Supernus Pharmaceuticals, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; filed March 21, 2014. This is an annual filing, not a standalone Q4 filing. The company develops and commercializes CNS medicines and launched Oxtellar XR and Trokendi XR for epilepsy during 2013.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Total revenue | $12.0 million | $1.5 million |
| Net product sales | $11.6 million | None |
| Research and development | $17.2 million | $23.5 million |
| Selling, general and administrative | $55.6 million | $20.1 million |
| Operating loss | $61.9 million | $42.2 million |
| Net loss | $92.3 million | $46.3 million |
| Cash used in operating activities | $57.9 million | $47.2 million |
- FY2013 product sales comprised $11.0 million from Oxtellar XR shipments and $0.6 million from Trokendi XR prescriptions filled in Q3. Trokendi XR Q4 prescriptions were not yet recognized as revenue.
- Q4 2013 revenue was $10.3 million, operating loss $11.4 million, and net loss $22.4 million. Q4 revenue included Oxtellar XR distributor shipments and prior-quarter Trokendi XR prescriptions recognized with a lag.
- SG&A increased $35.5 million, mainly from hiring and training the approximately 110-person sales force and increased launch advertising. R&D declined $6.3 million, primarily reflecting completion of the SPN-810 Phase IIb trial. Interest expense was $7.8 million; noncash derivative revaluation and debt-extinguishment charges were $13.4 million and $9.6 million, respectively.
- At year-end, cash and cash equivalents plus current marketable securities were $82.2 million; long-term investments were $8.8 million. Working capital was $70.8 million, total assets $111.0 million, and stockholders’ equity $33.5 million.
- Cash declined $7.3 million during the year. Financing activities provided $62.7 million, principally from the convertible-note offering, while operating activities used $57.9 million.
- The company reported $49.5 million principal outstanding on 7.50% convertible senior secured notes due 2019; balance-sheet carrying value, net of discount, was $34.4 million. Notes are secured by substantially all company and domestic-subsidiary assets. The notes carry conversion and potential dilution provisions.
Material changes and business developments
- Both epilepsy products were launched in 2013: Oxtellar XR in February and Trokendi XR in August. Combined prescriptions reached 8,270 in December; full-year prescriptions were 21,105 for Oxtellar XR and 11,244 for Trokendi XR in Q4.
- Revenue moved from licensing-based activity to initial product sales, while launch-related SG&A drove a larger operating loss. The 2012 licensing revenue included a milestone payment related to Oxtellar XR approval.
- The company issued $90.0 million of notes in May 2013, used about $19.6 million of proceeds to repay its prior secured credit facility, and reported $40.5 million of note conversions by year-end. Subsequent to year-end, holders converted a further approximately $9.5 million through March 14, 2014.
- Oxtellar XR has three years of marketing exclusivity through October 2015 and issued U.S. patents stated to extend to 2027. Trokendi XR has no comparable FDA marketing exclusivity; its three U.S. patents extend to 2027 or 2029.
Outlook, risks, and contingencies
- Management expected prescription growth in 2014, planned to expand the sales force to more than 150 by midyear, and projected the company could be cash-flow break-even by the end of 2014. It also expected operating losses in 2014 and higher commercial expenses. These are forward-looking expectations, not guaranteed results.
- Management expected to select an extended-release SPN-812 formulation following a 2014 pharmacokinetic study, with a Phase IIb trial to follow. SPN-810’s Phase III protocol was being designed for Special Protocol Assessment; patient dosing was planned for 2015.
- Revenue recognition for Trokendi XR was delayed about one quarter while the company developed sufficient experience to estimate rebates, allowances, and returns. Management expected shipment-based recognition no earlier than Q2 2014, which could create a higher-revenue quarter when the method changes.
- Generic manufacturers challenged Oxtellar XR patents. Supernus sued Actavis/Watson; the case was in early stages, and the filing says an automatic 30-month stay applied to FDA approval of the challenged generic application. An adverse outcome could materially affect Oxtellar XR sales.
- Competition risk increased: Upsher-Smith’s Qudexy XR received FDA approval in March 2014 and could compete with Trokendi XR. The filing also identifies generic competition, pricing and reimbursement pressure, product safety and adoption risks, and dependence on single suppliers/manufacturers for key materials and finished products.
- Other notable items include expected $2.0 million milestone revenue upon United Therapeutics’ anticipated 2014 launch of FDA-approved Orenitram, and $144.3 million of federal NOL carryforwards subject to potential ownership-change limitations. The financial statements received an unqualified audit opinion; management reported disclosure controls and internal control over financial reporting effective as of year-end.
Important facts for investors to verify
- Subsequent prescription trends, net sales, rebate and return estimates, and the timing and effect of Trokendi XR’s transition to shipment-based revenue recognition.
- Progress toward management’s end-2014 cash-flow break-even expectation, cash burn, and remaining unrestricted liquidity.
- Current principal and conversion status of the notes, interest and make-whole obligations, and potential share dilution.
- Outcome and timing of the Oxtellar XR patent litigation, and commercial impact of generic and competing extended-release products.
- Sales-force expansion, product access and reimbursement, third-party manufacturing reliability, and SPN-810/SPN-812 development milestones.