Harmony Biosciences Holdings, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Harmony Bioscientist third quarter 2021 financial update call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to turn the conference over to your speaker for today, Patty Beink. You may begin.

Patty Beink Thank you, operator. Good morning, everyone, and thank you for joining us today as we review Harmony Biosciences Third Quarter 2021 Financial Performance and provide a business update. 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 Dano, Chief Medical Officer, Jeffrey Dirks, Chief Commercial Officer, and Sandeep Kapadia, CFO. Moving on to slide two, as a reminder, we will be making forward-looking statements today, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors reference in our SEC filings for additional details. I would now like to turn the call over to Harmony Biosciences CEO, John Jacobs. John?

Thank you, Patty. And I would also like to extend my sincere thanks to all of the participants for joining our third quarter 2021 conference call today. We are three quarters through the year, and I'm 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 number three. Pillar one is to optimize the commercial performance of WACIX. Q3 represented our seventh quarter of consecutive growth for WACIX and another strong quarter for Harmony as we delivered almost $81 million in net sales, our strongest quarter to date. This significant growth, nearly 77% versus Q3 2020, was driven by a continued increase in the average number of patients on WACIX and in the number of healthcare professionals prescribing the product. We believe this reflects greater awareness of the unique mechanism of action of WACIX and a product profile that aligns well with the existing unmet needs of narcolepsy patients. Moving on to Pillar 2, which is to expand the clinical utility of WACIX beyond narcolepsy, we continue to advance our clinical programs in Prader-Willi Syndrome, or PWS, and myotonic dystrophy, or DM, and two additional rare disease patient populations beyond narcolepsy, both of which have significant unmet medical need and where there are no or limited approved therapies. We are also continuing to evaluate additional indications for pitulicin in other rare neurological diseases. We intend to broaden our lifecycle management efforts for this unique product consistent with our strategy for long-term growth. And finally, pillar three, acquire new assets to expand our portfolio beyond WACICS. 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 a potential for launch both during and after WACIC's lifecycle. We announced in August that we acquired HBS-102, a melanin-concentrating hormone receptor 1 antagonist, which is the first additional asset in our pipeline beyond WACIC's. This is the first example of how we intend to evolve Harmony's pipeline into a portfolio of innovative therapies focused on rare neurological diseases. HBS 102 may be our first acquisition, but our intention is that it won't be our last. An important aspect of this pillar is that we intend to focus on assets where we can leverage our existing expertise and infrastructure, which should enable us to optimize development and launch while managing costs. Importantly, the strategic financing collaboration with Blackstone that we announced last quarter provides us with additional access to capital, which should further enhance our ability to execute on this key pillar for future growth. Finally, our dedicated business development team continues to assess opportunities that are aligned with our strategy, and we look forward to sharing further progress in this area on future calls. On that note, I would like to turn the call over to Jeff Dirks, our Chief Commercial Officer.

Thanks, John. We saw another strong quarter performance for WACIX and Q3 in line with our expectations as measured by the key performance metrics noted on slide four. Net revenue for the third quarter was $80.7 million, representing a 9.3% increase from the second quarter 2021 and a 77% increase from the third quarter of 2020. Despite the expected summer seasonality, where across the industry there is a lower overall patient foot traffic to physician offices due to vacations and holidays, we continue to see strong organic growth for WCAGS in Q3. We observed an increase in top-line prescription growth at the end of the quarter in September, and we anticipate continued growth in Q4 to close out 2021. Moving on to slide five, the average number of patients on WCAGS increased approximately 10 percent from what we reported in the second quarter to approximately 3,500 patients. The consistent growth in the average number of patients on WACICS quarter over quarter demonstrates continued strong demand for WACICS and speaks to how the meaningfully differentiated product profile aligns well to the unmet needs of the narcolepsy market. Our strong commercial performance continues to be driven by the following key factors. First, we saw continued access to healthcare professional offices for our field sales team. We've seen consistent in-person access to healthcare professional offices over the past two quarters, with about two-thirds of all field sales engagements with healthcare professionals in person, providing a more meaningful education exchange for branded products still in launch phase. As noted earlier, despite the strong access to healthcare professional offices, we did see patient foot traffic decrease from Q2 levels, which is reflective of the expected summer seasonality of increased vacations and holidays. We are encouraged by the continued access to healthcare professional offices coupled with increased patient foot traffic seen early in Q4, which we anticipate will lead to a corresponding increase in WACIX top-line prescription demand. Second, the already strong market access for WACIX continues to strengthen 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 WCAGS. And within these managed care plans in Q3, we saw additional positive formulary decision for type 1 patients, building on prior decisions since the cataplexy indication approval in October of 2020. These decisions either reduce or eliminate generic step edits prior to WCAGS for adult narcolepsy patients with cataplexy. And these decisions help to take friction out of the managed care workflow. helping to accelerate a patient's ability to get access to WAKIX. Third, we continue to see broad and meaningful clinical adoption of WAKIX. We saw continued growth in the prescriber base of WAKIX and Q3. Of the more than 8,000 healthcare professionals that treat the majority of the diagnosed narcolepsy patient population, approximately 40% have prescribed WAKIX since launch through the end of the third quarter. We continue to see broad utilization of WAKIX across the adult narcolepsy patient population, with about half of new prescriptions written for WAKIX being for type 1 narcolepsy patients and half for type 2 narcolepsy patients. We continue to see WAKIX being prescribed as monotherapy, as well as concomitantly with all other narcolepsy treatments, which speaks to the effectiveness of WAKIX for both EDS and cataplexy and the broad clinical utility of the product. With our growing prescriber base for WACIX, we see the majority of prescribers have written prescriptions for two or more of their adult narcolepsy patients since launch. Now, for those trying to reconcile the average number of patients on WACIX against the number of unique prescribers, it's important to understand a few concepts. First, the average number of patients is a midpoint of each quarter metric and represents a measure of the active patients on product. We believe this is the best patient metric as it takes into account a number of factors, including patient medication behavior, new patient starts, compliance, persistency, and discontinuation. Second, unique prescribers is a measure of those healthcare professionals who have written a prescription for WACIX, not necessarily who have the patient started or currently on WACIX. Across the pharmaceutical industry, not all prescriptions written for a product end up in a new patient start or getting filled. Due to a number of reasons, whether it be abandoned, patient or healthcare professional changing their mind on the treatment choice, or managed care approvals. We're extremely pleased in the strong adoption of WAKIX from the narcolepsy-treating healthcare professional community and the difference WAKIX is making in the lives of people living with narcolepsy. We're even more optimistic about the future opportunity, giving the existing unmet need and feedback from recent healthcare professional market research on their future interest in prescribing WAKIX as shown on slide six. Recent market research commissioned by Harmony with about 200 healthcare professionals, including physicians, nurse practitioners, and physician assistants, who see a minimum of five narcolepsy patients each month, demonstrated that the vast majority of those surveyed expected to increase their prescribing of WAKED for the treatment of both EDS and cataplexy. More than 60% of the healthcare professionals and 70% of the nurse practitioners and PAs stated they plan to increase their prescribing of WAKIX in the future for both narcolepsy with cataplexy, type 1 narcolepsy, and narcolepsy without cataplexy, type 2 narcolepsy patients. The top reasons cited for increases in future prescribing of WAKIX across physicians and the nurse practitioners and PAs included WAKIX minimizes the use of stimulants. WAKIX effectiveness for EDS and cataplexy. WAKIX is not a controlled substance, and WAKIX offers a novel mechanism of action. I'm extremely encouraged by the continued strong performance of WAKIX in the narcolepsy market and excited about the future opportunity, given the consistent access to healthcare professionals by our field sales team, strong and improved market access for WAKIX, and healthcare professional interest in increased prescribing of WACIX for adult patients living with narcolepsy. I will now turn the presentation over to Dr. Jeff Dano for an update on our clinical development program. Jeff?

Thanks, Jeff, and good morning, everyone. Before turning to an update on our clinical development programs, I would first like to highlight some data and evidence that lend support to the commercial performance of WACIX that Jeff just spoke to. based on the overall benefit-risk profile of WAKIX, which supports its broad clinical utility for adults living with narcolepsy. In September, as highlighted on slide seven, the American Academy of Sleep Medicine published an updated clinical practice guideline, which includes WAKIX as a recommended treatment option for adults living with narcolepsy. This new practice guideline was published in the Journal of Clinical Sleep Medicine in a special article titled, Treatment of Central Disorders of Hypersomnolence, an American Academy of Sleep Medicine clinical practice guideline, and was accompanied by another article titled Treatment of Central Disorders of Hypersomnolence, an American Academy of Sleep Medicine systematic review, meta-analysis, and grade assessment. Together, these papers provide practice recommendations and the evidence base in support of those recommendations for the treatment of narcolepsy and other central disorders of hypersomnolence. The new guideline updates and replaces the previous AASM guideline published in 2007 and now includes WAKIX as a strong recommendation for the treatment of narcolepsy in adults based on data that showed clinically significant improvement in excessive daytime sleepiness and cataplexy in patients treated with WAKIX. Of all the currently approved treatments for adult patients with narcolepsy, only two products received a strong recommendation by the AASM based on clinically significant improvement for both EDS and cataplexy, and WAKIX is one of them. A second point of evidence that I would like to highlight is from a poster that Harmony presented at the annual sleep meeting in June entitled Assessment of the Clinical Impact of Ptolemycin on excessive daytime sleepiness and cataplexy in adults with narcolepsy. This poster included the results of a post-hoc analysis of the efficacy data from the pivotal trials for Pitocin, utilizing effect size and number needed to treat, or NNT, as another way of assessing the efficacy of Pitocin in a clinically relevant manner. Effect size is a measure of the magnitude of difference between drug and placebo on a given outcome, sometimes referred to as therapeutic gain. The larger the effect size, the greater the efficacy of the drug, with the following ranges being recognized in the literature. 0.2 represents a small effect size, 0.5 is medium, and 0.8 represents a large effect size. As shown on slide 8, The effect size of Pitocin on the improvement in EDS was 0.61 from the Harmony 1 trial and 0.86 from the Harmony CTP trial. For the reduction in cataplexy from the Harmony CTP trial, Pitocin had an effect size of 0.86, which is considered a large effect size. Number needed to treat, or NNT, is a measure of the number of patients that need to be treated to achieve a specific outcome for one patient. Lower NNTs indicate a more robust effect, with NNTs less than 10 generally being considered to represent a clinically meaningful effect. Slide 9 includes the results from the poster demonstrating that across multiple measures for improvement in EDS and reduction in cataplexy, the NNTs for pitocin were in the range of 3 to 5. Specifically, for reduction in cataplexy, 77.8% of patients treated with pitocin had at least a 25% reduction in the weekly rate of cataplexy, 66.7% had at least a 50% reduction, and 42.6% had at least a 75% reduction in cataplexy. These results equate to NNTs of 3, 3, and 4, respectively. The takeaway from these results utilizing effect size and NNT is that the clinical data for pitocin demonstrate robust efficacy for both improvement in EDS and reduction in cataplexy. These results are derived from the data that serves as the evidence for the strong recommendation for WACICs in the AASM clinical practice guideline for the treatment of narcolepsy in adults that I spoke to previously. Turning to our pipeline on slide 10 and our clinical development programs, enrollment continues in the phase two clinical trial in patients with Prader-Willi syndrome, or PWS. This proof of concept trial is evaluating the safety and efficacy of Pitocin for the treatment of EDS and other symptoms in patients with PWS. We have added a few additional clinical sites, with all sites actively screening and enrolling patients. We continue to monitor the potential impact on the trial due to COVID-related issues, both from the site perspective as well as the impact of the pandemic on patients and families. At this time, We continue to work toward top line data first half of next year and will provide updates as the trial progresses. Moving on to the phase two clinical trial in adult patients with type one myotonic dystrophy or DM1. This proof of concept trial was initiated at the end of June and is designed to evaluate the safety and efficacy of Pitocin for EDS and other non-muscular symptoms in adult patients with DM1. The past few months have been busy with trial site activations and initial screening and enrollment efforts. Top-line data are anticipated the second half of next year. Our new asset, HBS-102, a melanin-concentrating hormone, or MCH receptor 1 antagonist, represents a potential first-in-class molecule with a novel mechanism of action. We continue to explore potential clinical targets for this early-stage asset, which will inform our clinical development strategy going forward. I will now turn the call over to our CFO, Sandeep Kapadia. Sandeep?

Thank you, Jeff, and good morning, everyone. This morning, we announced and issued our third quarter 2021 press release and filed our 10-Q, where you'll find the details of our financial and operating results. Our third quarter performance is shown on slide 12 and 13. We once again posted our highest quarterly net revenues to date with our third quarter results while continuing to effectively manage our investment and posted continued operating income growth. I'm pleased with the momentum we're seeing. For the third quarter of 2021, we posted 80.7 million of net revenues for WCAG as compared to 45.6 million in the prior year quarter. This represents a growth of 77% versus the prior year quarter. This is also a 9.4% increase from Q221, where we had net revenues of $73.8 million. We're pleased to see the continued growth in average number of patients, especially during a quarter where we typically see seasonality with lower patient visits to physician offices. The third quarter 2021 gross profit was $66.1 million, versus 37.7 million in the prior year quarter. Third quarter operating expenses were 45.1 million versus 27.3 million in the prior year quarter. The growth in operating expenses continues to be driven by our commercialization of WCAG and the advancement of our pipeline programs. As a result, underlying operating profitability improved as well, and we posted third quarter 2021 operating income of 21.1 million, which compares favorably to operating income of $10.4 million in the prior year quarter. For the current quarter, we did incur a one-time $26.1 million loss on the extinguishment of our prior desk facility with OrbiMED. This contributed to a net loss of $9.6 million for the third quarter. Non-GAAP adjusted net income for the third quarter were $30.4 million, or 51 cents per diluted share. versus $13.7 million, or 25 cents per diluted share, in the prior year quarter. 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 generated $30.4 million from cash from operations in the third quarter. and our cash position remained strong, with $189.7 million of cash-cash equivalents as of September 30th. As a reminder, during the third quarter, we also completed the strategic financing collaboration with Blackstone. This transaction was meaningful to Harmony as it provided us with $200 million of debt capital to pay off our prior loan facility at a considerably lower interest rate, which resulted in an annual interest saving of approximately $11 million. In addition, Blackstone will also provide us access to $100 million in incremental capital as we look to expand our pipeline. This financing also included a $30 million equity investment. So as we look forward, we expect to finish the year strong with continued revenue growth in Q4. We also anticipate increased investments in R&D and SG&A as we continue to successfully execute on our three-pillar growth strategy while maintaining profitability on the air. So in conclusion, we continue to operate from a position of strength with a solid balance sheet, access to additional capital, growing revenues, and prudent expense control. We look forward to reinvesting that 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, Sandeep. I hope you can see that 2021 has been a successful and busy year so far for our company. with advancements being made on all three pillars of our growth strategy. In Q3, we delivered our seventh quarter in a row of consecutive sales growth, which represented our best quarter yet in company history. We continued to advance our clinical programs to expand the utility of WACICs beyond narcolepsy, and we are working diligently to assess additional opportunities to expand our pipeline of rare neuroassets beyond WACICs as we look to grow Harmony into a leading neurological disease company in the future. This concludes our planned remarks today. Thank you for joining our call, and I will now turn things back over to the operator to facilitate questions and answer. Operator, can we please open the call to questions?

Thank you. Ladies and gentlemen, as a reminder to ask the question, you will need to press star then 1 on your telephone. To withdraw your question, press the pound key. Again, that's star one to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Chris Howerton. Your line is open.

Hi, good morning. Thank you so much for taking the questions, and congratulations on the continued progress here. So I guess maybe for me... Yeah, absolutely. So maybe two quick questions for Jeff Dirks and then one for the other Jeff, Jeff Dano. For the commercial side, I guess, from a coverage perspective, Jeff, could you give us some color in terms of what percentage of plans that you've experienced thus far have either one or two step edits? Just a little more information there on some of the access that you're experiencing. The second question also related to access, you know, when do you expect kind of to get above that 80% of covered lives? You know, do you expect that to increase next year and kind of where would you like that to be? And then the third one, a quick one, should be for Jeff Dana, which is I know that there's been some, pardon me, some question about what the status and expectation would be for the pediatric narcolepsy trial. So just curious if you had any updates on that then. Thank you.

Thank you, Chris, for your questions. Jeff Dirks, why don't you take those first two questions?

Sure. Thanks, Chris. So with respect to your question on the percentage of plans that have one or two generic step edits in place, what I can speak to is the vast majority of plans, especially type 2 narcolepsy patients, have either a weight-promoting agent and or a stimulant. as a generic step edit prior to getting WAKIX. When you're looking at the type 1 lives, what we've seen since October of 2020 with the approval of the cataplexy indication, those one or two generic step edits that existed for those patients have become less frequent. So the vast majority of lives within the type 1 audience have either zero or one generic step edit. So hopefully that gives you a little bit of context. I would tell you it's likely the vast majority in type 2 have one or two generic step edits, and then the vast majority in type one have zero or one generic step edits ahead of them. Your second question on covered lives. So we do have and reported about 80% of all U.S. insured lives have documented formulary access for WACICs across commercial, Medicare Part D, and Medicaid. And when I talk about 80% covered lives, Chris, those are plans that have documented published policies that I can point to in the public domain that you can see the actual formulary position of WACICs. The other 20% of plans that don't have a documented or published policy still have a path forward to getting WCAGS approved through letters of medical necessity or medical exception. So in essence, almost all patients, adult patients living with narcolepsy, have access for WCAGS. The 20% of plans that do not have a published policy, it's hard to determine if and when they may actually ever publish a policy. But I think the important thing and the takeaway for you, Chris, is that almost all, the vast majority, if not all adult patients living with narcolepsy have access to WACIX, whether it's a published or a non-published formulary policy. So hopefully that helps.

And Jeff, that's not unique.

That is helpful, yeah.

That's not unique to WACIX, that type of payer pattern. You may want to just comment on that.

Sure, no, that's a good point, John. So the other thing that's important, Chris, is our goal was always to achieve 80% of published formulary coverage, and we achieved that very quickly. Our market access team had done an amazing job in secure early favorable market access, but that 80% threshold has always been the target that we achieved, and that, to John's point, that's stereotypic and a target across the industry that most brands seek to achieve.

Thank you, Jeff. And then, Jeff, day note, Chris has a third question on pediatric narcolepsy.

Yeah, sure. Yeah. Good morning, Chris. So with regards to pediatric narcolepsy, You know, our partner, Bioprojet, has been, you know, conducting a phase three trial in pediatric patients with narcolepsy. And as they, you know, work to complete that trial, you know, that data readout will be important to sort of inform our overall strategy of, you know, how to proceed and optimize, you know, a program in pediatric narcolepsy. So that, you know, that's what's been happening with pediatric narcolepsy. We'll keep everyone updated as Bioprojet progresses that trial.

Okay. All right, well, thank you very much for taking the questions, and again, congratulations on the progress, everybody. Thank you, Chris.

Thank you. Our next question comes from the line of Amy Fadil. Your line is open.

Hi, good morning. Congrats again on the progress. I had a couple of quick questions. Firstly, could you talk about, you know, just based on how you've seen the launch progress, what is your latest thinking with regards to the number of quarterly patient abs that you expect to see in the coming quarters? And then related to that, I think you mentioned that the number of prescriptions per physician that you quote is really the new prescription. So could you talk about, you know, a little bit about kind of where the growth is coming from and what is the total number of prescriptions per physician that you're seeing And then if you have a data point around the mix of new prescriptions to total prescriptions, that would be helpful.

Thank you, Ami. Well, why don't we take your first question here, and obviously we're not providing forward-looking projections, but I think if you understand our launch at Harmony, you know, one thing we've experienced as a leadership team and the patient community that we're supporting is that the vast majority of our launch timeframe has been during COVID-19. And I think over that time, you've seen a very consistent pattern of patient ads quarter on quarter. In fact, seven quarters of consecutive growth we've now experienced. And this last quarter was our most successful quarter to date in company history. It's hard to project what might happen as COVID starts to lift. So we don't have a crystal ball there, but we're diligently working to not let anyone down, especially those patients who are counting on us. I can let Jeff Dirks add some additional color and context to that. And then perhaps we can clarify your second question to make sure we answer that accurately. Go ahead, Jeff.

Thanks for the question, and not much to add to John's response. I think it was spot on that we're extremely pleased with our continued commercial performance. As John shared, seven consecutive quarters of growth in the average number of patients, and that growth has been consistent quarter over quarter, as John shared, through the pandemic. And although we're not providing guidance, we are encouraged by the continued strong underlying organic prescription demand that we're seeing. And it gives us a lot of confidence in continued growth moving forward in the average number of patients in quarter over quarter. Your second question on prescriptions, could you clarify exactly what it is you're looking for, Ami, so I can provide you maybe a better response?

Sure. Maybe to just rephrase that, you know, where do you see growth coming from in terms of new patient abs? And if you could tell us whether it's from new physicians, prescribing a product for the first time, or is it a physician expanding the number of patients that he's prescribing the drug to? And if you could also comment on persistency of patients on drugs. Thanks.

Ami and Jeff Dirks will handle that question. And we do have some market research in the slides that were provided today indicating that physicians who have experience with WCAG, the vast majority are indicating that they intend to continue prescribing and or prescribe more. WCAG, so we're getting very positive feedback and we're seeing a lot of repeat prescribing behavior. But also, as you've seen each quarter, we're adding new prescriptions for the first time as we continue to penetrate the market from an educational standpoint. I'll let Jeff Dirks add additional color and context there.

Jeff Dirks Sure. And, Ami, thank you for rephrasing and clarifying. So, to answer your first question about where the growth of new patient ads are coming from, so we are sourcing across the broad adult narcolepsy patient population. So we are seeing newly diagnosed patients. We are seeing patients coming from all existing current treatments. Wake is being added on concomitantly to wake-promoting agents, stimulates some oxibate patients. And we're also sourcing for both type 1 and type 2 patients. We are seeing patients coming from new prescribers, so we have consistently been adding a couple hundred new prescribers every single quarter, and that continues. We've reported about 40% of the prescribing universe has already prescribed the product. We're also seeing that the majority of those patients, when they write a new prescription, are quickly becoming a repeat writer, meaning they're starting a second, a third, a fourth patient. So the organic growth we're seeing is coming from existing prescribers as well as new writers. When you're looking at patient medication behavior, so your third question about persistency, so two elements of just patient medication behavior, one related to persistency or discontinuation. As we've shared, some of the public data suggests that compliance or the persistency or discontinuation rates. of the drugs in the narcolepsy category range between about 30% to 50% at the end of the first year. So said a different way, about 30% to 50% of patients who start a medicine in this category tend to stop it by the end of 12 months. And what we've seen with WAKIX is that the data has been very consistent with other oral narcolepsy treatments in this category. So the discontinuation persistency that we're seeing is consistent. We have heard from healthcare professionals that they do believe that COVID-19 is likely having an additional impact on this behavior. You know, patients are skipping doses. They're temporarily stopping medicines. They may be hoarding medications just due to the economic uncertainties that it's caused a number of individuals. But, you know, what we're hearing, though, from the physician community is that they believe that WCAG's discontinuation persistency rate is consistent with other products, and their perception is that it's actually even better than the other products within this category. When we talk to patients and the patient community, there is a high level of compliance, meaning patients are taking the medicines as prescribed by their healthcare professional. Stereotypic compliance rates range between about 80% to 90%. meaning 80% to 90% of patients take the medicine as prescribed by their doctor. And what we're seeing within the data for WACIX that we've observed is that WACIX is on the higher end of that, closer to the 90% range for compliance rates. So hopefully that helps a little bit about source of business as well as some of the patient medication behavior dynamics.

Thank you, Jeff. Ami, does that answer your question clearly?

Yes, it does. Thanks so much.

Thank you, Ami. Good to hear from you.

Thank you. Our next question comes from the line of David Amsellem. Your line is open.

Hey, thanks. So just a few. So in your comments suggestive of continued quarter-over-quarter sequential growth going forward, and particularly in 4Q, is that going to be a function not only of patient growth, growth in new starts, but also improvement in gross to net. I just wanted to get a sense of, you know, how much of the growth do you expect to come from starts versus gross to net improvements. Then thinking beyond 2021, can you just talk overall regarding the directionality of gross to net and as we move out of the pandemic do you expect some improvement relative to what we've seen in the past I know you've alluded to some heavy out-of-pocket subsidization does that ease to some extent as we move into next year and then the last question I know you get this a lot but I figure I'd ask it anyway is just any thoughts on idiopathic hypersomnia and when you might make a decision on whether to move forward in that setting for pitolisin. Thanks.

David, thank you for your questions. And look, as we've said before, as you're well aware, we don't provide forward-looking guidance, but obviously your questions are very helpful in providing some context and color on how we might be thinking about the future from a different perspective. So thank you for that. And as we've said before, we continue to expect strong organic demand for our product. And really, for the vast majority of the life time of our launch. It's been in a COVID-depressed environment. We've had a few months of non-COVID as we launched our drug, and then we're facing, as everyone else, all of our colleagues in the industry, all of the patients, all of us and our families, we're facing the teeth of this global pandemic hitting us. So we really don't know what might happen in the future as it starts to live, but we've seen this consistent, strong organic demand quarter over quarter, even in a COVID-depressed environment. And I believe Jeff Dirk stated in his Opening statements at about two-thirds, Jeff, of our calls with sales reps have been face-to-face now with physicians. And we've seen some of Chris Howerton's analysis on foot traffic of patients going into offices, starting to increase a bit, starting in Q2. So those are positive signs for us, and we expect that continued strong organic demand. It's hard to say how that may pivot as we go into next year. The other portion of your question related to gross-to-nets, and what proportion maybe we would see benefit there versus that. I'll let Sandeep Kapadia, our CFO, try to address that from a gross-to-net perspective. Sandeep.

Thanks, Sean. And, yeah, I mean, generally, overall, as you know, from a gross-to-net perspective, Q1 tends to be the one where there's higher gross-to-net, that there's, you know, Medicare resets and co-payments and other obligations. But for the balance of the year, it tends to be fairly stable. So we would expect gross-to-net... at least in quarter four, to be relatively stable to what we've seen, you know, in current quarters. And generally we'll, you know, so overall we expect, as John mentioned, strong quarterly growth going into the fourth quarter. Thank you.

And then I believe, David, your last question was idiopathic hypersomnia. We've stated before that that is one of the additional indications we're currently contemplating for potential growth. exploration with WAKIX, and obviously WAKIX is not just a sleep drug or a narcolepsy drug. It's a histamine modulator, and we believe a portfolio and a product opportunity, so we continue to explore how to expand beyond narcolepsy with the product. IH is one of the indications we're considering, and as we finalize our thought process internally, we'll communicate that appropriately to the external audience. All right. Thanks. Thank you, David. Good to hear from you.

Thank you. Our next question comes from the line of Danielle Brill. Your line is open.

Hi, guys. Good morning, and thanks so much for the questions. So I have a few. I guess first just kind of following up on David's question there, but with the seasonal impacts, I specifically wanted to ask you about new patient starts. Do you think new patient ads will be stronger in 4Q and in 2022 than they were this past quarter? And then I also wanted to know if you could elaborate on some of the other metrics that might drive growth, like time to fill and average dose. Are you seeing time to fill times come down and average doses go up?

Thank you. Good question, Stan. You also want seasonality and then the other on some of the other metrics and factors that might impact market penetration and adoption. Sandeep, did you want to comment on seasonality and then we can have Jeff Dirks maybe add some additional context?

Yeah, sure. I mean, you know, generally, we mentioned seasonality over the summer as their lower patient visits. We saw strong momentum as we go into Q4. You know, we don't have specifics in terms of You know, how we would see, we would expect some acceleration, you know, in Q4 just coming out of, you know, the summer months. So that's the best we can, you know, at least provide in terms of our thoughts or our thinking. And then maybe, Jeff, is there anything from a market insights perspective that you'd like to add?

Thanks for the question, Danielle. And to build on Sandeep's comments, I think what we've seen in Q1 and Q3, there are some headwinds. You've got the payer dynamics in the first quarter with insurance resets, Americans changing insurances, copayments out of pocket. So you tend to see a higher sort of headwind with respect to new patients starts there. We've just come through the summer seasonality where you've got more planned and taken vacations, more holidays. you tend to have some headwind with respect to new patient starts there. And in the second and the fourth quarter, you see a little bit of growth in new patient ads, and I would anticipate that that to be the traditional rhythm for most branded specialty products, and I would expect that to likely mirror itself in 2022.

And I think Daniel's follow-up question, Jeff, was about some other factors like persistence, compliance, those types of factors.

Yeah, so the other questions with respect to metrics for growth in terms of strength mix and time to fill, what we've seen, Daniel, it's been relatively consistent. We reported net sales growth of 9.4%. The average number of patient growth was 9.4%, so they're highly correlative, which tells you that most other underlying elements of The forecasts remain relatively consistent. So the dose mix we've had consistent with the second quarter, a little more than two-thirds of patients refilling their medicines at the highest dose, the 35.6. Time to fill has been increasing in terms of decreasing the amount of time. But again, it's been relatively stable. We're extremely pleased with the operational efficiencies that we've seen in our model. That's a function of improved market access as well as other operational efficiencies. But I would anticipate those to be remaining relatively consistent and our growth be driven by new patient ads and our ability to continue to grow the average number of patients on WACIX quarter over quarter.

Okay. So just to clarify, so that Rx growth that you were seeing in September, it's primarily driven by new ads, not just like patients, you know, refilling after taking the summer months off.

Correct. Some of the growth, the early indicators that we saw at the end of the third quarter and end of the fourth quarter is contingent on new patient starts, new prescriptions. Exactly right, Danielle.

Okay, great. Thank you so much for clarifying.

Thank you, Danielle.

Thank you. I'm sure no further questions in the queue. I will now turn the call back over to John Jacobs for closing remarks.

Thank you so much. And just one more moment to go back to David Amsalem's earlier question about gross to net impact. David, I want to make sure we heard you clearly. I think you might have also referenced perhaps our patient assistance program there. In the past, we have mentioned that. Just want to make sure we circle back and answer that fully for you. Patient assistance, we did see an increase in demand for our patient assistance program at the height of the pandemic. I believe we communicated in prior quarters that we hadn't yet seen that start to mitigate. Jeff Dirks, any thoughts or color or context for David on that component of perhaps our gross to net?

Sure. So with respect to utilization of our patient assistance program, David, it's been relatively consistent, you know, dating back to last year, and that elevated level of demand has remained in the third quarter. Importantly, though, patient assistance program is not a gross to net deduction. So, you know, where you're looking at gross to net, that is more copay and coinsurance for eligible commercially insured patients. But that elevated demand for patient assistance is not a gross to net implication. So where you see gross to nets are more of the statutory rebates with Medicare, Medicaid, any commercial contracts we have, return reserves. But I just wanted to clarify that the free goods program or our patient assistance program is not an element of our gross to net. And despite that elevated demand for our free goods program, we continue to grow strong underlying organic demand. So we're extremely pleased with our ability to help patients both through prescriptions as well as our patient assistance program.

And over time, we'd expect that free goods program, that demand to be mitigated as the pandemic starts to lift. It won't be overnight. It'll be gradual as people get reemployed and get new insurance, et cetera. And we're staying with patients, importantly, which is part of our ethos at Harmony. So with that, I would just thank you, Jeff Dirks, for that clarification, importantly, to David's prior question. And I think we can We can end the call at this time. Thank you so much for all of your participation and sharing your time and energy with us today. We appreciate it. We'll keep working hard at Harmony to not let any of you down and not let the patients down that are counting on us every day. Thank you, everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.