SUPN - Supernus: Rebuilding In Progress But At An Inadequate Pace

2023-06-12 11:59:19 ET

Summary

• Supernus Pharmaceuticals faces declining revenues from its long-time top seller Trokendi XR due to generic competition.
• Despite Trokendi's struggles, Supernus reported a slim increase in aggregate quarterly revenues, with stagnant revenue guidance for annual revenues in 2023.
• The company's portfolio shows potential growth in GOCOVRI and Qelbree but these assets are not expected to make up for its Trokendi XR losses.

I have followed Supernus ( SUPN ) with several articles in recent years as it has pursued its agonizing efforts to rebuild itself. The initial article, 06/2020's "Supernus Makeover: A Work In Progress" set the stage. It described how Supernus' steady growth from 2013 forward was under threat from generics and the then developing pandemic.

Supernus' threat from generics is alive and well. The pandemic however is winding down. In this article I assess Supernus' current investment merits.

Supernus former top seller Trokendi XR is wilting fast in the face of generic competition.

Supernus latest 10-Q table (p.10) listing its disaggregated revenues for Q1, 2023 compared to those for Q1, 2022 provides telling insights on the Supernus story:

Revenues from its top seller Trokendi XR are falling off at an alarming rate. In its revenue guidance, delivered in its Q1. 2023 earnings call (the " Call ") Supernus guided for full year 2023 Trokendi revenues to range from $60-$80 million. At the $70 million midpoint this implies that quarterly revenues are expected to accelerate their decline.

With nearly half of guided 2023 revenues already achieved in Q1, that leaves but scant revenues for subsequent quarters. As predicted in 02/2023's "Supernus: Earnings Yearnings" ("Yearnings") Trokendi quarterly revenues will soon be lumped in the "other" category having dropped well below $10 million.

Remarkably despite its Trokendi travails, Supernus was still able to report an increase in aggregate quarterly revenues for Q1, 2023. During the Call, it guided for annual revenues for 2023 in a range of $580 million to $620 million. Compared to its full year 2022 revenues of $667 million this suggests a decidedly less sanguine picture for the full year.

The excerpt below from the "Results of Operations" section of Supernus' 2022 10-K (p. 81) shows Supernus year over year revenue picture:

This picture shows a tired portfolio bordering on decrepitude with two notable exceptions GOCOVRI and Qelbree. More on these two to follow.

Supernus does not project horses in its stable as putting it back on growth track in the near term.

General

During the Call Supernus adjusted guidance for expected 2023 operating earnings as follows:

...raising the expected ranges of full-year GAAP and non-GAAP operating earnings and lowering the expected range of combined R&D and SG&A expenses. For the year-end of 2023, the company reiterates its prior financial guidance for total revenue.

...we now expect combined R&D and SG&A expenses to range from $450 million to $480 million compared to the prior guidance of $460 million to $490 million. out of

...

...we expect non-GAAP operating earnings to range from $75 million to $100 million compared to the previous guidance of $65 million to $95 million.

In other words management has decided to trim ~2.1% fat from its expenses with a reduction of $10 million out of a midpoint of ~$475 million in expenses.

Supernus disaggregated revenues above calls out five products as separate line items. Three of these show growth in Q1, 2023 compared to Q1, 2022. Two are in retreat. I address the three showing growth below with attention to their prospects for longer term out performance.

Oxtellar XR

Oxtellar XR is a Supernus warhorse; it was approved by the FDA back in 2012. Similarly to Trokendi XR it is under generic's attack. In response to a series of analyst questions during the Call, Supernus advised as follows in this regard:

1. Back in 2016-17 Supernus prevailed in patent litigation with TWi and Actavis, subsequently acquired by Teva ( TEVA );
2. Supernus is currently pursuing patent litigation with three generics companies creating a risk that Supernus may be may be unable to maintain exclusivity till the end of the patent expiration in 2027.

This ongoing litigation sets a risk that Supernus could face a similar loss in Oxtellar revenues to that it is experiencing with Trokendi XR. Aside from this patent risk, Oxtellar has been a steady albeit modest grower over the years.

GOCOVRI

As described in Supernus' latest 10-K, it acquired GOCOVRI (amantadine) in connection with its 2021 Adamas (ADMS) deal that closed in Q1, 2022. GOCOVRI was initially approved and launched in the 2017-18 timeframe.

It was then relaunched in 2021 when the FDA expanded its label as an adjunctive treatment to levodopa/carbidopa in patients with Parkinson’s disease experiencing OFF episodes. It has been touted as having blockbuster potential.

Slide 14 in Supernus 09/2022 slide deck lists it as having an addressable US patient population of >400,000. With a monthly WAC >$2,000 such blockbuster potential is easily imaginable. Unfortunately, if we are to judge by revenues and guidance that's all it is — imaginable.

Supernus recognizes the potential size of the GOCOVRI market as potentially 400,000 US patients. For some reason it seems unable to imagine actually closing in on an appreciable percentage of these as GOCOVRI customers.

Qelbree

Qelbree (viloxazine extended-release capsules) is Supernus' latest and greatest product. It was initially approved in 04/2021 to treat ADHD in pediatric patients 6 to 17 years of age. Subsequently in 04/2022 the FDA approved it to treat adult ADHD. A Jeffries analyst has pegged it as having peak sales potential of $0.6 billion.

Conclusion

Supernus has set itself the arduous challenge of making up for revenues lost from its long time top selling therapy. It projects insufficient revenues to fuel growth over the remainder of 2023. Conservative investors who recognize the importance of preserving value in their portfolio will take a hint and move on to more propitious offerings.

Those of a more optimistic cast will cast a broader search. Take a look at Seeking Alpha's ratings panel. It supports the bullish narrative for Supernus:

The four Wall Street Analysts covering Supernus have an average price target of $ 43.00 for a +23.49% Upside.

Its Quant ratings factor grade recognize the growth challenges I have discussed. However factoring these in with its subpar valuation and its profitability, Quant rates Supernus as a Buy.

I rate Supernus as a hold. If management could amp its revenue prospects for GOCOVRI and Qelbree, it would deserve a buy, but not before.

For further details see: