Supernus Pharmaceuticals, Inc. (SUPN) Earnings Call Transcript & Summary

Good morning. My name is Jackson Lowrie, and I'm a member of the JPMorgan health care investment banking coverage team. It's my pleasure to introduce you to Jack Khattar, the CEO of Supernus Pharmaceuticals. And just as we do finish, there will be a breakout in Elizabethan C, which is just next door. So I'll pass over to Jack.

Thank you, and good morning. Before I get started, just try to remind everyone about the forward-looking statements I will be making during this session and the Q&A session. So please check the SEC filings for all the risk factors associated with the business. Very quickly, for those of you who may not be very familiar with us, Supernus Pharmaceuticals actually has been around for more than 25 years. We operated for many years as a division of Shire Pharmaceuticals, so from 1997 until 2005, and then we spun out of Shire at the end of '05 and became Supernus. During that period of time, we've had a great success in the CNS area, so we have a very strong heritage in CNS, and even more specifically, in the ADHD space. So we develop products like Adderall XR, Intuniv, Mydayis, which are 3 ADHD products for Shire, and then most recently, for Supernus, SPN-812, which we filed the NDA on at the end of last year. As far as our track record behind the 2 products that we have in the marketplace, which is Oxtellar XR and Trokendi XR, these are epilepsy products. Trokendi XR also has migraine prevention behind it. We launched the 2 products in 2013, and you'll see the trajectory and the actual results. So we have very strong sales and operating income growth behind these 2 products. Behind the dollar growth is a very strong prescription growth since we launched the products. And what I have here is an estimate for 2019 showing through November, the monthly data of IMS and also using the weeklies for December, showing about a 6% to 7% growth with these 2 products combined. So even year 7 into the marketplace, we're still managing to grow these businesses. These 2 products actually compete in a generic market of oxcarbazepine and a generic market of the topiramate. So fairly good, strong performance behind the products. In 2019, you'll notice that the growth has slowed down, and that's basically behind Trokendi XR, mainly because of the anti-CGRPs that entered the market, in the migraine prevention market in 2018. So posing a very intense competition. Just to give you a framework for that. These CGRPs, since they came to the market, have spent close to $250 million just in consumer media. Our spending is more in the very low single digits, just to give you by comparison. So it's really remarkable that we even still managed to grow the business by about 6% in prescriptions. And the reason these products have performed historically very well is the fact that although they are a once-a-day formulation of existing molecules, they actually bring in very significant clinical benefits to the patients. What you're looking at here is the Trokendi XR side effect profile versus the immediate-release topiramate, which is the molecule that is in Trokendi XR, and actually, significant reduction in some of the major side effects that Topamax or the immediate-release topiramate suffers from, and that is due to the PK profile and the reduction in the Cmax as well as the slope of the curve in the delivery. So these products, it's not an issue of just convenience to epilepsy or migraine patients, but it's also a major clinical benefit behind these products. And the responder rate for Trokendi XR, and again, these are based on medical chart reviews, actual clinical practice in the marketplace and what physicians report about their patients and how they're responding to our medication. It's really a very strong clinical profile based on that with a respond rate of 55% of patients, getting more than 50% reduction in migraine. And actually, up to 24% of patients are migraine-free. This is pretty impressive. There aren't too many products actually that even have any data that is close to the response rate that Trokendi XR is offering patients out there. Similarly, with Oxtellar XR, not that different of a story because of the once-a-day formulation that we have of oxcarbazepine. This is data from our Phase III study on Oxtellar XR showing at double the dose, 2,400 milligram per day, it has a much better side effect profile versus Trileptal, which is immediate-release oxcarbazepine, and a major reduction in discontinuation rate. Again, this is not a head-to-head trial, but these designs are very similar as far as the Phase IIIs, and we do have actually in our label the side effect profile of Trileptal as well as Oxtellar XR. Oxtellar XR also benefited last year from the launch of the monotherapy. Initially, when we got it approved, that was for just adjunctive therapy and for partial seizures. And at the beginning of last year, we launched the monotherapy. So that helped us actually achieve a prescription growth in the 11% to 12% for 2019, again, for a product that is now on its 8th year in the marketplace. So that's pretty much on our existing franchise between Oxtellar XR and Trokendi XR. Moving on to the future growth behind Supernus, and that's really more on the pipeline that we are developing, a fairly late-stage pipeline. I mentioned very briefly SPN-812 in ADHD. We're very excited about this potential program in ADHD and the uniqueness of this program. I'll touch base a little bit on SPN-810, which is for impulsive aggression. We initially released some data before year-end last year on the first Phase III program. So I'll talk a little bit, give you an update on SPN-810. And also, I'll talk a little bit about SPN-604, which is the bipolar program when we just started a Phase III program also around the year-end of last year. These products actually represent multi-billion dollar market opportunities for us. In the first quadrant, you see Oxtellar XR for epilepsy because we do have Oxtellar XR actually up until 2027 when the patent expires. So we have still a long runway on Oxtellar XR. And next to Oxtellar XR, we're very excited about also an earlier stage program, which is SPN-817 for rare epilepsy forms such as Dravet Syndrome, Lennox-Gastaut and so forth. So that is a program that we'll be talking more about as time goes by as we get it closer to initiation of Phase II. So that for now will form pretty much and continue to form the neurology platform that we have in the company. And as we start our plans in building for SPN-812, which we hope to launch before year-end this year, that will be the beginning and the foundation for our psychiatry platform, which we will further build on through, hopefully, 810, if that program does survive and then SPN-604 in bipolar. And clearly, all that is internally at this point, but we will augment through corporate development and bring in other projects to further propel the growth behind the company. So SPN-812. What is it? It's a novel non-stimulant. It's a noncontrolled substance. It's an ADHD product for which we just filed the NDA in November of 2019. It's a serotonin norepinephrine modulating agent. That's a fairly new class, a new mechanism and unique mechanism of action in treating ADHD. For the U.S. market, it's a new chemical entity. It was previously marketed outside the U.S. as a fairly good antidepressant. The Phase III clinical data, which I'll walk you through very briefly today, basically, to sum it up, points to a very well-differentiated product in the marketplace. The NDA package consisted of 100, 200 and 400 milligram in pediatric patients. So we filed for approval in children that are 6 to 11 as well as for adolescent 12 to 17. The efficacy data is fairly consistent and reliable. You'll see the consistency across the studies that we have done as well as through the duration of the study. It is characteristically from an onset of action, seems to be a quick-acting product, which is very important in the non-stimulant segment and differentiates it even further from existing treatments in the marketplace. And the beauty of it also has a very, very flexible dosing and very well-tolerated profile, even if you do push the dose to 400 milligram or even above that. So we have 4 Phase III studies. The first 2, P301 and 303 are for 6 to 11 years old, and then the 302 and 304 studies are for adolescent patients. In the last study on 304, we actually studied for the first time a much higher dose, which is a 600 milligram. We just wanted to see if we do hit a plateau or do we get any extra additional benefit with an extra higher dose. So the first slide you're looking at here is the primary endpoint. You'll see on the 301, 302, 303, really very strong p-values on the 100 milligram, 200 milligram and 400 milligram. In the last study, which is at the bottom, the P304 study, the adolescent, we had the 400, and as I mentioned earlier, the 600 milligram. Again, the 400 milligram performed extremely well. We did have a higher placebo effect in this study, and the 600 milligram barely missed, with a p-value of 0.07. We don't really need the 600 milligram, but we wanted to test it and see in that study how far we can go from an efficacy perspective. Looking at now the results on the hyperactivity, impulsivity subscale and inattention. Again, very consistent data, very strong performance across board. And this is a very important point, that this product actually is as efficacious on the inattention side as well as the hyperactivity, which is very important when at -- you're out in the marketplace as a physician, trying to treat these kids depending on what subscale they tend to have from a condition perspective. As far as the onset of action, which I talked about a little bit earlier, you'll see the data here on a weekly basis. The products starting to separate from placebo from week 1, which is pretty impressive for a non-stimulant actually to have that quick onset, and people start feeling that it is really working and making a difference for these children. And not only starts with week 1. Actually, it lasts through the end of the study. So you'll see very strong p-values, week 1, week 2, week 3, 4, 5, across all the way to week 6. And similarly, on the 301 study, the same thing for the 100 milligram as well. So very consistent, very clean data as far as the efficacy and the robustness of the efficacy. So that was on the total scale. When we look at the inattention subscale, a very similar story as well. Consistency throughout early -- as early as week 1 as far as the efficacy. Similarly on the hyperactivity and impulsivity as well. So very consistent, reliable efficacy that you could potentially expect from this product, hopefully, as it gets into the marketplace. On the secondary endpoint, which is the CGI, that's the Global Improvement Score, again, the same story again across the data, the 100 milligram, 200 milligram as well as the 400 milligram. And finally, which is also incredibly important in this category, especially with the current non-stimulants on the marketplace, the tolerability and the safety of this product is fairly remarkable for a CNS product. So what you're looking at here are the treatment-related AEs that are with an incidence of higher than 5% or 5% or higher as only somnolence, decreased appetite, headache, fatigue, and with the somnolence, around 12%. Just to give you by comparison, although these are not head-to-head trials, if you look at the label of a product like Intuniv, for example, somnolence in the 38% to 50%. Strattera has a whole list of other AEs that actually come into play as well as different label with precautions around cardiac issues, liver damage and so forth. So we're very excited about the profile that looks like it's really emerging from the Phase III data we have on this product with only a discontinuation rate based on this Phase III data of only 3.5%. So that really gives the physician true flexibility in pushing the dose as high as they -- if they need to, with very little to give up here on the tolerability and the safety side. So what is the potential of this product? At peak, which is not today, but at peak, we project the market to be somewhere in the 90 million to 100 million prescriptions. By reference, in 2018, it was about 75 million prescriptions a year. So it's a fairly big market. And even if we, at peak, we get 5% or somewhere between 5% and 10%, this will be a very significant product for us, clearly, and we hope to even do better than that. Just by reference, give you an idea of Strattera, which was the first non-stimulant to be launched, at one point, hit 19% penetration of the ADHD market and then started tapering off and settled somewhere between the 4% to 6%. Intuniv, which is other non-stimulant that we worked on when we were at trial, reached somewhere around also the 4% to 5% penetration. And we sure hope we can do way better than that because we think we have a much better profile, overall picture from an efficacy as well tolerability perspective. Moving on into the second program, which is SPN-810. This is a very unique program, impulsive aggression. That's a condition for which there are no products approved. We're the first company to pioneer this field, so to speak, and really venture into developing a product for these patients. This is a fairly prevalent condition out there. It is comorbid with a lot of other diseases. ADHD, PTSD, bipolar, schizophrenic patients are very aggressive. Autistic patients can be very aggressive. So this is a problem across different diseases, especially in psychiatry. We have a very strong IP position on the product, and we -- as I mentioned, we released the first data set on the first Phase III study, which I'll walk you through in a second. And we are waiting for the second study, Phase III study, to read out with data, hopefully, to release it this quarter. So the data, which you're looking at here, is the top line results from the first Phase III study. If you can -- let me just orient you a little bit with the table here. What you're looking at on the left column is the primary endpoint, which is a change versus baseline. You have Stage 1, Stage 2 and Stage 1 and 2 combined. Stage 1 is actually the portion of the study that was right before the interim analysis. Stage 2 was the portion of the study after the interim analysis, and 1 and 2 is the result of a combining Stage 1 and 2. So on the original analysis, which is the blue bar columns, you'll see the placebo and then the treatment arm, which was 36 milligram. In these -- the first stage of the study before interim analysis, actually the p-value was 0.029. After the interim analysis, we had major increase in variability. So if you look at the SD, the standard deviation, the number between the parentheses, you'll see how it jumped from 34 to 44 or 43.5. Impacting, obviously, the combined data was Stage 1 and 2 under the 36 milligram to miss the statistical experience with a p-value of 0.09. So we took some time after we got that data and try to look for what's the cause behind the variability. Clearly, first of all, this is psychiatry. These are always difficult studies to do. We've seen it so many times. So we would expect the variability to be there, but we wanted to better understand what's really causing the jump in the standard deviation and why only in the treatment arm, not even in the placebo. So after we did a lot of digging and subsetting the data, different ways we found out actually that there were 6 patients in this study out of 135 that were very mild patients, with episodes of maybe once a day or less than once a day, so about 6 a week. And if we exclude these patients, the study is actually positive. So you'll notice on the second portion of the table, all the way to the right, if we exclude these patients, you'll see in the last column, which is on the right, 36 milligram. The p-value in the interim analysis, still positive, like in the previous original analysis of 0.039. But the combined Stage 1 and 2, actually the p-value goes down to 0.017. So this is clearly a failed study. The post-hoc analysis is just helpful for us to understand what happened with the data. So we will be incorporating this exclusion criteria and the statistical plan for the second study, which we did not unblind yet. It's still blinded. And we will be analyzing the Phase III data from the second study based on this methodology. So as I mentioned earlier, we're looking at getting the data this quarter on the second Phase III study. So the 604 program, which is our third program in psychiatry, this is actually oxcarbazepine controlled release in bipolar disease. So why is this a big opportunity? Well, if you look at the current market of oxcarbazepine, about 50% of the prescriptions are in psychiatry. And oxcarbazepine from a mechanism of action, is a sodium channel blocker. The bipolar market is about 53 million prescriptions a year, and 1/3 of these prescriptions come from epileptic drugs, and most of them are actually sodium channel blockers. So we know that this mechanism in sodium channel blockers tend to be very good mood stabilizers and are heavily used in the market to treat bipolar. Actually, Lamictal, which is lamotrigine, is indicated for bipolar; Carbatrol, which is carbamazepine, and that's the predecessor molecule to oxcarbazepine. Actually, we did the studies way back when we were a trial as an epilepsy drug, but also Equetro is the form of that drug that is approved for bipolar. So we know that, that mechanism can treat bipolar effectively. And clearly, if it doesn't work, why would 50% of the prescriptions be in psychiatry, if that molecule actually in real practice is not showing any response? So we just initiated the Phase III program, as I mentioned, at the end of 2019. And from a market potential point of view, even if we only penetrate the segment, which is the epileptic molecules that are used for bipolar, if we only penetrated by 5% market share, will be equivalent to $300 million or more as far as peak sales for this opportunity for us. So we're very excited about this program. It makes a lot of sense also from a treatment, scientific and mechanistic point of view. So we are looking forward to complete the program and, hopefully, eventually launch the program. As far as a quick summary on the financials. This is just a reiteration of the third quarter results, with net sales of $100 million, operating income close to the $40 million. We have a very strong balance sheet. By the end of September, we had close to $900 million in cash and long-term investments. And the reason to -- for -- have such a cash is because we did raise money back in 2018 with a convert of about $400 million with the main intention is to ease -- use these proceeds for corporate development. So we're heavily and intensely looking at several opportunities there to put this cash to use so that we can bring in other assets to the company. And the last few bullets on the slide is just what we mentioned way back then in November, the financial guidance. Net sales, $390 million to $395 million, with an operating income of $150 million, $155 million and R&D around $70 million. So with that, I'll just summarize very quickly. Supernus will -- continues to be positioned for long-term growth. Yes, our current products, Oxtellar XR, really form a very strong presence in neurology. They are maturing as products, no question about it. Their growth has been much lower than when we initially, of course, launched these products, but they are in year 8 in the marketplace. And we look forward to really building the psychiatry franchise starting with SPN-812, SPN-604, and hopefully, we'll see what happens with SPN-810 and of course, anything additional that we could potentially bring from a corporate development point of view. So thank you so much for your attention, appreciate it. We have 3 more minutes. If anybody who wants to have a question, that's -- that will be fine. If not, it will be in the Room C. Thank you.