This article was initially revealed for ROTY subscribers on June 14th and sports activities a 15% acquire within the Core Biotech portfolio. It has been up to date the place vital.
Shares of CNS-disease specialist Supernus Pharmaceuticals (NASDAQ:SUPN) have fallen by 30% over the previous 5 years and have risen +12% thus far for 2022.
The identify popped up on my radar for quite a few causes, together with:
- Lucrative alternative in ADHD for key drug Qelbree in ADHD and constructive traits in prescription progress
- Respected biotech investor O’Neil Trader’s suggestion to tune into Jefferies presentation
- Prior commentary from Dr. Kenneth Pittman together with revisit of his prior work
I had seemed in on this identify a couple of instances prior to now, however by no means discovered it overly enticing. Rather, it gave the impression to be extra of a “steady eddy” versus having that top upside potential we search for (additionally a probably crowded market in ADHD).
That modified after I tuned into Jefferies presentation, which revealed a profitable area of interest to fill for Qelbree in grownup ADHD, secure progress in Parkinson’s portfolio and deep early stage behind these together with a first-in-class molecule for treatment-resistant melancholy (all backed by administration’s 30+ years of experience in illnesses of CNS or central nervous system). Balance sheet additionally seemed remarkably secure to climate such turbulent instances in biotech.
Thus, I selected to prioritize this identify for the Core Biotech portfolio and convey it to the eye of my readers.
Figure 1: SUPN weekly chart (Source: Finviz)
When taking a look at charts, readability typically comes from having a look at distinct time frames in an effort to decide necessary technical ranges and get a really feel for what is going on on. In the weekly chart above, we will see shares march up from mid-teen lows to a excessive within the mid-thirties over the previous couple years. From there, the stock corrected to mid-twenties which was the chance we would have liked to provoke a long-term place within the firm. Post Q2 report, shares have rebounded to new 52-week highs and I anticipate additional continuation.
Jefferies Presentation Notes (Link)
CEO Jack Khattar begins by reminding listeners that the corporate has been round for 30+ years (1997 to 2005 as a part of Shire) with robust expertise in CNS (particularly, in ADHD). Historically, they’ve developed 4 merchandise within the ADHD house and presently they’ve 8 merchandise on the market
Figure 2: Current and prior accepted merchandise, together with deep pipeline in CNS (Source: corporate slides)
They have very vital R&D capabilities as could be anticipated for the period of time the corporate has been round (together with CMC and drug supply applied sciences).
Moving onto Qelbree in grownup ADHD, they simply obtained approval on the finish of April and launched the product in grownup market two weeks earlier than Jefferies presentation. Qelbree is a novel non-stimulant, non-controlled substance and was launched in 2021 for sufferers aged 6 to 17 years of age. They have a 195 consultant salesforce selling the product and powerful scientific suggestions confirms knowledge noticed in part 3 program. The product works early within the therapy (as early as week 1 noticed in kids, week 2 in adults) and works in each inattention and hyperactivity. Convenience is one other profit, as it is easy to make use of with simple titration together with encouraging tolerability (discontinuation charges of two% to 4%). Company does a survey on month-to-month foundation and it is fascinating to notice that 3 of the highest causes for physicians to place their sufferers on Qelbree are stimulants (drawing sufferers in from stimulant market to non-stimulant).
Figure 3: Top causes ADHD sufferers strive Qelbree (Source: company slides)
90% of prescriptions are stimulants and 10% non-stimulants, so once more we will simply see the chance to alter the therapy paradigm right here.
IP place is robust (to 2033) and market is important (80M prescriptions on annual foundation and continues to develop). 67% of the market is in adults (double the scale of the pediatric alternative). Even small market penetration 5% to 10% would equate to a billion-dollar alternative for Supernus.
Figure 4: ADHD launch-aligned month-to-month prescriptions (Source: company slides)
Qelbree is the second finest most-successful launch prior to now decade on this house. Of observe, Qelbree was the one product on the above chart launched throughout Covid pandemic (distinctive circumstances, lack of doctor entry, and so forth).
Below, we will see that month-to-month prescriptions in March and April closed in above the 18,000 degree (hopefully touching 20,000 or increased in for May). Much increased momentum ought to come on account of grownup launch within the close to to medium time period.
Figure 5: Qelbree month-to-month prescriptions since launch (Source: company slides)
Moving onto Parkinson’s, they’ve wonderful presence with 3 merchandise on the market (Xadago, Apokyn and Gocovri). Gocovri is exclusive in that it is the solely product indicated for therapy of dyskinesia and “off” episodes (lots of merchandise on the market in Parkinson’s indicated to deal with solely the latter). Also, for a lot of merchandise as illness progresses and dose must be elevated, they trigger extra dyskinesia.
Figure 6: Three key advantages of Gocovri therapy in Parkinson’s illness (Source: company slides)
Increase in “good on time” is high quality time that they will perform with out the muscle twitching and weak spot related to dyskinesia. Net gross sales of Gocovri in 2021 was $88M (owned the product for partial 12 months as Supernus bought out Adamas Pharmaceuticals for $400M). Q1 2022 outcomes confirmed 23% progress versus Q1 2021 which ought to proceed to pattern properly (enormous addressable inhabitants, “we haven’t even scratched the surface yet”). 1 million sufferers within the US and 200,000 that get dyskinesia, additionally 200k to 300k sufferers that get the OFF episodes.
Moving onto SPN-830, it is a novel infusion machine of apomorphine with PDUFA date in early October ($100M-175M estimated peak gross sales). It’s a non-invasive, dopaminergic stimulation remedy offering steady therapy of ON-OFF episodes in Parkinson’s. This is designed for sufferers who get so many OFF episodes in the course of the day that they can not do lots of injections of apomorphine. This might turn out to be a key possibility for sufferers who in any other case would resort to deep mind stimulation or GI surgically implanted levodopa/carbidop infusion. Plan is to launch the product in Q1 2023 if all goes properly.
Figure 7: TOLEDO part 3 knowledge for SPN-830 achieved excessive statistical significance (Source: company slides)
Pivotal knowledge above exhibits virtually 2.5-hour discount in OFF time and offers sufferers extra high quality ON time with out troublesome dyskinesia.
As for SPN-820, CEO believes it is a main asset that’s underappreciated by the investor group. This is a first-in-class mTORC1 activator with distinctive mechanism of motion for the therapy of treatment-resistant melancholy or TRD. It enhances synaptic exercise and improves mobile metabolism within the mind. This drug candidate stems from a 2020 codevelop deal with privately-held Navitor Pharmaceuticals (Supernus pays for part 2 improvement as much as $50M, acquired choice to license international rights ex-China previous to initiation of part 3 research). Deal phrases concerned cost to Navitor of $25M upfront (possibility price and bought 13% possession stake) and Supernus is on the hook for as much as $450M in milestone funds). Initial knowledge in TRD confirmed encouraging efficacy sign on the HAMD-6 scale with speedy onset of motion at 2 hours (very significant impact when it comes to treating signs of melancholy). MAD (a number of ascending dose) examine demonstrated drug penetration and goal engagement (strong security & tolerability profile in addition). They checked out plasma focus and CSF (cerebrospinal fluid) focus to find out whether or not there’s correlation between the 2 with biomarker focus. Correlation between CSF focus and three biomarkers is noticed, giving them reassurance that drug is getting the place it must go and interesting goal.
Phase 2 trial was initiated 6 or so months in the past (clinical trials gov shows May 2023 major completion date). As for market alternative, there are 17 million individuals with melancholy within the US with one-third of them being therapy resistant.
SPN-817 is an thrilling program in epilepsy getting into part 2 trials this 12 months (additionally a novel mechanism of motion). They nominated a pair new molecules final 12 months in Fall as scientific candidates for additional improvement (together with SPN-443 for ADHD and SPN-446).
Company is positioned for long run progress, has a diversified portfolio in CNS, neurology and psychiatry. They presently have 3 completely different salesforces, from ADHD to Parkinson’s to neurology (Oxtellar XR and Trokendi XR). Keep in thoughts that Trokendi loses exclusivity subsequent 12 months.
As for Q&A, Vyvanse was a $2 billion product that Shire did a great job of launching and differentiating versus competitors (has a 14-hour profile). Strattera was the primary non-stimulant peaked round $720M international gross sales (very long time in the past). They consider Qelbree might be larger than these medicine given scientific profile. Some of the newer medicine on market are reformulations of amphetamines and methylphenidates (chewables and liquids) that are extra niche-type merchandise (extra in $50M to $100M vary). Takeda’s Mydayis is a bit larger but additionally has much less promotional effort behind it at this level. For Qelbree, they are going to proceed with heavy sampling (they’re the one firm who can do that as a result of it is non-controlled substance) to get sufferers began on the product and see for themselves its advantages. The firm is upfront that it is spending closely on advertising and affected person schooling together with direct-to-consumer efforts. As for progress trajectory, they anticipate linear to proceed and an inflection as grownup section is double dimension of pediatric (no again to high school seasonality both).
For Q2, the corporate reported money and equivalents of $508M as in comparison with anticipated full 12 months 2022 constructive working earnings of $20M to $40M (not burning money).
Full 12 months 2022 revenues are anticipated to complete $640M to $680M versus mixed R&D and SG&A bills of $460M to $490M (uncommon for us to have the ability to discover such fiscally accountable firms).
As for the highlights, Q2 revenues rose 20% to $170.1M.
Qelbree prescriptions grew 33% over Q1 2022 to 62,938 prescriptions. Qelbree web product gross sales of $11.1M elevated 34% in comparison with Q1 2022. Keep in thoughts grownup ADHD launch simply acquired underway in May (early innings).
As for the Parkinson portfolio, Gocovri prescriptions grew 16% to 10,929 in comparison with Q1 2021.
Moving onto the convention name, administration states that Qelbree was launched into grownup ADHD market (largest section) in May and represents the primary novel nonstimulant to be launched in 20 years. Adult market represents 68% of complete market’s prescriptions and is rising at quicker price than pediatric market and tends to be much less seasonal. June prescriptions reached highest month-to-month complete for the reason that launch of the product, with prescriber base growing from over 9,200 (up from 6,900 in Q1 2022). Commercial spend will enhance as Qelbree momentum grows in grownup market and again to high school season approaches. ADHD market is rising way more than they thought, and even 5% to 10% market share is billion-dollar alternative. Historically, Strattera was round 7% market share and administration feels Qelbree’s profile deserves the sort of quantity if no more.
SPN-830 launch in Parkinson illness might come Q1 2023 assuming FDA approval.
For SPN-820 in treatment-resistant melancholy, part 2 multi-center examine continues to enroll sufferers (n=270).
They are additionally on observe to provoke open label part 2 examine with SPN-817 in This autumn in sufferers with therapy resistant seizures.
Oxtellar XR continues to carry out properly (web product gross sales of $30M, 20% enhance in comparison with similar interval final 12 months). Trokendi XR web product gross sales had been $72M, down from $79M final 12 months.
They proceed to be energetic in enterprise improvement (on the lookout for excessive worth CNS belongings to scoop up).
For Trokendi generic competitors, they’re taking a look at 90% erosion over the subsequent 12 months (might weigh on shares). This might be thought of to be the bottom case state of affairs, and hopefully higher readability might be given in January and February when it comes to quantity and timing of generics.
I additionally counsel readers revisit Kenneth Pittman’s older article titled “Supernus Is Once Again A Super Value” because it helps to offer some context as to the place the corporate has come from (additionally viewpoint of a training doctor on this space, which I’m not).
As for institutional investors of note, Armistice Capital owns a 7.8% stake. As for insiders, Founder, President and CEO Jack Khattar actually has pores and skin within the recreation (owns over 1M shares or $26M price).
As for govt compensation, I assumed CEO’s pay for 2021 was a bit on the excessive facet ($870k money part, ~$2.9M stock awards, ~$3.4M possibility awards, $887k non-equity incentive plan compensation). To be honest, they don’t seem to be the standard money burning biotech given constructive quarterly earnings due to presently accepted medicine.
As for caliber of administration group, CEO Jack Khattar served prior as Board member, President and CEO of Shire Laboratories (drug supply subsidiary of Shire). Multiple different executives additionally served collectively prior at Shire. For the board of administrators, chairman Charles Newhall is the co-founder of enterprise capital agency NEA.
Moving onto IP, ten issued Trokendi XR patents expire no sooner than 2027 per the 10-Ok submitting. Supernus entered into settlement agreements with third events allowing sale of generic model January 1, 2023 or earlier beneath sure circumstances. Oxtellar XR 9 issued US patents expire no sooner than 2027. Qelbree pending patents, if issued, might lengthen safety from 2029 to 2033. Gocovri issued patents expire via 2038 (settlement agreements by way of Adamas predecessor allowing generic gross sales for March 2030).
As for useful nuggets from the ROTY group, Dr. Kenneth Pittman (Child & Adolescent Psychiatry Specialist) added the next commentary in Chat after our pilot buy:
Nice to see each Jonathan Faison and Oneil Trader on the SUPN boat similtaneously me. I do know Oneil has been there fairly a bit with me prior to now. It has been my largest holding for a very long time and nothing they’ve executed not too long ago (together with adverse advertising by rivals) has satisfied me to alter that. I’m very pleased with Qelbree general because it crammed an enormous want, however their portfolio is way more than Qelbree now. They will in all probability have a down 12 months or two revenue clever as they transition from Oxtellar/Trokendi to Qelbree and their different newer medicine, however I nonetheless consider the long run is vivid for them. Qelbree has a really excellent shot at being the #1 branded ADHD drug on the market by 2024 (Vyvanse might be generic at that time and the opposite 4 stimulant contenders are combating over market share with one another).
Qelbree scripts at my workplace have been very robust in comparison with most ADHD meds. I’ve a good quantity, however a few of my NPs are utilizing it much more than I’m. We are having someplace round 10 new begins each week and about 70% of those are staying on Qelbree so far as I can inform. Pretty heavy with the decrease dose/youthful child component, however some adolescent and grownup utilization as properly (if counting the apply that I work with that sees adults). Azstarys from KemPharm is doing pretty properly, however not practically in addition to Qelbree when it comes to variety of new begins.
ONeil Trader additionally offers the next readability on generic competitors:
It is price mentioning that, whereas Trokendi goes generic in 2023, solely the businesses that settled with SUPN can launch a generic subsequent 12 months. Others have to attend till the final patent expires in 2027 (or strive their luck in courtroom and sure lose as they did with Oxtellar the place the identical tech was used to develop Trokendi and patents are comparable). And SUPN will get royalties on gross sales of those generics via 2027 (phrases not disclosed). This will under no circumstances save Trokendi from a decline subsequent 12 months, however the firm will nonetheless have a pleasant income tail via 2027 (some branded and declining Trokendi gross sales and royalties on generic Trokendi).
As for accrued deficit since inception, as of December 31 2021 the corporate had retained earnings of $379.9M.
As for satan’s advocate case, the principle one I see is a state of affairs the place declining gross sales from present merchandise approaching patent expiration (i.e., Trokendi) fail to be offset by progress from Parkinson’s portfolio and Qelbree launch right into a closely crowded ADHD house. I see substantial differentiation for the drug and respect that the corporate’s advertising efforts can do heavy sampling for sufferers to strive (attributable to being non-controlled substance). I’ve learn father or mother commentaries the place they’re fed up with present ADHD remedies attributable to unwanted side effects or different attributes and like a non-controlled substance that works properly and shortly (think about the identical is relevant to grownup section). For instance, as I perceive it Strattera tends to work at week 5 or later versus Qelbree onset as talked about above week 1 in kids and week 2 in adults.
Pursuit of a market closely dominated by generics is commonly a “deal-breaker” for me in biotech, however there are exceptions resembling prior ROTY winner Xenon Pharmaceuticals (XENE) the place excessive efficacy, comfort and tolerability for XEN1101 ought to give it a leg up over generic antiseizure drugs.
As the CEO famous, market alternative for SPN-820 in treatment-resistant melancholy is extensively unappreciated by Wall Street as properly (conservatively 5M addressable sufferers within the US).
To conclude, the worth proposition for Qelbree right here is obvious because the ADHD drug attracts sufferers from stimulant market (majority) to non-stimulant (offering sufferers a strong possibility in a non-controlled substance). The holy grail for this indication is a non-stimulant drug that basically works, and that is what we seem to have right here (mother and father or sufferers do not run out of endurance and revert again to prior such remedies). Additionally, as we have realized the onerous approach with my prior losers, promising science is just not sufficient and it issues who’s on the helm of the corporate in query.
Management’s huge CNS expertise of 30+ years together with prior at Shire offers me a measure of confidence, as does the confirmed execution noticed in profitable Qelbree launch to date regardless of being the one medication on this house doing so throughout a pandemic. I additionally like how administration is “all in” on this product concerning advertising efforts attributable to perception in worth proposition for sufferers and worth creation for shareholders. Parkinson’s portfolio of belongings offers extra progress drivers within the close to to medium time period, whereas deep early-stage pipeline provides us optionality in indications of excessive unmet want resembling TRD. At the identical time, I cannot decrease the challenges of launching an ADHD drug right into a closely crowded market.
For readers who’re within the story and have executed their due diligence, SUPN is a Buy and I counsel making the most of market & sector volatility so as to add publicity on dips within the close to time period.
Again, this concept is most applicable for long-term traders, which is why we personal it within the Core Biotech portfolio.
As for threat ranking (1=low, 5= excessive), I’ll maintain this center of the vary at 3. Despite the strong stability sheet and constructive earnings, ADHD house is sort of crowded and administration has their work reduce out for them in gaining share from rivals. Declining gross sales from merchandise the place they are going to lose patent manufacturing is a headwind that must be thought of, as is the upper threat general of drug improvement in CNS indications versus different areas much less vulnerable to placebo impact. While they do not essentially want it, additional dilution is all the time doable to boost extra funds for aggressive advertising and pipeline growth. While I do not consider that is such a case, it is necessary to recollect case research resembling Kala Pharmaceuticals (KALA) launching an undifferentiated drug right into a closely crowded dry eye market (David going up towards massive pharma big Goliath).
For our functions in Core Biotech, I personal a full dimension place with intention to remain affected person for multi-year timeframe.
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