What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-04-30 · 99 added, 74 removed, 223 unchanged (44% of the section changed)

30 unchanged sentences

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.

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.

17 unchanged sentences

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.

We have applied 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.

2 unchanged sentences

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.

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 behavioral 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 October 2023, we received FDA alignment regarding the study design 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

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.

In June 2021, we initiated a Phase 2 proof-of-concept signal 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.

On June 24, 2024, we announced that the FDA approved our sNDA for WAKIX for the treatment of EDS in pediatric patients six years of age and older with narcolepsy.

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.

The initiation of the PWS Phase 3 registrational trial, the TEMPO study, and the approval for EDS in pediatric narcolepsy 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.

1 unchanged sentence

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”).

We have made progress in the development of two new formulations of pitolisant, Pitolisant Gastro-resistant (“Pitolisant GR”) and Pitolisant High Dose (“Pitolisant HD”).

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.

We received data from the Pitolisant GR pilot bioequivalence study, which supports further development of Pitolisant GR.

We received data from the Pitolisant HD pilot pharmacokinetics study in June 2024, which also supports advancing this development program toward pivotal trials.

Provisional patents have been filed for both of these formulations with the potential for patent protection to the mid-2040’s.

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 manufactured transdermal cannabidiol therapies for orphan neurobehavioral disorders.

Zynerba’s drug candidate is ZYN002, the first and only pharmaceutically manufactured 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”).

1 unchanged sentence

ZYN002 has patent protection for the treatment of FXS until 2038.

Based on the positive proof-of-concept (“PoC”) study in 22q deletion syndrome, another rare disorder with prominent neurobehavioral symptoms, we are working with the FDA to align on the primary endpoint and finalize the Phase 3 protocol.

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, we have obtained the exclusive right to develop, 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.

We plan to file an IND in mid-2025 and begin first-in-human studies in the second half of 2025.

Additionally, in April 2024, the Company acquired all of the issued and outstanding capital stock of Epygenix, pursuant to the terms of a stock purchase agreement.

As a result, we now have an exclusive license relating to the use of clemizole (“EPX-100”), initially for the treatment of Dravet Syndrome (“DS”) and Lennox-Gastaut Syndrome (“LGS”) .

EPX-100 is currently in a late-stage registrational trial for DS with plans to initiate a pivotal phase 3 clinical trial in patients with LGS later this year.

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.

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, which are rights that Bioprojet originally licensed from Teijin Pharma, the innovator of the Licensed Compound.

We conducted a preclinical PoC study to assess the effect of HBS-102 on hyperphagia, weight gain and other metabolic parameters in a mouse model of PWS.

The study is now completed, and initial results are encouraging .

We anticipate receiving the final report in the second half of 2024.

A 13-week toxicology study is complete, and the preliminary results are encouraging.

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.

2 unchanged sentences

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.

Our operations are conducted by our wholly owned subsidiaries, Harmony Biosciences, LLC and Zynerba, which is now known as Harmony Biosciences Management, Inc.

as of July 1, 2024.

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.

As of June 30, 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 June 30, 2024, was approximately 6,550.

Additionally, as of June 30, 2024, we have secured formulary access for more than 80% of all insured lives (Commercial, Medicare and Medicaid) in the United States.

Financial Operations Overview

8 unchanged sentences

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 .

We currently have adequate supply of WAKIX to cover demand into the fourth quarter of 2025, with additional API on-hand inventory to support at least 36 months beyond this time frame .

Research and Development Expenses

1 unchanged sentence

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

with the presentation of clinical data to payors upon request and our clinical development team to identify potential clinical trial sites.

In addition, our MSLs support our market access team 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.

2 unchanged sentences

● 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”) ;

● direct third-party costs such as expenses incurred under agreements with clinical research organizations (“CROs”), and contract manufacturing organizations (“CMOs”) ;

● manufacturing costs in connection with producing materials for use in conducting clinical trials ;

6 unchanged sentences

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 .

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 Pitolisant GR, Pitolisant HD, 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.

16 unchanged sentences

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.

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 .

16 unchanged sentences

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.

For the three and six months ended June 30, 2024, we paid fees of $0.1 million and $0.2 million, respectively, pursuant to this agreement.

Interest Expense

4 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Net product revenue

10 unchanged sentences

Net income before provision for income taxes

Income tax (expense) benefit

Income tax expense

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%.

Net product revenue increased by $38.6 million, or 28.8%, for the three months ended June 30, 2024, and increased by $74.1 million, or 29.2%, for the six months ended June 30, 2024, compared to the same periods in 2023.

The increase for the three months ended June 30, 2024, was primarily due to a 24.1% increase in the number of units shipped, and the impact of a 7% price increase partially offset by higher rebates and co-pay assistance, which resulted in a decrease to net product revenue of approximately 4%.

The increase for the six months ended June 30, 2024, was primarily due to a 24.6% increase in the number of units shipped, and the impact of a 7% price increase partially offset by higher rebates and co-pay assistance, 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.

Cost of product sales increased by $7.1 million, or 28.5%, for the three months ended June 30, 2024, and increased by $13.8 million, or 30.2%, for the six months ended June 30, 2024, compared to the same periods in 2023.

Cost of product sales as a percentage of net product revenue was 18.6% and 18.2% for the three and six months ended June 30, 2024, respectively, compared to 18.6% and 18.1% for the three and six months ended June 30, 2023, respectively.

The increase in cost of product sales in the period was due to higher sales of WAKIX.

1 unchanged sentence

The following table is a summary of our research and development expenses:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Other research and development

(in thousands)

Personnel expenses

Stock-based compensation

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.

Other research and development

Research and development expenses increased by $48.6 million, or 324.8%, for the three months ended June 30, 2024, and increased by $57.5 million or 203.5%, for the six months ended June 30, 2024, compared to the same periods in 2023.

The increase for the three months ended June 30, 2024 was primarily driven by $42.6 million in IPR&D charges related to the Bioprojet Sublicense Agreement and the acquisition of Epygenix, a $3.7 million increase in research and development expenses for ZYN002, which did not have any expenses in the prior year, a $2.1 million increase in personnel costs associated with higher headcount and a $0.7 million increase in stock compensation associated with new awards partially offset by a $1.5 million decrease in clinical development and regulatory work associated with pitolisant, driven by declines for IH and DM indications.

The increase for the six months ended June 30, 2024 was primarily driven by $42.6 million in IPR&D charges related to the Bioprojet Sublicense Agreement and the acquisition of Epygenix, a $7.6 million increase in research and development expenses for ZYN002, which did not have any expenses in the prior year, a $3.8 million increase in personnel costs associated with higher headcount, a $1.4 million increase in clinical development and regulatory work associated with pitolisant, driven by increases for the PWS indication and a $1.1 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 six months ended June 30, 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.

Sales and marketing expenses increased by $4.0 million, or 16.2%, for the three months ended June 30, 2024, and increased by $8.6 million, or 18.3%, for the six months ended June 30, 2024, compared to the same periods in 2023.

The increase for the three months ended June 30, 2024, was primarily due to a $1.9 million increase in patient engagement and marketing activities, a $1.1 million increase in personnel costs, and a $1.0 million increase in stock compensation associated with new awards.

The increase for the six months ended June 30, 2024, was primarily due to a $4.4 million increase in patient engagement and marketing activities, a $1.9 million increase in personnel costs, and a $1.9 million increase in stock compensation associated with new awards.

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

General and administrative expenses increased by $4.4 million, or 19.4%, for the three months ended June 30, 2024, and increased by $8.0 million, or 17.9%, for the six months ended June 30, 2024, compared to the same periods in 2023.

The increase in the three months ended June 30, 2024, was primarily due to a $2.0 million increase in legal and professional fees, primarily associated with patent lawsuits, a $1.5 million increase

in stock compensation associated with new awards, and a $1.0 million increase in personnel costs.

The increase in the six months ended June 30, 2024, was primarily due to a $3.4 million increase in legal and professional fees, primarily associated with patent lawsuits, a $4.0 million increase in stock compensation associated with new awards, and a $1.5 million increase in personnel costs, partially offset by a $0.4 million decrease in travel expenses.

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 expense decreased by $1.8 million, or 29.2%, for the three months ended June 30, 2024, and decreased by $3.0 million, or 25.2%, for the six months ended June 30, 2024, compared to the same periods in 2023.

The decrease for the three and six months ended June 30, 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 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.

Interest income increased by $1.3 million, or 36.7%, for the three months ended June 30, 2024, and increased by $2.6 million, or 39.9%, for the six months ended June 30, 2024, compared to the same periods in 2023.

The increase for the three and six months ended June 30, 2024, was primarily a result of having higher invested balances, and higher investment yields on those balances, compared to the prior year periods.

Income tax expense was $10.1 million, representing a 46.6% effective tax rate, for the three months ended June 30, 2024, compared to $9.8 million, representing a 22.2% effective tax rate, for the three months ended June 30, 2023.

Income tax expense was $23.6 million, representing a 32.1% effective tax rate, for the six months ended June 30, 2024, compared to $18.1 million, representing a 22.1% effective tax rate, for the six months ended June 30, 2023.

The increase in our effective tax rate for both comparable periods was primarily driven by the $17.1M IPR&D charge related to the Epygenix acquisition, which is nondeductible for tax purposes.

The effective tax rate of 46.6% for the three months ended June 30, 2024, included 16.5% for nondeductible IPR&D charges and 11.2% in state income taxes, partially offset by a 2.6% benefit from credits.

The effective tax rate of 32.1% for the six months ended June 30, 2024, included 4.9% for nondeductible IPR&D charges and 7.4% in state income taxes, partially offset by a 1.5% benefit from credits.

Liquidity, Sources of Funding and Capital Resources

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.

As of June 30, 2024, we had cash, cash equivalents, and investments of $434.1 million, outstanding debt of $188.8 million and an accumulated deficit of $93.4 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 believe that our existing cash, cash equivalents and investments on hand as of June 30, 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.

8 unchanged sentences

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.

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

In October 2023, our 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.

During the three and six months ended June 30, 2024, no shares of common stock were repurchased and cancelled by the Company under the October 2023 Repurchase Program.

As of June 30, 2024, the remaining amount of common stock authorized for repurchases was $150.0 million.

Zynerba Acquisition

4 unchanged sentences

We financed the acquisition with cash on hand.

On July 1, 2024, we announced the change of the name of our wholly owned subsidiary from “Zynerba Pharmaceuticals, Inc.” to “Harmony Biosciences Management, Inc.” As of July 1, 2024, Zynerba Pharmaceuticals, Inc.

is now known as Harmony Biosciences Management, Inc.

Epygenix Acquisition

In April 2024, we acquired all of the issued and outstanding capital stock of Epygenix, pursuant to the terms of a stock purchase agreement.

In connection with the closing of the transaction, we paid the former stockholders of Epygenix up front consideration of $35.0 million less a working capital adjustment.

In addition, we will also be obligated to pay up to $130.0 million upon the achievement of development and regulatory milestones and up to $515.0 million upon the achievement of certain sales-based milestones, in each case to

Epygenix’s former stockholders.

As a result, the Company now has an exclusive license relating to the use of clemizole, initially for the treatment of DS and LGS .

Asset Purchase Agreement

6 unchanged sentences

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.

The Licensed Compound is currently in pre-clinical development with a Clinical Trial Application currently anticipated in mid-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.

4 unchanged sentences

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.

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,

There were no milestones achieved or paid during the three and six months ended June 30, 2024.

The following table sets forth a summary of our cash flows for the six months ended June 30, 2024, and 2023:

Six Months Ended June 30,

Selected cash flow data

5 unchanged sentences

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 cash provided by operating activities for the six months ended June 30, 2024, primarily consisted of net income of $49.9 million adjusted for non-cash items of $42.6 million related to acquired IPR&D, $21.4 million related to stock-based compensation expense, and $12.2 million related to intangible amortization and depreciation, offset by $17.8 million related to deferred tax assets.

Net working capital excluding cash increased by $34.8 million.

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

Net working capital excluding cash decreased by $3.3 million .

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.

Net cash used in investing activities for the six months ended June 30, 2024, was $61.0 million, which was primarily attributable to $46.3 million in purchases of debt securities, a $25.5 million license fee paid to Bioprojet, $33.1 million net cash consideration paid for the acquisition of Epygenix, and $0.6 million in purchases of property and equipment, partially offset by $44.5 million from maturities of investments.

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

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.

Net cash used in financing activities for the six months ended June 30, 2024, was $7.1 million, which primarily consisted of $7.5 million in principal payments associated with the TLA Credit Agreement, partially offset by $0.7 million in proceeds from the exercise of stock options, and $0.3 million of employee withholding tax payments related to stock-based awards.

Net cash provided by financing activities for the six months ended June 30, 2023, was $3.0 million, which primarily consisted of $4.6 million in proceeds from exercised options offset by a $1.0 million principal payment associated with the Blackstone Credit Agreement and $0.5 million of employee withholding tax payments related to stock-based awards .

Critical Accounting Estimates

10 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis