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

Everyone, and welcome to the Goldman Sachs Healthcare Conference. Thanks so much to the team from Harmony Biosciences for just joining us here today. And yes, I guess we'll kick it off.

I would love to get started with just maybe an overview of the company. It's changed a lot in the past, let's call it, 1.5 years. So could you give us kind of an overview of the pipeline?

Yes. Sure, [ Corinne ]. Thank you for the invitation. Great to be here. Yes. So I think at Harmony, we're well positioned. We're happy in terms of our position as a profitable self-funding biotech company, building off of 4 years of profitability in terms of our core commercial franchise in WAKIX and narcolepsy that continues to grow. And from there, preparing for the next-gen pitolisant formulations that we can talk about in the pipeline. With regards to what we've been building over the past 2 years, with our pipeline now that includes 3 orphan rare CNS franchises, and we've got 8 assets across 13 development programs and currently 4 in Phase III and by the end of the year, up to 6 Phase III development programs. So with regards to the Sleep/Wake franchise, neurobehavioral franchise and then also a rare epilepsy franchise, this pipeline is poised to deliver up to 1 to 2 new product or indication launches each year over the next 3 to 4 years. So we think a very robust late-stage catalyst-rich pipeline in the orphan rare CNS space.

Great. Maybe we'll start on the WAKIX franchise. This year, you've put out full year guidance of $820 million to $860 million. I guess talk to us about what that embeds with respect to patient growth for the full year? And how does it compare to kind of like the trajectory of patient growth you've been on to date?

Yes, sure. No, we've got great momentum coming in with the first quarter. As you know, we announced about $185 million of sales, which is growing about 20%. So really heading into our sixth year at 20% sales growth. We exited the quarter with about 7,300 patients on therapy. So we expect continued strong patient growth for the balance of the year, still a lot of opportunity. As you know, over the last 5 years, we've shown very consistent overall growth quarter-over-quarter. We expect the same for the balance of the year, and we'd be approaching about 8,000 patients by the end of the year. So -- and again, reinforce our guidance in terms of $820 million to $860 million overall. And I would say well on our way to $1 billion plus in narcolepsy alone. So pretty excited about this year. Again, it's another milestone for the company.

Yes. You talked about 9,000 patients being kind of the level that gets you to $1 billion in sales at the rate you're growing, that means by the end of next year, you'd be annualizing there. I guess what are the puts and takes that would take to get there by the end of 2026?

I think it's really just around continued strong commercial execution as we go through this year and next year. There's still a large opportunity. As you know, there's still about 80,000 patients opportunity. We're about 7,300, as I mentioned, at the end of this quarter. So a lot of opportunity for continued growth in the marketplace. And so we see continued growth, like the balance of the year as we go into next year as well. And like I said, getting close to where we talked about reaching about 9,000 patients and which we get to $1 billion-plus opportunity. And I think a lot of it is really driven by growing depth of prescribers in the oxybate physicians that the oxybate REMS and then really driving breadth for the physicians outside of the REMS program. And that's a really unique feature about WAKIX for us. I don't know, Jeff, anything for us?

No, I just think the underlying business fundamentals continue to be strong. And I think a lot of it, as Sandip said, continued execution and tapping into a sizable market opportunity of about 80,000 patients diagnosed and really growing the business across the 9,000 HCPs that we call on both those in the oxybate REMS and the 5,000 that don't participate. And a lot of this is based on the broad clinical utility, the differentiated product profile, the first and only non-scheduled product approved for narcolepsy. And year 6 in the market, I think it's been consistent sort of performance, and it really continues tapping into that market opportunity.

Yes. You did recently hire a new Chief Commercial Officer. Can you just talk to me about the perspective that he brings to the role and anything kind of like new that we should expect? Obviously, it's been successful to date, so you wouldn't want to...

Right. Yes, so it's not broken. And I think that -- so that's sort of the takeaway, yes. So our new Chief Commercial Officer, Adam Zaeske, who's been on board now about 6 to 8 weeks or so. So Adam, when he was doing his diligence on Harmony, he saw obviously a successful commercial business continuing to grow. And I think now that he's been in, his observations are that really validating what he saw. So he brings 25 years of experience in the industry, about 20 years at Takeda. His last role is heading up commercial operations for a big part of Europe. He's been in every commercial role, so he understands from sales and marketing, market access. He's done a lot of analytics on life cycle management. So I think his initial observations are strong business, continue to build off of that. No major changes with regards to how the marketing strategy and how things are being executed. He also brings a fresh pair of eyes with regards to year 6 in the market, where are some of the levers that potentially that we could pull to kind of accelerate some of the growth and really building off of a successful franchise, and he doesn't plan any major changes to this successful business.

Of course. You mentioned life cycle management a little bit in that answer, and I'd love to talk a little more about that. At a high level, you have this like gastro-resistant and high-dose formulations. Where do you see those fitting into the WAKIX franchise? And maybe you could walk through the development time line for each of those programs.

Sure. Yes. So I think the opportunity of the pitolisant franchise. So now with WAKIX and LOE out to 2030, we have the runway in terms of the next-generation formulations. So the first one is really an opportunistic play, pitolisant GR or gastro-resistant formulation. So it's a quick-to-market strategy based on the demonstration of bioequivalence to WAKIX. It's got a gastro-resistant coating, which can help address -- it's not that there's a lot of GI side effects in patients on WAKIX. But patients with narcolepsy are prone to sort of GI symptoms, nausea, dyspepsia. A lot of that is mechanism-based because when you have orexin deficiency, orexin drives the vagus nerve, which controls gut motility. So patients with narcolepsy, it's almost like a comorbidity or a coexisting condition. So GR can kind of help minimize the potential for GI side effects. In addition, we're also doing a study to remove the titration dose with a gastro-resistant formulation. So we'll be able to -- patients will be able to start on the therapeutic dosing range and kind of achieve efficacy quicker. So GR, we are actually doing the pivotal bioequivalent study now and on track for the data readout from the pivotal BE study in the third quarter. Target PDUFA date in 2026. So that is meant to -- the design there is meant to expand the base of patients on both WAKIX and pitolisant GR. And off of the expanded base is the next formulation, pitolisant high dose. So that is a -- that's the more sort of novel in terms of the next-generation product. So it's a new formulation designed with an optimum PK profile for greater bioavailability and then with -- also with the gastro-resistant coating. So driving the major unmet need in the market of greater efficacy in terms of about 75% of patients have residual symptoms, both EDS and cataplexy. So pitolisant HD, with regards to the opportunity there, we're on track to initiate the Phase III pivotal trials in both narcolepsy and idiopathic hypersomnia in the fourth quarter this year. In addition to the usual end points, the other opportunity with high dose is to target unique symptoms in both of those patient populations. So in narcolepsy, we'll be evaluating the potential to treat narcolepsy-related fatigue. So fatigue is a different construct. It's a different symptom than EDS, and it's mediated through histaminergic circuits. So I think there is a rationale why pitolisant working through histamine could be effective. Fatigue is present in about 60% to 70% of patients with narcolepsy, and that would help in terms of driving a differentiated label for pitolisant HD. And then in the IH program, in addition to EDS, there's an important symptom of sleep inertia. So that will also be a key end point in the Phase III pivotal trial.

You spoke qualitatively about the benefits of a high dose. Maybe you could help quantify what that means and some of these end points to prove kind of the clinical differentiation or meaningful differentiation on high dose.

Yes. So I think the meaningful differentiation is -- so in terms of improvement on the FR Sleepiness Scale score, it's about a 2-point improvement within patient improvement is felt to be clinically meaningful. So I think that's sort of the threshold that the Phase III program is designed to demonstrate. So meaningful improvement on EDS compared to WAKIX and then obviously, gaining an indication in narcolepsy-induced fatigue, which will help further differentiate the product profile.

Okay. And how do you think about the right patient population for whom there is this kind of residual unmet need? And what portion of patients on WAKIX would be great candidates for this?

Yes. I mean I think it's not just on WAKIX. I think that there's a statistic about 75% of patients treated for narcolepsy have residual symptoms with regards to -- and especially EDS being the primary symptom. There's a sizable opportunity in those patients that are on therapy with residual symptoms as well as newly diagnosed patients coming in, where you've got an enhanced PK profile, greater bioavailability, higher dose gastro-resistant coding. So the overall, I think, product profile would be, I think, valuable for a lot of these patients in the market when we come with a target PDUFA in 2028.

Okay. In terms of dose dependency, what do we know about pitolisant that then kind of supports this thesis that a higher dose is going to deliver these kind of benefits as you're speaking about?

Yes. So I think the clinical development program kind of over the years is both starting with the pivotal programs in narcolepsy. So for instance, in the label, the 17.8 milligram dose has about a 5-point improvement in the Epworth. The 35.6 has a 6, 6.5 point improvement. And then we have other dose response and exposure response data in our other clinical trials. I think that support the benefit in terms of going up on the dosage range, which was never fully interrogated. And we've also shared we have the safety margins. We did a repeat dose safety study up to 180 milligrams, which shows adequate safety margins to go up on the dose for pitolisant HD.

Okay. Great. And as you speak to payers about this profile, the target profile that you just kind of outlined, what are they looking for to kind of justify paying for this even in the context of a generic WAKIX?

Yes. So I think that we've done some market research with payers but maybe if you want to kind of share the findings.

Yes. No, I think what we've done is the research with payers. And essentially, prior to WAKIX LOE, I think payers said as long as it's priced similarly parity, I think we would have the opportunity for patients that are even on WAKIX to transition to that. And I think post-LOE, they would have to have some exposure to potentially on pitolisant before going there. And I think the key thing here is really there's going to be -- it's not simply just a higher dose. It's a different formulation overall and the fact that we would also have clinical data that would show potentially in fatigue and other symptoms as well. So I think that's really -- it's really the efficacy differential that would help make the case much stronger for pitolisant HD along with greater bioavailability.

Yes, yes. I mean I think the initial market research, both payers as well as HCPs, they see the target product profile as being a superior product with higher efficacy in the core symptoms and then fatigue is an added benefit. And fatigue is in about 60% to 70% of patients, a different sort of construct and sleepiness. So the feedback was that this would be incremental to the current WAKIX profile.

Sure. And you've mentioned LOE a couple of times thus far. You recently settled a couple of the generic patent suits. Maybe just give us an update in terms of the latest on those patent suits? And should we expect everything to now kind of triangulate around January 2030 or July, depending on the pediatric?

Yes. So I think that -- yes, so we feel good about the progress we've made in terms of the ANDA settlements. Yes. So last week, we announced that we settled with Lupin, which is sort of the biggest of the ANDA filers. And we settled similar to the first 2. It's the third settlement and with an entry date of January 2030, the base case was March of 2030 with regards to LOE. So I think good settlement terms. And then we're also on track to gain pediatric exclusivity, which would be an additional 6 months, taking it to July of 2030. And I think that with that momentum and as more of the parties settle, then there's less sort of remaining in the suit. It's more expensive. And I think that gaining good momentum as we continue to engage with the remaining parties.

How many more are there?

So there are 4 remaining. There were 7...

Okay. 3 settled, 4 remaining. Perfect. Okay. Maybe we can switch gears to the pipeline for a bit. I think you mentioned this earlier, Fragile X syndrome is the next clinical readout that's coming. You got Phase III results in the third quarter. Maybe let's just take a step back and revisit the acquisition that brought you this asset. In 2023, you acquired it. What was the impetus behind that acquisition? And what did you kind of like about the product and market?

Yes. So I think we saw strong clinical data from the Phase II study in another orphan rare sort of neurologic neurobehavioral disorder. And we have been following Zynerba is actually a company down the road from us and knew some members of the team. And they were doing good work in generating strong data in an area where there are no approved therapies and major unmet medical need. I mean maybe, Sandip, a few comments on the deal terms in terms of what we're able to achieve.

Yes. No, I think we had very attractive deal, acquired the company for about $60 million. We had about $26 million in cash, and we were able, because we're a profitable company, leverage a lot of the NOL. So we took a P&L of probably around like single-digit millions in terms of to acquire very late-stage Phase III programs. And we spent probably over the last year or so, about $30 million to get to an answer for an opportunity that is pretty sizable. We'll speak a little bit more about it, but a real -- we have high conviction in the program, and we think that, if successful, really offers the first treatment potentially for patients with Fragile X.

Yes. I think it's a really exciting opportunity. And I don't -- I know we don't have a lot of time. But -- so first, the product, so I think it's an innovative product. So it's a purely -- ZYN002, it's a purely synthetic cannabidiol pharmaceutically manufactured, devoid of THC. And it's delivered through -- it's a transdermal application. It's a permeation-enhanced patent-protected gel. The benefit of that is it bypasses first pass metabolism. So the oral cannabidiol products, and I think the one that's best known is Epidiolex, which has a lot of rate-limiting sort of GI tolerability issues, about 20% to 30% sort of nausea, vomiting, diarrhea, appetite suppression. And then you also have to monitor LFTs. So with ZYN002 and transdermal delivery, it bypasses first-pass metabolism, and we don't see any of the GI tolerability issues from the clinical trials and no elevation in LFTs. So I think a very innovative product. And then we saw the Phase II CONNECT study, which over 200 patients, a sizable trial in patients with Fragile X and strong data in the subgroup of patients with complete methylation of the FMR1 gene. I'll come back to that. It showed a statistically significant and clinically relevant outcome on the primary end point in terms of the social avoidance subscale of the ABC Fragile X checklist. So with that, we learned a lot about in terms of the data and lessons learned from the Phase II study and then design them into the Phase III trial, which is really designed to replicate the positive findings of the Phase II trial. And with that, the primary end point is on patients with complete methylation of the FMR1 gene. And the importance of that, those patients have more severe symptoms and greater ability to show benefit with treatment and it's sort of homogeneous group. Patients with partial methylation still maintain some FMR protein. So their symptoms are not as severe. And we also extended the duration of the trial because we saw instantly on Phase II trial, patients continue to improve from the 12-week end point out to 16 weeks. So we increased the length of the Phase III RECONNECT trial to basically achieve the continued benefit in those patients. And then lastly, we saw a dose response and added a higher dose patients over 50 kilos in the Phase III RECONNECT trial. So in essence, we're replicating the findings of the positive Phase II study with those enhancements and have a high degree of conviction in the probability of success for ZYN002, and we're on track for top line data readout in the third quarter.

Okay. You mentioned a number of my questions, so I'm going to skip ahead. What is the primary end point that you're looking at in the Phase III? And remind us how it's kind of measured and evaluated.

Yes. So the primary outcome is -- so Fragile X disorder neurobehavioral symptoms and -- so the main ones are social avoidance, which is the primary outcome and then irritability and anxiety. So those are all part of the ABC checklist for Fragile X. There's sort of 6 domains. So these are 3 of the key behavioral symptoms with social avoidance being the primary outcome and then irritability and anxiety, key secondary outcomes. So it's basically -- it's a 12-point scale on the social avoidance subscale of the ABC checklist and then a 3-point improvement is felt to be clinically meaningful. And the study is powered at 90% to demonstrate that clinically meaningful improvement.

Okay. Understood. In terms of the Phase III, I guess, how did you think about what the placebo arm would do given this is a patient population that I'm sure there's a good degree of variability? And then can you talk about any sort of execution features that help to manage the placebo cohort?

Yes. No, I think that question often comes up, these scales and how do you manage placebo response. And so I think once we brought the study in, we basically, through the clinical operations team and a lot of boots on the ground. So we did a lot of rater training. So a lot of it is training, it's an observer scale, either the parents or the caregivers and then training with regards to trying to minimize kind of placebo response and minimize kind of variability in the response rates on that scale.

Okay. Understood. In terms of next step, let's say, we see positive data in the third quarter, what comes after that?

So with positive data, I think we're looking to engage with the agency and then look to submit an NDA and seek approval. Again, no approved treatments. I think that we -- the Phase II study will be supportive in the positive data there. So be able to, with positive data in the Phase III RECONNECT trial, build a strong NDA submission and then work with the agency during the review process. The other opportunity is with positive data, there's another related disorder as a follow-on indication in what's called 22q deletion syndrome, also known as the Georgia syndrome. So similar neurobehavioral pattern. Zynerba generated positive open-label Phase II data. We've engaged with FDA on a Phase III trial design on a primary end point and has gained agreement there. So actually, Kumar and the team are preparing to initiate a pivotal Phase III in 22q late this year if we read out with positive data in Fragile X, and then we'll follow that program on for that opportunity. In terms of the market opportunity, both of them are about 80,000 patients in the U.S. with Fragile X as well as 22q, about 60,000 patients by claims data. And in addition, for ZYN002, we also have global rights to that asset. So with positive data, the studies are also designed to satisfy not just submission for FDA, but also EMA as well. So we would have an opportunity to partner that out ex U.S. in other markets.

Okay. Great. And maybe just remind us on the patent side, what's the patent around this particular asset?

Yes. The patent -- at this point, there are method of use patents in these conditions to the late 2030s.

Okay. Great. Maybe continuing on with the pipeline. Last year, you did acquire an orexin-2 agonist. Maybe let's start with how you think about that class of therapy. There's a lot of noise there and the potential role given your kind of experience in narcolepsy that those drugs could play.

Yes. Yes. So obviously, the orexin-2 agonist, a lot of excitement there, a lot of interesting work there. And I think the main update is -- so this week, the sleep -- the annual Sleep Conference is taking place in Seattle. So we will be presenting on Wednesday, a full panel of our preclinical safety and efficacy data out at sleep. And what it will show, we've been talking about the importance of potency in the orexin-2 agonist compound. And I think what it will demonstrate is what we've seen that our compound has the highest potency of what's kind of in the public domain, and that will translate and show the high degree in the preclinical narcolepsy models of efficacy and the benefit of -- in terms of the properties of our orexin-2 agonist.

Okay. How do you think this class is going to be used? Do you expect it will be used beyond the NT1 patient population? And why or why not?

Yes. So I think that, obviously, we're still learning a lot about the orexin-2 agonist in the clinic. I think the importance of potency is that the lower the experience to date, the lower you can dose and generate good efficacy and minimize some of the safety and tolerability features, then that will help possibly be beneficial beyond NT1. So I think Takeda, obviously, the most advanced program and their initial target is on NT1. And then you have Alkermes in the clinic looking at both NT1, NT2 and now looking at IH. But it's still -- I think the ultimate product profiles of what these products will look like from a safety and efficacy perspective, I think it's still playing out in the clinical program.

As we think about the bar for moving forward or the thresholds you'd like to hit to move forward with this program, anything we should be mindful of with the Phase I data?

Yes. So I think at this point, we are on track to submit an IMPD middle of this year and then go into the clinic second half of this year, first in-human studies. And then we'll have our initial clinical data next year. And we would look to, based on the preclinical data that we've seen, generate strong efficacy signals. And at that point, based on the work to date and what's known about this class, then look to accelerate our clinical development program.

Okay. Maybe we can talk a little bit about epilepsy. You also acquired a couple of assets last year, the first EPX-100 in development for Lennox-Gastaut and Dravet syndrome. The preclinical data is pretty supportive of the efficacy of the agent. But let's talk about how you designed the Phase III study to capture that activity.

Yes. So I think that -- so for EPX-100, so clemizole hydrochloride, a 5-HT2 agonist. So I think importantly, right now, we have the most advanced 5-HT2 agonist programs in the clinic for the rare epilepsies. So as you mentioned, the EPX-100 in Phase III for Dravet syndrome. And then we initiated late last year and now in Phase III for Lennox-Gastaut. I think they are -- the trial designs are pretty standard in terms of demonstrating reduction in countable motor seizures in those patient populations. I think similar to some of the other products on the market that are approved for those indications.

You went straight into Phase III given this is a drug with tons of safety data. So talk to us how you thought about dose selection and powering around demonstrating the appropriate clinical end points.

Yes. I think dose selection was based on some of the preclinical models and then the studies were adequately powered in terms of 4 registrational Phase III trial. And that's kind of what guided in terms of EPX-100 into the clinic.

You've talked about one of the areas of differentiation for this versus some of the other programs in development is reduced monitoring requirements. So can you talk about what that means, explain a little bit more and how you expect that to play out in the clinic?

Yes. So the benefit -- yes, so clemizole hydrochloride is -- was a first-generation antihistamine. So it was actually on the market for about 20 years. So a lot of post-marketing safety data, which didn't show any major safety signals. It was sunsetted when the second-generation antihistamine products came in. So I think compared to what you have currently on the market, that are effective agents for the rare epilepsy, so Epidiolex and then Fintepla. And I think with Epidiolex, as I mentioned, the need to monitor LFTs and some of the rate-limiting GI side effects. Fintepla fenfluramine, I actually know well from my days at ViroPharma when we actually looked at that many moons ago. But there, it's really the cardiac risk in terms of the valvulopathy and pulmonary hypertension. So it's actually a REMS program for you need to do echocardiogram prior to initiating therapy and then you have to sort of follow with echocardiogram. So in EPX-100, the idea is comparable efficacy or possibly better with an improved safety tolerability profile could deliver an overall benefit risk profile favorable for these kids that still have severe refractory seizures and a new therapeutic options would be very, very valuable.

And how do you see this market shaping up in terms of polypharmacy or competitive dynamics? Where does this fit?

Yes. Probably similar to the narcolepsy market. I think polypharmacy is common. Really refractory seizure is difficult to treat. Multiple mechanisms are often kind of included. So I think polypharmacy market, new product offerings will be important. I think patients likely will cycle on and off therapy based on what combinations may or may not work for an individual patient.

Okay. So you mentioned this drug has existed for a long time. So talk to us about the patent.

So patents similar to ZYN002 into the late 30s based on methods of use for Dravet, LGS as well as broader DEEs.

Okay. And where are you in terms of determining a registrational path for other DEEs?

I think that we said that we've taken the approach sort of a more focused approach in Dravet, which is more a homogeneous condition and now into Lennox-Gastaut. From there, we have optionality either with EPX-100 potentially going broader after if successful, gaining those indications. But we also have EPX-200, which is a liquid lorcaserin, which is a more 5-HT2C specific agent. So that we are working on final formulation and looking to go into the clinic. That could be another option for us to go right into kind of a broader DEE type of basket trial.

Okay. Perfect. Maybe in our remaining time, you can just speak briefly to the capital allocation priorities for the company.

So priorities are to -- I'll start and Sandip chime in, continue to grow. So obviously, strong balance sheet, over $600 million. We feel that we're just getting started. We've built sort of the enterprise. We've built a team, a lot of experience, a lot of expertise, unique commercial model. Obviously, Kumar has built a strong R&D bench. And I think with the balance sheet, we're looking in the current market backdrop to continue to add to either our current CNS orphan rare franchises or possibly an adjacent opportunity if we see something that's compelling.

No, I think you covered it. I mean, look, we have a very unique profile as a company, right? We're positive cash flow generating. Last year, we generated over $200 million of cash. We have really high EBITDA. So really ability to leverage not only our company financial profile, but also the strength of the balance sheet with over $600 million to be able to acquire additional programs. Again, as we've done already, we've demonstrated over the last years to -- against many late-stage programs. So we continue to look for opportunities to do that and continue to drive value for shareholders.

Great. Well, with that, I think that takes us to the end of time and all my questions. Appreciate it today, guys. Thanks.

Thank you.

Thank you.