Supernus Pharmaceuticals Inc (SUPN) 2015 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Supernus Pharmaceuticals third-quarter 2015 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.

I'd like to turn the call over to Peter Vozzo. You may begin.

Thank you, Roland. Good morning, everyone, and thank you for joining us today for Supernus Pharmaceuticals' 2015 third-quarter financial results conference call. Results discussed today are for the quarter ended September 30, 2015. Yesterday, after the market closed, the Company issued a press release announcing these results.

On the call with me today are Supernus's Chief Executive Officer, Jack Qatar, 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 about 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's 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 November 4, 2015, at proximately 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.

I will now 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 third-quarter results.

During the quarter, we continued to generate strong prescription and product sales growth while making significant progress in advancing the clinical development of our pipeline products. Let me first focus on some of the key third-quarter highlights.

Prescription growth for our epilepsy portfolio continued at a strong pace in the third quarter. Total prescriptions for Trokendi XR and Oxtellar XR combined in the third quarter as reported by Symphony were 102,831, representing an increase of 78% over the third quarter of 2014 and 13% over the second quarter of 2015.

Trokendi XR prescriptions for third quarter totaled 77,331, which is a 96% increase over the third quarter of last year and a 14% increase over the second quarter of 2015. Oxtellar XR prescriptions for the third quarter totaled 25,500, representing an increase of 40% over the third quarter of last year and a 9% increase over the second quarter of 2015. Also, total net product sales for the third quarter of 2015 were $38.6 million, an increase of 71% over $22.5 million for the same quarter last year and a 9% increase over the $34.3 million for the second quarter of 2015.

Looking at our performance for the first 9 months of 2015, the total prescriptions for Trokendi XR and Oxtellar XR showed robust growth of 101% over the same period last year. And total net product sales increased by 71% or 114% when adjusted for the change in revenue recognition of $7 million in 2014, as we discussed last quarter.

During October 2015, the FDA accepted for review our supplemental new drug application requesting approval to expand the indication for Trokendi XR beyond the current indication for the treatment of epilepsy to include treatment in adults for prophylaxis of migraine headache. This is a very positive development as it potentially provides an important new treatment option for adult patients suffering from this condition and helps us maximize the Trokendi XR franchise. The FDA has set a target date in the second quarter of 2016 to complete its review.

Turning now to our pipeline, we are pleased to report that we have reached another significant milestone with the initiation of two Phase III trials with SPN-810 during the third quarter of 2015. The Company filed with the FDA in September the special protocol assessment for SPN-810 and has been in discussions with the FDA expecting to finalize the SPA in this quarter prior to first patient dosing.

As we stated previously, the FDA has accepted the use of our scale and agreed with our proposed primary endpoint for the Phase III trials. We have substantially progressed clinical site selection for the first two Phase III trials and we will be holding an investigator meeting later this month.

We also expect to start patient recruitment later this month that is followed by a 28-day waiting period for each patient prior to randomization. The formal treatment period will be approximately 29 days and the trial will also include an open-label extension period until we launch the product.

Regarding SPN-812, we started three trials in the past few months: a single ascending dose SAD study and a multiple ascending dose MAD study in adult healthy volunteers were initiated in the third quarter, and a Phase 2b trial was initiated in the fourth quarter. The SAD and MAD trials are designed to better define and understand the pharmacokinetic profile of the extended-release formulation that is the subject of the Phase 2b trial. The results of the two studies are expected by the end of this quarter.

As we advance our pipeline products, we continue to be very excited about their significant commercial opportunity. SPN-810 could be the first FDA-approved treatment for impulsive regression in ADHD. We have conducted extensive market research which 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.

This market research included qualitative assessments of the target product profile with key opinion leaders, community physicians, and payers. And most significantly, we completed qualitative market sizing and demand research that included 1,092 patient records that were provided by 182 physicians. 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 the initial ADHD target market that we believe collectively represent additional potential peak prescriptions of 700,000 to 900,000 per year. Overall, the market opportunity for SPN-810 for the achievement treatment of impulsive aggression is significant and spreads across many disorders, making it potentially the first billion-dollar product for Supernus. We continue to expect to submit a new drug application for SPN-810 in 2018.

Similarly, based on the emerging clinical profile of SPN-812, we believe SPN-812 has the potential of being a well-differentiated product in the underserved non-stimulant market in ADHD, offering a valuable alternative for treating ADHD patients. We expect to submit the NDA for SPN-812 in 2019.

Finally for Trokendi XR, we are pleased to have entered into a settlement agreement with Par, permitting Par to begin selling a generic version of Trokendi XR on April 1, 2025, or earlier under certain circumstances. As part of that settlement, Par agreed that it infringed Supernus patent position and that Supernus patents are valid.

Patent litigation continues against the other two ANDA filers, Actavis and Zydus. We remain confident in the strength of our intellectual property and continue to vigorously defend and the patent protection our innovative products deserve. Oxtellar XR has five patents and Trokendi XR has six patents that are all listed in the Orange Book. All these patents provide patent protection that expires no earlier than 2027.

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 third-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 September 30, 2015, later this week.

Net product sales of Trokendi XR for the third quarter of 2015 were $29.9 million, which is 13.7% higher than $26.3 million in the second quarter of 2015 and 95% higher than $15.3 million in the third quarter of 2014. Net product sales of Oxtellar XR in the third quarter of 2015 were $8.7 million, an 8.7% increase over $8 million in the second quarter of 2015 and a 20.8% increase over $7.2 million in the third quarter of 2014.

Research and development expenses in the third quarter of 2015 were $9.1 million as compared to $4.7 million in the same quarter last year. This increase is primarily due to the initiation of Phase III testing associated with SPN-810, manufacturing and packaging of clinical trial materials, selection of a CRO, and the screening of clinical trial sites.

Sequentially, as compared to the second quarter of 2015, research and development expenses have increased by $2.3 million, or 33%. Going forward, we continue to expect research and development expenses to increase during the fourth quarter of 2015 and into 2016 as we continue the clinical advancement of both SPN-810 and SPN-812.

Selling, general, and administrative expenses were $22.9 million for the third quarter of 2015 as compared to $17.3 million in the same period in 2014. This higher expense in 2015 reflects marketing, medical, and promotional programs in support of the currently commercialized products.

For the third quarter, operating income totaled $4.3 million as compared to $29.2 million in the third quarter of 2014. Excluding the previously mentioned one-time $30 million royalty monetization payment, it would have been an operating loss of $0.8 million in the third quarter of 2014.

Net income for the third quarter ended September 30, 2015, was $4.2 million or $0.08 per diluted share as compared to net income of $27.9 million or $0.39 per diluted share in the third quarter of 2014. Again, excluding the impact of the $30 million royalty monetization payment, third-quarter 2014 net income would have been a loss of $2.1 million.

Approximately 51.6 million weighted average diluted common shares were outstanding in the third quarter of 2015 as compared to 50.8 million shares in the third quarter of 2014.

As of September 30, 2015, we had $101.7 million in cash, cash equivalents, marketable securities, and long-term marketable securities as compared to $94.2 million at December 31, 2014, and $103.3 million at June 30, 2015. Cash balance at September 30 was down slightly from June 30, 2015, primarily due to upfront payments for initiation of our Phase III clinical trials for SPN-810. As of November 3, 2015, approximately $8.5 million of our 6-year $90 million convertible notes remain outstanding.

We are updating full-year 2015 financial guidance by increasing the range for both net product sales and operating income. We expect that net product sales will range from $143 million to $145 million, with operating income ranging from $13 million to $15 million. This compares to prior guidance of net product sales of $135 million to $140 million and operating income of $8 million to $10 million. In addition, we expect R&D expense for the full year to exceed $30 million, more than 50% over the R&D expense of $19.6 million in 2014.

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

(Operator Instructions)

Ken Cacciatore, Cowen and Company.

Hi, guys. This is Sal in for Ken. Congrats on the great quarter. So one question regarding the Trokendi XR. With the potential now indication for migraine prophylaxis, can you just talk a little bit about what that opportunity looks like and how that could potentially impact revenues for Trokendi XR moving forward?

And then also regarding the status of the litigation with Actavis-Allergan and Zydus and just your outlook on what the recent settlement with Endo/Par could potentially mean for the duration of that asset? Thank you.

Hi, good morning. This is Jack. Regarding the migraine indication, clearly Trokendi XR has been pretty much and we as a Company have been constrained as far as to our promotional efforts. So all the Trokendi XR promotional efforts have been steered towards epilepsy.

The physician audience that we go after as part of targeting for Trokendi XR -- they are mainly neurologists and a lot of them prescribed for epilepsy. Now, some of them may use it for migraine on their own.

We have been getting some usage for Trokendi XR in migraine, but when we get the migraine on the label itself, it will allow us clearly to talk to physicians about migraine to be able to speak to the benefits of Trokendi XR in migraine specifically as well as in epilepsy.

And we believe that should have some upside. We don't know what is that exactly. We're going through with the analysis at this point and see whether that will have an impact on our sales force or not from an expansion point of view.

Regarding the litigation, I really can't make any comments on future litigation outcomes or potential settlements or anything like that. The only point I would make actually on this would apply to Trokendi XR and Oxtellar XR is that clearly, given that we did settle with Par, that gives people couple of messages.

One: that the Company is not opposed to supplement if it is a supplement that makes sense, obviously. And then second: that we stand very strong behind our IP and we know that a lot of these folks who file ANDAs have infringed on our IP. And we will protect our IP. Short of that, I really can't make any specific comments on what will happen in the next two weeks or three weeks or obviously next year or so.

On Oxtellar XR, the trial is coming up -- it will start on November 18 for Oxtellar XR. And that will typically take a week or two weeks and probably a ruling will be sometime early next year.

Great. Thank you, guys.

David Amsellem, Piper Jaffray.

Thanks. Just a couple. So first, can you talk about how we should think about your acquisition capacity? In other words, how big of a transaction do you think you can execute on if you were to access additional capital?

And then related to that, what are your thoughts in terms of prioritizing commercial stage assets versus late-stage development assets? How should we think about that? And then lastly, can you just walk us through how we should think about the gross to net on Oxtellar and Trokendi into 2016 as you get more and more access, both on government and commercial plans? Thanks.

Yes, David -- I'll take firstly M&A priorities and strategy. And then Greg will talk about the financing and the other question on gross to net.

As far as our M&A priorities or external growth priorities, as we mentioned on previous calls, basically we are looking for assets in the neurology psychiatry space, which is our focus. Our priorities are on things that are later stage -- whether they are commercial assets, NDA stage, or even if they are in Phase III stage. Because anything that puts us ahead of the game as far as bringing a third product to the market clearly would accelerate our story and elevate our importance and strategic value.

So in general, we look for these types of assets and in psychiatry overall. Neurology maybe is a priority initially, given that we are now completely focused on neurology until 2019 when we first launch SPN-810. But we also did say that we are not opposed at all bringing a product in the psychiatry space that would allow us to start establishing our presence in psychiatry about a year or two years before 2019 so we can get Supernus's name out, physicians will become aware of who Supernus is, and that we are a key player in psychiatry. And that will allow us to prepare for the SPN-810 launch.

I'll let Greg make comments on the financing capacity and the gross to net.

Thanks, Jack. With that platform that Jack laid out, I'd bifurcate the discussion on acquisitions into two pieces. If we were looking at a product or a company in the range of, let's say, $250 million to $500 million or maybe even north of $500 million, given that our market cap right now is about $900 million, that's clearly an equity-driven transaction. It could be a combination of equity and something else, but I'd say primarily it's not solely equity.

Below the $250 million level, there's lots of opportunities and lots of options for us. And we actively explore those in including convertible debt and straight debt. Clearly, $200 million, $250 million of straight debt would I think would be at the upper end if not probably beyond the upper end of what is reasonable and responsible. So if we were looking at something kind of in the $200 million range, it's probably some form of convertible debt and/or straight debt, but leaning primarily on convertible debt.

With respect then to the question about gross to net and how to think about that going forward. Gross to net for Trokendi XR for the most recently completed quarter was in the low 30%s and Oxtellar XR approximately 50%. That's a bit of a jump up from prior quarters and from where we've based discussions previously.

And that's really driven by two factors. The biggest one is Medicaid, as we continue to increase price that has a knock-on effect in terms of Medicaid rebate. And as you well know, the Company increased price for both products at the very end of June and we are seeing the impact of those price increases in terms of Medicaid rebates in the third quarter.

We also have experienced for the first time with expiry of our launch lots some real-life experience with respect to returns. So we've had to adjust our accounting estimate going forward to reflect that new information. The level of returns actually was quite modest as compared to what I think other companies have experienced, but it did cause us to push that adjustment through in the third quarter.

I think more importantly going forward, we'd expect those gross to net numbers that I just referenced, David, to be pretty stable over the next several quarters. We've got new information on Medicaid, new information on returns. We don't expect that to change appreciably over the next couple of quarters unless some other news present itself. So my expectations would be both numbers will stay in that ballpark for the foreseeable future.

Okay. That's helpful. Thank you.

Annabel Samimy, Stifel.

Hi, this is Esther in for Annabel Samimy. I have a question on business development. So we all read the recent news that leaked about Supernus bidding for XenoPort. What are your comments? Are you finding that most BD M&A opportunities have turned into bidding situations?

Our policy is we really don't comment on news articles, rumors, whatever. So as I stated before, we are very focused on the key priorities that we've stated many times, which is commercial assets, NDA, and/or Phase III type of assets in neurology and psychiatry. So that's all I can say really at this stage.

We continue to be very active and we've been very active for a while now looking for these kind of opportunities. Because we realize we have a very, very strong footprint and presence in neurology, our sales force has executed remarkably well, and we've proven to everybody that we can truly launch products and be very successful.

So if we can add other assets to that footprint, that will be great. And/or as I stated earlier, if we can bring in a psychiatry asset that can really give us a head start in the psychiatry space, that would also be very, very good for us prior or in preparation for a big presence in that space with the SPN-810 launch in 2019.

Okay. Great. Thank you. Congratulations on the quarter.

Bill Tanner, Guggenheim Securities.

Thanks for taking the question. Jack, I had one just on the SPA. You mentioned that the FDA has accepted the scale and the endpoints. Wondering if this is just sort of finalizing; if there are any sticking points that you can speak to? And if you can comment maybe on the magnitude of the treatment effect that you would anticipate being -- needing to show?

Regarding the SPA, nothing really -- it's more of a formality within the process with them. So we've been in constant communication with them since we filed it actually. And they've been very, very interactive with us, so we don't expect any issues there. As you see, we already initiated the Phase IIIs from site selection investigators and things and so forth. So we're full speed ahead with that.

As far as the size affect on the scale that we -- I don't recall it from memory specifically, but I know that we powered the studies pretty well and we're pretty confident with the size of the studies. If you remember, we had every study basically is around 300 patients with 3 arms, placebo, the 18 and 36 milligrams. So each arm will have about 100 patients and we feel pretty good about the sizing and the power of the study.

Okay. And then as it relates to the migraine opportunity, so just so I understand. Obviously, with the approval, you'd have it in a label. You would be able to talk to physicians about it. So I guess the notion here is that at least at the outset, if you could talk to physicians that are prescribing Trokendi to a patient for epilepsy and you see some traction with it as it relates to preventing migraine, that would maybe spark some discussion about expanding the sales force?

We are going to be -- we will take a measured approach, as we always have, with this kind of situations. We will see all the data up to the launch: what does it indicate for us. And then we will make a decision whether there is an expansion to occur and what size of expansion are we looking at at that point. So it will be a very measured step for us -- making sure we will get the return on that investment if we do decide to expand the sales force.

Currently, in the marketplace -- and this adds to my answer before on that specific issue. We are very strict as far as to how we promote our product currently in epilepsy. And any discussion that -- if a physician raises a discussion about migraine, we just stop that discussion or walk out of that office. And there are a lot of physicians who are not even on our call list, so we are very strict as to how we operate.

So certainly getting that indication will allow us to appropriately be able to talk about migraine if the physician raises that subject. In addition to that, some managed care plans -- not too many, but some of them -- don't reimburse for migraine currently. So unless the prescription is for epilepsy, they will not reimburse it for migraine. So that obviously will alleviate that issue as well.

Okay. And then just to follow-up on the migraine indication. If you look in the literature, obviously there are side effects associated with topiramate for prevention of migraines. And I'm just wondering if you have any thoughts as to the formulation for Trokendi; what that might do in migraine patients to perhaps mitigate some of the side effects that might make the drug a little bit less desirable to take.

Actually, we believe that the advantages of the once-a-day product will apply regardless whether it's epilepsy or migraine. Because the issue with a immediate release product, regardless what you are taking it for, is the quick uptake in the drug absorption so quickly with the immediate release product that causes a lot of these side effects.

In addition to that, currently physicians are really compromising big time when actually treating epilepsy or migraine patients by trying to give people immediate release products, sometimes at night, so that they avoid the side effects. But what typically happens is by the time the patient wakes up in the morning, their blood levels are not really optimal at all. If anything, they are very low. And they put them at the risk of getting a seizure or a migraine headache.

So the product Topamax, initially it's immediate release and is not really designed to be taken once a day at all. And physicians currently just try to work around that product and compromise and truly are not giving and offering their patients the best possible therapy here. So the once-a-day Trokendi XR certainly will be a major, major benefit for either patient -- whether it's epilepsy or migraine.

Got it. Okay. Thanks very much.

(Operator Instructions)

David Buck, Northland Capital Markets.

Yes. Thanks for taking the question. Jack, can you talk a little bit about the Citizen Petition that was filed for Oxtellar XR and basically asking the FDA to narrow the bioequivalent standard for generics? Can you give a sense of whether you think the FDA might be open to that thought process, either with an actual narrowing of the AUC -- you are looking at partial AUC as part of the approval process for generics.

And I guess to follow up, what's your knowledge of the generics and whether they would apply to stricter standards -- whether they would meet those? And then one quick one for Greg. Can you talk a little bit about just the decision tree for migraine of expanding the sales force organically versus looking to do it through some type of business development M&A? Thanks.

Regarding the Citizen Petition, which David is referring to. This is the one that we filed the petition into the FDA not to approve certain generic products -- Oxtellar XR -- unless they meet what we believe are rigorous and very important scientific measures and technical bioequivalence in our standards.

This is pretty well known in the epilepsy space and in other areas that are called critical dose drugs, where fluctuations in the blood levels can really cause major issues for patients. And it has been documented through a lot of survey studies, publications, that in epilepsy, generic products have the tendency and could potentially cause breakthrough seizures for patients because of a fluctuations.

And the fluctuations I'm referring to really are tied to the fact that bioequivalence standards are the 80% to 125% band, which might be a wide band, specifically when it comes to drugs that are critical dose drugs, where variability in the blood levels can cause seizures or side effects and so forth.

And this is pretty much some of the core arguments that we present in our Citizen Petition regarding Oxtellar XR because specifically with oxcarbazepine, we believe that these variabilities can cause issues for patients. And you don't want to put obviously patient safety at risk and/or even not getting the efficacy at all from products that could be conceived as being bioequivalent, but in fact they are not.

So that's really the issue here, which is again a very well-known issue. And actually, the FDA had been looking for some time right now at potentially making the bioequivalence range much tighter than the 80% to 125% because of these issues that have surfaced for so many times. Even with some other CNS drugs, we've seen it where sometimes the generic extended-release products are not truly a bioequivalent to the branded.

A couple examples come to mind, like Wellbutrin XL and Concerta and so forth, where even generics, after they became on the market or got approved, they got pulled out or they were told that they are not actually truly bioequivalent to the brand. So this is a very well-known issue in general and we hope that the FDA -- hopefully they will see the issue and side with us.

David, as regards to the question that you asked about the expansion of the sales force. In the short term, there are really two things I think that we are going to monitor pretty closely.

First of all, as Jack pointed out, patients who are taking topiramate right now for the prophylaxis of migraine headache often take it in the evening to mitigate the side effects. The problem with that is that migraines often happen in the morning. So the time they wake up is when they need the protection they get and they don't have it.

So for the neurologists that we are calling on and calling on right now solely for epilepsy who also -- and many of them also prescribed for migraine -- we're going to be monitoring carefully the impact that our detailing efforts will have. And once we get approval for -- to add the migraine indication, we will be monitoring the impact on those physicians to see what their prescribing behavior -- how their prescribing behavior changes.

As Jack pointed out, we are getting prescriptions for migraine right now, even though we are not able to detail that out in a physician's office. So clearly it is a big difference between being able to talk about it and not able to talk about it and we'll track that.

The other effect we are going to be looking for is there are a certain group of neurologists who are primarily, if you will, pain specialists that we are not detailing to right now because it's not appropriate for us to be in their offices. So adding the migraine indication for those physicians, we'll be monitoring what sort of uptick we get. Those will be de novo docs and we'll see how that goes.

Depending on how those track, we will then assess what makes sense in terms of adding additional sales reps. We've -- our initial thinking is that the incremental expansion, if any, would be kind of in a modest dimension. May be 10 to 30 -- something of that nature.

If we are surprised by the impact, we can certainly take a look doing some form of copromote or adding some additional sales and marketing resources, but I think that that's not likely to happen. I think we would almost -- I can't imagine that we wouldn't do this organically amongst ourselves within our existing structure and not look at complicating our lives with an additional copromotion arrangement or something of that sort.

I'd like to now turn to call back over to Jack Khattar for any additional remarks.

Thanks. In summary, we delivered these very strong third-quarter results with continued execution on growing Trokendi XR and Oxtellar XR. And our R&D team has made significant progress in advancing our pipeline by initiating numerous clinical trials, including the two SPN-810 Phase III trials and most recently the Phase 2b trial for SPN-812.

We look forward to finishing 2015 and marking it as another remarkable year for Supernus, with significant accomplishments across all the aspects of our business. I want to thank everyone for participating in our call today and have a good day.

Ladies and gentlemen, thank you for your participation. This does conclude the program. You may now disconnect.