If you don't like what people are saying, then change the conversation. The management team at Harmony Biosciences… didn't do that on the fourth-quarter 2025 earnings conference call. Then again, there's probably only so much an executive team is allowed to say about the pending patent litigation case.

Still, it would've been nice to see management address the situation more directly. Couldn't company lawyers have signed off on a single dedicated slide in the quarterly investor presentation that outlined what has happened and what might happen? Shares have been sliding as analysts interpreted remarks from the judge in the bench trial as being negative for Harmony. But that doesn't really mean anything. I can't find many details about what, specifically, was said.

Is the key composition of matter patent potentially invalid, and why? The details matter for a potential appeal, and the likelihood of success.

Did the company simply fail to prove infringement due a procedural error? It appears Harmony's initial report – the very thing that establishes patent infringement in these cases – was tossed because they filed it too late. The expert report it had to rely on during the bench trial seemed sufficient, but the judge scolded the company's sloppiness. The judge also appeared to take issue with the analytical technique used in the expert report, which differed from that described in the patent. (The disallowed initial report used the "correct" technique.) An unforced error like that is embarrassing and explains why analysts were caught so flat-footed, but also makes a successful appeal more likely. Chemistry is chemistry, filing deadlines or not.

Management didn't shy away from answering analyst questions, but missed an opportunity to remove more uncertainty and provide its interpretation of events. Instead, it took a more passive approach to the unfolding situation.

Harmony Biosciences unveiled it reached settlement agreements with three additional generic drug developers in January 2026 prior to the bench trial. That left AET Pharma as the only remaining challenger, but it only takes one to throw a wrench in Wakix's commercial trajectory. The business reiterated full-year 2026 revenue guidance of at least $1 billion for Wakix. Management is either confident there won't be any generic threat during the current calendar year, or waiting until a final ruling is issued to potentially withdraw or reduce guidance.

The company did offer investors a new thread to pull by unveiling a fourth unique formulation of pitolisant. Different from Wakix, Wakix GR, and Wakix HD, the new formulation is being engineered as a potential treatment for fatigue in various neuro indications. Harmony Biosciences will initially focus on multiple sclerosis (MS) fatigue, but is interested in exploring Parkinson's disease fatigue and post-stroke fatigue.

By the Numbers

Harmony Biosciences remains a strong business due to the continued commercial momentum of Wakix. That, of course, is why analysts are reacting so proactively to raised eyebrows and side eyes from the judge during the patent infringement case. If Wakix is exposed to generic competition in 2027, then the investment thesis unravels.

The brand added 400 patients during the fourth quarter, marking the first time since launch that patient additions exceeded 400 for three consecutive quarters.

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Surging patient starts and retention were the driving force behind a strong 2025 campaign. Full-year revenue grew to $868.4 million, a 21.5% increase from 2024. That allowed the business to generate $112 million more gross profit last year compared to the year-ago period. However, that was almost entirely offset by a $94.5 million increase in operating expenses during the period.

Investors shouldn't be surprised that R&D expenses are increasing as the pipeline matures and late-stage studies are nurtured to completion. The good news is that the $27.6 million spent supporting ZYN002 during 2025 will not be repeated again this year due to the asset's termination. The not-so-great news is that soaring expenses for new pitolisant formulations and EPX-100 will more than offset would-be savings.

What's more uncertain and worth keeping an eye on is the impact of the patent litigation on the company's financials. Harmony Biosciences reported a year-over-year increase of $42.2 million for general and administrative (G&A) expenses, which was almost entirely explained by a $39 million increase in professional and legal expenses in the case.

Dig a little deeper and the business has set aside an additional $30 million in accrued expenses related to the litigation. This would be expected to increase in 2026, especially if AET Pharma settles for a huge payday.

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The timing of patent litigation expenses and settlement payments, and how they're recorded in the interim, helps to explain how the business generated such strong cash flow in 2025 – a $130 million increase from 2024.

There's no denying the business is healthy so long as Wakix defends its kingdom, but just remember at least some of the full-year 2025 operating cash flow of $348 million was artificially increased due to the timing of payments. That will increase overall cash burn, not necessarily operating cash burn, in 2026.

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Harmony Biosciences ended 2025 with $882 million in cash, cash equivalents, and investments. The relatively large increase last year reflects the maturity and the efficiencies of scale of Wakix. It also provides flexibility for navigating the road ahead, whether it's business as usual or generics are able to enter the market in 2027. If Wakix stopped generating revenue after December 31, 2026, then the business could fund itself through 2030 with cash on hand.

That's good, but not a scenario investors want to test in real life.

Management hinted – unprompted – that it could still pull the trigger on its $150 million share repurchase program. That would represent almost 10% of the business.

Meanwhile, if AET Pharma can be coaxed into a settlement, then it might cost Harmony Biosciences $100 million or more. Investors also shouldn't rule out the possibility Harmony pays AET Pharma a royalty in the next few years as a compromise. Whether lump-sum settlement or royalty (or both), delaying all generic competition to some point in 2029 would allow the business to generate cash flow in all of 2026, 2027, and 2028 – removing all uncertainty related to generic threats and providing time to launch Wakix GR and potentially Wakix HD.

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The timing of patent litigation payments and settlements is also reflected in earnings per share (EPS) trends. Remember, some items were expensed on the income statement in Q4 2025 (reducing earnings and cash flow) while others were held as liabilities on the balance sheet (the impact on earnings and cash flow will be recorded in a future period).

In the final period of 2025, trailing 12-month (TTM) EPS declined relative to stronger subsequent periods, but increased on a year-over-year basis. The business enjoyed a lower overall tax burden last year, but saw a heftier bill in Q4.

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Patent Infringement Litigation

As I've made clear in my models to date, I didn't expect any threat from generic competition until 2030. I wasn't even paying attention to the bench trial because I figured this is drug development, and when the hell does an ANDA challenger ever win in court? I've been caught a little flat-footed by recent events.

Here's the latest:

• Seven generic drug developers filed abbreviated new drug applications (ANDA) with the FDA and intended to launch generic versions of pitolisant before key patents expired in 2029 and 2030.
• Harmony Biosciences sued all seven for patent infringement and pooled them into a single court case in the District Court of Delaware.
• One challenger, AET Pharma, couldn't be brought to settlement prior to the bench trial in the District Court.
• A post-trial briefing schedule and closing arguments haven't been scheduled yet. A District Court ruling is typically issued within a few months of the bench trial, but can take up to 12 months. The case is stayed until February 2027, but the stay would be lifted once a ruling is issued. AET Pharma cannot launch its generic pitolisant while a stay is in place (and it has to win the case).
• Either party can appeal a District Court ruling to the U.S. Court of Appeals on the Federal Circuit. An appeal is reviewed by a panel of three judges. There is no new hearing, but rather a review of what has happened and opening arguments to ensure District Courts made the correct decision in more complicated areas of patent law, like pharmaceutical patents. The Federal Circuit can take up to 12 months to issue a ruling.
• Either party can appeal a Federal Circuit ruling to the Supreme Court of the United States (if it agrees to take the case).

If for no other reason than to delay generic entry, Harmony Biosciences would be expected to appeal an unfavorable ruling from the District Court. That helps to explain why management didn't find it necessary to withdraw revenue guidance for this year. An appeal to the Federal Circuit would almost certainly delay AET Pharma from launching until 2027 at the earliest.

AET Pharma could also appeal an unfavorable District Court ruling, but would likely agree to a settlement instead. It has already earned itself the right to a bigger settlement than any other ANDA challenger simply by gutting it out at the bench trial. Additionally, it could earn a 180-day exclusivity period relative to the next-earliest generic entry.

In other words, if Harmony Biosciences and AET Pharma agree to a settlement after all the drama, then the generic challenger could earn a payout greater than $100 million and potentially a royalty on Wakix sales, in return for delaying launch to sometime in 2029. That would be roughly 12 months before the key patents expire, but it's a lot better than potentially launching in February 2027 without a settlement.

Harmony Biosciences can extend the exclusivity period of Wakix by six months if it earns FDA approval in Prader-Willi Syndrome (PWS). The pivotal study will have a topline data readout before the end of 2026 and could earn approval in 2028.

That's cutting it a little close assuming things don't blow up sooner. But it would delay generic launches for Novugen, Annora, Lupin, and Novitium to June 2030. Hikma wouldn't be able to launch until March 2030. That would just leave MSN Pharma's confidential settlement terms and AET Pharma's go-for-broke strategy as the only unknowns.

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If Harmony Biosciences ultimately loses the patent litigation and all appeals, then generic challengers who have already reached settlements would be able to launch sooner. It's a mess investors hope to avoid.

News Flow & Modeling Insights

(2026 model introduced.)

The current model has the following components:

• Generic competition now expected in 2029 by up to three ANDA challengers (earliest previously was January 2030)
• Wakix (updated)
• Risk-adjusted valuation of Wakix GR (new)
• Full-year 2026 operations (updated)

All other assets are excluded. The orexin-2 receptor (OX2R) agonist can be added after initial pharmacokinetic (PK) data are shared in mid-2026.

Generic competition. In addition, the model excludes a successful phase 3 study in Prader-Willi Syndrome (PWS) in late 2026. The failure means pitolisant cannot extend its exclusivity period by six months, which results in generic competition entering the market sooner than expected.

It now seems likely three ANDA filers will be able to launch in 2029: AET Pharma (as early as January), MSN Pharma (confidential but likely earlier than September), and Hikma Pharma (confirmed September).

Wakix. That's not a showstopper scenario by any means, but chopping one year off the novel life of Wakix reduces the overall value of future earnings and cash flows. That offsets the positives elsewhere in the business and/or my model, but the estimated fair value of Wakix is still a respectable $52.26 per share (previously $65.32 per share).

Whereas the previous model only included Wakix, the current model now includes both Wakix and a risk-adjusted contribution from the gastro-resistant (GR) formulation.

Wakix GR. Harmony Biosciences expects to submit a new drug application (NDA) for Wakix GR in Q2 2026 (if they don't mess up this paperwork, who knows!). The application would be eligible for a standard 10-month review, which means the PDUFA date will land somewhere in Q1 or Q2 2027.

(Fan Finch fiction: The company could purchase a priority review voucher to get a decision in Q4 2026, but that's not part of the model.)

Although Wakix GR has peak sales potential of only $265 million, it should be ample to ramp to peak relatively quickly. Harmony Biosciences has a giant patient database of individuals who discontinued due to gastrointestinal issues and could reach back out to doctors with good news. The asset could achieve up to $80 million in revenue in 2027. This would be a minimal lift for the sales team, which is expected to grow headcount 25% this year, and a quick cash generator.

To be clear, Wakix GR cannot replace Wakix. It cannot generate enough cash flow to offset all expenses, but it could offset 40% of total operating expenses at its peak. That's not too bad. Let's hope we don't have to find out though.

As for full-year 2026 operating metrics, I'm sharing more detail than usual given the uncertainty surrounding the business:

• Full-year 2026 revenue of $997 million, representing an increase of 14.8% from sales of $868.453 million in 2025. Guidance expects $1.00 billion to $1.04 billion.
• First-quarter 2026 revenue of $215 million, compared to $184.733 million in Q1 2025 and $243.776 million in Q4 2025. This reflects normal seasonality for Wakix in the opening frame of every calendar year.
• Full-year 2026 gross margin of 75.5% compared to 77.2% in 2025 and 78.1% in 2024. Gross margin is highest in Q1 (>80%) and declines throughout the year, including the first second-quarter reading below 80% in the franchise's history.
• Full-year 2026 operating expenses of $522 million, excluding patent litigation settlement payments, in-process R&D (IPR&D) expenses, and potential business development. This includes a quarterly average R&D spend of $57.5 million (an increase of 48% from 2025) and sales & marketing expenses of $40.0 million (an increase of 33.8% from 2025). All numbers include non-cash expenses.
• Full-year 2026 operating cash flow of $235 million, including patent litigation expenses in Q1 that result in negative cash flow during the quarter. This excludes possible patent litigation expenses incurred after the bench trial in February 2026.
• Full-year 2026 GAAP net income of $3.40 per share. This excludes patent litigation settlement payments, in-process R&D (IPR&D) expenses, and potential business development.

But, you know, what if the patent litigation blows up everything? There are too many scenarios to model, so let's talk about the worst-case scenario.

A worst-case scenario likely reflects the following circumstances:

• The first generic pitolisant launches in 2027. It seems reasonable that Harmony would appeal an unfavorable ruling in the District Court case. That process would likely conclude in late 2026 in the most expedited timeline. Let's assume it all falls apart and for whatever reason the patents are invalid or unenforceable.
• Let's assume all the settlements with ANDA filers to date – you know, the other four generic drug developers in addition to the two already mentioned above – unravel. And eventually there are eight total pitolisants on the market.
• Does it really matter if the dam breaks in 2027 or 2028? The stock will reflect the sad reality: small molecule brands like Wakix often lose 90% of their market share in the first year of generic competition.

If the company doesn't do anything stupid with its cash position this year, then it should begin 2027 with $1.12 billion in cash. Investors could expect the business to burn up to $400 million in cash next year. But if Wakix GR can even just glide to its peak revenue potential, then the cash runway would extend into 2030.

That would leave plenty of time for launches of Wakix HD and potentially EPX-100. Then again, there's no guarantee either will succeed in pivotal studies.

If the generic threat kicks down the door in this worst-case scenario, then Harmony Biosciences could trade at a fraction of its cash balance. We're talking like $10 per share or less. That could happen the day the ruling is issued. Like soon.

Margin of Safety & Conviction

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

• 1 = High
• 2 = Above Average (previous)
• 3 = Average (current)
• 4 = Below Average

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

• Market close February 24: $28.19 per share
• Modeled Fair Valuation: $56.20 per share
• Allocation Range: Up to 5%

Harmony Biosciences reported 57.841 million shares outstanding as of February 20, 2026. The modeled fair valuation above assumes 58.708 million shares outstanding, which is equivalent to 1.5% dilution in the next 12 months.

Further Reading

• February 2026 press release announcing Q4 2026 operating results
• February 2026 regulatory filing (10-K) detailing Q4 2026 operating results
• February 2026 research note discussing immediate aftermath of District Court bench trial in patent infringement case