HARMONY BIOSCIENCES HOLDINGS, INC. Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, the anticipated impact of the COVID-19 pandemic on our business, business strategy, products, prospective products, product approvals, research and development costs, anticipated timing and likelihood of success of clinical trials, expected timing of the release of clinical trial data, the plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, statements about:
? our commercialization efforts and strategy for WAKIX;
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;
? our ongoing and planned clinical trials;
? our ability to expand the scope of our license agreement with Bioprojet Société
Civile de Recherche ("Bioprojet");
? the availability of favorable insurance coverage and reimbursement for WAKIX;
? the impact of the COVID-19 pandemic;
? 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
additional financing needs;
our ability to identify additional products or product candidates with
? significant commercial potential that are consistent with our commercial
objectives;
? our commercialization, marketing and manufacturing capabilities and strategy;
? significant competition in our industry;
? our intellectual property position;
? loss or retirement of key members of management;
19
Table of Contents
? failure to successfully execute our growth strategy, including any delays in
our planned future growth;
? our failure to maintain effective internal controls; and
? the impact of government laws and regulations.
In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expect," "plan," "anticipate," "could," "intend," "target," "project," "contemplate," "believe," "estimate," "predict," "potential", or "continue" or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. 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 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. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.
Unless otherwise indicated, information contained in this Quarterly Report on Form 10-Q concerning our industry, including industry statistics and forecasts, competitive position and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data, and our experience in, and knowledge of, such industry and markets, which we believe to be reasonable. In addition, projections, forecasts, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements." These and other factors could cause results to differ materially from those expressed and forecasts in the estimates made by the independent parties and by us.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
As used herein, the terms "Harmony," "we," "us," "our" and "the Company" refer
to
Company Overview
We are a commercial-stage, rare disease pharmaceutical company focused on
developing and commercializing innovative therapies for patients living with
rare neurological diseases 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 H3 receptors. In
20
Table of Contents
in adult patients with narcolepsy. WAKIX is the first-and-only approved product
for patients with narcolepsy that is not scheduled as a controlled substance by
the
We are currently considering label expansion for WAKIX in narcolepsy in
pediatric patients and have engaged with the FDA in pursuit of pediatric
exclusivity. Our strategic partner,
We believe that pitolisant's ability to regulate histamine gives it the
potential to provide therapeutic benefit in other rare neurological diseases
that are mediated through H3 receptors and histamine signaling. Beyond
narcolepsy, we are initially focusing on the treatment of EDS associated with
Prader-Willi Syndrome ("PWS") and myotonic dystrophy, otherwise known as
dystrophia myotonica ("DM"). In
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
diseases and are targeting 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
Pitolisant was developed by
Our operating subsidiary,
21
Table of Contents
launching and commercializing WAKIX in
Commercial Performance Metrics
As of
COVID-19 Business Update
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 performance.
Commercialization
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 been 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 continued to engage and educate HCPs virtually on the overall benefit/risk profile of WAKIX and continued to provide support for people living with narcolepsy. As offices, clinics and institutions have increased in-person interactions pursuant to health authority and local government guidelines, our field teams are re-initiating 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, including the rise of variants, may occur. Access to HCPs for our sales team is still limited and despite the opening up of the economy, 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.
22
Table of Contents
Supply Chain
We currently expect to have adequate supply of WAKIX into the second quarter of 2023, with additional API on-hand inventory to support at least 36 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
Research and Development
The COVID-19 pandemic has negatively impacted the pharmaceutical industry's ability to conduct clinical trials and this impact was recently accentuated with the emergence of the Omicron variant during the second half of 2021. As a result of some challenges that we have experienced 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 implemented remote and virtual approaches to clinical trials, including the ability to perform screening remotely and allow electronic signatures on informed consent forms, 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 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 continue to face 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. The COVID-19 pandemic has also affected us at the clinical trial site level due to staffing shortages and/or personnel being pulled off clinical trials to care for patients with COVID-19. In addition, the COVID-19 pandemic has resulted in a significant increase in FDA workload as well as the need to reprioritize the projects under review. As a result, we may continue to experience delays in FDA timelines along the course of the regulatory process (e.g. milestone meetings) and PDUFA action dates. 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 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
23
Table of Contents
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 strive to attract and retain employees that are dedicated to keeping patients at the heart of all we do while also supporting the communities where we live and work. Our commitment toward this objective has been exemplified during the COVID-19 crisis. At the onset of the pandemic we took steps to ensure the health, safety and welfare of our employees and their families by abiding by government-issued work-from-home orders and encouraging a flexible work environment, and implementing a COVID-19 leave policy allowing for paid leave for employees affected by the virus outside of their accrued paid leave. We also made no furloughs, layoffs, or adjustments to salaries as a result of the pandemic. As pandemic-related restrictions began to and cases began to decline, all of our have returned to in-person operations with flexibility as needed, which we feel is critical to collaboration, innovation, productivity, employee well-being and engagement, and enhances our culture. We continually look for ways to support our employees in all roles across the organization in balancing their work and personal lives.
Our commitment extends beyond ensuring our that our employees are supported to supporting the communities where we live and work. We have contributed to relief efforts in our local communities, to patient-focused organizations and other charitable organizations during the COVID-19 pandemic, including corporate donations, food and medical supplies and other resources. We made charitable contribution matches to local nonprofit organizations on behalf of our employees, further extending our charitable reach. We initiated our Progress at the Heart funding program to support nonprofit organizations in their efforts to address disparities, injustice and inequities in rare neurological disease diagnosis and treatment. These commitments collectively allow us to ensure that our employees are engaged in their communities in ways that make a lasting impact.
Financial Operations Overview
Revenue
Total revenue consists of net sales of WAKIX. Net sales represent the gross sales of WAKIX less provisions for product sales discounts and allowances, which includes trade allowances, rebates to government and commercial entities, and discounts. Although we expect net sales to increase over time, the provisions for product sales discounts and allowances may fluctuate based on the mix of sales to different customer segments and/or changes in our estimates.
Cost of Product Sales
Cost of product sales includes manufacturing and distribution costs, the cost of the drug substance, FDA program fees, royalties due to third parties on net product sales, freight, shipping, handling, storage costs and salaries of employees involved with production. We began capitalizing inventory upon FDA approval of WAKIX. Our cost of product sales is increasing moderately as we continue to ramp up production and sales infrastructure to meet expected demand for WAKIX.
The shelf life of our product is three years from date of manufacture, with the
earliest expiration of current inventory expected to be
Research and Development Expenses
Our research and development expenses generally include development programs for potential new indications for pitolisant in patients with PWS, DM and IH. We also have research and development expenses related to our team of Medical Science Liaisons ("MSLs") who interact with key opinion leaders, with a focus on
24
Table of Contents
the science, the role of histamine in sleep-wake state stability and the novel mechanism of action of pitolisant. In addition, our MSLs support our market access team with clinical data presentations to payors upon request and our clinical development team to identify potential clinical trial sites. 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, DM and IH and assess other product candidates to expand our pipeline. Research and development expenses also include:
? employee-related expenses, such as salaries, share-based compensation, benefits
and travel expenses for our research and development personnel;
? direct third-party costs such as expenses incurred under agreements with CROs,
and contract manufacturing organizations ("CMOs");
? 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 (i.e., consultants, advisors) directly attributable
to the development of our product candidates; and
? amortization expense for assets used in research and development activities.
We do not track 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 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). We expect our research and development expenses to be significant over the next several years as we advance our current clinical development programs and prepare to seek regulatory approval for additional indications for pitolisant, advance HBS-102 from preclinical studies into the clinic, and identify potential new product candidates to develop toward new indications.
At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of any additional indications for pitolisant or other product candidates that we move forward for regulatory approval. There are numerous risks and uncertainties associated with developing product candidates, including uncertainty related to:
? the duration, costs and timing of clinical trials of our current development
programs and any further clinical trials related to new product candidates;
? the sufficiency of our financial and other resources to complete the necessary
preclinical studies and clinical trials;
the impact of the COVID-19 pandemic, including any future resurgence or new
variants, 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
25
Table of Contents
? the acceptance of INDs for our planned clinical trials or future clinical
trials;
? the successful and timely enrollment and completion of clinical trials;
? the successful completion of preclinical studies and clinical trials;
? successful data from our clinical programs that support an acceptable
risk-benefit profile of our product candidates in the intended populations;
? 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;
? obtaining and maintaining patent and trade secret protection or regulatory
exclusivity for our product candidates; and
? successfully launching our 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.
Sales and Marketing Expenses
Our sales and marketing expenses have primarily related to the market development and commercialization activities of WAKIX for the treatment of EDS in adult patients with narcolepsy and cataplexy in adult patients with narcolepsy. Market development and commercial activities account for a significant portion of the overall company operating expenses and are expensed as they are incurred. We expect our sales and marketing expenses to increase in the near- and mid-term to support our indications for the treatment of EDS or cataplexy in adult patients with narcolepsy and to expand our portfolio with the anticipated growth from potential additional indications.
Sales and marketing expenses include:
? employee-related expenses, such as salaries, share-based compensation, benefits
and travel expenses for our sales and marketing personnel;
healthcare professional-related expenses, including marketing programs,
? healthcare professional promotional medical education, disease education,
conference exhibits and market research;
patient-related expenses, including patient awareness and education programs,
? disease awareness education, patient reimbursement programs, patient support
services and market research;
? market access expenses, including payor education, specialty pharmacy programs
and services to support the continued commercialization of WAKIX; and
26
Table of Contents
? secondary data purchases (i.e. patient claims and prescription data), data
warehouse development and data management.
In addition, these expenses include external costs such as website development, media placement fees, agency fees for patient, medical education and promotional expenses, market research, analysis of secondary data, conference fees, consulting fees and travel expenses.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related expenses, such as salaries, share-based compensation, benefits and travel expenses for our personnel in executive, legal, finance and accounting, human resources, investor relations, and other administrative departments. General and administrative expenses also consist of office leases, and professional fees, including legal, tax and accounting and consulting fees.
We anticipate that our general and administrative expenses will increase in the
future to support our continued commercialization efforts, ongoing and future
potential research and development activities, and increased costs of operating
as a public company. These increases will likely be driven by costs associated
with 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
Paragon Agreements
We were party to a management services agreement with
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
Interest Expense, Net
Interest expense, net consists primarily of interest expense on debt facilities and amortization of debt issuance costs offset by interest income earned on our cash balances.
27
Table of Contents
Results of Operations
The following table sets forth selected items in our unaudited condensed consolidated statements of operations for the periods presented:
Three Months Ended March 31,
2022 2021
(In thousands)
Net product revenue $ 85,313 $ 59,674
Cost of product sales 14,716 10,409
Gross profit 70,597 49,265
Operating expenses:
Research and development 7,578 4,679
Sales and marketing 17,583 15,506
General and administrative 17,880 14,547
Total operating expenses 43,041 34,732
Operating income 27,556 14,533
Other expense, net (2) (20)
Interest expense, net (4,169) (7,127)
Net income before provision for income taxes 23,385 7,386
Income tax expense (1,900) -
Net income $ 21,485 $ 7,386
Net Product Revenue
Net product revenue increased by
Cost of Product Sales
Cost of product sales increased by
Research and Development Expenses
Research and development expenses increased by
Sales and Marketing Expenses
Sales and marketing expenses increased by
General and Administrative Expenses
General and administrative expenses increased by
28
Table of Contents
of the
Interest Expense, Net
Interest expense decreased by
Income Taxes
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 8.1% and 0.0% for the three months ended
Liquidity, Sources of Funding and Capital Resources
Overview
To date, we have financed our operations primarily with (a) proceeds from sales
of our convertible preferred stock; (b) borrowings under our (i) CRG Loan,
(ii) our Credit Agreement with OrbiMed and (iii) our Blackstone Credit
Agreement; (c) the proceeds from our IPO; and (d) the proceeds from the sale of
common stock to
The unaudited 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 believe that our anticipated cash from operating and financing activities, including as a result of potential availability under the DDTL (defined below), 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.
Blackstone Credit Agreement
In
The repayment schedule for the Initial Loan consists of quarterly
29
Table of Contents
payable quarterly commencing on
The Blackstone Credit Agreement contains affirmative and negative covenants,
including limitations on our ability, among other things, to incur additional
debt, grant or permit additional liens, make investments and acquisitions, merge
or consolidate with others, dispose of assets, pay dividends and distributions
and enter into affiliate transactions, in each case, subject to certain
exceptions. In addition, the Blackstone Credit Agreement contains a financial
covenant that requires us to maintain at all times cash and cash equivalents in
certain deposit accounts in an amount at least equal to
Agreement Related to Intellectual Property
In
Recent Milestone Payment
Upon FDA approval of WAKIX for the treatment of cataplexy in adult patients with
narcolepsy in
Cash Flows
The following table sets forth a summary of our cash flows for the three months
ended
Three Months Ended March 31,
2022 2021
Selected cash flow data (In thousands)
Cash provided by (used in):
Operating activities $ 28,852 $ 12,530
Investing activities (40,045) (100,004)
Financing activities 1,383 12
Operating Activities
Net cash provided by operating activities for the three months ended
30
Table of Contents
Net cash provided by operating activities for the three months ended
Investing Activities
Net cash used in investing activities for the three months ended
Financing Activities
Net cash provided by financing activities for the three months ended
Critical Accounting Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in
Significant estimates include assumptions used in the determination of some of our costs incurred under our services type agreements and which costs are charged to research and development and general and administrative expense. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We define our critical accounting policies as those under GAAP that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. During the quarter covered by this report, there were no material changes to the accounting policies and assumptions previously disclosed, except as disclosed in Note 3 to the unaudited condensed consolidated financial statements contained herein.
Recent Accounting Pronouncements
See Note 3 to our unaudited condensed consolidated financial statements for recent accounting pronouncements.
31
Table of Contents
© Edgar Online, source
