Peter Vozzo - Westwicke Partners Jack Khattar - President, Chief Executive Officer, Secretary, Director Greg Patrick - Chief Financial Officer, Vice President.

David Amsellem - Piper Jaffray Sal - Cowen Annabel Samimy - Stifel.

Good morning, ladies and gentlemen. Welcome to the Supernus Pharmaceuticals First Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will follow at that time. As a reminder, this conference is being recorded.

I would now like to turn the conference over to Peter Vozzo. Sir, you may begin..

Thank you, Krystal. Good morning, everyone, and thank you for joining us today for Supernus Pharmaceuticals' 2015 First Quarter Financial Results Conference Call. Results discussed today are for the quarter-ended March 31, 2015. Yesterday, after the market close, the company issued a press release announcing these results.

On the call with me today are Supernus' Chief Executive Officer, Jack Khattar; and Chief Financial Officer, Greg Patrick. Today's call is being made available via the Investor Relations section of the company's website at www.ir.supernus.com. Following remarks by the management, we will open the call to questions.

We expect the duration of the call to be approximately 45 minutes. During the course of this call, management may make certain forward-looking statements regarding future events and the company's future performance.

These forward-looking statements reflect Supernus' current perspective on existing trends and information and can be identified by such words as expect, plan, will, may, anticipate, believe, should, 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 Factor section of our most recent Annual Report on Form 10-K. 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, being held and recorded on May 06, 2015, at approximately 9:00 a.m. Eastern Time. Since then, the company may have made additional announcements related to the topics discussed. Please reference the company's most recent press releases and current filings with the SEC.

Supernus declines any obligation to update these forward-looking statements except as maybe required by applicable securities laws. I will now turn the call over to Jack..

Thank you, Peter. Good morning, everyone. I appreciate everyone taking the time to join us as we discuss our 2015 first quarter results. I am very excited about the continued solid growth in our business and our prospects moving forward. Let me focus on some of the key highlights.

Production prescription growth continued at a strong pace in the first quarter. Total prescriptions for the first quarter as reported by Symphony were 78,763, an increase of approximately 46,700 or 146% over the first quarter of 2014, and an increase of approximately 8,024 or 11% over the fourth quarter of 2014.

Trokendi XR prescriptions for first quarter totaled 57,663, which is a 187% increase over the 20,094 prescriptions for the first quarter of last year and a 14% increase over the 50,583 prescriptions for the fourth quarter of 2014.

Oxtellar XR prescriptions for the first quarter totaled 21,100, representing an increase of 76% over the 11,969 prescriptions for the first quarter 2014 and a 5% increase over 20,156 prescriptions in the fourth quarter of 2014. For the most recent month of March, we reached an all-time high in prescriptions for both, Trokendi XR and Oxtellar XR.

There were 21,112 prescriptions for Trokendi XR, a 14.3% growth over the previous monthly record of 18,466 and Oxtellar XR prescriptions reached 7,530 prescriptions, a 6.5% growth over the previous monthly record of record of 7,070 prescriptions.

Moreover, for the first four weeks of the second quarter of 2015, prescriptions for Trokendi XR and Oxtellar XR continue to be strong with growth of 11.9% and 7.5%, respectively, compared to the first four weeks of the first quarter of 2015.

Finally, for the last few weeks based on Symphony's last latest weekly prescription data, Trokendi XR became the number one brand of topiramate product in the market surpassing Topamax.

Total net product sales for the first quarter of 2015 were $28.1 million compared to total net product sales of $9 million for the same quarter last year and $30.5 million for the fourth quarter of 2014.

As you can see strong sequential quarter-to-quarter product description growth in the first quarter of 2015 was not fully reflected and first quarter product sales growth has inventory levels in the distribution channel fluctuated between the two quarters.

We estimate that there was about a one-week shift in inventories that contributed to the slight sequential decline in sales. Moving on to our pipeline, we continued progress on schedule with our two pipeline candidates. First, our SPN-810, as previously stated, we plan to initiate Phase III clinical testing during the fourth quarter of 2015.

In early April, we submitted to the FDA the impulsive aggression outcomes and assessment scale that will be used in those trials. We are targeting to meet with the FDA early in the third quarter of this year to review the scale and request for special protocol assessment.

For SPN-812, which is a novel treatment for ADHD, we submitted an investigational new drug application for the extended-release formulation to the FDA and we remain on track to start Phase IIb trial during the fourth quarter of this year. This trial will be dose range finding study in pediatrics designed to establish safety and efficacy in ADHD.

Also, I want to remind everyone that will be hosting an Investor Day event in New York City on June 17 of this year when we will share with you an overview of our company, including a detailed discussion of our clinical programs and an assessment of the market potential of these products.

If you have not responded yet and would like to attempt, please e-mail supernus@westwickewithinegyptand.com [ph], so we can include you in the event. With that, I will now turn it over to Greg to walk you through the financial results..

Thanks, Jack. Good morning, everyone. As I will review our financial results, I would like to remind our listeners to refer to the first quarter 2015 earnings press release issued yesterday after the market closed. We expect to file our report on Form 10-Q for the quarter ended March 31, 2015 later this week.

Total revenue for the first quarter of 2015 was $28.1 million compared to total revenue of $30.8 million in the fourth quarter of 2014. Total revenue for both products was comprised almost exclusively of net product sales. Net product sales for the first quarter 2015 was comprised of $20.9 million for Trokendi XR and $7.2 million for Oxtellar XR.

These results compared to $22.9 million for Trokendi XR and $7.6 million for Oxtellar XR in the fourth quarter of 2014. As Jack previously described his comments, strong sequential quarter-to-quarter product prescription growth in the first quarter of 2015 is not fully reflected in growth of reported first-quarter product sales.

It is important to note that when selling our products through wholesalers and pharmacies, changes in their ordering patterns and inventory levels will impact our reported sales. These changes may not be directly related to underlying prescription demand for our products and are not within our control.

In particular, during the fourth quarter of 2014, inventory at wholesalers was approximately three weeks of supply or approximately one week higher than prior periods. During the first quarter of 2015, wholesaler inventories decreased to an estimated two weeks of supply, which is at the lower of inventory levels for our products.

Had weeks of supply through the fourth quarter of 2014 and first quarter of 2015 remained constant at two weeks of supply, total net product sales would have been $28.5 million in the fourth quarter of 2014 and $30 million in the first quarter of 2015.

It is important to note that for the last 12 months, our product inventory levels at wholesalers had consistently remained at industry norm levels, ranging from approximately 2 weeks to 4 weeks of demand. Product gross margin for the quarter was 94.2%.

Research and development expenses were $3.7 million during the first quarter of 2015 and $4.5 million in the same period to prior year. This decrease is due to the completion of SPN-812 clinical trials in 2014.

Going forward, we expect research and development expenses to increase significantly during 2015 as clinical development and manufacturing scale of activities associated with SPN-810 and SPN-812 ramp up throughout the year.

We expect that R&D expenses will vary quarter-to-quarter, reflecting the normal ramp up of late stage clinical and manufacturing trial activities. Selling, general and administrative expenses were $19.4 million for the first quarter of 2015 as compared to $17.5 million in the same period in 2014.

Higher expense 2015 reflects a full quarter's impact of the expansion of the sales force that occurred in early 2014, coupled with increased promotional and marketing activities to support the expanded sales force.

For the first quarter, operating income totaled $3.4 million as compared to an operating loss of $13.4 million in the first quarter of 2014. Net income for the first quarter was $0.9 million or $0.02 per diluted share as compared to a net loss of $15.5 million or $0.38 per diluted share in the first quarter of 2014.

This year-over-year improvement in operating income and net income is driven primarily by increased product revenue associated with higher volumes from Trokendi XR and Oxtellar XR.

Approximately roughly 44.9 million weighted average diluted common shares were outstanding in first quarter 2015 as compared to 41.1 million shares in the first quarter 2014.

As of March 31, 2015, we had $92.2 million in cash, cash equivalents, marketable securities and long-term marketable securities as compared to $94.2 million at December 31, 2014. Cash flow from operations was positive in the first quarter of 2015, offset by approximately $2.5 million of legal fees associated with patent defense.

As of March 31, 2015, approximately $14.7 million or 16% of our six-year $90 million convertible notes remained outstanding. As of May 5, 2015 approximately $13.5 million of convertible notes remained outstanding.

The full-year 2015, we reiterate that we expect net product sales will grow by approximately 50% from 2014 ranging from $130 million to $140 million.

We continue to expect operating income to range from $6 million to $10 million, driven by continued growth in product sales from both, Trokendi XR and Oxtellar XR, partially offset by growth in research and development expenses. We are providing full-year 2015 research and development expense guidance for the first time today.

We estimate R&D expense to increase by over 50 % in 2015 compared to 2014 as the company accelerates the development of SPN-810 and SPN-812. We reiterate full-year 2015 operating income of $6 million to $10 million.

We would like to remind everyone that we continue to expect quarterly operating income to vary during 2015, depending on quarterly variability in research and development spending. I would now turn the call back to the operator for questions..

Thank you. [Operator Instructions] Our first question comes from David Amsellem from Piper Jaffray. Your line is now open..

Thanks. Just a couple of quick ones, first just on the this is the inventory, can you just walk us through how we should think about the right range going forward should be in terms of the number of weeks for both products.

Secondly, can you talk about how we should think about the gross to net on both products going forward? Then lastly, this is sort of an expense questions and I may have missed this since I joined late.

Would you talk about the R&D spend being up quite significantly this year over last year, but just walk us through the timing of that ramp and spend given that at least in this quarter, at least in the first quarter R&D was pretty light, so maybe just talk about directionally how we should think about R&D for the rest of the quarters this year.

Thanks..

Hi, David. This is Jack. I will take the first question. Maybe Greg can take the other couple of questions. On the inventories, I mean, the important thing you note is that throughout given 2014, I mean, in the last 12 months, as Greg mentioned, our inventories are within the two weeks to four weeks.

I mean, we see it fluctuate all the time, every month, every quarter, depending on the ordering patterns of wholesalers, but it is a very, very comfortable range that we believe these products we can handle. Although we have seen recently very spotty out of stock situations and certain pharmacies reported to us, so we try to watch it very carefully.

If anything, we tend to be more on the lower end of that range, but I think two weeks to four weeks is a very comfortable level of inventory for those products.

Typically Oxtellar XR tends to be a little bit higher in that range versus Trokendi XR, just by the nature of the fact that it's a much smaller product and the demand is not as probably steady, consistent or as large as it is with Trokendi XR. As far as the gross to net, I will let Greg handle that..

Right. Hi, David. Gross to net for Trokendi XR, we continue to see in the mid to upper 20s and we would expect that to aggressively grow as we progress through 2015.

Oxtellar XR, because of the heavier Medicaid footprint for that product is in the upper 30s right now, and again is similar to Trokendi XR, we expect that to also grow as we progress over the year. With respect to R&D spending, R&D spending for the first quarter was a bit light, certainly as you compare it to 2014.

The reason for the year-over-year decline is that several trials for SPN-810 actually wrapped up in early 2014 and we do not have those going on this year.

In terms of spending going forward, we did say at our last call and reiterated in this call that expect R&D spending to be up over 50 % year-over-year, so that would place kind of in the mid-30s, so let us say $35 million, $36 million and we expect that to be pretty much evenly spread over the next three quarters.

As we see scale up activities to support clinical trials, to support registration validation activities, those are expensive and we expect our clinical trial activities to kick into gears seriously going forward in the second and third quarters.

I would expect research spending to be just by simple math in north of $10 million each of those quarters..

Okay. That is helpful.

I may sneak in a quick follow-up; can you just remind us what the Medicaid mix is in terms of the portion of volumes for both, Oxtellar and Trokendi?.

Sure. Trokendi XR in the low teens, I would say, 10% to 12 % of the patient population. Oxtellar XR in mid-20s, so 25% to 27 %..

Okay. Thank you..

Welcome..

Thank you. Our next question comes from Ken Cacciatore from Cowen. Your line is now open..

Hey, guys. This is Sal in for Ken. Just a quick question on the balance sheet, so now with the convertible notes down to roughly $13 million, can you just comment on your ability to leverage and use your balance sheet in 2015. Just wanted to get a status update on where litigation stands for Trokendi and Oxtellar..

Okay. I will fill the first question and ask Jack to fill the second one.

In terms of leveraging our balance sheet, and clearly with the convertible notes continuing to be brought forward for redemption and the levels of what we are looking at right now, we continue to be down by the covenants in order to convert agreement which that I think the topic one which would be the most restrictive. It's an EBITDA multiple.

With our EBITDA starting to mount, we have got the ability to raise a certain amount of money, although as we have said in the past, as I have said in the past. If we wanted to raise serious money to do a transaction, it would probably involve taking out or somehow removing the existing convertible debt.

That's clearly the most straightforward way to that rather than the function under the EBITDA restrictions, which are by the way a 12-month rolling average. In terms of litigation clause, let me turn the question back to Jack..

Yes. Regarding Oxtellar XR, which is obviously the case has more progressed than Trokendi XR just the timing. We have passed the Markman hearing at this point, so that ruling happened.

The depositions on witnesses and so forth, that also has occurred and 30-month expiration date for the processes will - end of December 2015, and we do not have a trial yet for Oxtellar XR, so we probably would expect it to be somewhere maybe in the fourth quarter, but really there is not - to judge such date for the trial, so that is where we are on Oxtellar XR.

Trokendi XR as I mentioned is a little bit earlier in the process, so we are moving forward with the toward the Markman hearing, maybe sometime around the end of this year potential..

Thanks, guys..

Sure..

Thank you. We have time for one more question. Annabel Samimy from Stifel, your line is now open. .

Hi. Thanks for taking my question. Just to follow-up on David's question regarding the Medicaid composition.

Did you say that Oxtellar - the percentages that you gave for Oxtellar and Trokendi, that is overall for the specific products or is that just in general oxcarb and topiramate?.

That is for all product, so the percentage I referenced is the percentage that we are actually seeing in terms of Medicaid reporting for each quarter..

Okay.

Do you have a sense of what that might grow to, what Medicaid composition is of epilepsy drugs overall?.

Annabel, they tend to - actually the markets. I mean, they are not far off from - so if you look at the oxcarbazepine market, it is in the same range of 25% to 26% or 27%.

To your question, I mean, we do not see a reason why Oxtellar XR should be higher than that or more than it, so it is really trending now in line with the market the oxcarbazepine market. Similarly with Trokendi XR. I mean, if you look at the topiramate market, again, the Medicaid portion tends to be in the low teens 12%, 13%.

As Greg said, our Trokendi XR is in the 10% to 12%, so if it gets any higher, it should not go that much higher. I mean, we are at the range at this point..

Okay. Great. That is helpful. On the inventory shift, I mean we understand that there are shifts all throughout the years, is one between fourth quarter and first quarter though typically more exaggerated than the rest of the year. That seems to be a trend in the pharma industry. I just wanted to see if that is what you are seeing..

Yes. I mean, we actually even saw a very similar thing back in December '13 early '14, about a one-week shift. I mean, you can't predict exactly. I mean, we watch it very, very, carefully, wholesaler withdrawals against shipments.

I mean, we monitor those very carefully and we have seen a very, very similar pattern and are probably a year-and-a-half ago with everything that was going with us with revenue recognition and so forth it did not really pop up as much as it popped up in this quarter, but we just wanted to be transparent as we always have been and it is only a week shift, so it is really within the industry norms and averages of how these wholesalers behave sometimes before year end.

Maybe they expect people to take price increases whatever behind that behavior, but that is how it is. Yes..

Okay. Just to follow through on business developments on [ph] question for us.

Obviously, everyone is seeking a lot of assets right now in I think we consider there is a number of companies in this spec pharmacy who came at CNS, so can you just talk about the competitive environment and the pricing environment that you are seeing right now if your priority is still to seek additional assets to bridge the gap between your pipeline and your portfolio right now..

The answers to both questions is, yes, first we continue to look for opportunities that is priority for the company.

We are active on several fronts in seeking assets that strategically fit with our footprint and that really is in line with the success we have had so far with Oxtellar XR and Trokendi XR and absolutely I mean you would expect it and it is competitive out there and that is why you actually see some of the pricing that occurs on some of these assets and how much people are bidding up some of these assets that are available and they are going after.

As we reiterated before, we try to be very, very disciplined in our approach to these kinds of things. We have this as a priority, but it is not that we are desperate to do something and there is a difference between the two.

Therefore, we tend to be more disciplined in what we look for and what we pay for and how much we are willing to pay for certain things.

It has to make sense at the end of the day without diluting our shareholder capital just to acquire something just for the sake of acquiring it, but it is a priority and we continue to be very active in that space absolute..

Okay.

If I could just follow-up with one more question, are there any other obviously Trokendi XR growing very nicely, are there any other programs that you feel you need to put in place to perpetuate that growth or make any additional investments in those programs?.

We continue to promote the products very heavily and aggressively from a sales force point of view as well as from a marketing standpoint of view. I mean, the market out there is competitive. There are a lot of numerous companies in the epilepsy space.

If you look at it today, who are actually promoting out in the neurologist office, so we want to clearly make sure we maintain our share of voice or even to increase our share of voice, so we are always out there continuing to promote both products. Again, as many of you may recall, we said that many times this space is very promotion-sensitive.

These products you really have to be always in front of the neurologist reminding them of the benefits of the extended release formulations on both of the products, so that switch is always happening when the patient and the opportunity presents itself. We will continue to do that.

I mean these are still very early stage growth of products for us, so absolutely we will continue to promote them, so that we can get the maximum potential. Again, we believe the maximum potential of both products is in the $500 million range.

As you look at the topiramate molecule, which is now closing in on about $13 million prescription on an annual basis, and even the oxcarbazepine molecule is growing and has been growing for the last two years since we launched oxcarbazepine and we have not even scratched the surface as far as penetration, so there is plenty of growth for us to really be able to benefit from these two markets..

Okay. Great. Thank you..

Sure..

Thank you. I would now like to turn call back over to management for any closing remarks..

Thanks for joining us this morning. I would like to summarize by saying that Supernus continues to execute across all areas of its business. We continue to be focused on maximizing the potentials for Trokendi XR and Oxtellar XR giving more patients the opportunity to better manage their epilepsy condition.

As we mentioned before, we continue to believe that the two products combined have the potential for peak sale of $500 million or more. In addition, we are focused on advancing SPN-810 and SPN-812 in clinical trials and very much look forward to seeing you on June 17 at our Investor Day event in New York City. Thank you..

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