ASRT - NASDAQ

Hello, everyone, and welcome to the Assertio Holdings Q2 Earnings Call. My name is Emily, and I'll be moderating the call today. [Operator Instructions] I will now hand you over to our host, Matt Kreps from Darrow Associates, Investor Relations for the company. Please go ahead.

Thank you, Emily. Good morning, and thank you all for joining us to discuss Assertio's second quarter 2022 financials. The news release covering our earnings for this period is now available on the Investor page of our website at investor.assertiotx.com. I would encourage you to review the release and the accompanying presentation as it is important in today's discussion. With me today are Dan Peisert, President and CEO; Paul Schwichtenberg, Senior Vice President and CFO. Dan will open the remarks and provide an overview of the business, followed by Paul, who 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 this morning's press release as well as Assertio's filings with the SEC. These and other risks are more fully described in the Risk Factors section and other sections of our annual report, on Form 10-K.Our actual results may differ materially from those projected in the forward-looking statements. Assertio specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. And with that, I will now turn the call over to Dan. Thank you.

Thank you, Matt, and welcome to everyone joining us this morning. I'm incredibly proud of our second quarter results as we nearly over exceeded them every aspect of our plan for the quarter. Net product sales were $35.4 million in the quarter, just $115,000 shy of last quarter, despite the loss of exclusivity for

Thank you, Dan. This morning, I will review the financial highlights from our second quarter of 2022. As in previous quarters, there are slides available on our website that I will reference as I discuss the results. Starting with Slide 3. Net product sales were $35.4 million for the second quarter of '22 compared to net product sales of $25.2 million in the prior year quarter and $35.5 million last quarter. The increase in net sales versus the prior year quarter is primarily driven by INDOCIN and the addition of Otrexup. INDOCIN net sales in the second quarter increased by $9.8 million over the prior year quarter and $1.5 million over last quarter due to higher volume and an improvement in net realized price. Otrexup net sales for the second quarter were $2.6 million versus $3.1 million in the prior quarter. The $500,000 decrease in Otrexup net sales from last quarter is primarily due to a decline in wholesaler inventory levels, partially driven by the supply disruptions that Dan mentioned. As we stated on previous calls, the wholesaler inventory levels for Otrexup were high at the time of acquisition last December. We expected a decline in wholesaler inventory levels in the first quarter as we delayed shipping until late January. The decline did not occur in the first quarter to the magnitude that was originally expected. After the subsequent decline here in second quarter inventories are now aligned with where we had anticipated they would be, and we expect them to remain steady at these levels. CAMBIA and SPRIX combined net sales were $1.2 million higher than the prior quarter, primarily due to higher volume on SPRIX and the effective financial and operational execution of more profitable channel strategies for CAMBIA. This focus on profitability for CAMBIA has led to improved net sales and gross profit margins, and was achieved through lower co-pay and consignment costs, reducing the shipment of free goods resulting in lower gross to net expenses and cost of goods sold. As a reminder,

Thank you, Paul and Dan Emily, can we go ahead and open up the call for Q&A from our listeners, please?

[Operator Instructions] Our first question today comes from Scott Henry with ROTH Capital. Please go ahead. Scott, your line is open.

Thank you. Good morning. Strong results. Dan, just a couple of questions. First, on INDOCIN, the roughly $23 million in the quarter, forgetting about inventory changes. Do you think that's a good base level that we should think about from here on out? And it sounds like you expect to have growth in it as well. Any thoughts?

Yes. I think the results we saw this quarter do reflect a good base level, like Paul just mentioned. We expect it to be a little bit lower here in the third - the upcoming third quarter before recovering again in the fourth, and that's a purpose tactful - tactical decision that we're going to be making. Going forward, we obviously intend to improve upon that.

Okay. And with it, being a larger product as an NSAID, how do you think about the competitive landscape? I mean, bigger revenues will make it a bigger target. What are your expectations for competition? And also, the royalty you pay out, I believe that goes through the SG&A line, but I want to confirm if that was the SG&A or through the COGS line.

Paul, do you want to answer that?

So an answer to your second question, Scott, the royalty payout actually does not run through the P&L. The fair value of that royalty is in contingent consideration on the balance sheet. So the royalty payment really only impacts net cash flow, not the P&L and adjusted EPS. We include the accrual for the royalty in the adjusted EPS. So that's where it's also captured.

Okay. Thank you for that color. And then the competitive landscape.

So INDOCIN has not had traditional regulatory nor IP exclusivity for quite some time now. So it has been in a situation where competitive entrants could pop up at any time. And it's something that we think about on a daily basis and want to stay ahead of. So a lot of what Paul and I have talked about over the last 24 months has been how we stay ahead of the competition and how we continue to protect this brand. And many of our life cycle management strategies are surround protecting this brand. So everything that we do is with a conscious decision about how we continue to protect it and stay aware of what the competition might be doing.

Okay. Fair enough. Shifting to Otrexup. The supply situation, is supply back up to speed currently? And are there any long-term solutions where you can have more control over that supply?

It's a decent question. So we expect that on a SKU by SKU basis, we're getting pretty close. We think that by the end of August, we'll be in a very good position, and we'll have full supply with many months on hand for all of our products or all of the SKUs under methotrexate other than samples. And hopefully, by the end of this year, early into the next year, we'll have the samples taken care of as well. Longer term, that will require some additional work. It's not necessarily a specific to an Antares activity. This is a downstream supplier of theirs. They're just ultimately responsible for them. So whether or not it's us watching over them or Antares. But they have a long-term solution for this, I guess, sub-supplier, we just need to get it put in place.

Okay. Great. And then, yes, I see that with the capital structure you chose to put out a little equity to reduce debt. When you're thinking about M&A, how - do you think about equity a little differently? You mean for an M&A, would you prefer not to use your equity because it seems to be undervalued, certainly relative to the merits of the company. Just want to get your thought on how you think of the use of equity with regards to M&A.

So there's no doubt, we think that our equity is cheap. What we saw in the second quarter was a very unusual phenomenon where, as Paul talked about, shorter-term interest rates went from, at the start of the year, 10 basis points. And are now - I think at the end of the quarter, we're right around 180 basis points and out today are just under 250 basis points. So there was substantial volatility in those short-term rates that underlie all of the rate quotes that we were getting on a variable nature. So it made timing of and certainty of debt refinancing, very uncertain. The other component was from the time that we reported our second quarter results to the end of the quarter, our stock had outperformed the market by 60% plus. So what we saw was an opportunity to take advantage of that very, very unusual situation and solve a key problem in any refinancing, which had been debt to cap in that ratio. And we got that to well under 0.5 now and think that we have solved that issue. So any future discussions that we have with potential lenders, we don't think that, that's going to be a concern. So now going forward, we think the future discussions that we have around execution on refinancing will solely concern around the diversification of our revenues and whether or not we've achieved what the lenders are looking for. So it was more of a have we solved or can we solve one of the two big problems in refinancing, and we think we've done that.

Okay. Great. I appreciate the color on that. Final question, just the [indiscernible] pipeline compound, any updates there and expectations for a filing?

Good question. I probably should have said something in my prepared remarks that we're still really excited about NES and [indiscernible]. There really isn't a material update other than we still expect a value inflection point of some sort, one way or the other to be in 2022. It's still waiting on some data from outside parties basically is what it is to be able to complete the dossier or the regulatory filing. So we still - from the update that we received during the quarter, we still expect that to be something that can be achieved this year, and we should be able to know. And once we receive word from NES that they have submitted the filing and whether or not it's accepted by the FDA, we'll communicate that to our investors.

Our next question comes from Mitra Ramgopal with Sidoti. Please go ahead.

Yes, hi good morning. Thanks for taking the questions. Nice quarter. Dan, you mentioned you have a few BD projects in the pipeline. I was just wondering if you're seeing more opportunities given the increased cost of capital, some of maybe players you're looking at?

I don't know if it's because of an increased cost of capital, but we are seeing more opportunities. I think - and I've described this more so as the equity markets not being available as opposed to increased cost of capital, and it very well could be the both of them combined. So we're seeing opportunities come from many different directions and continuing to come from many different directions. And we're the quality assets, and we're quite excited about the potential with many of them.

Okay. No, that's great. And could you provide us an update? It's still early days in terms of the BlinkRx partnership and maybe also on Cove, how those are progressing relative to your expectations?

BlinkRx is specific to Otrexup. I think that's progressing. The hope and promise of that is as expected. The uptake of it, I think, is progressing a little bit slower than expected and getting the news out to physicians that it's available. So we recently just did another round of, I guess, awareness campaigns associated with some of the, I guess, potential disruption in the prescribing from methotrexate post the Roe versus Wade decision where there were some headlines that it was hard to get prescriptions of methotrexate because of that. So we made physicians more aware of BlinkRx and the ability to solve some of those issues if they saw that as a potential concern at their local pharmacy level. So we're doing things to drive awareness of Blink so that patients can still use that service. Cove is going fine. I think we had - I don't have the exact statistics, but just a little bit over 3% of the - I guess, the volumes or prescriptions for CAMBIA and SPRIX were going through Cove this quarter. So that's still on track and still doing quite well, and the team is doing some more social media launches. I think there was both a Twitter and a Facebook launch for CAMBIA in July.

Okay's. No, that's great. And then speaking of the digital, obviously, in terms of the model you have, do you still need to make significant investments in terms of the virtual platform? Or you pretty much where you need to be?

I think the substantial investments have been made, we got it through a true omnichannel platform here in July, upgraded from multichannel. So it's all talking to each other. And everything that the team intended to launch has been launched. They'll continue to make tweaks along the way and fail fast, is part of the strategy here. So we're excited about what this platform can bring. We will continue to make investments, but all the big investment dollars have been made. And now it's a matter of watching what the platform can do.

Okay. That's great. And then Paul quickly, how should we think about the tax rate for the remainder of the year?

Yes. So our tax - effective tax rate after considering our NOLs is about 6% to 10%, which is obviously well below the preferred rate, but that's through the utilization of our NOLs.

Our next question comes from Hamed Khorsand with BWS Financial. Please go ahead, Hamed.

Hi. So first off, on the INDOCIN change of strategy. Could you talk about that a little bit more if you're able to. Is it a pricing strategy or is it a marketing strategy?

It's actually neither. It's more directed at this channel. I'd be more inclined to talk specifics about it at a later time after we put some of these tactics in place and put the strategy in place. I'd rather not have competitors nor the market hear about it until we get some of this stuff out. But we do expect this to have - it will be a material benefit to both CAMBIA as well as the company in terms of its trickle down of our other products.

Okay. Fair enough. And then as far as the Otrexup goes as far as getting more and more physicians to be aware of it, what do you feel like is the overhang for them to cross line actually right prescriptions?

I don't think it's an awareness issue of Otrexup. I think it's more of a coverage and access issue. So that's where we're spending a vast majority of our time. The awareness issues are more in the - I guess, the alternative segments where the prior owner didn't make any calls in the pediatric segment where it does have a labeled indication and where we're starting to add resources there. So the hard part about us attracting new patients and new prescriptions here is just not having the samples. So that's been, I guess, what, in one part is delaying some of the demand creation here is not having samples. So we still have some, and we'll continue to do something. We're looking at ways of using Blink to find alternate ways of getting, I guess, introductory prescriptions out to patients as opposed to having a physical sample in a physician's office.

Okay. And my last question was, how far along are you on these three active BD projects? Is there any - are any of them happening soon?

Never have a crystal ball, some BD deals that I've been in, very large ones, take like two, three months, and then we had Otrexup took us - how long did that one take us, six months. So - and if you would have asked me at the very start of it, and if I would have given you an answer at the very start of it, I would have thought it would have taken 2.5. So there's never an easy way to predict it. And the way I always look at these, and I've been doing it for a very long time, it's always 0% until it's 100%. So we're going to keep marching along and operating our business, looking for the flexibility in case these do happen and setting goals to make sure that we can accomplish them because we do want to accomplish them, but never do we plan on one or two or three of them coming.

Our next question comes from Thomas Flaten with Lake Street Capital. Please go ahead, Thomas.

Thanks. Dan, quick question. Just a follow-up on the prior question about infrastructure investment. The acquisitions that you have on the radar, are those all essentially plug-and-play with the infrastructure investment that you've made? Or are there additional investments that would need to support those?

Interesting question. So for some of the smaller single assets, like I'd say, the tuck-ins or bolt-ons, they would be immediate plug-and-play, very easy for us to do. In both cases, they would be coming from companies that are like Otrexup, where they were doing 100% in person, and we would be moving that over to digital. Some of the others that we're looking at, some of the bigger ones, there's one that's a portfolio of assets that I'm actually very excited about. That - in that particular case, there would be a launch asset as well. And if we pursue that, we would likely retain some of the reps that would come with it, so that we can launch those assets or launch that asset. So that would be a situation where we'd be bringing on a more material new set of revenue base and would also be bringing on some additional costs in the form of a physical rep presence again.

Got it. And then against the backdrop of the - sorry, go ahead.

I'm done.

Thinking about the backdrop of a transition to increased virtual engagement. I don't know if you can provide any color around how sticky those relationships are? Is there more churn than you would expect with a wholly in-person field force. I'm just curious to get some color around that now that you've been out there for quite some time with this model?

Well, what you mean, churn of that? Can you elaborate?

Yes. I mean are you seeing a - once you get a customer on board today, do they tend to stick with you in right? Or are they - do they tend to come and go from the program, so to speak? I'm just curious how steady those revenues are over the long term? And how well you can engage with documents purely from a virtual perspective?

We have - you measured it as in - are they consistent writers every month or every quarter. Most of what we're doing is just awareness. Truly, it's just awareness campaigns and then measuring to see if the messaging is still driving. So I don't have data on whether or not they're churning in and out. My assumption is that they're staying in and continuing to write. But I can get back to you on what I guess, our retention statistics are. But what we're seeing so far is that the response has been on an ROI basis, far higher than anything we ever got with an in-person rep. And I think that shows out in the results that we're showing with our business today.

Our next question comes from Scott Weis with Semco. Please go ahead.

Hi guys. Great quarter, congratulations. I have a few questions. One, I want to flesh out the capital raise a little bit more. You had a decent balance sheet coming into the quarter with $60 million in cash and $70 million in debt. So one, why raise money at $3.02. And can you comment on who it was with. Was it with a hedge fund, an institutional fund? Any kind of color there would be helpful. And two, you suggested in your comments that this resolves the primary issue that you had with lenders with the refinance. So does that mean we should expect something in the near term with regard to a refinancing?

On the last point, Scott, we've been consistent. We're going to continue to be consistent. The refinancing, the appropriate time for that. We think the best chance for execution on that is when we have a BD deal that can diversify our top line. That was issue number one. Issue number two was debt to cap. We think that this small $7 million of equity raise which was immediately turned into debt prepayment, solves debt to cap. This was done under the ATM. We don't know who the - and the - who the holders of that are, just simply trades that we executed into the market, probably through the black box through whoever did the trading for us. So we don't know who the counterparties were. And then on the balance sheet coming in, we had - this quarter had some pretty big outflows. So to put up a quarter, we paid - the debt principal, we paid...

$0.3 million principal and interest, $16 million to Antares, but yet, our cash balance only dropped by $9 million.

So we think we had a pretty good quarter, and we wanted to keep cash up at these levels to maintain flexibility for BD, which is the primary reason why we used the ATM in the quarter.

Got it. Okay. Number two, on

The hardest part about putting numbers around it is just the shakeout in the gross to net when in the first quarter after a generic or a loss of the exclusivity event. So we expected to record zero in revenues, and that's essentially what we recorded, a few hundred grand here and there. So when you have inventory levels looking backwards on demand that are in the 20 days and then your demand drops precipitously that 20 days quickly becomes worth more than a whole entire quarter. So you don't expect to ship anything. And we really didn't ship much. What we were encouraged by was the brand still was being adjudicated. So what we saw was more of the brand inventory was being pulled off the end user shelf than what we had initially anticipated. So that days on hand at the end customer got more rapidly pulled off than we expected it to, which may indicate that we might be able to make some, I guess, restock of that wholesaler and pharmacy shelf a little bit sooner than expected. So that was the encouraging thing for us, and it might allow us to have some additional

Okay. And then lastly, on INDOCIN, you talked about the long-term expansion into the moderate risk segment of the market and it could be as large as double the high-risk segment of the market. Previously, you've spoken about running some studies in the moderate risk with the hope of getting a label. Is there anything new on that and timing on those studies? And how long would those studies last and how much would they cost? And if you can put some numbers around the size of the market, that would be great, too.

Yes. The market, from what we understand from the market research we've done that is double what the high-risk segment is. So the market research shows that high risk is about 20%, 2022, and the moderate risk segment is about 40% of the overall market. So we think it's a potential doubling of the total TAM for INDOCIN to expand into this additional risk segment. We are currently designing the clinical trial. And we will not be able to answer questions about how long it will take nor how much cost it will be until after we go in front of the FDA and get their blessing. I don't want to set expectations for either timing or cost until I've had that discussion. Currently, we're not anticipating filing the IND and having those discussions with the FDA until inside the fourth quarter, like November time frame. So it will be closer to those, around that when we'd be able to communicate that. The nice thing about it is right after you hear from the FDA, you can be up and running in your clinical. So we think the clinical - as long as we get the answers we need from the FDA, we should be able to be up and running in that clinical early in the first quarter of next year.

And these clinicals last about how long?

That's the big million dollar question, Scott. So it depends on how many patients we're going to need all based upon the design of the trial. But each individual - the good news is each individual patient should only need to be followed for 30 days. So theoretically could be short.

Those are all the questions we have for today. So I'll turn the call back to Dan Peisert for closing remarks.

We appreciate everyone's time today, and I look forward to speaking with many of you in person at some of the upcoming conferences that we'll be attending, including the Midwest Ideas Conference later this month and the Lake Street Conference next month. Thank you for joining us this morning, and I hope you enjoy the rest of your day.