Q2 2023 Assertio Holdings Inc Earnings Call
Good morning, and welcome to the Social Roading Holdings, Inc. Second quarter 2023 financial results Conference call. All participants will be listening only mode. After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded I'd like to turn the conference.
Over to Matt Creeps from Darrow Associates Investor Relations for assertion. Please go ahead.
Good afternoon, and thank you everyone for joining us today to discuss <unk> second quarter 2023 financial news.
A news release covering our earnings rest period is now available on the Investor page of our website at Investor <unk>, TX Dot Com I.
I would encourage you to review the release and tables in conjunction with today's discussion.
With me today are Dan Houser, President and CEO also Echenberg senior Vice President and CFO , and Tom Riga, outgoing CEO spectrum pharmaceuticals.
We closed the acquisition earlier this week.
Yeah, Hello, opening remarks to provide an overview of the business Tom will provide additional comments on the spectrum is walking around progress Bob will review our financials. After that we'll open the call for your questions.
During the 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 today's press release 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 particularly disclaims any intent or obligation to update those forward looking statements, except as required by law.
And with that I'll now turn the call over to Dan.
Thank you Matt.
Good afternoon, everyone and welcome to our new shareholders and employees from spectrum Pharmaceuticals.
The acquisition of spectrum marks a significant turning point for <unk>, providing immediate diversification of revenues is sustainable near term growth driver and long term patent protection.
The asset the commercial infrastructure and sales model are also aligned with our vision of where we can effectively operate in this competitive pharmaceutical landscape, our intelligent contracting and market access are the foundation of the go to market model.
I am extremely proud of what we've accomplished year to Sarnia and an internal employee memo following the shareholder meeting results I reflected on our situationally, three and a half years ago, whereas <unk> had just divested two assets to pay off its debt and was left with an extremely concentrated portfolio of just cambria ends absorb.
Today, those two assets together represent only 7% of our second quarter net product sales and only four 6%. If you include all of it on sales.
In that time, we've acquired two businesses and two additional assets and paid off $195 million of debt.
Our financial discipline and specifically our focus on cash flows is what has contributed to this success today.
Now with the healthier balance sheet and a growth asset that discipline will still be there to help foster this company towards sustainable growth.
We've proven we can manage through the ups and downs of loss of exclusivity and we built and now acquired a first class commercial team from spectrum that can only enhance our capabilities to grow assets and scale.
Now I'd like to turn the call over to Tom Riga talk about spectrum second quarter and why we are confident in its growth trajectory Tom.
Thanks, Dan and good afternoon, everybody. The launch trajectory of <unk> continues to be extremely positive and that momentum has continued in the second quarter of 2023.
Net sales for the second quarter were $21 million versus $15 six in Q1.
An increase of 34%.
This is the third consecutive quarter of exceptional performance and it is a credit to the execution of our experienced team ensuring roll. The dawn continues to be clearly differentiated as the first novel product to enter the long acting G. CSF space in over 20 years that is not a biosimilar.
This is a highly competitive market and our people are proving to be one of the most valuable assets. During this launch.
Beyond the strong Q2 revenue number we made important progress on customer growth in terms of breadth meeting the absolute number of customers using roll the Don and depth meeting same store sales.
Targeted accounts purchasing role the dawn increased 50% over Q1 2023 to about 300 in total. Additionally.
Additionally, we are seeing increased depth within accounts as customers become more comfortable with Ramadan unique J code and streamlined reimbursement process.
Through Q1 customer demand was primarily driven by the largest community oncology GPO, which represents approximately 50% of this segment's business.
In the second quarter, we initiated sales with the second largest GPL that represents approximately 40% of the community oncology business. This was very helpful. In the second quarter, but more importantly, as a growth opportunity going forward.
Our focused launch strategy is hitting its stride and has played out largely as expected.
The combined company as it moves forward there is additional opportunity to drive breadth and depth across the market.
At this point <unk> has approximately 2% market share of the overall long acting G CSF market, which underscores the tremendous opportunity ahead.
That said, we have been candid throughout that this marketplace is highly competitive and every sharepoint gained requires market knowledge of thoughtful and pointed strategy and exceptional execution.
As spectrum transitions to be a part of the <unk> and take the next steps enrolled <unk> growth trajectory every one of our employees should take great pride in the excellent Ramadan performance to date.
As I sign off and turn the reins over to Dan I must say I.
Im extremely confident in the team he has acquired and I've come to have respect for his leadership and the capabilities that are <unk>.
With that I'll turn the call back over to Dan.
Yes.
Thank you, Tom and I share your enthusiasm for the future for all of them.
Yeah.
Today, we're not able to provide guidance as we initially intended.
Learned a few hours ago. The FDA has approved a generic into Memphis and suppository.
When we issue guidance, we'd like to have as much information at our disposal as possible and now we believe it prudent to withdraw our outlook until we know more information.
Day, all we know is a single competitor was approved and they received CGT status, which means no. Other generics can be approved for 180 days.
We are not aware of their launch timing.
I can offer is that a <unk> is not afraid of this nor are we hiding from us. It has been well known that <unk> had no intellectual property property, nor exclusivity protecting it and generic entry risk was always in the background. So we have been preparing for it and we are ready to defend it.
One example of how we can defend as evidenced in our financials. This year.
As many of you know we lost exclusivity for Cambria in January of this year and three competitive generics entered the market. In addition to one authorized generic.
Normally in these situations the brands do not do well in the first six to nine months following allo.
However year to date, we've retained 36% to the prior year volumes and 34% to the prior year revenues, which is an outstanding result, when many of the analogs in a competitive market like this which suggest retention rates near 10% of volume and between zero to 10% of revenue because of reduction in customer inventory.
This is all due to the outstanding execution of our commercial team preparation for the elderly.
And the early identification that patient refills were still being covered by commercial insurers and.
And quickly utilizing the resources in our hub and our patient support programs to encourage a high refill rate and.
An example of our market access programs and strategy at work.
We're confident that we can do something similar with <unk> and in this case, we only have a single competitor in the analogs are far better than with four as was the case with Cambria.
I'll provide more details in his prepared remarks, but I want to comment on a few things as it relates to <unk> core business and also the second quarter performance.
When we acquired xylem one of the products that came with the acquisition was a former Eagle had product called <unk>, which is an abuse deterrent opioid.
A small contributor this product carries strong margins and cash flows because we put no marketing or sales support behind it.
Relative to its financial impact for this product from an operations viewpoint, it's been a challenge in both supply and DEA quota. So.
So we've made the decision to stop sales of this product have notified the FDA, we will discontinue axeda as a result, the company has officially out of the opioid business.
This decision will have a drag on our second half results and for reference we reported $1 $7 million in <unk> sales in the second half of last year.
I think this is an important decision for us as we Mark this new turning point in our history I'm very excited to announce that in the second quarter. We've made notable progress in the opioid litigation, where we are dismissed from a significant minority of Rnas cases, or what is commonly referred to as the baby opioid cases.
Now in aggregate, we've been dismissed from just shy of 40% of all of the opioid cases that have been filed against the company without paying a penny.
I think this speaks volumes about the companys potential liability and that our patients and defense strategy is being rewarded.
<unk> continues the trends I discussed last quarter, achieving new monthly and quarterly <unk> count demand peaks as measured by Symphony health as well as a mix shift towards the higher strengths, resulting in average higher average selling price so that our quarterly net revenues grew 5% sequentially.
Our first half of 2023 net revenues or just over $5 1 million for the product, which represents seven 1% growth over the prior year period reported by requested.
After a good start so far and they're starting to develop our longer term strategic plans for the product and have reasons for optimism about its potential.
We're starting to get back on track with Otrexup as we recover from the supply challenges, we experienced last year, our volumes are up 18% year over year and in the low single digits over last quarter. However, our net revenues were up 37% year over year and 27% sequentially as we focused on profitable volumes.
Direct contrast to our primary competitor who continues to report declining net revenues and Asps.
As they keep bidding contract prices downward to maintain market share. This is just one small example of what I described as our business strategy overall, we're smart disciplined contracting in market access are the building blocks of everything we do and then allocate our sales and marketing dollars sufficient.
Our efforts now shifts to the integration of spectrum and ensuring the continued launch trajectory of rolled it out.
I will now turn the call over to Paul.
Thank you Dan This afternoon I will review the financial highlights from <unk> second quarter of 2023.
My comments on the second quarter, except where otherwise noted will be on a <unk> standalone business excluding spectrum.
For full details please refer to the tables in financial statements in our earnings release and 10-Q.
Net product sales were $40 1 million for the second quarter of 2023 compared to net product sales of $35 4 million in the prior year quarter, and $41 8 million last quarter.
The increase in net sales versus the prior year quarter is primarily driven by Edison and the addition of <unk>, which more than offset the expected decline in <unk>.
And this <unk> family net sales in the second quarter increased by 23% over the prior year, primarily due to a volume mix shifts to more profitable channels.
<unk> and <unk> and combined net sales for the second quarter were $6 2 million, reflecting 17% sequential growth over the prior quarter due.
Due to strong volume and favorable channel mix for both products.
Overall portfolio net sales were up 13% versus the prior year quarter. Despite that can be a loss of exclusivity on January one.
Gross margin as a percentage of product net sales was 88, 1% from the second quarter versus 87, 2% in the prior year quarter.
The increase in margin is due to a shift in product sales mix day indecision.
<unk> carries a higher gross margin.
Adjusted selling general and administrative expenses in the second quarter were $11 4 million compared to $11 9 million last quarter and $8 6 million in the prior year quarter, which included a net benefit of $2 million from an insurance settlement.
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.
Adjusted EBITDA for the second quarter was $24 8 million compared to $25 6 million last quarter and $22 9 million in the prior year quarter.
The year over year increase was driven by $4 $7 million of additional product net sales in.
The SG&A expense changes previously mentioned.
Adjusted EBITDA margin reflected as a percentage of total revenue in the second quarter was 64% versus 65, 2% in the prior year quarter.
The second quarter non-GAAP adjusted earnings per share was <unk> 19 versus.
<unk> 29 in the prior quarter and 28 in the prior year quarter.
Again. Please note that earnings per share is now calculated using diluted shares including the if converted impact of the convertible notes as required under GAAP.
There were $70 1 million total diluted shares in the second quarter, including the fully weighted additional dilutive share impact of $9 8 million shares.
Spectra merger will add approximately 38 million shares.
Net income for the second quarter was $8 5 million compared to a net loss of $3 5 million last quarter and seven 8 million in the prior year quarter. The second quarter net income was impacted by $3 4 million in transaction costs associated with the acquisition of spectrum Pharmaceuticals.
Net cash provided by operating activities as reported in the Companys statement of cash flows for the second quarter was $18 6 million versus $22 7 million last quarter and $14 4 million in the prior year quarter the year over year increase in operating cash flow is due to increased net sales partially offset.
By higher operating expenses versus the prior year.
Ending cash on June 32023 was $70 2 million, reflecting a $1 6 million increase versus the prior quarter.
On June 32023.
Our long term debt balance was $38 2 million, reflecting the $40 million convertible debt balance less unamortized debt issuance costs, we did not take on any additional debt from the acquisition of spectrum.
Looking ahead. Please note that the third quarter results will be impacted by purchase accounting transaction costs and restructuring costs related to the spectrum acquisition on July 31.
And now I'll turn the call back over to Matt.
Right.
Thank you Paul Tom that Adam.
We've completed our prepared remarks, and we'll use the balance of our allotted time to take questions from our sell side analyst community.
Operator can you. Please provide the instructions for Q&A from our listeners and launched the first question.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
For just a moment to compile the Q&A roster.
Our first question comes from Thomas Flaten with Lake Street Capital markets. Thomas. Please go ahead.
Hey, good afternoon, thanks for taking the questions.
Dan given the uncertainty around interest and now I was wondering if you could comment a little bit on the risk spectrum staff Thats coming over did you have any vacancies in the field house kind of morale any kind of qualitative or quantitative for that matter thoughts you could give us on the team that's coming over given that raw baton now has become even more important at least in the near term here.
Yes.
I'll provide some initial comments and then Tom I'll open it up to you to so I've gotten to know a lot of this team we're taking over the whole entire team intact as is.
They're there as far as I'm aware there aren't any there is no vacancies, there's one position that will be filled to a new position that will be filled in mid August .
But it's been I am sure. The news today will be a little bit of a morale booster bump as it will be across the entire company.
But that shouldnt dissuade anyone from the success that they're having with the launch of <unk> and <unk>.
As Tom said the people here are the most valuable assets in the company and that doesn't apply just a spectrum of <unk>.
People are even more valuable now than they were yesterday.
<unk>.
We are going to put even more emphasis behind this launch and it is just as important to this company as it was before.
Tom any other comments about the commercial team.
No I think you said Thomas first performance.
Norman speaks for itself, but outside of that this is a rock solid group of people that know what they're doing.
<unk> their resilience and they play to win so I expect that will continue.
It really starts with leadership and I think Dan is adopting an exceptional leadership team and I think they will then will thrive.
And then Dan any any thoughts on <unk> for 2023 of the calendar year, I know that fits kind of adjacent to the to the legacy business, but I think if in any thoughts you can show an expectation set I I know youre not providing guidance for the whole business, but maybe that product as a standalone.
So Thomas we have Theres, a point estimate that <unk> put in the S. Four and I would tell you that.
I don't think our opinion of the launches has changed too terribly much from from that estimate that we put out in the S. Four.
Other than to say that it has been tracking slightly better than our original expectations.
Got it and then one final one if I might given the into some news any preliminary thoughts on how you might proceed with the planned study in moderate <unk>.
<unk> patients moderate risk yes.
That's a very very good question and I think appropriate and it's something that we're evaluating.
Yes.
We had been evaluating options as it regards to a regulatory strategy anyway, I think with the news today, we're going to so I'll be upfront.
The lifecycle management.
Option that we had was a different dosage strength of this product.
That is more convenient for an <unk> procedure I think with this news today, what we might be looking to do is find a way to accelerate that to market.
And there are some backup options that we had before that did not bring in exclusivity option with them and those might be something that we start to accelerate but that's obviously something that we as a management team and have to discuss and align with our board before we make a decision.
Excellent I appreciate you guys, taking the questions. Thank you.
Your next question comes from my Uncle Montanan with B Riley.
Please go ahead.
Hi, This is Brendan <unk> on for Mike Thanks for taking our questions.
Congratulations on closing the spectrum acquisition so.
Ted.
The robot on performance seems to be tracking ahead of plan.
Just wanted to see if you could comment on the sort of long term cash flow unit dissipate.
<unk> alone basis, recognizing there is a balanced mix of commercial and digital spend you intend to have.
And what's the incremental Opex, we should expect which is important in light of the uncertainty with the top line being called.
So Paul and I will have to.
Yet another reason why we pulled guidance was what is going to be the operating expense in the base business.
The what we anticipate bringing over now we had originally assumed $60 million of operating expenses from spectrum in our when we announced the deal.
Now as we're through most of the integration work and planning process. We're now anticipating that that's going to be $55 million of incremental operating expenses.
To operate that asset on our platform. So the big question that is still open now is what is the base of <unk> operating expenses. So.
I can't give you a go forward, but I know it is going to be incremental 55 overall bid on.
Sure Okay.
And maybe it's.
Following up on the question about integrating the two teams there.
I know that you are sticking with the spectrum gain plan and the commercial team.
And then layering in the associated digital platform on top maybe.
You just get some more color on how that integration is going.
Hello.
I would tell you the planning was I would say flawless they did an amazing job in coordinating together to plan this integration.
Ed.
When it came to the commercial side.
Because we are pulling over the entire team and we're not trying to disrupt anything.
It's little things like that.
How long do we get to keep our spectrum email address and if we want to.
Launched new marketing materials.
Which which promotional review committee do we go to so it's not massive disruption it's minor disruption.
So the commercial changes shouldn't be large and.
The overlay of the digital.
It does not have to happen right away that is going to be probably more towards late this quarter. The planning part of that is going to happen.
As we speak and then later this quarter early next quarter is when that will actually start taking place.
There is plenty of activity as Tom said.
He just opened up a new GPO.
So there is there is plenty of growth avenues open for that team right now before we start throwing more Adam.
Okay sure.
Maybe just one quick follow up.
No I think you mentioned in the past.
So I guess, we're going to expect to.
Synergies from the digital platform being later layered on top of a later in <unk> you said.
Yes.
Just wondering if you could comment on what kind of synergy. We're looking I think previously mentioned opening up new geographies for overdone I'm wondering if there's anything additional to that.
So just to.
Okay.
What I think might be correct, something you said I wouldn't look at this the digital platform as a synergy maybe a revenue synergy, but not an operating expense synergy we're not going to be using that the digital platform as a way to reduce.
The current spectrum, it's going to be add on to it and enhance it and hopefully.
Go go to areas or geographies as you said that they are currently not able to go to so.
That is what our current revision of this is.
And to.
To be able to possibly accelerate the launch.
And in that manner.
Okay.
Thanks for the color and thanks for taking the questions.
Appreciate it.
Our next question comes from harmonic croissant with Dws financials.
Please go ahead.
Hi, So first off just wanted to see.
How closely are you aware this was happening and what are your expectations.
How this would be your competitor would be able manufacture this.
Generic and be successful in launching in the U S.
I would say we were not aware of this at all of this came as a complete shock and surprise.
So the last.
Last we had heard of this potential competitor they were working on 100 milligram dose.
And.
We had thought that they were done so.
<unk>.
We were not aware that they were at the FDA. The fact that they had competitive generic therapy approval tells you. It was an accelerated approval. So it was relatively quick so.
This came as a complete surprise to us.
What preparations are you, making as far as just being able to retain market share.
Close to the market share just given.
A potential generic coming in.
We have been making preparations for that ever since I took over as CEO . So for the last three years, we've been making preparations for this.
I'd, rather not tell you on an open conference call. What they are I appreciate that you'd like to know what they are.
But I don't want Zaidis, who is likely listening to be aware of what they are.
Fair enough I guess.
Question I had was.
Given the guideline.
Guideline changes have you seen any of the market expands.
Where are you seeing demand if any.
So we haven't we haven't seen it so one of the things that we were going to talk about was some of the market research that we had been doing in some of the other.
Weariness campaigns that we had launched there was a.
The continuing medical education.
Hi.
Program that we had funded just launched on July 26th and we had something like a 1000 viewers of it on day, one so we're pretty excited about that.
The market research that we had done in the quarter, we surveyed a bunch of physicians and we had what was it Paul.
With a 90% were unaware of the asce changes so that led us to believe that there is some good opportunity for awareness so.
We believe that there is some good opportunity awareness and reasons to be hopeful but that whole section of the prepared remarks was removed today.
Okay I appreciate it thank you.
Okay.
Yeah.
Our next question comes from Jim Sidoti with Sidoti <unk> Company, Jim. Please go ahead.
Afternoon, and thanks for taking the questions.
The $55 million of operating expenses, that's coming on can you can you break that out is that primarily SG&A and can you.
Just break out what's SG&A, what's R&D.
Of the components.
Yes, sure Jim I can give you a breakdown of that break it down to 50 $55 million about $40 million is going to be sales and marketing.
The team that we brought over as Dan mentioned above.
About $12 million as G&A, including a variety of functions QA manufacturing and other back office and about $3 million as R&D.
Okay.
And as you said earlier, you've been through this before with Cambria and products coming loss of exclusivity.
How how goodwill you were predicting what happened with Cambria and do you think you're better now and do you think you'll get a better handle on what will happen within the same over the next few weeks or how long do you think it will take.
But in terms of the timing can be it wasn't known low event, we had their paragraph four settlements. So we knew everyone has come on January one of this year.
But we have been preparing so basically running war games here internally as if it was coming tomorrow.
So while I would tell you. This was a surprise in terms of timing the team is ready and.
Ready to go and responding as we speak.
Alright, thank you.
Our next question comes from Scott Henry from Roth Capital Scott. Please go ahead.
Thank you and good afternoon, and I apologize I missed a lot of the call.
Some had some phone problems during travel.
But Dan I did want to ask Ian just about and US then when we think about.
Potential generics.
Do you think the distribution channel were impacted when we compare it to that.
Potential competition relative to other more traditional products.
If at all.
Hi.
I'll try and answer it the best I can Scott.
The analogs that we look at there is multiple ways you can look at in analog.
And in a generic erosion and one of which is one entrant versus four as in the case of camber and it certainly erodes.
Faster than one versus four <unk> four versus one.
The other the other way is it's.
The b not just the distribution channel, but were it to use so if it's a retail setting as opposed to hospital.
In a retail setting it erodes far faster than it does on the hospital and that tends to be because of the.
The retail pharmacies profit motivation to switch.
So what we've seen is that single entrant hospital generics.
The brand or soft.
Far greater share and the pricing tends to be better so.
That is what.
One of the things that gives us some optimism in this particular situation is we have one competitor.
It's the hospital setting, it's a difficult to manufacture dosage form, which we've been talking about for years, So supply may not be 100% readily available.
There are.
A number of factors that would say that this particular situation would lend itself to one where the brand could maintain a decent share of this market going forward.
Okay, great. Thank you for that color and one other question.
Again, I apologize if it's repetitive.
But on revenues in the quarter $21 million.
Is that a relatively clean quarter.
<unk> stock is it fair to say that based on two kilos.
Roughly $85 million run rate already are.
Are there any give or take in the quarter. Thank you.
From what I've seen pretty clean quarter.
Good quarter for demand.
They were able to turn on a new account as Tom said and.
Thanks.
After the races from here on.
Okay great.
Good to see that largely well alright. Thank you for taking the questions and I'll follow up later.
Thank you.
Thank you there are currently 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 <unk>, President and Chief Executive Officer.
The closing remarks.
Thank you while the news today wasn't as pumpkin circumstances, we had planned and we certainly werent aware that the generic was coming.
But it does highlight our strategic need to diversify the business and why the merger of spectrum was important.
We will have some short term obstacles to overcome but we are a strong and committed team and we will overcome them. We're a far stronger company now than we were for use ago and I believe that we are well positioned to come through this even stronger and create value for all shareholders.
In addition, we've just made a large step in mitigating our legacy legal uncertainties. Thank you and have a good evening.
Okay.
This concludes today's call you may now disconnect.
Okay.
Okay.