Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY) Q2 2023 Earnings Call Transcript

Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY) Q2 2023 Earnings Call Transcript August 1, 2023

Harmony Biosciences Holdings, Inc. misses on earnings expectations. Reported EPS is $0.57 EPS, expectations were $0.63.

Operator: Good morning. My name is Todd, and I will be your conference operator today. At this time, I would like to welcome everyone to Harmony Biosciences Second Quarter 2023 Financial Results Conference Call. All participant lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference maybe recorded. [Operator Instructions] I will now turn the call over to Luis Sanay, Head of Investor Relations. Please go ahead.

Luis Sanay: Thank you, Operator. Good morning, everyone. And thank you for joining us today as we review Harmony Biosciences second quarter 2023 financial results and provide a business update. Before we start, I encourage everyone to go to the Investors section of our website to find the materials that accompany our discussion today, including a reconciliation of our GAAP to non-GAAP financial measures. At this stage of our life cycle, we believe non-GAAP financial results better represent the underlying business performance. Our speakers on today’s call are Dr. Jeffrey Dayno, President and CEO; Jeffrey Dierks, Chief Commercial Officer; Dr. Kumar Budur, our Chief Medical Officer; and Sandip Kapadia, Chief Financial Officer.

Moving on to slide two, as a reminder, we will be making forward-looking statements today, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, our actual results may differ materially and we undertake no obligation to update these statements even if circumstances change. We encourage you to consult the risk factors referenced in our SEC filings for additional details. I would now like to turn the call over to Dr. Jeffrey Dayno. Jeff?

Dr. Jeffrey Dayno: Thank you, Luis. And thank you everyone for joining our conference call today and for your interest in Harmony. Before I comment on our strong second quarter performance, which is reflective of our focused execution and operational excellence, I want to highlight why Harmony continues to be a growth story and outline the key elements driving our growth. We continue to drive growth in our core business for WAKIX in narcolepsy and based on this, our confidence that WAKIX represents a $1 billion-plus opportunity in adult narcolepsy alone. Our current life cycle management programs for pitolisant notably our Phase III program in idiopathic hypersomnia or IH continued to demonstrate strong momentum and if we are successful in IH and our other current life cycle management programs, these indications could generate up to an additional $1 billion opportunity.

Our work with our partner Bioprojet on new formulations of pitolisant is progressing with the goal to potentially extend the pitolisant franchise with new IP out beyond 2040. And with a profitable business and strong balance sheet, we are in a favorable position to bring in new assets through business development to build out a robust pipeline and portfolio of products. In fact, it is the ongoing confidence in our core business and our conviction in the long-term growth potential for Harmony, that is the reason behind this morning’s announcement that our Board of Directors authorized $125 million share repurchase program. This program reflects our confidence in the strength of the company and our commitment to deploy capital to maximize shareholder value.

Starting with our core business, our strong commercial performance is a result of the unique and meaningfully differentiated product profile of WAKIX in the proven excellence of our commercial organization. For the second quarter of 2023, we reported WAKIX net revenue of $134.2 million representing an increase of 25% year-over-year driven by the continued underlying demand for WAKIX tapping into a large market opportunity of approximately 80,000 diagnosed patients with narcolepsy in the U.S. The momentum we highlighted last quarter carried into this quarter, during which time we saw the highest topline prescription demand since our first full quarter of launch in 2020 and the strongest quarter of new patient starts in our history. This is unique as it is not typical to see sustained growth in year four post-launch for an orphan rare product.

With another strong quarter of growth behind us, we continued to be confident in WAKIX being a $1 billion-plus market opportunity in adult narcolepsy alone and Jeff Dierks will provide further insights into the reasons we remain confident in the future of this opportunity. In addition to our strong commercial performance in Q2, we are also extremely pleased with the progress that we’ve made across all of our current pitolisant life cycle management programs. Our clinical teams have been very busy advancing all three programs with key catalysts coming from each of them later this year. Notably, we are on track for topline data from our Phase III registrational INTUNE Study in adult patients with idiopathic hypersomnia in the fourth quarter.

As a reminder, last quarter we announced completion of enrollment in this study, nine months ahead of our base plan, reflective of the significant interest from patients and healthcare professionals in pitolisant as a potential treatment for IH. We are very excited about this opportunity, which if successful could represent the next new indication for WAKIX. In follow-up to a positive end of Phase II meeting with the FDA to discuss our Prader-Willi Syndrome or PWS development program, we plan to initiate a pivotal Phase III trial in patients with PWS six years of age and older in the fourth quarter. And we are on track for topline data from our Phase II proof-of-concept signal detection study in Type 1 myotonic dystrophy also in Q4. Altogether IH, PWS and DM1 represent about 100,000 diagnosed patients in the U.S. So if successful, our current life cycle management programs could contribute up to an additional $1 billion of revenue to the WAKIX franchise.

In addition to our current life cycle management programs for pitolisant, we are making progress on new formulations of pitolisant that we are co-developing with our partner Bioprojet with the goal to generate new IP and extend the pitolisant franchise out beyond 2040. Lastly, we’ve advanced our strategy in pediatric narcolepsy and plan on submitting a supplemental new drug application for pediatric narcolepsy indication in the fourth quarter, and in addition, our actively pursuing pediatric exclusivity for WAKIX. As you can see, we have made major progress across all of our development programs and Dr. Kumar Budur will provide you with more details on these later in the call. Another key component of our growth strategy is acquiring new assets through business development to expand our portfolio beyond WAKIX.

To achieve this, we intend to leverage our strong financial position with approximately $430 million in cash, cash equivalents and investment securities at the end of the second quarter to acquire additional assets across a range of development stages, including both early- and late-stage with a potential to launch both during and after the WAKIX life cycle. Since taking on the CEO role at the beginning of the year, the team and I have been actively engaged in business development, evaluating a number of opportunities, focused on rare orphan neurology assets and our assets and other neurological diseases where we can leverage our existing expertise and infrastructure. This is a high priority for us as it is a key component of our long-term growth strategy.

While we are disciplined in our approach, ensuring not only a strategic fit, but also appropriate valuation, we are also working with a sense of urgency and understand the importance of having a robust portfolio in place. Overall, I am extremely proud of the outstanding progress that our team has made across every aspect of our business, which demonstrates that Harmony continues to be a growth story. I will now turn the call over to Jeffrey Dierks, our Chief Commercial Officer, to provide more details on our commercial performance. Jeff?

Jeffrey Dierks: Thanks, Jeff. The second quarter was another strong quarter for WAKIX with continued growth and momentum in our underlying business fundamentals and topline performance metrics that were the strongest we’ve seen since launch. Net sales for the second quarter were $134.2 million, which represents 25% growth from the same quarter prior year. The strong double-digit growth in net sales for WAKIX in year four of our commercialization demonstrates the continued high interest and adoption of WAKIX in the narcolepsy market and reinforces our long-term belief that WAKIX is a $1 billion-plus opportunity in adult narcolepsy alone. I’d like to share a few key highlights from our performance in the second quarter on slides five and six.

The average number of patients on WAKIX in the second quarter increased approximately 350 patients, sequentially to approximately 5,450 patients. This impressive growth in average patients in the second quarter was driven by a strong performance in topline demand and new patient starts. In the second quarter, we saw the highest topline prescription demand since our first full quarter of launch at the beginning of 2020 and we also had the highest number of new patient starts in our history. The growth in average patients on WAKIX speaks to the continued product adoption and solid business fundamentals, strong topline prescription demand, growth in new patient starts along with continued patient refill behavior. We exited the second quarter with approximately 5,600 patients on WAKIX with strong momentum coming out of the second quarter.

We believe this metric of exiting patients helps to provide additional context to our strong performance leading into the third quarter. Strong patient interest and continued prescriber adoption continued to be key drivers of the growth in the average number of patients on WAKIX. The number of unique prescribers of WAKIX increased again in the second quarter, and importantly, we continued to see the WAKIX prescriber base expand beyond healthcare professionals enrolled in the oxybate REMS program. As we’ve shared in previous earnings calls, the meaningfully differentiated product profile of WAKIX and the unique feature of being the only FDA-approved treatment for EDS and cataplexy that is not scheduled as a controlled substance, offers broad clinical utility and appeals to a broader narcolepsy healthcare professional audience and patient base, which drives the continued growth in the depth and breadth of our prescribers.

Across the nearly 9,000 narcolepsy-treating healthcare professional prescriber base, we continued to see meaningful penetration and growth. We see growth in the depth of prescribing among the approximately 4,000 healthcare professionals enrolled in the oxybate REMS program, an expanded breadth of new prescribers in the approximately 5,000 healthcare professionals not enrolled in the oxybate REMS program. The availability of a generic oxybate and the launch of a once-nightly oxybate at the end of the second quarter hasn’t impacted the continued growth of WAKIX. We continued to see meaningful growth in prescribing and patients on WAKIX along with strong payer coverage. Our ability to reach and educate the broad narcolepsy-treating healthcare professional universe and tap into the full diagnosed adult narcolepsy patient opportunity gives us confidence and continued growth and the long-term growth potential for WAKIX.

Recent market research conducted by Harmony supports our view of continued growth for WAKIX. Research conducted in June of this year with approximately 70 healthcare professionals with and without experience with WAKIX prescribing showed the following. 100% of the healthcare professionals surveyed with WAKIX clinical experience stated they will prescribe the same or increase their prescribing of WAKIX in the next six months. Nearly 40% of those healthcare professionals surveyed who had not yet prescribed WAKIX to-date indicated they intend to WAKIX in the next six months and consistent with previous ways of research, one of the highest performing drivers and differentiators for WAKIX with the unique feature as the only non-scheduled treatment option.

In summary, I continued to be excited by the strong commercial performance of WAKIX in adult narcolepsy. In the second quarter, we saw the highest topline prescription demand since our first full quarter of launch in 2024 leading to the all-time high in new patient starts. Strong growth in the average number of patients on WAKIX, continued expansion and strengthening of the WAKIX prescriber base beyond the oxybate REMS healthcare professionals and payer coverage remains strong even with the availability of newer versions of oxybate. These are tremendous achievements and I appreciate the dedication and impact of the entire commercial team and the passion they have for our business. This strong performance gives us confidence in the long-term growth potential for WAKIX and reinforces our belief that WAKIX is a $1 billion-plus opportunity in adult narcolepsy.

I would like to now turn the presentation over to Kumar Budur, our Chief Medical Officer, to provide an update on the clinical development and current life cycle management programs for Harmony. Kumar?

Dr. Kumar Budur: Thank you, Jeff. Good day, everyone. Moving on to our clinical development pipeline to expand the clinical utility of pitolisant towards potential new indication in patient populations living with rare neurological diseases as shown on slide number seven. Starting with our development program in IH, we were extremely pleased to complete enrollment in our Phase III registration trial in adult patients with IH also known as the INTUNE study at an accelerated pace and nine months ahead of schedule. The strong interest we have seen both from the patient community and clinical investigators resulted in this accelerated timeline and we are now on path for top-end results in the fourth quarter of this year. If this Phase III trial is successful, it could represent the next new indication for WAKIX in adult patients with IH.

Pitolisant could offer a new mechanism of action to treat patients with IH as pitolisant works through histamine to promote wakefulness. We view this as a significant market opportunity with approximately 40,000 patients diagnosed with IH. In addition, this opportunity could have significant synergies with our existing commercial footprint as there is a significant overlap in the physicians who treat patients with narcolepsy and those who treat patients with IH. For Prader-Willi Syndrome, we recently had a positive end of Phase II meeting with the FDA where we discussed the results from the Phase II proof-of-concept trial and aligned on the Phase III trial in patients with PWS. We now plan to initiate a Phase III trial in patients with PWS ages six and oldest in the fourth quarter of this year.

Moving onto myotonic dystrophy Type 1 or DM1, we are on track for topline data from the Phase II proof-of-concept signal detection study in the fourth quarter of this year. In addition to our current life cycle management programs for pitolisant, we continued to make progress, on new formulations with our partner Bioprojet with the goal to generate new IP and extend the pitolisant franchise beyond 2040. We will provide an update later this year on the status of this program. Regarding pediatric narcolepsy, we are working with Bioprojet towards the submission of a supplemental new drug application to the FDA for an indication in pediatric narcolepsy, which we expect to file in the fourth quarter of this year. Regarding pediatric exclusivity, we have made progress with FDA in gaining alignment on the requirements for pediatric exclusivity for WAKIX.

The Phase III study in PWS planned to be initiated in the fourth quarter is part of the requirement. To conclude, we have made significant progress in advancing our clinical development programs with pitolisant and look forward to providing you with further updates later this year as we enter a catalyst rich second half of 2023 regarding our development programs as highlighted on slide number eight. Also our current LCM program will reach an important milestone in the fourth quarter and we look forward to sharing the news with you when that occurs. I would like to take this opportunity to thank all the patients and their families who are participating in our clinical trials, as well as the clinical investigators and site personnel for their efforts and commitment in helping us to advance our clinical development programs for pitolisant.

I will now turn the call over to our CFO, Sandip Kapadia, for an update on our financial performance. Sandip?

Sandip Kapadia: Thank you, Kumar, and good morning, everyone. This morning we issued our second quarter press release and filed our 10-Q where you’ll find the details of our financial and operating results. Our financial performance as shown on slides nine, 10 and 11. We’re pleased to report growth across several of our key metrics, including strong revenue growth, improved profitability and continued cash generation. This quarter we also have several important updates with respect to the strength of our balance sheet and the additional opportunities to drive value for shareholders. Our financial performance also gives us the confidence for the remainder of the year as we continue advancing our growth strategy. So let me take a moment to take you through the details of our financial results.

For the second quarter of 2023, we reported net revenues of $134.2 million, compared to $107 million in the prior year quarter, representing a growth of 25%. Performance in the quarter reflects the continued strong underlying demand for WAKIX. In the second quarter, specialty pharmacy buying patterns resulted in a lower trade inventory levels at the end of the quarter as compared to the beginning of the second quarter. In the second quarter of 2023 operating expenses were $62.3 million, compared to $55 million in the prior year quarter. The higher operating expenses were primarily driven by ongoing commercialization of WAKIX and the advancement of our clinical development program. Operating income improved, the second quarter 2023 operating income of $46.9 million, compared to $33.1 million in the prior year quarter, representing an increase of 42%.

Non-GAAP adjusted net income for the second quarter of 2023 was $45.9 million or $0.76 per diluted share, compared to $34.7 million or $0.57 per diluted share in the prior year quarter, reflecting our strong revenue growth and prudent expense management. We believe non-GAAP adjusted net income better reflects the underlying business performance. Please see our press release for a reconciliation of GAAP to non-GAAP results. During the second quarter of 2023, we ended the quarter with $429.6 million of cash, cash equivalents and investment securities on the balance sheet. In addition, last week we entered into a new $185 million term loan facility led by JPMorgan, which further reduces our cost of capital, ensures a strong balance sheet and provides us with greater financial flexibility.

We used the net proceeds from the term loan and existing cash balance to repay our existing debt of approximately $197 million and related fees and expenses. The new facility has a lower interest rate reducing our annual interest expense by approximately $6 million. The financing is another step in the growth evolution of the company as we continue to optimize our balance sheet. So looking ahead for the remainder of the year, we expect continued quarter-over-quarter growth in revenues and average number of patients on WAKIX. We also expect to continue to invest in R&D and SG&A as we advance our clinical development program and support the commercialization of WAKIX. Overall, we remain confident in WAKIX being $1 billion plus opportunity in adult narcolepsy with the potential to contribute up to an additional $1 billion if approved in idiopathic hypersomnia and other current life cycle management programs.

As you heard from Jeff, given our confidence in our core business and our conviction in the long-term growth potential of the company. This morning we announced that the Board authorized $125 million share repurchase program. Our strong balance sheet and cash generation, allows us to be opportunistic believe return capital to shareholders, while still maintaining sufficient capital to advance our growth strategy. In conclusion, we’re very pleased with our strong financial performance and remain well-positioned to continued growth. And with that, I’d like to turn the call back to Jeff for his closing remarks. Jeff?

Dr. Jeffrey Dayno: Thank you, Sandip, and thank you, Jeff and Kumar. In summary, Harmony continues to be a growth story and we are making significant progress on advancing our growth strategy. We will remain focused on growing our core business and helping even more adult patients living with narcolepsy with WAKIX, completing our Phase III registrational trial in idiopathic hypersomnia and delivering topline data in the fourth quarter. Initiating our Phase III pivotal trial in PWS in Q4, working with our partner Bioprojet on new formulations to extend the pitolisant franchise to help even more patients living with rare neurological diseases. Delivering on our long-term growth strategy, by acquiring new assets to build out a robust pipeline for which we are well positioned to execute on, given our strong financial position and strategically deploying capital to maximize shareholder value.

This concludes our planned remarks for today. Thank you for joining our call and I will now turn the call back over to the Operator to facilitate the Q&A session. Operator, can you please open the call to questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] We’ll take our first question from Danielle Brill with Raymond James.

Alex Sklar: Hey, guys. This is Alex on for Danielle. Thanks for taking the question. I’m just wondering if we could dive a little bit more into the 2Q WAKIX dynamics, juggling the numbers a bit. In a normal quarter I think we would have expected a bit higher revenue than we saw considering the strong net patient ads. So, firstly, what was the impact on the lower inventory purchasing this quarter on a quantitative basis? And then, wondering if you could share a little bit more color on the dynamics of potential impact of gross to net compliance and whether what we’re seeing is patients were added late in the quarter? Thanks so much.

Dr. Jeffrey Dayno: Sure. Good morning, Alex. This is Jeff. So I’ll ask Jeff to — Jeff Dierks o comment on some of the dynamics and Sandip also will provide some color on that.

Jeffrey Dierks: Yeah. So, Alex, what I would say, with respect to starting the patient medication behavior compliance discontinuation rate persistency. It was relatively consistent with what we’ve seen in the previous quarters. We’ve got really strong patient feedback in terms of their satisfaction on the product and we continue to see a broadening of our prescriber base. When you asked the question about trade inventory, I’ll turn it over to Sandip to talk a little bit about that and the implications on revenue.

Sandip Kapadia: Yeah. Sure. I mean — thanks Jeff. Our trade inventory, as I mentioned, was down about a week compared to the beginning of the second quarter. So that gives you an estimate of at least the impact that would have seen on the topline. But I think importantly, as Jeff mentioned, we’ve seen good strong underlying demand that was one of the strongest quarters in terms of topline demand and what we’ve also seen, what I would also say, in the month of July, we’ve seen a partial recovery of that. So again consistent overall what we typically expect. And I think the question regarding gross to net, really nothing to report there, except we did see what we expected. Generally, you see an improvement in the second quarter from the first quarter and that’s exactly what we saw. There was nothing — there was primarily the impact during the quarter was really around trade inventories and like, I said, it’s about a week.

Alex Sklar: Thank you.

Dr. Jeffrey Dayno: Yeah. I think, Alex — yeah. Sorry. To summarize, really strong patient demand and as we mentioned, our strongest sort of topline patient demand since our first full quarter of launch and really just impacting timing of inventory is really what you’re seeing.

Alex Sklar: Great. Thanks so much for the color.

Dr. Jeffrey Dayno: Sure.

Operator: Thank you. We will take our next question from David Amsellem with Piper Sandler. Please go ahead.

David Amsellem: Hey. Thanks. So just got a couple. So first on the buyback, can you talk about how you’re thinking about capital deployment beyond just the $125 million here. In other words, is this something that buybacks are something that you may revisit down the road and is that going to be sort of a recurring fixture, your overall capital deployment strategy? That’s number one. And then number two, does this impact your ability to execute on the BD transaction of significant size. In other words, are you setting your sites smaller given that buybacks are something that you are now doing. And then just lastly on the new pitolisant assets, are you going to provide an update? So I ask the question, should we think of these as new molecular entities or new formulations or a bit of both? Thanks.

Dr. Jeffrey Dayno: Sure, David. Good morning, David. In terms of the buyback. I’ll ask Sandip to provide some perspective. But I think a high level, it provides us optionality in terms of optionality with regards to deployment of capital, both in repurchase, as well as looking at business development deals and Sandip can kind of expand on our thinking around that.