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

Good afternoon, everyone. Thanks for joining us for the next session with Harmony Biosciences. My name is Balaji Prasad, I'm the senior analyst for the specialty pharmaceutical sector. Joining us today from the Harmony management team, we have Jeff Dayno, President and CEO. We have Jeffrey Dierks, Chief Commercial Officer; and Sandip Kapadia, the Chief Financial Officer. Jeff, Jeff and Sandip, thanks for joining us.

Thanks for the invitation. Thank you.

Yes. So I think before we get started, could you maybe provide a brief overview of the company, the outlook into 2024 as you see now and pushes on post to the outlook?

Yes, sure, happy to. So I think Harmony continues to be a growth story. We're 7 years in and sort of building our pipeline. But starting with we have a strong commercial business in our core business of WAKIX in narcolepsy, successful launch in commercialization. And it's a big market opportunity, 80,000 diagnosed patients with narcolepsy in the U.S., a highly differentiated product profile. The only approved product that's not scheduled for narcolepsy in the U.S. So that drives sort of the broad clinical utility and the continued opportunity in WAKIX in narcolepsy. And I think from that, we've been managing the life cycle with WAKIX or pitolisant and advancing our clinical development programs in terms of follow-on indications. And with that, working towards an opportunity in idiopathic hypersomnia, which is an adjacency to narcolepsy as well as our program in Prader-Willi syndrome. We're about to initiate a pivotal Phase III trial in patients who have Prader-Willi down to age 6. And then we also, last December, announced positive signals from a Phase II proof-of-concept study in patients with myotonic dystrophy and positive signals, both in excessive daytime sleepiness as well as fatigue, which is an opportunity to expand upon the current indications that we have in narcolepsy for both EDS and cataplexy. So advancing the life cycle management programs. And then beyond that, we're also working on next-generation formulations pitolisant. So we have a novel molecule with a novel mechanism of action leading to the only nonscheduled product in the market for narcolepsy and a very successful product in the market. So we want to optimize that opportunity. So working with our partner, Bioprojet, who is the innovator of the pitolisant molecule on new formulations to generate new IP and extend the pitolisant franchise not just beyond 2030, but potentially out to 2040 and beyond. And we'll be sharing some of the initial top line PK data on those programs first half of this year. And then lastly, I think a big part of our growth strategy is expanding our pipeline and diversifying our portfolio beyond WAKIX and beyond pitolisant. And we started last fall with the acquisition of Zynerba Pharmaceuticals, a small company that was working on program in Fragile X syndrome. So we brought in that asset. We refer to as ZYN002, which is another really interesting. It's a purely synthetic cannabidiol product devoid of THC that is delivered transdermally through the skin. So it sort of improves upon some of the oral cannabidiol limitations around GI side effects, et cetera. And that program, that is in Phase III for Fragile X syndrome, which is an important unmet medical need, no approved treatments and another sizable market opportunity of about 80,000 patients diagnosed. So I think in summary, Harmony 7 years in, we feel that we're just getting started with strong commercial business, advancing our pipeline programs with pitolisant and working very active in business development to expand our pipeline diversify our portfolio, so to leverage our current profile with expertise in the CNS orphan rare space.

Great. Jeff thank you for that lay of the land. As we think about the 80,000-odd patients on the space, considering that you have like multiple other therapeutic modalities. Can you help us understand how WAKIX is positioned and how the market itself is categorized that's the way you say it...

Jeff, do you want to expand on that?

Sure. So it's -- obviously, it's a very large diagnosed patient opportunity. There's significant unmet medical need. And it's a polypharmacy market. So sadly, most of these patients are taking 2 or 3 medicines to try to manage their symptoms effectively. And the vast majority of patients will start on a generic treatment, whether it be a wake-promoting engine and/or a stimulant. And WAKIX sort of sits as 1 of those first branded treatment options for healthcare professionals with an adequate response or a partial response to one of the generic treatments. And I think the unique thing about WAKIX and what we've seen is 80% to 90% of patients run multiple meds, 80% to 90% of use of WAKIX is concomitant with other medications as standard with most of these treatments. But there's about 9,000 healthcare professionals that manage the diagnosed patient opportunity. 4,000 of them are enrolled in the oxybate REMS program, approximately 5,000 of them are not. So as we're seeing introductions of new once-nightly formulation of oxybate generic oxybate this year, there are still 5,000 doctors that cannot prescribe oxybate for their patients. And we've seen very steady continued growth in that area. We reported on our last earnings call that we're more than 30% penetrated in that audience. Highly penetrated in the REMS-enrolled healthcare professionals. We have more unique prescribers of WAKIX and sodium oxybate, 4 years into our launch and that product has been on the market for 2 decades. And we see the nonscheduled status not being a controlled substance is a big driver and a key differentiator for the brand. And most exciting for us is we've got over 6,000 average number of patients on the product by the end of next year, demonstrated very strong durable growth over the first 4 years of our commercialization and very excited to look at the outlook in the '24.

Great. And as we think about this patient population, again, the introduction of both the authorized generics of oxybate and then you have a once-nightly version. How has it impacted or developed the market for you in terms of just maybe expanding access or increasing prescriptions? How has the impact to the market for you?

Sure. So we actually haven't seen any impact with generic or the once-nightly formulation of oxybate introduction. As I said, because WAKIX is a little bit insulated due to the prescriber dynamics, the nature of the REMS-enrolled healthcare professionals, but I think what it does is it brings new products to the market, it brings new investments to the market, which is great for the patients, right? This is an underserved patient population. More companies coming to the market means more investment increases in diagnosis rates, which brings more patients into the market. So because of the nature of this polypharmacy unmet need, as more brands come to the market, what we've seen is growth among all brands, right, with the introduction of Avadel. Avadel is growing. Harmony is growing. Jazz is growing. So I think the patients win when there's more products here. But we really haven't seen any impact on our business. We've shared that we believe that WAKIX represents have potential $1 billion-plus opportunity in narcolepsy. And given our guidance that we just shared for 2024 of over $700 million, we're well on our way.

Okay. Great. That probably was my next question. So I just want to dig into this guidance about $700 million to $720 million. So help us bridge this in terms of the pushes and pulls, which drive this guidance on both the upside and downside risks do you see to the guidance?

Yes. So maybe just to start and Sandip, you can comment. So I think we came out this first year giving guidance, and we took sort of like a thoughtful, balanced approach based on sort of the rhythm of the business in the first 4 years in the market and now some of the durability year 5 in the market that Jeff spoke to. As we said, significant patient opportunity in the 80,000 diagnosed patients, so lots of opportunity to grow there. And then sort of the rhythm of the business in terms of patients coming into the physician offices. And Sandip, do you want to...

Yes. No, I think part of the rationale for the guidance, we have really strong results last year. We had over $582 million in sales is a 33% growth overall. So we had great momentum. We had nice patient adds in the last quarter, grew 350 average number of patients, both in quarter 3 and quarter 4. So we took a lot of that momentum as we -- and as Jeff mentioned, we're really thoughtful about how we presented guidance for the first time as a company $700 million to $720 million. I think now most investors are pretty clear. This is a well over $1 billion opportunity in narcolepsy alone. So we've been saying that for several years but now with guidance of $700 million, I think, or more and more are seeing the opportunity ahead of us. We certainly see opportunities to exceed that. But generally, right now, that's where we're comfortable. And as we have results and success throughout the year, we'll provide more of an update to investors.

I think it's part of our nature, Jeff and his team, you set the goal and I think the team, the commercial team sort of sets the rise on that to potentially exceed that. But we'll -- as the year goes along, we'll provide updates.

Okay. We look forward to that. And as we think about the broader narcolepsy market longer term, I think 1 major updates that we've been getting is around the old orexin class of molecules, both the agonist and antagonist Rx. So given the developments of the site, can you help us understand how that will shape the market for you and influence your longer-term outlook?

Yes. Obviously, a very popular topic with regards to the orexins and those programs moving forward. So we follow them closely. We know this space really well. We look at opportunities in our BD efforts. So I think next novel target for the treatment of narcolepsy is at least NT1 at this point, some questions with regards to NT1 narcolepsy type 1 condition where there's orexin deficiency versus NT2 and IH. So still some questions there. But hopefully, the programs will be successful, I think. New treatment options are always good for patients, more share of voice, more education, increased diagnosis rates. And -- but at the end of the day, I think narcolepsy will always be a polypharmacy market. So we don't think that -- and that's why we're working on next-generation formulations of pitolisant that, if successful, would be in the market around the same time because we think that the opportunity for multiple products in a polypharmacy market. And the other interesting aside mechanistically, the orexin mechanism of action, orexin neurons in the brain actually connect into the histamine neurons and the hypothalamus. So there could be an interesting sort of synergistic effect between those 2 types of treatment options in the future.

That's interesting. And I just want to shift from the narcolepsy market to the pipeline that you commented about. So maybe can you provide any additional data inside on the IH indication ahead of your FDA meeting, I mean you think last comment was that sometimes in March of -- so we are in March -- so it should be sometime very soon. But what can you share with us on this indication?

Sure. Yes. So it is coming up soon. We've not met with them yet. It's coming up soon in March. And basically, what we are doing is we're building a strong case for the overall benefit-risk proposition for WAKIX. So you've got a non-scheduled treatment option that you take once daily in the morning on awakening compared to the only approved treatment option and what's in the market is [ wave ] for IH as a Schedule III restricted access REMS product that puts patients to sleep consolidates nighttime sleep, you dose at night, then you have to wake up again. Patients that are long sleepers and have sleep inertia. So the product profile of pitolisant or WAKIX represents a different approach. And we've taken the totality of the data from the Phase III trial, the strong signal in the open-label dose optimization phase. We've looked at some explanations, what happened within the 4-week randomized withdrawal phase. And then about 90% of patients went into the long-term extension that we're continuing to collect real-world efficacy data and safety data. So we're bringing all that to build that case around overall benefit risk and then discuss with the agency, different options for the most efficient path forward to the market. And after that, and we get minutes from the FDA meeting, we'll provide an update as to what the opportunities are.

Fantastic. We look forward to that. Maybe on the shifting to the pediatric narcolepsy side. Again, you received a priority review for your sNDA it would be a good occasion maybe to just revisit the pediatric market opportunity vis-a-vis the broader market opportunity and contextualize those.

Sure. Do you want to speak to the market opportunity?

Sure. So there are about 4,000 children under the age of 18 with narcolepsy. So it's a smaller opportunity relative to the larger adult narcolepsy opportunity, but I think it's a very meaningful one, an underserved patient population, there's only 1 FDA-approved treatment option now. So we look at this as a very meaningful commercial opportunity, but I think the larger opportunity is really the way that, that data will play into pediatric exclusivity and our ability to extend some of the regulatory runway we have on our latest path.

So that's part of the important sort of opportunity there. So we're excited for that. We submitted the sNDA in December. We got priority review. We're on track to PDUFA on June 21. But in other discussions with the agency over the past couple of years, we're pursuing pediatric exclusivity. So the 2 data sets that will be required to achieve that are the pediatric narcolepsy data that we submitted, and then the Phase III study in Prader-Willi that we're about to initiate because we were already in the clinic, so the agency sort of saw that was an important patient population. So they want us to go forward and continue that program. So in addition, in Prader-Willi potential indication, it satisfies the other requirement. The importance of pediatric exclusivity, the additional 6 months of regulatory protection on the back end of our patents. So it would take where we are now March of 2030 and the peds exclusivity would extend that to September of 2030.

Got it. And remind me, you have other IP efforts to extend the IP life of this product?

So that's what we're working in the new formulations that the part of the strategy, generating new IP around the novel formulations of pitolisant and new IP around that.

Got it. And you mentioned that you're expecting PK data in first half of '24. So what will be the next steps for this post us getting the data?

Right. So yes, PK data first half and then based on the readout, we'll provide sort of further color on the development programs going forward.

Okay. So maybe shifting to Zynerba that you acquired last year. So can you provide the latest update on the asset, the market opportunity be both in Fragile X and 22q deletion syndrome. So 80,000 patients, again, looks like a pretty large opportunity but in terms of commercial value for it, how should we think about this market?

Yes. Jeff, your thoughts on the market for Fragile X?

Yes. So again, it's another relatively large patient opportunity, about 80,000 patients. There's no FDA-approved treatment options significant unmet medical need, and we have the ability to potentially bring another novel non-scheduled treatment option to this underserved patient population. So we look at this as maybe a good comparator when you look at some of the oral cannabidiols is looking at something like an Epidiolex is kind of a good surrogate for where we are. We're in the middle of Phase III. So once we have a little bit clear line of sight about that trial, we'll be able to sort of size the opportunity. But I think it's very accretive, significant and looking forward to the ability to bring this product to this patient.

And the timing that we shared in our earnings call. So we anticipate completing the trial first quarter next year with top line data readout in mid-'25. And I think, yes, we're excited. That's sort of the first step in expanding our pipeline and diversifying the portfolio and driving longer-term growth. And we continue to remain active on the business development front.

Got it. Great. Maybe something with Sandip, as do you think about where the company is positioned with multiple moving parts. How have your capital allocation priorities changed as you think about '24 and '25 and especially focus on BD.

Yes. Look, we're in a very strong financial position. As you mentioned, we have $425 million as of the end of the last quarter. We're generating positive cash flow. Last year, we generated over $200 million, $77 million just in the fourth quarter itself. So really in a solid position to transact. And as we think about capital deployment, clearly, a key focus for us will be expanding the pipeline, as Jeff mentioned, looking for assets within the orphan rare neuro space, where we can leverage our capabilities as a company. At the same time, we're equally as committed to looking for other opportunities to drive value for shareholders. We have an active share repurchase program that we've announced. We were -- as evidenced last year, we executed $100 million under that program. We have $150 million of additional authorization that we can certainly leverage. And we're committed to leveraging everywhere where we believe our equity is undervalued overall, and we will deploy the capital to generate value again for shareholders.

Great. And if I could write the remaining $150 million of share repurchases are scheduled to be completed in 2024.

We haven't announced this specific, but it's -- that's the open capacity that we have. And we look at it more opportunistically overall. And again, we're focused on both expanding the pipeline through business development as well as looking at it opportunistically for share repurchase, where we believe our equity is undervalued.

Kind of a balanced approach, looking at the opportunities from a business development perspective versus share repurchase, where can we deploy capital to maximize shareholder value. And -- but the pipeline and building that out is an important priority.

I mean thank you, Sandip. Clearly, kind of easily leads into my next question. So what is the -- what are the focus areas for business development? How do you think about assets which can sit along with your existing commercial assets or pipeline which is coming up, what would be your priorities be...

Do you want to just comment...

Sure. Yes. So I think our focus -- we like the company profile where we are with sort of the expertise and competency and the infrastructure in orphan rare CNS neuro space. So we cast a wide net and then have some sort of strategic filters as we're looking at opportunities. And then ideally, in the rare sort of neuro neuropsych arena, late stage -- mid- to late-stage development assets. We'll consider something as commercial on market for the right opportunity and then obviously, deal terms and what sort of fits where we are now. So that is the overall approach. And there are opportunities out there, and we continue to sort of look at them, put them through these filters and see how we can best build out the pipeline.

What I'd add is, just generally, we have broad capacity, as I just mentioned, in terms of the financial flexibility to be able to transact on business development. And looking across the spectrum, as Jeff mentioned, we have the ability to look at additional debt capital, ability to access the public markets if necessary. So we have broad capacity and really excited about the opportunity to build out the pipeline over the coming months and years.

So if all of both the debt capital markets and equity comp markets, if you see that, too, what kind of a dry powder should I think about in terms of ability and the size of deals that you'll be comfortable with?

I think we have broad capacity. I think it will really depend on the asset itself. As I mentioned, we have $425 million on the balance sheet. We're generating strong cash flow. This year, we did a term loan deal last year where we had $200 million, we could certainly expand that capacity through additional debt. We also have access to the public markets as well. So generally, we feel good about our capacity. It really will come down to the asset and the opportunity.

Thank you Sandip. Maybe 1 last 1, we have 1 minute remaining. Just getting back to ZYN002 Cannabidiol, is the transdermal application the path of differentiation versus existing cannabidiol products? And what are the indications that you'll be targeting with this?

Yes. No, it's a great question. So I think, first, it's -- I think, the target indication. So the existing ones in the market, Epidiolex looking sort of the rare epilepsies and the sort of the DEs and we're focused initially on the neuro behavioral conditions Fragile X. And then right behind that, there's actually a Phase III ready program in, let's call it 22q deletion syndrome. So Fragile X is the most common form of inherited intellectual disability part of the autism spectrum disorder conditions and then 22q is a related disorder that Zynerba generated positive Phase II proof-of-concept data, have discussions with the agency that we've now been engaged to set up a Phase III program there. It's another about 80,000 patient market opportunity, and that's something that we are excited about. The application, I think the important thing, the oral cannabidiols are limited by kind of the GI tolerability, you have about 25% to 30% nausea, vomiting, diarrhea that can be sort of rate limiting and treating and managing those patients as well as elevation in LFTs. The transdermal application avoids first-pass metabolism. So you don't have the LFT issue, and we're only seeing about 5% to 9% or 10% of the nausea and vomiting, the GI side effected. So I think it's an improvement in that regard in that delivery mode.

Fantastic. So multiple moving parts, both on the pipeline side and the commercial side, wishing to the best. And I hope you also had a productive conference. So Jeff, Jeffrey and Sandip, thank you for joining us and sharing your thoughts.

Thank you.

Thank you.

Thank you.