Harmony Biosciences Holdings Inc (HRMY) 2022 Q4 法說會逐字稿

Good morning, everyone. My name is Todd, and I will be your conference operator today. At this time, I would like to welcome everyone to Harmony Biosciences Fourth Quarter and Full Year 2022 Financial Results Conference Call. (Operator Instructions) Please be advised that today's conference may be recorded. (Operator Instructions)

I will now turn the call over to Luis 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 Fourth Quarter and Full Year 2022 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 life cycle, we believe non-GAAP financial results better represent the underlying business performance.

Our presenters on today's call are Dr. Jeffrey Dayno, Interim CEO and Chief Medical Officer; Jeffrey Dierks, Chief Commercial Officer; and Sandip Kapadia, Chief Financial Officer.

Moving on to Slide 2. 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 Dayno. Jeff?

Thank you, Luis, and thank you, everyone, for joining our conference call today. We delivered another strong quarter in Q4, finishing the year with continued momentum in our commercial business for WAKIX as well as in the advancement of our clinical development programs for pitolisant. We are excited for 2023 and remain confident in the ongoing execution of our 3-pillar growth strategy to further evolve Harmony into a leading rare disease company focused on delivering innovative therapies for patients living with rare neurological diseases.

Harmony remains a growth story with a focus on advancement of our life cycle management programs for pitolisant and acquisition of new assets to build out our pipeline to drive additional growth. With that as our focus, I am excited to lead the company forward. After 12 years as a practicing neurologist, taking care of patients, followed by 25 years in the industry, touching every aspect of the business. I bring a unique perspective to the development and commercialization of innovative treatments that address major unmet medical need. I have seen the impact that these treatments can have on patients and their families, and I'm proud of the progress we have made. I also know that Harmony is poised for continued growth with our goal to help even more patients living with rare neurological diseases.

I will now briefly highlight our progress on each of the 3 pillars of our growth strategy in the context of Q4 2022 performance. Starting with Pillar 1, which is to optimize the commercial performance of WAKIX -- we delivered WAKIX net revenue for the fourth quarter and full year 2022 of $128.3 million and $437.9 million, respectively, representing an increase of 41% and 43% year-over-year. Our performance reflects the strong commercial execution by our team, the underlying demand for WAKIX and the significant unmet need that remains in the narcolepsy market. For 2023, we expect continued growth for WAKIX and believe that the vast market opportunity, which remains in narcolepsy, along with a differentiated product profile of WAKIX provides us with the ability to grow WAKIX for years to come. At Harmony, this also translates into an opportunity to help even more adult patients living with narcolepsy.

Moving to Pillar 2, which is to expand the clinical utility of pitolisant beyond narcolepsy. We are extremely pleased with the progress that we have made across all our pipeline and life cycle management programs, and I will provide more details on these during the clinical update later in the call. Briefly, in idiopathic hypersomnia, or IH, we continue to see strong momentum in our Phase III INTUNE study. This opportunity, if successful, could be the next potential new indication for pitolisant. In Prader-Willi syndrome, or PWS, we are analyzing the full data set from our Phase II proof-of-concept study in preparation for an end of Phase II meeting with the FDA. It is our intent to advance the PWS program to a Phase III trial.

Overall, our life cycle management programs for pitolisant in total could address unmet medical needs in up to 100,000 diagnosed patients living with IH, PWS and myotonic dystrophy, an opportunity that is successful would more than double our diagnosed patient opportunity. We are committed to advancing these development programs and are hopeful that these efforts could lead to additional new indications for pitolisant and address the unmet medical needs in these patient populations.

And finally, Pillar 3, acquiring new assets through business development to expand our portfolio beyond WAKIX. Our dedicated business development team has been actively assessing the landscape as it is our intent to build out a broad pipeline of rare orphan neurology assets and/or assets in other neurological diseases where we can leverage our existing expertise and infrastructure. To achieve this, we intend to leverage our strong financial position to acquire additional assets across a range of development stages, including both early and later stage with the potential to launch both during and after the WAKIX life cycle. We are in a solid position to execute on Pillar 3 as our business fundamentals with wages remain strong, and we ended the year with approximately $346 million in cash, cash equivalents and investment securities.

Overall, I'm extremely pleased with the progress that our team has made on our 3-pillar growth strategy. We remain very confident in WAKIX being a potential $1 billion-plus franchise in the coming years by a narcolepsy and additional indications and are truly excited for 2023, during which our team will remain focused on executional excellence.

I will now turn the call over to Jeffrey Dierks, our Chief Commercial Officer, to provide more details on our commercial performance. Jeff?

Q4 represented another strong quarter of performance for WAKIX and 2022 full year performance demonstrated strong overall growth and momentum in our underlying business fundamentals. Net revenue for the fourth quarter was $128.3 million, representing a 41% increase from the same quarter prior year. Full year 2022 net revenue was $437.9 million, which represented a 43% increase from full year 2021. Our strong performance reflects not only the resilience and commitment of our team, but also speaks to the strong underlying demand for WAKIX.

I'd like to take a moment to highlight a few of our underlying business fundamentals on Slide 5 that drove our performance in the fourth quarter of 2022. The average number of patients on WAKIX increased to approximately 4,900 in the fourth quarter of 2022. The growth in Q4 continues to reflect how the meaningfully differentiated product profile aligns to the unmet needs in the narcolepsy market.

Growth in the average number of patients on WAKIX was driven by the following factors: Harmony field sales in-person engagement with health care professionals and their office staff remained strong in the fourth quarter. Approximately 85% of all Harmony field sales engagement with health care professionals and their office staff were in person in the fourth quarter. The accessibility of our field sales team with health care professionals and their office staff allowed for further education and engagement, helping to drive growth in the depth and breadth of the WAKIX prescriber base. We saw further growth in the number of new writers of WAKIX as well as growth in prescribing from existing writers in the fourth quarter of 2022.

Growth in new prescribers is driven by both writers of traditional narcolepsy treatments as well as health care professionals who have been reluctant to prescribe other available narcolepsy treatments that are scheduled as controlled substances, including the approximate 1,000 prescribers we added to our call plan earlier in 2022. Existing prescribers of WAKIX continued to find new adult patients with narcolepsy and their practices, both naive patients as well as existing patients currently on other treatments with residual symptoms of excessive daytime sleepiness or cataplexy. The continued growth in both the depth and breadth of our prescriber base demonstrates the broad clinical utility of WAKIX and the broad narcolepsy patient opportunity for the brand.

Our performance in Q4 reflects the contribution of our field sales force expansion from earlier in 2022. Our expanded team was able to reach more narcolepsy treating health care professionals with greater frequency to educate them on the meaningfully differentiated product profile of WAKIX helping to drive the growth that we saw in new and existing writers in Q4. Now in the third quarter of our expansion, the benefits of our expanded field sales team are now reflected in our base business, and we are excited about the impact we've seen from our entire award-winning sales team.

Looking ahead, we believe there is still a significant opportunity for growth in the years to come for WAKIX in adult narcolepsy and recent market research commissioned by Harmony reinforces our belief. Research conducted with 70 health care professionals with and without experience with WAKIX showed that more than 95% of health care professionals with WAKIX experience stated they would rate the same or increased prescribing of WAKIX in the next 6 months. And nearly half of those who had not prescribe WAKIX to date stated intent to prescribe WAKIX in the next 6 months. We believe our growth will persist as we enter our fourth year of commercialization in this rare orphan patient population in 2023. We will continue to tap into the large remaining opportunity in narcolepsy as the market allows around the typical seasonal dynamics that the pharmaceutical industry as a whole experience each year.

We expect typical seasonal payer dynamics and normalization of trade inventory in Q1, followed by stronger prescription demand in the second quarter, summer seasonality with fewer patient visits in Q3 and a stronger Q4 as patients look to fill their prescriptions before the end of the year. In summary, we are extremely pleased with the growth of WAKIX and we believe our strong performance highlights the need for the meaningfully differentiated product profile of Weekes and affirms our confidence in the future growth opportunity for WAKIX in adult narcolepsy. We continue to believe that WAKIX is a potential $1 billion-plus franchise opportunity in narcolepsy and additional indications and are excited about our ability to help additional adult patients living with narcolepsy and other rare diseases in the future.

I'll now turn the presentation back over to Jeff Dayno for an update on our clinical development programs. Jeff?

Moving to Pillar 2 of our company growth strategy to expand the clinical utility of pitolisant toward potential new indications in additional patient populations living with rare neurological diseases, as shown on Slide 6, which depicts our development pipeline. Starting with our development program in idiopathic hypersomnia, which we are very excited about. We continue to see strong momentum in our Phase III registrational trial in adult patients with IH known as the INTUNE study. We now have approximately 85% of our clinical trial sites active and patient enrollment is progressing well. If this Phase III trial is successful, it could represent the next new indication for WAKIX in adult patients with IH. We plan to provide an enrollment update later in the year.

For PWS, as I mentioned in my opening comments, we received a full data set from our Phase II proof-of-concept trial at the end of last year. As you may recall, last November, we announced that the top line data showed a positive signal on the primary outcome of excessive daytime sleepiness in this trial. We are currently analyzing the full data set in preparation for an end of Phase II meeting with the FDA to discuss the trial results. It is our intent to advance the PWS program to a Phase III trial, and we will provide an update on our progress later this year. In addition, our plan is to present the findings of the Phase II proof-of-concept trial at a future medical meeting and submit the full results for publication to a scientific journal.

Moving on to our development program in myotonic dystrophy, or DM. Enrollment continues in our Phase II proof-of-concept study in adult patients with type 1 myotonic dystrophy or DM1. We anticipate top line data from this Phase II proof-of-concept study in the fourth quarter of 2023. Regarding pediatric narcolepsy and a pediatric indication for WAKIX, our partner, Bioprojet, received a positive opinion from the European Medicines Agencies, or EMA, Committee for Medicinal Products for Human Use, or CHMP, last month with an approval for a pediatric narcolepsy indication expected by the EMA within 60 days of the positive CHMP opinion. We will now work with Bioprojet on a path forward towards the submission of a supplemental NDA for pediatric narcolepsy to the FDA.

Finally, regarding our efforts in pursuit of pediatric exclusivity, which represents a different regulatory pathway compared to gaining a pediatric indication, we received feedback from the FDA and additional guidance based on that request for a pediatric written request, which we submitted in the third quarter of 2022. Based on this feedback, we will now prepare a proposed pediatric study request and submit it to FDA to gain alignment with the agency in our pursuit of pediatric exclusivity for WAKIX. We will provide an update on our interactions with the FDA later this year.

To conclude, we have made significant progress in advancing our clinical development programs with pitolisant and look forward to providing you with further updates later this year. I also want to take a moment to thank all the patients and their families who are participating in our clinical trials as well as the clinical investigators for all their efforts and commitment in helping us to advance our development programs for pitolisant.

I will now turn the call over to our CFO, Sandip Kapadia, for an update on our financial performance. Sandip?

Thank you, Jeff, and good morning, everyone. This morning, we issued our fourth quarter press release and filed our 10-K where you'll find the details of our fourth quarter and full year 2022 financial and operating results. Our financial performance is also shown on Slide 7, 8 and 9.

We finished the year strong and delivered growth across several of our key metrics. We reported strong net revenue growth for the quarter and full year as well as achieved our second full year of profitability. In addition, we continue to generate cash from operations and remain well positioned to execute on our 3-pillar growth strategy. Let me take a moment to take you through our results in detail.

For the fourth quarter of 2022, we reported net revenues of $128.3 million compared to $91.2 million in the prior year quarter, representing a growth of 41%. On a full year basis, we delivered net revenues of $437.9 million, a 43% increase over 2021. Our performance reflects the strong underlying demand for WAKIX. In the fourth quarter of 2022, operating expenses were $53.8 million compared to $44.8 million in the prior year quarter, with full year 2022 operating expenses of $234.2 million. The higher operating expenses were primarily driven by ongoing commercialization of WAKIX and advancement of our clinical development programs.

Operating income improved both on a quarterly and yearly basis. We reported fourth quarter 2022 operating income of $47.6 million compared to $28.6 million in the prior year quarter, representing an increase of 66%. On a full year basis, operating income was $120.2 million compared to $87.5 million in 2021, representing a year-over-year increase of 37%. Non-GAAP adjusted net income for the fourth quarter of 2022 was $61.9 million or $1.01 per diluted share compared to $30.4 million or $0.50 per diluted share in the prior year quarter. Non-GAAP adjusted net income for the full year of 2022 was $183.5 million or $3 per diluted share, reflecting our strong revenue growth and prudent expense management. We believe non-GAAP adjusted net income better reflects the underlying business performance. Please see our press release for a reconciliation of GAAP to non-GAAP results.

During the fourth quarter of 2022, we generated approximately $27 million of cash from operations and ended the year with $345.7 million of cash, cash equivalents and investment securities. On a full year basis, we generated approximately $145 million of cash from operations. Excluding the $30 million licensing fee part of the 2022 LCA with Bioprojet, that was paid in the fourth quarter. Cash from operations for the fourth quarter and full year were approximately $57 million and $175 million, respectively. Regarding the outlook of our business, we have demonstrated consistent performance for the past 3 years across several of our key metrics and feel this is efficient to appropriately model our business. For the full year of 2023, we expect another strong year of revenue growth for WAKIX and remain confident in WAKIX being a potential $1 billion-plus franchise in the years to come, along with narcolepsy and other indications.

With respect to Q1, we expect the typical industry-wide headwinds from higher gross to net deductions and normalization of trade inventories. However, we do expect strong year-over-year net revenue growth for Q1. With respect to expenses, we expect to continue to invest in R&D and SG&A as we advance our clinical development programs and support the strong commercialization of WAKIX -- and finally, a comment on our tax rate. We have used up the majority of our net operating losses, and thus, we expect our go-forward tax rate to be in the mid- to high 20% range. In conclusion, we're very pleased with our strong financial performance, which further strengthens our company profile of growth and profitability, enabling us to execute on our 3-pillar growth strategy.

And with that, I'd like to turn the call back to Jeff for his closing remarks. Jeff?

In summary, our strong performance in 2022 positions us well to execute on our strategy. With the strong commercial performance and anticipated future growth of WAKIX and narcolepsy serving as our foundation, we look to our life cycle management programs to drive additional growth for Harmony in the coming years. With active pitolisant development programs in idiopathic hypersomnia, Prader-Willi syndrome and myotonic dystrophy, along with HBS102, Harmony is poised to extend our value proposition beyond narcolepsy into other rare diseases with diagnosed patient populations collectively that exceed 100,000 patients, which would more than double our diagnosed patient opportunity.

Couple this with development programs for our new pitolisant based assets and an opportunity to introduce new treatment options for people living with narcolepsy and potentially other rare neurological diseases, we are excited about the future growth potential for the organization. And we have deep talent across our organization and a solid balance sheet and are effectively positioned to achieve the next level of growth. 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?

(Operator Instructions) We'll take our first question from François Brisebois with Oppenheimer.

Congrats on the quarter. Just a couple here. I was just wondering, any thoughts going forward? I know we've talked about the growth -- the revenue and the commercial opportunity here has been pretty linear. But I was just wondering, any thoughts about -- at this point, it's been launched for a while, you thought about giving certain guidance.

So Frank, thanks for your question. In terms of guidance, so I think that our underlying business fundamentals remain strong. And as you heard in our remarks, for this year, we expect continued growth for WAKIX and believe that the large market opportunity remains in narcolepsy. And along with the differentiated product profile of WAKIX, it provides us the ability to grow the brand for years to come. And with that, I'll ask Sandip to comment a little further around your question.

Yes. Thanks, Jeff. Look, Frank, overall, we've demonstrated, as you mentioned, pretty consistent performance over the past 3 years. And we feel that, that's sufficient in terms of at least for modeling purposes going forward. And again, we continue to believe there's a large untapped opportunity. So there's certainly growth for many years to come. And I think we're continuing to remain confident in the outlook for WAKIX, we think it's a potential plus franchise in the coming years with narcolepsy and other indications.

Okay. And then just on the seasonality of first quarter, I know it's kind of a normal thing in this space that happens. But I think last year, there might have been a little different aspect to it that affected the number of patients added on, not just the gross to net, but on the number of patients, maybe related to the pandemic. I just wanted to make sure, in terms of the outlook, is this something that you would expect again? Or is this more of a natural gross to net kind of impact here?

Yes. Sure, Frank. I'm going to ask Jeff Dierks to comment on that question. Jeff?

Frank. Yes, so to answer your question, we do expect to face the same seasonal payer dynamics that you expect to see in Q1 every year, the higher gross the net the higher co-pay Medicare out-of-pocket support inventory normalization and traditional typical prescription reauthorization headwinds, we did have a couple of onetime events last year, which we do not anticipate this year. As Sandip and Jeff has shared, looking into Q1, we do expect year-over-year growth in the quarter and continued growth in the average number of patients for WAKIX. And as we enter at fourth year of commercialization, as Sandip has shared, we kind of have an anticipated rhythm to our business. We've been able to demonstrate that for the last 3 years, and we're really excited about the growth opportunity in '23 and for years to come. And I think our current performance really affirms our long-term growth outlook for the brand.

Okay. Great. And just I'll cheat and sneak a quick one here. I just feel like I have to. Any color on the CEO search guidance for a permit CEO? Or is this potentially an interim turning into permanent for Jeff.

Yes, Frank, let me respond to that. Thanks for the question. So obviously, with regards to the CEO position, this is a Board decision, and I won't speak on behalf of the Board. And we'll provide an update as appropriate once the former shares their plan on this issue. But that being said, the Board has expressed their confidence in myself and the full management team, and we're all focused on the business at hand and executing on our 3-pillar growth strategy. And as I've shared, Harmony remains a growth story. And our focus on the advancement of our life cycle management programs for pitolisant, acquisition of new assets and business development to build out our pipeline in addition to our strong underlying business fundamentals of WAKIX and narcolepsy -- so with that as our focus, I'm well positioned to lead the company forward, and I'm really excited to work with a very talented management team and the broad talent across our organization.

Our next question comes from David Amsellem with Piper Sandler.

I just had a couple. So first, just curious if you can talk about how many of the WAKIX prescribers are actually enrolled in the oxybate REMS? And what I'm trying to get at here is the extent to which you're capturing docs and patients who are oxybate resistant or oxybate hesitant. So can you talk about that mix? That's number one. And then number two is a longer-term question. As you think about the potential availability way down the road of orexin agonist or a product like axons reboxetine. How do you think that impacts the longer-term trajectory of WAKIX if at all?

Sure, David. Thanks for your questions. With regards to the oxybate REMS and the HCPs in the red. It's a really interesting dynamic. And I'll let Jeff Dierks comment on that really interesting dynamic, but we -- our physician universe that we're covering is much broader compared to the number of docs in the oxybate REMS. And Jeff, do you want to expand on that?

Sure. Thanks, David. So when you're looking at WAKIX prescribers, to your point, we have penetrated the vast majority of the oxybate REMS enrolled health care professionals. And based on publicly available data, there's probably about 4,000-ish that are in that area. But to Jeff Dayno's point, we're also penetrating into that 5,500 other health care professionals that are not REMS enrolled. And that really allows us to tap in with a broader patient opportunity. And that really speaks to the differentiated product profile. The fact that it's nonscheduled, you can write the product with a refill. So we believe that even with what's going on in the oxybate marketplace with generics and potential launch of Avadel's FT218 in the future, we're well positioned for continued growth, and we're really excited about the growth opportunity that we're seeing within the oxybate REMS enrolled doctors as well as those that are beyond that space.

And from a patient population, we've disclosed publicly that there are a subset of patients that are on both oxybate and WAKIX -- it's looking in the teens, the low double digits. Certainly, we do capture patients that are treatment-resistant to stimulants to wake-promoting agents to oxybate. So WAKIX really has a very unique profile that can really help in that treatment algorithm, whether you've had experience with those traditionally scheduled products that are controlled substances or naive to WAKIX.

Thinking about the future landscape, David, I think given the uniqueness of WAKIX we're well positioned both in the short term and the long term for continued sustainable growth. I think the fact that it's a nonscheduled treatment option, as we talked about, it's the only non-scheduled treatment option approved for both EDS and cataplexy. We have pharmacokinetic data that can show it can be used concomitantly with wake hormone agent modafinil and oxybate. So the profile is well positioned for health care professionals.

And lastly, as you know, that this is a very difficult disease to manage. This is very much a polypharmacy market. And I do believe that from what I understand, the synergistic benefits of looking through and within hypocretin histamine, I think WAKIX is well positioned as future potential products come into the marketplace. The big opportunity, lots of brands. And I think what you see every year, David, is all boats rise, all brands are growing. And we're really excited about the difference that we're making in the lives of people living with narcolepsy.

Yes, David, I would just add in terms of your second question, we keep a close eye, obviously, on development programs and with the new assets. And as we all know, yes, the Orexin agonist and Orexin is sort of the next novel target in the field. Those programs are early. And obviously, there are connections between histamine neurons and hypocretin neurons, mechanistically to what Jeff was saying. -- reboxetine, not necessarily a novel mechanism in terms of how that operates. But we will keep a close eye on those programs. And WAKIX will continue to be a differentiated product profile in this market and I think able to use other as monotherapy or concomitant with other treatments now and in the future.

Our next question comes from Chris Howerton with Jefferies.

I guess I had 2. One was on kind of the -- I know we talked a little bit around the first quarter dynamics. But I guess I was wondering with respect to plan resets, would you expect that to impact existing patients or the addition of new patients in terms of the first quarter numbers? So that's question one. And then question 2 is, if you could just give us a little more color around the status of the pediatric narcolepsy package. Can you remind us, are you going to do any clinical work? Or is it just sufficient to take the Bioprojet data to the FDA?

Sure. Thanks for your question, Chris. Jeff Dierks will address the Q1 dynamics.

So your question in terms of the seasonal payer dynamics impacting new or existing. Typically, what you see across all pharma and across the industry, the typical headwinds are with the reauthorizations. So it insurance reset and you're a chronic patient on medication year-over-year. That resets, whether you're taking a proton pump inhibitor, or cholesterol, diabetes, antidepressant narcolepsy. So what you see is you do get some headwinds in January, 1 in 4 Americans changes insurance every year, so there's going to be paperwork churn as reauthorizations come up, you also have a subset of existing patients. That's something traditionally felt in January. You get beyond it in February. We traditionally start to see a very strong March coming out of the first quarter, leading into a stronger Q2. But even with that Q1 seasonality, Chris, we've talked about, we do expect revenue growth on a year-over-year basis for Q1 and continued growth in the average number of patients on WAKIX Q1.

Thanks, Jeff. And Chris, with regard to your second question about the pediatric indication, let me provide some clarity on this. And I think as we shared on the call, our partner Bioprojet received a positive opinion from the CHMP last month, and they're expecting an approval for a pediatric indication in Europe within about the next month or 2. So with that, we're working with Bioprojet on a path forward to prepare a supplemental NDA to submit to FDA for a pediatric indication. That will not require any additional development work with regards to potential indications. But we will need to take sort of the European filing and prepare a submission that's appropriate for the FDA.

But while that's happening, I also want to comment on parallel path with regards to pursuing pediatric exclusivity, which is a different regulatory pathway. And for that, we have been engaged with FDA have gotten feedback last month on what that would require. And that would require additional clinical development work, which is what needs to be done to get pediatric exclusivity. There's discussion about what trial or trials is needed. So we've had that engagement. And based on that feedback, the clinical team is preparing the regulatory team, what's called a proposed pediatric study request. We submit that to the FDA to gain alignment of what needs to be done to gain pediatric exclusivity for WAKIX.

So we'll provide an update on those interactions later in the year. But as a reminder, the main commercial opportunity is in obtaining pediatric exclusivity, which would afford us if we're successful there, an additional 6 months of patent protection on the back end of the IP.

Yes, that's extremely helpful. Thank you to both the Jeff.

Our next question comes from Charles Duncan with Cantor Fitzgerald.

Jeff and team, congrats on a great quarter. I had a quick commercial question and then a pipeline Yes, excuse me. Regarding the commercial question, average patients on, I guess I'm wondering if you can provide any additional color on what you were most impressed with. Were they new patients being prescribed or persistence? That's the commercial question, and then I'll come back around to the pipeline.

Okay. All right. Jeff Dierks on average number of patients and sort of where they're coming from.

Sure. And thank you for the question, Charles. I would say I'm equally impressed with the continued addition of new patients. Again, we're entering in the year for. We continue to see strong top line prescription demand, but we're also seeing very good retention on patients, very consistent within the category. For those patients that are staying on WAKIX, we're looking at 90-plus percent compliance rates, which when patients really find the right treatment in this category, you do see patients take their medication that's prescribed by their doctors. So we're just finishing up year 3.

Personally for me, I'm really impressed with both of those metrics. I think our award-winning sales team continues to deliver quarter-over-quarter. As Jeff shared, we have an extremely talented team here. You've got 200-plus strong that are all working to help these patients. So I'm pleasantly pleased with both of those metrics, and I anticipate that I'll be pleased with those metrics moving forward each quarter.

Okay. And then regarding the pipeline for pitolisant TAM expansion, I guess I'm wondering if you think about idiopathic hypersomnia versus PWS, what are you most interested in? It seems like idiopathic hypersomnia in a Phase III should be top of mind. But can we look to PWS time flying here in -- or actual presentation of the data and an articulation of next steps to kind of raise the profile of that particular program versus IH for the potential for pitolisant going forward?

Yes. Sure, Charles. Great question. So first of all, I would say that, obviously, both of those patient populations are important because they both have a significant unmet medical need. Number one of the 2, obviously, idiopathic hypersomnia is the near-term opportunity for us and also the larger market opportunity, about 40,000 patients diagnosed. So we're really excited about that program. We see significant interest from both the patient community and the physician community and our clinical trial sites.

So we'll provide an update later in the year on enrollment progress, but significant momentum, near-term opportunity, significant market size. But with regards to Prader-Willi syndrome, a pediatric rare neurodevelopmental disorder, also an important development program for us about 15,000 to 20,000 patients diagnosed with PWS in the U.S., and we're actively engaged in preparing and the Phase II briefing document, we'll put in a meeting request and look forward to good productive interactions with FDA on advancing that development program to a Phase III trial. So both are important and to address unmet needs in those patient populations as well as the advancement of our development programs.

Our next question comes from Corinne Jenkins with Goldman Sachs.

Two for me. Maybe first, can you just share more color on the market research you cited, particularly I'm interested in what these physicians look like, whether they were primarily sleep specialists or general psychiatrists and what their average patient volume was? And then the other question separately, as you think about business development and your capacity to do that, how do you think about appropriate leverage targets for the business?

So Jeff, do you want to take the first question?

Sure. So Corinne, it was primary market research that we conducted back in November of 2022. Again, we included 70 health care professionals with and without experience, so there was no patient criteria to be eligible because we did want to look into both those who had not yet prescribed WAKIX as well as those that had prescribed WAKIX. Specialties included sleep specialists, neurologists, pulmonologists, psychiatrists and some primary care doctors -- and some of the specific questions that we asked them that I cited in our prepared remarks is we ask health care professionals how they saw their prescribing of WAKIX exchanging in the next 6 months.

And as I shared the results demonstrated of those individuals with WAKIX experience, more than 95% of them stated that they would increase or stay the same, what they're prescribing. And of those individuals, a subset that had not yet prescribed, almost 50% of those health care professionals stated an intent to prescribe WAKIX in the next 6 months. And so we're really excited about what these data affirm and our belief in the future growth opportunity for WAKIX adult narcolepsy. Yes. So Jeff, maybe Bill, back to you for the second question.

Yes. And Corinne, your question about business development. So first, a few comments, and then I'll turn it over to Sandip for his thoughts. So we have a dedicated business development team and continues -- they're really active evaluating the BD landscape and potential opportunities. Importantly, we're in a solid financial position to execute on business development. We have a strong cash position, as we said, approximately $346 million at year-end last year. And also, BD continues to be an important priority for us, a target-rich environment, but we're also remaining disciplined in our approach to business development. We want to be strategic in our approach, in our decision-making. So when we do announce a deal, it will make sense and be a good fit for Harmony. In terms of our capacity, and I'll turn it over to Sandip, some thoughts there.

Sure, Jeff. As you mentioned, we have $346 million approximately of cash equivalents. I think the other thing is we continue to generate positive cash flow from operations. As I mentioned on the call, last quarter, beyond the $30 million that we paid out to Bioprojet but we generated about $57 million out there in incremental cash. So we'll be generating cash going forward. I think clearly, the profile of the company provides us the opportunity to look at leverage. And I think the way I think about it is, look, we also have -- in addition, we also have the $100 million delayed drop from Blackstone that we could also draw on, which would also be additional debt capital.

And generally, as I think about it, I think much -- as an asset is much closer to market. There's -- I'd be more comfortable with taking on additional leverage. I think if it's an earlier asset, we could probably pay it from what we have internally and the cash generation. And I think our ability as we get our top line grows and we have increased profitability, also gives us even the cash flow to be able to look at multiple different options. So not only just leverage, but there are many other options that we could certainly consider as a company.

Our next question comes from Ami Fadia with Needham.

Congrats on the nice quarter, and I've got 2 questions. Firstly, can you talk about where you see some (inaudible) WAKIX in the upcoming quarters? And can you give us some type of qualitative color on how many patients per quarter you might be able to add in 2023. In the past, you've talked about 300 to 400 patient adds per quarter. So comment on that, that would be helpful. And then secondly, as you think about life cycle management for WAKIX you've expanded your partnership with Bioprojet, can you talk about what type of life cycle might have in mind? And where might be the unmet need in narcolepsy for a different type of formulation of WAKIX, -- that would be helpful.

Sure, Ami. Thanks for the question. Can you repeat the first one we lost you for a few seconds there on your first question.

Sure. The first question is, if you could sort of qualitatively give us a sense of where growth will come from for WAKIX. You'd expanded your reach for your sales force last year, and it sounds like you're seeing the benefits of that come through. But going forward, where do you see growth? And also in that -- sort of in that context, if you could talk about the number of patient adds you see coming up in the upcoming quarters, whether you think 300 to 400 patient adds could be maintained going forward?

Okay. Sure. I mean, all right. All right. Jeff Dierks want to respond to that.

Sure. So Ami, for your first question, just in terms of looking at where we see growth coming from in the future. I think as we've shared, there is still a large patient opportunity remaining. And I think where we see growth coming from, we anticipate we're still going to be continuing to add new prescribers on a very regular basis quarter-over-quarter. We also expect growth within existing prescribers. Certainly, we know that there are appropriate patients adult patients living with narcolepsy in those practices as well that have yet to have a discussion with their health care professional about WAKIX.

So with our expanded field sales team, we can now reach the target group of about 9,500 narcolepsy treating health care professionals. So we see growth coming from both new as well as existing writers, so continued growth and depth and breadth of our prescriber base. With respect to average patient growth, obviously, we're not providing guidance looking forward. But as Sandip shared, if you look backwards 3 years, we've been relatively consistently delivering. And I think that's probably a good thing to point back to. We still are very bullish on our ability to continue to grow. We're going to continue to tap into that opportunity as the market allows. Certainly, we've talked about the Q1 seasonal dynamics and some of the headwinds that we would anticipate and implications on patient adds there. We've talked about the second quarter in traditional stronger prescription growth.

Traditionally, in the third quarter, you see less patient visits with a little bit of summer seasonality for chronic conditions where most patients take vacations are not in their offices. But then in the fourth quarter, you get a lot of those patients coming back in. So you should expect that traditional rhythm that we've seen in the last 3 years, and we anticipate that in 2023 moving on, if that helps.

Yes. Thanks, Jeff. And Amy, with regard to your second question and our partnership with Bioprojet and the licensing agreement for new consultant-based assets. So our thinking around that, our strategy is obviously pitolisant as a novel molecule with a novel mechanism of action. And WAKIX performing well in the marketplace. We're looking at opportunities and currently working with Bioprojet in new enhanced formulations, which will give us an opportunity potentially for new IP around some of the innovation in the formulation aspect of that, an opportunity to explore the dosage range more and obviously extend the runway for further development.

Thoughts there where we could initially extend the narcolepsy franchise out further with new IP, using the new pitolisant based assets. We could take the current development programs that we're working on now and then eventually move them to new formulations with a longer runway and longer opportunity in the market as well as pitolisant continues to be an interesting molecule. And the potential is do development programs in additional and new patient populations based on its mechanism of action, working through histamine, not just around EDS but other symptoms we're exploring in our current programs, fatigue as an outcome as well as the potential impact on cognition. So if -- with more time in new fatalities based assets, that is the strategy, and that's the current thinking.

Our next question comes from Graig Suvannavejh with Mizuho Securities.

Congrats on the great 2022. I've got 2 questions. My first is just on the OpEx. The OpEx came in a bit lighter than we were looking for. It seems to be the lightest that we've seen in several quarters. So just wondering, maybe, Sandip, if you could provide us some modeling assistance now you're looking at 2023. And then my second question, it does go back to the current company philosophy around providing guidance. You had mentioned that you feel like you've got a good understanding of the rhythmicity of the business. The drug will be going into its fourth year of launch. So just wondering why at this point in time, you're not comfortable providing forward-looking guidance, at least on revenue.

Sandip, I want to address great questions. So first about OpEx.

Oh yes, sorry Yes. Just regarding the OpEx. I think there was nothing unusual, I would say, in the fourth quarter. Generally, I mean as it flows with our activity overall. As we think about 2023, we'll see an evolution in our expense base -- is growing, like, for example, on the SG&A side through additional commercialization activities that we put on. And then I think on the R&D, it's really the enrollment in our Phase III program for IH, which will drive some increases overall. But I would say that it's more gradual increases as opposed to step changes during the quarters.

And then finally, as I mentioned, I think the other thing we want to make sure investors are also looking at is the tax rate overall. We've -- given our success and profitability, we've generated nice profitability, which obviously meant that we used up most of our NOLs. So we would expect go-forward tax rate, too. to be in the mid- to upper 20% range. And I think finally, just operating margin, we would expect that to improve as well as our top line grows.

Yes. Thank you. Great. Second question about guidance. And Graig, just we feel the underlying business fundamentals are strong, and we do see -- you mentioned sort of the remit of the business and the consistency in the performance and the key metrics that are provided and when Jeff Dierks talked about the commercial performance. So I think that's the feeling at this time and Sandip, further thoughts on guidance.

Yes. Look, I mean, we've shown a nice consistent history. So we thought that, that was appropriate in terms of being able to model the future. And I think, look, historically, we've seen even the analyst community in this past quarter pretty close within $1 million or so of our actual results. So we feel there's a strong understanding by the investor base of our business. It's relatively consistent. We have one product and certainly continue to be confident in the outlook as there's additional growth opportunities both Jeff discussed. And clearly, the potential to be $1 billion-plus franchise in the coming years from Northland I think we'll continue to evolve that over time. And certainly, we could, in the future, look at more formally providing guidance.

Our next question comes from Danielle Brill with Raymond James.

I guess, first, as a follow-up to the last one. Are you comfortable then with 2023 estimates, I think it's around $580 million for the year -- and then just to get a bit more granularity on how we should be thinking about our models. What are your expected trends in average revenue per patient and discontinuation rates in 2023?

Start off, address that. And I think Jeff Dierks can sort of provide more color on your second question, Danielle.

Sure. Look, I won't specifically comment, obviously, on 2023 consensus, but I think as I mentioned to Craig historically, consensus has for the last many quarters has been pretty close to our vicinity of our sales. So I believe the investment community can properly model our business. So we feel good about the work that you and others are doing to help inform investors overall and continue to look at opportunities. And certainly, we'll evaluate that as we go forward.

Jeff, do you want to on Danielle's second question?

Sure. So Danielle, with respect to average revenue per patient, so it's kind of a function of our patient assistance program and percentage of patients on free goods. And one of the things that we've seen is a relatively consistent demand for our patient assistance program throughout 2022. And as we continue to grow the average number of patients with a consistent PAP demand, you're going to see potentially some slight increases in average revenue per patient as PAP is going to represent a smaller percentage of the overall patients on WAKIX now. Obviously, in the first quarter, there are some other factors as we talked about higher gross to net that you might not see. But as we continue to grow the average number of patients over time, and we have a relatively consistent demand for PAP, you would anticipate a slight increase to the average revenue per patient over time as our overall patient base grows.

Second part of your question with respect to discontinuation rate, it's been relatively consistent since our launch. I mean we've shared publicly available data that about 30% to 50% of all patients on all treatment options by the end of 12 months tend to discontinue any of the medicines in this category. WAKIX -- traditionally, and we've seen over the past 3 years being in that range. Obviously, the chronic condition when patients are out 12-plus months, you might see a small percentage of those patients fall off in any chronic condition. But I would anticipate what you've seen historically in our patient base, we're anticipating similar patient medication behavior moving forward.

At this time, I show no further questions in queue. I would now like to turn the call back to Jeff Dayno for any additional or closing remarks.

Thank you, Todd, and thanks to everyone for your interest in Harmony. We finished 2022 on a strong note and look to build on that momentum in 2023 as we execute on our 3-pillar growth strategy. We look forward to updating you on our progress on future calls. Thank you, and have a great day.

This concludes today's Harmony Biosciences Fourth Quarter and Full Year 2022 Financial Results Conference Call. You may now disconnect your line, and have a wonderful day.