Assertio Holdings, Inc. (ASRT) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining the H.C. Wainwright 2022 BioConnect Conference. My name is Anzel Knouni, and I'm part of H.C. Wainwright Corporate Access Team. While we're virtual this year, we're confident we're going to be able to provide a value to you with over 550 companies presenting at the conference as well as the interactions through one-on-one meetings. H.C. Wainwright is a full-service investment bank dedicated to providing corporate finance, strategic advisory and related services to public and private companies across multiple sectors and regions. From a logistics standpoint, please make sure to reference your BioConnect virtual conference online portal that provides you individual links to your meetings and all presentations. Please join us for our corporate presentations and panels will be available live and streaming on January 10 to 13. With that said, have a productive and enjoyable day. And I would like to introduce our presenter. I'd like to welcome Dan Peisert, CEO and President of Assertio Holdings.

Thank you very much. And I'd like to thank H.C. Wainwright for inviting us to present here today. At a high level, Assertio today is a commercial-stage pharmaceutical company with 4 core products that serve as the foundation for our business: the prescription products, large markets covering non-opioid pain, arthritis and inflammation and migraine. When we acquired Otrexup last month, we increased our outlook for the year for both revenue and EBITDA. We now expect to exceed $108 million in revenue and exceed $48 million in adjusted EBITDA for 2021. This outlook is well above our initial guidance for the year. As our nonpersonal promotional model continues to improve, our portfolio continues to deliver consistent quarterly revenue results and our restructuring was completed ahead of schedule and delivered more savings than we expected this calendar year. You also see that our guidance implies strong adjusted EBITDA margins that will place us at the high end of our industry peer group, as evidence of the cost efficiency of our commercial model. We had ample liquidity to be able to pursue acquisitions of additional products as evidenced by our most recent acquisition of Otrexup. And as we'll show in a minute, that transaction is structured in a favorable manner to provide us capacity to add additional assets where our focus is to continue to add on-market assets that fit inside our existing commercial infrastructure and are immediately accretive. As of September 30, we had just over $75 million of term debt, which is due January of 2024. And on a net debt basis, we have total leverage well under 1x EBITDA. There's a strong team of experienced executives with me here at Assertio. While we've all been in our current roles for about a year, some of us have worked together here for almost 4 years now. We've got a good balance of large and small company experience, and we're all results-oriented individuals and we're backed up by an extremely talented and experienced Board of Directors. Briefly, our product portfolio consists of these core brands. INDOCIN is the largest contributor to our net sales. There's been a growing body of evidence that shows indomethacin utility, reducing the risk of pancreatitis following ERCP surgery. But to date, there's not enough to be able -- to be in the label or to make claims of its efficacy. We've recently begun a project internally into expanding the indication and providing physicians with the dosing and safety information they need to reduce the risk of the serious complication that can result from ERCP. We'll be able to share more in the future, but we think it represents a large opportunity for INDOCIN growth. CAMBIA is an acute treatment for migraine. Its formulation delivery are designed to provide convenient dosing and rapid relief of migraine symptoms. We've seen a new class of drugs enter the migraine market in the past few years, which have created a lot of excitement in the field. To date, the data shows that they've been growing the market and bringing new patients into physician offices. Unfortunately, no one has found a cure for migraine and patients will continue to experience breakthrough acute episodes, and we think CAMBIA will continue to be an excellent choice given its convenience and rapid onset of action. Otrexup is the newest addition to the portfolio, acquired last month from Antares, which I'll discuss in more detail in a minute. SPRIX is an NSAID indicated for short-term management of moderate to moderately severe pain. Included in the label is the results from 2 postoperative pain studies finding that patients treated with SPRIX require between 26% and 36% less morphine over 48 hours than patients treated with placebo. We think SPRIX can play a key role in helping patients with pain reduce the need for opioids. Market access and payer coverage has been a challenge for this brand. We're focused on changing that dynamic and have very recently added SPRIX to contract for a large regional IDN. We think this is the first step of many to return this brand to growth and offer a product to patients and payers who are looking for non-opioid alternatives. Now with the addition of Otrexup, we've deemphasized ZIPSOR and are no longer directing any promotional spend against that product ahead of its expected loss of exclusivity at the end of this quarter. Just before the holidays, we completed the acquisition of Otrexup from Antares where we paid them $18 million on closing for a product that achieved $15.5 million in sales in the trailing 12 months ended September 30, 2021. In total, we'll pay them $44 million over the next year, which will include our initial inventory and working capital requirements, a total price of less than 3x revenue for an asset with 10 years of patent life remaining. The flexible structure of the transaction allows us to have the continued liquidity to add additional assets to the portfolio. Otrexup is an excellent example of the type of asset that fits well within our commercial platform. It's a known entity among the target physicians. They know the molecule well. They know how to identify the appropriate patients for treatment. And the benefits of the delivery device are obvious. We believe this is the best-in-class device, which what we believe is the best data in the class for a nearly pain-free injection. We're excited with what we can do with Otrexup. The RA market is growing. The injectable methotrexate segment is more mature and stable, but we believe given the product-specific dynamics here that we have a lot of room for improvement and growth with this product throughout the remainder of its 10-year patent life. Because of strategic prioritization, Antares had only focused on approximately 600 physicians for the product, and it was the third drug in the salesperson's bag, which meant the focus was limited to a sample drop. Through our digital efforts, we're going to expand the promotion of the product to 5,000 physicians that we've identified. In addition, the previous owner did not have capacity to capitalize on Otrexup's pediatric indication. And we think that the device is ideal for this population. In the long run, we think we can improve upon the one thing that has held Otrexup back, and that is its managed care coverage. There are a few plans where it has favorable coverage, and we'll seek to maintain it. But in the majority, the product is blocked or has PAs or other difficult restrictions where other products are preferred and placed ahead of it. Our goal will be to level that playing field so that we can get what we believe to be the superior device into the hands of the patients. In the very short term, however, Assertio will have some challenges to overcome. We acquired a product that had levels of channel inventories that are above what we're accustomed to, and we will be managing it differently. We do not record any sales of the product after acquiring it in 2021 and will not likely have any sales in January of this year, either, as we work down those excess inventories at the customers. Once we get past this initial speed bump, we'll be able to see the benefits of the added focus of our commercial platform that will bring to this asset. Presented here are some statistics gathered from Accenture, McKinsey and IQVIA. One thing we all know that has changed because of COVID, because we've all felt it ourselves, and it's evident here in the means that I'm presenting to here today, the world has gone digital or remote, and that's seen by the middle figure in the exponential growth in the remote engagement between drug companies and the physicians. What we're also seeing is that COVID is changing the way we will be interacting with physicians in the future. They don't want to go back to the way things were. They don't want in-person meetings and may permanently restrict who's allowed into their offices. COVID-19 wasn't a singular event that closed doctors' doors to sales reps. There has been a trend of reduced access to physician offices that has been steadily building for some time now. At first, it was that they were simply too busy that the time you had with them shrunk, and the ability to deliver 3 messages per visit was cut to 1. Then more and more was needed to gain access to the office for that singular message. Eventually, the dollar cost for the rep and everything else that was needed to gain that in-person sales call, it has become so high that it's incredibly difficult to earn a positive return on a face-to-face sales call. In addition, the other challenges we're seeing in this business are becoming the primary barriers to adoption of our medicines, namely payer coverage or market access. Without this, it doesn't matter how many physicians are writing your prescriptions. During COVID, we built some digital and other nonpersonal promotional means, but these are just Band-Aids until what we hoped would be a return to normal. As the data on the previous slide shows, there will not be a return to normal. COVID has only accelerated this trend of reduced access. We heard it again this third quarter, a number of our peers that had once had growing brands have seen volumes slow. And what is getting blamed as access, especially for the new-to-brand prescriptions, as this is now -- and this is now in a time when patient visits are stable and in-person detailing is back above that 60% threshold according to IQVIA versus 48% last year at this time. We needed to get ahead of this trend and develop a way to reach prescribers of our products and, in some cases, the patients in a means that was convenient for them and cost-effective for the company, and that reflected where we thought the environment was headed and that our portfolio to respond positively, too. What we're continuing to build is a nonpersonal omnichannel model. We can reach the consumers of our information, be that physicians, nurses, patients, at the time and place convenient for them with the form of communication they prefer and the messaging they respond best to. We're going to employ AI that analyzes all these datasets to learn not only what is the best frequency or what is the best combination of messaging that drives the prescription decision. One of the key elements of AI is determining the digital affinity at the physician level or what is their likelihood of engaging via digital means and in what method or preference based upon their previous history, is it social networking in which of the many platforms, Google Search, e-mail, banner ads and what combination so that we can customize our marketing to them to maximize our impact and return on investment. Today, we're still on the surface and learning and excited about what the future can bring. One of the key benefits of this model is scalability. We do not have a large fixed costs infrastructure that can only call on a defined number of physicians each day and limited to a certain therapeutic category. We can add many different products across many different disease categories and physician types. The key will be in the identification of the products that respond to this model as we add products to it. Those brands with known mechanisms of action and clear differentiation that physicians can easily identify how to fit the products into their treatment algorithms and which patients are appropriate for therapy are those that will fit just like Otrexup. Examples that likely won't are a new class of medicine, something with unique safety profile or monitoring requirements that needs explanation or a drug with a burdensome titration schedule. These are all examples that will benefit from traditional in-person promotion. As we scale, we may need more home office telesales or marketing staff to manage each brand in the unique aspects of each, but we won't need armies of salespeople to call on the physicians. For example, with Otrexup, we're not adding any staff to our internal commercial team, but we are going to add a handful of video sales reps to make virtual sales calls that will primarily focus on Otrexup but will eventually be trained on our other products as well. In addition to building our own capabilities to each physicians, we've partnered with a telemedicine platform in Cove to help us reach patients. Cove is the premier health care company for people living with migraine. Cove is dramatically expanding access to high-quality, end-to-end migraine care through telemedicine. With Cove, patients get unlimited access to a doctor who specializes in migraine, personalized treatment delivered right to their door and ongoing condition management. Today, Cove has tens of thousands of active patients, endorsed the largest physician office practices we had previously targeted with our face-to-face representatives. Cove has been a customer of ours for about 21 months, and it simply offered CAMBIA as one of the products available on their platform. In the third quarter of 2021, we went live with a broad set of DTC resources and engagement drivers for patients tailored to both CAMBIA and SPRIX. We -- the early results were extremely encouraging with a 77% year-over-year increase in CAMBIA prescriptions through Cove and a 207% increase in dollar sales to their pharmacy. We're looking to grow and expand with Cove. We expect that they'll be adding offerings for patients who want to use their commercial health insurance for migraine care in 2022. When they're successful adding those capabilities, we'll be there alongside of them doing similar offerings for CAMBIA and SPRIX as well versus today where our offerings are primarily for the cash pay market. One of our historical business development investments is nearing maturity, and that is a strategic investment we made in NES Therapeutics, a small private biotech developing a drug for NES. The acronym NES stands for neonatal enteroviral sepsis. NES is an ultra-orphan condition for which there is no approved therapy available today, that affects infants less than 4 weeks old and has an annual incidence of about 7,000 newborns. In 2018, we provided a strategic investment in NES to provide the funding necessary, so they can complete the development work to be able to file this drug with the FDA. We believe that NES is nearing a key milestone of being able to make their FDA submission within a matter of months, what we believe will be the -- by the end of this quarter. If the FDA accepts that filing, it will trigger conversion of our investment into equity upon which, we own approximately 12% of the company. If the product is approved, it would also be eligible for a priority review voucher. Throughout this presentation, I've highlighted the importance of business development and positioning Assertio for growth. We do believe that there are opportunities to grow within the existing assets that we have. However, we also have a model that is scalable, it can easily incorporate other assets that fit with the nonpersonal model like we're doing with Otrexup. What we're looking for are products that are currently approved and on the market and would be immediately accretive upon acquisition. In addition, we're looking for products that have multiple years of remaining patent life or exclusivity to extend the duration of our portfolio. Our goal is to acquire a product or a group of products that will add an additional $50 million of gross profit by 2024. Otrexup is just the first step in achieving this goal and helps us get about 1/4 of what we're looking to add to the portfolio in that time frame. We're very proud of the results we just posted for our third quarter and what our recently revised guidance implies for our fourth quarter. We've completed the restructuring, increased guidance now for the third time and reported a third quarter of consistent revenue performance and guided to a fourth. In addition, we're now seeing the benefits of the restructuring as shown in our financial results. For the third quarter, we had a 600 basis point improvement in the gross profit margin versus the prior year. Both our quarterly adjusted EBITDA and operating cash flow were the highest they've been since the fourth quarter of 2019 when we divested NUCYNTA. Adjusted EBITDA was triple what it was in the prior year, and this was the second consecutive quarter of positive operating cash flow. And considering we made a onetime $7 million settlement payment for the Glumetza case in the quarter and still delivered this result is even more impressive. When you compare where our operating expenses this quarter were to just over a year ago and the prior year pro forma for the acquisition, you can see the tremendous change that has happened here at our company as a result of 3 separate restructuring events. The first was $15 million announced late in the fourth quarter of 2019 by Assertio Therapeutics, then the $45 million in merger-related synergies in the second quarter of 2020, followed by the most recent $45 million of restructuring, which started in the first quarter of 2021, and we just completed here in the third quarter. All-in, we reduced our quarterly operating expense run rate by 78% versus that pro forma trend in the fourth quarter of 2019. It's these changes combined with the resilience in the product portfolio driving that consistent top line that has allowed us to deliver the results we did here in the third quarter. What is driving this change is the creation of our new nonpersonal commercial platform. As of September 30, we had $58.7 million of cash on hand and $75.5 million of term debt due in early 2024. In our fourth quarter, there will be a payment to Antares of $18 million for Otrexup, and we also made a biannual principal and interest payment. We have just under 48 million fully diluted shares outstanding. And at today's stock price, that's a market cap of just over $110 million. We've been very busy this year and have accomplished a great deal that will set us up well for the future. We started this year off by bringing in over $50 million in cash between an equity raise in February and an insurance settlement in early January, which has allowed us to accelerate our restructuring and the investments in our business model and now leaves us with sufficient liquidity to pursue business development. We also signed up our Cove partnership earlier this year, which we just officially launched late in the third quarter and is off to a great start, as I described earlier. In the second quarter, we extended the exclusive license agreement to INDOCIN with our manufacturing partner through mid-2028. And in the third quarter, we announced both the Glumetza and securities class action settlements, which were for cases that predate this management team. It was one of our core priorities as we entered this year to mitigate these legacy legal issues, and this is a major milestone for us. By putting these behind us, it's going -- it did free us up and will continue to free us up to focus on business development and investing in our commercial platform. And now just recently, we've completed the acquisition of Otrexup and raised our guidance for the third time this year, setting us up well for 2022. Digital marketing is not an untested means of doing business, and we're not sailing unchartered waters by any means. But what we are doing is recognizing where our environment is headed and what are the true barriers to adoption of our products and allocating our resources appropriately and changing how we do business to reflect that changing environment. Others are still using digital as a means to supplement their in-person promotion or to reach a broader audience. We've shifted that thinking to build an entire nonpersonal platform and leverage it across multiple assets in multiple therapeutic categories. This can be done because it's resource light and not as capital intensive, and we believe it's also going to be the source of a sustainable cost advantage that will allow us to more effectively compete for business development assets. We have the platform, the financial capacity and the right management and Board experience to bring on additional assets. In addition, we're bringing on the right external help as well, where necessary, so that we can evaluate multiple opportunities at once. Thank you for taking the time to hear the Assertio story. I hope you have a great day.

Thank you so much, Dan. I want to thank all of our presenters for taking part in what has been a very productive and informative series of presentations. We appreciate the time and effort that went to preparing them. Hopefully, our next conference will be one that we can hold in person rather than virtually. But in the meantime, we're grateful for your flexibility and your presence online this year. Thank you again from the H.C. Wainwright team.