Supernus Pharmaceuticals Inc (SUPN) 2017 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Supernus Pharmaceuticals' Third Quarter 2017 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

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

Thank you, Sabrina. Good morning, everyone, and thank you for joining us today for Supernus Pharmaceuticals' Third Quarter 2017 Financial Results Conference Call. The update discussed today is for the 3 months ended September 30, 2017.

Yesterday, after the close of the market, the company issued a press release announcing these results. On the call with me today are Supernus' Chief Executive Officer, Jack Khattar; and Chief Financial Officer, Greg Patrick. Today's call is being made available via the Investor Relations section of the company's website at ir.supernus.com. Following remarks by management, we will open the call to questions. We expect the duration of the call to be approximately 45 minutes.

During the course of this call, management may make certain forward-looking statements regarding future events and the company's future performance. These forward-looking statements reflect Supernus' current perspective on existing trends and information and can be identified by such words as expect, plan, will, may, anticipate, believe, should, intend and other words of similar meaning. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in the Risk Factors section of our 2016 annual report in our Form 10-K, which was filed on March 16, 2017, and the most recent quarterly report on Form 10-Q, which was filed on August 3, 2017.

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 7, 2017, 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.

I will now 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 2017 third quarter results. We are pleased with the continued strong product sales momentum in the third quarter, having set another record for net product sales. Other key accomplishments in the quarter include completing the expansion of our sales force to provide additional support for both Trokendi XR and Oxtellar XR. The start of the Phase III program for SPN-812 and the initiation of the investigator-sponsored study for Oxtellar XR in bipolar disorder.

Our year-over-year performance continues to be driven by solid demand for our products. Total prescriptions for Trokendi XR and Oxtellar XR as reported by IMS showed growth of 39% in the third quarter of 2017 over the same period in 2016. For Trokendi XR, prescriptions for the third quarter of this year totaled 145,738 prescriptions, representing a 48% increase over the same quarter last year. And for Oxtellar XR, prescriptions were 35,115, representing an increase of 10% over the same quarter last year. Both products continue to gain physician acceptance and patient adoption, reflecting the unique benefits they bring to patients in epilepsy and in migraine.

In the quarter, we added approximately 40 sales representatives who are now deployed in their respective territories. This completes the sales force expansion to approximately 200 sales representatives. This expansion is designed to provide additional support for both products, Trokendi XR and Oxtellar XR.

We continue to believe that the potential of Oxtellar XR and Trokendi XR in neurology is more than $500 million in peak sales, and can exceed $800 million with the bipolar opportunity for Oxtellar XR. Year-to-date, for the first 3 quarters of 2017, the company delivered robust growth of 40% in revenues and 72% in operating income. We are excited about the momentum we have seen in the fourth quarter and look forward to finishing the year in the strongest position we have ever been.

Moving on to our pipeline and starting with SPN-812, we held our investigator meeting in the third quarter and initiated Phase III clinical testing in pediatric and adolescent patients with ADHD. We have seen a high level of enthusiasm among the investigators for the study as SPN-812 has the potential of being a well-differentiated treatment for ADHD that sets itself apart from current treatment options. The Phase III program consist of 4 three-arm placebo-controlled trials: 2 pediatric trials, with doses ranging from 100 milligram to 400 milligram; and 2 adolescent trials, with doses ranging from 200 milligram to 600 milligram.

Regarding SPN-810, enrollment continues in both Phase III trials, currently in development for impulsive aggression in pediatric patients who have ADHD. Since the September 2017 interim analysis, patient randomization will be either to the 36-milligram dose or placebo. Enrollment is expected to continue through mid-2018. We believe the high rate of enrollment into the open-label extension study for SPN-810, which is nearly 90%, reflects a high level of satisfaction from physicians and patients with this potential novel treatment for impulsive aggression. During the third quarter, investigators-sponsored trial for Oxtellar XR in bipolar disorder was initiated. We expect that approximately 90 patients will be enrolled among the 3 study sites. This trial is a randomized, open-label study with each patient completing 6 weeks of therapy on either Oxtellar XR or oxcarbazepine immediate release added to their existing therapy. We're very excited about our late-stage pipeline, which now consists of 3 sizable opportunities in psychiatry with SPN-810 and SPN-812 in Phase III clinical testing and Oxtellar XR in a mid-stage proof-of-concept trial.

Finally, we continue to be active on the corporate development side looking for neurology and psychiatry assets that presents strategic fit with our portfolio.

I'll now turn the call over to Greg, who will provide more details on our third quarter operating performance.

Thanks, Jack, and good morning, everyone. As I'll review our third quarter financial results, I am reminding our listeners to refer to the third quarter of 2017 earnings press release issued yesterday after the market closed. Net product sales for Trokendi XR for the third quarter of 2017 were $59.4 million, a 42% increase as compared to the prior-year period. Net product sales for Oxtellar XR in the third quarter of 2017 were $18.7 million, a 35% increase as compared to the prior-year period. Total net product sales for the third quarter of 2017 were $78.1 million as compared to $55.6 million in the third quarter of 2016 or 40% higher from the prior year.

Total revenue for the quarter of $80.4 million included net product sales of $78.1 million, royalty revenue of $2 million and license revenue of $0.3 million as compared to $55.6 million, $1.1 million and $52,000, respectively, in the third quarter of 2016. As compared to the second quarter of 2017, gross-to-net deductions for Trokendi XR increased in the third quarter due to both onetime and ongoing root causes; expressed as a percentage of sales, aggregate gross-to-net deductions in the third quarter were modestly over 40% as compared to gross-to-net deductions in the upper 30s as of the second quarter. The primary drivers behind this secular increase were higher levels of patients' co-pay support, increased payments under various managed care programs and the impact of the second quarter of 4% price increase.

Going forward, we expect that gross-to-net deductions for Trokendi XR will remain flat in the fourth quarter or modestly improve. As compared to the second quarter of 2017, gross-to-net deductions for Oxtellar XR substantially decreased, due primarily to onetime factors; expressed as a percentage of sales, aggregate gross-to-net deductions in the third quarter of 2017 were in the mid-30s as compared gross-to-net deductions in the mid-40s as of the second quarter. The primary drivers behind this secular decrease were onetime downward adjustments across a variety of deductions in allowances, offset by the impact of the second quarter of 4% price increase.

Going forward, we expect that gross-to-net deductions for Oxtellar XR will revert to the levels experienced in the second quarter of 2017, that is gross-to-net deductions in the mid-40s expressed as a percentage of sales.

Moving into 2018, we expect gross-to-net deductions, expressed as a percentage of sales, for both products to remain stable, that is gross-to-net deductions of approximately 40% for Oxtellar XR -- excuse me, Trokendi XR, and in the mid-40s for Oxtellar XR. These gross-to-net deductions will increase, when and if, the company takes price increases. Finally, as mentioned in previous calls, modest variability and gross-to-net deductions from 1 quarter to another is normal and to be expected for both products.

Research and development expenses in the third quarter of 2017 were $13 million as compared to $7.9 million in the same quarter last year. This increase is primarily due to expenses incurred in conjunction with the Phase III clinical trials for SPN-812, and increased expenses associated with ongoing patient recruitment for the Phase III trials for SPN-810. Selling, general and administrative expenses in the third quarter of 2017 were $40.8 million as compared to $25.7 million in the same quarter last year. This increase of approximately $15.2 million is primarily due to the expansion of the sales force announced in August 2017, the development and production of promotional materials and marketing programs associated with the launch of the migraine indication for Trokendi XR and an increase in share-based compensation expense.

Operating income in the third quarter of 2017 was $22.3 million, a 12.6% increase over $19.8 million in the same period the prior year. This improvement in operating income is primarily due to increased net product sales, partially offset by increased research and development expenses of $5.1 million, and increased selling, general and administrative expenses of $15.2 million. The net income in the third quarter of 2017 was $16 million compared to $61.8 million in the same period last year.

This year-over-year decrease is primarily due to the release of a valuation allowance against deferred tax assets in 2016, which resulted in an income tax benefit of $42.7 million in the third quarter of 2016. Diluted earnings per share for the third quarter of 2017 were $0.29 per share compared to $1.18 per share in the same period last year. Diluted earnings per share in the third quarter of 2016 were favorably impacted by the aforementioned release of the valuation allowance in 2016.

Weighted average diluted common shares outstanding were approximately $53.6 million in the third quarter of 2017 as compared to approximately $52 million in the same period the prior year. As of September 30, 2017, the company had $237.7 million in cash, cash equivalents, multiple securities and long-term marketable securities as compared to $165.5 million at December 31, 2016. For full year 2017, the company is raising its expectations for both net product sales and operating income and reiterating its expectation for research and development expense as set forth as follows: net product sales in the range of $290 million to $295 million compared to the previously expected range of $280 million to $290 million. Research and development expense of approximately $55 million. Operating income in the range of $85 million to $90 million compared to the previously expected range of $82 million to $87 million. The company expects selling, general and administrative expenditures of approximately $40 million in the fourth quarter of 2017. The company expects research and development expenses to exceed $20 million in the fourth quarter of 2017.

Looking forward to 2018, the company expects R&D spending to remain at or near as quarterly spend rate as patient recruitment in the 2 Phase III trials for SPN-810, the 4 Phase III trials for SPN-812, the open-label extension trials for both SPN-810 and SPN-812 and the investigator-initiated trial for Oxtellar XR moves forward. The company anticipates quarter to quarter variability in spending, reflecting the uncertainty regarding the rate of patient recruitment in these trials.

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

(Operator Instructions) And our first question comes from the line of Ken Cacciatore with Cowen and Company.

Just a couple of questions. Greg, in the low end of your guidance, it would appear that you are guiding for quarter-over-quarter sequential decline. So just trying to understand, why that would be the case? And a little bit more nuance on the gross-to-net changes. I know last quarter there was a thought that it would be flat quarter-over-quarter. It seemed to deteriorate, as you indicated. And so just trying to understand a little bit more nuance, now that we have you out of the prepared remarks of what's going on. This is just a natural support of kind of a "new product" launch on Trokendi as we go into migraine. And you discussed a little bit about 2018, clearly contracting is done. So a little bit more nuance on -- around what you were describing in the prepared remarks. And then I have a follow-up?

Okay. You've got couple of questions there, Ken. So let me take the second one first, regarding a little bit more of clarity with respect to the secular changes in the gross-to-net deductions. Just to set the stage, I want to emphasize that it's important to recognize the script growth since the launch of the migraine indication has been, frankly, extraordinarily strong. And a sequential growth from Q1 to Q2 in terms of prescriptions of 22% followed by sequential growth from Q2 to Q3 of 17%. And then as a continuation with that, I think the most recent numbers that I have looked at between Q2 and -- Q3 and Q4 are in the range of 13% to 14%. So clearly very, very strong prescription growth. One of the significant facilitating factors in achieving this really extraordinary growth has been the support of an enhanced co-pay program that the company put in place as of the second quarter, which greatly lowered the obstacles for patients in filling their prescriptions. And our experience with the second -- in the second quarter has been refined as we move forward into the third quarter. And we're to continue to adjust this program in a manner which gives the company confidence that the gross-to-net deductions to the fourth quarter will be consistent with what we saw in the third, which was in the low 40s, or as I mentioned earlier, perhaps, improve a bit going forward. It's also important to remember that there's other things, which run in gross-to-net calculation such as managed care rebates, we touched on those. And those 2, I believe, in between second and third quarter ran a bit harder than we expected.

So I would say it's really the enhanced co-pay program that we put in place to facilitate driving prescription growth coupled up with increased payments made under the managed care plans from second and third quarter, which drove this increase. Again because with -- we can control the parameters around the copay program, we feel that we'll continue to find this and perfect this moving forward and such. And as such then we believe that we'll even maintain flat gross-to-net or perhaps improve a bit in the fourth quarter.

Regarding your question about the guiding to secular decline, could you -- in terms of a decline, could you just clarify, is that with -- I don't believe it's with respect to net sales. Is it with respect to operating income?

Yes. I'm just -- maybe I'm doing the math wrong. Adding your last 3 quarters and then subtracting off with the $290 million, the low end of your guidance, I get lower. But I may be doing the math wrong, so I apologize.

Yes. That gives us, Ken, around $82 million versus the $78 million. So in the fourth quarter, that gives you around $82 million in net sales versus $78 million in the third quarter.

No, it should be $82 million to $87 million. It's the right...

It's $78 million.

It's the right versus the $78 million in third quarter.

Got it. Yes, I guess I was looking at total revenue not product, sorry that's my mistake. On 812, can you just talk about a little bit of differences and similarities between Phase III and Phase II? Is there anything nuance or just larger study, little more clarification on that?

Yes, sure. (inaudible) standard ADHD trials, so very similar to what we did in the Phase IIb trials. But we designed them to be 4 different trials, smaller trials, but 4 different trials which gives us really the maximum chance of success here. We're very bullish and very excited about this program, in general. We already started patient enrollment, so that has already started. And the investigators are extremely excited about the program and what they have seen. And some of these investigators also were involved in Phase IIb study. So they've seen the product before and how it performed before as well.

And the next question will come from the line of David Steinberg with Jefferies.

Couple of questions. First is, you have the new sales additions in place. Are you giving what you're seeing in the strong growth in the prescriptions? Do you think you are rightsized now for the opportunity? Or will you consider adding more reps sometime next year?

And secondly, just I want to hone in a little more in the gross-to-net. You'd indicated in the last call that gross-to-net should be in 37% range. You discussed perhaps fluctuating 100 basis points either way in a quarter-to-quarter basis, and that you've basically control the number of these co-pay cards and the heavily discounted scripts. So now you're talking about gross-to-net 300 to 400 basis points higher than that through the third quarter, is flat or down the fourth quarter. Still trying to understand, it's a pretty big change. What are we missing here? Why was there such a big discrepancy between what you'd indicated before and what you posted for Q3?

David, this is Jack. Let me address both questions. On the sales force expansion, with the first 40 reps that we just added, the way we always approach this matter is by looking at the performance. And we do things in a stepwise manner. So is there a possibility we can further expand, and if we see that these 40 reps are doing amazing in the field, and the return on our investment has really been spectacular. Absolutely, we will look at that, because we believe that the potential of Trokendi XR and Oxtellar XR is still way in front of us. And we haven't even scratched the surfaces to the potential of both of these products.

So if we see any indication that further expansion, all of it would be probably in the same size of what we have just done. Nothing more than that. We will definitely look at it. I mean, that's how we always try to look for any growth opportunity behind of these 2 products. Regarding the gross-to-net, let me make sure, I reiterate what I said in previous earnings calls, and what I said even subsequent to that. We always said, and that's why we said back in the second quarter that it was 37% and it could be up or down by about 1 to 2 points, which basically gets you to around 39%, which is exactly what happened in the third quarter, except for onetime other adjustments that occurred, that pushed us to the 40%, or a little bit modestly above the 40%. So what we said before, exactly is what happened. And as far as the co-pay or enhanced program. And as we also say in the gross-to-net, there's always onetime factors that come in play here, whether it's returns, whether it's allowances, whether it's rebates, whether it's any of the other things that have get into to the gross-to-net deductions. But as far as the program that everybody is nervous about and was nervous about, it's exactly what we did and exactly what we said, which was a fluctuation of 1 to 2 points, 1 to 2 points above 37%, it's 39%, which exactly what happened in the third quarter. And then it pushed it up a little bit for other factors that are included in that calculation.

I have a follow-up, but you said that this fourth quarter will be above 40%. And then I think Greg said, it will be 40% flat into 2018. So I guess I'm trying to understand the math?

So it's in the low 40s in the third quarter. We said it would be either flat or declining a bit to approximately 40% in the fourth quarter. And then going forward, we expect it be somewhere around 40% in 2018, give or take. Also, remember that there's -- especially in the first quarter with the high deductible plans that many patients are now on, that's a quarter between (inaudible) in gross-to-net. So that's all for the first quarter. but as we look into 2018, we think that the gross-to-nets will be for the year averaging around 40%.

And the next question will come from the line of Annabel Samimy with Stifel.

Apologies for harping on the gross-to-net a little bit more. But maybe you can help us understand what some of those onetime factors were in the quarter? Have there been any returns or inventory fluctuations that we need to be worrying about going forward? Also, when you talk about optimizing the co-pay, I guess, my question is how exactly do you optimize the co-pay given that these patients should generally have access to a co-pay card, and that access will typically increase as you move more into the migraine patients?

And then if I can ask a separate question altogether. You now have about $237 million in cash, which is a nice position to be in. Are you, I guess, completely focused on that capital allocation into R&D at this point given the breadth of your R&D program, or are you still talking -- thinking about business development to bridge the gap between the portfolio and the pipeline coming to fruition.

Yes, regarding the gross-to-net, I won't be making any comments on the enhanced program and details of that enhanced program. So I'm really sorry, I can't make those comments as to what we are fine-tuning or not fine-tuning in that program. Again, I can't believe, we're gearing on the [whole year] around this issue, because we're talking about a point up or a point down or half a point here or half a point there, which all of those happen every quarter. There will always be fluctuations.

As per your question, as far as what is the item that went up or went down? I mean there are things like returns, there are things like pipeline estimates in there. There are a lot of estimations and assumptions that go into these calculations based on the most recent data that we get every quarter. So it's -- because if I say something today, then somebody will tell me next quarter, what happened to that specific item. And then we end up into looking at 12 items that make up the gross-to-net and continue to try to explain every little movement on every item in that calculation.

I think we're all missing the big picture here. This is a company that is delivering on the net sales guidance every single time, whether gross-to-net goes up or goes down, and we will continue to do that. And the company and the products are extremely robust when it comes to the growth and the future that we're looking at. I mean we have delivered, this year so far in 9 months, 40% growth in revenue and 72% in operating income. And we've never been in such a strong position ever as a company. And we are very, very excited about the momentum we already have in the fourth quarter behind the business as well as moving into 2018.

Maybe I can just follow up on that specific question. You mentioned also that there are increased rebates from payers to payers. Sorry -- it's PBMs during the quarter. Now, we have seen that across a number of our companies where in mid-year there is another adjustment to rebates. Is this something that we should be expecting going forward? May be surprised changes to the rebate structure.

Annabel, this is Greg. So that's a good question. And in fact I did mention that, and I think in response to Ken's question regarding the set or shift in gross-to-net. And there has in fact been an uptick in the aggregate payments that we make to managed care companies. Some of that is just due to contract changes. When the contract changes kick in, in many of the -- our contract changes kicked in second and third quarter. There are also other provisions in those contracts such as price protection that's embedded in those contracts that also came in to play. So there are -- as we move forward through the second to third quarter, there were in fact a number of shifts in couple of plans that we have that did affect gross-to-net calculation. And that might have been something that, frankly, I -- escaped me when I was looking at potential shifts going forward between the second and third quarter. I might have missed that one.

Okay. And maybe you can talk about the capital allocation question?

Yes, in terms of capital allocation, our research group is not constrained in terms of -- certainly in terms of cash in our balance sheet. We do look carefully at our research expenditures to make sure that they are timed appropriately that we don't spend in advance of when we need to spend. But we're really trying to optimize our program, so that we can deliver both of our pipeline products to the marketplace as fast as we can. So -- but it doesn't mean that spending doesn't has any upward limit, we just try to moderate it or modulate it so that we sequence in each of the spending -- components of the spending plan so that they, in aggregate, don't extend the critical path of the program any further than we already estimate that critical path to be.

If we found additional research targets, and we do look at those from the outside, we think that we got enough cash in our balance sheet to strengthen our P&L to be able to fund those programs going forward. The question always is one of the price. So from the capital standpoint, I don't look at that as being a constraint whatsoever in terms of how do we think about our research program.

And the next question will come from the line of Bill Tanner with Cantor Fitzgerald.

I had one on the Oxtellar bipolar program. Jack, you mentioned that in the open-label investigator study is ongoing. And was curious if you can maybe lay out what the path forward would be subsequent to that? Or maybe one is, when we would get the data from that study, the path forward would it be going straight into a pivotal? Would there be an intermediate step? And I guess the second part of that, just thinking about the positioning of our Oxtellar for that indication, would it be mostly a matter of the dosing frequency, increase in compliance? Or would there be a side effect benefit potentially, as there is with Trokendi?

Yes, sure. Regarding the investigator-sponsored trial which started, given that it's not completely controlled by us, it's a little bit difficult for us to predict the exact timing. We are hoping we can complete the trial in about a year. Now, given that it is open-labeled though, we can see what's going on clearly. And we could potentially choose to start the Phase III program not necessarily by waiting all the way till the end for this investigator trial to be completed.

And what we are trying to do, the reason we are doing this investigator trial as a really mid-stage sort of speak proof-of-concept is to look for certain parameters that will allow us to better design our Phase III program. And hopefully, build into the program also potential advantages related to your second part of the question, potential advantages that we can use in our promotional effort later on in the bipolar area. Now clearly, we expect Oxtellar XR given its pharmacokinetic profile, its potential for side effect improvement. I mean we expect that, clearly, to apply to whether it's epilepsy patients or bipolar patients. But that's why we will be doing the Phase III program. So it will be 2 Phase III trials that will be required for registration under the 505(b)(2) regulatory strategy. And again we will be looking at the investigator trial for certain specific parameters that, hopefully, we can design into the Phase III to give us a much better differentiation moving forward.

Okay. That's helpful. And then just back on the SPN-812, the Phase III studies, they are maybe sort of on the same vein as how you think about the data from those studies might position to drive relative to other nonstimulants?

Yes, I mean -- the profile that we've seen so far on SPN-812, which has given us a lot of excitement that we feel in the company behind this product is clearly the efficacy that this product has shown so far, and whatever data we have in the Phase IIa and the Phase IIb. I mean, I remind everyone, we have proof-of-concept on this product in both populations. Adult population, when we did the Phase IIa study with the immediate release formulation, and also with the pediatric population. So we have proven the drug works in both patient populations. The signal that we got, despite the size of these studies, was very strong signal from an efficacy point of view. So we're hoping to see that obviously in the Phase III trial which will differentiate, potentially SPN-812 versus other nonstimulants on the marketplace. As far as the magnitude of the signal as well as potentially the onset of the action that could be quicker than the products on the marketplace.

And then in addition to all that, clearly, being a nonstimulant with a safety and tolerability profile that is known about viloxazine as a molecule, that also holds a lot of promise for us and even further differentiation with what we have seen so far on the safety and tolerability of viloxazine versus the other nonstimulants on the marketplace. So all in all, we're hoping to see a product that has the profile of a highly effective novel nonstimulant with a much better safety and tolerability versus the products that have been on the marketplace. And that truly has been the gold standard and has been the holy grail of what we have been looking for in this space in general. Because we all know stimulants work very well. And that's why they continue to dominate the market of about 92% of the prescriptions, but they have all the other issues that come with them as far as safety and tolerability and abuse and so forth.

And the next question will come from the line of John Boris with SunTrust.

Jack, just on the average co-pay for a migraine patient when they show up to drugstore, what is the average payment that's essentially out-of-pocket that they have to pay? And what percent of prescriptions are actually filled versus may be denied at the drug store level?

Second question just has to do with sales force. You have added the 40 reps, sounds like there's some appetite to potentially add another phase within the sales force build out. Can you just maybe give some commentary on what you need to see? And what the sizing would be of the next sales force addition if you were opt to do that?

And then third and final question just has to do with SPN-810. In the enrollment within that, you removed some language that you had previously about percent of the trial enrolled. Can you just give some commentary about what you've seen since you have eliminated one of the doses on the impact of enrollment in that trial and what percent of it is currently enrolled?

Yes, sure. On the first question, I mean our co-pay card is 0 co-pay card. So these medications are covered with the plans. Obviously, the patient walks out with a 0 payment regarding that prescription. I'm not going to make any specific comments on reversals or denials or any of that with our products. Regarding the sales force expansion, I mean, if we were to expand next year, again this is an idea at this point, I don't want people to run with it and say, sure, we truly will, because we will take these things as they come and we'll look at that decision. We'll make that decision at the right time given the data we will have based on the recent expansion we just made. But if it's were to happen, it's probably be very similar in size as the expansion we just made right now. So 40, 50 reps at most.

And then finally, on 810 enrollment, I think the last time we said somewhere in the 64% to -- and 56% as far as enrollment in these 2 studies 301 and 302. It's probably still around that percentage. I mean, I know we have been randomizing since we did the interim analysis. It took a few weeks to get to the IRD approvals for the changes that we did. So probably percentage-wise, it is probably still in the 65%, 66% versus the 64%, I'm guessing. And very close to the 56%, 57% at this point.

And the next question will come from the line of David Amsellem with Piper Jaffray.

I joined late, so you may have addressed this, so I apologized. But just been talking about business development. You have talked about in the past trying to add psychiatric-focused product or products where you can then deploy a sales force ahead of the launch of 812 and 810. So can you talk about how much of that is a priority in the near term? And then how aggressive you're willing to be in terms of deal size and then what you're looking for?

And then secondly, regarding 812, we know that overseas, it is approved as antidepressant, and I believe, historically, you've suggested that you may look at depression as a potential indication. So in that vein, is that something that is still on the table? Or are there other indications beyond ADHD or depression for 812 that could be on the drawing board?

Yes, sure. Regarding the BD data, pretty much our priorities are still the same as far as the kind of assets we are looking for, whether -- even neurology, not just psychiatry. So anything we can launch between now and before 810 and 812 or add to our commercial portfolio, absolutely, we're looking at both. It is a high priority activity for us. It has been and will continue to be high priority for us. We're also looking at potentially maybe if there is some pipeline products. Because once we finish 810 and 812, which we expect in the next 18 months or so as we get them closer to the finish line to reload the pipeline as well. So all of these are in the different opportunities that we continue to look at. And again, it's in both neurology and psychiatry.

From a deal size point of view, I mean, given our cash position as it keeps building up as well as potentially we could finance, as we said earlier in previous calls, we could do certain deals in the $300 million range as far as raising money in a debt kind of structure that will allow us to fund something in the $300 million or $500 million or could be more. And if there is anything that is more strategic, we are not afraid of using equity as a last resort. That has to be a very transformational kind of strategic transaction for us to do something like this.

And then finally, on SPN-812, you're exactly right. I mean the product used to be antidepressant. And that's exactly what we have on our pipeline for SPN-809. So that is still an active project so to speak, because everything we've done so far on SPN-812 as far as the APIs synthesis, the process, the scale up, the formulation work that we have done, a lot of the preclinical work that we've done on 812 will apply to SPN-809. So as a product, as a project in general, there has been a little bit not as a high priority. It's more an issue of focusing our resources so far. But it does continue to be an opportunity for us.

It is also a fairly differentiated opportunity even in the antidepressant market, because SPN-812 is a norepinephrine reuptake inhibitor, and there is no such products with that mechanism of action in the antidepressant market. So that continues to be a potential opportunity for us for future development. As far as any other indications for 812, we have looked at other thing that nothing that we can talk about at this point.

(Operator Instructions) And the next question comes from the line of Ken Trbovich with Janney.

Jack, I was wondering if maybe you could give us a sense for how you expect that Trokendi ramp to progress from here with the sales force expansion. It, certainly, seems that you have the benefit of a lot of the docs that you had avoided calling on before that were high topiramate writers for migraine. And obviously, you've got the benefit of that right now. I'm just trying to get better sense of what you anticipate from this point going forward?

Yes, sure. I mean the -- really the extraordinary growth that we've experienced so far with Trokendi XR in migraine has been due to several factors: one, is which you pointed out clearly adding a new universe from a physician point of view, universal physicians who are very, very high prescribers of topiramate for migraines. These are physicians who are migraine specialists, who are headache specialists. And basically, all they do all day is treating migraines and headaches and therefore, are very heavy users of topiramate in which we all know is the leading molecule in prophylaxis. So we have added a significant number of physicians in our universe who are in that physician audience. And we will continue to promote to them. And typically, as far as new physicians in our experience has been, you have to be promoting the product to them with the frequency of at least 8 to 12x as far as visits for a physician [start paying] behavior. So I don't think we have seen the full benefit of these physician being on board at this point. And we continue to see a tremendous opportunity here of growth behind these physicians.

In addition to these physicians, the universe where we used to call on before every other neurologist will also is heavily involved in prescribing for migraine, they have -- what we have seen so far is they have extended the use of Trokendi XR within their practice, since we got the label, the indication itself. And what's really feeding the growth is as well as the experience they are having in the marketplace. And this is something which was published recently in the retrospective chart review. And this is data from -- report by patients, by physicians. They are seeing tremendous, amazing clinical benefits with the use of Trokendi XR versus the immediate release of topiramate.

Yes, these have not have clinical trials, but that's exactly what's happening out there. And realign with the clinical practice, that's what physicians are seeing themselves in experiencing with Trokendi XR and how patients are responding to Trokendi XR. So all of this clearly has been working synergistically to give us the kind of prescription growth that we have seen so far. And that we expect to continue to see. Clearly, we're very excited about the expansion in the sales force. And what that could also continue to do in building the momentum they have with Trokendi XR, but also in building more momentum behind Oxtellar XR. Because as we said, the expansion in the sales force was also designed to support Oxtellar XR as well. So we're excited about that possibility as to what that expansion could also do to the prescriptions of Oxtellar XR also.

And the next question comes from the line of David Buck with FBR.

First question for Jack. Can you talk a little bit about SPN-812 and how you'd see the pace of enrollment? You talked a little bit about the investigators being excited at the investigator meetings before Phase III start. Second, for Greg, can you talk a little bit about how we should be thinking about price increases going forward? And is there a change in how much you're going to be capturing as a percentage of WAC price increases? Is there a delay now in terms of when they actually kick in, just how they look at from the outside?

And then finally, can you talk about the tax rate that you actually paid on a cash basis, if it all, and what we should be expecting for the fourth quarter and 2018 for both the GAAP tax rate and actual cash taxes paid?

Yes, for SPN-812, when we did the previous trials, I'm talking about the Phase II trials, we actually had very, very strong and speedy enrollment of patients in our trials. So that is really behind the reasons why also a lot of physicians are excited who are using some of the same size that we're in the Phase IIb trial as well. So these physicians have seen the excitement about the product. They've seen the results with the patients that they have enrolled in these Phase II studies. So all that excitement and enthusiasm, that I'm talking about, is really carried over from the experience that we had in the previous trials. So we certainly expect some of that to truly help us with the Phase III program. Again, if I were to compare it SPN-810, clearly this is a very different domain here. ADHD is a very well-known area. These trials are fairly straightforward. You don't have some of the complications or complex protocols that we've had with 810. So we currently have high hopes for a fairly good and strong enrollment behind these trials. As far as price increase, I really can't make any comments on timing or extended price increases, but I would let Greg respond to the tax question.

Right. And just further to Jack's comment about price increases, David. The impact of price increases for Trokendi XR, because of the smaller Medicaid footprint has been, historically, something around met, let's say, 70% to 80% of the price increase actually effectively gets pushed through to the company with losing it a bit of that due to Medicaid. That number is probably closer to 1/2 for Oxtellar XR because of the bigger Medicaid footprint.

Regarding the tax rate, the cash tax in the third quarter, I don't have the number in front of me right now. I can dig that out for you, I'm glad to provide that to you. It was largely shielded by our use of NOLs for the year, as we've said our statutory rate is 38%. That's offset a bit by some favorable tax credits for R&D. So an effective tax of about 35%. But I would expect that to hold up next year as well. Of course, all that is absent anything going on in Washington with respect to tax reform which could completely relandscape this area.

If I can follow up, Greg. I know you don't want to talk about going forward price increases, that wasn't the question, but you mentioned the managed-care change with price protection. So I was curious whether you actually saw any benefit in the third quarter from the price increases that you had in both products? Or whether you did and it was just offset from other gross-to-net items?

Yes. Now that's a good point. Yes, we do see it in aggregate, a benefit for a price increase, as you referred to the 3.8%, 3.9% price increase at the end of June. Yes, we do see it an impact of that. And some of the managed-care programs, and some of the larger managed-care programs, a big piece of that is washed out because of the price protection programs that they have put into place. So managed-care is starting to behave a bit like Medicaid. In fact, it behaves exactly like Medicaid, except the price point is a little bit different.

So in aggregate, yes, we do see a benefit. But as I mentioned earlier in the call, when we look at gross-to-net fluctuations from quarter-to-quarter, there was an impact and the Trokendi XR gross-to-net calculation due to higher levels of administrative fees, service fees and price protection for managed-care.

Got you. And just finally if I can sneak it in. So for Trokendi XR in the third quarter, if you look at the prescription growth and some price benefit, you probably missed what would have been probably $6 million to $7 million or $6 million to $8 million is what Trokendi XR should have been higher. So is there any inventory change? Or was this all gross-to-net issue for the third quarter?

Yes. It's a little bit of an inventory impact there that we can calculate. I'll, probably, say it's kind of $1 million to $1.5 million. There was some onetime impacts, as well, as Jack referred. But I would say, the majority of that is the gross-to-net, secular increase.

Ladies and gentlemen, this concludes today's question-and-answer session.

I would now like to turn the conference back over to Mr. Jack Khattar, Chief Executive Officer, for closing remarks.

Thank you. Supernus delivered another strong quarter of growth with several positive accomplishments. We continue to execute well on our plans, and are very excited about our progress so far in 2017. The launch of the migraine indication has set the stage for Trokendi XR to become a leading treatment for the prophylaxis of migraine. Our growth plans for Trokendi XR and Oxtellar XR, including the recent expansion of our sales force, will put us in a strong position to continue to deliver robust growth behind both brands in 2018 and beyond.

Thank you, everyone for joining us this morning, and we look forward to updating you on our continued progress.

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