Harmony Biosciences: Why I Am Adding More Shares

There is nothing that war has ever achieved that we could not better achieve without it."― Havelock Ellis

Today, we put Harmony Biosciences Holdings (NASDAQ:HRMY) in the spotlight. The company posted solid fourth quarter results in late February. With the stock down by some 30% from recent highs, is now the time to buy the dip? An analysis follows below.

Company Overview:

Harmony Biosciences Holdings is focused on developing and commercializing therapies for patients with rare neurological disorders. This small biopharma concern based just outside of Philadelphia. Currently the stock trades just above $41.00 a share and sports an approximate market value of $2.45 billion.

Harmony's primary asset is called WAKIX, and is also known as pitolisant. This compound is licensed from a company called Bioprojet and is FDA approved for the treatment of excessive daytime sleepiness or EDS or cataplexy in adult patients with narcolepsy. WAKIX is a selective histamine 3 (H₃) receptor antagonist/inverse agonist that is rapidly taking market share thanks partly to its once a day dosing feature, in what is an approximate $2 billion market. Unlike other entrants on the market, WAKIX does not contain sodium, which is not conducive for heart disease patients

Other than some pre-clinical development, Harmony is almost entirely dependent on the success of WAKIX, which it is also developing for other indications as can be seen above. Management gave the following update around its pipeline progress within the press release that accompanied the company's recent fourth quarter results:

• Continued strong momentum in patient enrollment in the Phase 3 registrational trial (INTUNE Study) in adult patients with IH, with approximately 85% of the planned clinical trial sites activated.
• Received the full data set from the Prader-Willi Syndrome ("PWS") Phase 2 proof-of-concept study at the end of 2022, which we are analyzing in preparation for an end-of-Phase 2 meeting with the U.S. Food and Drug Administration ("FDA") to discuss the results. We intend to advance our development program in patients with PWS to a Phase 3 trial.
• Enrollment continues in our Myotonic Dystrophy ("DM1") study. We anticipate top-line data from this Phase 2 proof-of-concept trial in the fourth quarter of 2023.
• Regarding a pediatric narcolepsy indication, our partner Bioprojet received a positive opinion from the European Medicines Agency's ("EMA") Committee for Medicinal Products for Human Use ("CHMP") on January 26, 2023, and expects an approval for a pediatric narcolepsy indication from the EMA within 60 days of the positive CHMP opinion. We intend to work with Bioprojet on a path forward towards the submission to FDA of a supplemental new drug application for pediatric narcolepsy.
• Regarding pediatric exclusivity, we received feedback from the FDA on our Pediatric Written Request and will use this to prepare a proposed pediatric study request to submit to FDA in order to gain alignment with the agency, in pursuit of pediatric exclusivity for WAKIX.

Fourth Quarter Results:

On February 21st, Harmony Biosciences posted its fourth quarter numbers. The company had Non-GAAP profits of $1.01 a share, which bested analyst expectations by nearly a quarter a share. Revenues rose just over 40% on a year-over-year basis to $128.3 million, slightly beating the consensus. The average number of patients on WAKIX increased to ~4,900 from approximately 4,600 in the third quarter of 2022. This concluded a solid year of growth for the company.

Analyst Commentary & Balance Sheet:

Since fourth quarter numbers posted, both Mizuho Securities ($60 price target) and Needham ($67 price target) have reissued Buy ratings on the stock while Goldman Sachs ($43 price target, down from $49 previously) maintained its Neutral rating around Harmony Biosciences.

Just under 15% of the outstanding float in the shares is currently held short. The company ended FY2022 with just over $345 million in cash and marketable securities on its balance sheet against approximately $190 million of long-term debt. There has been no insider activity in Harmony's stock so far in 2023.

Verdict:

The current analysis firm consensus has Harmony making $2.54 a share in profits in FY2023 as sales rise 33% to nearly $585 million. In FY2024, they project earnings of $3.64 a share on revenue growth of just over 25%.

Harmony Biosciences game plan is pretty straight forward going forward. Continue to gain market share for WAKIX for its approved indications, move to garner additional approved indications for the compound over time, and strategically pick up developmental assets if opportunities present themselves.

The company is solidly profitable, has good growth prospects and Harmony's balance sheet is in good shape. Given this, the stock is more than reasonably valued after an approximate 30% pullback in the shares since late last year. This goes for just over 16 times this fiscal year's projected earnings and approximately 11.5x FY2024 profit projections. I plan to add to my stake in HRMY via covered call orders in the week ahead.

War is always an adventure to those who've never seen it."― Anthony Ryan, Blood Song

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