An issue dogging Supernus (SUPN) is potential generic competition for Trokendi XR in 2023 (p. 28). Trokendi XR has been Supernus’ long-term revenue driver since 2014. It made up 73% (p. 19) of the company’s net product sales for the first six months of 2020. Any challenge to its earnings trajectory is of serious concern to shareholders.

Providentially, Supernus is heading towards two catalysts that could make up for potential losses; these catalysts are crucial to its mid- and long-term prospects. Shareholders concerned about this situation might draw comfort from the potential that two new products may come on-line, one later this year and a second in 2021. This article focuses on these new products and their prospects to take up the slack from Trokendi XR’s anticipated challenges.

The first upcoming remediatory catalyst is SPN-812, scheduled for a PDUFA target action date of 11/8/20.

Supernus’ SPN-812 in treatment of attention deficit hyperactivity disorder (ADHD) began an arduous series of clinical trials in 2010 with “A Phase I/IIa, Randomized, Double-Blind Study of the Safety and Efficacy of SPN-812 in Adults With ADHD“.

The slide below, from the latest corporate slide deck, provides a summary of its salient characteristics:

SPN-812 has completed four phase 3 clinical trials dubbed P301, P302, P303 and P304 (slide 21), each testing varying doses of SPN-812 in groups of children ages 5-10 (P301 and P303) and adolescents ages 11-17 (P302 and P304). The four trials treated an aggregate of ~1400 patients.

The primary outcome measure for the four studies was change from baseline to end of study in the ADHD-RS-5 total score. ADHD-RS-5 is one of a variety of scales used for assessing ADHD. The RS-5 scale is optimized for assessing symptom severity. It comes in two versions, one for children and the other for adolescents.

ADHD manifests itself in a variety of ways; there are numerous approaches to treating it medicinally, including antidepressants, anti-anxiety drugs, antipsychotics, stimulants and non-stimulants. SPN-812 falls in the category of non-stimulants.

SPN-812 will face commercialization challenges.

SPN-812’s fate will depend firstly on it getting approved by the FDA and secondly on it succeeding in the market. It would be rash to ever assume that a therapy has a lock on FDA approval. According to one study, about half of the drugs accepted for review make it through on the first go; those rejected have something under a fifty percent shot at making it later.

The study noted that efficacy issues were ones most likely to scuttle ultimate approval. SPN-812 has an extensive set of trials where it has met its primary endpoint. It has also shown helpful support in targeting several secondary endpoints, notably rapid onset of action (slides 23-27).

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Perhaps a more difficult challenge for SPN-812 beyond FDA approval will be to achieve commercial success in the face of generic competition from generics of non-stimulant ADHD meds. A pointed question during Supernus’ Q4, 2019 earnings call raised an issue that has troubled several commentators, including Seeking Alpha’s Avisol Capital Partners.

The question was whether CEO Khattar anticipated that insurers would require patients to try the generic version of STRATTERA or INTUNIV before SPN-812. Khattar responded:

As I mentioned earlier, as far as the payers, it’s an ongoing discussion at this point. So, it’s not like we have a final position that they have taken one way or the other. So, those will continue through – all the way through before the launch. And our aim is clearly to have as much coverage as possible from day one.

But all the discussions so far, and as we continue to have more and more discussions and share with them the data that I referred to as far as the mechanism and the novelty of the product, I think they’re truly starting to understand that this is not like a generic Strattera or a generic Intuniv… Having said that…, I don’t want people also to misunderstand my comments. It will be challenging, of course, but we will work through it, and we have a lot of data to help us separate SPN-812 from these products.

The same questioner probed where Supernus was in terms of pricing SPN-812. After the obligatory “we don’t discuss specifics of pricing”, Khattar acknowledged:

… a question before was asked about the range of branded products in the marketplace, and I mentioned somewhere in the $350 to $550 is the range of branded products currently in the marketplace, and that covers from non-stimulants all the way to stimulants.

As a point of reference on the pricing front, patients can fill a STRATTERA scrip for as little as ~$50. Supernus sees peak demand (slide 16) for SPN-812 at 4.5-10 million scrips.

As for Supernus’ preparation for launch, during its Q2, 2020 earnings call, Khattar advised:

… We continue to prepare for the commercial launch of SPN-812, with shipments to the trade targeted for December 2020.

Supernus’ next important product launch will likely be its Apomorphine Infusion Pump.

My previous Supernus article discussed the company’s acquisition of the CNS business of US WorldMeds. The US WorldMeds deal brought Parkinson’s disease (PD) meds XADAGO and the APOKYN pen to Supernus’ stock of FDA-approved products. It also brought the Apomorphine Infusion Pump, SPN-830, for which the company just filed its NDA.

XADAGO is an adjunctive treatment to levodopa/carbidopa in patients with PD experiencing “off” episodes. It has not shown proven benefit as a monotherapy. “Off” episodes are the recurrent troublesome occasions when patients’ primary PD therapy momentarily fails.

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XADAGO is an oral therapy that cuts down on the extent of “off” episodes (muscle stiffness, loss of muscle control) associated with PD. Typically, doctors prescribe it to be taken at regular daily intervals.

The graphic below from Supernus’ latest slide presentation maps out the PD treatment progression the company envisions. PD treatment typically starts with levodopa/carbidopa as a monotherapy. As PD progresses, patients need supplemental XADAGO and then injections with the APOKYN pen.

Once approved, the Apomorphine Infusion Pump will provide a convenient mechanism for delivery of continuous dosing. The alternatives to the infusion pump are far more invasive. As noted by CEO Khattar during Supernus’ Q1, 2020 earnings call:

… deep brain stimulation and then the invasive surgery with the gastric tube, where you put in a gel of levodopa, it’s not something that everybody is going to rush to. There is a room for all these products to be used for the appropriate patient profile. But we would certainly look forward to be able to position the pump potentially to be a treatment to be considered before you consider invasive surgery or other invasive procedures.

It is still early days in terms of the Apomorphine Infusion Pump. As CEO Khattar noted in response to a Q1, 2020 question about how to think of pricing the product, it is too early to venture into pricing. As he said, a great deal will depend on the label for the product.

He was willing to address the issue of cannibalization between pen and pump, cautioning that the label would also impact it, as follows:

So there will be some overlap naturally. There’s going to be some overlap. Is it a 10% cannibalization? Is it a 20%? It’s really hard for us. We’ve modeled that, obviously. When we looked at this transaction, we’ve modeled it different ways with different scenarios and so forth and came up with obviously a very solid case for us to move forward with this. And looking at the pump eventually will be obviously a huge incremental build on the current franchise. It’s not going to cannibalize it 100%, obviously. So net-net, you’re looking at definitely significant growth to the franchise overall.

Supernus’ financial condition gives it ample leeway to prepare for its launches.

Despite COVID-19 interruptions, Supernus’ operations are currently humming along nicely. The big concern that I have relate to its ability to replace critical Trokendi XR revenues as they start to tail off in the face of expected generic competition in 2023.

CFO Patrick’s report during Q2, 2020 painted an acceptable near-term vista. He stated:

In the second quarter of 2019, net product sales of Trokendi XR and Oxtellar XR were $102.4 million and royalty revenue was $2.3 million. Net product sales of Trokendi XR and Oxtellar XR increased 11% compared to the same period in 2019 due to the beneficial impact of lower gross-to-net sales deductions in the second quarter of 2020 and an 8% price increase taken in January 2020. The year-over-year impact of volume, as measured by the number of capsules or tablets, was essentially neutral.

This is certainly nothing to write home about as far as legacy Supernus goes. Certainly, shareholders will be watching its prospective new products as they move towards FDA approval and launch.

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When you add expenses to the mix, the net earnings (p. 4) are slightly better on a q/q basis. From a cash perspective, Supernus is doing quite well notwithstanding its recent acquisitions. As CFO Patrick stated in the company’s Q2, 2020 conference call:

As of June 30th, 2020, the Company had $733 million in cash, cash equivalents, marketable securities and long-term marketable securities compared to $939 million as of December 31st, 2019. During the first six months of 2020, the Company generated $100.9 million of cash from operations, inclusive of net changes in working capital.

Offsetting this cash inflow, the Company made upfront cash payments of approximately $300 million for the acquired Parkinson’s disease products, inclusive of acquisition related expenses, plus the $10 million payment to Navitor as part of the development agreement for SPN-820.

Conclusion

When you consider Supernus’ foregoing financial metrics in the context of its share price and market cap trajectory (below) over recent years, it seems as if now presents a good entry point.

ChartData by YCharts

That is how I have treated it. I have a small starter position. I am not expecting to add to it until I see how the catalysts pan out for the company.

I see little likelihood that it will run away from me as I hold back. Although the company has handled (pg. 8) uncertainties surrounding COVID-19 well to this point, such uncertainties remain an overhang in the future. While I am optimistic about SPN-812 getting a favorable nod from the FDA, I think it faces a tough slog commercially.

I am expecting Supernus to tread water until it shows that it can grow past 2023’s Trokendi XR generic challenges.

Disclosure: I am/we are long SUPN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may buy or sell shares in Supernus over the next 72 hours.



Via SeekingAlpha.com