Supernus Pharmaceuticals (SUPN)

Specialty pharmaceutical company Supernus Pharmaceuticals (NASDAQ:SUPN) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 4.3% year on year to $149.8 million. On the other hand, the company’s full-year revenue guidance of $615 million at the midpoint came in 1.6% below analysts’ estimates. Its GAAP loss of $0.21 per share was significantly below analysts’ consensus estimates.

Company Overview

With a diverse portfolio of eight FDA-approved medications targeting neurological conditions, Supernus Pharmaceuticals (NASDAQ:SUPN) develops and markets treatments for central nervous system disorders including epilepsy, ADHD, Parkinson's disease, and migraine.

The branded pharmaceutical industry relies on a high-cost, high-reward business model, driven by substantial investments in research and development to create innovative, patent-protected drugs. Successful products can generate significant revenue streams over their patent life, and the larger a roster of drugs, the stronger a moat a company enjoys. However, the business model is inherently risky, with high failure rates during clinical trials, lengthy regulatory approval processes, and intense competition from generic and biosimilar manufacturers once patents expire. These challenges, combined with scrutiny over drug pricing, create a complex operating environment. Looking ahead, the industry is positioned for tailwinds from advancements in precision medicine, increasing adoption of AI to enhance drug development efficiency, and growing global demand for treatments addressing chronic and rare diseases. However, headwinds include heightened regulatory scrutiny, pricing pressures from governments and insurers, and the looming patent cliffs for key blockbuster drugs. Patent cliffs bring about competition from generics, forcing branded pharmaceutical companies back to the drawing board to find the next big thing.

Supernus Pharmaceuticals competes with larger pharmaceutical companies like AbbVie (NYSE:ABBV), Takeda (NYSE:TAK), and Eli Lilly (NYSE:LLY) in the ADHD market, and with UCB (OTC:UCBJF), Jazz Pharmaceuticals (NASDAQ:JAZZ), and Eisai (OTC:ESALY) in the epilepsy space. In Parkinson's disease treatments, its competitors include AbbVie, Acorda Therapeutics (NASDAQ:ACOR), and privately-held Britannia Pharmaceuticals.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $668 million in revenue over the past 12 months, Supernus Pharmaceuticals is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Supernus Pharmaceuticals’s 10.7% annualized revenue growth over the last five years was decent. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Supernus Pharmaceuticals’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

We can dig further into the company’s revenue dynamics by analyzing its most important segment, . Over the last two years, Supernus Pharmaceuticals’s revenue was flat. This segment has outperformed its total sales during the same period, lifting the company’s performance.

This quarter, Supernus Pharmaceuticals reported modest year-on-year revenue growth of 4.3% but beat Wall Street’s estimates by 1.3%.

Looking ahead, sell-side analysts expect revenue to decline by 5.4% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Supernus Pharmaceuticals has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 11.1%, higher than the broader healthcare sector.

Looking at the trend in its profitability, Supernus Pharmaceuticals’s operating margin decreased by 17.2 percentage points over the last five years, but it rose by 3.8 percentage points on a two-year basis. Still, shareholders will want to see Supernus Pharmaceuticals become more profitable in the future.

In Q1, Supernus Pharmaceuticals generated an operating profit margin of negative 6.8%, down 4.7 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Supernus Pharmaceuticals, its EPS declined by 12.6% annually over the last five years while its revenue grew by 10.7%. This tells us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into Supernus Pharmaceuticals’s earnings to better understand the drivers of its performance. As we mentioned earlier, Supernus Pharmaceuticals’s operating margin declined by 17.2 percentage points over the last five years. Its share count also grew by 4.3%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q1, Supernus Pharmaceuticals reported EPS at negative $0.21, down from $0 in the same quarter last year. This print missed analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Supernus Pharmaceuticals has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 22.1% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Supernus Pharmaceuticals’s margin dropped by 4.5 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Supernus Pharmaceuticals historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.5%, somewhat low compared to the best healthcare companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Supernus Pharmaceuticals’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Supernus Pharmaceuticals is a well-capitalized company with $463.6 million of cash and $26.37 million of debt on its balance sheet. This $437.2 million net cash position is 24.2% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see Supernus Pharmaceuticals narrowly top analysts’ revenue expectations this quarter. On the other hand, its EPS missed significantly and its full-year revenue guidance fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $32.20 immediately following the results.

Updated: July 8, 2025 at 12:30 AM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Supernus Pharmaceuticals, you should also grasp the company’s longer-term business quality and valuation.

Supernus Pharmaceuticals falls short of our quality standards. Although its revenue growth was good over the last five years, it’s expected to deteriorate over the next 12 months and its subscale operations give it fewer distribution channels than its larger rivals. And while the company’s strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion, the downside is its diminishing returns show management's prior bets haven't worked out.

Supernus Pharmaceuticals’s P/E ratio based on the next 12 months is 15.3x. At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $39 on the company (compared to the current share price of $32.05).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.