I Was Shocked to Find This Value-Priced Biotech Growth Stock

It's tough to be a value investor. For much of the past 15 years, the market environment has featured growth stocks that appear to be very expensive by most conventional value metrics. Even though many stock analysts have argued that they're overpriced, their share prices have continued to rise, often because their underlying businesses have performed just as well as bullish shareholders had hoped. Aggressive value investors who have sold some of these growth stocks short have learned a painful lesson.

In my quest to find interesting stocks for my Voyager Portfolio, I chose not to rule out any sector of the stock market. Plenty of my peers have more experience with biotechnology stocks than I do, but that didn't stop me from looking into them. And what surprised me in my exploration was that there was a stock that would make a traditional value investor highly interested. Harmony Biosciences (NASDAQ: HRMY) isn't a household name, but its stock price doesn't seem at first glance to reflect the business success the company has enjoyed. In this first article in a three-part series on Harmony, you'll learn more about the biotech company's history and where it finds itself today.

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Choosing a road less traveled

The first decision any biopharmaceutical company has to make is where to concentrate its attention. Conditions like cancer, heart disease, and lung disease have millions of sufferers worldwide, offering a huge potential market for researchers who eventually find novel and effective therapies. However, there's a lot of competition in looking for life-saving treatments in these areas. A new company might hesitate to go up against the giants of the drug industry from day 1.

Alternatively, some companies choose to focus on rarer diseases. These conditions don't have as big of a prospective patient base, but there are often few if any treatments that these smaller pools of patients can turn to for help. And with less competition, a successful rare-disease treatment can give the company that developed it a lucrative monopoly for at least some period of time.

Harmony has chosen to go the second route , targeting rare neurological disorders that don't have treatments that are meeting patients' current needs.

Harmony and the story of pitolisant

In August 2019, before it came public in its 2020 initial public offering, Harmony Biosciences received approval from the U.S. Food and Drug Administration for its pitolisant treatment for narcolepsy. Marketed under the brand name Wakix, this treatment still represents the only FDA-approved narcolepsy option that isn't scheduled as a controlled substance.

Roughly 80,000 patients in the U.S. have been diagnosed with narcolepsy, but Harmony estimates that another 90,000 people suffer from the diseases without ever receiving a positive diagnosis from a medical professional. Out of this pool of 170,000 patients, Harmony has gotten out to a good start in its first five years of marketing Wakix, with about 8,000 patients taking the drug. New patients are coming on board at a pace of several hundred per quarter. That makes Wakix one of the most successful launches ever among treatments targeting rare diseases.

Two avenues to financial success

The success of Wakix puts Harmony in an attractive position that makes it the envy of many other young biotech companies. Wakix is generating revenue and profits and has experienced rapid growth. In addition, Harmony has an extensive pipeline of candidate treatments, both to supplement its expertise in treating narcolepsy and to expand the scope of its business to cover other diseases.

Best of all, Harmony can use the capital it gets from Wakix to fund its research elsewhere. In the next article in this series, you'll see just how lucrative the narcolepsy market has been for Harmony and what it expects for the future.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.