Supernus Pharmaceuticals, Inc. (SUPN) Q4 2021 Earnings Call Transcript

Good afternoon, and welcome to Supernus Pharmaceuticals' Preliminary Fourth Quarter and Full Year 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Peter Vozzo of Westwicke, Investor Relations representative for Supernus Pharmaceuticals. You may begin.

Thank you, May. Good afternoon, everyone and thank you for joining us today for Supernus Pharmaceuticals' preliminary fourth quarter and full year 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 February 28, 2022. 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'll 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 preliminary 2021 fourth quarter and full year results. I would like to first make a few comments about the year 2021 as a whole and then get into more details about specific corporate accomplishments. 2021 was another outstanding year for Supernus during which we continued to execute on our long-term growth strategy and to work towards minimizing the impact of the 2023 Trokendi XR transition. During 2021, we launched Qelbree, the first novel non-stimulant ADHD treatment to be launched in over a decade. We also closed on the acquisition of Adamas adding GOCOVRI as another key growth asset and we resubmitted the NDA for SPN-830, an apomorphine infusion device, which represents our third future growth driver. In addition, we closed the year with record revenues for Supernus of approximately $580 million, up 11% compared to 2020. Finally, we advanced to Phase II, the clinical development of SPN-820, our novel product candidate for treatment-resistant depression and nominated SPN-443 and SPN-446, two internally discovered novel CNS drug candidates for development in CNS indications. Moving on to specific corporate accomplishments and starting with the Adamas acquisition, we made significant progress with the integration of the business with our Parkinson's sales force that is now fully trained in the field promoting GOCOVRI. GOCOVRI recorded a total of 3,330 prescriptions in the month of January, the product's first full month under Supernus in 2022, representing a 30% increase compared to the month of January in 2021. The Adamas transaction contributed approximately $10 million in revenues in the fourth quarter and we are on track regarding our goal of $60 million to $80 million in synergies over the first 12 months of owning the business. As mentioned earlier, we resubmitted the NDA for SPN-830 infusion device for the continuous treatment of motor fluctuations in Parkinson's disease in the fourth quarter. And since then we have received FDA acceptance of the submission with a PDUFA date in early October 2022. The company is preparing for the potential commercial launch of SPN-830 in the first quarter of 2023, assuming timely approval by the FDA. Regarding Qelbree, the launch is progressing well, continuing its growth trajectory with total IQVIA prescriptions in the fourth quarter reaching 34,328, an increase of 122% compared to total prescriptions of 15,453 in the third quarter of 2021. In January 2022, the most recent month available, total prescriptions reached 14,177. Moreover, in the first quarter of 2022, total prescriptions are showing a quarter-to-date during the first seven weeks, sequential growth rate of 42% versus the corresponding same seven-week period in the fourth quarter of 2021. In addition, Qelbree continues to expand its base of prescribers with over 5,600 prescribers in the fourth quarter of 2021, up from 3,470 prescribers in the third quarter of 2021. And finally, preparations for the potential launch in the adult market are well underway, assuming timely approval by the FDA of the supplemental NDA for the adult indication. Supernus will continue its heavy investment in Qelbree's launch activities in 2022 as it enters the adult segment of the ADHD market, which represents about 50% to 60% of the total market. On the managed care side, we have made good progress in managed care coverage with continued improvement in gross-to-net deductions. For SPN-820, our first-in-class orally active mTORC1 activator, we initiated a Phase II multi-center randomized double-blind placebo-controlled parallel design study in adults with treatment-resistant depression. The Phase II study will examine the efficacy and safety of SPN-820 over a course of five weeks of treatment in approximately 400 patients. The primary outcome measure is the change from baseline to end-of-treatment period on the Montgomery-Asberg Depression Rating Scale total score, which is a standard depression rating scale. We continue to expect to start a Phase II program with SPN-817 in the second half of 2022 for the treatment of focal seizures in adults. If you recall, SPN-817 represents a novel mechanism of action for an anticonvulsant and utilizes synthetic form huperzine A, which is a potent acetyl cholinesterase inhibitor with pharmacological activities in CNS conditions such as epilepsy. Moving on to the commercial products, Oxtellar XR finished another year with strong performance reaching net sales of $111 million, up 12% compared to 2020. Also, Trokendi XR continues to hold up well despite the increased competition in the migraine prevention market, finishing the year with approximately $305 million in net sales. For the full year 2021, the two products combined delivered net product sales of $416 million, essentially flat compared to $418 million in 2020. Apokyn closed out the year with sales close to $100 million given the competitive headwinds it faced during the year. Recently the company became aware of an approval of a generic to the Apokyn injection cartridge. The timing of availability of such a product is still largely unknown, and the generic cartridge will still need to be paired with the Apokyn Pen to administer the apomorphine injection. Finally, we will continue to be active in corporate development 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 preliminary fourth quarter and full year 2021 results, please refer to today's press release. As noted in that press release, the company currently anticipates it will require additional time to finalize the financial statements for the year ended December 31st 2021, due to the following reasons. As discussed in November 2021, the company was a target of a ransomware attack. While the attack had no significant impact on the business or caused any long-term disruption to the company's operations, it did impact the long-term viability of our accounting system. The attack required us to restore securely backed up data into its legacy ERP system, manually process certain functions which were previously automated in its legacy ERP system, and simultaneously accelerate its planned transition to upgrade to a more modern ERP system. Also in November 2021, the company completed its acquisition of Adamas Pharmaceuticals. The integration of Adamas is well underway and is expected to be complete by the end of Q2 of this year. As a result of having to restore our legacy ERP system, running a parallel ERP implementation, and the integration of Adamas operations, the company will be unable to file the 10-K timely. We will be filing a 10b-25 tomorrow after market close. The challenges over the past several months have been significant. I am very proud of the progress that has been made. Realistically, a new ERP implementation can generally take between nine and 15 months depending on its complexity. The implementation of our new ERP system is expected to take six to eight months and should be completed during Q2 of this year. Therefore, we hope to be able to file our 10-K on or before the end of the two-week grace period ending March 16. Before I go over the numbers for the fourth quarter and full year 2021, I want to remind everybody that the financial information is preliminary and therefore subject to change. Preliminary total revenue for the fourth quarter of 2021 will be approximately $159.1 million, an 11% increase compared to $143.6 million in the same quarter last year. Total revenue in the current period was comprised of net product sales of $155 million and royalty revenue of $4.1 million. The increase was primarily due to net product sales of GOCOVRI from the acquisition of Adamas in November 2021 and the launch of Qelbree in the second quarter of 2022. For the fourth quarter of 2021, combined research and development and SG&A expenses are expected to range between $105 million and $110 million, as compared to $74.4 million for the same period in 2020. The increase in expenses is primarily due to activity to support the launch of Qelbree and transition costs associated with the Adamas acquisition. Amortization of intangible assets for the fourth quarter of 2021 are expected to range between $11 million and $12 million compared to $5.6 million for the same period in 2020. The increase is primarily due to the acquired intangible assets of Adamas. Operating earnings for the fourth quarter of 2021 are expected to range between $20 million and $25 million, as compared to $40 million for the same period in 2020. The decrease in operating earnings is primarily attributable to higher expenses to support the launch of Qelbree and transition and other costs associated with the Adamas acquisition. For the full year 2021, total revenue was $579.8 million, an 11% increase over $520.4 million in 2020. Total revenue was comprised of net product sales of $567.5 million and royalty revenue of $12.3 million. The increase was primarily due to the acquisition of the CNS portfolio of US WorldMeds in June of 2020, growth in net product sales of Oxtellar XR, the launch of Qelbree in the second quarter of 2021, and net product sales of GOCOVRI from the acquisition of Adamas in November of 2021. For the full year 2021, combined R&D and SG&A expenses are expected to range between $377 million and $382 million as compared to $276.6 million for the full year 2020. Again, the increase in expenses is primarily due to activities to support the launch of Qelbree as well as the timing of both the Adamas and US WorldMed acquisitions. Amortization of intangible assets for the full year 2021 are expected to range between $29 million and $30 million compared to $15.7 million for the full year of 2020. The increase is primarily due to the timing of the US WorldMeds and Adamas acquisition. Operating earnings for the full year 2021 are expected to range between $100 million and $105 million as compared to $173.7 million for the full year 2020. The decrease in operating earnings is primarily due to the increase in expenses to support the launch of Qelbree and the timing of the US WorldMed acquisition. As of December 31, 2021, the company had approximately $458.8 million in cash, cash equivalents, and marketable securities compared to $772.9 million as of December 31, 2020. The decrease is due to the acquisition of Adamas, offset by cash flow from operations. As discussed on our last call and giving the magnitude of the growing number of acquisition-related items, starting in 2022, we will be adding non-GAAP financial measures to our quarterly earnings releases 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. These non-GAAP adjustments will be amortization of intangible assets, share-based compensation, changes in contingent consideration, and depreciation. Now turning to our GAAP financial guidance for the full year 2022. We expect total revenue to range from $640 million to $680 million comprised of net product sales and royalty revenue. For the full year 2022, we expect combined R&D and SG&A expenses to range from $460 million to $490 million. Overall, we expect full year 2022 GAAP operating earnings to range from $20 million to $40 million. We expect an effective tax rate of 25% to 28%. And finally, turning to our non-GAAP financial guidance for the full year 2022. We expect our non-GAAP operating earnings to range from $130 million to $165 million. It is important to note, as Jack mentioned earlier, we will continue to invest heavily in the Qelbree launch activities in 2022, as we enter the adult segment of the ADHD market. Please refer to the earnings press release issued prior to this call that identifies the various ranges of reconciling items between GAAP and non-GAAP. With that, I will turn the call over to the operator for Q&A.

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

Thanks and good afternoon. I have a couple of questions. First, Jack, you provided a total revenue guidance number, but can you give us a more detailed breakdown for Apokyn, Qelbree, and Gocovri? I'm particularly interested in Apokyn since you mentioned it just faced a generic competitor. You had competition last year from Kynmobi, so what is your guidance specifically for Apokyn considering the generic? I recall you previously mentioned a mid-20s quarterly run rate. Secondly, regarding the adult pending approval, what is the average dose of Qelbree so far? I know that if it’s below 200 milligrams, the WAC is $300, and if it’s above 200 milligrams, it’s $600 WAC. Once it receives approval for adults, will the revenue per script essentially be double for adults compared to pediatric, given the weight-based dosing? Thanks.

Sure. To start with our revenue, I want to highlight some key factors related to our portfolio and products. The main growth will come from Qelbree, particularly Gocovri, with Oxtellar XR showing minimal growth. Last year, Oxtellar XR increased by about 12%, and while I'm not sure it will grow at that rate again, it is still performing well. The brands facing the most pressure will be Trokendi XR and Apokyn. Trokendi XR has surprisingly performed better than we anticipated, thanks to our employees for their efforts in managing the business effectively. However, the question remains whether it will maintain its performance in 2022, as we expect a slight decline, though the extent is uncertain. The competitive pressure will primarily come from Apokyn and Trokendi XR. Regarding the generic version of Apokyn, it is too early for us to assess its impact on the brand since this information is very recent. The cartridge will require our pen for use, differentiating it from a tablet or capsule that could be easily substituted, which may limit the immediate impact. This depends on product availability and logistics surrounding the generic. We will continue to support the product with nurse educators and hub services that assist patients in starting and maintaining therapy, which are significant to them. This gives a sense of where we see pressure points in our product portfolio. With Qelbree, we are committed to investing heavily. We’ve just launched in pediatrics and are looking forward to the adult launch, which represents over half the market. We believe Qelbree will be a major product for Supernus, and we plan to invest adequately in it. Regarding the average dosage for adults, we anticipate it to be around 500 milligrams per day, starting lower as doctors get accustomed to it and then gradually increasing. This is higher than the pediatric and adolescent range, which we expect to be around 300 to 400 milligrams. Long term, adults will likely average between 500 to 600 milligrams.

Thank you. But just a follow-up, Jack, you did give overall revenue guidance and the generic was approved Friday. And you had said previously that you should expect Apokyn to be in the mid-20s on a quarterly run rate. So in your overall guidance is that still the case that Apokyn will be averaging about $25 million a quarter? Can you give us some view there? And then, just a final question. How much sampling are you doing on Qelbree? And how much understated would the actual scripts be if you stopped sampling?

Yes. On Apokyn, I mean, we are factoring potentially some impact from generics, but again, it's difficult for us to quantify it for folks at this point, so back to your number, which we had said the 25 per quarter. We would plan on maybe being much lower than the 25. And so again, I know you're looking for a number or a more real framework from a quantitative perspective, but it's really hard for us to give a specific and we try to shy away from giving guidance per product so to speak. Maybe by next quarter, we'll have more visibility on the status of the generic and we can be a little bit more specific. We'll be more than happy to do that. As far as the samples for Qelbree, we will continue with a very similar level of activity and we'll do the same with the adults. So that continues to be. And as far as is there a gross-up factor or a discount factor that you can apply to the prescriptions because of the sampling? We've talked about historically something in the 15% to 20% maybe potentially as the conversion that we would hope to get from the samples, that otherwise would be real prescriptions.

Thanks. I have a few questions and want to start by asking about GOCOVRI. Adamas provided various metrics regarding volumes and new starts. Will you be sharing similar information going forward? Can you discuss what the volumes were like in the fourth quarter and how new starts are trending? Additionally, while I know you haven't given product-specific sales guidance, what are your thoughts on the new start trends for GOCOVRI as we progress through 2022? I understand that Adamas mentioned some pandemic-related challenges. How might the pandemic, or its easing, provide a boost for GOCOVRI, and what are your overall impressions on its trajectory for 2022? Thank you.

Yes. I mean, regarding the brand overall, I mean one of the metrics I mentioned was obviously the prescriptions in January versus the previous year's same period, which was about 30% growth in January of 2022 versus January 2021 from a prescription basis. We'll be happy to dig deeper and give you guys more various metrics if you find some of these are really helpful. But we think the brand will continue on its growth trajectory, as we've experienced last year perhaps some enhancement as we take more control of the product and have more effect on the way it is being promoted and positioned and so forth as time goes on. Now clearly, you have a lot of other factors. One of them you mentioned is the pandemic and we hope that it is easing off completely, not just on GOCOVRI, but on all our products or even Qelbree as far as access to physicians and so forth. So we hope that actually does go away as time goes on, on all the products, not just the GOCOVRI franchise. So certainly, as time goes on, back to probably next quarter, we will have a much better feel on all these dynamics. Also the Q1 will be behind us so to speak. As we all know, Q1 is always a difficult quarter anyway in our business because of the high deductibles insurance and so forth. Therefore, we'll be able to give you guys a little bit better, much more educated numbers around many metrics not just patients or volumes or things like this. But also, we will have a better feel on how the pandemic is gone or not gone by then.

Okay. And can you talk to new starts, or is that something that you're not going to provide on GOCOVRI?

I mean we can. I don't have it with me. I wasn't prepared to talk about it today but we're happy to look at those numbers and provide them.

Okay. And then just overall on the guide on the top line guide. I mean obviously, it's hard to – it's a hard question to ask in terms of where you guided relative to consensus but it is lower than consensus or where The Street is. So I guess with that in mind is that a function of some conservatism or reality on Apokyn? Is it a function of perhaps some channel destocking on Trokendi ahead of the generic? I'm just trying to get a sense of some of the assumptions underlying the $640 million to $680 million.

Yes. The main differences are Trokendi XR and Apokyn, which are the pressure points that I mentioned versus consensus, for example. So we are assuming probably a little bit worst case on both products than what consensus have. So that's where the pressure points are. It's not about growth in GOCOVRI or growth in Qelbree. So it's more about the legacy mature products like Apokyn and Trokendi XR. So are we more conservative? Yes. I mean we might end up being actually proven to be very conservative in that guidance. But at this point, not knowing a lot of things that could happen this year, so we're trying to be on the safe side, especially on these two products. So a lot of the difference between our guidance and the consensus is really on these two products.

Okay. That's helpful. And then last question if I may just on biz dev and I apologize if I missed this. But with the closing of Adamas and integrating that asset and also advancing some internal products through the pipeline, how are you thinking about acquisitions these days in terms of your lean? And are you leaning more into commercial stage or development stage assets or maybe ideally you want something like WorldMeds, where you get the best of both worlds? How are you thinking about that?

Yes. I mean ideally, yes probably a similar acquisition like US WorldMed gives you commercial product and gives you a really nice quality late-stage pipeline product that of course will be hitting both goals or achieving both goals. We always would favor commercial if we can find it and find it in a reasonable manner and it's a quality asset. But short of that, we are very focused on really building the pipeline, specifically where it comes in the area of mid-stage to late-stage, because if you really think about Qelbree and the launch in adult, you think about hopefully, the launch of the pump also sooner than later. Then you look at our pipeline, the rest of our pipeline is Phase 2 or earlier. So ideally, and we are focused right now on trying to find pipeline assets that could be later than Phase II or between Phase II and Phase III or in Phase III, those would be very nice assets that we would look for and would be in either case neurology or psychiatric so we're fairly agnostic as to which area in CNS those assets could be.

Good. Thanks, Jack.

This is Jack calling in for Annabel Samimy. Thanks for taking our question. We had some inquiries about guidance. What assumption is factored in regarding the timing for the normalization of the Qelbree gross to net? Will this be more of a second-half occurrence rather than a first-half one? If it happens later than anticipated, will that affect the SPN-830 opportunity?

Yes. Regarding the improvement in gross to net, I mentioned earlier that we are seeing better progress with Qelbree than we anticipated. We hope this trend continues. You may recall that I previously stated our goal is to reach around 50% to 55% by the time we launch the adult version, which aligns with typical portfolios for existing products. We're moving toward that goal faster than planned. Q1 usually skews trends from Q4 upward due to known factors, but we expect to achieve that 50% to 55% gross to net by the adult launch. Could you clarify how this relates to your question about SPN-830?

If that were to happen later than anticipated, would it affect that opportunity? However, if it occurs as expected, then it should be...

Yes. No, I mean the two opportunities are fairly separate from that perspective. I mean we view both products extremely important and we will launch as soon as we can on any of them whether it's the adult Qelbree or it's the SPN-830 pump. I mean those products, you can bet that we'll do everything possible to get them to the market as soon as possible once we can.

There are no questions at this time. Please continue.

Okay. Thank you. We close our 2021 as a banner year for Supernus with significant corporate achievements that will prepare us for the next phase in our history as a growth company. We look forward to driving growth behind Qelbree, GOCOVRI, and SPN-830 as well as continuing to manage our legacy products and significantly reduce our dependency on Trokendi XR. I would like to thank all our employees for delivering another strong performance in 2021 and positioning us well to have a great year in 2022. Thanks again for joining us today. We look forward to updating you on our progress throughout the year.

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