Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY) Q3 2023 Earnings Call Transcript

Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY) Q3 2023 Earnings Call Transcript November 1, 2023

Operator: Good morning. My name is Ashley, and I’ll be your conference operator today. At this time, I would like to welcome everyone to Harmony Biosciences Third Quater 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 call may be 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 third 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, Chief Medical Officer; and Sandip Kapadia, Chief Financial Officer and Chief Administrative Officer.

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?

Jeffrey Dayno: Thank you, Luis, and thanks, everyone, for joining our conference call today. Q3 2023 was the strongest revenue quarter in Harmony’s history. The pace of growth in net revenue and average number of patients on WAKIX is rarely seen in year four of commercialization of an orphan rare disease product. What is driving this strong continued growth of WAKIX in narcolepsy is the meaningfully differentiated product profile, the strong underlying patient demand, the sizable market of 80,000 patients diagnosed with narcolepsy in the U.S., and the consistent executional excellence of our commercial organization. I am proud of this accomplishment and even more important, I am pleased that our efforts continue to help even more people living with narcolepsy.

I also know that there are many more people living with narcolepsy who could potentially benefit from WAKIX and that is what we are focused on. For the third quarter of 2023, we reported WAKIX net revenue of $160.3 million, an increase of 37% year-over-year. We believe that the vast market opportunity, which remains in narcolepsy, along with the differentiated product profile of WAKIX provides us the ability to grow the franchise for years to come, and we remain confident that WAKIX represents a $1 billion plus opportunity in adult narcolepsy alone, and we are well on our way. In addition to our very strong commercial performance in Q3, we also continue to advance our current pitolisant life cycle management programs as well as expand our pipeline and diversify our portfolio beyond sleep wake.

Kumar will provide additional details on our clinical development programs later in the call. Earlier this month, we reported top line results from the Phase 3 INTUNE study of pitolisant in patients with idiopathic hypersomnia or IH. While the primary endpoint did not reach statistical significance during the randomized withdrawal phase, a robust clinical effect was demonstrated in the open-label phase of the study and almost 90% of the patients who completed the trial elected to continue into the long-term extension study, which is ongoing. I want to reiterate our commitment to the IH patient community as we are actively pursuing an indication for pitolisant and IH and are optimistic in our ability to bring a non-scheduled treatment option to patients living with IH and the health care professionals who treat them.

We believe that based on the totality of the evidence that we have seen thus far along with the pitolisant receiving orphan drug designation for IH, there is an opportunity for us to work with the FDA on a path forward. Once we have completed our review of all the data, we will engage with the agency with this goal in mind. Our current lifecycle management programs for pitolisant represent about 100,000 diagnosed patients in the U.S. So if successful, these could contribute up to an additional $1 billion of revenue to the WAKIX franchise. Moving to the ongoing work with our partner, Bioproject, on new formulations of pitolisant with the goal to potentially extend the pitolisant franchise with new IP out beyond 2040. We are advancing these programs into the clinic, and Kumar will provide more detail on them later in the call.

Another key component of our growth strategy is acquiring new assets through business development, to expand our pipeline beyond WAKIX, and diversify our portfolio beyond sleep wake. On that front, I’m excited to report that we recently closed the acquisition of Zynerba Pharmaceuticals and have added the investigational product Zygel to our pipeline. This acquisition represents an excellent strategic fit for Harmony, with development programs focused on orphan rare neuropsychiatric disorders with significant unmet medical needs. With Zygel, we added a novel product candidate and two late-stage development programs that could potentially launch during the WAKIX lifecycle. Zygel is currently in a pivotal Phase 3 trial for patients with Fragile X syndrome with another opportunity based on positive Phase 2 data in patients with 22q deletion syndrome.

Both of these indications, if successful, represent a significant market opportunity with the potential to serve 80,000 U.S. patients living with Fragile X syndrome and another 80,000 with 22q deletion syndrome. We have welcomed former Zynerba members to the Harmony team and are excited to work with them to advance the Zygel development programs and bring a potential new treatment option to patients living with orphan rare neuropsychiatric disorders with high unmet medical needs. As for business development, we are not stopping with the Zynerba acquisition, but remain very active with a dedicated business development team, which is continually assessing the BD landscape. We remain focused on orphan rare neurology assets and our assets and other neurological diseases where we can leverage our existing expertise and infrastructure.

We are looking for assets across a range of development stages, including both early and late stage with the potential to launch both during and after the WAKIX lifecycle. And finally, given our continued confidence in the underlying strength of the business and our conviction in the growth potential for the company, this morning, we announced a new share repurchase program of $200 million. Given our financial flexibility, we are committed to deploying capital to maximize shareholder value. In conclusion, Q3 2023 was the strongest revenue quarter in Harmony’s history and our business is strong. We are committed to bringing a non-scheduled treatment option to patients with IH and are advancing every aspect of our business, including our pipeline programs and business development efforts.

I am very proud of the dedication and commitment across our organization as we remain focused on developing and commercializing innovative treatments for patients living with rare neurological diseases who have unmet medical needs. I will now turn the call over to Jeffrey Dierks, our Chief Commercial Officer, to provide more details on our strong third quarter commercial performance. Jeff?

Jeffrey Dierks: Thanks, Jeff. Q3 was another strong quarter for WAKIX. We had the strongest revenue quarter in our history with continued growth and momentum in our underlying business fundamentals and top line performance metrics. Net sales for the third quarter were $60.3 million, which represents a 37% growth from the same quarter prior year and the first quarter of over $150 million in net sales. We continue to see strong double-digit growth in net sales for WAKIX in year four of our commercialization, which reflects the high interest of WAKIX the narcolepsy market. The consistent growth in the business reinforces our long-term belief that WAKIX represents a $1 billion plus opportunity in adult narcolepsy alone. I’d like to share a few key highlights from our performance in the third quarter on Slide 5.

The average number of patients on WAKIX in the third quarter increased to approximately 5,800, an increase of approximately 350 average patients sequentially from what we reported last quarter. This impressive growth in average patients in the third quarter was driven by strong top line demand and new patient starts that offset typical summer seasonality, yielding quarterly results consistent with the results we saw in Q2. The growth in average patients on WAKIX speaks to continued product adoption. And most importantly, the large remaining diagnosed opportunity that we continue to tap into each quarter as the market allows. Strong patient interest and prescriber adoption continue to be key drivers of the growth in average number of patients on WAKIX.

We saw continued strengthening of the WAKIX prescriber base in Q3, both in depth and breadth of prescribing. The number of unique prescribers on WAKIX increased again in the third quarter. And importantly, we continue to see growth in the WAKIX prescriber base expand beyond health care professionals enrolled in the oxybate REMS program. In addition, we saw growth in the depth of prescribing within the oxybate enrolled health care professionals, even with the availability of new and generic oxybate options. As we continue to share 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 clinic utility and appeals to a broader narcolepsy health care professional audience and patient base, which is a driver of our continued growth.

We continue to see meaningful penetration and growth across the approximately 9,000 narcolepsy treating health care professional prescriber base. And recent market research conducted in October of this year supports our view of continued future growth in WAKIX prescribing. Research conducted with approximately 70 health care professionals with or without experience with WAKIX prescribing shows the following: 100% of the health care professionals surveyed with WAKIX clinical experience stated they would prescribe the same or increased prescribing of WAKIX in the next six months; more than 40% of those health care professionals surveyed who had not prescribed WAKIX to date indicated the intent to prescribe WAKIX in the next six months; nearly 60% of those health care professionals who prescribed WAKIX to date, stated they were likely to recommend WAKIX to peers and colleagues.

And consistent with previous waves of research, one of the highest performing drivers and differentiators for WAKIX was the unique feature is the only non-scheduled treatment option. The availability of new and generic oxybate option hasn’t impacted the continued growth or existing strong payer coverage for WAKIX given the meaningfully differentiated product profile. Our ability to reach and educate the broad narcolepsy treating health care professional universe, as tapped into the full diagnosed adult narcolepsy patient opportunity, gives us confidence in continued growth and the long-term growth potential for WAKIX. In summary, I’m excited by the strong commercial performance in the third quarter. In fact, the strongest revenue quarter for Harmony to date.

We saw a strong growth of 37% in net sales versus the same quarter prior year. We saw strong growth in the average number of patients on WAKIX to approximately 5,800, an increase of approximately 350 sequentially from what we reported last quarter. We saw continued expansion and strengthening of the WAKIX prescriber base within and beyond oxybate REMS enrolled health care professionals, and payer coverage remains strong even with the availability of new and generic oxybate options. I appreciate the dedication and impact to the entire commercial team and the passion that they have for our business and the narcolepsy patient community. This strong performance gives us confidence in the long-term growth potential for WAKIX and reinforces our belief that WAKIX represents a $1 billion-plus opportunity in adult narcolepsy alone.

I would like to now turn the presentation over to Kumar Budur, our Chief Medical Officer, to provide an update on our clinical development pipeline. Kumar?

Kumar Budur: Thank you, Jeff. Good day, everyone, and thank you for joining the call. Moving on to our clinical development pipeline, as shown on Slide number 7. Starting with our development program in idiopathic hypersomnia, we saw a robust clinical effect in the Phase 3 INTUNE study, with almost 83% of the patients responding in the initial 8-week open-label treatment period with an average of 9.4 points improvement in [indiscernible] scores. In addition, almost 90% of patients elected to participate in the long-term extension study. While no statistically significant difference was observed between the pitolisant and placebo groups on the primary endpoint of ESS at the end of four-week double-blind randomized with all period, positive times favoring pitolisant were observed across all [indiscernible] endpoints, including the idiopathic hypersomnia severity scale, which approached statistical significance at a p-value of 0.06 as well as on other endpoints, including PROMISE SRI, Fosc 10 and sleepiness share questionnaires (ph).

The safety profile of pitolisant in patients with idiopathic hypersomnia is consistent with the established safety profile of pitolisant and no new AEs were observed. Almost 90% of the patients who completed double-blind randomized with all period elected to participate in the ongoing long-term extension study, and we continue to collect the safety and effectiveness data from this study. We remain committed to the idiopathic hypersomnia community and are focused on pursuing an indication for pitolisant in patients with idiopathic hypersomnia. We are in the process of conducting a thorough review of the full data set, which will inform the next steps for the program. We believe that based on the totality of the evidence that we have seen thus far, along with pitolisant, receiving orphan drug ack designation for idiopathic hypersomnia, we look forward to engaging with the FDA.

In Prader-Willi syndrome, we received FDA alignment on the protocol for the Phase 3 [indiscernible] study in patients with PWS, which will satisfy the requirements for both the registrational trial and now pediatric exclusivity as well. We expect study initiation in the first quarter of 2024. In myotonic dystrophy Type 1 or DM1, we are on track for top line data from this Phase 2 proof-of-concept segmentation study in the fourth quarter. As for pediatric narcolepsy, we are on track to submit a supplemental new drug application to the FDA for an indication in pediatric narcolepsy in the fourth quarter. In addition to our current lifecycle management program for pitolisant, we continue to make progress on new pitolisant-based formulation with our partner Bioproject with a goal to generate new IP and extend the pitolisant franchise beyond 2040.

Let me take a moment and take you through the strategy for this new pitolisant-based formulation and provide an update on the status of the program, as shown on Slide number 8. We have advanced the first formulation into the clinic this quarter. The first formulation is an enhanced pitolisant-based formulation designed to deliver an optimized PK profile and higher dosage strength. The opportunity here is to extend the pitolisant franchise beyond 2040 with the potential for new IP and explore additional indications. This formulation will have a full development program. The second formulation is on track for advancement into the clinic later this quarter. The second formulation is a pitolisant-based modified formulation with a potential for clinical differentiation.

The opportunity here is a fast-to-market strategy for patients with narcolepsy within the rated lifecycle. This formulation will have an abbreviated development program. We are also pleased to expand and diversify our pipeline with the recent acquisition of Zynerba. We closed the acquisition just about three weeks ago, and we look forward to providing a more detailed update on the Zygel program at our next earnings call. We have seen a seamless transition of activities and continued engagement with the clinical trial site and investigators. The Zynerba acquisition as another innovative product candidate, Zygel. Zygel is the first and only pharmaceutically manufactured, synthetic cannabidiol, devoid of PSC and formulated as a patent-protected formation enhance cell for transdermal delivery to the skin into the calculatory system.

Zygel is manufactured through a synthetic process in a GMP facility. Therefore, it is devoid of PSC and has the potential to be a non-scheduled product if approved. Similar to WAKIX, Zygel represents a portfolio and a product opportunity and is currently in a pivotal Phase 3 clinical trial for patients with Fragile X syndrome called the RECONNECT trial. Additionally, Zygel was studied in an open-label Phase 2 proof-of-concept study in patients with 22q Deletion syndrome known as the INSPIRE trial. Both of these indications is successful, represents a significant market opportunity with the potential to serve 80,000 U.S. individuals with Fragile X syndrome and another 80,000 individuals with 22q Deletion syndrome. To conclude, we have made great progress, not only in advancing our pipeline, but also expanding and diversifying it with the addition of Zygel.

I look forward to sharing additional updates as we continue to make progress on our clinical development programs. On behalf of Harmony, I would like to thank all patients and their families who are participating in our clinical trials as well as clinical investigators and site personnel for their efforts and commitment in helping us to advance our development programs. I’ll 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 third quarter press release and filed our 10-Q, where you’ll find the details for our financial and operating results. Our financial performance is also shown on Slide 9, 10 and 11. We’re pleased to report another quarter of strong revenue growth, improved profitability and continued cash generation. We also made continued progress across many of our business priorities, including completing the Zynerba acquisition, refinancing our debt at a lower cost of capital as well as executing on our share repurchase program. Overall, we remain confident in the continued growth in the business. So let me take a moment to take you through the details of our financial results.

For the third quarter of 2023, we reported our strongest revenue quarter in company history, with net revenues of $160.3 million compared to $117.2 million in the prior year quarter, representing a growth of 37%. Performance in the quarter reflects the continued strong underlying demand for WAKIX. In the third quarter, we did see a partial recovery in trade inventory levels of a couple of days compared to the second quarter, which we noted on our previous Q2 earnings call. In the third quarter of 2023, operating expenses were $63.5 million compared to $82.3 million in the prior year quarter. The lower operating expenses were primarily driven by the $30 million licensing fee incurred last year as part of the 2022 LCA with Bioprojet, partially offset by expenses related to the commercialization of Latex and the advancement of our clinical development programs.

Operating income improved for the third quarter 2023, operating income of $64.5 million compared to $11.9 million in the prior year quarter. Non-GAAP adjusted net income for the third quarter of 2023 was $58.8 million or $0.97 per diluted share compared to $58.1 million or $0.95 per diluted share in the prior year quarter. The prior year quarter included a $74.5 million benefit related to a valuation allowance and a $30 million licensing fee related to the 2022 LCA with Bioproject. 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 financial results. For the third quarter of 2023, we ended the quarter with $438.4 million of cash, cash equivalents and investment securities on the balance sheet.

The balance reflects continued cash generation with $63 million in cash from operations, partially offset by share repurchase activities. During the third quarter, we executed on our share repurchase program and repurchased approximately 1.4 million shares of common stock for $50 million. As you heard from Jeff, this morning, we announced a new share repurchase program of $200 million. The new program demonstrates our continued confidence in the underlying strength of our business and our conviction in the growth potential for the company. Our strong balance sheet allows us not only to execute on a return of capital but maintain flexibility to also execute on business development. For us, it’s not an either/or scenario and we’re in a fortunate position, given our profitability and growing cash balance.

Looking at that, we expect quarter-over-quarter growth for WAKIX in Q4. We also expect to continue to invest in R&D and SG&A as we advance our clinical development program, which now includes Zygel and supports the continued commercialization of Latex. As a reminder, we paid approximately $60 million in Q4 for the acquisition of Zynerba using cash from our balance sheet. Pending final determination, we expect to account for the transaction as an asset acquisition, which would result in a significant onetime charge in the fourth quarter, along with related restructuring costs. Overall, we remain confident in WAKIX represents a $1 billion-plus opportunity in adult narcolepsy alone, and we are well on our way given the strong results this quarter, with the potential to contribute up to an additional $1 billion if approved in other current lifecycle pitolisant programs.

In conclusion, we’re very pleased with our strong financial performance year-to-date and remains well positioned for continued growth. And with that, I’d like to turn the call back over to Jeff for his closing remarks. Jeff?

Jeffrey Dayno: Thank you, Sandip. In summary, Q3 2023 was the strongest revenue quarter in Harmony’s history, and we continue to execute on our growth strategy across the business. We remain focused on growing our core business and helping even more adult patients living with narcolepsy with WAKIX, advancing our pipeline across both our pitolisant and Zygel clinical development programs. Working with our partner, Bioproject, on new formulations to extend the pitolisant franchise to help even more patients living with rare neurological diseases. Building out our pipeline further through business development efforts in order to create a robust portfolio of orphan rare disease assets covering all stages of development and deploying capital to maximize shareholder value through our share repurchase program and business development activities.

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 Francois Brisebois. Please go ahead. Your line is open with Oppenheimer.

Francois Brisebois: Hi. Thanks for taking the questions. Congrats on the quarter here. So just a couple of things, Sandip mentioned it. And so in terms of the trade inventory, small issues or thing in the second quarter. I was just wondering how much did that create kind of a boost maybe in this quarter, obviously, not the patient adds, but maybe in terms of the cost, if you look at it that way? And just maybe the impact there going forward, you mentioned you’re expecting growth in the fourth quarter, quarter-over-quarter. Is that growth in terms of patient adds or in terms of revenues? Thank you.

Jeffrey Dayno: Yeah. Good morning, Frank. Thanks for the question. I’ll have Sandip provide some more explanation on that for you.

Sandip Kapadia: Yeah. Frank, as we mentioned last quarter, we did see a partial normalization of inventory that we saw a bit of a draw down last quarter. As we mentioned, last quarter, it was about a week, that was in Q2. And we saw roughly about half a bit recovered in this quarter. So again, it’s a small impact overall. We feel that it’s important to keep investors updated on the impact generally. As you know, these fluctuations quarterly are completely — part of our business depends on where the quarter ends and so forth. With respect to Q4, we continue to expect top line growth from revenues as well as we continue to expect patient adds. And then maybe, Jeff Dierks, you want to comment kind of on the expectations on Q4?

Jeffrey Dierks: So Frank, I would reiterate, yes, we did see a benefit of a couple of days of inventory, but you couple that with the strong top line performance in new patient starts. That really drove that highest quarter of net revenue that we’ve seen since our launch. And as Sandip explained, you typically see a little bit of an incremental build in inventory at the end of the year, which is traditional across the inventory, but we’re anticipating growth across all of our key fundamental metrics, average number of patients, unique prescribers, as well as net sales.

Francois Brisebois: Okay. Thank you. And just in terms of the new formulation, can you just maybe level set, remind us of the IP situation and the progress on — I know you touched on it, but maybe the progress on the new formulations and what they could potentially do just a little more color on the 2040 metric. Thank you.

Jeffrey Dayno: Yes, Frank, just to clarify. In terms of the IP situation with WAKIX or the new formulations?

Francois Brisebois: Sorry, I mean just the IP with WAKIX and what new formulations could do to it?

Jeffrey Dayno: Sure, Okay. So in terms of the IP situation with Wakix, so we believe in the strength of our IP. And that goes out based on the polymorph patent with patent term extension to March of 2030. And then I think, as you’re aware, we’re pursuing pediatric exclusivity which would provide an additional six months’ protection out to September of 2030. So that is our base case on our IP situation for Wakix. Turning to the new formulations, I’ll have Kumar sort of comment on those efforts. But by design the intent there and what we’re working was generating new IP guards to enhance the novel formulations based on pitolisant. And Kumar can provide a little more color on those programs.

Kumar Budur: Sure. Thank you, Jeff. Hey, good morning, Frank. Thanks for the question. Yeah, we are working on two formulations with our partner, Bioprojet, and pleased to share the update on this. We have made substantial progress over the past few months. The first formulation is an enhanced pitolisant-based formulation that is designed to deliver an optimized PK profile and a higher dosage strength, but the opportunity here really is to generate new IP and extend the pitolisant franchise beyond 2040. We are looking for new indications with this particular formulation, and this formulation will have a full clinical development program. That is formulation one. In terms of formulation two, we are on track to advancing this formulation into the clinic toward the latter half of this quarter.

This is a pitolisant-based modified formulation with a potential for clinical differentiation, and the opportunity here is a fast-to-market strategy for patients with narcolepsy within Wakix life cycle. This formulation will have an abbreviated development program. So overall, two formulations making steady progress.

Francois Brisebois: Thank you.

Jeffrey Dayno: Thanks, Frank.

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

David Amsellem: Hey, thanks. So got a couple. First, in terms of prescriber dynamics, can you talk to your penetration of Wakix among providers who are not enrolled in the oxybate REMS? Just wanted to get a sense for how you’re doing in that piece of the prescriber audience. So that’s number one. And then number two, just back to the formulations. Just given the setback in IH, would it be intuitive to think that you would pursue IH — to the extent you are going to go forward in IH, would you pursue it with one of these new formulations? How should we think about that? Thank you.

Jeffrey Dayno: Yeah. Thanks, David. I’ll ask Jeff Dierks to respond to the first question about the prescriber dynamics, the prescribers outside the oxybate REMS.

Jeffrey Dierks: Sure. So David, we’re extremely pleased with the growth in the new prescriber base of Wakix. And obviously, as we continue to add new prescribers, the vast majority of them or those healthcare professionals that are not enrolled in the oxybate REMS program, as we’ve disclosed, there’s about approximately 5,000 of those healthcare professionals that are not enrolled in the oxybate REMS program. And we continue to see meaningful penetration in that group. I think at the last earnings call, David, we talked about being about 20% penetrated within that audience. It’s closer to about 25%. But we continue to see very steady growth and adoption within that audience, and it really gives us and affords us the opportunity based on the overall benefit/risk profile, the broad clinical utility of the product for Wakix, that we can tap into that broad 9,000 approximate healthcare professional prescriber universe, and we can tap into the full diagnosed narcolepsy patient opportunity, and that gives us a ton of confidence.