Assertio Holdings, Inc. Q3 FY2024 Earnings Call

Thank you for standing by. My name is John, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Assertio Holdings Third Quarter Results Conference Call. All lines have been placed in mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I would now like to turn the call over to Matt Kreps, Investor Relations. Please go ahead.

Thank you, John. Good afternoon, and thank you all for joining us today to discuss Assertio's third quarter 2024 financials. The news release covering our results 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 tables in conjunction with today's discussion. With me today are Brendan O'Grady, our Chief Executive Officer; and Ajay Patel, Chief Financial Officer. In just a moment, Brendan will open the remarks and provide an overview of the business, then Ajay will cover our financial results. After that, we will take questions from our covering research analysts. Please note that 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 our annual report on Form 10-K and in our Form 10-Q filings. Our actual results may differ materially from those projected in the forward-looking statements. Assertio specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. And with that, I will now turn the call over to Brendan. Please go ahead.

Thanks, Matt. Welcome, everyone, to today's call, and thank you for joining. I'd like to start by wishing you all a Happy Veterans Day, especially to our retired and active service members and their families. In addition to our usual quarterly performance, there are two other relevant issues that I would like to begin my remarks by addressing. The first is the unwarranted attack on Assertio stakeholders by Mr. Alex Parker of Buxton Hemsley Group that was launched this past Friday, November 8. I'm sure many, if not most of you have seen the letter I released this morning addressing Mr. Parker's rambling manifesto that he put out last Friday. Normally, I would not validate such conduct by speaking about it. But because of the numerous falsehoods and baseless allegations that had such an impact on our share price, I want to use this opportunity to address this head on. While we have taken Mr. Parker's allegations seriously and have looked into every single one of them, we found them all to be without merit. We have communicated that to Mr. Parker on numerous occasions while at the same time refusing to bow to his demands of cash payments or a seat on Assertio's board to which he would add no value. Most importantly, neither of which would be in the best interest of shareholders. If you take the time to read through his less than coherent 24-page document, he is essentially making three baseless claims. While I do not want to rehash my entire letter, I do want to take a minute to set the record straight specifically on those claims. First and foremost, Rolvedon is a safe and effective product. I am 100% confident in that. Assertio was aware of the whistleblower claims around Rolvedon before the acquisition of Spectrum. In fact, those claims were investigated by three different professional outside firms. The experts involved in those investigations determined that the FDA was supplied with all relevant and required data that led to Rolvedon's approval. Rolvedon has now been in the market in the U.S. and South Korea for 2.5 years and has demonstrated its safety and efficacy in the clinic with patients in real-world settings. It is well tolerated by patients and has been well received by providers. Second, the impairment charges had nothing to do with any purported Rolvedon safety claims. Assertio simply followed clearly established accounting principles as we always do in regards to any asset. Our disclosures clearly explain the impairment and how any and why it was calculated the way it was. It is that simple. Third, no payment to the alleged whistleblower was ever made. The proposed payments Mr. Parker is referring to related to an employment claim that was raised by a disgruntled former employee. That employee brought claims forward about Rolvedon as leverage to boost the value of a settlement or to reverse their pending termination. After a thorough investigation, it was determined those claims and allegations were false and without merit. The employee was subsequently terminated as part of a reduction in force and the case was later dismissed without any payment ever being made. Finally, Mr. Parker's rambling rehash of connecting dots where none exist or misrepresenting long past settled issues is ripe with false statements and mischaracterizations that we have pointed out to him numerous times, including the circumstances and reasons for the departure of a former Board member. While I don't expect his desperate attacks will stop, you should know that there is nothing here and we will vigorously defend our reputation using all legal and regulatory means at our disposal. Today will be my last comments on this matter as I turn 100% of my focus to the business. So now with that out of the way, I'd like to focus my comments back to the business and the progress we are making in stabilizing the company and positioning it for transformational growth in the coming months. As noted in our earnings release today, I would like to announce that during the November 7 Board of Directors meeting, Chairman of the Board, Peter Staple, retired from the Board after 21 years of dedicated service and leadership. Peter was instrumental in bringing me to Assertio and although our time together was short, I appreciated his calm demeanor, deep expertise, and presence on the Board. I cannot thank him enough. In addition, Dr. Jeff Vacirca has stepped back from the Board to focus on his other business interests. We thank Dr. Vacirca for his service and providing continuity through the acquisition and integration of Spectrum. His insight into the GCF, GCSF, and oncology markets was invaluable, and we will miss his contributions to the Board. Both of these departures and the continued transition to the Board have long been in the planning. With that, I'm also happy to announce that Heather Mason, Independent Director, has been appointed as Chairwoman of the Board. Heather has been on the Assertio Board for over five years, serving as interim CEO prior to my joining, and she has a wealth of industry experience. I look forward to continuing to work with Heather in her newly expanded role. I am also excited to announce that David Stark has joined the Assertio Board effective November 7. David is an experienced litigator and senior pharmaceutical executive, most recently retiring from Teva as Chief Legal Officer. David brings a wealth of industry and relevant legal expertise from his 20-plus years at Teva. David and I were colleagues at Teva, and I'm excited to be working with him again in this new capacity. Now on to the business. First and foremost, let me just say I'm very pleased with where we are today as a starting line for growth. As I've said previously, this year is about stabilizing the organization as we transition from INDOCIN as our lead product to ROLVEDON and at the same time, positioning ourselves for more transformational growth in the coming months. It is worth restating that we have a solid balance sheet, modest debt on favorable terms, and a good stable of growth, core, and legacy assets led by ROLVEDON. We also have an excellent team of dedicated professionals who know this industry extremely well, giving us the opportunity to add or enhance key capabilities as we grow. Also important to note is that our capabilities and lean model will allow us to be relatively sector-agnostic, broadening the landscape for new assets and enabling us to focus on those that best fit our commercial parameters. For all these reasons, we are well positioned to deliver value for the patients and providers we serve as well as shareholders and employees as we build a significant branded specialty business through acquisition, integration, and a focused go-to-market strategy. As I said on my first call with you in August, our focus will remain on steady execution, driving cash flow, and identifying new assets we can add to bring further scale to the Assertio's platform. Now turning to performance, and I'll first address ROLVEDON. ROLVEDON Q3 sales were essentially steady quarter-over-quarter, showing continued solid demand. We continue to retain a stable share around 33% in the community oncology clinic space where we have primarily focused. We did see a dip in demand due to some typical seasonality that can occur in the third quarter as well as some shift in the community oncology clinic space, specifically Part B. This was offset by the addition of new customers, enabling further expansion into the hospital space and community oncology clinics where we did not have a presence. These are segments that will be important for further growth. We remain focused on using our position as a safe and effective non-biosimilar GCSF to offer stability to providers and patients, positioning ourselves as a predictable and reliable solution at a more stable price. Additionally, ROLVEDON's same day dosing trial wrapped up in early Q2, and I'm excited to announce that the data will be presented as a poster exhibit at the San Antonio Breast Cancer Symposium in December. I'm excited about ROLVEDON as it's going to play a key role for us over the next several years, both in our current clinic-focused market and the hospital market as we prepare to expand into those additional opportunities. As the only available GCSF approved under a BLA without biosimilar copies, there may also be opportunities for label expansion. We're in the very early phases of making that assessment. Now a couple of words about INDOCIN. On INDOCIN, we continue to manage the lifecycle process and drive cash flow generated from the asset. Although there has been some compounding activity to date, we have only one generic competitor. Our share of the market is holding steady at our internal target levels, which is around 50% of the ex-compounding market. We will compete to hold our rightful share of the market, and at the same time, we will work to maintain our share and optimize price. Having worked at Teva for more than 20 years, this is something I am very familiar with and know how to do. Looking at Sympazan, while this is a smaller asset, we believe that it has underpenetrated the market, and there is room for growth. We also understand that Sympazan is especially responsive to key opinion leader awareness and support. I think I mentioned on the last call that we're piloting and executing sales and marketing tactics designed to drive prescriber awareness and prescription growth in key markets. Although early, we have seen record demand levels in Sympazan prescriptions in July and August as a result of these activities. This is a product I liked from the beginning of my time at Assertio. It serves a specific unmet medical need, and we have a broad coalition of growing support among patients, caregivers, and providers, and look to expand both awareness and use of Sympazan going forward. And then lastly, just a quick word about some of our remaining assets. And I'd like to just talk a little bit about how to characterize the business. I see it really in three main buckets. I see a growth asset bucket. This is clearly ROLVEDON, and I've spoken about it. I see a core asset bucket; this is Sympazan and SPRIX. And while I discussed Sympazan in our plan there, I've not said much about SPRIX. What I will say about SPRIX is that it serves a significant unmet medical need by providing opioid-level pain relief. It is indicated for moderate to moderately severe pain that requires analgesia at the opioid level. There continues to be a focus on non-opioid pain relief, and the NOPAIN Act, which expands reimbursement for non-opioid postsurgical options starting January 1, 2025, could be an opportunity that we are looking at very seriously for SPRIX. If nothing else, it brings the need for non-opioid pain relief back to the forefront and gives reason to believe that SPRIX could be a bigger asset for us than it currently is. The last bucket is our legacy assets. These are our tail products that have lost exclusivity or face very difficult market dynamics. In this bucket, it's all about asset optimization and includes INDOCIN and CAMBIA, among others. I understand how to extract maximum value out of assets like this, and we'll continue to focus on cash generation in this bucket. With that, I'll conclude my remarks, and I'll hand it over to Ajay Patel, our Chief Financial Officer.

Thanks, Brendan. Today, I would like to cover our financial results for the third quarter of 2024. Before I begin, I want to note that my commentary will focus on sequential comparisons to the prior quarter. Comparisons to the prior year are less relevant given the acquisition of Spectrum and generic competition of INDOCIN that occurred in the prior year third quarter. Also, I want to remind everyone that ROLVEDON is now our lead asset and brings with it associated changes in margin, operating cost structure, and cash flows that you are seeing in our results throughout this year. For the third quarter of 2024, our total product sales were $28.7 million, down slightly from $30.7 million in the second quarter, primarily due to ROLVEDON sales being offset by the expected decline in INDOCIN. ROLVEDON sales were $15 million in the third quarter compared to $15.1 million in the second quarter. The change was driven by continued volume growth, offset by lower net pricing. We continue to hold about a one-third share in our served markets. INDOCIN sales were $5.7 million in the third quarter, down from $6.9 million in the second quarter, driven by lower net pricing as a result of generic competition. In terms of volume, we continue to target and hold an approximate market share split. Reported gross margin in the third quarter improved to 74%, compared to 71% in the second quarter, primarily due to the level of inventory step-up amortization and write-downs from the prior quarter not repeating. Turning to operating expenses. SG&A expense was $16.7 million in the third quarter, decreased from $18.4 million in the second quarter. R&D expense in the third quarter was relatively flat at approximately $1 million. On an adjusted basis, excluding stock compensation, D&A, and change in fair value, adjusted operating expense was $16.4 million in the third quarter, down from $17.7 million in the second quarter. The decrease was primarily due to lower sales and marketing and other G&A costs, partially offset by net higher legal-related charges. GAAP net income for the third quarter was a loss of $2.9 million, down from a loss of $3.7 million in the second quarter. Because GAAP net income includes a number of non-cash expenses, we also use adjusted EBITDA as the good indicator of the operating performance of the core business. Q3 adjusted EBITDA was a positive $5.3 million, increased from $5 million in the second quarter due to lower operating expenses, partially offset by lower product sales. Please refer to our press release for a detailed reconciliation of our adjusted EBITDA results. Crossing over to cash flow and our balance sheet. As a reminder, we invest cash into short-term investments. Therefore, our reference to total cash position includes both cash and cash equivalents and short-term investments. Total cash at the end of the quarter was $88.6 million, effectively flat to the $88.4 million in the second quarter, and debt remained unchanged at $40 million. As we previously noted, quarterly operating cash flows will fluctuate due to timing of working capital in terms of cash receipts and payments due to a shift in product mix from INDOCIN to ROLVEDON. Third quarter operating cash flows were negligible and were impacted by the timing of working capital from cash collection and lower product sales. Year-to-date, we have generated $15 million in cash flows from operations. With that, we will open the floor to questions from our covering research analysts. Operator, please go ahead with the instructions.

Thank you, Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from the line of Thomas Flaten with Lake Street Capital Markets. Please go ahead.

Hey. Good afternoon, guys. Congrats on the quarter. Ajay, you didn't mention anything about guidance. Any thoughts on that for us?

Yeah. Thanks for the question, Thomas. You're right. At this point, we would have liked to narrow the range but we still see a flux in a few key areas for the remainder of the year. Therefore, we're going to keep the remaining guidance range that's out there. Some of the areas we'll continue to focus on is, first, focus on stabilizing the business as we cross over from INDOCIN into ROLVEDON. Secondly, as we continue to monitor the generic competitive landscape of INDOCIN. And then third is the dynamic pricing and volume activity occurring in the GCSF market landscape.

Great. Brendan, in the last quarterly call and at some investor conferences, you mentioned the possibility of pursuing a smaller deal this year, followed by something more transformative in 2025. Could you share your updated thoughts on that?

Yeah. No. So we continue to look at the landscape of what's available and what's out there. And there are assets that we think we could execute, whether they're smaller or larger. But the further we go, I'm starting to think maybe we do something a little bit more robust in the near term than maybe a small tuck-in. So it really kind of depends on what's out there, what the price is, what we can get, and how we think it fits with our model. So I'm optimistic. I think there are lots of doable deals out there. But I said before, I want to make sure it’s the right fit. So I don’t want to jump into something just because we feel like we need to. I want to make sure that it’s the right thing for Assertio and we’re paying the right price for it.

Excellent. Appreciate you taking the questions. Thank you.

Your next question comes from the line of Naz Rahman with Maxim Group. Please go ahead.

Hi. Thank you for taking my question. They're both on ROLVEDON. I'll start with this. In regards to pricing, where do you think the pricing decline sort of stabilized? Do you think you've reached stable prices, or do you think there's still room for the pricing to decline?

Yeah. Hey, Naz. This is Ajay. Thanks for the question. I would say the GCSF landscape is very competitive, especially with the biosimilars and some of the more recent entrants in the last few years really driving pricing. Therefore, in this market, we are somewhat hindered by what the market competitors will continue to do. We have seen pricing declines over the last few quarters, which we anticipate the trend would continue as market share starts to equalize. But one of the things we're absolutely focused on is the market that we operate in from a Medicare Part B perspective and maintaining one of our leading market share positions there.

Got it. That was helpful. And my follow-up question is, following the same day dosing data, could you talk a little bit about the logistics and potential timeline to get that into NCCN guidelines? Like, what has to happen there and how long does that take?

Yeah. So thanks for the question. We'll make the data public here in December. And then I think it is roughly about a six-month window for us to work with NCCN for them to consider that doesn't mean that it would be mid-year, but I think the earliest it could potentially be is mid-year. So we haven't had those discussions or those conversations yet, but I think it will be somewhere between the middle and the back end of next year.

Got it. Thanks for taking my questions.

Your next question comes from the line of Scott Henry with AGP. Please go ahead.

Thank you and good afternoon. I have a couple of questions. First, regarding ROLVEDON, the first quarter was approximately $14.5 million, the second quarter $15.1 million, and the third quarter $15 million. I assume the guidance for 2024 remains around $60 million. This suggests we have about four quarters close to that $15 million figure. Do you believe it will stabilize here for future growth, or might the growth be slower? I'm trying to understand the dynamics in that market and how we should approach growth for ROLVEDON in 2025 and beyond.

Thank you for the great question. You're correct that we've seen about $15 million in sales for the first three quarters. For the year, we anticipate sales to be around $60 million. Looking ahead to 2025, we've been concentrated on the community oncology clinic sector, particularly in the Medicare Part B space where we hold about a third of the market share. As we transition into 2025, we believe there is potential for further growth, and we are planning to expand beyond clinics into hospitals. We see ROLVEDON as a long-term investment rather than short-term spikes in sales. We are optimistic about continued growth and have strategies in place to support that growth with ROLVEDON.

Okay. Great. SG&A in the quarter seemed quite low, which is a positive sign. Do you believe that's a reasonable figure to project for the future? Is that the current run rate you have?

Yeah. Scott, good question. Yes, I would say, generally, in our business, the second half of the year from an SG&A perspective is generally lower as a lot of our sales and marketing initiatives occur in the first half of the year. With that, we also additionally had additional restructuring and transition we did with the company in the beginning in the first quarter of the year. So that kind of reflected on a higher run rate. I would say the average of the last two quarters is sufficient for the remainder of the year.

Okay, great. For my final question, I wanted to inquire about the Board update. I've been following the company for a while and recall there being a mandatory retirement age for Board members. Did that play a role in Peter Staple's retirement? Also, could you provide any details about Dr. Vacirca's retirement? I believe he mentioned something earlier, but I might have missed it.

Sure, I'd be happy to address both questions. Peter has been on the Board for 21 years and has seen many different versions of Assertio, working with several CEOs. Although Peter was nearing the mandatory retirement age, there was a plan for him to take a step back and eventually retire from the Board. He remained during the transition between the former CEO Heather, who became Interim CEO, and my appointment. After I joined, the transition between Peter and Heather was expected, so this has been in the works for some time. Peter has been an outstanding board member, serving Assertio well over the years. As I mentioned earlier, he has a calm demeanor and is a very experienced professional, and I truly appreciate his contributions. Regarding Dr. Vacirca, he came from Spectrum, where he was on the board, and helped with the integration of Spectrum into Assertio, enhancing our understanding of the GCSF market and oncology clinic space. I don’t want to speak for Dr. Vacirca, but I don't believe he intended to stay on the Assertio Board indefinitely; in fact, he probably extended his tenure longer than expected. He has many other business interests that require his attention, making this an appropriate time for him to step back from the Board as well.

Okay. Great. Thank you for that color and thank you for taking the questions.

Sure.

Your next question comes from the line of Ram Selvaraju with H.C. Wainwright. Please go ahead.

Thanks very much for taking my questions. I just wanted to ask, first and foremost, about what the underlying market dynamics are that you're seeing that are driving new customers to choose ROLVEDON? If you could comment on that in some additional granularity, please?

Well, I'll just give you my take first, and then Ajay, if you want to jump in and say anything you're welcome to. But look, I think that ROLVEDON competes in a very dynamic marketplace. It competes with six or seven or eight other GCSFs, and it depends upon the actual slice of the market that you're competing in, which is the clinic Medicare Part B space. We've been successful there. I think physicians recognize the providers recognize that ROLVEDON is a very safe and effective product. I think that will be underscored when we see the results of the same day dosing. Having said that, a lot of this is a contract play, and a lot of it is about access. It is about having the right ASP formula and how you're managing ASP erosion, all of those things. So I think at the end of the day, a lot of times this comes down to a contract play that is largely not even decided by the physician but might be by a practice manager. So patients may be unaware of the particular GCSF they're getting. Some may be aware, some may not be aware. But overall, it's decided kind of at the clinical level by decision makers that way. Ajay, anything else to add?

No, I think Brendan hit it spot on. The former in terms of the appeal of the product itself helps us get kind of into the door, and then the second on the contracting side, it helps us with the stickiness of sustaining our leading market share in the oncology space.

And then just as a follow-up, I just wanted to see if, Ajay, you wanted to comment on what you see as future trends on the gross margin front, if you think that sustainably maintaining gross margins in the sort of low to mid-70s is possible as the product and revenue mix evolves? Thanks.

Yeah. No, thanks for that question. Yes, I think, as I mentioned to Thomas, we're keeping our previously announced guidance for '24 in line. We're not ready yet to comment on anything beyond '24 here. So previously stated comments on gross margin that year-over-year, there will be a gross margin erosion as we shift from INDOCIN, which was a highly accretive gross margin product with very little commercial activity behind it, to ROLVEDON, which is a biologic and carries a higher COGS rate. Additionally, we have the commercial spend behind it, so we do continue to see that shift occurring into Q4 as well. But we are absolutely focused on maintaining that blended gross margin rate between 70% and 75% for 2024.

As there are no further questions, that concludes the Q&A session. I would like to turn the conference back over to Brendan O'Grady for any closing remarks.

Thank you. I appreciate everyone who has joined us today. I just want to reiterate that I believe we have a great platform, an excellent team, and a sound strategy as well as a balance sheet that will help support further growth. I hope that today’s call has continued to demonstrate our ability to deliver steady execution on the commercial business we have today as well as our commitment to finding the right assets to further grow the platform. If you’d like to arrange a meeting or at an upcoming event or an update call with management, please contact Matt Kreps directly using this information provided in the press release, and we’ll be happy to schedule a time to speak. Thank you all again for joining us today.

That concludes today's meeting. Thank you for your participation. You may now disconnect.