Harmony Biosciences(HRMY) - 2023 Q3 - Quarterly Report

Part I. Financial Information Financial Statements The company's unaudited financial statements detail its financial position, performance, and cash flows as of Q3 2023 Condensed Consolidated Balance Sheets Total assets grew to $777.8 million, driven by increased cash, while stockholders' equity rose to $481.3 million Balance Sheet Highlights (In thousands) | Balance Sheet Highlights (In thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $324,603 | $243,784 | | Total current assets | $462,998 | $400,285 | | Total Assets | $777,766 | $673,870 | | Liabilities & Equity | | | | Total current liabilities | $112,408 | $78,884 | | Long-term debt, net | $182,131 | $189,647 | | Total Liabilities | $296,434 | $271,032 | | Total Stockholders' Equity | $481,332 | $402,838 | Condensed Consolidated Statements of Operations and Comprehensive Income Q3 2023 net product revenues grew 36.7% YoY to $160.3 million, resulting in a net income of $38.5 million Income Statement Highlights (In thousands, except EPS) | Income Statement Highlights (In thousands, except EPS) | Q3 2023 | Q3 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Net product revenues | $160,268 | $117,206 | +36.7% | | Gross profit | $127,972 | $94,247 | +35.8% | | Operating income | $64,509 | $11,901 | +442.0% | | Net income | $38,461 | $87,943 | -56.3% | | Diluted EPS | $0.63 | $1.44 | -56.3% | - The significant decrease in Q3 2023 net income compared to Q3 2022 is primarily due to a one-time income tax benefit of $79.98 million in Q3 2022 related to the release of a valuation allowance on deferred tax assets[10][139] Condensed Consolidated Statements of Cash Flows Cash from operations increased 21% to $142.7 million, offset by cash used for financing and investing activities Cash Flow Summary (In thousands) | Cash Flow Summary (In thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $142,722 | $117,788 | | Net cash used in investing activities | ($10,374) | ($94,937) | | Net cash (used in) provided by financing activities | ($52,029) | $4,183 | | Net increase in cash | $80,319 | $27,034 | Notes to Condensed Consolidated Financial Statements Key events include a $200 million debt refinancing, a $125 million share repurchase program, and the Zynerba acquisition - In July and September 2023, the company entered into a new five-year senior secured term loan facility for an aggregate principal amount of $200 million[53][54] - The company extinguished its Blackstone Credit Agreement, resulting in a loss on debt extinguishment of $9.8 million for the third quarter of 2023[60][137] - On August 1, 2023, the Board approved a $125 million share repurchase program, and during Q3 2023, the company repurchased 1.44 million shares for $50.0 million[70] - Subsequent to the quarter end, on October 10, 2023, the company completed the acquisition of Zynerba Pharmaceuticals for an aggregate consideration of $60 million plus contingent value rights (CVRs)[91][92] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes strong Q3 revenue growth, clinical pipeline progress, the Zynerba acquisition, and capital allocation Company Overview and Pipeline Development The company advances its pipeline for rare neurological diseases through new indications for WAKIX and strategic acquisitions - The company's Phase 3 INTUNE study of pitolisant in adult patients with Idiopathic Hypersomnia (IH) did not meet its primary endpoint, but showed favorable trends[104] - Harmony received FDA alignment on the protocol for its Phase 3 TEMPO study in patients with Prader-Willi Syndrome (PWS) and expects to initiate the study in Q1 2024[104] - Topline results from the Phase 2 proof-of-concept trial of pitolisant in adult patients with Myotonic Dystrophy (DM1) are expected in Q4 2023[104] - On October 10, 2023, the company completed the acquisition of Zynerba Pharmaceuticals, adding Zygel, a pivotal Phase 3 candidate for Fragile X Syndrome, to its pipeline[108] Commercial Performance WAKIX commercial growth continues with an average of 5,800 patients and broad market access covering over 80% of insured lives - The average number of patients on WAKIX was approximately 5,800 for the three months ended September 30, 2023[112] - As of September 30, 2023, the company has secured formulary access for WAKIX for more than 80% of all insured lives (Commercial, Medicare, and Medicaid) in the U.S[112] Results of Operations Q3 revenue grew 36.7% from higher volume and pricing, while R&D expenses decreased due to a prior-year licensing fee Operating Results Comparison (In thousands) | Operating Results Comparison (In thousands) | Q3 2023 | Q3 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net product revenues | $160,268 | $117,206 | +36.7% | | Cost of product sales | $32,296 | $22,959 | +40.7% | | Research and development | $17,499 | $40,548 | -56.8% | | Sales and marketing | $23,418 | $20,467 | +14.4% | | General and administrative | $22,546 | $21,331 | +5.7% | | Operating income | $64,509 | $11,901 | +442.0% | - The increase in net product revenues for Q3 2023 was primarily due to a 28.2% increase in the number of units shipped and the net impact of a 7.0% price increase that occurred in January 2023[131][132] - The decrease in R&D expenses for Q3 2023 was primarily driven by a $30 million licensing fee incurred in Q3 2022, partially offset by increased clinical development work[134] Liquidity and Capital Resources The company maintains strong liquidity at $438.6 million while executing debt refinancing and $50 million in share repurchases - The company held $438.6 million in cash, cash equivalents, restricted cash, and investments as of September 30, 2023[140] - In Q3 2023, the company entered into a new five-year TLA Credit Agreement for $200 million and used the proceeds to extinguish the previous Blackstone Credit Agreement[145][146][150] - During Q3 2023, the company repurchased 1,439,792 shares of common stock for an aggregate cost of $50.0 million[151] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure from its investment portfolio and variable-rate debt - The company's primary market risk exposure is to interest rate fluctuations affecting its investment portfolio and its $200.0 million in variable-rate debt tied to Term SOFR[170][171] - Management concluded that an immediate 10% change in market interest rates would not materially impact the fair value of its investment portfolio or its debt-related obligations[170][173] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[176] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[177] Part II. Other Information Legal Proceedings The company is not currently involved in any material legal proceedings that would adversely affect its business - As of the filing date, management believes there are no pending claims or actions against the company that could have a material adverse effect on its business[180] Risk Factors This report references previously disclosed risk factors from the 2022 Form 10-K with no material updates - The company directs investors to review the risk factors detailed in its 2022 Form 10-K, stating they could materially affect the business[181] Issuer Purchases of Equity Securities The company repurchased 1.44 million shares for $50 million in Q3 2023, with $75 million remaining under the program Share Repurchase Activity (Q3 2023) | Share Repurchase Activity (Q3 2023) | Total Shares Purchased | Weighted Avg. Price Paid | Approx. Value of Shares Purchased ($ thousands) | | :--- | :--- | :--- | :--- | | August 2023 | 764,800 | $32.81 | $25,093 | | September 2023 | 674,992 | $36.90 | $24,907 | | Total | 1,439,792 | $34.73 | $50,000 | - On August 1, 2023, the Board of Directors approved a share repurchase program for up to $125.0 million[185] - As of September 30, 2023, approximately $75.0 million remained available for repurchase under the program[183]