Harmony Biosciences - Q2 2023
August 1, 2023
Transcript
Operator (participant)
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. All participant lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question at that time, please press star 1 on your telephone keypad. Please be advised that today's conference may be recorded. Lastly, if you should require operator assistance, please press star 0. I will now turn the call over to Luis Sanay, Head of Investor Relations. Please go ahead.
Luis Sanay (Head of Investor Relations)
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?
Jeffrey Dayno (President and CEO)
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 lifecycle management programs for pitolisant, notably our phase III program in idiopathic hypersomnia, or IH, continue to demonstrate strong momentum, and if we are successful in IH and our other current lifecycle 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. 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 US. 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 four 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. Jeffrey 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 lifecycle management programs. Our clinical teams have been very busy advancing all three programs, with key catalysts coming from each of them later this year. Notably, we are on track for top-line data from our phase three 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 nine months ahead of our base plan, reflective of the significant interest from patients and healthcare 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 II meeting with the FDA to discuss our Prader-Willi syndrome, or PWS, development program, we plan to initiate a pivotal phase III trial in patients with PWS six years of age and older in the fourth quarter. We are on track for top line data from our phase II 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 US.
If successful, our current lifecycle management programs could contribute up to an additional $1 billion of revenue to the WAKIX franchise. In addition to our current lifecycle 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 in 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?
Jeffrey Dierks (Chief Commercial Officer)
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 for 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 billion-dollar-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. Importantly, we continue to see the WAKIX prescriber base expand beyond healthcare 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 healthcare 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 healthcare professional prescriber base, we continue to see meaningful penetration and growth.
We see growth in the depth of prescribing among the approximately 4,000 healthcare professionals enrolled in the Oxybate REMS program. An expanded breadth of new prescribers in the approximately 5,000 healthcare 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 hasn't 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 healthcare professional universe and tap 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 healthcare professionals with and without experience with WAKIX prescribing, showed the following: 100% of the healthcare professionals surveyed with WAKIX clinical experience stated they would prescribe the same or increase their prescribing of WAKIX months. Nearly 40% of those healthcare professionals surveyed who had not yet prescribed WAKIX to date, indicated the intent to prescribe WAKIX in the next six months. Consistent with previous waves 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 further 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 healthcare professionals. Payer coverage remains strong even with the availability of newer versions of oxybate. These are tremendous achievements. 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 billion-dollar-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 lifecycle management programs for Harmony. Kumar?
Kumar Budur (CMO)
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 neurological diseases, as shown on slide number 7. Starting with our development program in IH, we were extremely pleased to complete enrollment in our phase III registrational trial in adult 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 4th quarter of this year. If this phase III trial is successful, it could represent the next new indication for WAKIX in adult patients with IH.
Pitolisant could offer a new mechanism of action 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 II meeting with the FDA, where we discussed the results from the phase II proof of concept trial and aligned on the phase III trial in patients with PWS. We now plan to initiate a phase III trial in patients with PWS, ages 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 II proof of concept signal detection study in the fourth quarter of this year. In addition to our current lifecycle management programs for pitolisant, we continue to make progress on new formulations with our partner, Bioprojet, with a goal to generate new IP and extend the pitolisant franchise 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 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 in gaining alignment on the requirements for pediatric exclusivity for WAKIX.
The phase III 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-rich second half of 2023 regarding our development programs, as highlighted on slide number 8. All of our current LCM programs will reach an important milestone in the fourth quarter, and we look forward to sharing the news with you when that occurs. I would like to take this opportunity to thank all the patients and their families 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?
Sandip Kapadia (CFO)
Thank you, Kumar, and good morning, everyone. This morning, we issued our second quarter press release and filed our Form 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. Let me take a moment to take you through the details for 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 a 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 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 JP Morgan, which further reduces our cost of capital, ensures a 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 in 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 continue to optimize our balance sheet. 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 a 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 lifecycle 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 a $125 million share repurchase program. Our strong balance sheet and cash generation allows us to be opportunistically 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.
With that, I'd like to turn the call back to Jeff for his closing remarks. Jeff?
Jeffrey Dayno (President and CEO)
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 III registrational trial in idiopathic hypersomnia and delivering top-line data in the fourth quarter, initiating our phase III 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 (participant)
Thank you. At this time, if you would like to ask a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star two. We remind you to please pick up your handset and please limit yourself to one question and one follow-up question. We'll take our first question from Danielle Brill with Raymond James.
Speaker 13
Hey, guys. This is Alex on for Danielle. Thanks for taking our question. 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 than we saw, considering the strong net patient adds. Firstly, what was the impact on the lower inventory purchasing this quarter on a quantitative basis? Then wondering if you could share a l- little bit more color on the dynamics of potential impacts of gross to net, compliance, and whether what we're seeing is patients were added late in the quarter. Thanks so much.
Jeffrey Dayno (President and CEO)
Sure, Al. Good morning, Alex. It's Jeff. I'll ask Jeff to, you know, Jeff Dierks to, you know, comment on some of those two dynamics. Sandip Kapadia can also, of course, then, provide some color on that.
Jeffrey Dierks (Chief Commercial Officer)
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, you know, their satisfaction on the product, and we continue to see, you know, a broadening of our prescriber base. When you asked a question about trade inventory, I'll, I'll turn that over to Sandip to talk a little bit about that, and the implications on revenue.
Sandip Kapadia (CFO)
Yeah, sure. I mean, thanks. Thanks, Jeff. Trade inventory, as I mentioned, was down about, about a week compared to the beginning of the second quarter. That gives you an estimate of at least, you know, the impact that we'd have seen on the, on the top line. I think importantly, as, as Jeff mentioned, you know, we've seen good, strong underlying demand. It was one of the strongest quarters in terms of top-line demand. You know, what we've also seen, what I would also say is in, in the month of July, we've seen a partial recovery of that. Again, consistent overall with what we would typically expect. 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, 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 inventories, and like I said, it's about a week.
Jeffrey Dayno (President and CEO)
Yes, I think, Alex-
Speaker 13
Great. Thanks so much.
Jeffrey Dayno (President and CEO)
Yeah.
Speaker 13
Sorry.
Jeffrey Dayno (President and CEO)
I really, you know, the strong patient demand, and as we mentioned, our strongest sort of top line, you know, patient demand since our first full quarter of launch. And really just impacting our timing of, you know, of inventory is really, you know, what you're seeing.
Speaker 13
Great. Thanks so much for the color.
Jeffrey Dayno (President and CEO)
Sure.
Sandip Kapadia (CFO)
Thank you.
Speaker 13
Okay.
Operator (participant)
I'm David Amsellem with Piper Sandler. Please go ahead.
David Amsellem (Managing Director and Senior Research Analyst)
Hey, thanks. Just got a couple. 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. 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?
Just lastly, on the new Pitolisant assets, I know you're going to provide an update, so I got to ask the question: Should we think of these as new molecular entities or new formulations or a bit of both? Thanks.
Jeffrey Dayno (President and CEO)
Sure, David. Good morning, David. In terms of, yeah, the buyback, I'll ask Sandip to, you know, provide some perspective. I, I think, you know, a high level, it, it provides us, you know, optionality in terms of, you know, optionality with regards to deployment of capital, both in repurchase, you know, as well as, looking at, you know, business development deals. Sandip can kind of expand on, you know, our thinking around that.
Sandip Kapadia (CFO)
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. 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. This is not an either/or. This is in addition, I would say overall. You know, certainly given our stock price right now, it's really a creative use of capital to execute, to really drive, maximize shareholder value, from that, from that perspective. Hopefully that gives you a little bit of color in terms of, you know, we don't really see this as a either/or type thing. It's really just a natural evolution of the company.
We're, you know, $430 million on the balance sheet, and we have capacity to do business development, as well. To your other question, as you know, we also did a recent financing, as well, that we announced last week, about $185 million, you know, led, by, very, you know, syndicated banks, which again, gives us a, a continued access to capital if needed, you know, for potential business development in the future as well, so.
Jeffrey Dayno (President and CEO)
Yeah, David, just to reinforce in terms of business development, you know, as, as I've mentioned before, it continues to be a high priority for us. You know, obviously, since I took on the CEO role at the beginning of the year, you know, we've been actively engaged, you know, the team in, in, in looking at opportunities. We've gone deep on several. So it continues to be a high priority. You know, we have optionality and access to, you know, to capital, and, and that's how, you know, we'll look at sort of, you know, deploying that, in addition to the, you know, the potential for share repurchase.
Kumar Budur (CMO)
Good morning, David. On the pitolisant-based assets. We are working very closely with Bioprojet on these efforts, 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.
Jeffrey Dayno (President and CEO)
Yeah, thanks, Kumar. They are, yeah, they are not new molecular entities. You know, basically new formulations, enhanced formulations of pitolisant. As Kumar said, you know, updates coming later this year on our, our, our progress on those programs.
David Amsellem (Managing Director and Senior Research Analyst)
Okay. Helpful. Thanks, guys.
Jeffrey Dayno (President and CEO)
Thanks, Dave.
Operator (participant)
Thank you. We'll take our next question from Ami Fadia with B. Riley and Company.
Speaker 12
Hi, this is Poona for Ami Fadia. Thank you for taking my question. I guess, just wanted to ask if you can talk a little bit about where you are on your work in the lifecycle 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 can be used in any of the indications that you are pursuing?
Jeffrey Dayno (President and CEO)
Sure. So, in terms of our lifecycle management updates, Kumar can provide color on that. I think as we shared, all of our current lifecycle management programs, you know, we're looking ahead to milestones, you know, later this year in the fourth quarter. Advancing those, you know, leading with the IH, idiopathic hypersomnia, and the phase III registrational trial there. Kumar can provide more, you know, color on each of those and with regards to where we are.
Kumar Budur (CMO)
Good morning, Poona, and thank you for the question. In terms of lifecycle management, as we mentioned earlier, we have a catalyst-rich second half of this year. Let's start with idiopathic hypersomnia. 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 II 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.
Really, a lot of activities happening in the second quarter of, second half of this year in terms of lifecycle management of WAKIX.
Jeffrey Dayno (President and CEO)
Yeah. Thank you, Kumar. Poona, I think, really good progress, really good momentum, and we're excited for the catalyst coming, you know, later this year on our development programs.
Speaker 12
Thank you so much.
Operator (participant)
Thank you. We'll take our next question from François Brisebois with Oppenheimer.
François Brisebois (Managing Director and Senior Biotechnology Research Analyst)
All right. Thanks, taking the question. Just a, a few here. 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 a thing that we've seen in the past few quarters?
Jeffrey Dayno (President and CEO)
Yeah. Thanks, Frank. Good morning. Jeff Dierks comments on the, the exit number?
Jeffrey Dierks (Chief Commercial Officer)
Yeah, Frank, good morning. We provided exit number at the end of the 1st quarter, just given some of the payer seasonality and the headwinds, and I think just given the dynamics of the 2nd 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, 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 1 number. It's new patients, it's refills, it includes compliance, persistency, and discontinuation rates, and it most closely aligns to net revenue on a, on a quarterly basis.
You know, 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, Frank. 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. Again, really tremendous results for year four of our rare orphan launch, and we're really excited about momentum that we're seeing coming into Q3, and we're anticipating, you know, strong sequential growth through the remainder of the year and thereon. We have a lot of conviction that WAKIX is gonna represent a potential billion-dollar-plus opportunity in adult narcolepsy alone.
François Brisebois (Managing Director and Senior Biotechnology Research Analyst)
Great. If I could just follow up with... You know, as you mentioned, there's been a new oxybate that's been launched on the market and seems to have no impact on, on WAKIX so far. Can you just talk about the reimbursement, you know, is reimbursement going well if someone is on both an oxybate and WAKIX? Can you just talk about maybe the evolution? Are you seeing more patients that are on both, or is this still a pretty small percentage? Thank you.
Jeffrey Dayno (President and CEO)
Sure. Go ahead, Jeff.
Jeffrey Dierks (Chief Commercial Officer)
From a managed care perspective, Frank, 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, you know, 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 one plans within managed care. You know, we have no knowledge of any plans that require WAKIX to be stepped through in oxybate. More importantly, there are no plans where there's an NDC block or exclusionary decision made for WAKIX.
You know, 100% of appropriate adult narcolepsy patients have access to WAKIX, either through a positive formulary that's published or through some type of, you know, 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 % of the WAKIX patients are also on an oxybate. You know, again, you're going to see as this category evolves a little bit, as you know, within managed care, you know, there's likely going to be additional things that they're looking to do to manage the category. In a rare 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 polypharmacy market.
You know, 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 has remained unchanged, even with the introduction of new products, and we believe we're really well positioned, Frank. You know, 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.
François Brisebois (Managing Director and Senior Biotechnology Research Analyst)
Great. Thank you.
Jeffrey Dayno (President and CEO)
Thanks, Frank.
Operator (participant)
Thank you. We'll take our next question from Graig Suvannavejh with Mizuho Securities.
Graig Suvannavejh (Managing Director)
Thanks. Good morning. Congrats on the continued progress. I've got two questions. One just on how to think about the third quarter, I know that coming out of 350 new patient 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. I guess that does reflect a certain element of summer seasonality. Maybe Jeffrey 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. Just wanted to get additional color there.
My second question is just, was hoping to get the company's perspective on last week's curious patent challenge by Scorpion Capital and kind of any, any response or any reply to that. Thanks.
Jeffrey Dayno (President and CEO)
Sure, Graig. Good morning, Graig. Yeah, Jeff will answer the first question, and I'll respond to your second question.
Jeffrey Dierks (Chief Commercial Officer)
Sure. Graig, for Q3 dynamics, I mean, I think you're thinking about Q3 the right way. You know, we do anticipate the typical headwinds of the summer seasonality with fewer patient visits to healthcare 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 three 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. 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 and average number of patients for the remainder of 2023.
We have extreme confidence in the long-term growth opportunity for WAKIX and being a potential billion-dollar opportunity.
Jeffrey Dayno (President and CEO)
Thanks, Jeff. Graig, with regards to, you know, your, your second question, you know, regarding the petition for reexamination of, you know, the patent for WAKIX that was filed, I believe, on July 19th. You know, I think as we've said before, you know, 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 reexamination is without merit. In regards to the timing of the reexamination, you know, the PTAB has 90 days to either deny or grant the petition from the date of submission. The majority of times, the petitions, you know, are granted, but that, that has no read-through to the potential outcome of the reexamination by PTAB.
You know, if the petition is granted, the reexamination is between PTAB and the patent holder. Majority of times, the patent status is often and usually upheld. I think, you know, with our confidence in the strength of our IP, you know, which we will vigorously defend any challenges, you know, that is why we have confidence in WAKIX, you know, being a billion-dollar plus opportunity in adult narcolepsy. Then, obviously, if successful in our current lifecycle management programs, you know, could also contribute an additional up to billion-dollar of revenue to the franchise.
Graig Suvannavejh (Managing Director)
Thanks very much.
Jeffrey Dayno (President and CEO)
Yeah. Thanks, Graig.
Operator (participant)
Thank you. We'll take our next question from Jason Gerberry with Bank of America.
Jason Gerberry (Managing Director and Equity Research Analyst)
Hey, good morning, guys. Thank you for taking my questions. First, just curious, with the introduction of generic oxybate, mindful that it's not impacting WAKIX, but do you have any insights into, into what's going on? Is it expanding the market for pharmacotherapy for oxybate, taking just share from Xyrem or taking, you know, share from other products?... 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 into the 2030s? Thanks.
Jeffrey Dayno (President and CEO)
Good morning, Jason. Thanks for your question. You know, in terms of, Jeff, you want to expand in terms of, you know, the dynamics and the oxybate franchise and the new products?
Jeffrey Dierks (Chief Commercial Officer)
Sure. Yeah, Jason, what, what we're seeing, again, you know, the IQVIA 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. You know, as I've shared in my prepared comments and one of my earlier responses, that we, we haven't seen any impact, obviously, on the generic on our launch or even the, you know, early introduction of the once-nightly oxybate at the end of the second quarter on our business. What, what I'm observing in the data is simply just a, a little bit of a churn that we're seeing in the oxybate marketplace.
I think what we see with WAKIX is that, you know, we've had a, a branded version of oxybate available since our launch back in, you know, 2019, and we continue to see strong growth through that time period and, and really strong growth in the first and second quarter this year in average number of patients. We continue to add new prescribers. I think our ability to call on the approximate 9,000 narcolepsy-treating healthcare 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.
You know, obviously, the overall benefit risk profile of WAKIX, the broad clinical utility, it appeals to a broader healthcare professional, you know, treating audience as well as a broader patient base. I think we have tremendous confidence in our business. There's a significant unmet medical need in here. There's a large diagnosed and, and even undiagnosed patient population in here, and I, I think what we've observed over the last couple of years is there's plenty of room for multiple therapeutic options in here. We feel really good about where WAKIX is. You know, to answer your question on the generic oxybate, I haven't really seen it expanding the market. It's more so just a, a change within the oxybate vertical.
Jeffrey Dayno (President and CEO)
Yeah. Jason, with regards to your, your second question about, you know, the, the IP runway for WAKIX and the current lifecycle management programs and new formulations. You know, really good question, and I think, you know, what we've have done to date, you know, we've generated good momentum, obviously, you know, in our IH program and the strong momentum and the pace of enrollment in that program, you know, with, with pitolisant. You know, the same in terms of, you know, Prader-Willi syndrome in that program and, and where we are.
With, with regards to the longer-term outlook, you know, we do see the potential, you know, new formulations where we would have options potentially to take those development programs, obviously with, you know, longer patent protection, longer runway, and, and shift some of those to the new formulations of pitolisant, you know, depending on, you know, what we see in the clinic and as those programs advance.
We see, you know, kind of optionality going forward for the longer-term outlook of our, our lifecycle management programs, while optimizing the current momentum we have now, obviously, with the interest in IH, and, you know, the completion of enrollment and looking forward to top-line data in the fourth quarter, as well as interest in, you know, the Prader-Willi syndrome program, you know, from that patient community that we've been kind of working with over a number of years now, and interest in advancing in, into phase III at this point.
Jason Gerberry (Managing Director and Equity Research Analyst)
Can I just ask a quick follow-up on that?
Jeffrey Dayno (President and CEO)
Sure.
Jason Gerberry (Managing Director and Equity Research Analyst)
Would, would the thinking be to launch a next gen before going to market for PWS or IH? Just thinking, you know, if you had to launch a reformulation against a 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, would have a maybe a more competitive pathway in the market.
Jeffrey Dayno (President and CEO)
Yeah, I mean, I think that, you know, based on the new formulation programs we're working on, you know, that-that's a potential scenario as well. I, I think, you know, that's, we're, we're looking at that, potential, you know, sort of in, in the near term, along with, a longer-term outlook with some of the formulation work that we're doing. We, we'll have, you know, more color on that as the new formulation programs, progress, you know, later this year.
Jason Gerberry (Managing Director and Equity Research Analyst)
Got it. Thanks.
Jeffrey Dayno (President and CEO)
Yep. Thanks, Jason.
Operator (participant)
Thank you. We'll take our next question from Corinne Jenkins with Goldman Sachs.
Corinne Jenkins (Managing Director)
Hey, good morning. A couple from 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 programs?
Jeffrey Dayno (President and CEO)
Morning, Corinne. Jeff, in terms of the patients and where they're coming from in terms of the prescriber base?
Jeffrey Dierks (Chief Commercial Officer)
Sure. Corinne, I mean, we're, we're seeing patients come through, both those that are healthcare professionals enrolled in the Oxybate REMS program, the sleep specialists, but we're also seeing patients come through in the approximate 5,000 healthcare professionals that are not enrolled in the Oxybate REMS program. I know there have been, you know, questions in the past looking at proportionality of, of what percentage of the patients reside more in the Oxybate REMS-enrolled doctors versus the non. You know, what you would say is that, you know, the majority of the patients tend to be in the Oxybate REMS-enrolled healthcare professional audience. They tend to be more of the sleep specialists, but there is a meaningful percentage of our new patients that are coming from that approximately 5,000 healthcare 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.
Corinne Jenkins (Managing Director)
Okay, then on the phase III PRT study, what assumptions can you share that underpin the size of that study and the powering decisions that went into its design?
Kumar Budur (CMO)
Yeah. Hi, good morning, Corinne. Thanks for the question. We had a positive meeting with the FDA, and we aligned on the study design. 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.
Corinne Jenkins (Managing Director)
Okay. Thank you.
Kumar Budur (CMO)
Thank you.
Operator (participant)
Thank you. Our last question will come from Charles Duncan with Cantor Fitzgerald.
Charles Duncan (Managing Director and Senior Biotechnology Research Analyst)
Hey, good morning, guys. First of all, congratulations on the market demand. 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, when would you be comfortable providing guidance, and what would trigger that?
Jeffrey Dayno (President and CEO)
Good morning, Charles. Sandip, comments on, you know, providing guidance.
Sandip Kapadia (CFO)
Yeah. No, thanks, thanks, Charles, for the question on that. I think, you know, this year at least, we made the decision that, you know, that there's sufficient information. You saw from the, from the launch, and you continue to see this past quarter, good consistency in terms of top-line demand for the product. I think, you know, overall, many of you have a good understanding of our business. I think that's something that we would naturally revisit, you know, at the start of next year. No promises right now. Again, certainly, something we, we'd take a look at. Right now we feel good about, you know, investors' understanding of our business and the fundamentals out there.
I think we'll continue to provide additional color on the business to give you more context, just as we did this quarter regarding the trade inventory and so forth. We'll provide additional color to help guide future, you know.
Charles Duncan (Managing Director and Senior Biotechnology Research Analyst)
Okay, thanks, Sandip. To Jeff or Kumar, regarding the pipeline and the ongoing IH study with pitolisant, yeah, congrats on the enrollment rates. 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? I guess, what gives you confidence in the readout? Could it be, you know, the blinded read on the patients enrolled or the randomized withdrawal design? Why, why are... Yeah, help us think through that potential readout.
Jeffrey Dayno (President and CEO)
Sure, Charles. Yeah, I will, I'll turn it over to Kumar, I, for thoughts on that, as, you know, 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, you know, as a wakefulness agent through histamine and the mechanistic fit in that disorder, that patient population. Kumar can expand on, you know, in terms of our, our thoughts on confidence in the readout.
Kumar Budur (CMO)
All right. Hey, good morning, Charles. Thanks for the question. As he said, the study enrolled fast, and we were very pleased with it, in fact, nine months ahead of schedule. It's not just the mechanism of action, just as Jeff mentioned, also the interest from the patient 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. You know, as a clinical development specialist, we always want to make sure that the patients are homogeneous to the extent possible. 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 meet the inclusion/exclusion criteria, and they're the right subject for our study.
We have full confidence that we enrolled the right subjects, and we look forward for the top-line data, which we anticipate the fourth quarter of this year.
Charles Duncan (Managing Director and Senior Biotechnology Research Analyst)
Okay. Regarding that top-line read, is that driven more by timelines within the study, or is it driven by, you know, call it, data analysis? Can you give us any further insights on that being October versus December?
Kumar Budur (CMO)
Yeah. 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.
Charles Duncan (Managing Director and Senior Biotechnology Research Analyst)
Okay, very good. Thanks for taking our questions. Congrats on the end market demand.
Jeffrey Dayno (President and CEO)
Sure, Charles, and, and, and we are very excited about, you know, for that top-line data readout as well. Obviously, the team is... You know, will be working aggressively and, and focused on, on producing, you know, top-line results, and we look forward to sharing that with you, you know, when they, when they come.
Charles Duncan (Managing Director and Senior Biotechnology Research Analyst)
Okay, cool.
Operator (participant)
Thank you. At this time, I will now turn the call back to management for any additional or closing remarks.
Jeffrey Dayno (President and CEO)
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.
Operator (participant)
Thank you. This does conclude today's Harmony Biosciences second quarter 2023 financial results conference call. You may now disconnect your line, and have a wonderful day.