Supernus: Record For Worst Launch In Recent History?

Supernus (SUPN) is a specialty pharmaceutical company focusing on central nervous system disorders. The stock already saw a violent sell-off after the company released fourth quarter and year-end 2012 financial results after the market closed on March 15, but a lot more downside might be coming this year.

Shares of Supernus have bounced off the recent low and are now trading at $5.88/share. The company has 30.9 million shares outstanding, giving it a current market cap of only $182 million. Investor concern stems from the company's precarious cash holdings and incredibly weak launch of Oxtellar XR (launched February 1, 2013), which was confirmed (again) with recent third party prescription data.

Supernus had $88.5 million of cash on hand ($2.86/share) as of December 31, 2012 but has guided for a 2013 annual burn rate of ~$100 million. From this, we can infer that the company will only have enough cash to make it to Q4 2013 - or Q1 2014 at best. This leaves shareholders with as little as 7 months before a possible equity financing.

Although Oxtellar XR will bring Supernus sales revenue in coming quarters, the drug's momentum is incredibly weak and seems unlikely to make a dent on the quarterly cash burn rate of ~$25 million. So if the company performs an equity financing, I'd expect it to be quite large and particularly dilutive to existing long positions in SUPN.

A $100 million public offering would prolong Supernus' lifespan by another year, but would dilute shareholder value by ~35%.

But still, the most important factor to consider when evaluating the future performance of SUPN is the overall trajectory of Ostellar XR sales. Ostellar XR, an extended release (once daily) formulation of oxcarbazepine, is having one of the worst drug launches I've ever seen and arguably the worst in recent history by volume.

The figure immediately below shows TRx sales per week for Oxtellar XR and a number of comparable drugs that have had market launches in recent history:Deuxis (a formulation of Aleve/Motrin and Pepcid) from Horizion (NASDAQ:HZNP), Grasline (gabapentin, a once daily formulation for post-shingles pain) from DepoMed (NASDAQ:DEPO), Neudexta (dextromethorphan and quinidine for involuntary outbursts of crying or laughing) from Avanir (NASDAQ:AVNR), Rayos (a delayed release form of prednisone) from Horizion , Silenor (doxepin for insomnia) from Somaxon (NASDAQ:SOMX), Vascepa (icosapent ethyl for hypertriglyceridemia) from Amarin (NASDAQ:AMRN).

(Click to enlarge)

(Click to enlarge)

The figure immediately above shows sales for last week (3/15), or the sixth week of the launch in comparison to a few other recently launched drugs. As you can see, Oxtellar XR and Rayos sales have been virtually nonexistant.

While Supernus and its investors would make the argument that the drug was launched quite recently and still needs time to gain traction, the (very) weak uptrend in prescription sales has no clear reason to change direction in the coming months and will take an extremely long time to generate appreciable sales revenues.

Horizon, which has one drug performing on par with Oxtellar XR (Rayos), as well as another that is doing a bit better (Deuxis), is currently trading near a new 52-week low on the market's disappointment over the scrip data.

Amarin's Vascepa is selling substantially better than Oxtellar XR and the other recently launched drugs while also experiencing a much clearer uptrend, is also trading right near a new 52-week low due to the underwhelming statistics we're seeing so far.

Based on this, Supernus seems likely to fall closer to its 52-week lows, if not worse once the incredible poor sales data for Oxtellar XR becomes more available. Also, while it's not clear when the company intends to perform and equity financing, this seems inevitable based on Oxtellar XR's incredibly low sales revenue.

While Supernus may look cheap in terms of market capitalization and estimated peak sales for Oxtellar XR, this is currently one of the biggest value traps in the small pharma sector and looks much more compelling as a short candidate.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in SUPN over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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