Supernus Pharmaceuticals Inc (SUPN) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Supernus Pharmaceuticals first-quarter 2014 earnings conference call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Rich Cockrell. Please go ahead, sir.

Thank you, Danielle. And thank you all and welcome to Supernus's first-quarter 2014 financial results conference call. This is where we will discuss the first quarter ended March 31, 2014.

Yesterday afternoon, Supernus issued a press release announcing first-quarter 2014 financial results. And on the call today are Supernus's President and Chief Executive Officer, Jack Khattar; and Vice President and Chief Financial Officer, Greg Patrick.

Today's call is being made available via the investors relation section of the Company's website at ir.supernus.com. Following remarks by management, we will open the call up to your questions and we expect the duration of the call to be approximately one hour.

Now 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's current perspective on existing trends and information can be identified by such words as expect, plan, will, may, anticipate, believe, should, intends, and other words of similar meaning.

Any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, including those noted in the risk factors section of the Company's annual report on Form 10-K filed on March 21, 2014. 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 May 13, 2014, at approximately 9 AM Eastern Time. Since then, the Company may have made additional announcements related to the topics discussed. Please reference the Company's most recent press release and current filings with the SEC. Supernus declines any attempt or obligation to update these forward-looking statements, except as may be required by applicable securities laws.

With that, I would like to turn the call over to the Company's President and CEO, Jack Khattar.

Thank you, Rich, and good morning, everyone. We appreciate you joining us today as we discuss our first-quarter results.

Since the beginning of the year, we have been focused on the expansion of our sales force to more than 150 representatives and the commercial success of Trokendi XR and Oxtellar XR. We are very pleased to report that as of May, the expansion has been substantially completed.

As a result, the number of sales calls delivered to target physicians grew by more than 20% in the first quarter of 2014 compared to the fourth quarter of 2013. We expect continued increase in our sales calls as the full impact of the sales force expansion takes effect over the next few months. Our sales force is now fully focused on detailing physicians instead of recruiting and training activities and we will be able to expand our reach and call frequency to the physician audience for both products.

The latest trend in prescription growth is very encouraging. The four-week moving average ending the week of May 2 as reported by IMS for Trokendi XR and Oxtellar XR combined prescriptions was 12,069, representing a solid growth of 50% compared to the first four-week average in the year, of 8049 prescriptions.

Again, we managed to post such growth while at the same time execute on the expansion of our sales force. The recent expansion provides us with great momentum toward reaching the monthly prescription rate of approximately 30,000 that will allow us to become cash flow breakeven by year end.

Regarding the first quarter of 2014, total prescriptions for Trokendi XR and Oxtellar XR totaled 30,208, increasing by 9098, or 43%, compared to the fourth quarter of 2013. Trokendi XR prescriptions for the first quarter were 18,727, representing a 66.6% increase over the 11,244 prescriptions in the fourth quarter of 2013, while Oxtellar XR prescriptions increased by 16.4% to 11,481 prescriptions.

Both products have seen increased managed care coverage. For Oxtellar XR, we now have 150.3 million lives covered, with 129.7 million lives in commercial and 20.6 million lives in Medicaid. Similarly, Trokendi XR coverage increased to 143.8 million lives, with 116 million in commercial and 27.7 million lives in Medicaid.

Regarding the intellectual property, we have expanded our patent protection on Oxtellar XR and Trokendi XR. We now have three patents protecting Oxtellar XR and three more protecting Trokendi XR. These patents provide protection through 2027 and we are focused on further expanding our patent protection on both products.

While the majority of our focus is on the commercial success of Trokendi XR and Oxtellar XR, we are continuing to develop our pipeline candidates -- SPN-812 for ADHD and SPN-810 as a first-in-class product for impulsive aggression in patients with ADHD.

For SPN-810, we are now designing a Phase 3 trial for which we expect to commence patient building during 2015. We have initiated manufacture of full-scale dosage form batches in conjunction with technology transfer to a commercial scale manufacturer.

For SPN-812, we will be initiating a pharmacokinetic study in May to test several extended release formulations and select a final formulation that will later be the subject of a Phase IIb trial.

During the first quarter, we also announced the issuance of our European and Canadian patents for SPN-812. These patents, which are the first to issue on SPN-812, will provide protection for the product through 2029. With both product candidates, we also continue to make progress on animal carcinogenicity and toxicity studies that will be required for potential NDA filings.

Finally on Orenitram, we are excited about the product's expected US launch in 2014 as a novel oral treatment for pulmonary arterial hypertension by our partner, United Therapeutics. The launch, when it happens, will trigger a milestone payment of $2 million to Supernus.

I will now turn the call over to Greg Patrick, our CFO, to discuss our financial results.

Thanks, Jack. As I review our financial results, I would like to remind our listeners to refer to the first-quarter 2014 earnings press release issued yesterday as well as our Form 10-Q for the first quarter, which will be filed later this week. Net product revenue for the first quarter of 2014 was $9 million. This is comprised of $4.1 million for Trokendi XR and $4.9 million for Oxtellar XR.

As we discussed during our most recent investor call, revenue from Trokendi XR will continue to be reported on a quarter lag basis until we have sufficient data to estimate rebates, returns, and allowances upon shipment to wholesalers. As a result, revenue for Trokendi XR for the first quarter, $4.1 million, was based on 11,244 prescriptions, which were filled in the fourth quarter of 2013.

On a quarter-over-quarter basis, this compares to $300,000 recorded for Trokendi XR in the fourth quarter of 2013, which was based on approximately 1300 prescriptions filled at the pharmacy level during the third quarter of 2013.

You may have noticed that the Company has recorded net deferred product revenue on its balance sheet, as of March 31, in the amount of $12.3 million. This represents Trokendi XR, which has been sold to wholesalers but not filled as prescriptions, as of December 31, 2013. The total, representing approximately 30,000 prescriptions, can be separated into two constituent parts.

First, approximately 60%, or 18,000, prescriptions represents scripts filled at the pharmacy level in the first quarter of 2014. We expect this amount to be recorded as product revenue in the second quarter. The second component, approximately 40%, or 12,000 prescriptions, represents products sold to wholesalers and which was in their distribution channel as of March 31, 2014.

The two pieces, comprising $12.3 million in total, are recorded on the balance sheet as of March 31 as net deferred product revenue.

Net revenue from shipments of Oxtellar XR to wholesalers for the first quarter of 2014 was $4.9 million, representing an increase of $1.1 million, or 26%, over shipments to wholesalers during the fourth quarter of 2013. As discussed during our most recent investor call, Oxtellar XR revenue is now reported based on shipments to wholesalers rather than on prescriptions filled at the pharmacy level.

Gross margin for the quarter was 94.8% compared to 89.6% in the fourth quarter 2013. Going forward, we continue to expect product gross margins to exceed 90%.

Selling, general, and administrative expenses for the first quarter 2014 were $17.5 million as compared to $13.5 million for the same period in 2013. Higher expense is attributable to our sales force expansion, coupled with marketing programs supporting the commercialization of Trokendi XR and Oxtellar XR.

Research and development expenses during the first quarter 2014 were $4.5 million, essentially flat as compared to prior year. For the quarter, operating loss totaled $13.4 million as compared to $11.4 million in the fourth quarter of 2013. Operating loss increased primarily because of higher expenses associated with the sales force expansion.

The reported net loss for the first quarter 2014 was $15.5 million or $0.38 per share, as compared to $18.4 million, or $0.60 per share, reported for the first quarter of 2013. The lower net loss during the period reflects revenue generated from our commercial products, Oxtellar XR and Trokendi XR, which were launched in February 2013 and August 2013, respectively.

Net product revenue generated during the period were offset by expenses related to the sales force expansion, increased marketing and commercialization activities, and the non-cash loss on extinguishment of debt. The weighted average common shares outstanding in the first quarter 2014 were approximately 41.1 million as compared to approximately 30.9 million in 2013.

As of March 31, 2014, $50 million worth of six year notes bearing interest at 7.5% per annum has been converted to common stock. Excluding a non-cash gain of $0.7 million related to changes in the fair value of derivative liabilities and a $1.7 million loss on extinguishment of debt consequent to conversion of the Company's notes, the non-GAAP net loss for the first quarter of 2014 was $14.5 million.

As of March 31, 2014, we had $70.5 million in cash, cash equivalents, marketable securities, and long-term marketable securities compared to approximately $90.9 million as of December 31, 2013. Cash burn for full-year 2014 is forecast to range from $35 million to $45 million, with the year-end cash balance projected to range from $45 million to $55 million.

Finally, we anticipate revenue recognition for Trokendi XR will transition to contemporaneous revenue recognition based on shipments to wholesalers during calendar year 2014. When this transition occurs, the quarterly revenue numbers will include prescriptions filled at the pharmacy level during the current quarter, prescriptions filled at the pharmacy level in the prior quarter, and prescriptions held in the wholesaler distribution channels as of the reported quarter.

Deferred product revenue will be eliminated at that point. Based on this assumption, we expect reported total revenue for calendar year 2014 to be in the range of $75 million to $85 million.

We will now open the call for questions.

(Operator Instructions) Ken Cacciatore, Cowen and Company.

Just wanted to ask with the sales force now substantially completed and in place -- it's an impressive number and you're doing a good job of reaching your call and detailing levels -- but was wondering as you think about business development, when do you think this sales force would be prepared to take on more product?

And can you talk about maybe assets that are available or how much time you spend thinking about business development? I know we're still in the early stages, but are you looking down the road and are there other -- are there some assets that you maybe have identified to help leverage the sales force? Thank you.

Yes, I will take this one. Ken, actually, we have been -- even in the past couple years, we've been very active in looking at assets that will fit strategically in our portfolio of neurology and/or psychiatry products. And we've looked actually very seriously at several opportunities in the past 12 to 18 months and we continue to do that. So that's always a very ongoing process and of course, more so now that we have significant sales force in the neurology space and psychiatry space.

However, I will repeat a little bit something I said, I think, in the previous call is the fact that we can't also forget that we are still in the launch mode of Oxtellar XR and Trokendi XR, so the timing for bringing a third asset will obviously depend highly on the update of Trokendi XR and Oxtellar XR.

We don't want to do anything just to bring in a third product on the sales force, because that will come in at a cost as well, as far as the frequency we will be able to dedicate to Oxtellar XR and Trokendi XR. But the short answer is we are very active in the space. We are aggressive also in our discussions and we seriously look at a lot of opportunities.

Great, thank you.

David Amsellam, Piper Jaffray.

Thanks. Just a couple. So I may have missed this earlier, but can you talk about inventory levels -- how much inventory is in the channel, if it's fluctuated meaningfully, and if you have inventory management agreements around both products? Just wanted to get some color there.

And then the second question is on Trokendi XR. We know that Upsher-Smith will be in the marketplace, so I guess the question is this -- how do you feel about your ability to compete with another once a day? With topiramate, yes, you did have a head start, but there's going to be a lot more noise out there, so I just wanted to get your take on how the Upsher product would impact Trokendi XR, if at all. Thanks.

Yes, I will take the Upsher-Smith question and then I will let Greg make the comment on the inventory. Regarding Upsher-Smith, clearly, we can't be too specific regarding what we know or what we think they are going to be doing and so forth. We expect them to launch at any point in time at this junction.

We continue to believe that the market is significant as far as the size of the opportunity to accommodate two products. The differentiation between the two products is probably not too much, but we really don't know what the positioning is going to be, what their pricing strategies going to be, and so forth. So it's a little bit hard for us to really project as to what is exactly the impact.

As you rightfully pointed out, we clearly have the first mover's advantage here. Also in the marketplace, we've established the brand name. We have a very strong brand awareness among the physician audience and so forth. So that should help us.

However again, there should be plenty of room for two products in the space. As evident with a previous example in the same markets, for example, with Tegratol-XR and Carbatrol, two products that are pretty similar in nature -- twice a day extended release carbamazepine --and were able to coexist and have a nice business on both of them.

So we don't expect this to be a little bit different, but all this is yet to be seen, obviously, depending on when they launch and their strategy when they launch the product.

Okay, Dave, this is Greg. With respect to the question you asked with -- vis-a-vis inventory, so let's take Trokendi XR first. In our prepared comments, I mentioned that our deferred revenue balance the end of March was about $12 million. And I've bifurcated that between what was sold as prescriptions as of that date versus what was sitting in the distributor and wholesaler pipeline as of that date.

So the $12.3 million in dollars can be translated into roughly 30,000 prescriptions. And of those 30,000 prescriptions, roughly 12,000 of those are in the pipeline. We can juxtapose that against the prescriptions for Trokendi XR in the first quarter to measure what was sitting in the pipeline as of the end of the March with what was sold during the prior quarter.

And the numbers are almost the same. It's about 12,000 prescriptions sold in the quarter and 12,000 prescriptions sitting in the pipeline.

Of course, I think everybody in the call appreciates that's a little bit like driving your car by looking in the rearview mirror. The prescriptions which are sold in the first quarter compared to what was sitting in the pipeline is a comparison that one can make, but arguably, looking at -- forward-looking Trokendi XR sales during the second quarter and comparing it to what sitting in the pipelines is a more appropriate measure. And I'm sure your model will allow you to do that. So based on an ex-post basis, it's about a quarter's worth of coverage.

And that same dynamic would be true for Oxtellar XR as well. For Oxtellar XR, there are roughly 16,000 prescriptions, we believe, sitting someplace in the distribution channel, either the wholesalers or pharmacies.

And again, you compare that to the prescriptions sold. In the first quarter, those numbers are fairly similar. But again, you need to look at them on a go-forward basis, not an ex-ante basis.

Thank you.

Bill Tanner, FBR Capital Markets.

Jack, I had a couple of pipeline questions for you as it relates to SPN-810, you said that you are working on the design of the trial. Curious if you could provide any details as to the target population and maybe what the endpoints would be.

And then you know also, I know that you talked about the potential for the compound and impulse regression beyond ADHD, so I would be interested in how you might be able to expand that and then I have another one after that.

Sure. My guess today -- and it's an educated guess given the discussions we've had as to where we probably will end up, but it's not certain, because a lot of things could change between now and the time we start the study -- is the first Phase III trial, most probably, will be in the ADHD population.

So in other words, we will start the study for impulsive aggression in ADHD patients. These are patients who are ADHD. They are well controlled for their ADHD treatment and SPN-810 will be an add-on to their current ADHD treatment.

And as far as the current activities with the design and so forth, we are working on several trials as far as the size of the trial, the different arms, different dose strengths. We are also trying to finalize as well as the outcome measurement tool agreement with FDA on that as well.

Because again, just to remind everyone, this is a truly new scientific exploration here. We don't use the word exploration in the full sense, but exploration in the sense that this is really a new condition, really very exciting development program, and we are really pioneering a lot of new things here. So we want to make sure everything is teed up before we start the Phase III. And your next question was?

Well, and Jack, and then would that then be in your Phase IIa, the patients or subjects were 6 years old to 12 years old, so would it be a pediatric indication or child indication initially or not necessarily?

Well, the Phase IIb study, as you said, was in the 6 year old to 12 year old as well as the phase IIa. Both of them were 6 to 12, but that doesn't mean we may not include in the Phase III an adolescent arm to expand the use, maybe, into the 17 -- up to the 17 years of age.

So that is still into consideration at this point. I can't tell you for sure we're going to go first with 6 to 12 and then expand or should we be able to do that in the same Phase III (multiple speakers)

Okay. And then the second question I had was on SPN-812. You mentioned that -- do some PK studies with various formulations and if you can get IP on those, you could have protection through -- essentially to the end of the next decade.

And I'm just curious, since the compound I think has been used in Europe but not here, how important it is to get extended release IP. And then just -- I'm not that familiar with it -- if the extended release would actually provide clinical benefit as to your epilepsy drugs do over the immediate release.

Yes, the molecule, as you said, was in Europe for many years as an antidepressant, so the first set of patents that we have issued, for example, is the use patents. So those, for example, in Canada and Europe, as we mentioned, already issued, so this is for the novel use of that molecule in ADHD.

In addition to that IP protection, we will definitely have IP protection. We're working on the formulation and the drug delivery side with the extended-release formulation, so that will be another layer of protection for that molecule.

And then the third layer of protection, obviously, this molecule will be new chemical entity for the United States, because it was never developed in the US, so you will have your typical five-year exclusivity -- regulatory marketing exclusivity.

So we have different avenues here in providing longevity for that asset, as well as on the API, we are working on different ways to synthesize the API, because this molecule is very old and there aren't any suppliers that make that API, so we are creating IP around that product as well.

So the trial that we started this May, which is a PK study, we basically have several prototypes, different extended release formulations, and we're trying to choose the final, final formulation, which we will be basically -- the final product that will go into a Phase IIb trial.

Just a quick reminder here, we're not trying to, with our PK profile in the extended-release formulation, to match any specific currently existing immediate release product. So what we're trying to do in this PK trial is just trying to optimize as much as possible the PK profile to make sure we get the best clinical outcome.

And the answer is yes, regarding side effects, tolerability, and so forth, we certainly expect the extended-release formulation to even further enhance the tolerability of the viloxazine, which is known to be a very well-tolerated molecule anyway, but if we can improve it further with the extended-release formulation, that will be additional plus.

Okay, perfect. Thanks very much.

Jonathan Eckard, Citi.

This is Joe [Labidi] calling in for John. Thanks for taking the question. What contributed to the improvement in gross margin this quarter over the previous year and is this a rate we should expect to continue?

The primary contribution to gross margin was -- I would say it's more of a -- represents what we expect to be happening on a go-forward basis. I won't say that margins will stay at the 94% level that we had for this most recent quarter, but we have over -- had several calls maintain that we expect product margins north of 90%.

The improvement really had to do with some one-time expenses that we incurred in the fourth quarter of 2013, which we didn't believe would repeat again in the first quarter, and in fact have not. There's always a bit of a shakeout period with any manufacturing process that you're scaling it up and making commercial scale product and for the products to hit their stride, so we had some of those one-time expenses hit in the fourth quarter that did not reappear in the first, and the margins reacted accordingly.

Okay, thanks.

(Operator Instructions) Oliver Eckhard, Orchard Hill

Hi, guys, congrats on the progress. I just had two quick ones. One, Greg, for you. On the deferred revenue, just trying to go through the math, but if I look at the $12.3 million down and about a $5 million run rate on Oxtellar, is it fair to assume if you were to release this in the second quarter, that you're going to get somewhat close to over $20 million in revenue?

And then secondly, Jack, just more strategic thoughts from you. I know in the past, you guys have monetized these royalty streams and clearly, it looks like you have a pretty comfortable cash balance, but I was wondering if you have any thoughts on that and if there are any plans regarding that? Thank you.

Sure. Well, Oliver, in terms of deferred revenue, you mentioned Oxtellar XR as part of deferred revenue. Oxtellar XR is not part of deferred revenue whatsoever. There is no deferred revenue with respect to Oxtellar XR whatsoever. So the deferred revenue is solely with respect to Trokendi XR.

And as I mentioned, with respect to the $12.3 million, roughly 60% of that represents scripts which are sold in the first quarter of 2014. Again, I'm going to remind everybody on the call, this is largely on a gross basis, so that $7 million of revenue would not turn into $7 million of net revenue, because we've got to put rebates, allowances, returns, against that.

So that would come at -- if we were to transition to contemporaneous revenue recognition, clearly, we would racket up -- one way or the other, we will recognize that in the second quarter, because that -- even if we don't transition to our contemporaneous revenue recognition, we're going to recognize that.

In addition, we would recognize all the scripts for the second quarter. And that would be substantial -- one would expect that would be substantially higher than 12,000 prescriptions. And so depending on whatever your projection or your model is for the second quarter, we would realize that in the second quarter if we transition to contemporaneous revenue.

And the third element in the trifecta is what is sitting in the distribution channel. Now if Trokendi XR behaves in a similar manner to what Oxtellar XR did as of the fourth quarter, that number would be kind of in -- could be in the $3 million to $5 million range, probably toward the higher end of the range, not the lower end of the range.

So those are the three pieces. So you've got $6 million and change or $7 million of growth revenue, which we already know about. You've got the second quarter's prescriptions, which you have to estimate, and you got another, let's say, $5 million of estimated -- and that's just purely guesstimate -- what's sitting in the distribution channel as of June 30. Those three rolled together would become the Trokendi XR number -- revenue number in the second quarter.

Could it be $20 million? I suppose so. But that's -- at this juncture, that's pure speculation and I can't go any further in that discussion.

Okay, and regarding the royalty monetization, Oliver, you're right in the sense -- obviously, historically, we've done actually three different transactions on the royalties and raised more than $190 million, which allowed us to fund the Company and so forth. Clearly, we're looking at all these options strategically.

Yes, we have been in discussions with folks regarding a potential royalty monetization on United Therapeutics. And at the right moment, obviously, if there was anything material, we will disclose and we'll announce if there is a transaction that we do. But we certainly are exploring every potential avenue here as to how we can maximize from a value point of view.

To the Company, if we raise any cash from royalties strategically, how can we use that cash? Are we better off use it one way versus another or are we better to collect it later on from a pure earnings point of view. So obviously, we're looking at all these options and evaluating the different value for the different strategies. But the answer is yes, we are looking at that as a potential avenue.

Thanks, guys.

Thank you, and I'm not showing any further questions. I would now like to turn the call back to Jack Khattar for any further remarks.

So thanks, everyone, for joining us today on the call. We are very excited about the ongoing commercial success of both products, Oxtellar XR and Trokendi XR, as well as the continuous development of our pipeline products.

We believe 2014 will be a very exciting year for us and we certainly look forward to speaking with you again in a few months when we update everyone on the results from the second quarter of 2014. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.