Supernus Pharmaceuticals Inc (SUPN) 2016 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Supernus Pharmaceuticals second-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. Instructions will follow at that time. As a reminder, this conference call is being recorded.

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

Thank you, Chanel. Good morning, everyone, and thank you for joining us today for Supernus Pharmaceuticals' second-quarter 2016 financial results conference call. Results discussed today are for the three months ended June 30, 2016. Yesterday, after the close of market, the Company issued a press release announcing these results.

On the call with me today are Supernus's Chief Executive Officer, Jack Khattar; Chief Financial Officer, Greg Patrick; and Dr. Stefan Schwabe, Chief Medical Officer. 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 reflects Supernus's current perspective on existing trends and information that can be identified by such words as expect, plan, will, may, anticipate, believe, should, intend, or words with 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 most recent of which we filed on March 9, 2016. 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 3, 2016 at approximately 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 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, and thanks for taking the time to join us as we discuss our 2016 second-quarter results.

Supernus had a strong second quarter, reaching, for the first time, record quarterly net sales of $50 million. This represented a robust sales growth of 47% compared to the second quarter of 2015. Such performance underscores the solid fundamentals of our epilepsy products and continued growth in product prescriptions.

Total prescriptions for Trokendi XR and Oxtellar XR combined in the second quarter, as reported by IMS, were 123,758, representing an increase of 39% over the second quarter of 2015. Trokendi XR prescriptions for second-quarter 2016 totaled 93,094 prescriptions, which is a 42% increase over the same quarter last year. And Oxtellar XR prescriptions for the second quarter of 2016 totaled 30,664 prescriptions, representing an increase of 30% over the same quarter last year.

In addition, total net product sales for the first half of 2016 were $93.4 million, representing again a solid growth of 50% over the same period last year. Regarding our supplemental new drug application for Trokendi XR, we resubmitted in June the revised label, requesting approval to expand the label to include treatment of migraine in adults.

This resubmission was requested by the FDA to review the proposed label in a different format. The FDA has set a target date in the third quarter of 2016 to complete this review. We continue to prepare and will be ready to launch the migraine indications soon after receiving full and final FDA approval.

Regarding our pipeline and starting with SPN-810, enrollment continues for both Phase III trials, which is currently in development for impulsive aggression in patients age 6 to 12 years old who have ADHD. The pace of enrollment is slower than expected, due to the challenges such as those experienced by caregivers in recording patient information on the new electronic diary, and lack of compliance during the screening period regarding washing out of current medications.

The screening period prior to entry into the trial requires that patients forgo currently-used active treatments for their aggression while staying on their ADHD treatment prior to randomization to establish the patient's baseline data. Some patients experience difficulties abiding by this requirement, resulting in a higher-than-expected dropouts during the screening period.

As a consequence, we have instituted a number of measures to improve patient enrollment and retention. These include potentially extending the screening period, and providing increased education for site coordinators and caregivers on the electronic diary to make it easier for caregivers and patients to comply with the drug protocol.

While we are encouraged by the recent progress in improving recruitment and retention for both Phase III trials, it is likely that enrollment will continue into 2017. We are also encouraged by the fact that, to date, enrollment into the open label extension by those who completed the trial has been very hard.

Finally, despite the slower-than-expected enrollment, we continue to expect to launch SPN-810 in 2019 according to the original timeline that we communicated last year, as we have built into such a timeline, contingencies for potential delays on the way.

Regarding SPN-812, which is currently in development for the treatment of ADHD in patients 6 to 12 years old, we have reached another important clinical milestone by completing enrollment in the Phase IIb trial. The final patient visit was completed during the third quarter of 2016, and 84% of patients who completed this trial have enrolled in the open label extension portion of this study. The Company continues to expect data from the Phase IIb trial by early 2017.

Regarding Trokendi XR IP litigation, on July 27, a settlement conference was held in New Jersey where all parties had settlement discussions facilitated by the magistrate judge. At this point, there is nothing definitive that we can disclose regarding the status of such discussions.

We remain confident in the strength of our intellectual property and continue to rigorously defend the patent protection that our innovative products deserve. Oxtellar XR has seven patents and Trokendi XR has six patents that are listed in the Orange book.

Finally, we continue to look for partnership and corporate development opportunities that strategically fit with our vision in building Supernus to become a leading pharma company. We continue to look for commercial assets first, followed by assets that could reach commercial stage within a reasonable timeframe of one to two years. After that, our priority would be to look for assets which are already in or about to enter Phase III.

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 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 June 30, 2016 by next week.

Net product sales of Trokendi XR for the second quarter of 2016 were $37.6 million, which is a 43.3% higher than the $26.3 million reported in the second quarter of 2015. Net product sales of Oxtellar XR in the second quarter of 2016 were $12.7 million, a 58.7% increase over $8 million reported in the second quarter of 2015.

Gross to net deductions for the second quarter for Trokendi XR and Oxtellar XR were in line with the gross to net deductions for the first quarter. Specifically, the gross to net deduction for Trokendi XR expressed as a percentage is modestly over 30%. The gross to net deduction for Oxtellar XR expressed as a percentage is modestly over 40%.

Research and Development expenses in the second quarter of 2016 were $11.1 million as compared to $6.9 million in the same quarter last year. This increase is primarily due to our ongoing Phase III trials for SPN-810, and Phase IIb trial for SPN-812, as well as the open label extension studies associated with both SPN-810 and SPN-812. We continue to expect Research and Development expenses to increase in the second half of 2016 as clinical advancement of both SPN-810 and SPN-812 progresses.

Selling, general and administrative expenses were $26.1 million for the second quarter of 2016 as compared to $23.3 million in the same period in 2015. The higher expenses in 2016 reflect our efforts in preparing for the launch of the migraine indication for Trokendi XR.

For the second quarter, operating income totaled $10.4 million compared to $3.1 million in the same period last year. The improvement in operating income for the second quarter of 2016, compared to the year earlier period, was primarily due to the 47% increase in net product sales. Net income for the second quarter ended June 30, 2016 was $10 million or $0.18 per diluted share as compared to net income of $2 million or $0.03 per diluted share in the second quarter of 2015.

Approximately 51.7 million weighted average diluted common shares were outstanding in the second quarter of 2016 as compared to 52.3 million diluted shares in the same period last year. As of June 30, 2016, we had $128 million in cash, cash equivalents, marketable securities, and long-term marketable securities as compared to $117.2 million at December 31, 2015. As of June 30, 2016, approximately $6.6 million of our six-year $90 million convertible note offering remain outstanding.

Now, turning to 2016 guidance, we are reiterating our previously-issued full-year 2016 guidance for net product sales, and updating guidance for Research and Development expenses and operating income. Full-year 2016 guidance for net product sales remains in the range of $200 million to $210 million. We expect R&D expenses to be in the range of $50 million to $55 million compared to the previous range of $55 million to $65 million.

This reduction in R&D expense guidance is due primarily to the slower-than-expected enrollment of the Phase III trials for SPN-810 that Jack previously mentioned. And we expect operating income to range between $32 million and $37 million compared to prior guidance of $28 million to $35 million.

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

(Operator Instructions) Ken Cacciatore, Cowen and Company.

Congratulations on the results. Just wondering, Jack, were you referring to the 810 study when you said that the retention of those that have completed is still high in the open label? I didn't know if you were referring to 810 or 812. I just wanted a clarification.

And then maybe a little bit more nuance on what the issue is with the diary, and how you have corrected it. And wondering if it's had any impact, do you think, on the kind of ongoing program? And do you need to maybe increase the patient sizes to make sure you're powering stays good?

And then, lastly, on the settlement discussions, is that prompted by the judge? Or is that something that parties agree to sit down to? Can you just give a little nuance on what's going on there with that settlement discussion that you indicated? Thank you.

Yes, sure. Regarding the first question, which is on the open label enrollment, actually it's very high in both programs. As we mentioned on SPN-812, it's around 84%, which we think is very, very encouraging. And on 810, it's actually higher than that. But it's still early in the trial, so that could also change over time. But we are very encouraged with both of them.

As far as the settlements -- and then I'll let Stefan talk a little bit about the diary issue. As far as the settlements, I mean, we've been in discussion with the different parties over time as -- and this is public information, as most people know -- as far as the court, we have different dates that were set up by the judge to facilitate these kinds of discussions. We had one in April that got pushed to July.

Finally, we were able to meet on July 27. And as I mentioned, all the parties met and discussed settlement and so forth. I don't have anything specific right now or definitive to share. But these discussions will continue for now and we'll see what happens.

So we are certainly trying to work hard to take this risk off the table, but it has to be, as I mentioned many times earlier, has to be a reasonable terms. And also, at the end of the day, we feel very, very strongly about IP anyway. So -- but nevertheless, we are willing to engage in these settlement discussions. And if it is a reasonable arrangement, we are willing to enter into those kind of arrangements.

So, Stefan, if you want to take on the diary question?

Sure. So this is Stefan Schwabe. The diary issue is, of course, embedded in the larger issues of the trial; one of the reasons this is so exciting is this is all frontiers of science stuff. The diary is a new tool that we had to develop. It is not very easy to use for some of the caregivers, and we have to do it this way because it is very detailed and very accurate, and been strictly validated.

We are working very closely with the FDA so that we cannot make quick changes in the base of the trial or the way we use the diary. And for this reason, we are learning how to use it, and we are trying to make it as easy as possible for the patients and the caregivers.

Okay, thank you.

David Amsellem, Piper Jaffray.

So I wanted to ask about business development. So, in the past, you have talked about potentially acquiring a psychiatry-focused asset or assets that are either market-ready or already on the market, that you can build a sales force around, ahead of the launches of 810 and 812.

So maybe talk about your latest thoughts there and how you're thinking about that. And then also, to the extent you are looking at other neuroscience opportunities, give us a flavor for what therapeutic areas are of interest to you of late. Thanks.

Yes. Regarding the corporate development, our strategy is still the same as far as our objectives and the priorities that we have set for ourselves. As you mentioned, it's really a two-tier strategy where we continue to be focused in CNS, in psychiatry as well as neurology.

So when it comes to psychiatry, we have been looking and continue to look for assets that potentially could come to the marketplace before our 810 or 812 program. It really doesn't make any sense for us to bring in programs that are at the same timeline as 810 or 812, because we have our own high-quality program, so why acquire other programs that, in the end, don't allow us to accelerate launching potentially a third product?

So that's our focus in the psychiatry space is, if we can accelerate introducing a new third product for Supernus, ahead of 810 and 812, we are very interested in that. It does allow us to get into the psychiatry office, establish our presence, and pave the way for SPN-810 and 812.

And similarly, on the neurology side, since we have a very strong footprint and very strong sales force that have executed amazingly well in that specific space, there are a lot of adjacent therapeutic areas that present themselves with a lot of overlap when it comes to the physician universe that we call on.

Examples would be things like Parkinson's, migraine, MS -- all these areas tend to normally have a lot of overlap when it comes to the universe of the physicians that you need to call on. And therefore, we are always open to these kind of assets that could be in the marketplace, and again similarly, or about to get to the marketplace in a year or two -- we look at that as well. So we're heavily looking in both areas, neuro and psych, at the same time.

And Jack, if I may sneak in a follow-up, on the headcount for the neurology-focused sales force right now, do you feel that you are where you need to be? Are there any significant expansions planned? And are you going to have any headcount expansion once you get migraine in the Trokendi label?

Yes, I mean I think we mentioned that a couple times before. You are right on. When it comes to the migraine, we did mention that we would first launch it with the existing sales force and existing headcount that we have; monitor it very, very closely, and if we see that there is a significant upside, clearly, we will be looking at adding and expanding our sales force behind the migraine. So that remains the case. That has not changed.

All right, thanks.

Sure.

Annabel Samimy, Stifel.

Thanks for taking my question. I kind of want to follow on from David's question. You mentioned that you are looking for assets that are close to market and that could potentially get to market before your programs.

It seems right now that 812 is moving quite rapidly. So is -- do you have, I guess -- what are the next steps for 812? What do you think the timing might be for 812? Could it move ahead of 810? And how many assets out there are there that could potentially fill that on market or close to market kind of type of characteristic that you are looking for?

And then on 810, if I could just follow-up with that, the extension of the screening period, if patients are having a hard time complying with washing out their drugs, how does extending the screening period help with that? I would think that it would hurt. So maybe you can just talk about that a little bit. Thanks.

Yes, sure. Regarding 810 and 812, I mean I will draw a very similar comparison, which is interesting. We went through that a few years back when we had Trokendi XR and Oxtellar XR, which is the case that we always have multiple shots on goal. We have several programs running in parallel, and you never know which one is going to get ahead of the other one.

And actually that's exactly what happened. Some of you may remember with Oxtellar XR of getting, in the end, ahead of Trokendi XR when Trokendi XR was the lead program. So we're always anticipating. These things will always be in flux until you get final approval, obviously, because that's how drug development goes. You always have issues that pop up or issues that go away and things speed up.

And you're right on, Annabel. I mean, it looks like 812 could end up being sped up as far as the development. We'll see. Once we get the data, we'll be able to read through it and see what's the impact of that. Clearly, the data is positive. It is full speed ahead as far as we are concerned. And we are looking, and have been looking, at ways of potentially speeding up that program.

And is there a chance that it could leapfrog 810? That is a possibility. But we will certainly update folks on the timelines as we get closer in getting the data and so forth.

As far as the number of assets we're looking at, to getting something ahead of 810 or 812, there are a few assets out there. There are not too many. It's not like there are a lot of them. And if there were too many, a lot of times differentiation between the different assets becomes very little differentiation.

So, we try to be very selective in what we are trying to bring in. So we are looking for quality assets that can really be meaningful in the marketplace. Especially in this environment with reimbursement and so forth, we want to make sure the clinical benefit is obviously very sound and strong before we just bring in something into the fold here.

So I'll let Stefan talk about the screening period and how we are handling that.

Sure. So just to be clear, the screening period was not lengthened in the sense that it is now mandatory to be in for a longer period of time. What happened is that, originally, we had 14 to 28 days in which time the patients had to show us that they were on a stable dose of their anti-ADHD medication; that they could handle the diary in a reliable fashion; and that all other medication that could interfere with the impulsive aggressive endpoint, were tapered off.

Now, in that time period, what happened is -- remember that these are some of the most complex, difficult-to-handle patients around. They are people who have their children, who have ADHD, and impulsive aggressivity, which is possibly the single most important factor for ADHD when you talk about lifetime prognosis.

So, in that time period, what sometimes happens is that the patients would have some trouble -- they needed adjustment for the ADHD meds -- and then the clock ran out. They had gone past the 14 or 28-day period. So we have now simply said that we are giving them a little longer time to comply fully with all the requirements to go into the main part of the trial.

Does that explain it?

Yes, that does. Thanks. If I could just ask one more question? On Trokendi, it seems like the prescriptions were generally pretty solid. Your gross to net seems to be pretty stable. Has there been any other inventory fluctuations in Trokendi inventories at all? Or is it pretty stable?

Annabel, this is Greg. No. The inventory levels first-quarter to second-quarter pipeline, which would include both the inventory at the pharmacies as well as the wholesalers, distributors, has been very stable actually for both products.

Okay. Has there been any change in the proportion of high-dose versus low-dose at all that would have changed the gross price? The average price?

Not that I'm aware of. Not that I'm aware of.

Okay, great, thank you. Thanks.

You're welcome.

John Boris, SunTrust.

Thanks for taking the questions and congratulations on the results. First question just has to do with the chronic migraine reviewed by the FDA. Did you at all have an opportunity to have a conversation with the FDA regarding securing the carveout for the adults in chronic migraine?

And then, if you did or if you didn't, how does that shape your thoughts around securing approval in late August, assuming this is a Class I review by the FDA? Or should we be assuming tentative approval, which would mean a launch sometime in March 2017? And I have a follow-up question after that.

Yes, I mean, as far as the indication, it's still the same that we are going after, which is the adult indication in migraine. We don't have any specific feedback from the FDA that leads us to believe it's going to be tentative or final. So, from our perspective, I mean, to us, it doesn't matter as much at this point, as we mentioned previously.

If it is tentative, then we will launch it in April next year, after the exclusivity expires. And if it is final, we are ready to launch it as well. So, from our perspective, it's really -- we don't view that as material really at this point.

So, we'll know soon. Hopefully, we will get a final, but we are not really confident obviously or completely positive or certain that it will be final-approved.

Okay, thanks. Thanks for the color on that. On the Trokendi IP settlement discussions, I completely understand the sensitivity around what discussions transpired on July 27, but how should we be thinking about -- since there was a change in control of the Actavis business, meaning, I think as of yesterday, it's now Teva's business, not Allergan's business -- was there a change in legal counsel that occurred as a result of that?

Actually it was on that day when we were there that Teva announced that they would close in a week timeframe. So the closing of the deal happened after the settlement discussions on July 27. So on July 27, it was the same party that we had been interacting with, as well as the counsel -- you know, the team and so forth that Actavis has, it's the same folks.

So, having said that, now that the transaction did close, we don't know whether that will change. I mean, obviously it will now move to Teva. So we will see whether the counsel team will change or not, and whether some of the internal folks will be the same or not. That we don't know yet.

But wouldn't they have -- sure. Wouldn't they have had to have notified the judge of that? And the judge also scheduled another conference on September 28. Is that with the same legal counsel from both parties? Or not?

Well, I mean, at that time -- you have to realize, from a legal point of view, the asset is still Actavis's asset.

Yes.

So, you wouldn't have any Teva people showing up because it's not their asset. You know? It's not -- they can't really enter into discussions on something they don't have yet -- clearly. So that's why I'm saying, as of July 27, when we were there, the teams were the initial original teams we have been talking to or working with, and nothing has changed.

Now since then, the transaction closed, so we will see now whether there will be a transition and what does that transition involves, and whether the same folks will remain on the case or not. So that, we will look forward hopefully to learn that sooner than later.

As far as the September 28 conference, that is really tied to the fact that September 23, if I'm not mistaken, is the end of the expert discovery process. So it was always a status conference that normally gets set up after we go through the export discovery process and the end of that. So that's more like a general status conference that has been set up.

And timing, that if you do go and litigate, has that been pushed into front-half of next year? Or any update there?

Yes. We still think it will be probably around the end of the year. So, is there a possibility it might shift a little bit to like a January timeframe? That is a possibility, yes. But we think if this thing does go to trial, the judge will definitely want to do it before the 30-month expiration. And the 30-month expiration for Actavis is in February, and for Zydus is in April.

I forgot the exact day, but maybe -- I think it's like February 9 for Actavis and sometime in April for Zydus. So, the judge would want to definitely try to resolve that matter before these dates.

So even if there is a slippage, I don't think it will be beyond maybe January. But again, this is pure guessing on my part at this point. We'll definitely know, I think, for sure with a lot of certainty on September 28 when we have the status conference after finalizing the expert discovery and the expert reports and all that.

Is there any color or adjective you can describe to how the negotiations went or during the settlement discussions?

I'll just say discussions are better than no discussions. I'll leave it that way. (laughter)

Very good. Thanks for taking the questions.

Sure.

David Steinberg, Jefferies.

Jack, I know that you've been talking for a while now about looking -- for your business development strategy, looking for assets, and today, you've talked about adjacent categories in a fairly narrow universe. And I'm just curious -- within that universe where you're looking, where do the potential inquiries stand on evaluation?

It's been a while since the sector reset valuation-wise. Are you still seeing Boards thinking that the all-time high of last year as a starting point? Or are you seeing a lot more rational behavior in terms of potential price for public companies, and actually for private companies as well, if you're looking at those?

Yes, I mean you are absolutely right. I mean, at the beginning of the year, everybody thought, including myself, that at some point, the evaluations will reset a little bit more rational, reasonable range. I don't think that happened. And I think, if anything, it's probably a reverse trend and we're back to where we were before -- meaning high valuations and so forth, specifically on the public side.

As far as privately-owned companies, clearly the IPO market is not as robust as it was before. So those folks could be under a little bit more pressure than the publicly-traded companies because the IPO is not as robust. So there might be there maybe slight reset of valuation, but I don't think it's -- that market -- I don't think -- we haven't seen really a major movement. Let me put it that way.

Great. And then just on your pricing and reimbursement strategy, so you've clearly had some pricing flexibility in the past. The Company has taken regular price increases ,although more modest ones. What sort of headroom do you still have? Do you still have some flexibility to take regular price increases? Or are you kind of hitting -- getting closer to the ceiling?

You know, discussing pricing strategy is a difficult one on a call like this because we don't publicly discuss that. But basically if you look at the prices of our products versus other branded epilepsy products, as you rightfully said, we are in a very reasonable place. We have taken very reasonable and sensible price increases. And that will continue to be our strategy.

So we want to be competitive in the marketplace and be very reasonable in our pricing, price increases. And that's how we will -- for now, that's how we see it.

Okay, thank you.

Sure.

Bill Tanner, Guggenheim Securities.

Thanks for taking the question. I guess this is mainly for Stefan. On the 810 study on the screening, like if your discussion -- your explanation on extending the screening period was helpful. But I guess it sounded to me, like with Jack's comments, that perhaps with some of these patients that are being screened, if they are going off the meds that are meant to control aggression, they are having some problems. I don't know if that's a fair characterization.

So my -- so the point is that I'm wondering if you are going to ultimately end up enrolling patients that might not fit the profile that you'd like? That those --?

No.

Okay.

No. We're -- one of the reasons we've extended the screening period or allowed extensions in cases where that's needed, and one of the reasons we are speeding up our recruitment but still going not as fastly as we had originally planned, is because we are not going to compromise on quality. The patients will have to fulfill all the requirements, A, because that's the right thing to do in the trial, and it doesn't matter how many patients you recruited.

If you recruit the wrong ones, you are not going to get the right result. And we want the right result. And the other thing is that we are very closely working with the FDA. And for that reason, we cannot make major changes without getting their agreement first.

But I mean is there some middle ground, I guess, in terms of severity of the aggression that you are looking for, that if someone is too severe, as an example, perhaps they are untreatable; and if they're not severe enough, the aggression that maybe you don't see much of a treatment effect? That's, I guess, my point, is just wondering if you are having -- you said you are not going to compromise, but if there is not going to be some compromise, it's going to be had to accommodate meeting the enrollment. And then accommodating too the fact that people can't maybe control their aggression if they're taken off the meds?

No. I think just to allay the fear that I think I hear underneath your statement is, we will finish this trial and we will finish it in a reasonable time period. We are going to get the patients we need. We just have to find the best way to do it.

Again remember, we are using a new scale, with a new drug at new doses in an entirely new indication area. This is -- nobody has ever been where we are going right now. So we are learning as we are going along, and we are having to do that.

The point you raised about the difficulty in making sure that you have patients who have enough severity that treatment can affect the course of the disease, but not so much that their behavior is disruptive, that is a thing that we have always struggled with. But here -- and you do that in every CNS trial -- but here, we have had no issues along those lines, because we think that our drug will be able to help even the very severe cases. So far that has not been a reason to not include patients.

Okay. All right, that's helpful. Thank you.

(Operator Instructions) David Buck, Northland Capital Markets.

Thanks for taking the questions. Two quick ones. The easy one, I guess, for Jack or Greg is, can you talk about whether there have been any meaningful changes that you are expecting for 2017 formularies or potential gross to net changes as we get into the new reimbursement year?

And then just to follow-up with Dr. Schwabe on the SPN-810 issues, the risk to not getting the proper screening, I guess, one of them is higher dropouts. I was curious on what caused the dropouts? Was it the investigators themselves who basically excluded some of those patients who were not properly screened? Or was it the caregivers themselves or patients -- what led to the higher dropout and the delay in the enrollment, I guess?

And this point, do we -- do you think that the issues are fully addressed with the extension? Or are there some other Plan B or Plan C that you need to address the issues? Thanks.

David, this is Greg. I'll take the first question as regards to changes in managed care. We continue to look at our managed care programs continually. We continually are challenged by our managed care partners or vendors, if you will, in terms of what they are trying to do with their programs.

So, I would say there is a fairly robust ongoing dialogue between the two groups. We continually look at the pluses and minuses of moving from a Tier 3, which is overwhelmingly where our drugs are seated in the formulary through Tier 2. That's often a mixed bag because of higher fees associated with that and the like, but there's also concomitant deductions to the co-pay program.

So the answer is, we continually look at it and there are changes which are progressing through this year. That being said, I wouldn't expect this to be a huge source of change to our gross to net calculation. As we guess over the next couple of quarters, I may be proven wrong, but based on our experience over the last year, I would say that the aggregate impact has been relatively modest.

So, I'll turn the next question over, which is a hard one, so I'm going to give it to Stefan.

So, just to start off with -- now this is not absolute, but generally, you use the term dropouts for patients who are already in the main administrative part of the trial. The patients that we are having the bigger issue with are the ones in the screening phase. And we refer to those generally as screening failures.

And the difference is huge, because the reason we have had some issues in the screening phase is that we are and continue to be very strict about who we allow into the trial. So the dropouts in the trial have actually been very, very few. That, we think, actually confirms that we are doing the right thing.

We are very, very strict about who we include in the randomized portion of the trial. And in those, we don't have a lot of dropouts. So we are actually getting exactly the patients that we want, and we're making sure that we get the patients largely who can complete the entire trial.

So we are screening them at the beginning. So, the biggest issue is the compliance with the diary. Because, again, it's a new tool and it's a complex tool. The parents or caregivers actually have to basically monitor the child's activity during the entire day, plus there's an activity in the evening when they have to go back over the day and make sure, A, they haven't missed anything; and if they have logged nothing, that that was because really nothing happened and they just didn't miss it.

So that's the sort of thing we are dealing with. That's not always easy for folks, because you also have to remember of the simple truth of parents of people with ADHD sometimes have ADHD themselves. So we are dealing with caregivers who have difficult patients and often have their own issues. So we are dealing with this whole complex issue of problems. And that makes it a tough trial. But it's a tough area.

But again, let me just go on an optimistic note. It is because of the desperate medical need that we are so upbeat about this whole thing.

If I could just follow-up. So it sounds like the diary itself, as opposed to getting the patients on the right dose, is actually the reason for the screening failure, as you are calling it?

It's one of the reasons. And the other reasons are compliance with the medication and the way at which we use the diary. Again, the diary is actually an electronic handheld device. So, teaching folks how to use that, making sure that the staff at the site knows how to educate properly, that they're instructed in its use, that the patients themselves, the children understand what's going on, so as far as they're able to do that -- all of these things play into that.

Does that answer the question or am I missing something?

Well, I guess it does, but I mean, you're indicating the diary is difficult to learn. And the other question is going to be how are these caregivers actually going to be able to manage the diary during the course of the study? But obviously you don't have the answer to that question yet.

Well, no, in the course of the study, those that we do include have done very well. Because we make sure that they fulfill all those criteria before the patient is dosed or randomized.

Okay. Fair enough. Thanks.

Thank you. And I'm showing no further questions at this time. I would now like to turn the call over to Mr. Jack Khattar for closing remarks.

Thank you. We are very excited about the growth in our business and remain focused on continuing to grow Trokendi XR and Oxtellar XR; advance our pipeline products through the clinical development; and vigorously defend our intellectual property. In addition, we continue 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 again for 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 great day.