Start Time: 16:30 January 1, 0000 5:00 PM ET
Assertio Therapeutics, Inc. (NASDAQ:ASRT)
Q1 2019 Earnings Conference Call
May 08, 2019, 16:30 PM ET
Arthur Higgins - President and CEO
Dan Peisert - SVP and CFO
John Thomas - SVP, IR and Corporate Communications
Conference Call Participants
Scott Henry - ROTH Capital
Zhu Shen Ng - Morgan Stanley
Irina Koffler - Mizuho Securities
Michael Ingerman - Piper Jaffray
Good afternoon and thank you for standing by. Welcome to Assertio First Quarter 2018 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.
Thank you, Christy. 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 Web site at assertiotx.com. With me today are Arthur Higgins, President and Chief Executive 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 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 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 maybe calculated differently from and therefore may not be comparable to non-GAAP measures used by other companies.
With that, I will turn the call over to Arthur. Arthur?
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, as I mentioned, was ahead of our expectations driven by a 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 royalty stream is now essentially secured to 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 million 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 three filers of Abbreviated New Drug Applications on 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 compared 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 expectations for the first quarter and again we expect strong growth throughout the year. Gralise net sales in the first quarter was 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 well 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 good 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. That development program remains very much on track.
Moving now to our build pillar and our NDA filing of long-acting cosyntropin. I’m delighted to provide an update on Assertio and our partner West Therapeutic Development program for long-acting cosyntropin, 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, it is currently underway and 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 seven of its manufacturing lots [ph]. 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 this study will continue to be treated and monitored. We currently expect the diagnostic NDA review to continue as planned and we are still planning an early 2020 launch of this product.
Now let’s discuss a few points to the balance sheet items. On January 30, 2019, the company received 32 million, the balance of a 62.0 million patent litigation settlement announced in last year. Using this cash, along with our free cash flow, we made a scheduled principal repayment of a secured debt of 25 million in January and 55 million in April reducing a 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 in-licensing assets this year with a strong bias towards an accretive late-stage or on-marketed 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 through clear strategic actions, operational efficiencies, new commercial initiatives and 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’re 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 our 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.
Thank you, Arthur. My comments this afternoon will focus primarily on our non-GAAP results, unless otherwise noted. Today, I will review the financial highlights from our first quarter and will also provide comments on our revised 2019 financial guidance.
Our financial results in the first quarter demonstrated the achievements we made last year in restructuring our business to maintain our profitability and show the progress we have made towards 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 from 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 prescription 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% with 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 in prior years from an increasing mix with 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 is due to volumes, price and improvement in the gross to net. We’re very encouraged by the momentum we’re building CAMBIA.
Zipsor generated sales of 4.2 million in the first quarter. Volumes are very strong for the products. 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 increased 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 past 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 per 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 have made and saw approximately 8 million of expense favorability relative to the gaining of our plan.
Some of this favorability is due to timing and yet 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 the $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 one-time increase in our days sales outstanding.
Going forward, we expect this expansion in our accounts receivable will balance itself and will be back to generating cash sufficient to make our scheduled senior debt amortization payments as well as add cash to the balance sheet.
As of March 31, our senior secured debt balance is 257.5 million. Our senior secured leverage ratio defined as the gross debt balance to the last 12 months of adjusted EBITDA was 1.62x. This compares to our current maintenance covenant of 2.25x and a 2.97x 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 this 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. I’ll now turn the call back over to John.
Thanks, Dan. Christine, we’ll open up the call now for questions, if you would, please.
Absolutely, sir. [Operator Instructions]. Our first question comes from the line of Scott Henry from ROTH Capital. Your line is open.
Thank you. Good afternoon. And I apologize, but I missed a little bit about where you were speaking about pausing the enrollment in the infantile spasm trial if that’s how I heard it correctly. Could you just go over that again, exactly what happened in the consequences of that?
Yes, as we mentioned, we were informed by West that they had identified a PK issue that they then informed the investigator and the investigator has decided to pause enrollment. I mentioned in my remarks that West also informed us they were unaware of any issue with the current study and as a result patients currently enrolled in this study will continue to be treated and monitored.
Okay. Now is it the same dose for the diagnostic and is there any way that the 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?
Look, as we mentioned, the infantile spasm study is not part of our submission or the diagnostic and there’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.
Okay, fair enough. I appreciate that.
I think most importantly, Scott, I think – again, sorry you missed it, my comments, but I made the point that we expect the diagnostic NDA review to continue and that we’re still planning on an early 2020 launch.
Okay, great. Thank you, Arthur. And then shifting gears, the CAMBIA line extension, first, should we still be thinking about that as a kind of late 2020 approval launch timeline? 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?
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’re pretty confident because this really is a presentation that 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 revenue growth for CAMBIA.
Okay, great. And then just the final question, spending levels in Q1 looked pretty low particularly R&D. How should we think about those representative – are those representative for the remainder of the year or are they outliers?
I think, Scott, it represents a new base for the overall footprint of the business. There are some additional initiatives that we had planned 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 [indiscernible] trials for that CAMBIA line extension. So there will be some increases and we plan for some increases in the study in the second half.
Okay, great. Thank you for taking the questions.
Christine, we’ll take the next question.
Our next question comes from the line of David Risinger from Morgan Stanley.
Zhu Shen Ng
Hi. It’s Zhu Shen here for David Risinger. A couple of quick questions. The first one is, could you please provide some color on expected payer access that you’re targeting for cosyntropin in January 2020? And the second question is, what is the outlook for potential and near-term external business development deals? Thank you.
Yes, 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 [ph] revenues and the initial feedback is they’re very interested in having discussions with us on how our synthetic cosyntropin could fit into the [indiscernible] that they have in treating patients.
And the other question was on BD?
Zhu Shen Ng
On BD, we continue to be optimistic and we have a goal. It’s always something we remind you but we can’t guarantee BD, but we have a goal to bring in at least one or two additional products that – as I mentioned again on my prepared remarks, ideally they would be immediately accretive and synergistic with our existing neurology or orphan business. And I can tell you we’re personally as a team really to deliver on our goals, but we remain pretty confident that we’ll get that done this year.
Zhu Shen Ng
Thank you very much.
Okay. Thanks. Christine, the next question?
We have another question on the line of Irina Koffler from Mizuho.
Hi. Thanks for taking my questions. So just going back to the cosyntropin PK issue, presumably the infantile spasm study was started with the premise that cosyntropin behaved similarly to XR and is similarly safe. And so if the investigator is halting the study for a period of time, could we infer from that that the drug maybe does not behave like XR and that payers may have some additional questions even if the FDA waves it through as a diagnostic that it might not be as interchangeable as previously hoped?
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 the study to give her any concerns.
Okay. And I have a follow up on NUCYNTA. Was there any stocking of NUCYNTA this quarter?
We were unaware of any. It will be a better question for Collegium.
Okay. Maybe one more on cosyntropin. So XR 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?
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.
Okay. Thank you very much.
Thanks, Irina. Christine, we’ll take the next question please.
We have another question on the line of David Amsellem from Piper Jaffray.
Hi. Good afternoon. This is Mick Ingerman on for David. First off, what is your view on the share of the Acthar [ph] 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 timelines resuming enrollment in that study? Thanks.
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, that will obviously depend on how quickly this matter is properly characterized.
Okay, got it. Thank you.
Okay. Thank you. Christine, are there other questions?
We don’t have any questions at the moment, sir.
Okay. Great. Well, thank you 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 section of the Web site of Assertio. Thanks for your interest. Have a good evening. Thank you, Christine.
You’re welcome, sir. Ladies and gentlemen, this concludes today’s conference call. Thank you for joining. You may now disconnect.