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spk00: Good morning. My name is Ashley, and I'll be your conference operator today. At this time, I would like to welcome everyone to Harmony Bioscience's third call, 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. If you would like to ask a question at that time, please press star 1 on your telephone keypad. Please be advised that today's conference call may be recorded. Lastly, if you should require operator assistance, please press star zero. I will now turn the call over to Lewis Sine, Head of Investor Relations. Please go ahead.
spk04: Thank you, Operator. Good morning, everyone, and thank you for joining us today as we review Harmony Biosciences' third quarter 2023 financial results and provide a business update. Before we start, I encourage everyone to go to the Investors section of our website to find the materials that accompany our discussion today, including a reconciliation of our GAAP to non-GAAP financial measures. At this stage of our lifecycle, we believe non-GAAP financial results better represent the underlying business performance. Our speakers on today's call are Dr. Jeffrey Dano, President and CEO, Jeffrey Dirks, Chief Commercial Officer, Dr. Kumar Badur, Chief Medical Officer, and Sandeep 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 Dano. Jeff? Thank you, Louis, and thanks, everyone, for joining our conference call today. Q3 2023 was the strongest revenue quarter in Harmony's history. The pace of growth in net revenue and average number of patients on WAKIX is rarely seen in year four of commercialization of an orphan rare disease product. What is driving this strong continued growth of WAKIX and narcolepsy is the meaningfully differentiated product profile, the strong underlying patient demand, the sizable market of 80,000 patients diagnosed with narcolepsy in the U.S., and the consistent executional excellence of our commercial organization. I am proud of this accomplishment, and even more important, I am pleased that our efforts continue to help even more people living with narcolepsy. I also know that there are many more people living with narcolepsy who could potentially benefit from WCAGS, and that is what we are focused on. For the third quarter of 2023, we reported WCAGS net revenue of $160.3 million, an increase of 37% year over year. We believe that the vast market opportunity which remains in narcolepsy, along with the differentiated product profile of WAKIX, provides us the ability to grow the franchise for years to come, and we remain confident that WAKIX represents a $1 billion-plus opportunity in adult narcolepsy alone, and we are well on our way. In addition to our very strong commercial performance in Q3, We also continue to advance our current Pitocin life cycle management programs, as well as expand our pipeline and diversify our portfolio beyond sleep-wake. Kumar will provide additional details on our clinical development programs later in the call. Earlier this month, we reported top-line results from the Phase III in-tune study of Pitocin in patients with idiopathic hypersomnia, or IH. While the primary endpoint did not reach statistical significance during the randomized withdrawal phase, a robust clinical effect was demonstrated in the open-label phase of the study, and almost 90% of the patients who completed the trial elected to continue into the long-term extension study, which is ongoing. I want to reiterate our commitment to the IH patient community as we are actively pursuing an indication for Pitocin and IH and are optimistic in our ability to bring a non-scheduled treatment option to patients living with IH and the healthcare professionals who treat them. We believe that, based on the totality of the evidence that we have seen thus far, along with the Tolson receiving orphan drug designation for IH, there is an opportunity for us to work with the FDA on a path forward. Once we have completed our review of all the data, we will engage with the agency with this goal in mind. Our current life cycle management programs for Pitocin represent about 100,000 diagnosed patients in the U.S., so if successful, these could contribute up to an additional $1 billion of revenue to the WACIX franchise. Moving to the ongoing work with our partner, BioPregé, on new formulations of Pitocin, with the goal to potentially extend the Pitocin franchise with new IP out beyond 2040. We are advancing these programs into the clinic, and Kumar will provide more detail on them later in the call. Another key component of our growth strategy is acquiring new assets through business development to expand our pipeline beyond WACICS and diversify our portfolio beyond SleepWake. On that front, I am excited to report that we recently closed the acquisition of Zynurba Pharmaceuticals and have added the investigational product Zygel to our pipeline. This acquisition represents an excellent strategic fit for Harmony, with development programs focused on orphan-rare neuropsychiatric disorders with significant unmet medical needs. With Zygel, we added a novel product candidate and two late-stage development programs that could potentially launch during the WAKES lifecycle. Zygel is currently in a pivotal Phase III trial for patients with Fragile X syndrome, with another opportunity, based on positive Phase II data, in patients with 22q deletion syndrome. Both of these indications, if successful, represent a significant market opportunity with the potential to serve 80,000 U.S. patients living with Fragile X syndrome and another 80,000 with 22q deletion syndrome. We have welcomed former Zynurba members to the Harmony team and are excited to work with them to advance the Zygel development programs and bring a potential new treatment option to patients living with orphan-rare neuropsychiatric disorders with high unmet medical needs. As for business development, we are not stopping with the Zynurba acquisition but remain very active with a dedicated business development team which is continually assessing the BD landscape. We remain focused on orphan-rare neurology assets and or assets in other neurological diseases where we can leverage our existing expertise and infrastructure. We are looking for assets across a range of development stages, including both early and late stage, with the potential to launch both during and after the Wakeits lifecycle. And finally, given our continued confidence in the underlying strength of the business and our conviction in the growth potential for the company, this morning we announced a new share repurchase program of $200 million. Given our financial flexibility, We are committed to deploying capital to maximize shareholder value. In conclusion, Q3 2023 was the strongest revenue quarter in Harmony's history, and our business is strong. We are committed to bringing a non-scheduled treatment option to patients with IH and are advancing every aspect of our business, including our pipeline programs and business development efforts. I am very proud of the dedication and commitment across our organization 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 Dirks, our Chief Commercial Officer, to provide more details on our strong third quarter commercial performance. Jeff?
spk03: Thanks, Jeff. Q3 was another strong quarter for WACICS. We had the strongest revenue quarter in our history with continued growth and momentum in our underlying business fundamentals and top-line performance metrics. Net sales for the third quarter were $60.3 million, which represents a 37% growth from the same quarter prior year, and the first quarter of over $150 million in net sales. We continue to see strong double-digit growth in net sales for WCAG in year four of our commercialization, which reflects the high interest of WCAG in the narcolepsy market. The consistent growth in the business reinforces our long-term belief that WCAG represents a billion-dollar-plus opportunity in adult narcolepsy alone. I'd like to share a few key highlights from our performance in the third quarter on slide five. The average number of patients on WACIX in the third quarter increased to approximately 5,800, an increase of approximately 350 average patients sequentially from what we reported last quarter. This impressive growth in average patients in the third quarter was driven by strong top-line demand and new patient starts that offset typical summer seasonality, yielding quarterly results consistent with the results we saw in Q2. The growth in average patients on WACIX speaks to continued product adoption, and most importantly, the large remaining diagnosed patient opportunity that we continue to tap into each quarter as the market allows. Strong patient interest and prescriber adoption continue to be key drivers of the growth in average number of patients on WACIX. We saw continued strengthening of the WACIX prescriber base in Q3, both in depth and breadth of prescribing. The number of unique prescribers on WACIX increased again in the third quarter. And importantly, we continue to see growth in the WACIX prescriber base expand beyond healthcare professionals enrolled in the Oxibate REMS program. In addition, we saw growth in the depth of prescribing within the Oxibate enrolled healthcare professionals, even with the availability of new and generic Oxibate options. As we continue to share the meaningfully differentiated product profile of WAKIX and the unique feature of being the only FDA-approved treatment for EDS and cataplexy that is not scheduled as a controlled substance, offers broad clinical utility and appeals to a broader narcolepsy healthcare professional audience and patient base, which is a driver of our continued growth. We continue to see meaningful penetration and growth across the approximately 9,000 narcolepsy-treating healthcare professional prescriber base. And recent market research conducted in October of this year supports our view of continued future growth in WACIX prescribing. Research conducted with approximately 70 healthcare professionals with or without experience with WACIX prescribing showed the following. 100% of the healthcare professionals surveyed with WACIX clinical experience stated they would prescribe the same or increase prescribing of WACIX in the next six months. More than 40% of those healthcare professionals surveyed who had not prescribed WAKIX to date indicated the intent to prescribe WAKIX in the next six months. Nearly 60% of those healthcare professionals who had prescribed WAKIX to date stated they were likely to recommend WAKIX to peers and colleagues. And consistent with previous waves of research, one of the highest performing drivers and differentiators for WAKIX with the unique feature is the only non-scheduled treatment option. The availability of new and generic Oxibate options hasn't impacted the continued growth or existing strong payer coverage for WACICS, given the meaningfully differentiated product profile. Our ability to reach and educate the broad narcolepsy-treating healthcare professional universe and tap into the full-diagnosed adult narcolepsy patient opportunity gives us confidence in continued growth and the long-term growth potential for WACICS. In summary, I'm excited by the strong commercial performance in the third quarter. In fact, the strongest revenue quarter for Harmony to date. We saw strong growth of 37% in net sales versus the same quarter prior year. We saw strong growth in the average number of patients on WACICS to approximately 5,800, an increase of approximately 350 sequentially from what we reported last quarter. We saw continued expansion and strengthening of the WACICS prescriber base within and beyond Oxibate REMS-enrolled healthcare professionals. and payer coverage remains strong, even with the availability of new and generic OxyBait options. I appreciate the dedication and impact of the entire commercial team and the passion that they have for our business and the narcolepsy patient community. This strong performance gives us confidence in the long-term growth potential for WAKIX and reinforces our belief that WAKIX represents a billion-dollar-plus opportunity in adult narcolepsy alone. I would like to now turn the presentation over to Kumar Badur, our Chief Medical Officer, to provide an update on our clinical development pipeline.
spk01: Kumar? Kumar Badur Thank you, Jeff. Good day, everyone, and thank you for joining the call. Moving on to our clinical development pipeline, as shown on slide number seven, starting with our development program in idiopathic hypothermia. We saw a robust clinical effect in the Phase III in-tune study with almost 83% of the patients responding in the initial eight-week open-label treatment period, with an average of 9.4 points improvement in airport sleepiness scale scores. In addition, almost 90% of patients elected to participate in the long-term extension study. While no statistically significant difference was observed between the pitollicent and placebo groups on the primary endpoint of ESF at the end of four-week double-blind randomized withdrawal period, positive trends favoring pitollicent were observed across all three specified endpoints, including the idiopathic hypersomnia severity scale, which approached statistical significance at a p-value of 0.06. as well as on other endpoints, including PROMIS SRI, FOSC-10, and sleep inertia questionnaire. The safety profile of pitolosan in patients with idiopathic hypersomnia is consistent with the established safety profile of pitolosan, and no new AEs were observed. Almost 90% of the patients who completed double-blind randomized withdrawal period elected to participate in the ongoing long-term extension study, and we continue to collect the safety and effectiveness data from this study. We remain committed to the idiopathic hypersomnia community and are focused on pursuing an indication for pitolacent in patients with idiopathic hypersomnia. We are in the process of conducting a thorough review of the full data set, which will inform the next steps for the program. We believe that based on the totality of the evidence that we have seen thus far, along with Pitilofent receiving orphan test designation for idiopathic hypersomnia, we look forward to engaging with the FDA. In Prader-Willi syndrome, We received FDA alignment on the protocol for the Phase III TEMPO study in patients with PWS, which will satisfy the requirements for both the registration trial and now pediatric exclusivity as well. We expect study initiation in the first quarter of 2024. In myotonic dystrophy type 1, or DM1, we are on track. for top line data from this phase two proof of concept signal detection study in the fourth quarter. As for pediatric narcolepsy, we are on top to submit a supplemental new drug application to the FDA for an indication in pediatric narcolepsy in the fourth quarter. In addition to our current life cycle management program for pitulafent, progress on new Pitocin-based formulation with our partner Bioprojet with a goal to generate new IP and extend the Pitocin franchise beyond 2040. Let me take a moment and take you through the strategy for this new Pitocin-based formulation and provide an update on the status of the program as shown on slide number eight. We have advanced the first formulation into the clinic this quarter. The first formulation is an enhanced Pitocin-based formulation designed to deliver an optimized PK profile and higher dosage strength. The opportunity here is to extend the Pitocin franchise beyond 2040 with the potential for new IP and explore additional indications. This formulation will have a full development program. The second formulation is on-task for advancement into the clinic later this quarter. The second formulation is a pitomacin-based modified formulation with a potential for clinical differentiation. The opportunity here is a fast-to-market strategy for patients with narcolepsy within the VACIX lifecycle. This formulation will have an abbreviated development program. We are also pleased to expand and diversify our pipeline with the recent acquisition of designer bar. We closed the acquisition just about three weeks ago, and we look forward to providing a more detailed update on the ZYSL programs at our next earnings call. We have seen a seamless transition of activities and continued engagement with the clinical trial sites and investigators. Designer bar acquisition has Zizel is the first and only pharmaceutically manufactured synthetic cannabidiol devoid of THC and formulated as a patent-protected permeation-enhanced gel for transdermal delivery through the skin into the circulatory system. Zizel is manufactured through a synthetic process in a GMP facility. Therefore, it is devoid of THC and has the potential to be a non-stibled product if approved Similar to VACIX, ZYSL represents a portfolio and a product opportunity and is currently in a pivotal Phase III clinical trial for patients with Fasaleck syndrome called the Reconnect trial. Additionally, ZYSL was studied in an open-label Phase II proof-of-concept study in patients with 22-cube deletion syndrome known as the Inspire trial. Both of these indications, if successful, represent a significant market opportunity with the potential to serve 80,000 U.S. individuals with Sazerlec syndrome and another 80,000 individuals with 22-cube deletion syndrome. To conclude, we have made great progress, not only in advancing our pipeline, but also expanding and diversifying it with the addition of ZyZelle. I look forward to sharing additional updates as we continue to make progress on our clinical development programs. On behalf of Harmony, I would like to thank all patients and their families who are participating in our clinical trials, as well as 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 our CFO, Sandeep Kapadia, for an update on our financial performance. Sandeep?
spk02: Thank you, Kumar, and good morning, everyone. This morning, we issued our third quarter press release and filed our 10Q, where you'll find the details for our financial and operating results. Our financial performance is also shown on slides 9, 10, and 11. We're pleased to report another quarter of strong revenue growth, improved profitability, and continued cash generation. We also made continued progress across many of our business priorities, including completing the NERVA acquisition, refinancing our debt at a lower cost of capital, as well as executing on our share repurchase program. Overall, we remain confident in the continued growth in the business. So let me take a moment to take you through the details of our financial results. For the third quarter of 2023, we reported our strongest revenue quarter in company history, with net revenues of $160.3 million compared to $117.2 million in the prior year quarter, representing a growth of 37%. Performance in the quarter reflects the continued strong underlying demand for Wakex. In the third quarter, we did see a partial recovery in trade inventory levels of a couple of days compared to the second quarter, which we noted on our previous Q2 earnings call. In the third quarter of 2023, operating expenses were $63.5 million compared to $82.3 million in the prior year quarter. The lower operating expenses were primarily driven by the $30 million licensing fee incurred last year as part of the 2022 LCA with BioProject, partially offset by expenses related to the commercialization of WayTex and the advancement of our clinical development programs. Operating income improved for the third quarter 2023 operating income of $64.5 million, compared to $11.9 million in the prior year quarter. Non-GAAP adjusted net income for the third quarter of 2023 was 58.8 million, or 97 cents per diluted share, compared to 58.1 million, or 95 cents
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