What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-22 compared with 2023-02-21 · 223 added, 225 removed, 567 unchanged (44% of the section changed)

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We have audited the accompanying consolidated balance sheets of Harmony Biosciences Holdings, Inc.

and subsidiary (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders' deficit, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 3 to the financial statements, effective January 1, 2021, the Company adopted FASB Accounting Standards Update 2016-02, Leases (Topic 842), using the modified retrospective approach which does not require prior periods to be restated.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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

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As more fully disclosed in Note 3 to the financial statements, the Company recognizes revenue on sales of WAKIX when the customer obtains control of the product, which occurs at a point in time, typically upon delivery.

Product revenues are recorded at the product’s wholesale acquisition costs, net of applicable reserves for variable consideration that are offered within contracts between the Company and its customers, payors, and other indirect customers relating to the sale of WAKIX.

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

Product revenue is recorded at the product’s wholesale acquisition costs, net of applicable reserves for variable consideration that are offered within contracts between the Company and its customers, payors, and other indirect customers relating to the sale of WAKIX.

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

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

These significant assumptions and judgements include consideration of legal interpretations of applicable laws and regulations, historical claims experience, payer channel mix, current contract prices, unbilled claims, claims submission time lags, and inventory levels in the distribution channel.

These significant assumptions and judgments include consideration of legal interpretations of applicable laws and regulations, historical claims experience, payer channel mix, current contract prices, unbilled claims, claims submission time lags, and inventory levels in the distribution channel.

Given the complexity involved in determining the significant assumptions used in calculating the Medicaid rebate accrual, auditing these estimates involved especially subjective judgment.

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● We tested the overall reasonableness of the Medicaid rebate accrual recorded at period end by developing an expectation for comparison to actual recorded balances.

Accounting Treatment of the Asset Acquisition – Refer to “Note 4 – Acquisition” to the financial statements

Critical Audit Matter Description

As described further in Note 4 to the financial statements, during the year ended December 31, 2023, the Company completed an asset acquisition for which substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable in-process research and development (“IPR&D”) asset, ZYN002.

The transaction was accounted for as an asset acquisition, and as such, the total consideration was allocated to the acquired asset based upon its relative fair value.

The Company utilized a third-party valuation specialist to assist in the determination of the fair value of the asset acquired.

The methods used to estimate the fair value involved significant assumptions.

We identified the accounting for the asset acquisition versus a business combination and the valuation of the asset as a critical audit matter.

The principal considerations for our determination that the accounting for the transaction as an asset acquisition versus a business combination and valuation of the asset acquisition is a critical audit matter included (i) the significant judgment by the Company in the interpretation and application of the relevant accounting literature to conclude on asset acquisition;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the Company’s fair value estimate of the asset acquired, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Given the complexity involved in interpreting the guidance for the accounting treatment of the asset acquisition, auditing these estimates involved especially subjective judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the audit considerations of the asset acquisition included the following, among others:

● We evaluated the underlying terms of the Agreement and Plan of Merger and the Company’s accounting memoranda, including application of the relevant accounting guidance.

● With the assistance of internal subject matter experts, we evaluated the appropriateness and consistency of the Company’s application of accounting literature related to the transaction.

● We tested the effectiveness of internal controls over the Company’s asset acquisition evaluation, including those over the determination of the fair value of IPR&D.

● With the assistance of fair value specialists, we evaluated the appropriateness of the Company’s methodology used to estimate the fair value of the IPR&D asset and the significant assumptions utilized.

/s/ Deloitte & Touche LLP

Chicago, Illinois

Philadelphia, PA

February 22, 2024

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HARMONY BIOSCIENCES HOLDINGS, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

59,615,731 shares and 58,825,769 issued and outstanding at December 31, 2022 and December 31, 2021, respectively

56,769,081 and 59,615,731 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively

Additional paid in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive (loss) income

Accumulated deficit

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HARMONY BIOSCIENCES HOLDINGS, INC.

AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In thousands, except share and per share data)

AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In thousands, except share and per share data)

Year Ended December 31,

Net product revenues

Net product revenue

Cost of product sold

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Other (expense) income, net

Interest expense, net

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Unrealized loss on investments

Interest expense

Interest income

Income before income taxes

Income tax (expense) benefit

Unrealized income (loss) on investments

Comprehensive income

Net income (loss)

Accumulation of dividends on preferred stock

Net income (loss) available to common stockholders

EARNINGS PER SHARE:

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HARMONY BIOSCIENCES HOLDINGS, INC.

AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED

STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (In thousands, except share and per share data)

Convertible Preferred

AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share and per share data)

stockholders’

Series A, B, & C

comprehensive

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Balance as of December 31, 2020

Preferred stock dividend, Series A

Preferred stock accretion, Series A

Preferred stock dividend, Series B

Preferred stock accretion, Series B

Preferred stock dividend, Series C

Preferred stock accretion, Series C

Issuance of stock upon initial public offering, net of issuance costs

Conversion of Series A, B, C convertible stock to common stock

( 318,510,205 )

Reclassification of warrant liability to equity

Exercise of stock options

Stock-based compensation

Repurchase and cancellation of common units

Repurchase and cancellation of common units withheld for taxes

Balance as of December 31, 2020

Issuance of common stock

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Balance as of December 31, 2022

Unrealized gain on investments

Repurchase of common stock

( 3,254,445 )

Exercise of options and vesting of restricted stock units (2)

Stock-based compensation

Balance as of December 31, 2023

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

(2) Inclusive of fees and 1 % excise tax on shares repurchased.

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

HARMONY BIOSCIENCES HOLDINGS, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

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

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Stock appreciation rights market adjustment

Warrant expense

Debt issuance costs amortization

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Purchase of property and equipment

Acquisition of Zynerba Pharmaceuticals, Inc., net of cash acquired

Milestone payments

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CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock upon initial public offering

Initial public offering issuance costs

Proceeds from issuance of common stock

Common stock issuance costs

Proceeds from long term debt

Proceeds from issuance of debt

Debt issuance costs

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Principal repayment of long term debt

Proceeds from exercised options

Repurchase of common stock

Tax payments for employees shares withheld

Net cash provided by financing activities

Payments of employee withholding taxes related to stock-based awards

Proceeds from exercised options

Net cash (used in) provided by financing activities

NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

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Cash paid during the year for taxes

Supplemental Disclosures of Noncash Investing and Financing Activities:

Series A Preferred Stock accrued return

Series A accretion of issuance costs

Series B Preferred Stock accrued return

Series B accretion of issuance costs

Series C Preferred Stock accrued return

Series C accretion of issuance costs

Warrant financing

Warrant liability reclassified to equity

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

HARMONY BIOSCIENCES HOLDINGS, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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ORGANIZATION AND DESCRIPTION OF BUSINESS

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

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

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

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The Company is headquartered in Plymouth Meeting, Pennsylvania.

Initial Public Offering

In August 2020, the Company completed its initial public offering (“IPO”) of common stock, in which it sold 6,151,162 shares, including 802,325 shares pursuant to the underwriters’ over-allotment option.

The shares were sold at a price of $ 24.00 per share for net proceeds of approximately $ 135,435 , after deducting underwriting discounts and commissions and offering expenses of approximately $ 12,193 payable by the Company.

Upon the closing of the IPO, all outstanding shares of the Company’s convertible preferred stock were automatically converted into shares of common stock and the accrued dividend payable to holders of the convertible preferred stock was paid out in shares of common stock, resulting in a total of 42,926,630 shares of common stock being issued to former holders of the Company’s convertible preferred stock.

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

Reverse Stock Split

In August 2020, the Company implemented a 1-for-8.215 reverse stock split of the Company’s common stock.

All share and per share data shown in the accompanying financial statements and related notes have been retroactively revised to reflect the reverse stock split.

Shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities.

Shares of common stock reserved for issuance upon the conversion of the Company’s Preferred Stock and preferred dividend were proportionately reduced.

All references in the accompanying consolidated financial statements and related notes to the number of shares of common stock, convertible preferred stock, warrants and options to purchase common stock and per share data reflect the effect of the reverse stock split.

On October 10, 2023, the Company completed a tender offer to acquire all of the outstanding shares of common stock of Zynerba Pharmaceuticals, Inc.

(together with its subsidiary, Zynerba Pharmaceutical Pty, Ltd., “Zynerba”).

Zynerba is a clinical-stage pharmaceutical company focused on innovative pharmaceutically produced transdermal cannabidiol therapies for orphan neuropsychiatric disorders, including Fragile X syndrome.

LIQUIDITY AND CAPITAL RESOURCES

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The Company had an accumulated deficit of $ 143,277 and $ 272,130 , as of December 31, 2023, and 2022, respectively.

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

As of December 31, 2023, the Company had cash, cash equivalents and investments of $ 425,629 .

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

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

The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting intellectual property.

The Company operates in an

environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting intellectual property.

Use of Estimates

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Operating Segments

The Company holds all its tangible assets, conducts its operations, and generates its revenues in the U.S.

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Makers in deciding how to allocate resources to an individual segment and in assessing performance.

The Company holds all its tangible assets, conducts its operations, and generates its revenue in the U.S.

Operating segments which are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Makers in deciding how to allocate resources to an individual segment and in assessing performance.

The Company has determined it operates in a single operating segment and has one reportable segment.

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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 in the statements of cash flows.

Cash and cash equivalents

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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 five financial institutions.

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

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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.

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

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

Accredo Health Group, Inc.

As of December 31, 2023, three customers accounted for 100 % of gross accounts receivable, Accredo Health Group, Inc.

(“Accredo”), which accounted for 39 % of gross accounts receivable;

Caremark LLC (“CVS Caremark”), which accounted for 32 % of gross accounts receivable;

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

As of December 31, 2022, three customers accounted for 100 % of gross accounts receivable;

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

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

CVS Caremark accounted for 42 % of gross product revenues;

Pantherx accounted for 29 % of gross product revenues;

and Accredo accounted for 29 % of gross product revenues.

For the year ended December 31, 2021, three customers accounted for 100 % of gross product revenues;

CVS Caremark accounted for 36 % of gross product revenues;

Pantherx accounted for 35 % of gross product revenues;

and Accredo accounted for 29 % of gross product revenues.

For the year ended December 31, 2020, three customers accounted for 100 % of gross product revenues;

CVS Caremark accounted for 40 % of gross product revenues;

Pantherx accounted for 33 % of gross products revenues;

and Accredo accounted for 27 % of gross product revenues.

CVS Caremark, which accounted for 41 % of gross accounts receivable, Accredo, which accounted for 35 % of gross accounts receivable and Pantherx, which accounted for 24 % of gross accounts receivable.

For the year ended December 31, 2023, three customers accounted for 100 % of gross product revenue;

CVS Caremark accounted for 37 % of gross product revenue;

Accredo accounted for 32 % of gross product revenue;

and Pantherx accounted for 31 % of gross product revenue.

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

CVS Caremark accounted for 42 % of gross product revenue;

Pantherx accounted for 29 % of gross product revenue;

and Accredo accounted for 29 % of gross product revenue.

For the year ended December 31, 2021,

three customers accounted for 100 % of gross product revenue;

CVS Caremark accounted for 36 % of gross product revenue;

Pantherx accounted for 35 % of gross products revenue;

and Accredo accounted for 29 % of gross product revenue.

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.

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

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and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services it transfers to the customer.

apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services it transfers to the customer.

The amount of variable consideration which is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under contracts will not occur in a future period.

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Taxes collected related to product sales are remitted to governmental authorities and are excluded from revenue.

Product Sales, Net

We recognize revenue on sales of WAKIX when the customer obtains control of the product, which occurs at a point in time, typically upon delivery.

Product revenues are recorded at the product’s list price, net of applicable reserves for variable consideration that are offered within contracts between us and our customers, payors, and other indirect customers relating to the sale of WAKIX.

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

These deductions are based on the amounts earned, or to be claimed on the related sales, and are classified as a current liability or reduction of receivables.

Net Product Revenue

We recognize revenue from sales of WAKIX when the customer obtains control of the product, which occurs at a point in time, typically upon delivery.

Product revenue is recorded at the product’s list price, net of applicable reserves for variable consideration that are offered within contracts between us and our customers, payors, and other indirect customers relating to the sale of WAKIX.

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

These deductions are based on the amounts earned, or to be claimed on the related sales, and are classified as a current liability or reduction of receivables in our consolidated balance sheet.

Government Contracts

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

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

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

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

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Advertising Expenses

We expensed the costs of advertising, including promotional expenses, as incurred.

We expense the costs of advertising, including promotional expenses, as incurred.

Advertising expenses were $ 21,544 , $ 22,428 and $ 19,558 for the years ended December 31, 2023, 2022 and 2021, respectively.

Stock-Based Compensation

The Company recognizes compensation expense relating to stock-based payment transactions in operating results using a fair value measurement method, in accordance with FASB ASC 718, Compensation-Stock Compensation.

The Company recognizes stock-based compensation expense in operating results using a fair value measurement method, in accordance with FASB ASC 718, Compensation-Stock Compensation.

ASC 718 requires all stock-based payments to employees to be recognized in operating results as compensation expense based on fair value over the requisite service period of the awards.

The vesting periods have a time-based provision consisting of three to five years and expire no more than 10 years after the date of grant.

The vesting periods have a time-based provision consisting of one to five years and expire no more than 10 years after the date of grant.

Upon a change of control, certain unvested awards will immediately vest.

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The method incorporates various assumptions, such as the risk-free interest rate, expected volatility, expected dividend yield, and expected life of the options.

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

Basic and Diluted Net Income (Loss) per Share

Basic net income (loss) per share is determined using the weighted average number of shares of common stock outstanding during each period.

Diluted net income per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred stock and stock options, which would result in the issuance of incremental shares of common stock.

The computation of diluted net loss per shares does not include the conversion of securities that would have an anti-dilutive effect.

The basic and diluted computations of net loss per share for the Company are the same because the effects of the Company’s convertible securities would be anti-dilutive (see Note 17 for further detail).

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

Basic and Diluted Net Income per Share

Basic net income per share is determined using the weighted average number of shares of common stock outstanding during each period.

Diluted net income per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options, and warrants which would result in the issuance of incremental shares of common stock.

Income taxes are accounted for under the asset and liability method.

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The Company is required to consider all available evidence, both positive and negative, such as historical levels of income and future forecasts of taxable income among other items, in determining whether a full or partial release of its valuation allowance is required.

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

Our accounting for deferred tax consequences represents the

best estimate of those future events.

Our accounting for deferred tax consequences represents the best estimate of those future events.

The Company presents deferred income taxes on the Consolidated Balance Sheet on a jurisdictional basis as either a net noncurrent asset or liability.

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The Company’s policy is to include any interest and penalties as a component of income tax expense.

Business Combinations

Business combinations and asset acquisitions are accounted for in accordance with FASB ASC 805 Business Combinations.

Refer to Note 4, Acquisition , for a more detailed discussion of the Zynerba Acquisition.

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 consolidated financial statements.

In November 2023, the FASB issued Accounting Standards Update (“ASU”) No.

2023-07, Improvements to Reportable Segment Disclosures (“ASU 2023-07”).

ASU 2023-07 is intended to improve reportable segment disclosures primarily through enhanced disclosure of reportable segment expenses and requires that a public entity that has a single reportable segment provide all the disclosures required by ASU 2023-07 and all existing segment disclosures in Topic 280.

This ASU is effective for annual reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

ASU 2023-07 is required to be applied retrospectively to all prior periods presented in the financial statements.

The Company has one reportable segment and is currently evaluating the impact that ASU 2023-07 will have on its consolidated financial statements.

In December 2023, the FASB issued Accounting Standards Update (“ASU”) No 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures” (“ASU 2023-09”).

ASU 2023-09 expands disclosures in the rate reconciliation and requires disclosure of income taxes paid by jurisdiction.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently evaluating the impact that ASU 2023-09 will have on its consolidated financial statements.

On October 10, 2023, the Company completed a tender offer to purchase the outstanding common stock of Zynerba (“Zynerba Common Stock”) for (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 amount of consideration to acquire Zynerba Common Stock was $ 60,000 , excluding transaction related fees of $ 2,645 and was paid by the Company using cash on hand.

The total purchase consideration for Zynerba was as follows:

Cash consideration paid to selling shareholders (i)

Cash consideration paid to settle Zynerba restricted stock awards ("RSAs") as stock options (ii)

Transaction costs

Total purchase consideration

(i) The cash consideration paid to selling shareholders was determined based on the total number of Zynerba shares tendered at closing of 50,602,656 at a per share price of $ 1.1059 .

(ii) The cash consideration paid to settle Zynerba restricted stock awards (“RSAs”) and stock options under Zynerba equity incentive plans was determined based on the total number of underlying shares of 4,000,169 at a per share price of $ 1.1059 , less exercise price for the stock options.

All consideration was paid during the year ended December 31, 2023.

The Zynerba Acquisition was accounted for as an asset acquisition under ASC Topic 805, Business Combinations, because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable IPR&D asset, ZYN002, Zynerba’s lead asset.

ZYN002 is the first and only pharmaceutically manufactured, synthetic cannabidiol, a non-euphoric cannabidiol, formulated as a patent-protected permeation-enhanced gel for transdermal delivery through the skin and into the circulatory system and is currently in Phase III clinical trial for the potential treatment of Fragile X Syndrome.

The Company recognized the acquired assets and assumed liabilities based on the consideration paid, including transaction costs, on a relative fair value basis, and after first allocating the preliminary excess of the fair value of net assets acquired over the purchase price consideration to certain qualifying assets, principally, the IPR&D asset.

In accordance with the accounting for asset acquisitions, an entity that acquires IPR&D assets in an asset acquisition follows the guidance in ASC Topic 730 Research and Development, which requires that both tangible and intangible identifiable research and development assets with no alternative future use be allocated a portion of the consideration transferred and recorded as

research and development expense at the acquisition date.

As a result, the Company recorded a charge of $ 2,260 related to acquired in-process research and development expense related to the ZYN002 IPR&D asset during the year ended December 31, 2023.

The following table shows the allocation of the purchase consideration based on the relative fair value of assets acquired and liabilities assumed by the company, after reducing the excess fair value of the IPR&D asset as described above:

Assets acquired

Cash and cash equivalents

Prepaid expenses and other current assets

Deferred tax asset

Restricted cash

Acquired in-process research and development

Total assets acquired

Liabilities assumed

Accounts payable

Accrued expenses and accrued compensation

Other current liabilities

Total liabilities assumed

Net assets acquired

Subsequent to the acquisition, The Company incurred $ 7,544 in severance charges related to the acquisition, of which $ 3,858 was included in general administrative expenses and $ 3,686 was included in research and development expenses, within the consolidated statements of operations for the year ended December 31, 2023.

As of December 31, 2023, the Company had accrued $ 7,544 related to these severance charges, which is included in accrued compensation in the consolidated balance sheet.

The amount of Zynerba’s net loss included in the consolidated statements of operations and comprehensive income for the year ended December 31, 2023, was $ 14,451 .

There was no revenue from Zynerba included in the consolidated statements of operations and comprehensive income for the year ended December 31, 2023, as Zynerba has no historical sales.

Unaudited Pro Forma Financial Information

Unaudited pro forma net income was $ 108,350 and $ 135,567 for the year ended December 31, 2023, and 2022, respectively and there was no adjustment to unaudited pro forma net product revenue for the year ended December 31, 2023, and 2022, as Zynerba has no historical sales through December 31, 2023.

The unaudited pro forma combined financial information presented above has been prepared from historical financial statements that have been adjusted to give effect to the acquisition of Zynerba as though it had occurred on January 1, 2022.

They include adjustments for severance expense and acquired in-process research and development expense.

The unaudited pro forma financial information is not intended to reflect the actual results of operations that would have occurred if the acquisition had occurred on January 1, 2022, nor is it indicative of future operating results.

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

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Total long-term investments

December 31, 2022

Commercial paper

Corporate debt securities

government securities

Total short-term investments

Commercial paper

Corporate debt securities

government securities

Total long-term investments

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

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 December 31, 2023, and December 31, 2022, respectively.

FAIR VALUE MEASUREMENTS

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

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

We validate valuations

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

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

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government securities

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

As discussed in Note 16, in connection with the Company’s IPO the warrant fair value was updated on August 19, 2020 with the change in fair value recorded in current period earnings as other expense in the consolidated statement of operations and reclassified to equity.

During the year ended December 31, 2020, a loss of $ 3,109 was recorded in other expense in the consolidated statements of operations due to the change in the fair value of the warrant liability.

The range of assumptions used to determine the fair value of the warrant liability through August 19, 2020 were as follows:

Dividend yield

Expected volatility

54.2 % - 68.8

Risk-free interest rate

0.17 % - 1.56

Lack of marketability discount

Expected term (years)

Inventory, net consisted of the following:

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Amortization expense was $ 23,845 , $ 22,966 and $ 18,424 for the years ended December 31, 2023, 2022 and 2021, respectively, and is recorded in general and administrative expenses in the consolidated statements of operations and comprehensive income (loss).

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

Future annual amortization expense for the unamortized intangible assets is as follows:

Years ending December 31,

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As of December 31, 2023, and 2022, the Company had accrued $ 40,419 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.

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

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

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

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

In addition, there are other payments due upon achievement of development milestones for new indications and formulations as agreed upon by both parties.

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

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

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

Agreement Related to Intellectual Property

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

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

Under the terms of the APA, the Company acquired full development and commercialization rights globally, with

the exception of Greater China, for $ 3,500 .

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

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Accrued expenses consist of the following:

Royalties due to third parties

Royalties due to Bioprojet

Rebates and other sales deductions

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Credit Agreements

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 December 31, 2023, was $ 199,859 .

Blackstone Credit Agreement

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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

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.

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

The debt issuance costs related to the Initial Term Loan are being amortized as additional interest expense over the five-year loan term of the Blackstone Credit Agreement.

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

The fair value of the Initial Term Loan as of December 31, 2022 was $ 155,198 .

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 consolidated statements of operation and comprehensive income for the year ended December 31, 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 consolidated statement of operations and comprehensive income for the year ended December 31, 2023.

OrbiMed Credit Agreement

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In June 2018, the Company entered into an operating lease for approximately fifteen thousand square feet of office space in Plymouth Meeting, PA, which expires in May 2024.

In December 2020, the Company entered into an operating lease for approximately thirteen thousand square feet of additional office space in Plymouth Meeting, PA, which expires in May 2024.

The Company subsequently entered 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.

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Our leases have remaining lease terms of less than 1 year to 3 years , some of which may include the option to extend or terminate the leases.

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

The company recorded operating lease costs of $ 1,811 and $ 1,526 for the years ended December 31, 2023, and 2022, respectively.

As of December 31, 2023, the weighted-average remaining lease term for operating leases was 2.0 years and the weighted-average discount rate for operating leases was 6.73 %.

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Right of use assets obtained in exchange for operating lease obligations

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

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

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

CONVERTIBLE PREFERRED STOCK

Upon the closing of the IPO, all outstanding shares of the Company’s convertible preferred stock were automatically converted into shares of common stock and the accrued dividend payable to holders of the convertible preferred stock was paid out in shares of common stock, resulting in a total of 42,926,630 shares of common stock issued to former holders of the Company’s convertible preferred stock.

Series A Preferred Stock

In September 2017, the Company issued 270,000,000 shares of Series A convertible preferred stock for a purchase price of $ 1.00 per share, or $ 270,000 in the aggregate.

On January 8, 2018, the Company issued an additional 15,000,000 shares of Series A convertible preferred stock for a purchase price of $ 1.00 per share, or $ 15,000 in the aggregate.

Each outstanding share of Series A convertible preferred stock accrued dividends at 10 % per annum of the Series A original issue price, subject to adjustment for stock splits, combinations, recapitalizations, stock dividends and similar transactions.

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

Series B Preferred Stock

In January 2018, the Company issued 8,000,000 shares of Series B convertible preferred stock for a purchase price of $ 1.25 per share, or $ 10,000 in the aggregate.

Each outstanding share of Series B convertible preferred stock accrued dividends at 10 % per annum of the Series B original issue price, subject to adjustment for stock splits, combinations, recapitalizations, stock dividends and similar transactions.

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

Series C Preferred Stock

In August 2019, the Company issued 25,510,205 shares of Series C convertible preferred stock for a purchase price of $ 1.96 per share, or $ 50,000 in the aggregate.

Each outstanding share of Series C convertible preferred stock accrued dividends at 10 % per annum of the Series C original issue price, subject to adjustment for stock splits, combinations, recapitalizations, stock dividends and similar transactions.

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

The holders of Series A, Series B, and Series C convertible preferred stock were entitled to receive, when and if declared by the board of directors of the Company, cumulative dividends equal to a 10 % per annum of Series A, Series B, and Series C convertible preferred stock.

In addition, the holders of the outstanding shares of Series A, Series B, and Series C convertible preferred stock were entitled to receive, when and if declared by the board of directors of the Company, a dividend at least equal to any dividend payable on the Company’s common stock as if all convertible preferred stock had been converted to common stock.

No dividends were declared as of December 31, 2019.

As part of the Company’s IPO, the Company’s accrued cumulative dividend was paid out to holders of Series A, Series B, and Series C convertible preferred stock in shares of the Company’s common stock and reflects the reverse stock split in connection with the mandatory conversion of the Series A, Series B, and Series C convertible preferred stock into shares of the Company’s common stock.

STOCKHOLDERS’ EQUITY

In August 2020, the Company implemented a 1-for-8.215 reverse stock split of the Company’s common stock.

All share and per share data shown in the accompanying financial statements and related notes have been retroactively revised to reflect the reverse stock split with the exception of the preferred stock.

Shares of common stock underlying outstanding

stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities.

Shares of common stock reserved for issuance upon the conversion of the Company’s Preferred Stock were proportionately reduced.

In August 2020, the Company completed its IPO of common stock, in which it sold 6,151,162 shares, including 802,325 shares pursuant to the underwriters’ over-allotment option.

The shares were sold at an IPO price of $ 24.00 per share for net proceeds of approximately $ 135,435 , after deducting underwriting discounts and commissions and offering expenses of approximately $ 12,193 incurred by the Company.

The holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of the Company’s stockholders.

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This sale did not involve a public offering and was therefore exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D thereunder as a transaction not involving any public offering.

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

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

Pursuant to the warrants, OrbiMed Royalty & Credit Opportunities, LP had the option to purchase up to 410,239 shares of the Company’s common stock for an initial exercise price of $ 16.10 .

In September 2021, OrbiMed exercised its option to purchase shares of the Company’s common stock which resulted in the net settlement of 221,511 shares of common stock being issued to OrbiMed.

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 year ended December 31, 2023, the Company repurchased and retired 1,439,792 shares of common stock at an aggregate cost of $ 50,000 under the August 2023 Repurchase Program, excluding commissions and transaction fees.

On October 27, 2023, the Company’s Board of Directors terminated the August 2023 Repurchase Program and any remaining amount authorized for the repurchase of shares.

Simultaneously, the Company’s Board of Directors approved a share repurchase program (the “October 2023 Repurchase 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 may be suspended, terminated, or modified at any time for any reason.

During the year ended December 31, 2023, the Company repurchases and retired 1,814,653 shares of common stock at an aggregate cost of $ 50,000 under the October 2023 Repurchase Program, excluding commissions and transaction fees.

STOCK INCENTIVE PLAN AND STOCK-BASED COMPENSATION

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Awards issued

Awards exercised

Awards vested

Awards forfeited

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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.

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

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

Such amount will be recognized in the Company’s consolidated statement of operations over a weighted average period of 2.9 years.

As of December 31, 2023, the total unrecognized stock-based compensation expense related to options and RSUs was $ 69,594 which will be recognized in the Company’s consolidated statement of operations over a weighted average period of 2.3 years.

Employee Stock Purchase Plan

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

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

issued under the ESPP, respectively.

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

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

Pursuant to the Warrants, OrbiMed Royalty & Credit Opportunities, LP, may purchase up to 410,239 shares of the Company’s Common Stock for an initial exercise price of $ 16.10 at any time from the date of execution of the Warrants through the expiration date, defined within the Warrants as the earlier of (i) January 9, 2027 and (ii) the closing date of a Corporate Reorganization.

The fair value of the Warrants using the Black-Scholes option-pricing model was $ 2,359 on January 9, 2020 and was initially recorded as a warrant liability which was included in warrant liability in the consolidated balance sheet.

The portion of the OrbiMed Loan proceeds allocated to the warrant liability resulted in a debt discount, which is presented in the consolidated balance sheets as a direct deduction from the carrying value of the debt and is being amortized as additional interest expense over the six-year loan term of the OrbiMed Loan.

In connection with the Blackstone Credit Agreement, the OrbiMed Loan was repaid in fully and the unamortized debt discount related to the Warrants was included in the loss on debt extinguishment (see Note 12).

In September 2021, OrbiMed exercised its option to purchase shares of the Company’s common stock pursuant to the Warrants, which resulted in the net settlement of 221,511 shares of the Company’s common stock issued to OrbiMed.

In connection with the IPO, the financial instrument underlying the warrants was converted from the Company’s Series C Preferred Stock to the Company’s Common Stock.

As a result of this conversion the Warrants were re-evaluated under ASC 480 Distinguishing Liabilities from Equity and ASC 815 Derivatives and Hedging and reclassified to equity.

For the years ended December 31, 2023, 2022 and 2021, there were 21,313 , 21,943 and 11,010 shares issued under the ESPP, respectively.

The discount on the ESPP was $ 393 , $ 363 and $ 173 for the years ended December 31, 2023, 2022 and 2021, respectively, and is recorded within stock-based compensation expense.

EARNINGS PER SHARE

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For the years ended December 31, 2023, 2022 and 2021, respectively, the Company calculated Diluted net income per common share is computed under the treasury stock method by using the weighted average number of shares of common stock outstanding, plus, for periods with net income attributable to common stockholders, the potential dilutive effects of stock options, stock appreciation rights and restricted stock units.

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

Under this method, net income is reduced by the amount of any dividends earned and the accretion of convertible preferred stock to its redemption value during the period.

The remaining earnings (undistributed earnings) are allocated to common stock and each series of convertible preferred stock to the extent that each preferred security may share in the earnings as if all of the earnings for the period had been distributed.

The total earnings allocated to common stock is then divided by the number of outstanding shares to which the earnings are allocated to determine the earnings per share.

The two-class method is not applicable during periods with a net loss, as the holders of the convertible preferred stock have no obligation to fund losses.

The Company reported a net loss for the year ended December 31, 2020, and the weighted average number of shares utilized for basic and diluted net loss per share attributable to common stockholders are the same for this period because all convertible preferred stock and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact.

Additionally, the fair value adjustment for the warrants was excluded from the computation of diluted net loss for the year ended December 31, 2020 since the additional income would have an antidilutive impact.

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

Year Ended December 31,

Net income (loss)

Accumulation of dividends on preferred stock

Net income (loss) available to common shareholders

Net income (loss) per common share - basic

Net income (loss) per common share - diluted

Net income available to common shareholders

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

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Stock options, SARs, and RSUs to purchase common stock

Potential common shares issuable upon conversion of preferred stock, exercise of stock options, and exercise of warrants that were excluded from the computation of diluted weighted-average shares outstanding as well as the warrant fair value adjustments excluded from the numerator are as follows:

Potential common shares issuable upon conversion of preferred stock and exercise of stock options that were excluded from the computation of diluted weighted-average shares outstanding excluded from the numerator are as follows:

Year Ended December 31,

Stock options, SARs, and RSUs to purchase common stock

Convertible preferred stock

Adjustment for warrants

Details of the provision for income taxes consist of the following:

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Accrued compensation

Disallowed interest

Lease obligations, net

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Valuation allowance

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

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

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

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

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

As of December 31, 2023, and December 31, 2022, our deferred tax assets were primarily the result of acquired in-process research and development costs, operating loss carryforwards, capitalized research and development costs, inventory, and accrued rebates.

As of December 31, 2023, the Company recorded a valuation allowance on federal net operating losses of Zynerba’s subsidiary, Zynerba Pharmaceuticals Pty Ltd., and the state net operating losses of Zynerba.

The Company previously recorded a valuation allowance against Harmony’s historical deferred tax assets.

The Company recorded $ 96,336 as a benefit to the income tax provision upon release of this valuation allowance during year ended December 31, 2022, in part because in the year ended December 31, 2022, we achieved three years of cumulative pretax income, which was a positive indication of the Company’s ability to generate sufficient future taxable income, the Company determined that there was sufficient positive evidence to conclude that it was more likely than not that additional deferred taxes are realizable and, therefore, released the valuation allowance accordingly.

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2023, 2022 and 2021 were as follows:

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Decreases recorded as a benefit to income tax provision

Increases due to Zynerba Acquisition

Increases recorded to income tax provision

Valuation allowance at the end of the year

As of December 31, 2022 and 2021, the Company has approximately $ 0 and $ 98,069 , respectively, of federal net operating loss ("NOL") carryforward available to offset future federal taxable income.

The Company also has approximately $ 95,230 and $ 120,074 of state NOL carryforwards as of December 31, 2022 and 2021, respectively, available to offset future state taxable income.

As of December 31, 2023, and 2022, the Company has approximately $ 179,390 and $ 0 , respectively, of federal net operating loss ("NOL") carryforward available to offset future federal taxable income.

The Company also has approximately $ 137,331 and $ 95,230 of state NOL carryforwards as of December 31, 2023, and 2022, respectively, available to offset

future state taxable income.

All of the Company’s tax years remain open to examination by federal and state taxing authorities.

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The 401(k) Plan is for the benefit of all qualifying employees and permits voluntary contributions by employees limited by the IRS-imposed maximum.

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

Employer contributions were $ 2,128 , $ 1,705 , and $ 2,479 for the years ended December 31, 2023, 2022 and 2021, respectively.

RELATED-PARTY TRANSACTIONS

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In addition, the Chairman of the Company’s board of directors was the President and owner of the entity.

For the years ended December 31, 2022, 2021 and 2020, the Company incurred $ 284 , $ 284 and $ 7,384 , respectively, in management fee expense and other expenses to this related party, which are included in general and administrative expense in the consolidated statements of operations and comprehensive income (loss).

The Company terminated the Management Services Agreement upon the consummation of its IPO.

The Company is also party to a right of use agreement with the related party whereby it has access to and the right to use certain office space leased by the related party in Chicago, Illinois.

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 is party to a right of use agreement with the related party whereby it has access to and the right to use certain office space leased by the related party in Chicago, Illinois.

For the years ended December 31, 2023, 2022 and 2021, the Company incurred $ 290 , $ 284 and $ 284 , respectively, in expenses pursuant to the right of use agreement with this related party, which are included in general and administrative expense in the consolidated statements of operations and comprehensive income (loss).

In August 2021, the Company paid a $ 2,300 advisory fee to Paragon in connection with the Blackstone Credit Agreement.

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Additions due to current period provision

Deductions due to payment of distribution fees, discounts and chargebacks

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

Deductions due to payment of distribution fees, discount and chargebacks

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

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

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data