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Supernus Is Worth A Super-Sized Portfolio Position

Mar. 01, 2018 11:57 AM ETSupernus Pharmaceuticals, Inc. (SUPN)33 Comments
Kenneth Pittman profile picture
Kenneth Pittman


  • Supernus continues to grow revenue and earnings and currently has no debt.
  • SPN-810 and SPN-812 are progressing and will have Phase 3 results in about a year.
  • Supernus is considering an acquisition to get it into the child psychiatry space ahead of SPN-810 and SPN-812 approval.
  • Current valuation is reasonable given Trokendi and Oxtellar alone - approval of either pipeline medication could easily double the valuation.

It has been six months since I wrote about the possibility of Supernus (NASDAQ:SUPN) becoming the leader in ADHD non-stimulants. Since that time, I have been focusing on the antidepressant space with a series of articles. However, today I am returning to review the current status of Supernus and why it is now my largest individual stock holding.

Supernus Is Growing Revenues and Earnings

Supernus announced full-year 2017 results on February 27th. Full-year 2017 revenue was $302 million with product sales comprising $294 million of this. This was near the top end of the guidance as is fairly standard for Supernus' performance relative to its own guidance. This represented a little over 40% growth year over year, which was fairly consistent each quarter throughout the year (compared to the same quarter in 2016). Earnings growth was even more impressive with full-year 2017 operating earnings coming in at $99.5 million (an 84% increase compared to 2016 and numbers that exceeded guidance). GAAP earnings were lower year-over-year, but this was primarily due to a one-time benefit to GAAP earnings in 2016 and a one-time hit to GAAP earnings in 2017.

Perhaps more significantly, Supernus still has not reached peak sales despite several years on the market for both Trokendi and Oxtellar. This is primarily due to the addition of the migraine indication for Trokendi and the likely growing off-label use for Oxtellar. Supernus has issued guidance for revenues of $375 to $400 million in 2018. Assuming that Supernus reaches the upper end of its guidance (which it usually does), this would mean continued ~25% revenue growth year over year. Supernus has guided for an operating profit of $125 to $135 million. Again assuming that it reaches the upper end of guidance, this could be about a 35% increase YOY (it is 25% even at the low end of guidance). Supernus is projecting a tax burden of 23 to 25%, which could put

This article was written by

Kenneth Pittman profile picture
I am a Physician (Board Certified in Child Psychiatry, Adult Psychiatry, and General Pediatrics) and I have been an investor in individual biotech companies for about 7 years. I first published on Seeking Alpha in 2014 and began writing regularly in mid 2017. My focus is finding value in Biotech companies while also reviewing technical aspects of their stocks.  I concentrate on Neuroscience companies and share my perspective in this area.

Analyst’s Disclosure: I am/we are long SUPN, KMPH. 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.

I have had ~6-8 marketing lunches provided to my office by by each of Neos, Shire, and Arbor. I have also had ~3-5 marketing lunches provided by each of Pfizer, Tris, and Sunovion. Prior to the last year, I have had marketing lunches provided by Noven and Rhodes. I have never had direct marketing from Supernus. I have never been paid by any of the above companies for speaking or writing articles.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (33)

Sunny Goklani profile picture
Thanks for the article. You clearly are aware of the competition better than others. With that, I'll like to see your thoughts to the couple questions:
1) Any thoughts on Bloomberg's article today on slowing Rx growth of Trokendi?
2) Also read the last concall - are you worried about CGRP's emerging as competition to Trokendi?
Disc.: Long since 20s, but wish I had a larger position.
Kenneth Pittman profile picture
I can't find the specific Bloomberg article you are talking about, but I'd assume its an echo of the Piper analyst with the neutral rating. It basically was saying that Trokendi is close to peak. From my look at the numbers I wouldn't doubt that. Especially given the CGRP's as another option.

However, I don't think Trokendi growth is in the top 4 of the reasons to invest in Supernus. #1 in my mind is SPN-810 and its not really close in my mind. #2 is SPN-812 and a close #3 is the possible Bipolar indication for Oxtellar. #4 is whatever growth comes out of their cash and accretive acquisitions. Trokendi growth is probably #5 on their growth drivers for the next 3-5 years. The only issue with Trokendi that would be a negative impact would be a significant drop in sales. While I agree that it may be peaking, I think a drop in sales is unlikely.
Sunny Goklani profile picture
Thanks for your reply, Ken. It helps me to not extend growth in Trokendi - which I was assuming, while also understanding your point about it not being the biggest factor. It just makes current market cap weighed a bit more to the pipeline expectations vs current commercial expectations (which are safer), imho.
Kenneth Pittman profile picture
I'll put it this way - the Piper Analyst had a $47 target. I think that is a reasonably fair value for the two drugs on the market (plus royalties from others). It would represent about 18x forward earnings and if we were disregarding the pipeline (and the expense that comes with that) then earnings would probably be higher. The question is how much added value does the pipeline give. I personally believe that the pipeline is worth about $29/share currently (~$1.5 billion). If we add that to the $47 for currently marketed products including royalties, then that gives a $76/share price target. That is about the point I'd consider scaling back if we got there ahead of data.
joshBIO profile picture
On their recent earnings call, SUPN talked about looking now at Phase 1 or 2 assets in order to fill their pipeline coming in after 810 and 812. I would be interested to learn of any assets on your radar at that stage (perhaps GNMX if their mid-year data is good?)
Kenneth Pittman profile picture
joshBIO - Nothing comes to me off the top of my head. I'll have to take a closer look at GNMX. Message me if I don't cover GNMX or otherwise answer you within a couple of weeks.
Saltman512 profile picture
Thanks for replying. I use canslim investing system. It combines fundamental and technical analysis. SUPN is very strong fundamentally. Then technically, it has been going sideways for a year building a first stage base. It has now broken out of that base on very strong volume. And it also is moving to new all time high ground. This is all very positive per canslim buying criteria. And after the breakout last Thursday, it had a strong follow up day on Friday both price and volume wise.
Kenneth Pittman profile picture
Agree with all of the above. While I haven't used the canslim approach exactly, I do watch technicals and had noticed the consolidation and breakout with volume and followup.
Saltman512 profile picture
Would be interested in any updated analysis on Supn after eps and cc this week. Tia.
Kenneth Pittman profile picture
Much of the EPS/CC confirmed my views on the stock. Trokendi and Oxtellar growth is good, pipeline is good. I took some profits with the 33% run up in 3 days, but it is still my largest holding.
joshBIO profile picture
I'm curious to know how you'd approach looking for a re-entry point on SUPN following the recent run up after the last ER.
I've been asking myself why would institutions fork over $400m to earn .625% and a near $60 conversion price when there are better alternatives? Perhaps they are confident that the eventual transaction will be significant enough to eventually boost SUPN's market cap toward the $3b range.
Philip3 profile picture
I think the share issue is all about an mid-size cash accretive acquisition.
Saltman512 profile picture
Thank you, I am always curious about someone's port mgmt rules when they are talking about their largest holding.
Saltman512 profile picture
Very nice article, thank you for sharing. Under your portfolio management principles, how high did you go (percentage wise) with your SUPN position?

I follow William O'Neil/Canslim investing, which is predicated on growth stocks purchased based on fundamentals and technical analysis. SUPN is sound on both fundamentals per canslim principles, and has set up in a first stage base with a recent 3 weeks tight pa ttern too. This is strong technically given the fact the market has been correctly lately. If the market can get back on track overall, SUPN may be able to breakout above a early sloping trendline buypoint, and above a regular buypoint in its current first stage base. On my watchlist this week.
Kenneth Pittman profile picture
I'm at close to 12% right now personally, but in general I'd try not to go over 8% in an ideal portfolio.
2019 revenue and EPS posted on Yahoo Finance. $495.1m and $2.69 EPS.
andrey_ymb profile picture
Sorry for not being specific - 812
810 has negative dose response and is nothing to be excited about
Kenneth Pittman profile picture
It is a selective norepinephrine reuptake inhibitor. That is the same category that atomoxetine (Strattera) and duloxetine. SPN-812 (viloxazine) has been around for awhile in Europe - mainly as an antidepressant. Supernus's version is extended release. The non-ER version has some evidence in bedwetting as well, but Supernus has not mentioned this to my knowledge. That would actually be a significant advantage as there is high overlap between ADHD and bedwetting. If they could replicate that with the ER version than that is a good selling point against duloxetine or atomoxetine.
andrey_ymb profile picture
Thanks for the interesting article about a stock I never considered as an investment.
I read carefully your article and SUPN Jan. presentation and could not find anything about their MOA. What differentiate them from the competition?
Kenneth Pittman profile picture
Which MOA... 810 or 812?
ErikWilson profile picture
Dr Pittman
Is my understanding correct that the growth in demand is soaring for ADHD meds in both groups, children and adults?
Which class of ADHD drug, stimulant or non-stimulant (812), will benefit most from the ADHD epidemic?
Which do you prescribe the most?
Kenneth Pittman profile picture
Adults is by far where the growth is overall and it is almost all stimulant growth.

In general, the ADHD market is about 90% stimulants and 10% nonstimulants. I probably run more like 80-20 in part because I see a very large number of children with Autism that also have ADHD-like symptoms. ASD kids have more side effect issues with stimulants and stimulants are less effective in that group than pure ADHD. I personally will likely prescribe more than the 1-3% I predicted for 812, but I don't think I'm representative of the norm there. I know I write much more Strattera than the average Child Psychiatrist (due to the ASD overlap).

I'm fairly balanced in methylphenidates vs. amphetamines. Taking all ADHD meds into account, I'll estimate my breakdown as follows:

Very Large Number of Scripts:
Concerta (generic) - MPH stimulant
Vyvanse - AMPH stimulant
Intuniv (generic) - Alpha Agonist
Strattera (generic) - Non-Stimulant
Tenex (off-label, generic) - Alpha Agonist
Clonidine (off-label, generic) - Alpha Agonist

Medium-High Number of Scripts:
Evekeo - AMPH stimulant
Focalin XR - MPH Stimulant (generic)
Short Acting Ritalin - MPH Stimulant (booster dosing - generic)
Short Acting Adderall - AMPH Stimulant (booster dosing - generic)
Cotempla - MPH Stimulant (used to be Quillivant here)

Low Number of Scripts:
Adderall XR - AMPH Stimulant (generic)
Adzenys ODT - AMPH Stimulant
Dyanavel - AMPH Stimulant
Aptensio XR - MPH Stimulant
Daytrana - MPH Stimulant
Metadate CD - MPH Stimulant (generic)
Focalin -MPH Stimulant (booster - generic)

I'm probably leaving off one or two that I'm overlooking at the moment.
dhdhoora profile picture
Dr. Pittman -- thanks for the article. I was in $SUPN some time back and alas, jumped out. This article and your statement about being your largest holding, has encouraged me to get back in the game with $SUPN...
Kenneth Pittman profile picture
Thanks for the comment. Obviously I'm a bit more confident here than some other areas - in part because management here has a proven track record.
Small Pharma Analyst profile picture
Need to consider product lifetime. Supernus has reached a deal with the generics - they will start marketing generic Trokendi XR in Jan 2023.
KP, thanks for a well written and objective article. I took a position at $37.50 the day before their announcement. With the 2 day huge market sell off we are experiencing the price has held up well. I think you have an undiscovered gem in SUPN. No debt, a growing free cash flow, and a strong focused pipeline I think they may buy something OR be bought out themselves.No question I will be buying more on any further sell off. Again, thanks for the article.
Kenneth Pittman profile picture
You're welcome and thanks for the feedback. While it's already my largest position, I'm not opposed to adding more if it pulled back further as well
Thanks for the well written article. As mentioned above 100 mil in Fcf gives supn a Fcf yield of around 5%. Fcf/ev. Also the company is reinvesting nearly all its earnings at a high rate. Combine that with high eps growth, no debt and a large cash balance, this is one of the most attractive stocks in today's market imo.
Kenneth Pittman profile picture
Agree. Will be interesting to see where they deploy the cash, but I believe that they have intelligent leadership that is looking for good opportunities, not just the first ones that come along.
Philip3 profile picture
Thanks for the great article. Find the stock undervalued as well and puzzled by it.
Thank you for the article. Bought a large position three/four years ago for around $11 and have sold more than half. But based on this most recent quarter I vow not to sell any more and may add. The stock is under water so far this year but I think it will gradually go back up. Now that they are generating $100 mil in free cash a year, I think this is the year they acquire perhaps a mid to late stage asset.
Kenneth Pittman profile picture
Agree with all of the above. I have bought and sold previously, but have never had as large of a position as I do now.
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