Q3 2020 Assertio Holdings Inc Earnings Call
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I'd like to turn the conference [laughter], Sir Please go ahead.
Thank you Michelle good morning, and once again, thank you all for joining us today to discuss our third quarter 2020 financial results. This is Lee Roth from Burns Mcclellan and on the call with me today are Todd Smith, President and CEO and director.
Hi, <unk>, Chief Financial Officer, and Dr., Mark Strobel, Chief operating officer.
How do you get the highlights for third quarter performance and provide an overview of commercial activities followed by Dan will review our financial results.
I will then provide some closing remarks, we will open up 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 mornings press release as well as the sturdiness filings with the FCC.
Investors potential investors and other listeners are urged to consider these factors carefully in evaluating the forward looking statements and are cautioned not to place undue reliance on such forward looking statements. Our actual results may differ materially from those projected in the forward looking statements and the studio specifically disclaims any intent.
Or obligation to update these forward looking statements, except as required by law.
In addition.
For the full prescribing information box warnings and medication guide sort you as marketed products. Please visit our products page on Www Dot studio TX Dot com.
The archive webcast of this call will be available for six months on the company's website.
For the benefit of those who maybe listening to the replay or the archived webcast. This call was held and recorded on Friday November six 2020.
The census, cardio may have made announcements related to the topics discussed so please refer to the company's most recent press releases and FCC filings.
He's not already received the earnings press release, you can find it on the sturdier website under the investors tab with.
With that it's my pleasure to turn the call over to Todd Smith <unk>.
Thanks, Lisa Good morning, everyone 2020, it's been an extremely eventful year so far.
The macro level with an unprecedented election, and the COVID-19, pandemic, which is you have to really let off.
Rest of the company between the completion and integration is island merger the transition to a new commercial model and a number of other significant changes during.
During the third quarter, we face continued operational headwinds related to the pandemic.
These challenges were extremely proud of all that we've accomplished during the last several months and believe we are well positioned for growth and profitability once the effects of coping up abated.
In the third quarter, we achieved pro forma net sales of $33.7 million, which represents a 21.4% growth over the second quarter.
We also achieved non-GAAP adjusted EBITDA of $6.9 million.
Our third quarter results reflect the rapidly changing environment in which we're operating our commercial teams responses to these changing changes as our net product sales were basically flat compared to the third quarter of last year, but up nicely, 21.4% from Q2 of this year.
Third quarter, we completed the conversion to our hub centered commercial model. This model has made us more agile and giving us greater control over the business importantly has enabled us to quickly adapt to changing market dynamics and other external factors and maximize the benefit of positive trends, while minimizing the effects of negative development one of the most telling metrics demonstrates this is the initial change in EPS.
Average net sales per prescription which increased across each of our products.
Further evidence of the effectiveness of our new model can be seen in the former action taken by a large PBM in September which negatively impacted sales of SPRIX in the third quarter.
And going forward.
Because of the hub model, we identified the issue and were able to quickly assess and adjust our approach that given efforts and resources to our other products. We didn't miss a step in this process, we shifted seamlessly and were able to minimize the disruption on the business beyond spreads. We believe that this PBM decision a decidedly not in the best interest of patients as it essentially takes.
The way the only labeled opioid alternative for treatment of acute pain October 19 is clearly the most significant urgent matter affecting health care. It is crucial that we not overlook the severity of the nations opioid crisis, we're concerned that the PBM actions, which are effectively taking viable therapeutic alternatives for patients choice.
Which is in direct opposition to our industry's efforts to combat the opioid.
It doesn't make and we will do everything in our power to have this decision reversed [noise].
As I highlighted last quarter, a broader growth strategy focused on driving sustainable profitability and cash flow is based on three fundamental elements commercial execution crude financial controls and business development.
I'm pleased to report that we made progress on each of these initiatives.
Q3.
They are committed to adjusting our commercial approach as needed most effectively support the sort of sales continue profitable growth.
Well elective procedures in patient volumes continue to face challenges in the third quarter surgery still down roughly 15%. According to acute via our total revenue for the quarter was essentially flat compared to pro forma revenues for the third quarter of 2019. We believe this is a testament to the dedication of our commercial organization and maneuverability afforded to us by the transition or hub model.
Wash bridge business was impacted by the TBM action I just God, we saw a 25% increase in total is absorbed prescriptions. The 13 weeks ended October 2nd compared to the 13 week period.
Sure.
Which we believe will support sales growth as we move forward I'm also particularly excited by Edison, which grew 46% over quarter, two and 22.5% of the third quarter of last year. Despite this continued shelley.
Selling environment, we were able to meaningful grown meaningfully grow into sales over the last year and believe that we still have room to grow these efforts and focus coupled with the commercial teams execution drove the Q3 over Q2 growth of 21.4%.
Looking at financial controls, we are on track to realize the full benefit of our $40 million synergy targets and continue managing the business with a laser focus on optimizing our path to profitability total operating expenses were down significantly compared to pro forma back in the third quarter of 2019.
Perhaps more importantly, we have identified additional savings since the completion of the Xyo merger beyond the initial synergies. We've identified we believe these additional savings could take the longer term operating expenses benefit beyond the $40 million per year that we originally forecasted and we're already on track to realize in addition to prudent expense controls we pre.
Pay $10 million of outstanding debt in the third quarter, we plan to continue taking steps to strengthen our balance sheet and stabilizing the overall financial position.
The final element of our strategy to grow through strategic business development, while our third quarter Opex was down significantly year over year.
We didn't hear some expenses related to a potential transaction that didn't materialize. This would have been a significant transaction for us and we were deep in discussions with the other parties as well as independent diligence.
It was during the diligence process that we identified certain issues, which made a profit terminates in negotiations I am proud of the team's discipline and believe this demonstrates our focus on finding a deal but more importantly, finding the right deals are driving value of assertive.
We remain committed to making the necessary investments to pursue compelling business development opportunities that will help us achieve our goals of profitability and positive cash flows enable us to create value for Sarnia shareholders. We continue to actively seek BD opportunities involving complimentary products and remain committed to meeting our objectives in one or two transactions over the next year we are.
Actively pursuing BD opportunities, but are taking a disciplined approach. The process. We are focused on making the right deal that will enhance our portfolio strengthen our commercial teams capabilities and drive incremental value for our shareholders.
Before I turn the call over to Dan to discuss the third quarter results in greater detail I'd like to provide a brief update on our outlook for the remainder of 2012.
As a result of Cove in our industry continues to face significant near term uncertainty there.
Quarter results were relatively strong and we have seen continued strength through the first several weeks of quarter four include.
Including continued growth in independents absorbed as well as 7% net prescription growth in new starts for Cambia, our biggest product by volume.
Well, we believe that this trend will continue the cumulative effect of challenges we faced in the first nine months of the year have let us to expect a decline of approximately 5% for year 2020 revenues compared to pro forma revenues for.
Our full year 2019.
We're not able to reaffirm EBITDA margin guidance at this time in spite of this we believe the Q3 growth the transition to the new hope commercial model and proven execution of our commercial team resulted in profitable growth of our key products.
Other than spreads this is encouraging as it relates to the realization of our strategy and our future growth potential from acquiring new products. We further believe we're doing what is necessary to manage through this period, while continuing to focus on the future health of our business.
As the cobot impact stabilizes, we will be positioned for growth and profitability now again will review our financial performance for the quarter.
Thanks, Todd This morning, I'll review, the financial highlights from our third quarter 2020.
As was the case last quarter, our year over year comparisons are challenging due to the many different changes in our business.
Hi context, we provided supplemental on audited pro forma net product sales for the quarter and the first nine months of this year and our press release for clarity any references to pro forma results are reflective of our product divestitures and desirable merger.
Pro forma net product sales from 33.7 million for the three months ended September Thirtyth 2012, compared to the pro forma net product sales were $33.7 million in the prior year quarter, and 27.7 million last quarter.
This result was below our internal expectations for the reasons Tata, particularly.
The result demonstrates our ability to execute not only in the taste holdings also integrating yesterday olin's, our organizations employing the reps out in the field for training and commercial model.
We recorded a strong quarter for Anderson, which was the highest quarterly results reported by a studio Aurs, Iowa in the last 10 years.
Zipsor also showed growth this quarter over the prior year quarter.
The results also reflects better than expected sales from the Saudi matrix brands as we're prepared to exit commercialization of these products.
The portfolio result was impacted by challenging quarters for Campion spreads we are seeing encouraging prescription trends for cambia in recent weeks. However, the very recent commercial coverage change for SPRIX will impact our ability to achieve our previous fourth quarter and full year growth objectives.
Reported cost of sales was 6.5 million for the three months ended September Thirtyth 2020.
Increase over the prior year was influenced by the addition of this our product portfolio and the inventory step up expense associated with the fair value adjustments as part of the merger.
Our adjusted gross profit margin for the quarter was 82% versus 86% last quarter decrease reflected a greater combination from sales of lower margin products, particularly the saw the matrix brand.
Our non-GAAP adjusted operating expenses inclusive of R&D and SG nine in the third quarter were $21.9 million compared to 22.3 million in the prior year period.
The results for the quarter also reflect approximately $900000 of expenses related to a terminated business development transaction. The Todd described the.
The result shows exactly what we intended as a result of the merger was Iowa. Both companies had very similar duplicative operating structures and we're able to combine the portfolios, while only keeping half the overhead.
Non-GAAP adjusted EBITDA for the quarter was just shy of $7 million, an EBITDA margin of 20.2% compared with 31000 in the second quarter. This year.
The improvement is reflective of both the realization of the synergies and the improvement in sales quarter over quarter.
Given our revised revenue outlook in the unpredictable impact to the pandemic, our near term financial performance, we're no longer able to reconfirm, our EBITDA margin guidance for 2020.
We can confirm though that our focus remains on profitability and improving our balance sheet.
Net loss for the three months ended September Thirtyth 2020 was $10.6 million in comparison to the prior year's gain of $3.3 million.
This comparison is especially challenging given all the changes to the business. However, the single largest driver to the gain recorded in the prior year needs.
The convertible notes offset by the far higher interest expense and the business previously incurred.
During the quarter the company prepaid $10.3 million of our senior secured debt and accrued interest, leaving us with $85 million of third party debt and a cash balance of $34.7 million at September Thirtyth.
The decline in cash of $24.7 million from our June 30 balance of 59.4 million is primarily attributed terminable to three non recurring items that totaled 20.4 million.
Those items being the debt repayment delayed timing of expense reimbursements due from partners and the severance and restructuring payments made in the quarter.
Now I will turn the call back over to Todd.
[laughter].
Thanks, Dan So while we continue to face a certain degree of challenges in the third quarter, we made substantial progress on our strategic and operational initiatives and have taken steps to further position as Sergio for long term success. The macro environment continues to change, but thanks to our business model, we were able to adapt and adjust quickly and efficiently.
Committed to tapping into the full potential for our products and realizing additional operational savings from the merger of Surgeons Island West.
Strong quarter over quarter performance the additional cost savings we've identified in the continued initiatives to pay down our debt. We believe we have a solid base on which to continue building remain confident the strength of our commercial organization and believe that our strategy and financial foundations are sound. We look for the opportunities that lie ahead. So thank you everyone for joining us. This morning, I will now have the operator open up.
Call for questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press the star and the number one key on your telephone touch phone. If your question has been answered or you wish to remove yourself from the queue. Please press the husky.
Yeah. The first question from the line of Scott Henry from Roth Capital. Your line is now open you may ask your question.
Thank you and good morning.
I guess I want to start with with SPRIX.
When did the PBM change take place.
So I can get a sense if it did it impact Q3 will it impact all of Q4 and can you give us a sense of what you know.
What percent of.
The product.
You would attribute to that PBM.
So the product revenue.
Yes, Scott good morning. Thanks for the question. So you know as we talked about we were very happy with the growth and the overall performance of the business with SPRIX was impacted in September we noticed it in September as well and then started taking action we believe that the impact from the PBM a on a product that is the only label opioid altered.
Oh, It will last beyond third quarter add but we will be working actively to address this and working with pbms to make sure those better awareness of this opioid alternative enough the opportunity for them to support patients that need this especially in the face of the opioid crisis. So.
So yeah, I think you should think about it as a as finding out in December and then this will be in place.
Going basis until we can make any change the negotiations.
And.
What percentage of SPRIX went through that PBM approximately.
Yes.
Give it takes about 20% 15, 20% I don't know that we want to get too much more detail because the other day as we run through the business every prescription every adjudication connect differently.
Okay, that's helpful and or would you expect a clarification.
In the fourth quarter this year.
When you say clarification, Scott what do you mean by.
I guess resolution of the situation, whether it will be you know it sounds like he's though through an appeals process and just trying to get a sense of the timing of that.
No. It's a great question, Scott I think we're going to be addressing this I don't believe were forecasting that this will change or that you don't change anytime soon but we are committed to addressing it and working through I don't think its important issue not only obviously for us from a business standpoint, but we believe we've been committed to patients making sure that they have the lowest out of pocket.
Co pay and believe that these pbms have missed the mark fly addressed doing something like this to a product that a clear alternative so we're going to actively work on it but I would think of it as an ongoing basis at this point.
Okay and then.
I don't know if you I mean, I can do the math on my own but it'll be easier. If you did it for me when you you Couldnt, you're saying down 5% and 2020 from pro forma 2019, but.
You know, it's kind of tricky to figure out what you're using as a 2019 number given that there's only one quarter left in 2020, what does your Q4 revenue guidance approximately just to just to make sure I'm on the same page.
Yes, Scott, we're not doing any further guidance.
On.
Especially regarding all the uncertainty.
But if you take 5% down.
The map on the masco at just over 30.8 million.
Perfect.
Thank you for making my day literally here.
Got it and then.
From a business development standpoint, obviously these things.
Just take time, but I guess the question I would have I'm trying to think of how to phrase. It. It would you be surprised if you didn't acquire another product.
By second quarter of 21, just trying to get a sense of of.
The urgency behind adding products to the platform.
No Scott I think a couple of things. So we standby in the next year, we hope to do one or two deals were open and actively engaged in the absolute top priority for us I don't know that I want to commit to anything on a time basis other than the one to two deals.
Yields in some form or fashion over the next year. We are open to looking at deals that are partnerships that are best for the shareholder that our best to help us bring in under promoted clinically differentiated products and we.
We think we have the capability to do that we think our Q3 numbers and our ongoing commercial performance demonstrates that we are probably in a commercial partner on today's marketplace.
Fair enough and final question sales reps are they about where they were pre COVID-19 or have you had any kind of changes.
Yeah, a lot of reps are bouncing around right now.
Yeah, Hey, I know, we're still at the 80 Rep number territory.
Handful vacancies, but but nothing more than you normally expect.
Okay, great. Thank you for taking the question, yes, thanks guys.
Thank you we have the next question comes from the line of Sally had just from Brookline Capital. Your line is now open you may ask your question.
Good morning side.
Morning, Tod and Dan.
Question on.
In the press release your solar metrics license.
You're terminating it or it was terminated.
What's going on with that product yes.
Yes, certainly matrix products were really two products or less of Villa ducks.
We completed the xylem transaction, we began obviously kind of an in depth evaluation of our portfolio assessment profitability and all the resources required for each of these products and based on that.
His sermon on the strongest position.
Both near term and long term kind of revolves around the products, we focused on and Didnt include reselling major action. So we saw the best option for for the business and for shareholders is to return the those licenses.
Okay. So we should see no more sales from those products.
And your.
Statement going forward is that right.
There will probably be some small amounts of sales in the fourth quarter, but I wouldn't expect anything beyond that.
Okay.
And then.
I believe you said Oh, Dan that the.
Third quarter.
Sales break out of the individual products available in the press release I don't see it did you.
Disclose the individual.
<unk> levels, where the different products.
The pro forma results are in the press release, the individual product results will be in the 10-Q that will be published later today okay.
Okay. Okay.
And then I just want to confirm you.
You paid down.
About 10 million in debt.
Quarter, so how much remaining debt do you have.
We paid $10 million principal so there's 85 remaining as of September Thirtyth and then there was another four and three quarters million that was just paid earlier this week okay.
Okay, Alright, thank you very much.
Thanks, Alex.
Thank you we have the next question comes from the line of Kevin Kedra from Tier Research. Your line is now open you may ask your question.
Hi, Thanks for taking my questions good morning.
First you mentioned a strategic transaction you guys were working on that just didn't quite come together.
We did have that filing from highbridge, where they know that they they reached out on a business combination with but what seems like the characters are the old Pernix business.
So can you confirm whether or not that's the.
Specific a transaction you were referencing.
Yes, let me first be clear, we were obviously not going to comment on any business development.
Oh the comment we made with the highlight a couple of things one is that we did spend.
Almost a million dollars about $900000 on diligence on a on a deal that was it.
Was actively in discussions earlier than that filing and we decided to walk away from a lot of all right reasons, even though it was a great target to look at and we wanted to highlight a couple of things just help understand where some of the additional cost came from but also emphasize our commitment to finding the right deal for shareholders.
All right great appreciate that.
You mentioned that the SPRIX a issue with the PBM or are there any other material changes to formulary access coming up in 2021 were kind of in the thick of a 2021 contracting season. So any visibility on on any shifts we should expect for any of your key brands going in 2021.
Yeah, we don't anticipate any we think a couple of things. One is usually are now starting to see any of those changes earlier earlier so.
September October is when we would have expected to see these changes we sold obviously in December.
Going forward in 2021, we don't anticipate any else changing.
Like we're in really good shape for all our other products at this time.
Hi, good.
As far as the margin guidance and I know you guys are kind of.
Not reconfirm that for the full year, but should we think about this as just kind of being a function of some of the near term dynamics with Cove. It was SPRIX or has there been any fundamental change about how you look at the business going forward I'm from a margin and profitability standpoint.
Yes, no I think a couple of things I think one is fundamentally what we wanted to highlight was that cobot. Obviously continued to have much more intensely and didn't let up in Q2, and then I'll into Q3. So we never saw a second wave because only we were moved out of the first wave and so you know a lot of our thinking was that you'd see some some of that amazing we'd see kind of the recovery faster.
Her of outpatient surgeries patient visits and clearly that's been continuing to be dampened.
At a level, maybe a little greater than we thought as we thought about Q2 to Q Q2 to Q3.
Secondly, I think the SPRIX action US bridge was one of our primary products and we're focused on we believe it has a lot of value. We think its still has value, but the opportunity for upside.
Limited went up PBM takes that kind of action against that and so we made the pivot I think demonstrating the significant growth of 25% to absorb for the last 13 weeks I think the 46% growth in interest in which is obviously a lead product for us and then even now most recently cambia is.
Growth now in new Rx is has been very encouraging and so we think fundamentally the business is in good shape. We think fundamentally businesses is the business. We anticipated we just felt with the uncertainty.
The better for us not to continue to try to play the game of.
Putting out guidance and figure out how can we get there just run the business.
Maximize the value and look at how we continue to drive growth fine BD opportunities and so that's really the mindset and.
You think about lastly, I guess I'll mention is we put the deal together.
I think we fully thought of as the guys, but just to put the deal together and looked at the combination of the products on a pro forma basis, what can be achieved it and we thought that that was appropriate to provide at the deal and and then realizing all the uncertainty we just felt like it's probably better to get clarity.
To our investors and to the market and then kind of step back and trying to set a set.
Clear guidance until we have a better sense of where everything settles out and what the opportunities are for that business going forward.
All right.
Final question for me.
Then you mentioned the some cash flow impacted by some of the late payments.
In the quarter is that something that's going to reverse in Q4 is there.
A longer tail to resolve that.
Yes.
Majority of it is already reversed we just saw a partner wait until October 1st to make a payment instead of September thirtyth.
Okay. Great. These are short term issues.
Thanks.
Thanks, Jeff.
Thank you I am showing no further questions at this time I would now like to turn the conference back to Mr., Todd Smith for any closing remarks.
[noise], Yeah, I want to thank everybody.
I think everybody again for the time this morning, and look forward to continuing the growth and success, we've seen with our other promoted products as we go forward in this year into next year and the cited about the business opportunities we have and.
Well every go at this time thank you.
Thank you so much ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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