Assertio Holdings Inc (ASRT) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the Q4 2020 and full-year Assertio Holdings, Inc. earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Mr. Max Nemmers. Thank you. Please go ahead, sir.

Thank you, [Buerna]. 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 Peisert, 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 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 our annual report on Form 10-K. Our 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 will now turn the call over to Dan. Dan?

Thank you, Max. And thank you everyone for joining us this afternoon. 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 Assertio. I am 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 can 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 establish my goals and priorities as new CEO of Assertio, 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: built 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 we'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, who you'll hear from in a minute, and Ajay Patel for Chief Accounting Officer. In addition, we've made a number of promotions to our new executive team. Paul and Ajay 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 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've 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'll 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 opportunities 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 use 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's 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 31.

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 INDOCIN 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 do 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 cost if we were to refinance our remaining debt over the next 12 to 18 months.

My fifth priority and 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 these challenges are old legacy Depomed 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. Where resolution is not possible, we will attempt to define what the potential outcomes may be, where a bare minimum result is lowering our ongoing external legal costs. Simply stated, our goal is to put these legacy legal issues where they belong, behind us. Our settlement in insurance litigation in February exemplifies this is 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 smaller companies like Assertio.

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 set by analytics that most effectively reaches the four Ps that work together to make prescription decisions: patients, prescribers, payers, and pharmacies.

With our focus on profitability and growth, we've made the 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/and has or will likely change all of our lives in some way.

But what 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 were 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 e-mail 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 Zyla 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. Zipsor fourth quarter net sales showed growth over the third quarter and prior year quarter.

In addition, the fourth-quarter net sales reflect better than expected sales from the SOLUMATRIX brands as we prepare to exit commercialization of these products. INDOCIN 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 volumes due to COVID and the third quarter commercial coverage change for SPRIX. For CAMBIA and Zipsor, 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 Zyla product portfolio and the inventory step-up expense associated with the fair value adjustments as part of the Zyla 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 chanches 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 Zyla 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 our opioid legal costs for the second half of 2020 is $43.7 million, which translates into an annual operating expense run rate of approximate $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 and 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's especially challenging, given all the changes to the business. However, the largest change drivers have a loss on asset impairment from a divested product recorded in the prior year and substantially higher interest and amortization expense from 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 million 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 noncash good-will 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've 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 30 balance of $34.7 million was 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 of Assertio, 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. Two, 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. [Buerna], we can open up the call for Q&A.

Absolutely, sir. (Operator Instructions) Scott Henry of ROTH Capital.

Thank you and good afternoon. A couple of 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 INDOCIN, SPRIX, and maybe 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 the 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 it on an 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 wanted to get your thoughts on how we should think about that SG&A line?

Yeah. I mean, I 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 about $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 wanted 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 can you typically see? I mean 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 want to get kind of your thoughts based on your early experience.

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, it could be 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 were 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 it might be obvious to you from our portfolio going forward is SPRIX 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. (multiple speakers)

On a pro forma basis, the SOLUMATRIX sales were $8.2 million. So, we will not be seeing that same level of sales for those products going forward.

And 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 -- (multiple speakers)

Yeah. So, 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 Zyla and Assertio. So, the full calendar year of 2020 across both companies.

Okay. Okay. Perfect. Thank you. And thank you for taking the questions.

Kevin Kedra, G.reasearch.

Hi. Thanks for taking my questions. Dan, you 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 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 will 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 a 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. Think more about business development opportunities about a year ago when you guys announced the Zyla merger. It seems fair to say things haven't gone quite the 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 Zyla over the past year and that you can apply to future business development opportunities in the positives and negatives, relative to your expectations going into that merger?

t'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 -- 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 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 can squeeze one more, you talked about some of the changes that we can expect to see with CAMBIA and Zipsor 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. 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 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 for some closing comments.

So in conclusion, we have clear and ambitious priorities for 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 am very proud of the team we have here at Assertio. And I want to thank all 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.