What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-10-29 compared with 2024-08-06 · 121 added, 94 removed, 228 unchanged (49% of the section changed)

8 unchanged sentences

● 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 research and development plans, including our plans to explore the therapeutic potential of pitolisant in additional indications, progress developing the new Pitolisant Gastro-resistant ( “ Pitolisant GR ” ) and Pitolisant High Dose ( “ Pitolisant HD ” ) formulations, and the development of ZYN002, EPX100 and other compounds;

● 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 ” );

● the availability of favorable insurance coverage and reimbursement for WAKIX;

17 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.

3 unchanged sentences

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.

Further, we have in-licensed from Bioprojet Soci é t é Civile de Recherche (“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®.

8 unchanged sentences

In October 2020, WAKIX was approved by the FDA for the treatment of cataplexy in adult patients with narcolepsy.

In June 2024, the FDA approved WAKIX for the treatment of excessive daytime sleepiness in pediatric patients, six years and older, 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”) .

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 .

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.

3 unchanged sentences

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”).

Following our meeting with the FDA, we plan to submit a supplemental NDA (“sNDA”) for IH in the fourth quarter of 2024 based on the totality of the data obtained from the INTUNE study and from other sources.

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.

11 unchanged sentences

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.

We are expanding 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, Pitolisant Gastro-resistant (“Pitolisant GR”) and Pitolisant High Dose (“Pitolisant HD”).

We have made progress in the development of two new formulations of pitolisant:

Pitolisant GR and Pitolisant HD.

Both formulations entered clinical studies in the fourth quarter of 2023 .

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

We are on-track to initiate a pivotal bioequivalence study and dosing optimization study in the first quarter of 2025.

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

The formulation optimization and technical operations work is ongoing, with a goal to initiate Phase 3 registrational studies in the second half of 2025.

A Phase 1b study was conducted to evaluate the safety and tolerability of Pitolisant HD and the initial results support advancement of the development program.

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”), 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.

Transdermal delivery is thought to provide better gastrointestinal tolerability and minimize the potential for drug interactions or impacts on liver function tests by avoiding first-pass metabolism in the liver.

The most common adverse effect is application site pain, which studies have shown typically occurs in less than 7% of patients.

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.

In the Phase 2 CONNECT-FX trial, patients using ZYN002 showed 40% median improvement in social avoidance behavior as compared to the placebo.

We believe the total addressable market for ZYN002 among patients with FXS is approximately 25,000 people based on an estimated current FXS prevalence of up to 87,000 cases and up to 40,000 diagnosed FXS cases.

Patients with complete methylation demonstrate the most severe symptoms of FXS.

Topline data from our ZYN002 Phase 3 study is anticipated in mid-2025.

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.

Based on the positive proof-of-concept (“PoC”) study in 22q deletion syndrome, another rare disorder with prominent neurobehavioral symptoms, we plan to initiate a Phase 3 registrational study in 2025.

In April 2024, we entered into a sublicense agreement with Bioprojet for an orexin-2 receptor agonist (OX2R) (“BP1.15205”) 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 BP1.15205 in the United States and Latin American territories, which are rights that Bioprojet

originally licensed from Teijin Pharma, the innovator of BP1.15205.

Pre-clinical data from BP1.15205 is promising and 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, we acquired all of the outstanding capital stock of Epygenix Therapeutics, Inc.

(“Epygenix”), pursuant to the terms of a stock purchase agreement (the “Epygenix Agreement”).

As a result, we now have an exclusive license relating to the use of clemizole (“EPX100”), 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.

Patients with both conditions often encounter severe refractory epilepsy, which is not controlled even with polypharmacy, and extreme co-morbidities or mortality without effective treatment.

As such, there is a recognized need for improved treatment options for both conditions.

We believe the total addressable market for EPX100 among patients with DS is approximately 5,000 people based on an estimated current DS prevalence of approximately 8,600 cases and approximately 7,000 diagnosed DS cases.

We believe the total addressable market for EPX100 among patients with LGS is approximately 35,000 people based on an estimated current LGS prevalence of approximately 48,000 cases and 44,000 diagnosed LGS cases.

EPX100 is currently in a Phase 3 registrational clinical trial for DS and we plan to initiate a Phase 3 registrational clinical trial in patients with LGS in the fourth quarter of 2024.

In previous clinical trials, EPX100 has shown an improved safety and tolerability profile as compared to other approved therapies.

We are currently developing EPX200, a potent, oral, centrally active and selective 5HT2C agonist and liquid formulation of lorcaserin (“EPX200”), another asset acquired pursuant to the terms of the Epygenix Agreement.

EPX200 is currently in IND-enabling studies to treat Developmental and Epileptic Encephalopathy.

In August 2021, we acquired HBS-102, a Melanin-concentrating hormone receptor type 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 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 granted Orphan Drug Designation for the treatment of narcolepsy by the FDA in 2010.

The final report was received during the third quarter of 2024 and the results are consistent with the expected results .

We are on track to initiate a juvenile toxicology study in the fourth quarter of 2024.

In addition, a 13-week toxicology study is complete, and the preliminary results are encouraging.

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

1 unchanged sentence

Commercial Performance Metrics

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.

As of September 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.

There are approximately 9,000 HCPs who treat patients living with narcolepsy, with approximately 4,000 enrolled in oxybate risk-evaluation and mitigation strategies.

The average number of patients on WAKIX for the three months ended September 30, 2024, was approximately 6,800.

Additionally, as of September 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

5 unchanged sentences

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.

The shelf life of WAKIX is four years from date of manufacture, with the earliest expiration of current inventory expected to be October 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 fourth 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 first quarter of 2026, with additional API on-hand inventory to support at least 24 months beyond this time frame .

Research and Development Expenses

3 unchanged sentences

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.

We have significantly increased our research and development efforts as we advance our clinical programs and add product candidates to expand our pipeline.

Research and development expenses also include :

9 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 Pitolisant GR, Pitolisant HD, ZYN002 and HBS-102 to develop toward new indications .

We expect our research and development expenses to be significant as we advance our current clinical development programs and prepare to seek regulatory approval for additional

indications for pitolisant, complete the Phase 3 clinical trials for ZYN002, EPX100 and advance the development of Pitolisant GR, Pitolisant HD, BP1.15205 and HBS-102 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.

2 unchanged sentences

● 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;

● the acceptance of INDs for our planned clinical trials or future clinical trials;

10 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.

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 .

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, the treatment of EDS in pediatric patients 6 years of age and older with narcolepsy and to expand our portfolio with the anticipated growth from potential additional indications .

Sales and marketing expenses include:

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

For the three and nine months ended September 30, 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

8 unchanged sentences

Operating income

Loss on debt extinguishment

Other (expense) income, net

4 unchanged sentences

Net Product Revenue

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%.

Net product revenue increased by $25.8 million, or 16.1%, for the three months ended September 30, 2024, and increased by $99.9 million, or 24.1%, for the nine months ended September 30, 2024, compared to the same periods in 2023.

The increase for the three months ended September 30, 2024, was primarily due to an 11.2% 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 in net product revenue of approximately 3%.

The increase for the nine months ended September 30, 2024, was primarily due to a 19.5% increase in the number of units shipped, and the impact of a 7% price increase partially offset by higher rebates, 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 $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.

Cost of product sales increased by $10.5 million, or 32.5%, for the three months ended September 30, 2024, and increased by $24.3 million, or 31.1%, for the nine months ended September 30, 2024, compared to the same periods in 2023.

Cost of product sales as a percentage of net product revenue was 23.0% and 19.9% for the three and nine months ended September 30, 2024, respectively, compared to 20.2% and 18.9% for the three and nine months ended September 30, 2023, respectively.

The increase in cost of product sales and cost of product sales as a percentage of net revenue in both comparable periods was due to triggering a higher royalty tier under the 2017 LCA earlier in 2024 compared to 2023.

Research and Development Expenses

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

3 unchanged sentences

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.

Research and development expenses increased by $7.9 million, or 45.1%, for the three months ended September 30, 2024, and increased by $65.4 million or 142.9%, for the nine months ended September 30, 2024, compared to the same periods in 2023.

The increase for the three months ended September 30, 2024 was primarily driven by a combined $6.2 million increase in research and development expenses for ZYN002 and EPX100, neither of which had any expenses in the prior year, a $2.5 million increase in personnel costs associated with higher headcount, a $1.0 million IPR&D charge related to a preclinical milestone achieved for HBS-102 and a $0.9 million increase in stock compensation associated with new awards, partially offset by a $3.0 million decrease in clinical development work associated with pitolisant, driven by declines for IH, DM1 and PWS indications.

The increase for the nine months ended September 30, 2024 was primarily driven by $43.6 million in IPR&D charges related to the Bioprojet Sublicense Agreement and the acquisition of Epygenix and a preclinical milestone achieved for HBS-102, a combined $13.9 million increase in research and development expenses for ZYN002 and EPX100, neither of which had any expenses in the prior year, a $6.3 million increase in personnel costs associated with higher headcount, and a $2.0 million increase in stock compensation associated with new awards, partially offset by a $1.6 million decrease in clinical development work associated with pitolisant, driven by decreases for the IH indication and a $0.8 million IPR&D charge related to preclinical milestones achieved for HBS-102 during the nine months ended September 30, 2023.

Sales and Marketing Expenses

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.

Sales and marketing expenses increased by $4.2 million, or 17.8%, for the three months ended September 30, 2024, and increased by $12.8 million, or 18.1%, for the nine months ended September 30, 2024, compared to the same periods in 2023.

The increase for the three months ended September 30, 2024, was primarily due to a $3.6 million increase in patient engagement and marketing activities and a $0.6 million increase in stock compensation associated with new awards.

The increase for the nine months ended September 30, 2024, was primarily due to a $8.4 million increase in patient engagement and marketing activities, a $1.9 million increase in personnel costs, and a $2.5 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 the nine months ended September 30, 2024 was related to increased headcount.

General and Administrative Expenses

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.

General and administrative expenses increased by $6.0 million, or 26.8%, for the three months ended September 30, 2024, and increased by $14.1 million, or 20.9%, for the nine months ended September 30, 2024, compared to the same periods in 2023.

The increase in the three months ended September 30, 2024, was primarily due to a $4.0 million increase in legal and professional fees, primarily associated with patent lawsuits, a $2.0 million increase in stock compensation associated with new awards, and a $0.5 million increase in personnel costs.

The increase in the nine months ended September 30, 2024, was primarily due to a $7.5 million increase in legal and professional fees, primarily associated with patent lawsuits, a $6.1 million increase in stock compensation associated with new awards, and a $2.0 million increase in personnel costs, partially offset by a $1.3 million decrease in insurance and a $0.5 million decrease in travel expenses.

Interest Expense

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 expense decreased by $2.7 million, or 38.0%, for the three months ended September 30, 2024, and decreased by $5.7 million, or 29.9%, for the nine months ended September 30, 2024, compared to the same periods in 2023.

The decrease for the three and nine months ended September 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 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.

Interest income increased by $0.8 million, or 20.1%, for the three months ended September 30, 2024, and increased by $3.4 million, or 32.2%, for the nine months ended September 30, 2024, compared to the same periods in 2023.

The increase for the three and nine months ended September 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 $16.1 million, representing a 25.9% effective tax rate, for the three months ended September 30, 2024, compared to $13.4 million, representing a 25.8% effective tax rate, for the three months ended September 30, 2023.

Income tax expense was $39.6 million, representing a 29.2% effective tax rate, for the nine months ended September 30, 2024, compared to $31.5 million, representing a 23.5% effective tax rate, for the nine months ended September 30, 2023.

The increase in our effective tax rate for the nine months ended September 30, 2024, was primarily driven by the $17.1M IPR&D charge related to the Epygenix acquisition, which was nondeductible for tax purposes.

The effective tax rate of 25.9% for the three months ended September 30, 2024, included 5.1% in state income taxes, partially offset by a 0.9% benefit from credits.

The effective tax rate of 29.2% for the nine months ended September 30, 2024, included 2.5% for nondeductible IPR&D charges and 6.3% in state income taxes, partially offset by a 1.2% benefit from credits.

Liquidity, Sources of Funding and Capital Resources

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.

As of September 30, 2024, we had cash, cash equivalents, and investments of $504.7 million, outstanding debt of $185.0 million and an accumulated deficit of $47.3 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 June 30, 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 September 30, 2024, will enable us to meet our operational liquidity needs and fund our potential 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 June 30, 2024.

We were in compliance with all covenants as of September 30, 2024.

Blackstone Credit Agreement

In August 2021, we entered into the Blackstone Credit Agreement, which provided for (i) a senior secured term loan facility in an aggregate original principal amount of $200.0 million (the “Initial Term Loan”) and (ii) a senior secured delayed draw term loan facility in an aggregate principal amount up to $100.0 million (the “DDTL”).

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

In August 2022, we entered into an agreement to extend the expiration date of the DDTL to August 9, 2023, for which we would pay a ticking fee at a rate of 1% per annum on the undrawn portion of the DDTL (the “Ticking Fee”), commencing on August 10, 2022.

Net cash received from the Initial Term Loan was $191.8 million, net of debt issuance costs of $8.2 million.

In addition, we paid $1.0 million 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, we extinguished the Blackstone Credit Agreement, which required a payoff amount of $207.3 million consisting of principal repayment, interest, exit fees, payment of the Ticking Fee and a prepayment premium.

We recognized a loss on extinguishment of debt of $9.8 million relating to the Blackstone Credit Agreement within our unaudited condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2023.

In addition, we recognized $2.0 million relating to unamortized debt issuance costs relating to the DDTL and the Ticking Fee, which was recorded in interest expense, net within the unaudited condensed consolidated statement of operations and comprehensive income for the three and nine months ended September 30, 2023.

Share Repurchases

1 unchanged sentence

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

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.

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

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

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.

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 $60.0 million 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.

4 unchanged sentences

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 April 2024, we acquired all of the 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

ConSynance Agreement

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

1 unchanged sentence

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 March 2023, we achieved a preclinical milestone, which triggered a $0.8 million payment under the provisions of the APA, which we recognized as an IPR&D charge recorded in research and development within the unaudited condensed consolidated statement of operations and comprehensive income for the nine months ended September 30, 2023.

In September 2024, we achieved a milestone for preclinical proof-of concept, which triggered a $1.0 million payment under the provisions of the APA, which we recognized as an IPR&D charge recorded in research and development within the unaudited condensed consolidated statement of operations and comprehensive income for the three and nine months ended September 30, 2024.

There are additional payments due upon the achievement of certain milestones, including $19.0 million for development milestones, $44.0 million for regulatory milestones and $110.0 million for sales milestones.

Bioprojet Agreements

1 unchanged sentence

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.

Under the Sublicense, the Company paid 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.

2 unchanged sentences

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

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,

Recent Milestones

In September 2024, we achieved a preclinical milestone that triggered a $1.0 million payment under the provisions of the APA, which is unpaid and recorded in accrued expenses in our unaudited condensed consolidated balance sheet as of September 30, 2024.

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

Nine Months Ended September 30,

Selected cash flow data

5 unchanged sentences

Operating Activities

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 cash provided by operating activities for the nine months ended September 30, 2024, primarily consisted of net income of $96.0 million adjusted for non-cash items of $42.6 million related to acquired IPR&D, $32.9 million related to stock-based compensation expense, and $18.1 million related to intangible amortization and depreciation, offset by $22.6 million related to deferred tax assets.

Net working capital excluding cash increased by $23.1 million, primarily driven by increases in accounts receivable due to higher net product revenue in the current period and decreases in accounts payable due to the timing of payments.

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

expense and $9.8 million related to loss on extinguishment of debt.

Net working capital excluding cash increased by $3.4 million .

Net cash provided by operating activities for the 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 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 .

Net cash used in investing activities for the nine months ended September 30, 2024, was $60.3 million, which was primarily attributable to $69.6 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 $68.5 million from maturities of investments.

Net cash used in investing activities for the nine months ended September 30, 2023, was $10.4 million, which was primarily attributable to $105.9 million in purchases of debt securities, partially offset by $95.7 million in proceeds from sales and maturities of investments and $0.2 million in purchases of property and equipment .

Financing Activities

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 .

Net cash used in financing activities for the nine months ended September 30, 2024, was $8.3 million, which primarily consisted of $11.3 million in principal payments associated with the TLA Credit Agreement, partially offset by $3.2 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 nine months ended September 30, 2023, was $52.0 million, which primarily consisted of $202.3 million in payments of principal and exit fees associated with the extinguishment of the Blackstone Credit Agreement, $50.0 million in share repurchases and $1.0 million in principal payments associated with the Blackstone Credit Agreement, partially offset by $197.0 million in proceeds associated with the TLA Credit Agreement, net of issuance costs, and $4.8 million in proceeds from exercised options .

Critical Accounting Estimates

2 unchanged sentences

In accordance with GAAP, we evaluate our estimates and judgments on an ongoing basis .

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.

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, the measurement of compensation expense pursuant to stock-based awards, the calculation of our income tax provision, and the determination of accounting treatment for our business combinations.

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.

5 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