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spk00: Good day and thank you for standing by. Welcome to the second quarter 2021 financial and business update conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during that session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker, Lisa Caporelli, Head of Investor Relations.
spk02: Thank you, Operator. Good morning, everyone, and thank you for joining us today as we review Harmony Biosciences' second quarter 2021 financial performance and provide business updates. Before we start, I encourage everyone to go to the investor section of the Harmony Biosciences website to find the press release and slides 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 economics of our business. Our presenters on today's call are John Jacobs, President and CEO, Dr. Jeffrey Danos, Chief Medical Officer, Jeffrey Dirks, Chief Commercial Officer, and Sandeep Kapadia, CFO. Moving on to slide number two, as a reminder, we will be making forward-looking statements today. which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors referenced in our SEC filings for additional details. At this time, I would like to turn the call over to our CEO, John Jacobs. John?
spk07: Thank you, Lisa. And I would also like to extend my sincere thanks to all of the participants for joining our second quarter 2021 conference call today. We are halfway through the year, and I am extremely pleased with the progress our team has made to date. Please allow me to elaborate on our achievements in the context of our three pillars growth strategy, which is shown on slide three. Pillar one, optimize the commercial performance of WACICS. Q2 represented a strong quarter for Harmony. as we delivered nearly $74 million in net sales for Wakex and achieved our second profitable quarter in company history. This significant growth, nearly 24% versus the prior quarter Q1, was driven by a continued increase in the average number of patients on Wakex and in the number of healthcare professionals prescribing our product, both of which further underscore the significant unmet medical need in this market for a truly novel mechanism of action and differentiated product profile which WAKIX provides. Moving on to Pillar 2. Pillar 2 is expand the clinical utility of WAKIX beyond narcolepsy. We are excited to now be evaluating pitilessin in two additional rare disease patient populations beyond narcolepsy, both with significant unmet medical need and where there are no or limited approved therapies. In addition to our Phase II clinical trial in patients with Prader-Willi syndrome that we initiated at the end of last year, in Q2, we initiated a Phase II trial in patients with myotonic dystrophy. We are also considering additional indications for WCAG in other rare neurological diseases, and we intend to broaden our lifecycle management efforts for this unique product consistent with our strategy for long-term growth. And finally, Pillar 3. acquire new assets to expand our portfolio beyond WACICS. Through the efforts of our dedicated business development team, I am excited that we acquired our first additional asset beyond WACICS, HBS-102, which is a potential first-in-class molecule with a novel mechanism of action. HBS-102 gives us the opportunity to once again lead with the science in narcolepsy and other rare neurological diseases. As you will hear from Dr. Jeff Dano, we believe that HBS-102, with its unique mechanism of action, potentially represents the next generation of targeted therapy for narcolepsy, beyond those working through histamine and other neurotransmitter systems in the brain, including orexin. We view this acquisition as another important step on our journey to becoming a leading rare neurological disease company. Our business development strategy is intended to transform Harmony into a multi-product company with a robust, catalyst-rich pipeline of innovative therapies at various stages of development with the potential for launch both during and after WCAG's lifecycle. An important aspect of this strategy is that we're focusing on assets in the rare neurological arena where we can leverage our existing expertise and infrastructure, enabling us to optimize development and launch while managing costs, which in turn is intended to create long-term value for our stakeholders. To further support this initiative and the long-term growth of Harmony, we have entered into a strategic collaboration with Blackstone that gives us access to additional capital while reducing our current cost of capital and enhances our flexibility so we can continue to invest in our growth strategy. Sandeep will speak more about this later in the call. On that note, I would like to turn the call over to Jeff Dirks, our Chief Commercial Officer. Jeff?
spk04: Thanks, John. We saw another strong quarter of performance for WCAG in Q2, as measured by key performance metrics noted on slide four. Net revenue for the second quarter was $73.8 million, representing almost a 24 percent increase from the first quarter of 2021. This solid double-digit growth in net revenue was aided by strong prescription demand at the end of the first quarter, that help to drive additional growth in the quarterly average number of patients for Q2, growth in new prescribers at WACIX, and improvement to gross nets from Q1 that is normal given the impact of seasonal payer dynamics in the first quarter each year. And moving on to slide five, the average number of patients on WACIX increased 15% from what we reported in Q1 to approximately 3,200 patients. More than two-thirds of these patients are refilling WACIX prescriptions at the highest dose. We anticipate that percentage to increase over time as more healthcare professionals gain valuable clinical experience with their patients and see the benefits of the product in treating the debilitating and life-impacting symptoms of excessive daytime sleepiness or cataplexy. The growth in the average number of patients on WAKIX demonstrates continued strong demand despite competitive products entering the market and also speaks to how the meaningfully differentiated product profile aligns the unmet needs of the narcolepsy market. Our strong commercial performance continues to be driven by the following key factors. First, we continue to see broad and meaningful clinical adoption of WAKIX. We saw continued growth in the prescriber base of WAKIX and Q2. Of the more than 8,000 healthcare professionals who treat the majority of the diagnosed narcolepsy patient population, over 38% have prescribed WAKIX since launch through the end of the second quarter. We also continue to see the vast majority of those prescribers becoming repeat writers, with two or more of their narcolepsy patients receiving a prescription for WAKIX since launch. Patient feedback from the community continues to demonstrate positive experience and a strong interest in the product. Second, the already strong market access for WAKIX was further strengthened with an increased number of plans making additional positive formulary decisions for narcolepsy patients with cataplexy. Over 80% of all U.S. covered lives have favorable access to WACIX. And through recent positive formulary decisions for type 1 patients within these plans, which helped to take some of the friction out of the managed care workflow approval process, patients' ability to access the WACIX has been accelerated in the second quarter. Third, we saw improved access to healthcare professionals for our field sales team. ZS access monitor data showed that by the end of the second quarter, Nearly two-thirds of all field sales engagements with healthcare professionals were in person, providing more of a meaningful education exchange for branded products and newer products still in launch phase. We saw a corresponding increase in WCAG's top-line prescription demand that aligned with the opening of the country, as more healthcare professionals are seeing patients in person and more face-to-face interactions are occurring between healthcare professionals and our field sales team. And lastly, WAKIX offers a meaningfully differentiated product profile. The broad and strong adoption of WAKIX speaks to the significant unmet need in the narcolepsy market and how the overall benefit-risk profile of WAKIX aligns to the unmet needs. Despite the growing competitive landscape of products, WAKIX offers a truly unique option for healthcare professionals and patients as seen on slide six. WAKIX offers a first-in-class molecule with a novel MOA, the only product that works through histamines. WAKIX is the only non-scheduled treatment option indicated for both excessive daytime sleepiness or cataplexy in narcolepsy. WAKIX is not a stimulant with no evidence of drug tolerance or withdrawal symptoms in clinical studies. WAKIX can be used as monotherapy or administered concomitantly with other narcolepsy treatments with no clinically relevant pharmacokinetic interactions with either modafinil or sodium oxibate as demonstrated in clinical trials. And WAKIX offers convenient, patient-friendly, once-daily oral tablet administration in the morning upon wakening. I am extremely encouraged by our continued strong performance of WAKIX in the narcolepsy market, further reinforcing our perspective that WAKIX offers a unique and meaningful option to treat both excessive daytime sleepiness or cataplexy in adult patients with narcolepsy. I will now turn the presentation over to Dr. Jeff Dano for an update on our clinical development program. Jeff?
spk03: Thanks, Jeff, and good morning, everyone. I'd like to start by speaking to our updated pipeline chart on slide number seven. As John mentioned, we have made significant progress on all three pillars of our company growth strategy, specifically with regard to pillar number two and our lifecycle management programs for Pitocin. At the end of June, we initiated our phase two clinical trial to evaluate Pitocin in patients with type one myotonic dystrophy, known as DM1. In addition, our Phase II trial in patients with Prader-Willi syndrome, or PWS, continues to advance with patients completing the randomized controlled phase and rolling into the open-label extension phase of the trial. Both trials are on track for top-line data readout next year. But the real exciting news for us today is the acquisition of our first product beyond WACIX, HBS-102, which represents an innovative drug development opportunity that could enable us to potentially bring another new first-in-class therapy to patients living with narcolepsy and possibly other rare neurological diseases. HBS-102 is a potential first-in-class molecule with a novel mechanism of action that targets melanin-concentrating hormone, known as MCH, neurons in the brain. Scientific evidence suggests that MCH neurons function as the control center and driver of REM sleep and its related behaviors. Let me start with slide number eight, which explains the control centers for sleep and wakefulness that are centered in the hypothalamus. The main mediators of wakefulness and sleep-wake state stability are orexin hypocretin produced in the lateral hypothalamus, as well as histamine produced nearby in the tuberomammillary nucleus, or TMN. The main driver of non-rapid eye movement sleep, or non-REM sleep, is GABA, which is produced in the ventrolateral preoptic nucleus, or VLPO. And the main generator of REM sleep is melanin-concentrating hormone, known as MCH, which is produced in a diffuse network of neurons in the lateral hypothalamus interspersed amongst the orexin neurons. Similar to how orexin and histamine neurons drive the wakefulness component of sleep-wake state stability, MCH neurons drive REM sleep and its associated behaviors. Moving to slide number nine, which shows the opposing roles of orexin and MCH related to sleep-wake state function. The panel in the top left depicts how one of the original models of narcolepsy was explained. In an orexin deficient state that occurs in patients with type 1 narcolepsy, there is an imbalance between orexin and GABA such that GABA goes unchecked, which results in sleep intruding into wakefulness that patients experience as excessive daytime sleepiness or EDS. The panel on the top right depicts a similar kind of imbalance in an orexin deficient state related to the REM control center or an imbalance in MCH causes REM intrusion into wakefulness that patients experience as the symptoms of cataplexy, hallucinations, and sleep paralysis. The figure at the bottom depicts the therapeutic hypothesis for HBS-102. Based on its mechanism of action, working as an MCH receptor 1 antagonist, HBS-102 will block the activity of the MCH neurons to restore balance between MCH and orexin signaling, decrease REM overdrive, decrease REM intrusions into wakefulness, which will then potentially result in decreased symptoms of cataplexy, hallucinations, and sleep paralysis. Moving on to slide number 10. Preclinical proof of concept of the MCH receptor 1 mechanism of action has been established in an orexin knockout mouse model of narcolepsy. This model has good clinical predictability in patients with narcolepsy. This experiment was conducted by Dr. Tom Scammell and his team at Harvard. The graph on the left shows the number of cataplexy attacks, and the one on the right shows the number of short latency transitions into REM sleep, labeled SLREM. which is an electrophysiologic correlate of sleep-lake state instability and REM intruding into wakefulness. Inorexin knockout mice at baseline, those treated with vehicle had significantly more attacks of cataplexy and bouts of SLRM compared to those treated with an NCH receptor 1 probe molecule, which in this experiment was SNAP94847. When the mice were fed chocolates, which excites them and provides a positive emotional stimulus, the number of cataplexy attacks increased, as did the bouts of SLREM, but the NCH receptor 1 antagonist blocked these events to a similar degree as was seen during the baseline condition. This preclinical proof of concept data is impressive, and as part of our next steps, which are included on slide number 11, we will look to replicate this data with HBS102 in the erection knockout mouse model of narcolepsy. In addition, we will work to prepare and submit an investigational new drug application with the plan to initiate a Phase II clinical trial once the IND is open. We will provide additional updates on the development plan for HBS-102 on future calls. As John stated, This acquisition is an important step in our ongoing mission to become a leading rare neurological disease company with an innovative product portfolio. Having gained FDA approval for one first-in-class product with a novel mechanism of action, we now have the opportunity to once again lead with the science and develop a second first-in-class molecule with a novel MOA for patients living with narcolepsy. This is consistent with our commitment to advancing breakthrough science and addressing true unmet medical needs in patients living with rare neurological diseases. My team and I are excited to go to work on the HBS 102 development program. With that, I will now turn the presentation over to Sandeep Kapadia to review our financials. Sandeep?
spk06: Thank you, Jeff, and good morning, everyone. This morning we announced our strategic financing collaboration with Blackstone. and issued our second quarter 2021 press release and filed our 10-Q, where you can find the details of our financial and operating results. So let's start with the strategic financing collaboration with Blackstone, which includes $330 million of capital, as seen on slide number 12. As you may know, Blackstone is a premier global investment firm with strong transactional experience in providing capital to life science companies to help further develop, expand, and commercialize their portfolio. This transaction is meaningful to Harmony as it provides up to $200 million of debt capital to pay off our existing loan at a considerably lower interest rate, which will result in an annual interest savings of approximately $10 million. In addition, Blackstone will also provide up to $100 million in capital as we look to expand our pipeline by acquiring and licensing products beyond WakeX and HBS 102. And finally, the financing also includes a $30 million equity investment in Harmony Common Stock. We're thrilled that such a fund as Blackstone has chosen to collaborate with us to support our future growth. So, moving on to our second quarter performance on slide 13 and 14. In the second quarter, we again posted our highest quarterly net revenues to date with effectively managing our investments and posted our second consecutive quarter with positive net income and earnings per share. I'm pleased with the continued momentum we're seeing. For the second quarter of 2021, we reported 73.8 million in WCAG's net product revenue as compared to 38 million in the prior year quarter. This represents a growth of 94.2%. As Jeff pointed out earlier, This is also a 23.7% increase from Q1 2021, where we had 59.7 million in revenues. We're pleased to see the continued growth in the average number of patients and the number of healthcare prescribers. The second quarter 2021 gross margin was 61.1 million versus 31.5 million in the prior year quarter. For the second quarter, operating expenses reached 37.8 million, versus the prior year quarter of $24.2 million. The growth in operating expenses resulted from our continued commercialization of WCAG and the advancement of our pipeline programs. As a result, we posted second quarter 2021 net income of $14.1 million, or $0.24 per diluted share. This compares favorably to a net loss of $10.5 million, or a loss of $1.34 per share in the prior year quarter. The underlying operating profitability improved as well. We posted second quarter non-GAAP adjusted net income of 31.9 million or 54 cents per share versus the prior year quarter net loss of 0.5 million or 7 cents per share. Non-GAAP adjusted net income excludes interest expense, amortization, depreciation, stock-based compensation, and other non-operating items. Non-GAAP adjusted net income is a non-GAAP financial measure. Please see our press release for a reconciliation of this measure. We also ended the second quarter in a strong cash position with $159.7 million in cash, up sequentially from Q1. As we look forward to the second half of 2021, we anticipate continued quarter-over-quarter growth in revenue with normal seasonality during the summer period, as well as increased investment for R&D and SG&A. We believe the WCAG launch has been quite successful to date, and we're focused on driving continued WCAG growth as well as expand into additional indications that address rare neurological diseases. We're also very excited about the acquisition of HBS-102. We've been able to be financially prudent in acquiring this early-stage asset with a minimal upfront and success-based future milestones. This approach allows us to maintain a strong cash position while focusing resources on advancing clinical program. In the future, assuming success, we'll be obliged to make development regulatory sales milestone payments in addition to tiered royalties in the single to low double digit range. As an early asset, we expect nominal increases in our R&D until we advance HBS 102 in the later stage of clinical development. So in conclusion, we're operating from a position of strength as we have a strong balance sheet, access to additional capital, growing revenues, and expanding product pipeline, prudent expense control, and opportunity to expand in rare neurological diseases. As we continue to generate revenues and maintain profitability of the WCAG franchise, we will look forward to reinvesting this capital to fund our ongoing development program and acquire additional assets. So with that, I'd like to turn the call back to John for his closing remarks. John? Thank you, Sundy, and thanks to the entire Harmony team.
spk07: Harmony is delivering on all three pillars of our growth strategy, and with the success of this most recent quarter, we've taken another crucial step forward on our journey to become a leading rare neurological disease company with an innovative pipeline of products. I'm excited about the potential we are building to deliver even more hope and life-changing results to patients in the future. In summary, the second quarter 2021 represented our sixth consecutive quarter of sequential earnings growth and our second sequential quarter of profitability. Our development pipeline continues to grow and expand. In addition to our Phase II Prader-Willi trial, we initiated a Phase II trial in myotonic dystrophy with WAKIX and acquired the rights to HPS-102, a novel first-in-class molecule. In addition, We have further strengthened our balance sheet and enhanced our flexibility to execute on pillar three of our growth strategy by gaining access to additional financing through the Blackstone collaboration. Operator, we will now open the call to questions from the audience. Thank you.
spk01: If you'd like to ask a question at this time, please press the star, then the number one key on your touchtone telephone. To withdraw your question, press the pound key. Our first question comes from Chris Howerton with Jefferies.
spk08: Excellent. Congratulations on the great progress this quarter to you, John, and the team. Thank you, Chris. Thank you, and thanks for joining our call. Of course. All right, so I guess maybe just a couple questions from me, and congratulations also on the acquisition of 102. It's really interesting. But first, maybe on the commercial side, perhaps for Jeff Dirks, Could you give us some color on what you're seeing currently on patients on free drug or the patient assistance programs that you've described in previous quarters and just kind of maybe what you're seeing relative to what you observed previously there? And then the second question I have is, related to the other, Jeff, for 102. I just, I guess I'm curious how you're seeing the unmet needs specifically for the REM-related symptoms such as hallucination, cataplexy, and sleep paralysis, and kind of what segmentation of the narcolepsy market do you see that serving? Thank you.
spk07: Thank you, Chris. Go ahead, Jeff Dirks. Why don't you take the first question?
spk04: Sure. Thanks for the question, Chris. So, you know, as we stated before, throughout the pandemic, we have seen an increased demand for our patient assistance program, and that elevated demand has been relatively consistent, even into the second quarter of 2021, where the COVID limitations had started to subside. Now, it's difficult to speculate as to when there will be less reliance on the patient assistance program as the country continues to deal sort of with the ongoing challenges of COVID, but I think you know the important key takeaway here is that even with this elevated demand, we've been able to demonstrate strong net revenue growth and continue to see that strong underlying organic demand for WCAGs, giving us continued confidence in a long-term growth outlook for the brand. Cool.
spk03: Thank you.
spk07: Go ahead, Dr. Dana. Why don't you take a second?
spk03: Sure. Yeah. Good morning, Chris. Thanks for your question. So with regards to HBS-102, you know, and the target of, you know, REM dysregulation in general, you know, as you know, Cataplexy is the most common of those symptoms with regards to REM dysregulation and REM intrusion into wakefulness. But the potential for a specific therapy target at all of the symptoms, so the combination of cataplexy as well as sleep paralysis and hallucinations, because the variability of those symptoms in the patient population with narcolepsy. So we feel that a potential new therapy with that specific mechanism you know, targeting REM dysregulation in general would have significant, you know, potential significant value and utility.
spk06: Okay.
spk08: Yeah, and I guess, I mean, if maybe if I could just ask a clarification is, and so I guess, Jeff, would you view this as an adjunctive therapy to maybe existing therapies that a patient is managed on, or would this be sufficient as a monotherapy in a certain amount of patients?
spk03: So, Chris, in addition to, you know, the proposed mechanism, in the development program, we're also going to evaluate with regards to the overall potential effect on sleep-wake state stability and the imbalance between the orexin signaling and the, you know, the MCH neurons. We're going to assess it also for the, you know, the ability to stabilize, you know, wakefulness and potential to improve EDS as well. So as we build out the development program, You know, we're looking at, you know, both utility and effectiveness for REM, you know, dysregulation and the potential also to stabilize wakefulness and address EDS. So I think, you know, that is, you know, the potential opportunity, either as a monotherapy or potentially, you know, as concomitant therapy with other treatments.
spk07: Well said, Dr. Dano. And it's John, Chris. One of the things we all know about the narcolepsy market is it is a polypharmacy market. and there's significant level of unmet need and complexity with this disease in these patients. And having a unique mechanism of action that comes at this condition from a completely different target than anything else on the market could facilitate polypharmacy utilization there and be a benefit to patients on top of existing therapies, whether they be branded or generic.
spk08: Yeah, very good. Well, thanks for all the color and very excited to see the progress there. Thanks. Thank you, Craig. Thanks, Chris.
spk01: Our next question comes from Greg Zubanovich with Goldman Sachs.
spk05: Hey, good morning, team. Thanks so much for taking my questions and congrats on the quarter. Thank you. Maybe if I could ask a forward-looking question for some of my commercial stage companies that made some proactive comments on how they're monitoring uh covid and the evolving um delta variant um could you provide any color on how you're thinking about whether it's you know moving from second quarter into the third quarter and perhaps just overall comments and what you're seeing about the second half or how you're feeling about the second half um And so that's my first question. I probably have 17 questions, but let me – I won't ask 17, but let me just ask that first one. Thanks.
spk07: We'll pick them one at a time, Greg, if that's helpful. So with the first one, I mean, obviously, you know, Harmony has shown our ability to execute on the launch and commercialization of WakeX, despite facing immense headwinds, as all of our colleagues and patients, families, and coworkers experienced last year and into the beginning of this year. And as COVID started to lift, you know, there's a direct correlation with that lift in the opening of offices, foot traffic increasing with patients into those offices, and therefore potential uptake of prescriptions, including Wakex. And I think you saw some of that momentum here in Q2 with our strong results. It's hard to predict what might happen with COVID, but let me hand it over to Jeff Dirks. And Jeff, if you wanted to add some commentary to that and what we're thinking about the second half.
spk04: Yeah, sure, John. Thanks for the question, Greg. And Yeah, to reiterate what John shared, you know, in the second quarter we did see more physician offices opening. We had greater in-person educational engagement from our field sales team, more patients coming back into the office for in-person medication management visits. And there certainly is a correlation. in terms of the increase in the WACIC's top-line prescription demand that we saw in Q2 aligning with the opening of the country. And I think that speaks to the unmet medical need that we talk about and really how the meaningfully differentiated product profile of WACICs aligns to that need. And as John shared, we're seeing strong momentum in our business. We see a very strong underlying organic prescription demand. I think it's very difficult to speculate forward-looking, Greg, with respect to the impact of the COVID resurgence or the summer seasonality on the industry of WACICs. and the exact growth rates that we're going to see moving forward. But, you know, I will reiterate that we're extremely encouraged by the continuing underlying strong demand that we're seeing, the strong performance of WACICS, and we do expect to continue to grow quarter over quarter as we've demonstrated growing through the pandemic previously.
spk07: Yeah, and perhaps Sandeep Kapadia, our CFO, Sandeep, did you want to add some additional color to that?
spk06: Sure. I think just in addition to what Jeff said, you know, we anticipate, you know, continued quarter-over-quarter growth for the second half of the year. You know, obviously there's general summer seasonality that typically happens as well, but generally we feel good about, you know, the trends that we're seeing, especially a very strong Q2 that will certainly carry forward for the balance. Thank you, Sandeep.
spk05: Jeff? Maybe as a follow-up, I encourage you to discuss or, bring up the summer seasonality, uh, phenomenon. And I'm wondering, um, historically speaking, maybe because I'm losing brain cells these days, like I don't remember how summer seasonality might have either impacted WAKIX last year, although you were much earlier in your launch, um, or what you've seen historically, uh, given, you know, the management team's prior experience, um, with these types of products, um, during summertime.
spk07: Good question, Greg. As you know, you know, last year was an unusual year with COVID. It was also our first year of launch. So unfortunately, we didn't have several years of history prior to that to be able to give you something to anchor that upon. And we believe last year was skewed due to COVID. So it's really hard to say. Jeff Dirks, anything to add to that or Sandeep?
spk04: Yeah, I would just say overall, Greg, in any given calendar year, there is seasonality. You know, in the first quarter, there's usually the seasonal pair dynamics that occur and put you know, pressure on gross to nets and the reauthorization of prescriptions. Second quarter is usually followed with strong uptake. Third quarter, you see, you know, the traditionally people taking vacations, right? There's fewer representative and healthcare professional interactions, fewer patient visits to the office. And then that's followed usually by a strong fourth quarter, patients filling their prescriptions before the end of the year and their insurance changes. You've got pharmacies looking to make sure they've got adequate stock and supply for the holidays. So we're anticipating to have an element of that industry phenomenon with the Q3. But again, it's very difficult to speculate. We see very strong underlying organic demand. We're very confident in our continued growth in the average number of patients and net revenue that Sandeep talked about.
spk07: Thank you, guys.
spk05: Thanks for that color. Maybe if I could ask a question about the Blackstone deal. Certainly the size of the deal is noticeable. It's great that you can swap out, I guess, in effect. you know, more expensive debt or cheaper debt. But in terms of, you know, you're already profitable, you're generating good cash flows and certainly building to the balance sheet. And in the context of the BD transaction you announced yesterday, which I'll have a question on, how should we be thinking about kind of how, you know, that war chest you're amassing in terms of cash, how you plan to use that? Is it really more with an eye on funding, you know, the trials that you have ongoing? Or should we be thinking that that is really perhaps a sign of things to come in terms of increased BD activity, whether it's the number of deals or the size of the deals?
spk07: So, Greg, as you stated, we're in a strong cash position, about $160 million in cash and cash equivalents on hand, strong balance sheet, and generating positive revenue. But we do see the recent arrangement with Blackstone does provide us with additional flexibility to potentially enable execution on a broader range of deals, business development deals, that align with our strategic criteria and are a key component of our three-pillar growth strategy. And just as a reminder, that strategy includes the continued growth of WACICS and commercialization of WACICS, the expansion of utility of WCAG beyond narcolepsy into new indications, and the acquisition of additional rare neurology-focused assets so we can build a rich and innovative pipeline, and especially a pipeline with assets that could launch at different stages from during WCAG's lifecycle to after. And importantly, Greg, we have the capabilities on our team. We've built Harmony with a focus in rare neurology, and our intention is to transform Harmony into a leading rare neuro company with a robust and innovative pipeline. That is our intention. And the arrangement with Blackstone helps to give us additional flexibility to head down that strategic pathway with hopeful success.
spk05: Great. Thank you for that. One last question. A broad area of questions, I guess, has to do with HVS 102. An interesting asset and an interesting mechanism of action. I think historically industry has looked at this asset for perhaps the past couple of decades with efforts initially in the obesity space. So, with that in mind, can you give a sense of whether your interest in narcolepsy is relatively. new and kind of innovative because I don't think I've seen much in the literature on this mechanism necessarily vis-a-vis the interest by industry on the obesity side. And then secondly, just as it relates to the compound itself, I think this class of compounds has been, I've seen some troubles finding a therapeutic window or therapeutic margin. And I think the issue has been increased potential cardiovascular risk due to either herb binding activity or QTC prolongation. So I'm just curious if you've characterized HVS-102 for these types of issues and how confident you feel about the overall profile of the asset. Thanks.
spk07: So, Greg, two-part question. Dr. Dana will help address that. But we're excited about the emerging science around this target and this compound as it relates to sleep and REM behavioral disorder and narcolepsy, as Dr. Dano stated in his opening comments. But I'll pass it over to Dr. Dano to address your questions in more depth.
spk03: Yeah, sure, John. Yeah, good morning. So we're actually, you know, we're really excited about this asset. As John alluded to, you know, the emerging science with regards to the MCH, you know, neurons and that mechanism of action. And as you said, you know, the original focus around, you know, obesity and hypothalamic-mediated obesity. But as the science evolved, and some significant work, as I mentioned, done by Tom Scamola's group at Harvard, you know, it really pointed to the role of the MCH neurons in terms of, you know, the generator and the control center of REM sleep. So with that, you know, going back about four or five years ago, a lot of the focus shifted, and Tom Scamola's lab, you know, worked on, you know, that mechanism and demonstrated, you know, with the MCH receptor one, antagonist probe molecule, the significant, you know, effect in reducing cataplexy in the orexin knockout mouse model. So, you know, with that, the focus sort of shifted, and that's what kind of got our attention. And, you know, realizing some of the recent, you know, focus on the orexin agonist, this really represents the potential, you know, next generation therapy in patients with narcolepsy and specifically around REMSIS regulation. And as I mentioned before, in our development program, in addition to that, we intend to explore it for stabilizing wakefulness as potential monotherapy, you know, or as, you know, one type of treatment in a polypharmacy, you know, approach. With regards to, you know, this molecule and, you know, what you mentioned in terms of some of the safety issues, you know, the non-clinical toxicology and the work that's been conducted, you know, has not shown, you know, any significant safety signals to date. And we also have some phase one PK data that's been generated actually at QS in the UK showing that, you know, PK profile. So we've got, you know, a lot of information to work with to start to prepare an IND and submit that to then open an IND and the plan is to then go into phase two trials.
spk05: Okay, thank you very much. Congrats again on all the progress. Sure, thank you.
spk01: As a reminder, that is star then one if you'd like to ask a question at this time. Our next question comes from David Amselin with Piper Sandler.
spk09: Hey, thanks. So I had a few. First, can you comment on on patient attrition for WAKIX. I think in the past you've stated that the range in narcolepsy is about 30 to 50 percent. Where is that trending for WAKIX? And assuming greater societal normalization, Delta variant notwithstanding, where do you see that attrition rate settling out? So that's number one. Number two, Can you talk about the mix of patients who are taking Wakex in combination with an Oxibate product? What percentage of overall patients is that? Are you seeing more combination use with Oxibate? Third, as the market becomes more varied, particularly as we get to authorized generics and eventually vanilla generics of sodium Oxibate, Do you think you'll need to contract more aggressively with payers or recalibrate your payer strategy in any way? Just talk about over the long term how you expect to manage the payer dynamics. So I just want to go through those three and then I have a follow-up. Thanks.
spk07: Okay, David. So all three apply to commercial. So Jeff Dirks, did you want to take the first question on attrition rate? Sure.
spk04: Sure. Thanks, David. So with respect to discontinuation rate, compliance, and persistency rate, so as you shared in previous calls, we have looked at publicly available data which suggests that the discontinuation rate of drugs in this category tends to range between 30% and 50% with compliance rates in the industry, usually around 80% to 90%. And what we're seeing is that WAKIX is falling within that range, and it's been relatively consistent with other products in the category. Some of the research that we've done with patients and with healthcare professionals is that the physicians that we've surveyed believe that WAKIX has a lower discontinuation rate or a low discontinuation rate relative to other narcolepsy treatments. From the patient perspective, we're seeing about 90% of those patients on WACIX expecting to continue to take the product, so very strong persistency rates. discontinuation rates very consistent with where we're seeing in the category. Now, again, it's still early in our launch. We're not even two years in the commercial, so we're still going to obviously be observing that patient medication behavior moving forward. And again, I don't want to speculate in terms of what the impact of COVID may or may not be on the discontinuation rate, but I think the overall takeaway is Patient receptivity seems to be very strong. We're getting very positive feedback from the patient community. The perceptions of healthcare professionals is that WAKIX is well within the norm and at the lower end of their patient medication behavior. And we're getting really positive feedback from the community.
spk07: Thank you, Jeff. And I believe the next question from David was the mix with sodium oxibate. How often is WAKIX used in combination? David, if I understood you correctly.
spk04: Yes. Yeah, so with respect to, you know, source of business, we've talked a lot about the opportunity with WAKIX as being a novel MOA and having the ability to be used as monotherapy or concomitantly with all narcolepsy treatment options. And that's, you know, what we see in a polypharmacy type of category, that WACIC is being used as monotherapy and being used in clinical practice in combination with all other FDA-approved narcolepsy medication. With respect to the use of WACIC and sodium oxibate, there's, you know, a small percentage of patients are using both. We haven't disclosed, you know, the exact figure, but if you're thinking about in the low, you know, teens is probably where we're looking. And, you know, the important thing is that from a pair dynamic, we are not seeing any plans providing any pushback or feedback. This is a very small patient population. There's a small cohort of patients that may require, you know, this combination to treat the very debilitating and life-altering symptoms of narcolepsy. So, Hopefully that helps give you a little bit of color in terms of the patient disposition of WAKIX.
spk07: And Jeff, you mentioned our unique mechanism of action for WAKIX as the only histaminergic agent in the market for narcolepsy, and we anticipated to remain so for quite some time. So as new products come in or genericizations occur of existing MOA therapies, we believe and we're optimistic that WAKIX stands alone in its ability to be unique and differentiated. and that there's more pressure on products with the same mechanism of action when you start to see generics in general as a market generalization, and we're optimistic that WCAG's unique MOA will help us to remain differentiated for the long run.
spk04: Correct. And, David, I know your last question was with respect to just introduction of new products and, you know, authorized generic or, you know, generic versions of sodium oxibate and potential impacts on contracting. So, you know, what I would say to that is we continue to be extremely pleased with our strong performance of WAKIX, even with the introduction and availability of other competitive products today, and those are both branded and generic. And we do believe that we are growing the branded segment of the market by offering a meaningfully differentiated product profile that aligns to that unmet need. The overall benefit-risk profile makes it appropriate for the vast majority of patients and available for the entire narcolepsy prescribing healthcare professional universe due to its non-scheduled status. As John talked about, this threshold to treat makes it available for the broad audience to prescribe. And And we believe this strong underlying demand that we see with WACIX will continue and support our ongoing patient and net revenue growth, even with new competitive entry, both branded and generic, coming to the market. And it really supports our belief in the long-term growth opportunity for WACIX. Okay, that's helpful.
spk09: If I may just ask a question about BizDev, you know, with the financing agreement in place. Just drilling down, what's your appetite for the addition of a commercial stage or market-ready asset where you can leverage the sales infrastructure you have in place, or even just a late-stage asset where presumably you'd be paying significant dollars up front? What's your strategic calculus regarding those types of assets?
spk07: David, as I said before, our BD strategy is focused on transforming Harmony to a leading rare neuro company with a robust and innovative pipeline of assets. And we have the capabilities internally, whether it's clinical, regulatory, commercial, to develop and launch drugs like that with success. And we're looking to go broadly in our search. We have the capabilities to take any asset from early stage all the way through to late stage and on market. And as we stated earlier, we're in a strong cash position. We've got a good balance sheet, we're growing revenues, we have access to the public markets, and we have our new arrangement with Blackstone, which gives us additional optionality and flexibility. And we don't need to buy a revenue stream in the short run because of that strength, but certainly we are assessing with an open mind assets anywhere from early stage all the way to on market, as long as they meet our filters and help us achieve that business strategy. So what we're most excited about is our additional optionality and flexibility with Blackstone, our strong performance right now that further fuels our ability to execute on our growth strategy.
spk09: Okay.
spk07: All right. Thanks, guys. Thank you, David.
spk01: That concludes today's question and answer session. I'd like to turn the call back to John Jacobs for closing remarks.
spk07: Thank you very much. Good luck, everyone. I want to thank everyone for joining us sincerely, and since we appear to be at the end of the call, I would say for everyone who joined, we appreciate your energy, we appreciate your questions, and we're so excited that you're on this journey with us to discover, develop, acquire, and provide solutions for patients who are living with and facing orphan and rare neurological disorders. Thank you so much, everyone. We appreciate your time.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect.
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