Assertio Therapeutics, Inc. (NASDAQ:ASRT) Q4 2019 Earnings Conference Call March 6, 2020 4:30 PM ET
Arthur Higgins - President & CEO
Dan Peisert - SVP & CFO
Conference Call Participants
Good afternoon ladies and gentlemen and welcome to the Fourth Quarter 2019 and Full Year Assertio Therapeutics, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder this conference call is being recorded.
I would now like to turn the conference over to your host Max Nomus [ph] Investor Relations.
Unidentified Company Representative
Thank you, Bella. Good afternoon and welcome to our investor conference call to discuss Assertio's fourth quarter and full year 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 investor.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, 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, regulatory and development plans, our debt agreements, expectations regarding potential business and investment opportunities; litigations and other legal proceedings; and other statements that are not historical facts.
Total prescription data is based on symphony prescriber level data. This includes estimates which could cause minor fluctuations in historical comparisons. Although this data is not reflective of product revenues management utilizes this metric to evaluate commercial strategy. 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.
References to current cash and cash equivalents are based on balances as of December 31, 2019. 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.
Thank you, Max. As you all know, we have been very busy since our last conference call in November. Today, we're going to focus on our fourth quarter and full year results. And the key strategic moves we have undertaken of late.
We will not today be discussing our outlook for 2020 and beyond, but we instead plan to hold a separate conference call in the near future, to outline how we intend to leverage a strengthened balance sheet to create a sustainable and growth oriented specialty pharmaceutical company.
This month marks my three year anniversary as CEO. When I joined Assertio then debt on that, we had over $800 million of debt, with an annualized interest cost of $65 million. Clearly, servicing net debt was a major part. But more importantly, that debt significantly impacted our ability to do acquisitions and strategic combinations.
That is why I made addressing our debt as our number one priority. I'm excited to report today that we are now on track and a standalone company to retire our outstanding debt until approximately $50 million of cash on our balance sheet.
My second priority was to reduce, if not remove our dependence on revenues from our opioid products. When I joined 70% of our revenues came from opioids. Going forward, zero percent of our revenues or income will come from opioids.
The third priority was to build a lean entrepreneurial growth oriented specialty pharmaceutical company. We have done so to a complete transformation of our company, in which we built a new culture, we named the company, moved the headquarters and reduced our expenses by over 50% creating a truly lean and responsive organization.
Central to these achievements, of these 3 priorities has been a relentless focus on profitability. We have delivered over $400 million in EBITDA from our operations in the past 2 years. And we have recently generated over $500 million in cash from our divestitures of Gralise and NUCYNTA.
To further illustrate our focus on profitability and an execution. Today, we report fourth quarter adjusted EBITDA of $31 million. We have now beaten adjusted EBITDA expectations for the 6 times in the last 7 quarters. Our full year adjusted EBITDA was $138 million handily exceeding our previously raised 2018 guidance of $124 million to $129 million.
I'm also excited to report our go forward brands CAMBIA and Zipsor. So 4% and 17% total prescription growth for the year. This is a remarkable turnaround. When I joined the company, these brands on an RX basis were declining 15% and 35%, respectively. We see these 2 strengthened brands being well positioned to take advantage of positions looking for non-opioid pain solutions.
So in summary, we have arrived at the first destinations in our journey. It is a destination where we can enjoy a strong balance sheet of no revenues or income coming from opioids. And most importantly, have a platform well positioned for growth and sustainability.
We now look forward to next stage of our journey, where we intend to take advantage of our strengthened balance sheet and a scalable commercial platform to create a sustainable, growth oriented specialty pharma company. We look forward to a call in the near future, when we can articulate how we intend to achieve this objective.
Before I hand over to Dan Peisert, our CFO who will review, our fourth quarter and full year results. I want to acknowledge and thank all my colleagues at Assertio, whose hard work and dedication has enabled this successful transformation of our company. I know I can rely on that same hard work and dedication in taking our company to even greater success in 2020 and beyond.
I will now hand over to Dan.
Thank you, Arthur. Today I'll discuss both our quarterly and full year GAAP results which are heavily influenced by the transactions we've executed on as well as our non-GAAP results. As Arthur mentioned, we've been busy and that is reflected in our income statement.
In our fourth quarter we recorded $190 million GAAP loss on the impairment of the NUCYNTA intangible asset due to our revised outlook for the future revenue performance of the product. It is also affirming Collegium's lower guidance in 2020.
Subsequent to year-and we completed the sale of NUCYNTA to Collegium for $375 million plus the royalties we have received in 2020. In our first quarter results, those royalties will be treated as commercialization agreement revenues and we will see an additional loss and the remaining intangible balance.
Also included in our GAAP results is $2.2 million of costs associated with the Gralise divestiture. While the transaction closed in January, we expensed the remaining Gralise sample inventories and the transactions costs incurred in the fourth quarter. The gain is associated with the transaction and all the royalties earned from Alvogen will be excluded from our non-GAAP adjusted EBITDA for future periods.
Associated with the cost savings initiatives we announced last quarter we incurred a onetime restructuring charge of $3.9 million. We've implemented all the initiatives designed to accelerate $15 million of cost savings. And as you can see from our fourth quarter results, we were slightly ahead of plan on the timing of those savings.
Turning to the operating results. Our adjusted EBITDA for the fourth quarter and full year 2019 was $31 million and $138.4 million respectively. This result was well above our previous full year guidance of $124 million to $129 million.
The quarterly results were also impacted by a $3.2 million loss, which is included in both our GAAP and non-GAAP results related to the termination of the cosyntropin commercialization agreement, where we received only a partial payment in settlement of an outstanding receivable balance from West.
If West is successful in finding a new partner and launching the product, we may receive up to $10 million of West's future licensing income for the product. The strong EBITDA performance in the quarter continues to exemplify the continued focus by the organization on operating efficiencies, and profitability. In addition, the quarter benefited from a strong top-line performance.
Neurology revenues for the fourth quarter were $29.3 million, which is 1.3% above the prior year, and 11.4% above the prior quarter. Our full year neurology revenues were $108.1 million, which was also above our guidance of $102 million to $105 million.
Had it not been for the returns issue we experienced with Zipsor this year, we would have been able to show year over year growth in 2019, as well. CAMBIA generated sales of $8.8 million for the fourth quarter, and $32.5 million for the full year.
CAMBIA performed well with 7% annual and 5% sequential prescription growth in the quarter. As Arthur stated earlier, 2019 prescription volumes were 4% above 2018. Net revenues lagged prescription growth this year due to the unfavorable payer mix in both our commercial and government lines of business as we've discussed previously.
We've invested in our patient access programs. And we're seeing the benefits and prescription growth, as well as 7.6% net revenue improvement over the third quarter. We see a lot of opportunity for CAMBIA in the future especially as we highlight the brand and refocus our sales efforts towards CAMBIA in the second quarter of 2020.
Now with the returns issue behind us, we're seeing Zipsor net revenue performance return to growth. $3.5 million recorded in the fourth quarter represented 8% year over year, and 6% sequential net revenue growth.
Prescription demand in the fourth quarter was especially strong for the product recording a multiyear quarterly high that was 28% above the prior year, and 12% above the prior quarter. We also finished the full year with 17% prescription growth, a testament to our patient access program and changes to our sales model over the year have improved the outlook for the product and franchise.
Gralise sales, we had a good quarter delivering $17.1 million in net revenues for the quarter up 15.6% year-over-year improvement, despite a 3% decline in prescription demand. As the product continued to benefit from our favorable payer mix.
The transaction with Alvogen closed in January 13th and to ensure a successful transition, we've agreed to promote the product for the first quarter of 2020 and Alvogen will reimburse us for our costs to do so. Beginning in the second quarter, we will realign our call plants to emphasize CAMBIA and Zipsor.
Thus any benefits we may expect to see from this focus won't occur until later in the year. We recorded $29.5 million of GAAP commercialization agreement revenues from Collegium in the fourth quarter versus $27.3 million last quarter.
After adjusting for the changes in the contract asset and the accounting for the Grünenthal royalty, the non-GAAP revenues were $25.4 million in the fourth quarter relative to $31.1 million in our third quarter. This decline is due to the step down of royalty rates to 14% for Collegium sales above $180 million, and the non-GAAP numbers are more reflective of the cash received under the agreement.
Despite the $6 million difference in non-GAAP commercialization agreement revenues of $3.2 million direct cost and surplus charge and expensing nearly half of our full year R&D expenses in the fourth quarter. Our EBITDA performance in the fourth quarter of $31 million compares quite favorably to the $34.3 million in our third quarter due to our focus on operational efficiencies which drove the decline in our base SG&A.
Subsequent to year-end and the closure of both the Gralise and NUCYNTA transactions we now only have $77 million of convertible debt outstanding. We have repaid our senior debt in full and entered into a number of privately negotiated transactions retirement approximately $188 million of par value of our converts at a small discount to par in mid-February.
We expect that once we have repaid all of our indebtedness, we'll have approximately $50 million in cash, as well as the future royalties from the sale of Gralise totaling $52.5 million. Arthur and I are committed to having a business that is EBITDA positive by year-end.
Now that the restrictive senior debt covenants, the owners' interest in debt service drains on our cash flows and our reliance on income from an opioid are gone. We can turn our efforts away from refinancing and restructuring activities and towards building and growing our business.
The debt had occupied a significant amount of management's time and effort, as well as been a source of concern from potential business development and M&A counterparties. We feel a tremendous amount of weight has been removed from our shoulders and we're excited about the future and look forward to providing insight on a go forward plans shortly.
That ends our prepared comments. Today, we will not be hosting a question and answer section on this call. As it was mentioned, we instead plan to hold a separate conference call in the near future, and we'll discuss our plans for the remainder of our convertible debt, and to explain how we intend to leverage or strengthen balance sheet to create a sustainable and growth oriented specialty pharmaceutical company.
Thank you for your attention this afternoon. We look forward to speaking in the near future. And I'll now turn the call back over to Max for final comments.
Unidentified Company Representative
Thank you, Dan. And thank you everyone for joining us this afternoon. A replay of this webcast and conference call will be available shortly and for the next 30 days. Please dial 1-855-859-2056 using passcode 2099224. Please contact us if you have any follow up questions or if we can assist in any way. As a reminder, our earnings related materials are posted to the investor relations section of the Assertio website. Thank you for your interest. Have a good evening.
This concludes today's conference call. Thank you for your participation and have a wonderful day. You may now disconnect.
End of Q&A