Ladies and gentlemen, thank you for standing by, and welcome to the Harmony Third Quarter 2020 Financial Update Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference maybe recorded. I would now like to hand the conference over to your speaker today, Lisa Capparelli, Associate Vice President, Investor Relations.
Please go ahead, ma'am.
Thank you, Josh. Good morning, everyone, and thank you for joining us today as we review Harmony's Q3 2020 performance and provide business updates. Our presenters on today's call are our CEO, John Jacobs Chief Medical Officer, Doctor. Jeffrey Dano our Chief Commercial Officer, Jeffrey Derps and our CFO, Susan Drexler. The slides that will be presented on this call can be viewed in the Investors section on our website at harmonybiosciences.com.
Before we start, I would like to remind you that our discussions during this conference call will include forward looking statements. All statements that are not historical facts are hereby identified as forward looking statements. Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated by such statements. Additional information regarding these factors and forward looking statements discussed under the forward looking statements of the earnings press release that we issued today as well as under the heading Risk Factors in our quarterly report on Form 10 Q that we filed with the SEC. You are cautioned not to place undue reliance on forward looking statements.
The forward looking statements during this conference call speak only as of the original date of this call or any earlier date indicated in such statements and we undertake no obligation to update or revise any of these statements. We will now make prepared remarks and then we will move to a question and answer session. At this time, I would like to turn the call over to our CEO, John Jacobs. John?
Thank you, Lisa. Good morning, everyone, and thank you for joining us on our first earnings call as a public company. This has been a remarkable year so far for Harmony and for the patients we serve, And I'm proud of our team's accomplishments on another successful quarter. During the Q3, Harmony delivered a strong performance based on our ongoing successful launch of Wakeix in narcolepsy. I am pleased with our revenue performance to date as well as our efforts to grow the business and execute on our corporate growth strategy.
We came out of the gate strong with our launch for Wakeix, have continued to grow through the COVID-nineteen related challenges that are not unique to Wakeix or Harmony, and we're optimistic about the future potential of Wakeix, a clearly differentiated product with a novel mechanism of action, which provides the foundation for our continued future growth. Our performance this quarter was built upon the significant momentum we generated during the first half of twenty twenty and puts us in a position to deliver on the three pillars of our corporate growth strategy,
which
are designed to increase value and long term growth for our company and our key stakeholders. Let me now spend a few minutes walking you through the 3 pillars of our corporate growth strategy and the progress we have made to date. Our first pillar is to maintain continued strong launch performance of WAYKX in narcolepsy. Today, we reported Q3 revenue of $45,600,000 and continued growth in both the average number of patients on drug and the number of healthcare professionals or HCPs who are prescribing Wakeix quarter on quarter. The continued growth we are experiencing is a testament to the significant unmet needs in this marketplace and the unique and strongly differentiated product profile of Wakeix that addresses those needs.
Our second pillar is to expand the utility of Wakeix in rare neurological disorders by expanding our label. 1st in narcolepsy. In fact, just last month, we received the approval of the cataplexy indication, which broadens the clinical utility of Wakeix and strengthens our corporate our competitive advantage for the future. In addition, we continue to progress our plans to initiate a Phase 3 trial in pediatric narcolepsy patients in 2021. TELAR-two also includes expanding the utility of WAYKX beyond narcolepsy into other rare orphan neurological disorders starting with Prader Willi syndrome or PWS and myotonic dystrophy or DM.
I am proud to share with you that we are on track to initiate our Phase 2 clinical trial for PWS and to submit our IND for DM before the end of this year. Doctor. Dana and his team will certainly be busy as we anticipate being in 3 mid to late stage clinical trials next year. And finally, our 3rd pillar is to expand our portfolio through opportunistic acquisitions of business assets to further expand our pipeline and leverage the existing expertise and infrastructure that we've established at Harmony. We continuously monitor the landscape for future opportunistic acquisitions.
At Harmony, patients are truly at the heart of everything we do. This has been our most productive year since our inception and I'm very proud of our team and the good work we are doing to advance treatments that have the potential to make a difference in the lives of the patients who are counting on us. As we look forward to 2021 beyond, we are confident that we're well positioned to continue the strong launch of Wakeix and we are committed to advancing our clinical development programs with a goal of making WAYCX available to even more patients living with unmet medical needs. And with that, I will hand it over to Jeff Dirks, our Chief Commercial Officer. Jeff?
Thanks, John. 2020 has been an outstanding year for Harmony, and the 3rd quarter was no different. Net revenues for the Q3 were $45,600,000 representing a 20% increase quarter over quarter. With most of our customer interactions this past quarter with healthcare professionals, patients and payers being virtual, our strong performance reflects not only the resilience and commitment of our team and the overall attractiveness of the benefit risk profile of Wakeix, but also underscores the significant unmet need in the narcolepsy market and the value of Wakeix to patients and HCPs. I'd like to highlight some key performance metrics from Q3.
The average number of patients on Wakeix in the 3rd quarter increased to 2,200, representing a 22% increase from the Q2 of 2020. The growth in average number of patients Wakeix, but also demonstrates continue to increase with more than 2,000 unique prescribers of Wakeix by the end of the Q3. This represents more than 25% of the approximately 8,000 HCPs who treat the diagnosed narcolepsy population having already prescribed Wakeix since launch. And we continue to see growth in favorable market access coverage for Wakeix, with approximately 182,000,000 targeted covered lives having positive formulary access to Wakeix by the end of the Q3, with the vast majority of patients only requiring 1 or 2 generic step edits to access Wakeix. A key driver of our strong performance with Wakeix is the overall benefit risk profile of the product and how it aligns to the unmet medical need that exists in the narcolepsy market despite the availability of other current approved treatments.
Wakeix offers a meaningfully differentiated product profile that offers broad clinical utility to narcolepsy patients and the healthcare professionals who treat them with the following key attributes. Wakeix is the 1st in class molecule with a novel MOA. It's the only selected H3 receptor antagonist inverse agonist approved by the FDA. It's the 1st and only FDA approved non scheduled treatment indicated for excessive daytime sleepiness, also known as EDS or cataplexy in narcolepsy. Wakeys is not a stimulant with no evidence of drug tolerance or withdrawal symptoms in clinical studies.
Wakase can be used as monotherapy or administered concomitantly with other narcolepsy treatments with no clinically relevant pharmacokinetic interaction seen in clinical trials. And lastly, WakeWorks offers convenient, patient friendly, once daily oral tablet administration in the morning upon awakening. Now the solid performance I've outlined is based solely on Wakelet's indication for EDS in adult patients with narcolepsy. Importantly, all patients living with narcolepsy have EDS, which made Wakeix an appropriate treatment option for all adult narcolepsy patients since our launch. With the recent label expansion of WAIKYX to include the treatment of cataplexy in addition to EDS, we anticipate this may lead to additional new prescribers of Wakeix or existing prescribers identifying new patients in their practice for Wakeix.
Having indications for both EDS and cataplexy in patients with narcolepsy is expected to not only support the continued growth of Wakeix and strengthen our competitive differentiation as the 1st and only non scheduled treatment for EDS or cataplexy in narcolepsy, but also strengthen payer formulary position now and in the future as products in development that are pursuing indications for both symptoms come to market. We have strong conviction in Wakeix to provide a meaningfully differentiated treatment option to the narcolepsy community. We've received robust positive feedback from healthcare and the patient community since our launch and we are excited about the difference we are making in the lives of patients. In summary, I am extremely pleased with our 3rd quarter performance. We remain focused and look forward to delivering significant near and long term growth as we continue to execute on our WAYKX launch, now with an expanded label that includes a cataplexy indication, further adding to the broad clinical utility of Wakeix in adult patients with narcolepsy.
I'll now turn the presentation over to Doctor. Jeff Dano for an update on our clinical development program.
Thank you, Jeff, and good morning, everyone. I am pleased with the progress we have made on the second pillar of Harm Aid's growth strategy, expanding the clinical utility of Wakeix. One aspect of this strategy is expanding the label in narcolepsy. And on this point, I first want to acknowledge our recent achievement, the FDA approval of the cataplexy indication for Wakeix. For this, I want to thank my team for all their hard work and perseverance in pursuing this approval, and I also want to recognize and thank FDA for working with us toward this outcome.
This outcome is extremely positive for Harmony in that we were able to achieve this milestone this year without having to conduct an additional clinical trial, which would have added more time and cost to the pursuit of this indication. We are also pursuing label expansion for Wakeix in narcolepsy to include pediatric patients. As we have previously shared, we are working toward initiating a Phase 3 clinical trial in the second half of twenty twenty one in pursuit of a pediatric indication for both excessive daytime sleepiness or EDS and cataplexy. We will provide more color on this development program when we get closer to the initiation of the Phase 3 trial later next year. Turning to our development efforts with Wakeix or pettolacin in additional orphan rare neurological patient populations.
Our first two lead programs are in patients with Prader Willi syndrome and myotonic dystrophy. 2 conditions which we are very excited about as there are no or limited approved products for these indications and there remains significant unmet medical need, which we believe pettolacent may be able to address. As background, we view ptolecint as a portfolio and a product opportunity, based on its novel mechanism of action as a histamine 3 receptor antagonist inverse agonist, which increases histamine signaling in the brain. It is for this reason, we are taking a mechanism based approach to drug development and managing the life cycle of ptolecine. First off in our development program is Prader Willi Syndrome or PWS, which is a pediatric orphan rare CNS and multisystem disorder that affects approximately 15000 to 20,000 patients in the United States.
PWS is mainly a disorder of hypothalamic dysfunction, similar to what happens in patients with narcolepsy. And some patients with PWS have a narcoleptic phenotype. In addition to hyperphagia, which is defined as an abnormally increased appetite for and consumption of food and the primary symptom in PWS, over half of these patients also experience EDS, which is the primary focus of our development program with patelosin. We are taking a very different approach than other development programs, which have focused on phasias as the primary outcome. Based on patellecents' unique mechanism of action and demonstrated efficacy in improving EDS, our program will focus on EDS as the primary outcome and assess the behavioral consequences and cognitive impaired cognitive function as key secondary endpoints.
Currently, clinical sites are being activated and we are on track to initiate our Phase 2 trial in PWS before the end of the year. Our next development program is in patients with myotonic dystrophy and we plan to study patients with both type 1 and type 2 myotonic dystrophy, also known as DM1 and DM2. Myotide dystrophy is another orphan rare CNS disorder and is the most common form of muscular dystrophy in adults. It affects approximately 150,000 patients in the U. S.
The primary symptom to patients with DM1 and DM2 is myotonia, which is an inability for muscles to relax that results in progressive muscle weakness. However, beyond the myotonia, the most common symptom in these patients is excessive daytime sleepiness, which is experienced in 80% to 90% of DNAM patients and causes significant impairment in daily functioning. 2 other common symptoms, which are also thought to be the result of impaired CNS histamine signaling are fatigue and cognitive impairment, which we will also investigate in this development program. We are currently on track for submitting an IND for myotonic dystrophy before year end and then plan to initiate a Phase 2 clinical trial in patients with DM in the first half of next year. We will keep you updated on our progress in this clinical program.
In summary, we are pleased with our progress thus far gaining the initial approval of Wakeix for the treatment of EDS in adult patients with narcolepsy less than 2 years after Harmony was established, followed by the adult cataplexy indication a little over a year later. However, we are even more excited about the development opportunities ahead of us. This is because pitulisant is clearly a unique molecule. It is 1st in class with a novel mechanism of action and offers a portfolio and a product opportunity to optimize the lifecycle for Wakeix. My R and D team and I are energized, committed and focused on these clinical programs, with our goal to hopefully gain additional approvals and new indications to make Wakeix available to even more patients living with orphan rare neurological disorders who have unmet medical needs.
Thank you. And I will now turn the call over to our CFO, Susan Drexler, who will provide an update on our financial performance. Susan?
Thank you, Jeff. As you have heard from my colleagues, we are very excited to report meaningful clinical, operational and financial progress in Q3. Most notably in the Q3, our revenues from Wixx continued to show strong growth. We significantly bolstered our cash position with our recent IPO and today reported net income for the first time in the company's history. This morning, we issued our press release and filed our 10 Q with detailed financial results.
I will use this time to highlight a few key points. We experienced strong financial performance in the 3rd quarter. We recorded $45,600,000 in Waco's net product revenue in the Q3 of 2020, which is a 20% increase over the second quarter of 2020. For the 9 months ended September 30, 2020, we reported $103,500,000 of net product revenue. We continue to see an increase in the average number of patients and prescribers on a quarterly basis as Wix continues to address the unmet medical needs of patients with narcolepsy.
Our cost of products sold for the quarter was $7,900,000 with a gross margin of approximately 83%. Now I'll take a few minutes and walk you through our expenses and resource allocation. Total operating expenses remained relatively consistent for the 3 months ended September 30, 2020 compared to
the same period in 2019.
For the 9 months ended September 30, 2020, total operating expenses were $76,400,000 compared to $112,200,000 for the same period in 2019. Let's first discuss the changes in R and D and sales and marketing before moving to G and A. Our R and D and sales and marketing expenses remain consistent for the 3 months ended September 30, 2020, as compared to the same period in 2019. Research and development expenses decreased by 81% for the 9 months ended September 30, 2020 compared to the same period in 2019. The decrease is primarily due to a $50,000,000 milestone paid in 2019 to our development partner BioPerge, which was triggered by the FDA acceptance of the NDA filing for Wakeix.
This milestone was recorded in R and D as an expense. Sales and marketing expenses increased by 39.4% for the 9 months ended September 30, 20 20 as compared to the same period in 2019. This increase is primarily due to sales force personnel expenses and commercial investments to support the ongoing commercialization of Wakeix. Also included in sales and marketing line are expenses associated with our patient assistance program. At Harmony, we want to ensure that eligible patients in need of Wakeix have access to their medications.
With more patients losing their jobs and insurance due to the pandemic, we are seeing an increased demand for patient assistance programs for appropriate eligible patients. Now with respect to G and A expenses, we recorded a decrease of $2,000,000 in the 3 months ended September 30, 2020, compared to the same period in 2019. The decrease was a result of an extension payment to Buyer Perje in 2019. For the 9 months ended September 30, 2020, G and A expenses by 17.2%. This increase is primarily due to the intangible asset amortization for the full 9 months in 2020 and additional fees associated with our IPO in 2020.
For the first time in Harmony's history, we reported net income. In Q3, that net income was $1,900,000 This important milestone is driven from our strong commercial performance and management of our expenses. As you heard from my colleagues, in October, we received a notification from the FDA to expand our label for Wakeix to include cataplexy in patients with narcolepsy. In connection with that approval, we have to pay $102,000,000 to Bioproge. We have made the initial $2,000,000 payments and plan to pay the $100,000,000 milestone payment prior to the due date in mid January.
We ended this quarter with $221,700,000 in cash, which includes $147,600,000 in gross proceeds, which we received when we completed our IPO in August. Our strength in cash position is expected to fund the clinical programs in Prader Willi syndrome and myotonic dystrophy that Doctor. Dano outlined and sustain our commercial operations. With the strong balance sheet, solid revenue performance and control over our expenses, we have the financial resources to execute our core strategic priorities as well as the 3 pillars outlined throughout this call. I will now turn the call back to John for additional remarks before opening the call to Q and A.
John?
Thank you, Susan. And also my thanks to Lisa, Jeff Dirks and Doctor. Dano. 2020 to date has been a remarkable year for Harmony. I am proud of what we have achieved so far, confident in our ongoing success and excited about what lies ahead in our future.
Despite the narcolepsy market being established, there continues to be a significant unmet medical need in patients living with narcolepsy. A product like Wakeix with its unique MOA and differentiated product profile offers an exceptional opportunity for the community to help patients who are living with this chronic disorder. We look forward to expanding the clinical utility of Wakeix and believe that Wakeix can potentially help even more patients living with orphan rare neurological disorders with significant unmet medical needs. Operator, we will now take questions from the audience. Thank you.
Our first question comes from David Amsellem with Piper Sandler. You may proceed with your question.
Thanks. And just a couple of questions from me. First, could you quantify persistence rates, if possible, and how that's evolved in the life of the product? That's number 1. Number 2 is, can you give us a sense of the mix of usage in narcolepsy 1 and narcolepsy 2?
And what's your intel telling you regarding the potential for an uptick in usage now that cataplexy is in the label? And then lastly, there's talking with key opinion leaders, there's it's clear that there are some Wake X patients who are on concomitant to oxybate. Do you have a sense of what portion of patients are on the combination and whether they run into any managed care issues, given that the 2 agents taken together make up for a pretty expensive regimen? Thanks.
Thank you, David. It's John Jacobs. Appreciate you joining our call here. Why don't I take that second question first just for a moment. The mix of usage in type 1 and type 2 has been roughly fifty-fifty since the beginning of our launch because every one of those patients has excessive daytime sleepiness, the cardinal symptom of narcolepsy and that was Wakeix initial indication.
For the other questions, I'm going to pass those over to Jeff Dirks, our Chief Commercial Officer. Jeff?
Thanks, John, and thank you for the question, David. So looking at your first question on looking at quantifying persistence rates in the evolution, I think it's fair to say that COVID is certainly having an impact on the entire industry. And that lingering pandemic is really altering the connectivity among key stakeholders in this market. Not only has it impacted our field sales ability to access healthcare professionals, but to get to your question, patients relationships with how they take their medicines or not are being impacted including compliance and discontinuation rate. The data suggests that the DC rate of drugs in the narcolepsy market ranges between 30% 50% prior to COVID, and we know that there's additional pressure being put on that marketplace right now.
And then I guess your last question with to WAIKEX use in combination with Xyrem. Certainly early in our launch, we've sourced patients from across the broad adult narcolepsy patient population. We've seen Wakeix used as monotherapy or in combination with all the other available narcolepsy treatment options, including Xyrem. And to this point, we have not seen any challenges within the managed care environment with respect to the use
of Wakeix with any available narcolepsy
Thank you. Our next question comes from Craig Sivananda with Goldman Sachs. You may proceed with your question.
Hi, good morning guys. This is Anna on Greg. Thank you for taking our questions and congratulations on the progress. Just to get a little bit more color on the COVID impact, specifically as it pertains to the changes you've seen in the Q1 versus the second versus the third quarter, how should we think about Q4 now? And potentially any color on 2021 and onwards would be helpful.
Thank you.
Anna, first of all, great to have you here with us. Thank you for your question. It's John. Certainly, COVID has impacted the entire industry and all of us from families, friends, kids going to school, etcetera, and how we do business. I'd certainly like to turn that question right now over to Jeff Dertz to address it directly from a commercial perspective.
Jeff?
Thanks, John, and good morning, Anna, and thank you very much for your question. So really building on my response to David, what we've seen is COVID-nineteen has impeded our ability to optimize the performance of Wakeix during this immediate near term launch window. So in addition to the impacts on the field sales team, ability to access healthcare professional in person, the patients' relationships with their physicians are changing and on top of what I shared already about their medication challenges. We've also seen high unemployment rates leading to loss in insurance and this increased demand for patient assistance and free goods, which is putting pressure on the ability to convert top line demand to revenue. But despite those headwinds, I think it's important to demonstrate our ability to grow WACX consistently quarter over quarter, right?
20% growth in net revenues from Q2 to Q3. We've seen an increase in 22% in the average number of patients on Wakeix during that time. And importantly, the fundamentals of the value in market for Harmony and Wakeix remain unchanged. There is significant unmet patient and healthcare professional needs, high level of patient dissatisfaction with long established therapies. Wakeix has a differentiated product profile that aligns nicely to those unmet needs and people living with narcolepsy will be living with this lifelong incurable disorder before, during and after the pandemic.
So we remain extremely optimistic that we will continue to sustain the continued growth for Wakeix moving forward.
Okay. That's really helpful. If I could just follow-up with one question, squeeze one more in there. Have you gotten any feedback from physicians with respect to excuse across patients with cataplexy?
Yes. Thank you, Annie. I think we have and initially when we got the indication, we certainly received the high energy level from the physician community and received several incoming messages from KOLs that we've been working with and expressed extreme excitement about the fact that we got the indication for Wakeix and of course our entire company is very excited about it as well. We share that enthusiasm with the physician community. I'd like to ask Doctor.
Dano to add some color to that answer. Jeff?
Yes. Thanks, John. Yes. Good morning, Anna. I think the feedback from the medical community has been very positive.
I think they were aware of the data. The data had been published in the literature on the cataplexy, the pivotal trial. And I think fundamentally what they see is that it broadens the clinical utility, strengthens the overall product profile, the benefit risk profile that Jeff spoke to. So feedback has been very positive and we sort of advance our educational efforts around the cataplexy data consistent with the labeled indication.
Okay, that's great. Thanks again for taking the questions and congratulations.
Thank you. Thank you. And I'm not showing any further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
You may now disconnect.