Supernus Pharmaceuticals, Inc.

Good afternoon and welcome to Sopranos Pharmaceuticals second quarter 2021 financial results conference call. At this time, all participants are on 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 Vazzo of Westwick, investor relations representative for Sopranos Pharmaceuticals. You may begin.

Thank you, Josh. Good afternoon, everyone, and thank you for joining us today for Sopernos Pharmaceuticals' second quarter 2021 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 Sopernos' Chief Executive Officer, Jack Katar, and Jim Kelly, Chief Financial Officer. Today's call is being made available via the investor relations section of the company's website at ir.sopernos.com. Following remarks by management, we will open the call to questions. 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 Sopernos' 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 factor 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 August 4, 2021, at approximately 4.30 p.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. Sopernos 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 afternoon, everyone, and thanks for taking the time to join us as we discuss our 2021 second quarter results. During the second quarter, we continue to make significant regulatory, operational, and commercial progress, highlighted by the approval of Calgary and its launch at the end of May for the treatment of ADHD in pediatric patients. The early performance of Calvary is on track with our expectations. Healthcare providers are excited about Calvary as the first novel, non-scheduled medication option for ADHD in over a decade. Calvary's prescriber base is rapidly expanding each week, and healthcare providers expect to increase prescribing significantly as children get back to school this fall. We are encouraged by the early clinical feedback, which has been positive and in line with the results of our phase three clinical trials. Reports from the field indicate that patients are experiencing demonstrated improvement in ADHD symptoms as early as week one, with continued improvement over the subsequent weeks. Having a once daily rapid and extended release sprinklable capsule for full day exposure has been well received and the safety and tolerability profile is allowing patients to stay on therapy. Early trends in prescriptions reflect the heavy sampling programs with patients starting on a two to four weeks of samples. Over 25,000 starter kits have been distributed since the launch and in preparation for the back-to-school season. We look forward to the back-to-school season to be in full swing so that we can help as many pediatric patients as possible. Regarding managed care coverage, overall more than 60% of lives in the pediatric market have access to Calvary. After just three months on the market and compared to other three branded non-stimulants, Calvary is at an advantage or is at parity in more than 80% of the commercial health plans and in more than 90% of the Medicaid plans. Regarding the adult population, we recently submitted a supplemental NDA to the FDA for Calvary for adult patients with ADHD. We expect to hear from the FDA in the third quarter regarding acceptance of the submission and potential PDUFA date. Turning now to the pipeline, the NDA for the apomorphine infusion pump, or SPN830, is on track for resubmission in the second half of this year. And the SPN820 Phase II Clinical Study in Treatment-Resistant Depression is on track for initiation by the end of 2021. Moving on to the commercial products and starting with Trukendi XR and Oxtelor XR, we are pleased with the stability of the brands despite declines in prescriptions and the reduced promotional efforts by the company. Since the launch of Calvary, the products have been promoted by a much smaller neurology sales force that is focusing its promotional efforts on supporting the current prescriber base. For the first half of 2021, the two products combined delivered net sales of $203 million, slightly lower than the $206 million in the same period last year. We continue to see an increase in the average size of a prescription for each product, contributing to the increase in the average wholesaler acquisition cost price per prescription. On APICN, we are encouraged with the second quarter performance and have started to see some stability with the brand after the competitive dynamics that have prevailed for the past nine months. And finally, regarding corporate development, we continue to be active in 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 Jim.

All right. Thank you, Jack. Good afternoon, everyone. As we review our second quarter results, please refer to today's press release. I'll begin with our revenue and earnings before turning to discuss operating expenses. Now, as a reminder, in June of 2020, we closed the acquisition of the U.S. WorldMed products. This means our prior year comparisons reflect a partial quarter financial impact of that acquisition. Total revenue for the second quarter of 2021 was $141.3 million, an increase of 12%. as compared to $126.7 million in the same quarter last year. Total revenue in the current quarter was comprised of net product sales of $138.6 million and royalty revenue of $2.7 million. Net product sales in the second quarter grew by $14.6 million, or 12%, compared to the prior year. Year-over-year growth for Oxteller XR sales And the benefit of a full quarter of sales for Apikin, Myoblock, Zadago was partially offset by a decline in Turken DXR. Calgary was launched in late May, and we're happy to report our initial $300,000 in sales for the second quarter of 2021. Calgary net sales include a temporarily high commercial copay deduction, as we support patients during the early launch period while we continue our commercial contracting efforts to establish access for patients. Regarding current quarter inventory levels, we saw a decrease of less than a million for inventory held by our direct purchasers as compared to the end of the first quarter of 2021. Now, this excludes the initial stocking activity for CalBRI. Operating earnings were $34.1 million for the second quarter of 2021 compared to $45.5 million in the same period the previous year. Net earnings were $23.7 million for the second quarter of 2021 or $0.43 per diluted share compared to $34.7 million or $0.65 per diluted share in the same period the previous year. As of June 30, 2021, the company had $855.3 million in cash, cash equivalents, and marketable securities compared to $772.9 million as of December 31, 2020. Of note, we did see over $40 million favorable impact on cash resulting from from the timing of payments for Medicaid and managed care rebates that will be paid in the third quarter of 2021. I'll now provide some more details related to operating expenses. Fresh G&A second quarter of 2021 expenses were $69.5 million compared to $48.1 million in the same period last year. This increase reflects our Calgary launch activities and the full quarter impact of commercialization efforts for Apekin, Zadago, and Myoblock. Cost of goods sold for the second quarter of 2021 was $25 million, a $16.7 million increase compared to the prior year. This increase was primarily due to the higher costs recorded in 2021 for the acquired commercial products due to the timing of the U.S. WorldMed acquisition. and related to myoblock inventory rejected lots in the period. Research and development expenses were $15.5 million for the second quarter of 2021, compared to $22.2 million in the same period last year. The majority of this decline is explained by the $10 million fee paid to Navator in the second quarter of 2020 for the option to acquire or license SPN 820. In addition, we have added expense related to the advancement of our pipeline programs, most notably SPN 820 for treatment-resistant depression. Two non-cash items included in our operating earnings are amortization of intangible assets and contingent consideration gain. Amortization expense for intangible assets was $6 million for the second quarter of 2021, an increase of $3.5 million compared to the same period the prior year. Contingent consideration gain reflects the incremental period change to the amount for contingent purchase price milestones we expect to pay related to the U.S. WorldMed acquisition. During the second period of 2021, we recorded a gain of $8.8 million in which reflects a decrease to the expected milestone liability. Turning now to full year 2021 financial guidance, we reiterate our prior financial guidance including an increase to the lower end of the operating earnings range. We reaffirm revenue guidance range of $550 million to $580 million which is comprised of both net product sales and royalty revenue. For the full year 2021, we expect combined R&D and SG&A expenses in the range of 380 million to 410 million, and operating earnings between 70 million and 90 million. The increase to the lower end of the operating earnings range is related to the favorable impact of the contingent consideration gain noted in the current period. In addition, we expect full year 2021 amortization of intangible assets of approximately 24 million. Further, we expect full year 2021 effective tax rate of 28 to 31 percent. This range is above our normally expected range for this year of 26 to 28 percent due to a number of discrete items for the year. With that, I'll turn the call back to the operator for Q&A.

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from David Steinberg with Jefferies. He may proceed with your question.

Thanks. A couple questions. First, Jack, you mentioned you've already distributed 25,000 starter packs. What will be the number before the back-to-school season starts? And do you have any sense of, in the initial prescriptions, what percent of the scripts are actually conversions from the free starter packs, and what percent are sort of the scripts that started without a sample? And then final question is, how long do you expect to sample, i.e., when will VLC, the sort of the normal course of the scripts playing out versus the freebies? Thanks.

Yeah, sure. Yeah, the 25,000 starter kits, that's the distribution to date to the high prescribers and our target physicians in the universe that we are targeting for Calvary. This will continue. This effort will continue, to your question, will continue throughout. We expected at least the first six months of launching the product until we have a very strong coverage across board, across all the plans with whom we are currently negotiating and will continue to negotiate the contracts So therefore, you know, there is no specific timing we say we'll stop sampling or not. And samples actually will continue. They're not only for launch. They will also continue on an ongoing basis. Nevertheless, they may not be at the same rate as they are now. So we will fine tune that as time goes on. But they will always be there. And it is one of the advantages we have currently in the marketplace versus every other company out there, really giving patients a free product to try the product and see for themselves the performance of the product. So we're very pleased with the fact that we can actually sample the product. We're happy to do that. We want to help patients to get on the product and continue to do that. As far as your questions on conversion and scripts with and without samples, I mean, we have a very small database right now, so it's not like we have a lot of data points that we can side from. But as time goes on, we can certainly get a better feel for it. So I don't have any specific numbers that can give me or can be a good predictor for the next three months, which are really the most important months, which is the back-to-school season.

Thank you. And as a reminder, to ask a question, you'll need to press star 1 on your telephone. Our next question goes from David Amsel with Piper Sandler. You may proceed with your question.

Hey, thanks. And just a couple on Calgary. So, Jack, you mentioned covered lives. I'm interested in what kind of utilization management you're seeing. I know these are early days, but you know, are you seeing or do you have contracts in place where, you know, or situations where payers are making patients step through other non-stimulants like Shotaro or Intuniv and just talk about just generally what utilization management is looking like or what you think will look like over time. And then secondly, regarding co-pay assistance, I know you mentioned how that impacted the net sales number in the quarter. But going forward, I'm assuming you're going to be subsidizing out-of-pocket expenses in a significant way. So what implications does that have for the gross to net, and what's your latest thinking on the gross to net? Thanks.

Yeah, sure. Yeah, clearly, I mean, the various components within the gross to net, In the life cycle of a product, they always shift around. And at the beginning, when you have a launch like this, there is a heavy emphasis on the co-pay and the patient assistance to get patients the medication and help them with the cost of the medication until the coverage becomes and gets to a level where we're pretty pleased with. So certainly at this point, as Jim pointed out and as you mentioned in your question, the copay is a big component of the gross to net. Over time, of course, as we have more contracts in place, the rebates then become a bigger piece and the copay starts going down as part of the gross to net and they hopefully balance out each other at a point where the total gross to net on an ongoing basis will decline overall. So these are all the different moving parts, clearly, with different parts being heavier up front, behind the launch, behind the trial, and making sure the patients get access to the product until later on when we have the contacts in place that will pick up some of that gross net and the piece, and that will depend on the utilization, to your question, in a lot of these plans. So the heavier the utilization, obviously, the bigger the rebate portion will be, but also will be the lower, the co-pay portion. Regarding the kind of coverage we have so far, it really is mixed among so many of the plans. There is step edits. Some of them have one. Some of them have two. Some of them are stimulants. Some are non-stimulants. So it's really a mixed bag at this point, and we're working through all that. We have bids for many, many plans out there, so we are in a fairly late stage in negotiations with a lot of the contracts and the plans, and we're working pretty hard, you know, to secure as many contracts as possible as early as possible. However, our plan has been from the beginning, you know, that the first six months, I mean, we're willing to, you know, do what it takes from a patient perspective to keep the medication in the marketplace with access where patients can actually try it and see for themselves the performance, because we think at the end of the day, utilization and the actual prescriptions will drive the coverage eventually. And that's why we are extremely pleased and excited about the early, yet it is early of course, the early clinical feedback from the marketplace that the product actually is delivering on what we saw in the Phase III clinical results. It's delivering exactly the kind of results that we have seen in the clinical studies, matching the profile that we saw in the clinical studies as far as how quickly it's working, how well it is working, and also, as importantly, how well it is being tolerated. So we're very pleased with that. Although it is early, but still, you know, these are very encouraging signs that we've seen so far. in the marketplace. And if that holds, definitely we expect utilization, you know, to accelerate. As I mentioned in my remarks, you know, a lot of physicians have already indicated to us, you know, that their intent is to increase significantly the prescribing of Calvary as, you know, the back-to-school season kicks in in higher gear, you know, in the next few weeks, clearly. So we'll be looking forward to that as well.

Okay, thanks, Jack.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Jack Pitar for any further remarks.

Thank you. We remain very focused on the launch of Calvary, especially as we head into the back-to-school season. In addition, we continue to advance SPN 830 along its regulatory pathway towards potential approval. Calgary and SPN 830 represent very important growth drivers for the company, and we're committed to progressing them towards commercialization and market success. Thanks again for joining us today. We look forward to updating you on our progress throughout the year.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.