How Harmony Biosciences Can Prove Its Skeptics Wrong

Harmony Biosciences (NASDAQ: HRMY) is a rarity in the biopharmaceutical industry. Despite enjoying fast growth rates and being increasingly profitable for several years, Harmony trades at valuations that make it look like a value stock. And even though some investors worry that allegations about potentially improper behavior might come home to roost, Harmony has built an encouraging strategic plan aimed at growing its rare disease business even further.

In this third and final article for the Voyager Portfolio on Harmony, you'll get a closer look at the company's plans and expectations over the next few years. You'll also learn more about some of the risks involved and whether they're enough to outweigh the prospects for sizable rewards if Harmony overcomes its challenges.

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Making pitolisant last

Harmony's sole approved treatment, Wakix, has been a huge success and is approaching blockbuster status. But the narcolepsy treatment is slated to lose patent exclusivity in 2030. To fend off generic competition, Harmony has worked on two variants using the same compound as Wakix, pitolisant. Pitolisant GR could extend patent protection on Harmony's narcolepsy franchise into the 2040s, and the company has already conducted encouraging bioequivalence and dosing optimization studies. Harmony hopes to get an FDA response to its planned new drug application by the first quarter of 2027.

Meanwhile, pitolisant HD could help Harmony take an important step forward by adding another potential use case for the treatment. In addition to narcolepsy, pitolisant HD is currently in phase 3 clinical trials studying whether the treatment can effectively treat sleep inertia in patients suffering from idiopathic hypersomnia, another sleep disorder. Harmony hopes for topline data to come out of those trials in 2027, with the expectation of seeking FDA approval sometime in 2028.

An attractive pipeline could push Harmony forward

In addition to future prospects for pitolisant, Harmony Biosciences has a number of other prospective treatments in clinical trials. Harmony's BP1.15205 is intended to treat a variety of sleep /wake disorders, and although it's only in phase 1 trials at the moment, the company expects data by the middle of this year that could help show fewer adverse events as well as offering patients the benefits of once-daily dosing.

Harmony is also investigating its EPX-100 clemizole hydrochloride compound in a pair of phase 3 studies. In earlier trials, the candidate treatment has already shown a clinically meaningful reduction in seizure frequency among patients with Dravet Syndrome, and EPX-100 also looks encouraging for patients with Lennox-Gastaut Syndrome. Topline data from both studies should be available in the first half of next year, and a good outcome would open the door to a potential FDA decision in 2028.

Does Harmony belong in the Voyager Portfolio?

It's always more difficult to feel confident about making an investment when you don't have as much familiarity with a particular industry. Without a background in science, it's more difficult to evaluate whether the claims that a biotech company makes are credible. In my view, that's a key reason why Harmony Biosciences stock hasn't performed well in light of the short-seller report from Scorpion Capital in 2023. Despite the fact that several years have passed and Harmony's financial performance remains encouraging, there's still residual doubt among investors whether the allegations against Harmony could prove to be true at some point in the future.

However, despite the risks involved, Harmony's relatively attractive valuation offers a margin of safety that you often don't get with biotech stocks. Indeed, many biotechs Harmony's size don't even have an approved treatment yet. With them, investing can be an all-or-nothing bet on whether their most advanced candidate treatment wins FDA approval. Harmony has the benefit of a favorable track record.

For that reason and to add some portfolio diversification, the Voyager Portfolio will add Harmony Biosciences shares as soon as mandatory disclosure and trading guideline periods allow. I'm prepared for considerable volatility in the future, but if things go well, I expect the stock has a long runway for gains.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.