Supernus Pharmaceuticals(SUPN) - 2024 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents Supernus Pharmaceuticals' unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Unaudited Condensed Consolidated Financial Statements Presents Supernus Pharmaceuticals' unaudited condensed consolidated financial statements and detailed notes Condensed Consolidated Balance Sheets Balance sheets show increased total assets and stockholders' equity, and slightly decreased total liabilities | Metric | September 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------- | :-------------------------------- | :------------------------------- | | Total Assets | $1,342,701 | $1,277,673 | | Total Liabilities | $335,551 | $356,157 | | Total Stockholders' Equity | $1,007,150 | $921,516 | | Current Assets | $640,003 | $493,113 | | Current Liabilities | $291,508 | $290,196 | Condensed Consolidated Statements of Earnings (Loss) Earnings statements show significant improvement in net and operating earnings for 2024, reversing 2023 losses Net Earnings (Loss) and EPS | Metric | 3 Months Ended Sep 30, 2024 (in thousands) | 3 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2024 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | | :-------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net Earnings (Loss) | $38,497 | $(15,976) | $58,537 | $141 | | Basic EPS | $0.70 | $(0.29) | $1.06 | $0.00 | | Diluted EPS | $0.69 | $(0.29) | $1.05 | $0.00 | Total Revenues and Operating Earnings (Loss) | Metric | 3 Months Ended Sep 30, 2024 (in thousands) | 3 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2024 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | | :-------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total Revenues | $175,689 | $153,880 | $487,658 | $443,207 | | Operating Earnings (Loss) | $40,845 | $8,138 | $60,261 | $(4,273) | Condensed Consolidated Statements of Comprehensive Earnings (Loss) Comprehensive earnings statements reflect a positive shift to earnings in 2024 from a prior year loss Comprehensive Earnings (Loss) | Metric | 3 Months Ended Sep 30, 2024 (in thousands) | 3 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2024 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Comprehensive Earnings (Loss) | $38,947 | $(15,407) | $59,208 | $2,145 | | Unrealized gain on marketable securities, net of tax | $450 | $569 | $671 | $2,004 | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $1,007.2 million, driven by net earnings, share-based compensation, and stock issuance Total Stockholders' Equity | Date | Amount (in thousands) | | :-------------------- | :-------------------- | | December 31, 2023 | $921,516 | | September 30, 2024 | $1,007,150 | - Key drivers for the increase in stockholders' equity for the nine months ended September 30, 2024, include net earnings of $58,537 thousand, share-based compensation expense of $20,123 thousand, and proceeds from common stock issuance of $8,031 thousand[10][14] Condensed Consolidated Statements of Cash Flows Operating cash flow significantly increased, investing activities shifted to outflow, and financing provided cash Cash Flow Summary (Nine Months Ended September 30) | Activity | 2024 (in thousands) | 2023 (in thousands) | Change (in thousands) | | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Operating Activities | $127,545 | $66,127 | +$61,418 | | Investing Activities | $(177,229) | $334,710 | $(511,939) | | Financing Activities | $6,303 | $(398,972) | +$405,275 | | Net Change in Cash | $(43,381) | $1,865 | $(45,246) | | Cash & Cash Equivalents at End of Period | $31,673 | $94,985 | $(63,312) | Notes to Condensed Consolidated Financial Statements Detailed disclosures on business, accounting policies, revenues, investments, fair value, intangibles, debt, and more Note 1. Business Organization Supernus Pharmaceuticals focuses on CNS products, with seven commercial products and a resubmitted SPN-830 NDA - The company's core business is developing and commercializing products for CNS diseases, including approved treatments for epilepsy, migraine, ADHD, Parkinson's Disease, cervical dystonia, chronic sialorrhea, and dyskinesia[15] - SPN-830 (apomorphine infusion device), a late-stage drug/device combination for Parkinson's disease motor fluctuations, had its New Drug Application (NDA) resubmitted to the FDA in August 2024, with a user fee goal date (PDUFA date) of February 1, 2025[16] Note 2. Summary of Significant Accounting Policies Outlines accounting practices, including presentation, consolidation, estimates, advertising, insurance, and new pronouncements Basis of Presentation Unaudited financial statements are prepared per SEC requirements and U.S. GAAP, to be read with the 2023 Form 10-K - The unaudited condensed consolidated financial statements are prepared in accordance with SEC requirements for interim financial information and U.S. GAAP[17] - These statements should be read in conjunction with the Company's most recent Annual Report on Form 10-K for the year ended December 31, 2023[17] Reclassifications Prior year cash flow reclassification for equity awards taxes made to conform to current presentation, no other impact - The prior year amount for 'Employee taxes paid related to net share settlement of equity awards' in the condensed consolidated statements of cash flows was reclassified to conform to current year presentation[19] - This reclassification did not affect the other condensed consolidated financial statements[19] Consolidation Financial statements consolidate Supernus and subsidiaries, eliminating intercompany transactions based on control - The unaudited condensed consolidated financial statements include the accounts of Supernus Pharmaceuticals, Inc. and its wholly owned subsidiaries, with all material intercompany transactions and balances eliminated[20] - Consolidation is based on having a controlling financial interest, which involves assessing majority voting interests or being the primary beneficiary of a Variable Interest Entity (VIE)[21] Use of Estimates Financial statement preparation requires management estimates and assumptions, with actual results potentially differing - The Company bases its estimates on historical experience, forecasts, and information from service providers and other sources, with actual results potentially differing materially[24] Advertising Expense Advertising expenses, including promotional materials, are expensed as incurred within SG&A expenses Advertising Expense (in thousands) | Period | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Advertising Expense | $19,600 | $25,100 | $67,500 | $76,900 | Insurance Recoveries Insurance recoveries are recorded as a receivable when probable and estimable, reducing SG&A expenses Insurance Recoveries (in thousands) | Period | 3 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Insurance Recoveries | $11,500 | $12,000 | $0 | $0 | - Insurance recoveries recognized in fiscal year 2024 were recorded as a reduction to Selling, general and administrative expenses[28] Recently Issued Accounting Pronouncements and Disclosure Rules Company evaluates new accounting standards (ASU 2023-07, 2023-09) and the stayed SEC climate rule - The Company plans to adopt ASU 2023-07 (Improvements to Reportable Segment Disclosures) for the fiscal year ending December 31, 2024, expecting additional disclosures[29] - The Company plans to adopt ASU 2023-09 (Improvements to Income Tax Disclosures) for the fiscal year ending December 31, 2025, which will require additional disclosures[30] - The SEC's final climate rule (Release No. 33-11275) was adopted in March 2024 but is currently stayed due to litigation; the Company is evaluating its impact[32] Note 3. Disaggregated Revenues Total revenues increased due to Qelbree and GOCOVRI sales growth, despite Trokendi XR decline and lower royalties Total Revenues (in thousands) | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenues | $175,689 | $153,880 | $487,658 | $443,207 | | Net Product Sales | $170,302 | $149,004 | $471,301 | $417,915 | | Royalty, licensing and other revenues | $5,387 | $4,876 | $16,357 | $25,292 | Net Product Sales by Product (Nine Months Ended September 30, in thousands) | Product | 2024 | 2023 | Change | | :---------- | :----- | :----- | :----- | | Qelbree | $166,857 | $93,840 | +$73,017 | | GOCOVRI | $93,922 | $87,650 | +$6,272 | | Oxtellar XR | $86,265 | $82,359 | +$3,906 | | APOKYN | $53,811 | $56,324 | $(2,513) | | Trokendi XR | $48,393 | $74,734 | $(26,341) | | Other | $22,053 | $23,008 | $(955) | - Distribution of Osmolex ER ceased on April 1, 2024[33] The company no longer recognizes noncash royalty revenue as ownership of royalty rights reverted back during Q2 2023[33][34] Note 4. Investments Unrestricted available-for-sale marketable securities significantly increased to $371.5 million, all with short maturities Unrestricted Available-for-Sale Marketable Securities (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :-------------------- | :----------------- | :---------------- | | Amortized cost | $371,381 | $197,153 | | Gross unrealized gains | $263 | $5 | | Gross unrealized losses | $(107) | $(721) | | Total fair value | $371,537 | $196,437 | - As of September 30, 2024, all unrestricted available-for-sale marketable securities have contractual maturities of one year or less, and there was no impairment due to credit loss[35][36] Note 5. Fair Value of Financial Instruments Financial assets and liabilities are measured using a three-level fair value hierarchy, with contingent consideration as Level 3 - The company uses a three-level measurement hierarchy (Level 1, 2, 3) to prioritize inputs for fair value measurement[37][38][39] Financial Assets and Liabilities Recorded at Fair Value (September 30, 2024, in thousands) | Category | Total Fair Value | Level 1 | Level 2 | Level 3 | | :---------------------------------------------------- | :--------------- | :------ | :-------- | :-------- | | Assets: | | | | | | Cash and cash equivalents | $31,673 | $31,673 | $0 | $0 | | Marketable securities | $371,537 | $0 | $371,537 | $0 | | Marketable securities - restricted (SERP) | $635 | $19 | $616 | $0 | | Total assets at fair value | $403,845 | $31,692 | $372,153 | $0 | | Liabilities: | | | | | | Contingent consideration | $46,984 | $0 | $0 | $46,984 | | Total liabilities at fair value | $46,984 | $0 | $0 | $46,984 | - Contingent consideration liabilities are classified as Level 3 fair value measurements due to significant unobservable inputs[40] Note 6. Contingent Consideration Contingent consideration liabilities decreased to $47.0 million, with a $6.5 million gain from Adamas CVRs and USWM milestones Contingent Consideration Liabilities (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :-------------------------------- | :----------------- | :---------------- | | Contingent consideration, current portion | $46,581 | $52,070 | | Contingent consideration, long-term | $403 | $1,380 | | Total | $46,984 | $53,450 | - USWM Acquisition includes potential contingent consideration of up to $55 million for regulatory and development milestones, specifically $25 million for SPN-830 NDA approval and $30 million for commercial launch[45][46] - Adamas Acquisition includes two non-tradable contingent value rights (CVRs) for GOCOVRI sales milestones, with possible outcomes ranging from $0 to $50.9 million on an undiscounted basis, tied to achieving $150 million (Milestone 2024) and $225 million (Milestone 2025) in aggregate worldwide net sales[47] - A contingent consideration gain of $6.6 million was recognized for the nine months ended September 30, 2024, primarily due to the passage of time for Adamas CVRs and changes in the timing of milestone achievement and estimated discount rate for USWM milestones[49][51] Note 7. Intangibles Assets, Net Net intangible assets decreased to $540.2 million, with reduced amortization due to 2023 impairment charges and patent expirations Total Intangible Assets, Net (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :-------------------- | :----------------- | :---------------- | | Carrying Amount, Net | $540,156 | $599,889 | Amortization Expense for Intangible Assets (in thousands) | Period | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Amortization Expense | $19,488 | $21,242 | $59,733 | $61,316 | - The decrease in amortization expense is primarily due to impairment charges on certain acquired intangible assets in the fourth quarter of 2023[132] - Settlement agreements allowed third parties to enter the Trokendi XR market on January 1, 2023, and the Oxtellar XR market in September 2024[54] XADAGO market entry for third parties is set for December 2027 or sooner[54] Note 8. Debt The company has a $150 million uncommitted demand secured line of credit with UBS, fully repaid in Q2 2023, with no outstanding debt - The Company has an uncommitted demand secured line of credit with UBS, providing for a revolving line of credit of up to $150 million[55] - As of September 30, 2024, there was no outstanding debt under the Credit Line[59] - In March 2023, $93.0 million was borrowed to repay outstanding 2023 Notes, and this amount, along with interest, was fully repaid in the second quarter of 2023[59] Note 9. Share-Based Payments Shareholders approved 4 million additional shares for the equity plan; $20.1 million share-based compensation expense reported - Shareholders approved the Amended and Restated 2021 Equity Incentive Plan in June 2024, increasing available shares by 4,000,000[60] Share-based Compensation Expense (in thousands) | Period | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | | Research and development | $3,946 | $3,458 | | Selling, general and administrative | $16,177 | $16,856 | | Total | $20,123 | $20,314 | Stock Option Activity (September 30, 2024) | Metric | Number of Options | Weighted Average Exercise Price | | :-------------------- | :---------------- | :------------------------------ | | Outstanding | 7,166,909 | $29.34 | | Exercisable | 4,560,609 | $27.95 | Restricted Stock Units (RSUs) and Performance Share Units (PSUs) (September 30, 2024) | Metric | Number of Units | Weighted Average Grant Date Fair Value per Share | | :-------------------- | :---------------- | :----------------------------------------------- | | Nonvested RSUs | 378,540 | $32.48 | | Nonvested PSUs | 403,300 | $28.90 | Note 10. Earnings (Loss) per Share Basic and diluted EPS significantly improved for 2024, reflecting a return to profitability compared to prior year Earnings (Loss) per Share | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic EPS | $0.70 | $(0.29) | $1.06 | $0.00 | | Diluted EPS | $0.69 | $(0.29) | $1.05 | $0.00 | | Weighted average shares outstanding, basic | 55,149,760 | 54,608,963 | 54,977,199 | 54,498,687 | | Weighted average shares outstanding, diluted | 56,016,350 | 54,608,963 | 55,791,185 | 55,574,922 | Note 11. Income Tax Expense Income tax expense was $13.0 million with an 18.1% effective rate, driven by higher forecasted earnings and R&D tax credits Income Tax Expense and Effective Tax Rate | Period | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income Tax Expense (in thousands) | $6,446 | $25,865 | $12,951 | $1,638 | | Effective Tax Rate | 14.3% | 261.6% | 18.1% | 92.1% | - The change in income tax expense and effective tax rate was primarily due to higher forecasted earnings before taxes for 2024 compared to near break-even in 2023[68] - Variations from the 21% U.S. federal tax rate in 2024 are primarily due to increased tax benefits related to current and prior years' research and development tax credits[69] Note 12. Leases Operating lease assets were $26.1 million and total lease liabilities were $38.2 million as of September 30, 2024 Operating Lease Assets and Liabilities (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :-------------------------------- | :----------------- | :---------------- | | Operating lease assets | $26,086 | $28,994 | | Operating lease liabilities, current portion | $9,227 | $8,331 | | Operating lease liabilities, long-term | $28,926 | $33,196 | | Total lease liabilities | $38,153 | $41,527 | Note 13. Composition of Other Balance Sheet Items Details inventories, property and equipment, accounts payable, and accrued liabilities, showing changes in these items Inventories, Net (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :-------------------- | :----------------- | :---------------- | | Raw materials | $11,571 | $16,274 | | Work in process | $28,102 | $31,212 | | Finished goods | $24,308 | $29,922 | | Total | $63,981 | $77,408 | Property and Equipment, Net (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :-------------------- | :----------------- | :---------------- | | Property and equipment, net | $11,876 | $13,530 | Accounts Payable and Accrued Liabilities (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :-------------------- | :----------------- | :---------------- | | Accounts payable and accrued liabilities | $75,803 | $79,569 | Accrued Product Returns and Rebates (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :-------------------- | :----------------- | :---------------- | | Accrued product rebates | $111,695 | $96,984 | | Accrued product returns | $57,429 | $57,290 | | Total | $169,124 | $154,274 | Note 14. Commitments and Contingencies Company has royalty, development, and acquisition commitments, along with ongoing claims and litigation - The company is obligated to pay royalties on net product sales for licensed products such as APOKYN, XADAGO, and MYOBLOC[77][78] - Under a development agreement with Navitor Inc. for SPN-820 (treatment-resistant depression), the company agreed to bear certain Phase I and Phase II development costs up to $50 million, with total potential payments (excluding royalties and development costs) ranging from $410 million to $475 million[79] - Commitments assumed from the USWM Acquisition include an estimated annual minimum purchase requirement of €3.9 million for MYOBLOC and obligations under a Corporate Integrity Agreement (CIA), for which the final report was submitted in Q2 2024[84][85] - The company is involved in various claims, litigation, and legal proceedings, including patent litigation and product liability, and accrues liabilities for probable and estimable losses[86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, condition, and outlook, covering revenues, expenses, liquidity, and R&D pipeline Overview Supernus Pharmaceuticals is a biopharmaceutical company focused on developing and commercializing CNS disease products - Supernus Pharmaceuticals is a biopharmaceutical company specializing in the development and commercialization of products for central nervous system (CNS) diseases[96] - The company's neuroscience portfolio includes approved treatments for epilepsy, migraine, ADHD, Parkinson's Disease, cervical dystonia, chronic sialorrhea, and dyskinesia, alongside a pipeline of novel CNS product candidates[96] Commercial Products Company markets seven commercial products for various CNS conditions, including ADHD, Parkinson's, and epilepsy - Qelbree (viloxazine) extended-release capsules are indicated for the treatment of ADHD in adults and pediatric patients 6 years and older[97] - GOCOVRI (amantadine) extended-release capsules are the first and only FDA-approved medicine for dyskinesia in PD patients and as an adjunctive treatment for 'OFF' episodes[97] - Oxtellar XR (oxcarbazepine) and Trokendi XR (topiramate) are once-daily extended-release products for epilepsy, with Trokendi XR also indicated for migraine prophylaxis[98] - APOKYN (apomorphine hydrochloride injection) treats acute, intermittent hypomobility 'OFF' episodes in advanced PD, while XADAGO (safinamide) is an adjunctive treatment for PD patients experiencing 'OFF' episodes[98][99] - MYOBLOC (rimabotulinumtoxinB injection) is the only botulinum toxin type B on the market, indicated for cervical dystonia and chronic sialorrhea[99] Research and Development Actively developing neurology and psychiatry candidates, including SPN-830 for Parkinson's, with NDA resubmitted - SPN-830 (apomorphine infusion device) is a late-stage drug/device combination for continuous treatment of motor fluctuations in PD patients, with an NDA resubmitted to the FDA in August 2024[100][101] - SPN-820 (NV-5138) is a first-in-class, orally active small molecule designed to increase brain mTORC1 mediated synaptic function for depression[102] - SPN-817 (huperzine A) is a novel synthetic anticonvulsant with a unique mechanism of action for epilepsy, having received Orphan Drug designation for several epilepsy indications[103] Operational Highlights Key achievements include a 19% increase in Qelbree prescriptions and SPN-830 NDA resubmission with a PDUFA date - Total IQVIA prescriptions for Qelbree increased by 19% to 194,025 in the third quarter of 2024 compared to the prior year period[104] - The New Drug Application (NDA) for SPN-830 (apomorphine infusion device) was resubmitted to the FDA in August 2024, and the resubmission was acknowledged with a user fee goal date (PDUFA date) of February 1, 2025[104][105] Product Pipeline Update Pipeline updates include positive Phase 2a data for SPN-820, promising SPN-817 seizure reduction, and SPN-443 Phase 1 initiation - SPN-820 (for depression): Phase 2a study demonstrated rapid and substantial decrease in depressive symptoms, including an 80% decrease in suicidal ideation and 84.2% MADRS response rate by Day 10[106][107] Phase 2b enrollment is expected to complete in November 2024, with topline data anticipated in the first half of 2025[108] - SPN-817 (for epilepsy): Interim analysis from Phase 2a study in focal seizures showed a 56% median seizure reduction in the maintenance period and 66% in the post-maintenance extension period[109][110] A Phase 2b randomized, double-blind, placebo-controlled study is expected to start by the end of 2024[113] - SPN-443 (for ADHD/CNS): A Phase 1 single dose study in healthy adults was initiated in the third quarter of 2024 to assess safety and tolerability[114] Critical Accounting Policies and the Use of Estimates Refers to 2023 Form 10-K for accounting policies and estimates, noting no significant changes for the current period - A summary of significant accounting policies is included in Note 2 of the audited consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2023[115] - There were no significant changes to the disclosures with respect to critical accounting policies in the Annual Report on Form 10-K for the year ended December 31, 2023[115] Results of Operations Operations show increased revenues from Qelbree and GOCOVRI, decreased COGS and SG&A, increased R&D, and significant gains Revenues Total revenues increased by 14% (3 months) and 10% (9 months) due to Qelbree and GOCOVRI, offset by Trokendi XR decline Total Revenues (in thousands) | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | Change Amount | Change Percent | | :-------------------- | :-------------------------- | :-------------------------- | :------------ | :------------- | | Total revenues | $175,689 | $153,880 | $21,809 | 14% | | Net product sales | $170,302 | $149,004 | $21,298 | 14% | | Royalty, licensing and other revenues | $5,387 | $4,876 | $511 | 10% | Total Revenues (in thousands) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | Change Amount | Change Percent | | :-------------------- | :-------------------------- | :-------------------------- | :------------ | :------------- | | Total revenues | $487,658 | $443,207 | $44,451 | 10% | | Net product sales | $471,301 | $417,915 | $53,386 | 13% | | Royalty, licensing and other revenues | $16,357 | $25,292 | $(8,935) | (35)% | Net Product Sales Net product sales increased by 14% (3 months) and 13% (9 months), driven by Qelbree and GOCOVRI, despite Trokendi XR decline - Net product sales increased to $170.3 million for the three months ended September 30, 2024 (up 14%) and to $471.3 million for the nine months ended September 30, 2024 (up 13%)[117][118] - The increase was primarily due to higher sales from Qelbree and GOCOVRI, partially offset by a decline in Trokendi XR sales due to generic erosion[117][118] Sales Deductions and Related Accruals Accrued product returns and rebates increased, while provisions for both decreased due to adjustments and lower Trokendi XR sales - Accrued product returns increased to $57.4 million as of September 30, 2024, from $54.3 million as of September 30, 2023, primarily due to higher net product sales and a $7.3 million adjustment for favorable Qelbree returns[123] - Accrued product rebates increased to $111.7 million as of September 30, 2024, from $108.1 million as of September 30, 2023, due to the timing of payments associated with government programs[124] - The provision for product returns decreased to $8.3 million for the nine months ended September 30, 2024, from $17.4 million in the prior year, mainly due to the $7.3 million adjustment for prior year sales[125] - The provision for product rebates decreased to $293.6 million for the nine months ended September 30, 2024, from $311.8 million in the prior year, primarily attributable to lower Trokendi XR sales, partially offset by higher Qelbree sales[126] Royalty, Licensing and Other Revenues Royalty, licensing, and other revenues increased for three months but decreased for nine months due to generic Trokendi XR erosion Royalty, Licensing and Other Revenues (in thousands) | Period | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Royalty, licensing and other revenues | $5,387 | $4,876 | $16,357 | $25,292 | - The decrease in royalty, licensing and other revenues for the nine-month period was primarily due to lower royalties on generic Trokendi XR, driven by an increased number of generic entrants[128] Cost of Goods Sold Cost of goods sold decreased due to Qelbree manufacturing efficiencies and lower Trokendi XR net product sales Cost of Goods Sold (in thousands) | Period | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of goods sold | $17,583 | $19,601 | $51,808 | $64,152 | - The decrease in cost of goods sold was primarily driven by manufacturing efficiencies of Qelbree and a decline in net product sales of Trokendi XR due to generic erosion[129] Research and Development Expenses R&D expenses increased due to higher clinical program costs for SPN-817, SPN-820, Qelbree study, and manufacturing Research and Development Expenses (in thousands) | Period | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | R&D expenses | $29,036 | $22,655 | $80,149 | $68,246 | - The increase in R&D expenses was primarily due to increased clinical program costs on SPN-817, SPN-820, and the open-label study of Qelbree, along with increased manufacturing costs of product candidates[130] Selling, General and Administrative Expenses SG&A expenses decreased by 16% (3 months) and 5% (9 months), primarily due to reduced G&A costs and insurance recoveries Selling, General and Administrative Expenses (in thousands) | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | Change Amount | Change Percent | | :-------------------- | :-------------------------- | :-------------------------- | :------------ | :------------- | | Selling and marketing | $54,329 | $56,785 | $(2,456) | (4)% | | General and administrative | $15,424 | $25,915 | $(10,491) | (40)% | | Total | $69,753 | $82,700 | $(12,947) | (16)% | Selling, General and Administrative Expenses (in thousands) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | Change Amount | Change Percent | | :-------------------- | :-------------------------- | :-------------------------- | :------------ | :------------- | | Selling and marketing | $172,700 | $173,909 | $(1,209) | (1)% | | General and administrative | $69,473 | $81,170 | $(11,697) | (14)% | | Total | $242,173 | $255,079 | $(12,906) | (5)% | - The company recorded $11.5 million and $12.0 million of insurance recoveries for certain legal costs during the three and nine months ended September 30, 2024, respectively, which reduced general and administrative expenses[131] No insurance recoveries were recorded in 2023[131] Amortization of Intangible Assets Amortization decreased due to impairment charges on acquired intangible assets recognized in Q4 2023 Amortization of Intangible Assets (in thousands) | Period | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Amortization of intangible assets | $19,488 | $21,242 | $59,733 | $61,316 | - The decrease in amortization expense is primarily due to impairment charges on certain acquired intangible assets in the fourth quarter of 2023, which reduced amortization expense in fiscal year 2024[132] Contingent Consideration Gain Higher contingent consideration gain driven by passage of time for Adamas sales milestones and USWM milestone timing changes Contingent Consideration Gain (in thousands) | Period | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Contingent consideration gain | $(1,016) | $(456) | $(6,466) | $(1,313) | - The change for both periods was primarily driven by the passage of time for sales-based milestones associated with the Adamas Acquisition and changes in the estimated timeline of achievement of regulatory and development milestones associated with the USWM Acquisition[133] Other Income (Expense) Other income significantly increased due to higher interest income on marketable securities and no outstanding debt Other Income (Expense) (in thousands) | Period | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Interest and other income, net | $4,098 | $1,751 | $11,227 | $8,467 | | Interest expense | $0 | $0 | $0 | $(2,415) | | Total other income (expense) | $4,098 | $1,751 | $11,227 | $6,052 | - The increase in other income was due to higher interest income on marketable securities, largely driven by an overall higher investment balance in 2024, and no debt outstanding in 2024 as the 2023 Notes were paid off in April 2023[134] Income Tax Expense Income tax expense was $13.0 million with an 18.1% effective rate, due to higher forecasted earnings and R&D tax credits Income Tax Expense and Effective Tax Rate | Period | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax expense (in thousands) | $6,446 | $25,865 | $12,951 | $1,638 | | Effective tax rate | 14.3% | 261.6% | 18.1% | 92.1% | - The change in both periods was primarily due to higher forecasted earnings before taxes for 2024 compared to near break-even forecasted earnings before taxes in 2023[136] - The effective income tax rates for 2024 vary from the statutory U.S. federal tax rate of 21% primarily due to increased tax benefits related to current and prior years' research and development tax credits[137] Financial Condition, Liquidity and Capital Resources Financial condition improved with cash, cash equivalents, and marketable securities totaling $403.2 million, ensuring liquidity Cash and Cash Equivalents and Marketable Securities Total cash, cash equivalents, and marketable securities increased by 49% to $403.2 million, driven by marketable securities Cash and Cash Equivalents and Marketable Securities (in thousands) | Metric | September 30, 2024 | December 31, 2023 | Change Amount | Change Percent | | :-------------------------------- | :----------------- | :---------------- | :------------ | :------------- | | Cash and cash equivalents | $31,673 | $75,054 | $(43,381) | (58)% | | Marketable securities | $371,537 | $179,820 | $191,717 | 107% | | Long-term marketable securities | $0 | $16,617 | $(16,617) | (100)% | | Total | $403,210 | $271,491 | $131,719 | 49% | - The company believes its balances of cash, cash equivalents, and unrestricted marketable securities, totaling $403.2 million as of September 30, 2024, along with cash generated from operations, will be sufficient to satisfy cash requirements over the next 12 months and beyond[140] Cash Flows Operating cash flow increased, investing activities shifted to outflow, and financing provided cash after prior year debt repayment Net Cash Provided by (Used in) Activities (Nine Months Ended September 30, in thousands) | Activity | 2024 | 2023 | Change Amount | | :-------------------- | :----- | :----- | :------------ | | Operating activities | $127,545 | $66,127 | $61,418 | | Investing activities | $(177,229) | $334,710 | $(511,939) | | Financing activities | $6,303 | $(398,972) | $405,275 | | Net change in cash and cash equivalents | $(43,381) | $1,865 | $(45,246) | Operating Activities Net cash from operating activities increased by $61.4 million to $127.5 million due to higher net income and working capital changes - Net cash provided by operating activities increased by $61.4 million to $127.5 million for the nine months ended September 30, 2024[143][144] - The increase was primarily due to higher net income and favorable changes in working capital, reflecting the timing impacts of cash collections on receivables and settlement of payables[144] Investing Activities Net cash used in investing activities was $177.2 million, a shift from prior year's provision, mainly due to marketable securities purchases - Net cash used in investing activities was $177.2 million for the nine months ended September 30, 2024, compared to $334.7 million provided in the same period of 2023[143][145] - The change was primarily due to an increase in cash outflows from purchases of marketable securities, partially offset by higher cash inflows from maturities of marketable securities[145] Financing Activities Net cash provided by financing activities was $6.3 million, a substantial change from prior year's outflow due to 2023 debt repayment - Net cash provided by financing activities was $6.3 million for the nine months ended September 30, 2024, compared to $399.0 million used in the same period of 2023[143][146] - The change was primarily due to the payment of the total principal amounts and remaining outstanding interest due on the 0.625% Convertible Senior Notes in April 2023[146] Material Cash Requirements Material cash requirements and contractual obligations are detailed in the 2023 Form 10-K and Note 14 of this 10-Q - Refer to 'Part II, Item 7 — Management's Discussion and Analysis of Liquidity and Capital Resources' of the Annual Report on Form 10-K for the year ended December 31, 2023, and Note 14, Commitments and Contingencies, in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1, Unaudited Condensed Consolidated Financial Statements, of this Quarterly Report on Form 10-Q for discussion of contractual obligations[147] Recently Issued Accounting Pronouncements New accounting pronouncements are discussed in Note 2, Summary of Significant Accounting Policies, of this Quarterly Report - For a discussion of new accounting pronouncements, refer to Note 2 Summary of Significant Accounting Policies, in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1, Unaudited Condensed Consolidated Financial Statements, of this Quarterly Report on Form 10-Q[148] Item 3. Quantitative and Qualitative Disclosures about Market Risk Primary market risk relates to $403.2 million in investments; no outstanding debt mitigates interest rate risk; no foreign currency hedging - The primary objective of investment activities is to preserve capital and maximize income without significant interest rate risk, liquidity risk, or default risk, by investing in investment grade securities with maturities of four years or less[149] - As of September 30, 2024, the company had $403.2 million in cash and cash equivalents, marketable securities, and long-term marketable securities[149] - The company has a revolving line of credit of up to $150 million with UBS, but there was no outstanding debt as of September 30, 2024[149] Variable rate borrowing under this line would expose the company to interest rate risk[149] - The credit line is secured by marketable securities, which are subject to collateral maintenance requirements[150] Fluctuations in collateral value may require posting additional collateral[150] - The company does not hedge foreign currency exchange rate risk, and transactions are denominated in U.S. dollars[153] Inflation has not had a significant impact on consolidated results for the reported periods[154] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective; no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Management concluded disclosure controls and procedures were effective, providing reasonable assurance for timely and accurate reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2024[155] - These controls are designed to provide reasonable assurance that required information is appropriately recorded, processed, summarized, and reported within specified time periods[155] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2024 - No changes occurred in the company's internal control over financial reporting during the quarter ended September 30, 2024, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[156] PART II — OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings Company involved in patent infringement, antitrust, and acquisition-related litigation, with some settlements and pending appeals - The company is subject to various claims, litigation, and legal proceedings in the ordinary course of business, including patent litigation, product liability, and government investigations[86][157] Oxtellar XR® Litigation Settled one Oxtellar XR patent suit, filed another against Aurobindo Pharma, triggering a 30-month FDA approval stay - A patent infringement lawsuit against Ajanta Pharma Limited concerning Oxtellar XR patents was settled and dismissed without prejudice in January 2024[158] - A new lawsuit was filed against Aurobindo Pharma Ltd. in September 2024, alleging infringement of eleven Oxtellar XR patents, which triggered an automatic 30-month stay preventing FDA approval of Aurobindo's generic ANDA[159] Trokendi XR® Litigation Settled two Trokendi XR patent suits, won against Torrent (appealed), and filed new suit against Micro Labs triggering a stay - Patent infringement lawsuits against Ajanta Pharma Limited and Ascent Pharmaceuticals Inc. regarding Trokendi XR patents were settled and dismissed without prejudice in April 2023 and May 2024, respectively[161][165] - In the lawsuit against Torrent Pharmaceuticals Ltd., the court issued a Trial Opinion and Order in January 2024, deciding in Supernus's favor that its asserted patent claims were both valid and infringed[162] Torrent filed a Notice of Appeal in March 2024[163] - A new lawsuit was filed against Micro Labs Ltd. in September 2024, alleging infringement of ten Trokendi XR patents, which triggered an automatic 30-month stay preventing FDA approval of Micro Labs' generic ANDA[166] APOKYN® Litigation Ongoing antitrust lawsuit regarding APOKYN, with motions to dismiss denied and a jury trial scheduled for September 2025 - Sage Chemical, Inc. and TruPharma, LLC filed an antitrust lawsuit in October 2022, alleging violations related to APOKYN[89][167] - The court denied motions to dismiss claims against Supernus Pharmaceuticals, Inc., its subsidiaries, and Britannia Pharmaceuticals Limited[89][167] A jury trial is scheduled to begin on September 22, 2025[89][167] Adamas Litigation NAMENDA XR/Namzaric Qui Tam Litigation stayed pending appeal; securities class action settlement granted final approval - The NAMENDA XR/Namzaric Qui Tam Litigation, alleging violations of federal and state false claims acts, is currently stayed pending an interlocutory appeal to the United States Court of Appeals for the Ninth Circuit, with oral argument set for November 21, 2024[87][88][171] - A federal securities class action lawsuit against Adamas and certain former directors and officers was granted final approval for settlement on September 27, 2024, including a $4.7 million payment from insurers[172] Item 1A. Risk Factors Investors should consider risks in this 10-Q and 10-K, as adverse events could significantly harm business and stock price - Any investment in the business involves a high degree of risk, and investors should carefully consider the information in this Quarterly Report on Form 10-Q and the Annual Report on Form 10-K[174] - A material, adverse event could result in significant harm to the company's business, financial condition, and results of operations, potentially leading to a decline in the market price of common stock[174] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - There were no unregistered sales of equity securities[175] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - There were no defaults upon senior securities[177] Item 4. Mine Safety Disclosures The company reported no mine safety disclosures - There were no mine safety disclosures[177] Item 5. Other Information Includes insider trading arrangements: CEO's 10b5-1 terminated, SVP's new 10b5-1 adopted for stock option exercises and sales - Jack Khattar, President, Chief Executive Officer, and Director, terminated his Rule 10b5-1 trading arrangement on August 12, 2024, having sold 75,037 securities[178] - Padmanabh Bhatt, SVP, Chief Scientific Officer, Intellectual Property, adopted a Rule 10b5-1 trading arrangement on September 3, 2024, covering the exercise and sale of 131,995 stock options through March 31, 2025[178] Item 6. Exhibits Lists exhibits for the 10-Q, including CEO/CFO certifications and financial information in Inline XBRL format - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350[180] - Financial information from the Quarterly Report on Form 10-Q, including condensed consolidated statements and notes, is provided in Inline XBRL format[180] SIGNATURES Report signed by Jack A. Khattar (CEO) and Timothy C. Dec (CFO) on November 4, 2024, certifying its submission - The report is signed by Jack A. Khattar, President and Chief Executive Officer, and Timothy C. Dec, Senior Vice-President and Chief Financial Officer[182] - The report was dated and signed on November 4, 2024[182]