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Supernus Pharmaceuticals (SUPN) is developing a central nervous system (CNS) portfolio with proprietary extended release technologies. While most shareholders are investing in Supernus because of the strength of the company's epilepsy and attention deficit-hyperactivity disorder (ADHD) portfolios, the company could also profit in the future from the huge weight loss drug market.

In 1990, Pharmavene was founded as a stand-alone development organization. In 1997, it was acquired by Shire and became Shire Laboratories, Inc., a US subsidiary of Shire plc (SHPG). In December 2005, Supernus Pharmaceuticals, Inc. was established, after acquiring substantially all of the assets of Shire Laboratories, Inc.

On May 1, 2012, Supernus raised $50 million in its initial public offering (IPO) after selling 10 million shares at $5. The company had hoped that they would sell 5.8 million shares in the $12 or $14 range. Supernus was not able to get its stock price over $12 until June 26, 2012 when its stock price skyrocketed to $12.23 up from the previous day's close of $5.71 on a trading volume over 3.5 million after the company received a tentative FDA approval to its generic epilepsy treatment Trokendi XR.

Epilepsy

Epilepsy is a complex neurological disorder, estimated to affect up to 50 million people worldwide, according to the World Health Organization (WHO). In the United States, approximately three million people are estimated to have active epilepsy (history of the disorder plus a seizure or use of antiepileptic medicine within the past five years). About 200,000 new cases of epilepsy are diagnosed each year. The risk of developing epilepsy is believed to be about one percent.

Decision Resources research found that the global epilepsy drug market should remain relatively flat, from $2.8 billion in 2009 to $2.9 billion in 2019 in the United States, France, Germany, Italy, Spain, United Kingdom and Japan. GlobalData's analysis estimated the global epilepsy market to grow by 1.7% annually to reach $12.3 billion by 2015.

Supernus has one approved product for epilepsy, Oxtellar XR (extended-release oxcarbazepine), and one tentatively approved product for epilepsy, Trokendi XR (extended-release topiramate). Oxtellar XR utilizes the company's proprietary Solutrol technology, and Trokendi XR, uses their Microtrol technology.

The technologies used in these products have been proven and validated through use in currently approved and marketed extended-release products, including Carbatrol (carbamazepine), Adderall XR (mixed salts of a single-entity amphetamine product), Intuniv (guanfacine), Sanctura XR (trospium chloride), and Oracea (doxycycline, USP).

With the October 2012, approval of Oxtellar XR from the Food & Drug Administration (FDA) , Supernus is now focusing on completing the build-out of their commercial organization including, hiring, training and deploying a field sales force to launch Oxtellar XR in the first quarter of 2013.

Oxtellar XR is a novel, oral, once-daily, extended-release formulation of oxcarbazepine. The drug received FDA approval in October 2012. The drug delivers oxcarbazepine, another effective antiepileptic drug, which is marketed by Novartis (NVS) under the brand name Trileptal.

Trokendi XRTM, is a novel, oral, extended-release, once-daily formulation of topiramate for the treatment of epilepsy. The drug received tentative approval from the FDA in June 2012. Trokendi XRTM delivers topiramate, one of the most effective antiepilepsy drugs, which is marketed by Johnson & Johnson (JNJ) under the brand name Topamax.. Topiramate as an anti-epileptic drug is currently available only in immediate-release form and is indicated for monotherapy and adjunctive therapy of epilepsy, as well as for the treatment of migraine.

Despite their effectiveness in treating epilepsy, the instant release versions of oxcarbazepine (Tripetal) and topiramate (Topamax) are associated with many side effects that tend to limit their use. Tripetal side effects may include is an active voltage-dependent sodium channel blocker that, is, such as dizziness, double vision, somnolence, nausea, and vomiting. Topamax side effects may include dizziness, double vision, somnolence, nausea, and vomiting.

Oxtellar XRTM and Trokendi XRTM are designed to improve patient compliance compared to the current immediate-release products that are taken multiple times per day. By delivering lower peak plasma concentrations and lower input rate over an extended time period, smoother and more consistent blood levels of oxcarbazepine or topiramate are released during the day compared to immediate-release products. Many of the side effects or breakthrough seizures associated with blood level fluctuations when taking immediate-release products may be avoided.

Psychiatry

The Supernus Pharmaceuticals psychiatry portfolio includes two product candidates for the treatment of ADHD or its coexisting conditions and one product candidate for depression.

SPN-810 is a molecule that has been previously approved in the United States for treatment of other indications. It has a mechanism of action that Supernus believes is promising for the treatment of aggression and serious conduct problems. Approximately 25% of children with ADHD exhibit persistent conduct problems, such as impulsive aggression.

According to the Centers for Disease Control and Prevention, the number of children diagnosed with ADHD increased from 4.4 million to 5 million between 2002 and 2010.

Several studies have found that ADHD is increasing, with nearly one in 10 American children receiving an ADHD diagnosis, according to a 2011 study from the U.S. Centers for Disease Control and Prevention (CDC). From 1998 to 2009,CDC researchers found that the percentage of children ever diagnosed with ADHD increased from 7% to 9%. A Northwestern University study found that in 2010, 10.4 million children and teens under age 18 were diagnosed with ADHD at physician outpatient visits, versus 6.2 million in 2000.

In addition to problems in school, some studies have also found that ADHD may be associated with criminal behavior . A recent Swedish study published in the New England Journal of Medicine found there was a significant reduction of 32% in the criminality rate for men and 41% for women when they were receiving ADHD medication.

Studies have found that 60% to 70% of children with ADHD will continue to have significant ADHD-related symptoms into adulthood, resulting in a significant impact on education, employment, interpersonal relationships, and in social setting. Studies have found that adults with ADHD are more likely to have employment difficulties or develop substance abuse use problems than non-ADHD sufferers.

About 13 million Americans are estimated to suffer from ADHD, and about 30% of patients do not adequately respond to or cannot tolerate stimulant ADHD treatments

Market analysts do not seem to agree about the future growth of the ADHD drug market. GlobalData estimates that the global ADHD therapeutics market is forecast to grow at a compound annual growth rate (OTCPK:CAGR) of 8% to reach over $7.1 billion in 2018, whereas Decision Resources research forecasts that the global ADHD market will decrease from $5 billion in 2009, reach a low in 2013 before climbing to $4.1 billion in 2019.

In a recent study published in the journal, Pediatrics, FDA researchers analyzed prescription drug use in children up to age 17 from 2002 and 2010. They found that while the number of overall prescriptions for this age group decreased by 7 percent.

About 13 million Americans are estimated to suffer from ADHD, and about 30% of patients do not adequately respond to or cannot tolerate stimulant ADHD treatments

SPN-810 is a novel treatment for impulsive aggression in patients with ADHD, with the potential to be the first product available to address this serious, unmet medical need. Previously marketed in the United States to treat schizophrenia under the trade name Moban, molindone hydrochloride is unusual among antipsychotics in that it is less likely to be associated with weight gain.

In addition, the lower doses tested for the proposed indication of impulsive aggression may be better tolerated than the higher doses approved to treat schizophrenia.

These attributes make SPN-810 a potentially attractive candidate for the effective treatment of impulsive aggression in patients with ADHD.

On November 20, 2012, Supernus announced positive topline results from its Phase IIb study of 121 children age six to 12 on SPN-810 (molindone hydrochloride extended release formulation) for the treatment of impulsive aggression in ADHD patients. The company claims that the study accomplished its objectives of establishing a dose range at which the drug is effective and confirmed the efficacy of SPN-810 in the treatment of impulsive aggression in ADHD patients. After reviewing the study data in depth, Supernus plans on on meeting with the FDA to discuss the next steps in the development program and the design and protocol for Phase III clinical trials. Currently, there are no products approved for treating impulsive aggression in patients with ADHD.

The company is also developing SPN-812, a novel nonstimulant treatment for ADHD. As a selective norepinephrine reuptake inhibitor, Supernus believes SPN-812 may be more effective and could have a better side-effect profile than other nonstimulant treatments for ADHD. While the active ingredient in SPN-812 has an extensive safety record in Europe, where it was marketed for many years as an antidepressant, SPN-812 could provide an additional option to the few nonstimulant therapies currently available.

SPN-812 completed a Phase IIa study with positive data in March 2011.

Supernus investigational new drug, SPN-809, is a novel once-daily norepinephrine reuptake inhibitor for the treatment of depression.

SPN-809 is based on the same active ingredient that is in SPN-812. An open Investigational New Drug (IND) application currently exists for SPN-809 as a treatment of depression. The active ingredient in SPN-809 was approved and marketed for depression in Europe for many years.

Finances

For the three and nine months ended September 30, 2012, Supernus recorded cash, cash equivalents, unrestricted marketable securities and long-term investments of $62.5 million at September 30, 2012.

Research and development (R&D) expense for third quarter 2012 was $8.3 million compared with $8.4 million in 2011. This decrease is attributable to lower clinical trial costs for Trokendi XR. R&D expense for the first nine months of 2012 was $18.4 compared with $23.1 million in 2011. This decrease was primarily due to the conclusion of the Oxtellar XR and Trokendi XR clinical trials in 2011.

Selling, general and administrative (SG&A) expense for third quarter 2012 was $4.1 million compared with $1.5 million in 2011. The increase was primarily due to higher sales and marketing expenses associated with preparing for launches of Oxtellar XR and Trokendi XR. SG&A expense for the first nine months of 2012 was $11.5 million compared with $5.1 million in 2011. The increase was primarily due to an increase in sales and marketing costs associated with preparing for launches of Oxtellar XR and Trokendi XR.

Net loss applicable to common shareholders for third quarter 2012 was $13.5 million or $0.55 per common share (based on 24.5 million weighted average diluted shares outstanding), compared with $10.6 million, or $6.64 per common share, for 2011 (based on 1.6 million weighted average diluted shares outstanding). Net loss per share decreased due to the significant number of common shares issued in May 2012 in connection with the company's IPO. Net loss applicable to common shareholders for the first nine months of 2012 was $33.9 million or $2.36 per common share (based on 14.4 million weighted average diluted shares outstanding), compared with $30.7 million, or $19.28 per common share, for 2011 (based on 1.6 million weighted average diluted shares outstanding). Net loss per share decreased due to the significant number of common shares issued in May 2012 in connection with the company's IPO.

The company's anticipated cash burn for 2012 continues to be in the range of $55 million to $60 million. Based on their current plans, Supernus continues to anticipate that their current cash, cash equivalents and unrestricted marketable securities as of September 30, 2012 should be sufficient to fund operations into the second quarter of 2013.

Conclusion: Buy

In May 2012, analysts at Stifel Nicolaus maintained their "Buy" rating on the shares of Supernus. They set a 12-month target price at $15. In May, Cowen began coverage of Supernus with an "outperform" rating. Citigroup initiated coverage in May with a neutral rating and a $6 price target. In August, analysts at Piper Jaffray increased their target price on shares of Supernus Pharmaceuticals $12.00 to $15.00 with an "overweight" rating on the stock.

Supernus is leveraging six proprietary technology platforms and additional in-licensed technologies to discover and develop novel uses for known drug compounds and to enhance their therapeutic benefits. By focusing on known drug compounds with established mechanisms of action, the risks, costs, and time typically associated with drug development should decrease. The company has already had two drug approvals since their IPO less than one year ago. The strength of the company's pipeline matched with management's generic manufacturing and marketing expertise are two reasons why 2013 looks promising for Supernus.

Source: After 2 Drug Approvals, Can Supernus Deliver In 2013?