Supernus Pharmaceuticals, Inc. (SUPN) Q1 2024 Earnings Call Transcript

Good afternoon, and welcome to the Supernus Pharmaceuticals First Quarter 2024 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 now begin.

Thank you, Mark. Good afternoon, everyone, and thank you for joining us today for Supernus Pharmaceuticals' First Quarter 2024 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 who may be listening to the replay, this call is being held and recorded on May 8, 2024. 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 on today's call. Following a productive year in 2023, in which we successfully minimized the impact of the Trokendi XR loss of exclusivity and positioned the company to mitigate the potential impact from the first generic on Oxtellar XR, we have continued to execute on our long-term growth strategy and have delivered another quarter with double-digit growth in total revenues, excluding Trokendi XR and Oxtellar XR. Driving this growth is Qelbree's strong performance with 31% growth in prescriptions as reported by IQVIA and 75% growth in net sales. Prescriptions reached an all-time quarterly high of 176,503, and net sales were at $45 million. Growth in net sales in the first quarter of 2024 benefited from both prescription growth and gross to net improvement compared to the same period last year. Gross to net during the first quarter of this year was well within our target range of 50% to 55%, which is encouraging considering the typical beginning of year pressure from high deductibles and insurance resets that are seen across the pharmaceutical industry. For the remainder of 2024, we expect the gross to net for Qelbree to remain in the range of 50% to 55%, with fluctuations that you would typically expect on a quarterly basis. During the first quarter, Qelbree further expanded its base of prescribers, ending the quarter with approximately 27,138, up from 25,938 in the fourth quarter of 2023. Prescriptions from adult patients now account for approximately 32% of Qelbree's total prescriptions. Switching now to our Parkinson's franchise. We saw increased pressure on our brands in the first quarter due to higher Medicare rebates based on out-of-pocket costs and the closing of the patient-assisted funds to new and existing patients. These dynamics contributed to increased gross to net deductions for our brands, leading, for example, to lower growth of 2% on net sales of GOCOVRI compared to the same period in 2023. During the quarter, we also saw a significant 42% increase in sample distribution by physicians to patients. This increase in sample usage allowed many patients to stay on GOCOVRI while waiting to reach their maximum out-of-pocket costs. We have already seen a bounce back in the GOCOVRI business in the second quarter, as we believe patients began transitioning from their samples to refilling their prescriptions. Switching to our legacy products. Oxtellar XR net sales for the first quarter of 2024 were $26.9 million compared to $28.9 million in the first quarter of last year. We expect the introduction of the first generic of Oxtellar XR in September 2024. For Trokendi XR, first quarter net sales were $16 million, down by 54% from the same quarter last year. With the expected further erosion of Trokendi XR and the entry of an Oxtellar XR generic label this year, we continue to anticipate combined net sales of Trokendi XR and Oxtellar XR in 2024 to be in the range of $125 million to $135 million. Regarding SPN-830. As we disclosed in April, the FDA issued a complete response letter regarding the company's NDA, indicating that the review cycle for the application is complete, but that the application was not ready for approval in its present form. The company will announce the filing for its resubmission after meeting with the FDA later this month. We are committed to Parkinson's patients who need this potential new treatment option and to bringing SPN-830 to the marketplace. Moving on to our emerging CNS pipeline of novel product candidates. We have exciting catalysts coming up in the next 12 months. Regarding SPN-820, the company expects to provide data from its Phase IIb study in adults with treatment-resistant depression in the first half of 2025. The Phase IIb study recently achieved more than 50% enrollment of the total 268 targeted number of patients. The Phase II open-label study is currently enrolling and targeting a total of about 50 patients with major depressive disorder. Regarding the Phase IIa study of SPN-817 for treatment-resistant seizures, the company now expects to report interim data from approximately 40 patients, greater than the half of the total randomized patients originally targeted. As such, we plan to hold the conference call on May 23 to report these interim data. This study is examining the safety, tolerability, and efficacy of SPN-817 as adjunctive therapy in adult patients with treatment-resistant seizures. Topline results for the full study are expected in the second half of 2024. In addition, we plan to initiate a Phase I single-dose study of SPN-443 in healthy adults following submission of an investigational new drug application. SPN-443 is our new stimulant-like product candidate for ADHD and other CNS disorders. Finally, we remain 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 first quarter 2024 results, please refer to today's press release and 10-Q that was filed earlier today. Total revenue for the first quarter of 2024 was $143.6 million compared to $153.8 million in the prior year quarter. Total revenue in the first quarter of 2024 was comprised of net product sales of $138.4 million and royalty and licensing revenues of $5.2 million. The $2.2 million decrease in net product sales was primarily due to a $20.8 million decline in net product sales of Trokendi XR and Oxtellar XR, partially offset by a $19.3 million increase in net product sales of Qelbree. Excluding net product sales of Trokendi XR and Oxtellar XR in both periods, total revenues for the first quarter of 2024 increased 12% compared to the prior year quarter. For the first quarter of 2024, combined R&D and SG&A expenses were $111.4 million as compared to $106.8 million for the prior year quarter. The increase was primarily due to R&D spending associated with the clinical programs for SPN-817 and SPN-820 as we continue to progress our pipeline. Operating loss on a GAAP basis for the first quarter of 2024 was $3.2 million as compared to an operating earnings of $5.2 million for the prior year period. Income tax expense in the first quarter of 2024 was $119,000 as compared to an income tax benefit of $7.9 million for the same period in 2023. GAAP net earnings was $124,000 for the first quarter of 2024 or earnings per diluted share of $0.00 compared to GAAP net earnings of $16.9 million or earnings per diluted share of $0.29 in the prior year quarter. On a non-GAAP basis, which excludes amortization of intangibles, share-based compensation, contingent consideration and depreciation, adjusted operating earnings for the first quarter of 2024 was $22.3 million compared to $30.5 million in the same quarter of the prior year. As of March 31, 2024, the company had approximately $309.4 million in cash, cash equivalents and marketable securities compared to $271.5 million as of December 31, 2023. The increase was primarily due to cash generated from operations. The company continues to have a strong balance sheet with significant financial flexibility for potential M&A or other value-creating opportunities. Now turning to guidance. For full year 2024, the company reiterates its financial guidance for total revenue, combined R&D and SG&A expenses, and non-GAAP operating earnings. As such, we expect total revenues to range from $580 million to $620 million, comprised of net product sales, royalties, and licensing revenues. For the full year 2024, we expect combined R&D and SG&A expenses to range from $430 million to $460 million, reflecting increased levels of R&D spending as our pipeline progresses. Overall, we expect full year 2024 GAAP operating loss in the range of $30 million to breakeven and non-GAAP operating earnings to range from $80 million to $110 million. Please refer to the earnings press release issued prior to this call that identifies the various ranges in reconciling items between GAAP and non-GAAP.

Our first question comes from Andrew with Jefferies.

Congratulations on the progress. Firstly, regarding Qelbree, as we are now a month into Q2, do you anticipate an increase in TRx scripts this quarter? Or will the quarter-over-quarter growth be similar to what we experienced in Q1, with the real acceleration occurring in Q3? Additionally, I’m curious if you have been affected by the Change Healthcare cybersecurity attack.

Andrew, if you look at the first quarter of 2024 sequentially versus the fourth quarter of last year, prescriptions grew by about 2%, if I'm not mistaken, 2%, 2.5%. We're already seeing in the second quarter, if you look at sequential growth quarter-to-date, the second quarter versus the first quarter, sequential growth is about 11% or 10%. So to answer your question, yes, it looks like it is starting to pick up. The Q1 time of phenomena, which typically may see a lot of activity, is usually affected by insurance issues. So we're looking at acceleration in the second quarter already. Certainly, with the back-to-school season, we expect that to be healthier. That remains to be seen clearly as to how strong the back-to-school season is, whether it will be stronger than the second quarter or year-over-year. Regarding the second question, the answer is no. We were not impacted by the Change Healthcare issue. We had other providers that could step in and continue to provide service for our customers.

Okay. And then on SPN-817. With later this month, we'll have the interim data set. How much follow-up data should we be expecting on all 40 patients? And maybe talk to us about what kind of seizure freedom rates existing epilepsy drugs show and whether you think SPN-817 can surpass or be higher than those rates?

Yes. I mean, regarding how much more data follow-up we can expect, as we stated in our press release, we're going to report on around 40 patients. We still have a few patients remaining in the study. So in the second half of this year, when we report the full study, we will have additional patients to finalize the complete data set. As for seizure freedom rates, there are many definitions that people use regarding seizure freedom. Typically, I'll give you one example on Oxtellar XR. If I remember some of the data we had at one point, around 11% seizure freedom was considered solid for a product like Oxtellar XR. There are numerous agents out there with a range of seizure freedom. Clearly, anything above 10% is typically a good number, especially for those who are refractory patients. This largely depends on whether we can achieve seizure freedom in the refractory population. In that space, 33% to 40% of patients are refractory. Therefore, the outcomes can vary widely depending on the patient population we are considering.

Got it. And then last quick question is bigger picture. In general, how much firepower do you guys think you have in terms of business development or M&A?

In a very simplistic way, we could probably do transactions in the $500 million to $1 billion range but it could get higher if we use equity. So it all depends on the situation itself regarding the acquisition candidate, what profile that company has, and does that company come with assets that generate significant cash flows. Then, we can leverage against those cash flows, which may allow us to pursue larger transactions. If it is a transformative kind of transaction, equity could also be part of the acquisition payment mix. Therefore, I think $500 million to $1 billion to $2 billion is a fair range, although I know it is a wide range due to situational variance.

And our next question comes from David with Piper Sandler.

So I just have a couple. First, on Qelbree. So you see what you're doing nicely in terms of getting the gross to net target in the low to mid-50s. Given that it's seasonally tougher, is it possible that the gross to net could dip below 50% as the year progresses? Just wanted you to talk to that, if you can. Then secondly, on SPN-830. Can you elaborate on the issue in the CRL or maybe not issue, but what was raised in the CRL regarding the master file for the infusion device? And is there anything that you've learned since the CRL as you've interfaced with the manufacturer that you can share with us? So that's number two. And then lastly, on SPN-817. Can you just remind us of the path forward beyond this Phase IIa? I believe the Phase IIb is in the works. So talk to the design of that study.

Yes, sure. First question on Qelbree and the gross to net. The reason we reiterated our full-year target of 50% to 55% is that typically, gross to net improves quarter-over-quarter. If in the first quarter, we started at a good place, there is nothing but to improve from here. The only caveat is that we sometimes see quarter-to-quarter fluctuations due to unforeseen issues such as high returns. Everything else being equal, there is a possibility we may end the year on the shorter end of that range. As for SPN-830, when we announced the complete response letter (CRL), we mentioned there are a couple of areas, one regarding quality and one around the master file, that we are learning more about in discussions with the manufacturer. We believe these are areas that can be addressed, and we have secured a meeting with the FDA later this month. We are moving as swiftly as we can to address these issues and ensure that no new issues arise later. We want to confirm we have everything we need before resubmission, which is why we would like to have that meeting first before communicating any timeline for the resubmission. Regarding SPN-817, the interim data we will report on is from an open-label exploratory study where we reviewed several types of seizures and various doses. This information is intended to guide us in designing the Phase IIb study, which will clearly be the next step after the Phase IIa open-label study.

If I could ask a follow-up about SPN-830. You also mentioned concerns regarding product quality and indicated that you submitted that data to the FDA. Could you elaborate on what you meant by product quality?

Yes. I mean, I don't want to get into all the details. It's regarding the formulation itself. So it's not a device issue. When we refer to product quality, it relates to the formulation of the apomorphine solution. That's about as much detail as we can provide at this point. Yes, we submitted some data that the FDA didn't have the time to review or didn't review. Hence, the upcoming meeting is essential for us to clarify whether they require any additional information or if what we've submitted thus far will suffice.

And our next question comes from Stacy with TD Cowen.

Congratulations on the quarter. So we do have a few follow-ups. Just one more on Qelbree. What's driving the strong net pricing that we're seeing in Q1? Is it higher doses because more adult patients are being added? Is it the price increase? Is it still pulling back the co-pay assistance program? And then as we look forward, considering the gross mix fluctuations that you kind of alluded to, are you going to be making investments as we think about the back-to-school season this year? Should we expect a more stable net price for the year?

Yes. Regarding Qelbree, we've previously discussed the key drivers for its continued growth and net price performance. Clearly, higher daily doses contribute to that growth through various avenues. Higher daily doses for patients, whether pediatric or adult, usually arise from physicians becoming more comfortable with the medication and adjusting to the appropriate dose for effectiveness. This aligns with our Phase III data. We have continued to communicate to physicians the target total daily doses they should aim for in both patient populations. As time progresses, we reach that goal, although predicting the speed of progress is challenging, especially with new prescribers starting with lower doses. The final factor influencing higher doses is the adult population, where an increased proportion leads to higher daily doses and subsequently higher prescription pricing. In the first quarter, our net price was approximately $255 million, down from $267 million in the fourth quarter last year. This is expected as the gross to net generally worsens in the first quarter compared to previous quarters. For this year, while we continue to invest in adults and certainly not neglecting pediatrics, we have established partnerships with influencers like Busy Philipps, who shares her ADHD experience and discusses Qelbree. We hope to create market awareness that encourages patients to talk about their conditions. As for the back-to-school season, we will prioritize investments in that area.

Regarding SPN-817, it sounds like enrollment increased faster than expectations. Could you broadly discuss study demand among patients? Additionally, just to set expectations, what competitive seizure reductions do you hope to achieve going forward given the open-label design? What led you to decide to report on this later in May?

Yes. Regarding SPN-817 and enrollment, we will review the data on May 23. We'd certainly like to develop a product that works well across the epilepsy landscape. We have numerous agents out there, and we have been in this space for years with Oxtellar XR, Trokendi XR, and others. Many of our patients, unfortunately, become refractory, meaning they don't respond to as many medications resulting in multi-drug regimens. Thus, we need a drug that works effectively to delay the progression of their condition. So far, our early indication for SPN-817 suggests it's an effective medication, supported by earlier data we shared in October and some patients in Australia from earlier studies. We hope to demonstrate that this profile is beneficial, especially given its potential cognitive attributes for the patient population.

And our next question comes from Annabel with Stifel.

This is Jack on for Annabel. You have previously mentioned that about 30% of Qelbree patients are treatment naive and the other 70% switch from existing therapies. Are there differences in the responses of these two populations when it comes to things like speed of effect onset? Is there a better onboarding strategy or do both populations perform identically once they initiate Qelbree?

Not really. It’s remarkable how consistent feedback is from the field, whether the patient is pediatric or adult or where the patient has come from. Qelbree works fast. Patients typically start noticing improvements within one to two weeks, depending on titration. Physicians who have used Qelbree alongside Strattera for years state that Qelbree shows effects much quicker, usually within one to two weeks, while Strattera averages four to five weeks. Hence, the product performs exceptionally well regardless of whether a patient is a switcher or a treatment-naive, new patient.

Got it. And just to ask one more question about physician feedback. I know you're looking at Qelbree in patients with comorbid mood symptoms more formally in your Phase IV study, but have you heard any anecdotal or real-world feedback from physicians, maybe not involved in the trial, about Qelbree's performance in this patient population?

We first began to hear anecdotal feedback early in our studies, with investigators indicating that some patients appeared to be improving overall mood, not just attention or focus. However, this feedback was anecdotal and not from formal data collection. Since we didn't know if they were on Qelbree or placebo, we couldn't validate it scientifically. The investigators speculated that the effects could be due to Qelbree's serotonergic activity, particularly considering that ADHD often coexists with conditions like anxiety and depression. Thus, it seems Qelbree may offer broader benefits, not just for ADHD.

This concludes our question-and-answer session. I would now like to turn it back over to Jeff for closing remarks.

Thank you. In concluding our call this afternoon, we remain focused on, first, driving the long-term growth of the company by continuing to drive significant growth with Qelbree, and together with GOCOVRI and the rest of the portfolio, generate strong cash flows, allowing us to continue our investments in our pipeline. And second, progressing our innovative R&D portfolio of differentiated first-in-class molecules that have several exciting and upcoming clinical milestones and catalysts. Thanks for joining us this afternoon. We look forward to updating you on our next call.

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