Harmony Biosciences Holdings, Inc.

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 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.

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 US, 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 Tolleson 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 WCAG 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. 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 WAKIX 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 our 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 WAKETS 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?

Thanks, Jeff. Q3 was another strong quarter for WCAGS. 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 WACIX 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 WCAG 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 WACICS. We saw continued strengthening of the WACICS prescriber base in Q3, both in depth and breadth of prescribing. The number of unique prescribers on WACICS increased again in the third quarter. And importantly, we continue to see growth in the WACICS prescriber base expand beyond healthcare professionals enrolled in the Oxibate REMS program. In addition, we saw growth in the depth of prescribing within the OxyBait enrolled healthcare professionals, even with the availability of new and generic OxyBait 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 and without experience with WACIX prescribing showed the following. 100% of the healthcare professionals surveyed with WACIX clinical experience showed stated they would prescribe the same or increase prescribing of WCAGS in the next six months. More than 40% of those healthcare professionals surveyed who had not prescribed WCAGS to date indicated the intent to prescribe WCAGS in the next six months. Nearly 60% of those healthcare professionals who had prescribed WCAGS to date stated they were likely to recommend WCAGS to peers and colleagues. And consistent with previous waves of research, one of the highest-performing drivers and differentiators for WCAGS with the unique feature as the only non-scheduled treatment option. The availability of new and generic OxyBait options hasn't impacted the continued growth or existing strong payer coverage for WCAGS, given the meaningfully differentiated product profile. Our ability to reach and educate the broad narcolepsy-treating healthcare professional universe has tapped 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 WACIX prescriber base within and beyond OxyBait 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 NARC LSD patient community. This strong performance gives us confidence in the long-term growth potential for WCAG and reinforces our belief that WCAG 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. Kumar?

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 hypersomnia. We saw a robust clinical effect in the phase three 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 pitolocent and placebo groups on the primary endpoint of ESF at the end of four-week double-blind randomized at all period, positive trends favoring pitolocent were observed across all 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 of pitulasant in patients with idiopathic hypersomnia. We are in the process of conducting a thorough review of the full data set, which will inform next steps for the program. We believe that based on the totality of the evidence that we have seen thus far, along with pitulafent receiving orphan drug designation for idiopathic hypersomnia, we look forward to engaging with the FDA. 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 II proof-of-concept signal detection study in the fourth quarter. As for pediatric narcolepsy, we are on track 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 programs for with our partner BioProJ 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-scheduled product if Similar to VATICS, 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 Sars-Cov-2 syndrome and another 80,000 individuals with 22q 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 Zysel. 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 now turn the call over to our CFO, Sandeep Kapadia, for an update on our financial performance. Sandeep?

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 WCAG 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 $0.97 per diluted share, compared to $58.1 million, or $0.95 per diluted share, in the prior year quarter. The prior year quarter included a $74.5 million benefit related to a valuation allowance and a $30 million licensing fee related to the 2022 LCA required project. We believe non-GAAP adjusted net income better reflects the underlying business performance. Please see our press release for a reconciliation of GAAP to non-GAAP financial results. For the third quarter of 2023, we ended the quarter with $438.4 million of cash, cash equivalents, and investment securities on the balance sheet. The balance reflects continued cash generation with $63 million in cash from operations. partially offset by share repurchase activities. During the third quarter, we executed on our share repurchase program and repurchased approximately 1.4 million shares of common stock for $50 million. As you heard from Jeff, this morning we announced a new share repurchase program of $200 million. The new program demonstrates our continued confidence in the underlying strengths of our business and our conviction in the growth potential for the company. Our strong balance sheet allows us not only to execute on a return of capital, but maintain flexibility to also execute on business development. For us, it's not an either-or scenario, and we're in a fortunate position given our profitability and growing cash balance. Looking ahead, we expect quarter-over-quarter growth for WACICS in Q4. We also expect to continue to invest in R&D and SG&A as we advance our clinical development program, which now includes ZYSO and supports the continued commercialization of WACICS. As a reminder, we paid approximately $60 million in Q4 for the acquisition of Zynarbra using cash from our balance sheet. Pending final determination, we expect to account for the transaction as an asset acquisition, which would result in a significant one-time charge in the fourth quarter, along with related restructuring costs. Overall, we remain confident in WACIC's being a billion-plus opportunity in adult narcolepsy alone, and we're well on our way, given the strong results this quarter. with the potential to contribute up to an additional $1 billion if approved in other current lifecycle Pitocin programs. In conclusion, we're very pleased with our strong financial performance year-to-date and remain well-positioned for continued growth. And with that, I'd like to turn the call back over to Jeff for his closing remarks.

Jeff?

Thank you, Sandeep. In summary, Q3 2023 was the strongest revenue quarter in Harmony's history, and we continue to execute on our growth strategy across the business. We remain focused on growing our core business and helping even more adult patients living with narcolepsy with WAKIX, advancing our pipeline across both our Ptolemycin and Zygel clinical development programs. Working with our partner BioPregé on new formulations to extend the Pitocin franchise to help even more patients living with rare neurological diseases. Building out our pipeline further through business development efforts in order to create a robust portfolio of orphan rare disease assets covering all stages of development. And deploying capital to maximize shareholder value through our share repurchase program and business development activities. This concludes our planned remarks for today. Thank you for joining our call, and I will now turn the call back over to the operator to facilitate the Q&A session. Operator, can you please open the call to questions?

Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star 2. We remind you to please pick up your handset and please limit yourself to one question and one follow-up question. We'll take our first question from Francois . Please go ahead. Your line is open with Oppenheimer.

Hi, thanks for taking the questions. Congrats on the quarter here. So just a couple of things Sandeep mentioned it. And so in terms of the trade inventory, kind of, you know, small issues or thing in the second quarter, I was just wondering how much did that create kind of a boost maybe in this quarter in terms, obviously not the patient ads, but maybe in terms of Because if you look at it that way and just maybe the impact there going forward, you mentioned you're expecting growth in the fourth quarter, quarter over quarter. Is that growth in terms of patient ads or in terms of revenues? Thank you.

Yeah, good morning, Frank. Thanks for the question. I'll have Sandeep provide some more explanation on that for you.

Yeah, Frank, you know, as we mentioned last quarter, I mean, we did see a partial normalization of inventory that we saw a bit of a drawdown last quarter. As we mentioned, last quarter was about a week that was in Q2. And we saw roughly about half of it recover in this quarter. So, again, it's a small impact overall. We feel that it's important to keep investors updated on the impact generally. As you know, these fluctuations quarterly are completely, you know, Part of our business depends on where the quarter ends and so forth. With respect to Q4, we continue to expect, you know, top-line growth from revenues as well as we continue to expect, you know, patient ads. I mean, maybe Jeff Dirks, do you want to comment anything on the expectations on Q4?

Sure. So, Frank, I would reiterate, we did see a benefit of a couple days of inventory, but you couple that with a strong top-line performance and new patient starts, that really drove that highest quarter of net revenue that we've seen since our launch. And as Sandy explained, you typically see a little bit of an incremental build in inventory at the end of the year, which is traditional across the inventory, but we're anticipating growth across all of our key fundamental metrics, average number of patients, unique prescribers, as well as net sales.

Okay, thank you. And just in terms of the new formulations, can you just maybe level set, remind us of the IP situation and the progress on, I know we do a touch on it, but maybe the progress on the new formulations and what they could potentially do, just a little more color on the 2040 venture. Thank you.

Yeah. Frank, just to clarify, in terms of the IP situation, with WACICs or the new formulations?

Sorry, I mean just the IP with weight gates and what new formulations could do to it.

Sure. Okay. So in terms of the IP situation with WACIC, so, you know, we believe in the strength of our IP, and, you know, that goes out, you know, based on the polymorph patent with patent term extension to March of 2030. And then I think, as you're aware, we're pursuing pediatric exclusivity, which will provide an additional six months protection out to September of 2030. So that is our base case on our IP situation for WACICs. Turning to the new formulations, I'll have Kumar sort of comment on those efforts. But by design, the intent there and what we're working on is generating new IP with regards to enhanced and novel formulations based on Pitocin. And Kumar can provide a little more color on those programs.

Sure. Thank you, Zach. Hey, good morning, Frank. Thanks for the question. Yeah, we are working on two formulations with our partner BioProject, and please do share the update on this. We have made substantial progress over the past few months. The first formulation is an enhanced pitot-less-based formulation that is designed to deliver an optimized PK profile at a higher dose strength. The opportunity here really is to generate new IT and extend the Pitocin franchise beyond 2040. We are looking for new indications with this particular formulation, and this formulation will have a full clinical development program. That's formulation one. In terms of formulation two, we are on track to advancing this formulation into the clinic towards the later half of this quarter. This is a pitot-lessing-based modified formulation with a potential for clinical differentiation, and the opportunity here is a fast-to-market strategy for patients with narcolepsy within VACIX lifecycle. This formulation will have an abbreviated development program. So overall, two formulations making steady progress.

Thank you.

Thanks, Ryan.

thank you we'll take our next question from david anselin with piper sandler please go ahead um hey thanks so got a couple uh first uh in terms of prescriber uh dynamics can you talk to your penetration of wakex among providers who are not enrolled in the oxidate rems just wanted to get a sense for how you're doing in that piece of the prescriber audience. So that's number one. And then number two, just back to the formulations, just given the setback in IH, would it be intuitive to think that you would pursue IH to the extent you are going to go forward in IH? Would you pursue it with one of these new formulations? How should we think about that? Thank you.

Yeah, thanks, David. I'll ask, you know, Jeff Dirks to respond to the first question about the prescriber dynamics, the prescribers outside the Oxibate REMs.

Sure. So, David, we're extremely pleased with the growth in the new prescriber base of WACICS. And obviously, as we continue to add new prescribers, the vast majority of them are those healthcare professionals that are not enrolled in the Oxibate REMs program. As we've disclosed, there's about approximately 5,000 of those healthcare professionals that are not enrolled in the Oxibate REMs program. And we continue to see meaningful penetration in that group. I think at the last earnings call, David, we talked about being about 20% penetrated within that audience. It's closer to about 25%. But we continue to see very steady growth and adoption within that audience. And it really gives us and affords us the opportunity based on the overall benefit-risk profile, the broad clinical utility of the product for WACICS, that we can tap into that broad 9,000 approximate healthcare professional prescriber universe, and we can tap into the full diagnosed narcolepsy patient opportunity. And that gives us a ton of confidence as we look at WCAG's representative billion-dollar-plus opportunity in adult narcolepsy alone.

Yeah. So, David, let me address the second question with regards to new formulations and NIH. So, you know, the new formulation of Pitocin, you know, the thinking there is obviously we have an innovative product with a novel mechanism of action and the opportunity through formulation work and new IP to extend the Pitocin franchise out not just beyond 2030 but 2040. With regards to idiopathic hypersomnia, you know, let me be clear. in terms of where we are coming off the Intune study. You know, we saw a robust clinical effect, you know, in the trial in the open-label phase, and we are going through the full data set and reviewing that, which, you know, will inform our strategy in terms of approaching the FDA as we continue to pursue the indication for IH, you know, based on the Intune study and those data. So at this point, you know, we expect to complete the review of the data by the end of November, and then we're going to prepare briefing document meeting requests soon after that and approach the agency. You know, we remain committed to the IH patient community. We are actively pursuing an indication, you know, as a non-scheduled sort of product and the opportunity given, you know, the current treatment options for patients with IH. We are not looking to new formulations, but we will pursue the IH indication based on the work that we've done thus far.

Okay. Thank you.

Thank you. We will take our next question from Omifadia. Please go ahead. Hi.

Good morning. This is Ethan Leon for AMI. Congrats on the WCAG's growth in the quarter, and thanks for taking our questions. Two, if I can. Historically, it looks like kind of the sequential ads and average patients on WACICs from Q2 to Q3 turn out similar to that from Q3 to Q4. Any factors this quarter you'd highlight such that we would not expect a similar dynamic to occur this year? And then maybe my second question is, you know, as we're nearing the end of the year, we'd love to know your latest thinking on potentially providing 2024 WACIC sales guidance at the next earnings update or otherwise. Thank you.

Thanks for the question. Jeff starts on the first one.

Sure. So, Ethan, with respect to thinking about Q4 with respect to average number of patient growth, you know, ads per quarter. So, again, we continue to be extremely pleased with the continued growth in the average number of patients and our obviously underlying strong business fundamentals. We saw a sequential add of approximately 350 average patients from what we reported in Q2. And I think the impressive growth that we're seeing in the average patients in the third quarter was driven by strong top-line demand and new patient starts that offset the typical summer seasonality that we usually see every year. And it speaks to really not only continued product adoption, but most importantly, the large remaining diagnosed patient opportunity that we continue to tap into as the market allows. You know, while we're not providing forward-looking guidance, we are pleased with the momentum heading into Q4, and we do anticipate and fully expect continued growth for WCAG for the remainder of 23. Okay. Sandeep, comments, thoughts?

I think our guidance list, and that's a point that, as you mentioned, we could consider guidance severely next year. But, you know, even as you think back and look back at our performance over the last year and where analysts' estimates are generally, you know, we've been pretty consistent overall. You know, absent, obviously, inventory impact, you know, fluctuations quarter over quarter, you know, we remain confident in WIC being a billion-plus. in narcolepsy alone, adult narcolepsy, and, you know, we're continuing, you know, that sort of is our mid- to long-term guidance, if you want to call it. And then we also see the opportunity to contribute an additional billion if approved in other LCM programs. So we're confident in the long-term growth potential for WACICS, and, you know, and with respect to public short-term guidance and things like that, I mean, like I said, we're considering early next year would be the natural point.

Thanks, Wendy. Thank you.

Thank you. We'll take our next question from Charles Duncan with Cantor Fitzgerald. Please go ahead.

Good morning, Jeff and team. First of all, congratulations on a nice commercial quarter. And thanks for taking our question. I didn't have any commercial questions that I wanted to ask, so I'll just ask two on the pipeline. And that is primarily relative to the Intune study. We recently conducted a KOL call, and that KOL was quite enthusiastic about the results that you saw. And so a question that I have for you is when you go to the agency, what will be the question? Will it be around possibly conducting a new study, or will it be around evaluating the data that in the Intune study alone and its open label extension. Thanks.

Good morning, Charles. Thank you for your question and sort of the feedback that you received on the Intune study. I think that the approach with the agency is really first, as I mentioned, and I'll turn it to Kumar, looking at all the data, looking at all the data, and understanding, obviously, the robust clinical effect that we saw up front in the eight-week open-label phase. And almost 90% of patients electing to go into the long-term extension, that continues on. And we also continue to collect long-term safety and effectiveness data that we could use to go to the agency in addition to the data from the in-tune study. The approach is to, you know, build the strong case with regards to the totality of the evidence coming out of the trial, you know, along with the tolicant received orphan drug designation for IH that the FDA granted. And then you look at the, you know, current treatment options. You look at overall benefit risk. You look at the need. And we build the case and discuss, you know, that with the agency where it could fit into, you know, treatment options. So, you know, that is the overall approach. And Kumar, I ask if you have any additional thoughts on, you know, on strategy.

No, I think that you covered everything.

Thank you.

Okay. And then as a follow-up, I guess you probably can't provide any information on the persistence within that IH open label extension, but I guess I'm wondering if If you think about the mechanism and utility in IH, how would you think that compares to, say, narcolepsy and the potential for persistence being greater in IH than even it is in narcolepsy? Thanks.

Good morning, Charles. Thanks for the question. Narcolepsy and idiopathic hyposomnia, both of them are central disorders of hyposomalance. And there is data, strong data, to suggest maintenance of effect in patients with narcolepsy based on all the clinical trials that we have done thus far. Specifically with the Intune study, in the open-label part of this study, we saw a robust clinical effect. I mean, eight to nine patients who completed the eight-week open-label treatment period were responded based on ESS of greater than or equal to three. them the criteria from the American Academy of Threat Medicine. And also, we saw a huge magnitude of response, 9.4 points drop from baseline to the end of eight-week open-label treatment period. And to your question about the long-term extension study, as Jeff alluded to earlier, Almost 90% of the patients elected to participate in that study, and we continue to collect the data on the safety and the efficacy parameters. We don't have those data yet, and we are planning to have our data cut sometime towards the end of November, where we will start seeing the safety and efficacy data from the long-term extension study as well.

Can we assume that meeting happens in say possibly the first quarter? Obviously, it depends not only on your schedule, but is that kind of the target?

Good question, Charles. Right now, we are focused on a thorough review of the data, which will inform the strategy when we meet the FDA. Right now, we are planning to complete all the assessment and analysis by the end of November, and immediately after that, we'll start working on the meeting request, briefing document, and request a meeting with the FDA in early first quarter of 2024.

Yeah, Charles, I was here. I beg your question. Yeah, thanks, Charles. I would just add, yeah, so we're moving, you know, sort of expeditiously. This is obviously a high priority for us, so we're moving quickly to review all the data, put in the meeting request, and, you know, get in front of the agency to have this discussion as we actively pursue the indication for Pitocin and IH.

Thanks for the answer.

Mm-hmm.

Thank you. We'll take our next question from Danielle Brew with Raymond James. Please go ahead.

Hi, this is Daniel Lee filling in for Danielle. Congrats on the strong quarter. We have a question on if there's new updates on the citizen petition. And a second question on that we see that there's no reporting of patients on WACUS exercising this quarter. and there's only average patients reporting. And is this the new convention for the future earning as well? Thank you very much.

Sure. Thanks for your question. Jeff, why don't, in terms of exiting number of patients, you want to just address that first and then I'll speak to the citizen's petition?

Sure. So, I mean, the exiting number of patients for this quarter was approximately 5,900 patients. We disclosed exiting patients in the previous two quarters to really help to frame the dynamics in those quarters. You tend to see the typical payer seasonality in Q1, and obviously we had an inventory dynamic in Q2. But we've always historically reported average number of patients because we believe that average number of patients on WAKIX is the best metric to assess the continued growth and uptake of the brand in Given that it takes into account new patient starts, continuing patients, and all the patient medication behavior, compliance, persistency, discontinuation rate. And I think that what we're seeing in that strong growth in average number of patients demonstrates not only the strong interest in the narcolepsy community, it really highlights that large remaining diagnosed patient opportunity that we continue to tap into as the market allows.

Okay. Thanks, Jeff. And as far as, let me come back to your question on the citizen's petition and just an update on that. So as you may recall, the FDA issued a response to the citizen's petition in September to meet its statutory requirement of 180-day response. And at that time, it said it needed more time to review the CP. So this is a standard response that the FDA uses in more than 50% of the cases, and it's what we anticipated. So while we first wanted to wait to give the agency a chance to conduct its review, now that there's no defined timeline for the FDA to respond, we're taking action to try and get the FDA to issue a final response in a timely manner. We're evaluating those options in regard to how to best sort of assist and work with the agency in issuing a final response. You know, it's our position that, you know, WCAG is the only non-scheduled treatment option approved for adult patients with narcolepsy. You know, that it would be a disservice for patients and healthcare professionals to continue to be sort of impacted by the unfounded allegations in the citizen's petition regarding the safety and efficacy of WCAG, which could possibly kind of impact the treatment decisions. So, you know, we affirm the regulatory validity of the WCAG NDA. We remain confident in the overall risk-benefit profile of WCAGS, and based on the robust clinical development program and the post-marketing safety data that we submit to the FDA on a regular basis in the FDA reviews. So, you know, to date, the agency has not contacted us regarding the citizen petition. But as we go forward, you know, we will work with the agency and welcome their close attention and review because we're confident that once they review the unfounded allegations, in light of all the information available to them, it's our position that they will ultimately deny the petition based on its lack of merit. And that, you know, that is sort of the update on the citizen's petitions.

Very helpful. Thank you very much.

Thank you.

Thank you. We'll take our next question from Jason Gerberry with Bank of America. Please go ahead.

Hey, guys. Good morning. Thanks for taking my questions. First one for me, just on your annual or I guess your net sales capture per patient, your average patient number, It looks like the revenue capture is stepping up, offered you a nice tailwind on a year-over-year basis, and has kind of continually been grinding upwards. I was wondering if you could talk about the extent to which that's a trend or just seasonality, because when we look at the gap between first half sort of net sales capture per patient for second half, that gap continues to widen, and I'm wondering how we think about that going into 2024. And then just second one on the share buyback, just wondering how you're thinking about priority of the buyback versus M&A. I would think that, you know, the buyback is mainly where you see opportunistic opportunities to defend the stock if it's weak, and that M&A may be a priority over buyback, but I wonder if you can clarify that. Thanks.

Yeah, thanks, Jason, for your question. Santi, do you want to speak to revenue per patient first?

Yeah, sure. I mean, look, I think you see the general, usually every year, you know, first half, especially in the first quarter, that tends to go down as you have higher gross net deductions and impact of that. And then it improves as we go throughout the year in terms of gross net deductions, typically levels off by the third and fourth quarter of each year. And generally, the key change versus prior year, you know, we're up about 8% on that metric. And we took a price increase of about 10% early this year, so I can take plus or minus the impact of the price increase as well as... You know, some inventory fluctuations essentially gets you to that 8% that we saw year over year. And the way to think about it going forward, I mean, generally, like I said, gross net is relatively flat for Q3, Q4, second half of the year. And then, of course, as we go into Q1 of next year, you'll see the same dynamic again where we'll have higher gross net deductions as we have. and so forth so it's been it's following the natural seasonalization and pattern that we observed over the last couple of years uh for this product which again is not product specific it's really industry specific i would say overall i know jeff was there anything else you wanted to comment on that

Jason, I think the only other factor just to consider when you're looking at average revenue per patient is the patient assistance program engagement that we've seen has been relatively consistent. And so as the number of patients on average patients continues to grow and the participation in the free goods program is relatively flat, you'd see a slight incremental benefit as we're adding more revenue-generating patients. It's nominal, but I think the Sanding's point, when you couple that with the gross to net and the price increase, that's really what's kind of driving. So you should anticipate a slight increase in the average revenue per patient moving forward based upon traditional price increases that we would take, as well as just a relatively flat participation in our free goods program as we continue to grow the average number of patients on WACICS.

Yeah, and with regards to the share buyback, I'll just start and hand it over to Sandeep. Jason, I think as Sandeep mentioned in his comments, you know, it's not sort of either or. I think that obviously we're in a strong position with regards to deploying capital. either towards share repurchase or business development efforts. And, Sandeep, further thoughts on that?

Yeah, no, I think that's right. It's really not a question of either or. I think we're in a well-positioned, given our profile as a company, as I mentioned in my remarks, we generated $63 million of cash from just operations last quarter, you know, strong cash generation. profitability, we have a very different profile as a company, and we can also, you know, well-positioned to execute on share buyback as well as business development. And, of course, it's going to fluctuate quarterly, and we'll provide an update to investors as we make progress on both of these areas.

Yeah, and, you know, I think we were – remain committed in terms of our business development efforts and, you know, understanding the importance of, you know, growing the pipeline and diversifying our portfolio to drive long-term growth.

Thank you. We'll take our next question from Greg Stavanovich with Mizuho Securities. Please go ahead.

Hey, good morning. Thanks for taking the question. Congrats on the progress. Two quick questions, if I could. First, just going back to the new share repurchase and comments around potential flexibility around BD, should we assume or any comments you want to provide on kind of the size of the deals going forward? Certainly, Zynerba was, I think, as you mentioned, about a $60 million transaction, given that you've got a new $200 million share repurchase. Is that $60 million kind of the happy place for you guys in terms of the types of deals and the size of deals you want to do? So that's my first question. And then second, just on patent litigation with the P4s that have been filed, I just wanted to ask if you could confirm whether you have initiated patent litigation or a patent infringed lawsuit yet and any thoughts around timelines with respect to that.

Thanks so much. All right, great. Thanks for your questions.

Sandeep, some comments first on... I think I wouldn't necessarily read into the number of transactions as the same as what we would do potentially in the future. I mean, look, we have $438 million as of the end of last quarter. You know, we continue to generate positive cash flow. We have access to the public markets if needed. I mean, we would be in...we're in a position to do, you know, sizable transactions beyond... I think it'll really be the types of opportunities that we seek that will determine, not necessarily, you know, we have good flexibility in terms of . Okay.

And, Greg, with regard to your question on patent litigation and paragraph four filings, I think, you know, as we previously have communicated, you know, based on the commercial success with WCAG, you know, we fully expected to see paragraph four filings. and we received additional filings, you know, beyond the first two that we initially received and have shared and disclosed. So I think that, you know, we'll provide updates on the process as it moves forward. You know, this is a long process, I think, as you're aware. We prepared for the generic filers, and this is really the start of the process. You know, we have 45 days from the date of each of the Paragraph 4 notifications, to file the lawsuits, which invokes the 30-month stay, which obviously prevents the FDA from approval of the generic file during that timeframe. So we've engaged expert IP counsel to represent both Harmony and BioProJ in the patent litigation, and we are confident in the strength of our IP, prepared to vigorously defend it, and we'll provide updates as that process moves forward.

Thank you. We'll take our next question from Corinne Jenkins with Goldman Sachs. Please go ahead.

Good morning, everyone. Could you just maybe clarify, I think for Formulation 2, you highlighted an abbreviated development program. So what does that actually mean in terms of the need for and size of Phase 1, Phase 2, and Phase 3 studies? And how quickly do you think you can kind of like get a program like that to market? And then I guess as a follow-on to that question, do you primarily see this as like this launch would be a switch campaign ahead of generic and launches, and then what lessons can you learn from other switch campaigns that you would apply there?

Yeah, good morning, Corinne. Thanks for your question. I'll have Kumar sort of comment on the approach to the second formulation, quick-to-market strategy. From a commercial perspective, I'll ask Jeff Durst to share thoughts on, you know, what that could offer to the market.

Yeah. Good morning, Corinne. The formulation two is a pitonus-based modified formulation. And we are on track to get into the clinic in the second half of this quarter. the attributes and the potential clinical differentiation. We do believe that this particular formulation will have different attributes and several different clinical differentiation, but we are not in a position to comment on that because the exact nature of the formulation or the differentiation is because of the IP and competitive reasons. But this will be a faster market strategy, and we anticipate to launch within the WCAG lifecycle.

And, Corinne, from a commercialization strategy with the new formulation, too, it will not be a switch strategy. This is a brand-new product, and given the level of dissatisfaction that we see in the marketplace, the significant unmet need, People living with narcolepsy need new treatment options, and so we see this as a unique option that will be differentiated from WACIX and provide a new therapeutic option for patients. So we see WACIX and this new formulation being able to coexist and provide two unique options to people looking for therapeutic treatment for EDS or cataplexy in adult narcolepsy.

And just to clarify, when you say within the WACIX cycle, I assume you mean your base case, which is mid-2030s.

That's correct. Yes, that's correct, Corinne.

Okay, thanks.

Thank you. I'm showing no further questions at this time. I would like to turn the call back to management for closing remarks.

Thank you, operator. And thanks, everyone, for joining our call today and for your interest in Harmony. As you heard from us this morning, our business remains strong, and we have confidence in the long-term growth potential of our company. We look forward to providing updates as our business advances. Thank you, and have a great day.

Thank you. This does conclude today's Harmony Biosciences Third Quarter 2023 Financial Results Conference Call. You may now disconnect your line and have a wonderful day.