Q4 2021 Assertio Holdings Inc Earnings Call
Good morning, and welcome to the Associate Holdings incorporated fourth quarter and full year 2021 financial results conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star followed by zero.
After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference I wish Max Nemmers hedge Investor Relations and administration. Please go ahead.
Good morning, and thank you all for joining us today to discuss <unk> fourth quarter and full year 2021 financial.
Yeah.
The news release covering our earnings for this period is now available on the Investor page of our website at Investor data studio, TX Dot Com I would encourage you to review the release and the accompanying presentation as it is important to today's discussion with.
With me today are Dan <unk>, President and Chief Executive.
Yeah.
Officer, and pulse Wittenberg, Senior Vice President and Chief Financial Officer, Dan will open the arcs and provide an overview of the business followed by Paul who will review our financial results. After that we'll 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 afternoon's press.
Released as well as <unk> 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 <unk>, specifically disclaims any intent or obligation to update. These forward looking statements, except as required by law with that I will now turn the call over to Dan Dan.
Thank you Max.
Welcome to everyone joining us here this morning.
Last quarter I made some remarks about everything that had happened in the prior year and how much change has taken place year to Sergio.
In addition to what I made mention of at that time. We've also closed the acquisition of Otrexup and targets and have now integrated into our business.
This was the first acquisition of a product by a third since 2015 and.
And our first by our new management team and to date, it's gone extremely well.
As you can see from the results. We released this morning, and then Paul will expand upon in a few minutes.
We had a very strong fourth quarter.
We delivered topline growth of 7% versus the prior year, despite discontinue their product line and 23, 8% versus the prior quarter.
Our adjusted EBITDA results reflect an increase of 118% versus the prior year and 12, 7% versus the prior quarter demonstrating the success of our restructuring.
In a short period of time, we were able to transform this company such that we generated more adjusted EBITDA in the fourth quarter of this year versus the entire year of 2020.
And I'm looking forward to the next 12 months, you'll see a lot to get excited about.
To build on our momentum I've created a corporate priorities for 2022 to ensure continued success. These are as follows.
First retention of our employees attraction of new talent and to continue to build upon our culture of teamwork inclusion and results.
Second prove the efficacy of our new commercial model as we transition to Otrexup and traditional in person to non personal promotion and what looks like it could be an environment, where COVID-19 is moving to in Denmark.
Third reduce our reliance our concentration in Anderson.
Fourth executing on a comprehensive lifecycle management program for Henderson.
And finally, improving our balance sheet and reducing the cost of capital.
We're keenly focused on integrating what trucks up.
Spanning upon the reach and frequency of promotion.
Improving upon its market access.
<unk>, new avenues of growth and doing so in a capital efficient manner.
This should allow us to build confidence and interest in the business model not only from investors, but also potential new business partners.
We're also aggressively targeting new business development opportunities in Nevada, both internal and external resources aimed at accelerating our efforts here.
It is largely through acquisitions that we expect to reduce our reliance on indocin.
We have not wandered from our goal of adding $50 million in incremental gross profit to the business by 2024.
Trucks up accounted only for one fifth of the skull.
We believe there is a favorable acquisition environment right now, we're seeing a lot of new product acquisition opportunities increasing activity from those looking to sell as conditions ease up post the pandemic and.
And many of our peers, who have been who would like to be buyers or find more levered than we are.
There is no doubt that Indocin is currently an important part of the business and we intend to that.
To continue into the future.
We're actively working on our plans to grow and expand the label for the product and once we have clarity on the timing and cost of these development programs will communicate those to investors.
Paul and I are both extremely focused on our balance sheet and we're looking for the right balance of reducing our cost of capital.
Leaving flexibility for future acquisitions, extending our maturities and balancing our debt to market cap.
We're currently evaluating multiple proposals for refinancing weighing the appropriate options and timing.
Execution against our business plan and these priorities over the next 12 to 18 months will be key to our success.
Fortunately management time, it looks like it wont be distracted by the legacy legal liabilities that have chewed up a lot of our time historically.
Thanks to first the resolutions of the antitrust and shareholder litigation that we drove to settlements recently.
Second as was the case in 2020 , one we expect no movement in the opioid lawsuits for what is likely in the next 12 months and possibly longer.
Recently were dismissed from two additional cases, bringing the total to 82 dismissals.
Two cases, we're on track to go to trial sometime in early 2023.
But now we can focus our time and managing the business and executing on these priorities.
In addition, we are optimistic that our investment in any S will mature inside of this timeframe.
This represents a nice source of upside Optionality for Sergio is we have the potential to be approximately 12% equity owners of a lifesaving drug for an ultra orphan condition for which there is no available treatment.
And a priority review voucher.
Our strategic interests in this investment was not simply to be an equity participant but to be either the marketing partner or owner.
Before I turn the call over to Paul to discuss our quarterly results I'll spend a minute on our guidance for 2022.
We expect to generate net product sales of $126 million to $136 million and adjusted EBITDA of $64 million to $72 million in 2022.
This represents growth of 15% to 24% on the top line and 31% to 47% and EBITDA.
Our revenue forecast reflects a net pricing benefits were.
Offset by the loss of exclusivity cruise absorb which we expect later this month.
As well as the inclusion of our trucks up.
For your awareness after completing the acquisition, we did not sell any otrexup in December .
We're through most of January of this year.
As we normalize the level of inventory in the distribution channel.
For instance, we have seen an increased mix is heavily discounted product sales through 240 D. In the last few months of 2021 and early 2022.
This mix is unpredictable and ebbs and flows through the year.
Our full year forecast, however assumes that we continue to see an elevated mix from this channel.
Our EBITDA forecast reflects the full year benefit of the restructuring we completed in the third quarter last year as well as the elimination of nearly $6 million in one time costs in 2021 for the legal settlement net of insurance proceeds.
Now I'll turn the call over to Paul who will walk through our quarterly results and guidance in more detail.
Thank you Dan This morning, I will review the financial highlights from our fourth quarter and full year 2021.
There are slides available on our website that I will reference as I discuss these results.
Starting with slide three net product sales were $32 2 million for the fourth quarter 2021, compared to net product sales of $30 1 million in the prior year quarter.
And 26 million last quarter.
The increase in net sales versus the prior quarter.
Driven by Indocin, Cambria and Zip soar.
Full year 2021, net sales were $109 4 million.
Versus $92 1 million in 2020, representing a 19% year over year increase.
Cambium <unk> absorbed net sales in the fourth quarter reflect one time price favorability driven.
By a shift toward more profitable sales channels in the fourth quarter.
While maintaining consistent overall volume relative to the prior three quarters.
And it's a net sales in the fourth quarter increased by $3 8 million over the third quarter.
And $5 9 million over the prior year quarter on comparable volume due to an improvement in net realized price that is expected to continue into 2022.
Overall portfolio net sales were up 24%.
The third quarter. Please.
Please refer to our 10-K for specific product level net sales information.
Cost of goods sold in the fourth quarter included a onetime inventory reserve for spreads due to a single manufacturing batch that didn't meet the required specifications, resulting in a decline in the gross margin versus the third quarter.
Absent this charge gross margin in the fourth quarter increased 730 basis points over the prior year quarter.
Also on slide three.
Adjusted EBITDA for the fourth quarter was $17 8 million compared to $15 8 million in the third quarter, reflecting 13% quarter over quarter growth.
EBITDA in the fourth quarter represents the third sequential quarter of growth after adjusting for onetime legal matters and 118% increase over the prior year quarter.
Adjusted EBITDA for the 12 months ended December 31, 2021 was $48 8 million, reflecting $32.5 million or 200% growth over the prior year adjusted EBITDA of $16 3 million.
It is worth noting that the fourth quarter 2021 EBITDA has exceeded the full year EBITDA for 2020.
Summarized on slide four.
Adjusted selling general and administrative expenses in the fourth quarter were $10 1 million versus.
Versus $7 9 million in the third quarter.
Full year 2021, adjusted SG&A expenses were $48 1 million versus $73 1 million in 2020.
Reflecting a decrease of $24 9 million or 34%.
Excluding the net impact of onetime legal matters at $5 6 million recorded earlier in 2021.
Adjusted SG&A expenses were $42 6 million, reflecting approximately $45 million of savings versus the annual second half operating expense run rate in 2020, representing a greater than 50% reduction.
Net income for the fourth quarter was $4 6 million compared to the third quarter net income of $3 7 million in.
The full year of 2021 net loss was $1 3 million compared to a net loss of $28 1 million in 2020.
As was stated previously 2021 net income was impacted by one time legal matters expense.
A $5 6 million and also a loss of $3 9 million for the change in fair value of contingent consideration.
On December 31, 2021, our senior secured debt balance shown on slide five was $70 8 million.
On November one 2021, the company paid scheduled interest and principal of $9 7 million.
Also on slide five ending cash on December 31, 2021 was $36 8 million. The net decrease in cash of $21 9 million from the September 32021 balance of $58 7 million.
It's primarily attributable to the initial payment of $18 million on December 15th 2021 for the acquisition of Otrexup and other working capital changes in the fourth quarter.
As of December 31, 2021, the company's net debt defined as senior secured debt less cash to trailing 12 month adjusted EBITDA ratio was 0.7, reflecting a substantial reduction from a ratio of 365 at.
At the end of 2020.
Net cash provided by operating activities as reported in the company's statement of cash flows for the fourth quarter was $4 1 million, reflecting the third quarter of positive operating cash flow.
For full year 2021, the company generated $5 5 million of operating cash flow was $8 8 million generated after the completion of our restructuring in the second half of 2021.
This amount includes nearly 10 million for onetime legal settlements and the extension of the Indocin supply agreement absent. These payments the operating cash flow generated in the second half of 2021 was approximately $18 8 million.
As was stated on the prior earnings call, we had been expecting and.
Income tax refund of $8 3 million in the fourth quarter of 2021, which has continued to be delayed due to IRS processing.
If this tax refund is further delayed it will impact our operating cash flow in the first half of 2022, because there are other our large outflows such as interest payment on our secured senior secured debt.
And timing of inventory purchases that are expected in this timeframe.
On an annual basis, we expect cash flows to be positive, but due to the timing of working capital and interest payments the quarterly operating cash flows will fluctuate.
Lastly, our annual guidance for 2020 to summarize on slide six is as follows.
Product net sales of $126 million to $136 million and adjusted EBITDA of $64 million to $72 million.
The guidance for 'twenty, two 2022 reflects the following factors.
And it's a net sales growth driven by favorable pricing, partially offset by higher mix and discounted channels.
The addition of Otrexup sales and expenses.
Initial sales of our trucks that were delayed to late January 2022, due to the high level of channel inventory that existed at the time of the product acquisition on December 15th 2021.
Also reflected in the guidance or the loss of exclusivity for <unk> in March of 2022.
Increased rebates and discounts to maintain managed care access for Cambria.
And finally, the discontinuation of Saia matrix sales.
Overall, we are very pleased with how the business has performed in 2021 through the efforts of our dedicated and committed team. We are very optimistic about the outlook for 2022, and we continue to focus on positioning <unk> for long term sustainable growth.
And now I'll turn the call back over to Max.
Thank you Paul.
At this time can we open the call for Q&A. Please.
We will now begin the question and answer session to ask a question you May Press Star then one on your touch timeframe.
Using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two now this time, we will pause momentarily to assemble our roster.
Our first question comes from Scott Henry from Roth Capital. Your line is open.
Thank you and good morning, a couple questions first on Indo sin.
How should we think about the duration.
The pricing power for that product are obviously prices has went up.
Would you expect that could be.
What what sort of duration do you think is reasonable to think about there.
Hi.
In terms of our ability to continue I would say well how do you do you think it will bring new competition, yeah, how how long do you expect before you see you start to see competitive factors there.
So okay. So we don't think that this.
The price the net pricing benefit that we experienced here in the fourth quarter is something that attracts.
Potential new competition.
Or attracts it more.
The product has been attractive in the past I think it continues to be and the fact that it's been branded as long as it has speaks to the difficulties in.
<unk> and other things that prevent people from from competing with this product.
Okay.
Hi.
I guess shifting gears, Dan you spoke a little bit about this orphan drug.
That's meant that the company has I I caught a lot of that but I missed a little could you just talk about that asset and how we should think about it in and what kind of you know.
Value that asset could have.
Yeah, it's it's for ultra rare condition called neonatal until viral sepsis and it affects its a seasonal disease typically June to October .
Affects about 7000 newborns a year.
And these are children, who in most cases contract and antero virus during birth.
And because of weakened immune systems.
The disease can be can be fatal.
These babies when they present to the hospital or severely ill with many of them having to go in right away on Ecmo.
And this product would be the only available product for this disease.
And it's the data shows that it's life saving so it's a very important medicine that we want to be part of bringing to market not only financially, but also strategically for this company. We think this would be an ideal asset for us to be promoting.
Which is why we got into this investment in the first place and.
At a minimum it will come with seven years of hatch Waxman exclusivity and if approved it would also come with a priority review voucher.
Okay, and what would the timeline be in terms of.
Approval.
So we thank God.
They've had some delays the CDC is an important ally for them and testing a lot of their samples.
And as you can imagine with Covid. The CDC has been a little backed up.
So.
They're a little delayed and when they had had had expected to file this with the FDA, but they are still indicating that there's.
We're on time to be able to file with the FDA in the second quarter of this year so tip.
Typical review times and this is for these types of assets in the six to 10 months, depending on if FDA has any questions. So there is a chance that we could see approval.
By the end of this year and certainly it's on the path to be ahead of the next.
Next season in 2023.
Okay great.
How do you think about kind of.
Peak revenues for for a product like this I don't know if you can think of just.
General terms, but just trying to get a sense.
Yeah. So.
I think that's a it's a very relevant question. The question really comes down to what do you think the pricing could be.
We haven't completed our pricing work for this yet, but we think that if you just look at other similar products, it's not a stretch to assume that you could get.
Get.
Pricing on an annual basis north of $200000 a year that is not an uncommon thing in this type of environment, whether or not that's true for this product is yet to be seen.
The the net pricing can be very attractive.
Okay, and how many patients are there typically treated in a year.
We think the annual the annual occurrence is about or incidence is about 7000 patients a year.
Okay.
And as far as certiorari economic participation.
How should we think about it is it do you.
I thought you said you have 12% of this asset is is that correct and are is there any other component with regards to your participation.
So today, it's currently it's on our balance sheet and a form of a convertible note.
And carry debt right now half of our original investment.
So.
The the way this investment works is upon FDA acceptance of their NDA.
That note will convert into equity.
So right now on the current timeline we.
We're expected to convert into what looks like 12% equity ownership like you had mentioned.
Their timelines are delayed.
There is interest that accrues on that note and there's a chance for our interest to our economic interest to go up above 12%, but we'd rather see this come to market sooner than later.
Okay, and then are there any royalties involved or.
You just said that 12% is how we should think about it.
Just that 12% right now.
Okay.
Great very interesting.
I guess, just a couple of more quick questions Otrexup.
Now that you've got cut.
A couple of months under your belt any surprises there or is that asset.
Meeting your expectations.
No as I said in my prepared remarks, everything is going well the assets meeting expectations.
And.
I'm really excited about.
Getting it into our commercial engine further.
So that we can start to see what we can do with it.
Okay, Great and then I guess the final question, which is sort of a big picture question relative to the virtual model you know I felt like when when you started out with this strategical initiative that they thought they would be without the face to face promotion.
You would have a you don't Wanna erosion at whatever rate, perhaps 10% a year or whatever but then as it's turned out you have actually grown the prescriptions for for a lot of these products.
Yeah, how should we think about organic growth under this virtual model based on the data point you have so far.
I think that's a it's a very fair question and a lot of people who have answered it one of the reasons why we switched to this model wasn't necessarily.
Just because we thought we could grow it faster is more of the economic side of things. So we.
We don't see that.
Promotion, nor how you promote for assets like these.
Is the single greatest barrier for that growth or or.
Accelerator pedal for that growth.
The the one that is more important to you to spend more time and resources on is market access and.
Not only contracting with Pbms and.
Work senior deals with the wholesalers.
But also just in terms of building the infrastructure to deliver to patients.
We do with our hub in pharmacy network pharmacy design, where we can offer attractive co pay benefits.
So it's getting those.
Things right there could be the biggest governor of your growth. So we.
We don't.
Think that necessarily moving from in person to digital is what does that we think we just drive a better ROI on those investments.
Okay.
Great well again, thank you for taking all the questions.
I appreciate it.
Alright, Thank you very much Scott.
Again, if you have a question. Please press Star then one.
Our next question comes from Scott Weiner from <unk> Capital. Your line is open.
Thank you guys congratulations on the turnaround in 2021 really great job.
Uh huh.
Thanks, I've got a I've got a couple of questions one on Indocin.
Is there any.
An alternative to this drug in the marketplace and secondly, how can we think about the Tam and the size of the market as we look forward over the next couple of years.
Yeah.
So.
In terms of an alternative right now no there isn't.
The other there's other things that people have tried.
But the only thing that's available on the U S market is in December .
The the question about Tam and also I think about an alternative is.
It's really at the new possible indication for <unk>.
For Indocin that we're exploring right now which is the prevention of pancreatitis and ERC P surgeries.
There's about 400000 of those procedures done annually in the United States.
And at the current pricing.
Roughly $700 per procedure.
As a very attractive Tam in front of us so.
It's something that we're looking to.
See how fast we can penetrate into that market as well as how deeply today.
<unk> is recommended in its guidelines largely just for the high risk segment of that 400000 procedure market.
Which is about 20%.
Of that total.
Patient pool, the other two segments, which are moderate and mild account for about 40% to that market. So we think that the bigger opportunity here is just receive a broad label for this indication.
And then start promoting to physicians the benefit of the product not only in high risk, but also in moderate and low risk patients as well.
Okay.
So this drug has grown quite a bit since 2020.
And Theres no reason, assuming you can continue to penetrate that this couldn't be a $80 million to $100 million drive over the next couple of years.
It's certainly I'm at paths Scott.
Okay.
Regarding the refinance your comment was you're weighing proposals.
Can you give us some perspective on the timing do you think it's a first half 'twenty one type of an event.
And then what would the refinance look like would it be a straight refi of the debt with a lower interest rate with inclusive cash any color around that would be appreciated.
Yeah. So we are.
As I said when weighing some alternatives right now the.
The key thing and the timing is out and the execution has always been have we diversified the business enough.
On the top line and the fact of the matter is that Indocin on a quarterly basis still journeys as much revenue as we expected trucks up to do inside of our full year. So we need to keep that in perspective as we go out right now.
So like I said, we're trying to do the thing that is best.
For the business and for shareholders. The goal is to extend maturities reduce the cost of capital.
And ideally leave flexibility for business development.
That that is a.
Above all the the number one thing is making sure that we have the flexibility and additional financial capacity.
The ideal situation is a is a street refi of the existing term with a lender that has the ability.
<unk> to expand it.
And continue funding so.
So we can be able to bear.
Benefit from from future deals down the road and we certainly think that with now our guidance of <unk> $64 million to $72 million of EBITDA. The fact that we've reported two consecutive quarters of stable business and now growing business here in the fourth quarter.
That that will increase the confidence that these lenders will have in our business and their ability to.
To allow for leverage.
Okay.
Alright, Thank you very much guys.
Thank you Scott.
This concludes our question and answer session.
I would like to turn the conference back to 10%.
President and Chief Executive Officer for any closing remarks.
Okay.
Thank you.
In conclusion, 2021 was an important and transformative year for scenario. It has laid the foundation for growth in 2022.
I Trust you all know see why we're excited about the opportunities that lie ahead for <unk>.
We're scheduled to present next week at the Roth Conference on March 14th or we hope to see you can speak to some of you in person.
None of this could have been possible without the talented committed team and board we have here to Sergio.
All aligned and creating value for all of our stakeholders under the clear responsibility we have to patients' community.
Thank you for joining us this morning and have a good day.
The conference has now concluded. Thank you for attending you may now disconnect.
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