Supernus Pharmaceuticals, Inc. (NASDAQ:SUPN) Q3 2022 Earnings Call Transcript

Supernus Pharmaceuticals, Inc. (NASDAQ:SUPN) Q3 2022 Earnings Call Transcript November 8, 2022

Supernus Pharmaceuticals, Inc. misses on earnings expectations. Reported EPS is $0.03 EPS, expectations were $0.36.

Operator: Good afternoon and welcome to Supernus Pharmaceuticals’ Third Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. 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. Sir, you may begin.

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Peter Vozzo: Thank you, Chris. Good afternoon, everyone and thank you for joining us today for Supernus Pharmaceuticals’ third quarter 2022 financial results conference call. Today, after the close of the market, the company issued a press release announcing these results. On the call with me today are Supernus’ Chief Executive Officer, Jack Khattar; and Chief Financial Officer, Tim Dec. Today’s call is being made available via the Investor Relations section of the company’s website at ir.supernus.com. During the course of this call, 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 November 8, 2022. 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 turn the call over to Jack.

Jack Khattar: Thank you, Peter. Good afternoon, everyone and thanks for taking the time to join us as we discuss our 2022 third quarter results. During the first nine months of 2022, we continued to execute on our long-term growth strategy, focusing on successfully transitioning from our legacy and mature products to our growth products. Products acquired or launched since 2020 accounted for 42% of our total net product sales, slightly surpassing Trokendi XR’s net product sales contribution in the third quarter. For the first nine months of this year, total revenues were $500 million, representing a 19% increase over the same period last year. Adjusted non-GAAP operating earnings of $91 million, reflected continued significant investment in Qelbree.

During the third quarter, the company increased its commercial efforts, including a direct-to-consumer campaign to build more momentum behind the adult launch and to support the important back-to-school season. Qelbree’s launch continues to progress well with increased momentum in prescription growth and shipments due to the launch in the adult population and the back-to-school season. And during the third quarter of 2022, total IQVIA prescriptions for Qelbree reached 94,328, representing an increase of 50%, compared to the second quarter of 2022. Prescriptions in the most recent month of September reached 34,633, the highest monthly total since the launch. Based on weekly IQVIA prescription data by age, at the end of the third quarter, adult prescriptions represented approximately 23% of total Qelbree’s prescriptions.

During the third quarter, which was the first full quarter after the launch in adults, adult prescriptions grew by 77% and pediatric prescriptions showed solid growth of 43%. Qelbree continues to expand its base of prescribers with over 14,265 prescribers in the third quarter of 2022, up from 9,276 prescribers in the second quarter of 2022. We continue to receive positive feedback from prescribers regarding the performance of Qelbree in patients. A recent survey among prescribers for adult patients showed a 90% overall satisfaction level with Qelbree, compared to only 51% for Strattera. Regarding GOCOVRI, the product delivered another quarter of solid growth with net sales reaching in the third quarter of 2022, a 16% increase, compared to the third quarter of 2021.

For the first nine months of 2022, GOCOVRI net product sales were 75.2 million, an increase of 22%, compared to net product sales reported by Adamas in the first nine months of 2021. Oxtellar XR continues to perform well with net product sales of $88 million for the first nine months of this year, representing a 7% increase, compared to the same period last year. For the nine months of 2022, net product sales of for Trokendi XR were 204 million, down from 232 million in the same period last year. The company has significantly reduced its in-person sales efforts in the second half of the year, but continues to provide support to physicians and patients through various sales and marketing programs. Moving on to the pipeline. As we announced last month, the FDA issued a complete response letter for the SPN-830 new drug application.

The CRL didn’t request additional efficacy and safety clinical studies, but rather required additional information and analysis related to the infusion device and drug product across several areas of the NDA, including labeling, product quality, and manufacturing device performance and risk analysis. The FDA mentioned that approval of the NDA requires inspections that could not be completed in a timely manner, due to COVID-19 travel restrictions. We will continue to work closely with the FDA and our partners to address all questions and to provide clarity regarding the potential timing of a resubmission of the NDA. FDA has made an initial determination that the amendment to the company’s application in response to the CRL will be subject to a Class 2 or six-months review timeline.

For SPN-820, our first-in-class, orally active mTORC1 activator, the Phase II multicenter, randomized, double-blind, placebo-controlled study in adults with treatment-resistant depression is ongoing. The study will examine the efficacy and safety of SPN-820 over the course of 5-weeks of treatment in approximately 270 patients. The primary outcome measure is the change from baseline to end of treatment period on the Montgomery-Asberg Depression Rating Scale Total Score, a standard depression rating scale. We are on track to initiate an open-label Phase II clinical study with SPN-817 in the fourth quarter of this year in patients with treatment-resistant seizures. SPN-817 represents a novel mechanism of action for an anti-convulsant and utilizes synthetic form of Huperzine A, which is a potent acetylcholinesterase inhibitor with pharmacological activities in CNS conditions such as epilepsy.

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 the call over to Tim.

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Tim Dec: Thank you, Jack. Good afternoon, everyone. As I review our third quarter 2022 results, please refer to today’s press release. Total revenue for the third quarter 2022 was $177.4 million, a 19% increase, compared to $148.5 million in the same quarter last year. Total revenue in the third quarter of 2022 was comprised of net product sales of $172.7 million and royalty revenue of $4.7 million. The third quarter revenue is the highest quarterly revenue in the company’s history. The increase was primarily due to net product sales of GOCOVRI from the acquisition of Adamas in November of 2021 and growth in net product sales of Qelbree and Oxtellar XR. For the third quarter of 2022, combined R&D and SG&A expenses were $131.9 million, as compared to $91.7 million for the same period in 2021.

This increase was primarily due to activities to support the launch of Qelbree and the investment in the Qelbree direct to consumer campaign. As Jack mentioned, the DTC campaign and associated expenditures were substantially complete in the third quarter of 2022. Amortization of intangible assets for the third quarter of 2022 was 20.6 million, compared to 6 million for the same period in 2021. The increase is due to the Adamas acquisition. Operating loss on a GAAP basis for the third quarter of 2022 was 1.5 million as compared to an operating gain of 32.6 million in the same period of 2021. The decrease in GAAP operating earnings, which was expected is primarily attributable to higher expenses to support the launch of Qelbree, the investment in the DTC campaign, and the aforementioned amortization of intangibles associated with the Adamas acquisition.

Income tax for the third quarter 2022 was a tax benefit of 2.2 million as compared to income tax expense of 7.4 million for the same period in 2021. This benefit was primarily due to a quarter to date loss and a windfall benefit from stock-based awards, as compared to the prior quarter to date expense. GAAP net earnings were 1.7 million for the third quarter of 2022 or $0.03 per diluted share, compared to 21.6 million or $0.40 per diluted share in the same period last year. On a non-GAAP basis, which excludes amortization intangibles, share based compensation, contingent consideration, and depreciation, adjusted operating earnings were 25.4 million, compared to 43.3 million in the third quarter of 2021. Total revenue for the nine months ended September 30, 2022 was 500 million, a 19% increase, compared to 420.7 million in the same period last year.

Total revenue was comprised of net product sales of 485.6 million and royalty revenue of 14.3 million. The increase was primarily due to net product sales of GOCOVRI from the acquisition of Adamas in November 2021 and growth in net product sales of Qelbree and Oxtellar XR, offset in-part by decline in net product sales of Trokendi XR and Apokyn. For the nine months ended September 30, 2022, combined R&D and SG&A expenses were 360 million as compared to 272.4 million for the same period in 2021. The increase in expenses is primarily due to activities to support the launch of Qelbree, the investment in the DTC campaign and cost to support GOCOVRI. Amortization of intangible assets for the first nine months ended September 30, 2022 was 61.9 million, compared to 18 million for the same period in 2021.

Operating earnings on a GAAP basis for the first nine months ended September 30, 2022 was 11.8 million as compared to 79.9 million for the same period in 2021. Decrease in GAAP operating earnings is primarily attributable to the higher expenses to support the launch of Qelbree, the DTC campaign, and the aforementioned amortization of intangibles. Other income expense for the first nine months of September 30, 2022 was 13.8 million of income as compared to 8.8 million of expense in the first nine months of 2021. The increase is primarily due to a gain recognized on our share of a distribution from a sale of the subsidiary of Navitor, and a decrease in interest expense due to the adoption of a new accounting standard in the first quarter of 2022.

Income tax for the first nine months ended September 30, 2022 was a tax benefit of 9.6 million, as compared to an income tax expense of 20.1 million for the same period in 2021. The benefit was primarily due to a corporate reorganization of the Adamas entities in the first quarter of this year. GAAP net earnings were 35.2 million for the first nine months ended September 30, 2022 or $0.62 per diluted share, compared to 51 million or $0.94 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 appreciation., adjusted operating earnings for the first nine months of 2022 or 91.9 million, compared to 106 million in the same period in 2021.

As of September 30, 2022, the company had approximately 523.7 million in cash, cash equivalents, and marketable securities, compared to 458.8 million as of December 31, 2021. This increase is primarily due to cash generated from operations. For the full-year 2022, the company is raising the mid-point and narrowing the expected ranges of full-year 2022 financial guidance for total revenue and for GAAP and non-GAAP operating earnings. As such, we expect total revenue to range from 650 million to 680 million, compared to our prior guidance of 640 million to 680 million. For the full-year 2022, we expect combined R&D and SG&A expenses to range from 460 million to 475 million, compared to our prior guidance of 460 million to 490 million. Overall, we expect 2022 GAAP operating earnings to range from 35 million to 45 million, compared to our previous guidance of 20 million to 40 million.

We expect our non-GAAP operating earnings to range from 135 million to 155 million, as compared to our previous guidance of 130 million to 165 million. With that, I will now turn the call back to our operator for Q&A. Operator?

Q&A Session

Operator: Thank you. Our first question will come from David Amsellem of Piper Sandler. Your line is open.

David Amsellem: Hey, thanks. So, just had a few first on Qelbree. Can you just talk about the gross to net in 3Q? Looks like it was stable or trended down a little bit. So, talk about those dynamics and are you still sticking to your aspirational target of 50% to 55% over time? And then related to that, talk about your contract negotiations and where things may stand there? So, that’s number one. Number two is, on Trokendi, might be a little bit early to talk about this, but can you give us some of your latest thoughts on what you think the erosion might look like or as differently how you are thinking about generic market formation and overall erosion of volumes and sales next year? That would be helpful as well. Thank you.

Jack Khattar: Yes, sure. Regarding the first question on Qelbree, the gross-to-net in Q3 is fairly stable, a little bit better than Q2, but that’s a quarter-to-quarter type of fluctuation. So, yes, it did trend down. It’s more in the 60% in the third quarter. The target absolutely is still in the 50% to 55%. That would be great. We’re working pretty hard to get to that target as soon as we can within reasonable contracting parameters if we can achieve those. So, we will continue to have discussions with the various PBMs on hopefully reaching something that could be reasonable that will also help us on the gross to net eventually. As far as Trokendi XR and the erosion, we are, I mean, planning at this point, obviously, we’re getting very close to next year and we’ll talk more about it hopefully in February, but we’re going to plan at this point and we ask people to look for as we said earlier erosion, probably around 90% erosion by December.

So, over the 12 months, kind of 90% erosion by the end of 2023. It might be a little bit slower in the first quarter and then it will later dip quicker, the timing is really difficult to predict on whether you have a second generic and on how many SKUs out of the four different SKUs or product strengths that we have. So, it looks like there will be a first generic that will come in January 1 as the settlements allow on three product strengths, but there is still a very open question on 180 exclusivity on these three product strength as well, open question on the 180-day exclusivity on the fourth product strength. There is a second generic who has approval on all four product strengths. So, depending on the 180-day exclusivity status of these product strengths, it will determine then the timing of the entry of the second generic.

So, all that is still at this point not 100% clear or certain, but that’s where we are at this point and that’s the latest information we have on that.

David Amsellem : Okay. That’s helpful. Thanks.

Jack Khattar: Sure.

Operator: Thank you. One moment please for our next question. The next question will come from Annabel Samimy of Stifel. Your line is open.