 2022 We have served as the Company’s auditor since 2017. ​ ​ 94 Table of Contents HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ 2021 2020 ASSETS ​ ​ CURRENT ASSETS: ​ ​ Cash and cash equivalents ​ $ 234,309 ​ $ 228,631 Trade receivables, net ​ 34,843 ​ 22,176 Inventory, net ​ 4,432 ​ 3,823 Prepaid expenses ​ 7,637 ​ 6,959 Other current assets ​ 3,218 ​ 1,302 Total current assets ​ 284,439 ​ 262,891 NONCURRENT ASSETS: ​ ​ Property and equipment, net ​ 820 ​ 938 Restricted cash ​ 750 ​ 750 Intangible assets, net ​ 143,919 ​ 162,343 Other noncurrent assets ​ 3,515 ​ 152 Total noncurrent assets ​ 149,004 ​ 164,183 TOTAL ASSETS ​ $ 433,443 ​ $ 427,074 LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ CURRENT LIABILITIES: ​ ​ Trade payables ​ $ 1,001 ​ $ 2,556 Accrued compensation ​ 9,165 ​ 8,942 Accrued expenses ​ 40,249 ​ 122,727 Current portion of long term debt ​ ​ 2,000 ​ ​ — Other current liabilities ​ 1,360 ​ 314 Total current liabilities ​ 53,775 ​ 134,539 NONCURRENT LIABILITIES: ​ ​ Long term debt, net ​ 189,984 ​ 194,250 Other noncurrent liabilities ​ 3,177 ​ 1,105 Total noncurrent liabilities ​ 193,161 ​ 195,355 TOTAL LIABILITIES ​ 246,936 ​ 329,894 COMMITMENTS AND CONTINGENCIES (Note 9) ​ ​ STOCKHOLDERS’ EQUITY: ​ ​ Preferred stock - $ 0.00001 par value; 10,000,000 shares and 00 shares authorized at December 31, 2021 and December 31, 2020, respectively; 00 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively ​ — ​ — Common stock— $ 0.00001 par value; 500,000,000 shares authorized at December 31, 2021 and December 31, 2020, respectively; 58,825,769 shares and 56,890,569 issued and outstanding at December 31, 2021 and December 31, 2020, respectively ​ 1 ​ 1 Additional paid in capital ​ 640,104 ​ 585,374 Accumulated deficit ​ ( 453,598 ) ​ ( 488,195 ) TOTAL STOCKHOLDERS’ EQUITY ​ 186,507 ​ 97,180 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY ​ $ 433,443 ​ $ 427,074 ​ The accompanying notes are an integral part of the consolidated financial statements ​ 95 Table of Contents HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 2019 Net product revenues ​ $ 305,440 ​ $ 159,742 $ 5,995 Cost of product sold ​ 55,518 ​ 27,738 1,577 Gross profit ​ 249,922 ​ 132,004 4,418 Operating expenses: ​ ​ Research and development ​ 30,367 ​ 19,448 69,595 Sales and marketing ​ 68,118 ​ 55,824 44,318 General and administrative ​ 63,909 ​ 39,746 36,409 Total operating expenses ​ 162,394 ​ 115,018 150,322 Operating income (loss) ​ 87,528 ​ 16,986 ( 145,904 ) Loss on debt extinguishment ​ ( 26,146 ) ​ ( 22,639 ) — Other income (expense), net ​ 16 ​ ( 3,071 ) — Interest expense, net ​ ( 23,970 ) ​ ( 28,220 ) ( 6,073 ) Income (loss) before income taxes ​ 37,428 ​ ( 36,944 ) ( 151,977 ) Income tax expense ​ ( 2,831 ) ​ — — Net income (loss) and comprehensive income (loss) ​ $ 34,597 ​ $ ( 36,944 ) $ ( 151,977 ) Accumulation of dividends on preferred stock ​ — ​ ( 26,904 ) ( 35,231 ) Net income (loss) available to common stockholders ​ $ 34,597 ​ $ ( 63,848 ) $ ( 187,208 ) EARNINGS (LOSS) PER SHARE: ​ ​ Basic ​ $ 0.60 ​ $ ( 2.48 ) $ ( 24.07 ) Diluted ​ $ 0.58 ​ $ ( 2.48 ) $ ( 24.07 ) Weighted average number of shares of common stock - basic ​ 57,531,540 ​ 25,772,419 7,777,441 Weighted average number of shares of common stock - diluted ​ 59,205,213 ​ 25,772,419 7,777,441 ​ The accompanying notes are an integral part of the consolidated financial statements ​ ​ 96 Table of Contents HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Convertible Preferred ​ ​ ​ ​ ​ Total ​ ​ Stock ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ stockholders’ ​ ​ Series A, B, & C ​ ​ Common Stock ​ paid-in ​ Accumulated ​ equity ​ Shares Amount ​ ​ Shares (1) Amount capital ​ deficit ​ (deficit) Balance as of December 31, 2018 293,000,000 ​ $ 324,201 ​ 7,777,100 ​ $ — ​ $ — ​ $ ( 242,673 ) ​ $ ( 242,673 ) Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 151,977 ) ​ ​ ( 151,977 ) Issuance of Series C convertible preferred stock, net of issuance costs ​ 25,510,205 ​ ​ 48,868 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Preferred stock dividend, Series A ​ — ​ ​ 32,160 ​ ​ — ​ ​ — ​ ​ ( 9,994 ) ​ ​ ( 22,166 ) ​ ​ ( 32,160 ) Preferred stock accretion, Series A ​ — ​ ​ 2,742 ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 2,742 ) ​ ​ ( 2,742 ) Preferred stock dividend, Series B ​ — ​ ​ 1,098 ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,098 ) ​ ​ ( 1,098 ) Preferred stock accretion, Series B ​ — ​ ​ 22 ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 22 ) ​ ​ ( 22 ) Preferred stock dividend, Series C ​ — ​ ​ 1,973 ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,973 ) ​ ​ ( 1,973 ) Preferred stock accretion, Series C ​ — ​ ​ 211 ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 211 ) ​ ​ ( 211 ) Exercise of stock options ​ — ​ ​ — ​ ​ 10,370 ​ ​ — ​ ​ 85 ​ ​ — ​ ​ 85 Stock-based compensation ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 9,909 ​ ​ — ​ ​ 9,909 Balance as of December 31, 2019 ​ 318,510,205 ​ ​ 411,275 ​ ​ 7,787,470 ​ ​ — ​ ​ — ​ ​ ( 422,862 ) ​ ​ ( 422,862 ) Net loss — ​ — ​ — ​ — ​ — ​ ( 36,944 ) ​ ( 36,944 ) Preferred stock dividend, Series A — ​ 22,780 ​ — ​ — ​ ( 1,048 ) ​ ( 21,732 ) ​ ( 22,780 ) Preferred stock accretion, Series A — ​ 5,562 ​ — ​ — ​ ( 3,572 ) ​ ( 1,990 ) ​ ( 5,562 ) Preferred stock dividend, Series B — ​ 777 ​ — ​ — ​ 1 ​ ( 778 ) ​ ( 777 ) Preferred stock accretion, Series B — ​ 53 ​ — ​ — ​ ( 37 ) ​ ( 16 ) ​ ( 53 ) Preferred stock dividend, Series C — ​ 3,347 ​ — ​ — ​ — ​ ( 3,347 ) ​ ( 3,347 ) Preferred stock accretion, Series C — ​ 921 ​ — ​ — ​ ( 563 ) ​ ( 359 ) ​ ( 922 ) Issuance of stock upon initial public offering, net of issuance costs ​ — ​ ​ — ​ ​ 6,151,162 ​ ​ — ​ ​ 135,435 ​ ​ — ​ ​ 135,435 Conversion of Series A, B, C convertible stock to common stock ​ ( 318,510,205 ) ​ ​ ( 444,715 ) ​ ​ 42,926,630 ​ ​ 1 ​ ​ 444,715 ​ ​ — ​ ​ 444,716 Reclassification of warrant liability to equity ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 5,468 ​ ​ — ​ ​ 5,468 Exercise of stock options — ​ — ​ 37,947 ​ — ​ 299 ​ — ​ 299 Stock-based compensation — ​ — ​ — ​ — ​ 4,693 ​ — ​ 4,693 Repurchase and cancellation of common units ​ — ​ ​ — ​ ​ ( 12,175 ) ​ ​ — ​ ​ — ​ ​ ( 167 ) ​ ​ ( 167 ) Repurchase and cancellation of common units withheld for taxes ​ — ​ ​ — ​ ​ ( 465 ) ​ ​ — ​ ​ ( 17 ) ​ ​ — ​ ​ ( 17 ) Balance as of December 31, 2020 — ​ $ — ​ 56,890,569 ​ $ 1 ​ $ 585,374 ​ $ ( 488,195 ) ​ $ 97,180 Net income — ​ — ​ — ​ — ​ — ​ 34,597 ​ 34,597 Issuance of common stock — ​ — ​ 1,270,462 ​ — ​ 29,700 ​ — ​ 29,700 Exercise of options — ​ — ​ 664,738 ​ — ​ 9,371 ​ — ​ 9,371 Stock-based compensation — ​ — ​ — ​ — ​ 15,659 ​ — ​ 15,659 Balance as of December 31, 2021 — ​ $ — ​ 58,825,769 ​ $ 1 ​ $ 640,104 ​ $ ( 453,598 ) ​ $ 186,507 ​ (1) Common stock of Harmony Biosciences Holdings, Inc. ​ The accompanying notes are an integral part of the consolidated financial statements ​ ​ 97 Table of Contents HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 ​ 2019 CASH FLOWS FROM OPERATING ACTIVITIES ​ ​ ​ ​ Net income (loss) ​ $ 34,597 ​ $ ( 36,944 ) ​ $ ( 151,977 ) Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ ​ ​ ​ Depreciation ​ 416 ​ 394 ​ ​ 395 Intangible amortization ​ 18,424 ​ 9,843 ​ ​ 2,815 Milestones associated with acquired in-process research & development (IPR&D) ​ — ​ 2,000 ​ ​ 52,000 Stock-based and employee stock purchase compensation expense ​ 15,659 ​ 4,693 ​ ​ 9,909 Stock appreciation rights market adjustment ​ 446 ​ 497 ​ ​ — Warrant expense ​ — ​ 3,109 ​ ​ — Noncash paid-in-kind interest expense ​ — ​ — ​ ​ 2,538 Debt issuance costs amortization ​ 2,238 ​ 2,412 ​ ​ 592 Loss on debt extinguishment ​ 26,146 ​ 22,639 ​ ​ — Change in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Trade receivables ​ ( 12,667 ) ​ ( 17,922 ) ​ ​ ( 4,255 ) Inventory ​ ( 609 ) ​ ( 2,735 ) ​ ​ ( 1,088 ) Prepaid expenses and other assets ​ ( 1,591 ) ​ ( 6,563 ) ​ ​ 1,467 Other non-current assets ​ ( 64 ) ​ 789 ​ ​ ( 420 ) Trade payables ​ ( 1,555 ) ​ ( 3,804 ) ​ ​ 4,898 Accrued expenses and other current liabilities ​ 17,263 ​ 18,450 ​ ​ 7,763 Other non-current liabilities ​ ( 146 ) ​ 157 ​ ​ ( 73 ) Net cash provided by (used in) operating activities ​ 98,557 ​ ( 2,985 ) ​ ( 75,436 ) CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ ​ ​ Purchase of property and equipment ​ ( 298 ) ​ ( 2 ) ​ ​ ( 149 ) Milestone payments ​ ( 100,000 ) ​ ( 2,000 ) ​ ​ ( 127,000 ) Net cash used in investing activities ​ ( 100,298 ) ​ ( 2,002 ) ​ ( 127,149 ) CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ ​ ​ Proceeds from issuance of common stock upon initial public offering ​ — ​ 147,628 ​ ​ — Initial public offering issuance costs ​ — ​ ( 12,193 ) ​ ​ — Proceeds from issuance of common stock ​ ​ 30,000 ​ ​ — ​ ​ — Common stock issuance costs ​ ​ ( 300 ) ​ ​ — ​ ​ — Proceeds from issuance of preferred stock ​ ​ — ​ ​ — ​ ​ 50,000 Preferred stock issuance costs ​ ​ — ​ ​ — ​ ​ ( 1,132 ) Proceeds from long term debt ​ 200,000 ​ 200,000 ​ ​ 100,000 Debt issuance costs ​ ( 9,152 ) ​ ( 5,804 ) ​ ​ ( 5,184 ) Extinguishment of debt ​ ( 200,000 ) ​ ( 102,538 ) ​ ​ — Extinguishment of debt exit fees ​ ( 22,000 ) ​ ( 18,047 ) ​ ​ — Principal repayment of long term debt ​ ​ ( 500 ) ​ ​ ​ ​ ​ ​ Proceeds from exercised options ​ 9,371 ​ 299 ​ ​ 85 Repurchase of common stock ​ — ​ ( 167 ) ​ ​ — Tax payments for employees shares withheld ​ — ​ ( 17 ) ​ ​ — Net cash provided by financing activities ​ 7,419 ​ 209,161 ​ ​ 143,769 NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH ​ 5,678 ​ 204,174 ​ ​ ( 58,816 ) CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period ​ 229,381 ​ 25,207 ​ ​ 84,023 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period ​ $ 235,059 ​ $ 229,381 ​ ​ 25,207 Supplemental Disclosure of Cash Flow Information: ​ ​ ​ ​ Cash paid during the year for interest ​ $ 19,830 ​ $ 26,203 ​ $ 4,230 Cash paid during the year for taxes ​ ​ 2,875 ​ ​ — ​ ​ — Supplemental Disclosures of Noncash Investing and Financing Activities: ​ ​ ​ ​ ​ Series A Preferred Stock accrued return ​ — ​ 22,780 ​ ​ 32,160 Series A accretion of issuance costs ​ — ​ 5,562 ​ ​ 2,742 Series B Preferred Stock accrued return ​ — ​ 777 ​ ​ 1,098 Series B accretion of issuance costs ​ — ​ 53 ​ ​ 22 Series C Preferred Stock accrued return ​ — ​ 3,347 ​ ​ 1,973 Series C accretion of issuance costs ​ — ​ 921 ​ ​ 211 Warrant financing ​ — ​ 2,359 ​ ​ — Warrant liability reclassified to equity ​ — ​ 5,468 ​ ​ — ​ The accompanying notes are an integral part of the consolidated financial statements ​ 98 Table of Contents HARMONY BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 1 . ORGANIZATION AND DESCRIPTION OF BUSINESS The Company Harmony Biosciences Holdings, Inc. (the “Company”) was founded in July 2017 as Harmony Biosciences II, LLC, a Delaware limited liability company, and the Company converted to a Delaware corporation named Harmony Biosciences II, Inc. in September 2017. In February 2020, the Company changed its name to Harmony Biosciences Holdings, Inc. The Company is a holding company and has no operations. The Company’s operations are conducted in its wholly owned subsidiary, Harmony Biosciences, LLC (“Harmony”), which was formed in May 2017. The Company is a commercial-stage pharmaceutical company focused on developing and commercializing innovative therapies for patients living with rare neurological disorders who have unmet medical needs. The Company is headquartered in Plymouth Meeting, Pennsylvania. Initial Public Offering In August 2020, the Company completed its initial public offering (“IPO”) of common stock, in which it sold 6,151,162 shares, including 802,325 shares pursuant to the underwriters’ over-allotment option. The shares were sold at an IPO price of $ 24.00 per share for net proceeds of approximately $ 135,435 , after deducting underwriting discounts and commissions and offering expenses of approximately $ 12,193 payable by the Company. Upon the closing of the IPO, all outstanding shares of the Company’s convertible preferred stock were automatically converted into shares of common stock and the accrued dividend payable to holders of the convertible preferred stock was paid out in shares of common stock, resulting in a total of 42,926,630 shares of common stock being issued to former holders of the Company’s convertible preferred stock. Warrants exercisable for convertible preferred stock were automatically converted into warrants exercisable for a total of 410,239 shares of common stock. Reverse Stock Split In August 2020, the Company implemented a 1-for-8.215 reverse stock split of the Company’s common stock. All share and per share data shown in the accompanying financial statements and related notes have been retroactively revised to reflect the reverse stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of common stock reserved for issuance upon the conversion of the Company’s Preferred Stock and preferred dividend were proportionately reduced. All references in the accompanying consolidated financial statements and related notes to the number of shares of common stock, convertible preferred stock, warrants and options to purchase common stock and per share data reflect the effect of the reverse stock split. 2. LIQUIDITY AND CAPITAL RESOURCES The 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. Prior to the year ended December 31, 2021, the Company had incurred operating losses and negative cash flows from operations resulting in an accumulated deficit of $ 453,598 and $ 488,195 , as of December 31, 2021 and 2020, respectively. As of December 31, 2021, the Company had cash and cash equivalents of $ 234,309 . The Company believes that its existing cash and cash equivalents on hands as December 31, 2021, as well as additional cash generated from operating and financing activities will enable the Company to meet its operational liquidity needs and fund its planned investing activities for the next twelve months from the date of issuance of these consolidated financial statements. 99 Table of Contents 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The 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. 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, the results of clinical testing and trial activities 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; and the Company’s ability to raise capital. The Company currently has one commercially approved product, WAKIX, and there can be no assurance that the Company’s research and development and clinical trials will result in any successfully commercialized products in addition to WAKIX. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting intellectual property. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the Consolidated Financial Statements, including the notes thereto, and elsewhere in this report. Uncertainties related to the magnitude and duration of COVID-19, the extent to which it will impact our estimated future financial results, worldwide macroeconomic conditions including interest rates, employment rates, consumer spending and health insurance coverage, the speed of the anticipated recovery and governmental and business reactions to the pandemic have increased the complexity of developing these estimates, including the carrying amounts of long-lived assets, and the intangible asset. Actual results may differ significantly from our estimates, including as a result of COVID-19. Operating Segments The Company holds all its tangible assets, conducts its operations, and generates its revenues in the U.S. Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Makers in deciding how to allocate resources to an individual segment and in assessing performance. The Company has determined it operates in a single operating segment and has one reportable segment. Fair Value of Financial Instruments The Company’s consolidated financial statements include cash, cash equivalents, accounts payable, and accrued liabilities, all of which are short term in nature and, accordingly, approximate fair value. Additionally, prior to the IPO, the Company’s consolidated financial statements included a warrant liability that was carried at fair value and was re-measured at each balance sheet date until it would be exercised or expired. In connection with the IPO, the Warrants were re-evaluated under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity, and reclassified to equity. See Note 14 for a further discussion of the warrants. It is the Company’s policy, in general, to measure non-financial assets and liabilities at fair value on a nonrecurring basis. The instruments 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. 100 Table of Contents The Company measures certain assets and liabilities at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures . ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date. The guidance in ASC 820 outlines a valuation framework and creates a fair value hierarchy that serves to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value, the Company maximizes the use of quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. The fair value hierarchy is broken down 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. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents 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. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheet that equal the amount reflected in the statements of cash flows. ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ December 31, December 31, ​ ​ 2021 ​ 2020 Cash and cash equivalents ​ $ 234,309 ​ $ 228,631 Restricted cash ​ 750 ​ 750 Total cash, cash equivalents, and restricted cash shown in the statements of cash flows ​ $ 235,059 ​ $ 229,381 ​ Amounts included in restricted cash represent those 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. Concentrations of Risk Substantially all of the Company’s cash and money market funds are held with a single financial institution. Due to its size, the Company believes this financial institution represents minimal credit risk. Deposits in this institution may exceed the amount of insurance provided on such deposits by the Federal Deposit Insurance Corporation for U.S. institutions. The Company has not experienced any losses on its deposits of cash and cash equivalents. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. The Company is also subject to credit risk from its trade receivables related to its product sales. The Company monitors its exposure within accounts receivable and records a reserve against uncollectible accounts receivable as necessary. 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. As of December 31, 2021, three customers accounted for 100 % of gross accounts receivable, Accredo Health Group, Inc. (“Accredo”), which accounted for 40 % of gross accounts receivable; PANTHERx Specialty Pharmacy LLC (“Pantherx”), which accounted for 31 % of gross accounts receivable; Caremark LLC (“CVS Caremark”), which accounted for 29 % of gross accounts receivable. As of December 31, 2020, three customers accounted for 100 % of gross accounts receivable; CVS Caremark, which accounted for 44 % of gross accounts receivable, Pantherx, which accounted for 23 % of gross accounts receivable and Accredo, which accounted for 33 % of gross accounts receivable. For the year ended December 31, 2021, three customers accounted for 100 % of gross product revenues; CVS Caremark accounted for 36 % of gross product revenues; Pantherx accounted for 35 % of gross product revenues; and Accredo accounted for 29 % of gross product revenues. For the year ended December 31, 2020, three customers accounted for 100 % of gross product revenues, CVS Caremark accounted for 40 % of gross product revenues; Pantherx accounted for 101 Table of Contents 33 % of gross products revenues; and Accredo accounted for 27 % of gross product revenues. For the year ended December 31, 2019, two customers accounted for 88 % of gross product revenues; CVS Caremark accounted for 59 % of gross product revenues and Pantherx accounted for 29 % of gross product revenues. The Company depends on a single source supplier for its product, product candidates and their active pharmaceutical ingredient. Inventory Inventory is valued at the lower of cost or net realizable value. Cost is determined using the specific identification method for all inventory. Our policy is to write down inventory that has become obsolete, that has a cost basis in excess of its expected net realizable value and/or that we have quantities in excess of expected future demand. The estimate of excess quantities is subjective and primarily dependent on our estimates of future demand. If our estimate of future demand changes, we consider the impact on the reserve for excess inventory and adjust the reserve as required. Inventory reserves are recorded as a component of cost of product sales in our consolidated statement of operations. We may capitalize inventory costs associated with our products prior to regulatory approval when future commercialization is probable. otherwise, such costs are expensed as research and development. The determination to capitalize inventory costs is based on various factors, including status and expectations of the regulatory approval process, any known safety or efficacy concerns, potential labeling restrictions, and any other impediments to obtaining regulatory approval. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally between three and ten years . Leasehold improvements are depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the term of the lease. The Company’s leasehold improvements primarily relate to its corporate headquarters in Plymouth Meeting, PA, and are generally being depreciated through the end of the lease term in May 2024. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in the statement of operations and comprehensive loss in the period realized. Intangible Asset Intangible assets with finite useful lives consist primarily of purchased developed technology and are amortized on a straight-line basis over their estimated useful lives. The estimated useful lives associated with finite-lived intangible assets are consistent with the estimated lives of the associated products and may be modified when circumstances warrant. Such assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset and its eventual disposition are less than its carrying amount. The amount of any impairment is measured as the difference between the carrying amount and the fair value of the impaired asset. Revenue Recognition We account for contracts with our customers in accordance with ASC 606, Revenue from Contracts with Customers (ASC 606), or ASC 606. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services it transfers to the customer. The amount of variable consideration which is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under contracts will not occur in a future period. Our analyses contemplate the application of the constraint in accordance with ASC 606. Actual amounts of consideration 102 Table of Contents ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. We have determined that the delivery of our product to our customer constitutes a single performance obligation as there are no other promises to deliver goods or services in contracts with our customers. Shipping and handling activities are considered to be fulfilment activities and are not considered to be a separate performance obligation. The payment terms with our customers do not exceed one year and therefore, no amount of consideration has been allocated as a financing component. Taxes collected related to product sales are remitted to governmental authorities and are excluded from revenue. Product Sales, Net We recognize revenue on sales of WAKIX when the customer obtains control of the product, which occurs at a point in time, typically upon delivery. Product revenues are recorded at the product’s list price, net of applicable reserves for variable consideration that are offered within contracts between us and our customers, payors, and other indirect customers relating to the sale of WAKIX. Components of variable consideration include government and commercial contracts, product returns, commercial co-payment assistance program transactions, and distribution service fees. These deductions, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified as a current liability or reduction of receivables. Cost of Product Sold Cost of product sold includes manufacturing and distribution costs, the cost of drug substance, FDA program fees, royalties due to third parties on net product sales, freight, shipping, handling, storage costs, and salaries of employees involved with production. The Company began capitalizing inventory upon FDA approval of WAKIX. A portion of the inventory sold during the year ended December 31, 2020 was produced prior to FDA approval and, therefore, $ 1,323 was expensed as research and development expense during the year ended December 31, 2019. Research and Development Expenses Research and development costs are expensed as incurred. Liabilities due to third parties in connection with research and development collaborations prior to regulatory approval are expensed as incurred. Upfront payments and pre-FDA approval milestone payments made for licensing of technology are expensed as research and development in the period in which they are incurred. Advance payments for goods and services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. Advertising Expenses We expensed the costs of advertising, including promotional expenses, as incurred. Advertising expenses were $ 19,558 , $ 13,301 and $ 7,072 for the years ended December 31, 2021, 2020 and 2019, respectively. Stock-Based Compensation The Company recognizes compensation expense relating to stock-based payment transactions in operating results using a fair value measurement method, in accordance with FASB ASC 718, Compensation-Stock Compensation. ASC 718 requires all stock-based payments to employees to be recognized in operating results as compensation expense based on fair value over the requisite service period of the awards. The vesting periods have a time-based provision consisting of three to five years and expire no more than 10 years after the date of grant. Upon a change of control, certain unvested awards will immediately vest. The Company determines the fair value of stock-based awards using the Black-Scholes option-pricing model, which uses both historical and current market data to estimate fair value. The method incorporates various assumptions, such as the risk-free interest rate, expected volatility, expected dividend yield, and expected life of the options. 103 Table of Contents On January 1, 2019, the Company early adopted and accounts for stock-based payments granted to nonemployees in accordance with ASU 2018-07, Compensation – Stock Compensation (ASC 718): Improvements to Nonemployee Share – Based Payment Accounting. The Company determines the fair value of the stock-based payment as the fair value of the equity instruments issued. It is measured on the grant date. The Company also had nonemployee stock awards subject to a performance condition that are recognized based on probable outcome. On November 15, 2019 the Company modified the award to remove the performance condition resulting in $ 8,400 of noncash expense that is included in the Company’s consolidated results of operations for the year ended December 31, 2019 (see Note 13 for further details). Basic and Diluted Net Income (Loss) per Share Basic net income (loss) per share is determined using the weighted average number of shares of common stock outstanding during each period. Diluted net income per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred stock and stock options, which would result in the issuance of incremental shares of common stock. The computation of diluted net loss per shares does not include the conversion of securities that would have an anti-dilutive effect. The basic and diluted computations of net loss per share for the Company are the same because the effects of the Company’s convertible securities would be anti-dilutive (see Note 15 for further detail). Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets may be reduced by a valuation allowance if, based on all available evidence, it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Management judgment is required in determining the period in which a reversal of a valuation allowance should occur. The Company is required to consider all available evidence, both positive and negative, such as historical levels of income and future forecasts of taxable income among other items, in determining whether a full or partial release of its valuation allowance is required. The Company’s accounting for deferred tax consequences represents the best estimate of those future events. The Company presents deferred income taxes on the Consolidated Balance Sheet on a jurisdictional basis as either a net noncurrent asset or liability. The Company recognizes the effect of income tax positions only if those positions are more likely than not sustainable, based solely on its technical merits and consideration of the relevant taxing authority’s widely understood administrative practices and precedents. Recognized income tax positions are measured at the largest amount that is greater than 50 % likely of being realized. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs. At December 31, 2021 and 2020, the Company did no t have any unrecognized uncertain tax positions. The Company’s policy is to include any interest and penalties as a component of income tax expense. 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 referred to as “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 $ 3,500 . The Company accounted for the transaction as an asset acquisition as substantially all of the fair value of the assets acquired was concentrated in a single identified asset. The payment was recorded in research and development within the consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2021. Additionally, there are payments due upon the achievement of certain milestones including $ 1,750 for preclinical milestones, $ 19,000 for development milestones, $ 44,000 for regulatory milestones and $ 110,000 for sales milestones. 104 Table of Contents ​ Emerging Growth Company Status For the years ended December 31, 2020 and 2019, the Company was an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company had previously elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The Company is no longer an emerging growth company as of December 31, 2021, and is no longer able to take advantage of the reduced disclosure requirements applicable to emerging growth companies. As a result, the Company has adopted several recently issued accounting pronouncements on December 31, 2021 and to reflect the adoption as of January 1, 2021 in our annual results for the period ended December 31, 2021 (see below). Recently Issued Accounting Pronouncements ASU 2016-02 Leases (Topic 842). In February 2016, the FASB issued amended guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities in the balance sheet and disclosing key information about leasing arrangements. The new guidance clarifies the criteria for distinguishing between a finance lease and operating lease, as well as classification between the two types of leases, which is substantially unchanged from the previous lease guidance. Further, the new guidance requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset, initially measured at the present value of the lease payments. For finance leases, a lessee should recognize interest on the lease liability separately from amortization of the right-of-use asset. For operating leases, a lessee should recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis. As the Company is no longer an emerging growth company as of December 31, 2021, the Company adopted this standard on a modified retrospective basis on December 31, 2021 and reflected the adoption as of January 1, 2021 in our annual results for the period ended December 31, 2021. The Company elected the package of practical expedients permitted under the transition guidance, which allows it to carry forward its historical lease classification, its determination regarding whether a contract contains a lease and any initial indirect costs that had existed prior to the adoption of this new standard. The Company also elected not to recognize lease assets and lease liabilities for leases with a term of 12 months or less. The Company recognized $ 1,958 of operating lease right-of-use assets, $ 991 in short-term operating lease liabilities and $ 1,417 of long-term operating lease liabilities on the consolidated balance sheet upon adoption of the new standard. The operating lease liabilities were determined based on the present value of the remaining minimum rental payments and the operating lease right-of-use asset was determined based on the value of the lease liabilities, adjusted for deferred rent and tenant allowance balances of $ 450 , which were previously included in accrued liabilities and other long-term liabilities. ASU 2016-13 Financial Instruments – Credit Losses (Topic 326). In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . ASU No. 2016-13 introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. As the Company is no longer an emerging growth company as of December 31, 2021, the Company adopted this standard on a modified retrospective basis on December 31, 2021 and reflected the adoption as of January 1, 2021 in our annual results for the period ended December 31, 2021, which did not have a significant impact to its consolidated financial statements. ASU 2019-12, Income Taxes (Topic 740 ). In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , which simplifies the accounting for income taxes by removing certain exceptions to the general principles in the existing guidance for income taxes and making other minor improvements. As the Company is no longer an emerging growth company as of December 31, 2021, the Company adopted this standard on December 31, 2021 and reflected the adoption as of January 1, 2021 in our annual results for the period ended December 31, 2021, which did not have a significant impact to its consolidated financial statements. 105 Table of Contents ASU 2020-04, Reference Rate Reform (Topic 848) . In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) , which provides guidance related to reference rate reform. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. The Company is currently evaluating the impact of the transition from LIBOR to alternative reference rates but does not expect a significant impact to its consolidated financial statements. 4. INVENTORY Inventory, net consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ As of ​ December 31, December 31, ​ ​ 2021 ​ 2020 Raw materials ​ $ 986 ​ $ 396 Work in process ​ 1,787 ​ 2,660 Finished goods ​ 2,108 ​ 941 Inventory, gross ​ 4,881 ​ 3,997 Reserve for excess inventory ​ ( 449 ) ​ ( 174 ) Total inventory, net ​ $ 4,432 ​ $ 3,823 ​ ​ ​ ​ 5. INTANGIBLE ASSET In August 2019, the Company received FDA approval of WAKIX ® (pitolisant) for the treatment of excessive daytime sleepiness (“EDS”) in adult patients with narcolepsy. This event triggered a milestone payment of $ 75,000 under the provisions of the License Agreement which the Company capitalized as an intangible asset. The Company determined a useful life of 10 years for this intangible asset, and, as of December 31, 2021 the remaining useful life was 7.8 years. In October 2020, the Company received FDA upon approval for the NDA for WAKIX ® for the treatment of cataplexy in adult patients with narcolepsy. This event triggered a milestone payment of $ 100,000 under the provisions of the License Agreement which the Company capitalized as an intangible asset and paid in January of 2021. The Company determined a useful life of 9 years for this intangible asset, and, as of December 31, 2021 the remaining useful life was 7.8 years. Amortization expense was $ 18,424 , $ 9,843 and $ 2,815 for the years ended December 31, 2021, 2020 and 2019, respectively, and is recorded in general and administrative expenses in the consolidated statements of operations and comprehensive income (loss). The Company expects the future annual amortization expense for the unamortized intangible assets to be as follows: ​ ​ ​ ​ Years ending December 31, ​ ​ 2022 ​ $ 18,570 2023 ​ 18,570 2024 ​ 18,570 2025 ​ 18,570 2026 ​ 18,570 Thereafter ​ ​ 51,069 Total ​ $ 143,919 ​ 106 Table of Contents The gross carrying amount and net book value of the intangible asset is as follows: ​ ​ ​ ​ ​ ​ ​ ​ As of ​ December 31, December 31, ​ ​ 2021 ​ 2020 Gross Carrying Amount ​ $ 175,000 ​ $ 175,000 Accumulated Amortization ​ ( 31,081 ) ​ ( 12,657 ) Net Book Value ​ $ 143,919 ​ $ 162,343 ​ ​ ​ ​ 6 . LICENSE AGREEMENT In July , 2017, Harmony entered into the License Agreement (“the License Agreement”) with Bioprojet Société Civile de Recherche (“Bioprojet”) whereby Harmony acquired the exclusive right to commercialize the pharmaceutical compound pitolisant for the treatment, and/or prevention, of narcolepsy, obstructive sleep apnea, idiopathic hypersomnia, and Parkinson’s disease as well as any other indications unanimously agreed by the parties in the United States and its territories. A milestone payment of $ 50,000 was due upon acceptance by the FDA of pitolisant’s NDA, which was achieved on February 12, 2019 and was expensed within research and development for the year ended December 31, 2019. A milestone payment of $ 77,000 , which included a $ 2,000 fee that is described below, became due upon FDA approval of WAKIX (pitolisant) for treatment of EDS in adult patients with narcolepsy in August 2019. In addition, a milestone payment of $ 102,000 , which included a $ 2,000 fee became due upon the FDA approval of the NDA for WAKIX for the treatment of cataplexy in adult patients with narcolepsy. The $ 2,000 payment was paid in October 2020 and a $ 100,000 milestone payment was paid in January 2021. An additional $ 40,000 milestone payment is due to Bioprojet upon WAKIX attaining $ 500,000 in aggregate net sales in the United States (see Note 20 for further information on milestone payment). The License Agreement also requires a fixed trademark royalty and a tiered royalty payment, all based on net sales, which are payable to Bioprojet on a quarterly basis. During the years ended December 31, 2021, 2020 and 2019, the Company incurred $ 50,957 , $ 25,580 and 938 , respectively, for sales-based, trademark and tiered royalties recognized as cost of product sold. As of December 31, 2021 and 2020, the Company had accrued $ 16,396 and $ 9,006 , respectively, for sales-based, trademark and tiered royalties. The Company had $ 0 and $ 100,000 accrued for milestone payments to Bioprojet as of December 31, 2021 and 2020, respectively. 7. ACCRUED EXPENSES Accrued expenses consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ As of ​ December 31, December 31, ​ ​ 2021 ​ 2020 Royalties due to third parties ​ ​ 16,396 ​ ​ 9,006 Rebates and other sales deductions ​ 17,141 ​ 7,803 Interest ​ ​ 2,125 ​ ​ — Selling and marketing ​ 1,983 ​ 1,905 Research and development ​ 658 ​ 2,186 Professional fees, consulting, and other services ​ 1,645 ​ 1,081 Other expenses ​ 301 ​ 746 Milestone payment ​ ​ — ​ ​ 100,000 ​ ​ $ 40,249 ​ $ 122,727 ​ ​ ​ 8. DEBT Credit Agreements Blackstone Credit Agreement In August 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 $ 200,000 (the “Initial Term Loan”) and (ii) a senior secured 107 Table of Contents delayed draw term loan facility in an aggregate principal amount up to $ 100,000 (the “DDTL” and, together with the Initial Term Loan, the “Loans”). The DDTL will be available to draw down through August 9, 2022. The repayment schedule for the Initial Term Loan consists of quarterly $ 500 principal payments commencing on December 31, 2021 and increasing to quarterly $ 5,000 principal payments beginning on March 31, 2024, with a $ 145,500 payment due on the maturity date of August 9, 2026 (“Maturity Date”). Interest is payable quarterly, which commenced 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 net cash received related to the Initial Term Loan as a result of the transaction, less debt issuance costs of $ 8,151 , was $ 191,849 . The debt issuance costs related to the Initial Term Loan will be amortized as additional interest expense over the five-year loan term of the Blackstone Credit Agreement. In addition, the Company paid $ 1,000 in debt issuance costs relating the DDTL, which are recorded in other current assets within the consolidated balance sheet. The fair value of the Initial Term Loan as of December 31, 2021 was $ 185,389 . OrbiMed Credit Agreement In January 2020, the Company entered into a credit agreement with OrbiMed for an aggregate amount of $ 200,000 (the “OrbiMed Loan”), with a maturity date of January 2026. Borrowings under the OrbiMed Loan are collateralized by all of the Company’s assets, excluding the intellectual property licensed through the License Agreement. The OrbiMed Loan bears an interest rate equal to the sum of (i) the greater of (a) 1-month LIBOR or (b) 2.00 % per annum, plus (ii) 11.00 % per annum, paid in cash monthly in arrears on the last day of each month starting in January 2020. At the time of prepayment or repayment of all or any portion of the principal of the OrbiMed Loan, the Company is required to pay an exit fee of 7.0 % of the principal amount of the OrbiMed Loan prepaid, repaid, or required to be prepaid or repaid. The Company recorded the exit fee as a liability and debt discount at the origination of the term loan. In connection with the OrbiMed Loan, the Company extinguished its $ 200,000 multi-draw loan agreement with CRG Servicing LLC (the “CRG Loan”), which required a payoff amount of $ 120,893 consisting of principal repayment, interest, and exit fees. In connection with extinguishment of the CRG Loan, the Company recognized a loss on extinguishment of $ 22,639 within the Company’s consolidated statements of operations for the nine months ended September 30, 2020. In connection with the Blackstone Credit Agreement, the Company extinguished the OrbiMed Loan, which required a payoff amount of $ 222,666 consisting of principal repayment, interest, exit fees and a prepayment premium. The Company recognized a loss on extinguishment of $ 26,146 relating to the OrbiMed Loan within the Company’s consolidated statements of operation for the year ended December 31, 2021. Long-term debt, net consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2021 ​ 2020 Liability component - principal ​ $ 199,500 ​ $ 200,000 Exit fee ​ — ​ 14,000 Unamortized debt discount associated with the exit fee, debt financing costs and discount with warrant financing (see note 14) ​ ( 7,516 ) ​ ( 19,750 ) Liability component - net carrying value ​ ​ 191,984 ​ ​ 194,250 Less current portion ​ ​ ( 2,000 ) ​ ​ — Long term debt, net ​ $ 189,984 ​ $ 194,250 ​ 108 Table of Contents Future minimum payments relating to long term debt, net as of December 31, 2021 for the periods indicated below consists of the following: ​ ​ ​ ​ ​ Years ending December 31, ​ ​ ​ 2022 ​ $ 2,000 2023 ​ 2,000 2024 ​ 20,000 2025 ​ 20,000 2026 ​ 155,500 Thereafter ​ ​ — Total ​ $ 199,500 ​ Interest expense related to the Company’s long term debt, net, which is included in interest expense, net in the consolidated statements of operations and comprehensive income (loss), consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 ​ 2019 Interest on principal balance $ 21,955 ​ $ 26,203 ​ $ 4,231 Interest on PIK — ​ — ​ 2,538 Amortization of deferred financing costs 2,238 ​ 2,412 ​ 592 Total term loan interest expense $ 24,193 ​ $ 28,615 ​ $ 7,361 ​ ​ ​ 9. LEASES In June 2018, the Company entered into an operating lease for approximately fifteen thousand square feet of office space in Plymouth Meeting, PA, which expires in May 2024. In December 2020, the Company entered into an operating lease for approximately thirteen thousand square feet of additional office space in Plymouth Meeting, PA, which expires in May 2024. The terms of the lease payments provide for rental payments on a monthly basis and on a graduated scale. The Company also leases a fleet of automobiles which are used by its sales representatives and are classified as operating leases. Effective with the adoption of ASC 842 on January 1, 2021, 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 1 year to 3 years , some of which may include the option to extend or terminate the leases. The company recorded operating lease costs of $ 1,197 for the year ended December 31, 2021 and recorded rent expense of $ 686 and $ 1,051 for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2021, the weighted-average remaining lease term for operating leases was 2.5 years and the weighted-average discount rate for operating leases was 3.8 %. Supplemental balance sheet information related to operating leases was as follows: ​ ​ ​ ​ ​ Leases Classification ​ ​ December 31, 2021 Assets ​ ​ ​ ​ Operating lease right-of-use assets Other noncurrent assets ​ $ 3,298 Liabilities ​ ​ ​ ​ Operating lease liability, current portion Other current liabilities ​ $ 1,527 Operating lease liability, long-term Other long-term liabilities ​ ​ 2,233 Total operating lease liabilities ​ ​ $ 3,760 ​ 109 Table of Contents Supplemental cash flow information related to operating leases was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 Operating cash flows from operating leases ​ ​ $ 1,126 Right of use assets obtained in exchange for operating lease obligations (1) ​ ​ $ 4,480 (1) Including the balance recognized on January 1, 2021, upon adoption of ASU No. 2016-02. Future payments under noncancelable operating leases with initial terms of one year or more as of December 31, 2021 consisted of the following: ​ ​ ​ ​ Years ending December 31, ​ ​ 2022 ​ $ 1,638 2023 ​ 1,521 2024 ​ 788 2025 ​ — 2026 ​ — Thereafter ​ — Total lease payments ​ ​ 3,947 Less: imputed interest ​ ​ ( 187 ) Total lease liabilities ​ $ 3,760 ​ ​ 10. COMMITMENTS AND CONTINGENCIES 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. During 2019 the Company was involved in litigation with its former chief executive officer related to arbitration and the value of vested common shares. In October 2019, the Company reached a settlement resulting in a charge of $ 3,466 , which was included in general and administrative expense in the Company’s consolidated results of operations for the year ended December 31, 2019. ​ ​ ​ 11. CONVERTIBLE PREFERRED STOCK Upon the closing of the IPO, all outstanding shares of the Company’s convertible preferred stock were automatically converted into shares of common stock and the accrued dividend payable to holders of the convertible preferred stock was paid out in shares of common stock, resulting in a total of 42,926,630 shares of common stock being issued to former holders of the Company’s convertible preferred stock. Series A Preferred Stock In September 2017, the Company issued 270,000,000 shares of Series A convertible preferred stock for a purchase price of $ 1.00 per share, or $ 270,000 in the aggregate. On January 8, 2018, the Company issued an additional 15,000,000 shares of Series A convertible preferred stock for a purchase price of $ 1.00 per share, or $ 15,000 in the aggregate. Each outstanding share of Series A convertible preferred stock accrued dividends at 10 % per annum of the Series A original issue price, subject to adjustment for stock splits, combinations, recapitalizations, stock dividends and similar transactions. Preferred dividends on the Series A convertible preferred stock were cumulative and were compounded annually. Series B Preferred Stock In January 2018, the Company issued 8,000,000 shares of Series B convertible preferred stock for a purchase price of $ 1.25 per share, or $ 10,000 in the aggregate. Each outstanding share of Series B convertible preferred stock accrued dividends at 10 % per annum of the Series B original issue price, subject to adjustment for stock splits, combinations, 110 Table of Contents recapitalizations, stock dividends and similar transactions. Preferred dividends on the Series B convertible preferred stock were cumulative and were compounded annually. Series C Preferred Stock In August 2019, the Company issued 25,510,205 shares of Series C convertible preferred stock for a purchase price of $ 1.96 per share, or $ 50,000 in the aggregate. Each outstanding share of Series C convertible preferred stock accrued dividends at 10 % per annum of the Series C original issue price, subject to adjustment for stock splits, combinations, recapitalizations, stock dividends and similar transactions. Preferred dividends on the Series C convertible preferred stock were cumulative and were compounded annually. Dividends The holders of Series A, Series B, and Series C convertible preferred stock were entitled to receive, when and if declared by the board of directors of the Company, cumulative dividends equal to a 10 %per annum of Series A, Series B, and Series C convertible preferred stock. In addition, the holders of the outstanding shares of Series A, Series B, and Series C convertible preferred stock were entitled to receive, when and if declared by the board of directors of the Company, a dividend at least equal to any dividend payable on the Company’s common stock as if all convertible preferred stock had been converted to common stock. No dividends were declared as of December 31, 2019. As part of the Company’s IPO, the Company’s accrued cumulative dividend was paid out to holders of Series A, Series B, and Series C convertible preferred stock in shares of the Company’s common stock and reflects the reverse stock split in connection with the mandatory conversion of the Series A, Series B, and Series C convertible preferred stock into shares of the Company’s common stock. 12. STOCKHOLDERS’ EQUITY (DEFICIT) Common Stock In August 2020, the Company implemented a 1-for-8.215 reverse stock split of the Company’s common stock. All share and per share data shown in the accompanying financial statements and related notes have been retroactively revised to reflect the reverse stock split with the exception of the preferred stock. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of common stock reserved for issuance upon the conversion of the Company’s Preferred Stock were proportionately reduced. In August 2020, the Company completed its IPO of common stock, in which it sold 6,151,162 shares, including 802,325 shares pursuant to the underwriters’ over-allotment option. The shares were sold at an IPO price of $ 24.00 per share for net proceeds of approximately $ 135,435 , after deducting underwriting discounts and commissions and offering expenses of approximately $ 12,193 incurred by the Company. The holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of the Company’s stockholders. The holders of common stock do not have any cumulative voting rights. Holders of common stock are entitled to receive ratably any dividends declared by the Company’s board of directors out of funds legally available for that purpose, subject to any preferential dividend rights of any outstanding preferred stock. The Company’s common stock has no preemptive rights, conversion rights or other subscription rights or redemption or sinking fund provisions. In connection with the Blackstone Credit Agreement, in August 2021, the Company sold an aggregate of 1,048,951 shares of our common stock, par value $ 0.00001 per share, for an aggregate cash consideration of $ 30,000 , or $ 28.60 per share. This sale did not involve a public offering and was therefore exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D thereunder as a transaction not involving any public offering. In September 2021, the Company issued 221,511 shares of common stock in connection with the OrbiMed warrant (see Note 14). In November 2019, the Company removed certain forfeiture provisions associated with 1,217,285 common shares held by an investor resulting in $ 8,400 of noncash stock compensation expense reflected in the Company’s consolidated results of operations for the year ended December 31, 2019. 111 Table of Contents 13. STOCK INCENTIVE PLAN AND STOCK-BASED COMPENSATION 2020 Stock Incentive Plan In connection with the Company’s IPO, the board of directors 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 2017 Plan and the 2020 Plan have a 10-year 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 December 31, 2021, there were 4,113,432 shares of common stock reserved for issuance under the 2020 Plan. The number of shares that may be issued under the 2020 Plan will automatically increase on January 1 of each year in an amount equal to the lesser of (i) 4.0 % of the shares of the Company’s common stock outstanding on December 31 of the preceding year or (ii) an amount determined by the Company’s board of directors. 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 common shares through grants of stock options, stock appreciation rights (“SARs”), or restricted stock. 112 Table of Contents Upon the effectiveness of the 2020 Plan, no further grants will be made under the 2017 Plan. However, the 2017 Plan will continue to govern the terms and conditions of outstanding awards granted under under the 2017 Plan. Stock Options The following table summarizes stock option activity for the year ended December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Weighted- ​ Average ​ ​ ​ ​ Average ​ Remaining ​ ​ Number of ​ Exercise ​ Contractual ​ Awards Price Term Awards outstanding—December 31, 2020 5,210,832 ​ $ 17.66 8.63 Awards issued 1,551,502 ​ $ 35.69 Awards exercised ( 668,782 ) ​ $ 14.19 Awards forfeited ( 376,955 ) ​ $ 24.23 Awards outstanding—December 31, 2021 5,716,597 ​ $ 22.53 8.09 ​ Stock Appreciation Rights The following table summarizes SARs activity for the year ended December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Weighted- ​ Average ​ ​ ​ ​ Average ​ Remaining ​ ​ Number of ​ Exercise ​ Contractual ​ Awards Price Term Awards outstanding—December 31, 2020 49,294 ​ $ 9.24 8.29 Awards issued — ​ $ — Awards exercised — ​ $ — Awards forfeited — ​ $ — Awards outstanding—December 31, 2021 49,294 ​ $ 9.24 7.29 ​ Restricted Stock Units The following table summarizes RSU activity for the year ended December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Weighted- ​ Average ​ ​ ​ ​ Average ​ Remaining ​ ​ Number of ​ Exercise ​ Contractual ​ Awards Price Term Awards outstanding—December 31, 2020 — ​ $ — — Awards issued 60,000 ​ $ 29.03 Awards exercised — ​ $ — Awards forfeited — ​ $ — Awards outstanding—December 31, 2021 60,000 ​ $ 29.03 9.24 ​ ​ 113 Table of Contents As of December 31, 2021 and 2020, stock awards issued under the 2017 and 2020 Plans of 1,285,432 and 987,538 common shares, respectively, were vested. The Company has elected early adoption of ASU No. 2016-09 to recognize forfeitures as they occur. As a result of the adoption, for the year ended December 31, 2021 and 2020, respectively, the Company reversed $ 278 and $ 3 out of stock-based compensation previously recorded. Value of Stock Options and SARs The Company values awards using the Black-Scholes option-pricing model. The Company estimates its expected stock volatility based on historical volatility of a peer group of 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. The Company utilizes the “simplified” method to estimate the expected term for option awards that qualify as “plain-vanilla” options. The expected term for SARs granted is estimated 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. Expected dividend yield is zero based upon the fact that the Company has never paid cash dividends and does not intent to do so for the foreseeable future. The assumptions used to value the awards are summarized in the following table. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ December 31, December 31, ​ December 31, ​ 2021 2020 ​ 2019 Dividend yield 0.00 % 0.00 % 0.00 % Expected volatility 60.00 % 55.00 - 95.80 % 95.30 - 99.30 % Risk-free interest rate 0.66 - 1.44 % 0.32 - 0.56 % 1.60 - 2.59 % Lack of marketability discount 0.00 % 0.00 - 20.48 % 26.00 - 31.00 % Expected term (years) 4.1 - 6.3 5.4 - 6.5 ​ 6.5 ​ ​ 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 Plan was $ 12.82 , $ 10.06 and $ 3.45 in 2021, 2020 and 2019, respectively. Stock-Based Compensation Expense Stock-based compensation expense was $ 16,105 , $ 5,190 and $ 9,909 for the years ended December 31, 2021, 2020 and 2019, respectively, and was recorded in the consolidated statements of operations and comprehensive income (loss) in the following line items: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 ​ 2019 Research and development expense ​ $ 2,121 ​ $ 586 ​ $ 287 Sales and marketing expense ​ 3,103 ​ 703 ​ 351 General and administrative expense ​ 10,881 ​ 3,901 ​ 9,271 ​ ​ $ 16,105 ​ $ 5,190 ​ $ 9,909 ​ Options issued under the 2017 Plan and 2020 Plan are reflected as a component of equity in these consolidated financial statements. Stock appreciation rights are reflected as other non-current liability. As of December 31, 2021, the total 114 Table of Contents unrecognized stock-based compensation expense related to Options and RSUs was $ 56,531 . Such amount will be recognized in the Company’s consolidated statement of operations over a weighted average period of 3.4 years. Employee Stock Purchase Plan The 2021 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 15 % discount from the lesser of the fair market value per share of the Company’s common stock on the first day of the offering period or the fair market value of the Company’s common stock on the purchase date. Funds are collected from employees through after-tax payroll deductions. The total number of shares reserved for issuance under the ESPP was initially 629,805 , which will automatically increase on January 1 of each year in an amount equal to the lesser of (i) 1.0 % of the shares of the Company’s common stock outstanding on December 31 of the preceding year or (ii) an amount determined by the Company’s board of directors. It is intended that the ESPP meet the requirements for an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. For the year ended December 31, 2021, there were 11,010 shares issued under the ESPP. The discount on the ESPP for the year ended December 31, 2021 was $ 173 , and is recorded within stock-based compensation expense. ​ ​ ​ 14. WARRANTS In connection with the OrbiMed Loan, the Company issued Warrants to OrbiMed Royalty & Credit Opportunities, LP on January 9, 2020. Pursuant to the Warrants, OrbiMed Royalty & Credit Opportunities, LP, may purchase up to 410,239 shares of the Company’s Common Stock for an initial exercise price of $ 16.10 at any time from the date of execution of the Warrants through the expiration date, defined within the Warrants as the earlier of (i) January 9, 2027 and (ii) the closing date of a Corporate Reorganization. The fair value of the Warrants using the Black-Scholes option-pricing model was $ 2,359 on January 9, 2020 and was initially recorded as a warrant liability which was included in warrant liability in the consolidated balance sheet. The portion of the OrbiMed Loan proceeds allocated to the warrant liability resulted in a debt discount, which is presented in the consolidated balance sheets as a direct deduction from the carrying value of the debt and is being amortized as additional interest expense over the six-year loan term of the OrbiMed Loan. In connection with the Blackstone Credit Agreement, the OrbiMed Loan was repaid in fully and the unamortized debt discount related to the Warrants was included in the loss on debt extinguishment (see Note 12). On September 3, 2021, OrbiMed exercised its option to purchase shares of the Company’s common stock pursuant to the Warrants, which resulted in the net settlement of 221,511 shares of the Company’s common stock issued to OrbiMed. In connection with the IPO, the financial instrument underlying the warrants was converted from the Company’s Series C Preferred Stock to the Company’s Common Stock. As a result of this conversion the Warrants were re-evaluated under ASC 480 Distinguishing Liabilities from Equity and ASC 815 Derivatives and Hedging and reclassified to equity. ​ ​ ​ 15. EARNINGS PER SHARE The Company has reported net income for the year ended December 31, 2021. Diluted net income per common share 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 attributable to common stockholders, the potential dilutive effects of stock options, stock appreciation rights, restricted stock units and warrants. In addition, the Company analyzes the potential dilutive effects of the outstanding convertible preferred stock under the ‘if-converted’ method when calculating diluted earnings per share, in which it is assumed that the outstanding convertible preferred stock converts into common stock at the beginning of the period or when issued if later. The Company reports the more dilutive of the approaches (treasury stock or ‘if converted’) as its diluted net income per share during the period. For the years ended December 31, 2020 and 2019, the Company used the two-class method to compute net loss per common share because the Company has issued securities (convertible preferred stock) that entitle the holder to participate in dividends and earnings of the Company. Under this method, net income is reduced by the amount of any dividends earned and the accretion of convertible preferred stock to its redemption value during the period. The remaining earnings (undistributed earnings) are allocated to common stock and each series of convertible preferred stock to the extent that each preferred security may share in the earnings as if all of the earnings for the period had been distributed. The total 115 Table of Contents earnings allocated to common stock is then divided by the number of outstanding shares to which the earnings are allocated to determine the earnings per share. The two-class method is not applicable during periods with a net loss, as the holders of the convertible preferred stock have no obligation to fund losses. The Company has reported a net loss for the years ended December 31, 2020 and 2019, and the weighted average number of shares utilized for basic and diluted net loss per share attributable to common stockholders are the same for these periods because all convertible preferred stock and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact. Additionally, the fair value adjustment for the warrants was excluded from the computation of diluted net loss for the year ended December 31, 2020 since the additional income would have an antidilutive impact. The following table sets forth the computation of basic and diluted net loss per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 ​ 2019 Numerator ​ ​ ​ ​ ​ Net income (loss) ​ $ 34,597 ​ $ ( 36,944 ) ​ $ ( 151,977 ) Accumulation of dividends on preferred stock ​ — ​ ( 26,904 ) ​ ( 35,231 ) Net income (loss) available to common shareholders ​ $ 34,597 ​ $ ( 63,848 ) ​ $ ( 187,208 ) Denominator ​ ​ ​ Net income (loss) per common share - basic ​ $ 0.60 ​ $ ( 2.48 ) ​ $ ( 24.07 ) Net income (loss) per common share - diluted ​ $ 0.58 ​ $ ( 2.48 ) ​ $ ( 24.07 ) Weighted average number of shares of common stock - basic ​ 57,531,540 ​ 25,772,419 ​ 7,777,441 Weighted average number of shares of common stock - diluted ​ 59,205,213 ​ 25,772,419 ​ 7,777,441 ​ Securities outstanding that are included in the computation above, utilizing the treasury stock method are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 ​ 2019 Stock options, SARs, and RSUs to purchase common stock ​ ​ 1,536,825 ​ ​ — ​ ​ — Warrants ​ ​ 136,848 ​ ​ — ​ ​ — Total ​ ​ 1,673,673 ​ ​ — ​ ​ — ​ Potential common shares issuable upon conversion of preferred stock, exercise of stock options, and exercise of warrants that are excluded from the computation of diluted weighted-average shares outstanding as well as the warrant fair value adjustments excluded from the numerator are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 ​ 2019 Stock options, SARs, and RSUs to purchase common stock ​ ​ 4,289,066 ​ 5,260,126 ​ ​ 2,271,632 Convertible preferred stock ​ ​ — ​ ​ — ​ ​ 36,891,576 Warrants ​ ​ — ​ 410,239 ​ ​ — Total ​ ​ 4,289,066 ​ 5,670,365 ​ ​ 39,163,208 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjustment for warrants ​ $ — ​ $ 3,109 ​ $ — ​ ​ ​ 116 Table of Contents 16. INCOME TAXES Details of the provision for income taxes consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 ​ 2019 Federal ​ $ 6,487 ​ $ ( 6,416 ) ​ $ ( 32,508 ) State ​ 2,852 ​ 4,198 ​ ( 9,641 ) Valuation allowance ​ ( 6,508 ) ​ 2,218 ​ 42,149 ​ ​ $ 2,831 ​ $ — ​ $ — Current ​ $ 2,831 ​ $ — ​ $ — Deferred ​ 6,508 ​ ( 2,218 ) ​ ( 42,149 ) Valuation allowance ​ ( 6,508 ) ​ 2,218 ​ 42,149 Total ​ $ 2,831 ​ $ — ​ $ — ​ The reasons for the difference between the statutory federal income tax rate and the Company’s effective income tax rate as of December 31, 2021, 2020 and 2019 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 2019 ​ Federal income tax rate 21.0 % 21.0 % 21.0 % Stock-based compensation ​ ( 2.3 ) ​ — ​ — ​ State taxes 6.4 ( 11.4 ) ​ 6.3 ​ Other ( 0.2 ) ( 3.6 ) ​ 0.4 ​ Valuation allowance ( 17.3 ) ( 6.0 ) ​ ( 27.7 ) ​ Total 7.6 % — % — % ​ Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2021 and 2020, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2021 2020 ​ ​ Assets Liabilities ​ Assets Liabilities Acquired in-process research and development ​ $ 42,460 ​ $ — ​ $ 45,346 ​ $ — Net operating loss carryforward ​ 29,739 ​ — ​ 44,983 ​ — Accrued compensation ​ 6,285 ​ — ​ 4,075 ​ — Credits ​ 168 ​ — ​ 1,604 ​ — Disallowed interest ​ 7,635 ​ — ​ 7,751 ​ — Lease obligations, net ​ 123 ​ — ​ 121 ​ — Fixed assets ​ 124 ​ — ​ 65 ​ — Inventory ​ 6,294 ​ — ​ 100 ​ — Accrued rebates ​ ​ 4,564 ​ ​ — ​ ​ — ​ ​ — Other ​ 70 ​ 1,096 ​ 71 ​ 1,242 Total ​ $ 97,462 ​ 1,096 ​ $ 104,116 ​ 1,242 Net deferred tax asset ​ $ 96,366 ​ $ — ​ $ 102,874 ​ $ — Valuation allowance ​ $ ( 96,366 ) ​ $ — ​ $ ( 102,874 ) ​ $ — Total ​ $ — ​ $ — ​ $ — ​ $ — ​ The Company has considered available positive and negative evidence to estimate if sufficient future taxable income will be generated to allow utilization of the existing deferred tax assets. Prior to the year ended December 31, 2021, the Company had incurred operating losses and negative cash flows from operations. In light of these considerations, as well as the uncertainty as to when the Company might generate taxable income, the Company has recorded a full valuation allowance of $ 96,366 , which represents an decrease of $ 6,508 in the Company’s valuation allowance from December 31, 2020 to December 31, 2021. The amount of the net deferred tax asset considered realizable could be adjusted in the future if estimates of taxable income change or if objective negative evidence in no longer present and additional weight may be given to subjective evidence. Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2021, 2020 and 2019 were as follows: 117 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 ​ 2019 Valuation allowance at the beginning of the year ​ $ ( 102,874 ) ​ $ ( 100,656 ) ​ $ ( 58,507 ) Decreases recorded as a benefit to income tax provision ​ 6,508 ​ — ​ — Increases recorded to income tax provision ​ ​ — ​ ​ ( 2,218 ) ​ ​ ( 42,149 ) Valuation allowance at the end of the year ​ $ ( 96,366 ) ​ $ ( 102,874 ) ​ $ ( 100,656 ) ​ As of December 31, 2021 and 2020, the Company has approximately $ 98,069 and $ 159,395 , respectively, of federal net operating loss ("NOL") carryforward available to offset future federal taxable income. The Company also has approximately $ 120,074 and $ 157,743 of state NOL carryforwards as of December 31, 2021 and 2020, respectively, available to offset future state taxable income. All of the Company’s tax years remain open to examination by federal and state taxing authorities. The Company’s pre-2018 federal NOLs expire in 2037 whereas the Company’s NOLs arising in 2018, and subsequent years, have an unlimited carryforward period. The Company’s state NOLs begin to expire in 2037 . Utilization of the net operating loss carryforwards may be subject to a substantial limitation due to ownership change limitations that may occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state provisions. These ownership changes may limit the amount of net operating loss and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. As of December 31, 2021 and 2020, the Company has federal tax credits of $ 168 and $ 1,603 , respectively. These credits begin to expire in 2037. 17. FINANCIAL INSTRUMENTS The Company primarily applies the market approach to determine the fair value of financial instruments that are measured at fair value on a recurring basis. There were no changes to its valuation techniques used to determine the fair value of financial instruments during the year ended December 31, 2020. The Company’s financial assets and liabilities which are measured at fair value on a recurring basis were comprised of cash, cash equivalents, and restricted cash of $ 235,059 and $ 229,381 as of December 31, 2021 and 2020, respectively, based on Level 1 inputs. The Company estimates the fair value of the warrant liability using the Black-Scholes option-pricing model at each balance sheet date or when specific events occur. As discussed in Note 13, in connection with the Company’s IPO the warrant fair value was updated on August 19, 2020 with the change in fair value recorded in current period earnings as other expense in the consolidated statement of operations and reclassified to equity. During the year ended December 31, 2020, a loss of $ 3,109 was recorded in other expense in the consolidated statements of operations due to the change in the fair value of the warrant liability. The range of assumptions used to determine the fair value of the warrant liability through August 19, 2020 were as follows: ​ ​ ​ ​ Dividend yield 0.0 % Expected volatility 54.2 % - 68.8 % Risk-free interest rate 0.17 % - 1.56 % Lack of marketability discount 0.0 % Expected term (years) 1 - 4.5 ​ ​ ​ ​ ​ 18. RETIREMENT PLAN The Company formed a 401(k) defined contribution savings plan (the “401(k) Plan”) on January 1, 2021. The 401(k) Plan is for the benefit of all qualifying employees and permits voluntary contributions by employees limited by the IRS-imposed maximum. Employer contributions were $ 2,479 for 2021. 118 Table of Contents 19. RELATED-PARTY TRANSACTIONS The Company was party to a management agreement for professional services provided by a related party, Paragon. The related party is an entity that shares common ownership with the Company. In addition, the Chairman of the Company’s board of directors was the President and owner of the entity. For the years ended December 31, 2021, 2020 and 2019, the Company incurred $ 284 , $ 7,384 and $ 5,378 , respectively, in management fee expense and other expenses to this related party, which are included in general and administrative expense in the consolidated statements of operations and comprehensive income (loss). The Company terminated the Management Services Agreement upon the consummation of its IPO. The Company is also party to a right of use agreement with the related party whereby it has access to and the right to use certain office space leased by the related party in Chicago, Illinois. In addition, the Company had participated in certain transactions with separate related parties that also share common ownership with the Company, primarily related to combined employee health plans. In August 2021, the Company paid a $ 2,300 advisory fee to Paragon in connection with the Blackstone Credit Agreement. $ 2,000 of this payment was recorded in debt issuance costs as a component of long-term debt, net and $ 300 was recorded in common stock issuance costs as a component of additional paid-in capital, within the consolidated balance sheet as of December 31, 2021. As of December 31, 2021 and 2020, respectively, the amounts due to related parties included in current liabilities were $ 0 and $ 0 , respectively, and the amount included in other assets was $ 0 and $ 1 , respectively. 20. SUBSEQUENT EVENTS Subsequent to the year ended December 31, 2021, the Company attained $ 500,000 in aggregate net sales of WAKIX in the United States, which triggered a $ 40,000 payment under the provisions of the License Agreement. The Company expects to make this payment in March 2022. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.