Peter Vozzo - Westwicke Partners IR Jack Khattar - CEO Greg Patrick - CFO.

John Boris - SunTrust Esther Hong - Stifel David Amsellem - Piper Jaffray.

Good morning ladies and gentlemen, and welcome to the Supernus Pharmaceuticals’ Fourth Quarter and Full Year 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time.

As a reminder, this conference call is being recorded. I would now like to turn the conference over to Peter Vozzo of Westwicke Partners, Investor Relations for Supernus Pharmaceuticals. You may begin..

Thank you, Shannon. Good morning everyone, and thank you for joining us today for Supernus Pharmaceuticals’ fourth quarter and full year 2016 financial results conference call. The update discussed today is for the three months and 12 months ended December 31, 2016.

Yesterday, after the close of the market the company issued a press release announcing this results. On the call with me today are Supernus’ Chief Executive Officer, Jack Khattar, and Chief Financial Officer; Greg Patrick. Today’s call is being made available via the Investor Relations section of the company’s website at ir.supernus.com.

Following remarks by management, we will open the call to questions. We expect the duration of the call to be approximately 45 minutes. During the course of this call, management may make certain forward-looking statements regarding future events in 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 a risk factor second of the 2015 annual report on Form 10-K A, filed on January 20, 2017. Actual results may differ materially from those projected in these forward-looking statements.

For the benefit of those who may be listening to the replay of this call is being held and recorded on March 1, 2017 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 release and current filings with the SEC including the company’s 8-K that was filed this morning. Supernus declines any obligation to update these forward-looking statements except as required by applicable securities laws. I will now turn the call over to Jack..

Thank you, Peter, good morning everyone, and thanks for taking the time to join us as we discuss our 2016 fourth quarter and full year results.

2016, was another year of strong commercial performance as net product sales increased by 46% and operating income grew by 160% over full 2015 and exceeded our original full year guidance issued at the beginning of 2016.

In addition, total net product sales for the fourth quarter 2016 was $61 million representing solid growth of 43% over same period last year. Underlying this strong growth is the solid prescription demand for our products.

Total prescriptions for Trokendi XR and Oxtellar XR as reported by IMS showed growth of 34% in 2016 over full year 2015, and 22% in the fourth quarter of 2016 over the same period in 2015.

Regarding the label expansion for Trokendi XR to include prophylaxis of migraine headache in adults, we plan to launch the migraine indications soon after receiving full FDA approval which we expect in the second quarter of this year.

Regarding Oxtellar XR, we are excited about our plan to initiate later this year and exploratory trial investigating Oxtellar XR in patients with by bipolar disorder. This would be another step towards realizing the full potential of Oxtellar XR in the treatment of patients with psychiatry and neurology disorders.

The bipolar market represents a $4 billion opportunity with 53 million annual prescriptions as reported by IMS in 2016. Approximately one third of these prescriptions are waiting for antiepileptic drugs including oxcarbazepine.

And this represents a significant growth opportunities for Oxtellar XR beyond the current epilepsy market that we estimate at approximately 34 million annual prescriptions.

Turning now to our pipeline and starting with SPN-810, enrollment continues in both Phase 3 trials which is currently in development for Impulsive Aggression in patients, age six to 12 years old who have ADHD.

The actions that as we took in the second half of 2016 to help facilitate identifying contesting and prescreening appropriate patients for these trials as well as the steps we took to better educate patient caregivers has increase patient enrollment.

In addition we received FDA approval for revisions to the Phase 3 protocol which we expect will improve patient retention during the screening period and in turn further increase patient enrollment.

Revisions to the protocol allow caregivers to gain more experience with electronic dairy and become more compliant so appropriate patients are not screened out inadvertently. We expect recruitment and retention to continue to improve as these steps become fully implemented.

Currently we are approximately half way through our patient enrollment target in the first Phase 3 study for SPN-810. And we remain encouraged by the fact that to date enrollment into the open-label expansion by those who completed the trials remains high, currently exceeding 80%. We expect enrollment into the Phase 3 trials to continue through 2017.

Regarding SPN-812, currently in development as a model non-stimulant ADHD treatment, we plan to have an end of Phase 2 meeting with the FDA in the second quarter of this year. After which we plan to initiate a Phase 3 test. We expect the Phase 3 trial to start in the second half of 2017.

We will provide additional details on the design of the Phase 3 trial in the coming months. Regarding our intellectual property we continued in 2016 to vigorously defend our novel products and build upon our strong intellectual property position as evidenced by the favorable court rulings on Oxtellar XR and the issuance of four new U.S.

patents for Trokendi XR and Oxtellar XR over the past twelve months. Regarding IP litigation, for Trokendi XR a trial date has been set by the U.S. district court for March 20, 2017. While preparing for the trail, we continue to have settlement discussion with Tevor Ensidus [ph].

Finally, our partner Shar [ph] announced SHP 465 for the treatment of ADHD is expected to be launched in the second half of 2017 after it receives FDA approval which is expected on or around June 20, 2017. Based on the agreement between Supernus and Shar, Shar will pay to Supernus a single digit percentage royalty on net sales of the product.

I will now turn the call over to Greg, who will provide more detail on our fourth quarter and full year operating performance. .

Thanks, Jack, and good morning, everyone. I'll review our financial results; I would like to remind our listeners to refer to the fourth quarter and full year 2016 earnings press release issued yesterday after the market closed.

Net product sales for Trokendi XR for the fourth quarter of 2016 were $46.7 million, a 40.3% increase compared to the prior year period. For Oxtellar XR net product sale in the fourth quarter of 2016 were $14.4 million a 54.7% increase as compared to the prior year period.

Net product sales for Trokendi XR for full year of 2016, were $158.4 million or 43.6% higher than in 2015. Net product sales for Oxtellar XR for full year 2016 were $51.7 million or 55.7% higher than in 2015. Total revenue for full year 2016 was $215 million compared to $147.5 million in 2015.

Total revenue for full year 2016 included product revenue of $210.1 million, non-cash royalty revenue of $4.7 million and license revenue $0.2 million as compared to $3 million and $0.9 million respectively for 2015.

Gross to net deductions for the fourth quarter for Trokendi XR approximately 33% were in line with the gross to net deductions for the third quarter. Gross to net dedications for Oxtellar XR were approximately 46% in the fourth quarter.

Research and development expenses in the fourth quarter of 2016 were $13.3 million, as compared to $9.4 million in the same quarter last year. Research and development expenses for full year 2016 were $42.8 million as compared to $29.1 million for full year 2015.

The increases in both period were primarily due to increased cost associated with Phase 3 trials for SPN-810, which were initiated during the third quarter of 2015. Increased cost associated with the Phase 2b trial or SPN-812, which was initiated during the fourth quarter of 2015.

And the open label expansion studies associated with both product candidates. Selling, general, and administrative expenses in the fourth quarter of 2016 were $29.1 million as compared to $23.6 margin in the same quarter last year. Selling, general, and administrative expenses were $106 million for full year 2016 as compared to $89.1 million in 2015.

Increases in both periods were primarily due to preparation for the launch of the migraine headache indications for Trokendi XR, including marketing program development and sample production. For the fourth quarter, operating income totaled $16.3 million, a 106.8% increase over $7.9 million in the same period last year.

Operating income for full year 2016 was $54.2 million, a 160.1% increase over $20.8 million for full year 2015. This improvement in operating income for both periods is primarily due to increased net product sales.

I am pleased to note that the company significantly exceeded the original 2016 guidance provided for operating income, as well as exceeding, it's updated and most recent operating income guidance for 2016.

Net income for fourth quarter 2016 was $14.3 million or $0.26 per diluted share as compared to net income of $6.9 million or $0.14 per diluted share in the fourth quarter of 2015. Net income for full year 2016 was $91.2 million or $1.76 per diluted share as compared to net income of $13.9 million or $0.28 per diluted share for full year 2015.

Net income in both periods includes non-cash interest expense related to the royalty liability originating from the royalty monetization transaction, the company entered into in 2014.

Full year 2016 net income was favorably impacted by a onetime non-cash income tax benefit of $40.9 million due to the elimination of the valuation allowance against differed tax assets. I would like to briefly comment on the rational for releasing valuation allowance.

During the third quarter of 2016, the company determined that the valuation allowance is no longer required or supportable because of the accumulated net operating losses generated in prior years, will more likely that not be utilized in the future.

The company made this determination primarily to because net on a three-year cumulative basis is now a positive number. As such valuation allowance was reduced to zero and the associated tax benefit was reported through the statement of operations in the third quarter of 2016.

The differed tax asset will allow the company to reduce cash federal income tax payments in future period.

Approximately 52 million weighted average diluted common shares were outstanding in the fourth quarter of 2016 and approximately 51.7 million shares for full year 2016, as compared to 49.6 million and 51.2 million diluted shares in each of the respective periods in prior year.

As of December 31, 2016, we had $165.5 million in cash, cash equivalents marketable securities and long term marketable securities as compared to the $117.2 million at December 31, 2015. Cash generated from operations for full year 2016 was $66.8 million, as compared to $34.5 prior year.

As of January 28, 2017 approximately $3.6 million of our six year $90 million convertible note offering remained outstanding. We expect to file a Form 12B-25 which grants the company a 15 calendar day expansion to file its Form 10-K for the year ended December 31, 2016.

Because the company have now become a large accelerated filler, a filing dead line of its report on Form-10K has been shortened from 75 days to 60 days.

This delay is due to the need to complete all steps and tasks necessary to finalize the company's annual financial statements and other disclosers required to be in the filing including for the first time, the requirements as a consequence of becoming subject to Section 404(b) of the Sarbanes-Oxley Act of 2002.

Now, turning to financial guidance for 2017, we expect full year 2017 net product sales to be in the range of $265 million to $275 million. R&D expenses to be approximately $55 million and operating income in the range of $75 million to $80 million. Full year 2017 operating income includes approximately $5 million of non-cash royalty revenue.

I would now turn the call back to the operator for questions..

Thank you. [Operator Instructions] And our first question comes from the line of John Boris of SunTrust. Your line is now open..

First question just has to do with the migraine launch. Jack, just looking to identify from a formulary stand point, how that process work, will it just -- what is the formulary acceptance rate at Tier 1, Tier 2 for securing reimbursement on the migraine indication.

Second question has to do with the bipolar study on our Oxtellar XR, just size magnitude, is that a Phase 2 study and what additionally would you have to do, because it's pretty well published in the literature that oxcarb works in bipolar.

Is the update going to require you to do two well-controlled trials here to secure approval on the asset? And the third and final question seems when we look at the number of meetings that you have recently on the legal front, on the IP front Trokendi XR, you've had a couple of in person conferences on settlement and multiple conference calls, just any update you can provide on either settlement or litigation would be useful.

Thanks..

Sure, let me start with the, your question on the migraine launch, as far as managed care coverage reimbursement, we don’t expect any significant or major changes in the coverage for the product. As we all know currently and since we launched Trokendi XR, we've enjoyed fairly good and wide coverage by these plans.

Although currently there are very small number of states or plans that exclude reimbursement if that prescription is related to migraine diagnosis.

So once we get the expansion in the label and the migraine indication, we expect that from a pharma [ph] point of view those exceptions were these states or these specific plans that currently exclude reimbursement for migraine will add it back to the formulary.

However that doesn’t happen overnight, so typically it will probably take six to nine months or so for these plans to incorporate migraine and the reimbursement scheme. But that portion is not really big maybe it's 5%, 6% of the business, it's hard really to estimate, but it's not a huge number.

So overall the coverage should continue to be strong as we've always had it. If not a little bit stronger perhaps once we get it. Moving on to the bipolar study, this is an investigator initiated trial, fairly sizeable study probably going to be somewhere in the 150 to 200 patients in the bipolar area.

And there are specific objectives that we are looking for behind the study really to identify, what is potentially the best patient population within bipolar that Oxtellar XR could actually deliver some meaningful differentiation, be it side effects, be it any specific efficacy signals that we might get.

So this is an early stage, you can call it Phase 1 or early Phase 2 from a nomenclature point of view. But in the end to your second part of the question, we will need to conduct Phase 3 studies. We believe two Phase 3 studies for a program like this.

You are absolutely right, the use of oxcarbazepine in bipolar has been established, however there hasn’t been well controlled studies conducted in this field and that’s why, if we were and we will be the first people to develop through the regulatory pathway path way, most likely we will be asked to do two well controlled Phase 3 studies in bipolar.

However, given our confidence at this point with the longevity of this asset, we believe that's an area which defiantly warrants us to look at it very seriously because potentially if this is developed and approved for bipolar, Oxtellar XR could be double or even triple the potential that people thinks it will be currently in the market place as suggest an epilepsy drug.

So this is a huge growth opportunity for us that we are taking very seriously. And then finally regarding the third question on IP, yes, it is public information. Clearly that we would had several meetings with the generic companies regarding settlement as well as many follow up calls.

So I can basically characterize it as very intense serious discussions, but of course we can never guarantee the outcome of any discussions or which way it will go. So we are very well prepared and continue to prepare for the trail on March 20th, while in parallel the discussions continue and settlements could happen any time, or may never happen.

But discussions are better than no discussions and more intense discussions are better than very slow discussions as well..

So Jack, just a quick follow up on the two patents that were issued recently, will they be included in the trial or not?.

No, they will not be included in the trial, but they are in the orange book..

Great thanks..

Thank you and our next question comes from the line of Annabel Samimy of Stifel. Your line is now open..

Hi, this is Esther Hong on for Annabel Samimy. Just two quick questions, so are there any update on commercialization efforts for the launch of Trokendi from migraine? And then second on SPN-810, can you provide more color on the FDA approved revisions, will be revisions to the critical add more time to pre-screening period.

And when can we expect enrollment to be completed? Thanks. .

Sure, regarding the first question on the commercial efforts for migraine.

We are ready to launch the migraine, all the plans are in place, we are starting to actually execute as you might expect, if you're launching in the second quarter and most likely early second quarter of this year, we're well on our way towards that for launch preparations and readiness with that.

The spot revisions or protocol revisions for SPN-810, because we have a spot to special protocol assessment clearly any amendments to the protocol have to be submitted to the FDA, we got the agreement from the FDA and approval on these amendments.

We put them in place already in the field now, so the sites are already implanting these amendments to the protocol. And we’re starting to see very early sign of improvement there.

The core or the focus of these amendments are really designed around the issue of compliance with the device, with the electronic dairy that we have, and that is spot of the site. Initially when we started these Phase 3 programs, the care givers, a lot of them were having issues in being compliant in using the dairy -- the electronic dairy.

And off course as you would expect, we wanted to make sure that care givers prove to us that they can be at least 80% of the time compliant in the use of the dairy before they enter the study. So during the study they can give us high quality input data after they have proven that they can use their dairy.

So initially we had a lot of drop outs, people who were not compliant with the dairy, who were not really getting how it works, for lot of us it might be a simple app that we use, but not everybody is familiar with these devices or applications and therefore they need training.

So what we did with the protocol amendment is we gave the care givers another change, so if they prove, for example, in the first two-three weeks that they are not able or they need may be another week or two, for expert trainings so they can use the device and they can prove to us that they can use it, we wanted to make sure we don’t lose these patients.

Because, initially we were losing patients not because the patient doesn’t qualify to enter the study because the care giver is not able to be compliant with the device.

So this should really help us significantly in allowing a lot of the patients that actually qualify for the study to enter the study, at the same time give us, and continue to give us the confident that we need to have in the compliance rate with the use of dairy..

And then any potential update on when enrollment is expected to complete?.

Well again at this time as I said we're almost half way through for the first SPN -- the first study. So waiting for the results for the impact of this amendment, which we just put in the field recently. So until we have really a full clear idea, if that has a great impact and we will update everybody next time on our earnings call.

But at this point we expect the enrollment to be through 2017 and so data clearly in 2018. So we're hoping to come back to you guys with more specifics as we get a better feel as per how this amendment and the impact with that amendment is on the recruitment..

Great, thank you..

Thank you. [Operator Instruction] We have time for one more question. Our question from the line of David Amsellem of Piper Jaffray. Your line is now open..

So just a couple one of the follow up on Oxtellar and bipolar. Can you walk us through what's the extended current off label usage of Oxtellar in bipolar? And then also the predecessor molecule, how much of volumes are in the bipolar set in? So that’s number one.

And then secondly, just wanted to get your thoughts on capital deployment, I know this is something you talked about in the past, but you have said in the past that you may look at acquiring psychiatric product to build the salesforce around ahead of the ADHD product launches, I mean is that something that you are still looking at, is that a priority? Thanks..

Yes, regarding the Oxtellar, bipolar, currently as far as the market is concerned, we estimate there is about 2 million prescriptions on oxcarbazepine that are in the psychiatry space and we believe most of them are in bipolar.

In addition to that if you look at other antiepileptic drugs as I mentioned, about 34% of the bipolar annual prescriptions are actually from antiepileptic drugs and most of those prescriptions are coming from molecules like lamotrigine which is also a sodium channel blocker as oxcarbazepine is.

Lamotrigine, it is actually about 16% of these prescriptions, so there is a huge amount of usage in bipolar that is actually coming from antiepileptic drugs such as oxcarbazepine, lamotrigine and so forth.

As far as Oxtellar XR, currently we have very, very minimal usage in bipolar and the reason for that is because we don’t call on psychiatrics, all our calls are in the neurology space, so clearly we don’t call on psychiatrics because it's not in our label and therefore if there any usage, it's just by people hearing about the availability of the product and it fairly very, very small probably low single digit in that space.

So we certainly look at this opportunity as a major, major growth opportunity for us, because currently there is barely any usage of course of Oxtellar XR and bipolar.

And secondly because oxcarbazepine as I answered previously -- to the previous question, oxcarbazepine is known to work, at least a lot of physicians are currently using it, if it didn’t work clearly they wouldn’t be using it. So at this point it's a matter for us to figure out the exact patient population.

What is it going to require from an investment point of view as far as the two Phase 3 studies, and push forward with that because the return on this investment could be huge for us.

And then finally, regarding your question on capital deployment as far as corporate development, nothing really change there as far as our degree and the intensity of the efforts, so we continue to look for areas in neurology and psychiatry, in both areas.

In neurology, clearly to augment our capabilities that we have today, the strong footprint that we have with our sales force in the [technical difficulty] Trokendi XR and clearly in the psychiatric space as we mentioned earlier, if we can bring in an asset that is before a 812 or 810 and can get us into psychiatric before that, we're interested in that as well.

So we continue to look for either products or products in late state testing that could have meaningful differentiation into the market place, where we can make a big difference with these kinds of products and get us into the psychiatric space early and or expend our footprint in neurology..

Thank you. And I'm showing a question from the line of David Amsellem of Jaffray. Your line is now open. .

Thanks very much and I apologize if the question has been asked, as I got on late. But I was curious is to how you're thinking, now as the products have been launch for about four years and sort of the peak sales potential of Oxtellar and Trokendi, you could execute it very, very well and your sales this year is going to be north of $360 million.

Correct me if I'm wrong, but when you launch the products, I think you indicated that peak sales could be in the $400 million to $500 million range.

Assuming whether you settle or you win your patents case and you more years of exclusivity, and including the migraine prophylaxis indication, what are your latest thoughts on peak sales combined of those two products?.

Regarding the peak sales, when we always use to mention -- continue to mention that we believe both products, peak sales are around the 500 million or more, that always included the migraine.

Now it remains to be seen, if we can exceed our own internal expectations as far as the migraine is concerned, we are taking the launch of the migraine very serious, we are launching this as a new product, we’re going to continue to investment behind Trokendi XR and we are investing heavily this year behind the launch in migraine.

So should we prove to ourselves as we can even exceed our initial expectations in migraine, clearly that $500 million peak target for both products combined will move north of that.

In addition to that, as we just talked today about the bipolar opportunity in Oxtellar XR, I mean that could even bring us closer to the 800 million mark with both products combined, if we're even successful in the bipolar space.

With which we believe we should be able, but we still have to off course do the studies, have positive studies, do the filing and get the approval and launch to that. But the use of the molecule is well proven in that space.

So combined all these growth initiatives and growth opportunities behind both products conceivably could approximately spend 50 million or 800 million. It's not a wild guess at this point, that could be achievable in the future..

Thank you. And I'm showing no further questions at this time. I’d now like to turn the call back over Mr. Jack Khattar for closing remark..

Thank you. 2016 was another outstanding year for Supernus, with record financial results and significant accomplishment. We have established a solid foundation for sustainable growth and expect 2017 to be yet another outstanding year with strong net product sales and operating income growth.

In addition, we're very excited about the key milestones that we're looking forward to including the launch of migraine for Trokendi XR, starting the new growth initiatives on Oxtellar XR, starting Phase 3 testing on SPN-812 and making significant progress towards completing the phase 3 studies on SPN-810.

As I also mentioned earlier we also continue to look for strategic corporate development opportunities that could further accelerate our growth in neurology and psychiatric. Thank you everyone for joining us this morning and we look forward to updating you through the year..

Ladies and gentlemen thank you for participating in today's conference, this concludes today's program, you may all disconnect. Everyone have a great day..