What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-01 compared with 2023-05-02 · 65 added, 56 removed, 212 unchanged (36% of the section changed)

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In April 2022, we initiated a Phase 3 registrational trial, the INTUNE Study, to evaluate the efficacy and safety of pitolisant in adult patients with IH.

We continue to see strong momentum in the INTUNE Study and we anticipate topline data in the fourth quarter of 2023.

We have seen strong momentum in the INTUNE Study and completed enrollment in the study in May 2023.

We are on track for topline data from this Phase 3 registrational trial in the fourth quarter of 2023.

We are focusing our development efforts on other rare neurological disorders in which EDS is a prominent symptom, including Prader-Willi Syndrome (“PWS”) and myotonic dystrophy, otherwise known as dystrophia myotonica (“DM”).

Based on the data from our Phase 2 proof-of-concept clinical trial to evaluate pitolisant for the treatment of EDS and other key symptoms in patients with PWS, an end-of-phase 2 meeting with the FDA is scheduled in late second quarter of 2023.

We intend to advance our development program in patients with PWS to a Phase 3 trial.

In June 2021, we initiated a Phase 2 proof-of-concept clinical trial to evaluate pitolisant for the treatment of EDS, fatigue and cognitive dysfunction in adult patients with DM1 and anticipate topline results from this trial in the fourth quarter of 2023.

Our partner, Bioprojet, completed a Phase 3 trial in pediatric patients with narcolepsy and submitted the trial data to the European Medical Agency (“EMA”) seeking approval for a pediatric narcolepsy indication.

On March 15, 2023, Bioprojet received an approval from the EMA’s Committee for Medicinal Products for Human Use (“CHMP”) for a pediatric narcolepsy indication.

We are working with Bioprojet towards the submission to the FDA of a supplemental NDA for pediatric narcolepsy.

In addition, we are working with the FDA to gain alignment in pursuit of pediatric exclusivity for WAKIX.

We also seek to expand our pipeline through the acquisition of additional assets that focus on addressing the unmet needs of patients living with rare neurological diseases as well as patients living with other neurological diseases who have unmet medical needs.

Based on the positive signals from the data from our Phase 2 proof-of-concept clinical trial to evaluate pitolisant for the treatment of EDS and other key symptoms in patients with PWS, an end-of-phase 2 meeting with the FDA was held in June 2023.

We aligned with the FDA on the proposed Phase 3 study to support further investigation of pitolisant as a potential treatment to address the unmet medical need for children, adolescents and adults with PWS experiencing EDS, for which there is currently no approved treatment.

We plan to initiate the Phase 3 study in the fourth quarter of 2023.

In June 2021, we initiated a Phase 2 proof-of-concept clinical trial to evaluate pitolisant for the treatment of EDS, fatigue and cognitive dysfunction in adult patients with DM1 and we are on track for topline results from this trial in the fourth quarter of 2023.

Our partner, Bioprojet, completed a Phase 3 trial in pediatric patients with narcolepsy and received an approval from the European Medical Agency’s (“EMA”) Committee for Medicinal Products for Human Use (“CHMP”) for a pediatric narcolepsy indication.

We are working with Bioprojet towards the submission to the FDA of a supplemental NDA for pediatric narcolepsy, which we plan to submit in the fourth quarter of 2023.

In addition, we made progress with FDA in gaining alignment on the requirements for pediatric exclusivity for WAKIX, which we are actively pursuing.

We are actively working to expand our pipeline through the acquisition of additional assets that focus on addressing the unmet needs of patients living with rare neurological diseases as well as patients living with other neurological diseases who have unmet medical needs.

We are targeting assets that will allow us to further leverage the expertise and infrastructure that we have successfully built at Harmony so we can optimize the benefit of internal synergies.

Consistent with this objective, in July 2022, we entered into a License and Commercialization Agreement (the “2022 LCA”) with Bioprojet whereby we obtained exclusive rights to manufacture, 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 the agreement of both parties.

Formulations related work between us and Bioprojet is ongoing.

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

The 2022 LCA has the potential to generate new intellectual property and extend the pitolisant franchise.

We are co-developing the new formulations of pitolisant with Bioprojet and work is ongoing.

In addition, in August 2021, we entered into an asset purchase agreement with ConSynance Therapeutics, Inc.

(the “APA”) to acquire HBS-102, a Melanin-concentrating hormone receptor 1 (MCHR1) antagonist previously developed as CSTI-100/ALB-127258(a)/ALB-127258 (the “Compound”), along with intellectual property and other assets related to the development, manufacture, and commercialization of the Compound.

In connection with the acquisition, we made an upfront payment of $3.5 million and will be required to make additional payments upon the achievement of certain development milestones, regulatory milestones, and sales milestones and pay ongoing royalties upon commercialization.

We acquired full development and commercialization rights globally, but we have provided a grant-back license to ConSynance for the

development and commercialization of the Compound in Greater China.

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

A preclinical proof-of-concept study to assess the effect of HBS-102 on hyperphagia, weight gain, and other metabolic parameters in a mouse model of PWS is ongoing.

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Commercial Performance Metrics

As of March 31, 2023, we continued to see growth in the number of unique healthcare professional (“HCP”) prescribers of WAKIX since it became available in November 2019.

The average number of patients on WAKIX for the three months ended March 31, 2023 was approximately 5,100.

Additionally, as of March 31, 2023, we have secured formulary access for more than 80% of all insured lives (Commercial, Medicare and Medicaid) in the United States.

As of June 30, 2023, we continued to see growth in the number of unique healthcare professional (“HCP”) prescribers of WAKIX since it became available in November 2019.

The average number of patients on WAKIX for the three months ended June 30, 2023 was approximately 5,450.

Additionally, as of June 30, 2023, we have secured formulary access for more than 80% of all insured lives (Commercial, Medicare and Medicaid) in the United States.

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

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We expect the cost of product sales to increase as we continue to ramp up production in order to meet future demand for WAKIX and diversify our supply chain for WAKIX.

The shelf life of WAKIX is three years from date of manufacture, with the earliest expiration of current inventory expected to be February 2024.

The shelf life of WAKIX is three years from date of manufacture, with the earliest expiration of current inventory expected to be January 2025.

We regularly review our inventory levels and expect write-offs from time to time.

We will continue to assess inventory levels in future periods as demand for WAKIX and the rate

of inventory turnover evolves.

We currently expect to have adequate supply of WAKIX into the first quarter of 2024, with additional API on-hand inventory to support at least 36 months beyond this time frame.

We will continue to assess inventory levels in future periods as demand for WAKIX and the rate of inventory turnover evolves.

We currently expect to have adequate supply of WAKIX into the third quarter of 2024, with additional API on-hand inventory to support at least 36 months beyond this time frame.

Research and Development Expenses

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We are also party to a right-of-use agreement with Paragon whereby we have access to and the right to use certain office space leased by Paragon in Chicago, Illinois.

For the three months ended March 31, 2023, we paid fees of $0.1 million pursuant to this agreement.

For the three and six months ended June 30, 2023, we paid fees of $0.1 million and $0.2 million, respectively, pursuant to this agreement.

Interest Expense, Net

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Net product revenue

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Operating income

Other income (expense), net

Other (expense) income, net

Interest expense, net

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Net Product Revenue

Net product revenue increased by $33.8 million, or 39.6%, for the three months ended March 31, 2023, compared to the same period in 2022.

The increase was due to the growth in the average number of patients on WAKIX from 4,300 during the three months ended March 31, 2022 to 5,100 during the three months ended March 31, 2023, and price increases.

Net product revenue increased by $27.2 million, or 25.4%, for the three months ended June 30, 2023 and increased by $61.0 million, or 31.7%, for the six months ended June 30, 2023, compared to the same periods in 2022.

The increase in both comparable periods was due to the growth in the average number of patients on WAKIX, and price increases.

The average number of patients increased from 4,300 for the three months ended June 30, 2022 to 5,450 for the three months ended June 30, 2023.

Cost of Product Sales

Cost of product sales increased by $6.1 million, or 41.2%, for the three months ended March 31, 2023, compared to the same period in 2022.

The increase was due to higher sales of WAKIX.

Cost of product sales increased by $6.1 million, or 32.2%, for the three months ended June 30, 2023 and increased by $12.2 million, or 36.1%, for the six months ended June 30, 2023, compared to the same periods in 2022.

The increase in both comparable periods was due to higher sales of WAKIX.

Cost of product sales is primarily comprised of the royalty to Bioprojet.

Research and Development Expenses

Research and development expenses increased by $5.7 million, or 75.4%, for the three months ended March 31, 2023, compared to the same period in 2022.

The increase for the three months ended March 31, 2023 was primarily driven by increased clinical development work associated with IH, PWS and DM, an IPR&D charge related milestone related to preclinical milestones achieved for HBS-102 and increased personnel costs.

Research and development expenses increased by $2.3 million, or 18.2%, for the three months ended June 30, 2023 and increased by $8.0 million, or 39.6%, for the six months ended June 30, 2023, compared to the same periods in 2022.

The increase for the three months ended June 30, 2023 was primarily driven by increased clinical development work associated with IH, PWS and DM.

The increase for the six months ended June 30, 2023 was primarily driven by increased clinical development work associated with IH, PWS and DM, an IPR&D charge related milestone related to preclinical milestones achieved for HBS-102 and increased personnel costs.

Sales and Marketing Expenses

Sales and marketing expenses increased by $5.0 million, or 28.4%, for the three months ended March 31, 2023, compared to the same period in 2022.

The increase was primarily due to patient engagement and marketing activities driven by our commercialization of WAKIX and increased personnel costs related to sales force expansion.

Sales and marketing expenses increased by $4.4 million, or 21.7%, for the three months ended June 30, 2023, and increased by $9.4 million, or 24.8%, for the six months ended June 30, 2023, compared to the same periods in 2022.

The increase in both comparable periods was primarily due to patient engagement and

marketing activities driven by our commercialization of WAKIX and increased personnel costs related to sales force expansion.

General and Administrative Expenses

General and administrative expenses increased by $4.2 million, or 23.4%, for the three months ended March 31, 2023, as compared to the same period in 2022.

The increase was primarily due to an increase to stock compensation associated with new awards, an increase in personnel cost, and an increase in intangible asset amortization as a result of the $40.0 million milestone payment in March 2022 upon attaining $500.0 million in life-to-date aggregate net sales of WAKIX in the United States.

General and administrative expenses increased by $0.6 million, or 2.9%, for the three months ended June 30, 2023 and increased by $4.8 million, or 12.1%, for the six months ended June 30, 2023, as compared to the same periods in 2022.

The increase in the six months ended June 30, 2023 was primarily due to an increase to stock compensation associated with new awards, an increase in personnel cost, and an increase in intangible asset amortization as a result of the $40.0 million milestone payment in March 2022 upon attaining $500.0 million in life-to-date aggregate net sales of WAKIX in the United States.

Interest Expense, Net

Interest expense, net decreased by $1.5 million, or 36.6%, for the three months ended March 31, 2023, compared to the same period in 2022 primarily due to interest income generated from our investments and cash equivalents, partially offset by higher interest rates on our debt as a result of the increase to the LIBOR.

Income tax expense was $8.3 million, representing a 22.0% effective tax rate, for the three months ended March 31, 2023, and $1.9 million, or an effective tax rate of 8.1%, as compared to the same period in 2022.

The increase in our effective tax rate was primarily driven by the utilization of net operating loss (“NOL”) carryforwards during 2022, which reduced our effective rate tax in the prior year.

Interest expense, net decreased by $1.2 million, or 29.3%, for the three months ended June 30, 2023 and decreased by $2.7 million, or 33.0%, for the six months ended June 30, 2023, compared to the same periods in 2022 primarily due to interest income generated from our investments and cash equivalents, partially offset by higher interest rates on our debt as a result of the increase to the LIBOR.

Interest income generated from our investments and cash equivalents, which is included in interest expense, net, was $2.7 million and $5.2 million for the three and six months ended June 30, 2023, respectively, compared to $0.2 million and $0.3 million for the three and six months ended June 30, 2022, respectively.

Income tax expense was $9.8 million, representing a 22.2% effective tax rate, for the three months ended June 30, 2023, and $5.7 million, or an effective tax rate of 19.5%, as compared to the same periods in 2022.

Income tax expense was $18.1 million, representing a 22.1% effective tax rate, for the six months ended June 30, 2023, and $7.6 million, or an effective tax rate of 14.4%, as compared to the same periods in 2022.

The increase in our effective tax rate for both comparable periods was primarily driven by the utilization of net operating loss (“NOL”) carryforwards during 2022, which reduced our effective rate tax in the prior year.

We have utilized all of our federal NOL carryforwards as of December 31, 2022, and the utilization of state NOL carryforwards may be subject to a substantial limitation due to state provisions.

The effective tax rate of 22.0% for the three months ended March 31, 2023 included 6.3% for the provision of state income taxes, partially offset by a tax windfall benefit of 2.8% from the exercise of stock options and a 2.9% benefit from credits.

The effective tax rate of 22.1% for the six months ended June 30, 2023 included 5.1% for the provision of state income taxes, partially offset by a tax windfall benefit of 1.5% from the exercise of stock options and a 2.9% benefit from credits.

Liquidity, Sources of Funding and Capital Resources

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

As of March 31, 2023, we had cash, cash equivalents, restricted cash and investments of $393.2 million and an accumulated deficit of $242.6 million.

As of March 31, 2023, we had outstanding debt of $197.0 million.

As of June 30, 2023, we had cash, cash equivalents, restricted cash and investments of $429.9 million and an accumulated deficit of $208.3 million.

As of June 30, 2023, we had outstanding debt of $196.5 million.

We have invested a portion of our available cash in money market funds, U.S.

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Our investment policy defines allowable investments and establishes guidelines relating to credit quality, diversification, and maturities of our investments to preserve principal and maintain liquidity.

All investment securities have a credit rating of at least A-2/P-2/F2 from at least two National Recognized Statistical Rating Organizations.

All investment securities have a credit

rating of at least A-2/P-2/F2 from at least two National Recognized Statistical Rating Organizations.

Our investment portfolio may be adversely impacted by future disruptions in the credit markets.

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

We believe that our anticipated cash from operating and financing activities, existing cash, cash equivalents and investments, as well as our ability to borrow additional funds under the Blackstone Credit Agreement, will enable us to meet our operational liquidity needs and fund our planned investing activities for

the next 12 months.

We believe that our existing cash, cash equivalents and investments on hand as of June 30, 2023, will enable us to meet our operational liquidity needs and fund our planned investing activities for the next 12 months.

We have based our liquidity and cash flow projections on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we expect.

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

We were in compliance with all covenants as of March 31, 2023.

We were in compliance with all covenants as of June 30, 2023.

Agreement Related to Intellectual Property

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License Agreement

In July 2022, we entered into the 2022 LCA with Bioprojet whereby we 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 the agreement of both parties.

We paid an initial, non-refundable $30.0 million licensing fee in October 2022 and additional payments of up to $155.0 million are potentially due under the 2022 LCA upon the achievement of certain future development and sales-based milestones.

In July 2022, we entered into the 2022 LCA with Bioprojet whereby we obtained exclusive rights to manufacture, develop and commercialize one or more new products based on pitolisant in the United States and Latin America, with the potential to add additional indications and formulations upon the agreement of both parties.

We paid an initial, non-refundable $30.0 million licensing fee in October 2022 and additional payments

of up to $155.0 million are potentially due under the 2022 LCA upon the achievement of certain future development and sales-based milestones.

In addition, certain payments will become due upon the achievement of development milestones for new indications and formulations as agreed upon by both parties.

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Recent Milestone Payments

In March 2023, we achieved a preclinical milestone, which triggered a $0.8 million payment under the provisions of the APA, which we expect to pay in April 2023.

In March 2023, we achieved a preclinical milestone, which triggered a $0.8 million payment under the provisions of the APA, which was paid in April 2023.

In March 2022, we made a final $40.0 million milestone payment to Bioprojet upon WAKIX attaining $500.0 million in life-to-date aggregate net sales in the United States.

The following table sets forth a summary of our cash flows for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The following table sets forth a summary of our cash flows for the three months ended June 30, 2023 and 2022:

Six Months Ended June 30,

Selected cash flow data

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Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2023 consisted of our net income of $29.5 million adjusted for non-cash items of $3.4 million related to deferred tax assets, $6.1 million related to intangible amortization and depreciation and $6.6 million related to stock-based compensation expense.

Net working capital excluding cash increased by $3.7 million.

Net cash provided by operating activities for the three months ended March 31, 2022 consisted of our net income of $21.5 million adjusted for non-cash items of $5.2 million related to intangible amortization and depreciation and $4.9 million related to stock-based compensation expense.

Net cash provided by operating activities for the six months ended June 30, 2023 consisted of our net income of $63.8 million adjusted for non-cash items of $7.6 million related to deferred tax assets, $12.1 million related to intangible amortization and depreciation and $14.4 million related to stock-based compensation expense.

Net working capital excluding cash decreased by $3.3 million.

Net cash provided by operating activities for the six months ended June 30, 2022 consisted of our net income of $45.0 million adjusted for non-cash items of $11.3 million related to intangible amortization and depreciation and $12.3 million related to stock-based compensation expense.

Net working capital excluding cash decreased by $7.5 million.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2023 was $1.8 million, which was primarily attributable to $47.8 million in purchases of debt securities, partially offset by $46.0 million in proceeds from sales and maturities of investments.

Net cash used in investing activities for the three months ended March 31, 2022 was $40.0 million, which was primarily attributable to a final $40.0 million milestone payment associated with the 2017 LCA.

Net cash used in investing activities for the six months ended June 30, 2023 was $9.6 million, which was primarily attributable to $72.8 million in purchases of debt securities, partially offset by $63.5 million in proceeds from sales and maturities of investments and $0.2 million in purchases of property and equipment.

Net cash used in investing activities for the six months ended June 30, 2022 was $62.5 million, which was primarily attributable to a final $40.0 million milestone payment associated with the 2017 LCA and $22.4 million in purchases of debt securities.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2023 was $3.4 million, which primarily consisted of $3.9 million in proceeds from exercised options offset by a $0.5 million principal payment associated with the Blackstone Credit Agreement.

Net cash provided by financing activities for the three months ended March 31, 2022 was $1.4 million, which primarily consisted of $1.9 million in proceeds from exercised options offset by $0.5 million in principal payments associated with the Blackstone Credit Agreement.

Net cash provided by financing activities for the six months ended June 30, 2023 was $3.0 million, which primarily consisted of $4.6 million in proceeds from exercised options offset by a $1.0 million principal

payment associated with the Blackstone Credit Agreement and $0.5 million of employee withholding tax payments related to stock-based awards.

Net cash provided by financing activities for the six months ended June 30, 2022 was $2.1 million, which primarily consisted of $3.1 million in proceeds from exercised options offset by $1.0 million in principal payments associated with the Blackstone Credit Agreement.

Critical Accounting Estimates

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis