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Neos prescription growth continues

June 17, 2017

Adzenys prescriptions continue to grow at a robust pace.

Cotempla’s PDUFA date is approaching.

Neos will need to raise cash before the end of 2017.

Neos Therapeutics (NASDAQ:NEOS) has performed really well since the February equity offering, which removed the financing overhang (at least in the near term), and the company continues to make solid progress with its ADHD product Adzenys-XR ODT. Monthly prescriptions have grown in all months since last year’s launch except in April 2017, but if we look at prescriptions per day, Adzenys is still growing at a robust pace. This month is going to be very important for Neos as the PDUFA date for Cotempla is June 19 and its potential approval will put Neos in a very good position ahead of the back-to-school season in the ADHD market.

Adzenys – Continued and Solid Progress

Adzenys’ uptake has been really strong over the last few months. Monthly prescriptions have grown from roughly 7,700 in December 2016 to over 13,000 in March and are on track to double in May compared to December 2016. Prescriptions are down slightly in April, but the decline reflects the fact that there were four work days less in April than in March. On a daily basis, April prescriptions are up 18% month over month. And since May has three more work days than April, I believe monthly prescriptions are likely to reach 15,000. Below is a chart with daily scripts per each month, which I believe demonstrates the real monthly growth trends:

One of the things that has helped improve the uptake over the last few months is improved access. The company noted that new-to-market blocks have been lifted at almost all payers, which makes prescribing Adzenys less of a hassle for physicians and makes it easier for patients to get the drug. Neos saw increased pricing pressure in Q1, which the company guided for on the Q4 earnings call, and management expects gross to nets to improve over the next few quarters to finish the year in a 55% to 60% gross to net discount range.

Based on the growth trends over the last few months, I believe it is reasonable to assume that monthly prescriptions will grow to 23,000-25,000 by December 2016. The average month-over-month increase in prescriptions has averaged 16% over the last six months, and I assume an average monthly growth rate over the next eight months will be between 7% and 8%. This leaves some room for Neos to outperform due to the upcoming back-to-school season. Assuming a gross to net discount of 55%, Adzenys’ annualized run rate should be in the $37-40 million range by the end of 2017. Below are the projections I made in December 2016. Adzenys prescriptions are still tracking mostly in line with my quarterly estimates though Adzenys missed my Q1 estimate range of $3.5-4.5 million due to the higher gross to net discounts than I expected when I modeled the quarterly growth rates back in December 2016.

I believe we shouldn’t expect prescription growth to be as robust over the next few months. Management talked about the seasonal trends on the Q1 earnings call and mentioned that between 20% and 25% of pediatric patients stop taking their ADHD medication in the summer and start taking them again when they go back to school. I believe that prescription growth will slow down over the next few months, but that we should still see some growth in monthly prescriptions since Adzenys is still in early growth stages and is expected to continue to outperform the overall ADHD market. Adzenys is also prescribed to approximately 40% of adults, which should help smooth out the seasonality in the pediatric market. I expect prescription growth to pick up in a more meaningful way during the back-to-school season and for Adzenys to close out the year within the targeted range of 23,000-25,000 prescriptions in December 2017.

Cotempla PDUFA date coming up

Cotempla’s PDUFA date is June 19, and I believe its chances of approval are high. As a reminder, Neos already received a CRL back in November 2015 as the FDA required a “bridging study to demonstrate bioequivalence between the clinical trial material and the to-be-marketed drug product, including an assessment of food effect, and to provide validation and three months of stability data.” Neos completed the required studies and resubmitted the NDA in December 2016. Since Cotempla is using an already approved active ingredient and since Neos was aware of all the issues the FDA identified when it issued the CRL, I have a high degree of confidence that Cotempla will be approved on June 19.

According to Neos, the methylphenidate market is smaller than the amphetamine market ($3.4 billion versus $5.7 billion), which means the opportunity for Cotempla is smaller. However, I believe Cotempla’s uptake curve could be very similar or perhaps even steeper than Adzenys’ due to Neos having a much stronger foothold in the market than when it launched Adzenys. Neos had to start from scratch with Adzenys and build relationships with key stakeholders and it won’t have to do that for the most part with Cotempla. More than 6,500 physicians have already prescribed Adzenys, and I believe Neos’ sales reps will find it easier to persuade them to start prescribing Cotempla. Of course, market access hurdles will be the same and it will take time to get proper reimbursement in place.

I believe Cotempla will be a very modest contributor to this year’s net sales due to the timing of the launch (September 2017) and that net sales will be in the $1-1.5 million range. For 2018, I assume a similar trajectory to Adzenys’, which translates into $13-15 million in net sales. I believe Adzenys net sales will be in the $55-60 million range in 2018. If we add $5-6 million in generic Tussionex sales, 2018 net sales should be in the $73-81 million range. The analyst consensus for 2018 sales is $85 million, which I think is achievable under more aggressive assumptions. I believe Neos can achieve cash flow breakeven in 2H 2018.

Financial review

Neos ended Q1 with $54.3 million in cash and equivalents. The company managed to bring the operating cash expenses to around $15 million a quarter, and the total cash expenses to around $17 million a quarter (including interest, though the company has used the option to defer payments for the first four quarters under the Deerfield credit facility). And while net sales should rise substantially over the next few quarters, I believe the current cash balance is not enough to get the company to cash flow breakeven status. I estimate that Neos will need at least $20-30 million in additional funding to get to cash flow breakeven sometime in 2H 2018. And given the company’s current market cap and debt load, I think additional debt is not likely, though management mentioned a receivables revolver as one of the financing options. This makes another equity offering likely in the near term, and the timing could be related to Cotempla’s approval in June.


Neos has solid momentum heading into Cotempla’s PDUFA date in June. Adzenys prescriptions are hitting new highs and the company remains well positioned to take advantage of the back-to-school season with two products this year. The main risk in the near term is for the FDA to issue a second CRL on Cotempla and another risk is the cash burn, which means the company is likely to need to raise some capital again over the next quarter or two and that would be harder if Cotempla gets rejected. However, I think Cotempla’s chances of approval are high since Neos knows what it did wrong the first time and I assume the problems are fixed. The company also intends to reveal its next pipeline candidate in the second half of the year in the CNS or GI area.


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