Supernus Pharmaceuticals, Inc. — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012; comparative periods ended September 30, 2011. The company develops and commercializes central nervous system medicines. It had no product-sales revenue during the periods and remained in the development and pre-commercialization stage.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $91,000 | $11,000 | $391,000 | $761,000 |
| Research and development | $8.306 million | $8.425 million | $18.367 million | $23.126 million |
| Selling, general and administrative | $4.075 million | $1.501 million | $11.450 million | $5.143 million |
| Operating loss | $12.290 million | $9.915 million | $29.426 million | $27.508 million |
| Net loss | $13.482 million | $9.734 million | $32.771 million | $28.160 million |
| Basic and diluted loss per share | $0.55 | $6.64 | $2.36 | $19.28 |
| Net cash used in operating activities | — | $31.059 million | $27.927 million |
Margins were not meaningful given minimal revenue and ongoing losses. In Q3, R&D declined slightly, while SG&A rose substantially, mainly due to sales and marketing preparation for planned product launches. For the first nine months, lower R&D spending—largely reflecting completion of the Oxtellar XR Phase III trial—was more than offset by higher SG&A and interest expense.
Financial position and liquidity
At September 30, 2012, cash and cash equivalents were $23.412 million; short- and long-term marketable securities totaled $39.060 million. Unrestricted cash, cash equivalents and marketable securities were approximately $62.5 million. Total assets were $67.014 million, total liabilities $42.383 million, and stockholders’ equity $24.631 million; accumulated deficit was $72.742 million.
The company had drawn $30 million under secured notes bearing fixed interest at 11%. Balance-sheet carrying amounts, net of discounts, were $11.490 million current and $14.116 million long-term. Scheduled principal repayments disclosed for 2012–2015 totaled $25.981 million. Interest expense for the first nine months was $2.771 million, versus $1.357 million in 2011.
Cash and cash equivalents decreased by $25.132 million from year-end 2011. Operating activities used $31.059 million; investing activities used $39.613 million, primarily reflecting purchases of marketable securities; financing activities provided $45.540 million, chiefly from the May 2012 IPO. The IPO and over-allotment generated approximately $47.6 million net proceeds, while the cash flow statement reports $52.447 million of net common-stock proceeds and $2.888 million of financing costs.
Material changes and business developments
- Q3 revenue increased from $11,000 to $91,000, while nine-month revenue fell from $761,000 to $391,000. The year-to-date comparison reflects a $750,000 milestone payment in 2011; 2012 revenue included licensing-related recognition.
- Q3 net loss increased to $13.482 million from $9.734 million. Nine-month net loss increased to $32.771 million from $28.160 million. SG&A growth and higher interest expense contributed to the deterioration.
- In May 2012, the IPO raised net proceeds, and 49 million preferred shares converted into approximately 12.25 million common shares. Common shares outstanding were 24,466,049 at September 30, 2012.
- Trokendi XR received tentative FDA approval in June 2012. The company said final approval could not take effect before June 22, 2013, due to marketing exclusivity associated with pediatric safety information. Oxtellar XR received FDA approval on October 19, 2012, after the quarter.
- In August 2012, Supernus entered a Trokendi XR licensing agreement with Stendhal. The agreement provides $1.8 million of revenue recognized over 12 years and up to $1.8 million in additional milestone payments.
- Other post-quarter events: 101,667 warrants were exercised in October, resulting in issuance of 64,309 common shares; the company also reported issuance of two patents covering Trokendi XR.
Outlook, risks and contingencies
Management anticipated Oxtellar XR launch in Q1 2013 and Trokendi XR launch in Q3 2013, subject to final FDA approval for Trokendi XR. The company forecast 2012 cash burn of $55–$60 million and estimated existing resources would fund operations as planned into Q2 2013. Management stated that additional capital would be needed before then; financing availability and terms were uncertain. Failure to obtain financing could require spending cuts or delays, reductions, or termination of development programs.
The company expected continued operating losses and negative operating cash flow for the foreseeable future and did not expect near-term profitability. Commercialization, regulatory timing, manufacturing requirements and costs, clinical-development outcomes, and access to capital were identified as factors affecting cash needs. A hypothetical 10% euro appreciation or depreciation would have changed Q3 2012 net loss by approximately $494,000; the company did not hedge this exposure. The filing reported no current material legal proceedings. Management concluded disclosure controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether Trokendi XR received final FDA approval in time for the anticipated launch, and whether the stated exclusivity timing affected launch plans.
- Actual launch timing, sales, reimbursement, manufacturing readiness and commercial costs for Oxtellar XR and Trokendi XR.
- Cash burn and runway versus the Q2 2013 estimate, and the timing, amount and terms of any additional financing.
- Debt repayment requirements and the effect of 11% interest and warrant-related valuation changes on future results.
- Whether clinical-development progress and licensing milestones support future revenue sufficient to reduce operating losses.