What changed in this filing

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Item 1. Financial Statements

2023-10-31 compared with 2023-08-01 · 149 added, 113 removed, 397 unchanged (40% 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 June 30, 2023 and December 31, 2022, respectively;

59,999,658 shares and 59,615,731 issued and outstanding at June 30, 2023 and December 31, 2022, respectively

500,000,000 shares authorized at September 30, 2023 and December 31, 2022, respectively;

58,571,944 shares and 59,615,731 issued and outstanding at September 30, 2023 and December 31, 2022, respectively

Additional paid in capital

9 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net product revenues

6 unchanged sentences

Operating income

Loss on debt extinguishment

Other (expense) income, net

1 unchanged sentence

Income before income taxes

Income tax expense

Unrealized loss on investments

Income tax (expense) benefit

Unrealized income (loss) on investments

Comprehensive income

12 unchanged sentences

Unrealized loss on investments

Repurchase of common stock

( 1,439,792 )

Exercise of options and restricted stock units

Stock-based compensation

Balance as of June 30, 2023

Balance as of September 30, 2023

comprehensive

1 unchanged sentence

(loss) income

Balance as of March 31, 2023

Balance as of June 30, 2023

Unrealized loss on investments

Issuance of common stock

Repurchase of common stock

( 1,439,792 )

Exercise of options

Stock-based compensation

Balance as of June 30, 2023

Balance as of September 30, 2023

comprehensive

3 unchanged sentences

Unrealized loss on investments

Issuance of common stock

Exercise of stock options

Stock-based compensation

Balance as of June 30, 2022

Balance as of September 30, 2022

comprehensive

1 unchanged sentence

(loss) income

Balance as of March 31, 2022

Balance as of June 30, 2022

Unrealized loss on investments

Issuance of common stock

Exercise of options

Stock-based compensation

Balance as of June 30, 2022

Balance as of September 30, 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)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

6 unchanged sentences

Amortization of premiums and accretion of discounts on Investment securities

Loss on debt extinguishment

Other non-cash expenses

13 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock

Proceeds from long term debt

Debt issuance costs

Extinguishment of debt

Extinguishment of debt exit fees

Principal repayment of long term debt

Repurchase of common stock

Payments of employee withholding taxes related to stock-based awards

Proceeds from exercised options

Net cash provided by financing activities

Net cash (used in) provided by financing activities

NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

18 unchanged sentences

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 $ 208,345 and $ 272,130 , as of June 30, 2023 and December 31, 2022, respectively.

As of June 30, 2023, the Company had cash, cash equivalents and investments of $ 429,884 .

The Company believes that its existing cash, cash equivalents and investments on hand as of June 30, 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.

The Company had an accumulated deficit of $ 169,884 and $ 272,130 , as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023, the Company had cash, cash equivalents and investments of $ 438,374 .

The Company believes that its existing cash, cash equivalents and investments on hand as of September 30, 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 June 30, 2023, the unaudited condensed consolidated statements of cash flows for the three and six months ended June 30, 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 and six months ended June 30, 2023 and 2022, are unaudited.

The unaudited condensed consolidated balance sheet as of September 30, 2023, the unaudited condensed consolidated statements of cash flows for the three and nine months ended September 30, 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 and nine months ended September 30, 2023 and 2022, are unaudited.

The balance sheet as of December 31, 2022, 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 June 30, 2023, and the results of its operations and its cash flows for the three and six months ended June 30, 2023 and 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 September 30, 2023, and the results of its operations and its cash flows for the three and nine months ended September 30, 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, 2022.

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

3 unchanged sentences

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.

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

September 30,

Cash and cash equivalents

9 unchanged sentences

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.

Interest income generated from our investments and cash equivalents, which is included in interest expense, net, was $ 2,731 and $ 5,153 for the three and six months ended June 30, 2023, respectively, compared to $ 250 and $ 317 for the three and six months ended June 30, 2022, respectively.

Interest income generated from our investments and cash equivalents, which is included in interest expense, net, was $ 3,384 and $ 8,537 for the three and nine months ended September 30, 2023, respectively, compared to $ 828 and $ 1,145 for the three and nine months ended September 30, 2022, respectively.

Concentrations of Risk

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

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

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

institutions.

1 unchanged sentence

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 is subject to credit risk from its trade receivables related to its product sales.

The Company extends credit to specialty pharmaceutical distribution companies within the United States.

2 unchanged sentences

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

As of June 30, 2023, three customers accounted for 100 % of gross accounts receivable;

As of September 30, 2023, three customers accounted for 100 % of gross accounts receivable;

Caremark LLC (“CVS Caremark”), which accounted for 37 % of gross accounts receivable;

5 unchanged sentences

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

For the six months ended June 30, 2023, three customers accounted for 100 % of gross product revenues;

For the nine months ended September 30, 2023, three customers accounted for 100 % of gross product revenues;

CVS Caremark accounted for 37 % of gross product revenues;

Pantherx accounted for 33 % of gross product revenues;

and Accredo accounted for 32 % of gross product revenues.

For the six months ended June 30, 2022, three customers accounted for 100 % of gross product revenues;

Accredo accounted for 32 % of gross product revenues;

and Pantherx accounted for 31 % of gross product revenues.

For the nine months ended September 30, 2022, three customers accounted for 100 % of gross product revenues;

CVS Caremark accounted for 40 % of gross product revenues;

2 unchanged sentences

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

Share Repurchases

The Company accounts for share repurchases as constructive retirements, whereby it reduces common stock and additional paid-in capital by the amount of the original issuance, with any excess purchase price recorded as a reduction to retained earnings.

Under this method, issued and outstanding shares of common stock are reduced by the amount of shares of common stock repurchased, and no treasury stock is recognized on the condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

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

In March 2020, the FASB issued ASU No.

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

The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates.

The guidance was effective upon issuance and 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 Company did not adopt any new accounting pronouncements that had a material effect on its condensed consolidated financial statements during the three and nine months ended September 30, 2023.

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

June 30, 2023

September 30, 2023

Commercial paper

17 unchanged sentences

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

The Company did not have any available-for-sale debt security investments in a continuous unrealized loss position of greater than 12 months as of June 30, 2023 and December 31, 2022, respectively.

The Company did not have any available-for-sale debt security investments in a continuous unrealized loss position of greater than 12 months as of September 30, 2023 and December 31, 2022, respectively.

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 June 30, 2023 or December 31, 2022.

The Company did not classify any assets or liabilities as Level 3 as of September 30, 2023 or December 31, 2022.

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

June 30, 2023

September 30, 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 June 30, 2023, the remaining useful life was 6.3 years.

The Company determined a useful life of 10 years for such intangible asset, and, as of September 30, 2023, the remaining useful life was 6.0 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 June 30, 2023, the remaining useful life was 6.3 years.

The Company determined a useful life of 9 years for such intangible asset, and, as of September 30, 2023, the remaining useful life was 6.0 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 June 30, 2023, the remaining useful life was 6.3 years.

Amortization expense was $ 5,961 for each of the three months ended June 30, 2023 and 2022, respectively, and $ 11,922 and $ 11,043 for the six months ended June 30, 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 determined a useful life of 7.6 years for such intangible asset, and, as of September 30, 2023, the remaining useful life was 6.0 years.

Amortization expense was $ 5,962 and $ 5,961 for the three months ended September 30, 2023 and 2022, respectively, and $ 17,884 and $ 17,005 for the nine months ended September 30, 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,

2023 (Excluding the six months ended June 30, 2023)

2023 (Excluding the nine months ended September 30, 2023)

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

September 30,

Gross Carrying Amount

12 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 $ 22,542 and $ 17,125 for the three months ended June 30, 2023 and 2022, respectively, and $ 41,602 and $ 30,797 for the six months ended June 30, 2023 and 2022, respectively, for sales-based, trademark and tiered royalties recognized as cost of product sold.

As of June 30, 2023 and December 31, 2022, the Company had accrued $ 22,542 and $ 25,367 , respectively, for sales-based, trademark and tiered royalties.

The Company incurred $ 29,665 and $ 20,944 for the three months ended September 30, 2023 and 2022, respectively, and $ 71,267 and $ 51,741 for the nine months ended September 30, 2023 and 2022, respectively, for sales-based, trademark and tiered royalties recognized as cost of product sold.

As of September 30, 2023 and December 31, 2022, the Company had accrued $ 29,665 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.

7 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.

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 six months ended June 30, 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.

1 unchanged sentence

Accrued expenses consist of the following:

Royalties due to third parties

September 30,

Royalties due to Bioprojet

Rebates and other sales deductions

3 unchanged sentences

Other expenses

Term Loan A Credit Agreement

On July 26, 2023, the Company entered into a Credit Agreement (the “TLA Credit Agreement”) with JPMorgan Chase Bank, N.A., as “Administrative Agent”, and certain lenders.

The TLA Credit Agreement provides for a five-year senior secured term loan (the “TLA Term Loan”) in an aggregate principal amount of $ 185,000 .

On September 21, 2023, the Company entered into the First Incremental Amendment (the “First Incremental Amendment”) with the Administrative Agent and Bank of America, N.A., as incremental lender.

The First Incremental Amendment provides for an incremental senior secured term loan (the “Incremental Term Loan”) in an aggregate principal amount of $ 15,000 .

The First Incremental Amendment amends the TLA Credit Agreement and provides that the Incremental Term Loan will have identical terms as the TLA Term Loan.

The repayment schedule for both the TLA Term Loan and the Incremental Term Loan (together, the “Term Loans”) consists of quarterly $ 3,750 principal payments, which commence on December 31, 2023, increasing to quarterly $ 5,000 principal payments beginning on December 31, 2025, with a $ 115,000 payment due on the maturity date of July 26, 2028.

The Term Loans bear interest at a per annum rate equal to, at the Company’s option, (i) a base rate plus a specified margin ranging from 2.50 % to 3.00 %, based on the Company’s senior secured net leverage ratio (as defined in the TLA Credit Agreement) or (ii) Term SOFR plus a credit spread adjustment of 0.10 % plus a specified margin ranging from 3.50 % to 4.00 %, based on the Company’s senior secured net leverage ratio.

The net cash received related to the Term Loans as a result of the transactions, less debt issuance costs of $ 2,997 , was $ 197,003 .

The debt issuance costs related to the Term Loans will be amortized as additional interest expense over the loan term of the TLA Credit Agreement.

The fair value of the Term Loans as of September 30, 2023 was $ 199,820 .

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”).

In August 2021, the Company entered into the Blackstone Credit Agreement that provided 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”).

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 %.

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 would pay a ticking fee at a rate of 1 % per annum on the undrawn portion of the DDTL (the “Ticking Fee”), which commenced on August 10, 2022.

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 to 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 June 30, 2023 was $ 171,622 .

In addition, the Company paid $ 1,000 in debt issuance costs relating to the DDTL, which was initially recorded in other current assets within the unaudited condensed consolidated balance sheet.

In connection with the TLA Credit Agreement, the Company extinguished the Blackstone Credit Agreement, which required a payoff amount of $ 207,308 consisting of principal repayment, interest, exit fees, Ticking Fee and a prepayment premium.

The Company recognized a loss on extinguishment of debt of $ 9,766 relating to the Blackstone Credit Agreement within the Company’s unaudited condensed consolidated statements of operation and comprehensive income for the three and nine months ended September 30, 2023.

In addition, the Company recognized $ 1,972 relating to unamortized debt issuance costs relating to the DDTL and the Ticking Fee, which was recorded in interest expense, net within the unaudited condensed consolidated statement of operations and comprehensive income for the three and nine months ended September 30, 2023.

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 June 30, 2023, for the periods indicated below consists of the following:

Future minimum payments relating to long-term debt, net as of September 30, 2023, for the periods indicated below consists of the following:

Years ending December 31,

2023 (Excluding the six months ended June 30, 2023)

2023 (Excluding the nine months ended September 30, 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

Six 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.

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 Company subsequently entered into 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 $ 444 and $ 392 for the three months ended June 30, 2023 and 2022, respectively, and $ 822 and $ 777 for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, the weighted-average remaining lease term for operating leases was 1.4 years and the weighted-average discount rate for operating leases was 4.7 %.

The Company recorded operating lease costs of $ 473 and $ 378 for the three months ended September 30, 2023 and 2022, respectively, and $ 1,295 and $ 1,155 for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, the weighted-average remaining lease term for operating leases was 1.8 years and the weighted-average discount rate for operating leases was 6.0 %.

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

Classification

June 30, 2023

September 30, 2023

December 31, 2022

7 unchanged sentences

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

June 30, 2023

June 30, 2022

September 30, 2023

September 30, 2022

Operating cash flows from operating leases

Right of use assets obtained in exchange for operating lease obligations

Future payments under noncancelable operating leases with initial terms of one year or more as of June 30, 2023 consisted of the following:

Future payments under noncancelable operating leases with initial terms of one year or more as of September 30, 2023 consisted of the following:

Years ending December 31,

2023 (Excluding the six months ended June 30, 2023)

2023 (Excluding the nine months ended September 30, 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 June 30, 2023, there were no material claims or suits outstanding.

As of September 30, 2023, there were no material claims or suits outstanding.

STOCKHOLDERS’ EQUITY

3 unchanged sentences

The Company’s common stock has no preemptive rights, conversion rights or other subscription rights or redemption or sinking fund provisions.

Share Repurchase Program

On August 1, 2023, the Company’s Board of Directors approved a program providing for the repurchase of shares of common stock in an aggregate amount of up to $ 125,000 , excluding commissions and transaction fees (the “August 2023 Repurchase Program”).

The August 2023 Repurchase Program may be suspended, terminated or modified at any time for any reason.

During the three and nine months ended September 30, 2023, the Company repurchased and cancelled 1,439,792 shares of common stock at an aggregate cost of $ 50,000 , exclusive of commissions and transaction fees.

As of September 30, 2023 the remaining amount of common stock authorized for repurchases was $ 75,000 .

See Note 18 to our unaudited condensed consolidated financial statements for information related to the termination of the August 2023 Repurchase Program as of October 27, 2023.

STOCK INCENTIVE PLAN AND STOCK-BASED COMPENSATION

4 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 June 30, 2023, there were 6,825,685 shares of common stock available for issuance under the 2020 Plan.

As of September 30, 2023, there were 6,755,091 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.

5 unchanged sentences

Stock Options

The following table summarizes stock option activity for the six months ended June 30, 2023:

The following table summarizes stock option activity for the nine months ended September 30, 2023:

Awards outstanding—December 31, 2022

2 unchanged sentences

Awards forfeited

Awards outstanding—June 30, 2023

Awards outstanding—September 30, 2023

Stock Appreciation Rights

The following table summarizes SARs activity for the six months ended June 30, 2023:

The following table summarizes SARs activity for the nine months ended September 30, 2023:

Awards outstanding—December 31, 2022

2 unchanged sentences

Awards forfeited

Awards outstanding—June 30, 2023

Awards outstanding—September 30, 2023

Restricted Stock Units

The following table summarizes RSU activity for the six months ended June 30, 2023:

The following table summarizes RSU activity for the nine months ended September 30, 2023:

Awards outstanding—December 31, 2022

2 unchanged sentences

Awards forfeited

Awards outstanding—June 30, 2023

As of June 30, 2023 and December 31, 2022, stock awards issued under the 2017 and 2020 Plans of 2,459,938 and 1,818,045 shares of common stock, respectively, were vested.

Awards outstanding—September 30, 2023

As of September 30, 2023 and December 31, 2022, stock awards issued under the 2017 and 2020 Plans of 3,141,836 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

7 unchanged sentences

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 $ 20.06 and $ 18.88 on June 30, 2023 and December 31, 2022, respectively.

The weighted average per share fair value of awards issued under the 2017 Plan and 2020 Plan was $ 20.13 and $ 18.88 on September 30, 2023 and December 31, 2022, respectively.

Stock-Based Compensation Expense

Stock-based compensation expense, net for the three and six months ended June 30, 2023 and 2022, was recorded in the unaudited condensed consolidated statements of operations and comprehensive income in the following line items:

Three Months Ended June 30,

Six Months Ended June 30,

Stock-based compensation expense, net for the three and nine months ended September 30, 2023 and 2022, 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,

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 June 30, 2023, the total unrecognized stock-based compensation expense related to options and RSUs was $ 74,153 .

As of September 30, 2023, the total unrecognized stock-based compensation expense related to options and RSUs was $ 67,842 .

Such amount will be recognized in the Company’s consolidated statement of operations over a weighted average period of 2.4 years.

3 unchanged sentences

Funds are collected from employees through after-tax payroll deductions.

The total number of shares reserved for issuance under the ESPP was initially 629,805 , which will automatically increase on January 1 of each year in an amount equal to the lesser of (i) 1.0 % of the shares of the Company’s common stock outstanding on December 31 of the preceding year or (ii) an amount determined by the Company’s board of directors.

December 31 of the preceding year or (ii) an amount determined by the Company’s board of directors.

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

There were 14,043 and 14,889 shares issued under the ESPP for each of the three and six months ended June 30, 2023 and 2022, respectively.

The discount on the ESPP was $ 103 and $ 91 for the three months ended June 30, 2023 and 2022, respectively, and $ 208 and $ 185 for the six months ended June 30, 2023 and 2022, respectively, and is recorded within stock-based compensation expense.

There were no shares issued under the ESPP for the three months ended September 30, 2023 and 2022, and there were 14,043 and 14,889 shares issued under the ESPP for the nine months ended September 30, 2023 and 2022, respectively.

The discount on the ESPP was $ 100 and $ 86 for the three months ended September 30, 2023 and 2022, respectively, and $ 308 and $ 271 for the nine months ended September 30, 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 and restricted stock units.

Diluted net income per share of common 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 and restricted stock units.

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

Three Months Ended June 30,

Six Months Ended June 30,

Net income per common share - basic

Net income per common share - diluted

Three Months Ended September 30,

Nine Months Ended September 30,

Net income per share of common stock - basic

Net income per share of common stock- diluted

Weighted average number of shares of common stock - basic

1 unchanged sentence

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Stock options, SARs, and RSUs to purchase common stock

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Stock options, SARs, and RSUs to purchase common stock

The reasons for the difference between the statutory federal income tax rate and the Company’s effective income tax rate for the three and six months ended June 30, 2023 and 2022 are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

A reconciliation between the statutory federal income tax rate and the Company’s effective income tax rate for the three and nine months ended September 30, 2023 and 2022 is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Federal income tax rate

8 unchanged sentences

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 $ 74 and $ 71 for the three months ended June 30, 2023 and 2022, and incurred $ 145 and $ 142 for the six months ended June 30, 2023 and 2022, respectively, 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 June 30, 2023 and December 31, 2 0 22, there were no amounts due to or due from related parties included in the unaudited condensed consolidated balance sheets.

The Company incurred $ 73 and $ 71 for the three months ended September 30, 2023 and 2022, and incurred $ 218 and $ 213 for the nine months ended September 30, 2023 and 2022, respectively, 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, 2023 and December 31, 2 0 22, there were no amounts due to or due from related parties included in the unaudited condensed consolidated balance sheets.

SUBSEQUENT EVENTS

On July 26, 2023, the Company entered into a Credit Agreement (the “TLA Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, and certain lenders.

The TLA Credit Agreement provides for a five-year senior secured term loan (the “TLA Term Loan”) in an aggregate principal amount of $ 185,000 .

The proceeds from the TLA Term Loan, together with the Company’s cash on hand, were used to repay the Initial Term Loan and to pay transaction fees and expenses in connection with the establishment of the TLA Credit Agreement.

In addition, the Company paid a repayment premium of 2.00 % of the principal amount of the Initial Term Loan outstanding at the time of repayment.

Upon entry into the TLA Credit Agreement and repayment of the Initial Term Loan, all commitments under the Blackstone Credit Agreement were terminated.

On August 1, 2023, the Company’s Board of Directors approved a repurchase program providing for the repurchase of shares of common stock in an aggregate amount of up to $ 125,000 , exclusive of commissions and transaction fees.

The repurchase program may be modified at any time.

On October 10, 2023, the Company completed a tender offer (the “Tender Offer”) to acquire all of the outstanding shares of common stock of Zynerba Pharmaceuticals, Inc.

(“Zynerba Common Stock”), a clinical-stage pharmaceutical company focused on innovative pharmaceutically produced transdermal cannabidiol therapies for orphan neuropsychiatric disorders, including Fragile X syndrome.

Under the terms of the Tender Offer, the Company paid (i) $ 1.1059 per share of Zynerba Common Stock (the “Common Cash Amount”), plus (ii) one contingent value right (each, a “CVR”) per share of Zynerba Common Stock (the “Common CVR Amount”) for each holder of Zynerba Common Stock upon the closing of the Tender Offer, which represents the right to receive up to approximately $ 2.5444 per share of Zynerba Common Stock, subject to the achievement of certain clinical, regulatory and sales-based milestones.

Both the Common Cash Amount and Common CVR Amount are to be paid in cash, subject to any applicable withholding of taxes and without interest.

The aggregate consideration paid by the Company to acquire the Zynerba Common Stock upon completion of the Tender Offer was $ 60,000 , exclusive of transaction related fees.

The Company financed the acquisition with cash on hand.

On October 27, 2023, the Company’s Board of Directors approved a program providing for the repurchase of shares of common stock in an aggregate amount of up to $ 200,000 , excluding commissions and transaction fees (the “October 2023 Repurchase Program”).

The board simultaneously terminated the August 2023 Repurchase Program and any remaining amount authorized for the repurchase of shares.

The October 2023 Repurchase Program may be suspended, terminated, or modified at any time for any reason.

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