Assertio Holdings, Inc.

good morning and welcome to the assertio holdings incorporated third quarter 2022 financial results conference call all participants will be in listening only mode after today's presentation there will be an opportunity to ask questions if you would like to ask a question during this time simply press star followed by the number one on your telephone keypad if you would like to withdraw your question please press star followed by the number two Please note this event is being recorded. I would now like to turn the conference over to Matt Kreps from Darrow Associates, Investor Relations to Assertio. Please go ahead.

Thank you, Terry. Good afternoon, and thank you, everyone, for joining us today to discuss Assertio's third quarter 2022 financials. 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 Peisert, 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 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 factors section and other sections of her annual report on Form 10-K. Her actual results may differ materially from those projected in the forward-looking statements, and Assertio specifically disclaims any intent or obligation to update these forward-looking statements except as required by law. With that, I'll now turn the call over to Dan.

Thank you, Matt. Welcome to everyone joining us this afternoon. The third quarter and the weeks that immediately followed were one of the most important strategic quarterly periods for Assertio. We've pivoted from a period of restructuring in which we improved upon the profitability of our business to the creation of a new commercial platform and now towards growth. Not only did our financial results in the quarter once again exceed our forecast in nearly every metric, we were able to extend our debt maturity and cut our cost of debt capital from 13% to 6.5%, incredibly low in today's market, exit an unprofitable segment of our business, increasing our future revenue and profit, and added a new source of accretive revenue in Simpazan that adds to the diversification of our top line. As a result of these actions, today we are better positioned to execute other possible business development transactions, and our stock is more attractive to existing and potentially new public and private investors. When we began 2022, we had five key priorities. I'm proud to say that with our actions in the third quarter, we have nearly achieved all five. In a tumultuous job environment, we set our first priority of retaining our employees and attracting new talent. We've had 100% retention in our employee base and have added eight new employees or over 42% growth. Our second priority was to prove the efficacy of our new commercial model. We were able to successfully transition Otrex up into the non-personal digital model without negative impact. Supply constraints and competitive pressures have shifted the growth targets we had for the brand in 2022 into 2023. Our third priority was to reduce the concentration in Indusim. The acquisition of Simpazan last month provides a good start in this priority, but we're not done by any means. We have far more to go. Fourth was the execution of a lifecycle management opportunity for Indicent. We'll be requesting a pre-IND meeting with the FDA within a matter of days and should have feedback from them shortly after Thanksgiving. That will put us in a position to file an IND and begin a new clinical program for Indicent aimed at expanding the label, which is all expected to begin in early 2023. Our final priority was to improve our balance sheet and reduce our cost of capital. This goal became far more difficult than we imagined now that rates are nearly 400 basis points higher than they were this time last year. However, we executed on a refinancing transaction this quarter that pushes our debt maturity back to September of 2027, cuts our cash interest costs in half, and frees up a substantial amount of cash flow for business development. We think the M&A environment is very robust and buyer-friendly right now, which the Simpazan transaction exemplifies. We're able to acquire that asset for $15 million, including a milestone for the new patent. In the trailing 12 months ended September 30th, Equesta recorded $9.9 million in net sales. We've acquired an asset that is growing, will soon have patent protection to 2039, and has gross profit margins very close to our corporate average for 1.5 times trailing revenues. The refinancing was especially timely in this M&A environment as this M&A environment continues to ripen and we now have the cash resources and balance sheet to add more products to the portfolio. In addition, we've built the internal resources and hired external resources to help us identify diligence and contract for more than one transaction at a time. Last quarter, we had discussed enhanced commercial strategies for Indison that would be implemented in our third quarter without much specifics as to what these strategies were. Srdio has taken action to withdraw from the Medicaid drug rebate program, which includes 340B. Participation in these government programs is voluntary. As a result of the significant growth we saw in the utilization of our products inside the 340B program, we were incurring significant losses. that summed to $6 million annually. By exiting, we expect to see an immediate increase of $6 million in our annual net revenue and profit. Our actions to remove our products from this program were made public in July. Since we wanted to avoid end customers that had seen the public notice by significant quantities of product under 340B ahead of our exit, we deliberately reduced channel inventories for Indusim in September to under five days. from what is normally in the low 20s. This had a negative impact on our volumes and revenues in the quarter, which we expect to reverse in our fourth quarter. Offsetting this was a one-time reversal of an over-recrual for expected product returns, which Paul will describe in further detail. Our estimates for a $6 million benefit assume that these unprofitable sales cease because this price is no longer available. However, while it's still far too early to conclude, the opportunity does exist for there to be upside to this if customers find our products medically necessary and continue to acquire them. We are offering programs for customers to purchase directly from Assertio at a discount to the published list or WAC price as well. I'm quite excited about the potential for Synthesan. It fits all of the criteria that we were looking for in our business development search. First, long-lived IP. Shortly after completing the acquisition, the Quest have received the notice of allowance for a patent, which triggered the $6 million milestone payment that will be made later this month. We expect this patent to be issued and included in the Orange Book during the first quarter of 23 and will extend IP protection to 2039. Second, it's on the market and accretive. Simpizen had been generating annual sales of about 9.5 million. On that basis, we expect it to add between $4 to $4.5 million in annual adjusted EBITDA and $0.05 in adjusted EPS, accounting for the full dilution from the convert. Third, it generates opportunities for growth. Equest have reported $2.3 million in net sales for their third quarter, which represented year-over-year growth of 15%. From what we saw in diligence, there's very little competitive pressure. and it's a stable and positive payer environment, a very different situation than Atrexa. The product has a nice niche it can play in the treatment of LGS. Many of these children are put on a keto diet in addition to medical therapy to control their seizures. We noticed in diligence that few physicians were aware of the commonly used liquid Clobazan products containing 33% or more of the daily carbohydrate limits under the restrictive keto diet. Simpazen has just 2% of the carb content that the liquid formulations have. In addition, we are excited at the opportunity to partner with the patient advocacy community, which is very strong in both epilepsy and LGS. We're proud to be part of this community now and raising awareness. November 1st was LGS Awareness Day, and it also marked the beginning of Epilepsy Awareness Month. Fourth, it fits within our commercial model. Quest have launched this product in 2018 with 30 reps. And prior to our acquisition, they had less than 10 filled territories. We think that Simpazan will fit very nicely into our non-personal platform where we can expand upon the physician reach with what is largely an educational message to treating physicians who are very familiar with the Clobazan molecule already. In terms of our goal to further diversify our business, while mathematically Simpazan does help, It was on the smaller side. As we had mentioned, we were seeing the smaller sized acquisitions in our M&A pipeline accelerate while the larger ones were being delayed. We are still pursuing those larger transformative transactions. We had originally set a goal of acquiring products that brought us an additional $50 million in gross profit by 2024. The approximate $10 million from Atrexa and now $8 million from Simpazan, we're a little over a third of the way to accomplishing that goal. We have another year to go, a deep pipeline, a favorable M&A environment, and the capabilities to multitask, so I'm confident we can accomplish this goal. Finally, we're still expecting that 2022 is the pivotal year for our investment in NES. They are very close to being able to finish their NDA for submission to the FDA. As a reminder, our investment converts to equity upon FDA acceptance of the NDA. The FDA has up to 60 days to decide whether or not to accept. We do not expect to provide any update to investors until it is known whether or not the FDA has accepted the filing. Now I'll turn the call over to Paul to discuss our quarterly results. Paul? Thank you, Dan. This afternoon I will review the financial highlights from our third 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 $34.3 million for the third quarter of 2022 compared to net product sales of $26 million in the prior year quarter and $35.4 million last quarter. The increase in net sales versus the prior year quarter is primarily driven by Indison and the addition of Otrexa. Indison family net sales in the third quarter increased by $7.3 million over the prior year quarter primarily due to higher net pricing. Indison also decreased by $1 million versus last quarter due to a reduction in channel inventory levels, partially offset by a return accrual benefit recorded in the quarter. $1.5 million of the return accrual adjustment is a one-time benefit that will not impact future periods. Otrexip net sales for the third quarter were $3 million versus $2.6 million in the prior quarter. The $400,000 increase in Otrexit net sales from the last quarter is primarily due to the increased volume in the quarter, despite a slight decline in wholesaler inventory levels. Regarding the recent supply constraints, we have received finished goods deliveries to support existing demand and expect to resume full sample allotments in late Q4 and early Q1 2023, which we use to drive new prescriptions. Additionally, payer pressures continue as members move into more restrictive benefit designs, and our key competitor has become extremely aggressive with payer contracting. We continue to focus on maintaining profitable payer access for Otrexa. Cambia net sales were $400,000 lower than the prior year quarter, primarily due to lower volume, as we pulled back on promotion leading up to the loss of exclusivity in January 2023. The third quarter was the first quarter after the discontinuation of SoluMatrix, and as expected, there were negligible sales in the quarter. Overall, portfolio net sales were up 32% versus the prior year quarter.