Harmony Biosciences Holdings, Inc. Q2 FY2023 Earnings Call

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

Thank you, Operator. Good morning, everyone. And thank you for joining us today as we review Harmony Biosciences second quarter 2023 financial results and provide a business update. Before we start, I encourage everyone to go to the Investors section of our website to find the materials that accompany our discussion today, including a reconciliation of our GAAP to non-GAAP financial measures. At this stage of our life cycle, we believe non-GAAP financial results better represent the underlying business performance. Our speakers on today’s call are Dr. Jeffrey Dayno, President and CEO; Jeffrey Dierks, Chief Commercial Officer; Dr. Kumar Budur, our Chief Medical Officer; and Sandip Kapadia, Chief Financial Officer. Moving on to slide two, as a reminder, we will be making forward-looking statements today, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties; our actual results may differ materially, and we undertake no obligation to update these statements even if circumstances change. We encourage you to consult the risk factors referenced in our SEC filings for additional details. I would now like to turn the call over to Dr. Jeffrey Dayno. Jeff?

Thank you, Luis. And thank you everyone for joining our conference call today and for your interest in Harmony. Before I comment on our strong second quarter performance, which is reflective of our focused execution and operational excellence, I want to highlight why Harmony continues to be a growth story and outline the key elements driving our growth. We continue to drive growth in our core business for WAKIX in narcolepsy, and based on this, our confidence that WAKIX represents a $1 billion-plus opportunity in adult narcolepsy alone. Our current life cycle management programs for pitolisant, notably our Phase III program in idiopathic hypersomnia or IH, continue to demonstrate strong momentum and if we are successful in IH and our other current life cycle management programs, these indications could generate up to an additional $1 billion opportunity. Our work with our partner Bioprojet on new formulations of pitolisant is progressing with the goal to potentially extend the pitolisant franchise with new IP out beyond 2040. And with a profitable business and strong balance sheet, we are in a favorable position to bring in new assets through business development to build out a robust pipeline and portfolio of products. In fact, it is the ongoing confidence in our core business and our conviction in the long-term growth potential for Harmony that is the reason behind this morning’s announcement that our Board of Directors authorized a $125 million share repurchase program. This program reflects our confidence in the strength of the company and our commitment to deploy capital to maximize shareholder value. Starting with our core business, our strong commercial performance is a result of the unique and meaningfully differentiated product profile of WAKIX in the proven excellence of our commercial organization. For the second quarter of 2023, we reported WAKIX net revenue of $134.2 million, representing an increase of 25% year-over-year driven by the continued underlying demand for WAKIX tapping into a large market opportunity of approximately 80,000 diagnosed patients with narcolepsy in the U.S. The momentum we highlighted last quarter carried into this quarter, during which time we saw the highest topline prescription demand since our first full quarter of launch in 2020 and the strongest quarter of new patient starts in our history. This is unique as it is not typical to see sustained growth in year four post-launch for an orphan rare product. With another strong quarter of growth behind us, we continue to be confident in WAKIX being a $1 billion-plus market opportunity in adult narcolepsy alone, and Jeff Dierks will provide further insights into the reasons we remain confident in the future of this opportunity. In addition to our strong commercial performance in Q2, we are also extremely pleased with the progress that we’ve made across all of our current pitolisant life cycle management programs. Our clinical teams have been very busy advancing all three programs with key catalysts coming from each of them later this year. Notably, we are on track for topline data from our Phase III registrational INTUNE Study in adult patients with idiopathic hypersomnia in the fourth quarter. As a reminder, last quarter, we announced completion of enrollment in this study, nine months ahead of our base plan, reflecting the significant interest from patients and healthcare professionals in pitolisant as a potential treatment for IH. We are very excited about this opportunity, which if successful could represent the next new indication for WAKIX. In follow-up to a positive end of Phase II meeting with the FDA to discuss our Prader-Willi Syndrome or PWS development program, we plan to initiate a pivotal Phase III trial in patients with PWS ages six years and older in the fourth quarter. We are on track for topline data from our Phase II proof-of-concept signal detection study in Type 1 myotonic dystrophy also in Q4. Altogether, IH, PWS, and DM1 represent about 100,000 diagnosed patients in the U.S. So if successful, our current life cycle management programs could contribute up to an additional $1 billion of revenue to the WAKIX franchise. In addition to our current life cycle management programs for pitolisant, we are making progress on new formulations of pitolisant that we are co-developing with our partner Bioprojet with the goal to generate new IP and extend the pitolisant franchise out beyond 2040. Lastly, we’ve advanced our strategy in pediatric narcolepsy and plan on submitting a supplemental new drug application for pediatric narcolepsy indication in the fourth quarter, and in addition, we are actively pursuing pediatric exclusivity for WAKIX. As you can see, we have made major progress across all of our development programs, and Dr. Kumar Budur will provide you with more details on these later in the call. Another key component of our growth strategy is acquiring new assets through business development to expand our portfolio beyond WAKIX. To achieve this, we intend to leverage our strong financial position with approximately $430 million in cash, cash equivalents, and investment securities at the end of the second quarter to acquire additional assets across a range of development stages, including both early- and late-stage with a potential to launch both during and after the WAKIX life cycle. Since taking on the CEO role at the beginning of the year, the team and I have been actively engaged in business development, evaluating a number of opportunities focused on rare orphan neurology assets and other neurological diseases where we can leverage our existing expertise and infrastructure. This is a high priority for us as it is a key component of our long-term growth strategy. While we are disciplined in our approach, ensuring not only a strategic fit, but also appropriate valuation, we are also working with a sense of urgency and understand the importance of having a robust portfolio in place. Overall, I am extremely proud of the outstanding progress that our team has made across every aspect of our business, which demonstrates that Harmony continues to be a growth story. I will now turn the call over to Jeffrey Dierks, our Chief Commercial Officer, to provide more details on our commercial performance. Jeff?

Thanks, Jeff. The second quarter was another strong quarter for WAKIX with continued growth and momentum in our underlying business fundamentals and topline performance metrics that were the strongest we’ve seen since launch. Net sales for the second quarter were $134.2 million, which represents a 25% growth from the same quarter prior year. The strong double-digit growth in net sales for WAKIX in year four of our commercialization demonstrates the continued high interest and adoption of WAKIX in the narcolepsy market and reinforces our long-term belief that WAKIX is a $1 billion-plus opportunity in adult narcolepsy alone. I’d like to share a few key highlights from our performance in the second quarter on slides five and six. The average number of patients on WAKIX in the second quarter increased approximately 350 patients, sequentially to approximately 5,450 patients. This impressive growth in average patients in the second quarter was driven by a strong performance in topline demand and new patient starts. In the second quarter, we saw the highest topline prescription demand since our first full quarter of launch at the beginning of 2020 and we also had the highest number of new patient starts in our history. The growth in average patients on WAKIX speaks to the continued product adoption and solid business fundamentals, strong topline prescription demand, growth in new patient starts along with continued patient refill behavior. We exited the second quarter with approximately 5,600 patients on WAKIX, with strong momentum coming out of the second quarter. We believe this metric of exiting patients helps to provide additional context to our strong performance leading into the third quarter. Strong patient interest and continued prescriber adoption continued to be key drivers of the growth in the average number of patients on WAKIX. The number of unique prescribers of WAKIX increased again in the second quarter, and importantly, we continued to see the WAKIX prescriber base expand beyond healthcare professionals enrolled in the oxybate REMS program. As we’ve shared in previous earnings calls, the meaningfully differentiated product profile of WAKIX and the unique feature of being the only FDA-approved treatment for EDS and cataplexy that is not scheduled as a controlled substance, offers broad clinical utility and appeals to a broader narcolepsy healthcare professional audience and patient base, which drives the continued growth in the depth and breadth of our prescribers. Across the nearly 9,000 narcolepsy-treating healthcare professional prescriber base, we continued to see meaningful penetration and growth. We see growth in the depth of prescribing among the approximately 4,000 healthcare professionals enrolled in the oxybate REMS program, an expanded breadth of new prescribers in the approximately 5,000 healthcare professionals not enrolled in the oxybate REMS program. The availability of a generic oxybate and the launch of a once-nightly oxybate at the end of the second quarter hasn’t impacted the continued growth of WAKIX. We continued to see meaningful growth in prescribing and patients on WAKIX along with strong payer coverage. Our ability to reach and educate the broad narcolepsy-treating healthcare professional universe and tap into the full diagnosed adult narcolepsy patient opportunity gives us confidence and continued growth and the long-term growth potential for WAKIX. Recent market research conducted by Harmony supports our view of continued growth for WAKIX. Research conducted in June of this year with approximately 70 healthcare professionals with and without experience with WAKIX prescribing showed the following: 100% of the healthcare professionals surveyed with WAKIX clinical experience stated they will prescribe the same or increase their prescribing of WAKIX in the next six months. Nearly 40% of those healthcare professionals surveyed who had not yet prescribed WAKIX to date indicated they intend to prescribe WAKIX in the next six months, and consistent with previous waves of research, one of the highest performing drivers and differentiators for WAKIX is the unique feature as the only non-scheduled treatment option. In summary, I continue to be excited by the strong commercial performance of WAKIX in adult narcolepsy. In the second quarter, we saw the highest topline prescription demand since our first full quarter of launch leading to an all-time high in new patient starts. Strong growth in the average number of patients on WAKIX, continued expansion and strengthening of the WAKIX prescriber base beyond the oxybate REMS healthcare professionals and payer coverage remains strong even with the availability of newer versions of oxybate. These are tremendous achievements, and I appreciate the dedication and impact of the entire commercial team and the passion they have for our business. This strong performance gives us confidence in the long-term growth potential for WAKIX and reinforces our belief that WAKIX is a $1 billion-plus opportunity in adult narcolepsy. I would like to now turn the presentation over to Kumar Budur, our Chief Medical Officer, to provide an update on the clinical development and current life cycle management programs for Harmony. Kumar?

Thank you, Jeff. Good day, everyone. Moving on to our clinical development pipeline to expand the clinical utility of pitolisant towards potential new indications in patient populations living with rare neurological diseases as shown on slide number seven. Starting with our development program in IH, we were extremely pleased to complete enrollment in our Phase III registration trial in adult patients with IH, also known as the INTUNE study at an accelerated pace and nine months ahead of schedule. The strong interest we have seen both from the patient community and clinical investigators resulted in this accelerated timeline, and we are now on path for top-line results in the fourth quarter of this year. If this Phase III trial is successful, it could represent the next new indication for WAKIX in adult patients with IH. Pitolisant could offer a new mechanism of action to treat patients with IH as pitolisant works through histamine to promote wakefulness. We view this as a significant market opportunity with approximately 40,000 patients diagnosed with IH. In addition, this opportunity could have significant synergies with our existing commercial footprint as there is a significant overlap in the physicians who treat patients with narcolepsy and those who treat patients with IH. For Prader-Willi Syndrome, we recently had a positive end of Phase II meeting with the FDA where we discussed the results from the Phase II proof-of-concept trial and aligned on the Phase III trial in patients with PWS. We now plan to initiate a Phase III trial in patients with PWS ages six and older in the fourth quarter of this year. Moving onto myotonic dystrophy Type 1 or DM1, we are on track for topline data from the Phase II proof-of-concept signal detection study in the fourth quarter of this year. In addition to our current life cycle management programs for pitolisant, we continued to make progress on new formulations with our partner Bioprojet, with the goal to generate new IP and extend the pitolisant franchise beyond 2040. We will provide an update later this year on the status of this program. Regarding pediatric narcolepsy, we are working with Bioprojet towards the submission of a supplemental new drug application to the FDA for an indication in pediatric narcolepsy, which we expect to file in the fourth quarter of this year. Regarding pediatric exclusivity, we have made progress with the FDA in gaining alignment on the requirements for pediatric exclusivity for WAKIX. The Phase III study in PWS planned to be initiated in the fourth quarter is part of the requirement. To conclude, we have made significant progress in advancing our clinical development programs with pitolisant and look forward to providing you with further updates later this year as we enter a catalyst-rich second half of 2023 regarding our development programs as highlighted on slide number eight. Also, our current LCM program will reach an important milestone in the fourth quarter, and we look forward to sharing the news with you when that occurs. I would like to take this opportunity to thank all the patients and their families who are participating in our clinical trials, as well as the clinical investigators and site personnel for their efforts and commitment in helping us to advance our clinical development programs for pitolisant. I will now turn the call over to our CFO, Sandip Kapadia, for an update on our financial performance. Sandip?

Thank you, Kumar, and good morning, everyone. This morning, we issued our second quarter press release and filed our 10-Q, where you’ll find the details of our financial and operating results. Our financial performance is shown on slides nine, ten, and eleven. We’re pleased to report growth across several of our key metrics, including strong revenue growth, improved profitability, and continued cash generation. This quarter, we also have several important updates with respect to the strength of our balance sheet and the additional opportunities to drive value for shareholders. Our financial performance also gives us the confidence for the remainder of the year as we continue advancing our growth strategy. So let me take a moment to take you through the details of our financial results. For the second quarter of 2023, we reported net revenues of $134.2 million, compared to $107 million in the prior year quarter, representing a growth of 25%. Performance in the quarter reflects the continued strong underlying demand for WAKIX. In the second quarter, specialty pharmacy buying patterns resulted in lower trade inventory levels at the end of the quarter compared to the beginning of the second quarter. In the second quarter of 2023, operating expenses were $62.3 million, compared to $55 million in the prior year quarter. The higher operating expenses were primarily driven by ongoing commercialization of WAKIX and the advancement of our clinical development program. Operating income improved, with the second quarter 2023 operating income of $46.9 million, compared to $33.1 million in the prior year quarter, representing an increase of 42%. Non-GAAP adjusted net income for the second quarter of 2023 was $45.9 million or $0.76 per diluted share, compared to $34.7 million or $0.57 per diluted share in the prior year quarter, reflecting our strong revenue growth and prudent expense management. We believe non-GAAP adjusted net income better reflects the underlying business performance. Please see our press release for a reconciliation of GAAP to non-GAAP results. During the second quarter of 2023, we ended the quarter with $429.6 million of cash, cash equivalents, and investment securities on the balance sheet. In addition, last week we entered into a new $185 million term loan facility led by JPMorgan, which further reduces our cost of capital, ensures a strong balance sheet, and provides us with greater financial flexibility. We used the net proceeds from the term loan and existing cash balance to repay our existing debt of approximately $197 million and related fees and expenses. The new facility has a lower interest rate, reducing our annual interest expense by approximately $6 million. The financing is another step in the growth evolution of the company as we continue to optimize our balance sheet. So looking ahead for the remainder of the year, we expect continued quarter-over-quarter growth in revenues and average number of patients on WAKIX. We also expect to continue to invest in R&D and SG&A as we advance our clinical development program and support the commercialization of WAKIX. Overall, we remain confident in WAKIX being a $1 billion-plus opportunity in adult narcolepsy, with the potential to contribute up to an additional $1 billion if approved in idiopathic hypersomnia and other current life cycle management programs. As you heard from Jeff, given our confidence in our core business and our conviction in the long-term growth potential of the company, this morning we announced that the Board authorized a $125 million share repurchase program. Our strong balance sheet and cash generation allow us to be opportunistic in returning capital to shareholders while still maintaining sufficient capital to advance our growth strategy. In conclusion, we’re very pleased with our strong financial performance and remain well-positioned for continued growth. And with that, I’d like to turn the call back to Jeff for his closing remarks. Jeff?

Thank you, Sandip, and thank you, Jeff and Kumar. In summary, Harmony continues to be a growth story and we are making significant progress on advancing our growth strategy. We will remain focused on growing our core business and helping even more adult patients living with narcolepsy with WAKIX, completing our Phase III registrational trial in idiopathic hypersomnia and delivering topline data in the fourth quarter. Initiating our Phase III pivotal trial in PWS in Q4, working with our partner Bioprojet on new formulations to extend the pitolisant franchise to help even more patients living with rare neurological diseases. Delivering on our long-term growth strategy by acquiring new assets to build out a robust pipeline for which we are well positioned to execute on, given our strong financial position and strategically deploying capital to maximize shareholder value. This concludes our planned remarks for today. Thank you for joining our call and I will now turn the call back over to the Operator to facilitate the Q&A session. Operator, can you please open the call to questions.

Thank you. We’ll take our first question from Danielle Brill with Raymond James.

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

Sure. Good morning, Alex. This is Jeff. I'll ask Jeff Dierks to comment on some of the dynamics, and Sandip will also provide additional insights on that.

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

Thank you, Jeff. Our trade inventory was down about a week compared to the start of the second quarter, which gives an idea of its impact on revenue. Importantly, as Jeff noted, we experienced strong underlying demand, making this one of our best quarters in terms of topline performance. Additionally, we’ve seen some recovery in July, aligning with our expectations. Regarding gross to net, there isn't much to update; we observed the improvement we typically see in the second quarter compared to the first. The primary impact during the quarter was due to trade inventories, which, as I mentioned, were down about a week.

Thank you.

I think, to summarize, we are experiencing really strong patient demand, and as we mentioned, this is the highest topline patient demand since our first full quarter of launch. The timing of inventory is what you are observing.

Great. Thanks so much for the color.

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

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

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

Sure. What I’d say is, look, it’s a natural evolution of the company, right? We have a very strong balance sheet, continued cash generation. So we have the opportunity to opportunistically return capital to shareholders while still maintaining sufficient capital for other important priorities, including business development. So this is not an either-or; this is in addition, I would say, overall. And certainly, given our stock price right now, it’s really an accretive use of capital to execute to really drive maximize shareholder value from that perspective. So hopefully that gives you a little bit of color in terms of, we don’t really see that either-or. So I think, it’s really just a natural evolution of the company, we have $430 million on the balance sheet, and we have capacity to do business development as well. And to your other question, as you know, we also did a recent financing as well that we announced last week, about $185 million led by very syndicate banks, which again gives us continued access to capital if needed for potential business development in the future as well.

Yeah. And David, just to reinforce in terms of business development, as I’ve mentioned before, it continues to be a high priority for us, and obviously, since I took on the CEO role at the beginning of the year, we’ve been actively engaged. The team and I have been looking at opportunities; we’ve gone deep on several. So it continues to be a high priority. We have optionality and access to capital, and that’s how we look sort of deploying that in addition to the potential for share repurchase.

Good morning, David. Just on the pitolisant-based assets. We are working very closely with Bioprojet on this effort and the formulation work is ongoing. These are pitolisant-based assets with the potential for generating new IP and the potential to extend the pitolisant franchise well beyond 2040. We do expect to provide an update later this year on these new pitolisant-based assets.

Thank you, Kumar. They are not new molecular entities; rather, they are enhanced formulations of pitolisant. As Kumar mentioned, we will provide updates later this year on our progress with these programs.

Okay. Helpful. Thanks, guys.

Thanks, Dave.

Thank you. We’ll take our next question from Ami Fadia with Needham & Company.

Hi. This is Poonam for Ami Fadia. Thank you for taking my question. I guess, just wanted to ask if you can talk a little bit about where you are on your walk in the life cycle management for WAKIX, like what initially completed before we’re ready to give a strategic update by end of the year and if the new formulation that you mentioned could be used in any indications that you are procuring?

Sure. So in terms of our life cycle management updates, Kumar can provide color on that. But I think as we shared, all of our current life cycle management programs, we’re looking ahead to milestones later this year in the fourth quarter and advancing those leading with IH idiopathic hypersomnia, and the Phase III registrational trial there. Kumar can provide more color on each of those with regards to where we are.

Good morning. Thank you for the question. Regarding life cycle management, we have several important developments scheduled for the second half of this year. Starting with idiopathic hypersomnia, we are on track to report topline results in the fourth quarter. For DM1, we are also expecting topline results in the fourth quarter. It’s important to note that the DM1 study is a small proof-of-concept study designed for signal detection, rather than statistical significance. In the case of PWS, we had a productive end of Phase II meeting with the FDA, where we aligned on the study design. We plan to initiate this study in the fourth quarter, and we also aim to submit a pediatric narcolepsy sNDA during that same period. There is a significant amount of activity occurring in the latter half of this year regarding life cycle management for WAKIX.

Yeah. Thank you, Kumar. So, Poonam, I think really good progress, really good momentum, and we’re excited for the catalyst coming later this year on our development programs.

Thank you so much.

Thank you. We’ll take our next question from Francois Brisebois with Oppenheimer.

Hi. Thanks for taking the question. I have a few inquiries. Regarding the exit number, should we start expecting this as a regular metric every quarter, or is it just a trend we've observed in the recent past?

Yeah. Thanks, Franc. Good morning. Jeff Dierks comments on the exit number?

Yeah. Franc, good morning. So we provided an exit number at the end of the first quarter, just given some of the payer seasonality and the headwinds. And I think just given the dynamics of the second quarter and really being able to quantify and be able to share with you the momentum coming out of Q2 into Q3 and the strength of our business, we provided it. As you know, I believe that the average number of patients is the most meaningful metric that we can provide, because it encapsulates all of the patient medication behavior into one number; it’s new patients, it’s refills, that includes compliance, persistency, and discontinuation rates, and it most closely aligns to net revenue on a quarterly basis. So I think from an exit number of patients perspective, it provides additional context in some quarters, but I think the number that really is most meaningful is average number of patients, Franc, and as we shared in our prepared remarks, we saw a sequential growth of approximately 350 patients from what we reported in the first quarter, where we had approximately 5,450 patients on the product. And again really tremendous results for year four of a rare orphan launch, and we’re really excited about the momentum that we’re seeing coming into Q3, and we’re anticipating strong sequential growth through the remainder of the year and on. We have a lot of conviction that WAKIX is going to represent a potential $1 billion-plus opportunity in adult narcolepsy alone.

Great. If I could follow up, you mentioned that a new oxybate has been launched on the market, but it seems to have no impact on WAKIX so far. Can you talk about the reimbursement situation? Is reimbursement going well for patients using both an oxybate and WAKIX? Additionally, are you seeing an increase in the number of patients using both, or is it still a relatively small percentage? Thank you.

Sure.

Go ahead, Jeff.

So from a managed care perspective, Franc, we continue to be extremely pleased with the favorable market access coverage for WAKIX. We haven’t seen any changes to our formulary position with the introduction of a generic oxybate earlier this year or with the launch of the once nightly oxybate at the end of June. As a matter of fact, we’ve actually seen some increases and improvements in some of the Type 1 plans within managed care, and we have no knowledge of any plans that require WAKIX to be stepped through an oxybate; and more importantly, there are no plans where there’s an NDC block or exclusionary decision made for WAKIX. So 100% of appropriate adult narcolepsy patients have access to WAKIX either through a positive formulary that’s published or through some type of medical necessity or exceptions policy. With respect to WAKIX and oxybate, what we’ve seen has been relatively consistent; it’s been a low double-digit percentage of the WAKIX patients are also on an oxybate. Again, you’re going to see as this category evolves a little bit, as you know, within managed care, there is likely going to be additional things that they’re looking to do to manage the category. But in a rare orphan space with not a lot of these individuals, you don’t see a lot of administrative steps with multiple products; managed care acknowledges that this was a polypharmacy market. And so with a low percentage of WAKIX patients also on an oxybate, we see really good access for patients on the product, and we’re really pleased with the strong payer coverage that really remains unchanged, even with the introduction of new products. And we believe we’re really well positioned, Franc. It’s a differentiated product; it’s the only non-scheduled treatment option. And we’re well positioned today, as well as the evolving managed care landscape moving forward.

Great. Thank you.

Thanks, Franc.

Thank you. We’ll take our next question from Graig Suvannavejh with Mizuho Securities.

Thanks. Good morning. Congrats on the continued progress. I’ve got two questions, one just on how to think about the third quarter, and I know that coming out of 350 new patient adds, which is a nice number. We’ve historically over the past several years seen you report in the second quarter 400 patients, and then they’ve kind of trickled down to 300, and I guess that does reflect a certain element of summer seasonality. So, maybe Jeff Dierks, if I could just ask you kind of thoughts around the dynamic for the third quarter? Any changes relative to what we’ve seen in the past? I know you’ve got some nice new momentum in terms of new prescription starts. So just wanted to get additional color there. And then my second question is just on, I was hoping to get the company’s perspective on last week’s curious patent challenge by Scorpion Capital and kind of any response reply to that? Thanks.

Sure.

Good morning, Graig. Yeah. Jeff, I will answer the first question, and then I’ll respond to your second question.

Sure.

So, Graig, for Q3 dynamics. I mean, I think you’re thinking about Q3 the right way; we do anticipate the typical headwinds, the summer seasonality with fewer patient visits to healthcare professionals. We’ve got, to your point, tremendous momentum coming out of Q2. Q2 was one of the strongest quarters in terms of topline prescription demand we’ve seen in three years, highest number of new patient starts ever in our launch, and adding 350 patients in year four of our commercial launch. I think it’s really tremendous results and although we’re not providing forward-looking guidance, I think you’re thinking about Q3 correctly. We continue to see growth in new prescribers. We see growth in average number of patients. We do expect sequential growth for WAKIX in average number of patients for the remainder of 2023, and we have extreme confidence in the long-term growth opportunity for WAKIX and being a potential billion-dollar opportunity.

Thank you, Jeff. Regarding your second question about the reexamination petition for the WAKIX patent that was filed on July 19th, we remain very confident in the strength of our intellectual property. We believe in the enforceability and validity of our patent portfolio, and we consider the petition for reexamination to be without merit. In terms of timing, the PTAB has 90 days to either deny or grant the petition from the submission date. Most petitions are granted, but that doesn't necessarily indicate the outcome of the reexamination itself. If the petition is granted, the reexamination process occurs between the PTAB and the patent holder, and in most cases, the patent status is upheld. Given our strong confidence in our intellectual property, which we will defend vigorously against any challenges, we believe that WAKIX represents a $1 billion-plus opportunity in adult narcolepsy. Additionally, if we succeed with our current life cycle management programs, it could contribute another $1 billion in revenue to the franchise.

Thanks very much.

Yeah. Thanks, Graig.

Thank you. We’ll take our next question from Jason Gerberry with Bank of America.

Hey. Good morning, guys. Thank you for taking my questions. First, just curious with the introduction of generic oxybate, mindful that it’s not impacting WAKIX, but do you have any insights into what’s going on? Is it expanding the market for pharmacotherapy for oxybate taking just share from Xyrem or taking share from other products? And then as my follow-up, I think, it’s to the Needham question. As you think about gen pitolisant, I guess, like, the curiosity is, why develop WAKIX for these follow-on indications if the IP could be at risk towards the back end of this decade? Why not prioritize the next gen pitolisant so you could have visibility and sort of a product lifecycle that lasts well into the 2030’s? Thanks.

Good morning, Jason. Thank you for your question. Jeff, could you elaborate on the dynamics within the oxybate franchise and the new products?

Sure. What we’re observing is a churn in the oxybate marketplace, as indicated by the Hickman data visible within Symphony Health Claims. As I mentioned earlier, we haven’t seen any impact from the generic launch or the introduction of the once-nightly oxybate at the end of the second quarter on our business. The data suggests that we are experiencing some churn. Regarding WAKIX, we’ve had a branded version available since our launch in 2019, and we've seen strong growth during that time, particularly in the first and second quarters of this year in terms of the average number of patients. We're continually adding new prescribers, and our access to around 9,000 healthcare professionals treating narcolepsy, with about 5,000 not enrolled in the oxybate REMS program, enables us to reach a broad diagnosed adult narcolepsy patient population. This gives us some resilience as new oxybate products enter the market. The overall benefit-risk profile of WAKIX and its broad clinical applicability resonate well with a larger audience of healthcare professionals and patients. We have great confidence in our business, recognizing the significant unmet medical needs and the large diagnosed and undiagnosed patient populations. Over the past few years, we’ve seen that there is room for multiple therapeutic options. Thus, we feel very positive about the position of WAKIX. However, regarding the generic oxybate, I haven't noticed it expanding the market; it's more about a shift within the oxybate category.

Yeah. And Jason with regard to your, on your second question about the IP runway for WAKIX and the current life cycle management programs and new formulations. So really good question. And I think what we have done to date, we’ve generated good momentum, obviously, in our IH program and the strong momentum and the pace of enrollment in that program with pitolisant and the same in terms of Prader-Willi syndrome in that program and where we are. But with regard to the longer-term outlook, we do see the potential new formulations, where we would have the option to potentially take those development programs, obviously, with longer patent protection, longer runway and shift some of those to the new formulations of pitolisant depending on what we see in the clinic and as those programs advance. So we see kind of optionality going forward for the longer-term outlook of our life cycle management programs, while optimizing the current momentum we have now. Obviously, with the interest in IH and the completion of enrollment and looking forward to topline data in the fourth quarter, as well as interest in the Prader-Willi syndrome program from that patient community that we’ve been kind of working with over a number of years now and interest in advancing into Phase III at this point.

Ask a quick follow up on that.

Sure.

With the thinking be to launch a next gen before going to market for PWS or IH, just thinking if you had lots of reformulation against a generic version of your WAKIX, the track record on that could be a little bit more challenging versus like if you can get a reformulation out first, it would seem like that would have, maybe a more competitive pathway in the market?

I believe that with the new formulation programs we're developing, this is a potential scenario we are considering. We are evaluating this possibility in the short term while also looking at the longer-term prospects of our formulation efforts. We'll provide more details as the new formulation programs advance later this year.

Got it. Thanks.

Yeah. Thanks, Jason.

Thank you. We’ll take our next question from Corinne Jenkins with Goldman Sachs.

Yeah. Good morning. A couple from me. Maybe first, can you talk about the new patient growth in the quarter, what portion of these patients are coming through via sleep specialist population versus the prescribing population you’ve described it, not being enrolled in the oxybate REMS program?

Good morning, Corinne. Jeff in terms of the patients and where they’re coming from in terms of the prescriber base.

Sure. Corinne, I mean, we’re seeing patients come through both those that are healthcare professionals enrolled in the oxybate REMS program, the sleep specialists. But we’re also seeing patients come through in the approximate 5,000 healthcare professionals that are not enrolled in the oxybate REMS program. I know there have been questions in the past looking at proportionality of what percentage of the patients reside more in the oxybate REMS enrolled doctors versus the non. And what you would say is that the majority of the patients tend to be in the oxybate REMS enrolled healthcare professional audience. They tend to be more of sleep specialists. But there is a meaningful percentage of our new patients that are coming from that approximately 5,000 healthcare professionals outside the oxybate REMS program. That’s what we’re seeing our new prescribers coming from; the depth of prescribing and the new patients are coming out of the other portion of the oxybate REMS enrolled doctors.

Okay. And then on the Phase III Prader-Willi study, what assumptions can you share that underpin the size of that study and the powering decisions that went into its design?

Yeah. Go ahead, Kumar.

Good morning, Corinne. Thanks for the question. We had a positive meeting with the FDA, and we aligned on this study design, and as we mentioned earlier, we plan to initiate this study in the fourth quarter of 2023. We plan to provide details on the study design at the time of study initiation.

Okay. Thank you.

Thank you.

Thank you. And our last question will come from Charles Duncan with Cantor Fitzgerald.

Good morning, everyone. First, I want to congratulate you on the strong end market demand. I have a question regarding the commercial aspect and another about the pipeline. Concerning the commercial question, given the difficulties with projections, I’m curious if you are considering providing guidance, possibly next year or even this year. When do you feel you would be ready to offer guidance and what factors would influence that decision?

Good morning, Charles. Sandip comments on providing guidance.

Yeah. No. Thanks. Thanks, Charles, for the question on that. I think this year at least we made the decision that there’s sufficient information, and you saw from the launch and you continue to see this past quarter good consistency in terms of topline demand for the product, and I think overall, many of you have a good understanding of our business. So I think that’s something that we would naturally revisit at the start of next year. But no promises right now, but I think it’s certainly something we can take a look at; but right now we feel good about investors’ understanding of our business and the fundamentals there, and I think we’ll provide continued to provide additional color around the business to give you more context as we did this quarter regarding the trade inventory and so forth, so we will provide additional color there to help guide on the future.

Thank you, Sandip. I have a question for Jeff or Kumar about the pipeline and the ongoing IH study with pitolisant. Congratulations on the enrollment rates. However, do you think the rapid enrollment may have led to increased variability in the patient sample? What gives you confidence in the results? Is it the blinded analysis of the enrolled patients or the randomized withdrawal design? Please help us understand your thoughts on the potential readout.

Sure, Charles. Yeah. I will turn it over to Kumar for thoughts on that as Head of our Development Programs. I think it starts also mechanistically. I think it starts in mechanistically, and Charles you know this well in terms of pitolisant and how it works. It’s a wakefulness agent through histamine and mechanistic fit in that sort of that patient population. And Kumar can expand on in terms of our thoughts on confidence in the readout?

Right. Good morning, Charles. Thanks for the question. I think that the study enrolled fast, and we were very pleased with it. In fact, nine months ahead of schedule, and it’s not just the mechanism of action, just a thought; Jeff mentioned also the interest from the patient and the provider as well, because of the significant unmet need in patients with idiopathic hypersomnia. In terms of heterogeneity and specific question as a clinical development specialist, we always want to make sure that the patients are homogeneous to the extent possible. So we had checks parlance first within the study conduct and also in our protocol to make sure that the patients who come into the study with the inclusion, exclusion criteria and the right subject for our study. We have full confidence that we enroll the right subjects and we look forward to the topline data, which we anticipate in the fourth quarter of this year.

Okay. Regarding the topline read, it’s actually been more by timelines within the study or is it driven by, call it, data analysis? And can you give us any further insights on that being October versus December?

Yeah. I mean, at this time, it’s hard to speculate, whether it will be early fourth quarter or late fourth quarter. What I can say at this point in time is, we are on track for topline result in the fourth quarter.

Okay. Very good. Thanks for taking our questions. Congrats on the end market demand.

Yeah. Sure, Charles. And we are very excited about for that topline data readout as well. So obviously, the team is working aggressively and focused on producing topline results, and we look forward to sharing that with you when they come.

Thank you. And at this time, I will now turn the call back to management for any additional or closing remarks.

Thank you, Todd. And thanks to everyone for joining our call today and for your interest in Harmony. I would also like to thank the talented team at Harmony Biosciences, who I have the pleasure of working with for their efforts every day to deliver on our mission to develop and commercialize innovative treatments for patients living with rare neurological diseases. As you heard from the team this morning, our business remains strong, Harmony continues to be a growth story, and we have conviction in the long-term growth potential of our company. We have built momentum during the first half of 2023, and we are now looking forward to a catalyst-rich second half of the year. Thank you and have a great day.

Thank you. This does conclude today’s Harmony Biosciences second quarter 2023 financial results conference call. You may now disconnect your lines and have a wonderful day.