Assertio Therapeutics, Inc (ASRT) Q2 2019 Earnings Call Transcript

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Assertio Therapeutics, Inc (ASRT -4.83%)
Q2 2019 Earnings Call
Aug 07, 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 the Assertio second-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. Sir, you may begin with the conference.

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

Thank you, Mel. Good afternoon, and welcome to our investor conference call to discuss Assertio's second-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. I would encourage you to review the presentation slides as they are important 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 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 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 to current cash and cash equivalents are based on balances as of December 31, 2018. 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 Executive Officer

Thank you, John. Good afternoon and welcome, everyone. I'm pleased to report that Assertio continues to deliver strong earnings, including today's second-quarter adjusted EBITDA of $36.7 million. We have now beaten adjusted EBITDA expectations for the fourth time in the last five quarters as we continue the ongoing transformation into a leading diversified biopharmaceutical company.

Total adjusted company sales in the second quarter of $59.2 million were also strong and included healthy commercialization agreement revenues from Collegium of $31 million. Both companies continue to be very pleased with our partnership. Neurology franchise sales of $26.1 million were adversely impacted by Zipsor short-dated product sales returns. Excluding these sales returns, Neurology franchise net sales would have been close to $29 million, compared to the $26.3 million in Q1 and $25.9 million in the second quarter of last year.

As a result of the Zipsor sales returns, we have adjusted our Neurology franchise net sales guidance to low single digits growth for the full-year 2019. That's from our previous range of low to mid-single-digit growth. Nevertheless, we still remain on track with our stated goal to having first stabilize and then return our neurology franchise to growth. At the same time, as a result of our continued focus on operational efficiency, today, we are confirming our full-year earnings guidance range for adjusted EBITDA of $118 million to $128 million.

Overall, we continue to make steady progress in advancing our three-pillar strategy of maintain, grow and build as we want to transform our company into a leading diversified biopharmaceuticals business. Our maintain pillar continues to be one of our highlights. Built on a strong partnership with Collegium, second-quarter commercialization revenues of $31 million were right in line with our strong first-quarter revenues of $30.9 million. As a reminder, early this year, we received a favorable ruling on NUCYNTA from the United States Courts of Appeals for the Federal Circuit with respect to Assertio's patent litigation against three ANDA filers.

The Federal Circuit ruling affirms the decision of United States District Court, which found our patents to be valid. With the court ruling, we now expect NUCYNTA market exclusivity until December 2025. On a related note, we have extended patent protection across our entire portfolio. In fact, more than 90% of our revenues are essentially protected until 2024.

This is something we believe is not fully appreciated when comparing us to other specialty pharmaceutical companies of our size. Turning to our growth pillar and Gralise, where net sales in the second quarter were $70.8 million, primarily related to favorable gross to net, reflecting fair mix. Today, we are pleased to announce expanded coverage for Gralise to one of the top three Medicare insurers. This new agreement is operational August 1 and covers more than 6 million lives.

This expanded access is important for Gralise as the majority of patients with post-herpetic neuralgia or PHN are more than 65 years old and as such, covered under Medicare. We anticipate this new coverage will help us continue to stabilize and then grow further this business. CAMBIA sales in the second quarter were $6.8 million, primarily impacted by unfavorable gross to net, again reflecting payer mix. We're very pleased that CAMBIA showed underlying prescription growth in Q2 both compared to Q1, as well as the second quarter of last year.

Looking forward, we remain on track with our development for a line extension for CAMBIA that will feature a patient-friendly, ready-to-use liquid presentations that will extend patent protection to 2026, if approved. Zipsor sales of $1.5 million in the second quarter were impacted by short-dated product sales return, which Dan will cover in more detail in a moment. Again, however, we're very pleased that prescription demand for Zipsor remained strong with double-digit growth year over year. Moving now to our build pillar.

We remain committed to adding at least one new in-licensing asset this year with a strong bias toward accretive late-stage or in marketed assets. We've recently been in the running for several interesting assets, and we're actively pursuing several other promising opportunities as we speak. With regard to our NDA filing for our long-acting cosyntropin for the diagnosis of adrenocortical insufficiency, our filing remains under active review, and we continue to move forward toward a scheduled PDUFA date of October 19. Our partner, West, the product supplier and IND holder, continues to investigate the manufacturing issue we discussed at our first-quarter earnings call.

The significance of these manufacturing models remains unclear. However, if these manufacturing issues are not resolved in a timely manner, it is possible this could impact cosyntropin approval, or if approved, we may not be able to launch the products until these issues are resolved. We will keep you apprised as we move forward. In summary, we delivered another strong quarter of solid execution and operational improvement.

I would also like to take this opportunity to remind you that we continue to make steady progress delevering the company. When I joined the company in March of 2017, our senior secured and convertible debt was $820 million. In transforming the company, we have stayed ruthlessly focused on improving cash generation. As a result, we'll be able to rapidly pay down our secured debt.

We now expect to finish the year with total debt of approximately $507 million, which is approximately 4.1 times leveraged based on the midpoint of our adjusted EBITDA guidance. Even more impressively, our secured debt at the year-end will be $162.5 million, which is less than 1.3 times leveraged, again based on the midpoint of our adjusted EBITDA guidance. Finally, I'm confident that our transformation into a leading diversified biopharmaceutical company will continue to pick up momentum in the second half of this year and into 2020. That confidence is based on the fact that we have built an entrepreneurial mindset and talented team that continues to execute against our stated strategy.

With that, I will turn the call over to Dan who will provide more details on our performance in the second quarter. Dan?

Dan Peisert -- Senior Vice President and Chief Financial Officer

Thank you, Arthur. My comment this afternoon will focus primarily on our non-GAAP results unless otherwise noted. Today, I'll review the financial highlights from our second quarter and first six months of 2019, as well as our outlook for the remainder of the year. Consistent with our first quarter, our financial results in the second quarter demonstrate the achievements we made last year in restructuring our business to maintain our profitability and further demonstrate the progress we've made toward being able to grow our neurology franchise.

Our neurology revenues for the second quarter and first six months were $26.1 million and $52.4 million, respectively. For the second quarter and first half, this represents 1% growth versus the prior year. Overall, this result was on pace with but toward the low end of our previous full-year guidance for low to mid-single revenue growth. The first-half performance was negatively impacted by unforeseen and material product returns.

As a result, we believe it is prudent to narrow our guidance for the full-year neurology revenue growth to low single digit. I'll discuss the drivers of this guidance change in more detail while discussing our product by product results. Consistent with the prior quarter and prior year, weighted average wholesaler inventory days for the portfolio were 19. Gralise generated sales for the second quarter and first six months of $17.8 million and $31.1 million, respectively.

The first-half revenue growth of 8.5% was driven by a favorable mix shift toward commercial business where we recognize higher net selling prices, as well as the true-up of prior accruals for the same dynamic. Prescription trends were down modestly year over year. However, we continue to be encouraged by the improvement in year-over-year trends, and we did grow sequentially by just shy of 3% in the second quarter. Going forward, we expect an improvement in prescription demand for Gralise due in part to the significant Medicare Part D contract win that Arthur mentioned, as well as continued sequential improvements, driven by our promotional efforts.

The volume gains in the second half are expected to come from channels with lower realized net selling prices. We expect net revenue growth will moderate from the first half despite an improvement in volume. CAMBIA continues to perform well with a 10% sequential improvement in prescription demand and an acceleration in year-over-year prescription growth to 4% in the second quarter. In the second quarter, CAMBIA generated sales of $6.8 million, which is down 16% versus the prior year.

For the first half, CAMBIA's up 7.3% year over year to $15.6 million in sales. Quarterly sales of CAMBIA experienced the opposite effect of what we saw at Gralise. For CAMBIA, we had an unfavorable payer mix across both our commercial and government lines of business. We continue to be encouraged by the momentum we're building behind CAMBIA.

Second-quarter sales for Zipsor were $1.5 million, which were adversely affected by short-dated product returns. First-half sales of Zipsor were $5.8 million. While that represents a decline in sales, volumes continue to be strong for Zipsor with prescription volumes up 14% in the second quarter and 15% for the first half of the year.In the second quarter, we estimate that product returns reduced its first-half sales of $2.5 million and now totals approximately $4 million year to date. This has taken just shy of 800 basis points of growth off of our neuro franchise for the first-half revenue performance and 360 basis points off the full year.

As a result, we have narrowed our full-year revenue guidance for the franchise to low single-digit growth over the prior year. We're confident that this issue is largely behind us, and we expect to see a significant improvement in net revenue performance for Zipsor in the second half.We recorded $31 million in GAAP commercialization agreement revenues from Collegium in the second quarter. This is very consistent with the cash collected in the quarter, as well as the royalty calculated per the agreement based upon Collegium's reported net sales. Adjusted EBITDA was $36.7 million for the quarter relative to the $36.4 million in the first quarter and $36.8 million in the prior year.

The prior-year quarter included a $5 million milestone payment from Ironwood. Excluding this gain, adjusted EBITDA was up 15.4% year over year. The strong EBITDA performance exemplifies our continued focus on operational efficiencies.Year to date, we recorded $73.1 million of adjusted EBITDA relative to our full-year guidance of $118 million to $128 million. I'll remind you that our relationship with Collegium allows us to record 65% of NUCYNTA net sales up to $180 million, which will drop to 14% from $180 million to $210 million of net sales.

Thus, we expect that when Collegium enters this period, our EBITDA margins will decrease as there are no variable expenses against this royalty stream.In addition, we continue to expect that our operating expenses will increase in the second half, primarily relating to increased expenses in research and development and manufacturing. At this point, we believe that the majority of these increased expenses will be weighted toward the fourth quarter. As of June 30, our senior secured debt balance is $202.5 million, down from $257.5 million last quarter end. By the end of the year, our secured debt will be $162.5 million.

Going forward, our quarterly amortization will be a constant $20 million until the maturity payment in April 2021.In summary, I am pleased with our operational efficiency and financial discipline that has allowed us to continue to delever the balance sheet. That concludes the financial discussion, and I'll now turn the call back over to John.

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

Thanks, Dan. Mel, we'll now open up the call for questions, please.

Questions & Answers:

Operator

[Operator instructions] We have the first question, comes from the line of Scott Henry of Roth Capital.

Scott Henry -- ROTH Capital Partners -- Analyst

First on cosyntropin, has there been any correspondence with the FDA since the last quarter? And I guess it would be West. But also, should we expect any correspondence prior to the PDUFA date? Or is it just kind of dark until the PDUFA date?

Arthur Higgins -- President and Chief Executive Officer

Yes. Scott. We continue to respond to questions provided by the FDA. And I would say we feel pretty good about how we'd be able to respond to them to date.

And this is really questions that will be expected with the submission.

Scott Henry -- ROTH Capital Partners -- Analyst

OK. And then Q2 had a lot of kind of noise around Gralise, Lazanda and CAMBIA. When we think about Q3, should it look kind of like Q1? Or will there be a boost in Q3, sort of a snapback from some of the sales you lost or vice versa with Gralise? Will it -- should it weak in Q3 because of what happened in Q2? Just trying to get a sense of how we should think about the numbers going forward.

Dan Peisert -- Senior Vice President and Chief Financial Officer

I think for Gralise, you'll start to see the performance in back half look more like the first quarter in terms of absolute dollars. We expect volumes to come up but at a lower net selling price than what we experienced in the first half. The snapback that we expect to see would be on Zipsor where that has just simply been weighed down by those product returns that we have been talking about. So we would expect to see that sales start to match the demand-driven growth that we're experiencing.

And then CAMBIA, I would expect the back half would more look like the average of the first half.

Scott Henry -- ROTH Capital Partners -- Analyst

OK. That's helpful. And then with regards to Zipsor, could you give a little color about short-dated product returns and how that comes about and what exactly does that mean?

Dan Peisert -- Senior Vice President and Chief Financial Officer

So what we experienced was there -- you typically see a larger amount of returns concentrate around the expiration date of a batch. And in the first and second quarter, we had a series of batches that all expired right around the same time. And that last batch to expire, some of that product we'll ship with short dating in it, i.e., less than 12 months of dating until the expiration date. And what we've learned is that you get outsized returns if you are shipping it with shortened dating.

Scott Henry -- ROTH Capital Partners -- Analyst

OK. Great. And final question, I think I saw there was a couple million in opioid-related expenses. Should we expect that to continue -- or litigation expenses, I should say.

Should we expect that to continue for a couple of quarters? Or when does that kind of fade away?

Arthur Higgins -- President and Chief Executive Officer

I don't think you're going to see that fade away, just the ongoing expenses as part of our defense in these cases in preparation for them. We're expecting about $10 million to $12 million in total expenses this year for that.

Operator

Next question comes from the line of David Amsellem of Piper Jaffray.

Mick Ingerman -- Piper Jaffray -- Analyst

This is Mick Ingerman on for David. So first on cosyntropin, to the extent that you guys have discussed the issue of different PK profiles with the FDA, can you comment on what you're doing ahead of the October PDUFA date to address the issue?

Arthur Higgins -- President and Chief Executive Officer

Yes. We're continuing to walk with West to understand this issue. Again, as I mentioned in my prepared remarks, the significance of that is unclear.

Mick Ingerman -- Piper Jaffray -- Analyst

Got it. OK. And then assuming that everything goes according to plan and you guys get approval in October, can you shed some color on your expectations regarding payer access at launch?

Arthur Higgins -- President and Chief Executive Officer

Yes. We continue to have a positive dialogue with payers. And again, there is an interest to obviously have a product like cosyntropin be available. And that interest has made it possible to have very constructive discussions with payers.

Of course, all of this is dependent on getting the product approved and when we're able to provide the products.

Operator

[Operator instructions] I am showing no further questions at this time. I would now like to turn the conference back to Mr. John Thomas.

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

OK. Thanks, everyone, for joining us this afternoon. A replay of the webcast and conference call will be available shortly and for the next 30 days. Please dial 1 (855) 859-3406 and use passcode 7769879.

Please contact us or me if you have any follow-up questions or if we could assist you in any way. And as a reminder, our earnings-related materials are all posted on the Investor Relations section of the Assertio website. Thanks for your interest today, and have a good evening.

Operator

[Operator signoff]

Duration: 27 minutes

Call participants:

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

Arthur Higgins -- President and Chief Executive Officer

Dan Peisert -- Senior Vice President and Chief Financial Officer

Scott Henry -- ROTH Capital Partners -- Analyst

Mick Ingerman -- Piper Jaffray -- Analyst

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