What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-31 compared with 2023-08-01 · 105 added, 72 removed, 205 unchanged (46% of the section changed)

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● our estimates regarding expenses, future revenue, capital requirements and additional financing needs;

● our ability to identify and/or acquire additional products or product candidates with significant commercial potential that are consistent with our commercial objectives;

● our ability to identify, acquire and integrate additional products or product candidates with significant commercial potential that are consistent with our commercial objectives;

● our commercialization, marketing and manufacturing capabilities and strategy;

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Company Overview

We are a commercial-stage, pharmaceutical company focused on developing and commercializing innovative therapies for patients living with rare neurological diseases as well as patients living with other neurological diseases who have unmet medical needs.

Our product, WAKIX (pitolisant), is a first-in-class molecule with a novel mechanism of action (“MOA”) specifically designed to increase histamine signaling in the brain by binding to H 3 receptors.

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We believe that pitolisant’s ability to regulate histamine gives it the potential to provide therapeutic benefit in other rare neurological diseases that are mediated through H 3 receptors and histamine signaling.

We are taking a mechanism-based approach to managing the life cycle of pitolisant and have identified idiopathic hypersomnia (“IH”), another central disorder of hypersomnolence like narcolepsy, as our next potential new indication for WAKIX.

We are taking a mechanism-based approach to managing the life cycle of pitolisant and identified idiopathic hypersomnia (“IH”), another central disorder of hypersomnolence like narcolepsy, as our next potential new indication for WAKIX, which received Orphan Drug designation by the FDA in September 2023.

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 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 completed enrollment in the INTUNE study in May 2023 and we announced topline data on October 11, 2023.

While the primary endpoint did not meet statistical significance, the totality of the data showed favorable trends for pitolisant in the treatment of adult patients with IH.

We are currently analyzing the full data set to determine next steps, which include interactions with the FDA.

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 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.

Based on the positive signals from the data from our Phase 2 proof-of-concept signal detection 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 design 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.

In October 2023, we received FDA alignment of the protocol for the Phase 3 TEMPO study in patients with PWS, which will satisfy the requirements for both the registrational trial and pediatric exclusivity.

We expect to initiate the Phase 3 study in the first quarter of 2024.

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.

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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.

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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

One of the formulations was dosed in a phase 1 pharmacokinetic study in healthy volunteers in October 2023.

In addition, on October 10, 2023, we completed the acquisition of Zynerba Pharmaceuticals, Inc.

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

Zynerba’s drug candidate is Zygel (also known as ZYN002), the first and only pharmaceutically-produced synthetic cannabidiol gel, devoid of THC, and formulated as a patent protected, permeation-enhanced gel for transdermal delivery.

Zygel is currently in a pivotal Phase 3 study for the treatment of Fragile X Syndrome.

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

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.

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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.

A thirteen week chronic toxicity study was initiated during the third quarter of 2023.

Pitolisant was developed by Bioprojet and approved by the EMA in 2016 for the treatment of narcolepsy in adult patients with or without cataplexy and in 2021 for the treatment of EDS in adult patients with obstructive sleep apnea.

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Commercial Performance Metrics

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.

As of September 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 September 30, 2023 was approximately 5,800.

Additionally, as of September 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 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.

We currently expect to have adequate supply of WAKIX into the first quarter of 2025, 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 do not track research and development expenses on an indication-by-indication basis.

A significant portion of our research and development costs are external costs, such as fees paid to CROs and CMOs, central laboratories, contractors, and consultants in connection with our clinical development programs.

A significant portion of our research and development costs are external costs, such as fees paid to CROs and CMOs,

central laboratories, contractors, and consultants in connection with our clinical development programs.

Internal expenses primarily relate to personnel who are deployed across multiple programs.

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

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

Loss on Debt Extinguishment

Loss on debt extinguishment consists primarily of costs of extinguishment of debt during the applicable period related to the prepayment of our credit agreements.

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Net product revenue

Net product revenues

Cost of product sales

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Operating income

Loss on debt extinguishment

Other (expense) income, net

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Net income before provision for income taxes

Income tax expense

Net Product Revenue

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.

Income tax (expense) benefit

Net Product Revenues

Net product revenues increased by $43.1 million, or 36.7%, for the three months ended September 30, 2023 and increased by $104.1 million, or 33.6%, for the nine months ended September 30, 2023, compared to the same periods in 2022.

The increase for the three months ended September 30, 2023, was primarily due to a 28.2% increase in the number of units shipped, and the net impact of a 7.0% price increase.

The increase for the nine months ended September 30, 2023, was primarily due to a 26.9% increase in number of units shipped,

and the net impact of a 7.0% price increase.

The price increase for both comparable periods occurred in January 2023.

Cost of Product Sales

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.

Cost of product sales increased by $9.3 million, or 40.7%, for the three months ended September 30, 2023 and increased by $21.5 million, or 38.0%, for the nine months ended September 30, 2023, compared to the same periods in 2022.

Cost of product sales as a percentage of net product revenues was 20.2% and 18.9% for the three and nine months ended September 30, 2023, respectively, compared to 19.6% and 18.3% for the three and nine months ended September 30, 2022, respectively.

The increase in cost of product sales in both comparable periods was due to higher royalties as a result of higher sales of WAKIX and the increase in cost of product sales as a percentage of net product revenues was due to entering a higher royalty tier earlier in 2023 compared to 2022.

Research and Development Expenses

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.

Research and development expenses decreased by $23.0 million, or 56.8%, for the three months ended September 30, 2023 and decreased by $15.0 million, or 24.7%, for the nine months ended September 30, 2023, compared to the same periods in 2022.

The decrease for the three months ended September 30, 2023 was primarily driven by a $30 million licensing fee incurred upon entering the 2022 LCA with Bioprojet during the three months ended September 30, 2022, partially offset by a $5.7 million increase in clinical development work associated with IH, PWS and DM, a $0.9 million increase in personnel costs and a $0.5 million increase in stock compensation associated with new awards.

The decrease for the nine months ended September 30, 2023 was primarily driven by a $30 million licensing fee incurred upon entering the 2022 LCA with Bioprojet during the nine months ended September 30, 2022, partially offset by an $11.0 million increase in clinical development work associated with IH, PWS and DM, a $2.3 million increase in personnel costs, a $1.1 million increase in stock compensation associated with new awards and a $0.8 million IPR&D charge related to preclinical milestones achieved for HBS-102.

Sales and Marketing Expenses

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.

Sales and marketing expenses increased by $3.0 million, or 14.4%, for the three months ended September 30, 2023, and increased by $12.3 million, or 21.1%, for the nine months ended September 30, 2023, compared to the same periods in 2022.

The increase for the three months ended September 30, 2023, was primarily due to a $2.3 million increase in personnel costs and a $0.4 million increase in patient engagement and marketing activities.

The increase for the nine months ended September 30, 2023, was primarily due to a $7.1 million increase in patient engagement and marketing activities and a $4.8 million increase in personnel costs.

The increase in patient engagement and marketing activities for both comparable periods was driven by our continued growth of WAKIX and the increase in personnel costs for both comparable periods was related to our sales force expansion.

General and Administrative Expenses

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.

General and administrative expenses increased by $1.2 million, or 5.7%, for the three months ended September 30, 2023 and increased by $6.0 million, or 9.8%, for the nine months ended September 30, 2023, as compared to the same periods in 2022.

The increase in the three months ended September 30, 2023 was primarily due to a $0.9 million increase in personnel costs and a $0.3 million increase in stock compensation associated with new awards.

The increase in the nine months ended September 30, 2023 was primarily due to a $2.5 million increase in personnel costs, a $1.5 million increase to stock compensation associated with new awards and a $0.9 million 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.

Loss on Debt Extinguishment

Loss on debt extinguishment was $9.8 million for the three and nine months ended September 30, 2023.

There was no comparable amount in the prior year periods related to the extinguishment of the Blackstone Credit Agreement (defined below).

Interest Expense, Net

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 22.1% 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.

Interest expense, net decreased by $1.0 million, or 27.2%, for the three months ended September 30, 2023 and decreased by $3.8 million, or 31.1%, for the nine months ended September 30, 2023, compared to the same periods in 2022.

The decrease for the three months ended September 30, 2023, was primarily due to a $2.6 million increase in interest income generated from our investments and cash equivalents, partially offset by $2.0 million in unamortized fees and ticking fees pertaining to the DDTL (defined below).

The decrease for the nine months ended September 30, 2023, was primarily due to a $7.4 million increase in interest income generated from our investments and cash equivalents and a $2.0 million increase in accretion of discount on our investments, partially offset by a $3.8 million increase in interest expense due to higher rates and $2.0 million in unamortized fees and ticking fees pertaining to the DDTL (defined below).

Income tax expense was $13.4 million, representing a 25.8% effective tax rate, for the three months ended September 30, 2023, and $31.5 million, or an effective tax rate of 23.5%, for the nine months ended September 30, 2023.

Income tax benefit was $80.0 million and $72.4 million for the three and nine months ended September 30.

2022, respectively.

The income tax benefit related to both the three and nine months ended September 30, 2022 was due to the release of the valuation allowance on our deferred tax assets, partially offset by current period provision for state and federal income taxes.

The effective tax rate of 23.5% for the nine months ended September 30, 2023 included 21.0% for the provision of federal income taxes and 4.7% for the provision of state income taxes, partially offset by a tax windfall benefit of 0.9% from the exercise of stock options and a 1.6% 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 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.

As of September 30, 2023, we had cash, cash equivalents, restricted cash and investments of $438.6 million and an accumulated deficit of $169.9 million.

As of September 30, 2023, we had outstanding debt of $200.0 million.

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

government and agency securities, corporate bonds and commercial paper in accordance with our investment policy.

government and agency securities, corporate debt and commercial paper in accordance with our investment policy.

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 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 believe that our existing cash, cash equivalents and investments on hand as of September 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.

Term Loan A Credit Agreement

On July 26, 2023, we 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 $185.0 million.

On September 21, 2023, we 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 $15.0 million.

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 $3.8 million quarterly principal payments, which commence on December 31, 2023, increasing to $5.0 million quarterly principal payments beginning on December 31, 2025, with a $115.0 million payment due on the maturity date of July 26, 2028.

The Term Loans bear interest at a per annum rate equal to, at our option, (i) a base rate plus a specified margin ranging from 2.50% to 3.00%, based on our 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 our senior secured net leverage ratio.

The TLA Credit Agreement contains customary affirmative and negative covenants, financial covenants, representations and warranties, events of default and other provisions.

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

Blackstone Credit Agreement

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

In August 2022, we entered into an agreement to extend the expiration date of the DDTL to August 9, 2023, for which we 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.

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

We used substantially all of the proceeds from the Blackstone Credit Agreement, and the related sale of our common stock, to repay the balance of the OrbiMed Credit Agreement.

The repayment schedule for the Initial Term Loan consists of quarterly $0.5 million principal payments, which commenced on December 31, 2021 and increases to quarterly $5.0 million payments beginning on March 31, 2024, with a $145.5 million payment due on the maturity date of August 9, 2026 (“Maturity Date”).

Interest is payable quarterly commencing on November 9, 2021 and continuing 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%.

The Loans are guaranteed by our subsidiary Harmony Biosciences, LLC.

The Blackstone Credit Agreement contains affirmative and negative covenants, including limitations on our ability, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions and enter into affiliate transactions, in each case, subject to certain exceptions.

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 June 30, 2023.

Agreement Related to Intellectual Property

In connection with the TLA Credit Agreement, we extinguished the Blackstone Credit Agreement, which required a payoff amount of $207.3 million consisting of principal repayment, interest, exit fees, a ticking fee and a prepayment premium.

We recognized a loss on extinguishment of debt of $9.8 million relating to the Blackstone Credit Agreement for the three and nine months ended September 30, 2023.

Share Repurchases

On August 1, 2023, our Board of Directors approved a program providing for the repurchase of shares of common stock in an aggregate amount of up to $125.0 million, excluding commissions and transaction fees.

The repurchase program may be suspended, terminated or modified at any time for any reason.

During the three and nine months ended September 30, 2023, we repurchased and cancelled 1,439,792 shares of common stock at an aggregate cost of $50.0 million, excluding commissions and transaction fees.

As of September 30, 2023 the remaining amount of common stock authorized for repurchases was $75.0 million.

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

(“Zynerba Common Stock”).

Under the terms of the Tender Offer, we 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”), 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 we paid to acquire the Zynerba Common Stock upon completion of the Tender Offer was $60 million, exclusive of transaction related fees.

We financed the acquisition with cash on hand.

Asset Purchase Agreement

In August 2021, we entered into the APA to acquire HBS-102, a potential first-in-class molecule with a novel mechanism of action.

Under the terms of the agreement, we acquired full development and commercialization rights globally, with the exception of Greater China, for $3.5 million.

Additionally, there are payments due upon the achievement of certain milestones, including $1.0 million for additional preclinical milestones (see “Recent Milestone Payment”), $19.0 million for development milestones, $44.0 million for regulatory milestones and $110.0 million for sales milestones.

Additionally, there are payments due upon the achievement of certain milestones, including $1.0 million for additional preclinical milestones (see “Recent Milestone Payments”), $19.0 million for development milestones, $44.0 million for regulatory milestones and $110.0 million for sales milestones.

License Agreement

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.

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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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 June 30, 2023 and 2022:

Six Months Ended June 30,

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

Nine Months Ended September 30,

Selected cash flow data

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Operating Activities

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.

Net cash provided by operating activities for the nine months ended September 30, 2023 primarily consisted of net income of $102.2 million adjusted for non-cash items of $14.5 million related to deferred tax assets, $18.2 million related to intangible amortization and depreciation, $22.3 million related to stock-based compensation expense and $9.8 million related to loss on extinguishment of debt.

Net working capital excluding cash increased by $3.4 million.

Net cash provided by operating activities for the nine months ended September 30, 2022 consisted of net income of $133.0 million adjusted for non-cash items of $81.7 million related to deferred tax assets, $17.3 million related to intangible amortization and depreciation and $19.2 million related to stock-based compensation expense.

Net working capital excluding cash increased by $27.9 million, which was partially due to the accrual of the $30.0 million licensing fee associated with the 2022 LCA.

Investing Activities

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.

Net cash used in investing activities for the nine months ended September 30, 2023 was $10.4 million, which was primarily attributable to $105.9 million in purchases of debt securities, partially offset by $95.7 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 nine months ended September 30, 2022 was $94.9 million, which was primarily attributable to a final $40.0 million milestone payment associated with the 2017 LCA and $55.6 million in purchases of debt securities, partially offset by $0.9 million in proceeds from sales and maturities of investments.

Financing Activities

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.

Net cash used in financing activities for the nine months ended September 30, 2023 was $52.0 million, which primarily consisted of $202.3 million in payments of principal and exit fees associated with the extinguishment of the Blackstone Credit Agreement, $50.0 million in share repurchases and $1.0 million in principal payments associated with the Blackstone Credit Agreement, partially offset by $197.0 million in proceeds associated with the TLA Credit Agreement, net of issuance costs, and $4.8 million in proceeds from exercised options.

Net cash provided by financing activities for the nine months ended September 30, 2022 was $4.2 million, which primarily consisted of $5.3 million in proceeds from exercised options partially offset by $1.5 million in principal payments associated with the Blackstone Credit Agreement.

Critical Accounting Estimates

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What changed 10-Q

Item 2. Management’s Discussion and Analysis