You ZYN some and you lose some. At least after this you won't have to read any more pipeline puns.

Harmony Biosciences announced the pivotal RECONNECT study evaluating ZYN002 as a treatment for behavioral symptoms of Fragile X syndrome (FXS) failed to meet its endpoints. The company didn't disclose data, but the press release mentioned the study flopped due to a higher-than-expected response rate in the placebo group. That's a common failure mode for neuro studies.

I thought a position in Harmony Biosciences offered a favorable risk/reward profile from my entry point of $30 per share. If the study succeeded, then investors had the opportunity to see a significant gain in shares. If the study failed, then the profitable business could backstop any slide in shares or offer the potential for a near-term recovery.

Unfortunately, the study flopped. What happens next?

Exit Scenarios in Near Term

Investors might be able to limp away from positions without much pain. Shares are down roughly 8% in the first few hours of the trading day, which is better than expected. The business was valued at just 10.4x my modeled earnings based on the market close prior to the announcement, so there wasn't a huge premium baked in anticipating positive study results.

Harmony Biosciences will provide its Q3 2025 update in November, which could remind investors of the underlying strength of the business. I expect to exit my position shortly after that.

The business does have $150 million remaining on its share repurchase program. However, management has recently talked up merger and acquisition (M&A) potential, meaning it would be looking to acquire external assets, which could reduce its willingness to use cash to repurchase shares.

The failure in FXS means the company will not pursue a pivotal study in 22q deletion syndrome. ZYN002 will be terminated and no further development will occur.

Exit Scenarios by End of 2026

By the end of 2026, investors can expect a potential PDUFA date (regulatory decision) for the gastro-resistant coating formulation of pitolisant, or Wakix GR. The company seems to have deprioritized this asset in recent communications though, which could hint it will instead focus on the high-dose, gastro-resistant coating formulation, or Wakix HD, that's a couple years behind.

There will also be multiple data readouts for EPX-100 in rare epilepsies, but it's difficult to analyze the asset's potential. The molecule is clemizole, which has shown efficacy signals in small studies, but most patients stopped benefitting from treatment after three months.

News Flow & Modeling Insights

(Reduced, removed ZYN002 contribution.)

My current model is based on properly valuing the underlying business, assuming no threat from generic competition to Wakix.

The rest of the pipeline, from new formulations of pitolisant to the late-stage rare epilepsy franchise, make no contribution yet. Assets will make more or less contributions as data accumulates in the next 18 months, or by the end of 2026.

Harmony Biosciences has a modeled fair valuation of $3.742 billion or $64.08 per share.

The current model makes the following assumptions about key operating metrics:

• Full-year 2025 revenue of $835.222 million, compared to $840 million at the midpoint of guidance.
• Full-year 2025 operating expenses of $431.150 million, marking an increase of 17.5% from the year-ago period.
• Full-year 2025 net income of $178.836 million or GAAP earnings per share (EPS) of $3.10. The year-end outstanding share count is expected to be 58.396 million, which excludes transactions under the share repurchase program or a potential public offering of common stock. This does not account for one-time charges, adjustments, or acquisitions.

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 September 23: $32.07 per share
• Modeled Fair Valuation: $64.08 per share
• Allocation Range: Up to 5%

Harmony Biosciences reported 57.533 million shares outstanding as of August 1, 2025. The modeled fair valuation above assumes 58.396 million shares outstanding, which is equivalent to 1.5% dilution.

Further Reading

• September 2025 press release announcing RECONNECT study outcome
• August 2025 research note analyzing scenarios for the pivotal RECONNECT study based on successful or failed outcomes
• September 2025 press release announcing Q2 2025 operating results
• September 2025 regulatory filing (10-Q) detailing Q2 2025 operating results