Supernus Pharmaceuticals Inc (SUPN) 2015 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Supernus Pharmaceuticals second-quarter 2015 earnings 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. You may begin.

Thank you, Nicholas. Good morning, everyone, and thank you for joining us today for Supernus Pharmaceuticals' 2015 second-quarter financial results conference call. Results discussed today are for the quarter ended June 30, 2015. Yesterday after the market closed, 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 Greg Patrick. Today's call is being made available via the investor relations section of the Company's website at ir.supernus.com.

Following remarks by management, we will open the call to questions. We expect the duration of the call to be approximately 45 minutes.

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 and can be identified by such words as expect, plan, will, may, anticipate, believe, should, intend, and other words of similar meaning. 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 our most recent annual report on Form 10-K. 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 5, 2015, 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 releases and current filings with the SEC. Supernus declines any obligation to update these forward-looking statements, except as required by applicable securities laws.

And now, I will turn the call over to Jack.

Thank you, Peter. Good morning, everyone. I appreciate everyone taking the time to join us as we discuss our 2015 second-quarter results.

I am very excited about the continued solid growth in our business, the progress we made during the quarter, and our prospects moving forward, especially as we advance clinical development of two of our pipeline products in the fourth quarter of this year.

Let me focus on some of the key highlights from the second quarter. Prescription growth for our epilepsy portfolio continued at a strong pace in the second quarter. Total prescriptions for Trokendi XR and Oxtellar XR combined in the second quarter, as reported by Symphony, were 91,324 prescriptions, representing an increase of 99% over the second quarter of 2014 and 16% over the first quarter of 2015.

Trokendi XR prescriptions for the second quarter totaled 67,981, which is a 120% increase over the 30,840 prescriptions for the second quarter of last year and an 18% increase over the first quarter of this year. Oxtellar XR prescriptions for the second quarter totaled 23,343, representing an increase of 56% over the second quarter of last year and 11% increase over the first quarter of this year.

Total net product sales for the second quarter of 2015 were $34.3 million, compared to $27.6 million for the same quarter last year and $28.1 million for the first quarter of 2015.

As you may recall, in the second quarter of 2014 the Company started recognizing revenue for Trokendi XR based on shipments to wholesalers. The effect of this change was a one-time increase of $12 million in net product sales in the second quarter of 2014. Excluding the impact of this change, thereby putting the two quarters on a comparable basis, total net product sales would have been approximately $15.6 million in 2014 and the year-over-year growth in total net product sales in the second quarter of 2015 would have been approximately 120%. This recast of year-over-year growth rate and net product sales is very much in line with the year-over-year growth in product prescriptions.

Looking at our performance in the first half of 2015, total prescriptions for Trokendi XR and Oxtellar XR showed robust growth of 118% increase compared to the same period last year and total net product sales increased by 70%, or 153% excluding the one-time $12 million in revenue recognition, in the same period in 2014.

And finally, operating income increased to $6.5 million in the first six months of 2015 compared to an operating loss of $9.7 million in the same period last year.

Regarding the pipeline, we were excited to provide more detail on our planned clinical development activities for our two product candidates during our first investor day in June. That presentation is available on our website.

We continue to progress development on schedule with both products, SPN-810 and SPN-812.

As previously stated, we plan to initiate Phase III clinical testing for SPN-810 during the fourth quarter of 2015. In early April 2015, we submitted to the FDA the impulsive aggression outcome and assessment scale that we propose to use in SPN-810 trials. We met with the FDA in July to review the scale and our proposed primary endpoint for the Phase III trials. The FDA accepted the use of our scale and agreed with our proposed primary endpoint.

As a result of the meeting, we continue to be on track to submit the special protocol assessment in the third quarter and to initiate the Phase III testing in the fourth quarter.

Turning next to SPN-812, our filed Investigational New Drug, or IND, application for the extended-release formulation was accepted by the FDA, and as a result, we are on track to initiate the Phase IIb trial before year-end.

We are very excited about the commercial opportunity of our pipeline products. SPN-810 could be the first FDA-approved treatment for impulsive aggression in ADHD and we expect to submit a new drug application in 2018.

As we discussed during our June investor day, the extensive market research we have conducted on SPN-810 shows that impulsive aggression in children and adolescents with ADHD is a significant concern for parents, caregivers, and physicians and represents a large market opportunity. Based on our research, we believe that SPN-810 has the potential of reaching 700,000 to 1.2 million prescriptions per year at peak for the treatment of impulsive aggression in children and adolescents who have ADHD.

In addition, there are several opportunities beyond this initial target market, including autism and bipolar, to name just two. We believe the market for impulsive aggression in autism and bipolar disorder collectively represents additional potential peak prescriptions of 700,000 to 900,000 per year.

Overall, the market opportunity for SPN-810 for the treatment of impulsive aggression is significant and spreads across many disorders, making it potentially the first billion-dollar product for Supernus.

In addition, we believe that SPN-812 has the potential to address the unmet needs for non-stimulants in the treatment of ADHD. We currently estimate that by 2020 8 million non-stimulant prescriptions will be written in ADHD. Based on the ultimate clinical profile of the drug, we believe SPN-812 can be a valuable alternative for treating ADHD in patients for whom stimulant medications may not be desirable.

We expect to submit the NDA for SPN-812 in 2019.

I would now like to briefly update you on where we are with our intellectual property position and the challenges to our patents with Trokendi XR and Oxtellar XR. First, let me state that we remain confident in the strength of our intellectual property and continue to vigorously defend the patent protection our innovative products deserve. Both products are protected by patents that expire no earlier than 2027.

For Oxtellar XR, we don't have yet a trial date and there is a good chance that the trial will occur in the first quarter of 2016, instead of the fourth quarter of 2015, as was previously expected. For Trokendi XR, we expect a ruling on the Markman hearing sometime in the first quarter of 2016.

With that, I will now turn it over to Greg to walk you through the details on the financial results.

Thanks, Jack, and good morning, everyone.

As I review our financial results, I would like to remind our listeners to refer to the second-quarter 2015 earnings press release issued yesterday after the market closed. We expect to file our report on Form 10-Q for the quarter ended June 30, 2015, later this week.

Net product sales of our Oxtellar XR in the second quarter of 2015 were $8 million, as compared to $7.2 million in the first quarter of 2015 and $5 million in the second quarter of 2014.

Net product sales of Trokendi XR for the second quarter of 2015 were $26.3 million, as compared to $20.9 million in the first quarter of 2015 and $22.6 million in the second quarter of 2014.

As previously mentioned, in the second quarter of 2014 the Company started recognizing revenue for Trokendi XR based on shipments to wholesalers. The effect of this change was a one-time increase of $12 million in net product sales in second-quarter 2014. Excluding the impact of this change, thereby putting the two quarters on a comparable basis, net product sales for Trokendi XR for the second quarter of 2014 would have been approximately $10.6 million.

Year-over-year growth for Trokendi XR net product sales in the second quarter of 2015 would therefore have been approximately 148%, as compared to second-quarter 2014. Product gross margin for the quarter was 94.9%.

Research and development expenses in the second quarter of 2015 were $6.9 million, as compared to $4.7 million in the same quarter last year. This increase was primarily due to increased clinical development activities associated with late-stage studies for SPN-810, including development of the outcome and assessment scale that we will use in the trials and manufacture of the clinical supplies.

Going forward, we continue to expect research and development expenses to increase significantly throughout the remainder of 2015 as clinical development and manufacturing scale-up activities associated with SPN-810 and SPN-812 ramp up through the remainder of the year.

Selling, general, and administrative expenses were $23.3 million for the second quarter of 2015, as compared to $19.6 million in the same period in 2014. The higher expense of 2015 reflects increased promotional and marketing activities to support the growth of Trokendi XR and Oxtellar XR, coupled with a full quarter's impact of the expansion of the sales force that occurred in early 2014.

For the second quarter, operating income totaled $3.1 million, as compared to $3.8 million in the second quarter of 2014. This year-over-year decrease is due to the previously mentioned one-time $12 million impact to net product sales for Trokendi XR in the second quarter of 2014. Excluding this impact, there would have been an operating loss of $7.6 million in the second quarter of 2014. On this basis, year-over-year operating income growth would have been $10.7 million.

Net income for the second quarter ended June 30, 2015, was $2.0 million, or $0.03 per diluted share, as compared to net income of $3.2 million, or $0.08 per diluted share, in the second quarter of 2014. This year-over-year decrease in net income is driven primarily by the aforementioned one-time impact of Trokendi XR net product sales in the second quarter of 2014. Excluding this impact, second-quarter 2015 net income would have increased over the same quarter last year.

Approximately 52.3 million weighted average diluted common shares were outstanding in the second quarter of 2015, as compared to 42.4 million shares in the second quarter of 2014.

As of June 30, 2015, we had $103.3 million in cash, cash equivalents, marketable securities, and long-term marketable securities, as compared to $94.2 million at December 31, 2014.

As of June 30, 2015, approximately $10.7 million of our six-year $90 million convertible notes remain outstanding.

We're updating full-year 2015 financial guidance by narrowing the range for both net product sales and operating income. We expect that net product sales will range from $135 million to $140 million, with operating income ranging from $8 million to $10 million. This compares to prior guidance of net product sales of $130 million to $140 million and operating income of $6 million to $10 million.

In addition, we continue to expect R&D expense to increase by more than 50% in 2015, as compared to 2014, as the Company accelerates the development of SPN-810 and SPN-812. We would like to remind everyone that we expect quarterly operating income to vary during the last two quarters of 2015, depending on quarterly variability and research and development spending.

I would now turn the call back to the operator for questions.

(Operator Instructions). Ken Cacciatore, Cowen and Company.

Thanks, guys, and congratulations on all the good progress. Just wondering, I know we have now -- you have done a fantastic job with the products and let the sales force really focus. Just wanted to hear a little bit of thoughts about business development.

And then on the FDA meetings, and that appeared very successful, just any more nuance you can give us, any more about the discussion, the scale, their views of it, any more details you want to give about the meetings? Thank you.

Yes, hi, Ken, this is Jack. Regarding the business development, we continue to be very, very active in that space looking for strategic opportunities that could accelerate our growth story moving forward, looking for opportunities that certainly fit very well with our footprint in the neurology, as well as psychiatry, space. So, we continue to be active. That continues to be a priority for us moving forward.

As far as the FDA meetings, we really were very, very pleased with the outcome from the meeting on SPN-810 discussing the scale itself. They were very complimentary regarding the development of the scale and so forth, and as we mentioned, they accepted the use of that scale in our studies, in addition to the fact they agreed to our primary endpoint.

So, things are moving very well. We were very pleased with the outcome of these meetings and that's why we are still on track for the Phase III starting in the fourth quarter. We will be submitting the special protocol assessment in the third quarter, and typically there is a short waiting period where you wait for their comments to fine-tune the protocol and then it is full speed ahead to initiating the trials.

Thank you.

Annabel Samimy, Stifel.

Thanks for taking my question. Just on the issue of business development again, I guess there is a few comments you made in the past was that you are interested in business development, but you don't feel that you have to do business development. Now we have got, I guess, some pretty expensive development pathways for 810, specifically, and 812 as well. So, how are you balancing the two priorities there? And does that change how you think about the types of deals that you're going to do? That's the first question.

And the second question I have is related to IP. You have gotten a pretty decent amount of IP and there's been some developments in Oxtellar. I was just curious to know how similar are the IP on Oxtellar versus Trokendi. Maybe you can help us clarify that. Thanks.

Sure, regarding the first question on business development, we are very, very focused, as you probably have noticed, on the pipeline, clearly the development of the pipeline and accelerating that as much as possible, and our R&D organization is doing a remarkable job in advancing these products.

It doesn't mean clearly in parallel we can't look for strategic opportunities on the business development side that could augment our current commercial activities. As we have mentioned on SPN-810 and 812, we're looking at NDA filings in 2018 and 2019, respectively, and therefore from a BD point of view what we would ideally be looking for are things that we can promote or introduce into the marketplace somewhere between now and then. That would be an ideal situation to augment what has been and we believe will continue to be a robust growth in Trokendi XR and Oxtellar XR.

So I don't really see the two mutually exclusive. We can certainly execute on both ends in parallel in the Company.

Regarding IP, as a reminder both products, Trokendi XR and Oxtellar XR, use obviously our drug-delivery technologies, but they use different technologies. So the approach we use and the innovation that we created when we created the Oxtellar XR product is very different than the approach we used in creating Trokendi XR, so they are different technologies as far as IP is concerned. And the IP typically is also very specific to the formulation itself and to the challenge that we face and to the problem that we were actually able to resolve with our unique formulation or novel formulation.

So, sometimes even if the products do use the same technology, the IP will still differ because you're typically faced with different challenges with different molecules, given the characteristics of that molecule and the challenges you have as far as oral absorption, oral bioavailability, and so forth.

Okay, great, thank you.

David Amsellem, Piper Jaffray.

Thanks, just a couple. So first on Trokendi, can you remind us how you are thinking about potential label expansion in migraine prophylaxis?

And then, maybe give us a sense of the extent to which the product is already used off-label in migraine and maybe the split between migraine and epilepsy and other uses. Thanks.

Yes, on Trokendi XR, as most of you probably recall, the strategy through which we developed the product and got it registered was through bioequivalence.

So by definition, Trokendi XR is bioequivalent to Topamax, regardless of what that indication is, and the only reason we got epilepsy at that time on our label was because the migraine indication was still protected, is still protected by IP that Johnson & Johnson has.

So we expect when that IP expires that we will have the migraine at some point in our label. I can't be too specific as far as timing and the specific activities we are doing or not doing in that area.

As far as the market itself, our promotion is all about epilepsy and our targeting is for epilepsy. You do see, of course, some physicians because it is still the same neurology space, so physicians, if they prescribe for migraine and they prescribe for epilepsy, obviously we can't tell them what to do or not to do. We only talk about epilepsy, promote the product for epilepsy.

Yes, we do see some physicians using it, but that is all that we have as far as information is concerned at this point. But certainly, that is an area of expansion for us.

Then if I may sneak in a follow-up, Jack. Once you get that expansion in the label, are you planning additional sales force expansion? Do you feel that there is sufficient overlap in the neuro prescriber base that you have got the sales force you need?

I would like to reserve answering that question, if you don't mind, just for competitive reasons.

Thank you.

Bill Tanner, Guggenheim.

Thanks for taking the questions. Jack, a couple of them on 810. I'm just curious how you guys were thinking about, then, obviously you are using your proprietary scale and I guess in prior studies you have used the modified overt aggression score, just how to think about the data that have been generated on that versus what the expectation would be for your scale, and then I had a couple follow-ups, please.

Yes, sure. Very good question, Bill, and that really piggybacks on some of the things we talked about during the investor day, as you might recall.

The scale that we developed, which is proprietary, actually takes the initial scale that we have used in the Phase IIb study and fine-tune it as far as the items that make up that scale and boil it down to the very specific items, which were about 15 items out of 30 different items, that truly reflect what the disease is, what is the definition of that disease, how patients talk about the disease and describe it, and so forth.

So, if anything, our new scale clearly is a subset of the larger scale and is more relevant to the disease itself in measuring the disease that we are looking at, which is impulsive aggression in this case.

And when we did the validation of the scale in patients and how they actually verbalize and describe the disease, it correlated very, very highly with the scale that we used in the Phase IIb trial and also the scale that we used even back then with the Phase IIa trial, which was the Nisonger Child Behavioral scale.

So, very, very strong consistency among all these scales and very, very strong correlation between what we ended up with and the ones we used in our Phase II studies.

Got it. That's helpful.

And then, I apologize if you have said anything about it, but just broad brush on the potential trial design and then maybe timing of an NDA submission. I thought I heard you mention NDA submission for 812, but I didn't hear 810.

That's all right. For 810, we are looking at submitting an NDA in 2018.

Okay.

The plan at this point is to do two Phase III studies, initiate them in the fourth quarter. Again, as we said on the investor day, we might space them a little bit by a couple months or we might enroll them all in parallel, depending on our estimates on recruitment and so forth. These studies are both part of about 300 patients each, about 100 per arm, basically a placebo and two different doses that we are looking at studying in those studies.

And I am assuming those would -- given the lack of a suitable alternative, I'm assuming those would enroll reasonably briskly?

We would hope so. The track record we have had before in the Phase IIa and Phase IIb was very positive. We had good enrollment. Actually, we were always ahead of our targets as far as enrollment in those days, if I remember well.

So you are right. Given the need, the screaming need for something in this space, we would expect the recruitment to be reasonably well, but, again, you never get it until you start the trials and see what happens.

And of course, in this case, also, these are larger trials, and if you are doing it in parallel, it puts a little bit more pressure on the sites to come up with the patients that qualify.

Got it. Okay, thanks very much.

John Boris, SunTrust.

Thanks for taking the question. The first one, Jack, just has to do with the topiramate label. Can you just remind us what indications are in there? And since you are AB rated, what is it in the Orange book and what has to be removed or expire within the Orange book to potentially be able to use the product in some of those other uses? And what's the mechanism to get those additional indications added to your label?

Second question, just modeling-wise sequentially on R&D, I know, Greg, you mentioned greater than 15% R&D. Just the weighting of that in third quarter versus fourth quarter, it sounds like it will be more heavily weighted towards fourth quarter, but just any guidance you can provide there on the R&D line, and also, on the SG&A line, any pushes and pulls on the sales force.

And then, lastly, on molindone, I just want to challenge you a little bit, Jack, on the 2018 timeline. It doesn't seem like there is a lot of companies enrolling patients in ADHD for aggressive behavior. How many sites will you have up and running? And it would seem like, based on the length of the trial, it would be a trial that you could possibly recruit relatively quickly. So it seems like you have a pretty conservative timeline there on the NDA, but just some help in understanding that would be useful. And again, congrats on the results.

Sure, John, thank you. Let me take two of the questions and then I will let Greg talk about the R&D modeling and so forth.

The first question regarding topiramate and what's on the label currently for Topamax, clearly they have all the epilepsy indications, which fairly -- when you look at the Trokendi XR label, it mimicked pretty close to what Topamax has on the epilepsy side. And again, as I mentioned earlier, what we didn't have in our label that exists in Topamax labels, everything related to the migraine -- prevention, prophylaxis. I don't have it in front of me right now, but basically Topamax is indicated for the treatment of migraine, but mainly on a prophylactic prevention basis, rather than acute basis versus other treatments in migraine.

As far as to, again, our mechanism of getting migraine on the label or not, I'm going to refrain from making any comments on the exact strategy as to what we are doing or maybe we're not doing anything, so I'm going to reserve that for now.

As far as the SPN-810 program, we had mentioned that we're going to be probably looking at sites through the Phase III program somewhere in the 60 to 80 sites. Piggybacking on the previous question in answering Bill, yes, if we have recruitment going on very, very well, given your point as well, because there is nothing in this space and not too many companies or nobody, actually, is active in recruiting these kind of patients, it may be well -- a very positive scenario for us at that time and we see recruitment much faster than we anticipate, and clearly at that time we will update our timeline and communicate that to Street.

But until we get into it, get into the minutia of screening the patients and making sure we can enroll all these patients -- we are looking at 600 patients with two Phase III studies running in parallel for most of 2016, we are a little bit I wouldn't say uncomfortable, but we want to be a little bit cautious in the kind of timelines we are projecting.

Could we beat that timeline? There is always a possibility, but -- in this area of drug development, there is always things that pop up that sometimes make timelines extend, rather than shrink. So Greg, you want to take --

Right, with respect to R&D spending, John, I would expect another very significant increase between the second and third quarter, probably shade spending a little bit heavier in the fourth quarter versus the third, but since we're really on the precipice of finalizing our agreements with the CRO we will be working with to initiate our two trials with SPN-810, and we should be finalizing that actually imminently, a fair amount of spending will fall in the third quarter. So I would expect them to be pretty similar to one another, but probably the fourth quarter a little bit higher.

In terms of SG&A, from here on out through the rest of the year, probably fairly flat. There is a lot that runs through the SG&A line, including activities that support sales and marketing, in addition to sales and marketing activities themselves. And so, there is always some pushes and pulls, to use your expression, in terms of how those programs lay out during the year. I would expect the SG&A spending, as I said, to be fairly flat.

And I think you meant -- asked the question about number of sites for the 810 trial, probably for each trial somewhere in the 20 to 25 sites per trial. And so, as Jack referenced, it will create some uncertainty in terms of recruitment. Clearly, some of those sites will be sites we used in the IIb trial, but some of them will be new. And since we have no experience with the new sites, it is very difficult to project how they might recruit.

Just one follow-up, if I may.

Yes, sure.

Just on legal expenses, which are captured in the SG&A line, if and when you complete the trial on Oxtellar XR, how will that impact the SG&A line? Because I would think there is some significant costs in there for legal expenses to fend off generics on both Trokendi and Oxtellar?

Yes, that's actually capitalized on the balance sheet.

So, there are two potential outcomes there. One is that we -- we're bust and lose, in which case that amount will be expensed immediately, and the other one is that we are -- we win or have some sort of settlement, which is the equivalent of a win, and we will amortize those expenses going forward over the relevant period.

Thanks, and again, congrats.

Thank you. Ladies and gentlemen, that concludes today's Q&A session. I would like to turn the call back over to Jack Khattar for closing remarks.

Thank you. We are very pleased with our strong second-quarter results and our progress and growth in the first half of 2015. Supernus continues to execute well in commercializing Trokendi XR and Oxtellar XR, as well as in advancing its pipeline. We very much look forward to the second half of 2015 and beyond as we progress SPN-810 and 812 in clinical development.

I want to thank everyone for participating in our call today and for your questions. Thank you so much. Have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Have a good day, everyone.