Supernus Pharmaceuticals, Inc. (SUPN) Q2 2024 Earnings Call Transcript

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

Thank you, Karin. Good afternoon, everyone, and thank you for joining us today for Supernus Pharmaceuticals' second 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, the 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 August 6, 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'll 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. In the second quarter of 2024, we delivered strong net sales growth from our key growth drivers, Qelbree and GOCOVRI, and continue to advance our product pipeline, including SPN-817 for treatment-resistant seizures and SPN-820 for depression. Total revenues, excluding Trokendi XR and Oxtellar XR, increased 32% in the second quarter. Driving this growth was Qelbree’s strong performance with 26% growth in prescriptions as reported by IQVIA and 92% growth in net sales. Prescriptions reached an all-time quarterly high of 184,342, and net sales were $59 million. In the first 6 months of 2024, Qelbree prescriptions grew by 28% compared to the same period last year, and net sales were $105 million, representing an 84% growth over the same period last year. Growth in net sales of Qelbree in the second quarter of 2024 benefited from both prescription growth and gross to net improvements compared to the same period last year. Gross to net deductions during the second quarter of this year were below our target range of 50% to 55%. We saw more favorable product returns trends with initial launch phases experiencing lower return rates than assumed and continued lower copay deductions in the quarter. As a result, for the remainder of 2024, we expect the gross to net for Qelbree to be in the 45% to 50% range, with fluctuations that we would typically expect on a quarterly basis. During the second quarter, Qelbree also expanded its base of prescribers, ending the quarter with approximately 28,326 prescribers, up from 27,138 in the first quarter of this year. Prescriptions from adult patients now account for approximately 32% of Qelbree’s total prescriptions. Switching now to GOCOVRI, net sales increased to $32 million in the second quarter of 2024, representing a healthy increase of 10% over the same period in 2023 and reflecting recovery from some of the negative factors the brand faced in the first quarter of 2024. As you recall, earlier this year, we saw a significant increase in sample distribution by physicians to patients to help them with their out-of-pocket expenses in the first quarter. This negatively impacted our prescriptions in the first quarter but reversed in the second quarter as patients started transitioning from their samples to refilling their prescriptions. Switching to our legacy products, Oxtellar XR net sales for the second quarter of 2024 were $30 million compared to $24 million in the second quarter of last year. And for Trokendi XR, second quarter net sales were $17 million, down by 12% from the same quarter last year. For the first six months of 2024, net sales of Trokendi XR were down 39%. We expect further erosion in Trokendi XR sales with the entry of an Oxtellar XR generic later this year. Given the trends in the first half of 2024, we now anticipate combined net sales of Trokendi XR and Oxtellar XR in 2024 to be in the range of $135 million to $145 million. Regarding SPN-830, we resubmitted the NDA last week and expect to learn from the FDA in a few weeks whether this submission will be considered as a Class 1 requiring a two-month review or a Class 2 requiring a six-month review. We remain committed to Parkinson's patients who need this potential new treatment option. Moving on to our CNS pipeline of novel product candidates. We have exciting catalysts coming up in the next six to 12 months. For SPN-820, the company expects to provide data from its Phase 2b study in adults with treatment-resistant depression in the first half of 2025. Three-quarters of the targeted number of patients are now enrolled in the study. Also enrollment in the Phase 2 open-label study in patients with major depressive disorder is ongoing and top-line results from that study are expected by the end of this year. In May 2024, we announced data from the planned interim analysis of our exploratory open-label Phase 2a study of SPN-817 for treatment-resistant seizures. The interim analysis was based on 41 enrolled subjects, of which 19 completed the maintenance period at that time. We continue to expect top-line results for the full study in the second half of this year. In addition, the Phase 2b randomized double-blind placebo-controlled study with SPN-817 in patients with treatment-resistant focal seizures is expected to start by the end of 2024. Also, we plan to initiate a Phase 1 single-dose study of SPN-443 in healthy adults following the submission of an IND. 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. With that, I will now turn the call over to Tim.

Thank you, Jack. Good afternoon, everyone. As I review our second quarter 2024 results, please refer to today's press release and the 10-Q that were filed earlier today. Total revenue for the second quarter of 2024 was $168.3 million compared to $135.5 million in the same quarter last year. Total revenue in the second quarter of 2024 was comprised of net product sales of $162.5 million and royalty, licensing, and other revenues of $5.8 million. The increase in net product sales was primarily due to the increase in net product sales of our growth products, Qelbree and GOCOVRI, as well as Oxtellar XR. Excluding net product sales of Trokendi XR and Oxtellar XR, total revenues for the second quarter of 2024 increased 32% compared to the same quarter last year. For the second quarter of 2024, combined R&D and SG&A expenses were $112.1 million as compared to $111.2 million for the same quarter last year. This slight increase was primarily due to R&D spending associated with clinical programs for SPN-817 and SPN-820 as we continue to progress our pipeline. Operating earnings on a GAAP basis for the second quarter of 2024 were $22.6 million as compared to an operating loss of $17.6 million for the same quarter last year. Income tax expense in the second quarter of 2024 was $6.4 million. GAAP net earnings were $19.9 million for the second quarter of 2024, or $0.36 per diluted share compared to a GAAP net loss of $831,000, or $0.02 loss per diluted share in the same quarter last year. On a non-GAAP basis, which excludes amortization and intangibles, share-based compensation, contingent consideration, and depreciation, adjusted operating earnings for the second quarter of 2024 were $45.5 million compared to $10 million in the same quarter last year. Total revenues for the six months ended June 30, 2024, were $312 million compared to $289.3 million in the same period last year. Total revenues were comprised of net product sales of $301 million and royalties, licensing, and other revenue of $11 million. Compared to second quarter 2024 results, the 12% increase in net product sales was primarily due to the increase in net product sales of Qelbree, GOCOVRI, and Oxtellar XR. Excluding net product sales of Trokendi XR and Oxtellar XR, total revenues for the six months ended June 30, 2024, increased 22% compared to the same period last year. Combined R&D and SG&A expenses for the six months ended June 30, 2024, were $223.5 million as compared to $218 million for the same period last year. Again, this increase was primarily due to R&D expenses associated with clinical programs for SPN-817 and SPN-820 as we continue to progress our pipeline. Operating earnings on a GAAP basis for the six months ended June 30, 2024, were $19.4 million as compared to an operating loss of $12.4 million for the same period last year. That is a $31.8 million increase in operating earnings compared to the same period last year. For the six months ended June 30, 2024, we reported income tax expense of $6.5 million. GAAP net earnings were $20 million for the six months ended June 30, 2024, or $0.36 per diluted share compared to $16.1 million or $0.29 per diluted share in the same period last year. On a non-GAAP basis, which again excludes amortization of intangibles, share-based compensation, contingent consideration, and depreciation, adjusted operating earnings were $67.7 million compared to $40.5 million in the same period last year. That's a 67% increase in adjusted operating earnings compared to the same period last year. As of June 30, 2024, the company had approximately $347.2 million in cash, cash equivalents, and current and long-term marketable securities compared to $271.5 million as of December 31, 2021. This increase was primarily due to cash generated from operations. It should be noted that we have generated approximately $200 million in cash from operations in the past 18 months. Because of that, the company has a strong balance sheet with no debt, providing significant financial flexibility for potential M&A and other growth opportunities. Now turning to guidance. For the full year 2024, the company raises its financial guidance for total revenue and GAAP and non-GAAP operating earnings while reiterating combined R&D and SG&A expenses. As a result, we expect total revenue to range from $600 million to $625 million, up from the previous range of $580 million to $620 million, comprised of net product sales, royalties, licensing, and other revenue. For the full year 2024, we expect combined R&D and SG&A expenses to range from $430 million to $460 million. Overall, we expect full-year 2024 GAAP operating earnings to range from breakeven to $20 million, and non-GAAP operating earnings to range from $100 million to $125 million. Please refer to the earnings press release issued prior to this call that identifies the various ranges of reconciled items between GAAP and non-GAAP. With that, I will now turn the call back over to the operator for Q&A.

Thank you. We will now begin the question-and-answer session. Our first question comes from Andrew Tsai of Jefferies. Your line is open.

Hi, good afternoon. Congrats on a nice quarter. Thanks for taking my questions. The first one is on SPN-830, the apomorphine pump. Congrats on resubmitting that. Just wanted to gauge your level of confidence it will be approved this time. It's kind of interesting since we know the competitor also received the CR recently. So maybe talk about your level of confidence about this. Thanks.

Yes, sure. A couple of things. I mean the first one we've got a CRL; I tried to give you an example. It probably was a few pages. This time we got the CRL that was maybe a half a page, give or take, just to illustrate the number of issues we're dealing with. So certainly, with this resubmission, the number of issues we are dealing with was a much lower number of items and issues that we have to address. Second thing is we did have a meeting with the FDA before the resubmission to make sure we had the fullest level of confidence before we resubmitted. So, we feel pretty good about the filing right now and our chances of getting approved. Of course, as I mentioned in our remarks, what we're still not sure about is whether it will be a Class I or Class II submission, but hopefully, we'll have that piece of information in the next few weeks when they have accepted the filing and assigned a PDUFA date for their review.

Makes sense. Thanks. And shifting to 817, we're going to have the full Phase 2a data cut later this year. Can you remind us, I think 19 of 41 patients completed the maintenance period, how many more patients do you think will be completing that maintenance period? And how many more specifically at the 3 to 4 milligram dose, the high doses?

Yes. At that time, back in May, when we reported the interim results, in addition to the 19, we had about seven or eight, if I remember the number directly, or patients who were still in the study at various stages. So we would expect when we report the full results to have at least another maybe five or six, depending on how many discontinue or how many stay in all the stages of the study. We should have a good handful of people in addition to the 19 that we will report on. So that will complete the initial portion of the study just to clarify. The second portion was the extension, which we discussed back in May, where we are going to test a couple of strategies. One of them is adding an antiemetic where we try to address the nausea and so forth. So that portion of the study has already started, but we won't have data in the fourth quarter or before year-end for this year. Just to clarify that, there are two different pieces of the study: the initial one, which we will report on, but the extension, which we added in May, we will not have the data to report on that.

Okay. And then last one is on 820. The depression asset you're having pulsatile data in 40 patients with MDD later this year. Can you just remind us how long the study is? And what kind of mean or HAMD efficacy benefit you want to see at the end of the study? What would be positive data to you and why? Thank you.

Yes. I mean this is a short study. I think it's about a 10-day treatment. So it's not a very long study. It is open-label, about 40 patients that we are targeting. So, we think we have a very good chance we will be able to report before year-end. And as far as the number of — or the reduction in the scales and what would we expect, of course, the larger the better, especially since it is open label, so we would hope to see certainly a large improvement on MADRS versus if it were the placebo controlled.

Thank you. Our next question comes from David Amsellem of Piper Sandler. Your line is now open.

Thanks. A couple of questions on Qelbree. So with the back-to-school season coming up, help us understand your expectations for acceleration in volumes, particularly with the different gross to net framework that you've been talking about? Also in the context of, I believe, last back-to-school season, the Rx growth was — or acceleration was a bit muted. So help us understand how you're thinking about this year's back-to-school season?

Yeah. I mean as an overall comment on the prescription growth of Qelbree, I mean, as we mentioned in the first half, we grew by about 28%. So we continue to expect to have robust growth in prescriptions versus last year. As far as specifically the back-to-school seasons, you're absolutely right, last year overall, the ADHD market had a much softer back-to-school season than normally we would see. Looking at the year-to-date ADHD market growth this year, it is up 8% in 2024 year-to-date in the first half of this year versus 2023. Remember, the ADHD market grew only by 3% in 2023 in total. So this year already is showing a recovery in the market in general at a much higher growth rate than last year. So I'm hoping that the back-to-school season would return to normal growth versus what happened in 2023. In 2023, we actually saw some decline in the ADHD market. With the measurement we talked about back then, which was June through September, we have not necessarily had a calendar quarter for a better feel on what happened in the back-to-school. However, GOCOVRI continued to grow last year, and it grew by about 19% in the back-to-school season. So I'm hoping that the market does better, and, of course, that means we will also do better than we did last year in terms of growth. But the short answer to your question is that the growth in Qelbree is not just the improvement in gross-to-net. Certainly, we continue to have robust growth. We are already in year four in terms of the launch of this product, and we're still delivering 20% plus growth in prescriptions. From a penetration perspective, we still have a lot of room to grow here regarding the potential of this product and its penetration in the market, both in adult and pediatric.

Yes. And if I may sneak in a quick follow-up. The gross-to-net, I mean, it's been below 50%, which is better than what you had cited as a target in the past. I mean is that 45% to 50% and just to be clear, that's your view of steady-state gross-to-net over the long-term for the product? And maybe I'll ask it differently: Is there room for even further improvement?

Yes, I mean, what I referred to in my prepared remarks was the issue of returns. Typically, when you first launch a product, you make an assumption on how much of these initial batches that you ship out could potentially come back from a return perspective. You book it and enter it in your books as potential liability, accruals, etc., on these returns. As time goes on, these batches will either be consumed or they expire due to the fixed expiration date. As they approach or go beyond the expiration date, they are unlikely to be returned anymore. Or if you have much lower experiences from a return perspective compared to the initial assumption, that's when you can take some of that back. There is a possibility we continue to benefit from that trend in the next quarter or so. It may not be at one time, but we can only see that when we get the data every quarter. Regarding your question about whether the target would be 45% to 50% on an ongoing basis, I certainly hope so.

Thank you. Our next question comes from Stacy Ku of TD Cowen. Your line is now open.

Wonderful. Thanks so much for taking our questions. What a great quarter for Qelbree and just a solid net value for prescription. So we have a few follow-ups. Just for Q1, can you just talk a little bit more about what approach you're trying to do to grab share in the back-to-school season? So just to clarify, you said the next quarter or so you could see a benefit in gross-to-net, but do you think any of these back-to-school plans could impact the gross-to-net in Q3? So this is the first question. And then to ask the question a little differently, how do you think about your comfort with the $200 million and $220 million consensus rates for Qelbree that you've commented on in the past? Could this be exceeded as we think about just the solid growth in net improvements? And then, last question is on the adult growth. Talked about the 32% split, but is this driving the net pricing? Are you seeing encouraging growth, and how should we think about the remainder of the year, as you think about really trying to drive that adult launch as well? Thank you so much.

Yeah. On the first question regarding back-to-school programs, it's fairly intense in terms of the level of support we will be providing and the momentum that we will be building as we speak in preparation for the back-to-school season. We will invest significantly behind this season, given its importance for the whole year for the brand. At the same time, we're not neglecting the adult sector — again, a portion of the business, especially in Q3, but the top priority is clearly children and pediatric because of the back-to-school. Regarding our annual guidance of $200 million to $220 million, we did $105 million in the first six months. Double that reflects a 10% growth, and we need to add some growth to it. We feel comfortable with that range. The back-to-school season will determine if we are closer to the upper end of that range. In this past quarter, to give you an idea, our adult prescriptions grew by about 26%. The net pricing rose by about 22% to 23%. We've emphasized the adult patient population this past quarter. So we are experiencing some growth in the adult segment.

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

Hi. Thanks for taking my question. And great quarter on Qelbree. I just want to put a finer point on the adult versus pediatric. To what extent is the adult population driving some of the improved pricing? Obviously, they have higher doses, so potentially a higher price point. Given that that's where a good chunk of the growth was, can you share some of the feedback you're getting from the adult population? Is this an area that you can continue to push? Is there any pushback from the adults in terms of whether they're favoring a stimulant versus a non-stimulant? Just trying to understand why the growth is still sitting at 32% of your total prescriptions despite your efforts last quarter.

Yeah. Regarding the price points, I'll give you some numbers. The average blended cost of prescription for adults is around $600, while it's around $525 for pediatrics, representing about a 15% to 17% difference. The pediatric category has around 44 to 45 capsules per prescription while adult prescriptions normally have 50 to 52 tablets or capsules. The feedback from the adult patient population has been fairly consistent with the pediatric group regarding the product's performance, clinical benefits, and safety. We have not reached saturation in our penetration rates, and we have a significant opportunity to continue pushing the product. As long as the product continues to perform, we see no reason for it to slow down, aiming to increase market share and penetration within the adult segment.

Got it. And maybe you can just share what your expectations are for the level of penetration you might have in that adult population for the year or the long-term outlook. Is this still going to be a 32% type of well, I mean is it going to account still for about 32% of your prescriptions? Or do you expect that number to continue to go up through the year?

Yeah. I mean we do expect it to go up eventually, whether this year or next quarter or by year-end. More on a long-term basis, we certainly will be working hard to increase that portion to be a larger part of the mix. So will Qelbree end up being a 40% adult and 60% pediatric? The market is actually about 67% adult and 33% pediatric. We are an un-stimulant product overall, so you will have some bias towards a bit more pediatric than adult in general. However, we are keen to increase that 32% significantly as part of the mix. The satisfaction and performance metrics show consistency across patient populations. We have a great opportunity ahead in the adult market, where our market share is still fairly low.

Okay. Got it. And if I can just ask a quick question on SPN-830, I guess this has been several times now through the review process. Are there any indications from the FDA on the breadth of the population that might be included in the label? I’m not sure if you ever reached that point, but is the FDA considering a broader label or is it still mostly in the severe camp?

Yeah. At this point, it's really premature for us to make any comments on that because we haven't gotten that far in discussions. So we really don't know at this point. In concluding our call this afternoon, we thank you for joining us to learn about our strong performance in the second quarter and the first half of this year. The company continues to execute remarkably well through a multiyear transition following the loss of exclusivity on two of its legacy products. The company has generated strong positive cash flows driven by the strength of its portfolio, particularly our growth products and the efficiency of its operations. Additionally, we are excited about our progress on the pipeline across several programs. These programs will be generating significant data over the next six to twelve months. Thanks again for joining us this afternoon. We look forward to updating you on our next call.

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