Assertio Holdings, Inc.

Gentlemen, thank you for standing by and welcome to the Q4 2020 and Full Year Assertion Holdings Incorporated Earnings Conference Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Max Nemers. Thank you. Please go ahead, sir.

Thank you, Bojna. Good afternoon, and thank you all for joining us today to discuss Assertio's fourth quarter and full year 2020 financial results. The news release covering our earnings for this period is now available on the investor page of our website at investor.assertiotx.com. I would encourage you to review the release as it's important to today's discussion. With me today are Dan Peysert, President and Chief Executive Officer, and Paul Schwichtenberg, Senior Vice President and Chief Financial Officer. Dan will open the remarks 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 guaranteed a future performance and involve risks and uncertainties, including those noted in this afternoon's press release, as well as the CERTIO's filings with the SEC. These and other risks are more fully described in the risk factor 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 Assyria 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, and thank you, everyone, for joining us this afternoon. I trust you're all staying safe and healthy during these challenging times. I want to start by welcoming our long-term shareholders, new shareholders, and those that are considering investing in Asservio. I'm excited to share my priorities, our new strategy, and the results that position our company for future success. Since becoming CEO, I've taken some time to reflect upon the comments and concerns I've heard from investors over the past year. A few themes kept repeating, such as our ability to service our debt and reduce the cost of the debt, Our operating costs and how we could reduce expenses and how we could deliver on our $45 million of restructuring synergies, especially after having just delivered on $40 million of merger synergies. Understanding our legal challenges, their risks, and what management is doing to address them. Our ability and financial wherewithal to acquire new assets and refresh our portfolio. And finally, our ability to address the near-term impact of COVID-19. As I established my goals and priorities as the new CEO of Aservio, I wanted to make sure I addressed some historical investor concerns so we could put them to rest and pivot the discussions towards the progress we've made in the significant transformation of the company since I arrived in 2017. The priorities for 2021 are as follows. Build a strong and committed team with a culture of teamwork, inclusion, and results. Delivering on our 45 million of restructuring synergies. Ensuring the company generates strong operating cash flow ensuring our debt never becomes a constraint and running the business mitigate our lead legacy legal uncertainties and develop a sustainable business model that reflects a changing environment. it's been an incredibly busy 10 weeks of 2021 so far, and while we still have a lot to do, we have taken decisive action to make sure we are addressing these priorities. I'm incredibly proud of the progress you've made as a team, and I believe that as we continue to demonstrate further advances, we will unlock more value that you as shareholders will appreciate. Today, we announced the promotions of Paul Schwichtenberg to CFO, whom you'll hear from in a minute, and A.J. Patel to Chief Accounting Officer. In addition, we've made a number of promotions to our new executive team. Paul and A.J. have been instrumental in all the positive change happening at Assertio. and especially in fostering a culture we want to continue to improve upon. I'm excited to see what we can accomplish together with them in their new roles. The same goes for the rest of our new executive team. All are extremely talented leaders committed to common goals, and we all have the same mentality, that results speak louder than words. I trust this is already evident by what we've been able to accomplish so far early in 2021. In regard to the second priority of our synergies, I'm happy to say that we've already actioned everything we need to do in order to achieve the goal of 45 million in annualized synergies. As a result, we expect to realize 40 million in cost savings this year relative to our run rate from the second half of 2020. Combined with the previously achieved 40 million in merger-related synergies, we have rapidly and radically changed the operating cost structure of the business. As I will elaborate on later, we're evaluating the acceleration of some other long-term investments given our improved liquidity. Our previous merger-related synergies were largely duplicative costs that were no longer necessary for the combined organization. The restructuring synergies are largely in the form of headcount. Going forward, we will have a much smaller agile organization and rely more on outsourcing of resources to provide the right offerings to better match our business. Restrictions placed on face-to-face interactions due to COVID-19 accelerated a pre-existing trend toward reduced in-person access for field reps. As a result, the most significant of the changes we've taken is the prudent step to eliminate our in-house field force and all of the support costs associated with it. At the moment, very few debate the diminished value of in-person promotion. We believe that for products like ours in this market environment, there will be far more productive means of promotion. During the past year, we've learned a different way to do sales through non-traditional and hybrid models. We're rapidly accelerating our investments to further execute on digital and virtual promotion. We'll continue to see how our market and portfolio evolves and keep an open mind towards working collaboratively with others and going back in person ourselves where and when there is a benefit to the business. These synergies will ensure we achieve my third priority of being a strong cash flow positive business once we get past the cost of restructuring that will mostly be incurred prior to March 31st. We're also looking to cross our business to manage working capital and improve our cash management. Regarding my fourth priority concerning our debt, I'd like to remind you that the only covenant we have is pertaining to minimum liquidity. And with our recent equity raises, this issue is completely off the table. This enhanced liquidity is a major win for Assertio for three primary reasons. First, we're now evaluating accelerated investments in both Indison and our commercial model. This is extremely important for the long-term success of our business that we have the resources to make these investments sooner. Second, we've historically been active in business development, and we will continue to be so. However, having immediate access to capital allows us better positioning when opportunities arise. And third, we have significantly improved our ability to achieve better terms and costs if we were to refinance our remaining debt over the next 12 to 18 months. My fifth priority in how we manage our litigation challenges is, in my mind, one of the most important opportunities we have to remove a historical overhang that has colored the way investors and outside business partners have perceived Assertio. All of these challenges are old legacy depo-med issues, and if we're successful at mitigating them, it will have an enormous impact on our business and its reputation. We've created goals specifically targeted to each individual situation, and we will look to get each suit dismissed or settled where appropriate. When resolution is not possible, we will attempt to define what the potential outcomes may be, where the bare minimum result is lowering our ongoing external legal cost. Simply stated, our goal is to put these legacy legal issues where they belong, behind us. Our settlement and insurance litigation in February exemplifies this, as when approaching the situation with business judgment, it made the most sense to settle, and in this case, the result was great for the business. We put $5 million in the bank and lease open the potential claims against other insurers. Looking forward, we see a rapidly changing environment around us. This is far more evident and impactful with smaller companies like Asserdio. My last priority addresses this. We've made a strategic shift to get ahead of where our environment is headed. and we are looking at the best way to approach our markets. We want to build a platform of digital and virtual promotion fed by analytics that most effectively reaches the four P's that work together to make prescription decisions. Patients, prescribers, payers, and pharmacies. With our focus on profitability and growth, we've made this strategic decision quickly and decisively. We believe this shift represents the best way to create value moving forward And we are confident that we can turn this platform into a substantial, meaningful, competitive advantage that can be applied to other assets as well. COVID has had a profound impact on our society, and has, or will likely change all of our lives in some way. But what it has also done is taught us that we can interact digitally and virtually without detriment in many situations. And we're finding that it is a preferred mode of communication. I believe our industry could see a profound shift in how we commercialize products, and we are just at the beginning. We've already seen that some of our peers are already making small steps in this direction. Whether it is the success of virtual peer-to-peer educational meetings, on-demand information, more targeted engagement, or more personalized digital content, our industry is beginning to make this shift. Building upon our experience in the past year, we've begun our own first steps in this direction, by continuing with telesales, telesampling, and email campaigns. And we've seen that Assertio's products are excellent candidates to be promoted in this manner. Now I'll turn the call over to Paul, who will walk through the quarterly results. Thank you, Dan.

This afternoon, I'll review the financial highlights from our fourth quarter and full year 2020. As was the case in the last two quarters, our year-over-year comparisons are challenging due to the many changes in our business. For clarity, Any references to the pro forma results are reflective of our product divestitures and the Xyla merger. Pro forma net product sales were $30.1 million for the three months ended December 31, 2020, compared to pro forma net product sales of $31.1 million in the prior year quarter and $33.7 million last quarter. Full year pro forma net sales were $119.2 million in line with our guidance of a 5% decrease from the prior year proforma net sales of $125.7 million. ZSOR four-quarter net sales showed growth over the third quarter and prior year quarter. In addition, the four-quarter net sales reflect better than expected sales from the Solumatrix brands as we prepared to exit commercialization of these products. Indicent sales were lower than the prior quarter which was our highest quarterly result in the past two years, primarily due to lower volume and price mix. The remainder of the portfolio continues to be impacted by lower volume due to COVID and the third quarter commercial coverage change for Sprex. For Cambia and Dipsor, we are continuing to shift towards a hub model. A portion of the prescriptions that go through the hub model are considered consignment sales and are specifically for non-covered patients. These consignment sales are not reported by the major prescription reporting services, which will result in a decline of overall reported prescription volume. However, our net sales will not reflect the same level of decline. In fact, this model will generate overall cost savings for the company due to a reduction in overall distribution fees. Reported cost of sales was $6.8 million for the three months ended December 31, 2020. and $19.9 million for full year 2020. The increase over the prior year was influenced by the addition of the Xyla product portfolio and the inventory step-up expense associated with the fair value adjustments as part of the Xyla merger. Additionally, the fourth quarter cost of sales reflected a greater contribution from sales of lower margin products, particularly the SoluMatrix brands, and an inventory obsolescence write-off for SPRX. Our non-GAAP adjusted operating expenses, inclusive of R&D and SG&A in the fourth quarter, were $16.1 million compared to $21.9 million in the fourth quarter of 2019 and $21.7 million in the prior quarter. The results for the quarter reflect approximately $3 million of year-to-date payroll expenses that were previously accounted for and reported in SG&A but have been reclassified into restructuring costs in the fourth quarter. There are three tranches of cost savings that the company has realized in 2020 and expects to realize in 2021 and beyond. First, the Q4 2019 restructuring resulted in $15 million of annual savings in 2020. Second, the merger with Xyla has resulted in the elimination of duplicative operating structures And we have achieved our goal of $40 million of SG&A synergies in 2020 relative to the pre-merger combined operating expenses of the two businesses. Third, because of the recent restructuring, we expect in 2021 to achieve additional SG&A savings off of the annualized second half 2020 operating expense run rate, including opioid legal costs. For clarity, our pre-restructuring operating expense run rate, including opioid legal costs for the second half of 2020 is 43.7 million, which translates into an annual operating expense run rate of approximately 87.4 million. In 2021, we expect to achieve 40 million of savings off of this run rate and ultimately 45 million in annual savings beginning in 2022. Non-GAAP adjusted EBITDA for the fourth quarter was $9.4 million, an EBITDA margin of 31%, compared to $7 million in the third quarter this year. The improvement is reflective of both the realization of the synergies and the impact of the payroll cost transfer to restructuring costs. Net loss for the three months ended December 31, 2020, was $24.4 million, compared to the prior year's fourth quarter loss of $192.6 million. This comparison is especially challenging given all of the changes to the business. However, the largest change drivers are the loss on asset impairment from a divested product recorded in the prior year and the substantially higher interest and amortization expense the business previously incurred. The fourth quarter 2020 results also reflect severance charges of $10.7 million, and we expect to recognize in total $11 to $12 million, which accounts for additional non-cash charges relating to the write-off of certain office lease and furniture assets. The results also reflect a $17.4 million non-cash goodwill impairment in the quarter. During the quarter, the company paid $10.3 million of our senior secured debt and accrued interest, leaving us with $80.2 million of third-party debt, which will not mature until Q1 2024. And, as Dan stated, we have improved our ability to achieve better terms and costs if we were to refinance our remaining debt over the next 12 to 18 months. Ending cash on December 31, 2020, was $20.8 million. The decline in cash of $13.9 million from our September 30th balance of $34.7 million is primarily attributable to the debt payment, cash royalties, restructuring payments, a final payment on 2020 inventory commitment purchases, and a delay in the timing of expense reimbursements due from partners. The company expects additional cash restructuring payments of approximately $8 million in the first half of 2021. With the $45.3 million in cash raised from the recent Registered Direct offerings, we will be seeking to accelerate potential investments in 2021. As the incoming CFO at Sergio, my overarching goal is to help the organization achieve the priorities that Dan mentioned in his earlier comments. To that end, my priorities are the following. One, cash flow maximization and management of working capital. actively exploring opportunities to reduce cost of capital. Three, execution of operating expense savings. And four, supporting the development of a sustainable business model through effective commercial strategies and new investments. Lastly, like many other companies in our industry, we believe it is prudent for us to hold in providing guidance at this time. Instead, our intent is to give guidance for 2021 on our first quarter earnings call in May, and not today, due to the volatility created by COVID and the possibility for accelerated investments. Now, I'll turn the call back over to Max. Thanks, Paul.

Guido, we can open up the call for Q&A.

Absolutely, sir. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key, and please limit your question to 2 or 1 plus 1 follow-up. Your first question is from Scott Henry of Frost Capital. The line is open.

Thank you, and good afternoon. A couple questions. First, could you give any color on the revenues for – I mean, I know you gave some directional comments, but could you give us sales for like Indosyn and Sprix and – You know, maybe the dips are in Cambia. I'm just trying to get a sense of what those numbers were in the quarter.

We'll report those, or they'll be available in a 10-K that will be filed tomorrow.

Okay. All right. Fair enough. And then I think you – I mean, I know you gave some color around it, but could you talk about what real-time – cash and debt are right now? I just want to make sure I have those. There's a lot, correct, there's a lot of moving levers.

So real-time cash right now is going to be north of high 50s.

And then the debt is $80.2 million of principal outstanding.

Okay, perfect. And I'm going to go over the two limit on questions. My apologies. The SG&A, I thought I heard you say non-GAAP SG&A was around $16 million in the quarter, and I just did a back of the envelope and got around $15 million. But then when I look at your guidance for 2021, it sounds like it may even come down from those levels. I just want to get your thoughts on how we should think about that SG&A line.

Yeah, I mean, what I would say is that if you – what I was trying to explain in the script – this is Paul here – is that if you take our back half run rate for 2020 in the last two quarters, you add in our opioid legal expense, and you look at what that annualized number will be, we'll save $40 million off of that number in 2021. So the short answer is yes, the SG&A will come down.

Okay. Yeah, I guess it all depends what you include and what you don't include. And then I promise this is the final question. I want to get a sense, under the new business model, you've got some experience through COVID. You've got some experience through the last quarter. When you do less face-to-face promotion for a product, what kind of script declines do you typically see? Is it reasonable to think that scripts would decline 10%? which maybe you'll make some of that up on pricing, or maybe you're doing better than that or worse than that. I just wanted to get kind of your thoughts based on your early experience.

Well, I don't want to comment too much on the early experience that we've seen so far this year. What I can say is, unfortunately, there's not a great analog, and we're also not just giving up. So, yes, we are not going to be doing the same in-person that we would have been doing in the past. But I'd say that COVID last year could be a very good case study. We had 80 reps in the field or 80 territories that we had. At best, we were seeing 40%, 50% of our calls made in-person. So we had a very strong virtual promotion last year just because of what COVID did. And COVID was also in some ways worse than what you'd expect normally because patients weren't going to go visit their physicians. So I think we saw a resilience in the portfolio last year and that does bode well for what we expect going forward. The biggest thing that I'd point out for and it might be obvious to you for our portfolio going forward, is SPRICS did have that payer reimbursement change in early September of 2020. So the go-forward run rate for 2021 will be more like what we saw here in the fourth quarter. And then also notable is that the SoluMatrix products, of which Paul will comment in a second on what the total sales were that we recognized this year, That will not be happening or will not be continuing going forward as we exited the promotion of those brands and the distribution of those brands at the end of the year.

Do you have a... On a pro-forma basis, the solumetric sales were 8.2 and higher.

So we will not be seeing that same level of sales for those products going forward. I know that doesn't help you, Scott, and I apologize that I can't give you a good, solid answer there, but I hope the commentary... When you say... Yeah.

When you say on a pro forma basis, does that mean on a pro forma annualized basis?

Those are the sales for Solumatrix for both Xyla and Serio, so the full calendar year of 2020 across both companies.

Okay, okay, perfect. Thank you. And thank you for taking the questions.

Your next question is from Kevin Kedra of G Research. Your line is open.

Hi, thanks for taking the questions. Danny mentioned the shift in the commercial model. I'm wondering how that impacted what you're looking at in the business development arena. I know you guys have been looking for a while, but has the shift in the model changed the sort of opportunities that you're looking for for business development?

So when it comes to business development, I think the types of products that would work well for us if we looked at a product-level acquisition are a lot like the products that we have in the portfolio today. We think that what we've got now benefits a lot from this digital virtual platform that we want to build in combination with the hub and pharmacy network that we have. So I think what it does for us is it actually opens up more opportunities for us to possibly bid on assets that we might have not chased in the past because we had a fixed infrastructure calling on a certain set of physicians. That isn't the case today. We can send an email across any therapeutic category. We can display a banner ad or an ad in an electronic prescribing platform across any therapeutic category, and we can leverage our distribution model to effectively get that to patients. So I think it creates more opportunities, and combined with the liquidity on the balance sheet, will actually put us in a better position to be able to go after these assets.

Great. The thing more about business development opportunities is about a year ago when you guys announced the Xyla merger. It seems fair to say things haven't gone quite to plan with that. Obviously, there's a lot that's been going on that's out of your control with COVID, but any learnings you can take from the combination with Xyla over the past year that you can apply to future business development opportunities, either positives or negatives, relative to your expectations going into that merger?

It's a very good question, Kevin. And I reflect on some of the other BD. I made a mistake once in my career here at Assertio where I almost promised a BD deal and it didn't happen. And now reflecting on what has happened since and seeing in hindsight what that company did with those assets, COVID was devastating. has really ruined that acquisition for them. And COVID did play a big hand in what we experienced last year. What I would still say, though, is our revenues were not down materially from what we did expect. It wasn't as bad as it probably could have been, and I think that speaks to how resilient this portfolio is. Going forward, one of the things that we will do is, we're taking possibly a more conservative approach to underwriting these opportunities and making sure that we've got a conservative forecast and can build an infrastructure that, if it needs to be built, will be included in that evaluation.

Great. If I could squeeze one more. You talked about Some of the changes that we can expect to see can be a zip store where some of the scripts may not come through third party. So that's going to obviously make revenue look better than what the scripts would see. But in terms of gross to net, should we expect improvement there in 2021 given the distribution model shift that you have?

Yeah, we will see a profound impact on gross to net, actually. But what it does is it's also a lowering of gross revenue. For any product that is dispensed via consignment, we won't recognize the gross nor the gross to net. So it better aligns the two components where it's – What goes in and what goes out are closer together. So it does have an impact, a positive impact on gross to net, but it also has a reduction in gross sales.

Great. Thanks. Okay. Thank you. That's it for Q&A today. I will turn the call over to Dan first in closing comments.

So in conclusion, the year ahead, and I trust that you can see from our excellent start that we're truly focused on execution and results. Of course, this cannot be possible without people. I'm very proud of the team we have here at Assertio, and I want to thank all of my colleagues who have helped shape our company and have positioned it for an exciting future. And I thank you all for joining us this afternoon and hope you have a good evening.

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

Thank you. you Thank you. Thank you. Thank you.

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2020 and Full Year Assertion Holdings Incorporated Earnings Conference Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Max Nemers. Thank you. Please go ahead, sir.

Thank you, Bojana. Good afternoon, and thank you all for joining us today to discuss Assertio's fourth quarter and full year 2020 financial results. The news release covering our earnings for this period is now available on the investor page of our website at investor.assertiotx.com. I would encourage you to review the release as it's important to today's discussion. With me today are Dan Peysert, President and Chief Executive Officer, and Paul Schwichtenberg, Senior Vice President and Chief Financial Officer. Dan will open the remarks 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 guaranteed a future performance and involve risks and uncertainties, including those noted in this afternoon's press release, as well as ASSERTIO's filings with the SEC. These and other risks are more fully described in the risk factor 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 Assyria 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, and thank you, everyone, for joining us this afternoon. I trust you're all staying safe and healthy during these challenging times. I want to start by welcoming our long-term shareholders, new shareholders, and those that are considering investing in Asservio. I'm excited to share my priorities, our new strategy, and the results that position our company for future success. Since becoming CEO, I've taken some time to reflect upon the comments and concerns I've heard from investors over the past year. A few themes kept repeating, such as our ability to service our debt and reduce the cost of the debt, Our operating costs and how we could reduce expenses and how we could deliver on our $45 million over structuring synergies, especially after having just delivered on $40 million of merger synergies. Understanding our legal challenges, their risks, and what management is doing to address them. Our ability and financial wherewithal to acquire new assets and refresh our portfolio. And finally, our ability to address the near-term impact of COVID-19. As I established my goals and priorities as new CEO of Aservio, I wanted to make sure I addressed some historical investor concerns so we can put them to rest and pivot the discussions towards the progress we've made in the significant transformation of the company since I arrived in 2017. The priorities for 2021 are as follows. Build a strong and committed team with a culture of teamwork, inclusion, and results. Delivering on our 45 million of restructuring synergies. ensuring the company generates strong operating cash flow, ensuring our debt never becomes a constraint in running the business, mitigate our legacy legal uncertainties, and develop a sustainable business model that reflects a changing environment. It's been an incredibly busy 10 weeks of 2021 so far. And while we still have a lot to do, we have taken decisive action to make sure we are addressing these priorities. I'm incredibly proud of the progress you've made as a team, and I believe that as we continue to demonstrate further advances, we will unlock more value that you as shareholders will appreciate. Today, we announced the promotions of Paul Schwichtenberg, the CFO, whom you'll hear from in a minute, and A.J. Patel, the Chief Accounting Officer. In addition, we've made a number of promotions to our new executive team. Paul and A.J. have been instrumental in all the positive change happening at Assertio. and especially in fostering a culture we want to continue to improve upon. I'm excited to see what we can accomplish together with them in their new roles. The same goes for the rest of our new executive team. All are extremely talented leaders committed to common goals, and we all have the same mentality, that results speak louder than words. I trust this is already evident by what we've been able to accomplish so far early in 2021. In regard to the second priority of our synergies, I'm happy to say that we've already actioned everything we need to do in order to achieve the goal of 45 million in annualized synergies. As a result, we expect to realize 40 million in cost savings this year relative to our run rate from the second half of 2020. Combined with the previously achieved 40 million in merger-related synergies, we have rapidly and radically changed the operating cost structure of the business. As I will elaborate on later, we're evaluating the acceleration of some other long-term investments given our improved liquidity. Our previous merger-related synergies were largely duplicative costs that were no longer necessary for the combined organization. The restructuring synergies are largely in the form of headcount. Going forward, we will have a much smaller agile organization and rely more on outsourcing of resources to provide the right offerings to better match our business. Restrictions placed on face-to-face interactions due to COVID-19 accelerated a pre-existing trend toward reduced in-person access for field reps. As a result, the most significant of the changes we've taken is the prudent step to eliminate our in-house field force and all of the support costs associated with it. At the moment, very few debate the diminished value of in-person promotion. We believe that for products like ours in this market environment, there will be far more productive means of promotion. During the past year, we've learned a different way to do sales through non-traditional and hybrid models, and we're rapidly accelerating our investments to further execute on digital and virtual promotion. We'll continue to see how our market and portfolio evolves and keep an open mind towards working collaboratively with others and going back in person ourselves where and when there is a benefit to the business. These synergies will ensure we achieve my third priority of being a strong cash flow positive business once we get past the cost of restructuring that will mostly be incurred prior to March 31st. We're also looking across our business to manage working capital and improve our cash management. Regarding my fourth priority concerning our debt, I'd like to remind you that the only covenant we have is pertaining to minimum liquidity. And with our recent equity raises, this issue is completely off the table. This enhanced liquidity is a major win for Assertio for three primary reasons. First, we're now evaluating accelerated investments in both Indison and our commercial model. This is extremely important for the long-term success of our business that we have the resources to make these investments sooner. Second, we've historically been active in business development, and we will continue to be so. However, having immediate access to capital allows us better positioning when opportunities arise. And third, we have significantly improved our ability to achieve better terms and costs if we were to refinance our remaining debt over the next 12 to 18 months. My fifth priority in how we manage our litigation challenges is, in my mind, one of the most important opportunities we have to remove a historical overhang that has colored the way investors and outside business partners have perceived Assertio. All of these challenges are old, legacy, depo-med issues, and if we're successful at mitigating them, it will have an enormous impact on our business and its reputation. We've created goals specifically targeted to each individual situation, and we will look to get each suit dismissed or settled where appropriate. When resolution is not possible, we will attempt to define what the potential outcomes may be, where the bare minimum result is lowering our ongoing external legal cost. Simply stated, our goal is to put these legacy legal issues where they belong, behind us. Our settlement and insurance litigation in February exemplifies this, as when approaching the situation with business judgment, it made the most sense to settle. And in this case, the result was great for the business. We put $5 million in the bank and lease open up potential claims against other insurers. Looking forward, we see a rapidly changing environment around us. This is far more evident and impactful in smaller companies like Sertio. My last priority addresses this. We've made a strategic shift to get ahead of where our environment is headed. and we are looking at the best way to approach our markets. We want to build a platform of digital and virtual promotion fed by analytics that most effectively reaches the four P's that work together to make prescription decisions. Patients, prescribers, payers, and pharmacies. With our focus on profitability and growth, we've made this strategic decision quickly and decisively. We believe this shift represents the best way to create value moving forward And we are confident that we can turn this platform into a substantial, meaningful, competitive advantage that can be applied to other assets as well. COVID has had a profound impact on our society or it has or will likely change all of our lives in some way. But what it has also done is taught us that we can interact digitally and virtually without detriment in many situations. And we're finding that it is a preferred mode of communication. I believe our industry could see a profound shift in how we commercialize products, and we are just at the beginning. We've already seen that some of our peers are already making small steps in this direction. Whether it is the success of virtual peer-to-peer educational meetings, on-demand information, more targeted engagement, or more personalized digital content, our industry is beginning to make this shift. Building upon our experience in the past year, we've begun our own first steps in this direction by continuing with telesales, telesampling, and email campaigns. And we've seen that Assertio's products are excellent candidates to be promoted in this manner. Now I'll turn the call over to Paul, who will walk through the quarterly results.

Thank you, Dan. This afternoon, I'll review the financial highlights from our fourth quarter and full year 2020. As was the case in the last two quarters, our year-over-year comparisons are challenging due to the many changes in our business. For clarity, Any references to the pro forma results are reflective of our product divestitures and the Xyla merger. Pro forma net product sales were $30.1 million for the three months ended December 31, 2020 compared to pro forma net product sales of $31.1 million in the prior year quarter and $33.7 million last quarter. Full year pro forma net sales were $119.2 million in line with our guidance of a 5% decrease from the prior year pro forma net sales of $125.7 million. ZivSor four-quarter net sales showed growth over the third quarter and prior year quarter. In addition, the four-quarter net sales reflect better than expected sales from the Solumatrix brands as we prepared to exit commercialization of these products. Indicent sales were lower than the prior quarter which was our highest quarterly result in the past two years, primarily due to lower volume and price mix. The remainder of the portfolio continues to be impacted by lower volume due to COVID and the third quarter commercial coverage change for Sprex. For Cambia and Dysor, we are continuing to shift towards a hub model. A portion of the prescriptions that go through the hub model are considered consignment sales and are specifically for non-covered patients. These consignment sales are not reported by the major prescription reporting services, which will result in a decline of overall reported prescription volume. However, our net sales will not reflect the same level of decline. In fact, this model will generate overall cost savings for the company due to a reduction in overall distribution fees. Reported cost of sales was $6.8 million for the three months ended December 31, 2020. and $19.9 million for a full year 2020. The increase over the prior year was influenced by the addition of the Xyla product portfolio and the inventory step-up expense associated with the fair value adjustments as part of the Xyla merger. Additionally, the fourth quarter cost of sales reflected a greater contribution from sales of lower margin products, particularly the SoluMatrix brands, and an inventory obsolescence write-off for Sprix. Our non-GAAP adjusted operating expenses, inclusive of R&D and SG&A in the fourth quarter, were $16.1 million compared to $21.9 million in the fourth quarter of 2019 and $21.7 million in the prior quarter. The results for the quarter reflect approximately $3 million of year-to-date payroll expenses that were previously accounted for and reported in SG&A but have been reclassified into restructuring costs in the fourth quarter. There are three tranches of cost savings that the company has realized in 2020 and expects to realize in 2021 and beyond. First, the Q4 2019 restructuring resulted in $15 million of annual savings in 2020. Second, the merger with Xyla has resulted in the elimination of duplicative operating structures And we have achieved our goal of $40 million of SG&A synergies in 2020 relative to the pre-merger combined operating expenses of the two businesses. Third, because of the recent restructuring, we expect in 2021 to achieve additional SG&A savings off of the annualized second half 2020 operating expense run rate, including opioid legal costs. For clarity, our pre-restructuring operating expense run rate, including opioid legal costs for the second half of 2020 is 43.7 million, which translates into an annual operating expense run rate of approximately 87.4 million. In 2021, we expect to achieve 40 million of savings off of this run rate and ultimately 45 million in annual savings beginning in 2022. Non-GAAP adjusted EBITDA for the fourth quarter was $9.4 million, an EBITDA margin of 31%, compared to $7 million in the third quarter this year. The improvement is reflective of both the realization of the synergies and the impact of the payroll cost transfer to restructuring costs. Net loss for the three months ended December 31, 2020, was $24.4 million, compared to the prior year's fourth quarter loss of $192.6 million. This comparison is especially challenging given all of the changes to the business. However, the largest change drivers are the loss on asset impairment from a divested product recorded in the prior year and the substantially higher interest and amortization expense the business previously incurred. The fourth quarter 2020 results also reflect severance charges of $10.7 million, and we expect to recognize in total $11 to $12 million, which accounts for additional non-cash charges relating to the write-off of certain office lease and furniture assets. The results also reflect a $17.4 million non-cash goodwill impairment in the quarter. During the quarter, the company paid $10.3 million of our senior secured debt and accrued interest, leaving us with $80.2 million of third-party debt, which will not mature until Q1 2024. And, as Dan stated, we have improved our ability to achieve better terms and costs if we were to refinance our remaining debt over the next 12 to 18 months. Ending cash on December 31, 2020, was $20.8 million. The decline in cash of $13.9 million from our September 30th balance of $34.7 million is primarily attributable to the debt payment, cash royalties, restructuring payments, a final payment on 2020 inventory commitment purchases, and a delay in the timing of expense reimbursements due from partners. The company expects additional cash restructuring payments of approximately $8 million in the first half of 2021. With the $45.3 million in cash raised from the recent Registered Direct offerings, we will be seeking to accelerate potential investments in 2021. As the incoming CFO at Sergio, my overarching goal is to help the organization achieve the priorities that Dan mentioned in his earlier comments. To that end, my priorities are the following. One, cash flow maximization and management of working capital. actively exploring opportunities to reduce cost of capital. Three, execution of operating expense savings. And four, supporting the development of a sustainable business model through effective commercial strategies and new investments. Lastly, like many other companies in our industry, we believe it is prudent for us to hold in providing guidance at this time. Instead, our intent is to give guidance for 2021 on our first quarter earnings call in May, and not today, due to the volatility created by COVID and the possibility for accelerated investments. Now, I'll turn the call back over to Max. Thanks, Paul.

Buena, we can open up the call for Q&A.

Absolutely, sir. As a reminder, to ask a question, you will need to press bar one on your telephone. To withdraw your question, press the pound key, and please limit your question to two or one plus one follow-up. Your first question is from Scott Henry of Frost Capital. The line is open.

Thank you, and good afternoon. A couple questions. First, could you give any color on the revenues for – I mean, I know you gave some directional comments, but could you give us sales for, like, Indosyn and Sprix and – You know, maybe the Zipsor and Cambia? I'm just trying to get a sense of what those numbers were in the quarter.

We'll report those, or they'll be available in a 10-K that will be filed tomorrow.

Okay. All right. Fair enough. And then I think you – I mean, I know you gave some color around it, but could you talk about what real-time – cash and debt are right now? I just want to make sure I have those. There's a lot, correct, there's a lot of moving levers.

So real-time cash right now is going to be north of high 50s.

And then the debt is $80.2 million of principal outstanding.

Okay, perfect. And I'm going to go over the two limit on questions. My apologies. The SG&A, I thought I heard you say non-GAAP SG&A was around $16 million in the quarter, and I just did a back of the envelope and got around $15 million. But then when I look at your guidance for 2021, it sounds like it may even come down from those levels. I just want to get your thoughts on how we should think about that SG&A line.

Yeah, I mean, what I would say is that if you – what I was trying to explain in the script – this is Paul here – is that if you take our back half run rate for 2020 in the last two quarters, you add in our opioid legal expense, and you look at what that annualized number will be, we'll save $40 million off of that number in 2021. So the short answer is yes, the SG&A will come down.

Okay. Yeah, I guess it all depends what you include and what you don't include. And then I promise this is the final question. I want to get a sense, you know, under the new business model, you've got some experience through COVID. You've got some experience through the last quarter. You know, when you do less face-to-face promotion for a product, you know, what kind of script declines do you typically see? Is it reasonable to think that scripts would decline 10%? which maybe you'll make some of that up on pricing, or maybe you're doing better than that or worse than that. I just wanted to get kind of your thoughts based on your early experience.

Well, I don't want to comment too much on the early experience that we've seen so far this year. What I can say is, unfortunately, there's not a great analog, and we're also not just giving up. So, yes, we are not going to be doing the same in-person that we would have been doing in the past. But I'd say that COVID last year could be a very good case study. We had 80 reps in the field or 80 territories that we had. At best, we were seeing 40%, 50% of our calls made in-person. So we had a very strong virtual promotion last year just because of what COVID did. And COVID was also in some ways worse than what you'd expect normally because patients weren't going to go visit their physicians. So I think we saw a resilience in the portfolio last year and that does bode well for what we expect going forward. The biggest thing that I'd point out for and it might be obvious to you for our portfolio going forward, is SPRICS did have that payer reimbursement change in early September of 2020. So the go-forward run rate for 2021 will be more like what we saw here in the fourth quarter. And then also notable is that the SoluMatrix products, of which Paul will comment in a second on what the total sales were that we recognized this year, That will not be happening or will not be continuing going forward as we exited the promotion of those brands and the distribution of those brands at the end of the year.

On a pro forma basis, the solumetric sales were 8.2 million.

So we will not be seeing that same level of sales for those products going forward. I know that doesn't help you, Scott, and I apologize that I can't give you a good solid answer there, but I hope the commentary is useful.

Yeah. When you say on a pro forma basis, does that mean on a pro forma annualized basis?

Those are the sales for Solumatrix for both Xyla and Serial, so the full calendar year of 2020 across both companies.

Okay, okay, perfect. Thank you. And thank you for taking the questions.

Your next question is from Kevin Kedra of G Research. Your line is open.

Hi, thanks for taking the questions. Danny mentioned the shift in the commercial model. I'm wondering how that impacted what you're looking at in the business development arena. I know you guys have been looking for a while, but has the shift in the model changed the sort of opportunities that you're looking for for business development?

So when it comes to business development, I think the types of products that would work well for us if we looked at a product-level acquisition are a lot like the products that we have in the portfolio today. We think that what we've got now benefits a lot from this digital virtual platform that we want to build in combination with the hub and pharmacy network that we have. So I think what it does for us is it actually opens up more opportunities for us to possibly bid on assets that we might have not chased in the past because we had a fixed infrastructure calling on a certain set of physicians. That isn't the case today. We can send an email across any therapeutic category. We can display a banner ad or an ad in an electronic prescribing platform online. across any therapeutic category and we can leverage our distribution model to effectively get that to patients. So I think it creates more opportunities and combined with the liquidity on the balance sheet will actually put us in a better position to be able to go after these assets.

Great. Think more about business development opportunities. about a year ago when you guys announced the Xyla merger. It seems fair to say things haven't gone quite to plan with that. Obviously, there's a lot that's been going on that's out of your control with COVID, but any learnings you can take from the combination with Xyla over the past year that you can apply to future business development opportunities, either positives or negatives, relative to your expectations going into that merger?

It's a very good question, Kevin. I made a mistake once in my career here at Assertio where I almost promised a BD deal, and it didn't happen. Now reflecting on what has happened since and seeing in hindsight what that company did with those assets, COVID was devastating. has really ruined that acquisition for them. And COVID did play a big hand in what we experienced last year. What I would still say, though, is our revenues were not down materially from what we did expect. It wasn't as bad as it probably could have been, and I think that speaks to how resilient this portfolio is. Going forward, one of the things that we will do is, we're taking possibly a more conservative approach to underwriting these opportunities and making sure that we've got a conservative forecast and can build an infrastructure that if it needs to be built will be included in that evaluation.

Great. If I could squeeze one more. You talked about Some of the changes that we can expect to see can be zipped over. Some of the scripts may not come through third party. So that's going to obviously make revenue look better than what the scripts would see. But in terms of gross to net, should we expect improvement there in 2021 given the distribution model shift that you have?

Yeah, we will see a profound impact on gross to net, actually. But what it does is it's also a lowering of gross revenue. For any product that is dispensed via consignment, we won't recognize the gross nor the gross to net. So it better aligns the two components where it's what goes in and what goes out are closer together. So it does have an impact, a positive impact on gross to net, but it also has a reduction in gross sales.

Great. Thanks. Okay. Thank you. That's it for Q&A today. I will turn the call over to Dan first in closing comments.

So in conclusion, year ahead, and I trust that you can see from our excellent start that we're truly focused on execution and results. Of course, this cannot be possible without people. I'm very proud of the team we have here at Assertio, and I want to thank all of my colleagues who have helped shape our company and have positioned it for an exciting future. And I thank you all for joining us this afternoon, and hope you have a good evening.

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