What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-21 compared with 2022-02-28 · 242 added, 236 removed, 550 unchanged (46% of the section changed)

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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").

and subsidiary (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders' deficit, and cash flows for each of the three years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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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.

As discussed in Note 3 to the financial statements, effective January 1, 2021, the Company adopted FASB 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

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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.

Gross to Net Rebate Accrual for Medicaid – “Refer to Note 3-Product Sales, Net” to the financial statements

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.

As more fully disclosed in Note 3 to the financial statements, the Company recognizes 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 wholesale acquisition costs, net of applicable reserves for variable consideration that are offered within contracts between the Company and its customers, payors, and other indirect customers relating to the sale of WAKIX.

Components of variable consideration include government and commercial contracts, commercial co-payment assistance program transactions, and distribution service fees.

The rebate provision and related liability related to the Medicaid Drug Rebate Program (the “Medicaid rebate accrual”) involves the use of significant assumptions and judgments in the Company’s calculation.

These significant assumptions and judgements 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.

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Cash and cash equivalents

Investments, short-term

Trade receivables, net

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Restricted cash

Investments, long-term

Intangible assets, net

Deferred tax asset

Other noncurrent assets

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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;

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Additional paid in capital

Accumulated other comprehensive income (loss)

Accumulated deficit

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Total operating expenses

Operating income (loss)

Operating income

Loss on debt extinguishment

Other income (expense), net

Other expense (income), net

Interest expense, net

Income (loss) before income taxes

Income tax expense

Net income (loss) and comprehensive income (loss)

Income tax benefit (expense)

Net income (loss)

Unrealized loss on investments

Comprehensive income

Net income (loss)

Accumulation of dividends on preferred stock

Net income (loss) available to common stockholders

EARNINGS (LOSS) PER SHARE:

EARNINGS PER SHARE:

Weighted average number of shares of common stock - basic

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Series A, B, & C

Balance as of December 31, 2018

Issuance of Series C convertible preferred stock, net of issuance costs

Preferred stock dividend, Series A

Preferred stock accretion, Series A

Preferred stock dividend, Series B

Preferred stock accretion, Series B

Preferred stock dividend, Series C

Preferred stock accretion, Series C

Exercise of stock options

Stock-based compensation

comprehensive

income (loss)

Balance as of December 31, 2019

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Balance as of December 31, 2021

Unrealized loss on investments

Issuance of common stock

Exercise of options

Stock-based compensation

Balance as of December 31, 2022

(1) Common stock of Harmony Biosciences Holdings, Inc.

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Net income (loss)

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

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

Intangible amortization

Milestones associated with acquired in-process research & development (IPR&D)

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

Stock-based and employee stock purchase compensation expense

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Warrant expense

Noncash paid-in-kind interest expense

Debt issuance costs amortization

Deferred taxes

Amortization of premiums and accretion of discounts on Investment securities

Loss on debt extinguishment

Other non-cash expenses

Change in operating assets and liabilities:

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Prepaid expenses and other assets

Other non-current assets

Trade payables

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Other non-current liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of investment securities

Proceeds from maturities and sales of investment securities

Purchase of property and equipment

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Common stock issuance costs

Proceeds from issuance of preferred stock

Preferred stock issuance costs

Proceeds from long term debt

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Net cash provided by financing activities

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

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

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ORGANIZATION AND DESCRIPTION OF BUSINESS

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.

Harmony Biosciences Holdings, Inc., and its consolidated subsidiary (the “Company”) was founded in July 2017 as Harmony Biosciences II, LLC, a Delaware limited liability company.

The Company converted to a Delaware corporation named Harmony Biosciences II, Inc.

in September 2017 and, in February 2020, the Company changed its name to Harmony Biosciences Holdings, Inc.

The Company’s operations are conducted in its wholly owned subsidiary, Harmony Biosciences, LLC (“Harmony”), which was formed in May 2017.

The Company is a commercial-stage pharmaceutical company focused on developing and commercializing innovative therapies for patients living with rare neurological disorders who have unmet medical needs.

The Company is headquartered in Plymouth Meeting, Pennsylvania.

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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.

The shares were sold at a 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.

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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.

The Company had an accumulated deficit of $ 272,130 and $ 453,598 , as of December 31, 2022 and 2021, respectively.

As of December 31, 2022, the Company had cash, cash equivalents, restricted cash and investments of $ 346,433 .

The Company believes that its existing cash, cash equivalents and investments on hand as of December 31, 2022, as well as additional cash generated from operating and financing activities will meet its operational liquidity needs and fund its planned investing activities for the next twelve months from the date of issuance of these consolidated financial statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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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.

All intercompany accounts and transactions have been eliminated.

Significant Risks and Uncertainties

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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.

The Company currently has one commercially approved product, WAKIX, and there can be no assurance that the Company’s research and development efforts will result in successfully commercialized products in addition to WAKIX.

Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies.

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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.

Actual results may differ significantly from estimates, which include rebates due pursuant to commercial and government contracts, accrued research and development expenses, stock-based compensation expense and income taxes.

Operating Segments

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See Note 16 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.

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:

It is the Company’s policy to measure non-financial assets and liabilities at fair value on a nonrecurring basis.

These non-financial assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (such as evidence of impairment), which, if material, are disclosed in the accompanying footnotes.

The Company measures certain assets and liabilities at fair value based on the fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three levels based on the source of inputs as follows:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

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Level 3—Valuations based on unobservable inputs and models that are supported by little or no market activity.

Money market funds are classified as Level 1 fair value instruments.

Investments in available-for-sale debt securities are classified as Level 2 and carried at fair value, which we estimate utilizing a third-party pricing service.

The pricing service utilizes industry standard valuation models whereby all significant inputs, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, or other market-related data, are observable.

We validate valuations obtained from third-party services by obtaining market values from other pricing sources.

The Company did not classify any assets or liabilities as Level 3 as of December 31, 2022 or December 31, 2021.

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.

Cash and cash equivalents and restricted cash consist of cash and, if applicable, highly liquid investments with an original maturity of three months or less when purchased, including investments in Money Market Funds and debt securities that approximate fair value.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheet that equal the amount reflected in the statements of cash flows.

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

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.

Restricted cash includes amounts required to be held as a security deposit in the form of letters of credit for the Company’s credit card program and the fleet program.

The Company’s investments consist of debt securities that are classified as available-for-sale.

Short-term and long-term investments are carried at fair value and unrealized gains and losses are recorded as a component of accumulated comprehensive income in stockholders’ equity.

The amortization of premiums and accretion of discounts adjust the carrying value of investments and are recorded in interest expense, net, on the unaudited condensed consolidated statements of operations and comprehensive income.

Interest income and realized gains and losses, if any, are also recorded in interest expense, net, on the unaudited condensed consolidated statement of operations and comprehensive income.

Realized gains and losses that result from the sale of investments are determined on a specific identification basis.

At each reporting period, the Company reviews any unrealized losses position to determine if the decline in the fair value of the underlying investments is a result of credit losses or other factors.

If the assessment indicates that a credit loss exists, any impairment is recognized as an allowance for credit losses in our consolidated statement of operations.

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.

Substantially all of the Company’s cash and money market funds are held in two financial institutions.

Due to their size, the Company believes these financial institutions represent minimal credit risk.

Deposits may exceed the amount of insurance provided on such deposits by the Federal Deposit Insurance Corporation for U.S.

institutions.

The Company has not experienced any losses on its deposits of cash and cash equivalents.

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 believes that it is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

The Company is 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.

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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.

The Company monitors its exposure within accounts receivable and would record a reserve against uncollectible accounts receivable if necessary.

As of December 31, 2022, three customers accounted for 100 % of gross accounts receivable, Caremark LLC (“CVS Caremark”), which accounted for 41 % of gross accounts receivable;

Accredo Health Group, Inc.

(“Accredo”), which accounted for 35 % 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.

and PANTHERx Specialty Pharmacy LLC (“Pantherx”), which accounted for 24 % of gross accounts receivable.

As of December 31, 2021, 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.

Accredo, which accounted for 40 % of gross accounts receivable, Pantherx, which accounted for 31 % of gross accounts receivable and CVS Caremark, which accounted for 29 % of gross accounts receivable.

For the year ended December 31, 2022, three customers accounted for 100 % of gross product revenues;

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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

33 % of gross products revenues;

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, 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.

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 33 % of gross products revenues;

and Accredo accounted for 27 % of gross product revenues.

The Company depends on a single source supplier for each of its product and active pharmaceutical ingredient.

Inventory is valued at the lower of cost or net realizable value.

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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.

We may capitalize inventory costs associated with products prior to regulatory approval when future commercialization is probable.

otherwise, such costs are expensed as research and development.

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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

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 consolidated statement of operations and comprehensive income (loss) in the period realized.

Intangible Assets

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.

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Our analyses contemplate the application of the constraint in accordance with ASC 606.

Actual amounts of consideration

ultimately received may differ from our estimates.

Actual amounts of consideration 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.

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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.

Components of variable consideration include government (as detailed below) and commercial contracts, commercial co-payment assistance program transactions, and distribution service fees.

These deductions 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.

Government Contracts

We have entered into contracts (i) to participate in the Medicaid Drug Rebate Program and the Medicare Part D program, and (ii) to sell to the U.S.

Department of Veterans Affairs, 340b entities and other government agencies, or government payors, so that WAKIX will be eligible for purchase by, in partial or full reimbursement from, such government payors.

We record reserves for rebates due pursuant to these contracts as a reduction of revenue in the same period in which the revenue is recognized.

The liability for government rebates is included in accrued expenses in our consolidated balance sheet.

We estimate rebates due pursuant to government contracts based upon our historical payment and payor mix trends, information obtained from third parties estimating current payor mix, the government-mandated discounts applicable to government-funded programs, as well as information obtained from our customers.

The liability for these government rebates consists of estimates of claims for WAKIX dispensed in the current period, plus an estimate for product which has shipped and has been recognized as revenue but remains in the distribution channel at the end of a reporting period.

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

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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 Company determines the fair value of stock-based awards on their grant date 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.

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).

The Company also had nonemployee stock awards subject to a performance condition that are recognized based on probable outcome of achieving future events.

Basic and Diluted Net Income (Loss) per Share

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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.

During the year ended December 31, 2022, in part because in the current year we achieved three years of cumulative pretax income, which is a positive indication of the Company’s ability to generate sufficient future taxable income, the Company determined that there was sufficient positive evidence to conclude that it is more likely than not that additional deferred taxes are realizable and, therefore, released the valuation allowance accordingly.

Our 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.

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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.

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 .

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.

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.

ASU 2020-04, Reference Rate Reform (Topic 848) .

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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 guidance was effective upon issuance and could initially be applied to applicable contract modifications through December 31, 2022, which was extended to December 31, 2024 upon the FASB issuing ASU No.

2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848.

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.

The carrying value and amortized cost of the Company’s available-for-sale debt securities, summarized by type of security, consisted of the following:

December 31, 2022

Commercial paper

Corporate debt securities

government securities

Total short-term investments

Commercial paper

Corporate debt securities

government securities

Total long-term investments

The Company classifies investments with an original maturity of less than one year as current and investments with an original maturity date of greater than one year as noncurrent on its consolidated balance sheet.

The investments classified as noncurrent have original maturity dates ranging from 1 - 2 years .

FAIR VALUE MEASUREMENTS

Money market funds are classified as Level 1 fair value instruments.

Investments in available-for-sale debt securities are classified as Level 2 and carried at fair value, which we estimate utilizing a third-party pricing service.

We validate valuations obtained from third-party services by obtaining market values from other pricing sources.

The Company did not classify any assets or liabilities as Level 3 as of December 31, 2022 or December 31, 2021.

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

December 31, 2022

December 31, 2021

Cash equivalents

Commercial paper

Corporate debt securities

government securities

The Company estimated the fair value of the warrant liability using the Black-Scholes option-pricing model at each balance sheet date or when specific events occurred.

As discussed in Note 16, 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

Expected volatility

54.2 % - 68.8

Risk-free interest rate

0.17 % - 1.56

Lack of marketability discount

Expected term (years)

Inventory, net consisted of the following:

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Total inventory, net

INTANGIBLE ASSET

INTANGIBLE ASSETS

In August 2019, the Company received FDA approval of WAKIX ® (pitolisant) for the treatment of excessive daytime sleepiness (“EDS”) in adult patients with narcolepsy.

This event triggered a milestone payment of $ 75,000 under the provisions of the 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.

This event triggered a milestone payment of $ 75,000 under the provisions of the 2017 LCA (defined below) which the Company capitalized as an intangible asset.

The Company determined a useful life of 10 years for such intangible asset, and, as of December 31, 2022 the remaining useful life was 6.8 years.

In October 2020, the Company received FDA approval for the New Drug Application (“NDA”) for WAKIX ® for the treatment of cataplexy in adult patients with narcolepsy.

This event triggered a milestone payment of $ 100,000 under the provisions of the 2017 LCA which the Company capitalized as an intangible asset and paid in January of 2021.

The Company determined a useful life of 9 years for such intangible asset, and, as of December 31, 2022 the remaining useful life was 6.8 years.

In February 2022, the Company attained $ 500,000 in life-to-date aggregate net sales of WAKIX in the United States.

This event triggered a final $ 40,000 payment under the provisions of the 2017 LCA which the Company capitalized as an intangible asset and paid in March of 2022.

The Company determined a useful life of 7.6 years for such intangible asset, and, as of December 31, 2022, the remaining useful life was 6.8 years.

Amortization expense was $ 22,966 , $ 18,424 and $ 9,843 for the years ended December 31, 2022, 2021 and 2020, respectively, and is recorded in general and administrative expenses in the consolidated statements of operations and comprehensive income (loss).

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Net Book Value

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.

LICENSE AGREEMENTS AND ASSET PURCHASE AGREEMENTS

In July 2017, Harmony entered into a License Agreement (the “2017 LCA”) with Bioprojet Société Civile de Recherche (“Bioprojet”) whereby Harmony acquired the exclusive right to commercialize the pharmaceutical compound pitolisant for the treatment, and/or prevention, of narcolepsy, obstructive sleep apnea, idiopathic hypersomnia, and Parkinson’s disease as well as any other indications unanimously agreed by the parties in the United States and its territories.

A milestone payment of $ 50,000 was due upon acceptance by the FDA of pitolisant’s NDA, which was achieved in February 2019 and was expensed within research and development for the year ended December 31, 2019.

A milestone payment of $ 77,000 , which included a $ 2,000 fee that is described below, was due upon FDA approval of WAKIX (pitolisant) for treatment of EDS in adult patients with narcolepsy, which was achieved in August 2019.

The $ 2,000 payment and $ 75,000 milestone payment were paid in August and November 2019, respectively.

In addition, a milestone payment of $ 102,000 , which included a $ 2,000 fee was due upon the FDA approval of the NDA for WAKIX for the treatment of cataplexy in adult patients with narcolepsy.

The $ 2,000 payment was paid in October 2020 and a $ 100,000 milestone payment was paid in January 2021.

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.

A final $ 40,000 milestone payment was paid to Bioprojet in March 2022 upon WAKIX attaining $ 500,000 in aggregate net sales in the United States.

The 2017 LCA also requires a fixed trademark royalty and a tiered royalty based on net sales, which is payable to Bioprojet on a quarterly basis.

The Company incurred $ 77,107 , $ 50,957 and $ 25,580 for the years ended December 31, 2022, 2021 and 2020, respectively, for sales-based, trademark and tiered royalties recognized as cost of product sold.

As of December 31, 2022 and 2021, the Company had accrued $ 25,367 and $ 16,396 , 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.

On July 31, 2022, Harmony entered into a License and Commercialization Agreement (the “2022 LCA”) with Bioprojet whereby Harmony obtained exclusive rights to manufacture, use and commercialize one or more new products based on pitolisant in the United States and Latin America, with the potential to add additional indications and formulations upon agreement of both parties.

Harmony paid an initial, non-refundable $ 30,000 licensing fee in October 2022 and additional payments of up to $ 155,000 are potentially due under the 2022 LCA upon the achievement of certain future development and sales-based milestones.

In addition, there are other payments due upon achievement of development

milestones for new indications and formulations as agreed upon by both parties.

The 2022 LCA also requires a fixed trademark royalty and a tiered royalty based on net sales upon commercialization, which will be payable to Bioprojet on a quarterly basis.

Upon the closing of the 2022 LCA on September 28, 2022, the $ 30,000 licensing fee was recorded in research and development within the consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2022.

Agreement Related to Intellectual Property

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

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

Under the terms of the APA, the Company acquired full development and commercialization rights globally, with the exception of Greater China, for $ 3,500 .

The Company accounted for the transaction as an asset acquisition as substantially all of the fair value of the assets acquired was concentrated in a single identified asset.

Additionally, there are payments due under the APA 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.

ACCRUED EXPENSES

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Other expenses

Milestone payment

Credit Agreements

Blackstone Credit Agreement

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 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 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 was initially available to draw down through August 9, 2022.

In August 2022, the Company entered into an agreement to extend the expiration date of the DDTL to August 9, 2023, for which the Company will pay a ticking fee at a rate of 1 % per annum on the undrawn portion of the DDTL, which commenced on August 10, 2022.

The repayment schedule for the Initial Term Loan consists of quarterly $ 500 principal payments, which commenced 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 continues through the Maturity Date.

The Initial Term Loan bears interest at a per annum rate equal to LIBOR, subject to a 1.00 % floor, plus 6.50 %.

Net cash received from the Initial Term Loan was $ 191,849 , net of debt issuance costs of $ 8,151 .

The debt issuance costs related to the Initial Term Loan are being 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.

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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.

Borrowings under the OrbiMed Loan were collateralized by all of the Company’s assets, excluding the intellectual property licensed through the License Agreement.

The OrbiMed Loan had 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 was 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 extinguishment of the CRG Loan, the Company recognized a loss on extinguishment of $ 22,639 within the Company’s consolidated statement of operations for the year ended December 31, 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.

The Company recognized a loss on extinguishment of $ 26,146 relating to the OrbiMed Loan within the Company’s consolidated statement of operation for the year ended December 31, 2021.

Long-term debt, net consists of the following:

Liability component - principal

Unamortized debt discount associated with the exit fee, debt financing costs and discount with warrant financing (see note 14)

Unamortized debt discount associated with debt financing costs

Liability component - net carrying value

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Years ending December 31,

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,

Interest expense related to the Company’s long term debt, net, is included in interest expense, net in the consolidated statements of operations and comprehensive income (loss) and consists of the following:

Interest on principal balance

Interest on PIK

Amortization of deferred financing costs

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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.

The Company also leases a fleet of automobiles that are used by its sales representatives and are classified as operating leases.

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.

The company recorded operating lease costs of $ 1,526 and $ 1,197 for the years ended December 31, 2022 and 2021, respectively, and recorded rent expense of $ 686 for the year ended December 31, 2020.

As of December 31, 2022, the weighted-average remaining lease term for operating leases was 1.6 years and the weighted-average discount rate for operating leases was 3.8 %.

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December 31, 2022

December 31, 2021

Operating lease right-of-use assets

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December 31, 2022

December 31, 2021

Operating cash flows from operating leases

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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.

As of December 31, 2022, there were no material claims or suits outstanding.

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 issued to former holders of the Company’s convertible preferred stock.

Series A Preferred Stock

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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,

recapitalizations, stock dividends and similar transactions.

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, recapitalizations, stock dividends and similar transactions.

Preferred dividends on the Series B convertible preferred stock were cumulative and were compounded annually.

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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.

STOCKHOLDERS’ EQUITY (DEFICIT)

STOCKHOLDERS’ EQUITY

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 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.

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In September 2021, the Company issued 221,511 shares of common stock in connection with the OrbiMed warrant (see Note 16).

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.

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.

In August 2020, the Company adopted, and its stockholders approved, the 2020 Incentive Award Plan (the “2020 Plan”), in order to facilitate the grant of cash and equity incentives to directors, employees (including the Company’s named executive officers) and consultants of the Company and its subsidiaries.

The 2020 Plan provides for the grant of stock options, including incentive stock options (“ISOs”) and non-qualified stock options (“NSOs”), SARs, restricted stock, dividend equivalents, restricted stock units (“RSUs”) and other stock or cash-based awards.

Stock options and stock appreciation rights under the 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).

Stock options and stock appreciation rights under 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.

As of December 31, 2022, there were 4,746,884 shares of common stock available 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.

2 unchanged sentences

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.

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.

Following the adoption of the 2020 Plan, no further grants have been, or will be, made under the 2017 Plan.

However, the 2017 Plan will continue to govern the terms and conditions of outstanding awards granted under it.

Stock Options

20 unchanged sentences

As of December 31, 2022 and 2021, stock awards issued under the 2017 and 2020 Plans of 1,818,045 and 1,285,432 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 Company values options and SARs using the Black-Scholes option-pricing model.

The Company lacks sufficient historical company-specific volatility information.

Therefore, the Company estimates expected stock volatility based on historical volatility of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price.

For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-

vanilla” options.

For SARs, the expected term is based upon the weighting of certain future events.

The risk-free interest rate is determined by reference to the U.S.

Treasury yield curve in effect at the time of grant of the award for the time periods approximately equal to the expected term of the award.

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.

An expected dividend yield of 0 % is based on the fact that the Company has never paid cash dividends and does not expect to do so in the foreseeable future.

The assumptions used to value the awards are summarized in the following table.

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Lack of marketability discount

26.00 - 31.00

Expected term (years)

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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.

The weighted average per share fair value of awards issued under the 2017 Plan and the 2020 Plan was $ 18.88 , $ 12.82 and $ 10.06 in 2022, 2021 and 2020, 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:

Stock-based compensation expense was $ 26,905 , $ 16,105 and $ 5,190 for the years ended December 31, 2022, 2021 and 2020, respectively, and is recorded in the consolidated statements of operations and comprehensive income (loss) in the following line items:

Year Ended December 31,

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General and administrative expense

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

unrecognized stock-based compensation expense related to Options and RSUs was $ 56,531 .

Stock-based compensation expense, net related to options and RSUs issued under the 2017 Plan and 2020 Plan is included in stockholder’s equity, and a liability for S AR s is included in other non-current liabilities, in the Company’s consolidated balance sheet.

As of December 31, 2022, the total unrecognized stock-based compensation expense related to options and RSUs was $ 83,558 .

Such amount will be recognized in the Company’s consolidated statement of operations over a weighted average period of 2.9 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 2021 Employee Stock Purchase Plan (“ESPP”) was adopted by the Company’s Board of Directors in April 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.

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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.

For the years ended December 31, 2022 and 2021, there were 21,943 and 11,010 shares

issued under the ESPP, respectively.

The discount on the ESPP was $ 363 and $ 173 for the years ended December 31, 2022 and December 31, 2021, respectively, and is recorded within stock-based compensation expense.

In connection with the OrbiMed Loan, the Company issued Warrants to OrbiMed Royalty & Credit Opportunities, LP on January 9, 2020.

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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 September 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.

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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.

Basic earnings per share is calculated by diving net income by the weighted average number of shares of common stock outstanding.

For the years ended December 31, 2022 and 2021, respectively, the Company calculated 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 and restricted stock units.

For the year ended December 31, 2020, the Company used the two-class method to compute net loss per common share because the Company has issued securities (convertible preferred stock) that entitled 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.

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 total 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.

The Company reported a net loss for the year ended December 31, 2020, and the weighted average number of shares utilized for basic and diluted net loss per share attributable to common stockholders are the same for this period 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:

The following table sets forth the computation of basic and diluted net income (loss) per share:

Year Ended December 31,

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Weighted average number of shares of common stock - diluted

Securities outstanding that are included in the computation above, utilizing the treasury stock method are as follows:

Securities outstanding that were included in the computation above, utilizing the treasury stock method are as follows:

Year Ended December 31,

Stock options, SARs, and RSUs to purchase common stock

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:

Potential common shares issuable upon conversion of preferred stock, exercise of stock options, and exercise of warrants that were 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,

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Accrued rebates

Research and development

Net deferred tax asset

Valuation allowance

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.

As of December 31, 2022 and December 31, 2021, our deferred tax assets were primarily the result of acquired in-process research and development costs, operating loss carryforwards, capitalized research and development costs, disallowed interest, inventory, and accrued rebates.

A valuation allowance of $ 96,366 was recorded against our net deferred tax asset balance as of December 31, 2021.

We recorded a tax benefit of $ 74,474 as a discrete item in the year ended December, 2022 related to the release of a valuation allowance on certain deferred tax assets, net, which had accumulated through December 31, 2021.

We also recorded a tax benefit of $ 21,892 as a component to our current year effective tax rate in the year ended December 31, 2022, related to deferred tax assets, net, which were utilized in the current period.

As of each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2022, 2021 and 2020 were as follows:

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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.

Utilization of the net operating loss carryforwards may be subject to a substantial limitation due to state provisions.

These 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, 2022 and 2021, the Company has federal tax credits of $ 0 and $ 168 , respectively.

These credits begin to expire in 2037.

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

Expected volatility

54.2 % - 68.8

Risk-free interest rate

0.17 % - 1.56

Lack of marketability discount

Expected term (years)

RETIREMENT PLAN

The Company formed a 401(k) defined contribution savings plan (the “401(k) Plan”) on January 1, 2021.

The Company formed a 401(k) defined contribution savings plan (the “401(k) Plan”) in January 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.

Employer contributions were $ 1,705 and $ 2,479 for 2022 and 2021, respectively.

RELATED-PARTY TRANSACTIONS

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$ 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, 2022.

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.

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.

As of December 31, 2022 and 2021, there were no amounts due to or due from related parties included within the consolidated balance sheet.

21.VALUATION AND QUALIFYING ACCOUNTS – ACCOUNTS RECEIVABLE, NET

Changes in the valuation allowance for accounts receivable, net during the years ended December 31, 2022, 2021 and 2020 were as follows:

Year Ended December 31,

Allowance for distribution fees, discounts and chargebacks at the beginning of the year

Additions due to current period provision

Deductions due to payment of distribution fees, discounts and chargebacks

Allowance for distribution fees, discounts and chargebacks at the end of the year

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data