Harmony Biosciences Holdings, Inc. (HRMY) Earnings Call Transcript & Summary

Great. Good afternoon, everyone, and thanks to the team from Harmony. We have Jeff Dayno here, CEO recently; as well as Sandip Kapadia, who's the CFO. And maybe we'll just start to level set, could you provide a brief overview of the company, perhaps with a particular focus on what you view as key value drivers over the next 12 to 24 months?

Yes. Sure, Corinne. So first of all, on behalf of the Harmony team, thank you for the invitation to participate in the conference this year. So I think Harmony, basically, we are, as a little overview and background, a commercial-stage pharmaceutical company founded in 2017. We are now profitable and cash generating. And I think we're focused on developing and delivering innovative therapies for patients living with rare neurologic diseases. Our first product, WAKIX, that is a first-in-class molecule with a novel mechanism of action, was approved in 2019 for the treatment of Excessive Daytime Sleepiness in narcolepsy, then in 2020 for the treatment of cataplexy in narcolepsy. So we launched in November 2019, sort of right before the pandemic, and have had a successful launch; and last quarter, first quarter, with 40% growth year-on-year. And actually, last quarter, we hit cumulative $1 billion in net revenue for the franchise. So a strong, I think, foundational business of WAKIX in narcolepsy. And then from there, with regards to this novel molecule pitolisant, we view it as a portfolio and a product opportunity. And I think the opportunity in narcolepsy alone as we are sort of well underway, and we see that as a $1 billion-plus opportunity in narcolepsy alone. And then in our life cycle management programs, we are looking at an opportunity, starting with idiopathic hypersomnia, which is an adjacency to narcolepsy and our most advanced program. And we're in a Phase III registrational trial for that indication, along with 2 other programs, one in Prader-Willi syndrome and one in myotonic dystrophy. The opportunity there represents an additional about 100,000 patient opportunity, so if successful, an additional potentially up to $1 billion opportunity for our life cycle management programs. We're building off of sort of the opportunity in pitolisant in terms of extending the franchise with working on new formulations with our partner, Bioprojet. So the idea there, the goal there is to generate new IP and potentially extend the pitolisant franchise out beyond 2040, giving us a longer runway in terms of further development. And with all of that, I think we're looking in terms of deploying capital and investing in the business and focused on business development and building out a pipeline of assets that would have catalysts both during the WAKIX life cycle and beyond.

Great. And maybe since this is the first opportunity I've had to interview you since you took the reins of CEO, is there anything we should look for that will be different under your leadership or that you expect to focus on in the years ahead?

I mean I think that the strategy remains the same. We've talked about at Harmony sort of our 3-pillar growth strategy and advancing sort of the fundamental business of WAKIX and narcolepsy, continuing to drive that growth in a well-defined, sizable markets that we can speak to, and then the life cycle management programs with regards to the unique mechanism and applying it to those follow-on indications. And I think now going forward, the focus on business development as a key part of our kind of longer-term growth strategy with dedicated efforts there, a bit more sense of urgency in terms of looking for a deal that fits is strategic and makes sense. And obviously, with a strong balance sheet, with close to $400 million on the balance sheet as of end of first quarter, we have a lot of opportunity to transact for the right deal.

Good. Okay. Well, as you mentioned, WAKIX is now in its fourth year post launch, and it's pretty well exceeded, I would say, expectations during the early launch. As you look forward, what do you expect to be the key drivers of incremental growth from here?

The key drivers, I think what we've tried to do is sort of articulate the opportunity in the narcolepsy market. So the key drivers going forward is WAKIX has a differentiated product profile, the only FDA-approved product that's not scheduled for narcolepsy. So we see that we've built kind of a broader prescriber base. So you look at sort of the oxybate franchise in that history. And there are about 4,000 prescribers in terms of -- in the oxybate REMS. We, based on the differentiated product profile, we see broader clinical utility for WAKIX. And we call on an additional 5,000 HCPs that do not participate in the oxybate REMS. So I think an opportunity to drive growth both in the 4,000 HCPs in the oxybate REMS in the depth of prescribing. And then in the additional 5,000 HCPs with regards to the breadth of prescribing in that segment.

To that point, you expanded the sales force last year. Maybe can you talk about the drivers that led to that decision? And then where do we stand today with respect to those people being at kind of full levels of productivity?

Yes. So I think that it was interesting. Our commercial analytics noticed that there were additional like HCPs that started out just sort of refilling prescriptions of WAKIX. And then after time and based on clinical experience, started writing new Rxs and new prescriptions. And we saw an additional 1,000 HCPs. And then for -- to capture that, we added 7 reps to the sales force in the first quarter last year. And that opportunity sort of expands the broader clinical utility and to grow in that segment.

Great. And you talked about this a little bit, but you've talked before about the sleep specialists versus the community setting, representing a little less than and a little more than 50% of the population that's prescribing and that you're targeting in narcolepsy. What portion of patients do you now cover with the expanded sales force? And what's the average -- how do we think about like the average number of patients that are addressable per physician, perhaps split by those 2 groups?

Yes. So I think it's a great question. So the group -- so the physicians that participate in the oxybate REMS, they're more the sleep specialists, the KOLs at the major sleep centers. So they have probably upwards of 100 patients in their practices. So a lot more patients there in terms of more experience and the depth of prescribing. In the other segment, they are not sort of specialist neurologists and others, and even some PCPs, probably under 10 patients in their practices. But collectively, it covers sort of the full market opportunity in terms of the patients with narcolepsy that are diagnosed and the prescriber universe. I think those 9,000 HCPs cover the full market opportunity. And it's consistent with a nonscheduled product with a differentiated sort of profile. And the treatment decision, sort of the threshold to treat, a little easier for that broader group of physicians that are prescribing narcolepsy therapies.

Perhaps to put a bow on that. As we think about where we are today and the 2 populations you just described, how much do you think growth from here will be driven by increasing breadth versus increasing depth of the prescribers you already are getting?

I mean it's hard to put a specific number on each. I think we -- more importantly, we see opportunity in both segments. And it takes a little more time to reach those 5,000 HCPs that are not specialists or experts to educate them to sort of change behavior So it takes a little longer to kind of penetrate that segment. But I think it's a matter of time. The broader backdrop in terms of sort of our earnings call, we looked at the broader opportunity in this space. And the oxybate franchise is a good analog, really good product. It's been in the market over 20 years and has served a lot of patients. And I think as has been disclosed, they, at one point, about 60,000 patients have been on an oxybate product. Currently, it's about 16,000. So that speaks to the potential market opportunity. And from there, given the prescriber universe I described, an additional 5,000 physicians that don't participate in the oxybate REMS, a nonscheduled product with broad clinical utility, we see opportunity and growth in both of those segments.

Understood.

What I would add is, I think, certainly, in the ones that they're enrolled in our REMS program, we see the opportunity to grow depth given the large number of patients that are available there, whereas the 5,000, it's more about getting breadth, reaching as many as possible to get incremental opportunity there.

Yes, makes sense. There has been some evolution in the market since you were first approved. You've got generic oxybate coming to market, you've got data coming from Axsome later this summer. I guess what impact, if any, do you see the WAKIX opportunity set?

In terms of the competitive landscape and what's emerging, starting with, I think, in the oxybate vertical. So obviously, in terms of generic versions and now once-nightly with regards to the launch of LUMRYZ. We think that we are pretty well insulated from kind of the oxybate vertical and that treatment choice, with regards to different product profile, as I mentioned, as well as the broader prescriber universe and the additional 5,000 HCPs that don't participate in that oxybate REMS in terms of that treatment decision. It's also -- it's a polypharmacy market. I think narcolepsy has always been -- I was involved in the modafinil, the Provigil new development programs. And going back in time, this has always been a polypharmacy market. And with regards to -- you mentioned Axsome and reboxetine. So I think we follow the competitive landscape closely. And I think the mechanism is a known mechanism, a selective norepi reuptake inhibitor. We know that there's a product out there, STRATTERA or atomoxetine, a generic version that is available. That's not prescribed a lot in terms of current narcolepsy prescriptions and more for the cataplexy indication, and we'll see how the data read out in terms of that development program. So we think that given the unique profile of WAKIX, the novel mechanism, it was the first new mechanism in over a decade when we launched it in 2019 in the narcolepsy space. So we don't anticipate a lot of impact from sort of the emerging competitive landscape, but we watch it closely.

One thing I would add is just even in the first quarter of this year, we grew right through and yet it was even the launch of oxybate generic. So we don't really anticipate any significant impact from some of the, say, competitors certainly in the short term. Our -- it's a very differentiated profile, different physician audience, a broader one as we spoke about. So we see ourselves well positioned in this -- in the future competitive landscape.

Understood. I mean, I guess, at the beginning of the year, the team elected not to give guidance, but you did allude to feeling comfortable with where consensus was. So as we sit here today, nearly 6 months into the year, a full quarter reported. Do you still feel comfortable with where consensus numbers are shaking out for the full year?

Yes. Like you said, we haven't really provided forward-looking guidance. But what I've pointed to is the fact that we have a very strong analyst community, such as yourself who play very close attention to our business, who've been modeling it for the last 10 quarters. And we've blended, from a short-term perspective, relatively close to consensus, sometimes meeting, sometimes right on. So we feel good about the ability for investors to at least model the short term. What we did focus on more is really giving investors more confidence in the mid- to long term. And that's why we talked about this past quarter, we see just WAKIX. In narcolepsy alone, $1 billion-plus opportunity in terms of growth. And as you can see, just given our trajectory and our growth so far, we're well on our way to achieving that. And then if successful in some of the additional pipeline indications in IH and PWS and DM, we see potential for incremental up to $1 billion opportunity. So I think we focus more on the mid- to long term, to continue to focus on execution because we've demonstrated, I think, good consistent growth through the launch that's well understood by our investor community. And so we felt that providing a more broader perspective would be more insightful.

Yes. I mean we tried to articulate sort of the broader opportunity in this orphan-rare market that's sizable and well defined and it's a matter of time. And obviously, oxybate franchise has been in the market over 20 years and very successful at $1.6 billion, $1.7 billion franchise. And as we get out there, as we reach this universe of prescribers, seeing that steady growth for the franchise and then building upon that.

Great. That's a good segue, I think, to the next -- the clinical side of the business. Maybe top of mind, we'll start with the Phase III readout in idiopathic hypersomnia, which is expected later this year. First, could you just frame the market opportunity for us as you see it?

Yes. So it is a great segue, and I'm happy to talk about idiopathic hypersomnia. So that's an opportunity we're really excited about for lots of reasons. So market size based on claims data, about 40,000 patients diagnosed in the U.S. with IH, that another 40,000 thought to be living with IH but not yet diagnosed. So similar dynamic as to the narcolepsy market. And I think that our Phase III registrational trial, the INTUNE study, as we shared, great momentum in that study. We announced we're fully enrolled about 9 months ahead of plan with regards to our base case scenario. And I think that reflects the interest from both the patient community, physician community with regards to the potential for pitolisant in this patient population. And the reason for that is that IH, although it's an adjacency in narcolepsy, what's called another central disorder of hypersomnolence, it has a different phenotype. So it's different when we talk about kind of mechanistic fit in treatment options. So whereas narcolepsy in addition to Excessive Daytime Sleepiness, you've got disrupted nighttime sleep. So a treatment that consolidates nighttime sleep, like the oxybate, makes sense and has been effective. In IH, you don't have the disrupted nighttime sleep. Most patients are what's called long sleepers. They sleep many hours, and then they wake the next morning, they have what's called sleep inertia, difficulty awaking from sleep. So what we're hearing from clinicians and KOLs, the mechanism of action of pitolisant as a wake-promoting agent working through histamine could be a nice mechanistic fit for patients with IH. And that's what we think was driving the interest and the pace of enrollment in the Phase III trial.

Great. As you look today, what's the current treatment landscape for patients with IH? And maybe walk us through from diagnosis, given there still remains about half the patients that are diagnosed.

Yes. So a diagnosis of exclusion. In terms of starting with the Excessive Daytime Sleepiness and then going into the sleep lab and kind of rolling out narcolepsy type 1, a little easier to roll out with the component of cataplexy and what you see in the sleep lab, and then the more difficult sort of differential in terms of an NT2. But ultimately, a diagnosis of exclusion, along with the different phenotype clinically. And I think once the diagnosis has arrived, the treatment choices, obviously, Xywav in terms of the only FDA-approved treatment. And then the others are the typical treatments, so what's available for narcolepsy, wake-promoting agents, modafinil, armodafinil, traditional stimulants, and that's what physicians turn to and use these days.

Yes. Do we have a sense for what portion of the diagnosed population is currently receiving some sort of treatment for their disease?

I think that the claims data probably reflects those under sort of medical care, medical attention. I don't have a specific number in terms of those that are actually treated.

Okay. Helpful. Maybe could you remind us of the Phase III trial design, what's the primary endpoint is, how many patients will be included. Anything specific around inclusion or exclusion criteria that was important?

Yes. So the Phase III trial is -- there's kind of regulatory present here, which we sort of worked off of that. You -- the thinking is that you're borrowing from the narcolepsy Phase III program, the pivotal program because of the adjacency. So a single Phase III registrational trial, it's a randomized withdrawal design, which is basically an enriched design. That involves an open-label dose optimization phase and patients are titrated to optimal dose. And then at 8 weeks, you look at who are the treatment responders, and then those are randomized into a randomized withdrawal phase. And in our trial, that's a 4-week randomized withdrawal phase. Primary outcome is around the Epworth Sleepiness Scale and looking for a 3-point delta improvement in terms of how it's powered to show statistical significance.

Great. I think you saw a faster-than-expected enrollment in the study. I guess what do you attribute the pace of enrollment to?

I mean I think that, obviously, more awareness with regards to IH based on the first product approved in Xywav. So there's an FDA-approved product in the market. So awareness is starting to pick up and improve. And then in terms of our trial, as I alluded to before, interest in nonscheduled product, the overall benefit risk proposition of WAKIX in general. There's a lot of sort of the learnings and understandings from the narcolepsy market kind of transferred over. So overall product profile, nonscheduled status, sort of the ease of prescribing in what I refer to as threshold to treat as well as the mechanistic fit. And just as a note, we were at the SLEEP meetings last week. The annual SLEEP meetings were in Indianapolis. And we were interacting with a lot of HCPs, our clinical investigators and some of the patient community was there, the Hypersomnia Foundation, and hearing really positive feedback with regards to experience in the trial and still a significant unmet medical need for new and different treatment options.

Pending positive results, how quickly do you expect to be able to file a supplementary NDA? And when could you get to market with this product?

Yes. So we haven't sort of shared a time line, but if we are successful with positive results, we will move swiftly in putting an sNDA together and filing with the agency towards seeking approval.

Great. Given the kind of similarities between the 2 diseases, do you hear from physicians or any patients that are currently maybe using this off-label or that something that is possible at this point?

I mean we know that there is interest, but I think in terms of off-label use, there's not a lot because the payers are not approving it because it's not indicated for IH. And obviously, it's something that we don't promote. But we know through our patient hub and our closed pharmacy distribution system that we don't deal with that and it's off-label and really the payers are not covering it. That is -- that's the goal. The benefit of the approved indication is to unlock payer coverage and really achieve what we think is an accretive opportunity. The other benefit there is if we're successful and approved, we can sort of plug it right into our existing commercial footprint.

That was my next question. So I guess what's the degree of overlap between the prescribing physician population in narcolepsy and IH? And do you anticipate any changes to the size of your commercial infrastructure?

Yes. So I think there is significant overlap, if not almost a direct overlay. I think the HCPs that are prescribing and treating patients with narcolepsy are the same ones that are managing patients with idiopathic hypersomnia. Those patients are in the same offices as our HCPs that we're calling on. In terms of the sales force, we haven't really discussed yet whether we would add any additional reps. If we do, it won't be a sizable increase, but we haven't really sort of discussed that yet.

All right. Makes sense. Given the overlap, do you anticipate -- or like how could you frame for us the initial launch curve or the shape of the initial launch trajectory?

I mean -- so I think it's hard to predict. But given the feedback that we've heard from the patient community and HCPs around kind of the mechanistic fit, the overall product profile, given that there's more awareness of IH, sometimes there's a benefit of being sort of a fast follower as the awareness improves, and we would add to that in terms of patient education and disease awareness. And the other opportunity is the HCPs that we're calling on, they know the product. They know WAKIX. They know how to prescribe it, and it would be sort of the same dosing paradigm. So a lot of familiarity as well as how to go about it, prescription forms going into the same patient hub. So we think there's an opportunity for a brisk uptake. But I don't want to get out ahead of ourselves, and we'll see how things play out.

Understood. Maybe we'll shift gears here to Prader-Willi syndrome. Provide us a quick refresher on what you've shown to date and what the next steps are for that program.

Sure. So real quick. So Prader-Willi, so a small Phase II proof-of-concept study that we conducted in 67 patients, and we announced in November of last year. So positive top signals from the top line data on the primary endpoint of Excessive Daytime Sleepiness. And we showed a 5- to 6-point improvement in the low dose and high dose groups from baseline to end of study. So positive signals on the primary outcome, which has taken us to an end of Phase II meeting with FDA that we're actually having later this month to discuss the results of the Phase II trial. And then we'll be proposing a single Phase III registrational trial around the improvement in Excessive Daytime Sleepiness in patients with Prader-Willi and also looking at some of the behavioral manifestations as key secondary outcomes.

As you go into that meeting with the FDA, I guess, what do you view as kind of like the wish list or a base case scenario for Phase III trial design and requirements coming out of that meeting?

I think it'll -- the wish that it will kind of build off of the experience in terms of gaining concurrence around the primary outcome and the instruments used to measure that in Prader-Willi syndrome as well as some of the key secondary outcomes. And then I think given the orphan-rare condition that it is and not a lot of treatment options, understanding that a single Phase III trial, along with supportive data, would be enough in terms of a potential submission for approval.

I think most of us think of Prader-Willi syndrome is characterized primarily by hyperphagia. So does EDS, or Excessive Daytime Sleepiness, fit within the symptom burden for these patients?

Yes. So Prader-Willi, it's interesting. Prader-Willi is actually -- it's a pediatric neurodevelopmental disorder in about 20,000 patients in the U.S. And it's actually a disorder of hypothalamic dysfunction. So a lot of stuff we do at Harmony is sort of focused in the hypothalamus, a small area deep in the core of the brain. So you have hypothalamic dysfunction. So in addition to -- in the hypothalamus is the sleep-wake switch. So you've got a dysfunction there, which generates the Excessive Daytime Sleepiness. And then you have the hunger-satiety switch kind of right in your body, and the dysfunction there is what generates the hyperphagia, right? There's also evidence of hypocretin/orexin deficiency lower levels similar to what you see in narcolepsy Type 1. So mechanistically, there are some similarities in terms of hypothalamic dysfunction that you see in narcolepsy in the Prader-Willi patient population.

As you think about -- maybe shifting gears finally to the myotonic dystrophy. So could you just walk us through the mechanistic rationale and where we stand with respect to that program?

Yes. So similar mechanistic rationale, which is pitolisant as a portfolio and a product opportunity in terms of looking at its mechanism of action and how it could fit. Myotonic dystrophy also has evidence that those patients have lower levels of hypocretin/orexin, which is what's driving the Excessive Daytime Sleepiness. So myotonic dystrophy, primary symptoms around myotonia, which is an inability for muscles to relax, and it causes muscle weakness and wasting. But we know from a lot of good work that's been done that, in addition to those symptoms, the other main symptoms in 80% to 90% of patients are Excessive Daytime Sleepiness, fatigue and cognitive function. And they have as much of an impact on daily functioning as the neuromuscular symptoms, and they're mediated by histamine. So those 3 symptoms. So it's an interesting clinical model in terms of the role of histamine in potentially improving EDS. And also what we're looking at is fatigue and cognitive function in the Phase II proof-of-concept study.

Understood. As you think about the opportunity set that you just described, in the current price point for WAKIX, do you expect that to evolve as you expand into the broader populations?

So I think the current target in terms of that -- or within the orphan-rare disease space would maintain the price point...

Yes. No, I think we would -- yes, we don't expect any major changes in terms of the price. Obviously, the dosing might be different in some of the other indications and thus, but generally, in terms of our overall pricing dynamic, we feel is still appropriately priced.

Great. You mentioned this briefly earlier, but given the current patent suite around pitolisant, what efforts are you undertaking to extend the duration of the patent protection around that? And when can we get more updates?

Yes. So in terms of -- yes, so patent landscape for WAKIX out to March of 2030. We're also pursuing pediatric exclusivity to get an additional 6 months of protection there. With regards to the ongoing efforts with our partner Bioprojet in looking at kind of new enhanced formulations to generate new IP, it's still early. We're in the formulation stage. And we plan to provide an update on some of that work later this year and what those programs look like and what the next steps are.

Could you give us a sense for how those would come into the clinic and what the cadence would look like after deciding upon what you move forward with?

Yes. I think it's going to depend on -- the first work there is Phase I PK data in terms of what those profiles look like and how they would go into the clinic and what the targets would be. I think we have options for both a sort of fast-to-market strategy, think like a 505(b)(2) approach, as well as a full development program if we have the opportunity to look at potentially new indications and do full clinical programs.

You've stated publicly that you were interested in pursuing business development and perhaps you said a bit more urgency over the near term. What do you think of as the ideal target profile for a Harmony acquisition?

Yes. So I think in terms of business development, I know we've been talking about that for a little while. And -- but we do have more sense of urgency. And we have a dedicated business development team. We have 4 members on that team that are looking across the BD landscape and kind of scouring what's out there. We've gone deep on a couple of assets. I think that our sweet spot, we've always said, is orphan-rare neurologic disorders in terms of to leverage our internal expertise as well as our infrastructure. So I think that would be kind of the best fit. But we're also casting a broader net in terms of adjacencies and broader kind of neurology or psychiatry targets and looking at some of those things as well. Or another orphan-rare condition may be outside kind of on our sight. Very active there. I think that opportunity to transact for -- we want to be thoughtful, we want to be strategic. We can't control those time lines, but we have looked at multiple opportunities. As I said, we've gone deep on a few. And when the time comes, we have capacity to transact.

Yes. No, we have a solid, growing capacity, right? As you know, we're a profitable, cash-generating business. As of the end of last quarter, we had $392 million and continue to generate positive cash flow. So as every quarter goes by, we continue to build our capacity to do more -- to do additional business development. So...

Can you quantify any further on the capacity front, how do you think about target leverage, et cetera?

Yes. I think the best way to sort of think about that is really the type of asset. If it's an asset that's more closer to commercial or potentially on market, we would look at potentially leveraging additional debt capital to potentially finance that. If it's an earlier phased assets, those things typically you can certainly do it off of the current balance sheet. And certainly, we have access to the public markets, if needed. So I think we have broad capacity. I think the key thing is really trying to find the right asset for a company our size, where it still continues to leverage our -- where we can offer some synergies or capabilities that can like either accelerate programs or accelerate commercial launch and really drive incremental value for our shareholders.

I mean beyond the business development, are there any other thoughts you could share about capital allocation and the priorities you have there?

Yes. I think, look, as a company, with our stage right now, we have multiple things that we could certainly be doing everything from business development, as we talked about, some investors have asked about return of capital, those are things that, of course -- so we certainly continue to look and see whatever can help enhance shareholder value. And it's really not even sometimes a question of one or the other, right, given our increasing cash balance and our capability as a company. We're in a position to do multiple things at the same time. But yes, we'll see what's the overall environment, overall.

Great. Well, that's all the questions that I have. Anything else you'd like to share before we close out for the day?

So I think -- again, thank you for the invitation to participate. And I think the takeaway is that Harmony remains a growth story, and I think we're profitable, cash generating. We've been fortunate in terms of the success of our launch of WAKIX in narcolepsy. And on that base business, the plan to grow our life cycle management program. So $1 billion-plus opportunity of WAKIX in narcolepsy alone, up to an incremental $1 billion in our LCM programs if we're successful. We're looking at new formulations to extend, take a novel molecule and extend that franchise out beyond 2040. And then capital allocation in a sort of an intelligent manner in terms of business development and other ways to return value. And I think final is that we look forward to the second half of this year in terms of catalyst-rich second half of 2023 with the readout for IH in the fourth quarter, the top readout of our myotonic dystrophy Phase II proof-of-concept study anticipated in Q4. And then we'll have an update on the end of Phase II meeting with FDA on our Prader-Willi program and plans to continue that and go into a Phase III trial.

Great. Well, thanks so much for joining us, to everyone in the audience as well as the team from Harmony.

Thank you very much. Appreciate it.