Harmony Biosciences(HRMY) - 2024 Q2 - Quarterly Report

Part I. Financial Information Financial Statements This section presents Harmony Biosciences Holdings, Inc.'s unaudited condensed consolidated financial statements, including Balance Sheets, Statements of Operations, Stockholders' Equity, Cash Flows, and explanatory notes for periods ended June 30, 2024 Condensed Consolidated Balance Sheets The balance sheet details the company's financial position, showing total assets increased to $858.4 million from $811.4 million, while total stockholders' equity grew to $538.6 million as of June 30, 2024 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $317,296 | $311,660 | | Total current assets | $458,344 | $451,070 | | Total noncurrent assets | $400,039 | $360,378 | | Total Assets | $858,383 | $811,448 | | Liabilities & Equity | | | | Total current liabilities | $146,582 | $163,781 | | Total noncurrent liabilities | $173,218 | $180,675 | | Total Liabilities | $319,800 | $344,456 | | Total Stockholders' Equity | $538,583 | $466,992 | Condensed Consolidated Statements of Operations and Comprehensive Income Net product revenue grew to $172.8 million for Q2 2024, a 28.8% increase, but net income decreased to $11.6 million due to higher research and development expenses Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net product revenue | $172,814 | $134,216 | $327,429 | $253,342 | | Gross profit | $140,670 | $109,208 | $267,801 | $207,554 | | Research and development | $63,583 | $14,969 | $85,772 | $28,258 | | Operating income | $21,356 | $46,902 | $73,389 | $87,325 | | Net income | $11,591 | $34,300 | $49,925 | $63,785 | | Diluted EPS | $0.20 | $0.56 | $0.87 | $1.05 | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased from $467.0 million to $538.6 million for the six months ended June 30, 2024, primarily due to $49.9 million in net income and $21.5 million in stock-based compensation Changes in Stockholders' Equity (in thousands) | Account | Balance as of Dec 31, 2023 | Net Change (H1 2024) | Balance as of June 30, 2024 | | :--- | :--- | :--- | :--- | | Additional paid-in capital | $610,266 | $21,902 | $632,168 | | Accumulated deficit | $(143,277) | $49,925 | $(93,352) | | Total stockholders' equity | $466,992 | $71,591 | $538,583 | Condensed Consolidated Statements of Cash Flows The company generated $73.8 million in cash from operating activities for the six months ended June 30, 2024, while using $61.0 million in investing and $7.1 million in financing activities Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $73,758 | $79,622 | | Net cash used in investing activities | $(61,042) | $(9,561) | | Net cash (used in) provided by financing activities | $(7,080) | $3,070 | | Net increase in cash | $5,636 | $73,131 | Notes to Condensed Consolidated Financial Statements These notes provide critical context to the financial statements, detailing recent acquisitions, license agreements, debt structure, revenue concentration, and the share repurchase program - On April 30, 2024, the Company acquired Epygenix Therapeutics, Inc. for upfront consideration of $35.0 million, with potential future milestone payments. The acquisition was treated as an asset acquisition, resulting in a $17.1 million charge for in-process research and development (IPR&D)[36] - In April 2024, the company entered a sublicense agreement with Bioprojet for an orexin-2 receptor agonist (OX2R), paying an upfront license fee of $25.5 million, which was recognized as an IPR&D charge[49] - The company has significant customer concentration risk, with three customers (CVS Caremark, Accredo, and Pantherx) accounting for 100% of gross product revenue for the six months ended June 30, 2024[28][29] - As of June 30, 2024, the company had $188.8 million in principal debt outstanding under its Term Loan A (TLA) Credit Agreement, with a final maturity date of July 26, 2028[55][53] - The company's share repurchase program, approved in October 2023, has $150.0 million remaining authorized for repurchases as of June 30, 2024, with no shares repurchased during the quarter[64] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, strategic developments, and liquidity, highlighting 29.2% net product revenue growth for WAKIX, surging R&D expenses, and a strong $434.1 million liquidity position Company Overview Harmony Biosciences is a commercial-stage pharmaceutical company focused on rare neurological diseases, with its primary product WAKIX approved for narcolepsy and expanding its pipeline through new indications and strategic acquisitions - The company's main product, WAKIX (pitolisant), is the first and only FDA-approved product for narcolepsy that is not a controlled substance[91] - On June 24, 2024, the FDA approved the company's sNDA for WAKIX for the treatment of EDS in pediatric patients six years of age and older with narcolepsy[93] - The company is expanding its pipeline through strategic acquisitions, including Zynerba (ZYN002 for Fragile X Syndrome) in October 2023 and Epygenix (EPX-100 for Dravet and Lennox-Gastaut Syndromes) in April 2024[93][95] - A supplemental NDA (sNDA) for WAKIX in Idiopathic Hypersomnia (IH) is planned for submission in the second half of 2024[92] Results of Operations This section analyzes financial results, showing significant net product revenue growth driven by WAKIX sales, but sharply increased R&D expenses and a higher effective tax rate led to lower net income Comparison of Results of Operations (in thousands) | Metric | Q2 2024 | Q2 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net product revenue | $172,814 | $134,216 | +28.8% | | Research and development | $63,583 | $14,969 | +324.8% | | Operating income | $21,356 | $46,902 | -54.5% | | Net income | $11,591 | $34,300 | -66.2% | - The 29.2% increase in net product revenue for the first six months of 2024 was driven by a 24.6% increase in units shipped and a 7% price increase in January 2024, partially offset by higher rebates[114] - R&D expenses for Q2 2024 increased by $48.6 million, primarily due to $42.6 million in IPR&D charges related to the Bioprojet Sublicense and the Epygenix acquisition[117] - The effective tax rate for Q2 2024 was 46.6%, up from 22.2% in Q2 2023, mainly because of the non-deductible IPR&D charge related to the Epygenix acquisition[124] Liquidity, Sources of Funding and Capital Resources As of June 30, 2024, the company maintained a strong liquidity position with $434.1 million in cash and investments, sufficient to fund operations for the next 12 months, despite significant cash uses for acquisitions and license fees - As of June 30, 2024, the company had cash, cash equivalents, and investments of $434.1 million and an accumulated deficit of $93.4 million[125] Summary of Cash Flows (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Operating activities | $73,758 | $79,622 | | Investing activities | $(61,042) | $(9,561) | | Financing activities | $(7,080) | $3,070 | - Major uses of cash in H1 2024 included the acquisition of Epygenix ($33.1 million net), a license fee paid to Bioprojet ($25.5 million), and purchases of debt securities ($46.3 million)[139] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations affecting its $387.8 million investment portfolio and $188.8 million variable-rate debt, though management anticipates no material impact from a 10% rate change - The company is exposed to interest rate risk on its $387.8 million investment portfolio and its $188.8 million in outstanding variable-rate debt[145][146] - Management estimates that an immediate 10% change in market interest rates would not materially impact the fair value of its investments or its debt-related obligations[145][146] - Foreign currency and inflation risks are not considered to have a material effect on the company's business or financial condition for the reported period[147][148] Controls and Procedures As of June 30, 2024, the company's disclosure controls and procedures were deemed effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of June 30, 2024, the company's disclosure controls and procedures were effective[149] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, internal controls[150] Part II. Other Information Legal Proceedings The company is engaged in patent infringement litigation against generic drug manufacturers regarding WAKIX®, with cases consolidated in the U.S. District Court for the District of Delaware and a trial scheduled for February 2026 ANDA Litigation Harmony and Bioprojet have filed patent infringement lawsuits against multiple generic manufacturers seeking to market WAKIX®, with consolidated cases proceeding to a four-day bench trial scheduled for February 17, 2026 - The company and its licensor, Bioprojet, have received notice letters regarding Abbreviated New Drug Applications (ANDAs) from multiple generic manufacturers (Lupin, Novugen, Novitium, Zenara, AET, Annora, MSN) seeking to market generic versions of WAKIX®[153][155][156] - In response, the company has filed patent infringement lawsuits against these manufacturers in the U.S. District Court for the District of Delaware[154][155][156] - The court has consolidated the cases and scheduled a four-day bench trial to begin on February 17, 2026[157] Risk Factors The company refers investors to its Annual Report on Form 10-K for the year ended December 31, 2023, for a detailed discussion of risk factors that could materially affect its business and financial condition - For a detailed discussion of risk factors, the company refers to Part I, Item 1A of its Annual Report on Form 10-K for the year ended December 31, 2023[158] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[158] Defaults upon Senior Securities The company reported no defaults upon senior securities - None[158] Mine Safety Disclosures This item is not applicable to the company - Not applicable[158] Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended June 30, 2024 - During the three months ended June 30, 2024, no director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement[158] Exhibits This section lists exhibits filed with the quarterly report, including CEO and CFO certifications and various incorporated agreements - The report includes CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, as well as Inline XBRL financial data[159][160]