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

Hello, everyone. Can you hear me? Great. We'll go ahead and get started. I'm Jason Ellis. I'm a Managing Director on the biopharma investment banking team at Wells Fargo. And we're here today for the Supernus Pharmaceuticals fireside chat. So I have with me the CEO of Supernus, Jack Khattar. Jack, great to have you with us.

Thank you so much for having me. And just quickly before we get started, just to remind everyone, we'll be making forward-looking statements, so please check all the risk factors in our SEC filings. So for those of you who may not be familiar with Supernus, just a few words, a little background since you may not be too familiar with the story, we're a CNS-focused biopharmaceutical company. We have revenues in the $600 million range. Our latest guidance that we gave was $600 million to $625 million. We are profitable. Our lead growth product is Qelbree, which is a nonstimulant product, novel nonstimulant in the ADHD market. We have also a Parkinson's franchise with GOCOVRI, which is our lead growth product in that space. We're also very excited about the pipeline. We have numerous catalysts that are coming up in the next 6 to 9 months behind a very novel antidepressant, novel epilepsy product and so forth. So thanks again for having me, and happy to be here.

Great. Excellent. And that's a great place to start. I think at a high level, we're just kind of talking about the business. For those, again, who are less familiar, can you tell us a little bit about the strategy and the approach at Supernus. You're a little bit unique in that you've been successful, taking stuff from R&D to commercial. What do you think are the key competencies of really taking this business forward into the future that kind of relates to the strategy?

Yes. I mean for a long time, we have very strong heritage in R&D. We actually used to be the R&D division of Shire Pharmaceuticals for many years and operated under Shire for many years, and then it's spun out of Shire to become Supernus. So we are strong believers in fundamental R&D and internal growth, in addition, augmenting that through external growth. So that dual strategy has always served us pretty well. A lot of the products that are on the market today. Trokendi XR, Oxtellar XR, Qelbree are all internally developed by Supernus. There is about 9 other products that we actually developed over the years for other companies like Adderall XR, Intuniv, Mydayis in the ADHD space and so forth. And also, we've been focused on just CNS throughout our history. And we are believers in doing it ourselves when it comes to the commercial strategy. So when we develop our products, we commercialize them ourselves. We try to have products a lot of synergistic with each other. So when we launched an epilepsy, we launched with 2 products in the same year that gave us the scale, gave us the efficiency from an operation perspective and helped us reach profitability pretty quickly actually.

That's great. And as it relates to you kind of investing in R&D, you've obviously been a profitable company. You've managed to kind of create that sustainability. How do you think about that investment between R&D and kind of the commercial infrastructure and how do you balance that versus some others that have not been profitable?

It's a sort of balancing act, as you said, certainly because you always have these tensions in the business, right? You need the R&D spending that you have to continue to do that. You also have commercial spending that you need behind product launches. Like we just did with Qelbree. For the last 3 years, we've had significant amount of marketing investment and sales investment behind the product to make it the success it's been so far. And at the same time, you're losing exclusivity on our legacy products. At the same time, you're losing the top line and revenue. So a lot of -- to balance clearly. But we've been very fortunate. We have a great team. I mean they've executed beautifully. I don't think there's a lot of companies that do the transition as well as we've done it, moving from our legacy programs, losing exclusivity on Trokendi XR and recently on Oxtellar XR and yet maintain as much revenue as we can and profitability at the same time while also launching new products. So that's been really interesting experience, but I'm very proud of the team and how they've executed so far.

Great. No, it's been great to see. Let's jump into the portfolio and some of the core growth franchises, starting with Qelbree. Really compelling performance so far this year. Congratulations on that. Just think about the adult part of the market, obviously, kind of the biggest part of the overall ADHD market, a smaller part of the Qelbree mix, obviously having to do a little bit probably with the nonstimulant nature of the product. What do you think are the key determinants of success in growing more into that adult ADHD market?

Yes. I mean, adults, as you rightfully said, when you look at the adult segment, there's only about 7% of that segment is nonstimulants. On the other hand, pediatric segment. About 20% of the pediatric segment is nonstimulants. For the obvious reason, parents don't like to give their kids stimulant controlled substances, all of the above. And then on the other side, adults, they love their stimulants. So they give them a nice feeling, a buzz, high, whatever you want to call it, clearly, especially the immediate release of stimulants. So when it comes to adoption of Qelbree within the adult segment, it's important for us to highlight the benefits. I mean this is for the first time now in many years, since Strattera and Intuniv were launched a long time ago, we have a novel nonstimulant that actually works. I mean that really sums it up. This is a product that works fast, which is unlike what Strattera has, for many years have been known, it works in like maybe 4 weeks, 5 weeks with some people 6 weeks, you might wait and it still doesn't work. And think about it. I mean, as a parent, you have a child, this is like eternity. When you have a kid struggling in school, getting suspension letters, bad grades. 6 weeks is a long time. So you finally settle and you give a child stimulant. So now all of a sudden, we have an option here that really works and it works fast, and it does the same with adults. So the experience in the market has been pretty much the same. Whether it's adults or children, the product is working fast, really differentiates itself very highly from the previous nonstimulants that are -- have been on the market for a long time. And actually, a lot of physicians, instead of taking their patients completely off the immediate-release stimulus that they love, in adults, what we are seeing is they're adding Qelbree to the stimulant and gradually taking the stimulants off over time. So if you're, let's say, on 50-milligram Adderall or whatever, we'll bring it down to 40-milligram and then add 100-milligram Qelbree. And over time, reduce the immediate release stimulant over time, completely taken off and increase Qelbree to the total daily dose, which is the target dose. And 40% of the adult business is actually a combination with stimulus. So it's really interesting to see that dynamic. Because I think physicians realize the benefit of Qelbree, but they don't want to upset patients too much by telling them, you get a completely stop using stimulants. And some patients actually have withdrawal. When they stop taking these stimulants, there is a good week, 2 weeks, sometimes patients go through, which is like withdrawal symptoms because they stop the stimulants. So very different than in pediatric from a dynamic perspective.

Yes. For adults, do you think continuing to grow in that market. Will awareness -- I think, obviously, a big part of it, payer coverage is still something you're kind of working through. What are you most focused on in terms of continuing to grow in that?

Absolutely awareness, and we're very engaged with patients. We're very engaged in social media with influencers. We have 2 influencers, one on the male side, one on the female side, Jay Glazer on the male, NFL side. Had ADHD for a long time, uses Qelbree, I mean, really happy with it. And on the female side, Busy Philipps. We just started the campaign with her. She's done amazingly, also relatable, has ADHD, been on Qelbree for a while. So we're really trying to connect with people, connect with our patients and show them examples that there is really something out there other than stimulants that you can truly use and be happy with.

Yes, that's great. That's great. Switching over to more of the pediatric side. You've got another month of visibility now into the back-to-school season than you had when you released Q1, beginning of August. Any greater insights based on the number that you're seeing and the strength of that back-to-school market? I know it's really important for the part of the year.

Yes. I mean as we go into summer, you can see -- when you look at the weeklies, IMS or IQVIA prescription data, you can see that it flattened during the summertime starting in like late May when people started getting out of school into June, July. And then for the first time last week, August, we start seeing an uptick. Actually, we just crossed the 15,000 finally, 15,000, the ceiling on prescriptions for that week. Now next week is going to fall off because of the Labor Day, but we'll see the uptick. So we think it's starting to show up. Now we hope this season will be much better than last year. Last year, back-to-school was a little bit soft. But so far, when you look at the ADHD prescription data, year-to-date through June, it's grown by 8%, and that compares to about 3% last year for the market. So it looks like the market is back to healthy growth, and we're hoping that, that will continue through the back-to-school season this year as well. And our sales force during the back-to-school season clearly prioritizes their sales calls, more to pediatricians, child psychiatry, so we can pick up the momentum and make sure we take advantage of that season.

Yes. And how much do you think an available nonstimulant that is effective is hopefully growing the market actually for those who kind of don't want to put their children on pediatric -- I'm sorry, on stimulants. Do you see that kind of showing up and that the growth is better in the pediatric side?

Yes. I mean on the pediatric side, actually, we -- last quarter, we grew by about 22% of our prescriptions. Now last quarter is a little bit heavy on the adult because we did that on purpose. We prioritized adult from a sales call [ perspective ] because we know in the back-to-school, we're going to switch back to pediatric, so we did grow by 22%. Adult grew by 26%. I mean they're both very healthy good growth on both ends, and we do that on purpose. I mean depending on the seasonality, depending on where the strategy is, competition, all that, we adjust the priorities within our sales force, within our marketing programs and so forth. But there is plenty of growth in both segments. I mean we haven't even scratched the surface yet. I mean we only have about 1.4% market share of the total market. So we're still in the real early stages here of growth.

Yes. No, certainly, the growth has been impressive. So wishing much continued success on that. Moving on to more of the legacy business. We're now into September. I know that this month was expected to bring a generic competitor on Oxtellar XR. Can you just kind of give us an update on your expectations around kind of what the curve looks like in terms of having that generic competition? And then what's the tail on some of those legacy products that are now facing generic competition? Can they continue to be contributors to cash flow over time?

I mean the last time in August, we updated the guidance for Oxtellar XR and Trokendi XR combined. We inched it up a little bit expectation that we do probably for the year, $135 million to $145 million combined for both of them. We continue to see erosion on Trokendi XR, which went generic last year. I mean prescriptions are down by 49%, 50%. So we -- which is expected, clearly. And then Oxtellar XR, as you said, I mean, it will start going generic this month, September, actually Apotex just listed their product. So we know it is coming. It is available. As far as the trend and the erosion, I mean, we could take Trokendi XR as an analog, but there's always so many differences between the two. I mean Trokendi XR had 3 generics in the first year being generic, yet they were at different intervals or time points that didn't all come in at the same time. Oxtellar XR has the first one in September. So hopefully, the impact in this year will not be huge but probably will be bigger in 2025, and that remains to be seen. Of course, it depends on the availability of these drugs, the pricing, the competition between generic companies, among each other. So a lot of factors. Now in general, generally speaking, I mean, migraine, which is about 90% of the Trokendi XR business, is not as sticky, so to speak, as epilepsy. So epilepsy patients tend to be more loyal to the brand versus generic because also, it's very well established. That fluctuation in the blood levels in generic products could cause seizures or what have you. But having said all that, you look at the generic erosion of epilepsy products, eventually, you do lose 80% to 90% of the business. So the question is, do you lose it in the first 12 months or 24 months? It depends on the other factors that I mentioned, number of companies and so forth.

Understandable. Can we move on to the pipeline?

Yes. Yes.

Lots of exciting things to talk about there. So SPN-830, given now a PDUFA date in February 2025. That implies a kind of Class II resubmission time line, and I know there was some uncertainty whether it would be a Class I and Class II. Anything that you read into that or anything surprising about that for you?

Yes. I mean there's nothing really to read into it. It's not about the quality of the submission or anything. It's just a matter of the FDA looks at the package and says, "okay, I need 2 months or I need 6 months to review it." I mean that's really all what it is. We did have some clinical data from before, nothing new, so we didn't have to do any clinical studies or anything, but there was more data to review from their perspective. And they said, "okay, 6 months." So we'll take it. I mean February 1 will come in pretty soon before we know it, right? But there is really nothing to read there, whether it's Class I or Class II.

Got it. And in terms of the market opportunity for that apomorphine pump, I guess you have the potential to be first to market. What do you think is the materiality of the advantage of being first to market and the time line between having a second competitor come in?

I mean there is no question from a marketing perspective. You always would like to be first to the market from a commercial perspective, have that head start, build the traction, build the awareness among physicians, all that. So we'll see how it plays out. It's interesting. I mean it's been an interesting category where everybody is getting CRLs left and right and first and second CRL. But I mean we are ready for it regardless whatever it is. This is a completely new segment in the Parkinson's landscape, so to speak. So actually, at the end of the day, it's not going to hurt to have 2 companies educating the KOLs, educating people why pumps, infusion pumps are important therapy and what is the place of these pumps within the therapy and what kind of patient profile you need to look for who could be good candidates for that therapy. So there's a lot of market education. I mean we will welcome somebody else to help us building the market together. And then I mean the other product is levodopa-carbidopa-based. Our product is an apomorphine-based. So there is -- we think there is a place for both drugs. You have doctors out there who may want to continue with levodopa-carbidopa. Although the patient has been taking oral levodopa-carbidopa for their whole life and they progressed and advanced, they might want to stay with that. Or you have doctors who might say, "I need something else or I need something different" and they may want to try apomorphine. So we think there is room for both products eventually. Yes.

And just given kind of the need to create the market, so to speak, educate, is the ramp then significantly slower? It's actually getting to maybe the top line -- the peak sales opportunity there or can you still kind of do that in a pretty efficient way and ramp quickly?

I mean, naturally, when you do have market build education, you would expect the ramp to be a little bit slower than where the market is already ready for it. Now we've been doing a lot of education, and I'm sure AbbVie has been doing that, too, and we will be preparing for the launch. So it's not like completely strange concept that physicians will be the first time they hear about it. In addition to that, our pump also has been available in Europe for many, many years, not through Supernus, through our licensor, and that's a very small community. U.S., European movement disorder specialists, I mean, they all talk to each other. They're very aware about these products. So it's not a complete strange concept. But having said that, it will take time for them to decide which patients and their practice are good candidates, and we need to help them through that process, right, so that they can identify the right patients. We want people who try it first to have success with the product. We don't want to have people fail on the product if they're their own candidate because that's not good in the long term. So we got to be careful how we build the market, how we educate, how we ask physicians to try it on what kind of patient. And of course, all that has to be consistent with the label that we get, and that is yet to be seen as far as once the product is approved.

And you mentioned kind of Europe, the availability there. Is it such that you can -- you only have the rights to the U.S. and such that there's not really an opportunity for you to cap some of those markets?

Yes, that's correct. I mean we got rights to this product through our US WorldMeds acquisition. And the product -- the originator is Britannia out of the U.K. They market the product in Europe, and they had out-licensed it to US WorldMeds, so we took over that license. So we only have U.S. So that's why actually a lot of folks ask me about how can we talk about the peak potential of $200 million to $300 million and AbbVie talks about $1 billion. I mean that's a big portion of it that we don't have global rights for our product, and the second difference could be key assumptions and who's the right patient, who is not the right patient and how broad you can go or not -- you can. Now we know from Europe that a lot of KOLs like to use the pump first in advanced patients. But over the years, they've migrated into more moderate patients. And the more they use it earlier in the disease, of course, that opens up the opportunity a little bit wider. So it could be different in assumptions building the demand forecast and so forth.

Yes. To be fair, AbbVie, big company, big sales force resources. How do you count the opportunity of kind of the competitiveness between your sales force and theirs just given the volume of that commercial infrastructure?

I mean, we -- in a way, we're used to that. Historically, we've competed in epilepsy, with big pharma everywhere, ADHD, anywhere. I mean so our approach is always the same. The key is really targeting, focus and commercial execution across board. So it doesn't matter across big pharma or small pharma. It's more about understanding the market, really knowing your audience, who's the physician and who's the patient and executing against that and don't be distracted other organization. Just stay focused on your product and why your product is the right thing, then yes.

Well, that's certainly part of the core competency it seems and you got an effectiveness that you've been able to show. It would be great to just touch on some of the other pipeline products for a minute. And if you could just kind of give us the one or two things that get you most excited about those opportunities, and then maybe the one or two things that you think are the biggest unresolved questions about the opportunity. Maybe just starting with the SPN-820.

Yes, sure. SPN-820, I mean, truly a very exciting product. I mean starting first with the mechanism of the molecule. It's completely novel in depression. It's an mTORC1 activator. It's an intracellular mechanism. So this is not your typical CNS product that works on the receptors and causes all these side effects and issues, clean tolerability, safety profile and. What we had -- when we looked at it back then, they have done Navitor, the innovator of the product had done a Phase I study in TRD and showed efficacy within 2 hours and 4 hours, I mean this could be a very well-differentiated product. Being an oral product, could work really fast. We look at the market today, the fastest product, I believe, is the [indiscernible] product within a week. SSRIs, they take weeks and weeks for them to work. SPRAVATO with the nasal and the issues you have to deal with from a clinical setting perspective, tolerability and safety, I mean this will be truly a very unique differentiated product. So the first data point is coming up soon before year-end. I mean we're already in September. So we're very excited about that. It's an open-label study that we've run in MDD. It's a 2,400-milligram dose per day, single dose every 3 days. And then at the same time, we have a Phase IIb trial that has been going on, and we'll get the data in the first half of '25. And actually, enrollments been going fast. So we'll see -- we'll update folks whether it's going to be 1Q or 2Q of 2025, but -- and that's in TRD. So we have plenty of data on 820 on both indications or potential indications, MDD or TRD, a very exciting program. And that program, I mean, if it is positive, just that program is worth what the company is worth today. So we're really -- this is really a big future for us and a big opportunity. And right behind it is, of course, 817 on which we already announced interim data on 817 open label. That's on the seizure market. Epilepsy, also a unique mechanism of action in seizures acetyl cholinesterase inhibitor had really good, strong efficacy, but we have tolerability issues that we need to deal with and address, which we are working on as we speak, which is more than nausea, GI effects to improve that tolerability. So we will be using the next several months to address those. We are testing different strategies, and we're looking at initiating Phase IIb before year-end. So lots going on, on the pipeline. And clearly, I mean, we don't believe a lot of -- or any of the value in the pipeline is really reflected in our story, but excited on both side neurology and the psychiatry space as well. We also have some other things early on. As I mentioned earlier, we're believers in R&D and so forth. So we continue to innovate bring in different novel programs.

That makes perfect sense. Now just as you were saying, catalyst for growing the business, obviously, some earlier-stage things, later stage, M&A is another thing that you've talked about at times. Just talk to us a little bit about how you think about -- what are you trying to solve for with M&A potentially? Is it a few more products would be good to diversify? Is it -- we really want to get to a certain amount of scales. We have cash flow to really put to work on R&D. Just give us a sense of how you think about...

Yes, sure. I mean M&A has been always, as I mentioned earlier, part of our growth strategy, right from the beginning. And actually, starting in 2018, that's how we got the SPN-817 program. That was through an acquisition of Biscayne Therapeutics. And then we did the acquisition in 2020 of US WorldMeds business that got us into the Parkinson's franchise. We also did the Navitor deal, which got us an 820 program in 2020. And then in 2021, we did the Adamas acquisition, which gave us GOCOVRI. So -- and we'll continue to look. So what are our top priorities right now? I mean it will be great if we can find another commercial product or a couple of commercial products that could bring in more revenue, more cash flow to the company to diversify further. And also, right underneath that will be a late-stage program in the pipeline because our pipeline, of course, aside from the pump, hopefully, the pump will be approved, we launch it next year. But beyond that, we don't have anything in really late stage. They're all Phase II programs, right? So we can find something post-Phase II or between Phase II, Phase III or between Phase II and a launch. That will be ideal for us so we can launch something in 2 years from now or what have you and bridge that little gap that we have until 820 or 817 hit the marketplace. So that's what we are focused on. It doesn't matter to us as far as the therapeutic area. We're agnostic. Is it neurology or psychiatry? We're fine in either. We can build around what we have and take advantage of the infrastructure that we have. We also have looked historically and continue to look outside CNS. So we're cognizant of the fact that at some point, we might want to diversify outside CNS. However, we'll only consider situations which are multi-asset situations. So to bring in one product in a whole new vertical for us may not make a lot of sense because you don't have the efficiency, the scale and the operation, whether it's R&D, commercial and what have you. But it's a situation where there might be a commercial product, a pipeline product, something you can build around and really invest in that platform. That is something we would look to, an area which is a specialty area where we've proven our capability and being able to execute in a very effective and efficient manner. So we're pretty much open on either way.

And you've made comments in the past around size. Ideally, would you -- if you could find something that had the right kind of profile that was smaller, I'm sure that be a little bit better, you can save some capacity for later, but kind of give us a sense of are you really trying to be aggressive at this point or you'd prefer to find something a little small?

We really sit in a great position right now. We have a very clean balance sheet. We continue to build on our cash position, about $350 million closed the June -- by the end of June. So we continue to build on that cash position. So we do have a lot of flexibility around potentially funding the next transaction. Of course, a transaction like the size of Adamas or US WorldMeds in the $300 million to $500 million, that's easily done. We can do that easily, but we're willing to go bigger than that, especially if we're looking at a situation that had multi-assets and these assets are generating enough cash flow that you can leverage against that. So we could go beyond the $500 million, clearly, $500 million, $1 billion, $1.5 billion, depending on what these -- what the transaction is and what kind of assets are involved in that transaction. So we're not afraid of leveraging, but we're also very conservative. We're not going to go crazy on leverage. That's not who we are. We try to take a very sensible approach to that. And at the end of the day, if we have something transformational that brings us a bigger scale, transform Supernus to the next level and it might require a little bit of equity to help us with the funding, we're not afraid to do that. And we'll be willing to do it. But it has to be for the right opportunity, obviously.

Yes. Well, that's great. Well, I really appreciate that. Any comments from the audience?

We should take one. Yes. We have 6 more minutes. So please, any questions.

If not, maybe just a little bit more on the ADHD market. Again, the growth profile of that, are you seeing that continue at a pretty good rate or are you worried about that ADHD market is slowing at all?

Yes. I mean, historically, and we've been in this space for 30 years or so. Believe it or not, we've developed 4 products in ADHD more than any other company because we used to be Shire. So we developed Adderall XR, Intuniv, Mydayis and now Qelbree. So 4 ADHD product. So historically, the market has been always growing very nicely, and the market grew much more in the adult segment than in the pediatric segment. And that's why adult finally caught up with the pediatric segment and now is actually much bigger than the pediatric segment. And it was growing at a nominal basis before COVID, around 5%, 6%, 4%, in that range. COVID came in, and of course, it created different situation environment for the kids that were locked up at home. There was a lot of increase in mental awareness and health issues and so forth. And you saw -- I wouldn't say explosion, but you saw these growth rates really escalating, and they went up to the 9%, 11% or 12%. And then it really took a breather last year where things got normalized in 2023, and the market grew at 3%. So we look at 2023, it was more like the transition year for the market, where it's really trying to go back to growth levels after what happened with the pandemic and so forth. And most of the growth is coming from the adult segment. So -- and that's why we've seen it now go up to the 67%, 70% of the complete market. And as I mentioned earlier, I mean, this year, so far, first half, it grew by 8%. So shortages played a role and also damping the growth last year. We dealt with a lot of shortages in the industry, especially on the stimulants. These shortages, some of these situations are resolving themselves right now. So there is more supply, and these prescriptions are being filled. And therefore, you can see that maybe -- that's why it's reflected in the 8% versus the 3% growth rate.

I'm sorry to jump around, but maybe just hitting back on the pipeline, again, treatment-resistant depression, there are some competitive therapies out there, also severe epilepsy. What are some of the key things we should look for in terms of -- to know that you have a really competitive product as the data is released that you feel like that will be really differentiated?

Well, I mean, as I mentioned on 820, the speed of action, that would be a very key differentiator in the depression market and it's oral. It doesn't have to be injected or nasal or any of those. So that would be a very key important along with the safety and the tolerability of the product. I mean we don't have the hallucinations. We don't have a lot of the issues. When a molecule is working on these receptors, whether serotonin, norepinephrine, you always have all these CNS side effects. This is really -- given it's an intracellular mechanism, it's a much cleaner side effect profile, at least so far what we've seen so far and hopefully will stay that way. So combined with the speed of onset and the efficacy, I mean, in the Phase I, the initial proof of concept, they saw an effect size on the HAMD-6 of 0.6 and 0.8 and at hour 2 and hour 4 and hour 6 and all the way sustained to 0.5 at 72 hours with 1 single dose. So I mean if that really remains the case with this product and alongside with the safety and tolerability, this is a very well-differentiated product. No question about that. Yes.

Great. Well, good. Well, unless there's any other questions, we really appreciate the time, Jack. And again, congrats on all the success.

Thank you for having me. Thank you.

Great. Thanks.

Thank you.