Harmony Biosciences(HRMY) - 2023 Q1 - Quarterly Report

Part I. Financial Information Financial Statements The company's financial statements for the quarter ended March 31, 2023, show total assets of $715.1 million, a significant increase in net income to $29.5 million from $21.5 million year-over-year, and positive cash flow from operations of $42.6 million, reflecting continued growth driven by WAKIX sales, a strong liquidity position, and detailed notes on key agreements and accounting policies Condensed Consolidated Balance Sheets As of March 31, 2023, total assets were $715.1 million, an increase from $673.9 million at year-end 2022, primarily driven by an increase in cash and cash equivalents to $288.0 million, while total liabilities remained relatively stable at $272.1 million and total stockholders' equity grew to $443.0 million from $402.8 million, reflecting retained earnings from net income Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $418,087 | $400,285 | | Cash and cash equivalents | $287,962 | $243,784 | | Intangible assets, net | $154,992 | $160,953 | | Total Assets | $715,092 | $673,870 | | Total Current Liabilities | $85,363 | $78,884 | | Long-term debt, net | $185,063 | $189,647 | | Total Liabilities | $272,051 | $271,032 | | Total Stockholders' Equity | $443,041 | $402,838 | Condensed Consolidated Statements of Operations and Comprehensive Income For the three months ended March 31, 2023, net product revenues grew 39.6% year-over-year to $119.1 million, operating income increased to $40.4 million from $27.6 million in the prior-year period, and net income rose to $29.5 million, or $0.48 per diluted share, compared to $21.5 million, or $0.35 per diluted share, in Q1 2022, demonstrating strong profitability growth Q1 2023 vs Q1 2022 Performance (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Net product revenues | $119,126 | $85,313 | +39.6% | | Gross profit | $98,346 | $70,597 | +39.3% | | Operating income | $40,423 | $27,556 | +46.7% | | Net income | $29,485 | $21,485 | +37.2% | | Diluted EPS | $0.48 | $0.35 | +37.1% | Condensed Consolidated Statements of Cash Flows For the first quarter of 2023, the company generated $42.6 million in cash from operating activities, a significant increase from $28.9 million in the prior-year period, driven by higher net income, while cash used in investing activities was $1.8 million, a sharp decrease from $40.0 million in Q1 2022, which included a large milestone payment, and cash provided by financing activities was $3.4 million, primarily from the exercise of stock options Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $42,559 | $28,852 | | Net cash used in investing activities | $(1,790) | $(40,045) | | Net cash provided by financing activities | $3,409 | $1,383 | | Net Increase (Decrease) in Cash | $44,178 | $(9,810) | Notes to Condensed Consolidated Financial Statements The notes provide critical context to the financial statements, detailing the company's focus on rare neurological diseases, significant revenue concentration with three specialty pharmacies, terms of license agreements with Bioprojet including milestone and royalty obligations, specifics of the $200 million Blackstone credit facility, and details on stock-based compensation plans - The company's revenue is highly concentrated, with three customers (Accredo, CVS Caremark, and Pantherx) accounting for 100% of gross product revenues in Q1 2023[28] - The company depends on a single source supplier for its product and active pharmaceutical ingredient, representing a concentration of risk[29] - Intangible assets related to WAKIX® approvals total $215 million in gross carrying amount, with a remaining net book value of $155.0 million as of March 31, 2023, and a remaining useful life of 6.5 years[39][40][42] - The company has a senior secured term loan facility with Blackstone for an original principal of $200 million, with an outstanding balance of $197.0 million as of March 31, 2023, and an additional $100 million delayed draw term loan available until August 9, 2023[49][52] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the strong Q1 2023 performance to the continued commercial success of WAKIX, with net revenue increasing 39.6% year-over-year to $119.1 million, driven by a growing patient base of approximately 5,100, while the company is advancing its pipeline with a Phase 3 trial for pitolisant in Idiopathic Hypersomnia (IH) expecting topline data in Q4 2023, and ongoing development for Prader-Willi Syndrome (PWS) and Myotonic Dystrophy (DM), with operating expenses increasing due to expanded clinical development, sales and marketing activities, and higher personnel costs, maintaining a strong liquidity position with $393.2 million in cash, equivalents, and investments Company Overview and Pipeline Harmony is a commercial-stage pharmaceutical company focused on rare neurological diseases, with its primary product being WAKIX® (pitolisant), actively pursuing lifecycle management for pitolisant with a Phase 3 trial in Idiopathic Hypersomnia (IH) and a Phase 2 trial in Myotonic Dystrophy (DM), with topline data for both expected in Q4 2023, and advancing its program in Prader-Willi Syndrome (PWS) to a Phase 3 trial, additionally developing HBS-102, a MCHR1 antagonist, for potential treatment of PWS symptoms - The average number of patients on WAKIX for Q1 2023 was approximately 5,100[98] - The company has secured formulary access for WAKIX for more than 80% of all insured lives in the United States[98] - Key pipeline milestones expected in 2023 include topline data from the Phase 3 INTUNE study in Idiopathic Hypersomnia (IH) and the Phase 2 trial in Myotonic Dystrophy (DM) in Q4 2023[90] Results of Operations Comparing Q1 2023 to Q1 2022, net product revenue rose by $33.8 million (39.6%) due to increased WAKIX patient numbers and price increases, while operating expenses grew by $14.9 million, driven by a 75.4% increase in R&D for clinical trials (IH, PWS, DM) and HBS-102 development, a 28.4% rise in S&M for commercialization efforts, and a 23.4% increase in G&A from higher personnel and amortization costs - Net product revenue increased by 39.6% in Q1 2023 compared to Q1 2022, driven by growth in the average number of patients on WAKIX from 4,300 to 5,100 and price increases[122] - Research and development expenses increased by 75.4% year-over-year, primarily due to increased clinical development work for IH, PWS, and DM, and an IPR&D charge for HBS-102[124] - Sales and marketing expenses grew 28.4% year-over-year due to increased patient engagement, marketing activities, and sales force expansion[125] Liquidity and Capital Resources As of March 31, 2023, the company had a strong liquidity position with $393.2 million in cash, cash equivalents, restricted cash, and investments, with its primary funding sources being WAKIX sales and a $200 million senior secured term loan from Blackstone, of which $197.0 million was outstanding, and an additional $100 million delayed draw term loan available until August 2023, with management believing current capital is sufficient to fund operations for the next 12 months - The company holds $393.2 million in cash, cash equivalents, restricted cash, and investments as of March 31, 2023[129] - The company has a $200 million Initial Term Loan and access to a $100 million Delayed Draw Term Loan (DDTL) until August 9, 2023, under the Blackstone Credit Agreement[135] - Future potential payments include up to $155.0 million in milestones under the 2022 LCA with Bioprojet and significant development, regulatory, and sales milestones for HBS-102[138][139] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk through its investment portfolio and its variable-rate debt under the Blackstone Credit Agreement, which is tied to LIBOR, though as of March 31, 2023, management states that a 10% change in interest rates would not have a material impact on its financials, and exposure to foreign currency and inflation risk is currently considered not significant - The company's primary market risk is interest rate sensitivity on its investment portfolio and its $197.0 million in variable-rate debt tied to LIBOR[151][152] - The company does not believe inflation had a material effect on its business for the three months ended March 31, 2023[155] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2023, to ensure timely and accurate reporting as required by the SEC, with no material changes to the internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of March 31, 2023[156] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[157] Part II. Other Information Legal Proceedings The company reports that it is not currently involved in any material legal claims or actions that would have a material adverse effect on its financial condition or results of operations - As of the filing date, management believes there are no pending claims or actions that could have a material adverse effect on the company[160] Risk Factors This section refers investors to the detailed risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022, with no new or materially changed risk factors presented in this quarterly report - The company directs investors to review the risk factors detailed in its most recent Annual Report on Form 10-K[161] Other Information On May 1, 2023, the company's Board of Directors appointed Dr. Kumar Budur as the new Chief Medical Officer, following the appointment of Dr. Jeffrey Dayno as President and Chief Executive Officer on April 24, 2023, with Dr. Budur previously serving as the company's SVP & Head of Clinical Development since March 2022 - Dr. Kumar Budur was appointed as the company's new Chief Medical Officer on May 1, 2023, following Dr. Jeffrey Dayno's appointment to President and CEO[165]