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 Biosciences' 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 one 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 Louis Sanay, 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 investor section of our website to find the materials that accompany our discussion today, including a reconciliation of our gap to non-gap financial measures. At this stage of our life cycle, we believe non-gap 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 Sandy 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 WACCICS is rarely seen in year four of commercialization of an orphan rare disease product. What is driving this strong continued growth of WACCICS 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 WACCICS, and that is what we are focused on. For the third quarter of 2023, we reported WACCICS net revenue of $160.3 million, an increase of 37 percent year over year. We believe that the vast market opportunity which remains in narcolepsy, along with the differentiated product profile of WACCICS, provides us the ability to grow the franchise for years to come, and we remain confident that WACCICS 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 petulicent 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 3 Intune Study of Petulicent Impatients 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 percent 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 petulicent 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 petulicent 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 petulicent 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 WACCICS franchise. Moving to the ongoing work with our partner BioProject on new formulations of petulicent, with the goal to potentially extend the petulicent 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 WACCICS and diversify our portfolio beyond SleepWake. On that front, I am excited to report that we recently closed the acquisition of Zanurba 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 WACCICS lifecycle. Zygel is currently in a pivotal phase three trial for patients with Fragile X syndrome, with another opportunity based on positive phase two 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 Zanurba 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 Zanurba 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 WACC-ITS 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 WACC-ITS. 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 2015 million in net sales. We continue to see strong double-digit growth in net sales for WACC-ITS in year four of our commercialization, which reflects the high interest of WACC-ITS in the narcolepsy market. The consistent growth in the business reinforces our long-term belief that WACC-ITS represents a -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 WACC-ITS 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 WACC-ITS 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 WACC-ITS. We saw continued strengthening of the WACC-ITS prescriber base in Q3, both in depth and breadth of prescribing. The number of unique prescribers on WACC-ITS increased again in the third quarter. Importantly, we continue to see growth in the WACC-ITS prescriber base expand beyond healthcare professionals enrolled in the OxyBate REMS program. In addition, we saw growth in the depth of prescribing within the OxyBate enrolled healthcare professionals, even with the availability of new and generic OxyBate options. As we continue to share the meaningfully differentiated product profile of WACC-ITS 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 WACC-ITS with and without experience with WACC-ITS prescribing showed the following. 100 percent of the healthcare professionals surveyed with WACC-ITS clinical experience stated they would prescribe the same or increased prescribing of WACC-ITS in the next six months. More than 40 percent of those healthcare professionals surveyed who had not prescribed WACC-ITS to date indicated the intent to prescribe WACC-ITS in the next six months. Nearly 60 percent of those healthcare professionals who had prescribed WACC-ITS to date stated they were likely to recommend WACC-ITS to peers and colleagues. And consistent with previous waves of research, one of the highest performing drivers and differentiators for WACC-ITS was the unique feature as the only non-scheduled treatment option. The availability of new and generic oxygenate options hasn't impacted the continued growth or existing strong payer coverage for WACC-ITS given the meaningfully differentiated product profile. Our ability to reach and educate the broad narcolepsy treating healthcare professional universe that's happened to the full diagnosed adult narcolepsy patient opportunity gives us confidence in continued growth and the long-term growth potential for WACC-ITS. 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 percent in net sales versus the year. We saw strong growth in the average number of patients on WACC-ITS to approximately 5,800, an increase of approximately 350 sequentially from what we reported last quarter. We saw continued expansion and strengthening of the WACC-ITS prescriber base within and beyond oxygenate rims and old healthcare professionals. And payer coverage remains strong even with the availability of new and generic oxygenate 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 WACC-ITS and reinforces our belief that WACC-ITS 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 adiabatic hyposomnia. We saw a robust clinical effect in the phase three in-tune study with almost 83 percent of the patients responding in the initial eight-week open-label treatment period with an average of 9.4 points improvement in effort-seeking STL scores. In addition, almost 90 percent of patients elected to participate in the long-term extension study. While no statistically significant difference was observed between the pitot-lacin and placebo groups on the primary endpoint of ESS at the end of four-week double-blinded randomized withdrawal period, positive trends favoring pitot-lacin were observed across all phase-specified endpoints, including the adiabatic hyposomnia 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 questionnaires. The safety profile of pitot-lacin in patients with adiabatic hyposomnia is consistent with the established safety profile of pitot-lacin, and no new AEs were observed. Almost 90 percent of the patients who completed double-blinded 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 adiabatic hyposomnia community and are focused on pursuing an indication for pitot-lacin in patients with adiabatic hyposomnia. 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 pitot-lacin receiving orphaned death designation for adiabatic hyposomnia, we look forward to engaging with the FDA. In Carter-Willi syndrome, we received FDA alignment on the protocol for the phase III tempo studies 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 -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 program for pitot-lacin, we continue to make progress on new -lacin-based formulations with our partner BioProje with a goal to generate new IP and extend the pitot-lacin franchise beyond 2014. Let me take a moment and take you through the strategy for this new -lacin-based formulation and provide an update on the status of the program as shown on slide number 8. We have advanced the first formulation into the clinic discorters. The first formulation is an enhanced -lacin-based formulation designed to deliver an optimized PK profile and higher dosage strength. The opportunity here is to extend the pitot-lacin 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 track for advancement into the clinic later this quarter. The second formulation is a -lacin-based modified formulation with a potential for clinical differentiation. The opportunity here is a enhanced market strategy for patients with narcolepsy within the weight-loss life cycle. This formulation will have an abbreviated development program. We are also pleased to expand and diversify our pipeline with the recent acquisition of Zynarba. We closed the acquisition just about three weeks ago and we look forward to providing a more detailed update on the Zysel programs at our next earnings call. We have seen a seamless transition of activities and continued engagement with the clinical trial sites and investigators. Zynarba acquisition has another innovative product candidate, Zysel. Zysel is the first and only pharmaceutical manufactured synthetic cannabidiol devoid of THC and formulated as a patent-protected permission enhanced gel for transferable delivery through the skin into the circulatory system. Zysel is manufactured through a synthetic process in a GMP facility. Therefore, it is devoid of THC and has the potential to be a non-skidded product if approved. Similar to VEKIX, Zysel represents a portfolio and a product opportunity and is currently in a pivotal phase three clinical trial for patients with phasalic syndrome called the reconnect trial. Additionally, Zysel was studied in an open-level phase two 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 phasalic 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 Zysel. I look forward to sharing additional updates as we continue to make progress on our clinical development programs. On behalf of Hormone, 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 followed their 10-cube 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 Zenerba 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 previous quarter. Our revenue growth is 37%. Performance in the quarter reflects the continued strong underlying demand for weight gifts. 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 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 weight gifts and the advancement of our clinical development programs. Operating income was $74.5 million compared to $11.9 million in the prior 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 quarter. The prior quarter included $74.5 million benefit related to evaluation allowance and a $30 million licensing fee related to the 2022 LCA with BioProject. We believe non-GAAP adjusted net income better reflects the underlying business performance. Please see our press release for reconciliation of GAAP to non-GAAP financial results. For the third quarter of 2023, we ended the quarter with $438.4 million of cash equivalent 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 strength 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 WCIX and 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 continuous commercialization of WCIX. As a reminder, we paid approximately $60 million in Q4 for the acquisition of Zunarbra 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 WCIX 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 life-cycle patolisome 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 WCIX, advancing our pipeline across both our patolisome and ZYGEL clinical development programs, working with our partner BioProje on new formulations to extend the patolisome 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 handsets and please limit yourself to one question and one follow-up question. We'll take our first question from Francois Vreisbois. 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 that. 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 as, but maybe in terms of the cost 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, it 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. Because, 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. Maybe Jeff Dierks, do you want to comment anything on the expectations on Q4?

Sure. So, Frank, I would reiterate, we did see the benefit of a couple days of inventory, but you couple that with a strong top line performance and new patient starts. That really drove, you know, 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, you know, 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 the new formulations? Sure. I mean, just 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 that could actually do. Just a little more color on the 2040 mention. Thank you.

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

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

Sure. Okay. So in terms of the IP situation with WACICS, so, you know, we believe in the strengths 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 Patolisen. And Kumar can provide a little more color on those programs. Sure.

Thank you, Jeff. Hey, good morning, Frank. Thanks for the question. Yeah, we are working on two formulations with our partner, Bayer Prajay, and pleased to share the update on this. We have made substantial progress over the past few months. The first formulation is an enhanced Patolisen-based formulation that is designed to deliver an optimized PK profile, a higher dose strength. But the opportunity here really is to generate new IP and extend the Patolisen 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 Patolisen-based modified formulation with a potential for clinical differentiation, and the opportunity here is a -to-market strategy for patients with narcolepsy within their life cycle. 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 Anselm with Piper Sandler. Please go ahead.

Hey, thanks. So, got a couple. First, in terms of prescriber dynamics, can you talk to your audience about the penetration of WACCICs among providers who are not enrolled in the Oxidate RENs? 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 formulation, 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 Jeff Dirk to respond. The first question about the prescriber

base. Sure. So, David, we're extremely pleased with the growth in the new prescriber base of WACCICs. And obviously, as we continue to add new prescribers, the vast majority of them are those healthcare professionals that are not enrolled in the Oxidate RENs program. As we've disclosed, there's about approximately 5,000 of those healthcare professionals that are not enrolled in the Oxidate RENs 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 WACCICs, 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 WACCICs represented in a 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 the new formulation of the Patolson, 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 Patolson franchise out not just beyond 2030, but 2040. With regards to idiopathic hypersomnia, let me be clear in terms of where we are coming off the Intune study. We saw a robust clinical effect in the trial in the open label phase, and we are going through the full data set and reviewing that, which will inform our strategy in terms of approaching the FDA as we continue to pursue the indication for IH based on the Intune study and those data. So at this point, 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. We remain committed to the IH patient community. We are actively pursuing an indication as a non-scheduled sort of product and the opportunity given the current treatment options for patients with IH. So 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 Omifadi with Needham and Kovil. Please go ahead.

Hi. Good morning. This is Ethan Leonferami. Congrats on the wake-up growth in the quarter, and thanks for taking our questions. Two, if I can. Historically, it looks like kind of the sequential adds and average patients on wake-ups 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 WCAG sales guidance at the next earnings update or otherwise. Thank you.

Thanks for the question. Jeff, start from the first one.

Sure. So, Ethan, with respect to thinking about Q4 with respect to average number of patient growth, you know, adds 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 2023. Okay. That's on deep. No,

I think on guidance, that's an ethical point, as you mentioned, to 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-touch sleep, inventory impact, you know, fluctuations -over-quarter. You know, we remain confident in WCAG being a billion-plus in narcolepsy alone, but that was 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 current LCM programs. So we're confident in the long-term growth potential for WCAG, and, you know, with respect to probably short-term guidance and things like that, I mean, like I said, we'll consider early next year would be the natural point.

Okay. Thanks, Lenny. Great.

Thank you. Thank

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

Hey, good morning, Jepsen team. First of all, congratulations on 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 they were, 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 in the Intune study alone and its open label extension?

Thanks. Yeah, good morning, Charles. Thank you for your question and sort of, you know, the feedback that you received on the Intune study. I mean, I think that the approach, you know, 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 effects 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 Intune 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 toll-assent 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 treatment options. So, you know, that is the overall approach, and Kumar, I ask if you have any additional thoughts on strategy.

No, I think, Jeff, 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 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?

Good morning, Charles. Thanks for that question. With 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 had done thus far. Specifically with the Intune study, in the open label part of this study, we saw robust clinical response. In fact, 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 criteria, which is much more stringent than the criteria from the American Academy of Treatment 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 will start working on the meeting request, briefing document, and request a meeting with the FDA in early first quarters of 2024.

Yes, Charles. Thanks, Charles. I would just add, we are moving sort of expeditiously. This is obviously a high priority for us, so we are moving quickly to review all the data, put in the meeting request, and get in front of the agency to have this discussion as we actively pursue the indication for Pertulsin and IH.

Thanks for the anticoagulation.

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

Hi, this is Danielle Neathal 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 WACC's extracurriculars in this quarter, and there's only average patients reporting. And is there a new convention for the future earning as well? Thank you very much.

Sure. Thanks for your question. Jeff, in terms of exiting number of patients, you want to just address that first, and then I'll speak to the citizens 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 WACC is the best metric to assess the continued growth and uptake of the brand. 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 patients are not necessarily the ones that are in the market. So, I think that's an 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 citizens petition and just an update on that. So, as you may recall, the FDA issued a response to the citizens 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, you know, 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, WACIX is the only non-scheduled treatment option approved for adult patients with narcolepsy, you know, that it would be at the service for patients and healthcare professionals to continue to be sort of impacted by the unfounded allegations in the citizens petition regarding the safety and efficacy of WACIX, which could possibly kind of impact the treatment decisions. So, you know, we affirm the regulatory validity of the WACIX NDA. We remain confident in the overall risk-benefit profile WACIX, 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 citizens 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 Merck, and that, you know, that is sort of the update on the citizens petition.

Very helpful. Thank you very much.

Thank

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

Hey, guys. Good morning. Thanks for taking my questions. First one for me, just on your annual, I guess your net sales capture per patient, your average patient number, it looks like the revenue capture, you know, is stepping up, offered you a nice tailwind on a -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 when, if it's a week and that M&A may be a priority over buyback, but I wonder if you can clarify that.

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 take plus or minus the impact of the price increase as well as, you know, some inventory fluctuations essentially gets you to about 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 and so forth. So it's following the natural seasonalization and pattern that we observed over the last couple of years for this product, which, again, is not product specific. It's really industry specific, I would say overall. I don't know, Jeff, was there anything else you wanted to comment on that? Yeah,

so, I mean, 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, you know, 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 standings point when you couple that with the gross 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 Sundeep. Jason, I think as Sundeep 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 Sundeep, 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 the very 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 these areas.

Yeah, and I think we 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 Stavanovic 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, Zynurba 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 patent infringement lawsuit yet and any thoughts around timelines with

respect to that. Thanks so much. All right, Greg, thanks for your questions. So, on comments first on BD. I think I wouldn't

necessarily read into the Zynurba transaction as the same as what we would do potentially in the future. I mean, look, we have $438 million at 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 sizable transactions beyond what we have at the point. And I think it'll really be the types of opportunities that we think that will determine not necessarily, you know, we have good flexibility in terms of what we want.

And Greg, with regard to your question on patent litigation and Paragraph 4 filings, I think, you know, as we previously have communicated, you know, based on the commercial success with WACICS, you know, we fully expected to see Paragraph 4 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 GENARC 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 the GENARC filings, you know, during that timeframe. So, we've engaged expert IP counsel to represent both Harmony and BioProje in the patent litigation. And, you know, 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. Can you just maybe clarify, I think, for formulation two, 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-up to that question, do you primarily see this as like this launch would be a switch campaign ahead of GENARC 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. And I'll have Kumar sort of comment on the approach to the second formulation, -to-market strategy. From a commercial perspective, I'll ask Jeff Durst to share thoughts on what that could offer to the market.

Yeah. Good morning, Corinne. The formulation two is a pitonocin-based modified formulation, and we are on track to get into the clinic in the second half of this quarter. In terms of 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 because of the IP and competitive reasons. But this will be a faster-market strategy, and we anticipate to launch within the wake-up lifecycle.

And, Corinne, from a commercialization strategy with the new formulation two, 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. 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 and adult narcolepsy.

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

That's correct. Yeah, 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.