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Operator: Good afternoon, and welcome to Supernus Pharmaceuticals Fourth Quarter and Full Year 2022 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. And I would now like to turn the conference over to Peter Vozzo of ICR Westwicke Investor Relations representative for Supernus Pharmaceuticals. Sir, you may begin.

Peter Vozzo: Thank you, Chris. Good afternoon, everyone, and thank you for joining us today for Supernus Pharmaceuticals’ fourth quarter and full year 2022 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 February 28, 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 2022 fourth quarter and full year results. I would like to first make a few comments about the full year of 2022 and then get into more details about specific product updates and accomplishments. We closed another great year preparing Supernus for the loss of exclusivity of Trokendi XR and the transition to our growth brands. I’m proud of our employees for excellent planning and execution over the past few years putting Supernus in the best possible position to successfully transition from our mature brands and setting the stage to deliver double-digit growth in 2024 and beyond. As we exited the fourth quarter of 2022 products acquired or launched since 2020 accounted for approximately 48% of our total net product sales.

In total, Supernus achieved in 2022 record revenues of $667 million, up 15% compared to 2021 despite a significant 14% decline or $43.6 million decline in net sales of Trokendi XR. In 2022, we also continued to advance our pipeline assets with our two lead product candidates, SPN-820 and SPN-817, now in Phase 2 development. Both product candidates represent novel therapies in CNS with unique mechanisms of action to treat depression and epilepsy, respectively. Now starting with an update on Qelbree. 2022 represented a milestone year establishing the product as one of the fastest-growing brands in the ADHD market. Qelbree’s total annual IQVIA prescriptions reached approximately 322,624 prescriptions, representing growth of about 526% compared to 2021.

In the fourth quarter 2022, total IQVIA prescriptions for Qelbree reached 117,635 prescriptions, representing a sequential increase of 24% compared to the third quarter of 2022. More importantly, in the most recent month of January 2023, the IQVIA monthly prescriptions reached an all-time high of 42,881. This represents an annual run rate for Qelbree of more than 0.5 million prescriptions. Qelbree is off to a great start in 2023, capitalizing on several dynamics that we believe will set up the brand very nicely for continued robust growth in 2023. I will elaborate on each one of these dynamics separately. First, the ADHD market has grown at a much faster rate than we expected over the past two years. In 2022, the market grew by 9% in total annual prescriptions reaching more than 90 million prescriptions.

This followed another healthy increase in 2021 of 8.5% in total prescriptions. Second, over the past 12 months, we have seen a steady increase in the average wholesale acquisition cost per prescription for Qelbree, reaching $488 in January 2023, up by 20% compared to January 2022. This is primarily due to physicians titrating up in dose for pediatric patients closer to an average daily dose of 300-milligram, and for adult patients, closer to an average daily dose of 500 milligrams. It is also the result of a 47% sequential quarterly growth and adult prescriptions in the fourth quarter of 2022. With such robust growth, the adult prescriptions represented 22% of total Qelbree’s prescriptions in the fourth quarter up from only 3% before the adult launch.

During the fourth quarter, the pediatric prescriptions sequential growth was a healthy 19% on top of the strong growth during the back-to-school season in the third quarter of 2022. The third important dynamic is the significant improvement in managed care coverage, which should lead to an increase in the 2023 net price per prescription. At the beginning of 2023, we signed a contract with a second key pharmacy benefit manager which should allow us to get to the target range of 50% to 55% in gross to net that we discussed last year. We are also pleased with the Medicaid approval rate for Qelbree’s prescriptions, which is now above 70% with preferred access in several important states. The fourth dynamic that I will highlight is the continued growth in Qelbree’s base of prescribers with over 16,822 prescribers in the fourth quarter of 2022, up from 14,265 prescribers in the third quarter of 2022.

In addition to these highlighted dynamics, we are excited about our planned expansion of our sales force in the second quarter of 2023 by approximately 45 sales representatives to give us broader reach and increased capacity to deliver higher frequency on high-decile prescribers. This expansion will allow 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, we are very pleased with the brand’s performance in its first year, having gone through the integration process of our acquisition of Adamas and having transitioned to a new sales force. The supports commercial organization, including our Parkinson’s sales force did an outstanding job integrating the brand and managing to achieve record sales of $104 million while also supporting Epogen, our second Parkinson’s product.

In 2022, GOCOVRI delivered strong growth of 19% and 13% in net sales and prescriptions, respectively, compared to 2021 and exited the year with a solid fourth quarter performance with a record high quarterly net sales of $29.2 million. Oxtellar XR continues to be steady with net product sales of $115 million for full year 2022, representing a 4% increase compared to 2021. For full year 2022, net product sales for Trokendi XR were $261 million, down from $305 million in 2021. We significantly reduced our in-person sales efforts in the second half of 2022 and continue to provide support to physicians and patients through various sales and marketing programs. In January 2023, the first generic to 3 or 4 product strengths of Trokendi XR was introduced.

Trokendi XR IQ via monthly prescriptions for January 2023 were 23,840, declining by 34% compared to January 2022. Based on the most recent IQVIA weekly prescription data for the week ending February 17, Trokendi XR prescriptions declined by 38% compared to the week ending January 13, which is the last week before the generic impact. Based on the generic erosion today and the possibility of other generic entries, we are expecting revenues from Trokendi XR in 2023 to be in the range of $60 million to $80 million. Moving on to the pipeline. We will be meeting with the FDA in April this year regarding the resubmission of the NDA for SPN-830, our apomorphine infusion device. We will announce the timing of our resubmission after our discussion with the FDA.

We initiated the open-label Phase II clinical study with SPN-817 in adult patients with treatment-resistant seizures. The study will include up to 8 sites in Australia and randomized approximately 35 patients. Depending on the rate of enrolment, top line data could be available in the first half of 2024. For SPN-820, our first-in-class orally active mTORC1 activator, the Phase II multicentre randomized double-blind placebo-controlled study in adults with treatment-resistant depression is ongoing with 25 sites activated. The study will examine the efficacy and safety of 820 over a course of 5 weeks of treatment in approximately 270 patients. The primary outcome measure is the change from baseline to end of treatment period on the Montgomery-Asberg Depression Rating Scale total score, which is a standard depression rating scale.

Finally, we continue to be active in corporate development, looking for strategic opportunities to further strengthen our future growth and leadership position in CNS. In summary, we are confident that our growth drivers and solid foundation will allow us to offset the impact coming from the loss of exclusivity of Trokendi XR and allow us to return to revenue and non-GAAP operating income growth in 2024 and beyond. With that, I will now turn the call over to Tim.

Tim Dec: Thank you, Jack. Good afternoon, everyone. As I review our fourth quarter and full year 2022 results, please refer to today’s press release. Total revenue for the fourth quarter 2022 was $167.3 million, a 5% increase compared to $159.1 million in the same quarter last year. Total revenue in the fourth quarter of 2022 was comprised of net product sales of $163.8 million and royalty revenue of $3.5 million. The increase was primarily due to growth in net product sales of GOCOVRI and Qelbree. For the fourth quarter of 2022, combined R&D and SG&A expenses were $91.7 million as compared to $122.8 million for the same period last year. The decrease was primarily due to expenses associated with the Adamas acquisition which occurred in Q4 of 2021.

Amortization of intangible assets for the fourth quarter 2022 were $20.7 million compared to $12 million for the same period last year. The increase is due to the Adamas acquisition, which again occurred in November of 2021. Operating earnings on a GAAP basis for the fourth quarter of 2022 was $34.3 million as compared to operating earnings of $6.1 million for the same period last year. The increase in GAAP operating earnings is primarily attributable to an increase in net product sales in Q4 2022 and lower expenses due to costs associated with the Adamas acquisition, which occurred in Q4 of 2021. Tax expense for the fourth quarter 2022 was $9.4 million as compared to an income tax benefit of $391,000 for the same period last year. GAAP net earnings were $25.5 million for the fourth quarter of 2022 or $0.43 per diluted share compared to $2.4 million or $0.04 per diluted share in the same period last year.

On a non-GAAP basis, which excludes amortization of intangibles, share-based compensation, contingent consideration, acquisition-related costs and depreciation, adjusted operating earnings were $57.6 million compared to $46.2 million in the same period last year. Total revenue for the full year 2022 was $667.2 million, a 15% increase compared to $579.8 million for the full year 2021. Total revenue was comprised of net product sales of $649.4 million and royalty revenue of $17.8 million. The increase was primarily due to the growth in net product sales of GOCOVRI as well as Qelbree. For the full year 2022, combined R&D and SGA expenses were $451.8 million as compared to $395.2 million for the full year 2021. The increase in expenses is primarily due to activities to support the launch of Qelbree, including the investment in the DTC campaign and cost to support the growth of GOCOVRI.

Amortization of intangible assets for the full year of 2022 was $82.6 million compared to $30 million for the full year 2021. The increase is due to the Adamas acquisition. Operating expenses on a GAAP basis for the full year 2022 was $46.1 million as compared to $86 million for the full year 2021. The decrease in GAAP operating earnings is primarily attributable to higher expenses to support the launch of Qelbree, the DTC campaign and the amortization of intangibles associated with the Adamas acquisition. Other income for the full year 2022 was $14.6 million as compared to $12.9 million of expense for the full year 2021. The change is primarily due to a gain recognized on the sale of a subsidiary of Navitor and a decrease in the interest expense due to the adoption of the new accounting standard in the first quarter of 2022.

Full year 2022 income tax expense was $32,000 as compared to $19.8 million for the full year 2021. As previously discussed on prior calls, the low tax expense for the full year 2022 was due to a corporate reorganization of the Adamas entities in the first quarter of 2022. GAAP net earnings was $60.7 million for the full year 2022 or $1.04 per diluted share compared to $53.4 million or $0.98 per diluted share for the full year 2021. On a non-GAAP basis, which excludes amortization of intangibles, share-based compensation, contingent consideration, acquisition-related costs, other R&D and depreciation, adjusted operating earnings for the full year 2022 was $148.8 million as compared to $167.3 million for the full year 2021. As of December 31, 2022, the company had approximately $555.2 million in cash, cash equivalents and marketable securities compared to $458.8 million as of December 31, 2021.

The increase is primarily due to cash generated from operations. Earlier this month, we entered into a credit line agreement that enhances the strength and flexibility of our balance sheet. This credit line provides for a revolving line of credit of up to $150 million, which can be drawn at any time for a period of one year, which includes renewal options. Now turning to guidance. We expect total revenue to range from $580 million to $620 million, comprised of net product sales and royalty revenue. Please note, total revenue guidance for 2023 assumes approximately $60 million to $80 million of net product sales of Trokendi XR, as Jack mentioned earlier. We are providing Trokendi XR specific net product sales guidance to provide more insight on the base business as the Trokendi erosion is uncertain at this point.

Full year 2023 total revenue guidance, excluding net product sales of Trokendi XR represents an approximate 30% growth rate. For the full year 2023, we expect combined R&D and SG&A expenses to range from $460 million to $490 million. Overall, we expect full year 2023 GAAP operating loss in the range of $25 million to $50 million. And finally, we expect non-GAAP operating earnings to range from $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 to the operator for Q&A. Chris?

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Operator: Our first question will come from David Amsellem of Piper Sandler. Your line is open.

David Amsellem: So just a couple. So on the PBM win for Qelbree, can you confirm that it’s ESI? And just talk about what additional payer execution you need to deliver on or looking to deliver on as the year progresses and longer term? That’s number one. Number two is, can you talk about Qelbree cadence for the year? I know you’re not giving product-specific guidance on Qelbree. Can you talk about the extent to which we’re going to see a sequential step down in sales in 1Q, and is it safe to assume that a lot of sales will be back half of the year loaded just because of the back-to-school season? How should we think about that? Thank you.

Jack Khattar: Yes. Regarding the first question of PBM, yes, it is ESI, and we got a really good position on the formulary. Do we have any more to work on? Absolutely. I mean that’s always work in progress as far as continued workload to improve the coverage across board, not just on the commercial side, but also Medicaid working with different states. And pretty much, you always have the cycles of renewals with pretty much everybody. So clearly, all that together is aligned to get us to the 50% to 55% target that we set out for ourselves. But certainly, the new contract will make a major headway towards that goal. If you remember, we ended the year somewhere around the 61% gross to net. So we’re not too far away from the 55% or 50%.

Clearly, the new contract will help us in a big significant step towards that goal. And absolutely, for 2023, I mean, given the guidance we gave and taking Trokendi XR out of it, you can make fairly close assumptions to what the other pieces are and get to where the Qelbree number is within that guidance. We certainly, as I mentioned in my remarks, we are expecting a very solid year from Qelbree in 2023. We’re very excited about all the growth metrics that we’ve seen and that we exited with in 2022. So we think that the brand is very much well in place and positioned to give us a very strong year in 2023. And certainly, the back-to-school season will always be a big part of that, absolutely.

Operator: Our next question will come from Andrew Tsai of Jefferies. Your line is open.

Andrew Tsai: Hi, thank you. Congrats on a great quarter. Thanks for the guidance, very helpful. I guess I’ll start off with a bigger picture question. You kind of alluded it throughout your prepared remarks and the initial Q&A. But is it fair to classify Qelbree as still in the early innings of launch? And then secondly, as we think about 2023, what would you say are the key drivers to volume growth as well as price. I mean it sounds like you have locked in some nice contracts as well. But the real of the question is, in your view, if you were to rank order perhaps, how do we get more sales in the next few quarters and even possibly an acceleration of sales? Thanks.

Jack Khattar: Yes, sure. There is no question, I mean Qelbree is still in the early innings of the launch. I mean, we’re not even 1 year into the launch of the adult indication. In the adult segment, if you recall, is about 67% of the market. So we are only at the beginning of that launch, and we haven’t much scratched the surface as far as the growth potential. As I mentioned earlier, the market, interestingly, in a great way, obviously, continues to grow significantly and much more than we ever expected. I mean it grew in ’21, 8.5%. And then on top of that, another 9% in 2022. So the market in itself is growing, reaching now already 90 million prescriptions. Clearly, our 320,000 some prescriptions last year is only scratching the surface as far as penetration into that market.

So we continue to have high expectations for the product and its growth potential as time goes on. As far as the drivers for 2023, as I mentioned earlier, I mean, some of the key factors are, for example, the continued penetration from a prescription perspective, the size of prescription is going up because of the daily doses also going up, especially as we penetrate further into the adult segment because the average daily dose there could be as close to the 500 on the pediatric side, adolescent side, closer to the 300, 400-milligram level. And then you combine that clearly with the sales force expansion and deeper penetration and coverage of the ADHD market. We still have a lot of physicians in our call on universe that haven’t really started even prescribing.

So we have a lot of potential out there for us to start turning a lot of these physicians, let them try the product, let them get the experience with it. Because actually, once these physicians try the product and get some experience with it and we have this information from our running survey among prescribers. There is a level of satisfaction that is truly incredible, about 90% satisfaction level among physicians who use Calgary. And that actually compares to about 51% for Strattera interestingly by these same physicians who have used Strattera for years. So it really shows you that once they try Qelbree, the experience there typically is positive. And clearly, that will encourage them to have a much wider penetration within their practice as far as putting more patients on Qelbree.

So all these factors combined, and then in the end, the gross to net improvement and so forth should certainly deliver a very robust growth in net sales.

Andrew Tsai: Great. Great. Thank you. And so speaking of the expansion of sales force, your current guidance of OpEx, I think $460 million to $490 million, it’s incrementally a little bit up versus $450 million, I believe, in 2022. So does your 2023 guidance incorporate a new DTC launch? Or is it primarily driven by the sales force assumption and expansion. And assuming there is a new DTC launch, then the question would be, do you think 2023 OpEx could be kind of part of my choice of where it’s maybe the peak expense year for the, let’s just say, short to medium term, the next 2 to 3 years? Or is that not necessarily the case?

Jack Khattar: Yes. Regarding the commercial side, so sales force and marketing and the heavy investment that we put in behind Qelbree, obviously, in 2021 and 2022, we will continue with that in 2023. I’m not going to be able to be too specific on DTC and how much and whether because some of these decisions are in progress, and it’s a fluid at this point process for us. But basically, we will continue the strong support behind Qelbree and GOCOVRI clearly. On the sales force, the expansion partial — part of that cost is going to be covered by the fact that we don’t have a third sales force anymore that we used to have in 2022, because as you recall, we have stopped the in-person sales effort behind Trokendi XR and Oxtellar XR.

So that sales support and the costs associated with that sales support will not continue into 2023, but some of it will go towards the coverage of the expansion in the Qelbree sales force. But another main component in that $460 million to $490 million is R&D. R&D, if you look at 2022 was much lower than 2021. We do expect in 2023, and hopefully, we’re correct that enrolment will speed up on SPN-820, SPN-817, spending is going to start to increase as we start all these trials. So we expect a bump in R&D that is part of the increase that you see from the $450 million in 2022 going up to the $460 million to $490 million in 2023. So that’s another big component there as well.

Andrew Tsai: Makes sense. And then maybe the last question is I guess we can ask on the 2023 revenue guide, if we take out Trokendi, maybe it’s around 520 to 540, what would be the assumptions at the lower end, higher end? And it’s a pretty tight range. It seems like you do have visibility. But I guess also the root of the question is, do you think your initial guidance is provided in such a way that you could potentially raise your guidance throughout the year? Thanks.

Jack Khattar: I mean, in general, as a principle, and we like to provide a guidance that is our best guess at this time with the information that we have in providing the guidance for 2023. So our goal is always to do it in a reasonable way. That is, of course, achievable. We don’t like to miss guidance, but also we don’t like to be too conservative either. So you have to really be in a reasonable band providing the guidance. So to your question, when you back out Trokendi XR and you look at the remaining pieces, Oxtellar XR, APOKYN, GOCOVRI, for example, continue to be a growth product for us, and we’re happy with the growth that it delivered. And then you look at the other 3 products, I think you can get to a reasonable range on what Qelbree really is and how much Qelbree is as far as part of that guidance.

So we feel pretty comfortable with the ranges around the different pieces. And for the same reasons I mentioned today about Qelbree and how we’re very excited about its potential, the momentum the product has had a great start in 2023 so far. And we’re pretty happy with the different metrics that I talked about. So all in all, we think this guidance should be achievable. But only time will tell, and we’ll update you as time goes on.

Andrew Tsai: Very clear. Thank you.

Operator: Our next question will come from Annabel Samimy of Stifel. Your line is open.

Jack Padovano: This is Jack on for Annabel. Thanks for taking our questions. So two for us. First, regarding the patients on Qelbree, do you have any additional clarity on how many of those patients are newly diagnosed versus coming from stimulants? And have you noticed any differences between pediatric adult patients in terms of willingness to begin treatment with a non-stimulant compared to transitioning from a prior stimulant? And second, for some additional granularity on the GOCOVRI efforts. Growth has been decent so far, but do you have an idea on how much of this growth is a result from your improved messaging about the dual profile versus improved payer access? And what specifically is resonating most with physicians? Thanks.

Jack Khattar: Yes, starting with Qelbree as far as the source of the business or where are these patients primarily coming from, when we ask current prescribers of Qelbree, and we talk about that, I referenced that a little bit last year in a couple of quarters. Most of the patients in the top four reasons for why physicians are putting patients on the product is that these are patients who have issues with stimulants. And we mentioned that, that actually is very reassuring for us because we wanted Qelbree to be seen as an alternative, not just to other non-stimulants but actually an alternative for all patients in ADHD. And primarily those in the stimulant category because we know for a fact a lot of patients are out there are on the stimulants and they don’t need to be on stimulants or they don’t have to be on stimulants and put up with all the issues that stimulants bring as far as tolerability and safety and abuse of controlled substances and so forth.

So it’s been very reassuring for us to continue to get that feedback from our prescribers that the main source of the business is from stimulants, especially with those who have experienced side effects and so forth. I’ll give you an example. I mean, about 15% are from stimulants who have major AEs, experiencing major side effects, another 15% who’ve tried stimulants, but just don’t work. I mean, what people forget also, for a lot of clients, the stimulants don’t work for everybody as well, not everybody responds to stimulant. And then there is a good portion, which is in the mid-teens, which is completely new patients and we would expect that obviously to grow over time. But in general, we’re pretty happy with the mix of patients and the source of business, especially early in the launch because that tells us that in the physicians’ minds, Qelbree is an option to all patients.

It’s not just an option as a second-line treatment and non-stimulant category. And as far as the GOCOVRI growth is concerned, most of the growth is coming because of the positioning, the message and really the effort that our sales force is putting out there. So we’ve been able to have a very clear positioning about the product and its uniqueness in the Parkinson’s area. It’s a very crowded space. Pretty much every product treats off episodes, but only GOCOVRI treat off episodes and deals with dyskinesia. And that is a clear message that is out in the marketplace that we are pushing and educating physicians around the fact that they can actually treat both, dyskinesia and of episodes with GOCOVRI, instead of all the other agents they use that not only treat off episodes but some of them actually like levodopa, carbidopa cause dyskinesia.

So clearly, GOCOVRI is that message is resonating, and that’s what’s resulting in what is a healthy growth on the prescription side.

Operator: I am seeing no further questions in the queue. I would now like to turn the conference back to Jack Khattar for closing remarks.

Jack Khattar: Thank you. In concluding our call this afternoon, I would like to emphasize that delivering strong growth in our business remains our top priority. As we mentioned earlier, excluding Trokendi XR, our business is expected to deliver growth rate of approximately 30% in revenues in 2023. I would like to thank all our employees for delivering another outstanding year with record revenues for Supernus and for positioning us well with solid momentum behind both Qelbree and GOCOVRI. We look forward to return to double-digit growth in revenues and delivering healthy operating margins that preceded our transition years. Thanks for joining us this afternoon, and we look forward to updating everyone on our next call.

Operator: This concludes today’s conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.