ZYN or lose, Harmony Biosciences is undervalued.

The most important de-risking event of 2025 continues to be the phase 3 data readout of ZYN002, which is expected in the third quarter. The RECONNECT study was designed to evaluate the cannabidiol gel's ability to reduce social avoidance in young individuals with fragile X syndrome (FXS). Importantly, all patients will have 100% methylation of a gene known to cause a dysregulated endocannabinoid system (ECS). I think it has an above-average chance of a positive data readout.

Meeting at least the primary endpoint in the RECONNECT study will be key to unlocking value for shareholders, who are frustratingly waiting for the strength of Wakix to be acknowledged by the market. The once-daily pill is the only narcolepsy treatment that has consistently grown market share since it launched in 2019.

A positive study would alleviate concerns about Wakix, whether focused on competition or the fact it's the only source of revenue, by giving the company its likely second approval in 2026. Management might even explore ZYN002 in adjacent indications, such as 22q deletion syndrome (study already designed) or certain autism populations (not mentioned to date).

A failed study would dash near-term diversification hopes, but it wouldn't ding the commercial strength of Wakix.

How Do Narcolepsy Treatments Compare?

There are five major narcolepsy treatments on the market, but three unique mechanisms of action. All aim to increase the availability of different neurotransmitters in the brain to improve sleep/wake disruptions.

• Sodium oxybates are based on a neurotransmitter that calms the central nervous system (CNS) and promotes sleep. They've been used as a general anesthetic, and also illicitly as a date rape drug and recreational drug. Due to the potential for abuse all three sodium oxybates on the market are regulated as Schedule III controlled substances, which makes it more difficult to get a prescription. All three also have a black box warning on the label.
• Dopamine and norepinephrine reuptake inhibitors (DNRI) are stimulants that increase the activity of the neurotransmitters dopamine and norepinephrine in the CNS. The only DNRI approved for narcolepsy, Sunosi, is a Schedule IV controlled substance owing to its potential for abuse.
• Histamine H3 receptor agonists are stimulants that increase the availability of the neurotransmitter histamine in the CNS. Because they spare other neurotransmitters that can lead to dependence or abuse, this class of drugs avoids being regulated as controlled substances. Wakix is the only approved histamine H3 receptor agonist.

Schedule this and Schedule that. What does it mean? In the narcolepsy treatment landscape, sodium oxybates have the highest relative potential for abuse, while Sunosi is relatively lower than that, and Wakix is deemed to have no potential for abuse.

Available treatments are also differentiated by their dosing convenience and side effects.

Sodium oxybates were the first major narcolepsy treatments to reach market. A huge head start allowed them to dominate prescriptions, but they've struggled to grow market share since Wakix launched in 2019.

Two sodium oxybate treatments, Xyrem and Xywav, are dosed twice-daily. Er, twice-nightly – a significant headwind to further adoption as treatment options expand. Patients need to drink the medication before going to bed, then wake up in the middle of the night for a second dose. Serious.

Jazz Pharmaceuticals owns both products. Xywav is a new formulation that reduces sodium content by adding other electrolytes to the mix, a tweak that reduces high blood pressure (hypertension) risks observed in Xyrem. Both come with increased risk of depression, suicidal thoughts, and sleepwalking.

Avadel Pharmaceuticals wields the other sodium oxybate on the market – and just beat back Jazz Pharmaceuticals in court. Lumryz has all the same side effects of Xyrem, including increased risk of high blood pressure. The one benefit is convenience: Lumryz is taken once-daily. That's allowed it to steal some market share from Xyrem and Xywav.

Jazz Pharmaceuticals originally owned Sunosi, too, but sold it to Axsome Pharmaceuticals as it focused on ramping Xywav. The treatment can increase blood pressure and worsen psychiatric symptoms in patients with a history of psychosis or bipolar disorder. It's taken once-daily in the morning.

Harmony Biosciences wields Wakix – the only narcolepsy treatment that isn't a controlled substance. That boosts adoption, as there are already more healthcare providers prescribing Wakix than sodium oxybates. In fact, it's the only treatment that offers all of the following: no controlled substance status, no black box warning, once-daily administration, no increased risk of blood pressure, and no increased risk of psychiatric disorders.

Wakix does come with a warning about potential QT interval prolongation, a serious cardiovascular side effect, but only seven cases have ever been reported, according to the U.S. Food and Drug Administration (FDA). That analysis includes nearly 10,000 patients who enrolled in clinical trials or have since been prescribed the drug.

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Taken together, the mix of controlled substance status, convenience, and tolerability have had a clear impact on the commercial trajectory of each narcolepsy treatment. Let's use the year Wakix launched – 2019 – as the base year for visualizing commercial traction.

Jazz Pharmaceuticals has struggled to grow its most important drug franchise since Wakix launched in 2019. Patients taking Xyrem are being transitioned to Xywav, so it makes sense to combine revenue totals when observing trends.

• In 2019, Xyrem + Xywav revenue settled at $1.64 billion – a solid haul.
• In 2024, Xyrem + Xywav revenue grew to just $1.71 billion. Worse, revenue peaked at $1.98 billion in 2022 and has decreased each year since.
• The franchise is expected to achieve flat or declining revenue in 2025. Revenue grew just 0.6% in the first quarter this year compared to the year-ago period.
• The trend is worse when you consider selling prices have increased in this span. Xyrem and Xywav are filling fewer prescriptions today than six years ago.

Avadel Pharmaceuticals is enjoying a growth surge from Lumryz, which is expected to generate full-year 2025 revenue of up to $265 million. This product has primarily stolen market share from Xyrem since launching in 2023, while the added convenience makes it a more attractive option than Xywav in patients with a low risk of hypertension.

The narcolepsy treatment Sunosi has not succeeded commercially under either owner, garnering only $90 million in revenue during its sixth year on the market. But Axsome Therapeutics is steadily growing sales and might nudge it past the $100 million-mark in 2025.

And then there's Wakix, which has clearly separated itself in the commercial landscape. Let's visualize the trends that demonstrate the product's strength.

First, consider the annual revenue generated by each narcolepsy treatment from 2019 to 2024. Wakix is the only product that's delivered consistent revenue growth in that span.

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Second, consider the market share of each mechanism of action by year. Sodium oxybates were the only game in town in 2019 with $1.64 billion in revenue. That represented 99.4% of the market opportunity.

By 2024, sodium oxybates generated revenue of $1.88 billion. That marked an increase of 14% in the five-year period. However, the narcolepsy treatment market grew by 62% in that span. The total market opportunity expanded by $1.03 billion from 2019 to 2024. Wakix was responsible for $715 million, or over two-thirds, of that total.

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Finally, consider the year-over-year revenue added by each product as an indicator of commercial momentum.

Xyrem + Xywav represent an empire on the decline. Although Lumryz is growing at a respectable clip since launching in 2023, the limitations of sodium oxybates suggest it'll reach its peak sooner than most new drug products. It's expected to add less than $100 million in revenue this year using the high-end of guidance. Sunosi has added about $20 million in revenue annually since 2022, but it's never represented much of a threat.

Meanwhile, Wakix has consistently grown revenue by at least $132 million each year since 2019. That's expected to slow down slightly as the number of active prescriptions reaches 10,000 in the next two years, but new formulations expected to launch in 2026 and 2028 could reaccelerate growth. Wakix is expected to add $125 million in revenue in 2025 using the midpoint of guidance.

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The rise of orexin-2 receptor (OX2R) agonists is expected to impact the competitive landscape further as the first drug candidates in the class earn approvals later this decade. These molecules impact the root cause of narcolepsy type 1 (NT1), but not narcolepsy type 2 (NT2) or a related condition called idiopathic hypersomnia (IH). Drug developers still see the potential for higher doses to have an impact on the latter two conditions.

OX2R agonists may offer a cleaner product label without scheduled substance classifications, risks of hypertension, or QT interval prolongation. Only one such asset has made it to a phase 3 clinical trial, so there's not much long-term data on the potential for psychiatric risks.

Increasing the activity of orexin-2 receptors does lead to other side effects, such as relatively higher rates of insomnia compared to existing treatments, as well increased urinary frequency and urgency. That can lead to bedwetting and negatively impact quality of life, which may impact commercial traction in both pediatric and adult patients.

As described in the introductory research note on Harmony Biosciences, OX2R agonists represent the single-biggest threat to Wakix. However, they're likely to have a more devastating impact – at least initially – on the trio of sodium oxybates. Harmony Biosciences is also developing its own OX2R agonist drug candidate.

Will Wakix get Wakix'd, or will it be able to hold onto a potential $1 billion market opportunity even in the face of next-gen competition? Investors will get more clarity in the next five years, beginning with longer-term safety profiles as OX2R agonist drug candidates begin to wrap up mid- and late-stage studies.

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