Supernus Pharmaceuticals, Inc.
Q3 2017 Earnings Call Transcript

Published: 7 Nov 2017

[Operator:]

Good morning ladies and gentlemen, and welcome to Supernus Pharmaceuticals' Third Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Peter Vozzo of Westwick Partners, Investor Relations for Supernus Pharmaceuticals. You may begin.

[Peter Vozzo:]

Thank you, Sabrina. Good morning everyone, and thank you for joining us today for Supernus Pharmaceuticals' third quarter 2017 financial results call. The update discussed today is for the three months ended September 30, 2017. 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 Web site 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 reflects Supernus' current perspective on existing trends and information that can be identified by such words as expect, plan, will, may, anticipate, believe, should, intend 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 the 2016 annual report in our Form 10-K which was filed on March 16, 2017, and the most recently quarterly report on Form 10-Q which was filed on August 3, 2017. 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 November 7, 2017, at approximately 9

[Jack Khattar:]

Thank you, Peter. Good morning everyone, and thanks for taking the time to join us as we discuss our 2017 third quarter results. We are pleased with the continued strong product sales momentum in the third quarter, having set another record for net product sales. Other key accomplishments in the quarter include completing the expansion of our sales force to provide additional support for both Trokendi XR and Oxtellar XR, on the start with the Phase III program for SPN-812, and the initiation of the investigator-sponsored study for Oxtellar XR in bipolar disorder. Our year-over-year performance continues to be driven by solid demand for our products. Total prescriptions for Trokendi XR and Oxtellar XR as reported by IMS showed growth of 39% in the third quarter 2017 over the same period in 2016. For Trokendi XR, prescriptions for the third quarter of this year totaled 145,738 prescriptions, representing a 48% increase over the same quarter last year. And for Oxtellar XR, prescriptions were 35,115, representing an increase of 10% over the same quarter last year. Both products continue to gain physician acceptance and patient adoption reflecting the unique benefits they bring to patients in epilepsy and in migraine. In the quarter, we added approximately 40 sales representatives who are now deployed in their respective territories. This concludes the sales force expansion to approximately 200 sales representatives. This expansion is designed to provide additional support for both products, Trokendi XR and Oxtellar XR. We continue to believe that the potential of Oxtellar XR and Trokendi XR in neurology is more than $500 million in peak sales, and can exceed $800 million with the bipolar opportunity for Oxtellar XR. Year-to-date, for the first three quarters of 2017, the company delivered robust growth of 40% in revenues, and 72% in operating income. We are excited about the momentum we have seen in the fourth quarter, and look forward to finishing the year in the strongest position we've ever been. Moving on to our pipeline, and starting with SPN-812, we held our investigator meeting in the third quarter, and initiated Phase III clinical testing in pediatric and adolescent patients with ADHD. We have seen a high level of enthusiasm among investigators for the study as SPN-812 has the potential of being a well-differentiated treatment for ADHD that sets itself apart from current treatment options. The Phase III program consists of four three-arm placebo-controlled trials, two pediatric trials with doses ranging from 100 milligram to 400 milligram, and two adolescent trials with doses ranging from 200 milligram to 600 milligram. Regarding SPN-810, enrollment continues in both Phase III trials currently in development for impulsive aggression in pediatric patients who have ADHD. Since the September 2017 interim analysis patient randomization will be either to the 36 milligram dose or placebo. Enrollment is expected to continue through mid 2018. We believe the high rate of enrollment into the open label expansion study for SPN-810, which was nearly 90%, reflects a high level of satisfaction from physicians and patients with potential novel treatment for impulsive aggression. During the third quarter, the investigator-sponsored trial for Oxtellar XR in bipolar disorder was initiated. We expect that approximately 90 patients will be enrolled among three study sites. This trial is randomized open-label study, with each patient completing six weeks of therapy on either Oxtellar XR or oxcarbazepine immediate-release added to their existing therapy. We are very excited about our late-stage pipeline which now consists of three sizable 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. Finally, we continue to be active on the corporate development side looking for neurology and psychiatry assets that represent a strategic fit with our portfolio. I will now turn the call over Greg who will provide more details on our third quarter operating performance.

[Greg Patrick:]

Thanks, Jack, and good morning everyone. As I review our third quarter financial results I'm reminding our listeners to refer to the third quarter 2017 earnings press release issued yesterday after the market closed. Net product sales for Trokendi XR for the third quarter of 2017 were $59.4 million, a 42% increase as compared to the prior year period. Net product sales for Oxtellar XR in the third quarter of 2017 were $18.7 million, a 35% increase as compared to the prior year period. Total net product sales for the third quarter of 2017 were $78.1 million, as compared to $55.6 million in the third quarter of 2016, or 40% higher than the prior year. Total revenue for the quarter, of $80.4 million, included net product sales of $78.1 million, royalty revenue of $2 million, and license revenue of $300,000, as compared to $55.6 million, $1.1 million, and $52,000 respectively in the third quarter of 2016. As compared to the second quarter of 2017, gross-to-net deductions for Trokendi XR increased in the third quarter due to both one-time and ongoing root causes. Expressed as a percentage of sales, aggregate gross-to-net deductions in the third quarter were modestly over 40%, as compared to gross-to-net deductions in the upper 30s as of the second quarter. The primary drivers behind this secular increase were higher levels of patient [technical difficulty], increased payments under various managed care programs, and the impact of the second quarter 4% price increase. Going forward, we expect the gross-to-net deductions for Trokendi XR will remain flat in the fourth quarter or to modestly improve. As compared to the second quarter of 2017, gross-to-net deductions for our Oxtellar XR substantially decreased due primarily to one-time factors. Expressed as a percentage of sales, aggregate gross to net deductions in the third quarter of 2017 were in the mid-30s as compared to gross-to-net deductions in the mid-40s as of the second quarter. The primary drivers behind this secular decrease were one-time downward adjustments across a variety of deductions and allowances offset by the impact of the second quarter 4% price increase. Going forward, we expect that gross-to-net deductions for Oxtellar XR will revert to the level experienced in the second quarter of 2017, i.e., gross-to-net deductions in the mid 40s expressed as a percentage of sales. Moving into 2018, we expect gross-to-net deductions expressed as a percentage of sales for both products to remain stable, i.e., gross-to-net deductions of approximately 40% for Oxtellar XR -- excuse me, Trokendi XR and in the mid 40s for Oxtellar XR. These gross-to-net deductions will increase when and if the company takes price increases. Finally, as mentioned in previous calls, modest variability in gross-to-net deductions from one quarter to another is normal and to be expected for both products. Research and development expenses in the third quarter of 2017 were $13 million as compared to $7.9 million in the same quarter last year. This increase is primarily due to expenses incurred in conjunction with the Phase III clinical trials for SPN-812 and increased expenses associated with ongoing patient recruitment for the Phase III trials for SPN-810. Selling, general, and administrative expenses in the third quarter of 2017 were $40.8 million as compared to $25.7 million in the same quarter last year. This increase approximately $15.2 million is primarily due to the expansion of sales force announced in August 2017, the development and production of promotional materials and marketing program associated with the launched of migraine indication for Trokendi XR, and an increase in share based compensation expense. Operating income in third quarter of 2017 was $22.3 million, a 12.6% increase over $19.8 million in the same period the prior year. This improvement in operating income is primarily due to increased net product sales partially offset by increased research and development expenses of $5.1 million and increased selling, general, and administrative expenses of $15.2 million. The net income in the third quarter of 2017 was $16 million compared to $61.8 million in the same period last year. This year-over-year decrease is primarily due to the release of evaluation allowance against deferred tax assets in 2016, which resulted in an income tax benefit of $42.7 million in the third quarter of 2016. Diluted earnings per share for the third quarter of 2017 were $0.29 per share compared to $1.18 per share in the same period last year. Diluted earnings per share in the third of 2016 were favorably impacted by the aforementioned release of the valuation allowance in 2016. Weighted average diluted common shares outstanding were approximately $53.6 million in the third quarter of 2017 as compared to approximately 52 million in the same period the prior year. As of September 30, 2017, the company had $237.7 million in cash, cash equivalents, marketable securities, and long-term marketable securities as compared to $165.5 million at December 31, 2016. For full-year 2017, the company is raising its expectations for both net product sales and operating income and reiterating its expectation for research and development and expense as set forth as follows. Net products sales in the range of $290 million to $295 million compared to the previously expected range of $280 million to $290 million. Research and development expense of approximately $55 million, operating income in the range $85 million to $90 million compared to the previously expected range of $82 million to $87 million. The company expects selling, general, and administrative expenditures of $40 million in the fourth quarter of 2017. The company expects research and development expenses to exceed $20 million in the fourth quarter of 2017. Looking forward to 2018, the company expects R&D spending to remain at or remain this quarterly spend rate as patient recruiting in the two Phase III trials for SPN-810, the fourth Phase III trials for SPN-812 to ultimately both extension trials for both SPN-810 and SPN-812, and the investigator-initiated trial for Oxtellar XR moves forward. The company anticipates quarter-to-quarter variability in spending, reflecting the uncertainty regarding the rate of patient recruitment in these trials. I will now turn the call back to the operator for questions.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from the line of Ken Cacciatore with Cowen and Company. Your line is now open.

[Ken Cacciatore:]

Hi guys, thanks. Just a couple of questions, Greg, in the low end of your guidance, it would appear that you're guiding for quarter-over-quarter sequential decline. So just trying to understand why that would be the case. And then a little bit more nuance on the gross-to-net changes. I know last quarter there was a thought that it would be flat quarter-over-quarter. It seemed to deteriorate as you indicated. And so just trying to understand a little bit more nuance now that we have you out of the prepared remarks, so what's going on, just natural support of kind of "New Product Launch" on Trokendi as we go into migraine. And you discussed a little bit about 2018; clearly contracting is done so a little bit more nuance around what you were describing in the prepared remarks. And then I have a follow-up. Thank you.

[Greg Patrick:]

Okay, that's a couple of questions there, Ken. So let me take the second one first, regarding a little bit more clarity with respect to the secular changes in the gross-to-net deductions. Just to set the stage, I want to emphasize it's important to recognize that script growth since the launch of the migraine indication has been frankly extraordinarily strong. And the sequential growth from Q1 to Q2 in terms of prescription of 22% followed by sequential growth from Q2 to Q3 is 17%, and then [technical difficulty] I think the most recent numbers that I've looked at between Q2 - Q3 and Q4 are in the range of 13% to 14%, so clearly very, very strong prescription growth. One of the significant facilitating factors in achieving this really extraordinary growth has been the support of an enhanced co-pay program that the company put in place as of the second quarter which greatly lowered the obstacles for patients in filling their prescription. And our experience in the second quarter has been refined as we move forward into third quarter, and we then continue to adjust this program in a manner which gives the company confidence that the gross-to-net deductions in the fourth quarter will be consistent with what we saw in the third, which was in the low 40s. Or as I mentioned earlier, perhaps improve a bit going forward. So it's also important to remember there's other things which run [technical difficulty] gross-to-net calculation, such as managed care rebates, you touched on those. And those two, I believe, between second and third quarter, ran a bit hotter than we expected. So I would say it's really the enhanced co-pay program that we put in place to facilitate driving prescription growth, coupled up with increased payments made under the managed care plans from second and third quarter which drove this increase. Again, because we can control the parameters around the co-pay program we feel that we'll continue to refine this and perfect this moving forward and such, and as such then believe that we'll either maintain flat gross-to-net or perhaps improve a bit in the fourth quarter. Regarding your question about the guiding to secular decline, in terms of a decline, could you just clarify, is that with -- I don't believe it's with respect to net sales, is it with respect to operating income?

[Ken Cacciatore:]

Yes, I'm just -- maybe I'm doing the math wrong. Adding your last three quarters, and then subtracting off of the 290, the low end of your guidance I get lower, but I may be doing the math wrong. So I apologize.

[Jack Khattar:]

Yes, that gives us again around $82 million versus the $78 million. So in the fourth quarter that gives you around $82 million in net sales versus $78 million in the third quarter.

[Greg Patrick:]

No, it should be $82 million to $87 million, is [technical difficulty] versus the $78 in third quarter.

[Ken Cacciatore:]

Got it. Yes, I guess I was looking at total revenue, not product. Sorry, that's my mistake. And then on 812, can you just take about a little bit of the differences and similarities between Phase III and Phase II? Is there anything nuance or just larger study, a little more clarification on that. Thank you.

[Jack Khattar:]

Yes, sure. [Technical difficulty] standard ADHD trail, so very similar to what we did in the Phase IIB trials. What we designed them to be four different trials, smaller trials, but four different trials which gives us really the maximum chance of success here. We're really bullish and very excited about this program in general. We already stated patient enrollment, so that has already started. And the investigators are extremely excited about the program and what are seeing. And some of these investigators also were involved in the Phase IIB study, so they've seen the product before and how it performed before as well.

[Ken Cacciatore:]

Great. Thank you.

[Operator:]

Thank you. And the next question will come from the line of David Steinberg with Jefferies. Your line is now open.

[David Steinberg:]

Thanks very much, good morning. A couple of questions, first is, you have the new sales additions in place are you, give what you're seeing in the strong growth in the prescriptions, do you think you are right-sized now for the opportunity or will you consider adding more reps sometime next year? And secondly just -- I want to hone in a little more on the gross-to-net. You'd indicated in the last call that gross-to-net should be in the 37% range. You discussed perhaps fluctuating a hundred basis points either way in a quarter-to-quarter basis. And that you basically control the number of -- these co-pay cards and the heavily discounted scripts. So now you're talking about gross-to-net, 300 to 400 basis points higher than that for the third quarter as flat or down in the fourth quarter. Still trying to understand, that's a pretty big change. What are we missing here, why was there such a big discrepancy between what you'd indicated before and what you posted for Q3? Thanks.

[Jack Khattar:]

Yes, hi, David. This is Jack, let me address both questions. On the sales force expansion, with the first 40 reps that we just added, the way we always approach this matter is by looking at the performance, and we do things in the step-wise manner. So is there a possibility we could further expand? I mean, if we see these 40 reps are doing amazing in the field and the return on our investment has been really spectacular, absolutely. We will look at that because we believe the potential of Trokendi XR and Oxtellar XR is still way in front of us, and we haven't even scratched the surface as to the potential of both of these products. So if we see any indication that further expansion [indiscernible] would be probably in the same size of what we just done, nothing more than that. We'll definitely look at it. I mean, that's how we always try to look for any growth opportunity [technical difficulty] these two products. Regarding the gross-to-net, let me make sure I reiterate what I said in pervious earnings calls, and what I said even subsequent to that. We always said -- well, that's what we said back in the second quarter, that it was 37%, and it could be up or down by about one to two points, which basically gets you to around 39%. Which is exactly what happened in the third quarter, except for one-time other adjustments that occurred that puts us to the 40% or little bit modestly above the 40%. So what we said before exactly is what happened. And as far as a the co-pay or enhanced program, and as we also say in the gross-to-net, there are always one-time factors that come into play here, whether it's returns, whether it's allowances, whether it's rebates, whether it's any many of the other things that get into the gross-to-net deductions. But as far as the program that everybody is nervous about and was nervous about, it's exactly what we intended and exactly what we said, which was a fluctuation of one to two points. One to two points above 37% is 39%, which is exactly what happened in the third quarter. And then it pushed it up a little bit for other factors that are included in that calculation.

[David Steinberg:]

I have a follow-up. But you just said that this fourth will be above 40%, and the -- I think Greg said it would be 40% flat into 2018. So I guess I'm trying to understand the math.

[Greg Patrick:]

So it's in the low-40s in the third quarter. We said it'll be either flat or declining a bit to approximately 40% in the fourth quarter. And then going forward, we expect it to be somewhere around 40% in 2018, give or take. Also remember that there's, especially in the first quarter with the high-deductible plans that many patients are now on, that's a quarter [technical difficulty] in gross-to-net, so all bets are off in the first quarter. But as we look into 2018, we think that the gross-to-nets will be up for the year averaging around 40%.

[Operator:]

Thank you. And the next question will come from the line of Annabel Samimy with Stifel. Your line is now open.

[Annabel Samimy:]

Hi, thanks for taking my question. Apologies for harping on the gross-to-net a little bit more. But maybe you can help us understand what some of those one-time factors were in the quarter. Have there been any returns or inventory fluctuations that we need to be worried about going forward? Also, when you talk about optimizing the co-pay, I guess my question is how exactly do you optimize the co-pay given that these patients should generally have access to the co-pay card, and that that access will typically increase as you move into migraine patients? And then if I can ask a separate question altogether, you now have about $237 million in cash, which is a nice position to be in. Are you, I guess, completely focused on that capital allocation into R&D at this point give the breadth of your R&D program, are you still talking or thinking about business development to bridge the gap between the portfolio and the pipeline coming to fruition? Thank you.

[Jack Khattar:]

Yes, regarding the gross-to-net, I won't be making any comments on the enhanced program and details of that enhanced program. So I'm really sorry I can't make those comments as to what we are fine-tuning or not fine-tuning in that program. Again, I can believe we're [indiscernible] on this issue because we're talking about a point up or a point down or half-a-point, half-a-point there [indiscernible] in every quarter, there will always be fluctuations. As to your question as to what is the high end and that went you or went down, I mean there are things like returns, there are things like pipeline estimates in there, there are a lot of estimations and assumptions that go into these calculations based on the most recent data that we get every quarter. So it's -- because if I say something today then somebody will tell me next quarter, well what happened to that specific item, and then we end up into looking at 12 items that make up the gross-to-net, and continue to try to explain every little movement and on every item in that calculation. I think we're all missing the big picture here. This is a company that is delivering on that net sales guidance every single time, whether gross-to-net goes up or goes down. And we will continue to do that. And the company and the products are extremely robust when it comes to the growth and the future that we're looking at. And we have delivered this year so far, in nine months, 40% growth in revenue and 72% on operating income. And we've never been in such a strong position ever as a company, and we're very, very excited about the momentum we already have in the fourth quarter behind the business, as well as moving into 2018.

[Annabel Samimy:]

Maybe I can just follow-up on that specific question. You mentioned also that there were increased rebates -- to payers, PBMs during the quarter. Now we've seen that across a number of our companies where in mid-year there is another adjustment to rebates. Is this something that we should be expecting going forward, maybe surprise changes to the rebate structure?

[Greg Patrick:]

Yes, Annabel, this is Greg. So that's a good question, and in fact I did mention that I think in response to Ken's question regarding the sectoral [ph] shift in gross-to-net. And there has in fact been an uptick in the aggregate payments that we make to managed care companies. Some of that is just due to contract changes, when the contract changes kick in. And many of our contract changes kicked in in second and third quarter. There are also other provisions in those contracts, such as price protection that's embedded in those contracts that also came into play. So as we moved forward in the second and third quarter there were in fact a number of shifts in a couple of the plans that we have that did affect the gross-to-net calculation, and that might have been something that frankly escaped me when I was looking at potential shifts going forward between the second and third quarter. I might've missed that one.

[Annabel Samimy:]

Okay. And maybe you can talk about the capital allocation question.

[Greg Patrick:]

Yes, I mean in terms of capital allocation, our research group is not constrained in terms of -- certainly in terms of the cash on our balance sheet. We do look carefully at our research expenditures to make sure that they're timed appropriately, that we don't spend in advance of our need to spend. But we're really trying to optimize our program so that we can deliver both of our pipeline products to the marketplace as fast as we can. So this doest mean that spending doesn't have any upward limit. We just try to moderate it or modulate it so that we see claims in each of the components of the spending plan so that they in aggregate don't extent the critical path of the program any further than we already estimate that critical path to be. If we found additional research projects, and we do look at those from the outside, we think that we've got enough cash in our balance sheet and strength in our P&L to be able to fund those programs going forward. The question always is one of price. So from a capital standpoint I don't look at that as being a constraint whatsoever in terms of how we think about our research program.

[Annabel Samimy:]

Okay, thanks.

[Greg Patrick:]

Sure.

[Operator:]

Thank you. And the next question will come from the line of Bill Tanner with Cantor Fitzgerald. Your line is now open.

[Bill Tanner:]

Thanks for taking the question. I had one on the Oxtellar bipolar program. Jack, you mentioned that the open-label investigator study is ongoing, and was curious if you could maybe lay out what the path forward would be subsequent to that? Maybe one is, when we would get data from that study? The path forward, would it be going straight into a pivotal? Would there be an intermediate step? And I guess the second part of that, just thinking about the positioning of Oxtellar for that indication, would it be mostly a matter of the dosing frequency increasing compliance or would there be a side effect benefit potentially as there is with Trokendi?

[Jack Khattar:]

Yes, sure. Regarding the investigator-sponsored trial, which has started, given that it's not completely controlled by us it's a little bit difficult for us to predict the exact timing. We are hoping we can complete the trial in about a year. Now, given that it is open-label, Bill, we can see what's going on clearly, and we could potentially choose to stop the Phase III program, not necessarily by waiting all the way till the end for this investigative trial to be completed. And what we trying to do, the reason we are doing this investigator trial as a really mid-stage, so to speak, proof of concept is to look for certain parameters that will allow us to better design our Phase III program, and hopefully build into the program also potential advantages related to your second part of the quarter, potential advantages that we can use in our promotional effort later on in the bipolar area. Now, clearly we expect Oxtellar XR given its pharmacokinetic profile, its potential for side effect improvement. I mean, we expect that clearly to apply to whether it's epilepsy patients or bipolar patients. But that's why we will be doing the Phase III program. So it will be two Phase III trials that will be required for the registration under the 505(b)(2) regulatory strategy. And again, we will be looking at the investigator trial for certain specific parameters that hopefully we can design into the Phase III to give us a much better differentiation moving forward.

[Bill Tanner:]

Okay, that's helpful. And then just back on the SPN-812 Phase III studies there, maybe sort of along the same vein as how you think about the data from those studies might position the drug relative to other non-stimulants?

[Jack Khattar:]

Yes, the profile that we've seen so far on SPN-812, which has given us a lot of excitement that you feel in the company behind this product, is clearly the efficacy that this product has shown so far in whatever data we have, and in the Phase IIA and the Phase IIB. I remind everyone, we have proof of concept on this product in both populations, adult population when we did the Phase IIA study with the immediate-release formulation, and also with the pediatric population. So we've proven the drug works in both patient populations. The single that we got despite the size of these studies was very strong signal from an efficacy point of view. So we're hoping to see that obviously in the Phase III trial which will differentiate potentially SG&A [technical difficulty] for the non-stimulus on the marketplace as far as the magnitude of the signal as well as potentially the onset of action that could be quicker than the product so on the marketplace. And then in addition to all that, clearly being an non-stimulant with the safety and tolerability profile that is known about the lots of seen as a molecule, that also holds a lot of promise for us and even a further differentiation with what we've seen so far on the safety and tolerability of Viloxazine versus other known stimulants on the marketplace. So all in all, we're hoping to see a product that has the profile of a highly effective and not well-known stimulant with a much better safety and tolerability versus the products that have been on the marketplace. And that truly has been that the gold standard than has been the holy grail of what we've been looking for in this phase in general, because we all know stimulants worked very well and that's why they continue to dominate the market about 92% of the prescriptions that they have all the other issues that come with them as far as safety and tolerability and abuse and so forth.

[Bill Tanner:]

Got it. Okay, thanks very much.

[Jack Khattar:]

Sure.

[Operator:]

Thank you. And the next question will come from the line of John Boris with SunTrust. Your line is now open.

[John Boris:]

Thanks for taking the questions, and congrats on the results. Jack, just on the average co-pay for a migraine patient when they show up at the drugstore, what is that that average payment that's essentially out of pocket that they have to pay? And what percent of prescriptions are actually filled versus maybe denied at the drug store level? Second question just has to do with sales force; you've added the 40 reps, sounds like there's some appetite to potentially add another phase within the sales force build out. Can you just maybe give some commentary on what you need to see and what the sizing would be of the next sales force edition if you were to opt to do that? And then third and final question just has to do with SPN-810 enrollment, within that, you remove some language that you had previously about percent of the trial enrolled, can you just give some commentary about what you've seen since you've eliminated one of the doses on the impact of enrollment in that trial and what percent of it is currently enrolled? Thanks.

[Jack Khattar:]

Yes, sure. On the first question, I mean, our co-pay card is zero co-pay card. So, as these medications are covered with the plans obviously the patient walks out with the zero payment regarding that prescription. I'm not going to make any specific comments on reversals or denials or any of that with all our products. Regarding the sales force expansion, I mean if we were to expand next year -- again this is an idea at this point I don't want people to [technical difficulty] say sure we will, because we will take these things as they comment, we'll look at that decision, we'll make that decision at the right time given the data we will have based on the recent expansion we just made, but if it's were to happen, it's probably be very similar in size as the expansion we just made right now. So, 40-50 are most. And then finally on 810 enrollment, I mean I think last time we said somewhere in 64% and 56% as far as the enrollment in these two studies Tier 1 and Tier 2. It's probably still around that percentage, I mean I know we have been randomizing since we did the interim analysis. It took few weeks to get the IRD approvals for the changes that we did. So, probably percentage wise it's still in the 65%, 66% versus 64%, I'm guessing, and that equals to the 56%, 57% at this point.

[John Boris:]

Thanks.

[Operator:]

Thank you. And the next question will come from the line of David Amsellem with Piper Jaffray. Your line is now open.

[David Amsellem:]

Thanks. So I joined late, so you may have addressed this; I apologize, but just talking about business development, you have talked about in the past trying to add psychiatric-focus product or products where you can then deploy a sales force ahead of the launch of 812 and 810. So, can you talk about how much of that is a priority in the near-term? And then, how aggressive you're willing to be in terms of deal size, and then what you're looking for? And then secondly regarding 812 we know that oversees it is approved as an antidepressant, and I believe historically you've suggested that you may look at depression as a potential indication. So in that vein, is that something that is still on the table, or are there other indications beyond ADHD or depression for 812 that could be on the drawing board? Thanks.

[Jack Khattar:]

Yes, sure. Regarding BD, David, pretty much our priorities are still the same as far as the kind of assets we're looking for, and even neurology, not just psychiatry, so anything we can launch between now and before 810 and 812 are at our commercial portfolio, absolutely we're looking at both. It is a high priority activity for us. It has been, and will continue to be high priority for us. We're also looking at potentially maybe on pipeline products, because once we finish 810 and 812, which we expect in the next 18 months or so as we get them closer to the finish line to reload the pipeline as well. So, all these different opportunities we continue to look at, and again it's in both neurology and psychiatry. From a deal size point of view, I mean given our cash position as it keeps building up as well as potentially we could finance as we said earlier in previous calls, we could do certain deals in the 300 maybe a million dollar range as far as raising money in a debt kind of structure that will allow us to fund something in the 300 million to 500 million or could be more. And if there is anything that is more strategic, we are not afraid of using equity as a last resort -- that has to be a very transformational kind of strategic transaction for us to do something like this. And then finally on SPN-812, you're exactly right, I mean the product used to be an anti-depression and that's exactly what we have on our pipeline [technical difficulty] SPN-809. So that is still an act of project so to speak, because everything we've gone so far on SPN-812 as far as the API sympathize the process, the scale up the formulation work that we have done, a lot of good preclinical work that we've done on 812 will apply to SPN-809. So, as a product, as a project in general that has been a little bit not as a high priority, it's more an issue of focusing our resources so far, but it does continue to be an opportunity for us. It is also a fairly the differentiated opportunity even in the anti-depression market because SPN-812 is a norepinephrine reuptake inhibitor and there is no such products with that mechanisms of action end-to-end by depression market. So, there continues to be a potential opportunity for us for future development. As far as any other indications for 812, we have looked at other things, but nothing that we can talk about at this point.

[David Amsellem:]

Thanks.

[Operator:]

Thanks you. [Operator Instructions] And the next question comes from the line of Ken Trbovich with Janney. Your line is now open.

[Ken Trbovich:]

Thanks. Jack, I was wondering if maybe you could give us a sense for how you expect that Trokendi ramped to progress from here with the sales force expansion. It certainly seems that you had the benefit of a lot of the dots that you had avoided calling on before that were high to topiramate writers for migraine and obviously you've got the benefit of that. Now I am just trying to get a better sense of what you anticipate from this point going forward.

[Jack Khattar:]

Yes, sure. And the really extraordinary growth that -- and [technical difficulty] that we've experienced so far with Trokendi in migraine has been due to several factors. One is what you pointed out clearly, adding a new universe for a physician point of view, universal physicians who are very, very high prescribers of the topiramate for migraines. These are physicians who are migraine specialists or headache specialists. And basically all they do all day is treating migraines and headaches, and therefore are very heavy users of the topiramate, which we all know is a leading molecule in prophylaxis. So we have added significant number of physicians in our universe, who are in that physician audience, and we will continue to promote to them, and typically as far as new physicians in our experience has been, you know, you have to be promoting the product to them with a frequency of at least 8 to 12 times as far as visits for a physician [technical difficulty] change in behavior. So I don't think we have seen the full benefit of these physicians being onboard at this point. And we continue to see a tremendous opportunity here of growth behind these physicians. In addition to these physicians, the universal we used to call on before every other neurologist who also is heavily involved in prescribing for migraine, they have -- what we have seen so far is they have expanded the use of Trokendi XR within their practice since we got the label, the indication itself and what's really feeding is the growth as well as the experience they are having in the marketplace. And this is something which was published recently in the retrospective chart review. And this is data reported by patients, by physicians. They have seen tremendous amazing clinical benefits with the use of Trokendi XR versus the immediate release of topiramate. Yes, these have not had clinical trials but that's exactly what's happening out there in real life with the clinical practice. That's what physicians are seeing themselves and experiencing with Trokendi XR and how patients are responding to Trokendi XR. So all this clearly has been working synergistically to give us the kind of prescription growth that we seen so far and that expect to continue to see. Clearly, we are very excited about the expansion in the sales force and what that could also continue to do in building the momentum behind Trokendi XR, but also in building more momentum behind Oxtellar XR, because as we said, the expansion in the sales force was also designed to support Oxtellar XR as well. So we are excited about that possibility as to that expansion could also do the prescriptions of Oxtellar XR also.

[Ken Trbovich:]

Thank you.

[Operator:]

Thank you. And the next question comes from the line of David Buck with FBR. Your line is now open.

[David Buck:]

Yes, thanks. First question for Jack, just can you talk a little bit about SPN-812 and how you see the pace of enrollment? You talked a little bit about investors being excited that the -- at the investigator meetings before Phase III start? Second, for Greg, can you talk little bit about how should we be thinking about price increases going forward? And is there a change in how much you are going to capturing as a percentage of whack [ph] price increases? Is there a delay now in terms of when they actually kick-in? Just how to look that from the outside? And then, finally, can you talk about the tax rate that you actually paid on a cash basis, if at all? And what we should be expecting for fourth quarter in 2018 for also GAAP tax rate and actual cash taxes paid? Thanks.

[Jack Khattar:]

Yes. For SPN-812 when we did the previous trials, I am talking about the Phase II trials, we actually had very very strong and speedy enrollment of patients in our trials. So, that is really behind the reasons why also a lot of physicians are excited reviewing some of the same sites that were in the Phase IIb trial as well. So, these physicians have seen the excitement about the product. They have seen the results with the patients that they have enrolled in these Phase II studies. So all that excitement and enthusiasm that I am talking about is really carried over from the experience they had in the previous trials. So we certainly expect some of that to truly help us with the Phase III program. Again if I were to compare with SPN-810, clearly this is a very different domain here. ADHD is very known area. These trials are fairly straightforward. You don't have some of the complications or complex protocols that we have had with 810. So we certainly have high hopes for a fairly good and strong enrollment behind these trials. As far as price increase, really can't make any comments on timing or extent of price increases. But, I'll tell Greg respond to the tax question.

[Greg Patrick:]

Right. And just further to Jack's comment about increases, David, the impact of price increases for Trokendi XR because of the small Medicaid footprint has been historically something around -- let's say, 70% to 80% of price increase actually effectively. It gets pushed through to the company with losing a bit of that due to Medicaid. That number is probably closer to half for Oxtellar XR because of the bigger Medicaid footprint. Regarding the tax rate, the cash tax in the third quarter, I don't have the number in front of me right now. I can dig that out for you -- [technical difficulty] largely shielded by our use of NOLs for the year. As we've said, our statutory rate is 48%. That's offset a bit by some favorable tax credits for R&D. So an effective tax rate of about 35%. And I would expect that to hold up next year as well. Of course, all that is absent anything going on in Washington with respect to tax reforms is completely -- can completely re-landscape this area.

[David Buck:]

If I could follow-up, Greg, I know you don't want to talk about going forward with price increases. That's wasn't the question, but mentioned the managed care change with price protection. So I was curious whether you actually saw any benefit in the third quarter from the price increases that you had in both products, or whether you did and which was offset from other gross-to-net items?

[Greg Patrick:]

Yes. No, that's a good point. Yes, we do see aggregate a benefit for -- 3.8% and 3.9% price increase at the end of June. Yes, we do see an impact of that in some of the managed care programs in -- managed care programs have been piece of that is washed out because of the price protection programs that they have put into place. So, managed care is starting to behave a bit like Medicaid. In fact it behaves exactly like Medicaid, except the price points are a little bit different. So in aggregate, yes, we do see a benefit as I mentioned over here in the call when we look at gross-to-net fluctuations from quarter to quarter. There was an impact in Trokendi XR gross-to-net calculation due to higher levels of administrative fees, service fees, and price protection for managed care.

[David Buck:]

Got you. And just one final if I could sneak it in, -- so for Trokendi XR in the third quarter if you look the prescription growth and some price benefit, you probably missed what would have been probably 6 to $7 million or 6 to $8 million is what Trokendi XR should have been higher. So is there any inventory change or was this all gross-to-net issue for the third quarter?

[Greg Patrick:]

It was a little bit of an inventory impact there that we can calculate and probably say it's of a million to $1.5. There was some one impacts as well as Jack referred, but I would say the majority of that is the gross-to-net sector increase.

[David Buck:]

Okay, thank you.

[Greg Patrick:]

You're welcome.

[Operator:]

Ladies and gentlemen, this concludes today's question-and-answer session. I would now like to turn the conference back over to Mr. Jack Khattar, Chief Executive Officer, for closing remarks.

[Jack Khattar:]

Thank you. Supernus has delivered another strong quarter growth with several positive accomplishments. We continue to execute well on our plans and are very excited about our progress so far in 2017. The launch of the migraine indication has set the stage for Trokendi XR to become a leading treatment for the prophylaxis of migraine. Our growth plans for Trokendi XR and Oxtellar XR including the recent expansion of our sales force will put us in a strong position to continue to deliver robust growth behind both brands in 2018 and beyond. Thank you everyone for joining us this morning. And we look forward to updating you on our continued progress.

[Operator:]

Ladies and gentlemen, thank for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.