Supernus Pharmaceuticals, Inc. (NASDAQ:SUPN) Q1 2023 Earnings Call Transcript

Supernus Pharmaceuticals, Inc. (NASDAQ:SUPN) Q1 2023 Earnings Call Transcript May 9, 2023

Operator: Good afternoon, and welcome to Supernus Pharmaceuticals First Quarter 2023 Financial Results 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 ICR Westwicke, Investor Relations representative for Supernus Pharmaceuticals. You may begin.

Peter Vozzo: Thank you, Steven. Good afternoon, everyone, and thank you for joining us today for Supernus Pharmaceuticals’ first quarter 2023 financial results conference call. Today, 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, Tim Dec. Today’s call is being made available via the Investor Relations section of the company’s website at ir.supernus.com. 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.

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 the company’s latest SEC filings. 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 May 9, 2023. 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’ll now turn the call over to Jack.

Jack Khattar: Thank you, Peter. Good afternoon, everyone, and thanks for taking the time to join us as we discuss our 2023 first quarter results. Despite the generic entry on Trokendi XR and the typical insurance headwind in our industry in the first quarter, Supernus delivered strong first quarter results and set the stage for solid performance for the rest of the year. In the first quarter, Supernus achieved total revenues of $154 million, essentially flat compared to $153 million in the same period a year ago. This was achieved despite a significant 45% decline or $28 million decline in net sales of Trokendi XR. In addition, the first quarter of 2023 adjusted or non-GAAP operating earnings were $31 million, compared to $28 million in the same period last year.

Excluding Trokendi XR first quarter of 2023 net product sales increased to 25% year-over-year, driven by continued adoption of Qelbree across both pediatric and adult patients and growth by GOCOVRI. We remain well positioned as we manage through the loss of exclusivity of Trokendi XR and transition to our growth brands setting the stage to deliver double-digit growth in 2024 and beyond. Qelbree continues to perform well with total IQVIA prescriptions in the first quarter of this year, reaching 134,530, representing a sequential increase of 14% compared to the fourth quarter of 2022. Prescriptions in the most recent month of March reached 49,789, the highest monthly total since the launch. This represents an annual run rate for Qelbree of more than 0.5 million prescriptions.

Qelbree also continues to capitalize on several dynamics that we elaborated on last quarter including the underlying growth in the overall U.S. ADHD market an increase in the average wholesale acquisition cost per prescription, improvement in managed care coverage, and the continued growth in Qelbree’s base of prescribers. In the first quarter of 2023, Qelbree expanded its base of prescribers to approximately 19,197, up from 16,822 prescribers in the fourth quarter of 2022. We initiated the expansion of our sales force by approximately 45 sales representatives to give us broader reach and increased capacity to deliver higher frequency on high decile prescribers. This expansion is substantially complete, allowing us to cover more than 50% of the ADHD market.

In summary, Qelbree continues to perform across several important growth metrics, giving us confidence in its growth potential in 2023 and more importantly in 2024 and beyond. Switching now to GOCOVRI and Oxtellar XR, net product sales increased to $26 million and $29 million respectively. This represents an increase of 15% for GOCOVRI and 5% for Oxtellar XR compared to the same period last year. Regarding Trokendi XR net product sales in the first quarter were $35 million, down sequentially from $57 million in the fourth quarter of 2022, and down year-over-year from $63 million in the first quarter of 2022. In January 2023, the first generic to three out of the four product strengths of Trokendi XR was introduced. Total prescriptions for the first quarter of 2023 declined by 48%, compared to the same period last year.

Later in the quarter, a generic to the fourth product strength entered the market. At this point, we are maintaining our guidance for net sales between $60 million and $80 million for Trokendi XR for the year. Moving on to the pipeline, we had obstructive meeting with the FDA in April this year regarding the resubmission of the NDA for SPN-830, our apomorphine infusion device. Based on the meeting, we expect to resubmit the NDA in the fourth quarter of 2023. Enrollment is progressing in the open-label Phase II clinical study for SPN-817 in adult patients with treatment-resistant seizures and we continue to expect top-line data in the first half of 2024. For SPN-820, our first-in-class oral the active mTORC1 activator, the Phase II randomized double-blind placebo-controlled study in adults with treatment-resistant depression is ongoing with 33 sites activated.

The study will examine the efficacy and safety of SPN-820 over a course of five weeks of treatment and approximately 270 patients. We’re planning on holding an R&D Day in fall of this year to discuss in further detail our lead pipeline programs and new clinical candidate that were generated through our Discovery program and nominated for clinical developments. Finally, we continue to be active in corporate development looking for strategic opportunities to further strengthen our future growth and leadership position in CNS. With that, I will now turn the call over to Tim.

Tim Dec: Thank you, Jack. Good afternoon everyone. As I review our first quarter 2023 results, please refer to today’s press release and 10-Q that were filed earlier today. Total revenue for the first quarter 2023 was $153.8 million compared to $152.5 million in the same quarter last year. Total revenue in the first quarter of 2023 was comprised of net product sales of $140.6 million and royalty revenue of $13.2 million. The increase in total revenues was due to higher net product sales of Qelbree, GOCOVRI, and royalty revenue, partially offset by the decrease in net product sales of Trokendi XR. For the first quarter of 2023, combined R&D and SG&A expenses were $106.8 million as compared to $111.3 million for the same period last year.

The decrease was primarily due to Adamas integration cost, which were included in Q1 2022 that resulted in operational efficiencies. Operating earnings on a GAAP basis for the first quarter 2023 was $5.2 million as compared to operating earnings of $2 million for the same period last year. Total other income for the first quarter 2023 was $3.8 million as compared to $12.8 million for the first quarter of 2022. The change is primarily due to a gain recognized in the first quarter of 2022 on the sale of a subsidiary of Navitor. In the first quarter of 2023, we reported an income tax benefit of $7.9 million as compared to an income tax benefit of $10.9 million for the same period last year. The income tax benefit in the first quarter of 2023 was primarily due to a lower pre-tax loss forecasted for 2023.

The income tax benefit in the year-earlier period, as noted on our prior calls, was due to a corporate reorganization of the Adamas entities in the first quarter of 2022. GAAP net earnings were $16.9 million for the first quarter of 2023, or $0.29 per diluted share compared to $25.6 million or $0.43 per diluted share in the same period last year. On a non-GAAP basis, which excludes amortization of intangible assets, share-based compensation, contingent consideration, expense gain, and depreciation, adjusted operating earnings was $30.5 million compared to $28 million in the same period the previous year. As of March 31, 2023, the company had approximately $686.5 million in cash, cash equivalents, restricted cash, and marketable securities, compared to $555.2 million as of December 31, 2022.

The increase was primarily due to cash generated from operations and the net amount drawn on the line of credit to fund the convertible note payoff. In November 2023, the company paid the total principal amount of 402.5 million due under its convertible Senior notes. In addition to payment of the remaining outstanding interest due of 1.3 million. Filing the repayment, the 2023 notes are no longer outstanding. The repayment of the 2023 notes at maturity was financed primarily with available cash on hand and to a lesser extent, through a borrowing under the company’s existing credit line agreement. We expect to fully repay the borrowing from the credit line by the end of the second quarter of this year. Now, turning to guidance. For full-year 2023, the company is raising the expected ranges of full-year GAAP and non-GAAP operating earnings and lowering the expected range of combined R&D and SG&A expenses.

For the year-end of 2023, the company reiterates its prior financial guidance for total revenue. As such, we expect total revenue to range from $580 million to $620 million comprised of net product sales and royalty revenue. As Jack mentioned, we continue to expect net product sales of Trokendi XR in the range of approximately $60 million to $80 million. For the full year 2023, we now expect combined R&D and SG&A expenses to range from $450 million to $480 million compared to the prior guidance of $460 million to $490 million. As we mentioned previously, the Salesforce expansion to support the growth of Calgary was initiated in 2023 with most of the expense related to the expansion starting in the second quarter of this year. We expect to further invest in commercial initiatives for Calgary during the back-to-school season, along with investments for other growth products.

We now expect full-year GAAP operating loss in the range of $10 million to $30 million compared to the previous guidance of an operating loss of $25 million to $50 million. And finally, we expect non-GAAP operating earnings to range from $75 million to $100 million compared to the previous guidance of $65 million to $95 million. Please refer to the earnings press release issued prior to this call that identifies the various ranges of reconciling items between GAAP and non-GAAP. With that, I will now turn the call back over to the operator for Q&A.

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Q&A Session

Operator: . Our first question comes from the line of Andrew Tsai of Jefferies. Your line is now open.

Andrew Tsai: Thanks, everyone. Great quarter. I appreciate you taking my question. So, the first one is that congratulations on logging in that major PBM contract, I think effective January, 2023. So maybe remind us of the latest and greatest thinking on when we can expect that target of 50%, 55% gross in net to occur. Basically, is it fair to assume that range could happen this year or could it take a little bit longer than that? Thanks.

Tim Dec : Yeah, Andrew, regarding the second contract, it became effective in the first quarter of 2023. Now, we didn’t see the full effect of that contract or a lot of the effect of the contract because also you always have opposing factors within the Q1 because of the high deductibles, insurance, higher co-pays, and so forth. So, we certainly expect the full impact of this second PBM contract more in the second quarter and obviously even better in the third quarter and the fourth quarter. So, to answer the question clearly, as we progress through the year, we expect the gross-to-net to improve. And definitely get us closer to the 50%, 55% by year-end. So, it’s going to be — is it linear most likely? I mean, that’s typically what we see in our business improvement in the gross-to-net with Q1 typically at the worst level, and then improvement throughout the year.

So certainly, that’s what we expect on Qelbree moving along from the early 60% gross to net towards the 55% or even 50% hopefully by year-end.

Andrew Tsai: Right, very clear. And then maybe just one more then is, would you agree based on your guidance if we backed out all of your products with reasonable assumptions including Trokendi, which you’ve guided to Oxtellar and so forth? Would you agree that Qelbree resales could maybe more than double and if not almost triple this year? And if that’s the case, I know it’s — you are not trying to provide guidance. But directionally speaking, if that’s the case, then, is it fair to assume Qelbree’s sales should accelerate on a quarterly basis going forward? That’s just the root of my question. Thank you.

Jack Khattar: Yes. The short answer is, yes. I mean, we do expect Qelbree to accelerate as the year goes on, and especially course as we also get closer to the back-to-school season on top of all that. Yes. It is more than double that last year, that’s an easy answer actually given last year’s performance. And we have made several comments this quarter and even the last quarter, obviously, about the different dynamics in the marketplace that are helping us, and are expected to continue to fuel the growth behind the brand from the market itself being a very healthy market, the ADHD market, then clearly from a managed care perspective, continued improvement on the coverage, continued increase in the WACC, average wholesale acquisition cost.

And of course, the expansion in our sales force and so forth and the improved coverage from an ADHD market perspective. So, all these are pointing and aligned in one direction, which has really continued to push Qelbree and increase the momentum and the growth behind the product.

Andrew Tsai: Thank you, Jack.

Operator: Okay. . Next question comes from David Amsellem of Piper Sandler. Your line is now open.