Harmony Biosciences Holdings, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy, products, prospective products, product approvals, research and development costs, anticipated timing and likelihood of success of clinical trials, expected timing of the release of clinical trial data, the plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, statements about: ● our commercialization efforts and strategy for WAKIX; ● the rate and degree of market acceptance and clinical utility of pitolisant in additional indications, if approved, and any other product candidates we may develop or acquire, if approved; ● our research and development plans, including our plans to explore the therapeutic potential of pitolisant in additional indications; ● our ongoing and planned clinical trials; ● our ability to expand the scope of our license agreements with Bioprojet Soci é t é Civile de Recherche ( “ Bioprojet ” ); 22 Table of Contents ● the availability of favorable insurance coverage and reimbursement for WAKIX; ● the timing of, and our ability to obtain, regulatory approvals for pitolisant for other indications as well as any other product candidates; ● our estimates regarding expenses, future revenue, capital requirements and additional financing needs; ● 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; ● significant competition in our industry; ● our intellectual property position; ● loss or retirement of key members of management; ● failure to successfully execute our growth strategy, including any delays in our planned future growth; ● our failure to maintain effective internal controls; and ● the impact of government laws and regulations. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the section in our most recent Annual Report on Form 10-K entitled “Item 1A. Risk Factors” and the sections in this Quarterly Report on Form 10-Q titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Unless otherwise indicated, information contained in this Quarterly Report on Form 10-Q concerning our industry, including industry statistics and forecasts, competitive position and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data, and our experience in, and knowledge of, such industry and markets, which we believe to be reasonable. In addition, projections, forecasts, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed and forecasts in the estimates made by the independent parties and by us. 23 Table of Contents You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. As used herein, the terms “Harmony,” “we,” “us,” “our” and “the Company” refer to Harmony Biosciences Holdings, Inc., a Delaware corporation and our operating subsidiary, Harmony Biosciences, LLC. Further, we have in-licensed from Bioprojet the registered trademark product name WAKIX® in the United States. We also have registered trademark protection in the United States for KNOW NARCOLEPSY®, REM AT THE WRONG TIME® and NON-REM AT THE WRONG TIME®, as well as our brand and logo HB®, HB HARMONY BIOSCIENCES® and HARMONY BIOSCIENCES®. This report also includes trademarks, service marks and trade names of other companies. Trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. 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. In August 2019, WAKIX was approved by the U.S. Food and Drug Administration (the “FDA”) for the treatment of excessive daytime sleepiness (“EDS”) in adult patients with narcolepsy, and its U.S. commercial launch was initiated in November 2019. In October 2020, WAKIX was approved by the FDA for the treatment of cataplexy in adult patients with narcolepsy. WAKIX is the first-and-only approved product for patients with narcolepsy that is not scheduled as a controlled substance by the U.S. Drug Enforcement Administration (the “DEA”) . 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 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 and Fast Track Designation in November 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 completed enrollment in the INTUNE study in May 2023 and we announced topline data in October 2023. While the primary endpoint did not meet statistical significance, we believe the totality of the data showed favorable numerical trends for pitolisant in the treatment of adult patients with IH and we met with the FDA in March 2024 to discuss the path forward for IH. Following our meeting with the FDA, we plan to submit a supplemental NDA (“sNDA”) for IH in the second half of 2024 based on the totality of the data obtained from the INTUNE study and from other sources. 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 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 registration 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 regarding the protocol for the Phase 3 TEMPO study in patients with PWS, which we believe will satisfy the requirements for both the registrational trial and one of the two requirements for pediatric exclusivity for pitolisant. In February 2024, the FDA granted Orphan Drug designation to pitolisant for the treatment of PWS. The Phase 3 registrational trial, the TEMPO study, was initiated in March 2024. In June 2021, we initiated a Phase 2 proof-of-concept signal 24 Table of Contents detection clinical trial to evaluate pitolisant for the treatment of EDS, fatigue and cognitive dysfunction in adult patients with DM1 and announced topline results from this trial in the fourth quarter of 2023, in which clinically meaningful improvements were demonstrated in EDS and fatigue. The safety profile was consistent with the established safety profile of pitolisant. Our partner, Bioprojet completed a Phase 3 trial in pediatric patients with narcolepsy and submitted the trial data to the European Medicines Agency (the “EMA”) seeking approval for a pediatric narcolepsy indication. In January 2023, Bioprojet received a positive opinion from the EMA’s Committee for Medicinal Products for Human Use (“CHMP”) and in March 2023, the EMA granted approval for the marketing authorization of WAKIX for the treatment of narcolepsy in children 6 and older. Based on the data from the positive Phase 3 trial conducted by Bioprojet, we submitted an sNDA for pediatric narcolepsy in December 2023. On February 21, 2024, we announced that the FDA has granted priority review of our pediatric narcolepsy sNDA and has set a Prescription Drug User Fee Act, or target action date, of June 21, 2024. We remain committed to obtaining pediatric exclusivity for WAKIX . The initiation of the PWS Phase 3 registrational trial, the TEMPO study, and pediatric narcolepsy sNDA are supportive of our efforts in obtaining pediatric exclusivity for WAKIX. We also seek to expand our pipeline through the acquisition of additional assets that focus on addressing the unmet needs of patients living with rare neurological diseases as well as patients living with other neurological diseases who have unmet medical needs. We are targeting assets that will allow us to further leverage the expertise and infrastructure that we have successfully built at Harmony so we can optimize the benefit of internal synergies. Consistent with this objective, in July 2022, we entered into a License and Commercialization Agreement (the “2022 LCA”) with Bioprojet whereby we obtained exclusive rights to manufacture, 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 have made progress in the development of two new formulations of pitolisant, Next Gen 1 (“NG1”) and Next Gen 2 (“NG2”). Both formulations entered clinical studies in the fourth quarter of 2023 . We received data from the NG1 pilot bioequivalence study, which supports further development of NG1. We anticipate data from the NG2 pilot pharmacokinetics study in the second half of 2024. These formulations are expected to generate new IP to extend the pitolisant franchise out beyond 2040. In addition, in October 2023, we completed the acquisition of Zynerba Pharmaceuticals, Inc. (together with its subsidiary, Zynerba Pharmaceutical Pty, Ltd., “Zynerba”), a clinical-stage pharmaceutical company focused on innovative pharmaceutically produced transdermal cannabidiol therapies for orphan neuropsychiatric disorders. Zynerba’s drug candidate is 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. ZYN002 is currently in a pivotal Phase 3 trial, the RECONNECT study, for the treatment of Fragile X Syndrome (“FXS”). Topline data from this Phase 3 study is anticipated in mid-2025. ZYN002 has patent protection for the treatment of FXS until 2038. In August 2021, we acquired HBS-102, a Melanin-concentrating hormone receptor 1 (MCHR1) antagonist previously developed as CSTI-100/ALB-127258(a)/ALB-127258 (the “Compound”), along with intellectual property and other assets related to the development, manufacture, and commercialization of the Compound from ConSynance Therapeutics, Inc. We acquired full development and commercialization rights for HBS-102 globally, but we have provided an indication-limited grant-back license to ConSynance for the development and commercialization of the Compound in Greater China. We are conducting 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. We anticipate data from both studies in the first half of 2024 . A 13-week toxicology study is completed and the preliminary results are encouraging. In April 2024, we entered into a sublicense agreement with Bioprojet for an orexin-2 receptor agonist (OX2R) (the “Licensed Compound”) to be evaluated for the treatment of narcolepsy and other potential indications (the “Sublicense”). Under the Sublicense, the Company obtained the exclusive right to develop, 25 Table of Contents manufacture and commercialize the Licensed Compound in the United States and Latin American territories, which are rights that Bioprojet originally licensed from Teijin Pharma, the innovator of the Licensed Compound. 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. We acquired an exclusive license to develop, manufacture and commercialize pitolisant in the United States pursuant to our license agreement with Bioprojet (as amended, the “2017 LCA”) in July 2017. Pitolisant was granted Orphan Drug Designation for the treatment of narcolepsy by the FDA in 2010. It received Breakthrough Therapy designation for the treatment of cataplexy in patients with narcolepsy and Fast Track status for the treatment of EDS and cataplexy in patients with narcolepsy in April 2018 . Our operations are conducted by our wholly owned subsidiaries, Harmony Biosciences, LLC and Zynerba. Commercial Performance Metrics As of March 31, 2024, we continued to see growth in the number of unique healthcare professional (“HCP”) prescribers of WAKIX since it became available in November 2019. The average number of patients on WAKIX for the three months ended March 31, 2024, was approximately 6,300. Additionally, as of March 31, 2024, 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. Financial Operations Overview Net Product Revenue Net product revenue includes gross product shipments less provisions for sales discounts and allowances, which includes trade allowances, rebates to government and commercial entities, and other discounts. Although we expect net sales to increase over time, provisions for sales discounts and allowances may fluctuate based on the mix of sales to different customer segments and/or changes in our estimates . Cost of Product Sales Cost of product sales includes manufacturing and distribution costs, the cost of API, FDA program fees, royalties due to third parties on net product sales, freight, shipping, handling, storage costs and salaries of employees involved with oversight of production. We expect the cost of product sales to increase as we continue to ramp up production in order to meet future demand for WAKIX and diversify our supply chain for WAKIX . The shelf life of WAKIX is three years from date of manufacture, with the earliest expiration of current inventory expected to be June 2025. We regularly review our inventory levels and expect write-offs from time to time. We will continue to assess inventory levels in future periods as demand for WAKIX and the rate of inventory turnover evolves. We currently have adequate supply of WAKIX to cover demand into the third quarter of 2025, with additional API on-hand inventory to support at least 36 months beyond this time frame . Research and Development Expenses Research and development expenses primarily include development programs for potential new indications for pitolisant in patients with IH, PWS, DM and the development of ZYN002 in patients with FXS. We also incur research and development expenses related to our team of Medical Science Liaisons (“MSLs”) who interact with key opinion leaders, with a focus on the science, the role of histamine in sleep-wake state stability and the novel mechanism of action of pitolisant. In addition, our MSLs support our market access team 26 Table of Contents with the presentation of clinical data to payors upon request and our clinical development team to identify potential clinical trial sites. Research and development costs are expensed as incurred. We have significantly increased our research and development efforts as we advance our clinical programs and assess other product candidates to expand our pipeline. Research and development expenses also include : ● employee -related expenses, such as salaries, share-based compensation, benefits and travel expenses for our research and development personnel ; ● direct third-party costs such as expenses incurred under agreements with CROs, and contract manufacturing organizations (“CMOs”) ; ● manufacturing costs in connection with producing materials for use in conducting clinical trials ; ● costs related to packaging and labelling of clinical supplies; ● other third-party expenses (e.g., consultants, advisors) directly attributable to the development of our product candidates; ● acquired in-process research and development; and ● amortization expense for assets used in research and development activities. 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 . Product candidates in later stages of clinical development generally have higher development costs in the current period than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials, milestone payments, and the cost of submitting an NDA to the FDA (and/or other regulatory authorities). We expect our research and development expenses to be significant over the next several years as we advance our current clinical development programs and prepare to seek regulatory approval for additional indications for pitolisant, complete the Phase 3 clinical trial for ZYN002, and advance NG1, NG2, ZYN002 and HBS-102 to develop toward new indications . At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of any additional indications for pitolisant or other product candidates that we move forward for regulatory approval. There are numerous risks and uncertainties associated with developing product candidates, including uncertainty related to : ● the duration, costs and timing of clinical trials of our current development programs and any further clinical trials related to new product candidates; ● the sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials; ● the impact of the COVID-19 pandemic, including any future resurgence or new variants, on the ability to initiate new clinical trials and/or maintain the continuity of ongoing clinical trials, including our ability to access sleep labs in order to conduct objective sleep testing, that could be impacted by future shelter-in-place orders and needs of the health care system to focus on managing patients affected by COVID-19; ● receiving Bioprojet ’ s consent to pursue additional indications for pitolisant; 27 Table of Contents ● the acceptance of INDs for our planned clinical trials or future clinical trials; ● the successful and timely enrollment and completion of clinical trials; ● the successful completion of preclinical studies and clinical trials; ● successful data from our clinical programs that support an acceptable risk-benefit profile of our product candidates in the intended populations; ● the receipt and maintenance of regulatory and marketing approvals from applicable regulatory authorities; ● establishing agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidate is approved; ● the entry into collaborations to further the development of our product candidates; ● obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates; and ● successfully launching our product candidates and achieving commercial sales, if and when approved. A change in the outcome of any of these variables with respect to the development of any of our programs or any product candidate we develop would significantly change the costs, timing and viability associated with the development and/or regulatory approval of such programs or product candidates. Sales and Marketing Expenses Our sales and marketing expenses primarily relate to the market development and commercialization activities of WAKIX for the treatment of EDS and cataplexy in adult patients with narcolepsy. Market development and commercial activities account for a significant portion of our operating expenses and are expensed as incurred. We expect our sales and marketing expenses to increase in the near- and mid-term to support WAKIX’s indications for the treatment of EDS or cataplexy in adult patients with narcolepsy and to expand our portfolio with the anticipated growth from potential additional indications . Sales and marketing expenses include: ● employee-related expenses, such as salaries, share-based compensation, benefits and travel expenses for our sales, marketing and market access personnel; ● healthcare professional-related expenses, including marketing programs, healthcare professional promotional medical education, disease education, conference exhibits and market research; ● patient-related expenses, including patient awareness and education programs, disease awareness education, patient reimbursement programs, patient support services and market research; ● market access expenses, including payor education, specialty pharmacy programs and services to support the continued commercialization of WAKIX; and ● secondary data purchases (i.e., patient claims and prescription data), data warehouse development and data management. 28 Table of Contents In addition, sales and marketing expenses include external costs such as website development, media placement fees, agency fees for patient, medical education and promotional expenses, market research, analysis of secondary data, conference fees and consulting fees. General and Administrative Expenses General and administrative expenses consist primarily of employee-related expenses, such as salaries, share-based compensation, benefits and travel expenses for our personnel in executive, legal, finance and accounting, human resources, investor relations, and other administrative departments. General and administrative expenses also consist of office leases, and professional fees, including legal, tax and accounting and consulting fees. We anticipate that our general and administrative expenses will increase in the future to support our continued commercialization efforts, ongoing and future potential research and development activities, and increased costs of operating as a public company. These increases will likely be driven by costs associated with the hiring of additional personnel and fees paid to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with the requirements of Nasdaq and the SEC, insurance and investor relations costs. If any of our current or future indication expansion programs or new product candidates obtain U.S. regulatory approval, we expect that we would incur significantly increased expenses associated with building a sales and marketing team. Paragon Agreement We are party to a right-of-use agreement with Paragon Biosciences, LLC (“Paragon”) whereby we have access to and the right to use certain office space leased by Paragon in Chicago, Illinois. For the three months ended March 31, 2024, we paid fees of $0.1 million pursuant to this agreement. Interest Expense Interest expense consists primarily of interest expense on debt facilities, amortization of debt issuance costs and amortization of premiums on our debt securities. Interest Income Interest income consists primarily of cash interest earned on our cash and investment balances and accretion of the discount on our investments in debt securities. 29 Table of Contents Results of Operations The following table sets forth selected items in our unaudited condensed consolidated statements of operations for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ 2024 2023 ​ ​ (In thousands) Net product revenue ​ $ 154,615 ​ $ 119,126 Cost of product sales ​ 27,484 ​ 20,780 Gross profit ​ 127,131 ​ 98,346 Operating expenses: ​ ​ Research and development ​ 22,189 ​ 13,289 Sales and marketing ​ 27,233 ​ 22,572 General and administrative ​ 25,676 ​ 22,062 Total operating expenses ​ 75,098 ​ 57,923 Operating income ​ 52,033 ​ 40,423 ​ ​ ​ ​ ​ ​ ​ Other (expense) income, net ​ (141) ​ 2 Interest expense ​ ​ (4,535) ​ ​ (5,731) Interest income ​ 4,428 ​ 3,086 Net income before provision for income taxes ​ 51,785 ​ 37,780 Income tax (expense) benefit ​ (13,451) ​ (8,295) Net income ​ $ 38,334 ​ $ 29,485 ​ Net Product Revenue Net product revenue increased by $35.5 million, or 29.8%, for the three months ended March 31, 2024 compared to the same period in 2023. The increase was primarily due to a 28.3% increase in the number of units shipped, and the impact of a 7% price increase partially offset by higher rebates to commercial entities, which resulted in a decrease to net product revenue of approximately 4%. The price increase occurred in January 2024. Cost of Product Sales Cost of product sales increased by $6.7 million, or 32.3%, for the three months ended March 31, 2024, compared to the same period in 2023. Cost of product sales as a percentage of net product revenue was 17.8% for the three months ended March 31, 2024, compared to 17.4% for the three months ended March 31, 2023. The increase in cost of product sales in the period was due to higher sales of WAKIX. Research and Development Expenses The following table is a summary of our research and development expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ ​ ​ ​ ​ 2024 2023 ​ Change ​ ​ (in thousands) ​ ​ ​ Pitolisant ​ $ 9,110 ​ $ 6,187 ​ $ 2,923 ZYN002 ​ ​ 3,879 ​ ​ - ​ ​ 3,879 Other research and development ​ ​ 2,446 ​ ​ 1,774 ​ ​ 672 IPR&D ​ ​ - ​ ​ 750 ​ ​ (750) Personnel expenses ​ ​ 5,383 ​ ​ 3,602 ​ ​ 1,781 Stock-based compensation ​ ​ 1,371 ​ ​ 976 ​ ​ 395 Total ​ $ 22,189 ​ $ 13,289 ​ $ 8,900 30 Table of Contents ​ Research and development expenses increased by $8.9 million, or 67.0%, for the three months ended March 31, 2024, compared to the same period in 2023. The increase for the three months ended March 31, 2024 was primarily driven by $3.9 million in research and development expenses for ZYN002, which did not have any expenses in the prior year, a $2.9 million increase in clinical development and regulatory work associated with pitolisant, driven by increases for PWS and DM indications, a $1.8 million increase in personnel costs associated with higher headcount and a $0.4 million increase in stock compensation associated with new awards, partially offset by a $0.8 million IPR&D charge related to preclinical milestones achieved for HBS-102 during the three months ended March 31, 2023. Sales and Marketing Expenses Sales and marketing expenses increased by $4.7 million, or 20.6%, for the three months ended March 31, 2024, compared to the same period in 2023. The increase for the three months ended March 31, 2024, was primarily due to a $2.7 million increase in patient engagement and marketing activities, a $0.9 million increase in personnel costs, and a $0.9 million increase in stock compensation associated with new awards. The increase in patient engagement and marketing activities for the period was driven by our continued growth of WAKIX and the increase in personnel costs for the period was related to increased headcount. General and Administrative Expenses General and administrative expenses increased by $3.6 million, or 16.4%, for the three months ended March 31, 2024, compared to the same period in 2023. The increase in the three months ended March 31, 2024, was primarily due to a $2.6 million increase in stock compensation associated with new awards and a $0.8 million increase in legal fees, primarily associated with patent lawsuits. Interest Expense Interest expense decreased by $1.2 million, or 20.9%, for the three months ended March 31, 2024, compared to the same period in 2023. The decrease for the three months ended March 31, 2024, was primarily due to lower interest rates as a result of refinancing into the TLA Credit Agreement (defined below). Interest Income Interest income increased by $1.3 million, or 43.5%, for the three months ended March 31, 2024, compared to the same period in 2023. The increase for the three months ended March 31, 2024, was primarily a result of having higher invested balances, and higher investment yields on those balances, compared to the prior year period. Income Taxes Income tax expense was $13.5 million, representing a 26.0% effective tax rate, for the three months ended March 31, 2024, compared to $8.3 million, representing a 22.0% effective tax rate, for the three months ended March 31, 2023. The increase in our effective tax rate was due to a 2.8% tax benefit from the exercise of stock options in the prior year period and a 1.9% benefit from estimated tax credits. The effective tax rate of 26.0% for the three months ended March 31, 2024, included 5.1% for state income taxes, partially offset by a 1.0% benefit from credits. 31 Table of Contents Liquidity, Sources of Funding and Capital Resources Overview As of March 31, 2024, we had cash, cash equivalents, and investments of $453.6 million, outstanding debt of $192.5 million and an accumulated deficit of $104.9 million. 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 March 31, 2024, 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 In July 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. In September 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 March 31, 2024. Share Repurchases In October 2023, 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 three months ended March 31, 2024, the Company repurchased and cancelled no shares of common under the October 2023 Repurchase Program. As of March 31, 2024, the remaining amount of common stock authorized for repurchases was $150.0 million. 32 Table of Contents Zynerba Acquisition In October 2023, we completed a tender offer (the “Tender Offer”) to acquire all of the outstanding shares of common stock of Zynerba (“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”), the aggregate amount of which was $60,000 and was paid at closing, 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. The Common CVR Amounts 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 an asset purchase agreement with ConSynance Therapeutics, Inc. (the (APA”) to acquire HBS-102, a potential first-in-class molecule with a novel mechanism of action. Under the terms of the APA, 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 below, 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 Agreements In April 2024, we entered into a sublicense agreement with Bioprojet for an orexin-2 receptor agonist (OX2R) (the “Licensed Compound”) to be evaluated for the treatment of narcolepsy and other potential indications (the “Sublicense”). Under the Sublicense, the Company obtained the exclusive right to develop, manufacture and commercialize the Licensed Compound in the United States and Latin American territories (the “Licensed Territories”), which are rights that Bioprojet originally licensed from Teijin Pharma, the innovator of the Licensed Compound. The Licensed Compound is currently in pre-clinical development with an Investigational New Drug application currently anticipated in the second half 2025. Under the Sublicense, the Company will pay Bioprojet an upfront license fee of $25.5 million and will also be obligated to pay up to $127.5 million upon achievement of development and regulatory milestones and up to $240.0 million upon achievement of sales-based milestones, as well as royalty rates in the mid-teens on potential sales in the Licensed Territories. ​ In July 2022, we entered into the 2022 LCA with Bioprojet whereby we obtained exclusive rights to manufacture, develop and commercialize one or more new products based on pitolisant in the United States and Latin America, with the potential to add additional indications and formulations upon the agreement of both parties. We paid an initial, non-refundable $30.0 million licensing fee in October 2022 and additional payments of up to $155.0 million are potentially due under the 2022 LCA upon the achievement of certain future development and sales-based milestones. In addition, certain payments will become due upon the achievement of development milestones for new indications and formulations as agreed upon by both parties. The 2022 LCA also includes a fixed trademark royalty and a tiered royalty based on net sales of any new products commercialized, which will be payable to Bioprojet on a quarterly basis. Recent Milestone Payments In March 2023, we achieved a preclinical milestone, which triggered a $0.8 million payment under the provisions of the APA, which was paid in April 2023. 33 Table of Contents Cash Flows The following table sets forth a summary of our cash flows for the three months ended March 31, 2024, and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ 2024 2023 Selected cash flow data ​ (In thousands) Cash provided by (used in): ​ ​ Operating activities ​ $ 31,141 ​ $ 42,559 Investing activities ​ (6,186) ​ (1,790) Financing activities ​ (3,634) ​ 3,409 ​ Operating Activities Net cash provided by operating activities for the three months ended March 31, 2024, primarily consisted of net income of $38.3 million adjusted for non-cash items of $10.4 million related to stock-based compensation expense, $6.1 million related to intangible amortization and depreciation, and $3.5 million related to deferred tax assets. Net working capital excluding cash decreased by $20.3 million. Net cash provided by operating activities of $42.6 million for the three months ended March 31, 2023, consisted of net income of $29.5 million adjusted for non-cash items of $3.4 million related to deferred tax assets, $6.1 million related to intangible amortization and depreciation and $6.6 million related to stock-based compensation expense. Net working capital excluding cash increased by $3.7 million. Investing Activities Net cash used in investing activities for the three months ended March 31, 2024, was $6.2 million, which was primarily attributable to $25.1 million in purchases of debt securities, partially offset by $18.9 million from maturities of investments. Net cash used in investing activities for the three months ended March 31, 2023, was $1.8 million, which was primarily attributable to $47.8 million in purchases of debt securities, partially offset by $46.0 million from sales and maturities of investments. Financing Activities Net cash used in financing activities for the three months ended March 31, 2024, was $3.6 million, which primarily consisted of $3.7 million in principal payments associated with the TLA Credit Agreement, partially offset by $0.1 million in proceeds from the exercise of stock options. Net cash provided by financing activities for the three months ended March 31, 2023, was $3.4 million, which primarily consisted of $3.9 million in proceeds from the exercise of stock options partially offset by a $0.5 million principal payment associated with the Blackstone Credit Agreement. Critical Accounting Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of expenses during the reporting periods. In accordance with GAAP, we evaluate our estimates and judgments on an ongoing basis . 34 Table of Contents Significant estimates include assumptions used in the determination of the amount of revenue recognized on sales of WAKIX, costs incurred under services type agreements related to the performance of research and development activities, and the measurement of compensation expense pursuant to stock-based awards. We base our estimates on contractual terms, historical experience, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions . We define our critical accounting policies as those under GAAP that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. During the quarter covered by this report, there were no material changes to the accounting policies and assumptions previously disclosed, except as disclosed in Note 3 to the unaudited condensed consolidated financial statements contained herein. Recent Accounting Pronouncements See Note 3 to our unaudited condensed consolidated financial statements for recent accounting pronouncements.