Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

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, 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. 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 items or similar expressions.

All of our forward-looking statements are qualified in their entirety by reference to 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. These factors include, but are not limited to, risks and uncertainties relating to:

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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.

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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 Harmony Biosciences Holdings, Inc., a Delaware corporation and our operating subsidiary, Harmony Biosciences, LLC.

Further, we have in-licensed from Bioprojet Société Civile de Recherche ("Bioprojet") the registered trademark product name WAKIX® in the United States. We also have registered trademark protection in the United States for KNOW NARCOLEPSY®, REM AT THE WRONG TIME® and NON-REM AT THE WRONG TIME®, as well as our brand and logo HB®, HB HARMONY BIOSCIENCES® and HARMONY BIOSCIENCES®. This report also includes trademarks, service marks and trade names of other companies. Trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

Company Overview

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At Harmony, we are cultivating a differentiated neuroscience company, rooted in innovation and driven by a commitment to addressing the unmet needs of patients living with neurological diseases. To date, we have focused on rare neurological diseases with a growing portfolio now spanning sleep/wake and rare epilepsy, and we are harnessing scientific insights and pioneering approaches to advance meaningful treatments that help patients thrive. Our operations are conducted by our wholly owned subsidiaries, Harmony Biosciences, LLC and Harmony Biosciences Management, Inc.

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Products and Product Candidates

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WAKIX® (pitolisant) ("WAKIX")

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Our pitolisant franchise is anchored by WAKIX, an oral, once-daily therapy licensed from Bioprojet Société Civile de Recherche ("Bioprojet") for the treatment of narcolepsy. WAKIX is approved by the U.S. Food and Drug Administration (the "FDA") for the treatment of excessive daytime sleepiness ("EDS") and cataplexy in patients six years and older with narcolepsy. WAKIX is a first-in-class molecule with a novel mechanism of action ("MOA") and is the only selective H₃ receptor antagonist/inverse agonist approved by the FDA. Additionally, it is the first-and-only FDA-approved treatment that is not scheduled as a controlled substance by the United States Drug Enforcement Administration (the "DEA").

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We are focusing development efforts on other rare neurological diseases in which EDS is a prominent symptom, including Prader-Willi Syndrome ("PWS"), and remain committed to obtaining pediatric exclusivity for WAKIX. In 2024, we initiated the PWS Phase 3 registrational trial, the TEMPO study, in support of these efforts. We anticipate topline data from the TEMPO study in mid-2027.

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Pitolisant gastro-resistant ("Pitolisant GR") and Pitolisant high dose ("Pitolisant HD")

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We are developing two new formulations of pitolisant through a license agreement with Bioprojet: Pitolisant GR and Pitolisant HD. Pitolisant GR is designed with an enteric coating meant to reduce the potential for gastrointestinal side effects in patients prone to gastrointestinal symptoms, and to enable patients to initiate treatment at a therapeutic dose without titration, which we believe is an important clinical differentiation. In June 2026, we submitted a New Drug Application ("NDA") for Pitolisant GR to the FDA, which was subsequently accepted for full review with a target Prescription Drug User Fee Act ("PDUFA") date of April 1, 2027. Pitolisant HD is an enhanced formulation of pitolisant with an optimized pharmacokinetic ("PK") profile, enteric coating and higher dosing to drive greater efficacy. It is designed to provide differentiated labeling for fatigue in narcolepsy and sleep inertia in idiopathic hypersomnia ("IH"). Pitolisant HD is currently in a Phase 3 registrational trial in narcolepsy, ONSTRIDE1, and a Phase 3 registrational trial in IH, ONSTRIDE2. We expect topline data in 2027 and anticipate a target PDUFA date in 2028. Utility patents for both Pitolisant GR and Pitolisant HD have been filed to extend the pitolisant franchise into the 2040s.

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Other Pipeline Products

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Through business development, we have acquired or licensed the rights to develop BP-205 (orexin-2 receptor agonist), EPX-100 (clemizole hydrochloride), CBS-104 and CBS-105.

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BP-205 is built on a novel chemical scaffold with the potential for best-in-class therapy due to its high potency. We intend to develop BP-205 for the treatment of multiple central nervous system ("CNS") indications outside of sleep/wake. We filed an investigational medicinal product dossier ("IMPD") with the EMA and began first-in-human studies in the fourth quarter of 2025. The topline data from the single ascending dose ("SAD") study are encouraging and supportive of a potential best-in-class profile for an orexin 2 receptor agonist. In July 2026, we submitted an Investigational New Drug application ("IND") to the FDA, which is now open, and are preparing to initiate a Phase 1b study in sleep-deprived healthy volunteers.

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EPX-100 has been granted orphan drug designation and rare pediatric disease designation by the FDA for treatment of Dravet syndrome ("DS") and Lennox-Gastaut syndrome ("LGS"). EPX-100 is currently in two Phase 3 registrational trials, one for each of DS (the ARGUS study) and LGS (the LIGHTHOUSE study). We expect topline data in 2027 and anticipate a target PDUFA date in 2028.

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CBS-104 and CBS-105 are investigational novel regenerative cellular therapies being developed in collaboration with CiRC Biosciences for the treatment of refractory epilepsy and treatment-resistant narcolepsy, respectively.

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Key Developments

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In January 2026, we entered into a license agreement (the "Novitium License Agreement") with Novitium Pharma LLC ("Novitium"), which includes an exclusive license to additional intellectual property that will expand our patent estate, as well as a co-exclusive license, under which we intend to develop a new formulation of pitolisant in broad CNS indications outside of sleep/wake.

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In February 2026, we entered into a license agreement (the "MSN License Agreement") with MSN Laboratories Private Limited ("MSN"), which includes an exclusive, royalty-bearing license, with the right to grant sublicenses, to additional intellectual property, including pending licensed patents, under which we intend to develop a new formulation of pitolisant in broad CNS indications outside of sleep/wake.

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In April 2026, we, along with our exclusive licensor Novitium, filed a lawsuit against AET Pharma US, Inc. ("AET"), AET Laboratories Private Limited, Alfred E. Tiefenbacher (GmbH & Co. KG), Sandoz Inc., Sandoz Private Limited, and Sandoz GmbH, alleging that the defendants' actions in connection with the filing of AET's ANDA No. 218892 infringe one or more claims of U.S. Patent No. 11,623,920. The case was filed in the United States District Court for the District of Delaware and assigned case no. 26-cv-00453-JLH.

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In June 2026, we submitted an NDA for Pitolisant GR to the FDA, which was subsequently accepted for full review with a target PDUFA date of April 1, 2027.

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In July 2026, we submitted an IND for BP-205 to the FDA, which is now open, and are preparing to initiate a Phase 1b study in sleep-deprived healthy volunteers in the third quarter of 2026, with topline data expected in early 2027. In August 2026, we announced Phase 1 clinical PK data from the SAD study for BP-205, which demonstrated favorable PK, safety, and tolerability profiles. Topline data from the Phase 1 multiple ascending dose study is expected in the fourth quarter of 2026. In addition, we plan to initiate Phase 2 trials for BP-205 in mid-2027 to evaluate multiple CNS indications.

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Commercial Performance Metrics

As of June 30, 2026, we have continued to see growth in the number of unique healthcare professionals ("HCP") prescribing WAKIX since it became available in November 2019. There are approximately 9,000 HCPs who treat patients living with narcolepsy, with approximately 4,000 enrolled in oxybate risk-evaluation and mitigation strategies ("REMS") programs. The average number of patients on WAKIX for the three months ended June 30, 2026, was approximately 8,950. Additionally, as of June 30, 2026, we have secured formulary access for more than 80% of all insured lives (Commercial, Medicare and Medicaid) in the United States.

Financial Operations Overview

Net Product Revenue

Net product revenue includes gross product shipments less provisions for sales discounts and allowances, which includes trade allowances, rebates to government and commercial entities, and other discounts. Although we expect net sales to increase over time, provisions for 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 Sold

Cost of product sold includes manufacturing and distribution costs, the cost of API, FDA program fees, royalties due to third parties on net product sales, freight, shipping, handling, storage costs, and salaries of employees involved with oversight of production. We expect the cost of product sold to increase as we continue to ramp up production in order to meet future demand for WAKIX and diversify our supply chain for WAKIX.

The shelf life of WAKIX is four years from the date of manufacture, with the earliest expiration of current inventory expected to be May 2027. We regularly review our inventory levels and expect write-offs from time to time. We will continue to assess inventory levels in future periods as demand for WAKIX and the rate of inventory turnover evolves. We currently have adequate supply of WAKIX to cover demand into the fourth quarter of 2028, with additional API on-hand inventory to support at least 24 months beyond this time frame.

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Research and Development Expenses

Research and development expenses primarily include development programs for potential new indications for pitolisant in patients with PWS, and the development of our product candidates EPX-100, Pitolisant GR, Pitolisant HD, and BP-205. We also incur research and development expenses related to our team of Medical Science Liaisons ("MSLs") who interact with key opinion leaders, with a focus on 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 the presentation of clinical data 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 and add product candidates to expand our pipeline. Research and development expenses also include:

A significant portion of our research and development costs are external costs, such as fees paid to CROs and CDMOs, 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 in the current period 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 as we advance our current clinical development programs and prepare to seek regulatory approval for Pitolisant GR, complete the Phase 3 clinical trials for additional indications for pitolisant, EPX-100 and Pitolisant HD, and advance the development of BP-205 and CBS105 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:

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 primarily relate to the marketing and commercialization activities of WAKIX for the treatment of EDS and cataplexy in patients six years and older with narcolepsy. Marketing and commercial activities account for a significant portion of our operating expenses and are expensed as incurred. We expect our sales and marketing expenses to increase in the near- and mid-term to support WAKIX's indications for the treatment of EDS or cataplexy in adult patients with narcolepsy, the treatment of EDS in pediatric patients 6 years of age and older with narcolepsy and to expand our portfolio with the anticipated growth from potential additional indications.

Sales and marketing expenses include:

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In addition, sales and marketing 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 and consulting fees.

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 and ongoing and future potential research and development activities. 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 SEC, insurance and investor relations costs. If any of our current or future indication expansion programs or new product candidates obtain U.S. regulatory approval, we expect that we would incur significantly increased expenses associated with building a sales and marketing team.

Paragon Agreement

We are 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 Chicago, Illinois. We paid rental fees to Paragon of $0.1 million and $0.2 million for the three and six months ended June 30, 2026, respectively.

Interest Expense

Interest expense consists primarily of interest expense on debt facilities, amortization of debt issuance costs and amortization of premiums on our debt securities.

Interest Income

Interest income consists primarily of cash interest earned on our cash and investment balances and accretion of the discount on our investments in debt securities.

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Results of Operations

The following table sets forth selected items in our unaudited condensed consolidated statements of operations for the periods presented:

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Net Product Revenue

Net product revenue increased by $60.8 million, or 30.3%, for the three months ended June 30, 2026, and increased by $91.4 million, or 23.7%, for the six months ended June 30, 2026, compared to the same periods in 2025. The increase for the three months ended June 30, 2026, was primarily due to a 26.5% increase in the number of units shipped and the impact of a 7% price increase partially offset by higher rebates of approximately 4.0%. The increase for the six months ended June 30, 2026, was primarily due to a 19.4% increase in the number of units shipped and the impact of a 7% price increase partially offset by higher rebates of approximately 3.8%. The price increase occurred in January 2026.

Cost of Product Sold

Cost of product sold increased by $25.0 million, or 65.6%, for the three months ended June 30, 2026, and increased by $37.6 million, or 53.5%, for the six months ended June 30, 2026, compared to the same periods in 2025. Cost of product sold as a percentage of net product revenue was 24.2% and 22.6% for the three and six months ended June 30, 2026, respectively, compared to 19.0% and 18.2% for the three and six months ended June 30, 2025, respectively. The increase in cost of product sold was primarily due to higher royalties as a result of the increase in net product revenue of WAKIX. The increase in the cost of product sold as a percentage of net revenue was driven by new royalties related to the Novitium License Agreement.

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Research and Development Expenses

The following table is a summary of our research and development expenses:

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Research and development expenses decreased by $3.6 million, or 7.1%, for the three months ended June 30, 2026, and increased by $31.3 million, or 36.9%, for the six months ended June 30, 2026, compared to the same periods in 2025. The decrease for the three months ended June 30, 2026, was primarily driven by a $15.0 million IPR&D charge related to the CiRC Agreement that occurred during the three months ended June 30, 2025, a $4.4 million decrease related to the phase out of the ZYN002 program in FXS, and a $1.7 million decrease in clinical development associated with pitolisant offset by a combined $16.4 million increase in research and development expenses for BP-205, EPX-100, and Pitolisant GR and HD as we progressed clinical trials and manufacturing, a $0.3 million increase in personnel costs associated with higher headcount, and a $0.4 million increase in stock compensation.

The increase for the six months ended June 30, 2026, was primarily driven by a combined $24.7 million increase in research and development expenses for BP-205, EPX-100, and Pitolisant GR and HD as we progressed clinical trials and manufacturing, a $17.0 million increase in IPR&D charges related to the Novitium License Agreement ($15.0 million) and MSN License Agreement ($17.0 million) entered into during the six months ended June 30, 2026, offset by the CiRC Agreement ($15.0 million) entered into during the six months ended June 30, 2025, a $1.1 million increase in personnel costs associated with higher headcount, a $0.5 million increase in stock compensation associated with new equity awards, and a $1.0 million increase in other research and development expenses offset by a $11.3 million decrease related to the phase out of the ZYN002 program in FXS and a $1.7 million decrease in clinical development associated with pitolisant.

Sales and Marketing Expenses

Sales and marketing expenses increased by $4.0 million, or 13.5%, for the three months ended June 30, 2026, and increased by $5.0 million, or 8.3%, for the six months ended June 30, 2026, compared to the same periods in 2025. The increase for the three months ended June 30, 2026, was primarily due to a $2.0 million increase in patient engagement and marketing activities, a $1.6 million increase in personnel costs, a $0.2 million increase in travel expenses and a $0.2 million increase in stock compensation expense. The increase for the six months ended June 30, 2026, was primarily due to a $4.5 increase in patient engagement and marketing activities and a $2.1 million increase in personnel costs offset by a $0.8 million decrease in stock compensation expense and a $0.8 million decrease in travel expenses. The increase in patient engagement and marketing activities was driven by our continued growth of WAKIX and the increase in personnel costs was driven primarily by higher headcount as a result of our sales force expansion.

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General and Administrative Expenses

General and administrative expenses decreased by $5.9 million, or 17.3%, for the three months ended June 30, 2026, and decreased by $4.6 million, or 7.1%, for the six months ended June 30, 2026, compared to the same periods in 2025. The decrease for the three months ended June 30, 2026, was primarily due to a $5.1 million decrease in legal and professional fees and a $2.4 million decrease in stock compensation offset by a $1.6 million increase in personnel costs. The decrease for the six months ended June 30, 2026, was primarily due to a $2.8 million decrease in legal and professional fees and a $3.7 million decrease in stock compensation offset by a $1.9 million increase in personnel costs. The decrease in legal and professional fees for both comparable periods was primarily driven by expenses incurred due to ANDA settlements and lower ANDA litigation during the three and six months ended June 30, 2025. The increase in personnel costs for both comparable periods was primarily driven by higher headcount during the three and six months ended June 30, 2026.

Interest Expense

Interest expense decreased by $0.6 million, or 15.8%, for the three months ended June 30, 2026, and decreased by $1.2, or 15.7%, for the six months ended June 30, 2026, compared to the same periods in 2025. The decrease for the three and six months ended June 30, 2026, was primarily due to lower average outstanding debt balances and lower interest rates compared to the same periods in the prior year.

Interest Income

Interest income increased by $1.8 million, or 33.5%, for the three months ended June 30, 2026, and increased by $2.5 million, or 24.1%, for the six months ended June 30, 2026, compared to the same periods in 2025. The increase for the three and six months ended June 30, 2026, was primarily a result of having higher invested balances compared to the prior year.

Income Taxes

Income tax expense was $17.8 million, representing a 19.1% effective tax rate, for the three months ended June 30, 2026, compared to $9.9 million, representing a 19.9% effective tax rate, for the three months ended June 30, 2025. Income tax expense was $25.0 million, representing an 18.8% effective tax rate, for the six months ended June 30, 2026, compared to $21.5 million, representing a 20.1% effective tax rate, for the six months ended June 30, 2025. The decrease in our effective tax rate for both comparable periods was primarily driven by an increase in the benefits from research and development and orphan drug credits. The effective tax rate of 19.1% for the three months ended June 30, 2026, included 1.6% in state income taxes offset by a 4.1% benefit from credits. The effective tax rate of 18.8% for the six months ended June 30, 2026, included 1.5% in state income taxes offset by a 4.1% benefit from credits.

Liquidity, Sources of Funding and Capital Resources

Overview

As of June 30, 2026, we had cash, cash equivalents, and investments of $962.5 million, outstanding debt of $155.0 million and retained earnings of $268.8 million.

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.

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We believe that our existing cash, cash equivalents and investments on hand as of June 30, 2026, will enable us to meet our operational liquidity needs and fund our potential investing activities for at least the next 12 months. We have based our liquidity and cash flow projections on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we expect.

Term Loan A Credit Agreement

In July 2023, we entered into a Credit Agreement (the "TLA Credit Agreement") with JPMorgan Chase Bank, N.A., as "Administrative Agent", and certain lenders, which was subsequently amended in September 2023. The TLA Credit Agreement, as amended, provides for a five-year senior secured term loan (the "TLA Term Loan") in an aggregate principal amount of $200.0 million.

The repayment schedule for the TLA Term Loan consisted of $3.8 million quarterly principal payments, commencing on December 31, 2023, which increased to $5.0 million quarterly principal payments beginning on December 31, 2025, and includes a $115.0 million payment due on the maturity date of July 26, 2028. The TLA Term Loan bears interest at a per annum rate equal to, at our option, (i) a base rate plus a specified margin ranging from 2.50% to 3.00%, based on our senior secured net leverage ratio (as defined in the TLA Credit Agreement) or (ii) Term SOFR plus a credit spread adjustment of 0.10% plus a specified margin ranging from 3.50% to 4.00%, based on our senior secured net leverage ratio.

The TLA Credit Agreement contains customary affirmative and negative covenants, financial covenants, representations and warranties, events of default and other provisions. We had an event of default, which dated back to July 2025, related to a nonfinancial covenant due to a delay in a subsidiary joining the TLA Credit Agreement as a guarantor. On May 4, 2026, we entered into a Waiver and Consent Agreement with the Administrative Agent and certain lenders, whereby the event of default was waived. We have made all required principal and interest payments on time in connection with the TLA Credit Agreement and are in compliance with all covenants as of June 30, 2026.

Share Repurchases

In October 2023, our Board of Directors approved a share repurchase program (the "October 2023 Repurchase Program") providing for the repurchase of shares of common stock in an aggregate amount of up to $200,000, excluding commissions and transaction fees. The October 2023 Repurchase Program may be suspended, terminated, or modified at any time for any reason. During the three and six months ended June 30, 2026, no shares of common stock were repurchased by the Company under the October 2023 Repurchase Program. As of June 30, 2026, the remaining amount of common stock authorized for repurchases was $150.0 million.

Bioprojet Agreements

In July 2022, we entered into the 2022 LCA with Bioprojet whereby we obtained exclusive rights to manufacture, develop and commercialize one or more new products based on pitolisant in the United States and Latin America, with the potential to add additional indications and formulations upon the agreement of both parties. We paid an initial, non-refundable $30.0 million licensing fee in October 2022 and additional payments of up to $155.0 million are potentially due under the 2022 LCA upon the achievement of certain future development and sales-based milestones. In addition, certain payments will become due upon the achievement of development milestones for new indications and formulations as agreed upon by both parties. The 2022 LCA also includes a fixed trademark royalty and a tiered royalty based on net sales of any new products commercialized, which will be payable to Bioprojet on a quarterly basis.

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In April 2024, we entered into a sublicense agreement with Bioprojet for an orexin-2 receptor agonist (OX2R) (the "Licensed Compound"), which we are developing for the treatment of narcolepsy and other potential indications (the "Sublicense"). Under the Sublicense, the Company obtained the exclusive right to develop, manufacture and commercialize the Licensed Compound in the United States and Latin American territories (the "Licensed Territories"), which are rights that Bioprojet originally licensed from Teijin Pharma, the innovator of the Licensed Compound. Under the Sublicense, the Company paid Bioprojet an upfront license fee of $25.5 million. In November 2025, we achieved a clinical milestone for BP-205 that triggered a $4.3 million payment to Bioprojet under the Sublicense. We will also be obligated to pay up to $123.3 million upon achievement of other development and regulatory milestones and up to $240.0 million upon achievement of certain sales-based milestones, as well as royalty rates in the mid-teens on potential sales in the Licensed Territories.

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Epygenix Acquisition

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In April 2024, we acquired Epygenix, pursuant to the terms of a stock purchase agreement. In connection with the closing of the transaction, we paid the former stockholders of Epygenix up front consideration of $35.0 million less a working capital adjustment. In addition, we will also be obligated to pay up to $130.0 million upon the achievement of development and regulatory milestones and up to $515.0 million upon the achievement of certain sales-based milestones, in each case to Epygenix's former stockholders. As a result, the Company now has an exclusive license relating to the use of clemizole, initially for the treatment of DS and LGS.

CiRC Agreement

In June 2025, we entered into a research collaboration, option and license agreement (the "CiRC Agreement") with a related party, CiRC Biosciences, Inc. ("CiRC"). Under this agreement, we will collaborate on the research and development of two discovery-stage candidates (together the "Candidates") using cell replacement therapy for the treatment of refractory epilepsies and treatment-resistant narcolepsy. As part of the CiRC Agreement, we paid CiRC an upfront fee of $15.0 million and we will also be obligated to pay $2.0 million upon the achievement of certain research milestones for each of the Candidates. In addition, we have an option to obtain an exclusive license for each of the Candidates that would grant us global rights to develop, manufacture and commercialize that Candidate. We would be obligated to pay an option exercise fee of $8.0 million, or $16.0 million in the aggregate if the options related to both Candidates were exercised, and we would be obligated upon achievement to pay future development, regulatory and sales-based milestones, as well as royalties on sales of any product derived from the Candidates.

Novitium Agreement

In January 2026, we entered into the Novitium License Agreement with Novitium, which includes an exclusive license to additional intellectual property that will expand our patent estate, as well as a co-exclusive license, under which we intend to develop a new formulation of pitolisant in broad CNS indications outside of sleep/wake. Pursuant to the Novitium License Agreement, we paid an upfront license fee of $15.0 million, which was recognized as an IPR&D charge recorded in research and development within the unaudited condensed consolidated statements of operations and comprehensive income for the six months ended June 30, 2026, and will also be obligated to pay up to $10.0 million upon the achievement of certain development milestones, as well as low single-digit royalties on net sales of pitolisant based products.

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MSN Agreement

On February 25, 2026 (the "MSN Effective Date"), we entered into the MSN License Agreement with MSN, which includes an exclusive, royalty-bearing license, with the right to grant sublicenses, to additional intellectual property, including pending licensed patents, under which we intend to develop a new formulation of pitolisant in broad CNS indications outside of sleep/wake. Pursuant to the MSN License Agreement, we paid an upfront license fee of $17.0 million, which was recognized as an IPR&D charge recorded in research and development within the unaudited condensed consolidated statements of operations and comprehensive income for the six months ended June 30, 2026. In addition, we will be obligated to pay $25.0 million upon approval of the pending licensed patents by the United States Patent and Trademark Office ("USPTO"), which amount we must deposit into an escrow account within nine months from the MSN Effective Date, and which will be returned us if approval by the USPTO does not occur by November 25, 2027. In addition, we will be obligated to pay low single-digit royalties on net sales of future products that include a new formulation of pitolisant.

Recent Milestone Payments

In November 2025, we achieved a clinical milestone for BP-205 that triggered a $4.3 million payment to Bioprojet under the Sublicense, which was paid in December 2025.

In September 2025, we achieved a clinical milestone for ZYN002 that triggered a $15.0 million payment to contingent value rights holders per the terms of our acquisition of Zynerba, which was paid in November 2025.

Cash Flows

The following table sets forth a summary of our cash flows for the six months ended June 30, 2026, and 2025:

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Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2026, primarily consisted of net income of $107.9 million adjusted for non-cash items of $19.9 million related to stock-based compensation expense, $32.0 million related to acquired IPR&D, $11.9 million related to intangible amortization and depreciation, offset by $7.1 million related to deferred tax assets. Net working capital excluding cash increased by $45.4 million, primarily driven by increases in accounts receivable due to higher net product revenue in the current period and a decrease in accrued expenses primarily from lower accrued royalties and legal and professional feels offset by an increase in accounts payable due to the timing of payments.

Net cash provided by operating activities for the six months ended June 30, 2025, primarily consisted of net income of $85.3 million adjusted for non-cash items of $23.8 million related to stock-based compensation expense, $15.0 million related to acquired IPR&D and $11.9 million related to intangible amortization and depreciation, partially offset by $10.8 million related to deferred tax assets. Net working capital excluding cash increased by $12.4 million, primarily driven by increases in accounts receivable due to higher net product revenue in the current period and an increase in accounts payable due to the timing of payments.

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Investing Activities

Net cash used in investing activities for the six months ended June 30, 2026, was $315.1 million, which was primarily attributable to $331.5 million in purchases of debt securities and $32.0 million in upfront license fees related to new license agreements, offset by $48.4 million from maturities of investments.

Net cash used in investing activities for the six months ended June 30, 2025, was $17.2 million, which was primarily attributable to $43.0 million in purchases of debt securities, a $15.0 million upfront fee paid to CiRC and $0.1 million in purchases of property and equipment, partially offset by $40.9 million from maturities of investments.

Financing Activities

Net cash used in financing activities for the six months ended June 30, 2026, was $7.8 million, which primarily consisted of $10.0 million in principal payments associated with the TLA Credit Agreement and $3.6 million of employee withholding tax payments related to stock-based awards, partially offset by $5.9 million in proceeds from the exercise of stock options.

Net cash used in financing activities for the six months ended June 30, 2025, was $3.0 million, which primarily consisted of $7.5 million in principal payments associated with the TLA Credit Agreement and $2.3 million of employee withholding tax payments related to stock-based awards, partially offset by $6.8 million in proceeds from the exercise of stock options.

Critical Accounting Estimates

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 the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of expenses during the reporting periods. In accordance with GAAP, we evaluate our estimates and judgments on an ongoing basis.

Significant estimates include assumptions used in the determination of the amount of revenue recognized on sales of WAKIX, costs incurred under services type agreements related to the performance of research and development activities, the measurement of compensation expense pursuant to stock-based awards, the calculation of our income tax provision, and the determination of accounting treatment for our business combinations. We base our estimates on contractual terms, historical experience and 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.

Items Deducted from Gross Product Revenue

Product revenue is recorded at the product's list price and is reduced from the product's list price at the time of recognition for variable consideration that is offered within contracts between us and our customers, payors, and other indirect customers relating to the sale of WAKIX. Components of variable consideration include government (as detailed below) and commercial contracts, commercial co-payment assistance program, and distribution service fees. These deductions are based on the amounts earned, or to be claimed on the related sales, and are classified as a current liability or reduction of receivables in our condensed consolidated balance sheet.

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The following table provides a summary of activity and ending balances of our sales allowances and accruals for the six months ended June 30, 2026 (in thousands):

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Included in these amounts are immaterial adjustments related to prior-year sales due to changes in estimates.

We define our critical accounting policies as those 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 our previously disclosed accounting policies and assumptions, except as discussed 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.