IPO Launch: Harmony Biosciences Proposes $100 Million IPO Terms

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Harmony Biosciences Holdings (HRMY) has filed to raise $100 million from the sale of its common stock in an IPO, according to an amended registration statement.

The company is advancing development and commercialization of narcolepsy and related treatments.

HRMY has shown a strong recent revenue ramp for its first product and is in further development to expand its TAM to other related indications.

Plymouth Meeting, Pennsylvania-based Harmony was founded to commercialize a drug to treat narcolepsy that is not scheduled as a controlled substance.

Management is led by president and Chief Executive Officer John Jacobs, who has been with the firm since October 2017 and was previously SVP and General Manager of the Respiratory Business Unit at Teva Pharmaceuticals (TEVA).

Below is a brief overview video of narcolepsy:

Source: Osmosis.org

The firm's in-licensed drug, WAKIX (pitolisant), is also nearing FDA approval for the treatment of cataplexy and for treatment of pediatric forms of narcolepsy.

Below is the current status of the company’s drug development pipeline:

harmonypipe

Source: Company S-1 Filing

Investors in the firm have invested at least $422 million and include Valor, Fidelity, HBM Healthcare, Vivo Capital, Marshman Fund Trust, Novo Holdings, Quantum Strategic Partners and venBio.

According to a 2019 market research report by Allied Market Research, the global market for narcolepsy treatment was an estimated $2.4 billion in 2018 and is expected to exceed $5.3 billion by 2026.

This represents a forecast CAGR (Compound Annual Growth Rate) of 10.3% from 2019 to 2026.

Key elements driving this expected growth are increasing risks of narcolepsy from greater consumption of alcohol, tobacco and coffee combined with advances in treatment options and improved reimbursement for government-approved treatments.

However, a lack of awareness regarding diagnosis and treatment options may dampen growth.

Extreme daytime sleepiness is expected to produce the greatest demand for drug treatments, followed by cataplexia, as the chart below shows:

Major competitive vendors that provide or are developing treatments include:

  • Jazz Pharmaceuticals (JAZZ)
  • Avadel Pharmaceuticals (AVDL)
  • Axsome Therapeutics (AXSM)

Management says its WAKIX drug 'has a safety and efficacy profile that is competitive with each of the products listed above for the treatment of EDS in adult patients with narcolepsy, although WAKIX has not been compared with these products in head-to-head clinical trials, and that its non-scheduled status represents a distinct competitive advantage relative to those same products.'

Below are the company’s financial results for the past two and 1/2 years (Audited PCAOB for full years):

harmonypl2

Source: Company registration statement

As of June 30, 2020, the company had $76.3 million in cash and $218.2 million in total liabilities. (Unaudited, interim)

HRMY intends to sell 4.65 million shares of common stock at a midpoint price of $21.50 per share for gross proceeds of approximately $100 million, not including the sale of customary underwriter options.

No existing shareholders have indicated an interest to purchase shares at the IPO price, a common feature of successful life science IPOs.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $1.9 billion.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 7.39%.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

approximately $78.0 million to fund external clinical development for the potential new indications for pitolisant in PWS, MD and pediatric narcolepsy through clinical development; and

the remainder for working capital, business development opportunities, a potential milestone payment to Bioprojet and general corporate purposes, including to support the continued commercialization of WAKIX in the United States.

Management’s presentation of the company roadshow is not available.

Listed underwriters of the IPO are Goldman Sachs, Jefferies and Piper Sandler.

Commentary

Harmony is seeking a larger than usual IPO transaction size to fund its WAKIX commercialization efforts as well as additional clinical development for new indications for its in-licensed pitolisant drug.

The firm’s financials show strong revenue growth for its product and nearly operating breakeven for the first six months of 2020.

This is an impressive result in light of having to deal with Covid-19 pandemic disruptions.

The market opportunity for various narcolepsy treatments is expected to exceed $5 billion by 2026, representing strong demand growth over the coming years.

Goldman Sachs is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 78.6% since their IPO. This is a top-tier performance for all major underwriters during the period.

As to valuation, it is difficult to determine a valuation for the firm as its revenue ramp has only begun while it seeks to expand the TAM for pitolisant.

For ‘hybrid’ life science firms like Harmony, which are both in commercialization stage and continued development plus seeking an ‘out of range’ valuation at IPO at $1.9 billion, I can’t develop a strong opinion either way.

Accordingly, my opinion on the IPO is NEUTRAL.

Expected IPO Pricing Date: August 18, 2020.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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