Ladies and gentlemen, thank you for standing by and welcome to the Assertio Therapeutics Third quarter Conference Call. At this time, all participants’ lines are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

[Operator Instructions] I would now like to hand the conference to your speaker today, John Thomas, Senior Vice President, Investor Relations and Corporate Communications. Please go ahead sir..

Thank you, Victor. Good afternoon and welcome to our investor conference call to discuss Assertio's third quarter 2019 financial results announced this afternoon. The news release and investor presentation covering our earnings for this period are now available on the Investor page of our website at assertiotx.com.

I would encourage you to review the presentation slides as they are important to today's discussion. With me today are; Arthur Higgins, President and Chief Executive Officer; and Dan Peisert, our Senior Vice President and Chief Financial Officer.

I’d like to remind you that the matters discussed on this call contain forward-looking statements that involve risks and uncertainties, including those related to the commercialization of Gralise, CAMBIA and Zipsor; our collaborative arrangements including with Collegium Pharmaceutical; the company's financial outlook for 2019 and beyond; regulatory and development plans, including those for long-acting cosyntropin; our loan agreements, including our senior secured debt facility; expectations regarding potential business and investment opportunities; litigation and other legal proceedings; and other statements that are not historical facts.

Actual results may differ materially from the results predicted and recorded results should not be considered an indication of future performance. These and other risks are more fully described in the Risk Factors section and other sections of our quarterly reports on Form 10-Q and our Annual Report on Form 10-K.

Assertio disclaims any obligation to update or revise any forward-looking statements made on this call as a result of new information or future developments.

Assertio's policy is to only provide financial guidance for the current fiscal year and to provide updates or reconfirm its guidance only by issuing a news release or filing updated guidance with the SEC in a publicly accessible document. References to current cash and cash equivalents are based on balances as of December 31, 2018.

All guidance, including that related to the company's expected total product revenues, operating expenses, adjusted non-GAAP earnings and non-adjusted EBITDA are as of today.

The non-GAAP financial measures Assertio uses are not based on any standardized methodology prescribed by GAAP and may be calculated differently from, and therefore may not be comparable to non-GAAP measures used by other companies. With that, I will turn the call over to Arthur.

Arthur?.

firstly, the fact that we are not party to these settlements nor involved in these cases supports our view that we are not the focus of the opioid litigations.

To remind you, Assertio only marketed NUCYNTA for 33 months from April 2015 until December 2018, a time frame that appears to be outside of the period which is the focus of the major state cases and MDLs. We also believe that our compliance programs were then and are now among the best-in-class.

So we have and will continue to vigorously defend ourselves from any or all litigation that we believe is without merit. Second, plaintiffs receiving payments from settling defendants typically must demonstrate that any alleged damages attributable to non-settling defendants are greater than the sums already received.

Thus we believe future large settlements by other parties may greatly reduce the amount or indeed eliminate potential damages against Assertio. We also want to remind of additional facts that we believe are pertinent. Assertio has never been involved in more than a single-digit percentage of opioid cases nationwide.

Assertio has already been dismissed or voluntarily dropped from more than 20 lawsuits, including cases in Arkansas Nevada Arizona Missouri Texas and the Federal MDL. Plaintiffs in the Federal MDL stated the intent to use ARCOS data through the end of 2014 to select defendants to sue.

Following production of such data, Assertio was voluntary dropped from more than 10 cases. We believe the broad and sweeping allegations in these lawsuits don't fit with the limited time and market presence of Assertio in the opioid market.

So in summary, as it relates to both our debt and a potential opioid overhang, whilst we can't say we are free of these concerns, we believe we're in a much better position than most people are giving us credit for. As I mentioned earlier our focus is and remains in delivering strong EBITDA and cash flows.

To do that we are constantly looking to improve the efficiency of our organization. I would remind you that since joining the company, we have already reduced our SG&A expenses by almost half.

Today we are announcing additional efficiency measures, which we believe will deliver annualized savings of $20 million, $15 million of which we believe we can deliver in 2020. One of these measures is our decision to discontinue our relationship with our existing contract sales organization, or CSO.

The CSO accounts for 43 of our 90 sales territories. We have been experiencing a higher turnover in our CSO force compared with our own Assertio full-time sales representatives. We want to use this opportunity to right-size our sales organization and move to a total of 75 full-time Assertio representatives.

This reorganization will not directly impact our current full-time representatives and we expect to fill the majority of the additional territories with program reps from our existing CSO force. This is the right long-term move and one we are confident will improve both the effectiveness and productivity of our sales force.

However, it has resulted in some degree of disruption which we have seen in quarter three and expect to continue in quarter four. Our goal is to have this new field force structure operational by the beginning of next year. We also see other measures we can take to streamline our marketing and G&A processes.

These initiatives are consistent with our continuous improvement programs, designed to ensure we have a lean, efficient and entrepreneurial business model. The decision to execute any acceleration of cost savings measures is never done lightly and in particular when it involves head count reductions.

With our senior leadership team, after a thorough review of our organizational structures and process, we believe these additional measures are necessary and prudent to ensure that Assertio remains a well-positioned and diversified biopharmaceutical company, one with the strength and financial flexibility to continue to deliver strong earnings and de-lever, while pursuing new growth opportunities.

In summary, today we delivered another strong quarter of adjusted EBITDA and cash flows. And with today's announcement of additional operational efficiency measures, we believe we're well positioned to deliver again strong EBITDA and cash flows in 2020.

Just as importantly, we've shown yet again our commitment to being good stewards of our business and to working hard to enhance shareholder value in ways that are both responsible and respectful. We appreciate your support, as we continue to push forward with our goals.

With that, I will turn the call over to Dan, who will provide more details on our performance in the third quarter..

Thank you, Arthur. My comments this afternoon will focus primarily on our non-GAAP results unless otherwise noted. Today, I'll review the financial highlights from our third quarter and first nine months 2019, as well as our outlook for the remainder of the year.

Consistent with our results each of the last two quarters and our focus of continuing to generate strong EBITDA results and cash flows, our financial results in the third quarter demonstrate the achievements we continue to make in this regard.

As Arthur mentioned and I'll describe further, we are accelerating some of our cost savings initiatives to ensure that we can continue to delever in 2020 and beyond.

Our goal remains to continue to operate the business with above-average EBITDA margins, a consistent absolute EBITDA dollar performance and a determined focus on cash flows that we can continue to exceed our debt service obligations, allowing us to make the necessary reinvestments into the base business and pursue growth opportunities.

Our neurology revenues for the third quarter and first nine months were $26.3 million and $78.7 million respectively. For the third quarter, this represents a 10% decline versus the prior year quarter. This result is below what we expected from the business, now putting us 3.2% behind year-to-date result from the prior year.

While most of this can be blamed on the 450 basis point headwind created by the unforeseen Zipsor sales returns, we've described in prior quarters, we're no longer expecting to be able to deliver on our prior guidance of low-single-digit growth in our neurology revenues and now expect the full year to be between $102 million to $105 million.

There are two factors driving this change. First, as Arthur mentioned, we're seeing a higher-than-expected turnover in the CSO sales force that started in our third quarter. The results in territory vacancies have made it challenging to deliver the volume growth, we've been targeting.

This was the reason why we decided to terminate the CSO relationship effective at the end of this year and transition to our own full-time employees and rightsize the total field force.

Second, we had expected some additional volumes for Gralise in the second half of 2019 from the execution of a midyear managed care contract with one of the top three Part D insurers. Unfortunately, Gralise was not added to their national formulary as we had expected.

Any benefits we may receive from this contract will be modest as approximately one-third of this insurer's covered lives will have formulary access to Gralise. Gralise generated sales for the third quarter and nine months of $14.9 million and $46 million respectively.

The year-over-year revenue growth of 2.1% and 9-month revenue growth of 6.3% was primarily due to price and a favorable mix shift towards commercial business where we recognized higher net selling prices. Prescription trends are modestly down year-over-year.

However, we're encouraged by the progress we're making as we've seen sequential improvement in both prescription trends and ex-factory volumes for the second consecutive quarter. CAMBIA volumes continue to perform well with a 2.1% sequential and 3.4% year-over-year improvement per event prescription demand in the quarter.

In the third quarter, CAMBIA generated sales of $8.1 million, which was down 21.5% versus the prior year. Year-to-date results were $23.7 million or a 4.3% decrease.

While we saw an improvement in net revenues quarter-over-quarter, we continue to experience an unfavorable payer mix across both our commercial and government lines of business as compared to our prior year.

We continue to enhance our patient access programs to ensure those patients who benefit from CAMBIA receive their prescriptions at affordable cost. While this is eating our prescription volume growth in the short term it does come at an increased cost. We expect these investments to begin to compensate for the adverse payer mix in 2020.

Third quarter sales of Zipsor were $3.3 million. The quarterly results were impacted by the short data product returns issue we have experienced this year but nowhere near the extent we've previously seen. At this point we can confidently say this issue is behind us.

And we've taken the necessary steps to ensure we don't see this in the future such as smaller and more frequent production lines. Year-to-date, sales for Zipsor were $9 million. If not for the abnormal returns, we would have reported approximately 4% net revenue growth for the brand this year. Zipsor prescription volumes continued to deliver.

We grew 9.3% for the quarter which puts us at 13% year-to-date over the prior year. We expect to see sequential improvement in Zipsor net sales in our fourth quarter reflecting seasonality and the cessation of the returns issue.

We recorded $27.3 million in GAAP commercialization agreement revenues from Collegium in the third quarter versus $31 million in the second quarter.

While Collegium did report slightly lower quarterly net revenues this quarter, our change in GAAP revenues is driven more by the accounting for the royalties related to Grünenthal, the effect of which we expect to completely reverse next quarter. These royalties are contractually reimbursable by Collegium.

However, we recorded the accrual for the royalty expense, which in the third quarter was $2.9 million at a contra revenue item. Per GAAP, the revenue we recorded from Collegium's reimbursement offsetting the year-to-date expense accrual will be recognized in our fourth quarter.

Our non-GAAP royalty income of $31.1 million in the quarter is more reflective of the cash we received as well as the royalty calculated for the agreement with Collegium. In our fourth quarter, we expect to see this GAAP to non-GAAP difference reverse.

Adjusted EBITDA was $34.3 million for the quarter, relative to the $36.4 million in the second quarter and $45 million in the prior year period. The prior year quarter included a $20 million gain on the sale of the remainder interest in our diabetes royalties to PDL. Excluding this gain, adjusted EBITDA was up 37.2% year-over-year.

The strong EBITDA performance exemplifies our continued focus on operational efficiencies. Year-to-date, we recorded $107.4 million of adjusted EBITDA. As a result of our strong operating performance, we're raising our full year EBITDA guidance to $124 million to $129 million from $118 million to $128 million.

There is powerful leverage to our business and the platform we've built, demonstrated this year by our ability to continue to deliver on our adjusted EBITDA targets. We've anticipated Collegium's reduced expectations for the NUCYNTA franchise in our revised guidance.

The structure of that commercialization agreement was purposely designed so that our economics are minimally impacted despite fluctuations in their revenues between $180 million and $210 million in annual sales. It's important to recall that the agreement structure will affect our fourth quarter adjusted EBITDA.

Year-to-date, we've recognized 65% of Collegium's reported net sales and we'll continue to recognize 65% royalties, up to $180 million in sales. Above the $180 million we will only recognize royalties at a 14% rate until Collegium achieves $210 million in sales.

We actually expect a lower non-GAAP revenue, which will also lower our adjusted EBITDA relative to the first three quarters. In addition, we expect that our research and development expenses will increase in the fourth quarter to reflect investments in our CAMBIA life cycle extension and in manufacturing.

In the third quarter we had a number of onetime items in our GAAP results, notably our convertible bond refinancing transaction that was completed in August, as well as the write-off of some specialized manufacturing equipment for NUCYNTA ER. Both of these items have been excluded from our adjusted EBITDA performance.

The $10.1 million asset write-off appears in our SG&A on the face of our income statement. We've chosen to dispose of the equipment acquired from Janssen in 2015. We've made the decision to pursue a new manufacturing source for the product and are beginning our work to transfer production.

There is no cash impact associated with this charge in the quarter. There is a minor accrual for disposal costs to be incurred in the future.

In August, we exchanged $200 million in principal of our convertible notes due in September of 2021 for a combination of $120 million in principal of new 2024 convertible notes, $30 million in cash and 15.8 million shares of common stock.

This reduced our total debt by $80 million and extended the maturity of a significant portion of that tranche of debt. Associated with this transaction for GAAP purposes, we recorded a gain on extinguishment of $26.4 million, representing the excess of the book carrying value of the notes over the fair value of the exchange notes.

We've made tremendous progress this year reducing our overall debt balance through generation of operating cash flow and the convertible bond exchange. Entering the year, we had $627.5 million of debt all of which was due in 2021. And our gross debt leverage was 5.1 times.

Today we have a total debt balance of $427.5 million, a reduction of $200 million and of which $307.5 million is due by 2021 considerably improving our liquidity. Our gross leverage ratio now sits at a reasonable 3.4 times. We'll continue to focus on cash generation, to exceed our debt service obligations.

We believe we will be able to address the remainder of our 2021 maturities, through a combination of our scheduled debt amortization, reduction in cash interest payments, a potential for further exchanges, and other actions which are within our control. Also, 95% of our year-to-date 2019 total revenues are patent-protected through 2024.

We believe we have considerable runway ahead of us to continue generating cash to fund business development. And pursue new growth opportunities.

As mentioned earlier, we're announcing today that we're accelerating certain cost savings initiatives, which are designed to deliver $20 million in annual expense reduction, of which we expect at least $15 million will be realized in 2020. Associated with this, we expect to take a charge of approximately $4 million in our fourth quarter.

This will take place at year-end. And take effect immediately. The changes will be seen in three areas, all of roughly equal impact. The first as Arthur described, will be a reduction on the size of our field force, by bringing on a portion of the CSO force.

The second is, changes to our internal processes and a reduction in the use of certain outside vendors and consultants. The third will be changes to our organizational structures. I commend our operating teams for the results they've achieved to date, at reducing the overall cost base of Assertio.

And making our processes more efficient and increasing our ability to make operating decisions, quicker and more proactive. These efforts we're now undertaking are further improvements, which will only make us stronger and continue our ability to deliver strong EBITDA. And make the necessary investments for the future.

That concludes the financial discussion. And I'll turn the call back over to, John..

Thanks, Dan. Victor, if there are any questions we are ready for that..

Yes. Sir. [Operator Instructions] And I'm actually not showing any further questions at this time. I'd like to turn the call back over to John Thomas for any closing remarks..

Okay. Thanks everyone for joining us this afternoon. A replay of the webcast and conference call will be available shortly and for the next 30 days. Please dial 1-855-859-2056 using pass code 8382875. Please contact us if you have any follow-up questions or we can assist in any way.

And as a reminder, our earnings-related materials are posted to the Investor Relations section of the Assertio website. Thanks for your interest in Assertio. And have a good evening..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..