Harmony Biosciences Holdings, Inc. — Q2 2021 Form 10-Q Summary
Business context and reporting period
Harmony is a commercial-stage rare-disease pharmaceutical company focused on neurological disorders. Its principal product, WAKIX (pitolisant), is approved in the United States for excessive daytime sleepiness and cataplexy in adults with narcolepsy. The report covers the quarter and six months ended June 30, 2021; results are unaudited and should be read with the 2020 Form 10-K.
Financial performance and liquidity
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Net product revenue | $73.8 million | $38.0 million | $133.5 million | $57.8 million |
| Gross profit | $61.1 million | $31.5 million | $110.4 million | $47.9 million |
| Gross margin | 82.8% | 83.0% | 82.7% | 82.9% |
| Operating income (loss) | $23.3 million | $7.3 million | $37.8 million | $(1.2) million |
| Net income (loss) | $14.1 million | $(0.03) million | $21.5 million | $(38.6) million |
| Diluted EPS | $0.24 | $(1.34) | $0.37 | $(7.63) |
| Adjusted net income | $31.9 million | $9.9 million | $54.3 million | $3.7 million |
- Revenue increased 94.2% year over year in the quarter and 130.8% year over year for the six-month period, driven by growing WAKIX sales and the price increase associated with the October 2020 cataplexy approval.
- Six-month operating expenses were $72.6 million, including research and development of $11.2 million, sales and marketing of $32.5 million, and general and administrative expense of $28.8 million.
- Six-month cash flow from operations was $30.6 million, compared with $(21.9) million in the prior-year period. Investing cash flow was $(100.2) million, primarily reflecting the $100.0 million Bioprojet milestone payment.
- Cash, cash equivalents and restricted cash were $160.4 million at June 30, 2021, including $159.7 million of cash and cash equivalents. Net debt carrying value was $195.6 million, consisting principally of the $200.0 million OrbiMed term loan.
- Accumulated deficit was $466.7 million at June 30, 2021. Management stated that existing cash and anticipated operating and financing cash flows were expected to fund operational and planned investing needs for the next twelve months.
Material changes versus the prior comparable period
- Commercial momentum materially improved following the WAKIX launch and expanded approval: average patients on WAKIX were approximately 3,200, more than 37% of targeted unique healthcare professionals had prescribed WAKIX, and formulary access covered approximately 80% of insured U.S. lives as of June 30, 2021.
- Research and development expense increased 47.1% for the six-month period, primarily due to clinical development programs in Prader-Willi syndrome and myotonic dystrophy.
- Sales and marketing expense increased 26.6%, reflecting patient engagement, commercialization activities and higher stock-based compensation.
- General and administrative expense increased 82.9%, primarily due to amortization of the $100.0 million cataplexy milestone intangible asset, increased stock compensation, public-company costs and higher headcount.
- The prior-year period included a $22.6 million loss on extinguishment of CRG debt and $1.6 million of warrant-related expense; neither item was recorded in the 2021 six-month period.
- Cash declined by $68.9 million during the first six months, primarily because operating cash generation was more than offset by the $100.0 million Bioprojet milestone payment.
Guidance, outlook, commentary and risks
- The filing does not provide clear quantitative revenue or earnings guidance. Management expects revenue to increase over time but expects continued investment in commercialization, clinical development, manufacturing, personnel, intellectual property and public-company infrastructure.
- Top-line demand remained affected by COVID-19 through reduced healthcare-professional access, fewer patient visits, limitations on diagnosis and changes in insurance coverage. Management expected pressure to continue, but decrease, as conditions improved.
- WAKIX supply was expected to be adequate through the fourth quarter of 2022, with active pharmaceutical ingredient inventory supporting at least 24 additional months. A single-source supplier is used for the product and active pharmaceutical ingredient.
- Management expected topline results from the Prader-Willi syndrome Phase 2 trial in the first half of 2022 and from the DM1 Phase 2 trial in the second half of 2022. The pediatric narcolepsy program was being reassessed after Bioprojet amended and expanded its Phase 3 trial.
- On August 4, 2021, after quarter-end, Harmony acquired HBS-102 and related assets for an upfront payment of $3.5 million, plus potential milestone payments and royalties.
- On August 9, 2021, after quarter-end, Harmony replaced the OrbiMed Loan with a Blackstone facility comprising a $200.0 million senior secured term loan and up to $100.0 million of delayed-draw capacity. The new facility bears interest at LIBOR plus 6.50%, has an August 2026 maturity, and is secured by substantially all company assets.
- Harmony also sold 1,048,951 common shares to lenders for gross proceeds of $30.0 million and used substantially all related proceeds to repay OrbiMed. The repayment included a 7.0% exit fee and a 4.0% repayment premium.
- Key risks include dependence on WAKIX, concentrated customers and a single-source supplier, reimbursement and formulary changes, regulatory and clinical-trial uncertainty, competition, COVID-19 disruption, intellectual-property protection, and restrictive secured-debt covenants.
Important facts investors should verify
- Whether WAKIX prescription growth, patient counts and formulary access continue to translate into net revenue after rebates, discounts and patient-assistance programs.
- The terms, covenant compliance, interest expense and liquidity implications of the post-quarter-end Blackstone facility, including delayed-draw availability and required cash balances.
- The timing and results of the Prader-Willi syndrome, DM1 and pediatric narcolepsy programs, including the effect of COVID-19 or trial amendments.
- The financial impact of Bioprojet royalties, the remaining $40.0 million sales milestone, and any additional regulatory or development milestones.
- Customer concentration: CVS Caremark, Pantherx and Accredo represented 100% of gross accounts receivable and 100% of six-month product revenue.
- The sustainability of reported profitability after excluding non-GAAP adjustments, including $9.2 million of intangible amortization and $7.1 million of stock-based compensation in the six-month period.