Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2023

Summary of Significant Accounting Policies

There have been no material changes to the significant accounting policies previously disclosed in the Annual Report.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses during the reporting period. Management continually re-evaluates its

estimates, judgments and assumptions, and management’s evaluation could change. Actual results could differ from those estimates.

Cash, Cash Equivalents and Restricted Cash

For purposes of the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows, cash equivalents represent highly-liquid investments with a maturity date of three months or less at the date of purchase. Cash and cash equivalents include investments in money market funds with commercial banks and financial institutions, and commercial paper of high-quality corporate issuers. Restricted cash relates primarily to amounts held as collateral for letters of credit for leases for office space at the Company’s Washington, D.C. headquarters.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the total end of period cash, cash equivalents and restricted cash reported within the Condensed Consolidated Statements of Cash Flows:


(in thousands)	June 30, 2023		June 30, 2022
Cash and cash equivalents	$	150,031	$	58,226


Restricted cash included in non-current inventory and other	469		516
Total cash, cash equivalents and restricted cash	$	150,500	$	58,742

Revenue from Net Product Sales

The Company’s net product sales consist of sales of HETLIOZ® and Fanapt®. Net sales by product for the three and six months ended June 30, 2023 and 2022 were as follows:


	Three Months Ended				Six Months Ended
(in thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
HETLIOZ® net product sales	$	21,979	$	41,188	$	61,595	$	78,219
Fanapt® net product sales	24,077		23,202		46,959		46,363
Total net product sales	$	46,056	$	64,390	$	108,554	$	124,582

The Company’s HETLIOZ® net product sales as reported for the three months ended March 31, 2023 reflected higher unit sales as compared to recent prior periods. The higher unit sales during the three months ended March 31, 2023 resulted in a significant increase of inventory stocking at specialty pharmacy customers at March 31, 2023 and June 30, 2023. HETLIOZ® net product sales during the three months ended June 30, 2023 reflect lower unit sales as a result of the reduction of the elevated inventory levels at specialty pharmacy customers at March 31, 2023 and as a result of continued generic competition. HETLIOZ® net product sales will likely decline in future periods, potentially significantly, as a result of continued reduction of the elevated inventory levels at specialty pharmacy customers absent removal of generic HETLIOZ® products from the United States (U.S.) market. Additionally, the Company constrained HETLIOZ® net product sales for the three and six months ended June 30, 2023 to an amount not probable of significant revenue reversal. The Company recognized $4.8 million of net product sales during the three months ended June 30, 2023 related to a change in estimate on revenue constrained during the first quarter of 2023. HETLIOZ® net product sales could experience variability in future periods as the remaining uncertainties associated with variable consideration related to the significant increase of inventory stocking by specialty pharmacy customers during the three months ended March 31, 2023 are resolved.

Major Customers

HETLIOZ® is available in the U.S. for distribution through a limited number of specialty pharmacies and is not available in retail pharmacies. Fanapt® is available in the U.S. for distribution through a limited number of wholesalers and is available in retail pharmacies. The Company invoices and records revenue when its customers, specialty pharmacies and wholesalers, receive product from the third-party logistics warehouse, which is the point at which control is transferred to the customer. There were five major customers that each accounted for more than 10% of total revenues and, as a group, represented 80% of total revenues for the six months ended June 30, 2023. There were five major customers that each accounted for more than 10% of accounts receivable and, as a group, represented 94% of total accounts receivable at June 30, 2023. Receivables are carried at transaction price net of allowance for credit losses. Allowance for credit losses is measured using historical loss rates based on the aging of receivables and incorporating current conditions and forward-looking estimates.

Recent Accounting PronouncementsThere are no recent accounting pronouncements that are expected to have a material impact on the Company’s condensed consolidated financial statements or related disclosures