At the start of 2023, I teed up mid-cap oncology concern, Exelixis (EXEL) , as my "Stock Pick of the Year." This name has acquitted itself well, returning 35% through September 8.
Today, I am going a somewhat similar route and selecting Harmony Biosciences (HRMY) as my equity selection for the rest of 2023.
The stock sold off in the first part of this year as the company faced some challenges. However, things are starting to turn up in recent months for Harmony and I believe the firm and the equity will end 2023 on an up note.
Harmony Biosciences is based just outside of Philadelphia and is focused on developing and commercializing therapies for patients with rare and other neurological diseases.
The company's primary asset as of right now is called WAKIX, also known as pitolisant. This compound has a novel mechanism of action and is approved for excessive daytime sleepiness in adult patients with narcolepsy. Revenues grew some 25% in the second quarter and the company is solidly profitable.
WAKIX is delivering a now better than $500 million run rate and management believes the drug can eventually see $1 billion annually of peak sales just to treat narcolepsy. And the company is working to get pediatric approval for this indication. Harmony had a big win on the patent litigation front around WAKIX at the end of August, which helped trigger a recent rebound in the stock.
The company had more than $425 million in cash and marketable securities on its balance sheet as of the end of the first half of 2023. Company leadership decided to reward shareholders by recently implementing a $125 million stock repurchase program.
Harmony also agreed to purchase Zynerba Pharmaceuticals (ZYNE) in mid-August. The deal involves a $60 million upfront payment as well a possible $140 million in additional potential milestone and regulatory payouts.
The acquisition will add Zygel to Harmony's pipeline. This seems a smart "bolt on" purchase as Zygel is currently undergoing a Phase 3 clinical trial for patients with the behavioral disorder Fragile X syndrome. There are no FDA approved treatments for this rare disease it should be noted.
As you can see above, Harmony is pursuing various other indications for pitolisant and has several trial milestones that will be reached before the end of 2023. Last week, pitolisant was granted Orphan Drug Status by the FDA to potentially treat idiopathic hypersomnia or IH, which is a rare neurological condition.
A key Phase 3 readout from a study evaluating pitosilant to treat IH should be out before the close of the year. This upcoming trial data was one key reason that Berenberg Capital Markets initiated the shares as a new Buy last week with a $58 price target.
The analyst there noted that Harmony Biosciences is a "de-risked story that is currently trading near the low end of its 52-week range". Within the last month, Mizuho Securities ($54 price target), Cantor Fitzgerald ($75 price target) and Needham ($66 price target) have also reissued buy ratings on the stock.
I concur with their optimism around Harmony Biosciences. I could easily see the shares rising to the high $40s before the end of 2023.
