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Third Quarter Earnings Update: SUPN

I bought Supernus over a month ago and added to that position after the election result.  With concerns of political attacks on the biotech industry abating I wanted to increase exposure to biotechs.  Supernus seems like a good vehicle for that.

But going into last Friday I was getting a bit worried.  The company had not announced its third quarter results or given any indication of when they would announce them.  More often than not such silence foretells a negative event.

In this case however, there was no such concern.  On Friday Supernus did announce (ominously) that they would have to restate prior results (generally the worry when you have radio silence leading into a quarter) but the reason behind the restatement was benign.  A $30 million royalty from 2014 was previously classified as revenue and is to be reclassified as debt.  The change came up after their accounting firm was given guidance by the SEC for another company in a similar situation.

I dug into the details a bit and to be honest it doesn’t make much sense to me why a royalty not being paid back has to be classified as debt but whatever, its water under the bridge.

The preliminary third quarter results, announced on Monday, were quite good. The company reported strong growth and raised guidance.

Year to date consolidated sales were $149 million, which is a 48% increase year over year.  Total prescriptions for both Troxendi and Oxtellar were 131,000 for the quarter, an increase of 30% year over year.  Troxendi prescriptions were up 32% while Oxtellar’s were up 26%.

q3prescriptions

As had been previously announced, there was a tentative approval from the FDA for Troxendi to be used in the treatment of migraine, which should help continue sales momentum.

The company illustrated the total addressable market for these drugs in their slide presentation.  The opportunity for growth remains large.

q3tam

The drug pipeline consists of two drugs in later stages of development, SPN-810 and SPN-812. Both are being trialed for children, the former for impulsive aggression and the latter for ADHD.

q3pipeline

SPN-810 had been struggling with enrollment and in the second quarter the company took steps to address this.  In the third quarter update they listed a number of initiatives taken (engagement of an enrollment agency, increasing the patient screening period, giving more education to caregivers on proper diary compliance) and gave color that these had a “positive impact on patient referrals”.

Results of the Phase 2b study for SPN-812 were announced a month ago.  Following up on those results, management commented that they would begin discussions with the FDA on a Phase 3 trial.  An interesting development is that the trial may include a higher dosage than those used in Phase 2.

Being a non-stimulant gives SPN -812 an advantage with side-effects but stimulants also typically have higher efficacy.  That did show through in the results from the Phase IIb trial, where results were “remarkable” for a non-stimulant, but still not quite on par with its stimulant comparatives.

There is a market for SPN-812 as a non-stimulant for patients where stimulant side-effects are too severe.  However there is a much bigger opportunity if SPN-812 can show efficacy that is in-line or better than a stimulant.  The Phase 2b trial did not take the dosage high enough to test out this possibility.  However the benign side effects and the strong efficacy at lower dosage suggest it has a chance.

Both SPN-810 and 812 are a couple of years away from approval.   The company would like to fill the gap between now and then with an approved or nearly approved drug.  Ideally they would be looking for a drug in neurology, where they could leverage the existing sales staff, or in psychiatry, where they could gain an early foothold before 810 and 812 are launched.

Supernus was a bit of a gift in the mid teens but its moved quickly back to $23 in the last couple of weeks.  At this level it trades at an enterprise value of 5x revenue.  Growth is over 40% and not slowing down.  I continue to like Supernus and am happy with my current position size.

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