Supernus Pharmaceuticals, Inc. (SUPN) Q3 2021 Earnings Call Transcript

Good afternoon, and welcome to Supernus Pharmaceuticals' Third Quarter 2021 Financial Results Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Peter Vozzo of Westwicke Investor Relations representative for Supernus Pharmaceuticals. You may begin.

Thank you, Nika. Good afternoon, everyone, and thank you for joining us today for Supernus Pharmaceuticals' Third Quarter 2021 Financial Results Conference Call. Today, after the close of the market, the company issued a press release announcing these results. On the call with me today are Supernus' Chief Executive Officer, Jack Khattar; and Chief Financial Officer, Tim Dec. Today's call is being made available via the Investor Relations section of the company's website at ir.supernus.com. Following remarks by management, we will open the call to questions. During the course of this call, management may make certain forward-looking statements regarding future events and the company's future performance. These forward-looking statements reflect Supernus' current perspective on existing trends and information. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in the Risk Factors section of the company's latest SEC filings. Actual results may differ materially from those projected in these forward-looking statements. For the benefit of those of you who may be listening to the replay, this call is being held and recorded on November 3, 2021. Since then, the company may have made additional announcements related to the topics discussed. Please reference the company's most recent press releases and current filings with the SEC. Supernus declines any obligation to update these forward-looking statements, except as required by applicable securities laws. I will now turn the call over to Jack.

Thank you, Peter. Good afternoon, everyone, and thanks for taking the time to join us as we discuss our 2021 third quarter results and recent developments. During the third quarter, we continued to execute on our long-term growth strategy and the 2023 Trokendi XR transition, as highlighted by the announcement in October of the proposed acquisition of Adamas Pharmaceuticals. This acquisition represents a significant step in further building a strong and diverse Parkinson's disease portfolio and aligns with our focus of acquiring value enhancing, clinically differentiated products to treat CNS diseases. The acquisition will increase our revenue base and cash flow and reduce our dependency on Trokendi XR. The transaction is also expected to be accretive in 2022. Regarding Qelbree, the launch is progressing well in line with our forecast. As expected, prescription growth accelerated as we entered the back-to-school season. For the month of September, total prescriptions were 7,132, an increase of 37% compared to the month of August and an increase of 118% compared to the monthly average during the three months leading up to September. In addition, the latest weekly prescriptions data shows total prescriptions of 2,248, an increase of 51% compared to the weekly average over the prior 12-week period. We also saw a significant increase of 340% in Qelbree's base of prescribers during the third quarter of 2021 compared to the second quarter of 2021, with more than 3,470 physicians prescribing the product. On the managed care front, we have made great progress by securing coverage with one of the key PBMs and advancing discussions with the others. Also in Medicaid, Qelbree is now covered as Tier 2 or better for 48% of all Medicaid lives versus 7% in the second quarter. During the third quarter, we received acknowledgment by the FDA that they received our supplemental NDA for Qelbree to treat adult ADHD patients and that they have assigned a PDUFA date of April 29, 2022. We continue to make progress on the apomorphine infusion pump or SPN-830 and expect to file the NDA in this month. For SPN-820, the IND was filed in September 2021, and the Phase II clinical study for treatment-resistant depression remains on track for initiation by the end of 2021. We are also pleased by our progress on SPN-817, with the Phase II program now targeted to start in the first half of 2022 for the treatment of focal seizures in adults. Recall that SPN-817 represents a novel mechanism of action for an anticonvulsant and utilizes a synthetic form of huperzine A, which is a potent acetylcholinesterase inhibitor with pharmacological activities and CNS conditions, such as epilepsy. In addition to the above, we have achieved significant milestones with our internal research program. The program focuses on generating our own new chemical entities that target various CNS conditions. Recently, two new chemical entities, SPN-443 and SPN-446, were nominated for further development after successfully completing initial preclinical screening and lead optimization activities. Additional novel molecules are also undergoing further optimization before being nominated for further development. Moving on to the commercial products, we continue to be pleased with the performance of Trokendi XR and Oxtellar XR despite declines in prescriptions and the reduced promotional efforts by the company. Since the launch of Qelbree, the products have been promoted by a much smaller neurology sales force that is focusing its efforts on supporting the current prescriber base. For the first nine months of 2021, the two products combined delivered net product sales of $314 million, essentially flat compared to $317 million in the same period last year. On Apokyn, the year-over-year decline in net product sales was due partially to a higher level of channel inventory in the same quarter last year, as well as the lingering effects of competitive dynamics that have prevailed for the last 12 months. Finally, in addition to the significant corporate development activities over the past year and a half, we continue to be active in looking for strategic opportunities to further strengthen our future growth and leadership position in CNS. With that, I will now turn the call over to Tim.

Thank you, Jack. Good afternoon, everyone. As I review our third quarter and year-to-date results, please refer to today's press release. Total revenue for the third quarter 2021 was $148.5 million, a 4% decrease compared to $155.1 million in the same quarter last year. Total revenue in the current period was comprised of net product sales of $145.6 million and royalty revenue of $2.9 million. The decrease in net product sales in the third quarter was due to a decrease in net product sales of Apokyn and Trokendi XR. This decrease was partially offset by an increase in net product sales from our other products. Qelbree was launched in late May of this year and we are very happy to report $2.4 million of net product sales in the first quarter of launch. Qelbree net sales included temporarily high commercial co-pay deductions as we support patients during the early launch period, while we continue our commercial contracting efforts to establish access for patients. For SG&A, third quarter 2021 expenses were $72 million compared to $54.5 million in the same period last year. This increase was primarily due to activities to support the launch of Qelbree. Research and development expenses were $19.7 million for the third quarter of 2021 compared to $16.8 million in the same period last year. The increase was due to higher regulatory costs related to the acquired products and costs associated with MyBlock post-market commitment studies. Operating earnings were $32.6 million for the third quarter of 2021 compared to $56.1 million in the same period last year. Net earnings were $21.6 million for the third quarter of 2021, or $0.40 per diluted share, compared to $40 million or $0.74 per diluted share in the same period last year. For the first nine months of 2021, total revenue was $420.7 million, a 12% increase over $376.8 million in the same period last year. Total revenue is comprised of net product sales of $412.5 million and royalty revenue of $8.2 million. The increase in net product sales in the first nine months of 2021 was due to the acquisition of the CNX products from US WorldMeds in June 2020. Cost of goods sold for the first nine months of 2021 was $58.1 million as compared to $33.9 million for the same period last year. The increase was primarily due to royalties associated with the acquired products and cost for rejected MyBlock inventory. SG&A expenses in the first nine months of 2021 were $203 million compared to $144.2 million in the same period last year. This increase is primarily due to activities to support the launch of Qelbree. Research and development expenses in the first nine months of 2021 were $69.4 million compared to $58 million in the same period last year. The increase is primarily due to the $15 million accounting charge for the Navitor corporate restructuring. The contingent consideration gain for the first nine months of 2021 was $7.7 million. This reflects the charge to the purchase price milestones we expect to pay to US WorldMeds. For the first nine months of 2021, operating earnings were $79.9 million compared to $130.7 million in the same period last year. Net earnings were $51 million for the first nine months of 2021, or $0.94 per diluted share, compared to $96.2 million or $1.79 per diluted share in the same period last year. As of September 30, 2021, the company has $849.3 million in cash, cash equivalents and marketable securities compared to $772.9 million as of December 31, 2020. For the full year 2021, the company is adjusting its financial guidance. Please note that no transaction costs associated with the Adamas acquisition are reflected in this new guidance. We are lowering the top end of our revenue guidance range. This range is now $550 million to $570 million from $550 million to $580 million previously. For the full year 2021, we are lowering our combined R&D and SG&A expenses to a range of $370 million to $400 million from a range of $380 million to $410 million previously. In addition, we are increasing our expectations for operating earnings to a range of $90 million to $95 million from a range of $70 million to $90 million previously. We continue to expect full year 2021 amortization of intangible assets of approximately $24 million and a full year 2021 effective tax rate of 28% to 31%. Given the magnitude and growing number of product acquisition-related items, starting in 2022, we will be adding non-GAAP financial measures to our quarterly earnings press release as we believe they provide greater transparency and can assist in understanding and assessing Supernus' business, as well as reflect how we manage the business internally and set operational goals. The non-GAAP financial measures that will adjust our GAAP results will be amortization of intangibles, depreciation, stock-based compensation, transaction costs and the income tax effect of those charges. With that, I will now turn the call back to the operator for Q&A.

Your first question comes from the line of David Steinberg from Jefferies.

I have a couple of questions. Just generally, Jack, first off, how’s Qelbree doing versus your expectations during the all-important back-to-school season? And then just a little granularity on some of the metrics you might use in terms of sampling payer access? I know that, for example, in sampling you indicated that you're putting 25,000 samples into the field. Is that still the same? Have they been used up? Have you put any more samples in? And where are you in coverage? And then I have a follow-up after that.

As we mentioned and we said the same thing basically last quarter, it is actually tracking exactly per our forecast even on shipments and prescriptions. So, so far, we're pretty pleased with the performance of the launch. Specifically regarding sampling, yes, we continue to sample and there will be and will continue to be an ongoing activity for us. Of course, at the beginning of the launch, and we are still in the launch mode, obviously, that will continue to be on the heavier side. But as time goes on, on an ongoing basis, it will become more measured in line with, obviously, the uptake and the physicians' activities. As far as the payer access, as I mentioned in my remarks, we're really pleased with the progress that we've made in the last quarter. We've signed up one of the very important key PBMs. So they're on board and the product is now covered, and we're already seeing tremendous traction because of that. And also, we've made similar progress on the Medicaid. So we have now about 50% of the Medicaid lives approximately with a Tier 2 or even better coverage. So we're pretty pleased with that. It's taking time but we expected that and that's why, obviously, for this year, our guidance on Qelbree is where it is as far as the net sales. But again, back to the initial question you had, I mean, gross sales are tracking exactly as we expected at this time of the year in the launch.

I have a follow-up on the sampling. You mentioned, Jack, that it’s substantial. When do you think we’ll have a more accurate read on actual demand, comparing what we see in scripts with the actual usage by patients? Additionally, you mentioned that adult approval is expected next April. Are you observing any off-label use? In terms of the pill sizes, the cost for the 100 to 200 milligram dose is about $300, but for doses above 200 milligrams, which I assume includes all adults and older children, it’s nearly $600. What are you seeing regarding the percentage of pills in the 100 to 200 milligram range versus those over 200 milligrams?

On the conversion, I mean, this is more of a rule of thumb, you would expect maybe 25% to 50% of the samples to work through in the first six months or so. It's a little bit slower than we expected initially with the conversion. So we're really watching it very closely. And then regarding the activity as time goes on, again, it really depends on how quickly the physicians are going with the samples. Now obviously, what a lot of times screws up the tracking and these numbers are physicians giving more than one sample to the same patient or giving it either at the same time or a few times in a row, and you do have that kind of behavior. We don't want necessarily to discourage physicians from using the samples, especially with the coverage. As coverage is coming online, we want to make sure patients continue to be on the medication until the coverage comes online. So we try to be sensitive from that perspective. And therefore, the numbers are not always clean as far as reading the exact conversion rate for the samples. Regarding your question on the adults, we're not seeing really too much at all because clearly, we don't call on adult psychiatrists. So we are completely focused on child psychiatry and the pediatricians. So other than some folks hearing about it, we might get one or two requests here or there. So it's really minimum at this point, if there is anything. And the dose, regarding your question on the daily dose, it is still a little bit on the lower side than we think it will end up. We have published data from our open-label extension and we saw the dose actually with the children and the adolescent creeping up over time, somewhere between the 300 and 400 milligrams. So we expect that over time, it will go up to the higher total daily dose. But initially, you will expect physicians to be cautious with it, see how kids respond because even the 100 milligram, I mean, was fairly effective if you remember from our Phase III clinical study. So we're seeing very good response from the product on the clinical side. But that will take time for them to migrate a little bit more towards the higher doses. And certainly, as the adult comes on board, hopefully next year, we expect, again, that to be more in the probably 400 milligram range and maybe closer to the 600 because we did test all the way up to 600 milligrams.

And just a final quick question. You've given us your target long term gross to net. Could you help us with what the gross to net will shake out in the next couple of quarters?

We are pleased with our current portfolio and would be happy to achieve a gross to net range of 45% to 55%. In the third quarter, we improved by about 10 points compared to the second quarter, and we aim to increase by another 10 to 20 points. While it's difficult for me to provide a specific date for reaching 50% or 55%, we definitely hope to achieve this in the first half of next year. We are putting in significant effort to reach our goals as soon as possible.

Your next question comes from the line of Ken Cacciatore from Cowen.

Just a couple of questions. You've had now a little bit of experience with Qelbree and you've seen quite a bit of products and how they've launched, and you've been able to get feedback on those launches from clinicians and understand the experience. So as you kind of are getting this initial experience with Qelbree, can you frame for us your conviction and kind of the ultimate size? Do you think this could be bigger than Strattera, which was around $0.5 billion, maybe bigger than Intuniv? Can you try to give us some kind of comparison as you take all these different disparate data points that you're getting and try to help us understand and frame out what you see and what you think in terms of the direction it's going? And then on the apomorphine pump, you've been very conservative in how you talk about it, which is understandable given the regulatory process has to play out. But when we have discussions with our clinician consultants, they're really enthusiastic and talk about the need in these late-stage patients, obviously, it could get good pricing. So could you help us understand a little bit of your cautious optimism versus their enthusiasm and what we should be thinking about that? And then lastly, just would love it if you would touch upon BD and whether it's a great deal that you're doing with the whether you're going to be able to reload and be in a position to do something like that again in the short term? And if there are things that you see that maybe we don't see that could be acted upon a little bit quicker than we think.

Regarding the first question about Qelbree, when Strattera was first launched, it captured nearly 19% of the ADHD market quite quickly, as it was the first non-stimulant treatment available. Prior to that, stimulants were the only options. Over time, however, changes in the product's label led to some disappointment regarding its performance, causing its market share to settle around 6% to 7%. Similarly, Intuniv peaked at around 4% to 5%, resulting in the overall category holding about 10% of the market share. Our aim with Qelbree is to exceed the market shares achieved by Strattera and Intuniv. Early signs suggest that Qelbree is being considered for patients beyond those dissatisfied with non-stimulants. Some doctors are prescribing it to patients on stimulants who are unhappy with them or to parents looking for non-controlled substance options. This trend is encouraging, indicating that our approach is resonating in the market. If our strategy succeeds and the product performs well, there’s no reason the market should remain at 90% stimulants and only 10% non-stimulants. As a parent, I see the value in offering children a safe, effective, and non-stimulant solution as an alternative to controlled substances. Our Phase III data shows that Qelbree has a low discontinuation rate and is easy for parents to manage. We are hopeful that Qelbree will outperform Strattera's market penetration. Regarding the pump, we acknowledge a more cautious outlook on its potential compared to our expectations in Europe, where the pump sells significantly better than the Apokyn Pen. The U.S. market is different in terms of reimbursement and coverage, which is why our stance has been conservative. We projected peak sales of around $125 to $175 million and believe we could surpass these figures, but that depends on the product's label and indications. Understanding how wide the patient population will be for the pump is crucial. That’s why we are taking a careful approach but we are excited about its potential as a growth driver. Lastly, regarding business development, we are actively exploring various opportunities. Our business will continue to generate more cash flows next year, allowing us to reload the balance sheet. We are open to licensing, product, or company acquisitions and may consider raising additional funds for promising transactions.

Your next question comes from the line of David Amsellem from Piper Sandler.

So just have a few. I wanted to come back to Qelbree and regarding the PBM win. Can you talk about the formulary tiering for that product? Is it totally unrestricted? And then secondly, more broadly regarding the payer landscape for Qelbree. Are you seeing, or are you negotiating, I should say, with payers such that you can eliminate any step-throughs or at least avoid a non-stimulant step-through? Just talk about philosophically what you're trying to accomplish with your contracting discussions. And then I also had a question on Apokyn with the decline in sales. I'm assuming a lot of that is the availability of Kynmobi. I guess the question there is do you expect further pressure, or do you see sort of a bottoming out of that product anytime soon?

On the coverage, I mean, in line with a lot of the comments we've made historically, clearly, getting complete open access, a lot of the PBMs and a lot of the plans, they come to you with ridiculous high rebates that they're looking for as far as what would it take to give you open access. So what takes the time in these negotiations is clearly something that is more reasonable that we could work with them to make sure, first of all, patients get access to this, what we believe is an incredible treatment option for a lot of patients out there, but with reasonable rebates that we can work with to give us the right coverage. Ideally, yes, of course, you want these patients to get access to this medication without a lot of these step edits. But realistically, there will probably be some step edits we're trying to work our way through those step edits through our negotiations and continued discussions. And we've made a lot of progress there, and that's why we're pleased with at least landing the first contract here and improving the coverage on the product. And as far as where do we land? I mean, it is conceivable that you're going to land in different plans, different status, or different tiers, or different coverage. I mean, there is no one way that this product is going to be covered across all the plans. So there will be a variety of step-throughs or PAs or whatever the case might be that different plans will put in place. And we expected that even from the beginning. I mean, we knew that would end up being the case in this category, especially and we're seeing that in a lot of other categories, not just in ADHD. Regarding Apokyn, I mean, we had the third quarter last year, as briefly I mentioned in my remarks, we had a little bit unusually high third quarter last year. So that's why this quarter was a tough comparison, so to speak. I think if you remember in the second quarter, we did about $27 million, if I'm not mistaken, on net sales. So this quarter was about $25 million. I mean we see the product settling somewhere in the mid-20s, probably on a quarterly basis, that's where we hope to be. Now the competitive pressures continue with Kynmobi that has been in the market for about a year now. So we've seen that pressure. We continue to see some of those pressures on it as well. And like every category also, you see pressures on the managed care and continued pressure on the managed care, because the more activity in any category, you start seeing more pressures on the managed care as well. So we're seeing some signs of that also.

Your next question comes from the line of Annabel Samimy from Stifel.

Just to go back to the restrictions that you're seeing on the coverage side as far as step-throughs. Are they requesting that patients step through stimulants or just the non-stimulants? So I guess that's the first question. And do you have a sense of what percent of the population or the prescriptions are from switching from stimulants or other stimulants versus patients who are new to treatment? And then I guess on the conversion rate of patients going from the starter kits to actual prescriptions. Can you just remind us how large the starter kits are? Is it just a couple of weeks of treatment? And if that's the case, then, I guess, why does it take six months to see what a true conversion rate is from starter kits to actual prescriptions?

Regarding the step-through, it's really a mix, as I mentioned earlier. I mean the different plans will have different coverage, different schemes, so to speak, some through non-stimulants, some through stimulants. So it's really a mixed bag, so to speak. As far as the percent of patients who are non-stimulants or stimulants. The only thing I can point to is we recently completed a survey as far as to where these patients among our prescribers as to where these patients are coming from or what type of patients physicians are starting Qelbree on. And we're really encouraged, as I mentioned earlier to the earlier question on the potential of Qelbree eventually. We're very encouraged with the early signs that actually a good portion of these patients are coming from the stimulant side. They're dissatisfied with the stimulants and their side effects and tolerability issues and so forth. Another good chunk of patients is coming from current non-stimulants. And also interestingly, a good portion, about a quarter of the patients, physicians reported are putting really patients who have what they characterize as complex ADHD as well, so ADHD with a lot of other comorbidities because, as many of you may know, stimulants also are not contraindicated in a lot of areas where you might have mood disorders or other conditions associated with ADHD. So it's really a mixed bag, but we're seeing a good healthy number that is coming from the stimulant side. As far as the starter kit, it's initially two weeks sample size. And therefore, that's why we're seeing potentially, in a lot of ways, we're seeing physicians giving more than one starter kit and therefore pushing out a little bit the conversion into real prescriptions. So we continue to monitor that. I mean we have our reps. Obviously, they do monitor how quickly physicians go through samples, but also at the same time, how many prescriptions they've written or not written. So we can tell in a way. But at the same time, as I mentioned earlier, we're trying to strike a balance here. We want people to be happy and trying to use the product and encourage them and enthusiastic about it. So we'll try to manage that in a smooth manner as possible without disrupting physicians' excitement about the product and so forth.

And if I could just ask one more question on Apokyn. Is the decline due strictly to Kynmobi, or is it still the COVID restrictions mixed with Kynmobi being a very easy access type of treatment?

I mean access to physicians, and I'm sure you're probably hearing that from a lot of companies hasn't gone back to what it used to be pre-COVID. So there is no question about that as far as access, reach to physicians is impacting and has impacted everyone's business, including us, including even the Qelbree launch, including the Apokyn business as well. But yes, I mean, the impact on Apokyn is a combined effect of many things, including, yes, COVID, including the increased competition from Kynmobi.

I guess my point was they needed a nurse to be able to start that with the treatment. So is that the rate limiting step for you? And at some point, Kynmobi has got, I guess, some high levels of irritation. So is there a point where patients wash through Kynmobi and then they move on to, say, go back to Apokyn or move on to Kynmobi or do they just move on to the next level of care whatever that drug is?

We've seen and we've heard about examples across all these examples, so to speak, all these categories. So we've heard about patients who have tried Kynmobi, having been satisfied with different efficacy profiles, and physicians put them back on Apokyn. We've heard people who say, well, Kynmobi is more convenient, so I can just take a sublingual tablet instead of an injection. So I mean you're going to see a lot of flow of patients back and forth across these products until they settle with the product that is more suitable for them. Yes, in our case, of course, it's a little bit more complicated. The initiation because you have the nurse, the involvement of the nurse and training the patient on using the injectable, the pen itself, the titration, all that. But that's also part of the service that we offer our patients. I mean it's for some patients actually like that. They like that handholding, the training, a nurse who really follows up with them, see how they're doing on the medication, the compliance, and also reporting back to their physicians. So it's really part of what we call our circle of care for the patient. It's not just here as a prescription and good luck with it and see what happens to you. No, we like to really service these patients and help them, and that's part of it as far as the whole Apokyn experience.

There are no further questions at this time. I'll turn it over back to Jack Khattar.

Thank you. We remain focused on the launch of Qelbree and look forward to closing the acquisition of Adamas by the end of this year or early 2022. In addition, we look forward to submitting the NDA for SPN-830 this month and getting back on the regulatory path towards potential approval next year. With the Adamas acquisition, Qelbree's growth, and the launch of SPN-830, our dependency on Trokendi XR will be much reduced by the time generics enter the market. We look forward to updating you on our progress, and thanks again for joining us today.

This concludes today's conference call. Thank you for participating. You may now disconnect.