Assertio Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 10 speakers on the call.

Operator

Good morning, and welcome to the Assertio Holdings, Inc. 2nd Quarter 2023 Financial Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Operator

I would like to turn the conference over to Matt Kreeps From Dara Associates, Investor Relations for Assertio, please go ahead.

Speaker 1

Good afternoon and thank you everyone for joining us Today to discuss Assertio's Q2 2023 Financials. The news release covering our earnings growth period is now available on the Investor page of our website at investor. Assertiotx.com. I would encourage you to review the release and tables in conjunction with today's discussion. With me today are Dan Pizer, President and CEO Paul Schwichtenberg, Senior Vice President and CFO And Tom Riga, outgoing CEO of Spectrum Pharmaceuticals, for which we closed the acquisition out earlier this week.

Speaker 1

Dan will open remarks to provide an overview of the business. Tom will provide additional comments on Spectrum's Rovidigm progress, and Paul will review our financials. After that, we will open the call for your questions. During this call, management will make projections and other forward looking statements regarding our future performance. Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in today's press release as well as Assertio's filings with the SEC.

Speaker 1

These and other risks are more fully described in the Risk Factors section and other sections of our Annual Report on Form 10 ks. Our actual results may differ materially from those projected in the forward looking statements, and Assertio specifically disclaims any intent or obligation to update those forward looking statements except as required by law. And with that, I will now turn the call over to Dan.

Speaker 2

Thank you, Matt. Good afternoon, everyone, and welcome to our new shareholders and employees from Spectrum Pharmaceuticals. The acquisition of Spectrum marks a significant turning point for Assertio, providing immediate diversification of revenues, A sustainable near term growth driver and long term patent protection. The asset, the commercial infrastructure and sales model They're also aligned with our vision of where we can effectively operate in this competitive pharmaceutical landscape, our intelligent contracting and market access are the foundation of the go to market model. I'm extremely proud of what we have accomplished here at Assertio.

Speaker 2

In an internal employee memo following the shareholder meeting results, I reflected on our situation only 3.5 years ago, where Assertia had just divested 2 assets to pay off its debt And was left with an extremely concentrated portfolio of just CAMBIA and Zipsor. Today, those two assets Together represent only 7% of our 2nd quarter net product sales and only 4.6% if you include golferdont sales. In that time, we've acquired 2 businesses and 2 additional assets and paid off $195,000,000 of debt. Our financial discipline and specifically our focus on cash flows is what has contributed to this success today. Now with a healthier balance sheet and a growth asset, that discipline will still be there to help foster this company towards sustainable growth.

Speaker 2

We've proven we can manage through the ups and downs and loss of exclusivity, and we've built and now acquired a 1st class commercial team from Spectrum That can only enhance our capabilities to grow assets and scale. Now I'd like to turn the call over to Tom Riga to talk about Spectrum's 2nd quarter And why we are confident in its growth trajectory. Tom?

Speaker 3

Thanks, Dan, and good afternoon, everybody. The launch trajectory of Rovidone continues to be extremely positive and that momentum has continued in the Q2 of 2023. Net sales for the 2nd quarter were $21,000,000 versus $15,600,000 in Q1, an increase of 34%. This is the 3rd consecutive quarter of exceptional performance and it is a credit to the execution of our experienced team Ensuring rolvedon continues to be clearly differentiated as the first novel product to enter the long acting G CSF space In over 20 years, that is not a biosimilar. This is a highly competitive market and our people are proving to be one of the most valuable assets during this launch.

Speaker 3

Beyond the strong Q2 revenue number, we made important progress on customer growth in terms of breadth, Meaning the absolute number of customers using Rolvedon and depth meeting same store sales. Targeted accounts purchasing Rolvedon increased 50% over Q1 2023 to about 300 in total. Additionally, We are seeing increased depth within accounts as customers become more comfortable with Rovidon's unique J code and streamlined reimbursement process. Through Q1, customer demand was primarily driven by the largest community oncology GPO, which represents approximately 50% of the segment's business. In the Q2, we initiated sales with the 2nd largest GPO That represents approximately 40% of the community oncology business.

Speaker 3

This was very helpful in the 2nd quarter, But more importantly is a growth opportunity going forward. Our focused launch strategy is hitting its stride and has played out Largely as expected. The combined company as it moves forward, there is additional opportunity to drive breadth and depth across the market. At this point, Rovidon has approximately 2% market share of the overall long acting G CSF market, which underscores the tremendous opportunity ahead. That said, we have been candid throughout that this marketplace is highly competitive And every share point gained requires market knowledge, a thoughtful and pointed strategy and exceptional execution.

Speaker 3

As Spectrum transitions to be a part of Assertio and take the next steps in Rovidant's growth trajectory, Every one of our employees should take great pride in the excellent rolloverdawn performance to date. As I sign off And turn the reins over to Dan, I must say, I am extremely confident in the team he has acquired and have come to have respect for his leadership and the capabilities at Assertio. With that, I'll turn the call back over to Dan.

Speaker 2

Thank you, Tom, And I share your enthusiasm for the future of Rolva. Today, we're not able to provide guidance as we initially intended. We just learned a few hours ago, the FDA has approved a generic indomethacin suppository. When we issued guidance, we like to have as much information at our disposal as And now we believe it prudent to withdraw our outlook until we know more information. Today, all we know is a single competitor was approved And they received CGT status, which means no other generics can be approved for 180 days.

Speaker 2

We are not aware of their launch timing. What I can offer is that Assertio is not afraid of this nor are we hiding from this. It has been well known that Indonisason Had no intellectual property nor exclusivity protecting it, and generic entry risk was always in the background. So we have been preparing for it and we are ready to defend it. One example of how we can defend is evident in our financials this year.

Speaker 2

As many of you know, we lost exclusivity for CAMBIA in January of this year and 3 competitive generics entered the market in addition to one authorized generic. Normally in these situations, the brands do not do well in the 1st 6 to 9 months following LOE. However, year to date, we've retained 36 Percent to the prior year volumes and 34% to the prior year revenues, which is an outstanding result when many of the analogs in a competitive market like this which suggests retention rates near 10% of volume and between 0% to 10% of revenue because of reduction in customer inventory. This is all due to the outstanding execution of our commercial team, preparation for the LOE and their early identification that patient refills We're still being covered by commercial insurers and quickly utilizing the resources in our hub and our patient support programs to encourage a high refill rate, An example of our market access programs and strategy at work. We're confident that we can do something similar with Indosyn In this case, we only have a single competitor and the analogs are far better than with 4 as was the case with CAMPAO.

Speaker 2

I'll provide more details in his prepared remarks, but I want to comment on a few things as they relate to Assertio's core business and also the Q2 performance. When we acquired Zyla, one of the products that came with the acquisition was a former Egalet product called Oxedo, which is an abuse deterrent opioid. While a small contributor, this product carries strong margins and cash flows because we put no marketing or sales support behind it. However, relative to its financial impact for this product, from an operations viewpoint, it's been a challenge in both supply and DEA quota. So we've made the decision to stop sales of this product and have notified the FDA we will discontinue OXADA.

Speaker 2

As a result, the company is officially out This decision will have a drag on our second half results. And for reference, we reported $1,700,000 in OXADA sales in the second half I think this is an important decision for us as we mark this new turning point in our history. I'm very excited to announce that in the second quarter, we've made notable progress in the opioid litigation, where we are dismissed from a significant minority of our NAS cases or what is commonly referred to as the baby opioid cases. Now in aggregate, we've been dismissed from just shy of 40% of all of the opioid cases that have been filed against the company without paying a penny. I think this speaks volumes about the company's potential liability and that our patience and defense strategy is being rewarded.

Speaker 2

SYMPAZAN continues the trends I discussed last quarter, achieving new monthly and quarterly TRx count demand peaks as measured by Symphony Health as well as a mix shift towards Higher strengths resulting in average higher average selling price, so that our quarterly net revenues grew 5% sequentially. Our first half of twenty twenty three net revenues are just over $5,100,000 for the product, which represents 7.1% growth over the prior year period reported by We're off to a good start so far and are starting to develop our longer term strategic plans for the product and have reasons for optimism about its potential. We're starting to get back on track with OTREXUP as we recover from the supply challenges we experienced last year. Our volumes are up 18% year over year and in the low single digits over last quarter. However, our net revenues were up 37% year over year and 27% sequentially As we focused on profitable volumes, a direct contrast to our primary competitor who continues to report declining net revenues in ASPs As they keep bidding contract prices downward to maintain market share, this is just one small example of what I described as our business strategy overall, Our smart disciplined contracting and market access are the building blocks of everything we do and then allocate our sales and marketing dollars efficiently.

Speaker 2

Our efforts now shift to the integration of Spectrum and ensuring the continued launch trajectory of Rolvadon. I will now turn the call over to Paul.

Speaker 4

Thank you, Dan. This afternoon, I will review the financial highlights from Assertio's Q2 of 2023. My comments on the Q2, except where otherwise noted, will be on Assertio's stand alone business, excluding Spectrum. For full details, please refer to the tables and financial statements in our earnings release and 10 Q. Net product sales $40,100,000 for the Q2 of 2023 compared to net product sales of $35,400,000 in the prior year quarter and $41,800,000 last quarter.

Speaker 4

The increase in net sales versus the prior year quarter is primarily driven by Endocin And the addition of SYMPAZAN, which more than offset the expected decline in CAMBIA. Indus and family net sales in the 2nd quarter increased by 23% over the prior year, primarily due to a volume mix shift to more profitable channels. OTREXUP and SYMPAZAN combined net sales for the 2nd quarter was $6,200,000 reflecting 17% sequential growth over the prior quarter Due to strong volume and favorable channel mix for both products, overall portfolio net sales were up 13% versus the prior year quarter Despite the CAMBIA loss of exclusivity on January 1st. Gross margin as a percentage of product net sales was 88.1% in the Q2 versus 87.2% in the prior year quarter. The increase in margin is due to a shift in product sales mix to IndusInd, which carries a higher gross margin.

Speaker 4

Adjusted selling, general and administrative expenses in the 2nd quarter were $11,400,000 Compared to $11,900,000 last quarter $8,600,000 in the prior year quarter, which included a net benefit of $2,000,000 From an insurance settlement, the increase versus the prior year quarter is primarily due to additional costs for both SYMPAZAN and OTREXAN along with personnel costs due to new headcount additions. Adjusted EBITDA for the 2nd quarter was $24,800,000 compared to $25,600,000 last quarter $22,900,000 in the prior year quarter. The year over year increase was driven by 4 point The second quarter was 60.4% versus 65.2% in the prior year quarter. The 2nd quarter non GAAP adjusted earnings per share was $0.19 versus $0.29 in the prior quarter and $0.28 in the prior year quarter. Again, please note that earnings per share is now calculated using diluted shares, including the if converted impact of the convertible notes as is required under GAAP.

Speaker 4

There were 70,100,000 total diluted shares In the Q2, including the fully weighted additional diluted share impact of 9,800,000 shares, the Spectrum merger will add approximately 38,000,000 shares. Net income for the 2nd quarter was $8,500,000 compared to a net loss of $3,500,000 last quarter And $7,800,000 in the prior year quarter. The 2nd quarter net income was impacted by $3,400,000 in transaction costs associated with the acquisition of Spectrum Pharmaceuticals. Net cash provided by operating activities as reported in the company's statement of cash flows for the 2nd quarter was $18,600,000 versus $22,700,000 last quarter and $14,400,000 in the prior year quarter. The year over year increase in operating cash flow is due to increased net sales, partially offset by higher operating expenses versus the prior year.

Speaker 4

Ending cash on June 30, 2023 was $70,200,000 reflecting a $1,600,000 increase versus the prior quarter. On June 30, 2023, our long term debt balance was $38,200,000 reflecting the $40,000,000 Convertible debt balance less unamortized debt issuance costs. We did not take on any additional debt from the acquisition of Spectrum. Looking ahead, please note that the 3rd quarter results will be impacted by purchase accounting, transaction costs and restructuring costs related to the Spectrum acquisition on July 31. And now I'll turn the call back over to Matt.

Speaker 1

Thank you, Paul, Tom and Dan. At this time, we've completed our prepared remarks and we'll use the balance of our allotted time to take questions from our sell side analyst community. Operator, can you please provide the instructions for Q and A from our listeners and launch the first question?

Operator

We'll pause for just a moment to comply with the Q and A roster. Our first question comes from Thomas Flaten at Lake Street Capital Markets. Thomas, please go ahead.

Speaker 5

Hey, good afternoon. Thanks for taking the questions. Dan, given the uncertainty around IndusInd now, I was wondering if you could comment a little bit on the Spectrum staff that's coming over. Did you have any vacancies in the field? How's Any kind of qualitative or quantitative for that matter, thoughts you could give us on the team that's coming over given that Rolodin now has Become even more important at least in the near term here.

Speaker 2

Yes. I'll provide some initial comments and then Tom, I'll open it up to you too. So I've gotten to know a lot of this team. We're taking over the whole entire team intact as is. As far as I'm aware, there aren't any there's no vacancies.

Speaker 2

There's one position that will be filled, it's a new position that will be filled in mid August. But it's been I'm sure the news today will be a little bit of a morale boost or bump as it will be across the entire company. But that shouldn't dissuade anyone from the success that they're having with the launch of Rolvedon. And As Tom said, the people here are the most valuable assets in the company. And that doesn't apply just to Spectrum, it applies to Assertio too.

Speaker 2

So people are even more valuable now than they were yesterday. And we are going to put even more emphasis behind this launch. And it is just as important to this company as it was before. And Tom, any other comments about the commercial team?

Speaker 3

No, I think you said it, Thomas. First, performance speaks for itself, but outside of that, this is a rock solid group of people that know what they're doing. They're professionals, they're resilient and they play to win. So I expect that will continue and it really starts With leadership and I think Dan is adopting an exceptional leadership team and I think they will thrive.

Speaker 5

And then Dan, any thoughts on rolvedon for 2023, the calendar year? I know that sits kind of Adjacent to the legacy business, but I think if any thoughts you can share on expectations to that? I know you're not providing guidance for the whole business, but maybe that Product is a standalone?

Speaker 2

So I don't Thomas, we have a there's a point estimate that Assertio put in the S4. And I would tell you that I don't think our opinion of the launches has changed too terribly much from that estimate that we put out in the S4, Other than to say that it has been tracking slightly better than our original expectations.

Speaker 5

Got it. And then one final one, if I might. Given the INDOCEN news, any preliminary thoughts on how you might proceed with the planned study in moderate ERCP patients, moderate risk?

Speaker 2

Yes. That's a very, very good question and I think appropriate and it's something that we're evaluating. We had been evaluating options as it regards to a regulatory strategy anyway. I think with the news today, we're going to so I'll be upfront. The lifecycle management Option that we had was a different dosage strength of this product that is more convenient for an ERCP procedure.

Speaker 2

I think with this news today, what we might be looking to do is find a way to accelerate that to market. And there are some backup options that we had before that did not bring an exclusivity option with them. And those might be something that we start to accelerate, but that's obviously something we as a management team and Have to discuss and align with our Board before we make a decision.

Speaker 5

Excellent. I appreciate you guys taking the questions. Thank you.

Operator

Your next question comes from Mayank Mamtani with B. Riley. Mayank, please go ahead.

Speaker 6

Hi, this is Brandon Carney on for Maya. Thanks for taking our questions and Congratulations on closing the Spectrum acquisition. So, as you said, the Robodone performance seems to be tracking ahead of plan. Just wanted to see if you could comment on the sort of long term cash flow you anticipate on a standalone basis, recognizing there is a balanced mix Of commercial and digital spend you intend to have? And what's the incremental OpEx we should Expect, which is important in light of the uncertainty with the top line being pulled.

Speaker 2

So, Paul and I will have to Yet another reason why we pulled guidance was what is going to be the operating expense in the base business. What we anticipate Bringing over now, we had originally assumed $60,000,000 of operating expenses from Spectrum in our when we Announce the deal. Now as we're through most of the integration work and planning process, We're now anticipating that that's going to be $55,000,000 of incremental operating expenses to operate that asset on our platform. So the big question that's still open now is what is the base of Certio operating expenses. So I can't give you a go forward, but I know it's going to be incremental 55% of total put on.

Speaker 6

Sure. Okay. And maybe just Following up on the question about integrating the 2 teams there. I know that you're sticking with Spectrum's game plan and the commercial team, Then layering in the Assertio digital platform on top, maybe you just get some more color on how that integration is going?

Speaker 2

I would tell you that the planning was, I would say, flawless. They did an amazing job And coordinating together to plan this integration, when it came to the commercial side, Because we are pulling over the entire team and we're not trying to disrupt anything, it's little things like How long do we get to keep our Spectrum email address? And if we want to launch new marketing materials, Which promotional review committee do we go to? So it's not massive disruption, it's minor disruption. So the commercial changes shouldn't be large and the overlay of the digital Does not have to happen right away.

Speaker 2

That is going to be probably more towards late this quarter. The planning part of that is going to happen as we speak. And then later this quarter, early next quarter is when that will actually start taking place. So there's plenty of activity, as Tom said, that we He just opened up a new GPO. So there's plenty of growth avenues open for that team right now before we start throwing more at them.

Speaker 6

Okay. Sure. Maybe just one quick follow-up. I think you mentioned in the past that so I guess we're going to expect those synergies from the digital platform being layered on top of later in Hugh, you said. Just wondering if you could comment on what kind of synergy you were looking at.

Speaker 6

I think Previously, you mentioned that opening up new geographies for Ovidon. I'm wondering if there's anything additional to that.

Speaker 2

So just to what I think might be correct something you said, I wouldn't look at the digital platform as a Synergy, maybe a revenue synergy, but not an operating expense synergy. We're not going to be using that the digital platform as a way to reduce The current spectrum, it's going to be add on to it and enhance it and hopefully go to areas Or geographies, as you said, that they're currently not able to go to. So that is what our current vision of this is And to be able to possibly accelerate the launch in that manner.

Speaker 6

Okay. Thanks for the color and thanks for taking my questions.

Operator

Appreciate it. Our next question comes from Hammad Khorsand with BWS Financial. Hammad, please go ahead.

Speaker 7

Hi. So first off, just wanted to see how closely were you aware this was happening? And what are your expectations of How this would be your competitor would be able to manufacture this generic and be successful in launching in the U. S?

Speaker 2

I would say we were not aware of this at all. This came as a complete shock and surprise. So the last we had heard of this potential competitor, they were working on a 100 milligram dose And we had thought that they were done. So We were not aware that they were at the FDA. The fact that they had competitive generic therapy approval tells you it was an accelerated approval.

Speaker 2

So it was relatively quick. So this came as a complete surprise to us.

Speaker 7

What preparations are you making as far as just being able to retain market share or close to market share just given A potential generic coming in?

Speaker 2

We've been making preparations for that ever since I took over as CEO. So for the last 3 years, we've been making preparations for this. I'd rather not tell you on an open conference call what they are. I appreciate that you'd like to know what they are. But I don't want Zydus, who is likely listening, to be aware of what they are.

Speaker 7

Fair enough. I guess the other question I had was, Given the ASEG guideline changes, have you seen any of the market expands? Where are you seeing the demand, if any?

Speaker 2

So we hadn't seen it. So one of the things that we were going to talk about was some of the market research that we've been doing and some of the other Awareness campaigns that we had launched, there was a the continuing medical education Program that we had funded just launched on July 26th, and we had something like 1,000 viewers of it on day 1. So we are pretty excited about that. Some of the market research that we had done in the quarter, we surveyed a bunch of physicians and we had What was it, Paul? Like, was it 90% were unaware of the ASGE changes?

Speaker 2

So that led us to believe that there was some good opportunity for awareness. So, we believe that there is some good opportunity awareness and reasons to be hopeful, but that whole section of the prepared remarks was removed today.

Operator

Okay. Appreciate. Thank you. Our next question comes from Jim Sidoti with Sidoti and Company. Jim, please go ahead.

Speaker 8

Good afternoon and thanks for taking the questions. The $55,000,000 of operating expenses that's coming on, Can you break that out? Is that primarily SG and A? And can you just break out what's SG and A, what's R and D and if there's other components?

Speaker 4

Yes, sure, Jim. I can give you a breakdown of that. Breaking down the $55,000,000 about $40,000,000 is going to be sales and marketing. That's all the team that we brought over, as Dan mentioned. About $12,000,000 is G and A, including a variety of functions, QA, Manufacturing, other back office and about $3,000,000 is R and D.

Speaker 8

Okay. And as you said earlier, you've been through this Before with Cambia and with Inveson over the next few weeks or how long do you think it will take?

Speaker 2

In terms of timing, Cambia was a known LOE event. We had The Paragraph IV settlement, so we knew everyone is coming January 1 this year. But we have been preparing, so So basically running more games here internally as if it was coming tomorrow. So while I tell you this was a surprise in terms of timing, the team is Ready and ready to go and responding as we speak.

Speaker 8

All right. Thank you.

Operator

Our next question comes from Scott Henry from ROTH Capital. Scott, please go ahead.

Speaker 9

Thank you and good afternoon. Potential generics, how do you think the distribution channel will impact this when we compare it

Speaker 2

I'll try and answer it With the best I can, Scott, the analogs that we look at, there's multiple ways that you can look at an analog In a generic erosion, and one of which is 1 entrant versus 4 in the case of CAMBIA, and it certainly erodes Far faster in 1 versus 4 or in 4 versus 1. The other way is it's The not just the digital is far faster than it does in a hospital, and that tends to be because of the retail pharmacies Profit motivation to switch. So what we've seen is that the brand retains a far greater share And the pricing tends to be better. So that is what one of the things that Gives us some optimism in this particular situation is we have one competitor. It's the hospital setting.

Speaker 2

It's a difficult to manufacture dosage form, which we've been talking about for years. So supply may not be 100% Readily available. So there are a number of factors that would say that this particular situation would lend itself to one where the brand could maintain a decent share of this market going forward.

Speaker 9

Okay, great. Thank you for that color. And one other question, and I again apologize if it's repetitive. But the Rolled and Don revenues in the quarter, dollars 21,000,000 was that a relatively clean quarter In terms of stocking, I mean, is it fair to say that based on 2Q, it was at a roughly $85,000,000 run rate already? So was there any give or take in the quarter?

Speaker 9

Thank you.

Speaker 2

From what I've seen, it's a pretty clean quarter. Good quarter for demand and they were able to turn on a new account, as Tom said, and it's Off to the races from here on.

Speaker 9

Okay, great. Good to see that launching well. All right, thank you for taking the questions and I'll follow-up later.

Speaker 2

Thank

Operator

you. Thank you. There are currently no

Speaker 2

We have come through this even stronger and create value for all shareholders. In addition, we've just made a large step in mitigating our legacy legal uncertainties.

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Assertio Q2 2023
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