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Assertio Therapeutics, Inc (NASDAQ:ASRT)
Q1 2019 Earnings Call
May. 08, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon, and thank you for standing by. Welcome to Assertio's first-quarter 2019 earnings conference call. As a reminder, today's conference call is being recorded. I would now like to introduce Mr.

John Thomas, senior vice president of investor relations and corporate communications.

John Thomas -- Senior Vice President of Investor Relations and Corporate Communications

Thank you, Christine. Good afternoon, and welcome to our investor conference call to discuss Assertio's first-quarter 2019 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 assertiotx.com. With me today are Arthur Higgins, president and chief operating officer; and Dan Peisert, our senior vice president and chief financial officer.

I'd like to remind you that the 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 2019; regulatory and 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 results should not be considered an indication of future performance. These and other risks are more fully described in the risk factor 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 publicly accessible documents. References to current cash and cash equivalents are based on balances as of March 31, 2019. All guidance, including that related to the company's expected total product revenues, operating expenses, adjusted non-GAAP earnings, and non-adjusted EBITDA, are as of today. The non-GAAP financial measures Assertio uses are not based on any standardized methodology prescribed by GAAP and may be 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 -- President and Chief Operating Officer

Thank you, John. Good afternoon, and welcome, everyone. I'm pleased to report that we began 2019 with performance that met or exceeded our expectations. Our neurology franchise sales were in line with our expectations; our commercial agreement revenues from our partner, Collegium, came in slightly above our expectations; and we significantly exceeded our expectations for adjusted EBITDA in the quarter as we continue to focus on operational efficiency and effectiveness.

As a result of a strong first-quarter adjusted EBITDA, today, we are raising our previous full-year 2019 adjusted earnings guidance range of between 115 million to 125 million to a new range of 118 million to 128 million. Our 2019 guidance for neurology franchise net sales remains low to mid-single-digit growth. So let me review some first-quarter highlights in more detail. We delivered first-quarter neurology franchise net sales of 26.3 million, Collegium commercial agreement revenues of 30.9 million and adjusted EBITDA of 36.4 million, which is as I mentioned, was ahead of our expectations driven by our continued focus on operational efficiency and effectiveness across our organization.

We also made steady progress in advancing our three-pillar strategy of maintain, grow and build. I'll begin with our maintain pillar. As you know, the bedrock of this pillar is our partnership with Collegium, which commercializes NUCYNTA. Over the last year, we've amended and strengthened our partnership to provide greater certainty of NUCYNTA income and remove any early termination right.

Our role assumed is now essentially secured through 2021. First-quarter commercialization revenues of 30.9 million reflect the positive nature of our partnership, which continues to perform well and is consistent with Collegium's full-year revenue guidance for NUCYNTA of between 200 and 210 million. Importantly, regarding NUCYNTA, in the first quarter, we received a favorable ruling from the United States Court of Appeals for the Federal Circuit with respect to Assertio's patent litigation against the filers of Abbreviated New Drug Applications for NUCYNTA. The Federal Circuit's ruling affirms the decision of the United States District Court, which found our patent to be valid.

With the court's ruling, we now expect market exclusivity until December 2025. Turning to our grow pillar. In 2018, we accomplished our goal to stabilize the neurology franchise. Our goal this year is to deliver sustainable growth.

You will recall that the first quarter is typically impacted by higher deductibles and co-pays, which also impact many other pharmaceutical companies. The encouraging news is that compare to last year, there was less of a decline first quarter over fourth quarter in our neurology franchise net sales. Also, we are pleased to report that total neurology sales were up 1.3% over the prior-year period. In the first quarter, CAMBIA performed well with strong double-digit net sales growth year over year.

We expect this trend to continue. Zipsor was generally in line with our expectation for the first quarter. And again, we expect strong growth throughout the year. Gralise net sales in the first quarter were slightly below our internal plan.

However, we expect improving trends as we progress through the year. Our confidence in our outlook is based on the recent rollout of new commercial initiatives across all three of our neurology franchise assets, including more compelling messaging, increased call activity on high prescribers, and new patient promise program designed to ensure more patients get their prescriptions as written and at an affordable price. Early feedback from patients and physicians has been very positive. We believe this program is going to drive increased prescriptions by allowing us to compete more effectively with both branded and generics.

I'd also remind you that we are developing a line extension of our acute migraine medicine, CAMBIA, that will feature a patient-friendly, ready-to-use liquid presentation that would extend patent protection to 2026, if approved. The development program remains very much on track. Moving now to our build pillar and our NDA filing of long-acting cosyntropin. I would like to provide an update on our partner's, West Therapeutic's development program for long-acting cosyntropin, for which we hold the exclusive marketing rights.

In February, the FDA accepted West's NDA for reviewing the approval of this long-acting cosyntropin to diagnose adrenocortical insufficiency. As you will recall, there is currently under way an independently run, investigator-led clinical study to investigate cosyntropin for the treatment of infantile spasm. This study is expected to take three to four years to complete and is not part of the current FDA diagnostic submission. West, the product supplier and IND holder, had been investigating a difference in PK profile between certain of its manufacturing lots.

West recently informed us the principal investigator has been notified of this matter. As a precautionary measure, the investigator has paused enrollment of new subjects in this study until this matter is properly characterized. West also informed us that they're unaware of any issue with the current study. As a result, patients currently enrolled in the study will continue to be treated and monitored.

We currently expect the diagnostic NDA review to continue as planned, and we're still planning an early 2020 launch of this product. Now let's discuss our two positive balance sheet items. On January 30, 2019, the company received 32 million, the balance of a 62 million patent litigation settlement announced last year. Using this cash, along with our free cash flow, we made a scheduled principle repayment of a secured debt of 25 million in January and 55 million in April, reducing our secured debt principal to 202 million.

That's down from 475 million when I joined the company only two years ago. In January, we amended our senior secured credit facility, replacing the previous fixed adjusted EBITDA covenant with a trailing 12-month debt-to-adjusted EBITDA ratio that declines over time. This amendment gives us greater flexibility as we continue to pay down debt and invest in our business. We still expect to add one or two new licensing assets this year with a strong bias toward an accretive late-stage or unmarketed asset that complements our existing neurology portfolio or emerging orphan specialty business.

In summary, we are pleased with our strong start to the year as we continue to transform our company with clear strategic actions, operational efficiencies, new commercial initiatives, an emerging pipeline and disciplined net debt payment. Of significance, unlike many other pharmaceutical companies of our size, we have extended patent protection across our entire portfolio. In fact, the vast majority of our revenues are essentially protected until 2024. Most importantly, we are driving strong adjusted EBITDA and cash flow performance, which led to our decision today to raise our full-year earnings guidance.

Our employees are energized and motivated to deliver, and the senior management team is keenly focused on execution, results and building for the future. We believe in our strategy, and we believe we can continue to strengthen our company for higher growth, sustained success and greater shareholder value. With that, I will turn the call over to Dan, who will provide more details on our financial performance in the first quarter.

Dan Peisert -- Senior Vice President and Chief Financial Officer

Thank you, Arthur. My comments this afternoon will focus primarily on our non-GAAP results, unless otherwise noted. Today, I'll review the financial highlights from our first quarter, and we'll also provide comments on our revised 2019 financial guidance. Our financial results in the first quarter demonstrate the achievements we made last year in restructuring our business to maintain our profitability and show the progress we have made toward being able to grow our neurology franchise.

Our neurology revenues for the first quarter were 26.3 million, which was an increase of 1.3% over the prior-year period. Overall, this result was in line with our expectations and consistent with our full-year guidance for low to mid-single digit revenue growth and also in line with the seasonal trends we anticipated for the business. We achieved this result while also keeping wholesaler inventory days approximately four to five days across each product and portfolio, below the prior year. On a weighted average basis, days on hand were 19.

Gralise generated sales of 13.3 million in the first quarter. While prescriptions trends were down year over year, we're encouraged by the improvement in the seasonal trends where the sequential decline from the fourth quarter to the first quarter has moderated compared to the last several years. The year-over-year ex-factory volumes were up 1%, but the sales decline of 10% was primarily due to an increase in both rebates and in more generous co-pay program, which also saw more utilization than prior years from an increasing mix of high-deductible health plans.CAMBIA continues to perform well, exceeding our internal expectations by generating 37% year-over-year growth on sales of 8.8 million. The growth was due to volumes, price and an improvement in the gross to net.

We are very encouraged by the momentum we are building behind CAMBIA. Zipsor generated sales of 4.2 million in the first quarter. Longs are very strong for the product. Both prescriptions and ex-factory sales increased 15.6% and 17.1%, respectively, year over year.

The net revenues were down 10.8% versus the prior year, largely due to gross to net factors. We saw a continuation of the higher-than-expected returns mentioned last quarter, as well as an increase cost associated with an enhanced co-pay program. We expect that we'll see a higher realized net ASP in the future quarters as patients satisfy their annual deductibles, and we work pass this period of higher-than-normal returns. We recorded 30.9 million in GAAP commercialization agreement revenues from Collegium in the first quarter.

This is very consistent with the cash collected in the quarter, as well as the royalty calculated for the agreement based upon Collegium's reported net sales. I'll also note there is an additional disclosure we're making in the MD&A section of our 10-Q, which will allow you to see the components of the accounting for these revenues and help tie between our GAAP and non-GAAP measures. Adjusted EBITDA was 36.4 million for the quarter, which represented 10.6% growth over the 32.9 million reported in the prior-year period. Now that we've annualized the NUCYNTA commercialization agreement, these comparisons are more relevant and demonstrate our continued progress.

The strong EBITDA performance exceeded our internal targets due to continued focus on operational efficiencies. We're encouraged by the progress we've made and saw approximately 8 million of expense favorability relative to the gating of our plan. Some of this favorability is due to timing. And yet, while it's still early in the year, we have the confidence to add some of this favorability to our EBITDA and net loss guidance ranges for the year such that we are raising our 2019 adjusted EBITDA range by 3 million to be between 118 million and 128 million.

On the balance sheet, you'll see that our cash balance of 109.7 million is down slightly versus December 2018 despite receiving a 32 million payment from Purdue. Excluding this payment, we experienced a net cash outflow from operations, which is not typical for us. This outflow is due to the timing of some large payables in the first quarter, as well as a onetime increase in our days sales outstanding. Going forward, we expect this expansion in our accounts receivable will balance itself, and we will be back to generating cash sufficient to make our scheduled in senior debt amortization payments, as well as add cash to the balance sheet.

As of March 31, our senior secured debt balance was 257.5 million. Our senior secured leverage ratio, defined as the gross debt balance to the last 12 months adjusted EBITDA, was 1.62 times. This compares to our current maintenance covenant of 2.25 times and 2.97 times at March 31, 2018, a reduction of 1.3 turns compared to a year ago. We made a scheduled amortization payment on April 15 of $55 million, further reducing those loan balance to 202.5 million, which is a reduction of over 162 million from the March 31, 2018 balance.

That concludes the financial discussion, and I'll now turn the back call back over to John.

John Thomas -- Senior Vice President of Investor Relations and Corporate Communications

Thanks, Dan. Christine, we'll open up the call now for questions, if you would, please.

Questions & Answers:


Operator

[Operator instructions] Our first question comes with the line of Scott Henry from Roth Capital. Your line is open.

Scott Henry -- ROTH Capital Partners -- Analyst

Thank you, and good afternoon. And I apologize, but I missed a little bit about where you were speaking about pausing the enrollment in the infantile spasms trial, if that's how I heard it correctly. Could you just go over that again exactly what happened and the consequences of that?

Arthur Higgins -- President and Chief Operating Officer

Yes. As we mentioned, we were informed by West that they had identified a PK issue. They did inform the investigator, and the investigator has decided to pause enrollment. I mentioned in my remarks that West also informed that they were unaware of any issue with the current study.

And as a result, Scott, patients currently enrolled in the study will continue to be treated and monitored.

Scott Henry -- ROTH Capital Partners -- Analyst

OK. Now is it the same dose for the diagnostic in -- is there any way that that PK issue could translate over to the diagnostic indication? Or put another way, if someone used it off label from the diagnostic indication, could that have any clinical impact?

Arthur Higgins -- President and Chief Operating Officer

Look, yes, as we mentioned the infantile spasm study is not part of our submission for the diagnostic as it's obviously a very different use between diagnostic and therapeutic. So at this stage, I don't think there's any more color that we can provide you with until we better understand this matter. Most important, Scott, I think again -- sorry, you missed the -- my comments. But I made the point that we expect the diagnostic NDA review to continue, and that we're still planning an early 2020 launch.

Scott Henry -- ROTH Capital Partners -- Analyst

OK. Great. And then shifting gears. The CAMBIA line extension, first, should we still be thinking about that as a kind of late 2020 approval launch time line? And do you see that line extension as a way to extend the franchise or even possibly expand the franchise? And could it have an accretive impact on that franchise? Just want to get any color on that.

Arthur Higgins -- President and Chief Operating Officer

Yes. I think in terms of timing for approval, we're looking more 2020, early 2021. We certainly believe it will extend, if approved, the exclusivity we have in that franchise to 2026. And we are pretty confident because this really, as a presentation, it adds additional benefit to the patient that will actually expand our market share of CAMBIA.

So it's got a lot of positives, expanding exclusivity, and I think it will be a driver of further revenue growth for CAMBIA.

Scott Henry -- ROTH Capital Partners -- Analyst

OK. Great. And then just the final question, spending levels in Q1 look pretty low, particularly R&D. How should we think about those representative -- I mean, are those representative for the remainder of the year, or are they outliers?

Dan Peisert -- Senior Vice President and Chief Financial Officer

I think, Scott, it represents a new base for the overall footprint of the business. There are some additional initiatives that we have planned, that would -- that are taking place in the second half, such as one of the questions that you asked about. We're going to be doing the bioequivalence trials for that CAMBIA line extension. So there will be some increases, and we planned for some increases in the spending in the second half.

Scott Henry -- ROTH Capital Partners -- Analyst

OK great. Thank you for taking the questions.

Operator

Our next question comes from the line of David Risinger from Morgan Stanley.

Yih Jiunn Chiu -- Morgan Stanley -- Analyst

It's Yih Jiunn here for Dave Risinger. A couple of quick questions. The first one is could you please provide some color on expected payer access in your targeting for cosyntropin in January 2020? And the second question is what is the outlook for potential near-term external business development deals?

Arthur Higgins -- President and Chief Operating Officer

Yes. Regarding -- I think the first question was regarding payer strategy for cosyntropin. We continue to have very constructive discussions with payers. It's a small number of plans that actually drive the majority of Acthar's revenues.

And the initial feedback is they're very interested in having discussions with us on how our synthetic cosyntropin could fit into the armamentarium that they have in treating patients.

Dan Peisert -- Senior Vice President and Chief Financial Officer

And the other question was on BD.

Arthur Higgins -- President and Chief Operating Officer

Yes, on BD, we continue to be optimistic, and we have a goal. It's always -- let me remind me, we can't guarantee BD, but we have a goal to bring in at least one or two additional products, as I mentioned again in my prepared remarks. Ideally, that would be immediately accretive and synergistic with our existing neurology or orphan business. And I can tell you, we're personally, as a team, we like to deliver on our goals so -- but we remain pretty confident that we'll get that done this year.

Yih Jiunn Chiu -- Morgan Stanley -- Analyst

OK. Thanks.

Operator

We have another question on the line of Irina Koffler from Mizuho. Thanks for taking my question

Irina Koffler -- Mizuho Securities -- Analyst

So just going back to the cosyntropin PK issue. Presumably the infantile spasm study was started with the premise that cosyntropin behaved similarly to Acthar and is similarly safe. And so, if the investigator is halting this study for a period of time, could we infer from that that the drug maybe does not behave like Acthar? And that payers may have some additional questions, even if the FDA waives it through with the diagnostic? That it might not be as interchangeable as previously hoped?

Arthur Higgins -- President and Chief Operating Officer

Again, I would say, at this stage, it's too early for us to comment. The clinical significance of this PK issue that they're investigating is not clear. I will also remind you that they informed us that, as far as the clinician was concerned, she had seen nothing in this study that give her any concerns.

Irina Koffler -- Mizuho Securities -- Analyst

OK. And I have a follow-up on NUCYNTA. Was there any stocking of NUCYNTA this quarter?

Dan Peisert -- Senior Vice President and Chief Financial Officer

We were unaware of any. That would be a better question for Collegium.

Irina Koffler -- Mizuho Securities -- Analyst

OK. Maybe one more on cosyntropin. So Achtar got a label change to indicate that it's not just consisting of ACTH. It's a little bit more of a complex substance.

Does that interfere with your talks with payers? Or has that come up at all yet?

Arthur Higgins -- President and Chief Operating Officer

It hasn't come up. Obviously, we are aware of that. But we don't think again that that will have a major impact. This will really come down to us bridging the European experience with synthetic cosyntropin and their own product.

Irina Koffler -- Mizuho Securities -- Analyst

OK. Thank you very much.

Arthur Higgins -- President and Chief Operating Officer

Thanks, Irina. Christine, we'll take the next question please.

Operator

We have another question on the line of David Amsellem from Piper Jaffray.

Mickey Ingerman -- Piper Jaffray -- Analyst

Hi, good afternoon. This is Mickey Ingerman on for David. First off, what is your view on the share of the Acthar market that you think you can capture with your cosyntropin product approved only as a diagnostic? And then secondly, on the infantile spasms, is there any time lines of resuming enrollment in that study?

Arthur Higgins -- President and Chief Operating Officer

Let me answer the first question. We are not commenting at this stage on our outlook for revenues for cosyntropin. We will do that as we get closer to market. And the second question was in terms of resumption.

I mean, that will obviously depend on how quickly this matter is properly characterized.

John Thomas -- Senior Vice President of Investor Relations and Corporate Communications

Christine, are there other questions?

Operator

We don't have any questions at the moment, sir.

John Thomas -- Senior Vice President of Investor Relations and Corporate Communications

OK, great. Well, thank you all 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 5347358.

Please let me know if you have any follow-up questions or we can assist you in any way. As a reminder, our earnings-related materials, including a summary slide deck presentation, are posted to the investor relations website -- section of the website of Assertio. Thanks for your interest. Have a good evening.

Thank you, Christine.

Operator

[Operator signoff]

Duration: 30 minutes

Call participants:

John Thomas -- Senior Vice President of Investor Relations and Corporate Communications

Arthur Higgins -- President and Chief Operating Officer

Dan Peisert -- Senior Vice President and Chief Financial Officer

Scott Henry -- ROTH Capital Partners -- Analyst

Yih Jiunn Chiu -- Morgan Stanley -- Analyst

Irina Koffler -- Mizuho Securities -- Analyst

Mickey Ingerman -- Piper Jaffray -- Analyst

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