Harmony Biosciences Holdings, Inc. Q2 FY2024 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 2024 Financial Results Conference Call. All participant lines have been placed on mute to prevent any background noise. After the speaker's 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 Brennan Doyle, 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 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. Jeff Dayno, President and CEO; Jeffrey Dierks, Chief Commercial Officer; Dr. Kumar Budur, Chief Medical Officer and Scientific 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. I would now like to turn the call over to Dr. Jeffrey Dayno. Jeff?

Thank you, Brian, and thanks everyone for joining our conference call today. Q2 was another very productive quarter for the team at Harmony, delivering strong revenue growth for WAKIX and continued advancement in our late-stage clinical development programs, highlighted by significant progress made on our next-generation Pitolisant high-dose development program. During our Q1 earnings call, we shared the initial pilot PK data for the Pitolisant gastro-resistant program, along with the development plan as part of our Pitolisant life cycle management activities. This quarter, we are excited to provide an update on our Pitolisant HD program with a targeted PDUFA date in 2028 and a provisional patent filed extending to 2044, which provides us the opportunity to extend the Pitolisant franchise to the mid-2040s with durable long-term revenue generation. The unmet medical need in the narcolepsy community that Pitolisant HD is designed to address has us excited about advancing this program. Later in the call, Kumar will share some of the initial pilot PK data and details from the Pitolisant HD development program. WAKIX offers a strong overall benefit-risk profile for patients living with narcolepsy and has been extremely successful in the market. However, there still remain unmet needs and opportunities for continued innovation. In pursuit of addressing these needs, we have identified that over 75% of narcolepsy patients experience residual symptoms while on treatment and could benefit from a treatment with greater efficacy. This is why we are pursuing a high-dose Pitolisant formulation that also has an optimized PK profile to drive greater efficacy. Close to 60% of patients living with narcolepsy experience fatigue, which is distinct from excessive daytime sleepiness (EDS) and is common in chronic neurological diseases. With a higher dose of Pitolisant and based on the positive signals we've seen, we plan to pursue a fatigue indication for Pitolisant HD in narcolepsy as well as other neurological diseases, such as myotonic dystrophy. Moreover, around 90% of narcolepsy patients experience GI symptoms like nausea and abdominal discomfort, as there is a mechanistic rationale for this related to orexin deficiency. We believe that our gastro-resistant coding feature can address these GI symptoms. Together, the higher dose, optimized PK profile, gastro-resistant feature, and our additional indications will address significant unmet needs and position Pitolisant HD as a differentiated product compared to WAKIX. The FDA approval of WAKIX for EDS in pediatric narcolepsy patients is another milestone, and we are excited to launch this new indication into the market soon. As we advance our pipeline programs, we remain focused on execution across the company and delivered another solid quarter with WAKIX net revenue of $172.8 million, representing 29% growth year-over-year. We are reiterating our 2024 net revenue guidance of $700 million to $720 million and remain confident that WAKIX represents a $1 billion-plus market opportunity in narcolepsy alone. Our confidence in the durability of the WAKIX franchise is reinforced by the recent news of the WAKIX polymorph patent being upheld by the USPTO. We remain confident in the strength of our patents and our ability to enforce our intellectual property rights protecting WAKIX. This solid intellectual property portfolio, along with our plan to pursue additional business opportunities, positions us well moving forward. Lastly, we look forward to hosting our inaugural Investor Day on October 1st in New York City, where we will highlight our robust late-stage pipeline. With that, I will turn the call over to Jeffrey Dierks for an update on our commercial performance. Jeff?

Thanks, Jeff. We saw solid commercial progress for WAKIX in the second quarter, highlighted by growth in our underlying business fundamentals. Net sales for the quarter were $172.8 million, representing 29% growth from the prior year. This performance reaffirms our confidence in our guidance of $700 to $720 million for full-year 2024. The average number of patients on WAKIX increased to approximately 6,550 this quarter, a sequential increase of about 250 patients. This durable growth gives us confidence in our expectation of achieving approximately 7,000 average patients by the end of the year. We also saw the WAKIX prescriber base increase in the second quarter, approaching 40% penetration among approximately 5,000 healthcare professionals. This segment represents an insulated group of prescribers and is crucial for driving future performance. We've seen strong utilization of WAKIX among the approximately 4,000 OxyBate REMS enrolled healthcare professionals. Our ability to reach patients beyond this group continues to offer a billion-dollar-plus opportunity in narcolepsy. Market access and formulary coverage for WAKIX have remained favorable, which supports our growth. We are excited about the recent approval of WAKIX for pediatric narcolepsy, enabling us to access an estimated 4,000 pediatric patients. Our commercial team is already prepared for outreach following the approval, and early indicators are positive. In conclusion, we had a strong quarter reaffirming our guidance. I will turn the call over to Kumar Budur to discuss our clinical development programs. Kumar?

Thank you, Jeff. Good morning, everyone, and thank you for joining us today. We are making significant progress in advancing our pipeline programs, several of which are in late-stage development. We now have 13 development programs across eight assets focused on rare neuro indications with high unmet medical need. It is important to note that we currently have three ongoing Phase III registrational studies actively recruiting patients for distinct indications. For our Sleep/Wake franchise, the Pitolisant HD program has begun to deliver an optimized PK profile along with the higher dose gastro-resistant coating to address various unique symptoms. Our preliminary data from a pilot PK study showed a meaningful differentiation with an increase in relative bioavailability and a decrease in variability compared to WAKIX. The GR coating is designed to support the successful initiation at the therapeutic dose range. We aim for a targeted PDUFA date in 2028. Our ongoing studies, including the pivotal bioequivalence study with the Pitolisant GR program, are on track, expecting to start dosing in the fourth quarter this year. Additionally, we are preparing to submit an sNDA for Idiopathic Hypersomnia later this year based on data from the EPI study and real-world evidence from Europe. In neurobehavioral, we are on track to report top-line data from the Phase 3 reconnect trial in Fragile X syndrome by mid-2025. Patient enrollment continues in the EPX-100 Phase 3 ARGUS trial for Dravet syndrome, with data expected in 2026, and we are also preparing for a Phase 3 study in Lennox-Gastaut syndrome. In summary, we have made significant strides in advancing our late-stage pipeline, which has the potential for at least one new product or indication launch each year over the next five years. I'll 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 earnings release and filed our 10-Q, detailing our financial results. We delivered another solid quarter of financial performance with continued double-digit growth, profitability, and strong cash generation. We reported net revenues of $172.8 million, a 29% increase compared to the prior year quarter. This growth reflects the strong underlying demand for WAKIX. Our non-GAAP adjusted net income for Q2 2024 was $60.6 million or $1.05 per diluted share. With respect to expenses, we incurred two one-time charges related to business development transactions which impacted our R&D expense. We ended the second quarter with $434.1 million in cash and equivalents on the balance sheet, reflecting strong cash generation. Looking ahead, we continue to expect quarter-over-quarter growth for the balance of the year, and we are reiterating our net revenue guidance of $700 million to $720 million, highlighting our ongoing progress towards our billion-dollar opportunity in narcolepsy. I would like to turn the call back to Jeff for his closing remarks. Jeff?

Thank you, Sandip. In closing, I am very proud of the accomplishments made by the Harmony team during Q2, including significant progress and advancement of the Pitolisant-HD development program towards an expected PDUFA date in 2028. Continued strong revenue generation for WAKIX with 29% growth year-on-year, the approval and launch of the pediatric narcolepsy indication, and advancements of our Phase 3 clinical trials show our commitment to execution. We remain focused on creating durable long-term value for our shareholders while bringing innovative treatments to market for patients with rare neurological diseases. This concludes our planned remarks for this morning. Thank you for joining our call, and I will now turn the call back over to the operator for the Q&A session.

We'll take our first question from Francois Brisebois with Oppenheimer. Please go ahead.

Hey, guys. Thanks for the questions, and congrats on the quarter. In terms of seasonality, you talked about the summer or the third quarter months to be kind of similar to what we've seen in the past. I think last year, the patient add average was actually very solid and strong and kind of kept going in the third quarter. In the past, we have seen some drop. So is it something that could be downward from the second quarter? Or just help us understand a little bit more what you mean by saying that it's normal seasonality that you've kind of seen in terms of patient ads in the past years?

Good morning, Frank, and thanks for the question. I'll turn it over to Jeff Dierks to respond.

Sure. Yes. So, Frank, when we talk about typical summer seasonality, it really relates to fewer patient visits and lower foot traffic, particularly concerning new patients rather than existing patients. We do anticipate typically a lower number of new patient starts. Most patients do not schedule visits during the summer due to vacations. However, we expect continued growth overall, as seen in the last several years of our commercialization, and we are reiterating our guidance of approximately 7,000 average patients by year-end.

That's helpful. And then on that note, you talked about roughly 4,000 patients on the pediatric side. Do you expect penetration in that pediatric population to be better or more difficult than the adult centers?

So, Franc, I would anticipate that pediatric patients will be added gradually over the coming years, as this is a new audience for us, unlike when we launched WAKIX for adults where we saw an initial rapid influx. We are reaching out to educate parents, caregivers, and patients about the profile and benefits of WAKIX. I would hope to see a similar penetration rate over time, but it will take time to build that base as we tap into this new opportunity.

Yes. And Franc, I would just add that as the first and only non-scheduled product approved for patients with narcolepsy, I think it provides a strong value proposition for pediatric patients.

Thank you.

Thank you. Our next question will come from Charles Duncan with Cantor Fitzgerald. Please go ahead.

Morning Jeff and team, congrats on a great quarter and I appreciate you taking the question. I had a follow-up to that last question regarding the pediatric patient population. Can you give us an estimate on the prescriber base of the 4,000 oxybate patient prescribers versus the 5,000 non-oxybate registered prescribers? Where do you think the pediatric patient population exists more? And in addition to penetration, what do you think about persistency in the pediatric population?

Good morning, Charles, and thank you for your question. Jeff, want to address the prescriber segment?

Sure. So, Charles, we know that about 1,100 healthcare professionals manage that roughly 4,000 diagnosed pediatric narcolepsy patients. It likely skews toward the oxybate REMS enrolled healthcare professionals because this is a challenging neurological disorder to manage, typically handled by larger sleep centers. The good news is that many of those doctors are familiar with WAKIX due to our existing outreach. Education is key as we bring awareness to parents and caregivers of these patients. In terms of persistence, we anticipate solid rates as we have observed good persistency rates with WAKIX in adults, leading us to expect similar (or better) outcomes in pediatrics.

Excellent. Can I ask one quick pipeline question to Kumar regarding the IH sNDA filing this year? Are you waiting for any additional clinical data or experimental results to enable that filing, and can you describe some real-world use evidence that you're thinking about including? Would you anticipate that to be a quick turnaround enabling an approval and launch by the second half of next year?

Hey good morning. Thanks for the question. First of all, we are on track to submit the sNDA by the end of this year. As we have discussed in the past, the totality of the data from the EPI study, including ongoing long-term extension studies, strongly support the efficacy of pitolisant in patients with Idiopathic Hypersomnia. We are leveraging real-world evidence data from Europe to further strengthen our submission and remain committed to bringing new treatment options to patients.

Hi. Good morning. Congratulations on all the progress across the pipeline. My first question is for Kumar regarding the pitolisant high-dose formulation. Can you help us understand how the increased exposure rate would translate into higher efficacy? How do you see patient benefit with a higher dose formulation throughout the day?

Good morning, Ami. Thank you for the question. We are excited about the data from the pitolisant high-dose formulation. We anticipate both higher relative bioavailability and a decrease in variability compared to the current formulation will drive enhanced efficacy. The combination of an optimized PK profile, the gastro-resistant formulation, and targeting symptoms like fatigue will differentiate our product profile. Patients should experience improved daily functioning with this higher dose formulation.

Great. Thank you. My second question is for Sandip regarding your R&D investment as these assets progress. Where does business development fit into your priorities? What type of assets do you think would make sense to bring on?

Business development remains a priority for us. We're focused on assets in rare CNS with a financial discipline, and our goal is to leverage capabilities we have developed. We're also considering both later-stage assets and early-stage opportunities if they align with our strategic focus.

Just a couple. First on the high-dose formulation, can you talk about the dosing in contrast to the legacy formulation? What are your expectations on safety with increased potency?

The higher dose formulation does not alter the mechanism of action and our expectation is that the safety profile will be maintained. The safety profile, based on our leading-edge work, has shown no significant concerns at elevated doses in our repeat dose studies.

The dosing regimen will differ compared to the legacy program. We will provide more details later. Also, the preliminary studies have shown an excellent safety profile with multiple ascending doses—similar to WAKIX. The gastro-resistant formulation should provide a positive patient experience.

For the potential PDUFA dates, what are the key gating factors for data submission? For TPM1116, what differentiates it from other candidates in development?

We are confident in our development timelines and the key gating factors are enrollment and data collection milestones. As for TPM1116, it represents a novel mechanism of action that we believe could position it as a best-in-class compound in its effectiveness.

Can you discuss the path to achieving $1 billion in sales, particularly in terms of the patient growth required? How do you view growth through the first half of the year?

Our target is to exceed 9,000 average patients by 2030 to achieve $1 billion in annual sales. We are confident in that growth trajectory. Our sales so far indicate a stable market with favorable patient engagement that positions us well for continued growth in the second half of the year.

Are there any indications of dropout rates concerning GI side effects in relation to WAKIX? What differentiates EPX-100 in the treatment landscape?

We aim for the gastro-resistant formulation to effectively address GI side effects that many patients encounter. EPX-100’s safety and tolerability profile differentiates it from others in the landscape and positions it favorably for the treatment of Dravet syndrome.

Thank you. At this time, I show no further questions. I would like to turn the call back to Jeff Dayno for closing remarks.

Thank you, Todd, and thanks to everyone for joining our call today and for your interest in Harmony. We look forward to our Investor Day on October 1 in New York City when we'll have the opportunity to showcase and highlight the value of our late-stage pipeline. Thank you, and have a great day.

This does conclude Harmony Biosciences second quarter 2024 financial results conference call. You may now disconnect your lines, and have a wonderful day.