Why Supernus Pharmaceuticals Inc. Is Having a Rather Non-Super Day

What happened

Shares of Supernus Pharmaceuticals (NASDAQ: SUPN), a developer of drugs that target diseases of the central nervous system, plunged as much as 19% during Tuesday's trading session following the release of its third-quarter operating results after the closing bell on Monday. While the company's third-quarter report looked stellar on paper, cost concerns and a possible guidance misunderstanding appears to be the root cause of today's damage.

So what

For the quarter, Supernus reported $78.1 million in net product and sales, representing a 40% increase from the prior-year period. Trokendi XR, a treatment for migraine and epilepsy, did most of the heavy lifting with a 48.4% increase in total prescriptions written, while Oxtellar XR delivered a 10.1% increase in prescriptions written during the third quarter. Total sales, which included $2 million in royalty revenue and $0.3 million in licensing revenue, were $80.4 million.

With regard to the bottom line, the company recorded operating income of $22.3 million, which represents a 13% year-over-year increase. In terms of adjusted earnings per share (EPS), the company generated $0.29 per share, which was down from the $1.18 in EPS reported last year. It should be noted that a valuation allowance was responsible for the bulk of last year's third-quarter profits.

Comparably, Supernus' total sales were $1.7 million ahead of expectations, and its adjusted EPS came in $0.02 higher than forecast. So what's wrong?

The first issue appears to be the rapid increase in operating expenses, which, as noted above, led to just a 13% increase in operating income despite a 40% jump in sales. Research and development expenses jumped to $13 million from $7.9 million in the year-ago period, while selling, general, and administrative expenses soared to $40.8 million from $25.7 million. There's apparent concern that the company's bottom line could suffer as the company expands its salesforce and focuses on developing new therapies.

The other issue might have to do with a misunderstanding tied to the company's guidance. Even though it increased its full-year net product sale range to $290 million to $295 million from a previous forecast of $280 million to $290 million, Wall Street has Supernus pegged for about $295.8 million in full-year sales. But keep in mind that the company earns a little extra each quarter from royalty and licensing revenue. If investors aren't aware of this, they might wrongly assume that Supernus' full-year guidance is light.

Now what

Higher costs aside, this quarter was another incredibly strong one for Supernus Pharmaceuticals, which is among the fastest growing biotech stocks in the world. Both Trokendi XR and Oxtellar XR continue to deliver solid prescription growth, which may translate into renewed margin growth once its larger salesforce is trained and gets its feet wet.

However, the real excitement just might be the promise of SPN-810, which could add a third component to Supernus' portfolio. The company is currently enrolling a phase 3 study for impulsive aggression in pediatric patients with ADHD.

In September, shares of the company took a hit after discontinuing one of the two dosing arms, opting to, instead, stick with the higher dose. Removing one dose from the equation is viewed as an added risk. However, there's genuine promise here based on previously conducted trials, which could translate into hundreds of millions of dollars in peak annual sales, if approved.

While not without near-term risks, Supernus' earnings-based decline might be an intriguing opportunity for growth-seeking investors to dip their toes into the water.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.