Harmony Biosciences(HRMY) - 2022 Q1 - Quarterly Report

Part I. Financial Information Financial Statements The unaudited condensed consolidated financial statements for Q1 2022 reflect substantial growth in revenues and net income, with increased assets and strong liquidity Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $280,257 | $284,439 | | Cash and cash equivalents | $224,499 | $234,309 | | Total Noncurrent Assets | $183,748 | $149,004 | | Intangible assets, net | $178,837 | $143,919 | | TOTAL ASSETS | $464,005 | $433,443 | | Total Current Liabilities | $56,528 | $53,775 | | Total Noncurrent Liabilities | $192,974 | $193,161 | | Long term debt, net | $189,896 | $189,984 | | TOTAL LIABILITIES | $249,502 | $246,936 | | TOTAL STOCKHOLDERS' EQUITY | $214,503 | $186,507 | - Total assets increased to $464.0 million as of March 31, 2022, from $433.4 million at year-end 2021, primarily driven by a $34.9 million increase in net intangible assets[9] - Total stockholders' equity grew by $28.0 million during the first quarter of 2022, reaching $214.5 million, mainly due to net income of $21.5 million[9][11] Condensed Consolidated Statements of Operations and Comprehensive Income Statement of Operations Highlights (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Net product revenues | $85,313 | $59,674 | 43.0% | | Gross profit | $70,597 | $49,265 | 43.3% | | Total operating expenses | $43,041 | $34,732 | 23.9% | | Operating income | $27,556 | $14,533 | 89.6% | | Net income | $21,485 | $7,386 | 191.0% | | Diluted EPS | $0.35 | $0.13 | 169.2% | - The company demonstrated strong top-line growth, with net product revenues increasing 43.0% year-over-year, leading to a significant 191.0% increase in net income[10] Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity increased from $186.5 million at the end of 2021 to $214.5 million as of March 31, 2022. The increase was primarily driven by $21.5 million in net income for the quarter[11] - Stock-based compensation expense added $4.6 million to additional paid-in capital during the first quarter of 2022[11] Condensed Consolidated Statements of Cash Flows Cash Flow Summary (in thousands) | Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $28,852 | $12,530 | | Net cash used in investing activities | ($40,045) | ($100,004) | | Net cash provided by financing activities | $1,383 | $12 | | Net decrease in cash | ($9,810) | ($87,462) | - Cash from operating activities more than doubled to $28.9 million in Q1 2022 from $12.5 million in Q1 2021, driven by higher net income[12] - Investing activities primarily consisted of a $40.0 million milestone payment in Q1 2022, compared to a $100.0 million milestone payment in Q1 2021[12] Notes to Condensed Consolidated Financial Statements - As of March 31, 2022, three customers (CVS Caremark, Accredo, and Pantherx) accounted for 100% of gross accounts receivable and 100% of gross product revenues[28][29] - In February 2022, the company achieved $500 million in aggregate net sales of WAKIX, triggering a final $40.0 million milestone payment which was capitalized as an intangible asset[36] - The company has a $200 million senior secured term loan facility with Blackstone, with $199.0 million in principal outstanding as of March 31, 2022[41][44] - Diluted earnings per share for Q1 2022 was $0.35, calculated using the treasury stock method with 60,586,875 weighted average diluted shares outstanding[10][66] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong revenue growth to WAKIX patient expansion, with increased R&D expenses and solid liquidity maintained despite COVID-19 challenges Company Overview and Strategy - Harmony is a commercial-stage pharmaceutical company focused on rare neurological diseases, with its primary product being WAKIX (pitolisant), approved for treating EDS and cataplexy in adult narcolepsy patients[76][79] - The company is pursuing label expansion for WAKIX in pediatric narcolepsy and is advancing clinical trials for other indications, including Prader-Willi Syndrome (PWS), myotonic dystrophy (DM), and idiopathic hypersomnia (IH)[80][81] - In August 2021, Harmony expanded its pipeline by acquiring HBS-102, a potential first-in-class molecule for which it plans a preclinical proof-of-concept study in a mouse model of PWS in 2022[82] Commercial Performance and COVID-19 Impact - The average number of patients on WAKIX was approximately 3,900 for the three months ended March 31, 2022[87] - As of March 31, 2022, the company has secured formulary access for WAKIX for over 80% of all insured lives in the United States[87] - The COVID-19 pandemic has negatively impacted business by reducing in-person access to healthcare professionals (HCPs) and affecting the ability to conduct clinical trials, though the company has implemented virtual engagement and remote trial monitoring to mitigate these effects[89][91][96] - The company expects to have an adequate supply of WAKIX into the second quarter of 2023, with additional API inventory to support at least 36 months beyond that[94] Results of Operations Comparison of Results for the Three Months Ended March 31 (in thousands) | Line Item | 2022 | 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net product revenue | $85,313 | $59,674 | $25,639 | 43.0% | | Cost of product sales | $14,716 | $10,409 | $4,307 | 41.4% | | Research and development | $7,578 | $4,679 | $2,899 | 62.0% | | Sales and marketing | $17,583 | $15,506 | $2,077 | 13.4% | | General and administrative | $17,880 | $14,547 | $3,333 | 22.9% | | Net income | $21,485 | $7,386 | $14,099 | 191.0% | - The 43.0% increase in net product revenue was driven by growth in the average number of patients on WAKIX[123] - R&D expenses increased by 62.0% primarily due to clinical development work for PWS, DM, and IH, along with higher stock compensation[125] - G&A expenses rose 22.9%, mainly from increased stock compensation and higher intangible asset amortization following a recent milestone payment[127] Liquidity and Capital Resources - As of March 31, 2022, the company had $225.2 million in cash, cash equivalents, and restricted cash[131] - The company has an outstanding debt of $199.0 million under its Blackstone Credit Agreement, which also provides for a senior secured delayed draw term loan facility of up to $100.0 million available through August 9, 2022[131][134] - In March 2022, the company made a final $40.0 million milestone payment to Bioprojet after WAKIX achieved $500.0 million in aggregate net sales in the U.S[139] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on variable-rate debt, though a 10% LIBOR change is not material, and currently has limited foreign currency or inflation exposure - The company's primary market risk is interest rate sensitivity on its $199.0 million in outstanding variable-rate debt (LIBOR + 6.50%). However, management states a 10% change in LIBOR would not have a material impact[150] - The company is not currently exposed to significant foreign currency fluctuation risk but may be in the future due to contracts with European vendors[151] - Inflation is not considered to have had a material effect on the business for the three months ended March 31, 2022[152] Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting - Based on an evaluation as of March 31, 2022, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[153] - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[154] Part II. Other Information Legal Proceedings The company reports no pending claims or actions that could materially adversely affect its operations or financial condition - As of the filing date, management believes there are no pending legal proceedings that would materially impact the company's financial condition[159] Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021, have occurred - The report refers investors to the risk factors detailed in the Annual Report on Form 10-K for the year ended December 31, 2021, for a comprehensive discussion of risks affecting the company[160] Other Required Disclosures The company reported no unregistered equity sales, no defaults on senior securities, and no other material disclosures under these items, with mine safety disclosures being not applicable - Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults upon Senior Securities), and Item 5 (Other Information) are all reported as "None"[161][162][164] - Item 4 (Mine Safety Disclosures) is reported as "Not applicable"[163] Exhibits This section lists exhibits filed with the quarterly report, including CEO and CFO certifications and financial statements in Inline XBRL format - The exhibits filed with this report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[166] - Financial statements are provided in Inline XBRL format as part of the filing[166]