What changed in this filing

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Item 1. Financial Statements

2023-05-02 compared with 2022-11-01 · 117 added, 158 removed, 353 unchanged (44% of the section changed)

4 unchanged sentences

(In thousands, except share and per share data)

September 30,

CURRENT ASSETS:

30 unchanged sentences

Common stock— $ 0.00001 par value;

500,000,000 shares authorized at September 30, 2022 and December 31, 2021, respectively;

59,304,408 shares and 58,825,769 issued and outstanding at September 30, 2022 and December 31, 2021, respectively

500,000,000 shares authorized at March 31, 2023 and December 31, 2022, respectively;

59,954,618 shares and 59,615,731 issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid in capital

9 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Net product revenues

6 unchanged sentences

Operating income

Loss on debt extinguishment

Other expense (income), net

Other income (expense), net

Interest expense, net

Income (loss) before income taxes

Income tax benefit (expense)

Unrealized loss on investments

Income before income taxes

Income tax expense

Unrealized gain on investments

Comprehensive income

12 unchanged sentences

Unrealized loss on investments

Issuance of common stock

Exercise of options

Stock-based compensation

Balance as of September 30, 2022

comprehensive

stockholders’

income (loss)

Balance as of June 30, 2022

Unrealized loss on investments

Issuance of common stock

Exercise of options

Exercise of options and restricted stock units

Stock-based compensation

Balance as of September 30, 2022

Balance as of March 31, 2023

stockholders’

Balance as of December 31, 2021

Issuance of common stock

Exercise of stock options

Stock-based compensation

Balance as of September 30, 2021

stockholders’

Balance as of June 30, 2021

Issuance of common stock

Exercise of options

Stock-based compensation

Balance as of September 30, 2021

Balance as of March 31, 2022

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

3 unchanged sentences

(In thousands, except share and per share data)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

5 unchanged sentences

Deferred taxes

Investment securities interest income

Loss on debt extinguishment

Amortization of premiums and accretion of discounts on Investment securities

Other non-cash expenses

13 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock

Common stock issuance costs

Proceeds from long term debt

Debt issuance costs

Extinguishment of debt

Extinguishment of debt exit fees

Principal repayment of long term debt

18 unchanged sentences

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 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.

Warrants exercisable for convertible preferred stock were automatically converted into warrants exercisable for a total of 410,239 shares of common stock.

LIQUIDITY AND CAPITAL RESOURCES

The unaudited condensed consolidated financial statements have been prepared as though the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company had an accumulated deficit of $ 320,639 and $ 453,598 , as of September 30, 2022 and December 31, 2021, respectively.

As of September 30, 2022, the Company had cash, cash equivalents and investments of $ 316,043 .

The Company believes that its existing cash and cash equivalents on hand as of September 30, 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 unaudited condensed consolidated financial statements.

The Company had an accumulated deficit of $ 242,645 and $ 272,130 , as of March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023, the Company had cash, cash equivalents and investments of $ 392,416 .

The Company believes that its existing cash, cash equivalents and investments on hand as of March 31, 2023, as well as additional cash generated from operating and financing activities will meet its operational liquidity needs and fund its planned investing activities for the next twelve months from the date of issuance of these unaudited condensed consolidated financial statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2 unchanged sentences

All intercompany accounts and transactions have been eliminated in consolidation.

The unaudited condensed consolidated balance sheet as of September 30, 2022, the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2022, and 2021, and the unaudited condensed

consolidated statements of operations and comprehensive income and the unaudited condensed consolidated statements of shareholders’ equity for the three and nine months ended September 30, 2022 and 2021, are unaudited.

The balance sheet as of September 30, 2022, was derived from audited financial statements as of and for the year ended December 31, 2021.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements as of and for the year ended December 31, 2021, and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2022, and the results of its operations and its cash flows for the nine months ended September 30, 2022 and 2021.

The unaudited condensed consolidated balance sheet as of March 31, 2023, the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2023, and 2022, and the unaudited condensed consolidated statements of operations and comprehensive income and the unaudited condensed consolidated statements of shareholders’ equity for the three months ended March 31, 2023 and 2022, are unaudited.

The balance sheet as of March 31, 2023, was derived from audited financial statements as of and for the year ended December 31, 2022.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements as of and for the year ended December 31, 2022, and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2023, and the results of its operations and its cash flows for the three months ended March 31, 2023 and 2022.

The unaudited condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year.

Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted under the SEC’s rules and regulations.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The Company has updated certain prior period disclosures within Note 11 in order to conform with current period presentation.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial

statements and accompanying notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Use of Estimates

1 unchanged sentence

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.

Uncertainties related to the magnitude and duration of COVID-19, the extent to which it will impact our 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 estimates and assumptions used in the preparation of the unaudited condensed consolidated financial statements, including the carrying amounts of long-lived assets, and the intangible asset.

Actual results may differ significantly from our estimates as a result of COVID-19.

Cash, Cash Equivalents and Restricted Cash

1 unchanged sentence

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.

September 30,

Cash and cash equivalents

3 unchanged sentences

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

The 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.

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.

9 unchanged sentences

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.

2 unchanged sentences

Historically, the Company has not experienced credit losses on its accounts receivable.

The Company monitors its exposure within accounts receivable and would record a reserve against uncollectible accounts receivable if necessary As of September 30, 2022, three customers accounted for 100 % of gross accounts receivable;

Caremark LLC (“CVS Caremark”), which accounted for 47 % of gross accounts receivable;

The Company monitors its exposure within accounts receivable and would record a reserve against uncollectible accounts receivable if necessary As of March 31, 2023, three customers accounted for 100 % of gross accounts receivable;

Accredo Health Group, Inc.

(“Accredo”), which accounted for 41 % of gross accounts receivable;

Caremark LLC (“CVS Caremark”), which accounted for 30 % of gross accounts receivable;

and PANTHERx Specialty Pharmacy LLC (“Pantherx”), which accounted for 29 % of gross accounts receivable.

As of December 31, 2022, three customers accounted for 100 % 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 nine months ended September 30, 2022, three customers accounted for 100 % of gross product revenues;

CVS Caremark, which accounted for 41 % of gross accounts receivable, Accredo, which accounted for 35 % of gross accounts receivable;

and Pantherx, which accounted for 24 % of gross accounts receivable.

For the three months ended March 31, 2023, three customers accounted for 100 % of gross product revenues;

CVS Caremark accounted for 35 % of gross product revenues;

1 unchanged sentence

and Accredo accounted for 32 % of gross product revenues.

For the nine months ended September 30, 2021, three customers accounted for 100 % of gross product revenues;

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

CVS Caremark accounted for 38 % of gross product revenues;

6 unchanged sentences

2020-04, Reference Rate Reform (Topic 848) , which provides guidance related to reference rate reform.

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 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 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 condensed 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:

September 30, 2022

March 31, 2023

Commercial paper

2 unchanged sentences

Total short-term investments

Commercial paper

Corporate debt securities

1 unchanged sentence

Total long-term investments

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 unaudited condensed consolidated balance sheet.

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

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

FAIR VALUE MEASUREMENTS

1 unchanged sentence

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.

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:

6 unchanged sentences

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

The Company did not classify any assets or liabilities as Level 3 as of September 30, 2022 or December 31, 2021.

The Company did not classify any assets or liabilities as Level 3 as of March 31, 2023 or December 31, 2022.

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

September 30, 2022

March 31, 2023

December 31, 2022

4 unchanged sentences

Inventory, net consisted of the following:

September 30,

Raw materials

7 unchanged sentences

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

The Company determined a useful life of 10 years for such intangible asset, and, as of September 30, 2022, the remaining useful life was 7.0 years.

The Company determined a useful life of 10 years for such intangible asset, and, as of March 31, 2023, the remaining useful life was 6.5 years.

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

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

The Company determined a useful life of 9 years for such intangible asset, and, as of September 30, 2022, the remaining useful life was 7.0 years.

The Company determined a useful life of 9 years for such intangible asset, and, as of March 31, 2023, the remaining useful life was 6.5 years.

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

This event triggered a final $ 40,000 payment under the provisions of the 2017 LCA which the

Company capitalized as an intangible asset and paid in March of 2022.

The Company determined a useful life of 7.6 years for such intangible asset, and, as of September 30, 2022, the remaining useful life was 7.0 years.

Amortization expense was $ 5,962 and $ 4,573 for the three months ended September 30, 2022 and 2021, respectively, and $ 17,005 and $ 13,781 for the nine months ended September 30, 2022 and 2021, respectively, and is recorded in general and administrative expenses on the unaudited condensed consolidated statements of operations and comprehensive income.

Future amortization expense relating to unamortized intangible assets as of September 30, 2022 for the periods indicated below consists of the following:

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 March 31, 2023, the remaining useful life was 6.5 years.

Amortization expense was $ 5,961 and $ 5,082 for the three months ended March 31, 2023 and 2022, respectively, and is recorded in general and administrative expenses on the unaudited condensed consolidated statements of operations and comprehensive income.

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

Years ending December 31,

2022 (Excluding the nine months ended September 30, 2022)

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

September 30,

2023 (Excluding the three months ended March 31, 2023)

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

Gross Carrying Amount

1 unchanged sentence

Net Book Value

LICENSE AND ASSET PURCHASE AGREEMENTS

LICENSE AGREEMENTS AND ASSET PURCHASE AGREEMENTS

License Agreements

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

A milestone payment of $ 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 $ 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.

4 unchanged sentences

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 $ 20,944 and $ 13,202 for the three months ended September 30, 2022 and 2021, respectively, and $ 51,741 and $ 34,561 for the nine months ended September 30, 2022 and 2021, respectively, for sales-based, trademark and tiered royalties recognized as cost of product sold.

As of September 30, 2022 and December 31, 2021, the Company had accrued $ 20,944 and $ 16,396 , respectively, for sales-based, trademark and tiered royalties.

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 will pay an initial, non-refundable $ 30,000 licensing fee 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 certain payments due upon achievement of development milestones for new indications and formulations as agreed upon by both parties.

The Company incurred $ 19,060 and $ 13,672 for the three months ended March 31, 2023 and 2022, respectively, for sales-based, trademark and tiered royalties recognized as cost of product sold.

As of March 31, 2023 and December 31, 2022, the Company had accrued $ 19,060 and $ 25,367 , respectively, for sales-based, trademark and tiered royalties.

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 unaudited condensed consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2022.

Agreement Related to Intellectual Property

3 unchanged sentences

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.

In March 2023, the Company achieved a preclinical milestone, which triggered a $ 750 payment under the provisions of the APA, which the Company recognized as an IPR&D charge recorded in research and development within the unaudited condensed consolidated statement of operations and comprehensive income for the three months ended March 31, 2023.

There are additional payments due under the APA upon the achievement of certain milestones including $ 1,000 for preclinical milestones, $ 19,000 for development milestones, $ 44,000 for regulatory milestones and $ 110,000 for sales milestones.

ACCRUED EXPENSES

Accrued expenses consist of the following:

September 30,

Royalties due to third parties

3 unchanged sentences

Professional fees, consulting, and other services

Licensing fee

Other expenses

4 unchanged sentences

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”).

payable quarterly, which commenced on November 9, 2021, and continues through the 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 as a result of the transaction, less debt issuance costs of $ 8,151 , was $ 191,849 .

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 unaudited condensed consolidated balance sheet.

The fair value of the Initial Term Loan as of September 30, 2022 was $ 149,226 .

The fair value of the Initial Term Loan as of March 31, 2023 was $ 168,569 .

Long-term debt, net consists of the following:

September 30,

Liability component - principal

3 unchanged sentences

Long-term debt, net

Future minimum payments relating to long-term debt, net as of September 30, 2022, for the periods indicated below consists of the following:

Future minimum payments relating to long-term debt, net as of March 31, 2023, for the periods indicated below consists of the following:

Years ending December 31,

2022 (Excluding the nine months ended September 30, 2022)

2023 (Excluding the three months ended March 31, 2023)

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

Three Months Ended

Nine Months Ended

September 30,

Interest on principal balance

2 unchanged sentences

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 Company subsequently entered two separate operating leases for additional office space in Plymouth Meeting, PA, which include approximately thirteen thousand square feet and seven thousand square feet of additional office space, respectively, and expire in May 2024.

The terms of the lease payments provide for rental payments on a monthly basis and on a graduated scale.

3 unchanged sentences

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 $ 378 and $ 359 for the three months ended September 30, 2022 and 2021, respectively, and $ 1,155 and $ 916 for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, the weighted-average remaining lease term for operating leases was 1.9 years and the weighted-average discount rate for operating leases was 3.8 %.

The Company recorded operating lease costs of $ 378 and $ 385 for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, the weighted-average remaining lease term for operating leases was 1.5 years and the weighted-average discount rate for operating leases was 4.6 %.

Supplemental balance sheet information related to operating leases was as follows:

Classification

September 30, 2022

March 31, 2023

December 31, 2022

7 unchanged sentences

Supplemental cash flow information related to operating leases was as follows:

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Operating cash flows from operating leases

Right of use assets obtained in exchange for operating lease obligations

(1) Including the balance recognized on January 1, 2021, upon adoption of ASU No.

Future payments under noncancelable operating leases with initial terms of one year or more as of September 30, 2022 consisted of the following:

Future payments under noncancelable operating leases with initial terms of one year or more as of March 31, 2023 consisted of the following:

Years ending December 31,

2022 (Excluding the nine months ended September 30, 2022)

2023 (Excluding the three months ended March 31, 2023)

Total lease payments

4 unchanged sentences

The Company accrues such liabilities when they are known, if they are deemed probable and can be reasonably estimated.

As of September 30, 2022, there were no material claims or suits outstanding.

As of March 31, 2023, there were no material claims or suits outstanding.

STOCKHOLDERS’ EQUITY

9 unchanged sentences

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 September 30, 2022, there were 4,932,502 shares of common stock available for issuance under the 2020 Plan.

As of March 31, 2023, there were 4,647,087 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.

2017 Stock Incentive Plan

On August 7, 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.

In August 2017, the Company adopted an equity incentive plan (the “2017 Plan”).

Under the 2017 Plan, directors, officers, employees, consultants, and advisors of the Company can be paid incentive compensation measured by the value of the Company’s shares of common stock through grants of stock options, stock appreciation rights (“SARs”), or restricted stock.

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

1 unchanged sentence

Stock Options

The following table summarizes stock option activity for the nine months ended September 30, 2022:

The following table summarizes stock option activity for the three months ended March 31, 2023:

Awards outstanding—December 31, 2022

2 unchanged sentences

Awards forfeited

Awards outstanding—September 30, 2022

Awards outstanding—March 31, 2023

Stock Appreciation Rights

The following table summarizes SARs activity for the nine months ended September 30, 2022:

The following table summarizes SARs activity for the three months ended March 31, 2023:

Awards outstanding—December 31, 2022

2 unchanged sentences

Awards forfeited

Awards outstanding—September 30, 2022

Awards outstanding—March 31, 2023

Restricted Stock Units

The following table summarizes RSU activity for the nine months ended September 30, 2022:

The following table summarizes RSU activity for the three months ended March 31, 2023:

Awards outstanding—December 31, 2022

Awards issued

Awards exercised

Awards vested

Awards forfeited

Awards outstanding—September 30, 2022

As of September 30, 2022 and December 31, 2021, stock awards issued under the 2017 and 2020 Plans of 1,753,234 and 1,285,432 common shares, respectively, were vested.

Awards outstanding—March 31, 2023

As of March 31, 2023 and December 31, 2022, stock awards issued under the 2017 and 2020 Plans of 2,219,090 and 1,818,045 shares of common stock, respectively, were vested.

Value of Stock Options and SARs

2 unchanged sentences

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 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.

3 unchanged sentences

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

September 30,

Dividend yield

2 unchanged sentences

Risk-free interest rate

Lack of marketability discount

Expected term (years)

1 unchanged sentence

The fair value of RSUs is equal to the value of the Company’s common stock on the grant date.

The weighted average per share fair value of awards issued under the 2017 Plan and 2020 Plan was $ 17.60 and $ 12.82 on September 30, 2022 and December 31, 2021, respectively.

The weighted average per share fair value of awards issued under the 2017 Plan and 2020 Plan was $ 19.83 and $ 18.88 on March 31, 2023 and December 31, 2022, respectively.

Stock-Based Compensation Expense

Stock-based compensation expense, net for the three and nine months ended September 30, 2022 and 2021, was recorded in the unaudited condensed consolidated statements of operations and comprehensive income in the following line items:

Three Months Ended September 30,

Nine Months Ended September 30,

Stock-based compensation expense, net for the three months ended March 31, 2023 and 2022, was recorded in the unaudited condensed consolidated statements of operations and comprehensive income in the following line items:

Three Months Ended March 31,

Research and development expense

2 unchanged sentences

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 SARs is included in other non-current liabilities, in the Company’s unaudited condensed consolidated balance sheet.

As of September 30, 2022, the total unrecognized stock-based compensation expense related to Options and RSUs was $ 83,981 .

As of March 31, 2023, the total unrecognized stock-based compensation expense related to options and RSUs was $ 77,333 .

Such amount will be recognized in the Company’s consolidated statement of operations over a weighted average period of 2.8 years.

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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.

intended that the ESPP meet the requirements for an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.

For both the three and nine months ended September 30, 2022, there were 14,889 shares issued under the ESPP.

There were no shares issued under the ESPP for the three and nine months ended September 30, 2021.

The discount on the ESPP was $ 86 and $ 60 for the three months ended September 30, 2022 and 2021, respectively, and $ 271 and $ 80 for the nine months ended September 30, 2022 and 2021, respectively, and is recorded within stock-based compensation expense.

It is intended that the ESPP meet the requirements for an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.

There were no shares issued under the ESPP for each of the three months ended March 31, 2023 and 2022.

The discount on the ESPP was $ 105 and $ 94 for the three months ended March 31, 2023 and 2022, respectively, and is recorded within stock-based compensation expense.

EARNINGS PER SHARE

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

Diluted net income per 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, the potential dilutive effects of stock options, stock appreciation rights, restricted stock units and warrants.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Net income per common share - basic

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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:

Three Months Ended September 30,

Nine Months Ended September 30,

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

Three Months Ended March 31,

Stock options, SARs, and RSUs to purchase common stock

Potential common shares issuable that were excluded from the computation of diluted weighted-average shares outstanding excluded from the numerator, are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Potential shares of common stock issuable that were excluded from the computation of diluted weighted-average shares outstanding excluded from the numerator, are as follows:

Three Months Ended March 31,

Stock options, SARs, and RSUs to purchase common stock

As of September 30, 2022 and December 31, 2021, our deferred tax assets were primarily the result of acquired in-process research and development costs, operating loss carryforwards, deferred 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 three and nine months ended September 30, 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 three and nine months ended September 30, 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.

As of September 30, 2022, in part because in the current quarter 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.

The reasons for the difference between the statutory federal income tax rate and the Company’s effective income tax rate for the three months ended March 31, 2023 and 2022 are as follows:

Three Months Ended March 31,

Federal income tax rate

Stock-based compensation

Valuation allowance

RELATED-PARTY TRANSACTIONS

The Company was party to a management agreement for professional services provided by a related party, Paragon Biosciences, LLC (“Paragon”).

The related party is an entity that shares common ownership with the Company.

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.

The Company terminated the management 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.

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, IL.

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.

The Company incurred $ 71 for each of the three months ended September 30, 2022 and 2021, and $ 213 for each of the nine months ended September 30, 2022 and 2021, in expenses to this related party, which are included in general and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive loss.

As of September 30, 2022 and December 31, 2021, there were no amounts due to or due from related parties included in the unaudited condensed consolidated balance sheets.

The Company incurred $ 71 for each of the three months ended March 31, 2023 and 2022, in expenses to this related party, which are included in general and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive loss.

As of March 31, 2023 and December 31, 2022, there were no amounts due to or due from related parties included in the unaudited condensed consolidated balance sheets.

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

What changed 10-Q

Item 1. Financial Statements