What changed in this filing

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Item 1. Financial Statements

2021-05-11 compared with 2020-11-12 · 159 added, 240 removed, 362 unchanged (52% of the section changed)

4 unchanged sentences

(In thousands, except share and per share data)

September 30,

CURRENT ASSETS:

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Restricted cash

Intangible asset, net

Intangible assets, net

Other noncurrent assets

Total noncurrent assets

LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT)

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

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COMMITMENTS AND CONTINGENCIES (Note 9)

CONVERTIBLE PREFERRED STOCK

Convertible preferred stock, net of placement costs

Series A convertible preferred stock - $1.00 stated value;

0 shares and 286,000,000 shares authorized at September 30, 2020 and December 31, 2019, respectively;

0 shares and 285,000,000 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

Series B convertible preferred stock - $1.25 stated value;

0 shares and 8,030,000 shares authorized at September 30, 2020 and December 31, 2019, respectively;

0 shares and 8,000,000 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

Series C convertible preferred stock - $1.96 stated value;

0 shares and 25,600,000 shares authorized at September 30, 2020 and December 31, 2019, respectively;

0 shares and 25,510,205 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

STOCKHOLDERS’ EQUITY (DEFICIT):

STOCKHOLDERS’ EQUITY:

Preferred stock - $0.00001 par value;

10,000,000 shares and 0 shares authorized at September 30, 2020 and December 31, 2019, respectively;

0 shares issued and outstanding at September 30

2020 and December 31, 2019

10,000,000 shares and 0 shares authorized at March 31, 2021 and December 31, 2020, respectively;

0 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

Common stock—$0.00001 par value;

500,000,000 shares and 423,630,000 shares authorized at September 30, 2020 and December 31, 2019, respectively;

56,888,625 shares and 7,787,470 issued and outstanding at September 30, 2020 and December 31, 2019, respectively

500,000,000 shares authorized at March 31, 2021 and December 31, 2020, respectively;

56,892,406 shares and 56,890,569 issued and outstanding at March 31, 2021 and December 31, 2020, respectively

Additional paid in capital

Accumulated deficit

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’

EQUITY (DEFICIT)

TOTAL STOCKHOLDERS’ EQUITY

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

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

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(In thousands, except share and per share data)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

Net product revenues

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Accumulation of dividends on preferred stock

Net loss available to common stockholders

NET LOSS PER SHARE:

Net income (loss) available to common stockholders

EARNINGS (LOSS) PER SHARE:

Weighted average number of shares of common stock - basic

Weighted average number of shares of common stock - diluted

Weighted average number of shares of common stock -

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

3 unchanged sentences

(In thousands, except share and per share data)

Convertible Preferred

Series A, B, & C

stockholders’ equity

stockholders’

Balance as of December 31, 2020

Preferred stock dividend, Series A

Preferred stock accretion, Series A

Preferred stock dividend, Series B

Preferred stock accretion, Series B

Preferred stock dividend, Series C

Preferred stock accretion, Series C

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

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

Reclassification of warrant liability to equity

Exercise of options

Stock-based compensation

Repurchase and cancellation of common units

Repurchase and cancellation of common units withheld for taxes

Balance as of September 30, 2020

Convertible Preferred

Series A, B, & C

stockholders’ equity

Balance as of June 30, 2020

Preferred stock dividend, Series A

Preferred stock accretion, Series A

Preferred stock dividend, Series B

Preferred stock accretion, Series B

Preferred stock dividend, Series C

Preferred stock accretion, Series C

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

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

Reclassification of warrant liability to equity

Exercise of options

Exercise of stock options

Stock-based compensation

Repurchase and cancellation of common units withheld for taxes

Balance as of September 30, 2020

(1) Common stock of Harmony Bioscience s Holdings, Inc.

HARMONY BIOSCIENCES HOLDINGS, INC.

AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) - CONTINUED

(In thousands, except share and per share data)

Balance as of March 31, 2021

Convertible Preferred

2 unchanged sentences

Balance as of December 31, 2019

Issuance of Series C convertible preferred stock, net of issuance costs

Preferred stock dividend, Series A

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Preferred stock accretion, Series C

Stock-based compensation

Balance as of September 30, 2019

Convertible Preferred

Series A, B, & C

stockholders’ equity

Balance as of June 30, 2019

Issuance of Series C convertible preferred stock, net of issuance costs

Preferred stock dividend, Series A

Preferred stock accretion, Series A

Preferred stock dividend, Series B

Preferred stock accretion, Series B

Preferred stock dividend, Series C

Preferred stock accretion, Series C

Exercise of stock options

Stock-based compensation

Balance as of September 30, 2019

(1) Common stock of Harmony Bioscience s Holdings, Inc.

Balance as of March 31, 2020

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

HARMONY BIOSCIENCES HOLDINGS, INC.

AND S UBSIDIARY

AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share data)

Nine Months Ended

September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

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

Intangible amortization

Milestones associated with acquired in-process research & development (IPR&D)

Stock-based compensation expense

1 unchanged sentence

Warrant expense

Noncash paid-in-kind interest expense

Debt issuance costs amortization

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Other non-current liabilities

Net cash used in operating activities

Net provided by (cash used) in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

Milestone associated with acquired in-process research & development (IPR&D)

Milestone and acquisition of intangible asset

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock upon initial public offering

Initial public offering issuance costs

Proceeds from issuance of preferred stock

Preferred stock issuance costs

Proceeds from long term debt

3 unchanged sentences

Proceeds from exercised options

Repurchase of common stock

Tax payments for employees shares withheld

Net cash provided by financing activities

NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period

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Warrant financing

Warrant liability reclassified to equity

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

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ORGANIZATION AND DESCRIPTION OF BUSINESS

Our operating subsidiary, Harmony Biosciences, LLC, was formed on May 17, 2017.

Our operating subsidiary, Harmony Biosciences, LLC (“Harmony”), was formed on May 17, 2017.

Harmony Biosciences Holdings, Inc.

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The Company is a holding company and has no operations.

The Company’s operations are conducted in its wholly owned subsidiary, Harmony Biosciences, LLC (“Harmony”).

The Company’s operations are conducted in its wholly owned subsidiary, Harmony.

The Company is a commercial-stage pharmaceutical company focused on developing and commercializing innovative therapies for patients living with rare neurological disorders who have unmet medical needs.

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The unaudited condensed consolidated financial statements have been prepared as though the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company has incurred operating losses and negative cash flows from operations since inception resulting in an accumulated deficit of $487,987 and $422,862, as of September 30, 2020 and December 31, 2019, respectively.

As of September 30, 2020, the Company had cash and cash equivalents of $222,490.

The Company has an accumulated deficit of $480,809 and $488,195, as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021, the Company had cash and cash equivalents of $141,169.

On August 21, 2020, the Company received aggregate proceeds from a common stock offering of approximately $135,435, net of underwriting discounts and commissions and other estimated offering expenses (see Note 11).

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This capital raise and debt issuance has resolved the Company’s significant risks and uncertainties regarding sources of liquidity, which previously raised substantial doubt about the Company’s ability to continue as a going concern.

The Company believes that its anticipated cash from operating and financing activities and existing cash and cash equivalents will enable the Company to meet its operational liquidity needs and fund its planned investing activities for the next 12 months fr o m the date of issuance of these unaudited condensed consolidated financial statements.

The Company believes that its anticipated cash from operating and financing activities and existing cash and cash equivalents will enable the Company to meet its operational liquidity needs and fund its planned investing activities for the next twelve months fr o m the date of issuance of these unaudited condensed consolidated financial statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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All intercompany accounts and transactions have been eliminated in consolidation.

The condensed consolidated balance sheet as of September 30, 2020, condensed consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019, and, condensed consolidated statements of operations and comprehensive income (loss) and the condensed consolidated statements of convertible preferred stock and shareholders’ equity (deficit) for the three and nine months ended September 30, 2020 and 2019, are unaudited.

The condensed consolidated balance sheet as of March 31, 2021, and the condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020, and condensed consolidated statements of operations and comprehensive income (loss) and the condensed consolidated statements of convertible preferred stock and shareholders’ equity (deficit) for the three months ended March 31, 2021 and 2020, are unaudited.

The balance sheet as of December 31, 2020 was derived from audited financial statements as of and for the year ended December 31, 2020.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements as of and for the year ended December 31, 2019, and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statements of the Company’s financial position as of September 30, 2020, and the results of its operations and its cash flows for the nine months ended September 30, 2019 and 2020.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements as of and for the year ended December 31, 2020, and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statements of the Company’s financial position as of March 31, 2020, and the results of its operations and its cash flows for the three months ended March 31, 2021 and 2020.

The condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year.

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Use of Estimates

The preparation of our Condensed Consolidated Financial Statements in conformity with GAAP requires us to make estimates that affect the amounts and disclosures in the Condensed Consolidated Financial Statements, including the notes thereto, and elsewhere in this report.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the Condensed Consolidated Financial Statements, including the notes thereto, and elsewhere in this report.

Uncertainties related to the magnitude and duration of COVID-19, the extent to which it will impact our estimated future financial results, worldwide macroeconomic conditions including interest rates, employment rates, consumer spending and health insurance coverage, the speed of the anticipated recovery and governmental and business reactions to the pandemic have increased the complexity of developing these estimates, including the carrying amounts of long-lived assets, and the intangible asset.

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The Company’s unaudited condensed consolidated financial statements include cash, cash equivalents, accounts payable, and accrued liabilities, all of which are short term in nature and, accordingly, approximate fair value.

Additionally, prior to the IPO, the Company’s unaudited condensed consolidated financial statements included a warrant liability that was carried at fair value and was re-measured at each balance sheet date until it would be exercised or expired.

Additionally, prior to the IPO, the Company’s condensed consolidated financial statements included a warrant liability that was carried at fair value and was re-measured at each balance sheet date until it would be exercised or expired.

In connection with the IPO, the Warrants were re-evaluated under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480 Distinguishing Liabilities from Equity and reclassified to equity.

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ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date.

The guidance in ASC 820 outlines a valuation framework and creat es a fair value hierarchy that serves to increase the consistency and comparability of fair value measurements and the related disclosures.

The guidance in ASC 820 outlines a valuation framework and creates a fair value hierarchy that serves to increase the consistency and comparability of fair value measurements and the related disclosures.

In determining fair value, the Company maximizes the use of quoted prices and observable inputs.

Observable inputs a re inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources.

Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources.

The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

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The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheet that equal the amount reflected in the statements of cash flows.

September 30,

Cash and cash equivalents

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Historically, the Company has not experienced credit losses on its accounts receivable.

As of September 30, 2020, three customers accounted for 100% of gross accounts receivable, Caremark LLC (“CVS Caremark”), which accounted for 33% of gross accounts receivable;

As of March 31, 2021, three customers accounted for 100% of gross accounts receivable, Caremark LLC (“CVS Caremark”), which accounted for 34% of gross accounts receivable;

PANTHERx Specialty Pharmacy LLC (“Pantherx”), which accounted for 36% of gross accounts receivable;

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(“Accredo”), which accounted for 30% of gross accounts receivable.

As of December 31, 2019, two customers accounted for 91% of gross accounts receivable;

CVS Caremark, which accounted for 72% of gross accounts receivable, and Pantherx, which accounted for 19% of gross accounts receivable.

For the nine months ended September 30, 2020, three customers accounted for 100% of gross product revenues;

As of December 31, 2020, three customers accounted for 100% of gross accounts receivable, CVS Caremark, which accounted for 44% of gross accounts receivable;

Pantherx, which accounted for 23% of gross accounts receivable;

and Accredo, which accounted for 33% of gross accounts receivable.

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

CVS Caremark accounted for 35% of gross product revenues;

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and Accredo accounted for 27% of gross product revenues.

For the nine months ended September 30, 2019, revenues were zero.

The Company depends on a single source supplier for its product, product candidates and their active pharmaceutical ingredient.

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

CVS Caremark accounted for 42% of

gross product revenues;

Pantherx accounted for 35 % of gross product revenues;

and Accredo accounted for 23% of gross product revenues.

The Company depends on a single source supplier for its product and active pharmaceutical ingredient.

Cost of Product Sold

Cost of product sold includes manufacturing and distribution costs, the cost of drug substance, FDA program fees, royalties due to third parties on net product sales, freight, shipping, handling, storage costs, and salaries of employees involved with production.

The Company began capitalizing inventory upon FDA approval of WAKIX ® with a portion of the inventory sold during the nine months ended September 30, 2020 produced prior to FDA approval and, therefore, was previously expensed as research and development expense in 2019 in the amount of $1,323.

Excluded from cost of product sold shown on the unaudited condensed consolidated statements of operations and comprehensive income (loss) is amortization of acquired developed technology of $1,867 and $5,560 for the three and nine months ended September 30, 2020, respectively.

The Company began capitalizing inventory upon FDA approval of WAKIX ® .

Excluded from cost of product sold shown and included in general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss is amortization of acquired developed technology of $4,579 and $1,786 for the three months ended March 31, 2021 and 2020, respectively.

Advertising Expenses

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

Advertising expense was $3,138 and $1,343 for the three months ended September 30, 2020 and 2019, respectively, and was $8,576 and $2,445 for the nine months ended September 30, 2020 and 2019, respectively.

Advertising expense was $1,653 and $2,454 for the three months ended March 31, 2021 and 2020, respectively.

Recently Issued Accounting Pronouncements

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The Company is currently evaluating the impact of adopting this new accounting guidance.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848) , which provides guidance related to reference rate reform.

The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates.

The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022.

The Company is currently evaluating the impact of the transition from LIBOR to alternative reference rates but does not expect a significant impact to our condensed consolidated financial statements.

Inventory, net consisted of the following:

September 30,

Raw materials

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Total inventory, net

INTANGIBLE ASSET

INTANGIBLE ASSETS

On August 15, 2019, the Company received FDA approval of WAKIX (pitolisant) for the treatment of excessive daytime sleepiness (“EDS”) in adult patients with narcolepsy.

This event triggered a milestone payment of $75,000 associated with the License Agreement which the Company capitalized as an intangible asset and paid in November of 2019.

The Company determined a useful life of 10 years for such intangible asset, and, as of September 30, 2020 the remaining useful life was 9 years.

The Company expects the annual amortization to be $7,407 for the next five years.

This event triggered a milestone payment of $75,000 associated with the License Agreement (discussed below) which the Company capitalized as an intangible asset and paid in November of 2019.

The Company determined a useful life of 10 years for such intangible asset, and, as of December 31, 2020 the remaining useful life was 8.5 years.

Prior to this event, all other milestones associated with the License Agreement were expensed through research and development as they did not meet the criteria to be recognized as an intangible asset.

The gross carrying amount and net book value of the intangible asset is as follows:

September 30,

On October 13, 2020, the Company received notice that the FDA approved the New Drug Application (“NDA”) for WAKIX for the treatment of cataplexy in adult patients with narcolepsy.

This event triggered a milestone payment of $100,000 associated with the License Agreement which the Company capitalized as an intangible asset and paid in January of 2021.

The Company determined a useful life of 9 years for such intangible asset, and, as of December 31, 2020 the remaining useful life was 8.5 years.

Amortization expense for the three months ended March 31, 2021 and 2020 was $4,579 and $1,786, respectively and is recorded in general and administrative expenses on the condensed consolidated statements of operations and comprehensive income (loss).

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

Years ending December 31,

2021 (excluding the three months ended March 31, 2021)

The gross carrying amount and net book value of the intangible assets is as follows:

Gross Carrying Amount

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LICENSE AGREEMENT

On July 28, 2017, Harmony entered into the License Agreement whereby Harmony acquired the exclusive right to commercialize the pharmaceutical compound pitolisant for the treatment, and/or prevention, of narcolepsy, obstructive sleep apnea, idiopathic hypersomnia, and Parkinson’s disease as well as any other indications unanimously agreed by the parties in the United States and its territories.

A milestone payment of $50,000 was due upon acceptance by the FDA of pitolisant’s New Drug Application (“NDA”), which was achieved on February 12, 2019 and was expensed within research and development for the nine months ended September 30, 2019.

A milestone payment of $77,000, including a $2,000 fee, was due upon FDA approval of WAKIX ® (pitolisant) for treatment of EDS in adult patients with narcolepsy, which was achieved on August 14, 2019.

On July 28, 2017, Harmony entered into the License Agreement (“the License Agreement”) with Bioprojet Société Civile de Recherche (“Bioprojet”) whereby Harmony acquired the exclusive right to commercialize the pharmaceutical compound pitolisant for the treatment, and/or prevention, of narcolepsy, obstructive sleep apnea, idiopathic hypersomnia, and Parkinson’s disease as well as any other indications unanimously agreed by the parties in the United States and its territories.

A milestone payment of $50,000 was due upon acceptance by the FDA of pitolisant’s NDA, which was achieved on February 12, 2019 and was expensed within research and development for the year ended December 31, 2019.

A milestone payment of $77,000, which included a $2,000 fee that is described below, was due upon FDA approval of WAKIX (pitolisant) for treatment of EDS in adult patients with narcolepsy, which was achieved on August 14, 2019.

The $2,000 payment and $75,000 milestone payment were paid in August and November 2019, respectively.

In addition, a payment of $2,000 is due upon the FDA approval of the NDA for WAKIX ® for the treatment of cataplexy in adult patients with narcolepsy (the “Trigger Date”) which was paid in October 2020 and a $100,000 milestone payment is due within 90 days of the Trigger Date.

In addition, a milestone payment of $102,000, which included a $2,000 fee was due upon the FDA approval of the NDA for WAKIX for the treatment of cataplexy in adult patients with narcolepsy.

The $2,000 payment was paid in October 2020 and a $100,000 milestone payment was paid in January 2021.

An additional $40,000 milestone payment is due to Bioprojet upon WAKIX attaining $500,000 in aggregate net sales in the United States.

The License Agreement also requires sales-based milestone payments, a fixed trademark royalty and a tiered royalty, all based on net sales, which become due and payable to Bioprojet on a quarterly basis.

During the nine months ended September 30, 2020, the Company has incurred $16,574 for sales-based, trademark and tiered royalties recognized as cost of product sold.

As of September 30, 2020 and December 31, 2019, the Company had accrued $7,297 and $938, respectively, for sales-based, trademark and tiered royalties.

During the three months ended March 31, 2021 and 2020, the Company incurred $9,547 and $3,277, respectively, for sales-based, trademark and tiered royalties recognized as cost of product sold.

As of March 31, 2021 and December 31, 2020, the Company had accrued $9,512 and $9,006, respectively, for sales-based, trademark and tiered royalties.

At December 31, 2020, the Company had accrued $100,000 for the milestone payment to Bioprojet.

ACCRUED EXPENSES

Accrued expenses consist of the following:

September 30,

Royalties due to third parties

Rebates and other sales deductions

Research and development

Selling and marketing

Professional fees, consulting, and other services

Debt issuance costs

Employee travel and other expenses

Other expenses

Research and development

Milestone payment

Credit Agreements

On February 28, 2019, the Company entered into a multi-draw loan agreement with CRG Servicing LLC for an aggregate of $200,000 (the “CRG Loan”), which matured in March 2025.

The Loan bore a fixed rate of 12%.

The Loan agreement required compliance with certain financial covenants.

The Company could draw three tranches of the Loan based on achieving specific milestones and dates.

On February 28, 2019, the Company entered into a multi-draw loan agreement with CRG Servicing LLC for an aggregate of $200,000 (the “CRG Loan”), which would have matured in March 2025.

The CRG Loan bore a fixed rate of 12%.

The CRG Loan required compliance with certain financial covenants.

The Company could draw three tranches of the CRG Loan based on achieving specific milestones and dates.

The Company could elect to pay the interest on the outstanding principal amount as follows:

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The issuance costs of $5,184 were being amortized over the six-year loan term of the CRG Loan.

Unamortized debt issuance costs as of December 31, 2019 are $4,592 and are presented in the unaudited condensed consolidated balance sheets as a direct deduction from the carrying value of the debt.

On January 9, 2020, the Company entered into a credit agreement with OrbiMed Royalty & Credit Opportunities, LP for an aggregate amount of $200,000 (the “OrbiMed Loan”), which matures in January 2026.

Borrowings under the OrbiMed Loan are collateralized by all of the Company’s assets, excluding the intellectual property licensed through the License Agreement.

Borrowings under the OrbiMed Loan are collateralized by all of the Company’s assets, excluding the

intellectual property licensed through the License Agreement.

The OrbiMed Loan bears an interest rate equal to the sum of ( i ) the greater of (a) 1-month LIBOR or (b) 2.00% per annum, plus (ii) 11.00% per annum, paid in cash monthly in arrears on the last day of each month starting in January 2020.

At the time of prepayment or repayment of all or any portion of the principal of the OrbiMed Loan, the Company is required to pay an exit fee of 7.0 % of the principal amount of the OrbiMed Loan prepaid, repaid, or required to be prepaid or repaid .

The Company recorded the exit fee as a liability and debt discount at the origination of the term loan .

In addition to entering into the OrbiMed Loan, the Company extinguished the CRG Loan which required a payoff amount of $120,893 consisting of principal repayment, interest, and exit fees.

In connection with extinguishment of the CRG Loan, we recognized a loss on extinguishment of $22,639, which included an exit fee of $18,047 and the write-off of the remaining unamortized debt issuance costs of $4,592.

The loss on extinguishment of debt was recorded in loss on debt extinguishment within the Company’s unaudited condensed consolidated statements of operations.

The loss on extinguishment of debt was recorded in loss on debt extinguishment within the Company’s condensed consolidated statements of operations.

The net cash received as a result of the transaction, less debt issuance costs of $5,804, was $73,313.

These debt issuance costs will be amortized as additional interest expense over the six-year loan term of the OrbiMed Loan.

The fair value of the OrbiMed loan as of September 30, 2020 was $210,400.

The fair value of the OrbiMed loan as of March 31, 2021 was $260,328.

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

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The fair value of the Warrants using the Black-Scholes option-pricing model was $2,359 at January 9, 2020.

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

The unamortized debt discount as of September 30, 2020 is $2,064 and is presented in the unaudited condensed consolidated balance sheets as a direct deduction from the carrying value of the debt.

The balances of the OrbiMed Loan as of September 30, 2020 and the CRG Loan as of December 31, 2019 w ere as follows:

September 30,

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

The unamortized debt discount as of March 31, 2021 is $2,031 and is presented in the condensed consolidated balance sheets as a direct deduction from the carrying value of the debt.

The balances of the OrbiMed Loan as of March 31, 2021 and December 31, 2020 were as follows:

Liability component - principal

Debt discount associated with warrant financing

Deferred financing cost

Unamortized debt discount associated with the exit fee, debt financing costs and discount with warrant financing

Liability component - net carrying value

Interest expense related to the OrbiMed Loan and CRG Loan were included in interest expense, net in the Condensed Consolidated Statements of Operations as follows:

For the three months ended

For the nine months ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

For the Three Months Ended March 31,

Interest on principal balance

Interest on PIK

Amortization of deferred financing costs

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The Company accrues such liabilities when they are known, if they are deemed probable and can be reasonably estimated.

During 2018 and 2019 the Company was involved in ongoing litigation with its former chief executive officer related to arbitration and the value of vested common shares.

On October 24, 2019, the Company reached a settlement resulting in $3,466 of general and administrative expense reflected in the Company’s consolidated results of operations for the year ended December 31, 2019.

Lease Agreements

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

In November 2019, the Company entered into an operating lease for approximately four thousand square feet of office space in Chicago, IL, which expires in December 2020.

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

The term will not commence until the Company takes occupancy in mid-2021.

The terms of the lease payments provide for rental payments on a monthly basis and on a graduated scale.

1 unchanged sentence

In addition, tenant improvement allowances recorded are amortized as a reduction to rent expense on a straight-line basis over the lease term.

Rent expense was $ 516 for the nine months ended September 30, 2020, compared to $ 442 for the nine months ended Septe mber 30, 2019.

The following table sets forth the lease payment obligations as of September 30, 2020, for the periods indicated below:

Rent expense was $136 for the three months ended March 31, 2021, compared to $204 for the three months ended March 31, 2020.

The following table sets forth the lease payment obligations as of March 31, 2021, for the periods indicated below:

Years ending December 31,

2021 (excluding the three months ended March 31, 2021)

CONVERTIBLE PREFERRED STOCK

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

As of December 31, 2019, there were 286,000,000 Series A convertible preferred stock authorized of which 285,000,000 were issued and outstanding.

As of March 31, 2020, there were 286,000,000 Series A convertible preferred stock authorized of which 285,000,000 were issued and outstanding.

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

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

As of September 30, 2020, Series A preferred shares and the cumulative unpaid preferred dividends reflect the reverse stock split and conversion to common stock.

Series B Preferred Stock

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

As of December 31, 2019, there were 8,030,000 shares of Series B convertible preferred stock authorized, of which 8,000,000 were issued and outstanding.

As of March 31, 2020, there were 8,030,000 shares of Series B convertible preferred stock authorized, of which 8,000,000 were issued and outstanding.

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

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

As of September 30, 2020, Series B preferred shares and the cumulative unpaid preferred dividends reflect the reverse stock split and conversion to common stock.

Series C Preferred Stock

On August 9, 2019, the Company issued 25,510,205 shares of Series C convertible preferred stock for a purchase price of $1.96 per share, or $50,000 in the aggregate.

As December 31, 2019, there were 25,600,000 shares of Series C convertible preferred stock authorized, of which 25,510,205 were issued and outstanding.

As March 31, 2020, there were 25,600,000 shares of Series C convertible preferred stock authorized, of which 25,510,205 were issued and outstanding.

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

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

As of September 30, 2020, Series C preferred shares and the cumulative unpaid preferred dividends reflect the reverse stock split and conversion to common stock.

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

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STOCKHOLDERS’ EQUITY (DEFICIT)

On September 19, 2017, Harmony Biosciences II, LLC, was converted to a C corporation named Harmony Biosciences II, Inc., at which point the 7,709,434 outstanding common units of Harmony Biosciences II, LLC, were converted to 7,709,434 common shares of Harmony Biosciences II, Inc.

On September 22, 2017, the Company issued warrants for 1,690,672 common shares, with an exercise price of $0.01 per share, to the holders of the Convertible Notes upon the consummation of an equity financing transaction and these warrants were immediately exercised resulting in the issuance of 1,690,672 common shares and proceeds of $139.

On August 31, 2018, the Company repurchased and canceled 1,623,007 common shares from the former chief executive officer for $3,200.

On August 11, 2020, the Company implemented a 1-for-8.215 reverse stock split of the Company’s common stock.

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The Company’s common stock has no preemptive rights, conversion rights or other subscription rights or redemption or sinking fund provisions.

1,217,285 common shares held by an investor were subject to certain forfeiture provisions that are dependent upon the outcome of certain future events.

On November 15, 2019, the Company removed the provision associated with this forfeiture resulting in $8,400 of noncash stock compensation expense reflected in the Company’s unaudited condensed consolidated results of operations for the year ended December 31, 2019.

STOCK INCENTIVE PLAN AND STOCK-BASED COMPENSATION

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On August 7, 2017, the Company adopted an equity incentive plan (the “2017 Plan”).

Under the Plan, directors, officers, employees, consultants, and advisors of the Company can be paid incentive compensation measured by the value of the Company’s common shares through grants of stock options, stock appreciation rights, or restricted stock.

In connection with th e Company’s IPO , the board of directors adopted, and its stockholders approved, the 2020 Incentive Award Plan (the “2020 Plan”) , in order to facilitate the grant of cash and equity incentives to directors, employees (including the Company’s named executive officers) and consultants of the Company and its subsidiaries.

Upon the effectiveness of the 2020 Plan, no further grants will be made under the Equity Incentive Plan.

However, th e Equity Incentive Plan will continue to govern the terms and conditions of outstanding awards granted under it.

The 2020 Plan provides for the grant of stock options, including ISOs and NSOs, SARs, restricted stock, dividend equivalents, RSUs and other st ock or cash based awards.

Stock options under the Plan and the 2020 Plan have a 10-year contractual term and vest over the vesting period specified in the applicable award agreement (generally five years from the date of grant), at achievement of a performance requirement, or upon change of control (as defined in the applicable plan).

Changes in awards granted under the Plan as of September 30, 2020 and December 31, 2019, are as follows:

Under the 2017 Plan, directors, officers, employees, consultants, and advisors of the Company can be paid incentive compensation measured by the value of the Company’s common shares through grants of stock options, stock appreciation rights (“SARs”), or restricted stock.

In connection with the Company’s IPO, the board of directors adopted, and its stockholders approved, the 2020 Incentive Award Plan (the “2020 Plan”), in order to facilitate the grant of cash and equity incentives to directors, employees (including the Company’s named executive officers) and consultants of the Company and its subsidiaries.

Upon the effectiveness of the 2020 Plan, no further grants will be made under the 2017 Plan.

However, the 2017 Plan will continue to govern the terms and conditions of outstanding awards granted under it.

The 2020 Plan provides for the grant of stock options, including i ncentive s tock o ption s (“ ISOs ”) and n on-qualified stock options (“ NSOs ”) , SARs, restricted stock, dividend equivalents, restricted stock units (“ RSUs ”) and other stock or cash - based awards.

Stock options and stock appreciation rights under the 2017 Plan and the 2020 Plan have a 10-year contractual term and vest over the vesting period specified in the applicable award agreement, at achievement of a performance requirement, or upon change of control (as defined in the applicable plan).

RSUs vest over the vesting period specified in the applicable award agreement, at achievement of a performance requirement, or upon change of control (as defined in the applicable plan).

Changes in stock options granted under the 2017 and 2020 Plans for the three months ended March 31, 2021 is as follows:

Awards outstanding—December 31, 2020

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Awards forfeited

Awards outstanding—September 30, 2020

As of September 30, 2020 and December 31, 2019, stock awards issued under the Plan of 751,136 and 573,098 common shares, respectively, were vested.

Awards outstanding—March 31, 2021

Changes in SARs granted under the 2017 Plan for the three months ended March 31, 2021 is as follows:

Awards outstanding—December 31, 2020

Awards issued

Awards exercised

Awards forfeited

Awards outstanding—March 31, 2021

Changes in RSUs granted under the 2020 Plan for the three months ended March 31, 2021 is as follows:

Awards outstanding—December 31, 2020

Awards issued

Awards exercised

Awards forfeited

Awards outstanding—March 31, 2021

As of March 31, 2021 and December 31, 2020, stock awards issued under the 2017 and 2020 Plans of 1,143,791 and 987,538 common shares, respectively, were vested.

The Company has elected early adoption of ASU No.

2016-09 to recognize forfeitures as they occur.

As a result of the adoption, for the nine months ended September 30, 2020, the Company reversed $2 out of stock-based compensation previously recorded, compared to $4 for the nine months ended September 30, 2019.

Value of Stock Options

As a result of the adoption, for the three months ended March 31, 2020 the Company reversed $10 out of stock-based compensation previously recorded.

Value of Stock Options and SARs

The Company has valued awards for each of the plans included herein using the Black-Scholes option-pricing model.

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For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options.

For SARs, the expected term is based upon the weighting of certain future events.

The risk-free interest rate is determined by reference to the U.S.

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The assumptions used to value the awards are summarized in the following table.

September 30,

March 31, 2021

Dividend yield

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55.00 - 95.80

95.30 - 99.30

Risk-free interest rate

Lack of marketability discount

26.00 - 31.00

Expected term (years)

The weighted average per share fair value of awards issued under the Plan was $9.39 and $3.38 in 2020 and 2019, respectively.

Stock-based compensation expense was $ 1,330 and $ 2,266 for the three and nine months ended September 30, 2020, compared to $ 407 and $ 1,104 for the three and nine months ended September 30, 2019 , and was recorded in the unaudited condensed consolidated statements of operations and comprehensive income ( loss ) in the following line items:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Value of RSUs

The fair value of RSUs is equal to the value of the Company’s common stock on the grant date.

The weighted average per share fair value of awards issued under the 2017 Plan and 2020 Plan was $11.99 and $10.06 on March 31, 2021 and December 31, 2020, respectively.

Stock-based compensation expense, net was $3,251 and $475 for the three months ended March 31, 2021 and 2020, respectively, and was recorded in the condensed consolidated statements of operations and comprehensive loss in the following line items:

For the Three Months Ended March 31,

Research and development expense

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General and administrative expense

Options issued under the Plan are reflected as a component of equity in these unaudited condensed consolidated financial statements.

Options and RSUs issued under the 2017 Plan and 2020 Plan are reflected as a component of equity in these condensed consolidated financial statements.

Stock appreciation rights are reflected as other non-current liability.

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Years Ending December 31,

2021 (excluding the three months ended March 31, 2021)

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

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

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

The unamortized debt discount as of September 30, 2020 is $2,064 and is presented in the unaudited condensed consolidated balance sheet as a direct deduction from the carrying value of the debt.

During the three and nine months ended September 30, 2020, a loss of $1,525 and $3,109 were recorded in other expense in the unaudited condensed consolidated statements of operations due to the change in the fair value of the warrant liability.

See footnote 14 for the fair value of the Warrants.

The unamortized debt discount as of March 31, 2021 and December 31, 2020 was $2,031 and $2,102, respectively, and is presented in the condensed consolidated balance sheet as a direct deduction from the carrying value of the debt.

During the three months ended March 31, 2020, a loss of $1,146 was recorded in other expense in the condensed consolidated statements of operations due to the change in the fair value of the warrant liability.

See Note 15 for the fair value of the Warrants.

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

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

A summary of the changes in the warrant liability for the nine months ended September 30, 2020 is as follows:

Balance, beginning of period

Fair Value at Issuance

Change in fair value included in the statement of operations

Reclassification to equity

Balance, end of period

EARNINGS PER SHARE

For the three and nine months ended September 30, 2020 and 2019, the Company used the two-class method to compute net loss per common share because the Company has issued securities (convertible preferred stock) that entitle the holder to participate in dividends and earnings of the Company.

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

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

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

Diluted net income (loss) per common share is computed under the treasury stock method by using the weighted average number of shares of common stock outstanding, plus, for periods with net income attributable to common stockholders, the potential dilutive effects of stock options and warrants.

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

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

The Company has reported net income for the three months ended March 31, 2021.

In addition, the Company analyzes the potential dilutive effects of the outstanding convertible preferred stock under the ‘if-converted’ method when calculating diluted earnings per share, in which it is assumed that the outstanding convertible preferred stock converts into common stock at the beginning of the period or when issued if later.

The Company reports the more dilutive of the approaches (treasury stock or ‘if converted’) as their diluted net income per share during the period.

The Company has reported a net loss for the three and nine months ended September 30, 2020 and 2019, and the basic and diluted net loss per share attributable to common stockholders are the same for these periods because all convertible preferred stock and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact.

Additionally, the fair value adjustments for the warrants have been excluded from the computation of diluted net loss for the three and nine months ended September 30, 2020 since the additional income would have an antidilutive impact.

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

For the Three Months Ended March 31,

Net income (loss)

Accumulation of dividends on preferred stock

Net loss available to common shareholders

Net loss per common share - basic

Net loss per common share - diluted

Net income (loss) available to common shareholders

Net income (loss) per common share - basic

Net income (loss) per common share - diluted

Weighted average number of shares of common stock - basic

Weighted average number of shares of common stock - diluted

Securities outstanding that are included in the computation above, utilizing the treasury stock method are as follows:

For the Three Months Ended March 31,

Stock options, SARs, and RSUs to purchase common stock

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Stock options to purchase common stock

For the Three Months Ended March 31,

Stock options, SARs, and RSUs to purchase common stock

Convertible preferred stock

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The Company primarily applies the market approach to determine the fair value of financial instruments that are measured at fair value on a recurring basis.

There were no changes to its valuation techniques used to determine the fair value of financial instruments during the nine months ended September 30, 2020.

The Company’s financial assets and liabilities which are measured at fair value on a recurring basis were comprised of cash, cash equivalents, and restricted cash of $222,490 and $25,207 as of September 30, 2020 and December 31, 2019, respectively, based on Level 1 inputs.

There were no changes to its valuation techniques used to determine the fair value of financial instruments during the three months ended March 31, 2021.

The Company’s financial assets and liabilities which are measured at fair value on a recurring basis were comprised of cash, cash equivalents, and restricted cash of $141,919 and $229,381 as of March 31, 2021 and December 31, 2020, respectively, based on Level 1 inputs.

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

As discussed in Note 13, in connection with the Company’s IPO the warrant fair value was updated on August 19, 2020 with the change in fair value recorded in current period earnings as other expense in the unaudited condensed consolidated statement of operations and reclassified to equity.

During the nine months ended September 30, 2020, a loss of $3,109 was recorded in other expense in the unaudited condensed consolidated statements of operations due to the change in the fair value of the warrant liability.

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

Dividend yield

Expected volatility

Risk-free interest rate

Lack of marketability discount

Expected term (years)

As discussed in Note 13, in connection with the Company’s IPO the warrant fair value was updated on August 19, 2020 with the change in fair value recorded in current period earnings as other expense in the condensed consolidated statement of operations and reclassified to equity.

During the three months ended March 31, 2020, a loss of $1,146 was recorded in general and administrative expense in the condensed consolidated statements of operations due to the change in the fair value of the warrant liability.

RELATED-PARTY TRANSACTIONS

The Company was party to a management agreement for professional services provided by a related party, Paragon.

The Company was party to a management agreement for professional services provided by a related party, Paragon Biosciences, LLC (“Paragon”).

The related party is an entity that shares common ownership with the Company.

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

For the three and nine months ended September 30, 2020, the Company incurred $3,628 and $7,101, respectively, in management fee expense and other expenses to this related party, which are included in general and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive income (loss) as compared to $1,102 and $3,120 for the three and nine months ended September 30, 2019, respectively.

For the three months ended March 31, 2021 and 2020, respectively, the Company incurred $71 and $1,730, respectively, in management fee expense and other expenses to this related party, which are included in general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

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

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

In addition, the Company participates in certain transactions with separate related parties that also share common ownership with the Company, primarily related to combined employee health plans.

As of September 30, 2020, and December 31, 2019, the amount due to related parties included in current liabilities was $193 and $1,208, respectively, and the amount included in other assets was $1 and $210, respectively.

SUBSEQUENT EVENTS

On October 13, 2020, the Company received notice that the FDA approved the NDA for WAKIX ® for the treatment of cataplexy in adult patients with narcolepsy.

Pursuant to the License Agreement, upon the Trigger Date, the Company has paid Bioprojet $2,000 in October 2020 and will pay a milestone payment to Bioprojet of $100,000 within 90 days of the Trigger Date.

Accordingly, the Company plans to make the milestone payment to Bioprojet on or before its due date.

In addition, the Company had participated in certain transactions with separate related parties that also share common ownership with the Company, primarily related to combined employee health plans.

As of March 31, 2021 and December 31, 2020, respectively, the amounts from related parties included in prepaid expenses and other assets was $23 and $1, respectively.

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 1. Financial Statements