This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk05: Good afternoon, and welcome to the Assertio Holdings Inc. First Quarter 2022 Financial Results Conference Call. All participants will be in listening-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Max Meemers, Head Investor Relations and Administration. Please go ahead.
spk01: Thank you. Good afternoon, and thank you all for joining us today to discuss Assertio's first quarter 2022 financial. 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 and the accompanying presentation, as it is important to today's discussion. With me today are Dan Peyser, President and CEO, and Paul Schwichtenberg, Senior Vice President and CFO. Dan will open the remarks and provide an overview of the business, followed by Paul, who will review our financials. After that, we will open the call for your questions. During this call, management will make projections and other forward-looking statements regarding our future performance. Such forward-looking statements are not guarantees of future future performance, and involved risks and uncertainties, including those noted in this afternoon's press release, as well as Asserdio'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 Asserdio 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?
spk03: Thank you, Max. Welcome to everyone joining us here this afternoon. 2021 was a year of change. By comparison, the first quarter of 2022 was quiet because it lacked change. However, the results of the quarter provide validation of the benefits from the changes we made since you can see the direct impact of those efforts that were completed last year in the positive change reflected in the numbers we were reporting this quarter. Net product sales increased 37% versus the prior year, with one-third of the incremental growth coming from our newly acquired product, Otrexib, which in this quarter we recorded $3.1 million in sales, slightly ahead of our internal forecasts. Net product sales were $35.5 million. This is the highest quarterly result since the first quarter of 2018, when we were known as DepoMed. The last partial quarter, we recognized sales of Nucenta. Adjusted EBITDA of $23.9 million increased 52% versus the prior year. It was up 34% sequentially, as we were able to maintain and even slightly improve our operating costs relative to the fourth quarter of last year, despite adding more trucks up. In addition, we had very strong gross profit margins this quarter, which Paul will elaborate on in more detail in his prepared remarks. We are reiterating our full-year revenue guidance of $126 to $136 million and increasing our adjusted EBITDA guidance range by $2 million, which is now $66 to $74 million. On the revenue front, there are a few factors that we're still paying attention to, and we simply need more time to pass before we can assess if the impacts will be positive or negative relative to the current assumptions. We're still seeing the increased mix of heavily discounted Indusim product that we discussed on our March call, and it has grown since that time as well. We're not only trying to understand it, but also stop it and turn it back around. In addition, we're very early into the loss of exclusivity for ZipSor, and we want to see how that plays out, both for the brand and our authorized generic. We also believe that it won't be until about the time that we report our third quarter that we'd be in a position to fully assess to what extent our sales and marketing efforts are bending the curve on Atrexo. We're introducing a new metric, which we think will be meaningful for investors this year, adjusted earnings per share. This quarter, Certio is reporting 38 cents per share versus 27 cents in the prior year quarter, representing growth of 41%. This measure should be more comparable across companies that report similar numbers. It includes interest expense and the accrued royalty for Indison and better represents Asserdio's operating cash earnings on a per share basis. As a reminder, we don't pay any royalties in the first 20 million in Indison sales, so as we progress throughout the year, we'll start to see the royalty impact our adjusted earnings per share. We continue to be acutely focused on achieving the priorities for our business in 2022 that were laid out last quarter. Many of those priorities focus around business development. We're looking to bring on new products to help us diversify and transform our business, which at the same time can help serve as a catalyst to improve the balance sheet and reduce the cost of capital, as well as reduce our revenue concentration. That yardstick that we put out there of adding $50 million of incremental gross profit by 2024, of which a truck stop represents about one-fifth of this goal, still stands. I think that's a meaningful and reasonable growth goal for Assertio. That incremental $40 million will be on top of what should be approximately $110 million of gross profit this year, based upon the midpoint of our guidance using the 85% margin we reported last year. With the leverage we can achieve in our operating model, that should allow us to deliver a low-teens three-year growth CAGR in adjusted EBITDA. Now I'll turn the call over to Paul, who will walk through our quarterly results and guidance in more detail.
spk02: Thank you, Dan. This afternoon, I will review the financial highlights from our first quarter of 2022. As in previous quarters, there are slides available on our website that I will reference as I discuss the results. Starting with slide three, net product sales were $35.5 million for the first quarter of 2022 compared to net product sales of $26 million in the prior year quarter and $32.2 million last quarter. The increase in net sales versus the prior year quarter is primarily driven by Indisen and the addition of Otrexa. Indisen net sales in the first quarter increased by $6.8 million over the prior year quarter and $3 million over last quarter due to an improvement in net realized price. Otrexip net sales for the first quarter were $3.1 million, representing one-third of the portfolio year-over-year sales increase of $9.5 million. Cambia and Zip Store net sales were down versus the prior quarter as the first quarter has historically been the most seasonally affected quarter due to patient copay and deductible resets on January 1st. As a reminder, ZIPSR lost exclusivity near the end of the first quarter, and we will see the impact of this on our future sales. Overall, portfolio net sales were up 37% versus the prior year quarter. Please refer to our 10-Q for specific product-level net sales information. Costs of goods sold in the first quarter reflect lower costs due to mix and improved margins on Indicin, resulting in an increase in the gross margin of 344 basis points versus the prior year quarter. As a drug-device combination, Otrexib's gross margins are lower than the rest of the portfolio. As Otrexib becomes a larger portion of portfolio revenue and with the loss of Zipsor, which carries a high gross margin, we do expect to see some decline in the gross margin percentage going forward. Also on slide three, adjusted EBITDA for the first quarter was $23.9 million compared to $15.7 million in the prior year quarter and $17.8 million last quarter, reflecting 34% quarter-over-quarter growth. EBITDA in the first quarter represents the fourth sequential quarter of growth after adjusting for one-time legal matters and a 52% increase over the prior year quarter. The first quarter non-GAAP adjusted earnings per share was $0.38 versus $0.27 in the prior year quarter, reflecting 41% growth. As Dan mentioned, we don't pay any royalties on the first $20 million in indecent sales. So as we progress throughout the year, we will start to see the royalty impact our adjusted earnings per share. Summarized on slide four, Adjusted selling general administrative expenses in the first quarter were $9.5 million versus $7.3 million in the prior year quarter and $10.1 million last quarter. Prior year quarter SG&A expenses included an insurance benefit of $5 million. Absent this benefit, SG&A expenses declined $2.8 million or 23% versus the prior year quarter. quarterly SG&A expenses going forward will fluctuate depending on the timing of business activities throughout the year. Net income for the first quarter was $9.1 million, reflecting 99% growth over the prior year quarter net income of $4.5 million, which included the $5 million insurance benefit, and 98% growth over last quarter's net income of $4.6 million. On March 31, 2022, our senior secured debt balance shown on slide 5 was $70.8 million. On May 2, the company paid scheduled interest and principal of $9.3 million, leaving a third-party debt balance of $66 million as of today. Also on slide 5, ending cash on March 31, 2022, was $61.4 million. The net increase in cash of 24.6 million from the December 31st, 2021 balance of 36.8 million is primarily attributable to cash from operations, which includes the receipt of an income tax receivable of 8.3 million. As of March 31st, 2022, the company's net debt defined as senior secured debt less cash to trailing 12-month adjusted EBITDA was 0.16, reflecting a substantial reduction from a ratio of 0.7 at the end of the prior quarter. Net cash provided by operating activities as reported in the company's statement of cash flows for the first quarter was 27.4 million versus a use of cash of 4.2 million in the prior year quarter, reflecting the fourth consecutive quarter of positive operating cash flow. As previously mentioned, First quarter cash flows were impacted positively by the $8.3 million income tax receipt. On an annual basis, we expect cash flows to be positive. But due to the timing of working capital and interest payments, the quarterly operating cash flows will fluctuate. Lastly, our annual guidance for 2022, summarized on slide six, is as follows. Product net sales of 126 to 136 million. and adjusted EBITDA of 66 to 74 million. The updated guidance for 2022 reflects the following factors. Higher EBITDA due to lower expected net operating expenses for the remainder of 2022. Product net sales guidance reflects no change and includes the following factors. Indus in net sales growth driven by favorable pricing, partially offset by a shift in sales mix to more heavily discounted channels, the addition of Otrex up sales, increased rebates and discounts to maintain managed care access for Cambia, Zipsor loss of exclusivity in March of 2022, and the discontinuation of Solumatrix sales. Overall, we're very pleased with the first quarter results as they reflect the positive impact of changes we've made to the business over the last year, and we look forward to continuing with our strategy to position Assertio for long-term sustainable growth. And now I'll turn the call back over to Max.
spk01: Thank you, Paul. Danielle, can we open up the call for Q&A?
spk05: Certainly. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Tim Clarkson of Van Clemens. Please proceed.
spk07: Hi, guys. I just wanted to check now. In the first quarter, most of the revenues are coming, what, from three or four drugs?
spk03: Yeah, the majority are coming from, it's consistent with prior quarters from Indicin, and then the second largest contributor is going to be Cambia.
spk07: Okay. And, you know, looking out six to 12 months, I mean, obviously you can't guarantee outcomes, but I mean, what would be an ideal composition five or six drugs at that point or four or five, or, or, or does it, I suppose it depends on what kind of deals you can get.
spk03: It does depend on what kind of deals we can get. One of the primary goals of business development is to reduce our product concentration. We think that that's a, a key driver for us in the, in just overall, you know, diversification of our revenues and cash flows, as well as helping us get, uh, favorable terms in any refinancing.
spk07: You mentioned when we talked a couple of weeks ago that you thought that there was an attractive pipeline out there, potential drugs you can acquire. Are you still seeing that pipeline available?
spk03: Yes, we are grows every day as well.
spk07: Okay. Well, good. I've done a great quarter, and keep up the good work. Thanks.
spk03: Thank you, Tim.
spk05: Thank you. There are currently no further questions registered at this time, so as a reminder, it is star 1 on your telephone keypad to ask a question.
spk04: Next question comes from Scott Weiss of Simcoe Capital.
spk06: Hey, guys. Congrats on the good quarter. Can you guys comment on Indusyn and volume growth and what you saw during the quarter and how it changed relative to previous quarters?
spk03: I think it is in volume growth. It's been consistent with prior quarters, if not maybe slightly decelerating. The biggest comment about Induson is just the increased mix of 340B that is weighing on the net ASP is the best way to put it.
spk06: Okay. And then can you give us an idea as to what you think penetration is and if You saw it slow a bit. Does that mean that you are starting to hit peak penetration?
spk03: I think in terms of your question is likely in terms of ERCP penetration. I think consistent with what we've heard in some of our market research studies that the product is likely fully penetrated in that high risk segment. And in order for us to have, I guess, success in penetrating some of the moderate risk segment, getting it on label is going to be a key factor there. So that is part of our long-term objectives with that product.
spk06: Will that require studies?
spk03: Stay tuned. We're still assessing that and still need to go in front of the FDA. Okay.
spk06: On Atrexa, what was the linearity of the quarter, January, February, March?
spk02: Well, most of the sales for the quarter came in the months of February and March as we held back on shipments throughout the month of January. As we when we acquired the product we've mentioned previously, when we acquired the product, there was a high level of inventory in the channel. So we tried to get that down.
spk06: And what's the reception been in the marketplace to the drug since you started getting it out to the market? And I believe the drug did about 15 million and 21. Should we expect a number similar to that or where, what should we expect in 22?
spk03: T. John McCune, M.D.: : With the market receptivity to it, I don't think anything has changed with with the receptivity it's just. T. John McCune, M.D.: : us marketing it instead of antares the prior owner of the asset we haven't at this point changed too terribly much with the distribution of the marketing of it at this point, the. If you recall that we reduced the level of channel inventory, you saw that reduction happened at the end of the tail end of last year with our 15 days of ownership and not reporting any sales last year, and then not really booking much in sales in January. So I wouldn't be surprised if our sales this year were below that 15, five run rate, just because we didn't really sell anything in the month of January. Okay.
spk06: And then lastly, is there any update that you can provide us on a possible refinancing of the debt? And especially with the cash level increasing so much, is there more of an appetite from your lenders?
spk02: So what I would say is obviously the debt refinancing is a continuing priority for us. We have been in discussions with lenders. And what we've learned is that we believe we can achieve a better rate. We can't extend the term. But at the same time, we're also trying to maintain flexibility to be able to purchase another asset and reduce our sales concentration on Indisense. So a stronger cash position is good, but our ultimate goal is we think it's probably going to be most beneficial to do a refinancing in conjunction with a transaction.
spk06: Very good.
spk02: Thanks, guys.
spk04: Thanks, Scott.
spk05: 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. He cert. President and chief executive officer for any closing remarks.
spk03: Thank you Danielle. I trust you all share the enthusiasm we here at a studio have for our business and a substantial improvement we've driven in its performance. I look forward to speaking with many of you in person at many of the upcoming conferences that will be attending later this week at Sudoti, later in May at the MICROCAP Rodeo, and early June at LDmicro. Thank you for joining us this afternoon and have a good evening.
spk05: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer