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Supernus Pharmaceuticals Inc
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Good morning ladies and gentlemen and welcome to Supernus Pharmaceuticals First Quarter 2018 Financial Results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.
I would now like to turn the conference over to Peter Vozzo of Westwicke Partners, Investor Relations for Supernus Pharmaceuticals. You may begin.
Thank you, Andrew. Good morning everyone and thank you for joining us today for Supernus Pharmaceuticals first quarter 2018 financial results conference call. Yesterday after the close of the market, the company issued a press release announcing these results.
On the call with me today are Supernus’ Chief Executive Officer, Jack Khattar, and Chief Financial Officer, Greg Patrick. Today’s call is being made available via the Investor Relations section of the company’s website at ir.supernus.com. Following remarks by management, we will open the call to questions. We expect the duration of the call to be approximately 45 minutes.
During the course of this call, management may make certain forward-looking statements regarding future events and the company’s future performance. These forward-looking statements reflect Supernus’ current perspective on existing trends and information and can be identified by such words as expect, plan, will, may, anticipate, believe, should and can, and other words of similar meaning. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in the Risk Factors section of our 2017 annual report on Form 10-K, which was filed on March 1, 2018. Actual results may differ materially from those projected in these forward-looking statements.
For the benefit of those of you who may be listening to the replay, this call is being held and recorded on March 9, 2018 at approximately 9:00 am Eastern time. Since then, the company may have made additional announcements that relate to the topics discussed. Please reference the company’s most recent press releases and current filings with the SEC. Supernus declines any obligation to update these forward-looking statements except as required by applicable securities laws.
I will now turn the call over to Jack.
Thank you, Peter. Good morning everyone and thanks for taking the time to join us as we discuss our 2018 first quarter results. First, let me begin with some financial highlights.
Supernus started 2018 with another strong quarter of growth and net product sales for both Trokendi XR and Oxtellar XR, driven by robust underlying demand for both products. First quarter net product sales increased by 58% to a record $89.1 million. Operating income of $31.4 million increased by 87% over the first quarter of last year, and our GAAP net earnings per share reached an all-time high for any first quarter of $0.49 per diluted share.
Driving this strong financial performance is continued solid prescription demand for our products, which reached over 200,000 prescriptions for a quarter for the first time. Total prescriptions for Trokendi XR and Oxtellar XR as reported by IMS showed growth of 49% in the first quarter of 2018 over the same period last year. For Trokendi XR, prescriptions in the first quarter of this year reached 164,160, which is a 62% increase over the same quarter last year, and for Oxtellar XR prescriptions were 36,718, representing an increase of 11% over the same period last year.
During April 2018, the U.S. Food and Drug Administration accepted for review our efficacy supplement requesting expansion of the current indication for Oxtellar XR to include monotherapy treatment of partial seizures of epilepsy for adults and for children six to 17 years. Recall that Oxtellar XR is currently indicated as adjunctive therapy for treatment of partial seizures of epilepsy for adults and for children six to 17 years. We expect a decision by the FDA on this supplement by the end of December 2018.
Monotherapy is an important first line option treatment for patients with epilepsy and should allow us to maximize the opportunity for Oxtellar XR in neurology. Roughly 56% of epilepsy prescriptions written for antiepileptic drugs is for monotherapy of partial seizures, representing an annual market of approximately 13.6 million prescriptions. The availability of Oxtellar XR as a monotherapy treatment will allow us to tap into this large opportunity, providing newly diagnosed patients with access to the product’s benefits.
Moving on to our pipeline and starting with SPN-812, a novel non-stimulant for ADHD, overall enrollment in the four ongoing Phase III trials has been progressing well and is at approximately 61% of the total number of patients to be randomized. The program consists of 4 three-arm placebo control trials, two of which are pediatric trials and the other two are for adolescent patients. In addition, patients who complete these trials can choose to enroll in an open label extension trial. We continue to expect to have data from this Phase III program available by the first quarter of 2019.
Regarding SPN-810, enrollment continues in both Phase III trials in impulsive aggression in pediatric patients who have ADHD. The first trial is now at approximately 86% enrollment and the second trial is at approximately 71%. We continue to anticipate having data by the fourth quarter of 2019. In addition, we continue to expect that a Phase III trial for SPN-810 treating impulsive aggression in adolescents who have ADHD to start mid-2018. Furthermore, patients who have completed the SPN-810 trials continue to enter the open label extension study at a high rate of about 90%, reflecting a high level of satisfaction from physicians and patients.
Regarding Oxtellar XR, the investigator sponsored trial in bipolar disorder is expected to complete enrollment by year end 2018. This randomized open label study is designed to enroll approximately 90 patients among three study sites, with each patient completing six weeks of therapy on either Oxtellar XR or oxcarbazepine immediate release added to their existing therapy.
We are excited about our late-stage pipeline, which now consists of three sizeable opportunities in psychiatry, with SPN-810 and SPN-812 in Phase III clinical testing and Oxtellar XR in a mid-stage proof of concept trial. Our strategy in 2018 is to advance SPN-810 and SPN-812 through Phase III clinical development, moving us closer to our goal of delivering from our current pipeline two novel and differentiated treatments, both addressing billion dollar market opportunities.
Finally, we continue to be very active on the corporate development side looking for neurology and psychiatry assets that represent a strategic fit with our portfolio.
I’ll now turn the call over to Greg, who will provide more details on our first quarter operating performance.
Thank you, Jack, and good morning everyone. As I review our first quarter 2018 financial results, I’m reminding listeners to refer to the first quarter earnings press release issued yesterday after the market closed.
Net product sales for Trokendi XR for the first quarter of 2018 were $70.5 million, a 68% increase as compared to the prior year period. Net product sales for Oxtellar XR in the first quarter of 2018 were $18.6 million, a 29% increase as compared to the prior year period. In past years, changes in weeks of coverage have affected net product sales in the first quarter of the year. This year, it is important to note that this has not been the case. There have been no material changes in weeks of coverage for either product between the fourth quarter of 2017 and the first quarter of 2018.
Total revenue for the first quarter of 2018 was $90.4 million, a 57.1% increase as compared to $57.6 million in 2017. Total revenue for the first quarter of 2018 included net product sales of $89.1 million and non-cash loyalty revenue of $1.3 million as compared to net product sales of $56.4 million, non-cash loyalty revenue of $1.1 million, and license revenue of $58,000 in the first quarter of 2017.
Turning now to expenses, for the first quarter of 2018 research and development expenses were $18.9 million as compared to $9.6 million in the same quarter in the prior year. The year-over-year increase of $9.3 million or 96.9% is due primarily to the initiation of the four Phase III clinical trials for SPN-812 in the second half of 2017 as well as the continuation of the open label extended study for SPN-812.
Selling, general and administrative expenses in the first quarter of 2018 were $36.8 million as compared to $28.2 million in the same quarter of the previous year. The expense increase was primarily due to the expansion of the sales force by 40 sales people who were fully deployed in the fourth quarter of 2017 and their associated expenses. To a lesser extent, marketing programs to support the company’s commercial products grew year over year as well.
Operating earnings in the first quarter of 2018 were $31.4 million, an 87% increase over $16.8 million in the same period the prior year. This improvement in operating earnings was due primarily to increased net product sales partially offset by year-over-year increases in R&D and SG&A expenses.
GAAP net earnings in the first quarter of 2018 were $26.4 million or $0.49 per diluted share as compared to $10.3 million or $0.19 per diluted share in the same period last year. GAAP net earnings for the first quarter of 2018 reflected an effective tax rate of 15.5% as compared to 36.5% in the first quarter of 2017. The tax rate in the first quarter of 2018 benefited from the recently enacted U.S. corporate tax reform legislation as compared to the tax rate in the year ago period.
Weighted average diluted common shares outstanding were approximately 53.8 million in the first quarter of 2018 as compared to 52.8 million shares in the prior year period. As of March 31, 2018, the company had $664.8 million in cash, cash equivalents, marketable securities, and long term marketable securities as compared to $273.7 million at December 31, 2017. This increase reflects net proceeds of approximately $391.3 million from the sale of $402.5 million of convertible senior notes in March 2018 as well as $27.1 million of cash from operations in the three months ended March 31, 2018.
Now turning to financial guidance for 2018, we continue to expect full-year 2018 net product sales to be in the range of $375 million to $400 million, R&D expenses to total approximately $80 million, and operating earnings to range from $125 million to $135 million. Full-year 2018 operating earnings include approximately $7 million of licensing and non-cash loyalty revenue.
I will now turn the call back to the operator for questions.
[Operator instructions]
Our first question comes from the line of Ken Cacciatore with Cowen & Company. Your line is now open.
Hey guys, congratulations on the results. I just wanted to ask about business development, now that you have a little bit more cash cushion and clearly generating a nice amount of cash, how you think about with two Phase III programs reading out around this time next year, a little bit earlier than around this time next year. How do you think about what you would want to approach? Is it commercial assets? Is it re-load the pipeline, and give us a sense of what you’re seeing out there. Thank you.
Sure. Our strategy in BD hasn’t really changed much. It continues to be fairly consistent as we’ve done in the last several years, with the top priority being commercial assets, late-stage assets if we can find them at a reasonable price. But to your point, now that we have--you know, we’re very close to read-out from two Phase III programs, we are very diligently looking at opportunities that could be more earlier stage or mid-stage, something like Phase I, Phase II type of programs, realizing that we have to reload the pipeline, hopefully very soon as 810 and 812 get closer to the finish line.
As far as the therapeutic areas, we continue to be agnostic whether it’s neurology or psychiatry. Either one would be fine with us because we will continue to have a strong neurology franchise for a long time, and we are obviously establishing a strong presence in the psychiatry space with three opportunities in our pipeline.
So, really the short answer is both therapeutic areas are priority. If we can find something that is reasonable and has high growth prospects from a commercial point of view or near commercialization, absolutely we will do something in that area. If not, we are definitely looking at assets in the Phase I, Phase II stage at this point.
Thank you.
Thank you. Our next question comes from the line of David Steinberg with Jefferies. Your line is now open.
Yes, thanks. Jack, I was wondering if you could comment on the pending competition in the migraine area with the CGRP entrants. Later this year and into next year, there could be up to four new CGRPs reaching the market. I guess the assumption is they will be pricier than Trokendi and the mode of delivery is a little more invasive, either subcu or infused. On the other hand, the data is fairly remarkable in terms of migraine prophylactics. Lots of pushes and pulls, but could you give us your view on how you see the landscape evolving, and do you see your product line being impinged by the CGRPs or do you think it’s an opportunity to grow the business? Any thoughts on CGRPs? Thanks.
Yes, sure. Regarding first the market itself, I mean we actually welcome the increased attention to the market, clearly increased investment in the market as far as potentially expanding the market, because we all know that the market is very much underserved. There are a lot of patients out there who could use migraine prevention and are not in the market today, and therefore, we view the activity or the upcoming increased activity by several players in the market to be potentially a positive by growing the market overall, and we will have our fair share of participation in that growth.
As far as the data so far that we have seen, I mean clearly these are drugs that work; but when you look at the collective data that we all have seen, we don’t really see it that much different than topiramate. It’s really not that much different than topiramate itself, so from an efficacy point of view, we don’t really see any major differences or advantage for CGRPs versus topiramate or some of the other molecules out there.
Overall, we’re excited about the increased activity. We are prepared and ready for these new competitors into the marketplace. As far as pricing, we don’t know at this point. We’ll only know when they issue what the price is at that time. So that’s -- we just wait and see what happens.
Okay, thanks.
Thank you. Our next question comes from the line of Bill Tanner with Cantor Fitzgerald. Your line is now open.
Thanks for taking the question. Jack, I had one for you as it relates to Oxtellar. You mentioned filing for the monotherapy indication, and so I’m just curious, you made a comment that 56% of prescriptions, about 13.6 million are for monotherapy. I am wondering what’s your perception of the use of Oxtellar for monotherapy currently, and I’m just trying to understand what the incremental opportunity is here? It seems like it’s a pretty big opportunity, and would one contemplate that the market share of Oxtellar for monotherapy could be similar as that related to--as that for adjunctive? Just some help there.
Yes, the monotherapy opportunity, we think could be significant for Oxtellar XR. Our efforts for the last five years have been adjunctive therapy, add-on as far as the product. The data is very, very strong efficacy data for Oxtellar XR in that space, but what we also know from the monotherapy studies that Trileptal had done when it was approved, and actually oxcarbazepine, the drug in Oxtellar XR and Trileptal is one of the most studied anticonvulsants in monotherapy, and it has truly amazing efficacy data, north of 90% of patients have more than 50% reduction, so it’s a very, very high efficacy, and we have high hopes for Oxtellar XR in that area.
It certainly opens up the market opportunity for us because as many of you probably recall, primarily at this point or in the last five years, we have been competing in a fairly limited market of about 4.5 million prescriptions of oxcarbazepine, half of which we don’t even access because they are written by psychiatrists and we don’t call on psychiatrists, so in a way we are only competing in a 2 million, 2.5 million prescription market. Clearly a 13.6 million prescription market in monotherapy is going to open it up pretty big for us.
As far as the current use of Oxtellar XR in monotherapy, it’s really very hard to predict today because the data is so small, so when you get NDPI data from IMS, it’s very, very hard to separate these prescriptions - you have 10 prescriptions and you’re trying to figure out how much is this and how much is that. It’s a very wild guess. We know it’s not zero because physicians are using the molecule the same way they’re using probably Trileptal; but again, our message has been always adjunctive therapy.
Okay, great. Thank you.
So we believe--I mean, this could be significant.
And I’m assuming then if you get on the label, then it’s going to be pretty easy to detail it for that indication, meaning that there’s not going to be much in the way of an incremental expense associated with that?
Yes, absolutely. It’s the same sales force, same effort, just a different positioning. That’s correct.
Okay, thanks Jack.
Thank you. Our next question comes from the line of Annabelle Samimy with Stifel. Your line is now open.
Hi, thanks for taking my question. I just want to clarify something on Oxtellar and then I have a separate question. The monotherapy that you cite of 56%, is that specifically monotherapy with Trileptal or oxcarbazepine, or monotherapy in general? I guess as you look at Oxtellar, you’ve got this opportunity to expand in that area, you have the opportunity to expand in psychiatry. You’ve mentioned that you’re going to be moving into Phase III - I didn’t quite catch the date, but the opportunity to expand with this product without any additional infrastructure, is that part of the reason why now you’re kind of looking more at Phase I, Phase II assets, because this is a near-term growth opportunity for you, so in terms of business development you can now look at these earlier stage assets? With the capital that you have right now, how large a deal do you think you can do? Thanks.
Yes, regarding the monotherapy, that is for the whole market, so if you take all prescriptions in the epilepsy space for partial seizures that are monotherapy, that is the 13.6 million prescriptions that I mentioned. Clearly it’s not oxcarbazepine because the whole oxcarbazepine market is only 4.5 million prescriptions, so it really opens it up for us for the whole market to go after all these 13.6 million prescriptions.
You’re absolutely right - we have said several times our strategy has been to maximize the potential of both products, Oxtellar XR and Trokendi XR, and clearly we are trying to go after every potential growth opportunity for Oxtellar XR in as much depth as possible. So monotherapy is one of these major areas, bipolar absolutely is one of the biggest areas as well, so we’re pursuing that also, and therefore it’s not incorrect to think that because of all these immediate long-term growth opportunities that we have, and we have many of them - the Oxtellar XR opportunity as monotherapy, bipolar, SPN-810, SPN-812, that for us to look at Phase II programs or Phase I programs is appropriate for us. So we are fortunate and we’ve been working very hard to line up so many growth opportunities for ourselves internally, and therefore that affords us the opportunity to look on the outside for things a little bit earlier stage than that, so that would be more like Phase I, Phase II.
Then as far as your last portion of the question, as far as capital, regarding the size of the opportunity, we [indiscernible] a lot of different things when it comes to different product opportunities and licensing and so forth. If the opportunity itself is more of an M&A kind of opportunity, clearly with the capital we have now we can do a fairly sizeable transaction, especially that we are not even over-leveraged either. We have a very strong balance sheet and given our market cap at that time, we have a fairly good potential and capacity here for a big transaction.
Can I just clarify on bipolar, when did you say you could start the Phase III? I know that the investigator sponsored studies are ongoing, but that’s open label, so could you start that earlier before that trial is fully enrolled and complete?
Yes, sure. This is very important. I want to emphasize, I know we mentioned that several times, the trial that we are trying to finish enrollment this year, which is the investigator trial as a small pilot trial, that was never on the critical path, so to speak, for our Phase III program. Actually in parallel, we are already doing a lot of work on the design of the Phase III program and we’re trying to accelerate the Phase III program and start it as soon as we can, while learning at the same time from the investigator trial. So it’s not necessarily that we’re going to wait for the data or anything to complete the trial, but enrollment we’ll try to finish it end of this year. That trial, as I mentioned before, it’s a little bit difficult to control because it’s driven by the investigator, so we don’t have full control on the enrollment. We’re still trying to get the first patient in and we are waiting for IRB approval and so forth. We’re still very confident that should we get the IRB approval any time, and it’s been any time for weeks now we’ve been trying to get it going, that we can finish the enrollment end of this year. However, it is not on the critical path so we can initiate the Phase III program once we are ready with our discussions with the FDA, with the designs and so forth, which our efforts are ongoing at this point.
If I were to guess, I would say hopefully definitely we’ll start Phase III in 2019, and maybe by next quarter we might have a better idea for you guys as to when in 2019 we’ll be able to start that Phase III program.
Great, thank you.
Thank you. Our next question comes from the line of John Boris with SunTrust. Your line is now open.
Thanks for taking the questions, and congratulations on the results, Jack. When we summarized the CGRP data out of AAN, some of the companies have captured percent of patients at 50%, 75%, and 100% headache free type data in two well-controlled trials. One would assume that they are certainly going to try and use this in direct-to-consumer advertising, so going forward what is your estimate for what’s going to happen to the overall topiramate market? Will topiramate, or Trokendi XR be co-prescribed, will it be discontinued over time, and if you have any data, what percent of patients taking Trokendi XR are co-prescribed the product with Botox or beta blocker, or some other agent help cut down on chronic migraines? Thanks.
The data, and I hear people citing all kinds of different pieces of the data from different studies and so forth, but as I mentioned, when you look at the data overall and if you were a physician on the receiving end of that data, and that’s how you really need to think about it, the data is really not that different. All these molecules are pretty close. I mean, a lot of times you’re splitting hairs - one of them gives you a one-day or 1.8 days free migraine in a month, and the other one gives you 1.9 or two days free in a month. I mean, these are really within margin of error as far as these clinical studies, and that’s why I said when you look overall, they’re very close, even including topiramate in the mix, so a lot of these agents deal with prevention of migraine in a similar manner.
Now, the delivery is different obviously the CGRPs are coming in with injectables, some of them are monthly, other ones could be quarterly, so obviously that’s a different format compliance-wise and so forth. But you also have to factor into the equation the fact that CGRPs are a new class of drugs and CGRPs have a major role that they play in the patient’s body, so shutting them down or blocking them, I don’t know what else do they do.
So in general, especially in the short term, we see the CGRPs, and I think that’s what we’ve seen from some of the players out there, that most likely they will be positioned as a treatment if one or two other treatments have already failed. I don’t think they will be first line treatment, they will be more for non-responders who did not respond to things like topiramate or beta blockers or whatever else people are using. Clearing topiramate is about 50% of the market already, but actually for a good reason - because of the reason I mentioned, that actually it is a very good drug. Therefore when you look at the CGRPs, is it likely that physicians first are going to continue their practice as it is with the patients starting with topiramate or other first line treatments, optimize that treatment, and then if that optimization doesn’t work, then they can resort to something like a CGRP.
It will be interesting to see how the positioning is by the different players, how they position themselves against each other also, not just against topiramate or the beta blockers, and then of course at the end the behavior of the payors in the marketplace and the access to these drugs, given whatever the price level that they will be coming in at compared to either topiramate or Botox, or everything else that’s being used. A lot remains to be seen, but everything we’ve seen so far, again we don’t believe this is a major breakthrough here in treating migraine prevention.
Thanks Jack. That’s very helpful. Just one quick follow-up. If you look at the 40 reps that you’ve added, it would certainly appear that especially with the migraine opportunity you’re selling and now with the monotherapy opportunity for Oxtellar XR and potentially future bipolar opportunity, that you’ve done a great job in terms of the efficiency of what you’ve added in terms of detailed capacity. Is there any thoughts to adding additional reps before any BD activity to help continue to maximize that efficient production of sales that you’re generating?
That is always a possibility. I mean, we never rule it out, but we try to make sure whatever decisions we make, investment we make, that that efficiency and effectiveness is still there and the productivity we’re looking for from the incremental growth in the sales force, and therefore given the most recent expansion just happened a few months ago in October, we want to make sure we are getting the return on that investment before we further expand our sales force. We want to also see how the whole subject of CGRPs or everything else will play out in the marketplace, but we haven’t ruled out the expansion. That is still a possibility, and certainly we would communicate that once we make that decision.
Thanks, appreciate that.
Thank you. Our next question comes from the line of David Amsellem with Piper Jaffray. Your line is now open.
Thanks. I had a question on SPN-810 and specifically on the adolescent trial. I know on the last call, you suggested that that was not a study you needed to do in order to file, but I wanted to get a sense of whether you had dialogue with the FDA on that or are planning to have dialogue with the FDA on that, and is the plan ultimately, just given the timing of the other studies, to include that adolescent study in the initial filing?
Then on 812, could you just talk about other gating items to a filing beyond the clinical trials; in other words, non-clinical work, any toxicology work that you have to do? Just help us understand that. Thanks.
Regarding SPN-810, when we said--just a minor correction, is that the adolescent trial and the FDA wants to see some data from the adolescent population in the NDA, so we didn’t say we don’t need it, we said we need to generate some data from the adolescent patient population that will be included in the NDA. However, we are not sure whether we can do that on a rolling basis, is it only safety data, is it safety and efficacy data? That is the area which is still in discussion with the FDA.
The most important update I have from the last quarter is actually the FDA has looked at our protocol for the adolescent patient population and the adolescent trials, and they’ve reviewed it and they are okay with it, so that’s why we continue to believe we can start it by mid this year, so we’re on track to do that.
On the adolescent trial, we think we can do it a little bit quicker than we’ve done with the pediatric trials because obviously we have now a couple years of experience in this area on the trials. We’ve optimized a lot of different things and we included those in the protocol for the adolescent trial to hopefully help us with quicker recruitment, but that remains to be seen. So it is still a little bit in flux, but we are very optimistic that, as we said last quarter, it shouldn’t really delay the NDA in any critical or material manner.
Again regarding that and 812, and we always continue to believe at any point, any product could jump in front of [indiscernible] sequence perspective, which one could be launched before the other one, and again as we mentioned before, we don’t think we’re going to be able, or our preference would be not to launch two products at the same time, so we will have that flexibility to plan and continue to plan how these products will fall from a timeline perspective as far as the launches.
As far as 812, your question about anything else that could hold up the NDA, the answer is no. Everything we’ve been working on so far is to complete the package for the NDA so that once we have the data from the Phase III program, we are ready to complete the NDA and file it, so there is nothing at this point that we see on the critical path that will hold us. We’ve been doing and we’ve done actually the [indiscernible] studies, we’ve done a lot of the preclinical work that we needed to update because these molecules, both of them - 810 and 812, are very old molecules and therefore some of the preclinical work had to be updated.
That’s helpful. Then if I may ask a quick follow-up, Jack, in terms of the 812 clinical program, are you planning to do any adult development in adult patients down the road?
Yes, absolutely.
Okay, thank you.
Thank you. Our next question comes from the line of Patrick Trucchio with Berenberg Capital. Your line is now open.
Thanks, good morning. My question is in regard to eventual commercialization of 812, with the understanding we need the Phase III readouts, the PDUFA, etc.; but if I may look ahead a bit, assuming positive readouts, approval, do you intend to partner this asset or launch it on your own, and if on your own, how many sales reps would you anticipate hiring and how soon after a potential PDUFA date, perhaps late in 2019, would you anticipate launching 812?
Our strategy on both of them, 810 and 812, is to commercialize ourselves. Unless somebody steps in and can add some incremental value here, because this is a fairly specialty area that we believe we can do very, very well, given of course our experience in ADHD for many years, 20-plus years in that space, so we have a lot of confidence in being able to do the job and do it extremely well. So that will be the strategy, and especially that we have more than one asset in psychiatry, so if we build the sales force, which we will - we will build our own sales force as we did in neurology, that sales force will have more than just one product. Clearly between 810, 812, Oxtellar XR in bipolar, we have plenty of products that will keep that sales force busy and efficient in that space.
So the initial product as far as 810 or 812, depending on which one comes in first, the estimate is somewhere in the 130 to 150 reps initially for the first product, and then if we launch the second product nine to 12 months later, you can expect us to add another 150 reps for a total of 300 reps we believe we need for both products, 810 and 812 when they’re both in the marketplace. Once you add Oxtellar XR for bipolar, we think we would need to size it up to somewhere around 350 reps, so that’s the kind of initial plan we have now at this point as far as building our presence in psychiatry behind these three opportunities.
I just have a quick follow-up then on the bipolar disorder label expansion for Oxtellar XR. You discussed the investigator initiated study and that you can initiate your own program perhaps in 2019. Can you tell us how many Phase III studies you may have to run and how much the Phase III program might cost?
Yes, you will need two Phase III programs. This will be your typical 505(b)(2) regulatory pathway for a new indication, so you need two Phase IIIs, and the reason for that is because there has never been a Phase III program in Trileptal, never did the work in the bipolar space, so that’s the plan.
As far as the cost, this is a little bit premature because as I just said, we are just in the middle of designing and getting the protocols and all that put together, so it’s a little bit premature for me to guess at this point.
Okay, that’s helpful. Thanks so much
Thank you. Our next question comes from the line of David Buck with B. Riley. Your line is now open.
Yes, thanks. A couple of quick questions, I guess for Jack. Can you talk a little bit about your outlook for product sales this year given the strong quarter and, I guess, the lack of some of the surprises on either inventory or gross to net? You didn’t change your product sales guidance outlook for the year. Was the first quarter performance in line with what you were expecting? Did you have a surprise there, or not?
And I guess just on M&A, to add to that question, raising $400 million plus gross in a convertible debt offering doesn’t seem to imply that you’re looking at just Phase I and Phase II assets. I would think the timing would indicate you had something a little bit more--a little larger that you’re looking at. Maybe if you could just comment on that. Thanks.
Regarding the first quarter, we are very pleased, very excited about it. The reason we didn’t change the guidance is because we are still early in the year. If we were to change any guidance, we would like to have some more visibility into the year before we make any changes, so that’s been our policy in general here, because we don’t like to just keep changing up and down or whatever it is. So we just want to see another quarter hopefully and see what else happens with CGRPs and everything else.
Regarding BD, yes, we did raise a significant amount of money, but that is in line with what I just said as far as our strategy, that if we do find something that could be commercial late stage, those tend to be more expensive clearly, to your point, than something that is a Phase I or a Phase II. The reason we raised that money is because we continue to look at these opportunities, and if that opportunity tends to materialize, we want to make sure we have that capacity ready to allow us to do that kind of transaction.
So we may end up doing a bigger transaction or it could be a series of smaller transactions. All that is we’re very open and flexible as to what kind of transactions, whether they bring single product opportunities or they bring a little bit bigger opportunity that is more strategic, and therefore the need and the reason behind our significant raise of money.
Thank you. Our next question comes from the line of Ken Trbovich with Janney. Your line is now open.
Thanks for taking the question, and congratulations on a great quarter. I guess part of the reason for my question really relates to the outlook for R&D spending longer term. If we see all these files, the six Phase III trials all sort of wrapping up in early 2019, and it looks like maybe you’ll have only two or three Phase III trials for the remainder of 2019 underway, is it unreasonable of us to expect that R&D would be lower in ’19 than it is in ’18?
Hi, thanks for the question. We think that R&D spending in 2019 will be probably in sync with our spending pattern this year, so our guidance continues to be $80 million spend this year. We think if it goes down year over year, it’s not going to go down much. Keep in mind that Jack referenced adding in the Oxtellar XR bipolar trials next year. Also, we’ve got open label extension trials for both 810 and 812. While they’re not as intensive as the active Phase III trials, they are pretty intensive in terms of a cost and monitoring standpoint, so our expectation would be that spending would be flat to perhaps down marginally. Of course, all this excludes any potential for bringing in Phase I/Phase II assets, which we kind of view as our portfolio of opportunity. We want to bring multiple targets in, and if that happens, then R&D spending could in fact go up in 2019.
The other thing I would add, and this is more of a build on some of the previous questions we had this morning, as I mentioned earlier, 812 we could be also doing adult trials, SPN-810 we could be doing trials in autism and bipolar and other areas for impulsive aggression, so hopefully nine months from now we’re all talking about positive data from both of these programs and if that is the case, these two products by themselves could be a whole pipeline. 810 by itself could be a pipeline in a product, so to speak, because we have a tremendous amount of growth opportunities just within 810 itself in going after other areas to expand the indication and have a much broader label, and different patient populations for 812 and 810 as well. So should things work the way we hope and we expect, and we have positive data on both products, we will continue to be busy for many, many years to come.
Terrific, thank you.
Thank you. Our next question comes from the line of Annabelle Samimy with Stifel. Your line is now open.
Hi, I just wanted to do a follow-up on the CGRP. I’ve had some discussions with physicians who suggested that they may push Trokendi in a preferential position, given the cost of CGRPs, so do you have any discussions ongoing with payors in advance of the entry of any CGRPs and how they can improve access for Trokendi? I know Trokendi access is good, but maybe you can talk about some discussions that you might have had with them in advance of the market changing.
If you don’t mind, I’ll try to keep my comments very limited here in this area because clearly we don’t have all the facts at this point as far as pricing strategy, positioning of the CGRPs and so forth. All I can say is basically consistent with what I mentioned earlier, is that we believe at this point - and again, it depends on the label they get, how they get approved, the positioning - we think it’s going to be more of a compound that will be used but not as a first line treatment, and therefore most of the patients initially would have to have gone through either topiramate or a beta blocker or, I don’t know, even a Botox before a CGRP. If that is the case, that could be driven by the label, it could be driven by the payers requiring that, it could be driven by the physicians themselves because physicians also need some time to get comfortable with the safety and all that for a whole new class of drugs before they start injecting people left and right. So all these dynamics could end up impacting how the CGRPs end up being used and in which type of patient it will end up being used and at what point from a therapy point of view.
Great, thank you.
Thank you. Our next question comes from the line of John Boris with SunTrust. Your line is now open.
Thanks for taking the follow-up. Just one question has to do with the IP on 810-812. Could you just give some commentary around, because obviously it’s very important for your label build-out, and then just on the open label bipolar study, any thoughts around what percent of that is currently enrolled?
I’m sorry, John, I missed the first question, it was about 810-812 what?
The intellectual property, IP?
Okay.
It will certainly be important based on the length of time that you have to support that label build-out, and then on Oxtellar XR, the open label trial that’s being conducted by the three centers, just remind us the size of the trial and what percent enrollment is there?
Okay, sure. For 810 and 812 as far as intellectual property, let me talk about 810 first. As you know, both molecules are older molecules, so we don’t have composition of matter IP, but we have several fences around the products and several layers of IP protection around these products. With 810, clearly we get the three-year exclusivity from a new indication perspective, but the IP is centered mainly around the formulation itself, the delivery itself, anything else also that comes out of that specific PK profile delivery. We have also applications as far as the use of the drug. It’s a novel use in impulsive aggression versus its old use in schizophrenia, and we have also API synthesis IP as well as we have created IP on the new novel diagnostic tool. As you probably know, we are the first people to ever even try and pioneer development in this space. Then finally, we also have a second generation product that we haven’t talked about which is in our pipeline, which is a follow-on to SPN-810, so we have a drug that is in development, it is active development, that we’ve been working on, so before we even launch the first generation product we have a second generation follow-on. All the IP I mentioned is in the 2029 to 2033 time frame, so it’s a fairly long time frame for SPN-810.
812 is not that much different, actually, with the exception that 812 will be a new chemical entity, so instead of getting the three-year exclusivity, it will get the five-year market exclusivity, and it will also have the different layers of IP that is very similar to 810 from a drug delivery, formulation perspective, novel use as well as API synthesis.
As far as the second question on Oxtellar XR open label, as I mentioned, we continue to wait for the IRB approval. We have a lot of actually patients lined up from a screening perspective, but we haven’t been able to get the enrollment going because of the delays in the IRB. But even with that, we continue to believe that we can finish the enrollment end of this year, and if it doesn’t, it’s not going to hold us up for the Phase III program. Again, the whole intent behind the open label small trial, which is about 90 patients by the way, is really to see anything in that trial that could help us design the Phase III bipolar program, so we are trying to see any differences we can garner from that study, any different patient population, if there is anything like that. But we don’t want that to hold us up and we don’t want that to delay the Phase III program if it can be done on time. It is a little bit difficult because, again, it’s investigator driven, it’s investigator controlled, so it’s not controlled by us. That’s where we are on that, but we don’t see that delaying our Phase III program for the bipolar opportunity
Thanks.
Thank you. I’m showing no further questions at this time, so with that I would like to turn the conference back over to Mr. Jack Khattar for closing remarks.
Thank you. We are off to a great start for the year and are particularly pleased with the continued strong growth for both commercial products. We have established a high growth and successful neurology business that positions us very well to deliver on our 2018 objectives. Thank you everyone for joining us this morning and we look forward to updating you through the year.
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.