What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-10 compared with 2021-05-11 · 118 added, 97 removed, 263 unchanged (45% of the section changed)

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our commercialization efforts and strategy for WAKIX;

the rate and degree of market acceptance and clinical utility of WAKIX, pitolisant in additional indications, if approved, and any other product candidates we may develop or acquire, if approved;

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;

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the timing of, and our ability to obtain, regulatory approvals for pitolisant for other indications as well as any other product candidates;

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

our estimates regarding expenses, future revenue, capital requirements and additional financing needs;

our ability to identify additional products or product candidates with significant commercial potential that are consistent with our commercial objectives;

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We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations.

These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of

important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the sections in this Quarterly Report on Form 10-Q titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking

statements, including the factors described under the section in our most recent Annual Report on Form 10-K entitled “ Item 1A.

Risk Factors” and the sections in this Quarterly Report on Form 10-Q titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Moreover, we operate in an evolving environment.

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Company Overview

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

We are a commercial-stage, rare disease pharmaceutical company focused on developing and commercializing innovative therapies for patients living with rare neurological disorders who have unmet medical needs.

Our product, WAKIX (pitolisant), is a first-in-class molecule with a novel mechanism of action (“MOA”) specifically designed to increase histamine signaling in the brain by binding to H 3 receptors.

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In December 2020, we initiated a Phase 2 clinical trial to evaluate pitolisant for the treatment of EDS and other key symptoms in patients with PWS and anticipate topline results from this trial in the first half of 2022.

We are also planning to commence a Phase 2 clinical trial in adult patients with DM1 in the first half of 2021, with topline results expected in the second half of 2022.

Beyond these indications, we intend to further explore pitolisant in other

rare neurological disorders in which fatigue and cognitive impairment are prominent symptoms with significant impact on daily functioning.

We also seek to expand our pipeline through the acquisition of additional assets that focus on addressing the unmet needs of patients with neurological disorders.

We intend to target assets that will be complementary to WAKIX and our expanding list of potential new indications for WAKIX, and/or assets that will allow us to further leverage the expertise and infrastructure that we have successfully built at Harmony.

In June 2021, we initiated a Phase 2 clinical trial to evaluate pitolisant for the treatment of EDS, fatigue and cognitive dysfunction in adult patients with DM1 and anticipate topline results in the second half of 2022.

In addition to these

indications, we intend to further explore pitolisant in other rare neurological disorders in which EDS, fatigue and /or cognitive impairment are prominent symptoms with significant impact on daily functioning.

We also seek to expand our pipeline through the acquisition of additional assets that focus on addressing the unmet needs of patients with rare neurological disorders.

We intend to target assets that will be complementary to WAKIX and/or our expanding list of potential new indications for WAKIX, and/or 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, on August 4, 2021, we acquired HBS-102, a Melanin-concentrating hormone receptor 1 (MCHR1) antagonist previously developed as CSTI-100/ALB-127258(a)/ALB-127258 (the “Compound”), along with intellectual property and other assets related to the development, manufacture, and commercialization of the Compound from ConSynance Therapeutics, Inc.

In connection with the acquisition, we made an upfront payment of $3.5 million and will be required to make certain payments upon the achievement of certain development milestones, regulatory milestones, and sales milestones and pay ongoing royalties upon commercialization.

We acquired full development and commercialization rights globally, but we have provided a grant-back license to ConSynance for the development and commercialization of the Compound in Greater China.

We intend to focus development efforts for HBS-102 on the treatment of narcolepsy, including the symptoms of Rapid Eye Movement (“REM”) sleep dysregulation, such as cataplexy, hallucinations and sleep paralysis.

Pitolisant was developed by Bioprojet and approved by the European Medicines Agency (“EMA”) in 2016 for the treatment of narcolepsy in adult patients with or without cataplexy.

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In February 2020, we changed our name to Harmony Biosciences Holdings, Inc.

Our operations to date have consisted of building and staffing our organization, acquiring the rights to pitolisant, raising capital, opening an investigational new drug applications (“IND”) for pitolisant in narcolepsy, initiating an Expanded Access Program (“EAP”) for pitolisant for appropriate patients with narcolepsy in the United States, preparing and submitting our NDA for pitolisant, gaining NDA approval for WAKIX for the treatment of EDS or cataplexy in adult patients with narcolepsy, and launching and commercializing WAKIX in the United States.

In addition, we have opened INDs for development programs in PWS and DM and have initiated, or intend to initiate, clinical trials in PWS, DM and pediatric narcolepsy to pursue potential new indications.

Our operations to date have consisted of building and staffing our organization, acquiring the rights to pitolisant, raising capital, opening an investigational new drug applications (“IND”) for pitolisant in narcolepsy, conducting an Expanded Access Program (“EAP”) for pitolisant for appropriate patients with narcolepsy in the United States, preparing and submitting our NDA for pitolisant, gaining NDA approval for WAKIX for the treatment of EDS or cataplexy in adult patients with narcolepsy, and launching and commercializing WAKIX in the United States.

In addition, we have opened INDs for development programs in PWS and DM and have initiated clinical trials in PWS and DM in pursuit of potential new indications in those rare disease patient populations.

Liquidity and Sources of Funding

For the three months ended March 31, 2021, we generated $59.7 million of net product revenues.

For the six months ended June 30, 2021, we generated $133.5 million of net product revenues.

We have financed our operations primarily with (a) proceeds from sales of our convertible preferred stock, (b) borrowings under (i) our multi-draw term loan agreement (the “Loan Agreement”) with CRG Servicing LLC (“CRG”) and (ii) our credit agreement (the “Credit Agreement”) with OrbiMed Royalty & Credit Opportunities III, LP (“OrbiMed”), and (c) proceeds from our initial public offering (“IPO”) in August 2020.

As of March 31, 2021, we had cash, cash equivalents and restricted cash of $141.9 million and accumulated deficit of $480.8 million.

As of March 31, 2021, we had outstanding debt, net of issuance costs, of $194.9 million.

As of June 30, 2021, we had cash, cash equivalents and restricted cash of $160.4 million and accumulated deficit of $466.7 million.

As of June 30, 2021, we had outstanding debt, net of issuance costs, of $195.6 million.

We believe that our anticipated cash from operating and financing activities and existing cash and cash equivalents will enable us to meet our operational liquidity needs and fund planned investing activities for the next twelve months.

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incur sales and marketing costs to support the commercialization of WAKIX and any additional product candidates;

pay royalties and make milestone payments to Bioprojet for the license of WAKIX;

pay royalties and make milestone payments to Bioprojet for the license of pitolisant ;

incur manufacturing costs for WAKIX and any additional product candidates;

implement post-approval requirements related to WAKIX;

conduct clinical trials in PWS, DM, and potential new indications for pitolisant or any additional product candidates;

conduct post-approval require studies for WAKIX required by the FDA;

conduct clinical trials in PWS, DM, and other potential new indications for pitolisant or any additional product candidates;

conduct a pediatric narcolepsy program in pursuit of an indication and extension of our patents based on pediatric exclusivity;

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incur interest expenses in conjunction with our debt facility;

seek regulatory approvals for pitolisant or any additional product candidates that successfully complete clinical development;

conduct additional clinical trials in pursuit of potential new indications for pitolisant;

seek regulatory approvals for additional indications for pitolisant or any additional product candidates that successfully complete clinical development;

acquire or in-license other assets and technologies;

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Commercial Launch Metrics

As of March 31, 2021, over 2,700 unique healthcare professionals (“HCPs”) (out of a total of approximately 8,000 HCPs who treat approximately 90% of diagnosed narcolepsy patients) have prescribed WAKIX since it became available in November 2019.

The average number of patients on WAKIX at March 31, 2021 was approximately 2,800.

Additionally, as of March 31, 2021, we have secured formulary access for approximately 80% of all insured lives (Commercial, Medicare and Medicaid) in the United States.

Within these covered lives, we have observed favorable access to WAKIX subsequent to the expanded approval of WAKIX for the treatment of cataplexy in adult patients with narcolepsy in October 2020.

As of June 30, 2021, over 37% of unique healthcare professionals (“HCPs”) (out of a total of approximately 8,000 HCPs who treat approximately 90% of diagnosed narcolepsy patients) have prescribed WAKIX since it became available in November 2019.

The average number of patients on WAKIX at June 30, 2021 was approximately 3,200.

Additionally, as of June 30, 2021, we have secured and maintained formulary access for approximately 80% of all insured lives (Commercial, Medicare and Medicaid) in the United States.

Within these covered lives, we have continued to observe additional favorable access to WAKIX subsequent to the expanded approval of WAKIX for the treatment of cataplexy in adult patients with narcolepsy in October 2020.

COVID-19 Business Update

With the global impact of the COVID-19 pandemic, we have developed a response strategy that includes establishing cross-functional response teams and implementing business continuity plans to manage the impact of the pandemic on our employees, patients, HCPs, and our business.

Despite our response strategy, the COVID-19 pandemic is having an effect on our business and the pharmaceutical industry in general, and is impacting the way stakeholders interact with one another during this pandemic.

We continue to leverage technology and virtual engagement initiatives to offset our reduced in-person access to HCPs.

The COVID-19 pandemic, which has led to high unemployment and corresponding loss of medical insurance, has caused a change in relationship dynamics between patients and their HCPs and has impacted the way patients take, or do not take, their medication.

Based on these factors, we expect that the revenue growth rate in future quarters may be adversely impacted by the ongoing COVID-19 pandemic.

We continue to identify new and innovative ways to maintain meaningful engagement, generate awareness and educate our patients, HCPs and payors to minimize the pressure from the COVID-19 pandemic on our business and support our commercial launch performance.

During the COVID-19 pandemic, we developed a response strategy that included establishing cross-functional response teams and implementing business continuity plans to manage the impact of the pandemic on our employees, patients, HCPs, and our business.

Despite our response strategy, the COVID-19 pandemic has had an effect on our business and the pharmaceutical industry in general.

Although the pandemic has impacted the way stakeholders interact with one another, we have leveraged technology and virtual engagement initiatives to offset our reduced in-person access to HCPs.

The COVID-19 pandemic also led to high unemployment and corresponding loss of medical insurance for many patients, caused a change in relationship dynamics between patients and their HCPs, and impacted the way patients took, or did not take, their medication.

As a result, we were not able to adequately gauge our growth rate and believe that our growth may be adversely impacted in the future if there is a reemergence or future outbreak of COVID-19, including any COVID-19 variant.

We intend to maintain meaningful engagement, generate awareness and educate our patients, HCPs and payors to support our commercial launch performance.

Commercialization

With respect to our commercialization activities, we believe the COVID-19 pandemic is putting pressure on top-line prescription demand for WAKIX, primarily due to (i) our field sales team’s reduced ability to access HCPs in person, and (ii) fewer patients seeing HCPs for prescriptions or treatments.

The impact on demand for WAKIX may also be related to a reduced ability of prescribers to diagnose narcolepsy patients given the limitations in access to sleep testing, the reduced ability to see patients due to (i) cancelled appointments and (ii) the reprioritization of healthcare resources toward the treatment of COVID-19, both of which lead to fewer prescriptions.

Despite these challenges, we continue to engage and educate HCPs virtually on the overall benefit/risk profile of WAKIX and continue to provide support for people living with narcolepsy.

As offices, clinics and institutions have begun to allow limited in-person interactions pursuant to health authority and local government guidelines, our field teams continue to re-initiate in-person interactions with HCPs and customers, but the timing and level of engagement vary by account and region and may be adversely impacted in the future where reemergence or future outbreaks of COVID-19 may occur.

High unemployment and the corresponding loss of health insurance is causing some eligible patients to shift from commercial insurance to free goods and patient assistance programs, which impacts our ability to convert demand to revenue.

Depending on the scale and ultimate duration of the COVID-19 pandemic and the extent of an economic slowdown, widespread unemployment and resulting loss of employer-sponsored insurance coverage, we may experience a shift from commercial payor coverage to government payor coverage or continued/increased demand for patient assistance and/or free drug programs, which could further impact our net revenue in the coming quarters.

We currently expect to have adequate supply of WAKIX through the third quarter of 2022, with additional API on-hand inventory to support 18 to 24 months beyond this time frame.

We are working closely with our third-party manufacturers, distributors and other partners to manage our supply chain activities and mitigate potential disruptions to our product supplies as a result of the COVID-19 pandemic.

We believe that our access to the required production lines to produce additional API and WAKIX finished product throughout the next 12-18 months will not be directly impacted by the potential need to reprioritize manufacturing resources due to the production of materials utilized for COVID-19 vaccines.

With respect to our commercialization activities, we believe the COVID-19 pandemic has put pressure on top-line prescription demand for WAKIX, primarily due to (i) our field sales team’s reduced ability to access

HCPs in person, and (ii) fewer patients seeing HCPs for prescriptions or treatments.

The impact on demand for WAKIX may have also be en related to a reduced ability of prescribers to diagnose narcolepsy patients given the limitations in access to sleep testing, the reduced ability to see patients due to (i) cancelled appointments and (ii) the reprioritization of healthcare resources toward the treatment of COVID-19, both of which lead to fewer prescriptions.

Despite these challenges, we continue d to engage and educate HCPs virtually on the overall benefit/risk profile of WAKIX and continue d to provide support for people living with narcolepsy.

As offices, clinics and institutions have begun to allow in-person interactions pursuant to health authority and local government guidelines, our field teams are re-initiat ing in-person interactions with HCPs and customers, but the timing and level of engagement may vary by account and region and may be adversely impacted in the future where reemergence or future outbreaks of COVID-19 may occur.

Alt hough we are beginning to see increased access to HCPs for our sales team and the economy is beginning to open up, we are still in a transition phase and expect continued, but decreasing, pressure on top line demand in future quarters as the challenges presented by COVID -19 begin to subside.

During the pandemic, elevated unemployment and the corresponding loss of health insurance caused some eligible patients to shift from commercial insurance to free drug and patient assistance programs, which impacted our ability to convert demand into revenue.

Given the high unemployment rates and resulting loss of employer-sponsored insurance coverage, some patients also shifted from commercial payor coverage to government payor coverage, which may have impacted, and may continue to impact, our net revenue.

We currently expect to have adequate supply of WAKIX through the fourth quarter of 2022, with additional API on-hand inventory to support at least 24 months beyond this time frame.

We continue to work closely with our third-party manufacturers, distributors and other partners to manage our supply chain activities and mitigate potential disruptions to our product supplies as a result of the COVID-19 pandemic.

We believe that our access to the required production lines to produce additional API and WAKIX finished product throughout the next 12 to 18 months may not be directly impacted should there be a need to reprioritize manufacturing resources for the production of materials utilized for COVID-19 vaccines.

Our manufacturing partners in France and the United States continue to be operational.

If the COVID-19 pandemic persists for an extended period of time and/or begins to impact essential distribution systems such as transatlantic freight, FedEx, UPS and postal delivery, we could experience disruptions to our supply chain and operations with associated delays in the manufacturing and supply of our products.

If there is a subsequent outbreak of COVID-19, or if it reemerges for an extended period of time and/or begins to impact essential distribution systems such as transatlantic freight, FedEx, UPS and postal delivery, we may experience disruptions to our supply chain and operations with associated delays in the manufacturing and supply of our products.

Research and Development

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While we initially experienced some challenges due to the COVID-19 pandemic, we have taken measures and put contingency plans in place in order to advance our clinical development programs.

We have implemented remote and virtual approaches to clinical trials, including using telemedicine for remote clinic visits to perform efficacy assessments and sending out licensed HCPs to each patient to collect safety assessments (e.g.

We implemented remote and virtual approaches to clinical trials, including using telemedicine for remote clinic visits to perform efficacy assessments and sending out licensed HCPs to each patient to collect safety assessments (e.g.

labs, electrocardiograms) as required by the protocols.

We are also performing remote site visits and data monitoring where possible.

These measures are being instituted with the intent of maintaining patient safety and trial continuity while preserving study integrity.

One unique challenge we are facing is the ability to access sleep labs during the COVID-19 pandemic in order to conduct objective sleep testing, which is required for some of our clinical trials.

In addition, we rely on contract research organizations (“CROs”) or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic.

If the COVID-19 pandemic continues and persists for an extended period of time, or reemerges in the future, we could experience significant delays in our clinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects.

We performed and continue to perform remote site visits and data monitoring where possible.

These measures were instituted with the intent of maintaining patient safety and trial continuity while preserving study integrity.

One unique challenge we faced was the ability to access sleep labs during the COVID-19 pandemic in order to conduct objective sleep testing, which is required for some of our clinical trials.

In addition, we relied on contract research organizations (“CROs”) or other third parties to assist us with clinical trials, and we could not guarantee that they would continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic.

If there is a subsequent outbreak of COVID-19 or any variant thereof or if it reemerges for an extended period of time in the future, we may experience significant delays in our clinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects.

Corporate Development and Other Financial Impacts

The COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of domestic and global financial markets.

If the disruption persists and/or worsens, we may be unable to access additional capital, which could negatively affect our ability to execute on certain corporate development transactions or other important investment opportunities.

The pandemic could also impact our ability to conduct in-person due diligence, negotiations, and other interactions to identify new opportunities.

The COVID-19 pandemic has also affected, and continues to affect, our business operations and financial results.

The extent of the impact of the COVID-19 pandemic on our ability to generate sales of, and revenues from, our approved products, our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of or reemergence of outbreaks, governmental travel restrictions, quarantines, social distancing and business closure requirements in the United States, France, and other countries, and the effectiveness of actions taken globally to contain and treat COVID-19.

The COVID-19 pandemic evolved rapidly and caused a significant disruption of domestic and global financial markets.

In addition, the pandemic limited our ability to conduct in-person due diligence and other interactions to identify new opportunities.

If there is a subsequent outbreak of COVID-19 or any variant thereof or if it reemerges for an extended period of time, we may be unable to access additional capital, which could

negatively affect our ability to execute on certain corporate development transactions or other important investment opportunities.

The COVID-19 pandemic has also affected, and may continue to affect, our business operations and financial results.

The extent of the impact of the COVID-19 pandemic or the potential impact of a reemergence or outbreak of the pandemic on our ability to generate sales of, and revenues from, our approved products, our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time.

Corporate Responsibility Impact

We continue to provide support to our local communities, patient-focused organizations and other charitable organizations during the COVID-19 pandemic with relief efforts, including corporate donations, supplying food, medical supplies and other resources.

For the safety and well-being of our employees, consultants and their families, during the COVID - 19 pandemic, we have abided by government - issued work from home orders.

We continue to clean and sanitize our offices on a regular basis and have implemented COVID-19 screening procedures and social distancing guidelines before allowing employees or guests to enter our offices.

We have provided support with relief efforts to our local communities, patient-focused organizations and other charitable organizations during the COVID-19 pandemic, including corporate donations, food and medical supplies and other resources.

For the safety and well-being of our employees, consultants and their families, we have abided by government-issued work-from-home orders during the COVID-19 pandemic.

As COVID-19 cases decrease and more individuals are vaccinated, we intend to resume an in-office flexible work schedule.

We will continue to clean and sanitize our offices on a regular basis, and adhere to CDC guidelines.

Financial Operations Overview

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Our current product, WAKIX, was approved by the FDA for the treatment of EDS in adult patients with narcolepsy in August 2019, became commercially available in November 2019 and was approved by the FDA for the treatment of cataplexy in adult patients with narcolepsy in October 2020.

For the three months ended March 31, 2021 and 2020, we had $59.7 million and $19.8 million, respectively, of net product revenue.

For the six months ended June 30, 2021 and 2020, we had $133.5 million and $57.8 million, respectively, of net product revenue.

The increase was due to the growing commercial sales of WAKIX which was launched on November 1, 2019 and the price increase of WAKIX in connection with the cataplexy indication approval in the fourth quarter of 2020.

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We began capitalizing inventory upon FDA approval of WAKIX.

Excluded from cost of product sold is amortization of acquired developed technology of $4.6 million and $1.8 million in the three months ended March 31, 2021 and 2020, respectively.

Excluded from cost of product sold is amortization of acquired developed technology of $9.2 million and $3.7 million in the six months ended June 30, 2021 and 2020, respectively.

Previously expensed inventory that was manufactured in anticipation for commercialization preapproval has not had a material impact on our historical results of operations and is not expected to have a material impact on future results of operations.

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Research and development costs are expensed as incurred.

We have significantly increased our research and development efforts as we advance our clinical programs in PWS and DM, and assess other product candidates to expand our pipeline.

We have significantly increase d our research and development efforts as we advance our clinical programs in PWS and DM , and assess other product candidates to expand our pipeline .

Research and development expenses include:

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

costs related to packaging and labeling clinical supplies;

other third-party expenses directly attributable to the development of our product candidates;

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Currently, WAKIX is our only product and we do not currently track our internal research and development expenses on an indication-by-indication basis.

A significant portion of our research and development costs are external costs, such as fees paid to CROs and CMOs, central laboratories, contractors, and consultants in connection with our clinical development activities.

Internal expenses primarily relate to personnel, early research and consumable costs, which are deployed across multiple programs.

Internal expenses primarily relate to personnel who are deployed across multiple programs.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials, milestone payments, and the cost of submitting an NDA to the FDA (and/or other regulatory authorities).

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the sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials;

the impact of the COVID-19 pandemic on the ability to initiate new clinical trials and/or maintain the continuity of ongoing clinical trials that could be impacted by future shelter-in-place orders and needs of the health care system to focus on managing patients affected by COVID-19;

the impact of the COVID-19 pandemic, including any future resurgence, on the ability to initiate new clinical trials and/or maintain the continuity of ongoing clinical trials that could be impacted by future shelter-in-place orders and needs of the health care system to focus on managing patients affected by COVID-19;

receiving Bioprojet’s consent to pursue additional indications for pitolisant;

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the receipt and maintenance of regulatory and marketing approvals from applicable regulatory authorities;

establishing agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidate is approved;

the entry into collaborations to further the development of our product candidates;

establishing agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if any new product candidate is approved;

entry into collaborations to further the development of our product candidates;

obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates;

successfully launching our product candidates and achieving commercial sales, if and when approved.

successfully launching any new product candidates and achieving commercial sales, if and when approved.

A change in the outcome of any of these variables with respect to the development of any of our programs or any product candidate we develop would significantly change the costs, timing and viability associated with the development and/or regulatory approval of such programs or product candidates.

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These increases will likely include increased costs related to the hiring of additional personnel and fees paid to outside consultants, lawyers and accountants, among other expenses.

Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with the requirements of Nasdaq and the SEC, insurance and investor relations costs.

SEC, insurance and investor relations costs.

If any of our current or future indication expansion programs or new product candidates obtain U.S.

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In exchange for services provided to us under the Management Services Agreement, we paid Paragon a management fee of $0.3 million per each calendar month.

We are also party to a right-of-use agreement with Paragon whereby we have access to and the right to use certain office space leased by Paragon in C hicago, Illinois.

For the three months ended March 31, 2021 , we paid de minimis fees pursuant to this agreement.

We are also party to a right-of-use agreement with 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 June 30, 2021, we paid de minimis fees pursuant to this agreement.

Loss on Debt Extinguishment

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

For the 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 $39.8 million, or 200.8%, for the three months ended March 31, 2021 compared to the same period in 2020.

Net product revenue increased by $35.8 million, or 94.2%, for the three months ended June 30, 2021 and $75.7 million, or 130.8%, for the six months ended June 30, 2021 compared to the same periods in 2020.

Cost of Product Sales

Cost of product sales increased by $6.9 million, or 199.6%, for the three months ended March 31, 2021 compared to the same period in 2020.

Cost of product sales increased by $6.2 million, or 96.5%, for the three months ended June 30, 2021 and $13.2 million, or 132.6%, for the six months ended June 30, 2021 compared to the same periods in 2020.

The increase was due to the growing commercial sales of WAKIX, which was launched on November 1, 2019.

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Research and Development Expenses

Research and development expenses increased by $1.2 million, or 36.4%, for the three months ended March 31, 2021 as compared to the same period in 2020.

Research and development expenses increased by $2.3 million, or 55.9%, for the three months ended June 30, 2021 and $3.6 million, or 47.1%, for the six months ended June 30, 2021 as compared to the same periods in 2020.

The increase was primarily due to clinical development work associated with PWS and DM.

Sales and Marketing Expenses

Sales and marketing expenses increased by $2.3 million, or 17.0%, for the three months ended March 31, 2021 as compared to the same period in 2020.

The increase was primarily due to patient engagement and marketing activities.

Sales and marketing expenses increased by $4.6 million, or 36.8% for the three months ended June 30, 2021 and $6.8 million, or 26.6%, for the six months ended June 30, 2021 as compared to the same periods in 2020.

The increase was primarily due to patient engagement and marketing activities and an increase in the number of stock-based awards.

General and Administrative Expenses

General and administrative expenses increased by $5.3 million, or 56.6%, for the three months ended March 31, 2021 as compared to the same period in 2020.

General and administrative expenses increased by $6.7 million, or 87.5% for the three months ended June 30, 2021 and $13.1 million, or 82.9%, for the six months ended June 30, 2021 as compared to the same periods in 2020.

This is primarily due to intangible asset amortization of the milestone payment made in connection with the FDA’s approval of WAKIX for the treatment of cataplexy in adult patients with narcolepsy in October 2020, stock compensation associated with new awards, and the additional cost of public company insurance, offset by fees paid to Paragon.

Additionally, general expenses have increased due to an increase in headcount year-over-year as well as additional spend in 2021 following the COVID-19 pandemic in 2020.

Loss on Debt Extinguishment

Loss on debt extinguishment decreased $22.6 million, or 100%, for the three months ended March 31, 2021 as compared to the same period in 2020 due to costs of extinguishment of debt during the period related to the prepayment of the Loan Agreement with CRG.

Loss on debt extinguishment decreased $22.6 million, or 100%, for the six months ended June 30, 2021 as compared to the same period in 2020 due to costs of extinguishment of debt during the period related to the prepayment of the Loan Agreement with CRG.

Other Expense, Net

Other expense remained relatively flat for the three months ended March 31, 2021, as compared to the same period in 2020.

Other expense decreased by $0.4 million, or 101.0%, for the three months ended June 30, 2021 and $1.5 million, or 99.0% for the six months ended June 30, 2021, as compared to the same periods in 2020.

This is primarily due to the change in the fair value of the warranty liability in 2020.

Interest Expense, Net

Interest expense increased by $0.8 million, or 11.8%, for the three months ended March 31, 2021, as compared to the same period in 2020 primarily due to payment of interest on the Loan Agreement and amortization of debt issuance costs compared to the payment of interest on the Credit Agreement and amortization of debt issuance costs.

Interest expense increased by $0.3 million, or 4.2%, or the three months ended June 30, 2021 and $1.0 million, or 7.9%, for the six months ended June 30, 2021, as compared to the same period in 2020 primarily due to payment of interest on the Loan Agreement and amortization of debt issuance costs compared to the payment of interest on the Credit Agreement and amortization of debt issuance costs.

For interim periods, we estimate the annual effective income tax rate and apply the estimated rate to the year-to-date income or loss before income taxes.

The effective income tax rate was 0.0% for all periods.

The effective income tax rate was 8.4% and 0.0% for the six months ended June 30, 2021 and 2020, respectively.

Currently, we have recorded a full valuation allowance against our net deferred tax assets, primarily related to federal and state net operating losses.

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To date, we have financed our operations primarily with (a) proceeds from sales of our convertible preferred stock, (b) borrowings under (i) our Loan Agreement with CRG and (ii) our Credit Agreement with OrbiMed, and (c) the proceeds from our IPO.

From our inception through March 31, 2021, we have received aggregate proceeds of $345.0 million from sales of our convertible preferred stock.

From our inception through June 30, 2021, we have received aggregate proceeds of $345.0 million from sales of our convertible preferred stock.

On August 21, 2020, we completed the IPO of our common stock, in which we sold 6,151,162 shares of our common stock, including 802,325 shares of our common stock pursuant to the underwriters’ over-allotment option.

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The shares were sold at a price of $24.00 per share for net proceeds of approximately $135.4 million.

As of March 31, 2021, we had cash, cash equivalents and

restricted cash of $141.9 million and accumulated deficit of $480.8 million .

As of March 31, 2021 , we had outstanding debt, net of issuance costs, of $194.9 million .

As of June 30, 2021, we had cash, cash equivalents and restricted cash of $160.4 million and accumulated deficit of $466.7 million.

As of June 30, 2021, we had outstanding debt, net of issuance costs, of $195.6 million.

On August 9, 2021, the Company entered into a Credit Agreement (the “New Credit Facility”) with Blackstone Alternative Credit Advisors LP (“Blackstone”) and the other lenders party thereto from time to time and Wilmington Trust, National Association , as administrative agent (the “Administrative Agent”), that provides for (i) a senior secured term loan facility in an aggregate original principal amount of $200.0 million (the “Initial Term Loan”) and (b) a senior secured delayed draw term loan facility in an aggregate principal amount up to $100.0 million (the “DDTL” and, together with the Initial Term Loans, the “Loans”).

In connection with the New Credit Facility, the Company also sold 1,048,951 shares of the Company’s common stock at a price per share of $28.60 for gross proceeds of $30.0 million.

See “Part II – Item 5 – Other Information” below for a further discussion of the New Credit Facility and sale of common stock.

The 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 have incurred operating losses and negative cash flows from operations since inception resulting in an accumulated deficit of $480.8 million as of March 31, 2021.

We believe that our anticipated cash from operating and financing activities and existing cash and cash equivalents will enable us to meet our operational liquidity needs and fund our planned investing activities for the next 12 months.

We have incurred operating losses and negative cash flows from operations since inception resulting in an accumulated deficit of $466.7 million as of June 30, 2021.

We believe that our anticipated cash from operating and financing activities, including as a result of potential availability under the DDTL, and existing cash and cash equivalents will enable us to meet our operational liquidity needs and fund our planned investing activities for the next 12 months.

We have based this estimate on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we expect.

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We have been in compliance with the financial covenants under the Credit Agreement since it was entered into on January 9, 2020.

The Credit Agreement also contains certain negative restrictive covenants that either limit our ability to, or require a mandatory prepayment in the event we, engage in new lines of business, incur additional indebtedness or liens, make certain investments, make certain payments, pay cash dividends, merge with other companies or consummate certain changes of control, acquire other companies, transfer or dispose of certain assets, liquidate or dissolve, amend certain material agreements, enter into sale and leaseback transactions, enter into various other specified transactions, and change our name, location, executive office or executive management without notice.

assets, liquidate or dissolve, amend certain material agreements, enter into sale and leaseback transactions, enter into various other specified transactions, and change our name, location, executive office or executive management without notice.

On August 9, 2021, we used substantially all of the proceeds from the New Credit Facility and the related sale of our common stock to repay the balance of the OrbiMed Loan together with the payment of fees and expenses under the OrbiMed Loan and the New Credit Facility.

See “Part II – Item 5 – Other Information” below for a further discussion of the New Credit Facility and sale of common stock.

Recent Milestone Payment

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On January 6, 2021, we made the $100.0 million Cataplexy Milestone Payment in full to Bioprojet.

The following table sets forth a summary of our cash flows for the three months ended March 31, 2021 and 2020:

For the Three Months Ended March 31,

The following table sets forth a summary of our cash flows for the three months ended June 30, 2021 and 2020:

Six Months Ended June 30,

(In thousands)

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Operating Activities

Net cash provided by operating activities increased to $12.5 million for the three months ended March 31, 2021 as compared to net cash used in operation activities of $26.7 million for the same period in 2020.

This decrease was primarily attributable to company revenue growth and net income associated with the commercialization of WAKIX.

Net cash provided by operating activities for the three months ended March 31, 2021 consisted of our net income of $7.4 million adjusted for non-cash items of $3.3 million related to stock compensation expense and $4.6 million related to intangible amortization and fair value of warrants.

Net cash used in operating activities for the three months ended March 31, 2020 consisted of our net loss of $38.6 million adjusted for non-cash items of $22.6 million associated with loss on extinguishment of debt and $3.0 million related to intangible amortization and fair value of warrants.

Net cash provided by operating activities increased to $30.6 million for the six months ended June 30, 2021 as compared to net cash used in operating activities of $21.9 million for the same period in 2020.

This increase was primarily attributable to company revenue growth and net income associated with the commercialization of WAKIX.

Net cash provided by operating activities for the six months ended June 30, 2021 consisted of our net income of $21.5 million adjusted for non-cash items of $7.2 million related to stock compensation expense and $9.2 million related to intangible amortization and fair value of warrants.

Net cash used in operating activities for the six months ended June 30, 2020 consisted of our net loss of $38.6 million adjusted for non-cash items of $22.6 million associated with loss on extinguishment of debt and $3.7 million related to intangible amortization and fair value of warrants.

Net working capital excluding cash decreased by $12.9 million due to company growth and the commercial launch of WAKIX.

Investing Activities

Net cash used in investing activities increased to $100.0 million for the three months ended March 31, 2021 as compared to $0.0 million for the same period in 2020.

Net cash used in investing activities increased to $100.2 million for the six months ended June 30, 2021 as compared to $0.0 million for the same period in 2020.

This change was primarily attributable to the $100.0 million milestone payment associated with the Bioprojet License Agreement.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2021 was $0.0 million, as compared to $73.7 million for the same period in 2020.

Net cash provided by financing activities for the six months ended June 30, 2021 was $0.7 million, as compared to $73.7 million for the same period in 2020.

This change was primarily attributable to $194.2 million associated with the OrbiMed Credit Agreement net of issuance, offset with $120.6 million of repayment and exit fees associated with the CRG Loan Agreement.

Off-Balance Sheet Arrangements

For the three months ended March 31, 2021 and 2020, we did not have any off-balance sheet arrangements, as defined under SEC rules.

For the six months ended June 30, 2021 and 2020, we did not have any off-balance sheet arrangements, as defined under SEC rules.

Critical Accounting Policies and Significant Judgments and Estimates

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We believe that the presentation of these measures provides important supplemental information to management and investors regarding our performance.

These measurements are not a substitute for GAAP measurements, and the manner in which we calculate adjusted net income and adjusted net income per share may not be identical to the manner in which other companies calculate adjusted net income and adjusted net income per share.

Management uses these non-GAAP measurements as an aid in monitoring our on-going financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against comparable companies.

These measurements are not a substitute for GAAP measurements, and the manner in which we calculate adjusted net income and adjusted

net income per share may not be identical to the manner in which other companies calculate a djusted net income and a djusted net income per share.

M anagement uses these n on-GAAP measurements as an aid in monitoring our on-going financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against comparable companies.

EBITDA is intended to provide a measure of the Company’s operating performance as it eliminates the effects of financing and capital expenditures.

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(i) interest expense, (ii) income tax provision, (iii) depreciation, (iv) amortization of intangibles, (v) stock-based compensation, (vi) loss on debt extinguishment, and (vii) warrant expense.

A reconciliation of GAAP n et l oss to non-GAAP a djusted net income (loss) appears in the table below (in thousands except share and per share data ):

For the Three Months Ended March 31,

A reconciliation of GAAP net loss to non-GAAP adjusted net income (loss) appears in the table below (in thousands except share and per share data):

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss)

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis