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

Good morning, everyone. This is Rahul Sood here from Morgan Stanley's Healthcare Investment Banking Group. We are joined today by Jack Khattar, President and CEO of Supernus Pharmaceuticals for this fireside chat. Before we turn -- before I -- we turn it over to Jack, I have some important disclosures to read. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. The second housekeeping item is for the audience. If you have any questions for Jack, please use the Q&A portal to type in your questions. I'll be sure to you to ask Jack some of those questions. With Jack -- with that, Jack, welcome and thanks for joining us today.

Good morning. Thank you so much for having me.

Good morning. Jack, let's dive right in. Your exciting developments at the company with the approval of Qelbree for ADHD and pediatric patients, talk a little bit about Qelbree and how do you think this product has differentiated options that are available?

Yes. Before I get started, I'll just remind everyone, I'll be making forward-looking statements throughout this session. So please check the SEC filings for all the risk factors associated with the business. Yes, I mean, absolutely, our complete focus is on Qelbree and making the Qelbree launch a success. That's what we're all focused on as an organization. And we launched the product at the end of May, which is basically the end of the school year where people getting into the summer season and pretty much most kids getting off medication for ADHD. So we tried to use that period of time between then and now to really get everybody -- get them to be aware of Qelbree, differentiation of Qelbree, education with the physicians and so forth in preparation for the back-to-school season. And we've been very excited and very -- actually encouraged by everything that's happened since the launch of the product. You will see very clear trajectory as far as the growth of the product. This morning, actually, we just got the IMS monthly prescription of 5,200 prescriptions, up from 3,100 prescriptions in July. So everything is moving in the right direction. We did mention a few weeks ago on our earnings call that it has been -- the projections are pretty much in line with what the reality is. So the launch is really tracking according to our expectations on the forecast side from a shipment perspective, prescription perspective and a lot of all the metrics that we look at as far as the acceptance of the product. And what's really very encouraging, although it's early on, is the feedback we get from patients who have had the chance to actually experience the product. The product seems to be delivering exactly as we had expected and in line with the Phase 3 clinical data supporting the fact that it does seem to work really fast as early as week one for a lot of these children, which is extremely important especially in the non-stimulant category where historically existing products had challenges in that area and a lot of physicians or even parents become impatient with the existing older products. And that's why most of the usage in ADHD is on stimulants. That's not to say because parents prefer stimulants, it's because parents unfortunately haven't had a good choice, another good alternative, to go to further trials. So it's very encouraging to hear that Qelbree is actually performing very well in the marketplace from a clinical point of view, which speaks to actually to your question to the differentiation of Qelbree. This is an uncontrolled substance, non-stimulant that works well, has a very good safety and tolerability profile. The data also in Phase 3 shows it works well in inattention and hyperactivity. The onset of action is really good. And the tolerability, I mean, the discontinuation rates we had in our clinical studies are in the 2% to 3% because of AEs. So as a parent, I know, I'm a parent, so I mean, I can speak for myself and a lot of parents I talk to. I mean, why would I put my trial on a controlled substance that can be abused, all the issues with the stimulants if I have a choice like Qelbree that actually works and can work really quickly for my child. So we're trying to position the product that way in the marketplace. And so far, really working pretty well. And then on top of all that, we're very excited, of course, for the adult indication, which we announced very recently that we did make the submission to the FDA, the sNDA with the PDUFA date in April next year. So we are well on our way and actually planning for the launch, hopefully the potential launch of the product in adult as well. The adult segment is extremely important from a market potential perspective. We need the adult segment to realize the full potential of Qelbree. And so, about 50% to 60% of the market is adult ADHD.

Thanks, Jack. The point that you mentioned that historically there has not been a good treatment, non-stimulant treatment option that's been available to the parents here. Talk a bit about your outreach strategy for the physicians. What is the message that's been delivered to them? And how is that receptivity being -- how is that receptivity from the physician?

Yes, I mean, the key messages are all clearly centered around the data that we were able to generate would be fairly extensive Phase 3 clinical program. In pediatric children 6 to 11, in adolescent, and also in adult, and it's truly amazing how consistent the data is as far as the performance of the product regardless of the patient population. The speed of onset which I mentioned earlier the fact that it worked on the inattention and on the hyperactivity and impulsivity, the fact that the tolerability and safety profile is really good with very low discontinuation rates. So these are all the key points. Of course, we try to help physicians understand. As we got into the back-to-school season, we've been doing a lot of this messaging for probably even about 1.5 years to 2 years even before launch around the data, the scientific data out there on the product and how this product potentially could differentiate from all the competition. And it's really interesting because we just completed a survey among physicians who have been prescribing Qelbree. So we are now at a point we can start gathering a little bit more meaningful data than just anecdotal references so we can get from the field. And I mean, one data point, interesting, just came out really about 55% of the physicians who have prescribed Qelbree are actually using it on kids who have been on stimulants and are not happy with the stimulants with a lot of side effects, tolerability issues and all the issues we know about with stimulants or controlled substances. So this is really reassuring that some of the messaging is coming out there, it's getting out there and physicians see Qelbree as a real alternative even to stimulants because stimulants work well. I mean they really work very well. They work quickly and so forth. And that's why a lot of people resort to them. But do they resort to them happily, do they resort to them because they really like them or do they resort to them because there was no any other choice? It's pretty much the latter. Unfortunately, that's how it's been in the market for so long. But now that there is a real treatment option that can give you potentially the efficacy, the speed of onset as well as the tolerability and the safety, does every kid really need a harsh potent stimulant? The answer is no. There a lot of children out there can really benefit from a product like Qelbree. And I think a lot of physicians now are starting to realize that this is truly very different than the current existing products on the marketplace.

Great to hear, Jack. Can you talk about your longer-term expectations for Qelbree? How do you expect the market to be split between stimulant and non-stimulants? And what role and share do you expect Qelbree to have in this very important market?

Yes. I mean, we've maintained for a long time, and we kept always saying that the current market is about 90% give or take stimulants and at about 10% non-stimulants for all the reasons I mentioned earlier. We think the market actually probably should be the other way around. In reality, if parents have the products they're looking for, for their kids, why would you put your kid on controlled substances, right? Why would you? And therefore, we do expect if Qelbree continues to deliver and perform and it has so far early on in the launch, we do expect that we will grab a good chunk of that stimulant market because we are offering a real alternative here. We're offering a real product that can really work and be a good alternative for many parents out there. So with the non-stimulant sector growth, we do expect it to grow beyond the current 10% or 9%, it's been in that domain for a long time. And as far as Qelbree itself, I mean, we have spoken historically about from a peak sales potential, if Qelbree peaks in 6, 7, 8 years, whatever from now, the market by then will probably be around 100 million prescriptions a year for ADHD, and that's encompassing everything, pediatric, adolescent and adult. And fairly straightforward, I mean, take an assumption somewhere a penetration of 5% to 10% or even higher than 10%. The math is fairly quickly adds up to a multi-hundred million dollar product here or even closing in on $1 billion could be, if we're really successful and the product, again, continues to deliver. So this is a huge tremendous opportunity for us. We think we have the right product for it. And there will be a lot of room for something like Qelbree to make a difference in these patients' lives.

Talk a bit about the -- your go-to-market strategy with Qelbree. How many reps do you have? And is this primarily the product that they are promoting to the physicians right now?

Yes. We launched the product with a little bit more than 175 reps, so they're completely focused on Qelbree so they don't promote any other products. And of course, the physician audience is more on the pediatrician, child psychiatry. I mean that's really primarily our audience. We prioritize, of course, the targeting and all that based on the heavy prescribers in that category, the KOLs and so forth. So that's really the outreach and the promotional effort. We also have a very heavy digital platform supporting the product, an outreach program, educational program also for parents as well as physicians. And we've been doing a lot of that, actually, educational things even before we launched the product. We have a couple of websites that really help parents understand the disease, understand what their choices are out there and so forth. So we're truly trying to support also the community and the patients with the launch, not just on the physician side with the sales reps.

That's great, Jack. Switching gears a little bit, talking about the performance that you mentioned, you saw a good increase in the scripts from your IMS data. Any insights you can share around the -- how much is sampling a part of the scripts that are being written versus the reimbursed scripts?

Yes. Sampling is something actually has been an important component of the launch for Qelbree. Given that it is an uncontrolled substance, a non-stimulant, we have the ability to sample unlike our competitors out there. So we're actually the only company that can do that. So we're trying to be -- play a major role here, especially in the back-to-school season. So we have distributed north of 40,000, probably by now, the number even have changed because as time goes on, it continues to build samples out there. And the conversion, and which I get a question all the time, of course, and rightfully so as far as the conversion rate of these samples and prescriptions. We have early indications that we don't have really yet solid data because that number is influenced by a lot of factors. We're finding out, of course, as you would expect in situations like this, physicians sometimes are getting more than just one sample of the same patient. And therefore, it's prolonging the time frame from the time a patient gives a sample to converting it into actual prescription. Certainly, I could say the IMS numbers do not reflect any of the samples, of course. But we expect September, October to see some real activity and continued -- of course, continued growth in the prescriptions. And you'll start noticing the 2 lines, which is the new Rxs and then the TRxs, you'll start seeing them separating. With the TRxs building, obviously, that's a reflection, not just the samples converting, but also, of course, the refills as well, and patients coming back into -- for a refill, which is also important to see because now you're seeing patients coming back and getting their refills, which also reinforces again the performance of the product and the satisfaction from the product.

Jack, one question on sampling. How long do you think a patient needs to be on the medication for them to realize the benefit of it such that -- how long -- and does that inform the sampling period as well?

Yes. I mean, we always believe that the product will perform as the clinical studies told us, performing within a week or 2 or what have you. So our samples, at this point, is a 2-week sample. But therefore, the decision by many physicians to give a 1-month equivalent of samples, so they're giving 2 samples to cover a patient for a month. And the reason for that with any new product, the physicians would want the parent to really experience and give them enough time to see how well the product works, not also how well but also how long and how well the child tolerates the medication as well before they switch them to the full-time prescription. So there are a lot of considerations, especially that historically a lot of physicians have been skeptic about non-stimulants. That's why they are only 10% of the market, skeptic about how quickly they work and so forth. So some physicians are sampling more than we would like them to, but that's okay. I mean we want them to have the experience with the product. We want them to encourage them to try the product. So we're okay if that's how they're doing it. We try to help them and guide them and with the program that we have and support their offices by replenishing the samples all the time. So we do monitor, of course, the usage of the samples, the turnover as far as samples are concerned, and monitor how many prescriptions are they generating. But again, it's still early data for us to give any meaningful conversion rates at this point.

Okay. On a slightly different topic, but staying on Qelbree, can you talk about the feedback you're receiving from the payers or you have received? And the -- and where you are with the lives covered?

We have about 60%, 64% of lives are covered, but I have to clarify. Coverage means, obviously, they have access to the medication. It's not block, but also that coverage could mean, restrictions could mean step-through edits and so forth. So that's the reality out there at this point, until we finalize contracting with the PBMs and so forth to deal away with some of these restrictions and move them out of the picture so it doesn't hinder trial of the product and penetration of the product in the marketplace. Now in the meantime, until we get these contracts in place, as many companies these days in our industry, with every launch you see pretty much the same dynamics. As a company, I mean we're willing to be there for the patient. We're going to support the patient. We're going to take care of the bill, so to speak, on these initial prescriptions until the coverage comes online. And we're going to show PBMs and that this is a real product with serious utilization. It's going to happen. The trends are already starting, pointing in that direction. And this is a very important therapy that they need to provide to their patients and they need to make it easier for patients to access. We're not willing to enter into contracts with our ridiculous rebate levels, which we could have signed probably 5 months ago with open access, but just throwing money that is not reasonable at all. That's not a position we're willing to take, and we're willing to stick it out for the patient as long as it needs, as long as it takes to really prove the [ re-spoke ] that this is a real product that's going to be utilized and a lot of patients are going to ask for it because it really works and works very well.

Thanks, Jack. On your -- you talked about the good feedback you're receiving from physicians as well as from patients. Can you talk a bit about your strategy on educating the patient community, the payer community? Is direct-to-consumer advertisement, social media strategy, is that all part of how you're thinking of tackling or what are the specific components that you're looking at?

Yes. No, absolutely. I mean we've been -- as I mentioned, even before the launch, we've been trying to provide a lot of educational materials for the web. We have our own website on ADHD. We have customers or potential patients and even parents can sign up on the website to continue to receive educational materials. So we are out there in the social media, also universe through different channels across the digital space. So we're very much out there trying to really get the message out there that there is real help for your child, there's real help for these kids as far as ADHD. And real help even in the form of an uncontrolled substance, if that is something that you actually even prefer versus stimulants. So the activity is pretty much as heavy on the consumer side, so to speak, on the patient side as it is on the physician side with the data, with the publications, with the conferences. I mean there's a huge, huge activity on so many conferences that's going on as we speak and has been going on with posters, presentations, scientific symposiums and so forth. So we're pretty much engaging both ends of the spectrum, the scientific community, the physician as well as the consumer and the patient.

Got it. And Jack, last question on Qelbree. Are you seeing any impact from the resurgence in COVID in the way you are able to connect with the physicians and KOLs?

Yes. I mean, there is an impact, no question about it. We were hoping obviously with the back-to-school season, with summer ending, that all schools are open and so forth. Unfortunately, as we all know, I mean, there is about, I think, 1,000 schools closed back and they're now back to the virtual setting. So I mean, it's not a smooth sailing as everybody would like it to be. We haven't been to pre-COVID situation yet. Clearly, there's always that disruption that comes and goes as time goes on. Different states, different counties, they all have different rules as to closings or not closing. And not only the schools, but also even physician offices being disrupted that way. So ideally, I mean, if I had my wish, I hope we can go back to pre-COVID situation or nobody has to worry about these things. Unfortunately, we're not there yet. We are not there yet. The issue is still there. It does disrupt the activity of the sales force, no question about it. It has disrupted also the transition for these kids and going really in a normal way to the schools and their daily routine has been -- some schools are in a hybrid situation, one week virtual, one week -- I mean, I think everybody is trying to find a way how they can manage throughout these challenges. And therefore, yes, I mean, could the launch be a little bit different if we were pre-COVID? Yes, probably. But again, I think the product will be successfully regardless eventually because of the nature of the product, its differentiated profile and the huge need out there for a product like that.

Got it. Jack, switching gears a bit to your -- the other part of your commercial portfolio today. Can you talk a bit about your thoughts on managing that part of the business, Trokendi, Oxtellar? And what are some of the trends that you're seeing?

Yes. I mean, clearly, with the existing products, the more mature products, so to speak, specifically the bigger one, which is Trokendi XR that everybody is well aware that January 2023, we had settled with the generics that they can come in as early as that date. So the way we're managing the business, we used to support Trokendi XR, Oxtellar XR with pretty much what is today Qelbree sales force. So the bulk and all that sales was moved over to psychiatry to launch Qelbree, and we have now a dedicated sales force for Trokendi XR, Oxtellar XR, but it's a much downsized sales force so to speak, as far as the size of the sales force. We have about 80, 85 reps supporting both products versus used to be closer to 200 before Qelbree. So clearly, resource allocation, we're going through all that, and we have made the right adjustments and movements behind the right assets as far as our future is concerned. And as far as Trokendi XR, Oxtellar XR, I mean, our target is to keep them stable and strong as possible over time. They're very important from a cash flow perspective and generating the right cash flows for us so that we can invest heavily in the launch of Qelbree, not just now but also next year with the adult indication which we're extremely excited about because, as I mentioned earlier, it's around 60%, 50% to 60% of the opportunity here. So we are making all these adjustments from a capital and resource allocation perspective. And similarly, on the Parkinson's side, with the APOKYN, XADAGO and MYOBLOC businesses, again, they have recovered a little bit from the 2020 because COVID had hit hard on MYOBLOC, a little bit more also on APOKYN. XADAGO held up pretty nicely, actually not too bad. And we're managing that portfolio in the Parkinson also in preparation for the potential launch of the pump, which is exciting opportunity here. It's really the continuous infusion of apomorphine pump, which we hope to file before year-end. And if we get around give or take, 10 months review, let's say, you're really launching the product at the tail end of next year. So we potentially have 2 product launches next year. And therefore, hanging on and keeping the current existing portfolio as healthy as possible is extremely important for us.

Got it. Jack, can you talk about your earlier stage pipeline and the 820 for TRD and 817 for the severe epilepsy? What should we -- more specifically, what should we expect as news coming out of those programs over the next 12 to 18 months?

Yes. The first catalyst should be really the initiation of Phase 2 program on 820, which is our novel antidepressant mTORC1 activator. So that's a program we're working in collaboration with Navitor Pharmaceuticals. So we moved along the program very nicely, actually since the -- when we signed up this collaboration in April last year. So we finished a lot of the Phase 1 -- extra Phase 1 work we had to do, SAD study, MAD study, a lot of work on the API, CMC and so forth. So we are pretty much on track right now to start the Phase 2 clinical study before year-end. So that's really exciting news. We have a lot of hopes for this program, a very unique mechanism of action in treating depression. And this can be a major value, value driver Supernus. Right behind it is SPN-817, which is our unique epilepsy program. This is a very potent acetylcholinesterase inhibitor. Again, it's a novel mechanism for the treatment of epilepsy. All the data we have on the program so far points to a very potent product in treating seizures. We're focusing initially on severe or rare epilepsy diseases, that's where the program initially will be and then potentially broaden the use of the product. We do have very preliminary data in early patients, like 2 or 3 patients. We have a study in Australia that has been going on. I mean, incredibly encouraging as far as the seizure reduction levels and how these patients are doing on the drug. So we have a lot of hopes. And we will be sharing more data at the right time on that program as it gets closer to potentially initiating a Phase 2 program. And so from a pipeline perspective, clearly, these 2 assets are more on the earlier stage. So we're also focused to bring in potentially augmenting our pipeline with opportunities that are more mid-stage to late-stage because, of course, next year comes, as I mentioned, we'll be launching Qelbree in the adult and we'll be launching potentially also the pump, right, apomorphine pump. So if you look at our pipeline, it starts becoming a little thin when it comes to mid- to late-stage assets. So we're focused on potentially doing something there as well, bringing in something else to augment the pipeline.

Jack, this has been very helpful in talking through all the exciting things that are happening at Supernus, the launch of Qelbree and what I would say is a fairly deep pipeline of products that you've assembled and taking through. I think that's all the time we have today, as I mentioned. So thank you very, very much for joining us today. Any closing remarks you would like to make?

Yes. I mean, the key thing, obviously, that we're all focused on and everybody is the Qelbree launch. I mean the product has a tremendous opportunity here, tremendous potential. And it just requires patience and it requires just continue to execute. And already, we are seeing the signs of the increased activity and the energy level behind the product with the back-to-school season, as I mentioned with the August prescription. So thank you so much for everybody's time today, and stay tuned with continued updates as we go through the year. Thank you.

Thanks, Jack. Thanks, everyone, for tuning in for this session with Jack Khattar at Supernus Pharmaceuticals. With this, we'll be wrapping up. And thanks again for everyone joining.