Harmony Biosciences Holdings, Inc.

Good morning. My name is Madison and I will be your conference operator today. At this time, I would like to welcome everyone to Harmony Biosciences first quarter, 2024 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 may be recorded. Lastly, if you should need operator assistance, please press star zero. I will now turn the call over to Lewis and I, 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' first quarter 2024 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 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. We have a lot to share this morning, so in order to allow ample time for Q&A, we will keep our prepared remarks brief this morning. 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. Earlier this morning, we were excited to announce our third business development deal in the past eight months with the acquisition of Epigenetics Therapeutics. As you may have seen in our earnings release, in addition to this news, we have accelerated our growth strategy and have transformed our business to position Harmony for long-term value creation. Given all the exciting news and upcoming catalysts that we have to share today, We will not be able to go into depth on everything on this call, but the key points that I want you to take away from our call today regarding the Harmony story are the following. Our commercial business is strong and Wacix continues to demonstrate durable growth now year five in the market. Wacix is a $1 billion plus market opportunity in adult narcolepsy alone, and we are well on our way as we expect to continue to grow the brand through LOE in 2030. We are growing organically by advancing our lifecycle management programs for Pitocin with the next generation formulations designed to improve the patient experience and patient outcomes, as well as generate new IP to extend the Pitocin franchise out beyond 2040. We are also pursuing new indications for Pitocin, including near-term catalysts in pediatric narcolepsy and idiopathic hypersomnia. to help even more patients living with unmet medical needs and drive incremental revenue. We are making good progress toward pediatric exclusivity, which would provide an additional six months of regulatory protection on the back end of our longest patent, a commercial opportunity of upward around $1 billion. And we are growing inorganically through business development. With our previous announcement regarding the licensing of TPM 1116, a highly potent and selective orexin 2 receptor agonist to solidify and grow our sleep-like franchise, and today's announcement regarding the acquisition of epigenetics and their rare epilepsy portfolio, we now have three orphan rare CNS franchises in late-stage development. each with potential peak sales opportunities of $1 to $2 billion, and patent protection ranging from the late 2030s to mid-2040s. At Harmony, we believe we are well-positioned to become the leading patient-focused CNS biotechnology company delivering innovative treatments to patients with unmet medical needs, and while doing so, drive significant and durable value creation. I want to take a minute to emphasize the value of our pipeline that we have been building. Across these three franchises, we are currently working with eight assets being studied across 13 development programs. More importantly, we expect these programs to result in at least one new product or indication launch each year over the next five years. We have planned ahead executed smart and strategic business development deals with low upfront costs and risk tied to the achievement of certain clinical regulatory and sales milestones that is successful are poised to generate significant near-term and long-term value creation. And we are not stopping here. While we have made significant progress on our business development goals, we continue to look to build out our pipeline even further. While we do a broad sweep of the BD landscape, our focus is on assets in the orphaned rare CNF space consistent with the three deals we have done over the past eight months. We feel there are other opportunities out there that would fit our growth strategy. And with approximately $454 million in cash, cash equivalents and investments as of March 31st, we are in a solid financial position to execute on additional BD opportunities and have demonstrated our ability to do so. Let me share a few highlights with you from each of our three franchises that are in late stage development. First, building off our leadership position in SleepWake with Wakeix. We began working on extending the Pitollison franchise several years ago by developing new formulations of Pitollison that are planned to come to the market both during and towards the end of the Wakeix lifecycle. Importantly, These products are designed to improve patient experience and patient outcomes and will have new IP that extends our durable growth and leadership in sleep-wake out beyond 2040. We remain committed to the idiopathic hypersomnia patient community and gaining an indication for Pitocin and IH and plan to submit an SNDA to FDA in the second half of this year. After following the erection space for the last few years and doing diligence on several of the assets, we licensed TPM1116, a highly potent selective oral erection 2 receptor agonist with a potential best-in-class profile due to its unique chemical structure and preclinical data. This solidifies our leadership position in sleep medicine and demonstrates our long-term commitment to the field. Our second franchise in rare neurobehavioral disorders continues to make good progress, and the lead program with ZYN002 is in a pivotal phase three registrational trial for Fragile X syndrome and on track for top line data readout in mid 2025. With approximately 80,000 patients living with Fragile X in the U.S., this is a sizable market opportunity, and we also have global rights to this asset with even bigger market potential. And today, with the announcement of our latest BD deal, the acquisition of Epigenics Therapeutics, we established a rare epilepsy franchise and acquired two new assets to serve as the foundation of what could be a larger franchise. The lead program is with Clemazol Hydrochloride, or EPX100, which has received both orphan drug designation and rare pediatric disease designation from the FDA for Dravet syndrome and Lennox-Gastaut syndrome. It is currently in a pivotal registrational trial for Gervais syndrome with top line data expected in 2026. We also plan to start a pivotal phase three trial with EPX100 in patients with Lennox-Gastaut syndrome in the second half of this year. QMAR will be providing more color on the growth of our development enterprise and our robust pipeline programs later in the call. The important takeaway is that we expect these programs to result in at least one new product or indication launch each year of the next five years with multibillion-dollar revenue potential extending out beyond 2040. While I have focused on the significant progress in our catalyst-rich pipeline that has the ability to deliver durable growth out beyond 2040, I don't want you to lose sight of the continued durable growth that WCAG has demonstrated now year five in the market. We delivered another strong quarter with net revenues of $154.6 million, which represents 30% growth year over year. With these strong results, we are reiterating our 2024 net revenue guidance of $700 to $720 million. We believe that we can continue to grow the franchise for years to come and remain confident that WakeX represents a $1 billion-plus opportunity in adult narco FC alone, and we are well on our way. With that, I will turn the call over to Jeffrey Dirks, our Chief Commercial Officer, for an update on our commercial performance in our SleepWake franchise. Jeff?

Thanks, Jeff. The first quarter was another strong quarter for Wacox and adult narcolepsy, highlighted by continued product adoption and growth in our underlying business fundamentals. Net sales for the quarter were $154.6 million, representing 30% growth from the same quarter previous year. The solid net sales performance in the first quarter reaffirms our confidence and our net sales guidance of $700 to $720 million for the full year 2024. Key drivers of our performance in the quarter were continued growth in the average patients on WACICS, growth in the WACICS prescriber base, and continued strong favorable market access as seen on slide five and six. The average number of patients on WACICS increased to approximately 6,300 in the first quarter. We are extremely pleased with the continued growth in patients on WACICS and the durability we're seeing in that growth in year five of our rare orphan commercialization. We successfully navigated the traditional Q1 seasonal payer dynamics and changed healthcare cybersecurity impact and are seeing good leading indicators in our underlying business fundamentals heading into the second quarter. We saw continued growth of the WCAG prescriber base beyond OxyBait writers in the first quarter as well. We saw meaningful growth in new writers of WCAG in the approximately 5,000 non-OxyBait REMS-enrolled healthcare professional audience. and are more than 33% writer-penetrated in the segment at the end of the first quarter. This audience represents an insulated group of prescribers and patients from the OxyBates, and the continued growth of prescribers in the segment each quarter reaffirms WACIC's growing the branded writer segment beyond the OxyBates by providing a meaningfully differentiated product profile and one that offers broad clinical utility across the entire narcolepsy-treating healthcare professional universe. In addition to the growth in new prescribers, we continue to see growth in the depth of prescribing among the approximately 4,000 OxyBait REMS-enrolled healthcare professionals, even with the availability of new and generic OxyBait options. WAKIX is highly penetrated within this prescriber audience and see growth in this segment each quarter as WAKIX is being prescribed to additional narcolepsy patients. Our ability to call on the entire narcolepsy treating healthcare professional audience allows us to tap into the full diagnosed narcolepsy patient opportunity, giving us confidence in the long-term future growth of WAKIX. The last driver of our performance in the first quarter was the continued strong and favorable market access coverage for WAKIX, even with the availability of new and generic OxyBait options on the market. We've seen no changes to the overall payer coverage for WAKIX over the past year, and we believe we are well-positioned to support future growth. In summary, we had another strong quarter of durable growth and performance in net sales, patient ads, and growth in prescribers of WCAGs. We're seeing good leading indicators in our underlying business fundamentals heading into the second quarter. And the solid performance in Q1 reaffirms our confidence in our full-year net sales guidance of $700 million to $720 million. I'm excited about our performance, and we are confident in WAKIX representing a potential billion-dollar-plus opportunity in adult narcolepsy alone, and we are well on our way. I would like to now turn the call over to our Chief Medical Officer, Kumar Badur, to discuss the advancements in our clinical development programs.

Kumar? Kumar Badur Thank you, Jeff. Good morning, everyone, and thank you for joining us today. We are making great progress in advancing expanding and diversifying our pipeline programs, several of which are in late stage development. As Jeff mentioned, we now have 13 different development programs ranging from preclinical to registration studies across eight different assets and under three distinct franchises focused on rare orphan neuroindications with high unmet needs and with the ability to launch a number of these indications in the coming years. Our full clinical development pipeline is shown on slide seven, and I think you can appreciate how much it has grown over the past year. Let me start by sharing some key updates in each of our franchises, starting with our growth in sleep week franchise and our program in idiopathic hypersomnia. We met with the FDA in March to discuss the next steps for our IH program. We were encouraged by the discussions we had with the agency on our data, the burden of the disease, limitations of current treatment options, and the off-label use of scheduled drugs. We feel the agency understands and appreciates the high unmet need in IH. While we understand the bar for approval is high, we are moving forward and plan to submit an SNDA in the second half of 2024. The submission will be based on the totality of the data generated from the Intune study, including data from the ongoing long-term extension study, which strongly supports pituitary effecacy in patients with IH. We have also identified other supportive information that will be included in the SNDA to further strengthen our submission. We are optimistic and remain committed in bringing a new treatment option to patients living with IH that is not scheduled has an established safety profile and a simple dosing regimen. Moving to pediatric narcolepsy, we are on track for the PDUFA date of June 21st. We are pleased with the FDA's decision to grant priority review. This decision highlights the need for new treatment options for the approximately 4,000 pediatric patients living with narcolepsy. Prader-Willi syndrome we initiated the phase three TEMPO study in the first quarter. This is a global, multi-center, double-blind, randomized placebo-controlled study that will randomize approximately 134 patients to either pitolocent or placebo in a one-to-one ratio. We are committed to obtaining pediatric exclusivity for pitolocent. We are making good progress on the two requirements, data in pediatric narcolepsy and data in PWS patients by submitting PEEPS narcolepsy SNDA and initiating the Phase III study in PWS, respectively. Obtaining pediatric exclusivity will add six months of regulatory exclusivity to the back end of the longest patent, and this represents a significant commercial opportunity for VACIX. An important element of our franchise growth strategy is to develop new Pitocin-based assets with the goal of generating new IP, extending the Pitocin franchise beyond 2040, and bringing new and improved versions of Pitocin to the market for people living with narcolepsy and other sleep-break disorders. We are making good progress on these formulations, NextGen1, NG1, and next-gen 2, NG2, with our partner BioProject. We are pleased to report positive PK data in NG1, an enteric-coated petolefent formulation designed to demonstrate bioequivalence to VAKs through an abbreviated development pathway. The NG1 formulation is designed to potentially decrease GI side effects and also have an important additional clinical differentiation compared to vague eggs. That is, the ability to start dosing at 17.8 mg at the beginning of the therapeutic dose range for pitonacin rather than the need to tight it up to the therapeutic range. This clinical differentiation will be supported by a dosing optimization study. As shown on slide 9, The pilot BE study showed similar rate and extent of absorption, that is C-max and AUC, between NG1 and AKEX, demonstrating relative bioavailability. The next steps for NG1 include initiating the pivotal bioequivalence and dosing optimization studies in the fourth quarter of this year. Based on the development timeline, we expect a producer date in 2026. In addition, a provisional patent for NG1 has been filed and the potential for patent protection up to 2044. Moving on to NextGen2, or NG2, this is an enhanced formulation of Pitot-Lessant designed to deliver an optimized PK profile and a higher dosage strength. This formulation will have a new IP, a full development program, and is expected to launch towards the end of waking flight cycle. We are on track to report PK data from this formulation in the first half of this year. We are also very pleased to continue to strengthen our leadership position in sleepwalk with licensing of PPM 1116. Licensing an RxM asset was a natural next step for us as it leverages our established experience and expertise, both in development and commercialization of treatments for sleepwalk disorders. TPM1116, a novel orexin-2 receptor agonist, represents a potential best-in-class product profile amongst the current orexin-2 receptor agonists. It has a new chemical scaffold compared to the other orexin-2 receptor agonists, potentially contributing to its unique product profile. TPM1116 will be evaluated for the treatment of narcolepsy and other sleep-wake disorders. The preclinical data suggests its potential best-in-class profile based on its high potency, good selectivity, potential for once-daily dosing, and good safety profile. We look forward to sharing the preclinical data at an upcoming scientific conference. In terms of development milestones, we expect to file an IAD in mid-2025 and initiate first in human studies in second half of 2025. Moving on to our next franchise, the neurobehavioral defaulted franchise. VYN002, a pharmaceutically manufactured synthetic cannabidiol gel devoid of THC, is a patent-protected permeation-enhanced gel for trans-sermal delivery, which, like VEGIX, could be a foundational asset in our growing neurobehavioral franchise. We are currently enrolling patients in the Pivotal Phase III Reconnect trial in Fragile X syndrome. With approximately 80,000 patients diagnosed with Fragile X syndrome in the U.S. alone and no approved treatment, there is significant unmet medical need. We expect to complete patient enrollment in the first quarter of 2025 with top-line data in mid-2025. ZYM-002 was also studied in an open-label Phase II proof-of-concept study, the INSPIRE study, in patients with 22q deletion syndrome and generated positive signals in aberrant behavior checklist. This represents another opportunity to help approximately 80,000 patients with 22q deletion syndrome in the U.S. alone. and we have been interacting with the FDA about a phase three program in 22Q and expanding this franchise. It is worth noting ZYM002 is a global opportunity for Harmony, and we look forward to exploring XUS opportunities to bring this novel treatment to patients living with Parzell X syndrome and 22Q deletion syndrome around the world. Finally, We announced today the establishment of our third race orphan neurofranchise in epilepsy with the acquisition of Epigenetics Therapeutics. This acquisition brings us two assets targeting rare epilepsies, both global opportunities for us. The first asset, EPX100. important centrally acting serotonin agonist which is currently in a pivotal registration and clinical trial for the treatment of Dravet syndrome in children and adults. Dravet syndrome is a rare and severe developmental epileptic encephalopathy with high unmet medical need. The proven mechanism of action of Klinisol via the serotonergic system could offer good efficacy and, importantly, a safer product profile than currently available treatment options and improve the quality of life and functioning in patients with DS. The schematic of the trial design for this registration study, known as the ARCUS study, is shown on slide 11. We anticipate top-line data from the ARCUS study in 2026. EPX100 is also poised to enter a Phase III registration trial for the treatment of Stilox Gestalt Syndrome, another rare and serious developmental epileptic encephalopathy with high unmet medical need. We anticipate starting this study in the second half of 2024. EPX100 has received both authentic designations and race pediatric disease designations from the FDA for both Dravet syndrome and Lennox-Gastaut syndrome. A second investigational product, EPX200, is a potent overall centrally acting selective 5-HT2C agonist that is currently in IND-enabled studies. EPX200 also received orphan drug designations for Derry syndrome, and Lennox-Gastaut syndrome as the last three pediatric disease designations for Lennox-Gastaut syndrome. To conclude, we have made tremendous progress in advancing our development programs, expanding our pipeline, and diversifying our portfolio, resulting in multiple late-stage development programs across three different franchises, sleep-break, neurobehavioral, and pre-epilepsy. If successful, these programs could result in at least one new product or indication launch every year over the next five years, along with the potential to help hundreds of thousands of patients across all the rare neurological disorders we are investigating. I'm proud of the hard work and dedication of our team at Harmony and look forward to sharing additional updates as we continue to advance our clinical development programs. On behalf of Harmony, I would like to thank all the patients and their families for participating in our clinical trials, as well as clinical investigators and site personnel for their efforts and commitment in helping us 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 first quarter earnings release and filed our 10-Q, where you'll find the details of our first quarter 2024 financial and operating results. Our financial performance is also shown on slides 12 through 15. We're off to a great start to the year in 2024. We reported another strong quarter of growth in revenues and net income, along with continued cash generations. Our unique financial performance and profile positions us well to continue advancing our growth strategy and look for opportunities to draw value for shareholders. We reported net revenues of $154.6 million compared to $119.1 million in the prior year quarter, representing a growth of 30%. Performance in the quarter reflects the continued strong underlying demand for weight cakes, coupled with the typical seasonality dynamics that the industry as a whole experiences each year in Q1, including a higher growth to net deductions, along with a couple of days of drawdown in trade inventories. We also reported strong growth in net income and margins. Non-GAAP adjusted net income for the first quarter of 2024 was $50.7 million, or $0.88 per diluted share, compared to $40.7 million, or $0.67 per diluted share, in the prior year quarter. We believe non-GAAP adjusted net income better reflects the underlying business performance. Please refer to our press release for a reconciliation of GAAP to non-GAAP results. We ended the first quarter with $453.6 million of cash, cash equivalent, and investments on the balance sheet. The balance reflects continued cash generation of our underlying business, which provides us the financial flexibility to continue executing on business development and opportunistically returning capital to shareholders via a share repurchase program. Looking ahead, we continue to expect strong quarter-over-quarter growth with a potential for trade inventory drawdown of a few days in Q2 as we head into the summer. We are reiterating our net revenue guidance of 2024 of $700 to $720 million, highlighting our progress towards the $1 billion-plus opportunity in narcolepsy alone. With respect to expenses, we do expect to take IT R&D charges for the licensing of PPM 1116 and the acquisition of Epigenix in the second quarter. The charges will primarily consist of the upfront cost of $25.5 million and $35 million, respectively, offset by the value of net assets we have acquired. In addition, we expect ongoing operating expenses of approximately $35 million for 2024 as we advance both programs. As you saw from the terms of both transactions, we continue to be disciplined with capital deployment. We structured both transactions with low upfront payments with success-driven regulatory and sales milestones. As a result of our recent efforts in business development, we now have multiple programs in late-stage development. with the potential to generate revenue in the coming years. So in conclusion, we're off to a great start to the year, along with strong outlook for the balance of the year and well positioned to continue to drive value for shareholders. And with that, I'd like to call back to Jeff for his closing remarks. Jeff?

Thank you, Sandeep. As we have just highlighted for you, Harmony is a growth story and our growth is accelerating. We have strategically been executing on expanding our pipeline and diversifying our portfolio to drive near-term revenue out to 2030 and durable long-term revenue growth out beyond 2040. The key drivers of our catalyst-rich pipeline and future revenue potential include the next-gen formulations of Pitocin that can generate new IP and extend the Pitocin franchise and drive durable revenue out beyond 2040. New indications for Pitocin, including near-term catalysts in pediatric narcolepsy and idiopathic hypersomnia. Gaining pediatric exclusivity and an additional six months of patent protection on the back end of our longest patent, which represents a significant commercial opportunity. Our three business development deals over the past eight months that has resulted in three orphan rare CNS franchises in late stage development. each with potential peak sales opportunities of $1 to $2 billion and patent protection ranging from the late 2030s to mid-2040s. And the growth of our development enterprise, which now includes eight assets advancing across 13 development programs, resulting in the potential for at least one new product or indication launch each year over the next five years. At Harmony, we believe we are well-positioned to become the leading patient-focused CNS biotech company, delivering innovative treatments to patients with unmet medical needs, and while doing so, drive significant and durable value creation. Thank you for your attention, and I will now turn the call over to the operator for Q&A. Operator?

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 will take our first question from Charles Duncan with Cantor Fitzgerald.

Good morning, Jeff and team. Thanks for taking our questions. And congratulations on good commercial quarter as well as the recent business development deals. Impressive activity. Thank you, Charles. So I had a quick question for Jeff Dirks in terms of the commercial business Nice growth year on year, appreciating the seasonal issues. But in terms of the number of patient ads, let me ask you about how you feel about that as well as one of the things that Kumar mentioned is in the next generation, an ability to titrate more rapidly. And I guess I'm wondering, if you look at the current patient population taking Wakex, how do you feel that's impacting the use of Wakex? Will the improved titration rate make a difference in terms of the persistence within Wakex? Thanks.

Charles, thank you for your question. Jeff? Sure.

Thanks for the question, Charles. To answer your question on the average number of patient ads in the first quarter, first off, I'll tell you we're extremely pleased with the durable growth that we're seeing in the average number of patients. It grew 150 patients sequentially from what we reported in Q4. We continue to see strong top-line demand in new patient starts. And, Charles, as you know, the 150 average patient growth is well in line with our past two Q1 average patient growths in the last two years. And as you cited, we typically have the Q1 seasonal payer dynamics, you know, the reauthorizations, the prescriptions. And a reminder, coming into 2024, we had a larger established patient base. We had 6,150 average patients coming into 2024. Whereas a year ago, we only had about 4,900. And all of those established patients are exposed to those reauthorizations that occur every January for specialty and branded products. And certainly, Charles, you know those reauthorizations just simply add time. So about 25% more of our patients were exposed to that. And then on top of that, we did have the additional headwind of change healthcare. But as you know, we've got a great commercial model. We have a closed distribution network. And the outstanding work of our team, we did a tremendous job in navigating those dynamics. And we've continued to been able to demonstrate growth every single quarter in average patients. We're going to continue to tap into that large patient opportunity as the market allows each quarter. And we're confident, as Sandeep shared in his prepared comment, to see quarter-over-quarter growth for a remainder of 24 and beyond.

That's helpful. If I could ask one development question, that is regarding the new assets, epigenetics. Congratulations on that. Kumar, you mentioned 26 being data with EPX100. I guess I'm wondering, what is really modulating that timing of 26. I know these are difficult studies to enroll, but could that prove to be an overly conservative estimate of time to top line data on EPX100?

Good morning, Charles. Thanks for the question. Look, we just acquired this asset, and right now we believe 2026 is when we will be able to come up with the top-line data. Obviously, as the study progresses, as we are able to bring in Harmony resources, the expertise in R&D, and especially the advocacy support group that we have very well established here at Harmony who work hand in glove with patient communities. So all of these things will definitely help with the recruitment. And you're right, recruiting DS patients is not necessarily easy, but I think we have a really A-plus team to recruit these patients. And as we make progress with the clinical trials, we will provide more granularity for the timeline.

Thank you for taking our questions.

Thank you. We will take our next question from Francois Brispa with Oppenheimer.

Hi, I apologize. The question was already asked. I got dropped off the call for a sec there. But I was just wondering, in terms of the acquisition, the epigenetics acquisition, is there any data that you intend to share soon about other past readouts, just given it's a private company and people might not be familiar with the source?

Good morning, Frank. Thank you for your question. I think, yeah, Kumar can talk about data generated and what we'll be sharing going forward. Yeah.

Thank you, Frank. Yes, I mean, chlamydia hydrochloride, Frank, is a first-generation antihistamine that was introduced in 1950s and sunset in 1970s, introduction of second- and third-generation antihistamines. There is some safety data from that period of time, which is very benign. And then the SCN1A mutation model of zebrafish, where chlamydia hydrochloride was studied, is published extensively by Scott Baraban, who is a professor at the University of California in San Francisco. The mechanism of action, Frank, is a potent centrally acting serotonergic drug, and this is a proven mechanism of action when it comes to developmental epileptic encephalopathies. So that, alongside with the robust data that we observed in FE1 mutation zebrafish model and safety data that we have from Clonazole, most of it is available in the public domain. And within the clinical trial, this is a phase three registrational clinical trial, and we have access to the long-term open-label data that has not been published yet. Obviously, we don't know the double-blind data. It is double-blind, but the open-label long-term study data is available, and we will be discussing on what will be the appropriate time to put those data in the public domain.

Okay, perfect. And just a question in terms of, and again, sorry if you mentioned this, but The 150 new patient ads, is there any seasonality impact here on the number of patient ads, or is it mostly the growth to net and that impact on the inventory also having an impact? Or does the number of patient ads also get impacted by seasonality in the first quarter? Because we had seen it a few years ago. It was only 100 patients, I think, in Q1-22. So just wondering about that. And then you mentioned the 700 to 720 guidance, but I don't think you mentioned the 7,000 patients on drug. Is that still something that we should expect, or are we getting away from that 7,000 number here? Thank you.

Sure. Frank, thanks for the question. And, yeah, from a Q1 perspective, we do see seasonal payer headwinds that do have an influence on the number of patient ads in the first quarter. And you cited the 150 patient ads we had this quarter is in line with the last two years. We had 200 last year. We had 100 two years ago. So very consistent as we get reauthorization headwinds on prescriptions. And the one thing taken into account this year, Frank, is we had a larger established patient base coming into 2024. We had about 6,150 average patients that were exposed to that reauthorization this year, whereas coming into 23, we only had 4,900. So we had about 25% more patients exposed to that reauthorization of prescriptions that most specialty and branded products face in January. And As you know, it simply adds time to the process, which does have a little bit of influence on patient ads, but it's in line with our expectations. We're extremely pleased with what we saw in the first quarter. And then leading into your questions about guiding towards approximately 7,000 patients at the end of the year, in addition to reiterating our guidance on net sales, I am reiterating the guidance that we're expecting to end the year at around 7,000 average patients.

Thank you.

Thanks, Frank.

We will take our next question from Ami Sadiya with Needham.

Hi, good morning. Congrats on all the progress at the company along with the recent deals. My first question is on Idapak and Capistonia. Could you share some of the details of the discussion that you had with the FDA and how they viewed some of the additional analysis that you were going to share with them And did you specifically get clarity on whether these data would be adequate for approval, or was that characterized as a review issue by the FDA? And then I have one more question.

Good morning, Ami. Thank you for your question. It's Jeff. I think, as you know, we had a good interaction with FDA, you know, regarding the IAH program. And also, as you're aware, it always comes down to a review issue. But based on the discussion and interaction and the strength of the data that we generated, we feel that there is a path forward. And Kumar can share some more of the color around the FDA interaction.

Thank you, Jeff. Thank you, Ami, for the question. Yes, we had good discussions with the regulatory agency on the data, the unmet need, the lack of treatment options, and especially around the off-label use. of controlled stimulants. We did feel that the FDA recognizes and acknowledges and appreciates the lack of treatment options in patients with idiopathic hypersomnia. We are optimistic based on the totality trends we saw in the randomized withdrawal period and especially the long-term extension study, which I have mentioned earlier, where we still have approximately 90 patients in the long-term extension study. All of those patients have completed six months of treatment. And more than half of them have completed 12 months of treatment. And about 10 of those patients have completed 18 months of treatment. And we continue to see persistence of effectiveness. And we are looking at the safety data, but also the effectiveness data as well. So combined with all of these things, in addition, we are also planning on obtaining real-world data. and other data that will not just strengthen the submission, but also contextualize the data that was generated from the in-tune study. So based on all of this, we are optimistic. We do recognize the bar is high. But as Jeff has consistently mentioned, we are committed to patients with idiopathic hypersomnia to bring Pitolazine to them as soon as possible, as efficiently as possible, and giving them an option for a non-scheduled drug with a simple dosing resume. and an established safety profile.

Got it. That's very helpful. Just with regards to EPX100, this class of drugs has had a history of some safety issues. And so could you comment on how you got comfortable with the safety profile of EPX100? And if you could give us some color around that. the dose that's been studied in the trial relative to the dose that has been approved in the market for all these years, and also if you could talk about the IP protection that you anticipate for the effort. Thank you.

Yeah, sure, Ami. I mean, I guess you're referring to some of the cardiovascular issues that FinTEFLA has, which also act via histaminergic mechanism of action. The histaminergic mechanism of action, AMI, with this particular indication, set of indications like DEE, is a proven mechanism of action, particularly with senfluramine, which is the active moiety in pentaphyllum. does show some cardiovascular effects like pulmonary arterial hypertension, which in turn results in thickening of the heart valves. And that's why that particular product has a black box warning and is also subject to the REMS program. With the chlamydia hydrochloride, there is a huge body of safety data. One from the time that it was introduced as a first-generation antihistamine in 1950s, 60s, and 70s. And on top of it, we conducted a full battery of non-clinical safety studies. including six-month studies, repeat dose studies in rats, nine-month repeat dose studies in dogs. And as you know, dogs are extremely sensitive when it comes to the findings of cardiovascular issues. We did not see anything to suggest that the chlamydal hydrochloride has any cardiovascular impact, including uh qdc and then these data were reviewed by the fda and they did not ask us to conduct any additional cardiovascular monitoring apart from routine eac and the monitoring of pulse and blood pressure and on top of it army earlier i mentioned that the patients who complete the double-blind randomized study roll into open-label extension study. And that's a three-year open-label extension study. And some of these patients have exposure past one year. And the safety profile looks pretty good in the sense none of them have had any cardiovascular issues. And also, we haven't seen any laboratory abnormalities as well. There are two tests that are often used in this indication. One of them has significant GI issues and requires US function monitoring on a regular basis. And the other one, as we mentioned, had issues with cardiovascular system. And we haven't seen either of them. The safety profile is pretty benign. And the efficacy data that we have seen in the open-label part is pretty compelling, potential to offer a very unique benefit-risk profile in this patient population.

That was very helpful. And I just have that IP question as well, if that's okay.

Yes. This is an old compound. So we don't have a composition of matter pattern, but we do have a method of use pattern. And of course, because both of these are often diseases, rare diseases, we will get for each of these indications, and this is a global opportunity for us, so we will get 10 years of exclusivity in Europe for each of these indications.

And just to clarify, Kumar, method of use out to 2034? 2034 and any other extension. And regulatory exclusivities. Right.

Thanks very much.

Thank you, Ami.

And we will take our next question from David Amsalem with Piper Sandler.

Hey, thanks. So I have two questions, one on Clemazol and then one on the orexin. So on Clemazol, so can you talk about how the product compares to versus next-generation options with serotonergic activity. I'm thinking specifically of longboard spexicacirin, given its recent body of data. How do you think about how Clemazol stacks up? And I understand it's a polypharmacy-based market, but Do you think that there's room for these agents with some overlap mechanistically? So that's number one. And then number two, on the orexin, and I know it's early, but can you talk to the development path here? You've got Alkermes and you've got Cicada advancing their orexins in the NT1 and alchemy is also an NT2. Do you think more about yours potentially in IH or in other settings where hypersomnolence is a hallmark symptom? Or are you also looking at your garden variety path forward in terms of narcolepsy 1 and 2? Just help us better understand how you're thinking about it.

Thank you. Thanks, David, for your questions. Kumar, you want to address on EPX100, and then I'll respond to the question.

Thank you, Jeff. Hey, good morning, Dave. David, thanks for the question. Regarding Bexig-Catherine, I guess you're referring to the data from the specific study, right, which was recently disclosed. Look, it's a small study, 52 patients. The efficacy data looks good, but it's also a short study, too, and we haven't seen the long-term safety data yet as they continue to collect. So, I see that as the early stage still, and you just need to see how it will pan out as it goes to the next stage of development. And in this particular space, David, as we know, or as we mentioned just now, it's a polypharmacy market. significant unmet need. There is a place for different mechanism of action to coexist. Even incremental differentiation in efficacy or safety is embraced by the providers and the patients alike.

And David, with regard to your question about TPM 1116 in our orexin-2 agonists, While we recognize that it's an early stage and the other development programs ahead, I think that we're still learning from. You know, we are still learning from those data and those programs and as they are generated. So with regards to our development plan and approach, you know, I think we have optionality. You know, I think that there'll be optionality based on what we learn from some of these other development, erection development programs ahead. The most logical approach, I think, as you're aware, you know, going in through NT1, which is the prototypical disorder with erection deficiency as opposed to NT2 and IH. But we will, you know, we will learn from some of the other programs and have the optionality with regards to, you know, what the best path forward will be as we advance TPM 1116. Okay.

Yeah. Thank you, Jeff. Yeah, just to add on, look, I mean, the question regarding is it garden variety, NT1, NT2, or something else? David, this particular compound, TPM 1116, has a real high potency. And that actually provides us optionality in terms of looking at other central disorders of hypersomnolence as well. I mean, as you know, Takeda had to limit the dose to 10 mg and they decided to only pursue NT1, not NT2 or idiopathic hypersomnia at this stage. The preclinical profile that we see with the PTM 1116 looks pretty good, and based on that, we do see optionality here other than the routine central disorders of hyposomal. Thanks, Kumar.

All right. Thanks, guys. Thanks, David.

We will take our next question from Greg Suvanovich with Mizuho.

Great. Thank you. Can you hear me okay?

Yes, we can. Great. Good morning.

Thanks, Jeff. Congrats on the great progress that we're seeing from the company. I've actually got a question for Sandeep. Sandeep, just in light of the new business, BD deals that you've done and your plans to potentially continue adding to the pipeline. I guess a two-part question first, or maybe, Jeff, you can answer this first part of the question. Is the current plan on any next deal that you do to first prioritize on adding yet another or a fourth CNS franchise, or is the current plan or your thoughts currently to build on the existing three CNS franchises you have now And then the second part of my question, maybe this is really more for Sandeep, is in light of kind of the added pipeline programs, which is, you know, I think we all think is going to be positive. Just wondering if you've got any initial thoughts on what the P&L might look like for the company, both in terms of SG&A and R&D for Harmony over the next, you know, one or two, three years. Thanks.

Sure, Greg. Yeah, let me address your first question. In terms of the sort of the BD, our growth strategy going forward. You know, again, I think it's also optionality again. I'm very pleased with how we've been able to expand and grow the pipeline, diversify our portfolio, and these three CNS franchises where we are now, each with potential peak sales opportunities of $1 billion to $2 billion. We could either, based on we continue to be active in BD and looking at the landscape, so we could go further in either of these franchises with additional assets, or if we see another opportunity in another CNS area that, you know, we could diversify the pipeline further, you know, we are, you know, that would be another path forward. The other thing I want to comment on and to, I think, just bring light to, this approach also is important that it leverages our internal expertise in the CNS area, as well as the commercial model, our internal synergies. So as we expand and diversify this portfolio in these CNS areas, then Jeff Dirks, our commercial model, where we can thoughtfully apply that model to any new indications, any new products that would go to market. So I think that, you know, that's how we're seeing the strategy going forward. Pleased with the progress to date, but we're not stopping there. Sundeep, you want to?

Yeah, sure. With respect to your question in terms of the financial impact overall, you know, as you saw from both of the deals, look, we continue to be very disciplined in capital deployment. We structured them with low upfronts relative to the stage of the assets with more success-driven lockdowns. You know, these are all fairly late-stage programs. So, you know, in terms of actual capital resources, we're really for the next couple of years, if you just think about it. And also, we've got growing revenues. We've got internal synergies overall that we can also bring. And growing profitability, that, you know, gives us the capacity to continue to do additional business development opportunities while still maintaining our relatively profitable you know, business that's self-sustaining and can continue to, you know, grow. So I think, you know, I feel good about what we've been able to acquire. These are, again, very late-stage assets, like I mentioned. For this year, it's about $35 million more in terms of incremental cost and probably similarly, you know, as we go into next year, and we'll get close to top one. So really a good, smart investment up front to hopefully unlock incremental value.

Operator, next question.

So we'll take our next question from Corinne Johnson with Goldman Sachs. Please go ahead. Your line is open, Corinne Johnson.

Sorry, I was on mute. Good morning, guys. Can you just help us understand how you thought about the market opportunity potential value for these assets, EPX 100 and 200? And in particular, how do you think about the path to differentiation there? And with that differentiation, what kind of the peak sales opportunity could be for such an asset?

Good morning, Corinne. So in terms of the market opportunity, referring to Epigenetics and the Rare Epilepsy franchise, You know, so I think obviously the epilepsy space is significant market opportunity, you know, beginning in, you know, this area of, you know, orphan rare and the developmental epileptic encephalopathies. We are in a registrational trial for Gervais, you know, kind of a smaller patient population, but planning to initiate a phase three study in Lennox-Gastaut syndrome second half of this year, a larger market opportunity. But we also see, you know, this acquisition as sort of the foundation of a broader epilepsy franchise. So with regards to Current market opportunity, you know, with regards to what's currently available, I think as Kumar has been alluding to, you know, we see the potential product profile of EPX 100 in terms of overall benefit risk. compared to the current treatment options as a significant product offering in terms of therapeutic option in the near term. And then we look to draw on our internal sort of expertise in this area, look for potentially additional assets to build out a broader epilepsy franchise. And I think that's the current view on where we are on there. Kumar, any other thoughts?

As I mentioned earlier, based on what we have seen, we believe that it will offer a compelling value proposition with a unique benefit-risk profile for patients, especially from a safety profile, given some of the significant limitations we see with some of the drugs that are currently approved in this space.

And we will take our next question from Jason Gerberry with Bank of America.

Hey, guys. Good morning. Thanks for taking my question. I guess one question on EPX-100. Is the base case here that you have the same class safety labeling around CV Um, uh, talks as from Tepla. Um, and I, I'm seeing in the preclinical, there's some affinity for five HT to be. So just wondering, you know, that coupled with it's only a hundred patient pivotal study, if you can, um, or, or think you may be able to decouple that safety issue from a safety labeling perspective. And then from a development perspective, are you planning to run a second pivotal trial? Would that be done in parallel? Uh, once you, um, get the asset in house or. Would that be after you get data in 2026? Just wondering sort of the timeline to market for EPX 100. Thanks.

Good morning, Jason. Yeah, thank you for your question. Yeah, I think Kumar can sort of, you know, unpack that with regards to the opportunity that we're seeing, you know, near term with regards to surveys And then in terms of differentiated from a safety perspective with regard to Tefla.

Yeah. Good morning and thanks for the question. I mean, the answer to your first question is no. We do not anticipate any cardiovascular liability with chlamyosal hydrochloride. That is based on the large body of data. from the first-generation antihistamine, and then all the preclinical data that we have generated for this particular compound including repeat dose, chronic tox studies in the preclinical space. And also, looking at the data, the FDA did not ask us to do echocardiogram or monitor for pulmonary arterial hypertension or cardiac valvular abnormalities. So we do not believe that this will have any of the safety issues that we do see with shrinked blood. which has a black box warning and is subjected to REMS program. And also based on the long-term extension study open label data, Jason, that we have seen so far, we are actually very pleased with the safety profile, both in terms of lack of any lab abnormalities and also from the cardiovascular safety perspective and just safety and tolerability in general. And to your second question about the second study, the current study, Jason, I know that on clinicaltrials.gov, it still says it has a Phase II study, but it's actually a registration Phase III study. It started out as a Phase II study, and then the sample size was increased to 100 subjects, equally randomized one-to-one between clonazole and placebo. And now this is a pivotal registration study, and the top-line data will be available in 2026. And typically, Jason, as we know, in rare disorders, an adequate and well-controlled study is generally accepted as substantial evidence for effectiveness by the regulatory agency. So we do plan to file based off of this study should the data look good.

Got it. Okay. Thank you.

Thanks, Jason.

And we will take our last question from Danielle Brill with Raymond James.

Hi, guys. Good morning. Thanks for the question. I'm curious how you're gauging the 2016 profile versus the other erection agonists, and what type of data should we expect to be presented at the upcoming scientific meeting, and which conference are you targeting? Thank you.

Thanks, Danielle, for your question.

Kumar? Sure. Good morning, Daniel. Thanks for the question. Yeah, just some background information, Daniel, on TPM 1116. This originated out of Thaisen Pharma. This is a conglomerate with deep expertise in drug discovery. They actually work very closely with Professor Anna Gisawa, who many of you know is the one who actually discovered and their impact on . They have been working on this series of compounds for a while, and they advanced TPM 1116 because that was the best in the series that they found. TPM 1116 has a very novel chemical scaffold compared to the other orexin receptor agonists that are out there, and we believe that this novel chemical scaffold offers certain unique features that we have seen in our preclinical studies. First and foremost, high potency, good selectivity, potential for once-a-day dosing, and good preclinical safety data. We are completing the rest of the IND enabling experiments, and we plan to submit IND in mid-2025 and start first-in-human studies in the second half of 2025.

Thank you. I am showing no further questions. I would now like to turn the call back for any closing remarks.

Thank you, Madison, and thanks, everyone, for joining our call today and for your interest in Harmony. As you heard from us this morning, the future is bright at Harmony. Based on the strength of our commercial business of Wacox and Narcolepsy and the value of our expanding pipeline, which will serve as the foundation for durable revenue generation out beyond 2040 we look forward to providing updates as we continue to accelerate our strategy for long-term growth thank you and have a great day this does conclude today's harmony biosciences first quarter 2024 financial results conference call you may now disconnect your line