After Twist and Ginkgo campaigns, Scorpion Capital aims stinger at Harmony Biosciences

Short seller Scorpion Capital is unleashing its venom in a new report rebuking Harmony Biosciences and its narcolepsy drug Wakix, drawing comparisons to the Aduhelm debacle. The firm has branded Harmony’s rollout one of the most “thoroughly corrupt healthcare schemes in recent years.”

Scorpion says (PDF) it will imminently file a citizen’s petition with the FDA to snatch back the approval for Harmony Biosciences’ sleepiness drug, which won approval in August 2019 after Harmony picked up the U.S. rights from France’s Bioprojet in 2017.

Harmony, for its part, says it disagrees with Scorpion's report. 

"We remain committed to helping those who live with devestating rare diseases, and our science has been subject to peer review and received global regulatory approval," a spokesperson said.

The company added that it's seen nothing public regarding a citizen petition for approval withdrawal at this time. 

Scorpion launched into its stinging report by calling for "scrutiny” of Harmony’s Wakix operations, citing “Congressional outrage” at previous “ploys” by the company’s founder.

Jeff Aronin, the man behind Harmony, is no stranger to criticism. In 2017, Marathon Pharmaceuticals, where Aronin was CEO, took heat for an $89,000 price tag on an old-steroid-turned-pricey-branded-drug Emflaza.

After drawing the ire of trade group PhRMA for that move, frequent pharma critics Sen. Bernie Sanders, I-Vermont, and the late Rep. Elijah Cummings, D-Maryland, piled on. Marathon at the time paused Emflaza’s launch before it even began.

In its new report, Scorpion blasted Aronin as the person who inspired Martin Shkreli, the exiled “Pharma Bro” whose former company Turing infamously hiked the price on toxoplasmosis drug daraprim overnight.

Scorpion claims it obtained dozens of serious side effect reports through Freedom of Information Act filings with the FDA. Those documents, the short seller says, paint a “devastating picture” of the drug’s risk, even when it’s used by young and otherwise healthy patients.

The short seller called Harmony’s studies a “poster child for the weaknesses and loopholes in the FDA's fast-track approval process.”

On the commercial front, Scorpion argues the med’s sales rely solely on a handful of physicians compensated via speaker programs that constitute a “blatant kickback scheme.” The investor further contends off-label prescribing has allegedly driven 40% or more of Harmony’s prescriptions.

Harmony's shares were down some 26% on news of the report. Still, it might be wise to take the short attack with a grain of salt. 

To hear Mizuho Securities analysts tell it, the report's language, accounts and evidence are "potentially misleading and inflated, perhaps even sensational in nature."

In a note to clients Tuesday, the analysts said some of the accounts of Wakix were in line with the group's views, acknowledging Scorpion's claims "may warrant a level of scrutiny."

That said, Mizuho hadn't previously identified Wakix's safety as an issue, which echoes the FDA's own communications. Plus, the drug's recent approval in young kids in Europe adds an extra layer of "comfort," they said. 

Mizuho concluded its note by suggesting today's stock weakness was "overdone" and presents a "potential buying opportunity."

Scorpion, which claims on its website that it uncovers “what investors have missed and Wall Street is paid to ignore,” has a history of publishishing reports like this one. Back in November, Scorpion branded DNA weaver Twist Bioscience a “cash-burning inferno.”

And in October 2021, the short-seller targeted Ginkgo Bioworks, calling the company’s work a “hoax for the ages” just a few short weeks after Ginkgo went public through a $1.6 billion SPAC deal.

Editor's note: This story has been updated with details from an analyst note by Mizuho Securities.