Supernus Pharmaceuticals Inc (SUPN) 2016 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Supernus Pharmaceuticals first-quarter 2016 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this call is being recorded.

I would now like to introduce -- I would now like to turn the conference over to Mr. Peter Vozzo of Westwicke Partners Investor Relations for Supernus Pharmaceuticals. You may begin, sir.

Thank you, Ronya. Good morning, everyone, and thank you for joining us today for Supernus Pharmaceuticals first-quarter 2016 financial results conference call. Results discussed today are for the quarter ended March 31, 2016. Yesterday after the close of the market, the Company issued a press release announcing these results.

On the call with me today are Supernus's 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 annual report on Form 10-K, the recent most of which we filed on March 9, 2016. Actual results may differ materially from those projected in those forward-looking statements. For the benefit of those who may be listening to the replay, this call is being held and recorded on May 4, 2016, at 9 a.m. 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 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, and thanks for taking the time to join us as we discuss our 2016 first-quarter results.

During the first quarter, we continued to generate strong year-over-year product prescription and net product sales growth, and we made further progress advancing our product candidates through clinical development. Let me now focus on some of the key highlights for the first quarter.

Total prescriptions for Trokendi XR and Oxtellar XR combined in the first quarter as recorded by IMS were 114,773, representing an increase of 50% over the first quarter of 2015. Trokendi XR prescriptions for the first quarter of 2016 totaled 85,987, which is a 56% increase over the same quarter last year, and Oxtellar XR prescriptions for the first quarter of 2016 totaled 28,786, representing an increase of 34% over the same quarter last year.

In March of this year, we reached an all-time high in IMS prescriptions for both Trokendi XR and Oxtellar XR. For the first time, Trokendi XR exceeded 30,000 prescriptions per month, and Oxtellar XR exceeded 10,000 prescriptions per month.

In addition, based on the most recent weeks in the second quarter, we continued to see solid sequential weekly IMS prescription growth averaging about 7% for Trokendi XR and 5% for Oxtellar XR. Total net product sales for the first quarter of 2016 were $43 million, an increase of [53%] over $28 million for the same quarter last year.

Regarding our supplemental new drug application requesting approval to expand the indication for Trokendi XR that includes treatment in adults for prophylaxis of migraine, we continue to prepare and be ready to launch the new migraine indication after receiving full FDA approval.

Turning now to our pipeline, we continue to enroll patients into both Phase 3 trials for SPN-810, which is currently in development for impulsive aggression in patients who have ADHD, and we continue to expect data from these Phase 3 trials by mid-2017. The Phase 2b trial for SPN-812 currently in development for ADHD continues to enroll patients as well, and we continue to expect data from the SPN-812 Phase 2b trial to be available by early 2017.

During our last quarterly call, we shared data with you on the favorable emerging clinical profile of SPN-812 as it relates to adverse events. In addition to those data, we completed the evaluation of the cardiac effects portion of the single ascending and multiple ascending dose study and are pleased to report that there was no clinical significant change in QT interval and other electrocardiograph ECG parameters. We believe this additional safety data in adult healthy volunteers, which show a lack of cardiac effects, are very encouraging and further strengthened the depreciation of SPN-812.

Regarding current litigation on Oxtellar XR, in February a federal district court found that (inaudible) Oxtellar XR were valid and that Davis infringed two of them. Since then, Davis has filed a notice of appeal to the US Court of Appeals for the Federal Circuit.

Regarding Trokendi XR, the court issued its Markman opinion on order in March 2016. The court adopted Supernus definitions of five of the seven disputed terms and did not adopt any (technical difficulty) definitions. No date has been set for the trial.

We remain confident in the strength of our intellectual property and continue to vigorously defend the patent protection our innovative products deserve. Oxtellar XR has five patents and Trokendi XR has six patents that are listed in the orange book. All these patents provide patent protection that expires no earlier than 2027.

Also, recently Shire announced positive Phase 3 top-line safety and efficacy results for SHP465 in children and adolescents with ADHD. SHP465 is an oral stimulant medication being evaluated in the US as a potential treatment for ADHD. The study addresses a key FDA requirement keeping SHP465 on track for resubmission in the fourth quarter of 2016 and a potential launch in the second half of 2017 if approved by the FDA.

SHP465 was originally developed by Shire Laboratories, the former division of Shire, that subsequently became Supernus Pharmaceuticals. Based on the agreement between Supernus and Shire, Shire will pay single-digit royalties to Supernus on net sales of SHP465.

Finally, we continue to actively look for partnership and corporate development opportunities that strategically fit with our vision in building Supernus to become a leading pharma company.

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 first-quarter 2016 earnings press release issued yesterday after the market closed. We expect to file a report on Form 10-Q for the three months ended March 31, 2016, by next week.

Net product sales for Trokendi XR for the first quarter of 2016 were $32.3 million, which is 54.5% higher than $20.9 million in the first quarter of 2015. Net product sales for Oxtellar XR in the first quarter of 2016 were $10.7 million, a 49.3% increase over $7.2 million in the first quarter of 2015.

Product prescription and net product sales growth for Trokendi XR and Oxtellar XR in the first quarter of 2016 were unfavorably impacted by the reset of insurance coverage at the beginning of the year with high deductible and high co-pay programs. This is consistent with industry trends and consistent with what we observed in the first quarter of last year.

In addition, (technical difficulty) 2016 changes in wholesaler inventory levels and ordering patterns had the effect of reducing net product sales by approximately $3 million. Product gross margin for the first quarter of 2016 was 95.3% compared to 94.2% for the same quarter last year. Research and development expenses in the first quarter of 2016 were $10.6 million, as compared to $3.7 million in the same quarter last year. This increase is primarily due to our ongoing Phase 3 trials for SPN-810, both of which were initiated in the third quarter of 2015 and our ongoing Phase 2b trial of SPN-812, which was initiated in the third quarter of 2015.

We continue to expect research and development expenses to increase in 2016 as clinical (technical difficulty) of both SPN-810 and SPN-812 progresses. Selling, general, and administrative expenses were $25.2 million for the first quarter of 2016, as compared to $19.4 million in the same period in 2015. The higher expenses in 2016 reflect a continued increase in our sales and marketing efforts for both Trokendi XR and Oxtellar XR and the efforts in preparing for the launch of the migraine indication for Trokendi XR.

For the first quarter, operating income totaled $5.3 million, an increase of 55% over operating income of $3.4 million in the same period last year. The improvement in operating income for the first quarter of 2016 compared to the year earlier period is primarily attributable to the 53% [increase] in net product sales.

Net income for the first quarter ended March 31, 2016, was $5 million or $0.08 per diluted share as compared to net income of $0.9 million or $0.02 per diluted share in the first quarter of 2015. Approximately [51.2] million weighted average diluted common shares were outstanding in the first quarter of 2016 as compared to 44.9 million diluted shares in the same period last year.

As of March 31, 2016, we had $114 million in cash, cash equivalents, marketable securities, and long-term marketable securities as compared to $117.2 million as of December 31, 2015. As of March 31, 2016, approximately $6.6 million of our six-year, $90 million convertible notes remain outstanding.

Financial guidance for 2016 remains unchanged as compared to guidance issued in March. Specifically, net product sales will range from $200 million to $210 million, research and development expenses to range from $55 million to $65 million, and operating income to range from $28 million to $35 million.

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

(Operator Instructions) Ken Cacciatore, Cowen and Company.

Just had a couple quick questions. Just first, as we look forward to the Trokendi migraine launch, wanted to see if you could put some context around expectations for that, maybe how that opens the market door current utilization already in migraine? And then, also, in terms of business development, with that launch almost being like a new product introduction, just talking about the sales force and the ability if you were able to add a product or portfolio, what kind of room your sales force has now in terms of business development and whether you would be interested in expanding a bit within the neurology class? Can you talk about maybe other therapeutic areas besides epilepsy maybe that are available to you or what you are seeing out there in the marketplace? Thank you.

Regarding the migraine indication, as we mentioned before, the PDUFA date is this quarter and depending obviously getting the full approval from the FDA.

As far as the potential upside or potential market for Trokendi XR in migraine, again, as we mentioned before numerous times, that there is still (technical difficulty) for Trokendi XR in migraine. Clearly, because neurologists know this product very well that (inaudible) molecules, and they have been using it for so many years in that indication. We, ourselves, obviously, we don't promote for migraine. We only promote for epilepsy. However, doctors tend to use it regardless.

As we mentioned also earlier in previous quarters, this year, given that the launch potentially will be either mid this year or whenever it comes, we don't have a lot of upside reflected in our numbers or the results for 2016. And, therefore, most of the upside, if it does come beyond where we are today, it will be mostly in 2017.

We will be launching for Trokendi XR in migraine as a potentially more or less like a new product launch. We will be putting a lot of investment and effort behind it because we think there could be an upside that we are not aware or we couldn't even expand the market in the usage of migraine with the topiramate molecule, especially with a much better dosage form that is truly once today, that is truly helping with compliance, which is very important, specifically with topiramate being used on a prophylactic basis for the treatment of migraine.

So now, transferring to your next part of the question, which is regarding the sales force, given that our effort behind Trokendi XR in migraine will be a major effort. It is fair to say it will be a little bit difficult to put on top of that right away the launch of another product that we could potentially bring from the outside. So the timing of that, obviously, we will have to see how we can navigate to something like this if we were to execute on the business development transaction that could include a product in the neurology space. But we will make that decision at that time commensurate with or at the same time when we look at the asset and what the requirement of that asset that we are potentially bringing in. And if it does require expansion of the sales force, we certainly will be looking at that as well.

And then, finally, regarding some of the therapeutic areas or disease conditions that we would look for, in the neurology space, obviously, hopefully very soon or at some point in the next nine months, 12 months, whatever it is -- or quarter, we will become also a migraine company as well in addition to epilepsy. So the natural fit, obviously, with that sales call point will be any products in their specific specialty and that would cover things that are in the movement disorder specialties such as Parkinson's, MS, obviously additional migraine products and so forth, so that it opens it up for us as far as in neurology.

We also have said before that we are not opposed to getting into the psychiatry space if we can bring an asset that could potentially be launched ahead of SPN-810 or SPN-812 as well by a year, year and a half that would get us into the psychiatry office, allow us to establish ourselves and really pave the way for -810 and -812 later on.

David Amsellem, Piper Jaffray.

Just a couple. So, first, on the managed care landscape, obviously you have heard from a number of companies regarding a more restrictive environment for myriad products, and we have seen headwinds in the space. So can you talk to what changes or more restrictions to the extent you are seeing any regarding Trokendi and Oxtellar, both on commercial and government plans? So that is number one.

And then, number two is, can you just tell us what is the number of weeks of inventory on hand right now and how you expect that to move, if at all, during the second quarter? Thanks.

Yes. Sure. Look, regarding the managed care overall, one thing actually that has been changing over the last few years -- and you may have heard that from other folks as well -- if you look actually around 2005, 2006, the estimate used to be around maybe 1 million lives in the US had high deductible plans. These high deductible plans that we have seen more and more being offered by insurance companies and adopted by employers and so forth. And estimates for today is at close to 20 million patients or lives have these kind of plans.

So, clearly, that has changed dramatically from the last decade into this decade, and that has played a major role in some of what you have been seeing across many companies in our sector where the first quarter tends to be lighter because of the resets in insurance coverages, especially when patients for the first time they present their first prescription of the year, and it happens to be our product or any other companies product, they get hit with these high deductibles. And just naturally, psychologically, patients may reverse that prescription or say, I will get it later, or whatever, and that is why you see these kind of impacts, particularly in the first quarter.

And we have seen this and I have to say, this year it looks -- although we expect and we plan for it, it was a little bit more than we thought it would be based on the experience we had last year. So that is one of the things that we see happening from a managed care insurance coverage point of view.

As far as Oxtellar XR, Trokendi XR, we have really no major changes in coverage on our products. Nothing really specific. However, we do see rumblings and we hear rumors and we see talk and things regarding price protection where some of the PBMs maybe incorporating some of those aspects and some of their contracts and more of that might be coming. And that is obviously a natural reaction to some of the outrageous price increases we saw in our sector, and they are trying to manage through that and not be hit with certain surprises every other year. So we are seeing some of that as far as people talking about these concepts or trying to push these kind of concepts on the pharmaceutical companies.

Regarding inventory, again, what we saw this quarter is not unusual, and we are not talking about months or weeks or weeks of differences here. Even in our case, even a few number of days could make an impact specifically on Trokendi XR. So, by no means, we have any abnormal levels of inventory. It normally ranges, David, in the two weeks to three weeks most. Actually on some SKUs, we are down even a week. So these shifts in inventory are your typical fourth-quarter, first-quarter shifts by wholesalers.

Okay. That's helpful. And just one additional question, if I may, just on 810. Beyond the Phase 3 and all the work you're doing, as we get into data, are there any other gating factors to the NDA filing that we should be aware of that you haven't talked about?

Nothing really that stands out because also, as most of you may remember, for many years, a lot of people kept telling us, how come you finished the Phase 2 study a long time ago, and it took you so long to even start the Phase 3 study. And we kept saying, during that time, we have been doing a lot of the work for so many of the pieces that will end up going into the NDA. Example, a lot of the preclinical work, the two-year carcinogenicity studies, a lot of the work on the API, on the CMC, on the scale up, all that work has been in progress, and actually we completed the two-year carcinogenicity study in both species of mice and rats.

So there is a lot of the pieces that are actually being completed while we also started the Phase 3 studies so that when we get the data on the Phase 3 studies, (technical difficulty) and it looks really good, our plan is to go as fast as we can to put the NDA together and file that NDA. So that we don't have any critical path items that could hold us up. So that is -- and that applies not only to -810, it also applies to -812 at the same time.

We have been doing a lot of work on the ATI, a lot of work on the preclinical toxicology type of work. Again, as a reminder to a lot of the folks on the call, these two molecules, although they have been on the market either in the US or in Europe, but they are also very old molecules. And, therefore, a lot of that preclinical type of work had to be updated, up to today's scientific standards, and that is why we have taken the time and the effort to bring all these pieces together up to today's scientific standards. And all that work has been ongoing and on purpose so that once we get the Phase 3 data from both products, we don't have anything that will hold us up from filing the NDA.

Annabel Samimy, Stifel.

Just continuing on the points that David brought up, with regard to the deductibles, given how high they seem to have been this year, how much do you expect that to slow into second quarter? I mean, if the deductibles were initially high, then they walk away in the first quarter, is it possible that could lead into the second quarter?

And then also, when you think about the migraine indication, do you expect, given it is a much larger indication than epilepsy, do you expect any changes to the plan to the reimbursement, to pricing, to any of that that might affect gross to net going forward gross? And also, we noticed that Upsher-Smith got tentative approval for Qudexy. So can you help us understand whether that dynamic between you and Upsher-Smith is going to play out similarly and remind us when the exclusivity is up on the prophylactic migraine component for Topamax? Thanks.

Yes. Sure. Let me take each piece on its own. So the first question regarding the high deductibles and potentially any effective bleeding through to the second quarter, we really don't know for sure, obviously, how is that going to end up working out. And the reason we say that, think about it this way. Let's say a patient in the first quarter presents their first prescription for that year. If that happened to be their blood pressure medication versus their epilepsy medication or vice versa, it could really impact which prescription gets filled first or which prescription gets reversed first versus the other one. So it is a little bit hard for us to say that this could really bleed through the second quarter.

Now, we think it will a little bit, but if you actually look at the four-week average and sequential growth from week to week on a prescription basis and IMS, if you look at the sequential last four weeks and specifically in April, you are seeing really an uptick in growth from a week to week basis versus the first quarter. So we think that effect is actually working its way out already and that there is some acceleration. Specifically on Trokendi XR, we see some acceleration in this sequential growth from a week to week basis.

As far as the change on migraine coverage and so forth versus epilepsy, again, migraine is still a serious issue and specifically for those patients who are taking it on a prophylactic basis. The reason they are taking it on a prophylactic basis is because potentially these people have serious episodes, and it is not just the one-time episode that they get in one month and they can work through it and everything is fine. The reason they are on prophylactic treatment is because, potentially, they are more on the serious side as far as getting these episodes or the frequency of these episodes and, therefore, coverage is still very important.

As far as migraines, today, currently in the marketplace we have some plans that don't reimburse if the prescription is not for epilepsy. And, therefore, once the migraine becomes part of our label, we expect that at some point to be included in that reimbursement. However, I would caution folks that changes in formulary status does take time, so it is not going to happen immediately right at the time we get the migraine indication itself. It might take three to six months for these grants to make these changes.

And then, finally, regarding Upsher-Smith, yes, we did see the news regarding their application that they did get a tentative approval, not a full approval. It is a little bit hard for us to make any specific judgments as to why they got that from the reading of the letter, which was public information. It looks like the exclusivity, which actually ends in March of 2017 for a specific patient population, looks like that was the holdup instead of giving them full approval.

All I can tell you today is that we have not had any communication with the FDA that conflicts with any communication we have had with them before that made us plan to launch the migraine in 2016. And that is really where I have to stop because I don't know what is in the applications for Upsher-Smith, and officially, formally, we haven't had any communication from the FDA regarding our application that tells us otherwise, whether what happened to Upsher-Smith will apply to us as well. We really don't know.

Is it possible? Yes, anything is possible. FDA approval was never guaranteed. But the communication we have had with the FDA so far on our application made us plan for a migraine launch in the second quarter of this year. And we haven't had any communication that is conflicting with that so far.

So that is all really what I can add at this point. But, again, as I mentioned also, as a response to the first question earlier on the call, migraine launch or no migraine launch, if you remember, many people have asked us in 2016, is there a major upside behind the migraine launch in 2016, and we maintain and continue to say, if there is an upside, it is probably a slight upside. Most of the upside is in 2017. And, therefore, we don't anticipate the migraine to really impact our financial numbers in any significant manner whatsoever.

John Boris, SunTrust.

Congrats on the results, Jack. First question on migraine. When you have done blinded testing with physicians, what is the intent to prescribe that you are seeing for physicians and what are the features of Trokendi XR that they like most that would cause them to potentially prescribe the asset?

Yes. The key and the main benefits of Trokendi XR in migraine -- and this is not just physicians, but also patients and our knowledge about the market and so forth -- is, again, ties for the fact how to topiramate is actually used for migraine. It is used for prevention or for prophylactic use. And, therefore, the importance of compliance, the importance of once a day is crucial here in therapy, and what today physicians are trying to use and compromise with topiramate twice-a-day immediate release or Topamax. They tried to compromise by telling patients currently, you know what, take Topamax or twice-a-day topiramate that is designed to be twice a day or three times a day, take it once a day and take it at night. And by the time you wake up, you won't have to go through the nasty side effects, which is fogginess, cognitive issues, loss of searching for words, and so forth. So by the time you wake up in the morning, you shouldn't have these side effects.

The issue that patients face with that -- and we know that from also our research -- is about the time they wake up, their blood levels are very low or they are not, let me say, at any optimal level from an efficacy point of view. And, therefore, they tend to get a migraine in the morning whether they get up an hour later or whatever, right in the morning when it is really the worst time of the day, starting their day, their job, going to school, whatever it is.

So what is happening today is that physicians and patients are trying to compromise with a therapy that is not designed to be a true once-a-day to give you full 24-hour coverage for appropriate prophylactic or prevention of migraine throughout the whole day. And that is where Trokendi XR comes in. It comes in because it is actually designed to give you a 24-hour coverage so you have full 24-hour coverage whether you take it at night or you take it during the day, whichever is more convenient for you. And, therefore, you will be assured that you have enough drug level in your system to avoid these migraine attacks.

And, in addition to that -- and this is not data we have from any Phase 3 studies where we can't promote that kind of data, but also we have been getting a lot of feedback from physicians and patients over the last two years since this product has been in the market, they actually do experience much better side effects from Trokendi XR versus topiramate IR immediate release, once a day or twice a day, whichever way it is used because of the uniqueness and innovative PK profile that Trokendi XR has been able to deliver, again, over the 24-hour period. So that is where we see the main differentiation of Trokendi XR in the marketplace for migraine for prophylactic treatment.

So with high dose (inaudible) physicians, what is their intent to prescribe? Is it high, low, medium? How would you characterize it based on that profile?

Well, most of the -- when you look at the (technical difficulty) 10, nine, and eight, around 80% of them are neurologists, actually. And a lot of the usage -- the heavy usage is in these 3 deciles, and these folks understand these issues very, very well and they know it. I mean, they tell us themselves. They compromise -- even for epilepsy, they compromise by giving topiramate at night once a day. Because of the side effects, because a kid in the morning taking topiramate to go to school feeling dizzy, feeling foggy, dopey, and in Topamax -- Topamax, whatever they call it, because of these issues, is not ideal for a kid who is going to school to pass an exam or study and focus in class. And, therefore, they try to compromise by not giving the product as it should be -- as it is designed.

So linking, then, intent to prescribe with label, are you currently in active label discussions with the FDA?

I can't make any comments on that, John, because we haven't published what is our PDUFA date. We haven't mentioned what that is, and there is really no need for us to say what the exact PDUFA date is at this point for competitive reasons. So I will -- if you don't mind, I don't want to answer that question.

Okay. Is the sales force trained?

Yes.

On migraine?

Yes and we have been ready to launch.

And they have been trained on the product concept, too?

Yes.

So they are all prepared to launch.

Okay. Next question on Oxtellar. Obviously, with the win in the courts, you have some very, very long patent life there. Epilepsy is only a small fraction of the drugs used. If you look at the published literature, there is a fairly extensive amount of off-label use. (inaudible) neuralgia, for example, or neuropathic pain, these are studies that can be done very, very quickly. Have you had an opportunity to evaluate the lifecycle of that asset and whether you would consider allocating some monies towards doing one or two neuropathic type pain trials that could certainly accelerate -- if successful, accelerate prescriptions if you are able to file for that indication, and have you had any discussions with the FDA about that?

The first answer is yes, we have evaluated the several areas, including some of the ones you have mentioned. So the answer is, yes, we have been looking at that and continue to look at that. I can't make any specific comments regarding discussions with the FDA or what our plans are yet. Once they are concrete, if there are any specific plans, obviously, we will disclose that.

But the answer is yes. We are very aware of the potential of oxcarbazepine and other potential indications. And now that we have hopefully a much, much longer lifecycle for this product, certainly that is something that could warrant additional investment.

So, in the future, we will hear more from you on that?

If there is anything concrete, absolutely. We will disclose that.

Okay. And then, Greg, just to reconcile net income and the share count relative to the convert, can you reconcile that?

All right, John. The convert actually, when we push it through the fully diluted share calculation, actually has two impacts. One obviously in terms of the denominator in terms of the fully diluted share count itself, but also in terms of the impact on the net income.

The way the calculation works is, you go back to the start of the quarter and, on a pro forma basis, we eliminate loss on extinguishment of debt and other components associated with the financing. So it has both affected or reduced the top line or the numerator of the calculation as well as to increase the denominator. Enhance -- and I have had some correspondence from investors, including yourself, that have calculated a different number. I can assure you that we get our orders all over this number, and it is, in fact, $0.08 per share.

Okay. Very good. And then, last question, Jack, do you have inventory management agreements in place with wholesalers? And then, one would think that -- I think you took a price increase across the two assets that that would have led to an anticipatory buy-in. Why would wholesalers de-stock versus wanting to collect potentially 9% on an asset like Trokendi or Oxtellar?

Yes. I think what you have seen is slightly also a function of not just price increases. So it is also a function of the slowdown that they have seen on prescriptions across the board for branded companies because of the reset in insurance covered. So they also (inaudible) monitor prescriptions, and when they see and they expect typically in the first quarter because they have seen it also many times, they tried to adjust their inventory to anything they see in prescriptions. And more often than not, the reverse doesn't happen quickly enough either. In other words, they may adjust by, say, the first quarter, the first few weeks is going to be slow. There is high deductibles. There is reset in insurance. We might see some slowdown or softness in the prescription numbers. So let's make sure we don't over order or order too much. And when the prescription start picking up again, they are a little bit slower in adjusting to that, and that is why I mentioned earlier, we actually have about a one week on one of the SKUs, and we look at average numbers. One week that means probably some warehouses don't even have or they are even out of stock on certain SKUs because all these numbers we talk about are just averages. Some of these wholesalers have more than 50 or 60 distribution centers across the country.

So it is really a function of not just when could a company take a price increase and anticipate that and try to adjust inventories because of that. It is also a function of the softness of prescriptions in general, in the sector in the pharma industry in general that is happening across the board that they try to adjust their levels to.

Last -- sorry. Just if I could slip one last one in. On Trokendi XR, I think you positioned the judge on our next conference May 18 to consider discussions around Trokendi XR settlement discussions with Allegan and (inaudible). Did she agree to add that to the agenda on May 18?

I don't have anything to add versus what is public. But yes, that is correct. I mean we did mention that before that we have settled with people before, and we are willing to settle with anybody who is willing to work with us on a reasonable setup, and that is what we are working towards. And if we don't enter into a settlement, we are also willing to go all the way to the court and beat them in the court, and we have very, very strong IP and we continue to build our IP on both products.

So, at this point, I really don't have any addition to that communication. We will see what happens on May 18 or later than that. But we are very working very diligently to hopefully take this risk off the table for everyone, including myself, and hopefully stop talking about it at some point.

(Operator Instructions) Bill Tanner, Guggenheim Securities.

Jack, I had one for you on -810. Just wondering, looking for some commentary on what kind of activities the Company might need to engage in terms of disease awareness. I mean, everything -- if you're looking at migraine or obviously looking at epilepsy pretty established markets, and it seems like you're going to create a new therapeutic for impulse aggression in ADHD. So maybe speak, if you could, a little bit to what you think the Company needs to do, and then I have a follow-up, please.

Yes. Sure. And very good question, Bill, because you're absolutely right. Although impulsive aggression is a very, very well known condition -- and I need to emphasize that -- this is not a new area that people are not aware of. It is not a new condition that physicians don't (technical difficulty). Although it is off label -- with off label products that don't work or have no data whatsoever to back it, that they actually have any impact on the patients.

Nevertheless, when you introduce a new product with a new indication, obviously for the first time ever to have a product approved for that condition, you have to do a lot of market preparation, education, among physicians, KOLs, and so forth. And we actually had started that a long time ago and continue to do that. And among some of the efforts, as data obviously comes up and as we produce more data on -810, the usual things that you will expect from any company preparing for launch of a major product in the market like this would be publications, conferences, KOL training, speaker training, and so forth. So we are very active in that space, and we continue to do that through 2019 when we expect this product to be launched.

And so then would -- I am assuming that once you reveal the data in the mid-2017 timeframe, assuming it is positive, you would have, obviously, a better sense as to the approvability? This will be something that you might think about accelerating a bit?

Yes. As I mentioned earlier regarding the previous question, yes. I mean, we are working very hard to make sure, once we get the data, if it is positive, that we go full speed ahead with the NDA filing. And, therefore, we are trying to make sure the checklist for the NDA is really getting smaller and smaller by the day. So we don't have any -- too many items left by the time we get the data.

And also, I will remind everyone, we do have a fast track designation for development of -810. We don't have fast-track review, but if you have a fast-track development track, you have the opportunity to ask the FDA for a fast-track review. And that will be something obviously we will look forward to. The data is positive, and all the interactions with the FDA look pretty good. We potentially also ask for a fast-track review of our NDA to get the product on the market as soon as possible. So we have that avenue as well at our disposal and some time later after we see the Phase 3 data and have meetings with the FDA to confirm all that.

And then, the last question, when you were discussing maybe some thoughts on BD, you mentioned psych. I was curious about that in terms of the addressability. If you could put -- I don't know if there is any meat you can put on the bone there, but the addressability of the market for psych would seem to be a little bit different scale, perhaps, than I guess the Company is thinking about for some of the other products.

Yes. Let me clarify. When I meant psych, I don't mean depression. I don't mean anxiety type of products that are primary care driven. I mean things which are little bit more of a specialties psychiatry area where we can effectively have a salesforce in the 100 to 200 range. I mean, we did say, for example, on SPN-810, initially when we launched the product, we are looking at this point to the way we have been sizing the product, the territories and so forth. We are looking at potentially having 130 reps to launch SPN-810 with. We will monitor how the launch goes, and we could potentially expand that. And when we bring in SPN-812, we are looking at potentially adding another 170 reps on top of the 130 to manage both products.

So these are the kind of sales force sizing things that we are looking at from a disease point of view. We are not looking at a huge area that will require thousands of salespeople to go after the primary care setting. So definitely, we are not looking at depression or anxiety or things which will require more of a primary care push, but some things which are more driven by psychiatrists themselves.

Got it.

David Buck, Northland Capital.

Mike on for David. I was just wondering, I know it is not the core business, but for partner products, are there any milestones associated with SHP465 or just royalties, and can you remind us of any remaining products that may trigger royalties over the next couple of years?

And then, secondly, on R&D, can you talk a little bit about phasing the spend throughout the year? It is a little bit lower than we were forecasting.

Yes. Sure. I will take the partnership question, and then I will let great comment on the expenses.

Regarding partnerships, at this point, the ones that we talked about -- clearly, the new one is SHP465, which will have some royalties that will come through Supernus. We haven't disclosed the specific royalty other than it is a single digit royalty. And as Shire has mentioned and they expect if they get approval, clearly, they expect to launch the product in the second half of 2017.

Now, the other royalty that we have talked about historically has been the royalty on the Orenitram, which is the United Therapeutics product, and that royalty will come back to Supernus after investors get a certain predetermined, predefined return on their investment when we sold them a portion of the royalty stream, if you remember, back in 2014 when we sold about $30 million -- we got $30 million from these investors, and they bought a portion of that royalty stream. So once they get their return on that investment, the royalties will start coming back to Supernus.

So, clearly, that is very fluid because it all depends on the performance of Orenitram in the marketplace with the United Therapeutics, but clearly we felt pretty strongly and continue to feel pretty strongly about the potential of that product. Otherwise, we wouldn't have kept the upside potential for us and retained it for us in the future.

So, in a nutshell, these are the two royalty streams that potentially could come to Supernus at some point.

Great. And, David, with respect to your question as regarding R&D, just want to remind everybody on the phone that when we have spoken about profitability on a quarterly basis, we have assiduously reminded everybody that it is going to be lumpy, and while, of course, it is our intent to be profitable every quarter, that level of profitability is going to fluctuate substantially depending on what is going on with respect to activities within the Company and primarily R&D driven.

Now, as far as R&D programs, we have worked hard to configure these into milestone-driven arrangements so that as trials progress, they trigger payments through our CROs and other service providers and that, therefore, depending on how progress goes with each trial, we have talked about in the three trials of one Phase 2 data and the two Phase 3 trials, but there will also be open-label extensions for all of those that they will trigger milestones on a quarterly basis. Depending on the specific progress for each of those programs, including the open label extensions, it will drive variability in terms of R&D spending.

And I should just add, I missed the answer to your full question, you asked us about milestones.

The other thing -- so there are no specific milestones other than what could sometimes come out of the licensees we have across (inaudible). As everyone knows, we do have some licensees outside the United States. There might be some milestones sometimes that come in, and that is why sometimes you see in our P&L that they are amortized a lot of times. At least, we don't talk about them too much. They are important to us, as important to our partners, but given our revenue scale and so forth from a materiality point of view, they may not be anything that is really very significant. But I should mention that, just for complete disclosure.

And I would now like to turn the call back to Mr. Jack Khattar for any further remarks.

Yes. Thank you. In summary, our priorities for the remainder of 2016 are to continue to grow Trokendi XR and Oxtellar XR, advance our pipeline products with the clinical development and vigorously defend our intellectual property. This (technical difficulty) continues to be active in business development looking for potential assets to strategically complement our portfolio. We look forward to updating you through the year on our progress, and thanks for everyone joining us this morning.

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