Supernus Pharmaceuticals Readying For A Super Year Ahead

Supernus Pharmaceuticals (NASDAQ:SUPN) is relatively new publicly-traded pharmaceutical company with a $50 million IPO on May 1st, 2012 at $5 per share. The company has been focusing on diseases of the central nervous system and had positive regulatory decisions on two of its products in 2012. On June 26th, Supernus announced that it had received tentative approval for Trokendi XR™ (extended-release topiramate) from the FDA to treat epilepsy. As pertaining to the "tentative approval," the company stated "all of the scientific and procedural conditions for approval have been met. We will continue to work closely with the FDA to further understand the outstanding issue and move forward towards final approval."

In a subsequent announcement the "tentative" status was clarified stating "final approval may not be made effective by the FDA until the period of exclusivity protection associated with safety information regarding a specific pediatric population expires." This exclusivity pertains to younger patients between the ages of 1-24 months and expires on June 22, 2013, and although the tentative marketing approval does not pertain to that age group, the FDA is requiring that pediatric safety information be included in the Trokendi XR™ label. With final approval for marketing not occurring until mid 2013, shares still responded extremely positively with a 114% surge to close out the day's trading on June 26th. Topiramate is prescribed for patients with epilepsy as an anticonvulsant and also for preventing migraines in patients with chronic migraines. Johnson & Johnson's (NYSE:JNJ) Topamax, the immediate release version, is typically dosed twice per day and earned revenue of about $538 million in 2010 after losing its patent protection with sales down from 2009's $1 billion plus.

Supernus is hoping to secure a significant portion of the market with its once-daily extended release formulation, which would be easier for healthcare providers and patients to monitor. As indicated by the share price increase upon the announced tentative approval, share price should respond positively on any updates for Trokendi XR™'s final approval and subsequent marketing of the drug.

Following the Trokendi XR™ approval, the company had another positive decision from the FDA with regard to a marketing approval for its other epilepsy drug, Oxtellar XR™ on October 22nd. Oxtellar XM™ is an extended-release formulation of another approved epilepsy drug, oxacarbazepine. Like topiramate, oxacarbazepine is also an anticonvulsant given to epileptic patients as well as some off-label uses. Oxacarbazepine, manufactured predominantly by Novartis (NYSE:NVS), brought in sales of $253 million in 2010 and then $263 million in 2011 (4% growth) according to Novartis 2011 10K. In the Oxtellar XR™ approval announcement, the company stated that it is hiring, training and deploying its field sales force to support commercialization in Q1, 2013. This pending commercialization will likely be the next major catalyst for the company in the coming days.

An interesting observation for investors and speculators, the company's current market capitalization is about $175 million, well under Novartis' sales of its oxacarbazepine drug, Trileptal. The Oxtellar XM™ approval may garner Novartis' attention as it could see Supernus as a possible acquisition candidate with an extended-release version of its successful epilepsy drug. I rarely make investments based on such speculation, but it does add a little "flavor" to the company's prospects for the future.

Along with the regulatory success of the company's epilepsy product candidates in 2012, Supernus has another promising drug that has been quietly working its way through clinicals with positive results as well. On November 20, 2012, Supernus announced positive phase 2b results for SPN-810 (molindone hydrochloride extended release formulation) for the treatment of aggressive behavior in attention deficit and hyperactivity disorder (NASDAQ:ADHD) patients between the ages of 6 and 12. The two dosages evaluated in the entire patient set met the primary efficacy endpoint of rate of aggression remission and showed statistical significance versus the placebo with p-values of 0.009 and 0.043 and percent of patients with Retrospective - Modified Overt Aggression Scale (R-MOAS) remission of 51.9% and 40.0%, respectively. However, the data on the entire patient set indicated a less impressive reduction of score in R-MOAS, as its effectiveness was not significant with a reduction in score for the R-MOAS of 62.6% and 57.9%, respectively, with p-values of 0.071 and 0.115 (p-values of ≦ 0.05 are typically construed as significant).

Interestingly, patients weighing more than 30kgs (about 66 pounds) had more significant and promising results with low and medium doses of SPN-810 having statistical significance versus the placebo in the change in R-MOAS primary endpoint with p-values of 0.024 and 0.049. There was also a statistically significant reduction in the R-MOAS scores of 80.9% and 75.2%, respectively. Unlike the set including the lower weight patients, both doses resulted in remission of aggression with statistical significance versus the placebo with p-values of 0.004 and 0.021 with percentages of patients with R-MOAS remission of 66.7% and 53.3%, respectively. The company noted the results in the data set of the under 30kg patients did not meet either primary endpoint and was the cause of the entire patient set not meeting the "reduction of score in R-MOAS" target.

For this reason, the company believes that lower levels of the active ingredient in SPN-810 in the patients' blood plasma (it's diluted down more in larger patients and more concentrated for the same dosage in lighter patients) is more efficacious and will utilize this data by which to design its upcoming phase 3 trial on the drug. SPN-810's active ingredient, molindone hydrochloride, is already approved for marketing in the U.S. for other indications. Supernus believes that the compound does show promise for the treatment of aggression and serious conduct problems in ADHD patients. With no treatment approved for the condition, the company hopes this unmet need can be addressed by SPN-810. Additional updates on SPN-810's ongoing phase 2b trial or a phase 3 trial initiation will likely be announced soon, and could also have a significant effect on the company's current share price.

Supernus common shares are now trading at $7.25 as of market close on Tuesday, January 15th with a $178 million market capitalization. Shares had traded in the $9.36 to $16.88 range between the months of the company's two positive FDA decisions (July-October). However, an unfavorable $48 million stock offering announced on November 29th to enable the company to progress from a development-phase entity to a marketing-phase entity was priced at $8.00 per share, an 18.5% discount on the day's close and more than 33% from the $12 share price just two days earlier. The announcement shocked investors and the share price plummeted to the $8.00 region. The share price has since settled down in the low $7.00 range with support seen around $6.70.

I believe Supernus common shares could be one of the safer investments for the long term among current sub-$200 million market capitalization pharmaceuticals for 2013. The catalysts expected in 2013 include marketing of an already-approved drug (Oxtellar XR™), final FDA approval for Trokendi XR™ that is likely a sure thing with only a wait until June 22nd, 2013 market exclusivity deadline, follow up data to an already promising phase 2b trial set of SPN-810, and initiation of the phase 3 trial for SPN-810. Nothing is certain with regard to small capitalization pharmaceuticals, but Supernus's current $178 million market capitalization is cheap for a company with two approved drugs and recent financing behind it to shore up its financials.

Interested investors should closely monitor the company's common shares in the coming days. A "Bollinger Band® squeeze", as evident from the converging upper and lower Bollinger Bands® on the three month stock chart, appears to be imminent. What, if any, effect this has on share price is any investor's guess. It could give a better share price entry due to price dip, or could result in shares heading back to the recent $8 or even $12 price per share range, or could have no effect on share price. Such is the nature of the small pharmaceutical sector for investors armed with knowledge, wisdom and foresight to risk their funds in this promising and soon to be marketing-phase pharmaceutical.

Disclosure: I am long SUPN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.