Well, shit.

The only reason I played the pivotal data readout for ZYN002 was because Harmony Biosciences would still have Wakix. It's the strongest brand in the narcolepsy landscape, the only non-scheduled treatment, and has the best potential to be paired with orexin-2 receptor (OX2R) agonists. Sure, there was generic competition on the horizon, but that was following the well-worn script for these challenges.

That complacency could prove costly.

The routine patent infringement case has turned into anything but routine. The four-day bench trial that began on February 17, 2025, didn't proceed as expected for Harmony Biosciences. When the dust settled on Friday, February 20, the sleepy low-volume stock had seen 8x its usual daily trading volume.

The steep sell-off in shares suggests investors (meaning those with access to the courtroom since nothing is "on the internet" public yet) believe the judge is going issue a ruling that's favorable for generic drug developers, either by saying the patents are invalid or that the generic products don't infringe on the patents. The company would be expected to appeal a negative ruling.

I don't know the details of the arguments and no final order has been issued yet. From what I can gather, the judge's ruling on the validity of the patents involved might hinge on… what software setting and mathematical equation was used to normalize experimental data. Seriously.

What happens next depends on the details.

How are Generic Challenges Usually Handled?

First, the innovator drug's owner receives notice from a generic challenger. The notice states that an abbreviated new drug application (ANDA) was filed with the FDA seeking approval of a generic drug, and that the generic will launch before important patents expire. Generic drug developers argue that their generic drug product doesn't infringe on the patents and that they're invalid anyway. It's like saying, "your honor, I definitely didn't shoot him in the face, but even if I did, it was totally self-defense!"

Next, the innovator drug's owner sues the generic drug developer for patent infringement. There's some back and forth, and some discovery of information, but pharma patents are relatively airtight. A specific molecule is being used for a specific application. There's no ambiguity.

The court case is usually just part of the dance that leads to a settlement. The generic drug developer agrees to launch its product at a specific date in the future, usually when the patents expire, and in turn gets dropped from legal proceedings. Almost always, the court case is abandoned before a judge ever makes a ruling.

Harmony Biosciences had a judge consolidate all generic challengers into one big patent infringement case called Harmony v. Lupin et al. As the wheels of justice turned and cranked over the years, it announced settlements with Lupin (ironically), Annora, and Novugen Pharma. Again, this is normal. This is how these things go.

A handful of generic challengers stuck it through though: AET Pharma, MSN Pharmaceuticals, Zenara Pharma, and Novitium. The last time I checked everyone was bickering over the experts, labs, and techniques used to qualify results. Again, not unusual.

What Happened Leading Up to the Bench Trial?

Both Harmony Biosciences and the generic challengers hired experts to characterize samples of generic pitolisant hydrochloride, then compare them to the methods used in U.S. Patent No. 8,207,197 ("the '197 patent"). After bickering over expert qualifications and methods, the patent infringement case proceeded to a bench trial with expert testimony from both sides.

Again, I won't know the details until a final ruling is issued. Either party could appeal a ruling.

Leading up to the bench trial, both sides were arguing over how pitolisant hydrochloride samples were characterized.

• Harmony Biosciences' expert used synchrotron X-ray powder diffraction (s-XRPD) on MSN Pharma's generic product to demonstrate it had the same chemical signature of Wakix as outlined in the '197 patent. The expert used a software program called TOPAS to normalize the data for analysis.
• MSN Pharma's expert claimed that analysis was flawed because it didn't use a certain setting in the TOPAS software that helps to determine when a peak is present or not.
• Both parties had specific information from the other's expert reports stricken from the record prior to bench trial.

Both Harmony Biosciences and generic drug developers have pitolisant hydrochloride. These are identical molecules – they have to be. The FDA wouldn't approve the ANDA if a generic product differed from the originator.

But from a legal standpoint, generic drug developers might be able to argue they don't infringe on the '197 patent due to how the patent was written and/or the specific logic used in the expert reports compiled by Harmony Biosciences.

What a mess.

What Happens After the Ruling is Issued?

Even if Harmony Biosciences wins out in the end, the level of uncertainty for investors has definitely increased.

• Scenario 1 (Best): The smoothest outcome would be for the patent infringement case to resolve in the company's favor, which then forces generic drug developers to reach settlement agreements. That would delay the market launch of all generic versions of pitolisant (Wakix) to 2030.
• Scenario 2 (Generic appeal): The next-best outcome would be for the patent infringement case to resolve in the company's favor, but generic drug developers appeal the decision. That would leave legal proceedings hanging over the stock in the near term.
• Scenario 3 (Harmony appeal): A not-so-great outcome would be for the patent infringement case to go against the Wakix owner. That would likely be followed by an appeal, which would add uncertainty to the investment and have legal proceedings hanging over the stock in the near term.
• Scenario 4 (Harmony loses and no appeal): The worst-case scenario would be for the patent infringement case to go against the Wakix owner and it doesn't appeal the decision. That would allow generic drug developers, potentially including those who have already reached settlements and been dropped from the court case, to launch generic versions of pitolisant before 2030. The exact timing of potential market launches isn't clear.

Even with all the drama, it's difficult to imagine Harmony Biosciences won't emerge victoriously in the end. That doesn't mean it'll be a good investment in the meantime, from my cost bases, or when the dust settles.

The company isn't helpless or unable to respond.

Wakix GR (patents to 2044)

The FDA is expected to make an approval decision for the gastro-resistant (GR) formulation of pitolisant in Q1 2027. If approved, then Wakix GR would launch for adult narcolepsy patients. A pediatric approval could be issued simultaneously or later.

Many current, prior, and new patients could be switched to the new formulation upon launch. However, if generic Wakix products are also available sooner than expected, then the new formulation alone won't be enough to fully protect the company's market share. It would likely need to reduce selling prices of Wakix GR.

Wakix HD (patents to 2044)

Harmony Biosciences is conducting a pivotal bioequivalence study called ONSTRIDE 1 evaluating a gastro-resistant, high-dose formulation of pitolisant. That would allow Wakix HD to have the same approvals as Wakix and Wakix GR. However, the study is also designed to potentially earn a novel label for treating fatigue in narcolepsy patients, in addition to excessive daytime sleepiness (EDS) and cataplexy.

The company is conducting a second study called ONSTRIDE 2 to evaluate the high-dose formulation as a treatment for idiopathic hypersomnia (IH). Xywav from Jazz Pharmaceuticals is only treatment approved for IH.

Both studies are expected to have topline data readouts in 1H 2027, which suggests an FDA approval decision date in 2H 2028.

Pipeline Assets

All eyes will be on the Wakix franchise because, well, that's what generates all the revenue. Two other assets could add to the narrative or make larger contributions to future models.

The most important pipeline asset outside the Wakix franchise is the orexin-2 receptor (OX2R) agonist drug candidate '15205. Investors can expect preliminary phase 1 data in mid-2026. If the highly-potent molecule shows initial promise, then it could alleviate some pressure on the core franchise.

There's also EPX-100, which is being evaluated in a pair of pivotal studies for the rare epilepsies Dravet syndrome (DS) and Lennox-Gastaut syndrome (LGS). These are excluded from my model, but could have a decent-sized commercial opportunity due to a clean safety profile, allowing for various combinations with other agents. The same favorable combination potential is one reason Wakix has enjoyed such strong commercial momentum.

Cash and Balance Sheet

Throwing a generic wrench into the Wakix franchise gears would certainly hurt. At the same time, Harmony Biosciences likely began 2026 with over $700 million in cash. It should still be able to generate positive cash flow for 2026 and maybe in the early days of would-be generic launches.

So even in a worst-case scenario for generic challengers, it'll have a cash runway through the potential launches of both Wakix GR and Wakix HD.

Margin of Safety & Conviction

Harmony Biosciences is considered a Current Compounder position with the following Conviction rating.

• 1 = High
• 2 = Above Average
• 3 = Average
• 4 = Below Average

The estimated fair valuation based on my current model is below:

• Market close February 20: $29.16 per share
• Modeled Fair Valuation: $65.32 per share
• Allocation Range: Up to 5%

Harmony Biosciences reported 57.596 million shares outstanding as of October 31, 2025. The modeled fair valuation above assumes 58.460 million shares outstanding, which is equivalent to 1.5% dilution.

Further Reading

• Landing page for rulings from the judge in the patent infringement case. The ruling will be published there when it is final and public.
• June 2025 research note introducing coverage of Harmony Biosciences and the generic competition risk