Supernus Pharmaceuticals, Inc. (NASDAQ:SUPN) is a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system diseases. In 2013, Supernus launched its first product, Oxtellar XR (extended release oxcarbazepine), an antiepileptic drug indicated for adjunctive therapy in the treatment of partial seizures in adults and children 6 to 17 years of age. The company tasked 75 sales representatives to target the top 6 deciles of high prescribing physicians in the US in an effort to establish a foothold in the market. Supernus shares currently trade at $5.03 per share with 30.89M shares outstanding for a market cap of ~$160M.
Two 2012 public offerings netted the company $92.4M in 2012, leaving them with $88.5M cash at the end of 4Q2012. In their 2012 10-K (link), Supernus estimated requiring no less than $95M to support the potential launch of Trokendi XR (extended release topiramate) and subsequent pipeline developments through 2013. To this end, they recently announced a private offering of $75M in convertible senior notes due in 2019 with a 30-day option for an additional $15M (announcement). With $21M going towards paying off borrowing under a secure credit facility, the company is left with ~$60M in cash from this fundraising. This brings their total haul cash balance to $148M, taking them through mid-2014 without a need for significant revenue or additional fundraising. Favorable sales of Oxtellar XR and a second epilepsy drug, Trokendi XR, could provide the company with sufficient revenue flow to continue to fund their developmental psychiatry pipeline into 2015.
Epilepsy affects ~2 million people in the United States, and when not controlled by medication, intermittent seizures can cause severe disruptions to patients. Many current therapeutic agents have serious side effects and significant compliance issues, often requiring multiple doses per day. Prior to Oxtellar XR, oxcarbazepine was marketed under the trade name Trileptal by Novartis (NYSE:NVS) beginning in 2000. Oxcarbazepine is currently available in generic formulations, and represents 2.8% of the total epilepsy drug market per IMS health data via the Supernus 10-K filing. Oxtellar XR has an advantageous dosing regimen: once per day at twice the dose of competitors. We believe that there is a potential market for an extended-release version of oxcarbazepine since 35% of the market for carbamazepine, a drug with a similar chemical structure, MOA, and target diseases, is accounted for by two extended-release formulations.
To estimate the maximum market-share that we believe Oxtellar XR could capture under ideal conditions in its first two years, we use argument-by-analogy with statistics provided by IMS Health by way of the Supernus 2012 10-K (Figure on Page 11) for extended-release anti-epilepsy drugs in the carbamazepine class. We ignored the most successful extended-release drug, Depakote ER, because it is prescribed for numerous indications beyond epilepsy. Tegretol XR is an extended-release formulation of carbamazepine that was approved in 1996 and captured ~8% of the carbamazepine market in Y1 and ~13% in Y2. Notably, other drugs such as Keppra XR, Lamictal XR, and Carbatrol with 4%, 2%, and 2% of the carbamazepine market in their Y1, respectively, have performed much worse following launch. If we assume that strong sales of Oxtellar XR will similarly capture 10% of the $300M oxcarbazepine market in each 2013 and 2014, Supernus will realize ~$45M in revenue through mid 2014.
Supernus is also developing Trokendi XR, a once-daily extended release formulation of topiramate, a distinct class of epilepsy drugs, that has received tentative FDA approval and could gain final approval in Q3 of 2013. Of note, Trokendi XR has potential competition in the form of a similar formulation being tested by Upsher-Smith laboratories, Inc. that could potentially delay its entry into the US market. If, however, Trokendi XR does obtain final approval, market exclusivity, and launch in 2014, Supernus may be able to grab as much as 10% of the current ~$500M Topamax (topiramate) market, or $50M (we are assuming that most prescriptions will come from physicians who would otherwise prescribe non-extended release versions of topiramate). Thus, favorable sales of both Oxtellar XR and Trokendi XR would give Supernus enough cash to operate through 2015 at current burn rates, and realize the potential of their promising psychiatry portfolio (see below). Should the company fail to achieve these sales numbers, they will require additional fundraising or partnerships to continue operations past mid-2014.
Supernus is currently developing candidates for the treatment of ADHD, ADHD with impulsive aggression, and depression. SPN-810 (extended release molindone) is a novel treatment for impulsive aggression in patients with ADHD that was previously marketed in the US as an antipsychotic to treat schizophrenia. Between 20% and 40% of the 5 million children diagnosed with ADHD in 2010 (Centers for Disease Control and Prevention) are likely to develop conduct problems and/or impulsive aggression. Patients with these coexisting conditions are often contraindicated for traditional ADHD stimulant use based on the risk for abuse. Indeed, there are currently no FDA-approved treatments for ADHD with impulsive aggression.
The current standards of care for ADHD with impulsive aggression are either psychosocial intervention, such as school- and family-based behavioral therapy, or off-label use of mood stabilizers, stimulants, and antipsychotic drugs. Several antipsychotics, particularly risperidone, have been shown to be effective at treating aggression. For instance, risperidone, which is indicated for schizophrenia and bipolar disorder, is often prescribed off-label to treat ADHD. However, the appropriateness of using antipsychotic medications to treat ADHD and other behavior disorders remain uncertain. FDA data demonstrate that children comprised 26% of the risperidone market in 2008, a market that has grown to $1.4B in 2011 (IMS Institute for Healthcare Informatics). Assuming that 16% of these pediatric users of risperidone were children with ADHD, we estimate this maximum potential SPN-810 market at $58M.
In addition to off label use of risperidone, many children with conduct problems are kept on traditional ADHD medication despite the potential for abuse. Children represent 40% of the ADHD market, and approximately 20% of children with ADHD are likely to develop conduct problems. Thus, in a US market for ADHD prescription drugs of $4.4B (DataMonitor), there is a $350M market for children with ADHD and impulsive aggression who are currently on traditional ADHD medication. Combining the off-label risperidone market and traditional ADHD medication market numbers, the total maximum potential market for SPN-810 is $400M. According to IMS Health, spending on ADHD will increase to $12-14B in 2016, implying this potential market will only increase in the next few years.
In November 2012, Supernus announced positive Phase IIb results for SPN-810 (link). The study found that SPN-810 has a more favorable side-effect profile than the currently available antipsychotics that are associated with weight gain to which youth are especially vulnerable. Risperidone-treated adolescent patients experienced greater mean weight gain (3.6 kg) than patients treated with molindone (0.3 kg; Journal of Child and Adolescent Psychopharmacology, 2012). In addition, the lower doses of molindone that were tested for impulsive aggression may be better tolerated than the currently used higher doses that were previously approved for schizophrenia. Combined with an improved side effect profile compared to the competition, clinical efficacy at lower doses would have SPN-810 well positioned to capture significant market share if approved. Successful approval could also see Supernus pursue approval for SPN-810 use in other psychiatric conditions (eg. bipolar disorder, autism) and in adults.
The second ADHD drug in the Supernus pipeline is SPN-812, a novel non-stimulant treatment for ADHD. Thirty percent of the 13 million Americans who suffer from ADHD do not respond adequately to stimulants. SPN-812 will be an additional option to the few non-stimulant therapies (Strattera, Intuniv, Kapvay) that are currently available. Supernus hopes that this selective norepinephrine reuptake inhibitor will be more effective and have a better side-effect profile than other nonstimulant treatments for ADHD. Boding well for potential approval, the active ingredient in SPN-812 has an extensive safety record in Europe, where it was previously marketed for many years as an anti-depressant. SPN-812 completed a Phase IIa trial last year with positive data, and would be widely adopted if it proves to have either superior efficacy or a superior side effect profile. If it does not significantly differ in either category from current treatments, SPN-812 is unlikely to displace other non-stimulants, like Strattera, or gain market share from stimulant medications.
Supernus Pharmaceuticals ended 2012 in a precarious cash position. Recent private fundraising has bought the company sufficient time to realize potential revenue from their epilepsy portfolio. Assuming Q3 approval of Trokendi XR, favorable revenues from the company's two epilepsy drugs would provide sufficient cash for continued development and marketing of its promising developmental psychiatry portfolio. Anything less than stellar sales performance, however, will leave Supernus in the difficult position of requiring additional funding in mid 2014.
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