Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and the financial condition ofSupernus Pharmaceuticals, Inc. (the Company, we, us, or our). The interim financial statements included in this report and this Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our audited consolidated financial statements and notes thereto for the year endedDecember 31, 2019 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K, filed with theSecurities and Exchange Commission onFebruary 28, 2020 . In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These forward-looking statements may include declarations regarding the Company's belief or current expectations of management, such as statements including the words "budgeted," "anticipate," "project," "forecast," "estimate," "expect," "may," "believe," "potential," and similar statements or expressions, which are intended to be among the statements that are forward-looking statements, as such statements reflect the reality of risk and uncertainty that is inherent in our business. Actual results may differ materially from those expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which are made as of the date this report was filed with theSecurities and Exchange Commission . Our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under the "Risk Factors" section of our Annual Report on Form 10-K and elsewhere in this report as well as in other reports and documents we file with theSecurities and Exchange Commission from time to time. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q. Solely for convenience, in this Quarterly Report on Form 10-Q, the trade names are referred to without the TM symbols and the trademark registrations are referred to without the circled R, but such references should not be construed as any indicator that the Company will not assert, to the fullest extent under applicable law, our rights thereto. 26
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Overview
We are a pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system (CNS) diseases. We have a portfolio of commercial products and product candidates.
OnApril 21, 2020 , the Company entered into a Development and Option Agreement (Development Agreement) withNavitor Pharmaceuticals, Inc. (Navitor ). Under the terms of the Development Agreement, the Company andNavitor will jointly conduct a Phase II clinical program for NV-5138 in treatment-resistant depression. OnApril 28, 2020 , the Company entered into a Sales and Purchase Agreement to acquire the CNS portfolio ofUS WorldMeds Partners, LLC . With the acquisition, the Company will add three established, marketed products and a product candidate in late-stage development to its portfolio.
COVID-19 Impact
The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of our business operations, and has assessed the impact of the COVID-19 pandemic on our condensed consolidated financial statements. Although the COVID-19 pandemic has not significantly impacted our condensed consolidated financial statements as ofMarch 31, 2020 and during the three month period then ended, it may have future impact, especially if the severity worsens, duration lengthens, or the nature of the impacts changes. The full impact of the COVID-19 pandemic is highly uncertain and subject to change. Such effects may vary significantly across different aspects of our business operations. The Company cannot yet know the full extent of potential delays, impacts on its business, financial conditions, the healthcare systems, or the economy. These effects could have material impact on the Company's liquidity, capital resources, operations and business. See "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q for additional information on risk factors that could impact our business and results. The risks and uncertainties resulting from the COVID-19 pandemic may affect our future earnings, cash flows and financial condition. These effects include: adverse impact on research and development activities as a result of temporarily halting additional enrollment in the SPN-812 adult trial; adverse impact on selling and marketing efforts as a result of temporarily halting in-person interactions by our sales force with healthcare providers; adverse impact on net product sales as a result of decreased new prescriptions due to fewer patient visits to physician's offices to begin or to maintain treatment; potential changes in payer segment mix; and increased use of co-pay programs due to rising unemployment. Financial effects could include impairment of intangible and long-lived assets, increased reserves for sales deductions that could impact our net product sales; and adjustments for market volatility for items subject to fair value measurement, such as marketable securities. For the three months endedMarch 31 2020 , with the exception of effects already cited, we were able to largely maintain our normal operations. Because the COVID-19 pandemic has not materially impacted our operations or demand for our products, it has also not negatively impacted our liquidity position in a material way. We expect to continue to generate cash flows to meet our short-term liquidity needs and have access to liquidity. 27
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Products and Product Candidates
The table below summarizes our current portfolio of novel products and product candidates:
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* Prophylaxis of migraine headache in adults and adolescents.
** SPN-820 = NV-5138 (
We devote significant resources to research and development of product candidates and proprietary drug technologies. We expect to incur significant expenses as we: invest in research and development related to the continued development of each of our product candidates throughU.S. Food and Drug Administration (FDA) approval or until the program terminates; expand product indications for approved products; invest in sales and marketing resources for existing and new products; enter into agreements to purchase products, product candidates or other companies; and invest in support of our business, technology, regulatory and intellectual property portfolio. Our Neurology Portfolio Our neurology portfolio includes two commercial products and one product candidate for the treatment of neurological diseases. Commercial Products Trokendi XR is a once-daily extended release topiramate product for the prophylaxis of migraine headache and for the treatment of epilepsy. We believe a once-daily dosing regimen improves compliance, making it more probable that patients take their medication and maintain sufficient levels of medication in their bloodstream. Trokendi XR's unique smooth pharmacokinetic profile results in lower peak plasma concentrations, higher trough plasma concentrations, and slower plasma uptake rates. This results in smoother and more consistent plasma concentrations than immediate release topiramate formulations. We believe that such a profile mitigates blood level fluctuations that are frequently associated with many side effects, thereby reducing the likelihood of breakthrough seizures or migraine headaches that patients can suffer when taking immediate release products. Side effects associated with immediate release products may lead patients to skip doses, which could place them at higher risk for breakthrough seizures or migraine headaches. Oxtellar XR is a once-daily extended release oxcarbazepine product that was initially approved for adjunctive treatment of partial onset seizures of epilepsy. With its novel pharmacokinetic profile showing lower peak plasma concentrations, a slower rate of plasma input, and smoother and more consistent blood levels as compared to immediate release products, we believe Oxtellar XR improves the tolerability of oxcarbazepine and thereby reduces side effects. In addition, Oxtellar XR once-per-day dosing is designed to improve patient compliance compared to the current immediate release products that must be taken multiple times per day. 28
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Product Prescriptions
The following table provides data regarding our prescriptions, as reported by IQVIA, during the periods indicated, including percentage changes in volume: Three Months ended March 31, Change 2020 2019 Volume Percent Prescriptions Trokendi XR 160,315 160,940 (625) -% Oxtellar XR 43,089 38,580 4,509 12% Total prescriptions 203,404 199,520 3,884 2% Product Candidate SPN-817 (huperzine A) SPN-817 will have new chemical entity status (NCE) in the U.S. market. We expect to develop intellectual property (IP) protecting this product candidate through our own research and development efforts, as well as through in-licensed IP. SPN-817 represents a novel mechanism of action for an anticonvulsant. Development will initially focus on the drug's anticonvulsant activity, which has been shown in preclinical models for treatment of partial seizures and Dravet Syndrome. SPN-817 is in clinical development, and has received an Orphan Drug designation for Dravet Syndrome from the FDA. SPN-817 Development Program We plan on studying SPN-817 initially in severe epilepsy disorders. A Phase I proof-of-concept trial is currently underway outside of theU.S. in adult patients with refractory complex partial seizures, studying the safety and pharmacokinetic profile of a new extended release formulation of non-synthetic huperzine A. The Company initiated preclinical Investigational New Drug (IND) enabling activities in theU.S. We will focus on completing and optimizing the synthesis process of the synthetic drug and developing a novel dosage form. Given the potency of huperzine A, a novel extended release oral dosage form is critical to the success of this program, because initial studies with the immediate release formulations of non-synthetic huperzine A have shown dose-limiting, serious side effects. Our Psychiatry Portfolio Our psychiatry portfolio includes two product candidates, SPN-812 and SPN-820, for the treatment of psychiatric disorders. Product Candidate SPN-812 (extended release viloxazine hydrochloride) SPN-812 is a serotonin norepinephrine modulating agent (SNMA), which we are developing as a novel non-stimulant for the treatment of ADHD. We believe SPN-812 could be well-differentiated as compared to other non-stimulant treatments due to its different pharmacological and pharmacokinetic profile. The active ingredient in SPN-812, viloxazine hydrochloride, has an extensive safety record inEurope , where it was previously marketed for many years as an antidepressant, albeit at much higher dosage levels. Viloxazine hydrochloride is a structurally distinct, bicyclic, SNMA with NCE status in theU.S. The FDA accepted the review of the NDA for SPN-812 for the treatment of children and adolescents with ADHD inJanuary 2020 and assigned a PDUFA target action date ofNovember 8, 2020 . We plan to launch it, pending FDA approval, in the fourth quarter of 2020. We expect SPN-812, if approved, to have five-year market exclusivity due to its NCE status in theU.S. Furthermore, we are pursuing IP covering the novel synthesis process for the active ingredient in SPN-812, its novel use in ADHD and its novel extended release product profile. 29
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SPN-812 Development Program We continue to prepare for the commercial launch of SPN-812 at the end of 2020. The Company remains engaged with the FDA regarding the NDA for SPN-812 for the treatment of ADHD. We initiated a Phase III program in adults in the third quarter of 2019. The SPN-812 adult trial reached approximately 75% of the targeted enrollment before additional enrollment was put on hold inMarch 2020 due to the impact of COVID-19. We are employing virtual efforts to ensure that currently enrolled subjects can progress to completion of treatment. This trial was ahead of schedule prior to the COVID-19 pandemic, with a potential data release in the second half of this year. Depending on when the Company can restart enrollment and complete the study, data from the trial may be pushed out into 2021.
Patents
We currently have tenU.S. patents that cover Trokendi XR. We have one patent issued for extended release topiramate in each of the following countries:Mexico ;Australia ;Japan ; andCanada . We have two patents issued inEurope . The ten issuedU.S. patents covering Trokendi XR will expire no earlier than 2027. We own all of the issued patents. The Company has entered into settlement agreements with third parties, permitting sale of a generic version of Trokendi XR onJanuary 1, 2023 , or earlier under certain circumstances. Our extended release oxcarbazepine patent portfolio currently includes twelveU.S. patents, nine of which cover Oxtellar XR. The nine issuedU.S. patents covering Oxtellar XR will expire no earlier than 2027. We have two issued patents for extended release oxcarbazepine in bothEurope andAustralia , and one patent issued in each of the following countries:Canada ;Japan ;China andMexico . In addition, we have a pendingU.S. patent application that covers various extended release formulations containing oxcarbazepine. We own all of the issued patents and the pendingU.S. patent application. For our pipeline product, SPN-812, we have three families of pendingU.S. non-provisional and foreign counterpart patent applications. Patents, if issued, could expire from 2029 to 2033. We have one patent issued each inEurope andCanada , covering a method of treating ADHD using viloxazine hydrochloride. In another family, covering the novel synthesis process of active ingredient, we have four patents issued in theU.S. , five patents issued inMexico , two patents issued inJapan , and one patent issued each inEurope ,Canada andAustralia . We have four patents issued in theU.S. covering modified release formulations of viloxazine hydrochloride, two patents issued inJapan andAustralia and one patent issued inMexico . We own all of the issued patents and the pending patent applications. We continue to build our intellectual property portfolio to provide additional protection for our technologies, products and product candidates. To protect our competitive position, it may be necessary to enforce our patent rights through litigation against infringing third parties. See Part II, Item 1-Legal Proceedings for additional information. Critical Accounting Policies and the Use of Estimates The significant accounting policies and basis of presentation for our condensed consolidated financial statements are described in Part I, Item 1, Financial Statements, Note 2, Summary of Significant Accounting Policies, in the Notes to the Condensed Consolidated Financial Statements. Our condensed consolidated financial statements are prepared in accordance withU.S. generally accepted accounting principles (U.S. GAAP), requiring us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and to disclose material contingent assets and liabilities. Actual results could differ materially from our estimates. We believe the following accounting policies and estimates to be critical: Revenue Recognition Revenue from product sales is recognized when physical control of our products is transferred to our customers, who are primarily pharmaceutical wholesalers and distributors. Product sales are recorded net of various forms of variable consideration, including: estimated rebates; sales discounts; and an estimated liability for future product returns (collectively, "sales deductions"). We adjust our estimates at the earlier of when the most likely amount of consideration we expect to receive changes, or when the consideration becomes fixed. For a complete description of our revenue recognition policy, see Part I, Item 1, Financial Statements, Note 2, Revenue from Product Sales, in the Notes to Condensed Consolidated Financial Statements. In addition, see Results of Operations, Sales deductions and related accruals for more information. 30
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Research and
Research and development expenditures are expensed as incurred. We estimate preclinical and clinical trial expenses based on services performed pursuant to contracts with research institutions, clinical investigators, clinical research organizations (CROs) and other service providers that conduct activities on the Company's behalf. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust our accrued expenses or our deferred advance payments accordingly. For a complete description of our research and development expense, preclinical trial, and clinical trial accrual policies, see Part I, Item 1, Financial Statements, Note 2, Summary ofSignificant Accounting Policies-Research andDevelopment Expense and Related Accrued Research and Development Expenses, in the Notes to Condensed Consolidated Financial Statements. Preclinical and clinical trials are inherently complex and often involve multiple service providers. Because billing for services often lags by a month or several months, we are often required to estimate, and therefore accrue, a significant portion of the incurred expenses. This process involves reviewing open contracts and communicating with our subject matter expert personnel, as well as with the appropriate service provider personnel, to identify services that have been performed on our behalf but for which no invoice has been received. This includes services provided by CROs, as well as services provided by clinical investigators and other service providers. We accrue the cost for unbilled services performed, whether partially or fully completed. Payments to service providers can either be based on hourly rates for service, or based on achievement of performance driven milestones. We work with each service provider to obtain an estimate for services provided but are unbilled as of the end of the calendar quarter, including estimates for payments to site investigators. When accruing clinical trial expenses, we estimate the time period over which services will be performed during the life of the entire clinical program, the total cost of the program, and the level of effort to be expended in each intervening period. We work diligently to minimize, if not eliminate, estimates based solely on Company generated calculations by relying primarily on estimates provided by our vendors. If we and/or the service provider underestimates or overestimates the costs associated with a service at any given point in time, adjustments to research and development expenses would be necessary in the following periods. Historically, our estimated accrued clinical expenses have closely approximated the actual expenses incurred, with minimal adjustments to expense in the subsequent periods. Results of Operations Comparison of the Three Months endedMarch 31, 2020 and 2019 Revenues Revenues consist of net product sales of Trokendi XR and Oxtellar XR in theU.S. , and royalty and licensing revenues from our collaborative licensing arrangements. The following table provides information regarding our revenues during the periods indicated, (dollars in thousands): Three Months ended Change March 31, 2020 2019 Amount Percent Net product sales Trokendi XR$ 68,551 $ 63,693 $ 4,858 8% Oxtellar XR 23,939 19,406 4,533 23% Total net product sales$ 92,490 $ 83,099 $ 9,391 11% Royalty revenues 2,486 2,375 111 5% Total revenues$ 94,976 $ 85,474 $ 9,502 11% Net product sales Net product sales are computed as gross revenue generated from our product shipments to our customers, which are primarily pharmaceutical wholesalers and distributors, less various forms of variable consideration, including: estimated liability 31
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for rebates; estimated liability for future product returns; and estimated allowance for discounts. These are collectively considered "sales deductions." Total Net Product Sales The increase in net product sales for the three months endedMarch 31, 2020 as compared to the prior year, is primarily due to the favorable impact of the 8% price increase takenJanuary 1, 2020 , favorable unit prescription growth for Oxtellar XR and the adverse impact of the pipeline inventory reduction in 2019. These effects were partially offset by unfavorable changes in net sales deductions. In the fourth quarter of 2018, wholesalers, distributors and pharmacies increased their inventory holdings, as compared to the prevailing inventory levels in the preceding quarter. This action was effectively reversed in the first quarter of 2019. As a result, both gross sales and net product sales in the first quarter of 2019 were adversely impacted, with the impact on net product sales of approximately$10 million . As regards to sales deductions, patient reimbursement challenges and increased contracting pressure from managed care providers resulted in higher program participation rates, increased per patient costs for our co-pay programs and higher per patient rebate payments to managed care providers. As a result, this increased the provision for sales deductions and reduced net product sales. Trokendi XR Trokendi XR net product sales increased by$4.9 million , or 8%, for the three months endedMarch 31, 2020 , as compared to the same period in 2019. This increase was driven by the favorable impact of an 8% price increase in 2020. The adverse impact in sales deductions year over year was essentially offset by the negative impact in the first quarter of 2019 of the aforementioned channel inventory reduction. Oxtellar XR Oxtellar XR net product sales increased by$4.5 million , or 23%, for the three months endedMarch 31, 2020 , as compared to the same period in 2019. The increase was primarily attributable to growth in prescription unit volume and the favorable impact from the 2020 price increase of 8%. These effects were partially offset by increased net product sales deductions due to higher per patient payments under both Medicaid and managed care programs, as well as higher co-payment program expenditures. Sales deductions and related accruals The Company records accrued product rebates and accrued product returns in Accrued product returns and rebates as current liabilities on our condensed consolidated balance sheets. We record sales discounts as a valuation allowance against Accounts receivable on the condensed consolidated balance sheets. These outstanding amounts are generally affected by changes in the level of gross product sales, changes in the provision for net product sales deductions and timing of payments/credits. The following table provides a summary of activities with respect to sales deductions and related accruals during the periods indicated, (dollars in thousands): Accrued Product Returns and Rebates Product Product Allowance for Rebates Returns Sales Discounts Total Balance at December 31, 2019$ 88,811 $ 18,818 $ 11,013 $ 118,642 Provision Provision for sales in current year 87,114 2,681 15,524 105,319 Adjustments relating to prior year sales 3,716 7,951 147 11,814 Total provision$ 90,830 $ 10,632 $ 15,671 $ 117,133 Less: Actual payments/credits (85,029) (4,609) (16,398) (106,036) Balance at March 31, 2020$ 94,612 $ 24,841 $ 10,286 $ 129,739 32
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Table of Contents Balance at December 31, 2018$ 85,003 $ 22,060 $ 11,548 $ 118,611 Provision Provision for sales in current year 63,941 1,724 11,214 76,879 Adjustments relating to prior year sales (844) (42) (43) (929) Total provision$ 63,097 $ 1,682 $ 11,171 $ 75,950 Less: Actual payments/credits (82,010) (1,632) (14,909) (98,551) Balance at March 31, 2019$ 66,090 $ 22,110 $ 7,810 $ 96,010 The total provision for sales deductions on gross product sales increased by$41.2 million , from$76.0 million in 2019 to$117.1 million in 2020. Approximately 67% of this increase, or$27.7 million , was attributable to the year over year increase in the provision for product rebates, from$63.1 million in 2019 to$90.8 million in 2020. The year over year increase in the provision for product rebates is primarily attributable to greater utilization of our patient co-payment programs, as well as higher per patient payments under both Medicaid and managed care programs. Growth in prescriptions, and the impact of the 8% price increase taken inJanuary 2020 , also contributed to the increase in product rebates. The$9.0 million increase in the provision for product returns, from$1.7 million to$10.6 million for the three months endedMarch 31, 2019 and 2020, respectively, was due primarily to unfavorable actual returns experience in the first quarter of 2020 for discontinued blister pack Trokendi XR configurations. The Company ceased production and distribution of all blister pack configurations for Trokendi XR in 2017. Subsequent to ceasing blister pack production and distribution in 2017, the observed rate of product return for all blister pack configurations of Trokendi XR steadily declined over time. This return rate trend was firmly established over a multi-year period. However, in the first quarter of 2020, the return rate for the final blister pack lots of Trokendi XR produced in 2017 exhibited a return rate significantly higher than had been experienced with all previous lots. The lots for which a higher return rate was observed are the last lots which were produced and distributed. As a result, the Company changed its estimate of the provision for product returns, based on the most recent experience. This change in estimate resulted in an increase to the provision for product returns of$8.0 million , decreased net product sales of$8.0 million and decreased net earnings of$5.9 million , or$0.11 per basic and per diluted share, for the three months endedMarch 31, 2020 .
The provision for sales discounts increased by
Royalty revenue includes royalties from the following products (dollars in thousands): Three Months ended March 31, Change 2020 2019 Amount Percent Mydayis (1)$ 919 $ 800 $ 119 15% Orenitram (2) 1,567 1,575 (8) (1)% Total$ 2,486 $ 2,375 $ 111 5% (1) Royalty from net product sales of Mydayis, a product of Shire Plc, a subsidiary ofTakeda Pharmaceuticals Company Ltd. (2) Noncash royalty revenue pursuant to our agreement withHealthcare Royalty Partners III, L.P. (HC Royalty). HC Royalty receives royalty payments from United Therapeutics Corporation (United Therapeutics) based on net product sales of United Therapeutics' product Orenitram. Supernus records noncash royalty based on these product sales. Royalty revenues were essentially flat for the three months endedMarch 31, 2020 , compared to the same period in 2019. 33
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Cost of Goods Sold The following table provides information regarding our cost of goods sold during the periods indicated (dollars in thousands): Three Months ended March 31, Change 2020 2019 Amount Percent Cost of goods sold$ 4,152 $ 3,684 $ 468 13% Cost of goods sold during the three months endedMarch 31, 2020 was$4.2 million ,$0.5 million higher than the$3.7 million incurred for the same period in 2019. The increase was primarily attributable to year over year increase in prescriptions, as well as the aforementioned reduction in channel level inventory which occurred in the first quarter of 2019. Research and Development Expenses The following table provides information regarding our research and development (R&D) expenses during the periods indicated (dollars in thousands): Three Months ended March 31, Change 2020 2019 Amount Percent
Research and development
R&D expenses increased by$3.5 million in the three months endedMarch 31, 2020 as compared to the same period in 2019. The increase quarter over quarter was primarily driven by enrollment in the SPN-812 Phase III program for adults that was initiated in late 2019. Selling, General and Administrative Expenses The following table provides information regarding our selling, general and administrative (SG&A) expenses during the periods indicated (dollars in thousands): Three Months ended March 31, Change 2020 2019 Amount Percent Selling and marketing$ 29,041 $ 30,749 $ (1,708) (6)% General and administrative 13,834 10,219 3,615 35% Total$ 42,875 $ 40,968 $ 1,907 5% Selling and Marketing. Selling and marketing expenses decreased by$1.7 million in the three months endedMarch 31, 2020 as compared to the same period in 2019. The change was due to decreased employee-related expenses of$0.5 million and marketing expense for commercial products of$2.3 million , partially offset by increased professional and consulting spending for SPN-812 pre-launch activities of$1.0 million . General and Administrative. General and administrative expenses increased by$3.6 million for the three months endedMarch 31, 2020 as compared to the same period in 2019. The change was primarily due to the$1.4 million increase in employee-related expenses due to increased headcount and higher share-based compensation expense,$1.3 million increase in higher occupancy-related costs, and$0.9 million increase in professional and consulting fees. Other Income (Expense) The following table provides the components of other income (expense) during the periods indicated (dollars in thousands): 34
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Table of Contents Three Months ended March 31, Change 2020 2019 Amount Percent Interest income$ 5,777 $ 4,681 $ 1,096 23% Interest expense (4,693) (4,710) 17 -% Interest expense on nonrecourse liability related to sale of future royalties (1,062) (1,160) 98 (8)% Total$ 22 $ (1,189) $ 1,211 (102)%
Interest income increased by
Interest expense for the three months endedMarch 31, 2020 remained essentially unchanged, compared to the same period in 2019. Noncash interest expense related to our nonrecourse royalty liability for the three months endedMarch 31, 2020 remained unchanged as compared to the same period in 2019. Income Tax Expense The following table provides information regarding our income tax expense during the periods indicated (dollars in thousands): Three Months ended March 31, Change 2020 2019 Amount Percent Income tax expense$7,516 $5,899 $1,617 27% Effective tax rate 25.9% 24.3% The increases in income tax expense and the effective tax rate for the three months endedMarch 31, 2020 , as compared to the same period in the prior year, was primarily attributable to higher income before taxes, increase in the number of states in which we owe taxes and an increase in non-deductible expenses. Net Earnings
The following table provides information regarding our net earnings during the periods indicated (dollars in thousands):
Three Months ended March 31, Change 2020 2019 Amount Percent Net earnings$ 21,518 $ 18,340 $ 3,178 17%
The increase in net earnings was primarily due to increased revenue generated from our two commercial products, Trokendi XR and Oxtellar XR.
Liquidity and Capital Resources
We have financed our operations primarily with cash generated from product sales, supplemented by cash generated by revenue from royalty and licensing arrangements as well as proceeds from the sale of equity and debt securities. Continued cash generation is highly dependent on the commercial success of our two commercial products, Trokendi XR and Oxtellar XR. We were cash flow positive and profitable from operations in 2019. While we expect continued profitability for future years, we anticipate there may be significant variability from year to year in the level of our profits, particularly as we move forward with the anticipated commercial launch of SPN-812 late in 2020, assuming FDA approval. We believe our existing cash and cash equivalents, marketable securities and cash received from product sales will be sufficient to finance ongoing operations, develop our new products and fund label expansions for existing products. To continue to grow our business over the long-term, we plan to commit substantial resources to: product development and clinical trials of product candidates; product acquisition; and in-licensing; and supportive functions such as compliance, finance, management of 35
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our intellectual property portfolio, information technology systems and personnel. In each case, spending would be commensurate with the growth of the business.
We may, from time to time, consider raising additional capital through: new collaborative arrangements; strategic alliances; additional equity and/or debt financings; or financing from other sources, especially in conjunction with opportunistic business development initiatives. We will continue to actively manage our capital structure and to consider all financing opportunities that could strengthen our long-term financial profile. Any such capital raises may or may not be similar to transactions in which we have engaged in the past. There can be no assurance that any such financing opportunities will be available on acceptable terms, if at all. Financial Condition
Cash and cash equivalents, marketable securities, long term marketable securities, working capital, convertible notes and total stockholder's equity, as of the periods presented below, are as follows (dollars in thousands):
March 31 December 31 Change 2020 2019 Amount Percent Cash and cash equivalents$ 225,767 $ 181,381 $ 44,386 24% Marketable securities 175,104 165,692 9,412 6% Long term marketable securities 534,712 591,773 (57,061) (10)% Total$ 935,583 $ 938,846 $ (3,263) -% Working capital 388,713 312,057 76,656 25% Convertible notes, net (2023 Notes) 349,232 345,170 4,062 1% Total stockholder's equity 613,383 595,428 17,955 3%
The total cash and cash equivalents, marketable securities and long term
marketable securities decreased by
Our working capital atMarch 31, 2020 was$388.7 million , an increase of$76.7 million , as compared to$312.1 million atDecember 31, 2019 . The increase was primarily due to increased accounts receivable of$31.9 million and increased cash, cash equivalents, and marketable securities of$53.8 million offset by increases in current liabilities of$7.7 million during the three months endedMarch 31, 2020 . As ofMarch 31, 2020 andDecember 31, 2019 , the outstanding principal on our 0.625% Convertible Senior Notes Due 2023 (2023 Notes) was$402.5 million . No 2023 Notes have been converted as ofMarch 31, 2020 . Contemporaneous with the issuance of the 2023 Notes, the Company also entered into separate convertible note hedge transactions (collectively, the Convertible Note Hedge Transactions), issuing 402,500 convertible note hedge options. The Convertible Note Hedge Transactions are expected to reduce the potential dilution of the Company's common stock upon conversion of the 2023 Notes. Concurrently with entering into the Convertible Note Hedge Transactions, the Company also entered into separate warrant transactions, issuing a total of 6,783,939 warrants (the Warrant Transactions). See Part I, Item 1, Financial Statements, Note 5, Convertible Senior Notes Due 2023, in the Notes to the Condensed Consolidated Financial Statements, for further discussion of the 2023 Notes and our other indebtedness. Stockholders' equity increased by$18.0 million during the three months endedMarch 31, 2020 , primarily as a result of net earnings of$21.5 million coupled with share-based compensation of$4.0 million . These increases were offset by unrealized losses on marketable securities, net of tax of$7.6 million . 36
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