Investing Caffeine

A Sleepy Stock that Can Wake Up Your Portfolio

In over 35 years of investing, I have rarely encountered a company in such a unique – and frustrating – position as Harmony Biosciences (“Harmony” – HRMY). As a shareholder through my firm, Sidoxia Capital Management, I approach this analysis with a dual lens: as an investor seeing immense value, and as a fiduciary who expects corporate leadership to act in the best interest of its owners.

While Harmony’s executive team has executed brilliantly on its clinical mission, they are currently failing their fiduciary duty regarding capital allocation. Here is why Harmony is a “Diamond in the Rough” that needs a wake-up call.

Harmony Biosciences Overview – A Rare Disease Powerhouse

Harmony is a neuroscience-focused company targeting rare and underserved conditions such as narcolepsy, Prader-Willi Syndrome, and certain rare epilepsies—areas where treatment options are limited or nonexistent.

Today, the vast majority of revenue is driven by narcolepsy, a neurological disorder that disrupts sleep-wake cycles and leads to excessive daytime sleepiness and sudden sleep attacks. While approximately 135,000–200,000 Americans are diagnosed, the true number is likely higher due to underdiagnosis and misdiagnosis.

Harmony’s flagship drug, WAKIX (pitolisant), is on track to surpass $1 billion in annual revenue in 2026, achieving blockbuster status. Importantly, WAKIX is the only FDA-approved narcolepsy treatment that is not a controlled substance as defined by the U.S. Drug Enforcement Administration (DEA), providing a meaningful competitive advantage over alternative therapies.

Significant Growth Beyond WAKIX

Harmony’s long-term opportunity extends well beyond narcolepsy. The company is leveraging the pharmaceutical compound behind its franchise drug WAKIX (pitolisant) to expand and diversify its revenue base into additional CNS (Central Nervous System) indications, with five ongoing Phase 3 registrational programs (see below):

• Pitolisant HD (High Dose) – Idiopathic Hypersomnia (IH) – potential $1.5 billion – $2.0 billion market with possible FDA submission for approval in 2027.
• Pitolisant HD (High Dose) – Narcolepsy – potential to accelerate the growth of $1 billion WAKIX franchise (2026 estimate) by offering enhanced efficacy for fatigue. FDA submission for approval of Pitolisant HD could come in 2027.
• Pitolisant – Prader-Willi Syndrome (PWS) – There are an estimated 15,000–20,000 people in the U.S. with PWS. Over half of these targeted patients suffer from EDS, which is effectively treated with Pitolisant. PWS has a potential of reaching $300 million – $500 million in revenue and receiving FDA submission for approval during the 2^nd half of 2026.
• EPX-100 (Clemizole HCl) – Dravet Syndrome (epilepsy with onset at infancy) – expands Harmony into a potential $800 million global market by 2030 with possible FDA submission for approval in the 1^st half of 2027.
• EPX-100 (Clemizole HCl) – Lennox-Gastaut Syndrome (LGS) (epilepsy with multiple seizure types) – opens the company to a potential $1 billion market globally.

Collectively, this pipeline has the potential to generate billions in incremental revenue.

A Diamond in the Rough

There are many ways to value a stock, but one common approach is to compare a company’s price-to-earnings ratio (P/E) to that of the S&P 500. Generally, stocks trading below the market’s average P/E are considered cheap, while those above it are viewed as more expensive.

Harmony shares currently trade at approximately 8x trailing twelve-month earnings and 7x its 2026 earnings forecast. By comparison, this represents roughly a -70% discount to the average S&P 500 stock. Based on these metrics, Harmony appears dramatically undervalued—assuming the company’s fundamentals remain intact.

Of course, valuation must be considered alongside growth and execution. On that front, management continues to emphasize strong underlying performance.

And the results support that claim. In less than three years, CEO Dr. Jeffrey Dayno has grown revenue by approximately 74%, from roughly $500 million in April 2023 to over $860 million today, with expectations to exceed $1 billion in annual sales by the end of the year.

But wait, there’s more. The balance sheet tells a similarly compelling story. Over that same period, Harmony’s net cash position (gross cash minus debt) has increased from approximately $201 million to $719 million, even after completing two acquisitions totaling about $69 million (Zynerba and Epygenix). During this time, quarterly revenue growth has averaged roughly +23%, while cash has more than tripled, despite the acquisitions.

What’s more, Harmony’s cash profitability is equally impressive. In 2025, Harmony generated a 40% free cash flow margin, meaning $0.40 of every $1 of revenue converted into free cash flow. That level of efficiency would rank among the top two percent of companies in the S&P 500, placing Harmony alongside some of the most profitable behemoths in the market, including NVIDIA Corp.

Which brings us to the key question: If the stock is this inexpensive and the fundamentals are this strong, why isn’t the company aggressively repurchasing its own shares hand-over-fist? To date, management has not provided a clear or credible answer to this question.

What is the Downside to Harmony?

All this fundamental strength and financial momentum sounds like great news for shareholders—but where’s the risk and bad news? Regrettably, despite strong execution under CEO Dr. Jeffrey Dayno over the past three years, the stock is down approximately -14% (from ~$32 to ~$28 per share).

If everything is going so well, why have investors been so spooked recently? The primary concern centers on potential generic competition for WAKIX, the company’s key drug. To Harmony’s credit, it has already settled litigation with six of seven generic challengers, but one holdout—AET Pharma—has taken the case to trial. Some Wall Street analysts and investors believe the judge may rule in favor of AET, which contributed to a sharp decline in the stock last month.

If Harmony loses, WAKIX’s patent protection—currently expected to extend through 2030—could be materially weakened, potentially allowing generic competition to enter the market as early as late 2026 or early 2027, depending on the timing of the ruling and subsequent developments.

Fear not, says management. They remain confident in their defense strategy. As CEO Dr. Dayno stated, “Pitolisant GR will extend the WAKIX franchise and our leadership in narcolepsy as a line extension of WAKIX with its broad clinical utility. We are on track for NDA submission in Q2 this year with a target PDUFA date in Q1 2027.”

Management believes this next-generation formulation, Pitolisant GR, could significantly mitigate—or even eliminate—the impact of generic competition. Unlike WAKIX, which faces potential patent challenges, Pitolisant GR is expected to have patent protection through 2044.

If the timeline holds, the company expects a substantial portion of WAKIX patients to transition to GR, reducing the impact of any generic entrants. Additionally, even in a worst-case scenario where AET prevails, the financial risk associated with launching an “at-risk” generic—particularly if Harmony were to win on appeal—could be significant enough to deter entry and easily push AET towards a settlement with Harmony.

Am I Missing Something?

When a stock trades at such an egregiously low valuation, I inevitably ask myself, “Am I missing something?” If management is sitting on its hands doing nothing, perhaps Harmony’s fundamental outlook is worse than they are leading investors to believe. If management is unwilling to deploy even a portion of its inefficient, over-bloated cash hoard toward share repurchases – especially with the stock arguably at its cheapest level in history – why should investors commit their hard-earned capital to what could be a sinking ship?

Is it possible that management lacks confidence in the Pitolisant GR NDA data, or that the Q2 NDA timeline could slip? If so, and if AET prevails in court, Harmony’s entire $1 billion franchise revenue base could be at risk.

Management has dismissed these concerns and continues to insist that everything is on track. If that’s truly the case, then – with a clear line of sight into the company’s prospects – Harmony should be aggressively buying back its stock if the outlook is as strong and rosy as they claim.

Actions Speak Louder than Words

According to management, Harmony’s fundamentals remain robust. Not only does Harmony have five late-stage, phase three indications in the pipeline, it also claims to have a near bullet-proof generic competition protection strategy. Yet, with the stock down around -33% from its 52-week high, it is difficult to justify why management is not forcefully repurchasing shares at prices that are currently highly accretive to EPS.

I have raised this issue with senior management multiple times, but unfortunately my concerns have fallen on deaf ears. I’m hardly alone – other investors have voiced similar frustrations but inaction remains the default stance of management. The company’s response to this elephant in the room remains perplexing.

On the most recent fourth quarter conference call with investors, CFO Sandip Kapadia stated, “Business development is a high priority, and our intention is to deploy capital to expand our pipeline and commercial portfolio.” CEO Dr. Jeffrey Dayno echoed this sentiment, emphasizing a “commitment to generate even greater value through the pursuit of smart business development opportunities.”

It’s great that Harmony “intends” to deploy capital and “pursue” opportunities, but the fact remains, Harmony effectively has not devoted a penny over the last two years to capital deployment, and the company has spent next-to-nothing on capital deployment since the company’s IPO (Initial Public Offering) in August 2020.

Meanwhile, the company’s massive net cash balance – currently $719 million – is rapidly expanding by more than $100 million+ per quarter and is on track to swell to $1 billion this year. By the end of 2026, cash could represent as much as two-thirds of Harmony’s total market value, particularly if the share price remains depressed or declines further.

Walking and Chewing Gum

Can Harmony walk and chew gum at the same time? In other words, can the company allocate a portion of its gigantic cash balance toward a monumentally accretive share repurchase program while simultaneously pursuing business development (M&A – Mergers & Acquisitions) opportunities? The short answer is yes.

In fact, Harmony did exactly that in 2023 and 2024 – deploying nearly half of its cash toward share buybacks while ALSO completing two acquisitions that contributed to its expanding pipeline of promising new indications.

Management argues it’s currently evaluating a broad list of acquisition targets. However, one could reasonably contend that Harmony will be hard-pressed to find opportunities more attractive than its own stock. The bar is exceptionally high: identifying highly profitable companies with similarly robust pipelines, that are also trading at a steep discount and offering comparable growth characteristics.

By comparison, Harmony’s own shares appear to trade at roughly a -70% discount to the market, with approximately 50% of its market capitalization in cash, while delivering ~20% top-line growth, and securing a deep pipeline of five Phase 3 programs. Under these conditions, it seems like Harmony buying back their own stock is a no-brainer.

Where Is the Board and Why Are They Not Acting?

This is a question I’m asking, and I hope the board will answer the capital allocation question more thoughtfully. Ideally, the response will come in the form of a material share repurchase (i.e., action).

For those curious, I have identified the distinguished group of Harmony board members, and I intend to pursue an explanation relating to the board’s inaction. Here are Harmony’s current board members:

• Jeffrey S. Aronin (Executive Chairman) – Founder and CEO of Paragon Biosciences.
• Jeffrey M. Dayno, MD (President, CEO & Director) – Former CMO of Harmony; Board-certified neurologist.
• Peter Anastasiou (Independent Director) – CEO of Capsida Biotherapeutics; former Lundbeck executive.
• Antonio Gracias (Independent Director) – Founder/CEO of Valor Equity Partners and Director at Tesla.
• Mark Graf (Independent Director) – Former CFO of Discover Financial Services.
• Ron Philip (Independent Director) – CEO of Orbital Therapeutics and former CEO of Spark Therapeutics.
• Juan Sabater (Independent Director) – Partner at Valor Equity Partners and former Goldman Sachs MD.
• Gary Sender (Independent Director) – Former CFO of Nabriva Therapeutics and Shire PLC.
• Linda Szyper (Independent Director) – Former COO of McCann Health; pharmaceutical sales veteran.
• Andreas Wicki, PhD (Independent Director) – CEO of HBM Healthcare Investments.

I’m not sure whether the board is asleep at the switch, but it has a clear fiduciary duty to allocate capital efficiently and maximize shareholder value. Allowing the balance sheet to become excessively bloated while taking no meaningful action falls short of that responsibility. The company needs to act.

As Harmony’s share price remains stagnant and under pressure, management and the board continue to irresponsibly let cash accumulate. Net cash now represents approximately 45% of the company’s market capitalization. If Harmony were in the S&P 500, this would place it among the top 1% of companies by cash as a percentage of market value – all while trading at roughly a -70% discount to the broader market.

We remain long-term shareholders, but there are only two plausible explanations. Either management is correct, and this represents a generational buying opportunity—or the company knows something investors do not, which may explain the lack of action and the continued buildup of cash.

Bottom line: assuming a successful defense against generic competition and a conservative rollout of the pipeline—including Pitolisant GR and Pitolisant HD—$7 in EPS by 2030 at a 22x multiple implies a $154 price target, or roughly +450% upside from today’s ~$28 share price.

Harmony may be a sleepy stock today, but it has all the ingredients to wake up your portfolio. While management and the board have been slow to act and have yet to fully meet their fiduciary responsibility on capital allocation, I remain optimistic that they will ultimately do the right thing. By deploying capital more effectively – most notably through a meaningful share repurchase at today’s historically attractive valuation – Harmony has the opportunity to awaken significant shareholder value and live up to its full potential.

www.Sidoxia.com

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in HRMY, NVDA, TSLA, GS, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in DFS, HBMN, HLUYY, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

March 19, 2026 at 3:06 pm Leave a comment