Figure 1: Supernus Sales and Earnings Guidance (source: Supernus’ September 2020 Investor Presentation)
Supernus’ 2020 net sales figures are well on their way to be a new company record which is impressive given the ongoing pandemic and how old some of Supernus’ products are. Earnings, while somewhat lower, are still strong given that the dip is almost exclusively caused by expenses related to the US WorldMeds acquisition. Supernus still had about $100 million in free cash flow in the first half of the year as well.
Figure 2: Supernus’ Currently Marketed Products (source: Supernus’ September 2020 Investor Presentation)
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This strong financial position was generated on the back of what’s now 5 marketed products post-acquisition. Trokendi XR and Oxtellar XR made by far the biggest contribution to this, coming in at $89.7 million and $23.7 million in Q2, respectively. The other 3 combined for $10.6 million, resulting in total Q2 net sales of $124 million which annualizes towards the high end of guidance.
It’s also important that Trokendi XR has the lion’s share of sales rather than Oxtellar XR because Supernus is embroiled in a patent battle over Oxtellar XR. Apotex filed an ANDA for a generic version in May, and Supernus answered that by filing a patent infringement lawsuit in June. Supernus says that Oxtellar XR is protected by multiple patents through 2027, and no matter how that turns out though, thankfully, Supernus also looks to have solid market exclusivity on Tokendi XR through 2027.
Figure 3: Supernus’ Future Growth Potential (source: Supernus’ September 2020 Investor Presentation)
Supernus then has 2 additional products that could be approved and launched within the next year that could lead to substantial additional cash flow.
SPN-812 is a non-stimulant ADHD treatment that appeared safe and effective in multiple Phase 3 trials. The drug’s PDUFA date is coming up quickly on November 8, and I consider it to have a high likelihood of approval. Assuming approval, Supernus intends to get the drug on the market this year, and I’ve seen pretty consistent peak sales projections for SPN-812 at $400 million.
SPN-830 is an apomorphine infusion pump that is designed to smooth out the cycle of on-off episodes in Parkinson’s disease patients. Supernus just filed the NDA ahead of schedule earlier this month, and the company expects to begin marketing the therapy, if successful, during the second half of next year. While I’m glad to see yet another therapy that could be approved, I think the level of sales to be expected here is very uncertain given how competitive a space Parkinson’s disease is becoming.
Regardless, it’s clear that Supernus has had a good year so far and its long-term trajectory has improved somewhat if anything.
Supernus’ Valuation Doesn’t Appear to Price in any Future Earnings Growth
Supernus’ stock has dropped significantly of late. Because of this, Supernus’ current market cap is only around $1.07 billion, which is not much over 2x current year sales.
Supernus’ balance sheet carries $733.5 million in cash even after paying about $300 million in cash for the US WorldMeds acquisition. The company does have about $353 million in long-term debt, but Supernus generated $100 million in free cash flow in the first half of the year alone. When net cash is subtracted out of the market cap, Wall Street seems to be valuing Supernus’ ongoing business operations and pipeline at only about $700 million.
Figure 4: Supernus Future Earnings Estimates (source: Seeking Alpha)
This is an incredibly low enterprise value when Supernus will likely generate about $500 million in full-year sales and will likely have another approved product by year-end that could generate close to that amount by itself at its peak. Supernus’ P/E is also under 15 despite expectations that earnings will more than double by the end of the decade.
Figure 5: Supernus Stock Chart (source: finviz)
Management has demonstrated they intend to keep reinvesting earnings to grow the long-term return for shareholders. The risk/reward looks strong here given the impressive levels of current sales and earnings, and the many things in the pipeline that can potentially more than replace these current levels. Even if a lot went wrong from here, it’s pretty unlikely that investors would lose much, if any, capital over the long term.
The mismatch of a decreased price versus strengthened fundamentals that Supernus shows right now is perfectly in line with the type of opportunities that I will be covering in my soon-to-be-launched Marketplace Service, Biotech Value Investing. With the launch date of October 1 now less than a week away, this service will provide in-depth coverage of my approach to finding high-quality, value-oriented companies in the biotech sector. Subscribers will get my bi-weekly newsletter on value opportunities in the sector as well as my model portfolio and weekly deep-dive articles on portfolio companies and targets.
Disclosure: I am/we are long SUPN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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