Supernus Pharmaceuticals, Inc. (SUPN) Q1 2023 Earnings Call Transcript

Good afternoon, and welcome to Supernus Pharmaceuticals First Quarter 2023 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 conference over to Peter Vozzo of ICR Westwicke, Investor Relations representative for Supernus Pharmaceuticals. You may begin.

Thank you, Steven. Good afternoon, everyone, and thank you for joining us today for Supernus Pharmaceuticals' first quarter 2023 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. 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 May 9, 2023. 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 2023 first quarter results. Despite the generic entry on Trokendi XR and the typical insurance headwind in our industry in the first quarter, Supernus delivered strong first quarter results and set the stage for solid performance for the rest of the year. In the first quarter, Supernus achieved total revenues of $154 million, essentially flat compared to $153 million in the same period a year ago. This was achieved despite a significant 45% decline or $28 million decline in net sales of Trokendi XR. In addition, the first quarter of 2023 adjusted or non-GAAP operating earnings were $31 million, compared to $28 million in the same period last year. Excluding Trokendi XR, the first quarter of 2023 net product sales increased 25% year-over-year, driven by continued adoption of Qelbree across both pediatric and adult patients and growth by GOCOVRI. We remain well positioned as we manage through the loss of exclusivity of Trokendi XR and transition to our growth brands, setting the stage to deliver double-digit growth in 2024 and beyond. Qelbree continues to perform well with total IQVIA prescriptions in the first quarter of this year reaching 134,530, representing a sequential increase of 14% compared to the fourth quarter of 2022. Prescriptions in the most recent month of March reached 49,789, the highest monthly total since the launch. This represents an annual run rate for Qelbree of more than 0.5 million prescriptions. Qelbree also continues to capitalize on several dynamics that we elaborated on last quarter including the underlying growth in the overall U.S. ADHD market, an increase in the average wholesale acquisition cost per prescription, improvement in managed care coverage, and the continued growth in Qelbree's base of prescribers. In the first quarter of 2023, Qelbree expanded its base of prescribers to approximately 19,197, up from 16,822 prescribers in the fourth quarter of 2022. We initiated the expansion of our sales force by approximately 45 sales representatives to give us broader reach and increased capacity to deliver higher frequency on high decile prescribers. This expansion is substantially complete, allowing us to cover more than 50% of the ADHD market. In summary, Qelbree continues to perform across several important growth metrics, giving us confidence in its growth potential in 2023 and more importantly in 2024 and beyond. Switching now to GOCOVRI and Oxtellar XR, net product sales increased to $26 million and $29 million respectively. This represents an increase of 15% for GOCOVRI and 5% for Oxtellar XR compared to the same period last year. Regarding Trokendi XR, net product sales in the first quarter were $35 million, down sequentially from $57 million in the fourth quarter of 2022, and down year-over-year from $63 million in the first quarter of 2022. In January 2023, the first generic to three out of the four product strengths of Trokendi XR was introduced. Total prescriptions for the first quarter of 2023 declined by 48% compared to the same period last year. Later in the quarter, a generic to the fourth product strength entered the market. At this point, we are maintaining our guidance for net sales between $60 million and $80 million for Trokendi XR for the year. Moving on to the pipeline, we had a productive meeting with the FDA in April this year regarding the resubmission of the NDA for SPN-830, our apomorphine infusion device. Based on the meeting, we expect to resubmit the NDA in the fourth quarter of 2023. Enrollment is progressing in the open-label Phase II clinical study for SPN-817 in adult patients with treatment-resistant seizures, and we continue to expect top-line data in the first half of 2024. For SPN-820, our first-in-class oral mTORC1 activator, the Phase II randomized double-blind placebo-controlled study in adults with treatment-resistant depression is ongoing with 33 sites activated. The study will examine the efficacy and safety of SPN-820 over the course of five weeks of treatment and approximately 270 patients. We're planning on holding an R&D Day in the fall of this year to discuss in further detail our lead pipeline programs and new clinical candidates that were generated through our Discovery program and nominated for clinical development. Finally, we 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 first quarter 2023 results, please refer to today's press release and 10-Q that were filed earlier today. Total revenue for the first quarter 2023 was $153.8 million compared to $152.5 million in the same quarter last year. Total revenue in the first quarter of 2023 was comprised of net product sales of $140.6 million and royalty revenue of $13.2 million. The increase in total revenues was due to higher net product sales of Qelbree, GOCOVRI, and royalty revenue, partially offset by the decrease in net product sales of Trokendi XR. For the first quarter of 2023, combined R&D and SG&A expenses were $106.8 million as compared to $111.3 million for the same period last year. The decrease was primarily due to Adamas integration costs, which were included in Q1 2022 that resulted in operational efficiencies. Operating earnings on a GAAP basis for the first quarter 2023 was $5.2 million as compared to operating earnings of $2 million for the same period last year. Total other income for the first quarter 2023 was $3.8 million as compared to $12.8 million for the first quarter of 2022. The change is primarily due to a gain recognized in the first quarter of 2022 on the sale of a subsidiary of Navitor. In the first quarter of 2023, we reported an income tax benefit of $7.9 million as compared to an income tax benefit of $10.9 million for the same period last year. The income tax benefit in the first quarter of 2023 was primarily due to a lower pre-tax loss forecasted for 2023. The income tax benefit in the year-earlier period, as noted on our prior calls, was due to a corporate reorganization of the Adamas entities in the first quarter of 2022. GAAP net earnings were $16.9 million for the first quarter of 2023, or $0.29 per diluted share compared to $25.6 million or $0.43 per diluted share in the same period last year. On a non-GAAP basis, which excludes amortization of intangible assets, share-based compensation, contingent consideration expense gain, and depreciation, adjusted operating earnings was $30.5 million compared to $28 million in the same period the previous year. As of March 31, 2023, the company had approximately $686.5 million in cash, cash equivalents, restricted cash, and marketable securities, compared to $555.2 million as of December 31, 2022. The increase was primarily due to cash generated from operations and the net amount drawn on the line of credit to fund the convertible note payoff. In November 2023, the company paid the total principal amount of $402.5 million due under its convertible Senior notes. In addition to payment of the remaining outstanding interest due of $1.3 million. Following the repayment, the 2023 notes are no longer outstanding. The repayment of the 2023 notes at maturity was financed primarily with available cash on hand and to a lesser extent, through a borrowing under the company's existing credit line agreement. We expect to fully repay the borrowing from the credit line by the end of the second quarter of this year. Now, turning to guidance. For full-year 2023, the company is raising the expected ranges of full-year GAAP and non-GAAP operating earnings and lowering the expected range of combined R&D and SG&A expenses. For the year-end of 2023, the company reiterates its prior financial guidance for total revenue. As such, we expect total revenue to range from $580 million to $620 million comprised of net product sales and royalty revenue. As Jack mentioned, we continue to expect net product sales of Trokendi XR in the range of approximately $60 million to $80 million. For the full year 2023, we now expect combined R&D and SG&A expenses to range from $450 million to $480 million compared to the prior guidance of $460 million to $490 million. As we mentioned previously, the Salesforce expansion to support the growth of Qelbree was initiated in 2023 with most of the expenses related to the expansion starting in the second quarter of this year. We expect to further invest in commercial initiatives for Qelbree during the back-to-school season, along with investments for other growth products. We now expect full-year GAAP operating loss in the range of $10 million to $30 million compared to the previous guidance of an operating loss of $25 million to $50 million. Finally, we expect non-GAAP operating earnings to range from $75 million to $100 million compared to the previous guidance of $65 million to $95 million. 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 now turn the call back over to the operator for Q&A.

Our first question comes from Andrew Tsai of Jefferies. Your line is now open.

Thanks, everyone. Great quarter. I appreciate you taking my question. So, the first one is congratulations on logging in that major PBM contract, I think effective January, 2023. So maybe remind us of the latest and greatest thinking on when we can expect that target of 50%, 55% gross in net to occur. Basically, is it fair to assume that range could happen this year or could it take a little bit longer than that? Thanks.

Regarding the second contract, it became effective in the first quarter of 2023. We didn't see the full effect of that contract in Q1 due to factors like high deductibles, insurance, and increased co-pays. We expect to see the full impact of this second PBM contract more in the second quarter, with even better results in the third and fourth quarters. To clarify, as we move through the year, we anticipate the gross-to-net ratio to improve and get closer to the 50% to 55% range by year-end. Typically, we see this improvement in our business, with Q1 being the weakest quarter and progress made throughout the year. So, we expect Qelbree to transition from the early 60% gross-to-net towards the 55% or even 50% by year-end.

Right, very clear. And then maybe just one more question. Would you agree that if we excluded all your products with reasonable assumptions, including Trokendi and Oxtellar, your guidance suggests that Qelbree sales could potentially more than double, or nearly triple this year? If that's the case, I understand you're not providing specific guidance, but directionally, is it fair to assume that Qelbree's sales should accelerate on a quarterly basis going forward? That's the essence of my question. Thank you.

Yes. The short answer is yes. I mean, we do expect Qelbree to accelerate as the year goes on, and especially as we also get closer to the back-to-school season. Yes. It is more than double that last year, that's an easy answer actually given last year's performance. And we have made several comments this quarter and even the last quarter, obviously, about the different dynamics in the marketplace that are helping us, and are expected to continue to fuel the growth behind the brand, from the market itself being a very healthy market, the ADHD market, then clearly from a managed care perspective, continued improvement on the coverage, continued increase in the WACC, average wholesale acquisition cost. And of course, the expansion in our sales force and so forth and the improved coverage from an ADHD market perspective. So, all these are pointing and aligned in one direction, which has really continued to push Qelbree and increase the momentum and the growth behind the product.

Thank you, Jack.

Okay. Next question comes from David Amsellem of Piper Sandler. Your line is now open.

Thanks. So, regarding Qelbree, could you discuss how you see the mix between adults and pediatric patients evolving in the future? I might have missed your comments on the current mix in your prepared remarks, so please talk about your expectations for that mix going forward. Additionally, can you provide more details on the areas you need to improve in terms of managed care access? Lastly, regarding Oxtellar XR, I understand there’s a trial related to a generic filing pending, and I’d like to hear your thoughts on that and the potential risk of an earlier-than-expected loss of exclusivity for Oxtellar. Thank you.

Sure. Regarding Qelbree, currently, our business mix is approximately 28% to 30% adult users, while the majority, about 70% to 72%, is pediatric. In the broader market, the situation is reversed with around 67% being adults and 33% pediatric. We anticipate continued growth in the adult market over time. Whether our mix will eventually align perfectly with the market remains uncertain, as we are still in the early stages of the adult launch. We are pleased with the initial success of the launch. As we approach the back-to-school season, we expect the mix may shift slightly, benefitting pediatric business due to seasonal momentum. Over time, these ratios will continue to change, and we might find ourselves closer to market proportions, though not exactly the same. On the topic of managed care improvements, this is an ongoing effort. We will persist in discussions with various PBMs and forge contracts where feasible. The same applies to Medicaid across different states, as we consistently seek ways to enhance our standing. As utilization increases and our prescription growth continues, as it has successfully over the past couple of years, we believe this will strengthen our negotiating position for contracts. Concerning Oxtellar XR and the generics, we are currently involved in litigation with three generic companies that are attempting to enter the market. I can't provide specifics at this time, but there is a risk associated with Oxtellar XR regarding our ability to maintain exclusivity until the patent expires in 2027. We will keep stakeholders updated as developments arise, whether progress is made or settlements occur. For now, there are no significant updates, but we will inform everyone if situations change. The risk concerning Oxtellar XR is something we are mindful of as time passes.

No, that's it. Just on Oxtellar. I may have just follow up real quick. I mean, I believe you had prior litigation that you did win if I'm not mistaken. Is that, I just a quick refresher on that.

The first two generics that filed on Oxtellar XR, TWI and ACTAVIS, which is now Teva. We actually went to court on these two cases, and we won in both cases all the way through appeal. So that is correct. That was back in 2016, the 2017 timeframe when those cases were resolved actually in our favor. So, this is a second wave of generics that have filed in the last two to three years, and we are in litigation with the second wave of generics.

Thank you for your question. Our next question comes from Annabel Samimy of Stifel. Your line is now open.

Hi. This is Jack on for Annabelle. Thanks for taking our questions. Could you talk a little bit about the GOCOVRI launch and how that's going relative to your expectations? You seem to have a pretty refined message that you can treat both the off episodes and the dyskinesia. Are physicians receptive to that or do they only want to talk about how to maximize treatment of the off period? Is there any friction there?

We have been very pleased with GOCOVRI and the positive response from physicians regarding its unique positioning. It's the only product approved to treat dyskinesia and off episodes in Parkinson's. This quarter was solid, especially considering the typical challenges we face in the first quarter related to insurance and other factors. We are happy with GOCOVRI's 15% growth compared to last year, building on last year's 19% growth. The messaging and positioning can vary depending on whether physicians are movement disorder specialists or general neurologists, which affects discussions in their offices. There is a need for ongoing education in the market to help physicians address dyskinesia, as many patients may not realize it is a side effect of their medications rather than a symptom of the disease. We aim to improve awareness so that patients can discuss dyskinesia with their physicians. It's important for them to know that it can be treated without compromising the efficacy of Parkinson's medications like levodopa/carbidopa. GOCOVRI provides a solution that addresses both dyskinesia and off episodes effectively. Continued education on GOCOVRI's unique benefits is essential, and the results so far demonstrate its distinct value and effectiveness in the market.

Got it. And then if I could just ask one more on Qelbree. Do you have a granular breakdown of where those prescriptions are coming from in terms of naive patients versus switches from stimulants or non-stimulants? And now with the increasing volumes that you're getting, are payers becoming more permissive with prescribing or are they still requiring step edits?

Yeah, regarding the source of the business on Qelbree, it really cuts in so many different ways. But basically, about 29% of the business is from new patients. And the remaining 71% is switching patients from existing medications or adding Qelbree to the existing medication. When you look at the switches themselves, 65% of the switching is coming from the stimulants, and 35% of the switching is coming from non-stimulants. And that is actually a very, very encouraging fact. In looking at the source of the business, we are actually drawing a lot of patients from the stimulant side. A lot of it is due to the adverse events that patients experience primarily as one of the major drivers, and actually behind it. And of course, in kids or pediatrics, it's also the parents not willing to put their kids on controlled substances on top of all that. So, we are very encouraged by this trend and it continues to be that way even from the time we started launching the product in pediatrics and in adults. And then as far as the payers and the step edit and so forth, I mean, it's a really mixed bag. The first PBM contract we had was actually tier two preferred, so there is no step through. The second one has a minor step through. But again, if you think about the market, let's say 90% of it is stimulants. So, if you have to go through a stimulant, that's really not much of an issue. If you have to go through a non-stimulant, it might just delay your initiation on Qelbree by three weeks, four weeks, or whatever, until when you are dissatisfied with the first non-stimulant clearly. So, it is a mixed bag of different plans, different formularies, different step-throughs, and so forth. And we can get back to my previous answer on the previous question that is some of the things that we continue to work on and to keep to improve on the coverage and minimize this step-through for what different medications patients have to go through before getting Qelbree.

Very helpful. Thank you.

Seeing no further questions, I would now like to turn it back to Jack Khattar for closing comments.

In concluding our call this afternoon, I would like to emphasize that returning to strong growth is our top priority. We are very pleased with our performance in the first quarter despite the significant erosion of Trokendi XR due to the entry of generics and the typical insurance headwinds. We are confident that our growth products will allow us to offset the impact coming from the loss of exclusivity of Trokendi XR, and to return to revenue and operating income growth in 2024 and beyond. Thanks so much for joining us this afternoon. We look forward to updating you on our next call.

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