Harmony Biosciences - Q4 2022
February 21, 2023
Transcript
Operator (participant)
Good morning, everyone. My name is Todd, and I will be your conference operator today. At this time, I would like to welcome everyone to Harmony Biosciences fourth quarter and full year 2022 financial results conference call. All participants have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question at that time, please press star one on your telephone keypad. Please be advised that today's conference may be recorded. Lastly, if you should require operator assistance, please press star zero. 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 fourth quarter and full year 2022 financial results and provide a business update. Before we start, I encourage everyone to go to the investor section of our website to find the materials that accompany our discussion today, including a reconciliation of our GAAP to non-GAAP financial measures. At this stage of our life cycle, we believe non-GAAP financial results better represent the underlying business performance. Our presenters on today's call are Dr. Jeffrey Dayno, Interim CEO and Chief Medical Officer, Jeffrey Dierks, Chief Commercial Officer, and Sandip Kapadia, Chief Financial Officer. Moving on to slide two. 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 (Interim CEO and CMO)
Thank you, Luis, and thank you everyone for joining our conference call today. We delivered another strong quarter in Q4, finishing the year with continued momentum in our commercial business for WAKIX, as well as in the advancement of our clinical development programs for pitolisant. We are excited for 2023 and remain confident in the ongoing execution of our three-pillar growth strategy to further evolve Harmony into a leading rare disease company focused on delivering innovative therapies for patients living with rare neurological diseases. Harmony remains a growth story with a focus on advancement of our lifecycle management programs for pitolisant and acquisition of new assets to build out our pipeline to drive additional growth. With that as our focus, I am excited to lead the company forward.
After 12 years as a practicing neurologist taking care of patients, followed by 25 years in the industry touching every aspect of the business, I bring a unique perspective to the development and commercialization of innovative treatments that address major unmet medical need. I have seen the impact that these treatments can have on patients and their families, and I'm proud of the progress we have made. I also know that Harmony is poised for continued growth with our goal to help even more patients living with rare neurological diseases. I will now briefly highlight our progress on each of the three pillars of our growth strategy in the context of Q4 2022 performance. Starting with pillar one, which is to optimize the commercial performance of WAKIX.
We delivered WAKIX net revenue for the fourth quarter and full year 2022 of $128.3 million and $437.9 million respectively, representing an increase of 41% and 43% year-over-year. Our performance reflects the strong commercial execution by our team, the underlying demand for WAKIX, and the significant unmet need that remains in the narcolepsy market. For 2023, we expect continued growth for WAKIX and believe that the vast market opportunity which remains in narcolepsy, along with the differentiated product profile of WAKIX, provides us with the ability to grow WAKIX for years to come. At Harmony, this also translates into an opportunity to help even more adult patients living with narcolepsy. Moving to pillar two, which is to expand the clinical utility of pitolisant beyond narcolepsy.
We are extremely pleased with the progress that we have made across all our pipeline and lifecycle management programs. I will provide more details on these during the clinical update later in the call. Briefly, in idiopathic hypersomnia or IH, we continue to see strong momentum in our phase III INTUNE study. This opportunity, if successful, could be the next potential new indication for pitolisant. In Prader-Willi syndrome or PWS, we are analyzing the full data set from our phase II proof of concept study in preparation for an end of phase II meeting with the FDA. It is our intent to advance the PWS program to a phase III trial.
Overall, our lifecycle management programs for pitolisant in total could address unmet medical needs in up to 100,000 diagnosed patients living with IH, PWS, and myotonic dystrophy. An opportunity that is successful would more than double our diagnosed patient opportunity. We are committed to advancing these development programs and are hopeful that these efforts could lead to additional new indications for pitolisant and address the unmet medical needs in these patient populations. Pillar three, acquiring new assets through business development to expand our portfolio beyond WAKIX. Our dedicated business development team has been actively assessing the landscape as it is our intent to build out a broad pipeline of rare orphan neurology assets and, or assets in other neurological diseases where we can leverage our existing expertise and infrastructure.
To achieve this, we intend to leverage our strong financial position to acquire additional assets across a range of development stages, including both early and later stage, with the potential to launch both during and after the WAKIX life cycle. We are in a solid position to execute on pillar three as our business fundamentals with WAKIX remain strong, and we ended the year with approximately $346 million in cash equivalents, and investment securities. Overall, I'm extremely pleased with the progress that our team has made on our three-pillar growth strategy. We remain very confident in WAKIX being a potential $1 billion+ franchise in the coming years by narcolepsy and additional indications, and are truly excited for 2023, during which our team will remain focused on executional excellence.
I will now turn the call over to Jeffrey Dierks, our Chief Commercial Officer, to provide more details on our commercial performance. Jeff?
Jeffrey Dierks (Chief Commercial Officer)
Thanks, Jeff. Q4 represented another strong quarter of performance for WAKIX, and 2022 full year performance demonstrated strong overall growth and momentum in our underlying business fundamentals. Net revenue for the fourth quarter was $128.3 million, representing a 41% increase from the same quarter prior year. Full year 2022 net revenue was $437.9 million, which represented a 43% increase from full year 2021. Our strong performance reflects not only the resilience and commitment of our team, but also speaks to the strong underlying demand for WAKIX. I'd like to take a moment to highlight a few of our underlying business fundamentals on slide 5 that drove our performance in the fourth quarter of 2022.
The average number of patients on WAKIX increased to approximately 4,900 in the fourth quarter of 2022. The growth in Q4 continues to reflect how the meaningfully differentiated product profile aligns to the unmet needs in the narcolepsy market. Growth in the average number of patients on WAKIX was driven by the following factors. Harmony Field Sales in-person engagement with healthcare professionals and their office staff remained strong in the fourth quarter. Approximately 85% of all Harmony Field Sales engagement with healthcare professionals and their office staff were in person in the fourth quarter. The accessibility of our field sales team with healthcare professionals and their office staff allowed for further education and engagement, helping to drive growth in the depth and breadth of the WAKIX prescriber base.
We saw further growth in the number of new writers of WAKIX, as well as growth in prescribing from existing writers in the fourth quarter of 2022. Growth in new prescribers was driven by both writers of traditional narcolepsy treatments, as well as healthcare professionals who had been reluctant to prescribe other available narcolepsy treatments that are scheduled as controlled substances, including the approximate 1,000 prescribers we added to our call plan earlier in 2022. Existing prescribers of WAKIX continue to find new adult patients with narcolepsy in their practices, both naive patients as well as existing patients currently on other treatments with residual symptoms of excessive daytime sleepiness or cataplexy. The continued growth in both the depth and breadth of our prescriber base demonstrates the broad clinical utility of WAKIX and the broad narcolepsy patient opportunity for the brand.
Our performance in Q4 reflects the contribution of our field sales force expansion from earlier in 2022. Our expanded team was able to reach more narcolepsy treating healthcare professionals with greater frequency to educate them on the meaningfully differentiated product profile of WAKIX, helping to drive the growth that we saw in new and existing writers in Q4. In the third quarter of our expansion, the benefits of our expanded field sales team are now reflected in our base business, we are excited about the impact we've seen from our entire award-winning sales team. Looking ahead, we believe there is still a significant opportunity for growth in the years to come for WAKIX and adult narcolepsy. Recent market research commissioned by Harmony Biosciences reinforces our belief.
Research conducted with 70 healthcare professionals with and without experience with WAKIX showed that more than 95% of healthcare professionals with WAKIX experience stated they would rate the same or increased prescribing of WAKIX in the next six months. Nearly half of those who had not prescribed WAKIX to date, stated intent to prescribe WAKIX in the next six months. We believe our growth will persist as we enter our fourth year of commercialization in this rare orphan patient population in 2023. We will continue to tap into the large remaining opportunity in narcolepsy as the market allows around the typical seasonal dynamics that the pharmaceutical industry as a whole experience each year.
We expect typical seasonal payer dynamics and normalization of trade inventory in Q1, followed by stronger prescription demand in the second quarter. Summer seasonality with fewer patient visits in Q3 and a stronger Q4 as patients look to fill their prescriptions before the end of the year. In summary, we are extremely pleased with the growth in WAKIX, and we believe our strong performance highlights the need for the meaningfully differentiated product profile of WAKIX and affirms our confidence in the future growth opportunity for WAKIX in adult narcolepsy. We continue to believe that WAKIX is a potential billion-dollar-plus franchise opportunity in narcolepsy and additional indications, and are excited about our ability to help additional adult patients living with narcolepsy and other rare diseases in the future. I'll now turn the presentation back over to Jeffrey Dayno for an update on our clinical development programs. Jeff?
Jeffrey Dayno (Interim CEO and CMO)
Thank you, Jeff. Moving to pillar two of our company growth strategy to expand the clinical utility of pitolisant toward potential new indications in additional patient populations living with rare neurological diseases, as shown on slide six, which depicts our development pipeline. Starting with our development program in idiopathic hypersomnia, which we are very excited about. We continue to see strong momentum in our phase III registrational trial in adult patients with IH, known as the INTUNE Study. We now have approximately 85% of our clinical trial sites active and patient enrollment is progressing well. If this phase III trial is successful, it could represent the next new indication for WAKIX in adult patients with IH. We plan to provide an enrollment update later in the year.
For PWS, as I mentioned in my opening comments, we received a full data set from our phase II proof-of-concept trial at the end of last year. As you may recall, last November, we announced that the top-line data showed a positive signal on the primary outcome of excessive daytime sleepiness in this trial. We are currently analyzing the full data set in preparation for an end-of-phase II meeting with the FDA to discuss the trial results. It is our intent to advance the PWS program to a phase III trial. We will provide an update on our progress later this year. In addition, our plan is to present the findings of the phase II proof-of-concept trial at a future medical meeting and submit the full results for publication to a scientific journal. Moving on to our development program in myotonic dystrophy, or DM.
Enrollment continues in our phase II proof-of-concept study in adult patients with type one myotonic dystrophy, or DM1. We anticipate top-line data from this phase II proof-of-concept study in the fourth quarter of 2023. Regarding pediatric narcolepsy and a pediatric indication for WAKIX, our partner, Bioprojet, received a positive opinion from the European Medicines Agency, or EMA, Committee for Medicinal Products for Human Use, or CHMP, last month with an approval for pediatric narcolepsy indication expected by the EMA within 60 days of the positive CHMP opinion. We will now work with Bioprojet on a path forward towards the submission of a supplemental NDA for pediatric narcolepsy to the FDA.
Finally, regarding our efforts in pursuit of pediatric exclusivity, which represents a different regulatory pathway compared to gaining a pediatric indication, we received feedback from the FDA and additional guidance based on that request for a pediatric written request, which we submitted in the third quarter of 2022. Based on this feedback, we will now prepare a Proposed Pediatric Study Request and submit it to FDA to gain alignment with the agency in our pursuit of pediatric exclusivity for WAKIX. We will provide an update on our interactions with the FDA later this year. To conclude, we have made significant progress in advancing our clinical development programs with pitolisant and look forward to providing you with further updates later this year.
I also wanna take a moment to thank all the patients and their families who are participating in our clinical trials, as well as the clinical investigators for all of their efforts and commitment in helping us to advance our development programs for pitolisant. I will now turn the call over to our CFO, Sandip Kapadia, for an update on our financial performance. Sandip?
Sandip Kapadia (CFO)
Thank you, Jeff, and good morning, everyone. This morning, we issued our fourth quarter press release and filed our 10-K, where you'll find the details of our fourth quarter and full year 2022 financial and operating results. Our financial performance is also shown on slides seven, eight, and nine. We finished the year strong and delivered growth across several of our key metrics. We reported strong net revenue growth for the quarter and full year, as well as achieved our second full year of profitability. In addition, we continued to generate cash from operations and remain well-positioned to execute on our three-pillar growth strategy. Let me take a moment to take you through our results in detail.
For the fourth quarter of 2022, we reported net revenues of $128.3 million, compared to $91.2 million in the prior year quarter, representing a growth of 41%. On a full year basis, we delivered net revenues of $437.9 million, a 43% increase over 2021. Our performance reflects the strong underlying demand for WAKIX. In the fourth quarter of 2022, operating expenses were $53.8 million compared to $44.8 million in the prior year quarter, with full year 2022 operating expenses of $234.2 million. The higher operating expenses were primarily driven by our ongoing commercialization of WAKIX and advancement of our clinical development programs. Operating income improved both on a quarterly and yearly basis.
We reported fourth quarter 2022 operating income of $47.6 million compared to $28.6 million in the prior year quarter, representing an increase of 66%. On a full year basis, operating income was $120.2 million compared to $87.5 million in 2021, representing a year-over-year increase of 37%. Non-GAAP adjusted net income for the fourth quarter of 2022 was $61.9 million or $1.01 per diluted share, compared to $30.4 million or $0.50 per diluted share in the prior year quarter. Non-GAAP adjusted net income for the full year of 2022 was $183.5 million or $3.00 per diluted share, reflecting our strong revenue growth and prudent expense management. We believe non-GAAP adjusted net income better reflects the underlying business performance.
Please see our press release for a reconciliation of GAAP to non-GAAP results. During the fourth quarter of 2022, we generated approximately $27 million of cash from operations and end of the year with $345.7 million of cash equivalents, investment securities. On a full year basis, we generated approximately $145 million of cash from operations. Excluding the $30 million licensing fee, part of the 2022 LCA with Bioprojet that was paid in the fourth quarter, cash from operations for the fourth quarter and full year were approximately $57 million and $175 million, respectively. Regarding the outlook of our business, we have demonstrated consistent performance for the past three years across several of our key metrics and feel this is sufficient to appropriately model our business.
For the full year of 2023, we expect another strong year of revenue growth for WAKIX and remain confident in WAKIX being a potential $1 billion+ franchise in the years to come, along with narcolepsy and other indications. With respect to Q1, we expect the typical industry-wide headwinds from higher gross to net deductions and normalization of trade inventories. However, we do expect strong year-over-year net revenue growth for Q1. With respect to expenses, we expect to continue to invest in R&D and SG&A as we advance our clinical development programs and support the strong commercialization of WAKIX. Finally, a comment on our tax rate. We have used up the majority of our Net Operating Losses, and thus we expect our go-forward tax rate to be in the mid to high 20% range.
In conclusion, we're very pleased with our strong financial performance, which further strengthens our company profile of growth and profitability, enabling us to execute on our three-pillar growth strategy. With that, I'd like to turn the call back to Jeff for his closing remarks. Jeff?
Jeffrey Dayno (Interim CEO and CMO)
Thank you, Sandip. In summary, our strong performance in 2022 positions us well to execute on our strategy. With a strong commercial performance and anticipated future growth of WAKIX and narcolepsy serving as our foundation, we look to our lifecycle management programs to drive additional growth for Harmony in the coming years. With active pitolisant development programs in idiopathic hypersomnia, Prader-Willi syndrome, and myotonic dystrophy, along with HBS-102, Harmony is poised to extend our value proposition beyond narcolepsy into other rare diseases with diagnosed patient populations collectively that exceed 100,000 patients, which would more than double our diagnosed patient opportunity. Couple this with development programs for our new pitolisant-based assets and an opportunity to introduce new treatment options for people living with narcolepsy and potentially other rare neurological diseases, we are excited about the future growth potential for the organization.
We have deep talent across our organization and a solid balance sheet and are effectively positioned to achieve the next level of growth. This concludes our planned remarks for today. Thank you for joining our call. 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)
Yes, sir. 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. Again, to ask a question, please press star one. We'll take our first question from François Brisebois with Oppenheimer.
François Brisebois (Managing Director)
All right. Thanks for taking the questions, congrats on the quarter. Just a couple here. I was just wondering, any thoughts going forward? I know we've talked about the growth, the revenue and the commercial opportunity here has been pretty linear. I was just wondering, any thoughts about, you know, at this point it's been launched for a while. Any thoughts about giving certain guidance?
Jeffrey Dayno (Interim CEO and CMO)
Franc, good morning, Franc, thanks for your question. In terms of, you know, guidance, I think that, you know, our underlying business fundamentals remain strong and, you know, as you heard in our remarks for, you know, for this year, we expect continued growth for WAKIX and believe that, you know, the large market opportunity remains in narcolepsy. Along with the differentiated product profile of WAKIX, it provides us the ability to grow the brand for years to come. With that, I'll ask Sandip to comment a little further around your question.
Sandip Kapadia (CFO)
Yeah, thanks, Jeff. I, you know, look, Franc, overall, we've demonstrated, as you mentioned, pretty consistent, you know, performance over the past three years, and we feel that that's, you know, sufficient in terms of, you know, at least for modeling purposes going forward. Again, we continue to believe there's a large untapped opportunity. There's certainly growth for many years to come. I think we're continuing to remain confident in the outlook for WAKIX. We think it's a potential plus franchise in the coming years with narcolepsy and other indications.
François Brisebois (Managing Director)
Okay. Thank you very much. Then just on the seasonality of first quarter, I know it's a kind of a normal thing in this space that happens, but I think last year there might have been, you know, a little different aspect to it that affected the number of patients added on, you know, not just the gross to net, but on the number of patients maybe related to the pandemic. I just wanted to make sure, you know, in terms of the outlook, is this something that you would expect again, or is this more of a natural gross to net kind of impact here?
Jeffrey Dayno (Interim CEO and CMO)
Yeah, sure, Franc. I'm gonna ask Jeff Dierks to comment on that question. Go ahead, Jeff.
Jeffrey Dierks (Chief Commercial Officer)
Good morning, Franc. Yeah, to answer your question, we do expect to face the same seasonal payer dynamics that, you know, you expect to see in Q1 every year. The higher gross to nets, the higher co-pay, Medicare out-of-pocket support, inventory normalization, and, you know, the traditional typical prescription reauthorization headwinds. We did have a couple of one-time events last year, which we do not anticipate this year. As Sandip and Jeff have shared, looking into Q1, we do expect year-over-year growth in the quarter and continued growth in the average number of patients for WAKIX. As we enter that fourth year of commercialization, as Sandip has shared, we kind of have an anticipated rhythm to our business.
We've been able to demonstrate that for the last three years. We're really excited about the growth opportunity in 2023 and for years to come. I think our current performance really affirms our long-term growth outlook for the brand.
François Brisebois (Managing Director)
Okay, great. Just I'll cheat here and sneak a quick one here. I just feel like I have to. Any color on the CEO search guidance for a permanent CEO or is this, you know, potentially an interim turning into permanent for Jeffrey?
Jeffrey Dayno (Interim CEO and CMO)
Yeah, Franc, let me respond to that. Thanks for the question. Obviously with regards to the CEO position, you know, this is a board decision and I won't speak on behalf of the board. We'll provide an update, you know, as appropriate once the board shares their plan on this issue. You know, that being said, the board has expressed their confidence in myself and the full management team, and we're all focused on the business at hand and executing on our three-pillar growth strategy. You know, as I've shared, you know, Harmony remains a growth story and our focus, you know, on the advancement of our lifecycle management programs for pitolisant, acquisition of new assets and business development to build out our pipeline, in addition to our strong underlying business fundamentals of WAKIX and narcolepsy.
With that as our focus, you know, I'm well-positioned to lead the company forward and I'm really excited to work with a very talented management team and the broad talent across our organization.
François Brisebois (Managing Director)
Perfect. Thank you very much. Congrats on the quarter again.
Jeffrey Dayno (Interim CEO and CMO)
Thanks, Franc.
Operator (participant)
Thank you. Our next question comes from David Amsellem with Piper Sandler.
David Amsellem (Managing Director and Senior Research Analyst)
Hey, thanks guys. Just had a couple. First, just curious if you can talk about how many of the WAKIX prescribers are actually enrolled in the oxybate REMS. What I'm trying to get at here is the extent to which you're capturing docs and patients who are oxybate resistant or oxybate hesitant. Can you talk about that mix? That's number one. Number two is a longer-term question. As you think about the potential availability way down the road of orexin agonist or a product like Axsome's reboxetine, how do you think that impacts the longer-term trajectory of WAKIX, if at all? Thank you.
Jeffrey Dayno (Interim CEO and CMO)
Sure, David, thanks for your questions. With regards to the oxybate REMS and the HCPs in the REMS, it's a really interesting dynamic and I'll let Jeff Dierks, you know, comment on that really interesting dynamic. We, you know, our physician universe that we're covering is much broader, compared to the number of docs, you know, in the oxybate REMS. Jeff, you wanna expand on that?
Jeffrey Dierks (Chief Commercial Officer)
Sure. Thanks, David. When you're looking at WAKIX prescribers, to your point, we have penetrated the, you know, the vast majority of the oxybate REMS-enrolled healthcare professionals. Based on publicly available data, there's probably about 4,000-ish that are in that area. To Jeff Dayno's point, we're also penetrating, you know, into that 5,500 other healthcare professionals that are not REMS enrolled. That really allows us to tap into a broader patient opportunity. That really speaks to the differentiated product profile. The fact that it's non-scheduled, you can write the product with a refill.
We believe that, you know, even with what's going on in the oxybate marketplace with generics and, you know, potential launch of Avadel's FT218 in the future, we're well-positioned for continued growth and we're really excited about the growth opportunity that we're seeing. The oxybate REMs-enrolled doctors as well as those that are beyond that space. From a patient population, we've disclosed publicly that, you know, there are a subset of patients that are on both oxybate and WAKIX. It's, you know, looking in the teens, you know, the low double digits. Certainly we do capture patients that are, you know, treatment resistant to stimulants, to wake-promoting agents, to oxybate.
WAKIX really has a very unique profile that can really help in that treatment algorithm, whether you've had experience with those traditionally scheduled products that are controlled substances or are naive to WAKIX. Thinking about the future landscape, David, I think given the uniqueness of WAKIX, we're well positioned both in the short term and the long term for continued sustainable growth. You know, I think the fact that it's a non-scheduled treatment option, as we talked about, it's the only non-scheduled treatment option approved for both EDS and cataplexy. We have pharmacokinetic data that can show it can be used concomitantly with, you know, wake promoting agent modafinil and oxybate. The profile is well positioned for healthcare professionals. And lastly, as you know, that this is a very difficult disease to manage.
This is very much a polypharmacy market. I do believe that from what I understand, the synergistic benefits of looking through, you know, and within hypocretin and histamine, I think WAKIX is well positioned as future potential products come into the marketplace. The big opportunity, lots of brands. I think what you see every year, David, is all boats rise, all brands are growing. We're really excited about the difference that we're making in the lives of people living with narcolepsy.
Jeffrey Dayno (Interim CEO and CMO)
David, I would just add in terms of your second question, you know, we keep a close eye obviously on, you know, development programs and, you know, with the new assets. As we all know, you know, the Orexin 2 agonist and orexin is sort of the next novel target in the field. Those programs are early. Obviously there are connections between histamine neurons and hypocretin neurons, you know, mechanistically to what Jeff was saying. Reboxetine, not necessarily a novel mechanism in terms of, you know, how that operates, but we will keep a close eye on those programs and WAKIX will continue to be a differentiated product profile, you know, in this market.
You know, I think able to use either as monotherapy or concomitantly with other treatments now and in the future.
David Amsellem (Managing Director and Senior Research Analyst)
Okay. Helpful. Thank you.
Jeffrey Dayno (Interim CEO and CMO)
Thanks, David.
Operator (participant)
Thank you. Our next question comes from Chris Howerton with Jefferies.
Jeffrey Dayno (Interim CEO and CMO)
Morning, Chris.
Hey. Good morning.
Chris Howerton (Equity Research Analyst)
Yeah. Hey, good morning. Thanks so much for taking the questions. I guess I had two. One was on kind of the, I know we talked a little bit around the first quarter dynamics. I guess I was wondering, you know, with respect to plan resets, would you expect that to impact existing patients or the addition of new patients in terms of the first quarter numbers? That's question one. Question two is if you could just give us a little more color around the status of the pediatric narcolepsy package. Can you remind us, you know, are you gonna do any clinical work or is it just sufficient to take the Bioprojet data to the FDA? Thanks so much.
Jeffrey Dayno (Interim CEO and CMO)
Sure. Thanks for your questions, Chris. I'll, you know, Jeff will address the Q1 dynamics.
Jeffrey Dierks (Chief Commercial Officer)
Good morning, Chris. Your question in terms of the seasonal payer dynamics impacting new or existing, typically what you see across all pharma and across the industry is typical headwinds are with the reauthorizations. As insurance reset and you're a chronic patient on medication year over year, you know, that resets whether you're taking a proton pump inhibitor, cholesterol, diabetes, antidepressant, narcolepsy. What you see is you do get some headwinds in January. You know, one in four Americans changes insurance every year, so there's gonna be paperwork churn. As reauthorizations come up, you also have a subset of existing patients. That's something traditionally felt in January. You get beyond it in February. We traditionally start to see a very strong March coming out of the first quarter leading into a stronger Q2.
you know, even with that Q1 seasonality, Chris, we've talked about, we do expect revenue growth on a year-over-year basis for Q1 and continued growth in the average number of patients on WAKIX in Q1.
Jeffrey Dayno (Interim CEO and CMO)
Thanks, Jeff. Chris, with regard to your second question about the, you know, the pediatric indication, let me provide some clarity on this. I think as we shared on the call, you know, our partner, Bioprojet, received a positive opinion from the CHMP, you know, last month, and they're expecting an approval for pediatric indication in Europe, with, you know, within about the next month or two. With that, we're working with Bioprojet, you know, on a path forward to prepare a supplemental NDA to submit to FDA for a pediatric indication. That will not require any additional development work with regards to potential indication. We will need to take sort of the European filing and prepare a submission that's appropriate for the FDA.
While that's happening, I also want to, you know, comment on a parallel path with regards to pursuing pediatric, you know, exclusivity, which is a different regulatory pathway. For that, we have been engaged with FDA, have gotten feedback, you know, last month on what that would require. That would require additional clinical development work, which is what needs to be done, to get pediatric exclusivity. There's discussion about what trial or trials is needed. You know, we've had that engagement, and based on that feedback, the clinical team is preparing the regulatory team, what's called Proposed Pediatric Study Request. We submit that to the FDA to gain alignment of what needs to be done, to gain pediatric exclusivity for WAKIX. We'll provide an update on those interactions later in the year.
You know, as a reminder, the main commercial opportunity is in obtaining pediatric exclusivity, which would afford us, you know, if we're successful there, an additional six months of patent protection, on the back end of the IP.
Chris Howerton (Equity Research Analyst)
Yep. That's extremely helpful. Thank you to both the Jeffs.
Jeffrey Dayno (Interim CEO and CMO)
Yeah. Thanks, Chris.
Operator (participant)
Thank you. Our next question comes from Charles Duncan with Cantor Fitzgerald.
Charles Duncan (Managing Director)
Hey, good morning, Jeff and team. Thanks for taking the questions and congrats on a great quarter. Had a quick commercial question and then a pipeline. Regarding the commercial question, average patients on, I guess I'm wondering if you can provide any additional color on what you were most impressed with. Were they new patients being prescribed or persistence? That's the commercial question, then I'll come back around to the pipeline.
Jeffrey Dayno (Interim CEO and CMO)
Okay. All right. Thanks for connecting, Charles. Jeff, start on average number of patients and sort of where they're coming from.
Jeffrey Dierks (Chief Commercial Officer)
Sure. Thank you for the question, Charles. I would say I'm equally impressed with the continued addition of new patients. Again, we're entering into year four. We continue to see strong top-line prescription demand, we're also seeing very good retention on patients, right? Consistent within the category. For those patients that are staying on WAKIX, we're looking at, you know, 90%+ compliance rates, which when patients really find the right treatment in this category, you do see patients take their medication as prescribed by their doctor. You know, we're just finishing up year three. Personally, for me, I'm really impressed with both of those metrics. I think our award-winning sales team continues to deliver quarter-over-quarter. As Jeff shared, we have an extremely talented team here. You've got 200+ strong that are all working to help these patients.
I'm, you know, pleasantly pleased with both of those metrics, and I anticipate that I'll be pleased with those metrics moving forward each quarter.
Charles Duncan (Managing Director)
Okay. Then regarding the pipeline for pitolisant, TAM expansion, I guess I'm wondering if you think about idiopathic hypersomnia versus PWS, what are you most interested in? Seems like idiopathic hypersomnia in a, in a phase III should be top of mind. Can we look to PWS, timeline here in the or, actual presentation of the data and articulation of next steps to kind of raise the profile of that particular program versus IH for the potential for pitolisant going forward?
Jeffrey Dayno (Interim CEO and CMO)
Yes, sir, Charles. Great question. First of all, I would say that obviously both of those patient populations are important because they both have a significant unmet medical need, number one. You know, of the two, obviously, idiopathic hypersomnia is the near-term opportunity for us, and also the larger market opportunity, about 40,000 patients diagnosed. We're really excited about that program. We see significant interest from both the patient community and the physician community and our clinical, you know, trial sites. We'll provide an update later in the year on enrollment progress, but you know, significant momentum, near-term opportunity, significant market size. With regards to Prader-Willi syndrome, a pediatric, rare neurodevelopmental disorder, also an important development program for us, about 15,000-20,000 patients diagnosed with PWS, you know, in the U.S.
We're actively engaged in preparing end of phase II briefing document. We'll put in a meeting request and look forward to good, productive interactions with FDA on advancing that development program to a phase III trial. Both are important and to address, you know, unmet needs in those patient populations as well as in advancement of our development programs.
Charles Duncan (Managing Director)
Okay. Thanks for taking the questions, Jeff.
Operator (participant)
Thank you. Our next question comes from Corinne Jenkins with Goldman Sachs.
Corinne Jenkins (VP)
Good morning, and two for me. Maybe first, can you just share more color on the market research you cited? Particularly, I'm interested in what these physicians look like, whether they were primarily sleep specialists or general psychiatrists, and what their average patient volume was. The other question is separately, as you think about business development, and your capacity to do that, how do you think about appropriate leverage targets for the business? Thanks.
Jeffrey Dayno (Interim CEO and CMO)
Thanks, Corinne. Jeff, you wanna take the first question?
Jeffrey Dierks (Chief Commercial Officer)
Sure. Corinne, it was primary market research that we conducted back in November of 2022. Again, we included 70 healthcare professionals with and without experience, so there was no patient criteria to be eligible because we did wanna look into both those who had not yet prescribed WAKIX, as well as those that had prescribed WAKIX. Specialties included sleep specialists, neurologists, pulmonologists, psychiatrists, and some primary care doctors. Some of the specific questions that we asked them that I cited in our prepared remarks is we asked healthcare professionals how they saw their prescribing of WAKIX changing in the next six months. As I shared, the results demonstrated of those individuals with WAKIX experience, more than 95% of them stated that they would increase or stay the same with their prescribing.
Of those individuals, the subset that had not yet prescribed, almost 50% of those healthcare professionals stated an intent to prescribe WAKIX in the next six months. You know, we're really excited about what these data affirm and our belief in the future growth opportunity for WAKIX in adult narcolepsy.
Jeffrey Dayno (Interim CEO and CMO)
Yeah. Jeff, maybe Bill.
Back to you for the second question.
Corinne Jenkins (VP)
Yeah. Thanks, Jeff.
Jeffrey Dayno (Interim CEO and CMO)
Yeah, and Corinne, your question about business development. First off, a few comments, and then I'll turn it over to Sandip for his thoughts. You know, we have a dedicated business development team and continues, you know, they're really active evaluating the BD landscape and potential opportunities. Importantly, you know, we're in a solid financial position to execute on business development. We have a strong cash position, as we said, approximately $346 million at year-end, you know, last year. Also, you know, BD continues to be an important priority for us. It's a target-rich environment, but we're also remaining disciplined in our approach to business development.
We wanna be strategic in our approach in our decision-making, so when we do announce a deal, it'll make sense and be a good fit for Harmony. In terms of our capacity, and I'll turn it over to Sandip, some thoughts there.
Sandip Kapadia (CFO)
Sure, Jeff. you know, as you mentioned, we have $346 million approximately of cash equivalents. I think the other thing is we continue to generate, you know, positive cash flow from operations, you know, as I mentioned on the call. You know, last quarter with beyond the $30 million that we paid out to Bioprojet, but, you know, we generated about $57 million, you know, there, in incremental cash. We'll be generating cash going forward. I think, you know, clearly the profile of the company provides us the opportunity to look at leverage.
I think the way I think about it is, look, we also have, in addition, we also have the $100 million, you know, delayed draw from Blackstone that we could also draw on, which would also be additional debt capital. Generally, as I think about it, you know, I think much as an asset is much closer to market, you know, I'd be more comfortable with taking on additional leverage. I think if it's an earlier asset, we could probably pay it from what we have, you know, internally in the cash generation. I think our ability as we get, you know, our top line grows and we have increased profitability also gives us even the cash flow to be able to look at multiple different options.
Not only just leverage, but, you know, there are many other options that we could certainly consider as a company.
Corinne Jenkins (VP)
Thanks, Sandip.
Sandip Kapadia (CFO)
Thanks, Corinne.
Operator (participant)
Thank you. Our next question comes from Ami Fadia with Needham.
Ami Fadia (Managing Director)
Good morning. Congrats on the nice quarter. I've got two questions. Firstly, can you talk about where you see some Thanks.
Jeffrey Dayno (Interim CEO and CMO)
Sure. Ami, thanks for the question. Can you repeat the first one? We lost you for a few seconds there on your first question.
Ami Fadia (Managing Director)
Sure. The first question is, if you could sort of qualitatively give us a sense of where growth will come from for WAKIX. You know, you'd expanded your reach for your sales force last year, and sounds like you're seeing the benefits of that come through. Going forward, where do you see growth come? Also in that, sort of in that context, if you could talk about the number of patient adds you see coming up in the upcoming quarters, whether you think 300-400 patient adds could be maintained going forward. Thanks.
Jeffrey Dayno (Interim CEO and CMO)
Okay. Sure, Ami. All right. All right. Jeff Dierks, wanna respond to that?
Jeffrey Dierks (Chief Commercial Officer)
Sure. Ami, for your first question, just in terms of looking at, you know, where we see growth coming from in the future, I think as we've shared, there is still a large patient opportunity remaining. I think where we see growth coming from, we anticipate we're still gonna be continuing to add new prescribers on a very regular basis, quarter-over-quarter. We also expect growth within existing prescribers. Certainly, we know that there are appropriate patients, adult patients living with narcolepsy in those practices as well that have yet to have a discussion with their healthcare professional about WAKIX. You know, with our expanded field sales team, we can now reach the target group of about 9,500 narcolepsy treating healthcare professionals.
We see growth coming from both new as well as existing writers, so in continued growth in depth and breadth of our prescriber base. You know, with respect to average patient growth, obviously, we're not providing guidance looking forward. As Sandip shared, if you look backwards three years, we've been relatively consistently delivering, and I think that's probably a good thing to point back to. We still are very bullish on our ability to continue to grow. We're gonna continue to tap into that opportunity as the market allows. Certainly, we've talked about the Q1 seasonal dynamics and some of the headwinds that we would anticipate, and implications on patient adds there. We've talked about the second quarter and traditional stronger prescription growth.
Traditionally in the third quarter, you see less patient visits with a little bit of summer seasonality for chronic conditions where most patients take vacations. They're not in their offices. In the fourth quarter, you get a lot of those patients coming back in. You should expect that traditional rhythm that we've seen in the last three years, and we anticipate that in 2023 moving on, if that helps.
Jeffrey Dayno (Interim CEO and CMO)
Thanks, Jeff. Ami, with regard to your second question and our partnership with Bioprojet, and the licensing agreement for, you know, new pitolisant-based assets. You know, our thinking around that, you know, our strategy is obviously pitolisant as, you know, a novel molecule with a novel mechanism of action and WAKIX, you know, performing well in the marketplace. We're looking at, you know, opportunities and currently working with Bioprojet in new enhanced formulations, which will give us, you know, an opportunity potentially for new IP around, you know, some of the innovation in the formulation aspect of that, an opportunity to explore the dosage range more and obviously extend the runway for further development.
Thoughts there where we could initially extend the narcolepsy franchise out further with new IP using the new pitolisant-based assets. We could take the current development programs that we're working on now and then eventually move them to new formulations with a longer runway and longer opportunity in the market. Pitolisant continues to be an interesting molecule and the potential is to develop programs in additional and new patient populations based on its mechanism of action working through histamine, not just around EDS, but other symptoms we're exploring in our current programs, fatigue as an outcome, as well as the potential impact on cognition.
If, with more time in new pitolisant-based assets, that is the strategy and that's the current thinking.
Ami Fadia (Managing Director)
That's very helpful. Thank you.
Jeffrey Dayno (Interim CEO and CMO)
Yeah. Thanks, Ami.
Operator (participant)
Thank you. Our next question comes from Graig Suvannavejh with Mizuho Securities.
Graig Suvannavejh (Managing Director)
Hey, thank you very much. Congrats on a great 2022. I've got two questions. My first is just on the OpEx. The OpEx came in a bit lighter than we were looking for. It seemed to be the lightest it was seen in a several quarters. Just wondering, maybe Sandip, if you could provide us some modeling assistance, how you're looking at 2023. My second question, it does go back to the current company philosophy around providing guidance. You know, you had mentioned that you feel that you've got a good understanding of the rhythmicity of the business. The drug will be going into its fourth year of launch. Just wondering why at this point in time, you're not comfortable providing forward-looking guidance, at least on revenue. Thanks.
Jeffrey Dayno (Interim CEO and CMO)
Sandip, wanna address Graig's questions? First then OpEx.
Sandip Kapadia (CFO)
Yes. Sorry. Yeah. Just regarding the OpEx. You know, I think there was nothing unusual, I would say, in the fourth quarter. Generally, I mean, you know, it ebbs and flows with our activity overall. As we think about 2023, you know, we'll see an evolution in our expense base, yes, growing at, like, for example, on the SG&A side through additional commercialization activities that we put on. Then I think on the R&D, it's really the enrollment in our phase III program for IH, which will drive some increases overall. I would see that as more gradual increases as opposed to step changes, you know, during the quarters.
Then finally, as I mentioned, you know, I think the other thing we wanna make sure investors are also looking at is the tax rate overall. You know, we've given our success and profitability, you know, we've generated, you know, nice profitability, which obviously meant that we used up most of our NOLs. We would expect go forward tax rate to be in the 20 mid to upper 20% range. I think finally, just operating margin, we would expect that to improve as well as our top line grows.
Jeffrey Dayno (Interim CEO and CMO)
Yeah. I think Graig's, you know, second question about guidance. Graig, just, you know, you know, we feel the underlying business fundamentals are strong, and we do see... You know, you mentioned sort of the rhythmicity of the business and the consistency in the performance, and, you know, the key metrics that, you know, are provided and when Jeff Dayno talks about the commercial performance. I think that, you know, that's the feeling at this time. Sandip, you know, further thoughts on guidance.
Sandip Kapadia (CFO)
Yeah, look, I mean, we've shown a nice, consistent history, so we felt that that was appropriate in terms of being able to model the future. I think, look, historically, you know, we've seen even the analyst community, even this past quarter, you know, pretty close within $1 million or so of our actual results. We feel there's a strong understanding by the investor base of our business. You know, it's relatively consistent. You know, we have one product. Certainly, you know, continue to be confident in the outlook as there's additional growth opportunities, as both Jeff discussed and clearly the potential to be, you know, a $1 billion+ franchise in the coming years for narcolepsy. I think, you know, we'll continue to evolve that over time.
You know, certainly, you know, we could in the future, look at, you know, more formally providing guidance.
Graig Suvannavejh (Managing Director)
Thank you very much for taking my questions. Congrats again.
Jeffrey Dayno (Interim CEO and CMO)
Thanks, Graig.
Operator (participant)
Thank you. Our next question comes from Danielle Brill with Raymond James.
Danielle Brill (Managing Director)
Hi, guys. Good morning. Thanks for the questions. I guess first as a follow-up to the last one, are you comfortable then with 2023 estimates? I think it's around $580 million for the year. Just to get a bit more granularity on how we should be thinking about our models, what are your expected trends in average revenue per patient and discontinuation rates in 2023? Thank you.
Jeffrey Dayno (Interim CEO and CMO)
Let's sort of start off, address that.
Sandip Kapadia (CFO)
Sure.
Jeffrey Dayno (Interim CEO and CMO)
I think, you know, Jeff Dierks can, you know, sort of provide more color on your second question, Danielle.
Sandip Kapadia (CFO)
Sure. Look, I won't specifically comment obviously on 2023 consensus but, you know, I think, as I mentioned to Craig, you know, historically, consensus has, for the last many quarters, has been pretty close to, you know, our vicinity of our sales. You know, I believe the investment community can appropriately model our business, so we feel good about, you know, the work that you and others are doing to help inform investors overall and continue to look at opportunities. Certainly we'll evaluate that as we go forward.
Jeffrey Dayno (Interim CEO and CMO)
Okay. Jeff, you want it on Danielle's second question?
Jeffrey Dierks (Chief Commercial Officer)
Sure.
Jeffrey Dayno (Interim CEO and CMO)
Yeah.
Jeffrey Dierks (Chief Commercial Officer)
Danielle, with respect to average revenue per patient, it's kind of a function of our patient assistance program and percentage of patients on free goods. You know, one of the things that we've seen is a relatively consistent demand for our patient assistance program throughout 2022. As we continue to grow the average number of patients with a consistent PAP demand, you're gonna see potentially some slight increases in average revenue per patient, as PAP is gonna represent a smaller percentage of the overall patients on WAKIX. Obviously, in the first quarter there are some other factors as we talked about higher gross than net that you might not see.
But as we continue to grow the average number of patients over time, and we have a relatively consistent demand for PAP, you would anticipate a slight increase to the average revenue per patient over time, as our overall patient base grows. The second part of your question with respect to discontinuation rates, it's been relatively consistent since our launch. I mean, we've shared publicly available data that about 30%-50% of all patients on all treatment options by the end of 12 months tend to discontinue any of the medicines in this category. WAKIX has traditionally, and we've seen over the past three years being in that range. Obviously as a chronic condition, when patients are out 12+ months, you might see a small percentage of those patients fall off, you know, in any chronic condition.
I would anticipate what you've seen, historically in our patient base, we're anticipating similar patient medication behavior moving forward.
Danielle Brill (Managing Director)
That's helpful. Thank you.
Jeffrey Dayno (Interim CEO and CMO)
Thanks, Danielle.
Operator (participant)
Thank you. At this time, I show no further questions in queue. I would now like to turn the call back to Jeff Dayno for any additional or closing remarks.
Jeffrey Dayno (Interim CEO and CMO)
Thank you, Todd, and thanks to everyone for your interest in Harmony. We finished 2022 on a strong note and look to build on that momentum in 2023 as we execute on our three-pillar growth strategy. We look forward to updating you on our progress on future calls. Thank you and have a great day.
Operator (participant)
This concludes today's Harmony Biosciences fourth quarter and full year 2022 financial results conference call. You may now disconnect your line and have a wonderful day.