Harmony Biosciences Holdings, Inc. Q1 FY2024 Earnings Call

Good morning. My name is Madison, and I will be your conference operator today. At this time, I would like to welcome everyone to Harmony Biosciences' First Quarter 2024 Financial Results Conference Call. 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' First Quarter 2024 financial results and provide a business update. Before we start, I encourage everyone to go to the Investors section of our website to find the materials that accompany our discussion today, including a reconciliation of our GAAP to non-GAAP financial measures. At this stage of our life cycle, we believe non-GAAP financial results better represent the underlying business performance. Our speakers on today's call are Dr. Jeffrey Dayno, President and CEO; Jeffrey Dierks, Chief Commercial Officer; Dr. Kumar Budur, Chief Medical Officer; and Sandip Kapadia, Chief Financial Officer and Chief Administrative Officer. As a reminder, we will be making forward-looking statements today, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties. Our actual results may differ materially, and we undertake no obligation to update these statements even if circumstances change. We encourage you to consult the risk factors referenced in our SEC filings for additional details. We have a lot to share this morning, so in order to allow ample time for Q&A, we will keep our prepared remarks brief this morning. I would now like to turn the call over to Dr. Jeffrey Dayno. Jeff?

Thank you, Luis, and thanks, everyone, for joining our conference call today. Earlier this morning, we were excited to announce our third business development deal in the past eight months with the acquisition of Epygenix Therapeutics. As you may have seen in our earnings release, in addition to this news, we have accelerated our growth strategy and transformed our business to position Harmony for long-term value creation. Given all the exciting news and upcoming catalysts that we have to share today, we will not be able to go into depth on everything on this call. But the key points that I want you to take away from our call today regarding the Harmony story are the following. Our commercial business is strong, and WAKIX continues to demonstrate durable growth now in year five in the market. WAKIX represents a $1 billion-plus market opportunity in adult narcolepsy alone, and we are well on our way as we expect to continue to grow the brand through LOE in 2030. We are growing organically by advancing our life cycle management programs for pitolisant with the next-generation formulations designed to improve the patient experience and patient outcomes as well as generate new IP to extend the pitolisant franchise out beyond 2040. We are also pursuing new indications for pitolisant including near-term catalysts in pediatric narcolepsy and idiopathic hypersomnia to help even more patients living with unmet medical needs and drive incremental revenue. We are making good progress toward pediatric exclusivity, which would provide an additional six months of regulatory protection on the back end of our longest patent, a commercial opportunity of around $1 billion. And we are growing inorganically through business development. With our previous announcement regarding the licensing of TPM-1116, a highly potent and selective orexin-2 receptor agonist to solidify and grow our Sleep/Wake franchise and today's announcement regarding the acquisition of Epygenix and their rare epilepsy portfolio. We now have three orphan rare CNS franchises in late-stage development, each with potential peak sales opportunities of $1 billion to $2 billion and patent protection ranging from the late 2030s to mid-2040s. At Harmony, we believe we are well positioned to become the leading patient-focused CNS biotechnology company, delivering innovative treatments to patients with unmet medical needs and, while doing so, drive significant and durable value creation. I want to take a minute to emphasize the value of our pipeline that we have been building. Across these three franchises, we are currently working with eight assets being studied across 13 development programs. More importantly, we expect these programs to result in at least one new product or indication launch each year over the next five years. We have planned ahead, executed smart and strategic business development deals with low upfront costs and risks tied to the achievement of certain clinical, regulatory, and sales milestones that, if successful, are poised to generate significant near-term and long-term value creation. And we are not stopping here. While we have made significant progress on our business development goals, we continue to look to build out our pipeline even further. While we do a broad suite of the BD landscape, our focus is on assets in the orphan rare CNS space, consistent with the three deals we have done over the past eight months. We feel there are other opportunities out there that would fit our growth strategy. And with approximately $454 million in cash, cash equivalents, and investments as of March 31, we are in a solid financial position to execute on additional BD opportunities and have demonstrated our ability to do so. Let me share a few highlights with you from each of our three franchises that are in late-stage development. First, building off our leadership position in Sleep/Wake with WAKIX. We began working on extending the pitolisant franchise several years ago by developing new formulations of pitolisant that are planned to come to the market, both during and towards the end of the WAKIX life cycle. Importantly, these products are designed to improve patient experience and patient outcomes and will have new IP that extends our durable growth and leadership in Sleep/Wake out beyond 2040. We remain committed to the idiopathic hypersomnia patient community and gaining an indication for pitolisant in IH and plan to submit an sNDA to the FDA in the second half of this year. After following the orexin space for the last few years and doing diligence on several of the assets, we licensed TPM-1116, a highly potent selective oral orexin-2 receptor agonist with a potential best-in-class profile due to its unique chemical structure and preclinical data. This solidifies our leadership position in sleep medicine and demonstrates our long-term commitment to the field. Our second franchise in rare neurobehavioral disorders continues to make good progress, and the lead program with ZYN002 is in a pivotal Phase III registrational trial for Fragile X syndrome and on track for top-line data readout in mid-2025. This presents a sizable market opportunity for approximately 80,000 patients living with Fragile X in the U.S., and we also have global rights to this asset with even bigger market potential. Today, with the announcement of our latest BD deal, the acquisition of Epygenix Therapeutics, we established a rare epilepsy franchise and acquired two new assets to serve as the foundation of what could be a larger franchise. The lead program is with clemizole hydrochloride, or EPX-100, which has received both orphan drug designation and rare pediatric disease designation from the FDA for Dravet syndrome and Lennox-Gastaut syndrome. It is currently in a pivotal registrational trial for Dravet syndrome with top-line data expected in 2026. We also plan to start a pivotal Phase III trial with EPX-100 in patients with Lennox-Gastaut syndrome in the second half of this year. Kumar will be providing more color on the growth of our development enterprise and our robust pipeline programs later in the call. The important takeaway is that we expect these programs to result in at least one new product or indication launch each year over the next five years, with multibillion-dollar revenue potential extending out beyond 2040. While I have focused on the significant progress in our catalyst-rich pipeline that has the ability to deliver durable growth out beyond 2040, I don't want you to lose sight of the continued durable growth that WAKIX has demonstrated now in year five in the market. We delivered another strong quarter with net revenues of $154.6 million, which represents 30% growth year-over-year. With these strong results, we are reiterating our 2024 net revenue guidance of $700 million to $720 million. We believe that we can continue to grow the franchise for years to come and remain confident that WAKIX represents a $1 billion-plus opportunity in adult narcolepsy alone, and we are well on our way. With that, I will turn the call over to Jeffrey Dierks, our Chief Commercial Officer, for an update on our commercial performance in our Sleep/Wake franchise. Jeff?

Thanks, Jeff. The first quarter was another strong quarter for WAKIX in adult narcolepsy, highlighted by continued product adoption and growth in our underlying business fundamentals. Net sales for the quarter were $154.6 million, representing 30% growth from the same quarter in the previous year. The solid net sales performance in the first quarter reaffirms our confidence in our net sales guidance of $700 million to $720 million for the full year 2024. Key drivers of our performance in the quarter were continued growth in the average patients on WAKIX, growth in the WAKIX prescriber base, and continued strong favorable market access as seen on Slides 5 and 6. The average number of patients on WAKIX increased by approximately 6,300 in the first quarter. We are extremely pleased with the continued growth in patients on WAKIX and the durability we're seeing in that growth in year five of our rare orphan commercialization. We successfully navigated the traditional Q1 seasonal payer dynamics and changed healthcare cybersecurity impact and are seeing good leading indicators in our underlying business fundamentals heading into the second quarter. We saw continued growth of the WAKIX prescriber base beyond oxybate writers in the first quarter as well. We noted meaningful growth in new writers of WAKIX and the approximately 5,000 non-oxybate REMS-enrolled healthcare professionals. Our presence in this segment reached over 33% writer penetration at the end of the first quarter. This audience represents an insulated group of prescribers and patients from the oxybate market, and the continued growth of prescribers in this segment each quarter reaffirms that WAKIX is growing the branded writer segment beyond the oxybate by providing a meaningfully differentiated product profile that offers broad clinical utility across the entire narcolepsy treating healthcare professional universe. In addition to the growth in new prescribers, we continue to see growth in the depth of prescribing among the approximately 4,000 oxybate REMS-enrolled healthcare professionals, even with the availability of new and generic oxybate options. WAKIX is highly penetrated within this prescriber audience and we see growth in this segment each quarter as WAKIX is being prescribed to additional narcolepsy patients. Our ability to call on the entire narcolepsy treating healthcare professional audience allows us to tap into the full diagnosed narcolepsy patient opportunity, giving us confidence in the long-term future growth of WAKIX. The last driver of our performance in the first quarter was the continued strong and favorable market access coverage for WAKIX, even with the availability of new and generic oxybate options on the market. We've seen no changes to the overall payor coverage for WAKIX over the past year, and we believe we are well-positioned to support future growth. In summary, we had another strong quarter of durable growth and performance in net sales, patient additions, and growth in prescribers of WAKIX. We're seeing good leading indicators on our underlying business fundamentals heading into the second quarter. The solid performance in Q1 reaffirms our confidence in our full year net sales guidance of $700 million to $720 million. I'm excited about our performance, and we are confident that WAKIX represents a potential $1 billion-plus opportunity in adult narcolepsy alone, and we are well on our way. I would like to now turn the call over to our Chief Medical Officer, Kumar Budur, to discuss the advancements in our clinical development programs. Kumar?

Thank you, Jeff. Good morning, everyone, and thank you for joining us today. We are making great progress in advancing, expanding, and diversifying our pipeline programs, several of which are in late-stage development. As Jeff mentioned, we now have 13 different development programs ranging from preclinical to registrational studies across eight different assets and three distinct franchises focused on rare orphan neuro indications with high unmet need and the ability to launch a number of these indications in the coming years. Our full clinical development pipeline is shown on Slide 7. And I think you can appreciate how much it has grown over the past year. Let me start by sharing some key updates in each of our franchises. Starting with our growth in Sleep/Wake franchise and program in Idiopathic Hypersomnia. We met the FDA in March to discuss the next steps for our IH program. We were encouraged by the discussions we had with the agency regarding our data, the burden of the disease, limitation of current treatment options and the off-label use of scheduled drugs. We feel that the agency understands and appreciates the high unmet need in IH. While we understand the bar for approval is high, we are moving forward and plan to submit an sNDA in the second half of 2024. The submission will be based on the totality of the data generated from the study, including data from the ongoing long-term extension study, which strongly supports pitolisant's efficacy in patients with IH. We have also identified other supportive information that will be included in the sNDA to further strengthen our submission. We are optimistic and remain committed to bringing a new treatment option to patients living with IH that is not scheduled, has an established safety profile and a simple dosing regimen. Moving to pediatric narcolepsy. We are on track for the PDUFA date of June 21. We are pleased with the FDA's decision to prioritize our review. This decision highlights the need for new treatment options for the approximately 4,000 pediatric patients living with narcolepsy. For Prader-Willi Syndrome, we initiated the Phase III TEMPO study in the first quarter. This is a global multicenter double-blind randomized placebo-controlled study that will randomize approximately 134 patients in a 1:1 ratio between pitolisant and placebo. We are committed to obtaining pediatric exclusivity for pitolisant. We are making good progress on the two requirements: data in pediatric narcolepsy and data in PWS patients, by submitting the peds narcolepsy sNDA and initiating the Phase III study in PWS, respectively. We hope that pediatric exclusivity will add six months of regulatory exclusivity to the back end of the longest patent, representing a significant commercial opportunity for WAKIX. An important element of our franchise growth strategy is to develop new pitolisant-based assets with the goal of generating new IP, extending the pitolisant franchise beyond 2040 and bringing new and improved versions of pitolisant to the market for people living with narcolepsy and other sleep-wake disorders. We are making good progress on these formulations, NextGen 1, NG1, and NextGen 2, NG2, with our partner Bioproject. We are pleased to report positive PK data in NG1, an enteric-coated pitolisant formulation designed to demonstrate bioequivalence to WAKIX through an abbreviated development pathway. The NG1 formulation is designed to potentially decrease GI side effects and also have important additional clinical differentiation compared to WAKIX that is the ability to start dosing at 17.8 milligrams at the beginning of the therapeutic dose range for pitolisant rather than the need to titrate up to the therapeutic range. This clinical differentiation will be supported by a dosing optimization study. As shown on Slide 9, the pilot BE study showed similar rate and extent of absorption between NG1 and WAKIX, demonstrating relative bioavailability. The next step for NG1 will include initiating the pivotal bioequivalence and dosing optimization studies in the fourth quarter of this year. Based on the development timeline, we expect a PDUFA date in 2026. In addition, our provisional patent for NG1 has been filed and the potential for patent protection extends out to 2044. Moving on to NextGen 2, or NG2, this is an enhanced formulation of pitolisant designed to deliver an optimized PK profile and a higher dosage strength. This formulation will have new IP, a full development program, and is expected to launch toward the end of the WAKIX life cycle. We are on track to report PK data from this formulation in the first half of this year. We are also very pleased to continue to strengthen our leadership position in Sleep/Wake with the licensing of TPM-1116. Licensing and acquiring assets were the natural next step for us, as it leverages our established experience and expertise both in development and commercialization of treatments for sleep/wake disorders. TPM-1116, a novel orexin-2 receptor agonist, represents a potential best-in-class product profile among the current orexin-2 receptor agonists. It has a new chemical scaffold compared to the other orexin-2 agonists, potentially contributing to its unique product profile. TPM-1116 will be evaluated for the treatment of narcolepsy and other sleep/wake disorders. The preclinical data suggest its potential best-in-class profile based on its high potency, good selectivity, potential for once-daily dosing, and good safety profile. We look forward to sharing the preclinical data at an upcoming scientific conference. In terms of development milestones, we expect to file an IND in mid-2025 and initiate first-in-human studies in the second half of 2025. Moving on to our next franchise with the neurobehavioral disorder franchise. ZYN002, a pharmaceutically manufactured, synthetic cannabidiol gel devoid of THC with a patent-protected permission-enhanced gel for transdermal delivery, which like WAKIX could be a foundational asset in our growing neurobehavioral franchise. We are currently enrolling patients in the pivotal Phase III RECONNECT trial in Fragile X syndrome. With approximately 80,000 patients diagnosed with Fragile X syndrome in the U.S. alone and no approved treatment, there is significant unmet medical need. We expect to complete patient enrollment in the first quarter of 2025, with top-line data in mid-2025. ZYN002 was also studied in an open-label Phase II proof-of-concept study, like the INSPIRE study in patients with 22q Deletion syndrome and generated positive signals in the aberrant behavioral checklist. This represents another opportunity to help approximately 80,000 patients with 22q Deletion syndrome in the U.S. alone, and we have been interacting with the FDA regarding the Phase III program in 22q and expanding this franchise. It is worth noting ZYN002 is a global opportunity for Harmony, and we look forward to exploring opportunities to bring this novel treatment to patients living with Fragile X syndrome and 22q Deletion syndrome around the world. Finally, we announced today the establishment of our third rare orphan neuro franchise in epilepsy with the acquisition of Epygenix Therapeutics. This acquisition brings us two assets targeting rare epilepsies, both global opportunities for us. The first asset, EPX-100, is clemizole hydrochloride, a potent, centrally acting serotonin agonist, which is currently in a pivotal registrational clinical trial for the treatment of Dravet syndrome in children and adults. Dravet syndrome is a rare and severe developmental epileptic encephalopathy with high unmet medical need. The proven mechanism of action of clemizole via the serotonergic system could offer good efficacy, and importantly, a safer product profile than currently available treatment options, improving the quality of life and functioning in patients with DS. We anticipate top-line data from the ARGUS study in 2026. EPX-100 is also poised to enter a Phase III registrational trial for the treatment of Lennox-Gastaut syndrome, another rare and serious developmental epileptic encephalopathy with high unmet medical need. We anticipate starting this study in the second half of 2024. EPX-100 has received both orphan drug designation and rare pediatric disease designations from the FDA for both Dravet syndrome and Lennox-Gastaut syndrome. Our second investigational product, EPX-200, is a potent, centrally acting selective 5HT2C agonist that is currently in IND-enabling studies. EPX-200 also received orphan drug designation for Dravet syndrome and Lennox-Gastaut syndrome after previously having rare pediatric disease designation for Lennox-Gastaut syndrome. To conclude, we have made tremendous progress in advancing our development programs, expanding our pipeline, and diversifying our portfolio, resulting in multiple late-stage development programs across three different franchises: Sleep/Wake, neurobehavioral, and rare epilepsy. If successful, these programs could result in at least one new product or indication launch every year over the next five years, along with the potential to help hundreds of thousands of patients across all the rare neurological disorders we are investigating. I'm proud of the hard work and dedication of our teams at Harmony and look forward to sharing additional updates as we continue to advance our clinical development program. On behalf of Harmony, I would like to thank all the patients and their families for participating in our clinical trials, as well as clinical investigators and site personnel for their efforts and commitment to helping us advance our development programs. I'll 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 first quarter earnings release and filed our 10-Q, where you'll find the details of our first quarter 2024 financial and operating results. Our financial performance is also shown on Slides 12 through 15. We're off to a great start to the year 2024. We reported another strong quarter of growth in revenues and net income, along with continued cash generation. Our unique financial performance and profile positions us well to continue advancing our growth strategy and look for opportunities to drive value for shareholders. We reported net revenues of $154.6 million compared to $119.1 million in the prior year quarter, representing a growth of 30%. Performance in the quarter reflects the continued strong underlying demand for WAKIX coupled with the typical seasonality dynamics that the industry as a whole experiences each year in Q1, including a higher gross to net deduction along with a couple of days of drawdown in trade inventories. We also reported strong growth in net income and margin. Non-GAAP adjusted net income for the first quarter of 2024 was $50.7 million or $0.88 per diluted share, compared to $40.7 million or $0.67 per diluted share in the prior year quarter. We believe non-GAAP adjusted net income better reflects the underlying business performance. Please refer to our press release for a reconciliation of GAAP to non-GAAP results. We ended the first quarter with $453.6 million of cash, cash equivalents, and investments on the balance sheet. The balance reflects continued cash generation from our underlying business, which provides us the financial flexibility to continue executing on business development and opportunistically returning capital to shareholders via our share repurchase program. Looking ahead, we continue to expect strong quarter-over-quarter growth, with the potential for trade inventory drawdown of a few days in Q2 as we head into the summer. We are reiterating our net revenue guidance for 2024 of $700 million to $720 million, highlighting our progress towards the $1 billion-plus opportunity in narcolepsy alone. With respect to expenses, we do expect to take IP R&D charges for the licensing of TPM-1116 and the acquisition of Epygenix in the second quarter. The charges will primarily consist of the upfront cost of $25.5 million and $35 million, respectively, offset by the value of net assets we have acquired. In addition, we expect ongoing operating expenses of approximately $35 million for 2024 as we advance both programs. As you saw from the terms of both transactions, we continue to be disciplined with capital deployment. We structured both transactions with low upfront payments with success-driven regulatory and sales milestones. As a result of our recent efforts in business development, we now have multiple programs in late-stage development, with the potential to generate revenue in the coming years. So in conclusion, we're off to a great start to the year, along with strong outlook for the balance of the year, and well positioned to continue to drive value for shareholders.

Thank you, Sandip. As we have just highlighted for you, Harmony is a growth story, and our growth is accelerating. We have strategically been executing on expanding our pipeline and diversifying our portfolio to drive near-term revenue up to 2030 and durable long-term revenue growth out beyond 2040. The key drivers of our catalyst-rich pipeline and future revenue potential include the next-gen formulations of pitolisant that can generate new IP and extend the pitolisant franchise, driving durable revenue out beyond 2040. New indications for pitolisant, including near-term catalysts in pediatric narcolepsy and idiopathic hypersomnia, gaining pediatric exclusivity and an additional six months of patent protection from the back end of our longest patent, which represents a significant commercial opportunity. Our three business development deals over the past eight months have resulted in three orphan rare CNS franchises in late-stage development, each with potential peak sales opportunities of $1 billion to $2 billion and patent protection ranging from the late 2030s to mid-2040s. The growth of our development enterprise now includes eight assets advancing across 13 development programs resulting in the potential for at least one new product or indication launch each year over the next five years. At Harmony, we believe we are well positioned to become the leading patient-focused CNS biotech company, delivering innovative treatments to patients with unmet medical needs, and while doing so, drive significant and durable value creation. Thank you for your attention, and I will now turn the call over to the operator for Q&A. Operator?

We will take our first question from Charles Duncan with Cantor Fitzgerald.

Jeff and team, congratulations on a good commercial quarter, as well as the recent business development deals, impressive activity. So I had a quick question for Jeffrey Dierks in terms of the commercial business. Nice growth year-on-year appreciating the seasonal issues. But in terms of the number of patient adds, let me ask you about how you feel about that, as well as one of the things that Kumar mentioned is in the next generation an ability to titrate more rapidly. I guess I'm wondering if you look at the current patient population taking WAKIX, how do you feel that's impacting the use of WAKIX? Will the improved titration rate make a difference in terms of the persistence within WAKIX?

Yes, Charles, thank you for your question. To answer your question on the average number of patient adds in the first quarter, first off, I'll tell you that we're extremely pleased with the durable growth that we're seeing in the average number of patients. It grew by 150 patients sequentially from what we reported in Q4. We continue to see strong top-line demand and new patient starts. And Charles, as you know, the 150 average patient growth is well in line with our past two Q1 average patient growth in the last two years. As you cited, we typically have the Q1 seasonal payer dynamics and the reauthorizations of prescriptions. A reminder, coming into 2024, we had a larger established patient base with 6,150 average patients, whereas a year ago, we only had about 4,900. And all those established patients are exposed to those reauthorizations that occur every January for specialty and branded products. As you know, those reauthorizations simply add time. So about 25% more of our patients were exposed to that, and we did have the additional headwind of changed healthcare. But we have a great commercial model, a closed distribution network, and the outstanding work of our team. We did a tremendous job in navigating those dynamics, and we've continued to demonstrate growth every single quarter in average patients. We're going to continue to tap into that large patient opportunity as the market allows each quarter. And we're confident, as Sandip shared in his prepared comments, to expect quarter-over-quarter growth for the remainder of 2024 and beyond.

That's helpful. If I could ask one development question that is regarding the new assets Epygenix. Congratulations on that. Kumar, you mentioned 2026 being data with EPX-100. I guess I'm wondering what is really modulating that timing of 2026? I know these are difficult studies to enroll. But could that prove to be an overly conservative estimate of time to top-line data on EPX-100?

Charles, thanks for the question. Look, we just acquired this asset. Right now, we believe 2026 is when we will be able to come out with the top-line data. Obviously, as the study progresses and as we are able to bring in Harmony resources, the expertise in R&D, and especially the advocacy support group that we have very well established here at Harmony, who work closely with the patient community. All these aspects will definitely help with recruitment. You are right, recruiting DS patients is not necessarily easy, but I think we have a really strong team to recruit these patients. As we make progress with the clinical trial, we will provide more granularity for the timeline.

I apologize if the question was already asked. I got dropped off the call for a sec there. But I was just wondering in terms of the acquisition, the Epygenix acquisition, is there any data that you intend to share soon about the other past readouts just given it's a private company and people might not be familiar with their story?

Francois, thank you for your question. I think, yes, Kumar can talk about data generated and what we'll be sharing going forward?

Yes, thank you, Frank. Clemizole hydrochloride is a first-generation antihistamine that was introduced in 1950 and sunset in the 1970s, with the introduction of second and third-generation antihistamines. There is some safety data from that period of time, which is very benign. The Scn1a mutation model of zebrafish with clemizole hydrochloride was studied and published extensively by Scott Baraban, who is a professor at the University of California in San Francisco. The mechanism of action is the potent centrally acting serotonergic drug, a proven mechanism of action when it comes to developmental epileptic encephalopathy. Alongside this, we have robust data from the long-term open-label study that has not been published yet. We will discuss the appropriate time to put those data in the public domain.

Okay, perfect. And then just a question in terms of, again, sorry if you mentioned this, but the 150 new patient adds, is there any seasonality impact here on the number of patient adds? Is it mostly the gross to net and that impact on the inventory also having an impact? Or does the number of patient adds also get impacted by seasonality in the first quarter, because we had seen a few years ago, it was only 100 patients, I think, in Q1 '22. So just wondering about that? And then you mentioned the $700 million to $720 million guidance. But I don't think you mentioned the 7,000 patients on drug. Is that still something that we should expect? Or are we getting away from that 7,000 number here?

Sure, Frank, thanks for the question. Yes, from a Q1 perspective, we do see seasonal payer headwinds that do have an influence on the number of patient adds in the first quarter. You cited the 150 patient adds we had this quarter is in line with the last two years. We had 200 last year, we had 100 two years ago, so it remains consistent as we face reauthorization headwinds on prescriptions. It’s also a reminder that this year we had a larger established patient base coming into 2024, with about 6,150 average patients exposed to the reauthorization this year. Whereas coming into '23, we only had 4,900, so around 25% more patients were exposed to that reauthorization of prescriptions that branded and specialty products typically face in January. And those reauthorizations add time to the process, which does have slight influence on patient adds, but it’s still in line with our expectations. We are pleased with what we saw in the first quarter leading into your questions about guiding towards approximately 7,000 patients at the end of the year. In addition to reiterating our guidance on net sales, I am reiterating the guidance that we expect to end the year at around 7,000 average patients.

Congrats on the progress at the company along with the recent deals. My first question is on Idiopathic Hypersomnia. Could you share some of the details of the discussions that you had with the FDA and how they view some of the additional analysis that you were going to share with them? Did you specifically get clarity on whether these data would be adequate for approval? Or was that characterized as a review issue by the FDA? And then I have one more question.

Thank you for your question. It's Jeff. I think as you know, we had a good interaction with the FDA regarding the IH program. And as you're aware, it always comes down to a review issue. But based on the discussion and interaction and the strength of the data that we generated, we feel that there is a path forward. Kumar can share more detail regarding the FDA interaction.

Thank you, Jeff. Thank you, Ami, for the question. Yes, we had good discussions with the regulatory agency on the data, the unmet need, the lack of treatment options, and especially around the off-label use of controlled stimulants. We felt that the FDA recognizes and appreciates the lack of treatment options for patients with Idiopathic Hypersomnia. We are optimistic based on the totality of the data, Ami, not just the open label, but also the trends we saw in the randomized withdrawal period and especially the long-term extension study where we still have about 90 patients currently participating. All of those patients have completed six months of treatment, and more than half of them have completed 12 months of treatment. About ten of those patients have completed 18 months of treatment, and we continue to see the persistence of effectiveness along with safety data. We are also planning on obtaining real-world data and other data that will not only strengthen our submission but also contextualize the data generated from the INTUNE study. Based on all of this, we remain optimistic. We do recognize the bar is high, but we are committed to patients with Idiopathic Hypersomnia to bring pitolisant to them as soon as possible and as efficiently as possible, providing them an option for a nonscheduled drug with a simple dosing regimen and an established safety profile.

Got it. That's very helpful. Just with regards to EPX-100, this class of drugs has had a history of some safety issues. So could you comment on how you got comfortable with the safety profile of EPX-100? If you could give us some color around the dose being studied in the trial relative to the dose that has been approved in the market for all these years? And if you could talk about the IP protection that you anticipate for the assets?

Yes, sure, Ami. I guess you are referring to some of the cardiovascular issues that Fintepla has, which also acts via a histaminergic mechanism of action. The histaminergic mechanism of action for this particular indication is a proven mechanism of action, particularly with D-fenfluramine, which is the active ingredient in Fintepla, and does show some cardiovascular effects such as pulmonary arterial hypertension that may result in thickening of the heart valves. That's why that particular product has a black box warning and is subject to the REMS program. For clemizole hydrochloride, there is a large body of safety data from when it was introduced in 1950s, 1960s, and 1970s, in addition to nonclinical safety studies, including 6-month and 9-month repeat dose studies in dogs. The dogs are very sensitive when it comes to findings regarding cardiovascular issues. We did not see anything that suggests clemizole hydrochloride will have any cardiovascular impact, including QTC prolongation. The FDA has reviewed this data and did not ask us to perform any additional monitoring apart from standard protein and blood pressure checks. We have also been pleased with the safety profile observed in the double-blind randomized study. In the long-term open-label extension study, none of the patients have reported any cardiovascular issues. Furthermore, we have not observed any laboratory abnormalities. There are two tests that are often used in this indication; one has significant GI issues and requires regular liver function monitoring, and the other has some cardiovascular concerns. So, we are optimistic about the benign safety profile of this compound as well as compelling efficacy data.

That was very helpful. I just have that IP question as well, if that's okay.

This is an old compound, Ami, so we don't have a composition of matter patent, but we do have a method of use patent. Of course, because both of these are orphan diseases, rare diseases, we will get seven years of exclusivity in the U.S. for each of these indications. This is also a global opportunity for us. So, we will get 10 years of exclusivity in Europe for each of these indications.

And just to clarify on the patent, Kumar, method of use is out to 2034.

2034 and any other extensions...

And regulatory exclusivities.

I have two questions. One on clemizole and then one on the orexin. So, on clemizole, could you talk about how the product compares versus next-generation options with serotonergic activity? I'm thinking specifically of Longboard's bexicaserin given its recent data. How do you think about clemizole stacking up? And I understand it's a polypharmacy-based market, but do you think there’s room for these agents with some overlap mechanistically?

Sure. Thank you, Jeff. David, thanks for the question. Regarding bexicaserin and the recent data from the PACIFIC study, it's still early stage, a small study with only 52 patients. The efficacy data looked good; however, it's a short study, and we haven't seen the long-term safety data yet as they continue to collect it. I see that as early stage still. We just need to see how it pans out as it advances through development. This market is indeed a polypharmacy market, with significant unmet needs. There is a place for different mechanisms of action to coexist, and even incremental differentiation in efficacy or safety is appreciated by both providers and patients.

And then my second question on the orexin. And I know it's early, but can you talk to the development path here? You've got Alkermes and Takeda advancing their orexins in NT1, and Alkermes also in NT2. Do you think more about yours potentially in IH or in other settings where hypersomnolence is a hallmark symptom or are you also looking at your garden-variety path forward in terms of narcolepsy 1 and 2? Just help us better understand your thinking on this.

Thanks, David, for your questions. Kumar, you want to address EPX-100, and then I'll respond to the orexin question.

Sure. Thank you, Jeff. Regarding TPM-1116, while we recognize that it's in early stage development and there are other programs ahead, I think we're still learning from those data as they are generated. Our current approach to the orexin development involves focusing on NT1, the prototypical disorder with orexin deficiency, as opposed to NT2 and IH. However, we'll learn from the other programs and have optionality as we advance TPM-1116 toward additional path forward.

Yes, and just to add on the question around TPM-1116, it has a high potency, which allows us optionality concerning other central disorders of hypersomnolence as well. As you know, Takeda had to limit the dose to 10 milligrams and pursue NT1 only, foregoing NT2 and idiopathic hypersomnia for now. However, the preclinical profile we see with TPM-1116 appears promising, making us optimistic about its potential in other indications as well.

Can you hear me okay?

Yes, we can.

Congrats on the great progress that we're seeing from the company. I've got a question for Sandip. Sandip, just in light of the new BD deals that you've done and your plans to potentially continue adding to the pipeline, I guess it's a two-part question. Is the current plan on any next deal that you do to first prioritize adding yet another or a fourth CNS franchise? Or are your thoughts currently to build on the existing three CNS franchises you have now? And then for the second part of my question, maybe this is more for Sandip. In light of the added pipeline programs, which we all think is positive, just wondering if you have any initial thoughts on what the P&L might look like for the company, both in terms of SG&A and R&D for Harmony over the next one, two, or three years?

Sure, Graig. Let me address your first question. In terms of the BD growth strategy going forward, I think it’s again about optionality. I'm pleased with how we've been able to expand and diversify the pipeline across three CNS franchises with each holding the potential peak sales opportunities of $1 billion to $2 billion. We may either continue to look further into these existing franchises or pursue another opportunity in a different CNS area to advance our pipeline further.

Yes, sure. Regarding your question about the financial impact overall, as you think about these deals, we will continue to be disciplined with capital deployment. We've structured them with low upfront costs relative to the assets' ages and with success-driven milestones. These are all fairly late-stage programs in terms of actual capital resources required over the next couple of years. During this time, we will continue to grow revenues and leverage internal synergies, which will help maintain our profitability and sustain growth. I feel good about what we’re acquiring. For this year, we anticipate approximately $35 million in incremental cost, with ongoing investments over the next few years as we build out the pipeline.

Can you just help us understand how you thought about the market opportunity and potential value for these assets, EPX-100 and 200? In particular, how do you think about the path to differentiation there? And with that differentiation, what could the peak sales opportunity be for such assets?

In terms of the market opportunity for Epygenix and the rare epilepsy franchise, I believe that the epilepsy space presents a significant opportunity, particularly in orphan rare and developmental epileptic encephalopathies. We are in a registrational trial for Dravet, which is a smaller patient population, but we plan to initiate a Phase III study in Lennox-Gastaut syndrome this year, which represents a larger market opportunity. We also view this acquisition as laying the foundation for a broader epilepsy franchise. Regarding the current market opportunity, I think Kumar's remarks regarding the potential product profile of EPX-100 reflect its significant value compared to existing treatments, offering a compelling therapeutic option in the near term.

Yes, as I mentioned earlier, we believe that EPX-100 will provide a compelling value proposition with a unique benefit-risk profile, especially given the limitations we see with some drugs currently approved in this space.

I have a question regarding EPX-100. Is the base case here that you have the same class safety labeling around cardiovascular toxicity as Fintepla? I'm seeing in the preclinical there's some affinity for 5-HT2B. Just wondering whether that, coupled with its being a 100-patient pivotal study, would make it challenging to decouple that safety issue from a labeling perspective. From a development standpoint, are you planning to run a second pivotal trial? Would that be done in parallel once you get the asset in-house, or would that be after you get data in 2026? I'm curious about the timeline to market for EPX-100.

Yes, Jason, thank you for your question. Kumar can summarize the opportunity that we’re seeing near term with regard to Dravet and also differentiate from a safety perspective regarding Fintepla.

Yes, thank you for the question. The answer to your first question is no; we do not anticipate any cardiovascular liability with clemizole hydrochloride based on the extensive safety data from the first-generation antihistamine. The preclinical studies and the FDA's review did not request us to perform additional cardiovascular monitoring. We have also seen positive safety metrics in the long-term extension study, with no notable cardiovascular issues reported. Regarding your second question about running a second study, what clinicaltrials.gov lists as a Phase II study has actually transitioned into a pivotal Phase III study. It started as a Phase II but was recently expanded to 100 patients randomized between clemizole and placebo. We will seek to file based on this study if the data supports that.

I'm curious how you're gauging 1116’s profile versus other orexin agonists? What type of data should we expect to be presented at the upcoming scientific meeting, and which conference are you targeting?

Thanks, Danielle, for your question. Kumar?

Sure, Danielle, thank you for your question. TPM-1116 originated from Teijin Pharma, a company with extensive expertise in drug discovery. They worked closely with a professor who identified how orexin affects sleep-wake cycles. Teijin has been developing this series of compounds for some time, leading to the progress of TPM-1116. This agonist features a unique chemical structure compared to other orexin receptor agonists. Preliminary studies show it has high potency, good selectivity, potential for once-daily dosing, and encouraging safety data. We aim to finish the necessary IND-enabling experiments and plan to submit the IND in mid-2025, followed by first-in-human studies in the latter half of 2025.

I am showing no further questions. I would now like to turn the call back for any closing remarks.

Thank you, Madison, and thanks, everyone, for joining our call today and for your interest in Harmony. As you heard from us this morning, the future is bright at Harmony. Based on the strength of our commercial business of WAKIX in narcolepsy and the value of our expanding pipeline, which will serve as the foundation for durable revenue generation out beyond 2040. We look forward to providing updates as we continue to accelerate our strategy for long-term growth. Thank you, and have a great day.

This does conclude today's Harmony Biosciences First Quarter 2024 Financial Results Conference Call. You may now disconnect your line and have a wonderful day.