Assertio Holdings Inc. Q1 2023 Earnings Call
[music].
Good morning, and welcome to the a studio Holdings, Inc. First quarter 2023 financial results Conference call. All participants will be in listening only mode. After today's presentation, there will be an opportunity to ask questions.
Please note this event is being recorded.
I'd now like to turn the conference over to Matt Kreps from Darrow Associates Investor Relations for studio. Please go ahead.
Good morning, and thank you all for joining us today to discuss first quarter 2023 financials.
He is really covering our earnings for the spread now available on the Investor page of our website at Investor <unk>, TX Dot com.
For you to review the release and tables in conjunction with today's discussion.
With me today are Dan Fraser, President and CEO , and Paul Schwichtenberg, Senior Vice President and CFO .
Dan will open our remarks and provide an overview of the business followed by Paul who will review our financials after that we'll open the call.
For your question Darrin.
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.
All risks and uncertainties, including those noted in this mornings press release as well as <unk> filings with the SEC.
These and other risk factors 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 I'm, sorry, you asked specifically disclaims any intent or obligation to update these forward looking statements except as required by law.
I'll now turn the call over to Dan.
Thank you Matt.
I want to start by welcoming our long term shareholders, new shareholders and those that are considering investing in a certainty.
And my very first public call as CEO of a stereo short 26 months ago.
I laid out my go forward strategy and priorities.
My strategy was ambitious but necessary to put us on a path for success we.
We needed to develop a sustainable business model that repositioned the business to compete more effectively in a changing environment.
Improve our profitability and cash flow generation.
Improve our balance sheet and reduce our cost of capital.
And to add new products to diversify our business and extend the portfolio's duration create internal opportunities for growth and mitigate or legacy legal uncertainties.
The recent announcement of the acquisition of spectrum Pharmaceuticals, and their key asset roll. The Dot was just one of the many tactics that we've completed and the aim of achieving that strategy.
Good to say that by the time, we close the acquisition currently expected to be sometime this third quarter we.
We will have largely check the box and everything we set out to do.
I want to offer a heartfelt. Thank you to not only the executive team, but to all of the employees of a stereo who have worked so hard in helping us achieve our goals.
After the close of the acquisition will have a business aligned with the realities of the business environment of today and the future. We're contracting in market access are critical to success as opposed to pure sales force size.
In addition, we'll soon have complementary digital and in person promotional platforms that we can continue to add products into providing further value to patients our customers and our shareholders.
The execution of our strategy has had the most profound impact on our balance sheet today.
On March 31, we had $68 6 million of cash and $40 million of long term debt with a 2027 maturity.
This is the first time, we've been in a positive net cash position since March 2020.
For an even more dramatic comparison in December of 2021, Paul and I took over as CEO and CFO , we had $28 million of cash and $85 million of debt maturing early 2024.
And just a little over two years, we flipped from net debt to net cash.
Positive swing of almost $94 million.
Extended our maturities by three and a half years reduced our cost of debt from 13% to six 5% and achieved this all while spending $60 million in cash to acquire two new assets with patents extending into the 2030.
This was a strong first quarter for a studio.
We started with a $5 million hole due to velocity of exclusivity for bolt cambium is absorbed and the discontinuation of the salary matrix product line.
Instead of declining net product sales grew 18% versus the prior year quarter.
Growth in <unk>, and the addition of <unk> and more than made up for those losses, we entered the year expecting to see some of the normal seasonality in our business affect our top line, but it didn't materialize to the extent, we thought and the products outperformed our demand forecast, including Cambria.
Adjusted EBITDA also grew 7% year over year, maintaining our margin at 60%, while making investments in our non personal platform and putting marketing effort behind our two newest products and symposia on otrexup.
As a result of the strong performance this quarter, we're increasing our full year guidance for both net product sales and adjusted EBITDA. We now expect net product sales to be $157 million to $167 million representing growth of one 2% to seven 7% versus the prior year.
And adjusted EBITDA to be between 90 and $98 million those numbers do not include the full potential benefit of the ASC guidance change on Anderson or our spectrum acquisition.
In the first quarter industry volumes are flat with the prior year quarter net product sales increased 42%.
98% of this growth was from the channel strategies, we executed in the fourth quarter last year, where we have dramatically improved our gross to net on this product by eliminating noncommercial discounts.
We've also begun to roll out awareness campaigns about the recent guideline changes from the American society of gastrointestinal endoscopy or a S. G.
The first was an email campaign in mid April which was well received but it's too early to see if the additional awareness has or will change any behavior.
We also recently attended an important medical conference. This last weekend to conduct some advisory boards as we plan. Our next effort, which is just sponsored a continuing medical education program that is expected to launch in July we've.
We've increased our outlook for innocence slightly in our revised guidance based on trends, but it's still too early to say definitively if there will be a material increase in demand as a result of the change in treatment recommendations from the ESG.
We remain focused on our lifecycle extension efforts for Henderson, primarily our label expansion strategy for the prevention of pancreatitis and E. R. C P procedures.
We announced the appointment of Dr. Howard Franklin, our SVP of medical in early March.
Dr. Franklin has been busy working with the bio statisticians and incorporating the feedback we receive from our pre IND meeting with the FDA.
We now believe that we need to go back to the FDA and seek some clarification through a type b meeting request before filing the IDE.
This will delay the R&D submission however, based upon our revised timelines, we still expect the IMD approval sometime later this year and we still have the same expected $3 million to $4 million of clinical spend in the back half of this year included in our adjusted EBITDA guidance as we did last quarter.
Symposium is performing well so far with the expanded promotional reach and frequency from our non personal platform.
In our first full quarter with the product we achieved record quarterly prescription demand looking at tier X count as measured by Symphony Health, We beat the previous record in the third quarter of 2022 by one 5% and beat the prior year quarter by seven 3%.
The March 2023 Tier X count was also a new monthly high beating the previous peak in August of 2022 by 2% in the prior year month by eight 2%.
While one month does not make a trend this new high is important since the comparison is to a peak before the sales force disruption and transition to non personal promotion.
In addition, our ex factory shipments this quarter were 7% above the previous peak and we're starting to see a mix shift towards the higher strengths, which come at a higher ASP further benefiting revenue growth.
I'm sure our friends at a quest of who develop this drug will agree that to date, we're just scratching the surface of this drug's potential.
As we continue to learn more about this market and the role <unk> can fill we're getting more excited about its potential will give investors more clarity on what we think that potential could mean as we improve and refine our longer term plans for the product.
And finally, turning to our pending acquisition of spectrum, which released their results for the quarter earlier today.
They reported 54% sequential sales growth to $15 6 million in the first quarter.
That team is clearly doing a tremendous job with the launch of rolled it out.
What's great about that number is that a integrated under a serious platform. Ramadan is now recording revenue at an annual run rate that would be nearly breakeven for adjusted EBITDA. Since we expect to only bring over approximately $60 million of operating expenses from legacy spectrum.
Our number one priority is it meticulously planned integration of spectrum into a Sergio after closing to ensure the continued successful launch of OIBDA.
The combination of these two companies increases the business development opportunities, we can pursue and effectively commercialized.
Our business environment has been moving more towards one of contracting and market access as contrast to the historical share of voice and.
Both spectrum and as Sergio and position themselves in this manner.
Bind were stronger than apart.
Now with both digital and personal promotional execution.
We believe that oncology is an area that is both receptive to non personal communication and has many assets that fit our objectives of size growth potential patent protection and exclusivity.
Analogy offices, and clinics, where almost forced to adapt to non personal communication during COVID-19 because of the immunocompromised nature of their patient populations and the importance of guidelines like N CCN and setting treatment algorithms.
There are many interesting patent protected commercial and late stage products in oncology and supportive care that are below the size of large farmers purview.
The combination of the two companies doubling down on our contracting and market access capabilities and optimizing the strengths of each other's promotional platforms is what opens the door to a larger M&A opportunity set.
With that I'll turn the call over to Paul.
Thank you Dan This morning, I will review the financial highlights from our first quarter of 2023.
For full details please refer to the tables in financial statements in our earnings release and 10-Q.
Net product sales were $41 8 million for the first quarter of 2023 compared to net product sales of $35 5 million in the prior year quarter, and $49 9 million last quarter the increase in net sales versus the prior year quarter.
This is primarily driven by indecision and the addition of sympathy.
Which more than offset the expected declines in cambiata ends absorb.
And it's in family net sales in the first quarter increased by 42% over the prior year quarter, primarily due to a volume mix shift to more profitable channels.
Otrexup in sympathy and combined net sales for the first quarter were $5 3 million.
<unk> achieved its highest quarter of unit sales volume in its history as we are seeing a positive response to our sodium digital promotion model.
Overall portfolio net sales were up 18% versus the prior year quarter. Despite the can be a loss of exclusivity on January one.
Gross margin as a percentage of product net sales was 86, 9% in the first quarter.
Versus 88, 2% in the prior year quarter.
The decline in margin is partly due to a shift in product sales mix as a result of the can be a loss of exclusivity along with a one time inventory reserve recorded in the quarter.
We continue to remain focused on profitability across the portfolio and we expect gross margin to remain in the high eighties throughout the remainder of 2023.
Adjusted EBITDA for the first quarter was $25 6 million compared to $33 4 million last quarter and $23 9 million in the prior year quarter.
The year over year increase was driven by a $6 2 million of additional product net sales, partially offset by higher selling general administrative expenses due to increased sales and marketing expenses for otrexup and simply that.
Adjusted EBITDA margin reflected as a percentage of total revenue in the first quarter was 63% versus 65, 3% in the prior year quarter.
The first quarter non-GAAP adjusted earnings per share was 29.
Versus 32 cents in the prior quarter and 38 in the prior year quarter.
Please note that earnings per share is calculated using diluted shares including the <unk> converted impact of the convertible notes as is required under GAAP.
The full weighted additional dilutive share impact is $14 5 billion shares in the first quarter.
Adjusted selling general and administrative expenses in the first quarter were $11 9 million compared to $11 1 million last quarter and.
And $9 5 million in the prior year quarter.
The increase versus the prior year quarter is primarily due to additional costs for both <unk> and otrexup along with personnel costs due to new head count additions.
Net loss for the first quarter was $3 5 million compared to net income of $88 6 million last quarter, which included an $84 million tax benefit and $9 1 million in the prior year quarter.
The first quarter net income was impacted by $9 9 million of expenses related to the convertible debt exchange.
A $7 5 million noncash increase in contingent consideration associated with future Anderson royalties as a result of continued sales growth.
And increased operating expenses, primarily reflecting $2 4 million and transaction costs associated with the acquisition of spectrum Pharmaceuticals as announced on April 25 2023.
Yeah.
Net cash provided by operating activities as reported in the company's statement of cash flows for the first quarter was $22 7 million versus $26 7 million last quarter, and 27 4 million in the prior year quarter.
The year over year decline in operating cash flow is due to an income tax receipt of $8 3 million in the prior year quarter, partially offset by improved financial performance versus the prior year.
This quarter like those that have come before it shows the continued cash generation power of the business and the quality of our reported adjusted EBITDA measure and predicting the cash generated by the business.
Ending cash on March 31, 2023 was $68 6 million, reflecting a $3 7 million increase versus the prior quarter.
Despite making a $10 5 million cash payment in conjunction with the convertible bond exchange that was executed during the quarter.
This convertible bond exchange will save the company $2 million in annual interest payments.
On March 31, 2023, our long term debt balance was $38 2 million, reflecting the $40 million of convertible debt balance less unamortized debt issuance costs.
Lastly, our updated annual guidance for 2023 is as follows.
Full year product net sales are expected to be $157 million to $167 million and adjusted EBITDA is expected to be 90 million to $98 million.
Our updated guidance for the full year 2023 incorporates the Q1 actual results and reflects the following factors.
One favorable indices and price due to continued volume in more profitable channels.
And higher volume for Edison, partly due to the updated <unk> guidelines and to higher <unk> volume due to the initial success of our digital marketing activities.
This guidance does not include the financial impact, resulting from the recently announced acquisition of spectrum Pharmaceuticals.
Our guidance will be updated after the transaction closes sometime in the third quarter.
It is again worth noting that because of our commercial execution and strategic actions in 2022 or 2023 updated guidance reflects a net product sales increase over 2022, despite the loss of exclusivity on can be.
Which was our second largest product.
The first quarter results once again show the positive impact of our commercial and operational execution and we look forward to the transaction close and integration of spectrum later in the year, which we expect to further strengthen our results provide product diversification and continuous <unk> journey toward long term.
<unk> growth.
And now I'll turn the call back over to Matt.
Yeah.
Thank you Paul.
At this time, we have completed our prepared remarks from the management team and we'll take questions from our research analysts and institutional Investor community.
Operator can you please provide the instructions for Q&A from our listeners.
Thank you if you have a question. Please press star one on your telephone keypad.
Wish to remove yourself from the queue simply press star one again and again that is star one to ask a question.
And your first question comes from the line of Thomas Flaten with Lake Street Capital markets. Please go ahead.
Hey, Thank you I appreciate you taking the question congrats on the quarter.
Dan I was wondering if you might be able to provide some more color on the.
Upcoming meeting that you're going to request from FDA.
Was there something in particular you saw there.
I'm wondering if you could give us some color on the on what Youre looking for input.
From FDA.
Hi.
Thanks.
US providing them with additional information to see if we can avoid some of the things in their original.
And feedback.
One of those specifically would be.
We do not or would not like to do the dose ranging.
They had suggested so we're going to be providing them with some additional information to see if we can eliminate that from the clinical trial design, which would allow us to enroll it and complete it far quicker.
Got you.
Then switching over to <unk> I'm, just curious on kind of a same store sales basis is the growth youre seeing from from traditionally productive accounts or are you seeing any impact from maybe non touched accounts under the request of model.
I don't have any information on that do you like on existing prescribers.
Have any specific information that we can get back to you on that Thomas and check with our sales team on that.
And then just finally I think you guys have your AGM tomorrow and is it safe to assume that the merger vote will happened at that meeting and then secondly, any insight into when spectrum might be planning their AGM I think last year was in June .
The the AGM is not going to address the spectrum acquisition. It's just the information that was in the proxy that was provided to shareholders in April .
We will be submitting a new S. Four.
Here in the coming weeks that is in combination with spectrum.
And we will be having a shareholder vote.
In the late July early August timeframe.
Got it I appreciate it thanks guys.
Your next question comes from the line of Scott Henry with Roth Capital. Please go ahead.
Thank you.
Good morning.
Congratulations on quite a run these past couple of years.
I did have a couple of questions.
First.
I guess ill ask.
Start.
With the income statement. The SG&A number you talked about why it was a little higher in the quarter.
My question is was there any one time noise in there or is that kind of number we should think about.
Going forward.
Scott There were a couple of differences.
Differences in the quarter there was the onetime charges I mentioned related to simply the or I'm, sorry, the spectrum acquisition.
And then the other is just the timing of stock based comp.
The annual grant this year was in February last year was in May So theres, a little bit of a timing difference there.
Oh Thats driving it and then the rest is going to be the sales and marketing expenses that I mentioned related to otrexup incentives out.
Okay, great shift.
Shifting gears Ramadan it looks like.
A really good quarter for spectrum.
As far as you know and I know, it's not your product right now.
That a clean quarter, meaning.
Is there any stocking in there or is that a pretty good demand base quarter for for where the launch that currently.
From what we know of it from conducting diligence its a good clean quarter.
It reflects demand.
Okay, Great I appreciate that and then.
I don't recall, if you could you talk about what kind of gross margins we should expect.
For roles at least relative to your current business.
The robot on gross margins I think are going to be in the high 70% 80% range.
Okay.
Great.
Scott I'm, sorry, let me, let me clarify that point I'm sorry.
<unk> is going to be the the margins on rollout.
Okay.
Perfect. Thank you.
Shifting gears.
Rick how should we think about that.
Not just this year, but next year and the following year.
How do we think about that franchise from.
Growth standpoint.
It's a good question.
It's clearly.
Product or on our list, but it requires a heavy lift.
There's a lot of things that need to be done.
I called break medical and nurse.
And think about this one a little bit differently, we need the number one thing that we need to do to improve sales here is improved market access.
It's got very poor coverage today I think lesson.
Less than 15%.
Of covered lives are of lives are covered for this product so.
It is incredibly important if youre going to be getting in acute pain med.
It would be reimbursed and paid for so we've got a a very.
Effective.
I guess patient access program in place.
However, it also becomes expensive if you start growing the product.
So we need to look for things that are outside their traditional routes to increase coverage for the product.
Some of the things that we're exploring also include a price decrease for that product. So we haven't come up with all the answers yet Scott, but right now it's it's been bouncing and that's what.
Roughly.
Hello.
Sorry, Mr. Pitzer your line cut out.
Yeah.
Are you still there.
Yeah.
I am still here Scott Henry.
It looks like we May have lost that line give us just one minute here.
Okay.
Okay.
Yeah.
Okay.
Yeah.
This is the operator, I'm just going to place.
The call on a short music hold while we rejoin the.
Speakers at this time, thank you for your patience.
Yeah.
Yeah.
Okay.
Okay.
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Thank you everyone for standing by.
Please continue.
Sorry about that everyone, we had a little technical difficulties our equipment shut down.
Yeah.
Are we ready for the next question.
Yes, we're ready.
Your next question comes from the line of Mag, Ma'am, Kenny with B Riley. Please go ahead.
Hi.
Hi, Yes. This is William on for my own congratulations on a great quarter as well as the recent spectrum acquisition a couple of questions from us.
Maybe.
When thinking about the continuing the early impressive growth of brokered ongoing forward could you discuss your strategy for maintaining the growth of your targeting clinics three three for you being in the non 340 <unk> hospitals.
How do you view, having a J code in place will make them more competitive in your execution.
Then one follow up.
So we.
We don't anticipate doing anything different.
The targeting that they've done we think is.
Is right on point.
And if anything what we intended to do is help them reach a broader number of clinics sooner.
And without increasing additional operating expenses so well.
By pairing there in person promotion with our non personal platform. We think we can target a far greater number of clinics than just what you are limited to by geography.
With the current sales force that they have.
So right now we don't intend to do anything different and the J code. We think it just makes it facilitates reimbursement makes things easier so.
We were very excited to see that went into effect on April 1st and where we're looking forward to closing this acquisition. So we can help them out.
Got it.
Then also just in regards to your U C. Dr related milestones for 2000 and 425.
Just curious your level of confidence on meeting these and also could you remind us if there is if there is.
Our CVR milestones for 2023, that's in place.
There is no 2023 milestone.
And.
We're not going to be giving forward looking guidance our confidence for what we think this product can do in 'twenty four 'twenty five at this point.
Got it I appreciate you taking our questions.
Good luck with the best of luck with the continued success.
Thank you very much.
Ex question.
Sure.
My apologies. Your next question comes from the line of Hamed <unk> with BW with financial Please go ahead.
Hi, So the first question I had was about <unk> and <unk>.
Is it still too early for you to see what the kind of impact or benefit.
New guidelines from a S E G is having for you.
Yes. It is it's too early to see it to we still see the product performing inside a statistical control.
What it's been doing.
24 36 months.
And what's driving the <unk> sales increased for you is that because of what you have undertaken ever since you acquired it or is that was that in place before you acquired it the successfully that scene.
The product had been on a growth trend, but it was slowing as they they were essentially losing reps.
And then I believe they exited the salesforce or slower.
In September timeframe so.
To see it actually performed well and hold in there without much disruption and then start to set new quarterly and monthly peaks.
Here in the first quarter was an incredibly encouraging and so far all signs are that the.
The increased reach and frequency of our promotion is starting to drive awareness and uptake of the product. So we're excited about what we can do with us.
And my last question was just about having.
<unk> samples.
In Q1.
How does that build momentum for you going into Q2 and are you expecting any momentum in sales for Otrexup now that you have samples available.
It's certainly going to help.
I can tell you is I've been actually pretty pleased with the first couple of weeks of April .
We have data on it's not.
Going to double this product or anything by any means but.
It has been coming in in the first at least the first couple of weeks in April a little bit ahead of our trends volumes were fine.
Better in the first quarter, but it was a gross to net hit most of those volumes came in more.
More discounted channels.
Okay. Thank you.
Your next question comes is a follow up and comes from the line of Scott Henry with Roth Capital. Please go ahead.
Thank you just a couple of technical questions around the merger you may not have the answers but.
Given that its a merger will there be any amortization expense here that'll be added on from this transaction.
Okay.
There should be but I don't.
Have a good handle on what it will be we can give you that later Scott.
I assume we'll get that post the transaction.
And then as well.
I'm looking at putting could doing a joint model for the company.
Even though the vote still has to happen when we think about total shares outstanding.
I mean, it looks like we should be thinking about $110 million and am I in the ballpark there.
We currently have so let me just give you the high level.
Right now we have $55 6 million shares outstanding as of March 31st.
I can't give you the exact share count that's kind of our the increase in shares that's going to result from the merger that will be released on when we release our S. Four.
But very big picture, you could take the spectrum outstanding shares and divide it by the exchange ratio to get an estimate of what those additional shares will be.
I don't think it would be.
Diluted.
Correct.
Okay, great and.
I guess just final question.
Companies, making money pretty regularly now how should we think about 2023, but in 2024.
Do you expect it to be taxed at.
<unk>.
At around 24% at that point.
I assume you'll take a gain on the any tax losses, you still have how.
How should we think about that kind of next year.
Hello, Scott.
From a from a cash tax rate effective tax rate perspective, we're expecting it to be around 10% to 12% kind of low double digits I would say our book tax rate is going to be the federal and state combined rate of 25%.
Perfect. Thank you for taking the questions.
Thanks, Scott I'm, sorry, we interrupted you earlier.
Your next question comes from the line of Mitra Ram Gopal with Sidoti. Please go ahead.
Yes, hi, good morning, Thanks for taking the questions.
Congrats on a strong start to the year and Dan you certainly checked all the boxes in the two plus years, you've been there. So it's been a great job and.
Look forward to that continuing.
Just a couple of questions around the spectrum.
Pharmaceuticals transaction.
Sure.
And it might be getting a little ahead of myself here, but.
Do you plan to use their sales force.
To also sell your products or would it be strictly.
We're relevant on.
No it's going to be strictly for roll it out and we don't want to do anything to impact that launch.
We might be able to find it and we've already got some ideas of other products that we can acquire in the future that would fit with them.
Yes, I think the initial people that would likely be able to help both sides of the house from the spectrum side would be there.
Market access that contracting folks that work with both the payers as well as the clinics.
I think I see a good potential overlap between what they're doing and what we're trying to do in our business.
Okay, Thanks, and it sounds as though.
This is certainly the biggest deal youre doing.
Since you took over.
Business model, changing a little et cetera, it seems like there might be some heavy lifting near term, but by the same token you sound.
Pretty interested in pursuing additional BD opportunities is that fair.
It's fair, but don't get me wrong number one priority is making sure theres a successful integration of these two companies. So we're not going to do anything to.
Distract either team from that.
That's going to be the critical success factor for us this year.
Okay. Thanks.
And again it seems just from the raised guidance and the underlying business remains app.
It's in good shape, and obviously, adding on spectrum is a game changer.
Any potential headwinds that we.
We're missing here or is it pretty much.
Under control right now from your standpoint, just executing.
On the transaction et cetera.
Yes.
Theres not any headwinds that we're aware of.
We've been pretty keen it it's steering clear of them.
So there might be turbulence upcoming but we don't see any of that right now.
Okay. Thanks, again, great quarter.
Thank you Mitra.
There are no further questions at this time. So this concludes our question and answer session I would like to turn the conference back over to Dan Pizer, President and Chief Executive Officer for any closing remarks.
Thank you all for participating in our call today I look forward to seeing many of you in our upcoming trip to New York and Boston next week with Roth capital and at the Craig Hallum Conference in Minneapolis at the end of this month.
If you'd like to set up a meeting with US please contact Matt Kreps at Darrow as a final note I'd like to congratulate the Blackhawks and getting the first pick in the NHL Draft go Hawks.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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