Assertio Holdings, Inc.
Q4 2018 Earnings Call Transcript

Published: 7 Mar 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to the Assertio Therapeutics, Q4 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. Following management’s prepared remarks we will have a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, today’s conference will be recorded. It is now my pleasure to turn the conference over to your host, John Thomas, Senior Vice President of Investor Relations and Corporate Communications. Please go ahead, sir.

[John Thomas:]

Thank you, Haley. Good afternoon and welcome to our investor conference call to discuss Assertio’s fourth quarter and full year 2018 financial results announced this afternoon. The News Release and Investor Presentation covering our earnings for this period are now available on the investor page of our website at www.assertiotx.com. I’d encourage you to review the presentation slides as they are complementary to today’s discussion. With me today are Arthur Higgins, President and Chief Executive Officer; and Dan Peisert, our Senior Vice President and Chief Financial Officer. I would like to remind you that matters discussed on this call contain forward-looking statements that involve risks and uncertainties, including those related to the commercialization of Gralise, CAMBIA and Zipsor. Our collaborative arrangements, including with Collegium Pharmaceutical, the company’s financial outlook for 2018, regulatory development plans, including those for long acting cosyntropin, our loan agreements including our senior secured debt facility, expectations regarding potential business and investment opportunities, and other statements that are not historical facts. Actual results may differ materially from the results predicted and recorded. The results should not be considered an indication of future performance. These and other risks are more fully described in the Risk Factors section and other sections of our Quarterly Reports on Form 10-Q and our Annual Report on Form 10-K. Assertio disclaims any obligation to update or revise any forward-looking statements made on this call as a result of new information or future developments. Assertio’s policy is to only provide financial guidance for the current fiscal year and to provide updates or reconfirm its guidance only by issuing a news release or filing updated guidance with the SEC in a publicly accessible document. References of the current cash and cash equivalents are based on balances as of December 31, 2018. All guidance, including that related to the company’s expected neurology franchise net sales, earnings and non-GAAP adjusted EBITDA are as of today. The non-GAAP financial measures Assertio uses are not based on any standardized methodology prescribed by GAAP and maybe calculated differently from and therefore may not be comparable to non-GAAP measures used by other companies. With that, I will turn the call over to Arthur. Arthur?

[Arthur Higgins:]

Thank you, John. Good afternoon and welcome everyone. I am pleased to report that we finished 2018 with strong performance that met or exceeded our current guidance. We delivered full year adjusted EBITDA of $155 million, which exceeded our original target at the beginning of the year and hit the top end of our current guidance range of $145 million to $155 million. In addition, we reported neurology franchise annual net sales of $110 million, which also hit the top end of our current guidance range of $105 million to $110 million. We also made tremendous progress overall in advancing our three-pillar strategy of maintain, grow and build. Let me walk you through some of the major milestones we achieved in 2018, within each of our pillars. I will begin with our maintain pillar. Last fall we amended and strengthened our partnership agreement with Collegium, such that it no longer allows for termination prior to the end of 2021. In general this agreement provides greater certainty of NUCYNTA income and importantly by removing the early termination overhang makes the arrangement more valuable for us in terms of underwriting of our secured debt. Both companies are committed and confident that Collegium can first stabilize and then grew the NUCYNTA franchise. Our amended agreement underscores that commitment and better serves both companies. Collegium has also provided the full year 2019 NUCYNTA franchise sales guidance of $200 million to $210 million, which is consistent with our goal to stabilize our franchise and this is a range that we have also used for our planning purposes. Turning to our growth pillar, our first objective was to stabilize the neurology franchise and then determine to sustainable growth. In 2018 we were able to show stabilization, quarter over quarter and our total neurology franchise revenues and prescriptions. While we know we can do better and our goal for 2019 is to return the franchise to low to mid-single digit growth, in recent months we began the comprehensive rollout of new commercial initiatives across all three of our neurology assets. These new efforts including the following

[Dan Peisert:]

Thank you, Arthur. My comment this afternoon will focus primarily on our non-GAAP results unless otherwise noted. Our adjusted EBITDA for the fourth quarter and full year was $41 million and a $155.3 million respectively, coming in at the high end of our guidance range of $145 million to $155 million. Our adjusted EBITDA results were driven both by expense management, as well as strong top-line results. Our operating expenses for the full year came in at the low end of our guidance range for both SG&A, as well as R&D, demonstrating that our restructuring efforts have yielded the results we intended. Our neurology revenues for the fourth quarter and full year were $29 million and $110.3 million respectively, also coming in at the top end of our guidance range of $105 million to $110 million. Gralise generated sales of $14.8 million in the fourth quarter, while still declining year-over-year this is now the second consecutive quarter with positive sequential growth in both volumes and net revenues, demonstrating we have stabilized the brand in 2018. We recorded an all-time quarterly high in net sales for CAMBIA of $10.9 million in the fourth quarter. We’ve been able to grow both volumes and new revenue, each of the last three quarters, so that net revenues for the year of $35.8 million were up 13.3% over 2017. Zipsor generated sales of $3.2 million in the fourth quarter. Operationally the product was in-line with our expectations with continued sequential growth and volumes. However we did have a larger accrual adjustment to reflect a higher rate of returns than were anticipated in the fourth quarter. This impacted the quarterly performance for the brand and the franchise. Our growth pillar is showing evidence of positive momentum, absentia the accrual adjustment for Zipsor, we would have seen annual year-over-year growth in both CAMBIA and Zipsor for 2018. The GAAP revenues recognized under The Commercialization Agreement with Collegium were $13 million in the fourth quarter, relative to the $34.1 million non-GAAP revenue and the $33.8 million in cash collected under the agreement during the quarter. The reason for the difference was due to the accounting treatment for the contract modification upon the date of the amendment which was November 8. We concluded that the fixed consideration received under the new contract is $157 million relative to the $553.2 million in the original contract. This amount is made up of the following

[John Thomas:]

Thanks Dan. And Haley, we will now take Q&A please.

[Operator:]

Absolutely. [Operator Instructions]. Our first question comes from Scott Henry of Roth Capital. Your line is now open.

[Scott Henry:]

Thank you and good afternoon. Just a couple of questions. You’ve given EBITDA guidance for 2019. My question is have you factored any Cosyntropin revenues into that guidance or as well any expenses. How should we think about what your expectations are for that product in 2019 if at all, I know it got a late PDUFA date.

[Dan Peisert:]

Scott, we did not factor in any revenues in 2019. But we did factor in some initial costs to prepare for the launch for the product.

[Scott Henry:]

Okay. Will you have to add any reps for that launch?

[Dan Peisert:]

There will be no reps that will be promoting that product, but we anticipate that we’ll have to add [inaudible].

[Scott Henry:]

Okay, that’s helpful. And then I guess when I think about the neurology franchise, I would expect it sounds like CAMBIA is going to kind of neutralize in 2019. As that being said, should we still expect that to be, CAMBIA to be a growth driver in 2019 or relative to 2018 revenues?

[Arthur Higgins:]

Scott, this is Arthur. Yes, we would still expect CAMBIA to be a contributor to our growth in 2019.

[Scott Henry:]

Okay, and then with Gralise, I mean how do we think about that? Is it really I mean moderating the volume declines and then offsetting that with price, perhaps that’s just more neutral. Just trying to get a sense of what you're trying to do that franchise going forward?

[Arthur Higgins:]

Yeah, I mean I would say of the three products that will contribute to growth, I think Gralise will contribute the least, but we still expect to see growth with Gralise in 2019, but mainly coming from price.

[Scott Henry:]

Okay, and I guess the final question, just trying to get your sense of the outlook for in-licensing opportunities. I mean are you deep along in discussions, if you're handicapping that, is it a target or do you feel like you're pretty far along as far as bringing in a couple more kind of revenue drivers?

[Arthur Higgins:]

Scott, as I mentioned we were very disappointed that we did not meet that goal last year. It was one of the few goals that we missed and this is an organization that likes to deliver us commitments. So as we speak, we have got several actionable targets that we’re in discussion with, but as you're aware there can be no promises on BD, but we would be extremely disappointed if we do a complete at least one late stage or on market asset that would complement our neurology franchise and I would think also one late staged product that will complement our specialty business. So cautiously optimistic, but in this world, until the contract is signed, no promises.

[Scott Henry:]

Okay, great. I appreciate that color and thank you for taking the questions.

[Arthur Higgins:]

Thanks Scott.

[John Thomas:]

Yeah, thanks. Haley, we’ll go over the next question please.

[Operator:]

Absolutely! Our next question comes from Randall Stanicky of RBC Capital Markets. Your line is open.

[Dan Busby:]

Hey, this is Dan Busby on for Randle. Just one big picture question for me. Hey guys! On business development, as you built out your neurology and specialty businesses, you envision maintaining those as two largely standalone businesses and then the follow on for that would be, does that open the door to a potential split of those two businesses at some point in time if it was value creating?

[Arthur Higgins:]

Dan, certainly we see both those business being separate. We haven’t considered a split. I mean our first goal is to obviously develop an attractive orphan specialty business and if at some point there is greater shareholder value from looking at that, definitely I can tell you that this is a group that's very open to whatever is required to drive sustainable value.

[Dan Busby:]

Okay, and then just to be clear, are you prioritizing – it sounds like you are looking at a whole lot of assets. Are you prioritizing a neurology asset on the beacon front at this point?

[Arthur Higgins:]

Dan, our first priority is to get an accretive asset for neurology.

[Dan Busby:]

Understood. Thank you.

[John Thomas:]

Okay, thanks Dan. Haley go to the next caller.

[Operator:]

Okay, our next question is from Irina Koffler of Mizuho. Your line is open.

[Irina Koffler:]

Hi, thanks for taking the question. Can you update us on any reimbursement discussions you are having with payers on Cosyntropin and also how quickly can this product ramp? What do you see as the key hurdles to adoption?

[Arthur Higgins:]

Irina, first of all we continue to have very constructive discussions with payers. Well nobody discussed ramping until we get closer to launch. But as I mentioned in my remarks, even a modest level of penetration would represent a very significant asset and some of the numbers out there, you can derive from the number of physicians who say they are interested even if we took a discount to that. I think you are talking about an asset that would be transformational from Assertio’s perspective.

[Irina Koffler:]

Okay, I have a follow-up, and the Purdue bankruptcy, I was just wondering if you guys can comment on what its implications are for other parties in the case?

[Arthur Higgins:]

First of all, I mean that’s only speculation and we're not going to comment on speculation. So, I mean I like to call them, but I really don't have any insight into that and it is only speculation at the moment.

[Irina Koffler:]

Okay, and just one last one. Can you provide an update on the new center appeal?

[Arthur Higgins:]

Yeah, we are still waiting for hearing back home the appeal and we're expecting that any day now.

[Irina Koffler:]

Okay, thank you.

[John Thomas:]

Thanks. Okay Haley, we're ready for the next question.

[Operator:]

Absolutely. [Operator Instructions]. Our next question comes from David Amsellem with Piper Jaffray. Your line is now open.

[David Amsellem:]

Thanks. So I just had a couple of questions on Cosyntropin. So I guess number once, since it looks like this is going to be an off label type of commercial strategy, do you have a sense of what is a realistic share that you could take from Acthar. How should we think about that and you know what are your targets if you are willing to share that? And then secondly, any color on where you are looking to price the products, I guess on a list basis relative to that of that Acthar. Thanks.

[Arthur Higgins:]

Very good questions, but you'll not be surprised that for competitive reasons you don’t get very big answers. I think the first point I'd like to just make sure that everyone is clear. We will not be promoting this product off label. However, again we remind everybody that physicians can prescribe medicines regardless of the label. We will be focused on payers. We have identified that 27 payers represent over 75% of Acthar business. We can mandate step add-ins or formulary restrictions regardless of the indication that the product has and that’s a dialogue that we are having with payers. As to projection all again I would say is that even if we got a modest, a bold new share and with our – what I would call a competitive pricing discount, this would be a substantial assets for Assertio.

[David Amsellem:]

Okay, well though I’d give it a shot, thanks.

[Arthur Higgins:]

It was well worth the try.

[Dan Peisert:]

Anything else David?

[David Amsellem:]

And I’m going to keep trying, how about that?

[Arthur Higgins:]

You know if you keep triangulating David, one of these days, let’s hope – you could keep asking.

[David Amsellem:]

Alright thanks.

[Arthur Higgins:]

Thank you very much.

[Dan Peisert:]

Thanks David.

[John Thomas:]

Haley, are we – any other questions?

[Operator:]

There are no further questions at this time and Mr. Thomas, you can proceed with your closing comments.

[John Thomas:]

Okay. I want to thank everyone for joining us this afternoon. A replay of the webcast and conference call will be available shortly and for the next 30 days. Dial 1-855-859-2056 and use the passcode 37-84-827. If you have any follow-up questions, please contact us. As a reminder our earnings release materials are posted to the Investor Relations website at assertiotx.com. I think Arthur wants to make one last closing statement.

[Arthur Higgins:]

Yeah, I just wanted to again thank everybody who participated in today’s call and for the questions. I hope all the listeners can agree that the many actions we have taken over the last year have reshaped Assertio into a faster, leaner and more entrepreneurial company. A company on the rise, and a company committed to getting value for our shareholders. Thanks again for your participation today.

[John Thomas:]

Thanks everyone and please contact us if you have any follow-ups. Have a good evening!

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's programming, and you may now disconnect. Everyone have a great day!