Ladies and gentlemen, thank you for standing by and welcome to the Harmony Biosciences Third Quarter 2021 Financial Update Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Patti Bank. You may begin.

Thank you, operator. Good morning everyone and thank you for joining us today as we review Harmony Biosciences third quarter 2021 financial performance and provide a business update. Before we start, I encourage everyone to go to the Investors Section of the Harmony Biosciences website to find the press release and slides that accompany our discussion today, including a reconciliation of our GAAP to non-GAAP financial measures. At this stage of our lifecycle, we believe non-GAAP financial results better represent the underlying economics of our business. Our presenters on today's call are John Jacobs, President and CEO; Dr. Jeffrey Dayno, Chief Medical Officer; Jeffrey Dierks, Chief Commercial Officer; and Sandip Kapadia, CFO. Moving onto 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 and our actual results may differ materially. I 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 Harmony Biosciences' CEO, John Jacobs. John?

Thank you, Patti. And I would also like to extend my sincere thanks to all of the participants for joining our third quarter 2021 conference call today. We are three quarters through the year and I'm extremely pleased with the progress our team has made to date. Please allow me to elaborate on our achievements in the context of our three pillars growth strategy, which is shown on slide number three. Pillar one is to optimize the commercial performance of Wakix. Q3 represented our seventh quarter of consecutive growth for Wakix and another strong quarter for Harmony, as we delivered almost $81 million in net sales, our strongest quarter to date. This significant growth, nearly 77% versus Q3, 2020, was driven by a continued increase in the average number of patients on Wakix and in the number of healthcare professionals prescribing the product. We believe this reflects greater awareness of the unique mechanism of action of Wakix and a product profile that aligns well with the existing unmet needs of narcolepsy patients. Moving onto pillar two, which is to expand the clinical utility of Wakix beyond narcolepsy. We continue to advance our clinical programs in Prader-Willi Syndrome, or PWS, and myotonic dystrophy, or DM, two additional rare disease patient populations beyond narcolepsy, both of which have significant unmet medical need and where there are no or limited approved therapies. We are also continuing to evaluate additional indications for pitolisant in other rare neurological diseases. We intend to broaden our lifecycle management efforts for this unique product consistent with our strategy for long-term growth. And finally, pillar three, acquire new assets to expand our portfolio beyond Wakix. Our business development strategy is intended to transform Harmony into a multi-product company with a robust catalyst rich pipeline of innovative therapies at various stages of development, with the potential for launch both during and after Wakix lifecycle. We announced in August that we acquired HBS-102, a melanin-concentrating hormone receptor 1 antagonist, which is the first additional asset in our pipeline beyond Wakix. This is the first example of how we intend to evolve Harmony's pipeline into a portfolio of innovative therapies focused on rare neurological diseases. HBS-102 may be our first acquisition, but our intention is that it won't be our last. An important aspect of this pillar is that we intend to focus on assets where we can leverage our existing expertise and infrastructure, which should enable us to optimize development and launch, while managing costs. Importantly, the strategic financing collaboration with Blackstone that we announced last quarter provides us with additional access to capital, which should further enhance our ability to execute on this key pillar for future growth. Finally, our dedicated business development team continues to assess opportunities that are aligned with our strategy, and we look forward to sharing further progress in this area on future calls. On that note, I would like to turn the call over to Jeff Dierks, our Chief Commercial Officer.

Thanks, John. We saw another strong quarter of performance for Wakix in Q3, in line with our expectations as measured by the key performance metrics noted on slide four. Net revenue for the third quarter was $80.7 million, representing a 9.3% increase from the second quarter 2021 and a 77% increase from the third quarter of 2020. Despite the expected summer seasonality or across the industry, there is a lower overall patient foot traffic to physician offices due to vacations and holidays, we continue to see strong organic growth for Wakix in Q3. We observed an increase in top line prescription growth at the end of the quarter in September and we anticipate continued growth in Q4 to close out 2021. Moving onto slide five. The average number of patients on Wakix increased approximately 10% from what we reported in the second quarter to approximately 3,500 patients. The consistent growth in the average number of patients on Wakix quarter-over-quarter demonstrates continued strong demand for Wakix and speaks to how the meaningfully differentiated product profile aligns well to the unmet needs of the narcolepsy market. Our strong commercial performance continues to be driven by the following key factors. First, we saw continued access to healthcare professional offices for our field sales team. We've seen consistent in-person access to healthcare professional offices over the past two quarters, with about two-thirds of all field sales engagements with healthcare professionals in-person providing a more meaningful education exchange for branded products still in launch phase. As noted earlier, despite the strong access to healthcare professional offices, we did see patient foot traffic decrease from Q2 levels, which is reflective of the expected summer seasonality of increased vacations and holidays. We are encouraged by the continued access to healthcare professional offices, coupled with increased patient foot…

Thanks, Jeff and good morning, everyone. Before turning to an update on our clinical development programs, I would first like to highlight some data and evidence that lend support to the commercial performance of Wakix that Jeff just spoke to based on the overall benefit risk profile of Wakix, which supports its broad clinical utility for adults living with narcolepsy. In September, as highlighted on slide seven, the American Academy of Sleep Medicine published an updated clinical practice guideline, which includes Wakix as a recommended treatment option for adults living with narcolepsy. This new practice guideline was published in the Journal of Clinical Sleep Medicine in a special article titled Treatment of Central Disorders of Hypersomnolence, an American Academy of Sleep Medicine clinical practice guideline and was accompanied by another article titled Treatment of Central Disorders of Hypersomnolence, an American Academy of Sleep Medicine Systematic Review, Med Analysis and Grade Assessment. Together, these papers provide practice recommendations and the evidence base in support of those recommendations for the treatment of narcolepsy and other central disorders of hypersomnolence. The new guideline updates and replaces the previous AASM guideline published in 2007 and now includes Wakix as a strong recommendation for the treatment of narcolepsy in adults, based on data that showed clinically significant improvement in excessive daytime sleepiness and cataplexy in patients treated with Wakix. Of all the currently approved treatments for adult patients with narcolepsy, only two products received a strong recommendation by the AASM based on clinically significant improvement for both EDS and cataplexy and Wakix is one of them. A second point of evidence that I would like to highlight is from a poster that Harmony presented at the Annual Sleep Meeting in June, entitled Assessment of the Clinical Impact of Pitolisant on Excessive Daytime Sleepiness and Cataplexy…

Thank you, Jeff and good morning, everyone. This morning we announced and issued our third quarter 2021 press release and filed our 10-Q, where you'll find the details of our financial and operating results. Our third quarter performance is shown on slide 12 and 13. We, once again, posted our highest quarterly net revenues to date with our third quarter results, while continuing to effectively manage our investment and posted continued operating income growth. I'm pleased with the momentum we're seeing. For the third quarter of 2021, we posted $80.7 million of net revenues for Wakix as compared to $45.6 million in the prior year quarter. This represents a growth of 77% versus the prior year quarter. This is also a 9.4% increase from Q2, 2021, where we had net revenues of $73.8 million. We're pleased to see the continued growth in average number of patients, especially during a quarter where we typically see seasonality with lower patient visits to physician offices. The third quarter 2021 gross profit was $66.1 million versus $37.7 million in the prior year quarter. Third quarter operating expenses were $45.1 million versus $27.3 million in the prior year quarter. The growth in operating expenses continues to be driven by our commercialization of Wakix and the advancement of our pipeline programs. As a result, underlying operating profitability improved as well and we posted third quarter 2021 operating income of $21.1 million, which compares favorably to operating income of $10.4 million in the prior-year quarter. For the current quarter, we did incur a one-time $26.1 million loss on the extinguishment of our prior debt facility with OrbiMed. This contributed to a net loss of $9.6 million for the third quarter. Non-GAAP adjusted net income for the third quarter was $30.4 million or $0.51 per diluted share versus…

Thank you, Sandip. I hope you can see that 2021 has been a successful and busy year so far for our company, with advancements being made on all three pillars of our growth strategy. In Q3, we delivered our seventh quarter in a row of consecutive sales growth, which represented our best quarter yet in company history. We continued to advance our clinical programs to expand the utility of Wakix beyond narcolepsy, and we are working diligently to assess additional opportunities to expand our pipeline of rare neuro assets beyond Wakix as we look to grow Harmony into a leading neurological disease company in the future. This concludes our planned remarks today. Thank you for joining our call, and I will now turn things back over to the operator to facilitate questions and answer. Operator, can we please open the call to questions?

Thank you. Our first question comes from the line of Chris Howerton. Your line is open.

Hi. Good morning. Thank you so much for taking the questions and congratulations on the continued progress here. So, I guess, maybe for me -- yeah, absolutely. So maybe two quick questions for Jeff Dierks and then one for the other Jeff, Jeff Dayno. For the commercial side, I guess, from a coverage perspective, Jeff, could you give us some color in terms of what percentage of plans that you've experienced thus far have either one or two step edits? Just a little more information there on some of the access that you’re experiencing. The second question also related to access, when do you expect kind of to get above that 80% of covered lives? Do you expect that to increase next year? And kind of where would you like that to be? And then the third one, a quick one should be for Jeff Dayno which is, I know that there's been some question about what the status and expectation would be for the pediatric narcolepsy trial. So, just curious if you had any updates on that then. Thank you.

Thank you Chris for your question. Jeff Dierks, why don't you take those first two questions?

Sure. Thanks Chris. So, with respect to your question on the percentage of plans that have one or two generic step edits in place. What I can speak to is the vast majority of plans for especially type 2 narcolepsy patients have either a wake promoting agent and/or a stimulant as a generic step edit prior to getting Wakix. When you're looking at the type 1 lives, what we've seen since October of 2020 with the approval of the cataplexy indication, those one or two generic step edits that existed for those patients have become less frequent. So, the vast majority of lives within the type 1 audience have either zero or one generic step edit. So hopefully, that gives you a little bit of context. I would tell you, it's likely the vast majority in type 2 have one or two generic step edits. And then the vast majority in type 1 have zero or one generic step edits ahead of them. Your second question on covered lives. So, we do have and reported about 80% of all U.S. insured lives have documented formulary access for Wakix across commercial, Medicare Part D and Medicaid. And when I talk about 80% covered lives, Chris, those are plans that have documented published policies that I can point to in the public domain that you can see the actual formulary position of Wakix. The other 20% of plans that don't have a documented or published policy still have a path forward to getting Wakix approved through letters of medical necessity or medical exception. So in essence, almost all patients, adult patients living with narcolepsy have access for Wakix. The 20% of plans that do not have a published policy, it's hard to determine if and when they may actually ever publish a policy. But I think the important thing and the takeaway for you, Chris, is that almost all the vast majority, if not all, adult patients living with narcolepsy have access to Wakix, whether it's a published or a non-published formulary policy. So hopefully, that helps.

That is helpful. Yeah.

That's not unique to Wakix that type of payer pattern. You may want to just comment on that?

Sure. No, that's a good point, John. So, the other thing that's important, Chris, is our goal was always to achieve 80% of published formulary coverage. And we achieved that very quickly. Our market access team had done an amazing job. It secured early favorable market access. But that 80% threshold has always been the target that we achieved. And then to John's point, that's stereotypic and a target across the industry that most brands seek to achieve.

Thank you, Jeff. And then Jeff Dayno, Chris's third question, pediatric narcolepsy.

Yeah. Sure. Yeah. Good morning, Chris. So, with regard to pediatric narcolepsy, our partner Bioprojet has been conducting a Phase 3 trial in pediatric patients with narcolepsy. And as they work to complete that trial, that data readout will be important to sort of inform our overall strategy of how to proceed and optimize a program in pediatric narcolepsy. So that's what's been happening with pediatric narcolepsy. We'll keep everyone updated as Bioprojet progresses that trial.

Okay. All right. Well, thank you very much for taking the questions and again congratulations on the progress everybody.

Thank you, Chris.

Thank you. Our next question comes from the line of Ami Fadia. Your line is open.

Hi. Good morning. Congrats again on the progress. I had a couple of quick questions. Firstly, could you talk about -- just based on how you've seen the launch progress, what is your latest thinking with regards to the number of quarterly patient add that you expect to see in the coming quarters? And then related to that, I think you mentioned that the number of prescriptions per physician that you got is really the new prescriptions. So could you talk about -- a little bit about kind of where the growth is coming from? And what is the total number of prescriptions per physician that you're seeing? And if you have a data point around the mix of new prescriptions to total prescriptions, that would be helpful.

Thank you, Ami. Well, why don't we take your first question here? And obviously, we're not providing forward-looking projections. But I think if you understand our launch at Harmony, the one thing we've experienced as a leadership team and the patient community that we're supporting is that the vast majority of our launch timeframe has been during COVID. And I think over that time, you've seen a very consistent pattern of patient adds quarter-on-quarter. In fact, seven quarters of consecutive growth we've now experienced. And this last quarter was our most successful quarter-to-date in company history. It's hard to project what might happen as COVID starts to lift. So, we don't have a crystal ball there, but we're diligently working to not let anyone down, especially those patients who are counting on us. I can let Jeff Dierks add some additional color and context to that. And then perhaps we can clarify your second question to make sure we answer that accurately. Go ahead, Jeff.

Ami, thanks for the question. Not much to add to John's response, I think it was spot on that we're extremely pleased with our continued commercial performance. As John shared, seven consecutive quarters of growth in the average number of patients and that growth has been consistent quarter-over-quarter, as John shared through the pandemic. And although, we're not providing guidance, we are encouraged by the continued strong underlying organic prescription demand that we're seeing. And it gives us a lot of confidence in continued growth moving forward in the average number of patients in quarter-over-quarter. Your second question on prescriptions, could you clarify exactly what it is you're looking for, Ami, so I can provide you maybe a better response?

Sure. Maybe to just rephrase that. Where do you see growth coming from in terms of new patient adds? And if you could tell us whether it's from new physicians prescribing a product for the first time, or is it a physician expanding the number of patients that he's prescribing the drug to? And if you could also comment on persistency of patients on drug. Thanks.

Ami, Jeff Dierks will handle that question. And we do have some market research in the slides that were provided today indicating that physicians who have experience with Wakix, the vast majority are indicating that they intend to continue prescribing and/or prescribe more Wakix. So, we're getting very positive feedback and we're seeing a lot of repeat prescribing behavior. But also as you've seen each quarter, we're adding new subscriptions for the first time as we continue to penetrate the market from an educational standpoint. I'll let Jeff Dierks add additional color and context there.

Sure. And Ami, thank you for rephrasing and clarifying. So, to answer your first question about where the growth of new patient adds are coming from. So, we are sourcing across the broad adult narcolepsy patient population. So, we are seeing newly diagnosed patients. We are seeing patients coming from all existing current treatments. Wakix is being added on concomitantly to wake promoting agents, stimulates some oxybate patients. And we're also sourcing both type 1 and type 2 patients. We are seeing patients coming from new prescribers. So, we have consistently been adding a couple of hundred new prescribers every single quarter and that continues. We've reported about 40% of the prescribing universe has already prescribed the product. We're also seeing that the majority of those patients, when they write a new prescription are quickly becoming a repeat writer, meaning they're starting a second, a third or a fourth patient. So, the organic growth we're seeing is coming from existing prescribers as well as new writers. When you're looking at patient medication behavior, so your third question about persistency. So, two elements of just patient medication behavior, one related to persistency or discontinuation. As we've shared, some of the public data suggest that compliance or the persistency or discontinuation rates of the drugs in the narcolepsy category range between about 30% to 50% at the end of the first year. So said a different way, about 30% to 50% of patients who start a medicine in this category tend to stop it by the end of 12 months. And what we see with Wakix is that the data has been very consistent with other oral narcolepsy treatments in this category. So, the discontinuation persistency that we're seeing is consistent. We have heard from healthcare professionals that they do believe that COVID-19 is likely having an additional impact on this behavior. Patients are skipping doses. They're temporarily stopping medicines. They may be hording medications just due to the economic uncertainties that has caused a number of individuals. But what we're hearing though from the physician community is that they believe that Wakix discontinuation persistency rate is consistent with other products and their perception is that it's actually even better than the other products within this category. When we talk to healthcare -- to patients and the patient community, there is a high level of compliance, meaning patients are taking the medicines as prescribed by their healthcare professional. Stereotypic compliance rates range between about 80% and 90%, meaning 80% to 90% of patients take the medicine as prescribed by their doctor. And what we're seeing within the data for Wakix that we've observed is that Wakix is on the higher end of that, closer to the 90% range for compliance rates. So, hopefully, that helps a little bit about source of business as well as some of the patient medication behavior dynamics.

Thank you, Jeff. Ami, does that answer your question clearly?

Yes. It does. Thank you so much.

Thank you, Ami. Good to hear from you.

Thank you. Our next question comes from the line of David Amsellem. Your line is open.

Hey. Thanks. So, just a few. So, in your comments, suggestive of continued quarter-over-quarter sequential growth going forward and particularly in 4Q. Is that going to be a function not only of patient growth, growth in new starts, but also improvement in gross to net? I just wanted to get a sense of how much of the growth do you expect to come from starts versus gross to net improvements. Then, thinking beyond 2021, can you just talk overall regarding the directionality of gross to net? And as we move out of the pandemic, do you expect some improvement relative to what we've seen in the past? I know you've alluded to some heavy out-of-pocket subsidization. Does that ease to some extent as we move into next year? And then, the last question, I know you get this a lot, but I figure I'd ask it anyway. Just any thoughts on idiopathic hypersomnia and when you might make a decision on whether to move forward in that setting for pitolisant. Thanks.

David, thank you for your questions. And look, as we've said before, as you're well aware, we don't provide forward-looking guidance. But obviously, your questions are very helpful in providing some context and color on how we might be thinking about the future from a different perspective. So, thank you for that. And as we said before, we continue to expect strong organic demand for our product. And really, for the vast majority of the lifetime of our launch, it's been in a COVID depressed environment at a few months of non-COVID as we launched our drug and then we're facing as everyone else. All of our colleagues in the industry, all of the patients, all of us and our families were facing the fatigue of this global pandemic hitting us. So, we really don't know what might happen in the future as it starts to lift. But we've seen this consistent strong organic demand quarter-over-quarter, even in a COVID-depressed environment. And I believe Jeff Dierks stated in his opening statements at about two-thirds, Jeff, of our calls with sales reps have been face-to-face now with physicians. And we've seen Chris Howerton's analysis on foot traffic of patients going into offices, starting to increase a bit starting in Q2. So, those are positive signs for us and we expect that continued strong organic demand. It's hard to say how that may pivot as we go into next year. The other portion of your question related to gross to net and what proportion maybe we would see benefit there versus. I'll let Sandip Kapadia, our CFO, try to address that from a gross to net perspective. Sandip?

Thanks, John. And yeah, I mean, generally, overall, as you know, from a gross to net perspective, Q1 tends to be the one where there's higher gross to net it. There's Medicare resets and co-payments and other obligations. But for the balance of the year, it tends to be fairly stable. So, we would expect gross to net at least in quarter four to be relatively stable to what we've seen in current quarters. And generally -- so, overall, we expect, as John mentioned, strong quarterly growth going into the fourth quarter.

Thank you. And then I believe, David, your last question was idiopathic hypersomnia. We've stated before that that is one of the additional indications we're currently contemplating for potential exploration with Wakix. And obviously, Wakix is not just a sleep drug or a narcolepsy drug. It's a histamine modulator and we believe a portfolio and a product opportunity. So, we continue to explore how to expand beyond narcolepsy with the product. IH is one of the indications we're considering. And as we finalize our thought process internally, we'll communicate that appropriately to the external audience.

All right. Thanks.

Thank you, David. Good to hear from you.

Thank you. Our next question comes from the line of Danielle Brill. Your line is open.

Hi, guys. Good morning and thank you so much for the questions.

Hey, Danielle.

So, I have a few. I guess, first, just kind of following up on David's question there. But with the seasonal impacts I specifically wanted to ask you about new patient starts. Do you think like new patient adds will be stronger in 4Q and in 2022 than they were in this past quarter? And then I also wanted to know if you could elaborate on some of the other metrics that might drive growth, like time to fill an average dose, are you seeing time to sale times come down and average doses go up?

Thank you. Good question, Danielle. So, one on seasonality and then the other on some of the other metrics and factors that might impact market penetration and adoption. Sandip, did you want to comment on seasonality? And then, we can have Jeff Dierks maybe add some additional context.

Yeah. Sure. I mean, generally, in Q -- we mentioned seasonality over the summer, it's a lower patient visits. We saw strong momentum as we go into Q4. We don't have specifics in terms of how we would see -- we would expect some acceleration in Q4 just coming out of the summer months. So that's the best that we can at least provide in terms of our thoughts, our thinking. And then maybe, Jeff, is there anything from a market insight perspective that you'd like to add.

Thanks for the question, Danielle. And to build on Sandip's comment, I think what we've seen in Q1 and Q3, there are some headwinds. You've got the payer dynamics in the first quarter with insurance resets, Americans changing insurances, co-payments, out-of-pocket. So, you tend to see a higher sort of headwind with respect to new patient starts there. We've just come through the summer seasonality where you've got more planned and taking vacations, more holidays, you tend to have some headwind with respect to new patient starts there. And then the second and the fourth quarter, you see a little bit of growth in new patient adds. And I would anticipate that that to be the traditional rhythm for most branded specialty products, and I would expect that to likely mirror itself in 2022.

And I think Danielle's follow-up question, Jeff, was about some other factors like the persistence, compliance, those types of factors.

Yeah. So, the other questions with respect to metrics for gross, growth in terms of strength mix and time to fill. What we've seen, Danielle, it's been relatively consistent, right? We reported net sales growth of 9.4%. The average number of patient growth was 9.4%. So, they're highly correlative, which tells you that most other underlying elements of the forecast remain relatively consistent. So, the dose mix we've had consistent with the second quarter, a little more than two-thirds of patients refilling their medicines at the highest dose to 35.6. Time to fill has been increasing in terms of decreasing the amount of time. But again, it's been relatively stable. We're extremely pleased with the operational efficiencies that we've seen in our model. That's a function of improved market access as well as other operational efficiencies. But I would anticipate those to be remaining relatively consistent and our growth be driven by new patient adds and our ability to continue to grow the average number of patients on Wakix quarter-over-quarter.

Okay. So, just to clarify. So the Rx growth that you were seeing in September, it's primarily driven by new adds, not just like patients refilling after taking the summer months off?

Correct. Some of the growth -- the early indicators that we saw at the end of the third quarter and into the fourth quarter is contingent on new patient starts, new prescriptions, exactly right, Danielle.

Okay. Great. Thank you so much for clarifying.

Thank you, Danielle.

Thank you. I'm showing no further questions in the queue. I will now turn the call back over to John Jacobs for closing remarks.

Thank you so much. And just one more moment to go back to David Amsellem's earlier question about gross to net impact, David, I want to make sure we heard you clearly. I think you might have also referenced perhaps our patient assistance program there. In the past, we have mentioned that I just want to make sure we circle back and answer that fully for you. Patient assistance, we did see an increase in demand for our patient assistance program at the height of the pandemic. I believe we communicated in prior quarters that we hadn't yet seen that start to mitigate. Jeff Dierks, any thoughts or color or context for David on that component of perhaps our gross to net?

Sure. So, with respect to utilization of our patient assistance program, David, it's been relatively consistent. It's dating back to last year and that elevated level of demand has remained in the third quarter. Importantly, though, patient assistance program is not a gross to net deduction. So, where you're looking at gross to net that is more co-pay and co-insurance for eligible commercially insured patients, but that elevated demand for patient assistance is not a gross to net implication. So, where you see gross to nets are more of the statutory rebates with Medicare, Medicaid, any commercial contracts we have, our return reserves. But I just wanted to clarify that the free goods program or our patient assistance program is not an element of our gross to net. And despite that elevated demand for our free goods program, we continue to grow strong underlying organic demand. So, we're extremely pleased with our ability to help patients both through prescriptions as well as our patient assistance program.

And over time, we'd expect that free goods program, that demand to be mitigated as the pandemic starts to lift. It won't be overnight. It will be gradual as people get reemployed and get new insurance, et cetera. And we're staying with patients, importantly, which is part of our ethos at Harmony. So, with that, I would just thank you, Jeff Dierks, for that clarification importantly to David's prior question. And I think we can end the call at this time. Thank you so much for all of your participation and sharing your time and energy with us today. We appreciate it. We'll keep working hard at Harmony to not let any of you down and not let the patients down that are counting on us every day. Thank you, everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.