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

Good afternoon, and welcome to Supernus Pharmaceuticals' Second Quarter 2023 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Peter Vozzo of ICR Westwicke, Investor Relations representative for Supernus Pharmaceuticals. You may begin.

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us today for Supernus Pharmaceuticals' Second Quarter 2023 Financial Results Conference Call. Today, after the close of market, the company issued a press release announcing these results. On the call with me today are Supernus' Chief Executive Officer, Jack Khattar; and Chief Financial Officer, Tim Dec. Today's call is being made available via the Investor Relations section of the company's website at ir.supernus.com. During the course of this call, management may make certain forward-looking statements regarding future events and the company's future performance. These forward-looking statements reflect Supernus' current perspective on existing trends and information. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in the Risk Factors section of the company's latest SEC filings. Actual results may differ materially from those projected in these forward-looking statements. For the benefit of those of you who may be listening to the replay, this call is being held and recorded on August 8, 2023. Since then, the company may have made additional announcements related to the topics discussed. Please reference the company's most recent press releases and current filings with the SEC. Supernus declines any obligation to update these forward-looking statements, except as required by applicable securities laws. I will now hand the call over to Jack.

Thank you, Peter. Good afternoon, everyone, and thanks for taking the time to join us as we discuss our 2023 second quarter results. Supernus continues to execute well during a transition year with the loss of exclusivity on its flagship brand, Trokendi XR. In the second quarter of this year, our growth products continued to deliver robust growth with Qelbree and GOCOVRI achieving combined net sales of $60 million. This represents 67% growth compared to the same period last year and by far exceeds the $52 million decline in Trokendi XR net sales in the second quarter compared to 2022. Similarly, for the first half of 2023, Supernus generated $112 million in net sales from Qelbree and GOCOVRI, which significantly exceeded the $80 million lost from Trokendi XR in the same period. Finally, excluding Trokendi XR, total revenues for Supernus grew by 25% in the first half of 2023 compared to the same period last year. Moving on to more specifics about Qelbree's strong performance in the second quarter despite the beginning of the weak summer season in the ADHD market. For IQVIA prescription data, the ADHD market was essentially flat in the second quarter compared to the first quarter of this year, while Qelbree's prescriptions grew by 9%, reaching an all-time high of 146,344 in quarterly prescriptions. In addition, Qelbree's net sales grew by 20% in the second quarter compared to the first quarter of 2023 showing the resiliency of the brand and its continued growth potential despite the seasonality in the ADHD market. Moreover, the 146,344 quarterly prescriptions represent a 133% increase compared to the second quarter last year. As we approach mid-August, several metrics have now started signaling the return of the back-to-school season. For instance, pharmacy orders from wholesalers that are typically a good leading indicator for product demand have significantly increased in the first week of August compared to June and July, setting in new highs since the launch of the product. Consequently, the factory shipments are starting to ramp up to satisfy demand from the pharmacies. Moreover, Qelbree continues to capitalize on several dynamics, including a 12% increase in average total daily dose in the second quarter of 2023 compared to the second quarter 2022, leading to 1/3 of Qelbree's prescriptions now being more than 300-milligram per day compared to 24% a year ago. Together with an improvement in the gross to net, this resulted in an average net price per prescription of $212, an increase of 20% compared to 2Q 2022 and 10% increase compared to the first quarter of 2023. In addition, during the second quarter, Qelbree expanded its base of prescribers to approximately 21,291, up from 19,917 (sic) [ 19,197 ] prescribers from the first quarter of 2023. We expect Qelbree's growth to continue with our increased capacity and broader reach behind the sales force expansion as well as the back-to-school season. Finally, we are very excited about a recent research article that was published last month in CNS drugs by the authors, doctors Maxwell Price and Richard Price. The peer reviewed research article with the headline extended release of viloxazine compared with atomoxetine for attention deficit hyperactivity disorder, describes an independent retrospective chart review of 50 patients with ADHD in routine clinical practice by the 2 physicians. Patients, adult and pediatric, received up to 4 weeks of atomoxetine for the required insurance prior authorization. They were then washed out for 5 days and then switched over to 4 weeks of Qelbree treatment. Approximately half of the patients were also maintained on a stable dose of psychostimulants that they were on prior to receiving atomoxetine or Qelbree with a suboptimal response. The ADHD Rating Scale-5 and Adult Investigator Symptom Rating Scale were administered during the study. At baseline, at the end of the 4-week atomoxetine trial or earlier if discontinued for AEs and at the end of the subsequent 4-week Qelbree trial. Briefly, the results are as reported in the article are as follows: First, Qelbree showed a highly statistically significant improvement with a p-value of less than 0.00001 on the 2 ADHD scales compared to atomoxetine. Second, 96% of patients preferred Qelbree over atomoxetine. Third, 85% of patients receiving stimulants chose to taper off the adjunctive stimulant once they are stable on Qelbree. Fourth, 86% reported positive response by the second week of taking Qelbree. And finally, 4% discontinued Qelbree versus 36% discontinued atomoxetine due to AEs. In summary, and I quote the author's conclusion as published in the article. "Pediatric and adult ADHD patients who have experienced less than optimal response to atomoxetine demonstrate rapid improvement in inattention and in hyperactivity/impulsivity with greater tolerability on extended-release viloxazine." Please note that Supernus did not provide any support or funding for this research. We remain confident in the potential for Qelbree given its unique and differentiated clinical profile of a nonstimulant that works, works fast, works on both subscales of ADHD and has shown great tolerability. Switching now to GOCOVRI. Net product sales increased to $29 million in the second quarter of 2023. This represents a healthy increase of 17% over the same period in 2022. We continue to be pleased with the performance of the brand, which is now at an annualized run rate of approximately $115 million to $120 million in net product sales. Regarding Oxtellar XR, net product sales were $24 million compared to $30 million in the same period last year. The decline was primarily due to destocking by wholesalers impacting gross sales and higher rebates that are hit -- all hit in the same quarter. For Trokendi XR net product sales in the second quarter were $19 million, down sequentially from $35 million in the first quarter of 2023 and down from $72 million in the second quarter of last year. There are now 3 generics in the market on Trokendi XR, and we expect further decline in quarterly sales on the brand. Given the performance of Trokendi XR in the first half of the year, we have revised guidance slightly with the midpoint of the range now at approximately $75 million for full year 2023. Regarding the pipeline, we will be hosting an R&D Day in New York City on October 18, 2023, where we will share with you an overview of our product pipeline with an emphasis on SPN-817 and the open-label Phase II clinical study in adult patients with treatment-resistant seizures. SPN-820, our first in-class orally active mTORC1 activator, which is in a Phase IIb study in adults with treatment-resistant depression as well as new clinical candidates from the company's discovery program. In addition, key thought leaders will share their perspectives on the current treatment paradigms, unmet medical needs and the company's clinical development programs. Our team in collaboration with our partners continues to work hard towards the planned resubmission of the NDA for SPN-830, our apomorphine infusion device in the fourth quarter of this year. Finally, we continue to be active in corporate development, looking for strategic opportunities to further strengthen our future growth and leadership position in CNS. With that, I will now turn over the call to Tim.

Thank you, Jack. Good afternoon, everyone. As I review our second quarter 2023 results, please refer to today's press release and 10-Q that were filed earlier today. Total revenue for the second quarter 2023 was $135.5 million compared to $170.1 million in the same quarter last year. Total revenue in the second quarter of 2023 was comprised of net product sales of $128.3 million and royalty revenue of $7.2 million. The $37.2 million decrease in net product sales was primarily due to a $52.3 million decline in net product sales of Trokendi XR partially offset by a $24 million increase in net product sales of our growth products, Qelbree and GOCOVRI. Excluding net product sales of Trokendi XR in both periods, total revenues for the second quarter of 2023 increased 18% compared to the same period last year. For the second quarter of 2023, combined R&D and SG&A expenses were $111.2 million as compared to $116.9 million for the same period last year. While second quarter 2023 SG&A expenses declined year-over-year, R&D expenses increased $8 million over the same period due to increased investment and advancement with the clinical programs in our pipeline. Operating loss on a GAAP basis for the second quarter of 2023 was $17.6 million as compared to an operating earnings of $11.3 million for the same period last year. In the second quarter of 2023, we recorded an income tax benefit of $16.3 million as compared to income tax expense of $3.5 million for the same period last year. GAAP net loss was $800,000 for the second quarter of 2023 or loss per diluted share of $0.02 compared to GAAP net earnings of $7.9 million or earnings per diluted share of $0.14 in the same period last year. On a non-GAAP basis, which excludes amortization of intangibles, share-based compensation, contingent consideration and depreciation, adjusted operating earnings was $10 million compared to $37.6 million in the same period last year. Now turning to the 6-month numbers. Total revenue for the 6 months ended June 30, 2023, was $289.3 million compared to $322.6 million in the same period last year. Total revenues were comprised of net product sales of $268.9 million and royalty revenue of $20.4 million. Similar to the second quarter of 2023 results, the $44 million decrease in net product sales were primarily due to an $80.3 million decline in net product sales of Trokendi XR partially offset by $44.9 million increase in net product sales of our growth products, Qelbree and GOCOVRI. Excluding net product sales of Trokendi XR in both periods, total revenues for the 6 months ended June 30, 2023, increased 25% compared to the same period last year. Combined R&D and SG&A expenses for the 6 months ended June 30, 2023, were $218 million as compared to $228.2 million for the same period last year. The second quarter 2023 SG&A expenses decreased, while R&D expenses increased $8.4 million over the same period due to our investment in our current pipeline. As Jack mentioned earlier, we will be holding an R&D Day on October 18, which will provide more insight into our R&D and clinical development portfolio to deliver growth for our business. Operating loss on a GAAP basis for the 6 months ended June 2023 was $12.4 million as compared to operating earnings of $13.3 million for the same period last year. For the 6 months ended June 2023, we reported an income tax benefit of $24.2 million as compared to income tax benefit of $7.4 million for the same period last year. GAAP net earnings were $16.1 million for the 6 months ended June 30, 2023, or $0.29 per diluted share compared to $33.5 million or $0.57 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 $40.5 million compared to $65.7 million in the same period last year. As of June 30, 2023, the company had approximately $189.1 million in cash, cash equivalents and marketable securities compared to $555.2 million as of December 31, 2022. The decrease was primarily due to repayment of the convertible senior notes, partially offset by cash generated from operations. On April 1, 2023, the company paid the total principal amount of $402.5 million due under its 2023 convertible notes, in addition to payment of the remaining outstanding interest of $1.3 million. Following the repayment, the 2023 convertible notes are no longer outstanding. In addition, as of June 30, 2023, the company has fully repaid the borrowings against the credit line. As a result of paying off these 2 different instruments as of June 30, 2023, the company has a strong balance sheet and significant financial flexibility for potential M&A and other value-creating opportunities. Now turning to guidance. For the full year 2023, the company reiterates its prior financial guidance for total revenue, combined R&D, SG&A expenses and GAAP and non-GAAP operating earnings. As such, we expect total revenues to range from $580 million to $620 million, comprised of net product sales and royalty revenue. For the full year 2023, we expect combined R&D and SG&A expenses to range from $450 million to $480 million and full year GAAP operating loss in the range of $10 million to $30 million. And finally, we expect non-GAAP operating earnings to range from $75 million to $100 million. Please refer to the press release issued prior to this call that identifies the various ranges of reconciling items between GAAP and non-GAAP. With that, I will now turn the call back over to the operator for Q&A.

[Operator Instructions] Our first question comes from Andrew Tsai of Jefferies.

Appreciate all the updates. So maybe the first question, on Qelbree, the net price did seem favorable in Q2. It did sound as if gross to net also improved. So the question is, were there any inventory fluctuations or destocking that happened in Q2? And then it sounds like factory shipments are ramping up in Q3 ahead of the back-to-school season, which you said is a positive leading indicator, so should we assume some inventory build in Q3?

Yes. Yes, regarding the inventory, it has been light on Qelbree in general all along. It did get a little bit lighter in the second quarter, but nothing really significant. Certainly, with the back-to-school season, as I mentioned in my remarks and as you rightfully said, now kicking into high gear, we would expect the wholesalers who start reacting to the orders from the pharmacy. So the orders from the pharmacies are already showing a very healthy increase. And that's typically the lead indicator because pharmacies are seeing, obviously, the increase in the prescriptions. They react to that with increased orders and then wholesalers react to those orders by increasing their orders from us. So it's really -- it's a cascading effect, and we're already seeing the first few steps occurring with the growth there. And then, of course, we will hopefully see that also, obviously, in the weekly prescriptions as time goes on, specifically in mid-August moving on through September and October.

Perfect. And speaking of scripts, as we, in the financial community, think about what Qelbree's sales trajectory needs to be in Q3 and Q4 to reach somewhere closer to consensus of $160 million for 2023, assuming you're comfortable with that number, then is it fair to assume we can expect TRx to inflect in both third quarter and fourth quarter rather than just third quarter. So basically, how are you thinking about the quarter-over-quarter sales growth cadence? Is it going to be a strong growth in Q3 alone or equally strong in Q3, Q4 and beyond?

Yes, sure. Yes, I mean the prescriptions will start really picking up again in the third quarter and will continue through the fourth quarter as well because the back-to-school season, it's a little bit funny. It's not purely on a calendar basis, clearly, right? So half of the summertime is June, which falls in the second quarter. July is normally also soft, which is in the third quarter, but the back-to-school season is really mid-August even through October, which bleeds into the fourth quarter. So it's not purely calendar, clearly, the seasonality, and therefore, the growth is expected to happen in the third quarter and again in the fourth quarter as well. And therefore, we expect sales to continue to grow in the fourth quarter as well on top of what growth we get in the third quarter.

Our next question comes from Stacy Ku of TD Cowen.

This is [ Vesh ] on the line for Stacy. And congratulations on the quarter. Could you please comment on the Qelbree traction in adult versus the pediatric population? So what is the breakdown for the Qelbree prescription growth for adult and pediatric segment in Q2 and the expectations for the adult ADHD launch? So what is the level of awareness among the clinician group as we think about future growth prospects? And should there be less seasonality for the adult population?

Yes. Regarding adults versus pediatric what we saw in the second quarter growth in the adult segment by approximately around 16% growth versus in pediatric, it was in the 5% to 6%. So clearly, as the kids went into summertime, out of school, adult was still picking up, obviously, the growth in the brand. And obviously, adult is also -- we're only about a year into the launch of adults. So we're still trying to get much deeper reach within the adult physician audience and get more people to be adopters of the brand. As far as our mix of the business, it's still in the probably 30 -- around the 30%, 33% as adult and the rest is pediatric. So we still have a long way to go as far as our growth in the adult segment. Now with the back-to-school season now in high gear, you would expect us to be pushing more on the pediatric side, clearly, to take the most advantage of the back-to-school season. And then later, maybe later in the year, we balance it out with another question on the adult side. So we do these different strategies, obviously, execute different strategy on a quarterly basis depending on seasonality, depending on what did you launch and the awareness in different physician audience, the rate of adoption, the growth rates and so forth.

Perfect. And lastly, so last quarter on the call, you had mentioned some deepening prescriptions from top decile prescribers, but also expanding to new prescribers. So how is that expansion and deepening progressing? And how do you see the prescriber base growing moving forward?

Yes. I mean the sales force expansion has been completed. Everybody has been trained. Everybody is in the field, has been in the field for a while now. The timing of the expansion was by design, clearly. That's why we did it in the April, May time frame so that we are fully ready for the back-to-school season. So clearly, the timing of all that was by design. And therefore, the most impact we will see is in the back-to-school season and the rest of the year out of that expansion. That expansion of about 45, 46 reps clearly was designed to do 2 things, of course, to expand the reach as well as to increase the frequency among the physicians. This is a category which is sensitive to promotion. It takes numerous calls to turn a physician into an adopter. So frequency is extremely important. And we are hyper focused, of course, on the top deciles that who see a lot of patients. So from a volume perspective, they give you the best return on that sales call.

Our next question comes from David Amsellem of Piper Sandler.

So just got a few. First, sorry if I missed this, but can you talk about underlying volume trends for GOCOVRI. I don't know if you're in a position to give prescription data, but that would be helpful or maybe I'll just ask a different way, our underlying sales and volumes essentially in alignment. So that's number one. Then number 2 is how are you thinking these days about biz dev and you're going to have an R&D Day. So I guess it sort of brings up an interesting question is, do you -- are you looking at additional pipeline assets? Or are you continuing to prioritize commercial stage assets? And just help us understand your latest thought process there. And then lastly, on Oxtellar, I wanted to get your thoughts on why you settled for next year when you had a couple of other cases that you actually won and your entry for Oxtellar was [ 27 ] for generics now that pulls up to [ 24 ]. Just help us understand your thinking there. And is it tied to broader strategy regarding the assets you're prioritizing?

Yes, starting with the first question on GOCOVRI. We estimate prescription growth to be around 6%, like in the first half of this year on GOCOVRI versus last year. So it's still a healthy growth in prescriptions. And the reason I say we estimate because with GOCOVRI, it's a specialty pharmacy, but we also have several accounts, institutions, what have you, that directly buy from us. So it's a little bit -- and they don't report prescriptions to us. So that's why there is always an estimate there that is included. It's not like you're reading IQVIA prescriptions. And because of the fluctuations sometimes quarter-to-quarter, we really stopped reporting it necessarily, but we focus on sales. And this is a very important point because when you have a specialty pharmacy or only accounts who are buying the product, they're certainly not buying it because there are no prescriptions going on. So the correlation between sales and the growth of the brand on a unit basis is pretty high because these folks that don't tend to sit on inventory, obviously, especially like institutions and so forth. So I would look at sales as a very, very good marker and surrogate to the health of the product and the growth behind the product. Regarding the second question on business development, we continue to prioritize the commercial assets if we can get opportunities that have commercial assets that could bring further revenue and cash flow into the company. As a next level priority is a pipeline asset that could be potentially launched ahead of what we already have in our pipeline. So our pipeline, clearly, the most advanced one is the infusion device, the apomorphine infusion device. But right behind that, the 2 main assets, SPN-817 and SPN-820 are at this point in Phase II. So if we can find other pipeline assets from the outside that are -- have completed Phase II, in the middle of Phase III or even completed Phase III, those will be ideal for us so that we can launch these assets in 2 to 3 years from now. So priority-wise, we continue to focus on the specific criteria. Again, we're agnostic whether those are psychiatry or neurology. We're pretty flexible from an operational perspective. We can really address either market very comfortably. And finally, the final question, the third one, you had on Oxtellar XR regarding the Paragraph IV situations and the most recent settlement. Looking at the trial, which was -- or would have happened in July this year, early August, looking at the allocation of resources, legal fees, management attention and so forth, we felt that the best optimum situation for us with Apotex is really to settle with them, have a certain date, get that risk off the table, and we're very happy to say that we were able to manage so that the downside on 2024 is a very small partial downside, so to speak. So a date which is September 1, 2024, will make the adverse impact on 2024 a little bit more palatable than if it were a full year clearly or even half year hit on 2024. So that was really the strategy behind it is to get that certainty, take the risk off the table on Apotex situation and be able to allocate more of the resources on the more important brands, clearly, which is Qelbree and GOCOVRI.

[Operator Instructions] Our next question is from Annabel Samimy of Stifel.

This is Jack on for Annabel. So now that you're many quarters in with a reliable nonstimulant drug, do you have a sense of whether there's a shift in the go-to drug for physicians when thinking about putting a new patient on drug? And what is the profile of the patient that gets put on a nonstimulant versus a stimulant look like?

I can speak clearly directly as to Qelbree and what we're experiencing with Qelbree and so forth. So the source of our business where are patients coming to the Qelbree franchise, basically, around 70% of the patients are being switched from stimulants and other products. The bulk of these switches are coming from stimulants. 65% of the switching that is happening, these patients that are coming to Qelbree are coming actually from stimulants. And the research shows us that the top reasons for these switches are basically, stimulants, actually and the AEs that are associated to the tolerability or lack of tolerability with stimulants. Second main reason they've been on stimulants, but they didn't really get a good response. I mean people forget not everybody actually responds to stimulants, even if they have tried 2 different stimulants that exist on the marketplace. Third, specifically with parents, they just don't like to give their kids stimulant, so they may have tried them and they weren't too happy really with the experience and so forth. So the bulk of the switches are coming from stimulants. Now having said that, about 30%, the remaining 30% of the business that we're getting or patients that we're getting are actually de novo patients. So these are patients that haven't tried anything before and Qelbree has become the medication that is a go-to medication. It's a first-line treatment for a lot of physicians out there, and that's really very encouraging for us because -- it's encouraging because now we can say that physicians or a lot of physicians, they are thinking of Qelbree as a first-line treatment. And it's really based on the experience that either they've had with Qelbree or they've heard about other physicians who have tried Qelbree and really the remarkable efficacy, which I mentioned, especially with the study that I mentioned recently, where Qelbree is really -- if you want to summarize it, it's a nonstimulant that really works. It works fast. It works in both inattention and hyperactivity and has great tolerability. And that's exactly what we've been looking for decades now in this ADHD market. Yes, we've had other nonstimulants, but unfortunately, they have disappointed patients for so many years, and that's why the market has been split up with only 10% of the ADHD market being a nonstimulant. So clearly, we have been looking for a nonstimulant that works and also works fast. And Qelbree has been delivering on that as evidenced by the research that I mentioned today, but also with all the surveys that we have on Qelbree which was also corroborating and reinforcing everything we saw in the Phase III program. The fast onset of action, parents don't have to wait forever when the school starts and waiting and waiting a week, 2 weeks, 3 weeks, 4 weeks, 5 weeks, even 6 weeks, sometimes on Strattera or atomoxetine and the product may or may not work. Even after waiting, you don't know whether it's going to work or not. So Qelbree short -- I know a long-winded answer, but the short answer is, it is really exciting to see that Qelbree has become for a lot of physicians the go-to product even from the beginning. And even if they are forced to go through a step edit, like the article or the research that I mentioned through atomoxetine, the research that I just mentioned with 50 patients, it shows that the 4-week treatment with atomoxetine hasn't really done much for these patients. They are still dissatisfied and therefore, they switch to Qelbree after that, and they get incredible response. Again, although this is not a head-to-head trial, but it's actually clinical practice and these 2 physicians, they conducted the study because they were forced by insurance in the prior authorizations and they generated data to prove that actually Qelbree or extended-release viloxazine is a whole different unique drug unlike any other nonstimulant that ever existed in the marketplace.

Got it. And then so just building off that a little bit, for all of those Qelbree patients that have been converted from stimulants, I know you've previously mentioned that stimulant shortages weren't necessarily tailwinds for you, but could you explain a bit more as to why that is?

Yes. The stimulant shortages. When you think about a patient who has been prescribed a stimulant, and that patient went to the pharmacy and couldn't find it. So from a medical clinical perspective, the first important point is the doctor has made up and made the decision that that's really what's necessary and what's important and what's the right treatment for that specific patient. It's either an amphetamine or methylphenidate or what have you. So if the patient reports back that they can't find it, that physician pretty much has probably 20 other options within the amphetamine and methylphenidate, so most likely, because they've already made up their mind clinically, most likely, they're going to prescribe another similar stimulant that is maybe a different formulation or a chewable or a tablet or extended release versus immediate release or whatever. So that's why we don't think Qelbree necessarily is going to be the option that the physician will first think of when the patient reports to them that they can't find it. Now if the patient continues to have issues from a shortage perspective, that may make the physician rethink the therapy and maybe if that physician has a good experience with another patient for whom they felt that the nonstimulant and Qelbree is appropriate, they may try Qelbree. But we can't really say that the shortages necessarily are really a good dynamic for us in general. They might help, but it would be probably not too significant.

I'm showing no further questions at this time. I would now like to turn the conference back to Jack Khattar for closing comments.

Thank you. In concluding our call this afternoon, I would like to emphasize that returning to strong growth is our top priority. Our growth products, Qelbree and GOCOVRI delivered significant growth of 67% in net sales in the first half of this year, reaching $112 million that by far exceeded the decline of $80 million in Trokendi XR. We will continue to be focused on making the 2023 transition as smooth as possible as we move away from the legacy products and set the stage for continued growth in 2024 and beyond. Thanks for joining us this afternoon. We look forward to seeing you on October 18 at our R&D Day in New York City and to updating you on our next call.

This concludes today's conference call. Thank you for participating. You may now disconnect.