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Assertio: A Turnaround Where Almost Everything Just Changed

Jan. 21, 2022 12:29 PM ETAssertio Holdings, Inc. (ASRT)66 Comments
Jeremy Blum profile picture
Jeremy Blum


  • After years of losses and declining revenues, new management was brought in a year ago.
  • Assertio looks almost entirely different than two years ago.
  • It is now a cash flow machine, with three recent guidance raises, though with a number of risks.
  • The new Assertio only became visible with third quarter 2021 earnings, as prior quarters had massive noise from restructurings.
Young military officer receives medication for depression

SDI Productions/E+ via Getty Images

As some of my readers know, I specialize in turnarounds. Good ones can be hard to find, and in a normal year I only find two to four. Stock prices can really jump when sentiment goes from negative to neutral or neutral to positive. When

This article was written by

Jeremy Blum profile picture
Tipranks.com shows stock returns from my articles have averaged over 38% over a one year period. I was the Credit Manager for a mid-sized publicly traded bank and retired early in 2013. Despite never working in the industry, I took and passed the CFA Level 1 exam. I usually only write about stocks that are my best ideas and I have a position in. I traditionally have invested in and written about small and micro cap deep value stocks. As an investor you can get an edge in researching and talking to management of small and micro cap companies that have little or no analyst coverage. About 50-75% of my portfolio are deep value stocks, primarily microcaps. That is historically where I have had the best returns.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ASRT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (66)

Dinesh S profile picture
Stock is dead.
@Jeremy Blum imagine you are out this stock by now, but what are your thoughts on todays ER and subsequent price drop
Jeremy Blum profile picture
@The Alberta Corporate Champ I've been out a while. The concentration in revenues from one product (INDOCIN) was a concern I listed in the article. The generic competition just approved does not appear to be approved for all INDOCIN forms yet. I have no way of handicapping how soon it will take share away. But the fact Assertio has significantly raised prices of INDOCIN the past 2 years does not bode well. They can easily be underpriced. At least the new medication they just acquired is doing well.
Dinesh S profile picture
@Jeremy Blum any interest in stock after todays sell off , almost close to dollar now
SimpleTrader profile picture
Jeremy big acquisition.

Dinesh S profile picture
@SimpleTrader big sell off too
I. M. Spartacus profile picture
@Dinesh S The acquisition is supposed to be accretive, so the sell off seems to be a poor reaction. I expect a bounce back.
Jeremy Blum profile picture
This has approached my price target and I have sold my position. Sometimes a plan does come together... :)
Thelonius23 profile picture
@Jeremy Blum I remember you saying a year ago that it should be a $6 stock. Well, now it is. Great call.
Jeremy Blum profile picture
@Thelonius23 Thanks, hope you benefitted.
I. M. Spartacus profile picture
@Jeremy Blum I appreciate the update on your position, Jeremy. Most authors don't do that. @Thelonius23 made some good points on 8/28/2022, and believe it or not I'm still a bit under water with ASRT (I got in way, way, way too early) so I'm going to let this one ride a bit longer because it doesn't look too expensive at this point.
Jesus Loves You profile picture
Hello Jeremy! Thanks so much for your insight. It's so helpful, and I've decided to purchase RELL and PLPC. What do you think about ASRT? I think it's still undervalued but wanted to hear your thoughts.

Do you still think it will turn around like RELL? Thanks in advance and God bless you.
Jeremy Blum profile picture
@Jesus Loves You I like RELL and PLPC a lot and still own ASRT (though I sold it a $4 and bought back at $2.50). If they can buy a few more product lines the diversification will definately help the stock price. The biggest issue right now is a concentration with one drug, INDOCIN. The market will reward them if they can diversify.
@Jeremy Blum Agree on Indocin - the new language around the suppository compounder in the 10Q isn't helpful.
Jesus Loves You profile picture
@Jeremy Blum thank you so much my friend! You should also look into Onsemi. I think it’s amazing company based on what you said. 🙌🏻
Thelonius23 profile picture
Here’s a note to value investors who don’t care about momentum or quant stuff to sum up the current situation :

1. Market cap $128 million
2. Net debt (netting out cash): $0
3. Free cash flow per year: $75MM
4: EV $128MM
5. EBITDA/EV: 1.7
6. Free cash flow is same as EBITDA because there is no CAPEX or typical working capital changes
7: FCF/EV: 1.7
8. FCF yield: 59%
9. If convertible debt is not converted, all numbers above stay the same
10. If convertible is converted at $4.09/share (conversion price), numbers are currently $70 million cash, $0 debt, market cap $174M, EV $104MM, EV/FCF 1.38.
inv28758231 profile picture
@sbandara FY adjusted EBITDA guidance up from $66M~$74M to $73M~$79M. Not too shabby.
I. M. Spartacus profile picture
@inv28758231 And of course the share price reacts by dropping 7.5%.
inv28758231 profile picture
@Office Rat I guess people expected even better results.

@Jeremy Blum any comments on the earnings report?
Dinesh S profile picture
Any news on todays sell off?
Thelonius23 profile picture
Really quite an amazing quarter just reported. Wow. Annualized GAAP of $0.80….that’s a PE of 2.4 at today’s closing price. And free cash flow was $27 million in the quarter. At a $90 million market cap and no real (net) debt, that means FCF in a single year would be about what the current market cap is. A company selling for around 1x free cash flow? What? Amazing.
@Thelonius23 I know it is bizarre but the market has not yet embraced it. If I was short I would get out now.
It is Nucynta not Nucyntra but hey nice article Q2 2021 was disrupted not by severance but by Glumetza lawsuit best wishes Chuck
Thelonius23 profile picture
Based on comments on the last earnings call, I would expect some kind of announcement about a debt refi and/or a new product acquisition, shortly. They made it pretty clear on the call that both processes were in motion at the time of that call. It’ll be interesting to get an update.
General and 10K comments:

* The company currently pays 13% interest on roughly $71 mm in debt. The author suggests a 4% refi rate is possible. I believe that number is far too aggressive given 55% of the company's 2021 revenue was from one drug, which is already off patent. That drug, Indocin, is difficult to manufacture, somewhat insulating it from competition, in my opinion. The 55% number is reduced modestly when taking into account the recent acquisition, a deal that brought in a drug carrying long-dated patent protection. In addition, another 32% of the company's 2021 revenue will face generic competition by 2023. I suspect a refi rate in the 7% to 8% range is more likely, but the refi rate is tied to my next two points.

* "On December 17, 2021, we entered into a Sales Agreement with Roth Capital Partners, LLC (“Roth”) as sales agent to sell shares of our common stock, from time to time, through an “at-the-market offering” program having an aggregate offering price of up to $25.0 million. Roth will be entitled to aggregate compensation equal to 3.0% of the gross sales price of the shares sold through it pursuant to the Sales Agreement. As of December 31, 2021, we have not sold any shares under this program." Source: 2021 ASRT 10K

* To state the obvious, the level of equity capital raised by Roth, if any, will influence the refi rate. If you're buying stock here, the company may be the seller, which is fine, in my view, just be aware of the at-the-market (“ATM”) program. REITs use ATM offerings all the time.

* On an EV*/EBITDA basis, the company's shares trade at 2.6x the midpoint of management’s 2022 EBITDA guidance, reflecting outstanding litigation, the aforementioned patent issues and less-than-prodigious 2021 operating cash flow (should improve this year), in my opinion. Even with those issues, the 2.5x multiple seems overly punitive. At 3.5x EV/EBITDA, the shares would trade at roughly $4, or about 60% higher. *I'm using $63 mm in net long-term debt, which includes the $26 mm in deferred payments for the latest deal.

* The company's stake in NES Therapeutics (“NES”) is a huge wildcard, in my opinion. As explained on yesterday morning’s call, ASRT has an investment in NES in the form of a convertible note. As management noted, “the way this investment works is upon FDA acceptance of their NDA, that note will convert into equity. So, right now on the current timeline, we were expected to convert into what looks like 12% equity ownership.”

* NES has a potentially life-saving drug for babies who suffer from an “ultra rare condition called neonatal antiviral sepsis,” which affects approximately 7,000 babies per year. Management suggested pricing could exceed $200,000 per patient. To be conservative, let’s assume the pricing lands at $100,000 with a 25% penetration rate. Such a scenario would yield $175 mm in annual revenue. Putting a conservative 3x multiple on this revenue stream would place the value of ASRT’s stake in NES at $63 mm (3 x $175 mm x 12%), representing almost $1.5/share in value to ASRT shareholders. This analysis excludes the potential value of a priority review voucher. Timing? According to management, “there is a chance that we could see approval by the end of this year, and certainly it's on the path to be ahead of the next season in 2023.”
@Dynamic_Value_Investor feels like the company is selling today
Large Margin of Safety profile picture
@Dynamic_Value_Investor What makes indocin difficult to manufacture?
@Large Margin of Safety Orals/suppositories are inherently more difficult to manufacture than pills. Could a large generic pharma company make the product? Sure. It's big risk, no doubt, which explains the 2x EBITDA multiple. On a different front, NES could file this qtr. If accepted, that event will likely generate $65 mm to $75 mm in total proceeds for ASRT (stake in NES and ASRT's portion of the priority voucher).
Thelonius23 profile picture
Amazing. Now sells at 1.5x 2022 EBITDA. Forward PE of 5.5x. Debt refi in process. And many other positive things going on. That conference call was very encouraging.
What is the expectation for tomorrow’s earnings
Moonlight117 profile picture
I called the company and they said that the company was too different and it did not have any direct competitors. Where did you get your comps from?
Jeremy Blum profile picture
@Camo117 in the article I mentioned the comps I used are “smaller pharmas with low or moderate leverage like Assertio. Unlike Assertio, each has an R&D program of about average size and revenue growth. ”

Not having and R&D program or historical growth are negatives when it comes to value and I discounted ASRT when comparing to its comps. I couldn’t find another company like ASRT, relying on acquisitions instead of R&D. Their secret sauce is maximizing profits well above what the sellers had, by eliminating the salesforce. I initially thought that wouldn’t work, but they are starting to get results.
@Jeremy Blum thank you for the article, so is your theory predicated mainly on whether or not they are able to maximize profits by eliminating their workforce?
bazooooka profile picture
Interesting idea.
Thelonius23 profile picture
If this is legit and the opioid settlements aren’t crazy (still a big “if”), this could be a huge winner. Nice job uncovering this one. The company PowerPoint presentation looks so promising that I said to myself “I’m either going to make 500%, or lose 100%.” Because it seems almost too good to be true. And so does the forward PE. I guess I’ll take a 1/5 risk/reward scenario, though.
Jeremy Blum profile picture
@Thelonius23 There are a number of risks, and my concerns section was larger than normal. But I agree with your 1/5 risk/reward ratio. In the short term, the two largest risks are off the table (opioids, declining revenues). There is unlikely to be an opioid settlement soon. Last quarter's revenues have already been preannounced and profitable new revenues are coming starting in February.
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