Good afternoon and welcome to Supernus Pharmaceuticals Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in 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 Vozzo of ICR Westwicke, Investor Relations representative for Supernus Pharmaceuticals. You may begin.

Thank you, Steven. Good afternoon everyone and thank you for joining us today for Supernus Pharmaceuticals second quarter 2023 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 August 8, 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.

Thank you, Peter. Good afternoon everyone and thanks for taking the time to join us as we discuss our 2023 second quarter. Supernus continues to execute well during a transition year with the loss of exclusivity on its flagship brand Trokendi XR. In the second quarter of this year, our growth products continued to deliver robust growth with Qelbree and GOCOVRI, achieving combined net sales of $60 million. This represents 67% growth compared to the same period last year and by far, exceeds the $52 million decline in Trokendi XR net sales in the second quarter compared to 2022. Similarly, for the first half of 2023, Supernus generated $112 million in net sales from Qelbree and GOCOVRI, which significantly exceeded the $80 million lost from Trokendi XR in the same period. Finally, excluding Trokendi XR, total revenues for Supernus grew by 25% in the first half 2023, compared with the same period last year. Moving on to more specifics about Qelbree's strong performance in the second quarter, despite the beginning of the weak summer season in the ADHD market. For IQVIA prescription data, the ADHD market was essentially flat in the second quarter compared to the first quarter of this year, while Qelbree's prescriptions grew by 9%, reaching an all-time high of 146,344 in quarterly prescriptions. In addition, Qelbree's net sales grew by 20% in the second quarter compared to the first quarter of 2023, showing the resiliency of the brand and its continued growth potential despite the seasonality in the ADHD market. Moreover, 146,344 quarterly prescriptions represent a 133% increase compared to the second quarter last year. As we approach mid-August, several metrics have now started signaling the return of the back-to-school season. For instance, pharmacy orders from wholesalers that are typically a good leading indicator for product demand…

Thank you, Jack. Good afternoon everyone. As I review our second quarter 2023 results, please refer to today's press release and 10-Q that were filed earlier today. Total revenue for the second quarter 2023 was $135.5 million compared to $170.1 million in the same quarter last year. Total revenue in the second quarter of 2023 was comprised of net product sales of $128.3 million and royalty revenue of $7.2 million. The $37.2 million decrease in net product sales was primarily due to a $52.3 million decline in net product sales of Trokendi XR, partially offset by a $24 million increase in net product sales of our growth products, Qelbree and GOCOVRI. Excluding net product sales of Trokendi XR in both periods, total revenues for the second quarter of 2023 increased 18% compared to the same period last year. For the second quarter of 2023, combined R&D and SG&A expenses were $111.2 million as compared to $116.9 million for the same period last year. While second quarter 2023 SG&A expenses declined year over year, R&D expenses increased $8 million over the same period due to increased investment and advancement with the clinical programs in our pipeline. Operating loss on a GAAP basis for the second quarter of 2023 was $17.6 million as compared to an operating earnings of $11.3 million for the same period last year. In the second quarter of 2023, we recorded an income tax benefit of $16.3 million as compared to income tax expense of $3.5 million for the same period last year. GAAP net loss of $800,000 for the second quarter of 2023 or loss per diluted share of $0.02 compared to GAAP net earnings of $7.9 million or earnings per diluted share of $0.14 in the same period last year. On a non-GAAP basis, which excludes…

Thank you. We will now conduct the question-and-answer session. [Operator Instructions] Our first question comes from Andrew Tsai of Jefferies.

Hi, thanks. Good afternoon. Appreciate all the updates. Thanks for the questions. So, maybe, the first question on Qelbree, the net price did seem favorable in Q2. It did sound as if gross to net also improved. So, the question is, were there any inventory fluctuations or destocking that happened in Q2? And then it sounds like factory shipments are ramping up in Q3 ahead of the back-to-school season. which you said is a positive leading indicator. So, should we assume some inventory build in Q3? Thanks.

Yes. Hi, Andrew. Regarding the inventory, it has been light on Qelbree in general all along. It did get a little bit lighter in the second quarter, but nothing really significant. Certainly with the back-to-school season, as I mentioned in my remarks, and as you rightfully said, now kicking into high gear, we would expect the wholesalers to start reacting to the orders from the pharmacies. So, the orders from the pharmacies are already showing a very healthy increase and that's typically the lead indicator because pharmacies are seeing obviously the increase in the prescriptions. They react to that with increased orders and then wholesalers react to those orders by increasing their orders from us. So, it's really -- it's a cascading effect and we're already seeing the first few steps occurring with the growth there. And then of course, we will hopefully see that also obviously in the weekly prescriptions, as time goes on specifically in mid-August moving on through September October.

Perfect. And speaking of, scripts, as we, in the financial community, think about, what Qelbree's sales trajectory needs to be in Q3 and Q4 to reach some somewhere closer to consensus of $160 million for 2023, assuming you're comfortable with that number, then is it fair to assume we can expect TRX to inflect in both third quarter and fourth quarter rather than just third quarter. So basically how are you thinking about the quarter-to-quarter sales growth cadence? Is it going to be a strong growth in Q3 alone or equally strong in Q3, Q4 and beyond? Thank you.

Yes, sure, I mean the prescriptions will start really picking up again in the third quarter and will continue through the fourth quarter as well because the back-to-school season, it's a little bit funny, it's not a purely on a calendar basis, clearly, right? So, half of the summertime is June, which falls in the second quarter. July is normally also soft, which is in the second quarter. July is normally also soft which is in the third quarter but the back-to-school season is really mid-August even through October which bleeds into the fourth quarter so it's not purely calendar clearly the seasonality and therefore the growth is expected to happen in the third quarter and again in the fourth quarter as well and therefore we expect sales to continue to grow in the fourth quarter as well on top of what growth we get in the third quarter.

Perfect. Thank you very much.

All right. Thank you. One moment for our next question. Our next question comes from Stacy Koo of TD Cowen.

Hi. This is Vish on the line for Stacey, and congratulations on the quarter, and thank you so much for taking our questions. Could you please comment on the Calgary traction in adult versus the pediatric population? So, what is the breakdown for the Calgary prescription growth for adult and pediatric segment in Q2 and the expectation for the adult ADHD launch? So what is the level of awareness among the clinician group as we think about future growth prospects and should there be less seasonality for the adult population? Thank you.

Yes, regarding adults versus pediatric, what we saw in the second quarter, growth in the adult segment by approximately around 16% growth, versus in pediatric it was in the 5%-6%. So clearly, as the kids went into summertime, out of school, adult was still picking up, obviously, the growth in the brand. And obviously, adult is also, we're only about a year into the launch of adult, so we're still trying to get much deeper reach within the adult physician audience and get more people to be adopters of the brand. As far as our mix of the business, it's still in the probably around the 30%, 33% is adult and the rest is pediatric, so we still have a long way to go as far as our growth in the adult segment. Now with the back to school season now in high gear, you would expect us to be pushing more on the pediatric side, clearly to take the most advantage of the back to school season. And then later, maybe later in the year, we balance it out with another push on the adult side. So we do these different strategies, obviously execute different strategy on a quarterly basis, depending on seasonality, depending on what did you launch and the awareness in different physician audience, the rate of adoption, the growth rates and so forth.

Perfect. And lastly, so last quarter on the call you had mentioned some deepening prescriptions from top-decile prescribers, but also expanding to new prescribers. So how is that expansion and deepening progressing and how do you see the prescriber base growing, moving forward?

Yes, I mean, the Salesforce expansion has been completed. Everybody has been trained, everybody's in the field, has been in the field for a while now. The timing of the expansion was by design. Clearly that's why we did it in the, April-May time frame so that we are, fully ready for the back-to-school season. So clearly the timing of all that was by design, and therefore, the most impact we will see is in the back-to-school season and the rest of the year out of that expansion. That expansion of about 45, 46 reps clearly was designed to do two things, of course, to expand the reach, as well as to increase the frequency among the physicians. This is a category which is sensitive to promotion. It takes numerous calls to turn a physician into an adopter, so frequency is extremely important. And we are hyper-focused, of course, on the top deciles, who see a lot of patients, or from a volume perspective, they give you the best return on that sales call.

Perfect. Thank you so much.

Thank you. One moment for our next question. Our next question comes from David Amsellem of Piper Sandler.

Hey, thanks. So, just got a few. First, sorry if I missed this, but can you talk about underlying volume trends for GOCOVRI? I don't know if you're in a position to give prescription data, but that would be helpful. Maybe I'll just ask a different way or underlying sales and volumes essentially in alignment. So that's number one. Then number two is how are you thinking these days about BizDev? And you're going to have an R&D day, so I guess it sort of brings up an interesting question is are you looking at additional pipeline assets or are you continuing to prioritize commercial stage assets? And just help us understand your latest thought process there. And then lastly, on Oxtellar, I wanted to get your thoughts on why you settled for next year when you had a couple of other cases that you actually won, and your entry for Oxtellar was 27 for generics. Now, that pulls up to 24. Just help us understand your thinking there, and is it tied to broader strategy regarding the assets you're prioritizing? Thanks.

Yes. Yes, starting with the first question on GOCOVRI, we estimate prescription growth to be around 6%, like in the first half of this year on GOCOVRI versus last year, so it's still a healthy growth in prescriptions. And the reason I say we estimate, because with GOCOVRI, it's a specialty pharmacy, but we also have several accounts, institutions, what have you, that directly buy from us. So it's a little bit, and they don't report prescriptions to us. So that's why there's always an estimate there that is included. It's not like you're reading IQVIA prescriptions. And because of the fluctuation sometimes quarter to quarter, we really stop reporting it necessarily, but we focus on sales. And this is a very important point because when you have a specialty pharmacy or only accounts who are buying the product, they're certainly not buying it because there are no prescriptions going on. So the correlation between sales and the growth of the brand on a unit basis is pretty high because these folks, they don't tend to sit on inventory, obviously, especially like institutions and so forth. So I would look at sales as a very, very good marker and surrogate to the health of the product and the growth behind the product. Regarding the second question on business development, we continue to prioritize the commercial assets, if we can get opportunities that have commercial assets that could bring further revenue and cash flow into the company. As a next level priority is a pipeline asset that could be potentially launched ahead of what we already have in our pipeline. Our pipeline, clearly the most advanced one is the infusion device, the apomorphic infusion device. But right behind that, the two main assets, SPN817 and SPN820, are at this point in…

That's helpful. Thanks, Jack.

Sure.

All right. Thank you very much. [Operator Instructions] Our next question is from Annabel Samimy of Stifel.

Hi. This is Jack on for Annabel. Thanks for taking our questions. So now that you're many quarters in with the reliable non-stimulant drug, do you have a sense of whether there's a shift in the go-to drug for physicians when thinking about putting a new patient on drug? And what is the profile of the patient that gets put on a non-stimulant versus a stimulant look like?

Yes, I can speak clearly, directly as to Qelbree and what we're experiencing with Qelbree and so forth. So the source of our business, or where are patients coming to the Qelbree franchise? Basically around 70% of the patients are being switched from stimulants and other products. The bulk of these switches are coming from stimulants. 65% of the switching that is happening, these patients that are coming to Qelbree are coming actually from stimulants. The research shows us that the top reasons for these switches are basically stimulants actually and the AEs that are associated, the tolerability or lack of tolerability with stimulants. The second main reason, they've been on stimulants but they didn't really get a good response. I mean, people forget not everybody actually responds to stimulants even if they have tried two different stimulants that exist on the marketplace. Third, specifically with parents, they just don't like to give their kids stimulants so they may have tried them and they weren't too happy really with the experience and so forth. So the bulk of the switches are coming from stimulants. Now having said that, about 30%, the remaining 30% of the business that we're getting or patients that we're getting are actually de novo patients. So these are patients that haven't tried anything before and Qelbree has become the medication that is a go-to medication. It's a first-line treatment for a lot of physicians out there and that's really very encouraging for us, because it's encouraging because now we can say that physicians, for a lot of physicians, they are thinking of Qelbree as a first-line treatment and it's really based on the experience that either they've had with Qelbree, or they've heard about other physicians who have tried Qelbree. And really the remarkable efficacy, which…

Got it. And then, so just filling off that a little bit, for all of those Qelbree patients that have been converted from stimulants, I know you've previously mentioned that stimulant shortages weren't necessarily tailwinds for you, but could you explain a bit more as to why that is?

Yes. The stimulant shortages, when you think about a patient who has been prescribed a stimulant, and that patient went to the pharmacy and couldn't find it. So from a medical clinical perspective, the first important point is the doctor has made up and made the decision that that's really what's necessary and what's important and what's the right treatment for that specific patient. It's either an amphetamine or a methylphenidate or what have you. So if the patient reports back that they can't find it, that physician pretty much has probably 20 other options within the amphetamine, methylphenidate. So most likely, because they've already made up their mind clinically, most likely they're going to prescribe another similar stimulant that is maybe a different formulation or a different chewable or a tablet or extended release versus immediate release or whatever. So that's why we don't think Qelbree necessarily is going to be the option that the physician will first think of when the patient reports to them that they can't find it. Now if the patient continues to have issues from a shortage perspective, that may make the physician rethink the therapy and maybe if that physician has a good experience with another patient for whom they felt that the non-stimulant and Qelbree is appropriate, they may try Qelbree. But we can't really say that the shortages necessarily are really a good dynamic for us in general. They might help, but it would be probably not too significant.

That makes sense. Thank you.

Sure.

Okay. Thank you. I'm showing no further questions at this time. I would now like to turn the conference back to Jack Khattar for closing comments.

Thank you. In concluding our call this afternoon, I would like to emphasize that returning to strong growth is our top priority. Our growth products, Qelbree and GOCOVRI, delivered significant growth of 67% in net sales in the first half of this year, reaching $112 million that by far exceeded the decline of $80 million in Trokendi XR. We will continue to be focused on making the 2023 transition as smooth as possible as we move away from the legacy products and set the stage for continued growth in 2024 and beyond. Thanks for joining us this afternoon. We look forward to seeing you on October 18 at our R&D day in New York City and to updating you on our next call.

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