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

Good day, and welcome to the Second Annual Winter Wonderland Best Ideas Conference. The next presenting company is Assertio Holdings, Inc. [Operator Instructions] I'd now like to turn the floor over to today's host, Daniel Peisert, President and CEO of Assertio Holdings, Inc. Sir, the floor is yours.

Thank you, Matthew, and we're honored to be presenting here today at the Winter Wonderland conference. Let me forward the slides here. So at a high level, Assertio today is a commercial stage pharmaceutical company with 4 core products that serve as the foundation for our business. Their prescription products in large markets covering non-opioid pain, arthritis and inflammation and migraine. At the time we announced the Otrexup acquisition in December, we also increased our outlook for the full year of 2021 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'll also see that our guidance implies strong adjusted EBITDA margins that will place at the high end of our industry peer group as evidence of the cost efficiency of the commercial model. We had ample liquidity to be able to pursue acquisitions of additional products as evidenced by our 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 that are immediately accretive. As of September 30, we had just over $75 million of term debt, which is due in January 2024. And on a net debt basis, we have total leverage well under 1x EBITDA. And I know one of the questions already is when can we provide guidance for 2022? And we'll be able to do that on our fourth quarter earnings call, which is expected in about a month. There's a strong team of experienced executives here with me at Assertio. While we've all been in our current roles for just a little bit over a year, some of us have been working together for almost 5 years now. We've got a good balance of large and small company experience. We're all results-oriented individuals, and we're backed up by an extremely talented and experienced Board of Directors. 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's utility in reducing the risk of pancreatitis following ERCP surgery. But to date, there's not enough to be in the label or to make claims of its efficacy. We're advancing an internal project aimed at 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 this represents a very large opportunity for INDOCIN growth. CAMBIA is an acute treatment for migraine. Its formulation and 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 in 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 detail in a minute. SPRIX is an NSAID indicated for short-term management of moderate to moderately severe pain. Included in the labels the results from 2 postoperative pain studies, finding that patients who use SPRIX required between 26% and 36% less morphine over 48 hours in 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 focusing on changing that dynamic and very recently added SPRIX to a contract for a large regional IDN. We think this is the first step of many to return this brand to growth and offer the 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 had 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 includes 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 extremely well. They know how to identify the appropriate patients for treatment, and the benefits for the delivery of the device are obvious. We believe this is the best-in-class device with what we believe to be 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 a 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 the 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 plans where it has favorable coverage, which we will seek to maintain. But in the majority of situations, the product is blocked or has PAs and other difficult restrictions, with other preferred products placed ahead of it. Our goal will be to level that playing field for the products so that we can get what we believe to be the superior device into the patient's hands. 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 we're accustomed to, and we'll be managing it differently. We do not record any sales of the product after acquiring it in 2021, and we didn't book any sales for the majority of January either as we work down those excess inventories at the customer level. Once we got past that initial speed bump, we'll start to be able to see the benefits of the added focus of our commercial platform and what that will bring to the 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 in the means I'm presenting to you here today, the world has gone digital or remote. And that's seen by the middle figure in the exponential growth and the remote engagement between drug companies and physicians. What we're also seeing is that COVID is changing the way we'll 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 they permanently restrict who is allowed into their offices. We saw as external evidence of this earlier this month -- or earlier last month when Pfizer announced they'll be reducing their U.S. sales staff and will be engaging with health care professionals in an increasing digital world as they expect, like we do, that doctors and other health care providers will want fewer face-to-face interactions with salespeople after the COVID-19 pandemic happens. COVID-19 wasn't a singular event that closed doctors' doors to sales reps. This has been a trend of reduced access to physician offices that has been steadily building for some time now. In addition, the other challenges we're seeing in the business are becoming the primary barriers to adoption of our branded 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 had hoped would be a return to normal. 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 need to get ahead of this trend and develop a way to reach prescribers of our products, and in some cases, the patients and 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 would respond positively to. 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 data sets to learn not only what is the best frequency, but 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 on their previous history. Is it social networking? And which of the many platforms, Google Search, e-mail, bar ads and at what combination? So that we can customize our marketing to them to maximize our impact and ROI. Today, we're still on the surface of 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 cost infrastructure that can only call on a defined number of physicians each day and limited to a certain therapeutic category or geography. We can add many different products across many different disease categories and physician types. The key will be the -- in the identification of the products that respond to this model as we add products to it. Those brands' 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 the therapy are those that will fit. Examples that likely won't are a new class of medicine, something with a 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 and the unique aspects of each, but we won't need armies of salespeople to call them 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 reach physicians, we've partnered with the telemedicine platform in Cove to help us reach patients. Cove is a premier health care company with 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 and dwarfed the largest physician office practices we had previously targeted with our face-to-face representatives. Cove has been a customer of ours for almost 2 years now, and it simply offered CAMBIA as one of their 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. The early results were extremely encouraging with the 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 and move outside of Cove into other areas of telemedicine. With Cove, we expect that they'll be offering -- 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 them to have similar offerings for CAMBIA and SPRIX as well versus today where our offerings are 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 NAS. The acronym NAS stands for neonatal antiviral sepsis. NAS is an ultra-orphan condition for which there is no approved therapy available today. It 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 NAS to provide the funding necessary so that they can complete the development work to be able to file this drug with the FDA. We believe that NAS is nearing a key milestone to be able to make their FDA submission within a matter of months. If the FDA accepts that filing, it will trigger a conversion of our investment into equity, upon which we will 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 with the existing assets that we have. However, we also have a model that is scalable and can easily incorporate additional assets that fit within 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. One of the early questions that I saw in the queue was what was the analytical framework that we employ for capital decision-making as it relates to M&A. And really, that's an after-tax cash-on-cash return. And we usually model these with conservative underwriting assumptions, and we're looking to exceed our cost of capital, which is measured by the -- at least by the cost of our debt, which, today, as we described earlier, was 13%. And 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. It 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 that we posted for our third quarter and what our recently revised guidance that we issued in mid-December 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 now guided to a fourth. In addition, we're seeing the benefits of the restructuring show in our financial results. For the third quarter, we had a 600 basis point improvement in the gross profit margin versus the prior year. This is largely a decision to sacrifice revenue and cease commercialization of a product line that was unprofitable. 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 the prior year, and this is the second consecutive quarter of positive operating cash flow. Considering we made a onetime $7 million settlement payment for the Glumetza antitrust case in the quarter and still delivered this result is even more impressive. When you compare where our operating expenses were in that third quarter to just a year ago and then your prior 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 there is $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 in that third quarter. All in, we've reduced our quarterly operating expense run rate by 78% versus that pro forma trend in the fourth quarter of 2019. If these changes, combined with the resilience of the product portfolio, driving that consistent top line that 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 on cash on hand, $75.5 million of term debt due in early 2024. In our fourth quarter, there was a payment to Antares of $18 million for Otrexup, and we also made the biannual payment of principal and interest on our term debt. We are just under 48 million fully diluted shares outstanding. And at today's stock price, it's a market cap of just over $110 million. We've been very busy in 2021 and have accomplished a great deal, and I think it's going to set us up for a great 2022. We started off that year by bringing in $50 million in cash between the equity raise in February and the insurance settlement in January, which allowed us to accelerate our restructuring and the investments in our business model and now leaves us with the sufficient liquidity to pursue business development. We also signed up our Cove partnership earlier this -- earlier in 2021, which we just officially launched late in the third quarter and is off to a great start. In the second quarter, we extended our exclusive license agreement to INDOCIN with our manufacturing partner through mid-2028. In the third quarter, we announced both the Glumetza and securities class action settlements, which were for cases that predated this management team, as one of our core priorities as we entered this year to be -- to mitigate these legacy legal issues. And this is a major milestone for us by putting these behind us. It's going to free us up to focus on business development and investing in our commercial platform. And then just recently, we completed the acquisition of Otrexup and raised the 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 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. I appreciate you taking the time to hear that story. And I know we've got a couple of questions in the short amount of time left, and I'll try and get to them here quickly.

Any news from NES Therapeutics? And is that filing still expected here in the first quarter? There isn't any new news, but we are still expecting the filing shortly. COVID might have delayed things. One of their big partners is the -- not the NIH -- is the U.S. government -- name escapes me. The CDC. And the CDC is busy with COVID. So they've had some delays, so it might shift into April, but it is still expected soon. Let's see. Regarding Otrexup, when will you start to market the additional 5,000 doctors? We've already expanded the number of doctors, but we will -- I believe we will be able to have targeted all 5,000 or have detailed all 5,000 in some way, shape or form by April, May, at the latest. There are 600 that have been receiving samples. We have already started targeting and have contacted all of them by this point. Let's see. One of the questions again on guidance for 2022. We are not in a position to provide that at this point. We will be providing that in early March when we release our fourth quarter results. Let's see. Looks like with that -- it looks like we've answered -- another question on just refinancing in general and looking to reduce the interest rate. So it's something that we're, to be honest with you, actively exploring. As we closed the Otrexup acquisition and entered the new year, we started to have conversations with lenders and bankers about what the realm of the possible is. And we're now exploring what that might look like to see if we've diversified the business enough to be able to get the best execution for shareholders and what could be the best opportunity for everyone. So -- and with that, it looks like we've reached our time limit and hopefully answered most of your questions. If you have any follow-ups, please contact either myself or Max Nemmers, and we'll get back to you. Thank you very much.

Thank you. That does conclude the Assertio Holdings, Inc. presentation. You may now disconnect.