Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY) Q4 2023 Earnings Call Transcript
Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY) Q4 2023 Earnings Call Transcript February 22, 2024
Harmony Biosciences Holdings, Inc. misses on earnings expectations. Reported EPS is $0.45 EPS, expectations were $0.74. Harmony Biosciences Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is Brittany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Harmony Biosciences Fourth Quarter and Full Year 2023 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 [Operator Instructions]. Please be advised that today's conference may be recorded [Operator Instructions]. I would now like to turn the call over to Luis Sanay, Head of Investor Relations. Please go ahead.
Luis Sanay: Thank you, operator. Good morning, everyone. And thank you for joining us today as we review Harmony Biosciences fourth quarter and full year 2023 financial results and provide a business update. Before we start, I encourage everyone to go to the investors section of our Web site to find the materials that accompany our discussion today, including the 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. I would now like to turn the call over to Dr. Jeffrey Dayno. Jeff.
Jeffrey Dayno: Thank you, Luis. And thanks everyone for joining our conference call today. Harmony continues to be a growth story as demonstrated by our team's accomplishments throughout 2023. We delivered another strong year of performance across the organization, growing revenue and average number of patients on WAKIX. We advanced all our clinical development programs for pitolisant, moved the next generation or next gen formulations of pitolisant into the clinic and expanded our pipeline and diversified our portfolio with the acquisition of Zynerba and the ongoing Phase 3 clinical trial in patients with Fragile X syndrome. Yesterday, we announced that FDA granted priority review for our supplemental NDA or sNDA for WAKIX in pediatric narcolepsy with a PDUFA date of June 21st.
Earlier this week, we also shared that FDA granted orphan drug designation for pitolisant for the treatment of Prader-Willi Syndrome or PWS, as we are preparing to initiate our pivotal Phase 3 TEMPO study in patients with PWS down to age six. All of this reflects momentum across our organization from our commercial business with WAKIX in narcolepsy to our clinical development programs, as well as positive interactions with FDA related to these programs. These outcomes also reflect excellence and execution, and the dedication of our team to deliver on the strategy we have laid out and are executing on. In addition, we have returned capital to shareholders via our share repurchase program and will continue to take an opportunistic approach to this program throughout this year.
I am very excited for the year ahead and believe that Harmony is poised to accelerate our growth in 2024. For the fourth quarter, we reported WAKIX net revenue of $168.4 million and full year net revenue was $582 million, representing growth of 31% and 33% respectively. This result demonstrates the significant underlying demand for WAKIX and the durability of the brand going into year five in the market. Other factors that drive our confidence in our ability to grow WAKIX include its meaningfully differentiated product profile, which results in its broad clinical utility, couple that with our ability to reach the broad prescriber universe of approximately 9,000 HCPs who see and treat almost 100% of the diagnosed narcolepsy patient opportunity.
We have seen growth in patients on WAKIX and prescribers every quarter since launch, even with the entrance of new branded and generic oxybate treatment options coming into the market over the past few years. Finally, while there are several investigational agents in the clinic for narcolepsy, we do not see any new or novel mechanisms of action coming to the market that will impact the growth of WAKIX until late during its life cycle in this polypharmacy market. Based on these reasons, along with the vast market opportunity that remains in narcolepsy, 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.
This is evidenced by our net revenue guidance for 2024 ranging from $700 million to $720 million. In addition to our strong commercial performance, we also advanced and expanded our clinical development enterprise on several fronts. Kumar will provide more details on our clinical development program later in the call. But first let me highlight some of our progress. Starting with pediatric narcolepsy, we are pleased that FDA granted priority review for our sNDA for WAKIX. This expedites the review process and FDA has set a PDUFA date of June 21st. We look forward to collaborating with the agency to potentially introduce a new non-scheduled treatment option for pediatric patients living with narcolepsy. Turning to idiopathic hypersomnia or IH.
After completing our review of the full data set, we continue to believe that based on the totality of the data, along with pitolisant receiving orphan drug designation for IH and against the backdrop of only one currently approved product that there is a strong case to be made regarding the overall benefit risk proposition of pitolisant for patients with IH. We will be engaging with the agency with this goal in mind, have a meeting scheduled with them next month and look forward to working with the agency on bringing a potential new non-scheduled treatment option to patients living with IH. Our current lifecycle management programs for pitolisant which include IH, Prader-Willi syndrome and type 1 myotonic dystrophy, represent about a hundred thousand diagnosed patients in the US.
So if successful, these new indications could contribute up to an additional $1 billion of revenue to the WAKIX franchise. Given pitolisant's novel mechanism of action and the success of WAKIX in the market, we've been working on next gen formulations of pitolisant with the goal to generate new IP and extend the pitolisant franchise out beyond 2040. These programs entered the clinic last quarter and we are on track to report PK data in the first half of this year. Another key component of our growth strategy is business development to expand our pipeline beyond WAKIX and diversify our portfolio beyond sleep wake. The Zynerba acquisition, which closed last October, represented an important step in that direction and was an excellent strategic fit for Harmony, bringing in two late stage development programs focused on orphan rare neuropsychiatric disorders with significant unmet medical needs.
And we are not stopping with the Zynerba acquisition and remain very active in business development, continually assessing the BD landscape with a focus on rare neurological disease assets and other rare disease assets with unmet medical needs where we can leverage our existing infrastructure and synergies across our organization. We are looking for assets across a range of development stages with a preference for late stage assets but open to early stage assets where there is a strategic fit. With approximately $426 million in cash, cash equivalents and investments at year end, we are in a solid financial position to execute on BD opportunities, which is a strategic priority for us. In conclusion, I am proud of our team's accomplishments in 2023 and what we were able to do to help patients living with narcolepsy, while advancing our development programs in other rare disease patient populations.
We experienced solid and durable growth in our core commercial business, strong momentum in our clinical development programs and expansion and diversification of our pipeline assets. Based on the dedication and commitment across our organization, I am very excited for our opportunities in 2024 as we remain focused on developing and commercializing innovative treatments for patients living with rare neurological diseases who have unmet medical needs. I will now turn the call over to Jeffrey Dierks, our Chief Commercial Officer to provide more details on our commercial performance. Jeff?
Jeffrey Dierks: Thank you, Jeff. 2023 was a strong year of growth for WAKIX and year four of our commercialization in adult narcolepsy. The fourth quarter represented the strongest revenue quarter in our history with continued growth and momentum in our underlying business fundamentals and top line performance metrics. Net revenue for the fourth quarter was $168.4 million, representing 31% growth from the same quarter prior year and our second consecutive quarter of over $150 million in net revenue. Full year 2023 net revenue was $582 million, a 33% increase from full year 2022. We continue to see strong double digit growth in net revenue for WAKIX heading into year five of our commercialization, reflecting continued high interest of WAKIX in the narcolepsy market.
The solid performance and continued growth reinforces our long term belief that WAKIX represents a potential a billion dollar plus opportunity in adult narcolepsy alone. I'd like to share a few key highlights from our performance in the fourth quarter on Slide 5. The average number of patients on WAKIX in the fourth quarter increased to approximately 6,150, an increase of approximately 350 average patients sequentially from what we reported last quarter. The impressive growth in average patients in the fourth quarter was driven by strong top line demand and new patient starts and speaks to continued product adoption. And more importantly, it highlights the remaining large diagnosed patient opportunity that we continue to tap into each quarter as the market allows.
In addition to the strong growth in average number of patients on WAKIX, we also saw continued product adoption of WAKIX by the narcolepsy healthcare community, both in new and existing prescribers. The number of unique prescribers of WAKIX increased again in the fourth quarter. And importantly, we continue to see growth in product adoption of WAKIX in the prescriber base beyond oxybate REMS enrolled healthcare professionals. Of the approximately 5,000 healthcare professionals not enrolled in the oxybate REMS program, more than 30% of them have prescribed WAKIX to-date, up from 25% reported on our last earnings call. In addition to the continued growth of our prescriber base, we also saw strong growth in the depth of prescribing within the approximately 4,000 oxybate REMS enrolled healthcare professionals.
Our ability to reach and educate the broad narcolepsy treating healthcare professional universe allow us to access the full diagnosed adult narcolepsy patient opportunity and gives us confidence in continued growth for WAKIX. The availability of new and generic oxybates hasn't impacted patient or prescriber growth or existing strong payer coverage for WAKIX given its meaningfully differentiated product profile. WAKIX remains the first and only FDA approved treatment for EDS and cataplexy in narcolepsy that is not scheduled as a controlled substance, an attribute that continues to appeal to our broader narcolepsy healthcare professional audience and patient population and is a driver of brand growth. In summary, 2023 was another year of strong commercial performance for WAKIX.
Full year net revenue of $582 million, 33% growth versus the full year 2022. The fourth quarter represented the strongest revenue quarter for Harmony to-date with over $168 million in net revenue. The average number of patients on WAKIX increased to approximately 6,150. The WAKIX prescriber base within and beyond oxybate REMS enrolled healthcare professional audience continued to grow. And lastly, payer coverage remains strong even with the availability of new engineered oxybate options. WAKIX continues to demonstrate durable growth in the narcolepsy market. We've seen growth in patients and prescribers every quarter since launch, even with branded and generic treatment availability and new launches during its first four years on the market.
Looking ahead to 2024, we expect continued growth in the underlying business fundamentals for WAKIX with net revenues expected to be between $700 million and $720 million. We anticipate a similar quarterly rhythm to our business in 2024 with what we've experienced in previous years. Traditional seasonal payer dynamic headwinds that impact the entire industry as a whole in Q1, tailwinds coming out of Q1 and Q2 with stronger prescription demand, typical seasonal headwinds in Q3 with lower patient visits that are common for all products and diseases that are chronically managed and tailwinds in the fourth quarter as we close out the year. With no new competition expected in 2024 and limited differentiation in generic and branded products in the near term pipeline, coupled with the large remaining diagnosed patient opportunity, unmet need and the polypharmacy nature of the narcolepsy market, WAKIX is well positioned for continued growth.
Our ability to educate the broad REMS and non-REMS narcolepsy treating healthcare professional audience and ability to tap into the full diagnosed patient opportunity gives us confidence in the long term potential for the brand to represent a billion dollar plus opportunity in adult narcolepsy alone. Our commercial business has been resilient. And I appreciate the dedication and impact of the entire commercial team, and the passion that they have for the narcolepsy patient community. I would like to now turn the presentation over to Kumar Budur, our Chief Medical Officer, to provide an update on our clinical development pipeline. Kumar?
Kumar Budur: Thank you, Jeff. Last year was a defining year for Harmony R&D. We made great progress in advancing, expanding and diversifying our portfolio, working on nine different development programs across five different assets, several of which are in late stage development. It is not just the numbers but also the complexity of the program as we target a broad set of indications in rare disease patient population with significant unmet medical needs. As we grew our portfolio, we also built a strong, experienced and dedicated R&D organization, ready to take on new opportunities as we continue to build our existing portfolio with new assets via business development. I'm proud of the work that our team does every day and to look forward to delivering potential new treatment options for patients with rare diseases with high unmet needs.
Our full clinical development pipeline is shown on Slide number 7. Starting with pediatric narcolepsy. We submitted a supplemental NDA to the FDA for an indication in pediatric narcolepsy in the fourth quarter and we are pleased with the FDA's decision to grant a priority review. This decision highlights the need for new treatment options for the approximately 4,000 pediatric patients living with narcolepsy. The FDA has set a PDUFA date of June 21st. We look forward to working with the FDA to potentially bring a non-scheduled treatment option administered once a day in the morning for pediatric patients with narcolepsy. Moving on to our development program in idiopathic hypersomnia. We completed our review of the full data set and submitted an FDA meeting request in the fourth quarter to discuss the path forward and the meeting is scheduled for March.
We are optimistic that we'll be able to find an efficient path forward to bring pitolisant to patients with idiopathic hypersomnia. Our optimism is based on the totality of the data, which strongly supports pitolisant's efficacy in patients with idiopathic hypersomnia, especially in the context of high unmet need with only one drug approved, which is scheduled Class III controlled substance with our REMS program and the off label use of Class II controlled stimulant with significant safety issues. The data from the open label part of the study, double-blind the randomized withdrawal part of the study and the ongoing long term extension study in conjunction with the benign safety profile offer a strong benefit proposition in favor of pitolisant for patients with idiopathic hypersomnia.
We look forward to engaging with the FDA in the meeting scheduled next month and making a strong case for a positive benefit profile for pitolisant in idiopathic hypersomnia. We will provide further updates on the IH program at our next earnings call. For Prader-Willi syndrome, we are on track to initiate the Phase 3 TEMPO study in the first quarter of this year. This will be a global double-blind randomized placebo controlled study that will randomize approximately 134 patients to either pitolisant or placebo in a 1:1 ratio. The duration of the double-blind period treatment period is 11 weeks. The age range is six years and older and the primary endpoint is change in severity of excessive daytime sleepiness as measured by PROMIS SRI T-score from baseline to the end of double-blind treatment period compared to placebo.
Based on the promising data from the Phase 2 proof-of-concept study, we are also evaluating the irritable and disruptive behaviors, which are common in PWS. This Phase 3 registration study is designed not just to meet the requirements for an indication in PWS but also fulfill one of the two requirements to gain pediatric exclusivity. We remain confident and committed to gain pediatric exclusivity for WAKIX, which will offer an additional six month regulatory exclusivity on the back end of the [modest] [Indiscernible]. Based on the discussions with the FDA, we have a clear line of sight on the requirements for our PWR, which include data in pediatric narcolepsy patients and data from the Phase 3 study in PWS. We are making steady progress to meet these requirements.
The pediatric narcolepsy sNDA submission in the fourth quarter and the initiation of Phase 3 PWS study this quarter are designed to support our efforts to gain pediatric exclusivity for WAKIX. In myotonic dystrophy type 1 or DM1, we were pleased to report positive top line results from the Phase 2 proof-of-concept study where we saw clinically meaningful improvement in not just excessive daytime sleepiness, as measured by the Daytime Sleepiness Scale but also in fatigue, which was assessed using Fatigue Severity Scale, and these data are summarized on Slide 9. It's important to note that these two symptoms, excessive daytime sleepiness and fatigue are present in approximately 80% to 90% of patients with DM1, and these symptoms are as impactful as a core symptom of myelodonia and progressive muscle weakness.
A clear and consistent dose response was also demonstrated with the higher dose showing a greater response than the lower dose across the study endpoints. In addition, the safety profile in this patient population is consistent with the established safety profile of pitolisant. We are currently reviewing the complete data set to assess the opportunity and inform our next steps. As we have noted in the past, this is an indication which could be pivotal to the next gen pitolisant based formulation, which will have a much longer [patent] [indiscernible]. We continue to make good progress on the next gen pitolisant based formulation, NG1 and NG2 with our partner Bioproject with the goal of generating new IP, extending the pitolisant franchise beyond 2040 and bringing new treatment options for people living with rare diseases.
Please note we have updated the naming conventions for these two formulations according to their respective market entry timing. Next gen 1 or NG1 is a modified formulation of pitolisant with the potential for clinical differentiation and a fast market strategy based on the demonstration of bio equivalent. We expect to launch NG1 within the WAKIX life cycle. Next gen 2 or NG2 is an enhanced formulation of pitolisant designed to deliver an optimal PK profile and a higher dosage strength. This formulation will have a new IP, a full clinical development program and is expected to be launched towards the end of WAIX life cycle. Both formulation, NG-1 and NG-2, entered in the clinic in the fourth quarter and we expect PK data on both of them in the first half of this year.
We were also pleased to expand and diversify our pipeline last quarter with the acquisition of Zynerba. This brought in ZYN002, a pharmaceutically produced synthetic cannabidiol, devoid of THC for transdermal delivery, which like WAKIX, represents another portfolio in a product opportunity. We are currently enrolling patients in pivotal Phase 3 RECONNECT trial in Fragile X syndrome, and are very excited about this opportunity. There are approximately 80,000 patients diagnosed with Fragile X syndrome in the US with no approved treatments and significant unmet medical need. We had an opportunity to assess the timeline of the RECONNECT trial and 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 level Phase 2 proof-of-concept study in patients with 22q deletion syndrome, known as the INSPIRE trial, which generated promising data.
This represents another market opportunity of approximately 80,000 patients in US and we have been interacting with FDA about Phase 3 program in 22q. It is worth noting that ZYN002 is a global opportunity for Harmony and we look forward to exploring ex-US opportunities to bring this novel treatment to people living with Fragile X syndrome and 22q around the world. To conclude, we have made great progress at Harmony in advancing, expanding and diversifying our portfolio, resulting in a pipeline with the multiple late stage programs. I look forward to sharing additional updates as we continue to make progress on our clinical development program. On behalf of Harmony, I would like 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 development programs.
I’ll now turn the call over to CFO, Sandip Kapadia, for an update on our financial performance. Sandip.
Sandip Kapadia: Thank you, Kumar, and good morning, everyone. This morning, we issued our fourth quarter earnings release and filed our 10-K where you'll find the details of our fourth quarter and full year 2023 financial and operating results. Our financial performance is also shown on Slides 10 through 13. We finished the year with strong momentum across the business, helping us deliver solid growth across several key metrics. We reported $582 million in annual WAKIX net revenue, achieved our third year of profitability along with robust cash generation. In addition, we advanced our pitolisant life cycle management program and executed on business development with the acquisition of Zynerba. We also deployed capital towards our share repurchase program.
Overall, we remain well positioned to execute on our growth strategy moving forward. So let me take a moment to review our financial results in more detail. For the fourth quarter of 2023, we reported our strongest revenue quarter in company history with net revenues of $168.4 million compared to $128.3 million in the prior year quarter, representing a growth of 31%. Performance in the quarter reflects the strong continued underlying demand for WAKIX. In the fourth quarter of 2023, operating expenses were $85.1 million compared to $53.8 million in the prior year quarter. The higher operating expenses were primarily driven by our advancement of our clinical development programs, including ZYN002, expenses related to the commercialization of WAKIX and one-time Zynerba transaction related costs of $9.8 million.
Operating income for the fourth quarter of 2023 was $40.2 million compared to $47.6 million in the prior year quarter. Non-GAAP adjusted net income for the fourth quarter of 2023 was $42.8 million or $0.73 per diluted share compared to $61.9 million or $1.01 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 year with $425.6 million of cash, cash equivalents and investment securities on the balance sheet. The balance reflects continued strong cash generation with approximately $77 million in cash from operations in fourth quarter, offset by the Zynerba acquisition costs and share repurchase activities in the quarter.
For the full year 2023, we generated $219 million in cash from operations. During the fourth quarter, we returned capital to shareholders and repurchased approximately 1.8 million shares of common stock for $50 million, bringing the full year total of repurchase activities to 3.2 million shares of common stock for $100 million. Moving forward, we expect to continue to opportunistically repurchase shares under the remaining share repurchase program authorization of $150 million. Our strong balance sheet allows us not only execute on return of capital but also maintain financial flexibility to execute on business development. In the fourth quarter, we closed the acquisition of Zynerba, which was treated as an asset acquisition for accounting purposes.
As previously disclosed, we paid approximately $60 million in cash for the closing of the transaction. We received approximately $26 million of cash and $45 million in deferred tax assets from the acquisition and assumed approximately $14 million in liabilities. Thus, we recorded $2.3 million in IP, R&D charge related to the acquisition, along with $7.5 million in 1 time restructuring costs. As a result, we were able to acquire two late stage programs at very attractive deal terms. Going forward, we will recognize considerable operating synergies and expect ongoing incremental costs from the Zynerba development program of approximately $30 million for 2024. Turning to 2024 guidance. For the full year, we expect net revenues of $700 million to $720 million.
This range reflects our thoughtful and balanced approach to providing guidance for the first time in company history. It also highlights that we're well on our way towards the 1 billion plus opportunity in the adult narcolepsy alone that we have consistently communicated and remain confident in. And finally, a comment on seasonality as you think about the phasing of revenue for the first quarter of 2024. We expect to see the typical seasonal dynamics that the industry as a whole experiences each year in Q1, higher gross to net deductions due to insurance plans reset and higher copay obligations along with a drawdown in trade inventories. In conclusion, we're very pleased with our strong financial performance in 2023 and remain well positioned to continue growth in 2024 and beyond.
We look forward to leveraging our financial strength as we continue to expand and diversify the portfolio while also returning capital to shareholders through our share repurchase program. And with that, I'd like to turn the call back to Jeff for his closing remarks. Jeff?
Jeffrey Dayno: Thank you, Sandip. In summary, Harmony continues to be a growth story as evidenced by the significant progress our team made in 2023. Looking ahead, we see durability in our core business, strong momentum in our development programs and remain focused on continuing to grow our WAKIX business and helping even more adult patients living with narcolepsy; advancing our pipeline across both our pitolisant and ZYN002 clinical development programs; working with our partner Bioproject on next gen formulations to extend the pitolisant franchise to help even more patients living with rare neurological diseases; continuing to build out our pipeline through business development to create a robust portfolio of rare disease assets, covering all stages of development; and deploying capital to maximize shareholder value through our share repurchase program and business development opportunities.
I am excited for what is to come this year and believe that we are poised to accelerate Harmony's growth in 2024. 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?
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