Harmony Biosciences Holdings Inc (HRMY) 2023 Q2 法說會逐字稿

Good morning. My name is Todd, and I will be your conference operator today. At this time, I would like to welcome everyone to Harmony Biosciences' Second Quarter 2023 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' second quarter 2023 financial results and provide a business update.

Before we start, I encourage everyone to go to the Investors section of our website to find the materials that accompany our discussion today, including a reconciliation of our GAAP to non-GAAP financial measures. At this stage of our life cycle, we believe non-GAAP financial results better represent the underlying business performance.

Our speakers on today's call are Dr. Jeffrey Dayno, President and CEO; Jeffrey Dierks, Chief Commercial Officer, Dr. Kumar Budur, Chief Medical 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 and for your interest in Harmony.

Before I comment on our strong second quarter performance, which is reflective of our focused execution and operational excellence; I want to highlight why Harmony continues to be a growth story and outline the key elements driving our growth. We continue to drive growth in our core business for WAKIX and narcolepsy. And based on this, are confident that WAKIX represents a $1 billion-plus opportunity in adult narcolepsy alone.

Our current life cycle management programs for Pitolisant, notably our Phase 3 program in idiopathic hypersomnia, or IH, continued to demonstrate strong momentum. And if we are successful in IH and our other current life cycle management programs, these indications could generate up to an additional $1 billion opportunity.

Our work with our partner, Bioprojet, on new formulations of Pitolisant is progressing with the goal to potentially extend the Pitolisant franchise with new IP out beyond 2040. And with a profitable business and strong balance sheet, we are in a favorable position to bring in new assets through business development to build out a robust pipeline and portfolio of products.

In fact, it is the ongoing confidence in our core business and our conviction in the long-term growth potential for Harmony that is the reason behind this morning's announcement that our Board of Directors authorized a $125 million share repurchase program. This program reflects our confidence in the strength of the company and our commitment to deploy capital to maximize shareholder value.

Starting with our core business; our strong commercial performance is a result of the unique and meaningfully differentiated product profile of WAKIX in the proven excellence of our commercial organization. For the second quarter of 2023, we reported WAKIX net revenue of $134.2 million, representing an increase of 25% year-over-year, driven by the continued underlying demand for WAKIX tapping into a large market opportunity of approximately 80,000 diagnosed patients with narcolepsy in the U.S. The momentum we highlighted last quarter carried into this quarter, during which time we saw the highest top line prescription demand since our first full quarter of launch in 2020 and the strongest quarter of new patient starts in our history.

This is unique as it is not typical to see sustained growth in year 4 post launch for an orphan rare product. With another strong quarter of growth behind us, we continue to be confident in WAKIX being a $1 billion-plus market opportunity in adult narcolepsy alone. And Jeff Dierks will provide further insights into the reasons we remain confident in the future of this opportunity.

In addition to our strong commercial performance in Q2, we are also extremely pleased with the progress that we've made across all of our current Pitolisant life cycle management programs. Our clinical teams have been very busy advancing all 3 programs with key catalysts coming from each of them later this year. Notably, we are on track for top line data from our Phase 3 registrational INTUNE study in adult patients with idiopathic hypersomnia in the fourth quarter.

As a reminder, last quarter, we announced completion of enrollment in this study, 9 months ahead of our base plan, reflective of the significant interest from patients and health care professionals in Pitolisant as a potential treatment for IH. We are very excited about this opportunity, which, if successful, could represent the next new indication for WAKIX.

In follow-up to a positive end of Phase 2 meeting with the FDA to discuss our Prader-Willi Syndrome, or PWS development program, we plan to initiate a pivotal Phase 3 trial in patients with PWS 6 years of age and older in the fourth quarter. And we are on track for top line data from our Phase 2 proof-of-concept signal detection study in Type 1 Myotonic Dystrophy also in Q4. Altogether, IH, PWS and DM1 represent about 100,000 diagnosed patients in the U.S. So if successful, our current life cycle management programs could contribute up to an additional $1 billion of revenue to the WAKIX franchise.

In addition to our current life cycle management programs for Pitolisant, we are making progress on new formulations of Pitolisant that we are co-developing with our partner Bioprojet, with a goal to generate new IP and extend the Pitolisant franchise out beyond 2040.

Lastly, we've advanced our strategy in Pediatric narcolepsy and plan on submitting a supplemental new drug application for Pediatric narcolepsy indication in the fourth quarter. And in addition, are actively pursuing Pediatric exclusivity for WAKIX. As you can see, we have made major progress across all of our development programs and Dr. Kumar Budur will provide you with more details on these later in the call.

Another key component of our growth strategy is acquiring new assets through business development to expand our portfolio beyond WAKIX. To achieve this, we intend to leverage our strong financial position with approximately $430 million in cash, cash equivalents and investment securities at the end of the second quarter to acquire additional assets across a range of development stages, including both early and late stage with the potential to launch both during and after the WAKIX life cycle.

Since taking on the CEO role at the beginning of the year, the team and I have been actively engaged in business development, evaluating a number of opportunities focused on rare orphan neurology assets and/or assets and other neurological diseases where we can leverage our existing expertise and infrastructure.

This is a high priority for us as it is a key component of our long-term growth strategy. While we are disciplined in our approach, ensuring not only a strategic fit but also appropriate valuation. We are also working with a sense of urgency and understand the importance of having a robust portfolio in place.

Overall, I am extremely proud of the outstanding progress that our team has made across every aspect of our business, which demonstrates that Harmony continues to be a growth story.

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

Thanks, Jeff. The second quarter was another strong quarter for WAKIX, with continued growth and momentum in our underlying business fundamentals and top line performance metrics that were the strongest we've seen since launch. Net sales for the second quarter were $134.2 million, which represents 25% growth from the same quarter prior year. The strong double-digit growth in net sales per WAKIX in year 4 of our commercialization demonstrates the continued high interest and adoption of WAKIX in the narcolepsy market and reinforces our long-term belief that WAKIX is a $1 billion-plus opportunity in adult narcolepsy alone.

I'd like to share a few key highlights from our performance in the second quarter on Slides 5 and 6. The average number of patients on WAKIX in the second quarter increased approximately 350 patients sequentially to approximately 5,450 patients. This impressive growth in average patients in the second quarter was driven by a strong performance in top line demand and new patient starts.

In the second quarter, we saw the highest top line prescription demand since our first full quarter of launch at the beginning of 2020. And we also had the highest number of new patient starts in our history. The growth in average patients on WAKIX speaks to the continued product adoption and solid business fundamentals, strong top line prescription demand, growth in new patient starts, along with continued patient refill behavior.

We exited the second quarter with approximately 5,600 patients on WAKIX, with strong momentum coming out of the second quarter. We believe this metric of exiting patients helps to provide additional context to our strong performance leading into the third quarter.

Strong patient interest and continued prescriber adoption continue to be key drivers of the growth in the average number of patients on WAKIX. The number of unique prescribers of WAKIX increased again in the second quarter. And importantly, we continue to see the WAKIX prescriber base expand beyond health care professionals enrolled in the oxybate REMS program.

As we've shared in previous earnings calls, the meaningfully differentiated product profile of WAKIX and the unique feature of being the only FDA-approved treatment for EDS and cataplexy that is not scheduled as a controlled substance offers broad clinical utility and appeals to a broader narcolepsy health care professional audience and patient base, which drives the continued growth in the depth and breadth of our prescribers.

Across the nearly 9,000 narcolepsy treating health care professional prescriber base, we continue to see meaningful penetration and growth. We see growth in the depth of prescribing among the approximately 4,000 health care professionals enrolled in the oxybate REMS program and expanded breadth of new prescribers and the approximately 5,000 health care professionals not enrolled in the oxybate REMS program.

The availability of a generic oxybate and the launch of a once-nightly oxybate at the end of the second quarter has been impacted the continued growth of WAKIX. We continue to see meaningful growth in prescribing and patients on WAKIX along with strong payer coverage.

Our ability to reach and educate the broad narcolepsy treating health care professional universe and tapped into the full diagnosed adult narcolepsy patient opportunity gives us confidence in continued growth and the long-term growth potential for WAKIX.

Recent market research conducted by Harmony supports our view of continued growth for WAKIX. Research conducted in June of this year with approximately 70 health care professionals with and without experience with WAKIX prescribing showed the following: 100% of the health care professionals surveyed with WAKIX clinical experience stated they would prescribe the same or increase their prescribing of WAKIX in the next 6 months.

Nearly 40% of those health care professional surveys who have not yet prescribed WAKIX to date indicated the intent to prescribe WAKIX in the next 6 months. And consistent with previous ways of research, one of the highest performing drivers and differentiators for WAKIX was the unique feature as the only non-scheduled treatment option.

In summary, I continue to be excited by the strong commercial performance of WAKIX in adult narcolepsy. In the second quarter, we saw the highest top line prescription demand since our first full quarter of launch in 2020, leading to the all-time high in new patient starts, strong growth in the average number of patients on WAKIX.

Continued expansion and strengthening of the WAKIX prescriber base beyond the oxybate REMS health care professionals and payer coverage remains strong even with the availability of newer versions of Oxybate. These are tremendous achievements. And I appreciate the dedication and impact of the entire commercial team and the passion they have for our business.

This strong performance gives us confidence in the long-term growth potential for WAKIX and reinforces our belief that WAKIX is a $1 billion-plus opportunity in adult narcolepsy.

I would like to now turn the presentation over to Kumar Budur, our Chief Medical Officer, to provide an update on the clinical development and current life cycle management programs for Harmony. Kumar?

Thank you, Jeff. Good day, everyone. Moving on to our clinical development pipeline to expand the clinical utility of Pitolisant towards potential new indications in patient populations living with rare neurologic diseases, as shown on Slide #7.

Starting with our development program in IH, we were extremely pleased to complete enrollment in our Phase 3 registrational trial in other patients with IH, also known as the INTUNE study at an accelerated pace and 9 months ahead of schedule. The strong interest we have seen both from the patient community and clinical investigators resulted in this accelerated timeline. And we are now on track for top line results in the fourth quarter of this year.

If this Phase 3 trial is successful, it could represent the next new indication for WAKIX in adult patients with IH. Pitolisant could offer a new mechanism of traction to treat patients with IH as Pitolisant works through histamine to promote wakefulness. We view this as a significant market opportunity with approximately 40,000 patients diagnosed with IH. In addition, this opportunity could have significant synergies with our existing commercial footprint as there is a significant overlap in the physicians who treat patients with narcolepsy and those who treat patients with IH.

For Prader-Willi Syndrome, we recently had a positive end of Phase 2 meeting with the FDA, where we discussed the results from the Phase 2 proof-of-concept trial and aligned on the Phase 3 trial in patients with PWS. We now plan to initiate a Phase 3 trial in patients with PWS, age of 6 and older in the fourth quarter of this year.

Moving on to Myotonic Dystrophy Type 1, or DM1, we are on track for top line data from the Phase 2 proof of complex signal detection study in the fourth quarter of this year. In addition to our current life cycle management programs for Pitolisant, we continue to make progress on new formulation with our partner Bioprojet, with a goal to generate new IP and extend the Pitolisant -- beyond 2040. We will provide an update later this year on the status of this program.

Regarding Pediatric narcolepsy, we are working with Bioprojet towards the submission of a supplemental new drug application to the FDA for an indication in Pediatric narcolepsy, which we expect to file in the fourth quarter of this year.

Regarding Pediatric exclusivity, we have made progress with FDA maintaining alignment on the requirements for Pediatric exclusivity for WAKIX. The Phase 3 study in PWS planned to be initiated in the fourth quarter is part of the requirements.

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 as we enter a catalyst during second half of 2023 regarding our development programs, as highlighted on Slide #8.

All of our current LCM program will reach an important milestone in the fourth quarter. And we look forward to sharing the news with you when they occur. I would like to take this opportunity to thank all the patients and their family who are participating in our clinical trials as well as the clinical investigators and site personnel for their efforts and commitment in helping us to advance our clinical 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, Kumar, and good morning, everyone. This morning, we issued our second quarter press release and filed our 10-Q where you'll find the details of our financial and operating results. Our financial performance is shown on Slides 9, 10 and 11. We're pleased to report growth across several of our key metrics, including strong revenue growth, improved profitability and continued cash generation.

This quarter, we also have several important updates with respect to the strength of our balance sheet and the additional opportunities to drive value for shareholders. Our financial performance also gives us the confidence for the remainder of the year as we continue advancing our growth strategy.

So let me take a moment to take you through the details of our financial results. For the second quarter of 2023, we reported net revenues of $134.2 million compared to $107 million in the prior year quarter, representing a growth of 25%. Performance in the quarter reflects the continued strong underlying demand for WAKIX. In the second quarter, specialty pharmacy buying patterns resulted in the lower trade inventory levels at the end of the quarter as compared to the beginning of the second quarter.

In the second quarter of 2023, operating expenses were $62.3 million compared to $55 million in the prior year quarter. The higher operating expenses were primarily driven by our ongoing commercialization of WAKIX and the advancement of our clinical development program. Operating income improved with second quarter 2023 operating income of $46.9 million compared to $33.1 million in the prior year quarter, representing an increase of 42%. Non-GAAP adjusted net income for the second quarter of 2023 was $45.9 million or $0.76 per diluted share compared to $34.7 million or $0.57 per diluted share in the prior year quarter, 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 second quarter of 2023, we ended the quarter with $429.6 million of cash, cash equivalents and investment securities on the balance sheet. In addition, last week, we entered into a new $185 million term loan facility led by JPMorgan, which further reduces our cost of capital, ensures its strong balance sheet and provides us with greater financial flexibility.

We used the net proceeds from the term loan and existing cash balance to repay our existing debt of approximately $197 million and related fees and expenses. The new facility has a lower interest rate, reducing our annual interest expense by approximately $6 million. The financing is another step in the growth evolution of the company as we continued to optimize our balance sheet. So looking ahead for the remainder of the year, we expect continued quarter-over-quarter growth in revenues and average number of patients on WAKIX.

We also expect to continue to invest in R&D and SG&A as we advance our clinical development program and support the commercialization of WAKIX. Overall, we remain confident in WAKIX being $1 billion-plus opportunity in adult narcolepsy with the potential to contribute up to an additional $1 billion if approved, in idiopathic hypersomnia and other current life cycle management programs.

As you heard from Jeff, given our confidence in our core business and our conviction in the long-term growth potential of the company, this morning, we announced that the Board authorized $125 million share repurchase program. Our strong balance sheet and cash generation allows us to be opportunistic to return capital to shareholders while still maintaining sufficient capital to advance our growth strategy.

In conclusion, we're very pleased with our strong financial performance and remain well positioned to continued growth.

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

Thank you, Sandip, and thank you, Jeff and Kumar. In summary, Harmony continues to be a growth story. And we are making significant progress on advancing our growth strategy. We will remain focused on growing our core business and helping even more adult patients living with narcolepsy with WAKIX, completing our Phase 3 registrational trial in idiopathic hypersomnia and delivering top line data in the fourth quarter, initiating our Phase 3 pivotal trial in PWS in Q4, working with our partner, Bioprojet on new formulations to extend the Pitolisant franchise to help even more patients living with rare neurological diseases.

Delivering on our long-term growth strategy by acquiring new assets to build out a robust pipeline for which we are well positioned to execute on given our strong financial position and strategically deploying capital to maximize shareholder value.

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 Danielle Brill with Raymond James.

This is Alex on for Danielle. Just wondering if we could dive a little bit more into the 2Q WAKIX dynamics. Juggling the numbers a bit, in a normal quarter, I think we would have expected a bit higher revenue and then we saw considering the strong net patient adds.

So firstly, what was the impact on the lower inventory purchasing this quarter on a quantitative basis? And then wondering if you could share a little bit more color on the dynamics of potential impacts of gross-to-net compliance and whether what we're seeing as patients were added late in the quarter.

Sure, Alex, it's Jeff. I'll ask Jeff Dierks to comment on some of those 2 dynamics and then Sandip also with person that provide some color on that.

Yes. So Alex, what I would say with respect to starting with patient medication behavior, compliance discontinuation rate, persistency, it was relatively consistent with what we've seen in the previous quarters.

We've got really strong patient feedback in terms of their satisfaction on the product. And we continue to see a broadening of our prescriber base. When you asked a question about trade inventory, I'll turn that over to Sandip to talk a little bit about that and the implications on revenue.

Yes, sure. I mean, thanks, Jeff. Trade inventory, as I mentioned, was down about a week compared to the beginning of the second quarter. So that gives you an estimate of at least the impact that we've seen on the top line.

But I think importantly, as Jeff mentioned, we've seen good strong underlying demand. It was one of the strongest quarters in terms of top line demand. And what we've also seen, what I would also say is in the month of July, we've seen a partial recovery of that, so again, consistent overall what we would typically expect.

And I think the question regarding gross to net, really nothing to report there, except we did see what we expected. Generally, you see an improvement in the second quarter from the first quarter. And that's exactly what we saw. There was nothing. There -- it was primarily the impact during the quarter was really around trade inventory. So like I said, it's about a week.

So it really strong patient demand. And as we mentioned on our strongest sort of top line patient demand since our first full quarter of launch and really just impacting our timing of inventory is really what you're seeing.

We'll go next to from David Amsellem with Piper Sandler.

So just a couple. So first on the buyback. Can you talk about how you're thinking about capital deployment beyond just the $125 million here? In other words, is this something that buybacks is something that you may revisit down the road? And is that going to be sort of a recurring fixture of your overall capital deployment strategy. That's number one.

And then number two, does this impact your ability to execute on a BD transaction of significant size. In other words, are you setting your sights smaller given that buybacks are something that you are now doing? And then, just lastly, on the new Pitolisant assets, I know you're going to provide an update. So that asked the question. Should we think of these as new molecular entities or new formulations or a bit of both?

Sure, David. David. In terms of the buyback, I'll ask Sandip to provide some perspective. But I think at a high level, it provides us optionality in terms of optionality with regard to deployment of capital, both in repurchase as well as looking at business development deals and Sandip can kind of expand on our thinking around that.

Sure. What I would say is, look, it's a natural evolution of the company, right? We have a very strong balance sheet, continued cash generation. So we have the opportunity to opportunistically return capital to shareholders while still maintaining, I would say, sufficient capital for other important priorities, including business development.

So this is not an either or. This is in addition, I would say, overall. And certainly, given our stock price right now, it's really accretive use of capital, to execute to, really drive maximize shareholder value from that perspective. So hopefully, that gives you a little bit of color in terms of -- we don't really see this as either or type of thing. It's really just a natural evolution of the company.

We're $430 million on the balance sheet and we have capacity to do business development as well. And to your other question, as you know, we also did a recent financing as well that we announced last week, about $185 million, led by very syndicated banks, which again gives us a continued access to capital if needed to -- for potential business development in the future as well.

Yes. And David, just to reinforce, in terms of business development, as I've mentioned before, it continues to be a high priority for us. And obviously, since I took on the CEO role at the beginning of the year, we've been actively engaged the team in looking at opportunities. We've gone deep on several. So it continues to be a high priority. We have optionality and access to capital. And that's how we'll look at sort of deploying that in addition to the potential for share repurchase.

The question on the Pitolisant based assets. We are working very closely with the Bioprojet on this effort and the formulation work is ongoing. These are Pitolisant based assets with the potential for generating new IP and the potential to extend the Pitolisant franchise well beyond 2040. We do expect to provide an update later this year on these new Pitolisant based assets.

Yes. Thanks, Kumar. So they are -- yes, they are not new molecular entities, basically new formulations, enhanced formulations of Pitolisant. And as Kumar said, updates coming later this year on our progress on those programs.

We'll take our next question from Ami Fadia with Needham & Company.

This is [Gemma] for Ami Fadia. I guess I just wanted to ask if you can talk a little bit about where you are in your -- on your work in the life cycle management for WAKIX? Like what needs to be completed before you're ready to give the treatment update by end of the year? And, if the new formulation that you mentioned could be used in any of the indications that you are pursuing?

Sure. So in terms of our life cycle management updates, Kumar can provide color on that. But I think as we shared, all of our current life cycle management programs, we're looking ahead to milestones later this year in the fourth quarter and advancing those leading with the IH idiopathic hypersomnia and the Phase 3 registrational trial there. Kumar can provide more color on each of those and with regards to where we are.

Thank you for the question. In terms of life cycle management, as we mentioned earlier, we have a catalyst reach at second half of this year. Let's start with idiopathic hypothermia. We are on track for top line results in idiopathic hypersomnia in the fourth quarter of this year. On DM1, we are also on track for top line results in the fourth quarter of this year. Just as a reminder, the DM1 study is a small signal detection proof-of-concept study that is not powered for statistical significance.

In terms of PWS, we had a good meeting with the FDA, the end of Phase 2 meeting, and we aligned on the study design. We plan to initiate this study in the fourth quarter of this year. And also we are planning to submit Pediatric narcolepsy sNDA in the fourth quarter of this year, so really a lot of activities happening in the second quarter of -- second half of this year in terms of life cycle management of WAKIX.

Yes. Thank you, Kumar. So Gemma, I think really good progress, really good momentum. And we're excited for the catalysts coming later this year on our development programs.

We'll take our next question from Francois Brisebois with Oppenheimer.

Just a few here. So in terms of the exit numbers, is this something that we should -- in terms of a metric we should start expecting every quarter? Or is just the thing that we've seen in the past few quarters?

Yes. Jeff Dierks' comments on the exit number?

Yes, Franc. So we provided an exit number at the end of the first quarter just given some of the payer seasonality and the headwinds. And I think just given the dynamics of the second quarter and really being able to quantify and be able to share with you the momentum coming out of Q2 into Q3 and the strength of our business, we provided it.

As you know, I believe that average number of patients is the most meaningful metric that we can provide because it encapsulates all of the patient medication behavior into one number. Its new patients; its refills that includes compliance, persistency and discontinuation rates.

And it most closely aligns to net revenue on a quarterly basis. So I think from an exit number of patient perspective, it provides additional context in some quarters. But I think the number that really is most meaningful is average number of patients, Franc. And as we shared in our prepared remarks, we saw a sequential growth of approximately 350 patients from what we reported in the first quarter, where we have approximately 5,450 patients on the product.

And again, really tremendous results for year 4 of our rare orphan launch. And we're really excited about the momentum that we're seeing coming into Q3. And we're anticipating strong sequential growth through the remainder of the year and thereon. And we have a lot of conviction that WAKIX is going to represent a potential $1 billion plus opportunity in adult narcolepsy alone.

And then if I could just follow up with -- so as you mentioned, there's been a new oxybate that's been launched on the market and it seems to have no impact on WAKIX so far. But can you just talk about the reimbursement; is reimbursement going well if someone is on both an oxybate and WAKIX? And can you just talk about maybe the evolution? Are you seeing more patients that are on both? Or is it still a pretty small percentage.

Go ahead, Jeff.

So from a managed care perspective, Franc, we continue to be extremely pleased with the favorable market access coverage for WAKIX. We haven't seen any changes to our formulary position with the introduction of a generic oxybate earlier this year or with the launch of the once-nightly oxybate at the end of June. As a matter of fact, we've actually seen some increases and improvement in some of the Type 1 plans within managed care.

And we have no knowledge of any plans that require WAKIX to be stepped through in oxybate. And more importantly, there are no plans where there's an NDC block or exclusionary decision made for WAKIX. So 100% of appropriate adult narcolepsy patients have access to WAKIX either through a positive formulary that's published or through some type of medical necessity or exceptions policy.

With respect to WAKIX and oxybate, what we've seen has been relatively consistent. It's been a low double-digit percentage of the WAKIX patients are also on an oxybate. Again, you're going to see as this category evolves a little bit. As you know, within managed care, there's likely going to be additional things that they're looking to do to manage the category.

But in a re-orphan space with not a lot of these individuals, you don't see a lot of administrative steps with multiple products. Managed care acknowledges that this is a poly-pharmacy market. And so, with a low percentage of WAKIX patients also on an oxybate, we see really good access for patients on the product. And we're really pleased with the strong payer coverage that really remained unchanged even with the introduction of new products. And we believe we're really well positioned, Franc. It's a differentiated product. It's the only non-scheduled treatment option. And we're well positioned today as well as the evolving managed care landscape moving forward.

We'll take our next question from Graig Suvannavejh with Mizuho Securities.

Congrats on the continued progress. I've got 2 questions. One, just on how to think about the third quarter and know that coming out of 350 new patients adds which is a nice number. We've historically over the past several years, seen you report in the second quarter, 400 patients, and then they've, kind of trickled down to 300. And I guess that does reflect a certain element of summer seasonality. So maybe Jeff Dierks, if I could just ask you kind of thoughts around the dynamic for the third quarter. Any changes relative to what we've seen in the past?

I know you've got some nice new momentum in terms of new prescription starts. So I just wanted to get additional color there. And then my second question is just I was hoping to get the company's perspective on last week's curious patent challenge by Scorpion Capital and kind of any response or reply to that.

Yes. Jeff will answer the first question and I'll respond to your second question.

Sure. So Graig, for Q3 dynamics, I mean, I think you're thinking about Q3 the right way. We do anticipate the typical headwinds of the summer seasonality with fewer patient visits to health care professionals. We've got, to your point, tremendous momentum coming out of Q2. Q2 is one of the strongest quarters in terms of top line prescription demand we've seen in 3 years, highest number of new patient starts ever in our launch and adding 350 patients in year 4 of our commercial launch, I think, is really tremendous results.

And although we're not providing forward-looking guidance, I think you're thinking about Q3 correctly. We continue to see growth in new prescribers. We see growth in average number of patients. We do expect sequential growth for WAKIX on average number of patients for the remainder of '23. And we have extreme confidence in the long-term growth opportunity for WAKIX and being a potential $1 billion opportunity.

Thanks, Jeff. And Graig, with regards to your second question, regarding the petition for re-examination, the patent for WAKIX that was filed, I believe, on July 19. I think as we've said before, we're very confident in the strength of our IP. We believe strongly in terms of the enforceability and validity of the patent portfolio. And it's our feeling, our position that the petition for re-examination is without merit.

With regards to the timing of the re-examination, so the PTAB has 90 days either deny or grant the petition from the date of submission. And the majority of times the petitions are granted, but that has no read through to the potential outcome of the re-examination by PTAB.

And if the petition is granted, the re-examination is between PTAB and the patent holder. And majority of times, the patent status is often unusually upheld. So I think with our confidence in the strength of our IP, which we will vigorously defend any challenges. That is why we have confidence in WAKIX being $1 billion plus opportunity in bold narcolepsy.

And then obviously, it's successful in our current life cycle management programs, could also contribute an additional up to $1 billion of revenue to the franchise.

We'll take our next question from Jason Gerberry with Bank of America.

First, just curious with the introduction of generic oxybate mindful that it's not impacting WAKIX, but do you have any insights into what's going on? Is it expanding the market for pharmacotherapy for oxybate taking just share from Xyrem or taking share from other products?

And then as my follow-up, I think it's to the Needham question. As you think about next-gen Pitolisant, I guess like the curiosity is why develop WAKIX for these follow-on indications if the IP could be at risk towards the back end of this decade, why not prioritize the next-gen Pitolisant, so you could have visibility in sort of a product life cycle that lasts well until the 2030s.

Jason, thanks for your question. In terms of -- Jeff, you want to expand in terms of the dynamics and the oxybate franchise and new products?

Sure. Yes. So Jason, what we're seeing, and again, the -- data is visible within Symphony Health claims. And it looks like it's simply just there's a churn that's exhibiting in the oxybate marketplace.

As I've shared in my prepared comments and one of my earlier responses, that we haven't seen any impact, obviously, on the generic on our launch or even the early introduction of the once-nightly oxybate at the end of the second quarter on our business. So what I'm observing in the data is simply just a little bit of a churn that we're seeing in the oxybate marketplace. I think what we see with WAKIX is that we've had a branded version of oxybate available since our launch back in 2019.

And we continue to see strong growth through that time period and really strong growth in the first and second quarter this year in average number of patients. We continue to add new prescribers. And I think our ability to call on the approximate 9,000 narcolepsy treating health care professionals approximately 5,000 of those are not enrolled in the oxybate REMS program. Really provides our ability to tap into that broad diagnosed adult narcolepsy patient population.

It gives us a little bit of insulation as newer forms of oxybate come in. Obviously, the overall benefit risk profile of WAKIX the broad clinical utility. It appeals to a broader health care professional, treating audience as well as a broader patient base.

So I think we have tremendous confidence in our business. There's a significant unmet medical need in here. There's a large diagnosed and even undiagnosed patient population in here. And I think what we have observed over the last couple of years is there's plenty of room for multiple therapeutic options in here. And so, we feel really good about where WAKIX is. But to answer your question on the generic oxybate, I haven't really seen it expanding the market. It's more so just a change within the oxybate vertical.

Yes. And Jason, with regards to your second question, about the IP runway for WAKIX and the current life cycle management programs and new formulations, so a really good question. And I think what we have done to date, we've generated good momentum, obviously, in our IH program and the strong momentum and the pace of enrollment in that program with Pitolisant. And the same in terms of Prader-Willi syndrome in that program and where we are.

But with regards to the longer-term outlook, we do see the potential new formulations where we would have options potentially to take those development programs, obviously, with longer patent protection, longer runway and shift some of those to the new formulations of Pitolisant depending on what we see in the clinic and as those programs advance.

So we see kind of optionality going forward for the longer term outlook of our life cycle management programs while optimizing the current momentum we have now, obviously, with the interest in IH and the completion of enrollment and looking forward to top line data in the fourth quarter as well as interest in the Prader-Willi Syndrome program. From that patient community that we've been kind of working with over a number of years now and interest in advancing into Phase 3 at this point.

Can I just ask a quick follow-up on that?

Sure.

Would the thinking be to launch a next-gen before going to market for PWS or I just thinking if you had to launch a reformulation against the generic version of your own WAKIX? The track record on that could be a little bit more challenging versus like if you can get a reformulation out first. It would seem like that would have maybe a more competitive pathway in the market?

Yes. I mean, I think that based on the new formulation programs we're working on, that that's a potential scenario as well. And I think that's -- we're looking at that potential sort of in the near term, along with a longer term outlook with some of the formulation work that we're doing. So we'll have more color on that as the new formulation programs progress later this year.

We'll take our next question from Corinne Jenkins with Goldman Sachs.

A couple for me. Maybe first, you talked about the new patient growth in the quarter. What portion of these patients, are coming through via the sleep specialist population versus the prescribing population you've described as not being enrolled in the oxybate REMS program.

Corinne, Jeff, in terms of the patients and where they're coming from in terms of the prescriber base?

Sure. Corinne, I mean we're seeing patients come through both those that are health care professionals enrolled in the oxybate REMS program, the sleep specialist. But we're also seeing patients come through in the approximate 5,000 health care professionals that are not enrolled in the Oxybate REMS program.

I know there have been questions in the past looking at proportionality of what percentage of the patients reside more in the oxybate REMS enrolled doctors versus the non--? And what you would say is that the majority of the patients tend to be in the oxybate REMS enrolled health care professional audience.

They tend to be more of the sleep specialist. But there is, a meaningful percentage of our new patients that are coming from that approximately 5,000 health care professionals outside the oxybate REMS program. That's where we're seeing our new prescribers coming from the depth of prescribing and the new patients are coming out of the other portion of the oxybate REMS enrolled doctors.

Okay. And then on the Phase 3 Prader-Willi study, what assumptions can you share that underpin the size of that study and the powering decisions that went into its design?

Yes. We had a positive meeting with the FDA. And we are aligned on this study design. And as we mentioned earlier, we plan to initiate this study in the fourth quarter of 2023. We plan to provide additional details on the study design at the time of study initiation.

And our last question will come from Charles Duncan with Cantor Fitzgerald.

First of all, congratulations on the market demand. And so I had a question on the commercial side and then one on the pipeline. With regard to the commercial question, given our challenge with in terms of projections, I guess, I'm wondering when, or if, you're thinking about providing guidance perhaps next year, if not yet this year. When would you be comfortable providing guidance and what would trigger that?

Charles, Sandip comments on providing guidance.

Yes. No. Thanks, Charles, for the question on that. I think this year, at least we made the decision that there's sufficient information. And you saw from the launch and you continue to see this past quarter, good consistency in terms of top line demand for the product. And I think overall, many of you have a good understanding of our business. So I think that's something that we would naturally revisit at the start of next year, but no promises right now.

But certainly something we can take a look at. But right now, we feel good about investors' understanding of our business and the fundamentals out there. And I think we'll provide -- continue to provide additional color on the business to give you more context as we did this quarter regarding the trade inventory and so forth. So we'll provide additional color to help guide future.

Okay. And then to Jeff or Kumar, regarding the pipeline and the ongoing IH study with Pitolisant, yes, congrats on the enrollment rates. But I guess the question that I have for you is; do you think the rapid enrollment may have caused increased heterogeneity in the patient sample.

And I guess what gives you confidence in the readout? Could it be the blinded read on the patients enrolled or the randomized with all designs? Why are -- yes, help us think through that potential readout?

Sure, Charles. Yes, I'll turn it over to Kumar for thoughts on that as Head of our Development Programs. I think it starts also mechanistically. I think it starts mechanistically and Charles, you know this well in terms of Pitolisant and how it works as a way from this agent through histamine and a mechanistic fit in that disorder that patient population. And Kumar can expand on -- in terms of our thoughts on confidence in the readout.

Charles, thanks for the question. As we said, the study enrolled fast. And we were very pleased with it, in fact, 9 months ahead of schedule. And it's not just the mechanism of action just as Jeff mentioned, also the interest from the patients and the providers as well because of the significant unmet need in patients with idiopathic hypersomnia.

In terms of heterogeneity, that's a good question. As a clinical development specialist, we always want to make sure that the patients are homogenous to the extent possible. So we have checks and balances within the study conduct and also in our protocol to make sure that the patients who come into the study with the inclusion exclusion things to criteria and they are the right subset for our study. We have full confidence that we enrolled the right subject. And we look forward for the top line data, which we anticipate in the fourth quarter of this year.

Okay. And regarding the top-line read, is that driven more by timelines within this study or is it driven by, call it, data analysis? And can you give us any further insights on that being October versus December.

Yes. I mean at this time, it's hard to speculate whether it will be early fourth quarter or late fourth quarter. What I can say at this point in time is we are on track for top line results in the fourth quarter.

Yes. Sure, Charles. And we are very excited about for that top line data read out as well. So obviously, the team is -- we'll be working aggressively and focused on producing top line results. And we look forward to sharing that with you when they come.

And at this time, I will now turn the call back to management for any additional or closing remarks.

Thank you, Todd, and thanks to everyone for joining our call today and for your interest in Harmony. I would also like to thank the talented team at Harmony Biosciences, who I have the pleasure of working with for their efforts every day to deliver on our mission to develop and commercialize innovative treatments for patients living with rare neurological diseases.

As you heard from the team this morning, our business remains strong. Harmony continues to be a growth story and we have conviction in the long-term growth potential of our company. We have built momentum during the first half of 2023 and we are now looking forward to a catalyst-rich second half of the year. Thank you and have a great day.

Thank you. This does conclude today's Harmony Biosciences' second quarter 2023 financial results conference call. You may now disconnect your lines and have a wonderful day.