ASRT - NASDAQ

Good afternoon and welcome to the Assertio Holdings' Fourth Quarter and Full Year 2022 Financial Results Conference Call. All participants are now in listen-only mode. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Matt Kreps from Darrow Associates Investor Relations for Assertio. Please go ahead.

Good afternoon and thank you all for joining us today to discuss Assertio's fourth quarter and full year 2020 financials. The news release covering our earnings for this period is now available on the Investor page of our website at investor.soutiotx.com. I would encourage you to review the release and the accompanying presentation as it is important to today's discussion. With me today are Dan Peisert, President and CEO; and 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 for 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 the 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 and Assertio specifically disclaims any intent or obligation to update these forward-looking statements except as required by law. With that I'll now turn the call over to Dan.

Thank you, Matt. Welcome to everyone joining us this afternoon. Last quarter I had remarked that the actions we had taken in the third quarter marked to pivot from restructuring towards growth. Now, that we've reported our fourth quarter, that growth is self-evident. Net product sales increased 55% versus the prior year. Adjusted EBITDA increased 87%. Our adjusted EBITDA margins were 66% versus 53% last year. Adjusted EPS increased 52% and our cash flow from operations was up nearly 6.5-fold to $26.7 million. In fact we generated more operating cash flow this quarter than the business generated in net product sales in three of the four quarters of 2021. We're extremely proud that the actions we've taken have led to these results including the acquisition of Sympazan early in the fourth quarter which contributed $1.8 million of net sales this quarter and to-date, in 2023, is outperforming our internal deal model expectations. We've come a long way in a short period of time. What I'm most excited for is what's yet to come. We're in a far better position now to execute on our growth plans both financially and the current environment. As the song goes today is where our book begins the rest is still unwritten. I've developed a habit of laying out our corporate priorities and then discussing them on our first investor call of the year. This year will be no different. And our priority should not surprise -- should not be a surprise to anyone who has followed our company. They are, first, to continue to build improve the value of our non-personal commercial platform; second, to maintain INDOCIN and execute on the INDOCIN life cycle management initiatives; third, business development to execute on our M&A plans to diversify our portfolio and create future growth opportunities for the business. We're going to be making some substantial investments and improvements in our commercial platform early this year. We're doing this to continue to advance the internal platform and have more accurate and timely feedback so we can improve our ROI and our ability to grow demand. Let me break that down just a little bit across our key brands starting with SYMPA

Thank you, Dan. This afternoon, I will review the financial highlights from our fourth quarter of 2022. As in previous quarters, there are slides available on our website that summarize these results. Net product sales were $49.9 million for the fourth quarter of 2022, compared to net product sales of $32.2 million in the prior year quarter and $34.3 million last quarter. The increase in net sales versus the prior year quarter is primarily driven by INDOCIN and the addition of OTREXUP and SYMPA

Thank you, Paul and Dan. At this time, we will take questions from our company research analysts and institutional investor community. Joel, can you please provide the instructions for Q&A from our listeners.

Absolutely. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Thomas Flaten with Lake Street. You may proceed.

Hey. Good afternoon, guys. Congrats. A couple of quick questions. Dan, if I heard you correct in your prepared remarks, you said that you've seen reordering or return of the majority of the 340B customers. If I heard that right, majority is anything greater than 51%. Is there any more color you can give us on that?

I think it -- yes, majority does mean that but it's north of 90%.

Okay. And then I know you have it as a strategy to increase the proportion of your business that goes through direct distribution. Could you give us an update on that, and maybe where you hope to exit the year, and just some thoughts behind converting that business?

It is a strategy of ours. We're keeping the metrics there close to the vest just for competitive reasons, but we've been having tremendous success there recently.

Great. And then the final one kind of tagging on to the new guidelines. As you guys envisioned the protocol that you submitted and got feedback on, since it wasn't a standard of care prior to these guidelines coming out, do you anticipate there being a wrinkle in the design of that protocol, because standard of care or at least according to the guidelines would be to use the product prophylactically, so you wouldn't have a natural control arm. Any thoughts on that?

I don't think this change is going to impact that. The FDA basically recognize that it was already standard of care for those that were considered high risk. So they were not pushing us to do, like for example, just a placebo-controlled trial. I think the biggest thing that we have to address, there's a number of things that we have to address relative to our preliminary design that we had submitted to them. And the most notable is dose ranging so they would like to like us to try some additional doses. So we're trying to accommodate that.

Got it. Appreciate for taking the questions. Thanks.

Thank you.

Thank you. The next question is from the line of Scott Henry with ROTH Capital. You may proceed.

Thank you. Good afternoon. Congratulations strong results. Again, a lot to unpack, so I just have a couple of questions that we'll focus on. First, you gave some granularity about INDOCIN in fourth quarter. Could you just repeat that? I just want to make sure I had that correct in terms of the sales level for fourth quarter?

Well, so Scott, the fourth quarter reflected the continued buying of the 340B customers as Dan mentioned, so with some price benefit from that. But it also had what I mentioned was a $5 million inventory benefit, as we returned customer inventory levels to normal levels in Q4. If you recall we had mentioned that we had taken them down at the end of Q3. So there was a one-timer in Q4 of $5 million.

Okay. Did you say overall, I thought I heard you say that it was sequentially $15 million higher is that – did I hear that correct?

$15.9 million – $15.9 million higher than the prior year quarter.

Okay. And which would get to around $104 million, $105 million for the year. And when you were speaking of guidance of matching one year over the past, I assume that was referring to 2023. So you think you can match that annual number for 2023 again, which could be conservative depending on the new guidance?

Yes. Yes, Scott. That's correct.

Okay. Just such an important product. I just want to make sure I have that. And then on the new products, it sounded like Sympazan was a little higher than expected. But OTREXUP, if I did the math correct it was around $2.8 million in the quarter. How do you expect OTREXUP to grow sequentially? I think that's a little lower but certainly within the ballpark of expectations?

Yes, you've got the number right there, Scott. And our expectation is that we will to be able to grow OTREXUP going into 2023. As Dan mentioned, the supply issues that we ran into in 2022 are behind us. And we're also investing more in samples, which we believe will drive some additional volume.

Okay. And then on the R&D side, obviously you're just putting forth your trial, your IND. But when we think about a trial like this, it's an acute indication, generally what kind of follow-up, are we looking at pretty short-term follow-up such that this could be the type of trial that you could typically do within a year from start to finish?

Yeah. It's all going to depend on enrollment. You're right that I think we're measuring the primary endpoint there on day five with day seven, but we'll have a total of 30 days like is what we're going to propose a follow-up on a patient level basis. So this will -- the timing will all hinge on how fast we can enroll the trial.

Okay. Great. And I know you had that orphan drug compound. Any updates on that on where we stand anything we should be thinking about as far as catalysts there?

Yeah. We had -- I've been wrong for probably 18 months about predicting when they were going to be able to file that. So I made a comment last time that we really wouldn't say anything until the FDA has accepted their filing just so I don't keep getting myself out over my skis on predicting this one. But everything is -- as far as I'm aware, everything is progressing just slower than I would like. And because we can't control it we're just going to not comment on predictions.

Okay. Fair enough. And then final just bookkeeping questions. One, what should we think about for a tax rate now that it will be a traditional tax rate in 2023? And with wiping out the convert and all that, what's probably a good shares outstanding number when we're at a steady state here?

Scott, this is Paul. Now the tax rate is going to be low double-digits probably between 10% and 12%. And the outstanding share number I mean we would refer you to our K, but basically we're looking at for the -- basically we were at 48 million shares, when you add in the full impact of the $171 million that gets you into the mid-60s.

Yeah. I think the amount that we had for the fourth quarter is going to be a good proxy Scott the exchange that we did it just -- it reduced dilution by right. What was it just around 400,000 shares?

Right.

So the fourth quarter number is a good proxy.

Okay. And just one follow-up there on the tax rate. I mean, given that you book the tax asset now into the income statement why wouldn't you be up around 22% rate or what you traditionally expect?

We're still going to be getting the benefit of some NOLs that we have on the balance sheet or that we have -- we still have out there able to use. Our gross on NOLs on the federal side are about $250 million.

Okay. So you're still -- okay. So you're talking from a cash tax rate or you now.

Right. That we report.

Okay. Thank you for taking the questions.

Thanks, Scott.

Thank you. [Operator Instructions] The next question is from the line of Hamed Khorsand with BWS Financial. You may proceed.

Hey, Hamed.

Hi. So the first question I had was on this ASEG guideline change, given that it's pretty much the same population of doctors using INDOCIN wanted to translate into being a fast kind of transition, or what would the slowdown be?

We don't have a great analog. When they first put out the guidelines five years ago to include indomethacin for high risk is it already being used for that since the New England -- the first publication was in the New England Journal in I think late 2012 or early -2013. So the trend was continuing it accelerated a little bit in 2017. And we know physicians are well aware of this. So we're -- the potential certainly does exist for this to accelerate from here, until we can finalize our strategies for education and awareness that are going to be compliant. We're going to be cautious on, I guess, sticking our necks out to predict what the growth opportunity could be, or what the shape of that looks like? There's no doubt, it is a tremendous opportunity for us.

And on the inventory front, do you feel comfortable with what you can manufacture and how much is in the channel for if there is any kind of growth out there this year?

That is a tremendous question, and what we've all been thinking about since we saw these guidelines last week. We have ample inventory today. You can see that on the balance sheet. The vast majority of that inventory is INDOCIN. And we're -- we've been talking with our supplier and contemplating what we could do to accelerate some of the POs that we have outstanding already.

Okay. And the last question is just on pricing. Do you feel comfortable with where pricing is for instance? Do you think there's room to increase it if you still -- you start having shortages of supply?

Good question. I'm not planning to have shortages of supply. I'm going to do everything I can to make sure that we have adequate supply. Right now we are comfortable with where the pricing is or the product.

Okay. Thank you.

The next question is from the line of Mitra Ramgopal with Sidoti. You may proceed.

Yes. Good afternoon. Thanks for taking my questions, first congrats on the quarter. On Sympazan it certainly exceeded your expectations. I was just wondering, the sort of led to the upside versus what you're expecting?

I think in this in the fourth quarter that we just reported I think it was about $300,000 of upside with relative to what we thought.

Okay.

But we're seeing good uptake above what our internal deal model was in January and February. Just to give you an example, I can't say it's 100% because of the promotion that we're doing but, I certainly think it's related the open rates on an e-mail for example that we would have on traditional marketing for some of our other products would be in the low-single digits 2% to 3%. The open rates that we're seeing for Sympazan are 22% to 33%. So its multiples higher and it just shows us that there's a lot of education and awareness that is that can still happen here to make sure that the physicians that are treating these patients can know about Sympazan and its benefits.

Okay. Thanks. And as you look in terms of model and the leverage you have, how should we think about SG&A going forward as it relates to investments you probably need to make in sales force or personnel and increased headcount?

Mitra, what I would say about that is, as we look ahead, I mentioned, that we're going to see a step-up in expenses in 2023, for a couple of reasons. One is further investment in Sympazan as we just acquired that product at the end of 2022. We're going to be investing, some more in Otrexup. As I mentioned, we're going to be spending more on samples, which were delayed in 2022. And then, also we've got the clinical studies out there on the R&D front for INDOCIN.

Okay. So in terms of, having to add the sales force et cetera, no need or no imminent need right now, I guess?

No, plans to do that, at this point. There's no need.

Okay. Thanks. And Dan, you sound really excited in terms of the BD pipeline, a lot of assets for sale. I was just wondering, if you could give us maybe some color, on the type of valuations you're seeing in this environment.

It really -- it's asset by asset. But, I think the generalization I can give is, that they're far more reasonable than they were in 2008, when I started doing this, and we were paying five times revenue. So I think the valuation perceptions of the sellers are reasonable and they've come in check. And we're seeing, a very large amount of very attractive opportunities.

Okay. Thanks. And again, given the outlook for the year, it looks like you set up really nicely. Just wondering in terms of, any potential headwinds you're seeing that might be cost of caution right now?

No, there's nothing that would cause caution. We have some anticipated headwinds already baked into the guidance, that we've provided that get to the $150 million to $160 million.

Okay. Thanks for taking the questions

Thank you.

Thank you. There are currently no further questions at this time. So, this will conclude our question-and-answer session. I would like to turn the conference back over to Dan Peiser, President and Chief Executive Officer, for any closing remarks.

Thank you, Joel. In conclusion, the fourth quarter is one of the best quarters, we've had in my tenure with the company. Looking forward, the base business is the ability to show positive revenue growth year-over-year, despite the loss of exclusivity for CAMBIA, as we make investments in our digital platform to grow demand. In addition, there is potential to do far better with the recent changes to the guidelines affecting us. We continue to be active in business development and are very pleased with how our most recent acquisition of Sympazan is trending. I appreciate you, all taking the time to join our call. Hope, you have a good evening, and look forward to seeing those of you attending the Roth conference next week. Thank you very much.