Assertio Holdings (NASDAQ: ASRT) has released its financial results for the second quarter of 2024, with CEO Brendan O'Grady highlighting a strong balance sheet, modest debt levels, and growth in Rolvedon sales. Despite a slight decline in overall product sales, the company's focus remains on steady execution and cash flow improvement, with an active search for new assets to enhance their commercial model. CFO Ajay Patel noted the financial impacts, including a gross margin affected by inventory step-up amortization, and detailed the company's cash flow and balance sheet status.
Key Takeaways
- Assertio Holdings reports solid balance sheet and modest debt in Q2 2024.
- Rolvedon sales increased, driving demand growth, while Indocin sales remained steady.
- Total product sales experienced a slight decline.
- The company is actively pursuing potential acquisitions, aiming to use cash reserves before considering other financing options.
- Enrollment for a Rolvedon same-day dosing trial has been completed, with data to be presented later this year.
- Financial details included a $400,000 inventory step-up charge and a $1 million inventory write-down charge.
Company Outlook
- CEO Brendan O'Grady is positive about Assertio Holdings' stable foundational business and growth potential, particularly with Rolvedon as the primary driver.
- Guidance modification to be evaluated in November after a more comprehensive view of the year's performance.
- The company's strategy focuses on assets that leverage their commercial model and core competencies.
Bearish Highlights
- There was a slight decrease in total product sales.
- Indocin sales have decreased due to generic competition, with uncertainty about the number of competitors entering the market by year-end.
Bullish Highlights
- Rolvedon sales have shown an increase, contributing positively to the company's revenue.
- Sympazan is experiencing modest growth due to targeted go-to-market strategies.
- Otrexup sales remain stable, contributing to a combined revenue of $4.7 million for both products.
Misses
- The company's first-half product sales were around $62.5 million, which is approximately half of the top end of their guidance range.
Q&A Highlights
- Discussions included performance of products like Otrexup and Sympazan.
- The potential for a larger Rolvedon trial based on upcoming data from the same-day dosing trial.
- Assertio's commitment to scaling the business through strategic asset acquisition.
In summary, Assertio Holdings remains focused on driving growth through Rolvedon and exploring potential acquisitions to strengthen its market position. The company will continue to monitor its product portfolio's performance and adjust its strategies to maintain a strong financial foundation and capitalize on emerging opportunities.
InvestingPro Insights
Assertio Holdings (NASDAQ: ASRT) has shown a mix of strategic financial maneuvers and market performance that may interest investors. The company's management has displayed confidence in its trajectory by aggressively buying back shares, a move that often suggests belief in the company's undervalued stock price or a desire to increase future earnings per share. Additionally, Assertio holds more cash than debt on its balance sheet, providing a cushion and flexibility for operational needs and potential acquisitions.
InvestingPro Data reveals a market capitalization of $113.67M, suggesting a modest-sized company in the pharmaceutical industry. Despite the challenges faced in sales, the company's valuation implies a strong free cash flow yield, which may be attractive to investors looking for companies that can generate cash post-expenses. Furthermore, with a price/book ratio of 0.86 as of Q1 2024, the stock could be considered undervalued relative to its assets, which might be an appealing factor for value investors.
InvestingPro Tips highlight that while the stock has taken a significant hit over the past week and month, it has experienced a substantial price uptick over the last six months, indicating potential volatility but also a recovery in investor sentiment. Analysts predict that the company will be profitable this year, which, if realized, could be a turning point for Assertio's financial health and investor appeal.
For investors seeking more in-depth analysis, there are additional InvestingPro Tips available on https://www.investing.com/pro/ASRT, which may further guide investment decisions regarding Assertio Holdings.
Full transcript - Assertio Therapeutics Inc (NASDAQ:ASRT) Q2 2024:
Operator: Thank you for standing by. My name is Mark, and I will be your conference operator. At this time, I would like to welcome everyone to the Assertio Holdings Second Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Matt Kreps, Investor Relations. Matt, the floor is yours.
Matthew Kreps: Good afternoon, and thank you all for joining us today to discuss Assertio's second quarter 2024 financials. The news release covering our results for this period is now available on the Investor page of our website at investor.assertiotx.com. I would encourage you to review the release and the tables in conjunction with today's discussion. With me today are Brendan O’Grady, our Chief Executive Officer; and Ajay Patel, Chief Financial Officer. In just a moment, Brendan will open the remarks and provide an overview of the business, then Ajay will cover our financial results and guidance. After that, we will take questions from our covering research analysts. Please note that during this call, management will make projections and other forward-looking statements regarding our future performance. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in this afternoon's press release as well as Assertio's filings with the SEC. These and other risks are more fully described in the risk factors section and other sections of our annual report on Form 10-K and in our Form 10-Q filings. Our actual results may differ materially from those projected in the forward-looking statements. Assertio specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. And with that, I will now turn the call over to Brendan. Please go ahead.
Brendan O’Grady: Thanks Matt. Welcome everyone to today's call and thank you for joining us. As many of you already know, this is my first earnings call since I joined Assertio a little over two months ago, and I'm very excited to be here. Over the past couple of months, I've been asked by a variety of stakeholders why I joined Assertio. I expect that question may come up today in Q&A, so I thought I would address this upfront. Over the past year, Assertio has navigated the impact of the loss of exclusivity on Indocin, as well as the acquisition and integration of Spectrum that brought us Rolvedon. These transformational events have allowed Assertio to reset. We have a solid balance sheet, modest debt on favorable terms, good assets led by a new growth driver in Rolvedon and a platform ready to scale with the addition of future assets that fit a well-defined and proven commercial model. For all of these reasons, we are well-positioned for growth and to deliver value for the patients and providers we serve, as well as the shareholders and employees. Assertio is also an excellent match to the background and skillset that I have developed over my 30-plus years in the pharmaceutical industry. In particular the 20 years I spent at Teva which built a multibillion-dollar branded specialty business mostly through acquisition, integration and focused go-to-market strategies. While much of my time at Teva was focused in specialty, biologic and branded pharma segments, I also gained experience and delivered results in biosimilar and generic markets both inside and outside the US, giving me a breadth of experience across Assertio's current asset base. Lastly, I have significant relevant experience in acquiring and integrating new assets, which of course includes the due diligencing process. For all of these reasons, very simply put, Assertio needs and my skillset is a very good match. So here I am. I want to be clear as I speak with you today that we are not planning -- that I'm not planning any radical departures from the current strategy. Our focus will remain on steady execution, driving cash flow and identifying the next assets we can add to bring further scale to Assertio's platform. In doing so, we will bring greater value to our long-term stakeholders. Now, with that said, turning to performance. The second quarter continued the momentum from the first quarter and tracks well to our full year outlook. Rolvedon Q2 sales increased again quarter-over-quarter, driven by a 6th consecutive quarter of demand growth. I had the opportunity right after joining the company to meet with several customers and the feedback was overwhelmingly positive. Rolvedon is well regarded by physicians, well tolerated by patients, and stands out against the field of biosimilars. We are focused on using our unique position as a non-biosimilar to offer stability and predictability to providers and patients, and that message is resonating. Additionally, we completed enrollment of Rolvedon same day dosing trial early in Q2 and expect to present the initial data at a major medical conference later this year. I'm excited about Rolvedon as it's going to play a key role for us over the next several years. Turning to Indocin. We currently have one generic competitor and our share in the market is holding at our internal target levels which we are comfortable at. We are managing the loss of exclusivity and are working to maintain this volume at a competitive price. We have successfully right sized our organization, cut costs and made sure we have the right team in place to deliver results under this evolving dynamic. In my prior role, I had the benefit of overseeing the largest generic portfolio on the planet and work with generics and late-stage assets at many other points in my career. So, this is familiar territory for me as we work to maximize our opportunity with this and other assets that have lost exclusivity. In addition, we are currently working as a team in assessing the rest of our existing assets, seeking either the potential for modest growth or continued cash flow delivery depending on their stage of life and market dynamics. As a result of this ongoing execution, we generated $7.4 million in cash, driving total cash to more than $88 million at the end of the quarter. While our working capital needs have increased with the addition of Rolvedon, our cash balance provides a key advantage as we look to add accretive assets that fit our commercial model. And with that, I will turn the call over to Ajay to review the financials in more detail.
Ajay Patel: Thanks Brendan. Today, I would like to cover our financial results for the second quarter 2024. Before I begin, I want to note that my commentary, similar to last quarter, will focus on sequential comparisons for the first quarter. Comparisons to prior year are less relevant given the acquisition of Spectrum and the generic competition of Indocin that occurred in the prior year third quarter. Also, I want to remind everyone that Rolvedon is now our lead asset and brings with it associated changes in margin, operating cost structure and cash flows that you are seeing in our results this year as compared to the prior year. For the second quarter of 2024, our total product sales were $30.7 million, down slightly from $31.9 million in the first quarter. The decline is due to the growth in Rolvedon being offset by expected decline in Indocin as there is a difference in growth trajectory of Rolvedon in its lifecycle compared to the erosion of Indocin which went generic less than a year ago. Rolvedon sales in the second quarter were $15.1 million, up from $14.5 million in the prior quarter. The increase is due to continued volume growth that was partially offset by lower net pricing. Demand volume for Rolvedon grew again sequentially and set another high during the second quarter. Published ASP change during the quarter for Rolvedon was in line with our expectations and we continue to have the second highest ASP in the class. Indocin sales were $6.9 million compared to $8.7 million in the first quarter. Generic competition, which is still in its first year, continues to impact both volume and pricing. Reported gross margin in the second quarter was 71% compared to 65% in the first quarter. Both quarters were impacted by purchase accounting inventory step up amortization for Rolvedon, which is now complete. Excluding this step-up amortization, gross margin in the second quarter was 73% compared to 78% in the first quarter. The second quarter was impacted by an increase in inventory write downs in late-stage products, which had a three-percentage point impact. Turning to operating expenses. SG&A expense was $18.4 million in the second quarter, down slightly from $18.5 million in the first quarter. Second quarter SG&A expense benefited from a $1.9 million gain on a settlement of insurance reimbursement claims, which was offset by higher legal spend on new and ongoing matters and other expenses. R&D expense in the second quarter was flat and primarily included costs for Rolvedon trials. On an adjusted basis, excluding stock compensation and depreciation expenses, total operating expenses were $17.7 million in the second quarter versus $18 million in the first quarter. GAAP net income for the first quarter was a loss of $3.7 million, down from a loss of $4.5 million in the first quarter. Because GAAP net income includes a number of non-cash expenses, we also use adjusted EBITDA as a good indicator of operating performance of the core business. Q2 adjusted EBITDA was a positive $5 million compared to Q1 adjusted EBITDA of $7.4 million. The change was primarily due to the impact of lower product sales and increase in inventory write-down expense. Please refer to our press release for additional reconciliation of our adjusted EBITDA results. Crossing over to cash flow and our balance sheet, we generated $7.4 million in cash flow from operations in the second quarter on top of the $7.5 million in the first quarter. As we have previously noted, quarterly cash flows will fluctuate due to the timing of working capital, royalties and interest payments, as well as shift in product mix from Indocin to Rolvedon. Cash and short-term investments at the end of the second quarter were $88.4 million, up from $80.7 million in the first quarter, and debt was unchanged at $40 million. In the second quarter, we invested cash into short-term investments, leading to a change in our balance sheet tables. Our total cash position referenced in our commentary today includes the line items, cash and cash equivalents, plus a new line item for short-term investments. We are also maintaining our previously announced guidance for 2024, which provided for net product sales in a range of $110 million to $125 million, an adjusted EBITDA in a range of $20 million to $30 million. With that, we will open the floor to questions from our covering research analyst. Operator, please go ahead with the instructions.
Operator: We will now begin the question-and-answer session. Your first question comes from the line of Thomas Flaten with Lake Street Capital Markets. Thomas, your line is now open.
Thomas Flaten: Hey, good afternoon. I appreciate you taking the questions. Brendan, maybe I could start with you. It's only been a couple months, but I'm curious maybe if you could put some guardrails around what it was that excited you about the opportunity and what you've learned in the months you've been there that may or may not confirm what you thought or maybe made it better, worse, et cetera. Just trying to get some thoughts from you on that.
Brendan O’Grady: Sure. Happy to. Thomas, thanks for the question. So, I guess, maybe I'll answer the back half of the question and come back to the first part. So, after 71 days into the role, it's exactly what I thought it would be, I'm happy to say. And things are going according to how I thought they would go. I mean, I think I joined -- as I said in the beginning, I joined Assertio because I believe that there's an opportunity here to create great value. I think that everything that I said in my opening remarks about the balance sheet, about the people, about the commercial model, those have all been confirmed in my first 71 days. I think that the landscape and business development is starting to heat up a little bit. There's numerous potential deals out there to get. We'll see how those go. But I'm excited about Rolvedon. I think Rolvedon is growing nicely, as we've shown. I think we'll continue to execute on Rolvedon. That will be our primary growth driver. There are other assets in the portfolio that I think we can get some modest growth of, as well as optimize some of the later stage assets. So, my take is the foundational business is stable and positioned to grow, and we can start adding to that and really position Assertio for growth going forward, which I'm very excited to do and very excited to be part of.
Thomas Flaten: And speaking of growth, you guys, from a product sales perspective, you're $62.5-ish million for the first half of the year, which would be about half of the top end of your guidance range. How are you thinking about modifying guidance as we go forward, if at all?
Brendan O’Grady: So, I'll come back in November and give you a better take on that. Again, I'm 71 days in, so I want to make sure that I've got a good handle on where all of that is. I think you just brought up a very good point, something that's fairly obvious, but we'll take a look at how the year is shaking out and by the time we get to November, we will have completed nine months of the year. So, we'll, we'll take a look and see what we do with guidance at that point.
Thomas Flaten: Appreciate you taking the questions. Thanks so much.
Brendan O’Grady: Sure. Thank you.
Operator: Your next question comes from the line of Ram Selvaraju with H.C. Wainwright. Ram, your line is now open.
Raghuram Selvaraju: Thanks so much for taking my questions and congrats on the fine performance in this quarter. Firstly, I was wondering if you could comment on your expectations regarding the number of generic competitors to Indocin that you expect to be on the market by the end of this year. If you can maybe give us some granularity on that, what your expectations are based on your internal projections. And the second question pertains to what may or may not be your overall strategy with regard to bringing in additional products. And if you anticipate these products to likely be more along the lines of products that you can promote on a virtual basis, or if you are looking at any opportunities that would necessitate the deployment of a field salesforce akin to what you're currently doing with Rolvedon. Thank you.
Brendan O’Grady: So great questions. So, the question on generic competitors, this is always a tricky question because you never really know, and I used to get this a lot on different assets when I was with Teva. But quite frankly, we expected another generic competitor on the market in July. That didn't happen. So, we'll see. We don't really know much more than that, other than the gold date came and went and that product has not been launched. So, I guess, you could say that every day that it's not. There's somewhat of a tailwind for Indocin. Could we see another one by the end of the year? Potentially. Our original thought was maybe we would see two or three generics on the market by the end of this year. We may get lucky and we may just see the one. So, it's hard to say, but our plan was for multiple. So, we'll see if there's any potential upside here as we go through the year. But that's how we're thinking about Indocin and generics for the rest of the year. As far as overall product strategy, I mean, I think we're looking for something that capitalizes on our current commercial model and some of our later stage assets we do all non-personal promotion, Rolvedon, actually, as you know, we have a field force out there supporting Rolvedon, but a lot of assets require a little bit both field and omnichannel. So, I don't think that we're looking for an asset that is exclusively one or the other. I think we're looking for an asset that builds on our capabilities, that is cash accretive, that has patent protection or exclusivity. I think those are the things that we're looking at and what we can execute with the cash reserves and balance that we have. So that's where we're looking. And I don't think we're looking for an asset that requires a 500 to 1,000 person salesforce. I think we're looking at assets that really fit our place in the market and where our core competencies are.
Raghuram Selvaraju: Thank you.
Brendan O’Grady: Sure.
Operator: Your next question comes from the line of Naz Rahman with Maxim (NASDAQ:MXIM) Group. Naz, your line is now open.
Naz Rahman: Hi, thanks for taking my question and congrats on all the progress. Just sticking with the theme of BD, based on all the assets you sort of looked at thus far, what has been the gating factors in terms of closing an acquisition? Are you seeing valuations that are, in your opinion, too high, or are you seeing -- do you think valuations for these assets are relatively appropriate currently? And what's sort of been stopping you from closing in these acquisitions? And I guess my follow up to that is also what are you thinking of in terms of a structure of a transaction? Like how do you think of the relative value of using cash equity or debt in a potential transaction?
Brendan O’Grady: So, I'll answer part one and I'll let Ajay answer part two. But as a buyer, valuations are always too high. So, I'll just put that out there right now. But having said that, there are certainly things that are of interest to us that we believe are executable. And we're in active discussions with several different organizations and we'll see if any of those pan out. If they do, then we'll obviously come back with more detail. But I'm pleased with what's in our BD view, so to say, and we'll see what comes out of it. There are some encouraging opportunities out there. I don't really want to say anymore. I can't really say anymore at this point. But there are things that we can do. And Ajay, maybe that's what I'll hand it over to you and talk about how.
Ajay Patel: Yeah, yeah. Naz, thanks for the question. I'll probably echo what Brendan said in terms of how we're looking at assets that fit our capabilities. I think we're looking at acquisition size that fit our capabilities. Obviously, we'll start with from a capital perspective, we have several avenues, but we'll start with the lowest cost of capital, which for us will be our cash on our balance sheet. And I think from there, we have opportunities to look at either mixed structured from a debt perspective, but I think we see ourselves utilizing cash first and then going down the line in terms of capital structure.
Naz Rahman: Got it. Thank you for taking my questions, and once again, congrats on the progress.
Brendan O’Grady: Thank you.
Operator: Your next question comes from the line of Scott Henry with Alliance Global Partners (NYSE:GLP). Scott, your line is now open.
Scott Henry: Thank you and good afternoon and congratulations, Brendan. Your first conference call almost over. Hopefully, I won't get too interesting. So, for starters, Rolvedon annualizing north of $60 million in 2024, which is great. How -- when we think about 2025 and the competitive dynamics, would you still expect it to be a strong growth product at that stage? And by strong growth product, I think 20% or higher growth, should we still think about it that way? And if you don't want to answer specifically, maybe if you could just talk about some of the factors that could tilt it higher or lower and they have been that threshold.
Brendan O’Grady: Scott, thank you for the question. And it's a good question. I mean, as you know, we are bullish on Rolvedon. We think it has legs in the organization. We plan for it to be a growth asset, not for just this year, not for just next year, but for the foreseeable future. So, yeah, I do think that we'll see growth next year. And it's something that we constantly manage is that as we -- you gain volume, you do different deals and put different contracts out there, so you have to balance the ASP erosion versus the volume growth. But I think we've got a good plan in place to do that. As I've looked at the rest of this year, and I look out through 2025, I see no reason why we can't continue to grow Rolvedon. It's not a straight-line growth, though. It doesn't grow like that quarter-over-quarter. Some quarters will take bigger leaps than others. Traditionally in the third quarter at least my experience has been in the oncology markets, you see somewhat of a flattening in Q3 just because a lot of patients doing chemotherapy schedule, vacations and schedule their chemotherapy so they can have several weeks where they feel good to go on vacation with their family. So typically Q3 can tend to be more of a flat quarter. But yeah, we see continued growth for Rolvedon this year and next year and hopefully for the next several years.
Scott Henry: Okay. Great. And my follow up question may be in multiple parts, but we'll see. For starters, Otrexup and Sympazan, any thoughts on how they did in the quarter? I didn't recall and we don't see the numbers in there, at least sequentially, how they performed.
Brendan O’Grady: Yeah. So, AJ, can give you the exact numbers, but just in general, those are a couple of the assets that we're looking at as to what the potential is for those. I think that we're starting to see some modest regrowth of Sympazan as we take a look at that, as our kind of go-to-market strategy there and how we're getting the messaging out. Sympazan is a great product and physicians love it, patients love it, caregivers love it. It occupies a very unique place in the market and it's just a matter of making more physicians and patients aware of it. So, we're looking at the most effective, most cost-effective way to do that. But I like Sympazan. I think it's a great asset. And Otrexup, that's just kind of a matter of how we manage access against cost of goods so that patients have access to it and we can maintain or grow our share in that market as well. So, both those are good assets for us. I think Otrexup was relatively stable and flat from quarter-to-quarter. And Sympazan, we're starting to see some growth in the second half of the year.
Ajay Patel: Yeah, Scott, you'll see our 10-Q filed later today, but both of them in aggregate approximated $4.7 million. And as I kind of said in my commentary, the entirety of our product portfolio, revenue change between Q1 and Q2 was the plus and minus from Rolvedon and Indocin. The rest of the product portfolio was fairly flat.
Scott Henry: Okay, great. And then you mentioned that the Rolvedon same day dosing trial has completed enrollment. Initial data expected later this year. Do you have a sense of that data already? If I recall, was that an unblinded trial? And I'm not asking you to disclose it, but I'd just like to be curious if you know what is unknown about that data at this point in time.
Brendan O’Grady: Yeah. So, we haven't fully seen the data yet. So, as I said, it'll be presented at a major medical conference later this year. So, we're still awaiting to see the exact outcome of the data. What I will say is that this trial was never powered for a new indication for same day dosing for Rolvedon. We are hopeful that we will see some positive results that support same day dosing use. And we submitted the abstract based on the preliminary data and more to come on that, but we're optimistic.
Scott Henry: Okay, great. Well, thank you for taking the questions.
Brendan O’Grady: Absolutely.
Operator: Your next question comes from the line of Jim Sidoti with Sidoti and Company. Jim, your line is now open.
James Sidoti: Hi. Thanks for taking the question. So, just to follow up on that same day dosing question. If the data is compelling, would you consider doing a larger trial to get the labeling?
Brendan O’Grady: So, Jim, thanks for the question. I mean, if the data is real compelling, we'll take a look at it and see if there's value in doing a larger trial. What that investment would be required to do that, and the hopes of getting that, not just added to guidelines, but adding it -- added it to our label. So, we'll see. We'll make that determination once we see the full results of the trial and obviously, talk with some key opinion leaders and assess where we go from there.
James Sidoti: Okay. And for Rolvedon, AJ, were there any inventory step up charges in the quarter?
Ajay Patel: There was an inventory step up charge. It was about $400,000.
James Sidoti: Okay. And can you just repeat what the write-down charge, what the write-down charge you took was?
Ajay Patel: Yeah. The inventory write-down charges that we took during the quarter were for our late-stage product assets, and the increase quarter-over-quarter was approximately a $1 million.
James Sidoti: Okay. All right. Thank you.
Operator: That concludes our question-and-answer session. I will now turn the call back over to Brendan for closing remarks.
End of Q&A:
Brendan O’Grady: Well, thank you, and I appreciate everyone who has joined us today. As I said in my opening remarks, I'm excited to be here at Assertio, and I hope that today's call has illustrated not only the solid execution and cash generating business that we have today, but also our commitment to finding the right assets to help move Assertio into the next chapter as we work to further scale the business and create value. We will be attending a number of conference and roadshow events in the coming months and I look forward to the opportunity to engage with our stockholders. If you would like to arrange a meeting at one of these events or an update call with management, please contact Matt Kreps directly using his information provided in the press release and we will be happy to schedule a time, and thank you all once again for joining us today. Take care. Have a good evening.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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