What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-05 compared with 2025-05-06 · 86 added, 67 removed, 242 unchanged (39% of the section changed)

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All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy, products, prospective products, product approvals, research and development costs, anticipated timing and likelihood of success of clinical trials, expected timing of the release of clinical trial data, the plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements.

These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the

forward-looking statements.

Important factors that could cause such differences include, but are not limited to, statements about:

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● 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, progress developing the new Pitolisant Gastro-resistant ( “ Pitolisant GR ” ) and Pitolisant High Dose ( “ Pitolisant HD ” ) formulations, and the development of ZYN002, clemizole hydrochloride ( “ EPX-100 ” ) and other compounds;

● 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, BP1-15205, clemizole hydrochloride ( “ EPX-100 ” ) and other compounds;

● our ongoing and planned clinical trials;

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To date, we have focused on rare neurological diseases with a growing portfolio now spanning sleep/wake, neurobehavioral, and rare epilepsy, and we are harnessing scientific insights and pioneering approaches to advance meaningful treatments that help patients thrive.

Our operations are conducted by our wholly owned subsidiaries, Harmony Biosciences, LLC and Harmony Biosciences Management, Inc.

Sleep/Wake Franchise

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In addition, in June 2024, the FDA did not approve our sNDA seeking to expand the WAKIX label for the treatment of pediatric patients with cataplexy.

In October 2024, we held a Type A meeting with the FDA to discuss the pediatric cataplexy indication and reached alignment on a path to sNDA resubmission, which is planned for the second quarter of 2025.

2024, we held a Type A meeting with the FDA to discuss the pediatric cataplexy indication and reached alignment on a path to sNDA resubmission, which is planned for the third quarter of 2025.

We remain committed to obtaining pediatric exclusivity for WAKIX.

We believe the initiation of the PWS Phase 3 registrational trial, the TEMPO study, and our current data in pediatric narcolepsy, which resulted in the FDA’s approval of WAKIX in its current pediatric indication, are supportive of our efforts in obtaining pediatric exclusivity for WAKIX.

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.

We have expanded 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 target 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.

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

We initiated the pivotal bioequivalence study in the first quarter of 2025 and anticipate the topline data readout in the third quarter of 2025.

We initiated the pivotal bioequivalence study in the first quarter of 2025 and anticipate the topline data readout in the fourth quarter of 2025.

Our anticipated PDUFA date for Pitolisant GR is in 2026.

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

Preparations are ongoing to initiate Phase 3 registrational trials in narcolepsy and

idiopathic hypersomnia (“IH”) in the fourth quarter of 2025.

Preparations are ongoing to initiate Phase 3 registrational trials in narcolepsy and idiopathic hypersomnia (“IH”) in the fourth quarter of 2025.

Our anticipated PDUFA date for the Pitolisant HD narcolepsy and IH programs is in 2028.

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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.

We believe the pre-clinical data from BP1.15205 is promising and we plan to file an investigational medicinal product dossier (“IMPD”) with the EMA in mid-2025 and begin first-in-human studies in the second half of 2025.

Under the Sublicense, we 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.

In June 2025, we announced positive pre-clinical data demonstrating significant wake-promoting and cataplexy-suppressing effects in a standard transgenic mouse model of narcolepsy type 1, and presented safety data from the three month GLP toxicity studies in two different species.

We plan to file an investigational medicinal product dossier (“IMPD”) with the EMA and begin first-in-human studies in the second half of 2025 with topline data anticipated in 2026.

In June 2025, we entered into a research collaboration, option and license agreement (the “CiRC Agreement”) with a related party, CiRC Biosciences, Inc.

Under this agreement, Harmony and CiRC will collaborate on the research and development of two discovery-stage candidates (together the “Candidates”) using cell replacement therapy for the treatment of refractory epilepsies and treatment-resistant narcolepsy.

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.

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

In addition, a 13-week toxicology study has been completed, and the preliminary results are encouraging.

The final report was received during the third quarter of 2024.

In addition, a 13-week toxicology study has been completed.

The results from these preclinical studies are encouraging.

Neurobehavioral Franchise

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(“Zynerba”), adding global rights to develop, manufacture and commercialize ZYN002, which is a pharmaceutically manufactured 100% synthetic, patent protected permeation enhanced cannabidiol 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.

Transdermal delivery provides 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 observed in clinical studies has been application site pain, which has occurred in less than 7% of patients.

ZYN002 is currently in a Phase 3 registrational trial, the RECONNECT study, for the treatment of Fragile X Syndrome (“FXS”), which was designed to confirm the positive findings from the prespecified analysis of the primary outcome in the subgroup of patients with complete methylation from the CONNECT study conducted by Zynerba.

ZYN002 is currently working toward completion of a Phase 3 registrational trial, the RECONNECT study, for the treatment of Fragile X Syndrome (“FXS”), which was designed to confirm the positive findings from the prespecified analysis of the primary outcome in the subgroup of patients with complete methylation from the Phase 2/3 CONNECT study conducted by Zynerba.

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.

We have completed recruitment in our ZYN002 Phase 3 registrational trial and topline data is on track for the third quarter of 2025.

We have completed enrollment in our ZYN002 Phase 3 registrational trial and topline data is on track for the third quarter of 2025.

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

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

Rare Epilepsy Franchise

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

We believe the total addressable market for EPX-100 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 EPX-100 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 EPX-100 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.

EPX-100 has been granted orphan drug designation and rare pediatric disease designation by the FDA for treatment of both DS and LGS.

EPX-100 is currently in a Phase 3 registrational clinical trial for DS and we initiated a Phase 3 registrational clinical trial in patients with LGS in the fourth quarter of 2024.

EPX-100 is currently in two Phase 3 registrational clinical trials, one for each of DS (the ARGUS Study) and LGS (the LIGHTHOUSE Study).

Additionally, we are currently developing a liquid formulation of lorcaserin for the treatment of DEEs (“EPX-200”), another asset acquired pursuant to the terms of the Epygenix Agreement.

EPX-200 is currently in the pre-IND phase.

Our operations are conducted by our wholly owned subsidiaries, Harmony Biosciences, LLC and Harmony Biosciences Management, Inc.

Commercial Performance Metrics

As of March 31, 2025, 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 (“REMS”) and approximately 5,000 HCPs who do not participate in the oxybate REMS programs.

The average number of patients on WAKIX for the three months ended March 31, 2025, was approximately 7,200, with approximately 7,300 patients on WAKIX as of March 31, 2025.

Additionally, as of March 31, 2025, we have secured formulary access for more than 80% of all insured lives (Commercial, Medicare and Medicaid) in the United States.

We have continued to see growth in the number of unique healthcare professional (“HCP”) prescribers of WAKIX since it became available in November 2019.

As of June 30, 2025, there are approximately 9,000 HCPs who treat patients living with narcolepsy, with approximately 4,000 enrolled in oxybate risk-evaluation and mitigation strategies (“REMS”) and approximately 5,000 HCPs who do not participate in the oxybate REMS programs.

The average number of patients on WAKIX for the three months ended June 30, 2025, was approximately 7,600.

Additionally, as of June 30, 2025, we have formulary access for more than 80% of all insured lives (Commercial, Medicare and Medicaid) in the United States.

Financial Operations Overview

Net Product Revenue

Net product revenue includes gross product shipments less provisions for sales discounts and allowances, which includes trade allowances, rebates to government and commercial entities, and other discounts.

Net product revenue includes revenue from product shipments less provisions for sales discounts and allowances, which includes trade allowances, rebates to government and commercial entities, and other discounts.

Although we expect net sales to increase over time, provisions for sales discounts and allowances may fluctuate based on the mix of sales to different patient segments and/or changes in our estimates .

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We will continue to assess inventory levels in future periods as demand for WAKIX and the rate of inventory turnover evolves.

We currently have adequate supply of WAKIX to cover demand into the first quarter of 2027, with additional API on-hand inventory to support at least two years beyond this time frame .

We currently have adequate supply of WAKIX to cover demand into the second quarter of 2027, with additional API on-hand inventory to support at least two years beyond this time frame .

Research and Development Expenses

Research and development expenses primarily include development programs for potential new indications for pitolisant in patients with PWS and DM1 and the development of our product candidates ZYN002, EPX-100, EPX-200 Pitolisant GR, Pitolisant HD, BP1.15205 and HBS-102.

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.

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.

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General and administrative expenses consist primarily of employee-related expenses, such as salaries, share-based compensation, benefits and travel expenses for our personnel in executive, legal, finance and accounting, human resources, investor relations, and other administrative departments.

General and administrative expenses also consist of office leases, and professional fees, including legal, tax and accounting, insurance and consulting fees.

General and administrative expenses also consist of office leases, legal fees, including ANDA litigation expenses, and professional fees, including tax and accounting, insurance and consulting fees.

We anticipate that our general and administrative expenses will increase in the future to support our continued commercialization efforts, ongoing and future potential research and development activities, and increased costs of operating as a public company.

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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, 2025, we paid fees of $0.1 million pursuant to this agreement.

Additionally, we received consulting services from Paragon.

We paid fees of $0.2 million and $0.3 million to Paragon related to rent and consulting services for the three and six months ended June 30, 2025, respectively.

Interest Expense

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Net product revenue

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Net Product Revenue

Net product revenue increased by $30.1 million, or 19.5%, for the three months ended March 31, 2025, compared to the same period in 2024.

The increase for the three months ended March 31, 2025, was primarily due to a 17% increase in the number of units shipped, and the impact of a 7% price increase partially offset by higher rebates of approximately 4%.

Net product revenue increased by $27.7 million, or 16.0%, for the three months ended June 30, 2025, and increased by $57.8 million, or 17.7%, for the six months ended June 30, 2025, compared to the same periods in 2024.

The increase for the three months ended June 30, 2025, was primarily due to a 10.0% increase in the number of units shipped, and the impact of a 7% price increase partially offset by higher rebates of approximately 1.0%.

The increase for the six months ended June 30, 2025, was primarily due to a 13.2% increase in the number of units shipped, and the impact of a 7% price increase partially offset by higher rebates and co-pay assistance of approximately 2.0%.

The price increase occurred in January 2025.

Cost of Product Sales

Cost of product sales increased by $4.5 million, or 16.4%, for the three months ended March 31, 2025, compared to the same period in 2024.

Cost of product sales as a percentage of net product revenue was 17.3% for the three months ended March 31, 2025, compared to 17.8% for the three months ended March 31, 2024.

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

Cost of product sales increased by $6.0 million, or 18.7%, for the three months ended June 30, 2025, and increased by $10.5 million, or 17.6%, for the six months ended June 30, 2025, compared to the same period in 2024.

Cost of product sales as a percentage of net product revenue was 19.0% and 18.2% for the three and six months ended June 30, 2025, respectively, compared to 18.6% and 18.2% for the three and six months ended June 30, 2024, respectively.

The increase in cost of product sales was primarily due to higher royalties as a result of the increase in net product revenue of WAKIX.

Research and Development Expenses

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)

Pitolisant GR and Pitolisant HD

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Other research and development

Research and development expenses increased by $12.4 million, or 55.7%, for the three months ended March 31, 2025, compared to the same period in 2024.

The increase for the three months ended March 31, 2025 was primarily driven by a $6.5 million increase in research and development expenses for the recently acquired product candidate, EPX-100, a combined $5.8 million increase in research and development expenses for ZYN002 and Pitolisant GR and HD as we ramp up development and manufacturing, a $2.1 million increase in personnel costs associated with higher headcount, a $0.9 million increase in stock compensation associated with new awards, and a $0.6 million increase in other research and development, primarily due to preclinical work related to BP1.1520, partially offset by a $3.7 million decrease in clinical development associated with pitolisant, driven by a decrease for the IH indication.

Research and development expenses decreased by $13.4 million, or 21.1%, for the three months ended June 30, 2025, and decreased by $1.1 million, or 1.3%, for the six months ended June 30, 2025, compared to the same periods in 2024.

The decrease for the three months ended June 30, 2025 was primarily driven by $42.6 million in IPR&D charges related to the Bioprojet Sublicense Agreement ($25.5 million) and the acquisition of Epygenix ($17.1 million) that occurred during the three months ended June 30, 2024, and a $0.9 million decrease in clinical development associated with pitolisant, driven by a decrease in clinical trial expenses for the IH indication, partially offset by $15.0 million in IPR&D charges related to the CiRC Agreement during the three months ended June 30, 2025 , a combined $11.1 million increase in research and development expenses for EPX-100, ZYN002 and Pitolisant GR and HD as we ramped up clinical trials and manufacturing, a $2.7 million increase in personnel costs associated with higher headcount, a $0.5 million increase in stock compensation associated with new equity awards and $0.9 million in other research and development expenses.

The decrease for the six months ended June 30, 2025 was primarily driven by $42.6 million in IPR&D charges related to the Bioprojet Sublicense Agreement ($25.5 million) and the acquisition of Epygenix ($17.1 million) that occurred during the six months ended June 30, 2024, and a $4.6 million decrease in clinical development associated with pitolisant, driven by a decrease in clinical trial expenses for the IH indication, partially offset by $15.0 million in IPR&D charges related to the CiRC Agreement during the six months ended June 30, 2025 , a combined $23.4 million increase in research and development expenses for EPX-100, ZYN002 and Pitolisant GR and HD as we ramped up clinical trials and manufacturing, a $4.8 million increase in personnel costs associated with higher headcount, a $1.4 million increase in stock compensation associated with new equity awards and $1.5 million in other research and development expenses.

Sales and Marketing Expenses

Sales and marketing expenses increased by $3.5 million, or 12.8%, for the three months ended March 31, 2025, compared to the same period in 2024.

The increase for the three months ended March 31, 2025, was primarily due to a $1.9 million increase in patient engagement and marketing activities, a $0.7 million increase in personnel costs and a $0.7 million increase in stock compensation expense.

The increase in patient engagement and marketing activities was driven by our continued growth of WAKIX and the increase in personnel costs and stock compensation for the three months ended March 31, 2025, was related to costs associated with the separation of an executive of the Company.

Sales and marketing expenses increased by $1.6 million, or 5.5%, for the three months ended June 30, 2025, and increased by $5.0 million, or 9.0%, for the six months ended June 30, 2025, compared to the same periods in 2024.

The increase for the three months ended June 30, 2025, was primarily due to a $1.0 million increase in patient engagement and marketing activities and a $0.9 million increase in personnel costs offset by a $0.4 million decrease in stock compensation expense.

The increase for the six months ended June 30, 2025, was primarily due to a $2.9 million increase in patient engagement and marketing activities, a $1.8 million increase in personnel costs and a $0.3 million increase in stock compensation expense.

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 and stock compensation was related to costs associated with the separation of an executive of the Company.

General and Administrative Expenses

General and administrative expenses increased by $5.6 million, or 21.7%, for the three months ended March 31, 2025, compared to the same period in 2024.

The increase in the three months ended March 31, 2025, was primarily due to a $4.5 million increase in legal and professional fees, primarily associated with patent lawsuits, a $0.4 million increase in stock compensation associated with new awards, and a $0.7 million increase in personnel costs associated with higher headcount.

General and administrative expenses increased by $6.7 million, or 24.6%, for the three months ended June 30, 2025, and increased by $12.3 million, or 23.2%, for the six months ended June 30, 2025, compared to the same periods in 2024.

The increase in the three months ended June 30, 2025, was primarily due to a $6.1 million increase in legal and professional fees, primarily associated with patent lawsuits, a $0.5 million increase in stock compensation associated with new equity awards, and a $0.1 million increase in personnel costs associated with higher headcount.

The increase in the six months ended June 30, 2025, was primarily due to a $10.6 million increase in legal and professional fees, primarily associated with patent lawsuits, a $0.8 million increase in stock compensation associated with new equity awards, and a $0.8 million increase in personnel costs associated with higher headcount.

Interest Expense

Interest expense decreased by $0.7 million, or 15.4%, for the three months ended March 31, 2025, compared to the same period in 2024.

The decrease for the three months ended March 31, 2025, was primarily due to lower interest rates as a result of the reduction of the Term SOFR.

Interest expense decreased by $0.8 million, or 17.2%, for the three months ended June 30, 2025, and decreased by $1.5 million, or 16.3%, for the six months ended June 30, 2025, compared to the same periods in 2024.

The decrease for the three and six months ended June 30, 2025, was primarily due to lower interest rates as a result of the reduction of the Term SOFR.

Interest Income

Interest income increased by $0.6 million, or 13.9%, for the three months ended March 31, 2025, compared to the same period in 2024.

The increase for the three months ended March 31, 2025, was primarily a result of having higher invested balances compared to the prior year.

Income tax expense was $11.6 million, representing a 20.3% effective tax rate, for the three months ended March 31, 2025, compared to $13.5 million, representing a 26.0% effective tax rate, for the three months ended March 31, 2024.

The decrease in our effective tax rate for the three months ended March 31, 2025, was primarily driven by an increase in the benefits from research and development and orphan drug credits and a decrease in state taxes.

The effective tax rate of 20.3% for the three months ended March 31, 2025, included 1.1% in state income taxes, partially offset by a 2.4% benefit from credits.

Interest income increased by $0.6 million, or 12.6%, for the three months ended June 30, 2025, and increased by $1.2 million, or 13.2%, for the six months ended June 30, 2025, compared to the same periods in 2024.

The increase for the three and six months ended June 30, 2025, was primarily a result of having higher invested balances compared to the prior year.

Income tax expense was $9.9 million, representing a 19.9% effective tax rate, for the three months ended June 30, 2025, compared to $10.1 million, representing a 46.6% effective tax rate, for the three months ended June 30, 2024.

Income tax expense was $21.5 million, representing a 20.1% effective tax rate, for the six months ended June 30, 2025, compared to $23.6 million, representing a 32.1% effective tax rate, for the six months ended June 30, 2024.

The decrease in our effective tax rate for both comparable periods was primarily driven by a $17.1 million IPR&D charge related to the Epygenix acquisition recognized during the three and six months ended June 30, 2024, which was nondeductible for tax purposes, an increase in the benefits from research and development and orphan drug credits and a decrease in state taxes.

The effective tax rate of 19.9% for the three months ended June 30, 2025, included 1.3% in state income taxes, offset by a 2.7% benefit from credits.

The effective tax rate of 20.1% for the six months ended June 30, 2025, included 1.2% in state income taxes, offset by a 2.6% benefit from credits.

Liquidity, Sources of Funding and Capital Resources

As of March 31, 2025, we had cash, cash equivalents, and investments of $610.2 million, outstanding debt of $177.5 million and retained earnings of $47.8 million.

As of June 30, 2025, we had cash, cash equivalents, and investments of $672.3 million, outstanding debt of $173.8 million and retained earnings of $87.6 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, 2025, will enable us to meet our operational liquidity needs and fund our potential investing activities for the next 12 months.

We believe that our existing cash, cash equivalents and investments on hand as of June 30, 2025, 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.

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The TLA Credit Agreement, as amended, provides for a five-year senior secured term loan (the “TLA Term Loan”) in an aggregate principal amount of $200.0 million.

The repayment schedule for the TLA Term Loan consists of $3.8 million quarterly principal payments, which commence on December 31, 2023, increasing to $5.0 million quarterly principal payments beginning on December 31, 2025, with a $115.0 million payment due on the maturity date of July 26, 2028.

The repayment schedule for the TLA Term Loan consists of $3.8 million quarterly principal payments, which commenced on December 31, 2023, increasing to $5.0 million quarterly principal payments beginning on December 31, 2025, with a $115.0 million payment due on the maturity date of July 26, 2028.

The TLA Term Loan bears interest at a per annum rate equal to, at our option, (i) a base rate plus a specified margin ranging from 2.50% to 3.00%, based on our senior secured net leverage ratio (as defined in the TLA Credit Agreement) or (ii) Term SOFR plus a credit spread adjustment of 0.10% plus a specified margin ranging from 3.50% to 4.00%, based on our senior secured net leverage ratio.

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

We were in compliance with all covenants as of March 31, 2025.

We were in compliance with all covenants as of June 30, 2025.

Share Repurchases

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

During the three months ended March 31, 2025, no shares of common stock were repurchased and cancelled by the Company under the October 2023 Repurchase Program.

As of March 31, 2025, the remaining amount of common stock authorized for repurchases was $150.0 million.

During the three and six months ended June 30, 2025, no shares of common stock were repurchased by the Company under the October 2023 Repurchase Program.

As of June 30, 2025, the remaining amount of common stock authorized for repurchases was $150.0 million.

Epygenix Acquisition

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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 a Clinical Trial Application currently anticipated in mid-2025.

The Licensed Compound is currently in pre-clinical development with a Clinical Trial Application submission currently anticipated in the second half of 2025.

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.

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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 Milestones

In September 2024, we achieved a preclinical milestone, which triggered a $1.0 million payment under the provisions of the APA, which was paid in October 2024 .

The following table sets forth a summary of our cash flows for the three months ended March 31, 2025, and 2024:

Three Months Ended March 31,

CiRC Agreement

In June 2025, we entered into a research collaboration, option and license agreement (the “CiRC Agreement”) with a related party, CiRC Biosciences, Inc.

Under this agreement, we will collaborate on the research and development of two discovery-stage candidates (together the “Candidates”) using cell replacement therapy for the treatment of refractory epilepsies and treatment-resistant narcolepsy.

As part of the CiRC Agreement, we paid CiRC an upfront fee of $15.0 million and we will also be obligated to pay $2.0 million upon the achievement of certain research milestones for each of the Candidates.

In addition, we have an option to obtain an exclusive license for each of the Candidates that would grant us global rights to develop, manufacture and commercialize that Candidate.

We would be obligated to pay an option exercise fee of $8.0 million, or $16.0 million in the aggregate if the options related to both Candidates were exercised, and we would be obligated upon achievement to pay future development, regulatory and sales-based milestones, as well as royalties on sales of any product derived from the Candidates.

The following table sets forth a summary of our cash flows for the six months ended June 30, 2025, and 2024:

Six Months Ended June 30,

Selected cash flow data

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Operating Activities

Net cash provided by operating activities for the three ended March 31, 2025, primarily consisted of net income of $45.6 million adjusted for non-cash items of $12.5 million related to stock-based compensation expense, and $6.0 million related to intangible amortization and depreciation, offset by $4.3 million related to deferred tax assets.

Net working capital excluding cash increased by $25.9 million, primarily driven by increases in accounts receivable due to higher net product revenue in the current period and increases in accounts payable due to the timing of payments.

Net cash provided by operating activities for the six months ended June 30, 2025, primarily consisted of net income of $85.3 million adjusted for non-cash items of $23.8 million related to stock-based compensation expense, $15.0 million related to acquired IPR&D and $11.9 million related to intangible amortization and depreciation, partially offset by $10.8 million related to deferred tax assets.

Net working capital excluding cash increased by $12.4 million, primarily driven by increases in accounts receivable due to higher net product revenue in the current period and an increase in accounts payable due to the timing of payments.

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.

Investing Activities

Net cash provided by investing activities for the three months ended March 31, 2025, was $2.4 million, which was primarily attributable to $19.1 million in purchases of debt securities and $0.1 million in purchases of property and equipment, partially offset by $21.6 million from maturities of investments.

Net cash used in investing activities for the six months ended June 30, 2025, was $17.2 million, which was primarily attributable to $43.0 million in purchases of debt securities, a $15.0 million upfront fee paid to CiRC and $0.1 million in purchases of property and equipment, partially offset by $40.9 million from 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.

Financing Activities

Net cash used in financing activities for the three months ended March 31, 2025, was $0.4 million, which primarily consisted of $3.8 million in principal payments associated with the TLA Credit Agreement and $1.3 million of employee withholding tax payments related to stock-based awards, partially offset by $4.7 million in proceeds from the exercise of stock options.

Net cash used in financing activities for the six months ended June 30, 2025, was $3.0 million, which primarily consisted of $7.5 million in principal payments associated with the TLA Credit Agreement and $2.3 million of employee withholding tax payments related to stock-based awards, partially offset by $6.8 million in proceeds from the exercise of stock options.

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.

Critical Accounting Estimates

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What changed 10-Q

Item 2. Management’s Discussion and Analysis