Supernus Pharmaceuticals, Inc. (SUPN) Q2 2022 Earnings Call Transcript

Good afternoon and welcome to Supernus Pharmaceuticals' Second Quarter 2022 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 ICR Westwicke, Investor Relations representative for Supernus Pharmaceuticals. You may begin.

Thank you, Jason. Good afternoon, everyone and thank you for joining us today for Supernus Pharmaceuticals' second quarter 2022 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 for 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 who may be listening to the replay, this call is being held and recorded on August 4, 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 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 2022 second quarter results. During the first half of 2022, we continued to execute on our long-term growth strategy, focusing on successfully transitioning from our legacy and mature products to our growth products. For the first half of this year, total revenues were $322.6 million, representing an 18% increase over the same period last year. And adjusted non-GAAP operating earnings were $65.7 million, a 5% increase over the first half of last year, reflecting continued significant investment in Qelbree and its launch activities. Regarding Qelbree, we received approval for adult ADHD in April 2022. We launched the product in late May, expanding the market opportunity for Qelbree into the largest segment of the ADHD market. Qelbree represents true innovation in the adult market as the first novel non-stimulant to be introduced in 20 years. As mentioned previously, according to IQVIA Xponent 52-week data, the adult market represents approximately 68% of the total market's prescriptions. The adult segment has been growing at a faster rate than the pediatric market and tends to be less seasonal. Qelbree's launch continues to progress well with increased momentum and prescription growth and shipments. During the second quarter of 2022, total IQVIA prescriptions for Qelbree reached 62,938, representing an increase of 33% compared to the first quarter of 2022. Prescriptions in the most recent month of June reached 23,403, the highest monthly total since the launch of the product. Qelbree continues to expand its base of prescribers with over 9,276 prescribers in the second quarter of 2022, up from 6,900 prescribers in the first quarter of 2022. The product is supported by a sales force of approximately 195 sales representatives, calling on pediatricians, child and adult psychiatrists. The company will be increasing its commercial spend in the third quarter of this year as Qelbree builds more momentum behind the adult launch and our preparation for the upcoming back-to-school season. Regarding GOCOVRI, the product delivered another quarter of solid growth with net sales reaching $24.7 million in the second quarter of 2022, representing a 23% increase compared to the $20.1 million reported by Adamas in the second quarter in 2021. Also total prescriptions reached 10,929 in the second quarter of 2022, growing by approximately 16% over the same period last year. Moving on to the pipeline. We continue to work closely with the FDA, as it reviews the new drug application for SPN-830, our infusion device for the continuous treatment of motor fluctuations in Parkinson's disease. The company is preparing for the commercial launch of SPN-830 in the first quarter of 2023, assuming timely approval by the FDA. The PDUFA target action date for SPN-830 is in early October of this year. For SPN-820, our first-in-class orally active mTORC1 activator, we continue to enroll patients in a Phase II multicenter, randomized, double-blind, placebo-controlled study in adults with treatment-resistant depression. The study will examine the efficacy and safety of SPN-820 over the course of 5 weeks of treatment in approximately 270 patients. The primary outcome measure is the change from baseline to end of treatment period on the Montgomery-Asberg Depression Rating Scale Total Score, a standard depression rating scale. We are on track to initiate an open-label Phase II clinical study with SPN-817 in the fourth quarter of this year in patients with treatment-resistant seizures. 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 in CNS conditions such as epilepsy. Oxtellar XR continues to perform well, delivering a strong quarter with net product sales of $30 million, a 20% increase compared to the same period last year, while net product sales of Trokendi XR were approximately $72 million, down from $79 million last year. On Apokyn, the company continues to monitor the situation surrounding the approved generic cartridge and to date has not seen a meaningful impact on our business. Finally, we continue to be active in corporate development, looking for strategic opportunities to further strengthen our future growth and leadership position in CNS.

Thank you, Jack. Good afternoon, everyone. As I review our second quarter 2022 results, please refer to today's press release. Total revenue for the second quarter 2022 was $170.1 million, a 20% increase compared to $141.3 million in the same quarter last year. Total revenue in the second quarter of 2022 was comprised of net product sales of $165.5 million and royalty revenue of $4.6 million. The increase was primarily due to net product sales of GOCOVRI from the acquisition of Adamas in November 2021 and growth in net product sales of Qelbree and Oxtellar XR. For the second quarter of 2022, combined R&D and SG&A expenses were $116.9 million as compared to $85 million for the same period in 2021. The increase in expense is due to activities to support the launch of Qelbree and costs to support GOCOVRI. Amortization of intangible assets for the second quarter of 2022 was $20.6 million compared to $6 million for the same period in 2021. The increase is due to the Adamas acquisition. Operating earnings on a GAAP basis for the second quarter of 2022 were $11.3 million as compared to $34.1 million for the same quarter in 2021. The decrease in GAAP operating earnings is primarily attributable to the aforementioned amortization of intangibles associated with the Adamas acquisition and higher expenses to support the launch of Qelbree as well as costs associated with GOCOVRI. On a non-GAAP basis, which excludes amortization of intangibles, share-based compensation, contingent consideration, and depreciation, adjusted operating earnings were $37.6 million compared to $37.4 million in the second quarter of 2021. As I mentioned on our previous call, the company adopted a new accounting standard related to the treatment of convertible debt instruments in January of this year using the modified retrospective approach. The company is now required to use the if-converted method for the convertible debt. Based on this new standard, there's now approximately 6.8 million additional shares in the diluted EPS calculation. GAAP net earnings were $7.9 million for the second quarter of 2022 or $0.14 per diluted share compared to $23.7 million or $0.43 per diluted share in the same period last year. Total revenue for the six months ended June 30, 2022, was $322.6 million, an 18% increase compared to $272.3 million in the same period last year. Total revenue was comprised of net product sales of $313 million and royalty revenue of $9.6 million. This increase was primarily due to net product sales of GOCOVRI from the acquisition of Adamas in November of 2021 and growth in net product sales of Qelbree and Oxtellar XR, offset in part by a decline in net product sales of Trokendi XR and Apokyn. For the six months ended June 30, 2022, combined R&D and SG&A expenses were $228.2 million compared to $180.7 million for the same period in 2021. The increase in expenses is primarily due to the activity to support the launch of Qelbree and costs to support GOCOVRI. Amortization of intangible assets for the first six months of June 30, 2022, was $41.3 million compared to $12 million for the same period in 2021. Again, the increase is due to the Adamas acquisition. Operating earnings on a GAAP basis for the first six months ended June 30, 2022, were $13.3 million compared to $47.3 million for the same period in 2021. The decrease in GAAP operating earnings is primarily attributable to the aforementioned amortization of intangibles associated with the Adamas acquisition, higher expenses to support the Qelbree launch as well as costs associated with GOCOVRI. Other income expense for the first six months ended June 30, 2022, was $12.7 million of income compared to $5.2 million of expense in the first six months of 2021. This change, as discussed on our prior call, was primarily due to a $12.9 million gain recognized on our share of distribution from the sale of a subsidiary of Navitor. Income tax for the first six months ended December 30, 2022, was a tax benefit of $7.4 million compared to income tax expense of $12.7 million for the same period in 2021. Again, as discussed on our last call, this benefit was due to a corporate reorganization of the Adamas entities in Q1 of this year that impacted certain state apportionment factors which resulted in a favorable income tax of approximately $16 million. On a net non-GAAP basis, which excludes amortization of intangibles, share-based compensation, contingent consideration, and depreciation, adjusted operating earnings were $65.7 million compared to $62.7 million in the same period of 2021. GAAP net earnings were $33.5 million for the first six months ended June 30, 2022, or $0.57 per diluted share compared to $29.4 million or $0.54 per diluted share in the same period last year. As of June 30, 2022, the company had approximately $508.2 million in cash, cash equivalents and marketable securities compared to $458.8 million as of December 30, 2021. The increase is primarily due to cash generated from operations. For the full year 2022, the company reiterates its prior financial guidance for total revenue, combined R&D and SG&A expenses and GAAP and non-GAAP operating earnings. As such, we expect total revenues 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. This range includes the significant increase in marketing spend in the third quarter that Jack mentioned that relates to the continued support of Qelbree and its launch in the adult market. Overall, we expect full year 2022 GAAP operating earnings to range from $20 million to $40 million and non-GAAP operating earnings to range from $130 million to $165 million.

Our first question comes from David Amsellem from Piper Sandler.

I just had a couple. So first on Qelbree. Can you just talk about the gross to net? And specifically, how we should think about the extent to which the gross to net may moderate as the year progresses? And related to that, talk about contracting activities and just where things stand with the big PBMs? So that's the first question. And then, the second question is on Trokendi. I know it might be a little bit early to talk about but the market dynamics are still kind of fluid here in terms of generic presence. Can you talk about how you're thinking about erosion of Trokendi upon generic market formation early next year? And what are your latest expectations for competitive dynamics there?

Yes, sure. I'll take the first one regarding Qelbree and the gross to net. You may recall or most people might recall when about a quarter ago, we said by the time we launch the adult, we would like to be somewhere in the 50% to 55% gross to net. And actually, we're not too far off. We are a little bit more in the very low 60s, so to speak, at this point and that is due to the fact that we haven't been able to finalize negotiations on one of the key contracts as far as the PBMs are concerned. We're getting closer negotiation-wise. So ultimately, regarding your question as to how we see it progressing through the rest of the year, I mean, certainly, we would shoot for and target and we're trying to target somewhere in the 50% to 55%, could be next quarter or definitely by the end of the fourth quarter, which would be our target on an ongoing basis. If you remember, I mean, that's really where we see this going on an ongoing basis for Qelbree. As far as the contracting activities, I mentioned, I mean the other big PBM, we continue our negotiations with them. And I think we're getting to potentially a more reasonable domain here where we can actually have a meaningful discussion. Before that, our positions were very, very far apart. So we're making progress. It is slower than we would like it to be. But nevertheless, our position as far as how we approach the business and how we build it does not really change much. We would rather help our patients get access to our medications through co-pays and patient assistance programs than just paying exorbitant rebates that really don't add much value, to be honest with you. So that's our position and we continue to grow the business and we're very, very pleased with the growth in the prescriptions and so forth and we have no problem at all, continuing to fund the business that way and help our patients. And in the end, really show everybody that this is a product that's going to be heavily utilized. There is a major need in the market for a product as unique as Qelbree. On Trokendi XR, you said it right. I mean it's one of the difficult questions, obviously, that as time goes on as to how we formulate for next year and what kind of how do we model. At this point, we've been always looking for next year and we've guided folks mostly to look at a 90% erosion over 12 months which is your typical type of erosion for a product like this that is heavily retail mass market, so to speak, like migraine. Brand loyalty doesn't tend to be too sticky, so to speak, or very high from that perspective, unlike other potential areas in neurology where there might be a little bit more higher brand loyalty. So therefore, we would like people to look at that as more like a base case scenario. And then, of course, as time goes on and as we get closer to January and definitely in February next year when we talk about guidance and so forth, hopefully, we will give people much better color on it and a little bit more clarity, as we gain more competitive information on potentially the number of generics, the timing of these generics, and more importantly, the number of SKUs that are going to be penetrated by the generics. So stay tuned for more. And hopefully, we can give more meaningful clarity as time goes on, on that.

Our next question comes from Ken Cacciatore from Cowen.

Jack, you've seen more product launches than many pharma execs. So now that you've had a little bit of time with Qelbree, your understanding of where the pricing roughly is going to shake out in the coverage and the market opportunity and how it's performing. Can you talk about what you think this could be? Is this easily over a $0.5 billion drug? Is the pathway here fairly clear in your mind as you've had this experience with it? And then on the apomorphine pump, I was wondering if you could help characterize the patient that this would be useful for. Maybe talk a little bit in comparison and contrast to DUOPA. And maybe remind us of DUOPA pricing, is that something that you might be thinking about if we're able to successfully get the pump on the market?

Yes, in terms of Qelbree and our past launches, particularly in ADHD, we have a strong background with products like Adderall XR and Intuniv. Qelbree stands out as a unique product, as reflected in the positive feedback from both physicians and patients. Unlike Strattera, Qelbree is not simply another norepinephrine reuptake inhibitor; it operates through a different mechanism. While there are some similarities, viloxazine exhibits much greater activity on the serotonin side, which contributes to its distinct clinical profile as an effective antidepressant. As a novel non-stimulant, Qelbree is gaining traction, with a notable increase in prescriptions, reaching 23,000 in June. We are building substantial momentum heading into the back-to-school season, supported by our adult launch and an intensifying direct-to-consumer campaign in the third quarter, leading to a significant commercial investment. In terms of market potential, the ADHD market is expanding quicker than we anticipated during Qelbree's launch planning. Even capturing a 5% to 10% market share could present a nearly $1 billion opportunity, given a net price of around $175 to $250. Historically, Strattera has achieved about 7% market share, while Intuniv has been in the 4% to 6% range. Based on Qelbree's profile and the positive feedback we’re receiving, we are optimistic about attaining or even exceeding these percentages. This commitment is reflected in our investment in both pediatric and adult markets. As for the apomorphine infusion device, it is contingent on the FDA's review of our application. There is a significant unmet need for advanced Parkinson's patients who experience multiple episodes throughout the day and are dissatisfied with the current treatment options. Our product aims to fill the gap before patients consider more invasive procedures, such as deep brain stimulation. With continuous infusion of apomorphine via a subcutaneous pump, we believe this could provide substantial relief for these patients. Although we have not finalized our pricing strategy, it's worth noting that DUOPA is priced between $80,000 and $90,000 annually per patient, which gives some context to where we might position our product.

At this time, there are no further questions, so I would like to turn it back now to Jack for closing remarks.

Thank you. In concluding our call this afternoon, I would like to emphasize that Qelbree's and GOCOVRI's growth are our top priority. We are excited about Qelbree's increased momentum behind the adult launch and the preparation for the upcoming back-to-school season. Similarly, we are pleased with GOCOVRI's continued growth since the completion of the Adamas integration and we look forward to building on that momentum for the remainder of the year. I would like to thank our employees for delivering a solid quarter with record revenues for Supernus and look forward to updating everyone through the second half of the year. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.