Assertio Therapeutics Announces First-Quarter 2020 Results
-- Completed Strategic Asset Sales of NUCYNTA® Franchise and Gralise® Totaling
-- Repaid Senior Secured Debt in Full and Successfully Tendered for Convertible Debt --
-- Merger with Zyla Life Sciences On Track and Expected to Close Shortly After the Company’s 2020 Annual Meeting on
First-Quarter Financial Highlights:
|First Quarter 2020
|(in millions, except earnings per share)||GAAP||Non-GAAP(1)|
|Earnings Per Share|
(1) All non-GAAP measures included in this earnings release are reconciled to the corresponding GAAP measures in the schedules attached.
“Today we reported positive results in a truly transformative quarter for Assertio, one in which we strategically divested assets, repaid our debt, and announced a merger agreement with Zyla Life Sciences. These bold steps position the new Assertio as a company with a diversified and growing portfolio, low leverage and as a result well positioned to add differentiated products through acquisitions and partnerships,” said
First-Quarter Business Highlights:
- Merger Agreement with Zyla Life Sciences: On
March 16, 2020, the Company announced it had entered into a definitive merger agreement with Zyla Life Sciences (Zyla) (OTCQX: ZCOR). The Merger will create a leading commercial pharmaceutical company with neurology, inflammation and pain products. The combined company will have a leading portfolio of branded non-steroidal anti-inflammatory drugs (NSAIDs) commonly used by neurologists, orthopedic surgeons, internists, women’s health providers, podiatrists and pain care specialists. The new company will have the platform, profitability and financial strength to both grow its existing portfolio and acquire additional complementary assets. The closing of the merger is expected to occur shortly after Assertio’s shareholders meeting on May 19, 2020. The combined synergy potential is upwards of $40 million, in addition to Assertio’s previously announced $15 millionin annual accelerated cost savings initiatives, allowing for Pro-Forma 2020 Non-GAAP Adjusted EBITDA margins greater than 25% and net leverage of less than two times. The combined company Pro-Forma 2019 revenue was approximately $128 million.
- Debt Reductions: On
February 13, 2020, the Company announced that it repaid in full its senior secured debt obligations. Between two separate transactions announced on February 19, 2020and April 9, 2020, the Company has also retired substantially all of its outstanding Convertible Notes through $188.0 millionof privately negotiated purchase agreements and a tender of an additional $76.7 million.
- Sale of NUCYNTA Franchise: On
February 13, 2020, the Company announced the closing of its definitive agreement with Collegium Pharmaceutical, Inc. pursuant to which Collegium has acquired the NUCYNTA franchise of products from the Company. Under the terms of the agreement, Collegium paid Assertio $375.0 millionin cash at closing, less royalties paid to Assertio in 2020. In addition, Collegium paid Assertio for certain inventories relating to the products.
- Sale of Gralise: On
January 10, 2020, the Company completed the sale of Gralise to Alvogen. Under the terms of the agreement, Alvogen is expected to pay Assertio a total value of $127.5 million, plus inventory. At the closing of the transaction, the Company received approximately $78.6 million, of which, $60.5 millionof proceeds were used to pay down the Company’s senior secured debt. The remaining balance is in the form of a royalty on the first $70.0 millionin Gralise net sales. Both companies expect the majority of the royalties to be paid in the first calendar year. To ensure a smooth transition, Assertio agreed to continue to promote Gralise in the first quarter of 2020 and received cost reimbursement for promotional activities. In the first quarter, Assertio collected $2.5 millionof royalties and $0.8 millionof cost reimbursement from Alvogen.
- Impact of COVID-19: Due to COVID-19, the Company will not be providing guidance. While COVID-19 did not have a material adverse effect on our reported results for our first quarter, we are unable to predict the ultimate impact that it may have on our business, future results of operations, financial position or cash flows. While shelter-in-place orders remain in effect, the Company would expect fewer patients to visit physicians for conditions treated by the Company’s products, as well as fewer elective surgeries and fewer visits to pharmacies to have prescriptions filled. As a result, the Company could see a negative impact in product sales during the peak of the pandemic, which is expected to be in the second quarter of 2020, although the degree of this impact is not currently estimable. The extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact.
(in thousands, unaudited)
|Three Months Ended
|Product sales, net|
|Total neurology product sales, net||9,152||26,317|
|NUCYNTA and Lazanda product sales adjustments||100||133|
|Total product sales, net||9,252||26,450|
|Commercialization agreement, net||11,258||30,856|
|Royalties and milestone revenue||407||623|
2020 Company Update:
The Company will provide an update on its strategy and merger integration during its second quarter earnings call.
Conference Call and Webcast:
The Company will host a conference call today,
- From the Assertio website: http://investor.assertiotx.com. Please access the website 15 minutes prior to the start of the call to download and install any necessary audio software.
- By telephone: Participants can access the call by dialing (877) 550-3745 (
United States) or (281) 973-6277 (International) referencing Conference ID 4097119.
- By replay: A replay of the webcast will be located under the Investor Relations section of Assertio’s website approximately two hours after the conclusion of the live call.
Forward Looking Statements
Statements in this communication that are not historical facts are forward-looking statements that reflect Assertio’s and Zyla’s respective management’s current expectations, assumptions and estimates of future performance and economic conditions. These forward-looking statements are made in reliance on the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to, among other things, future events or the future performance or operations of Assertio and Zyla, respectively. All statements other than historical facts may be forward-looking statements; words such as “anticipate,” “believe,” “could,” “design,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “imply,” “intend,” “may”, “objective,” “opportunity,” “outlook,” “plan,” “position,” “potential,” “predict,” “project,” “prospective,” “pursue,” “seek,” “should,” “strategy,” “target,” “would,” “will” or other similar expressions that convey the uncertainty of future events or outcomes are used to identify forward-looking statements. Such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the control of Assertio or Zyla. Factors that could cause Assertio’s or Zyla’s actual results (or the actual results of the new combined company) to differ materially from those implied in the forward-looking statements include: (1) the risk that the conditions to the closing of the proposed Merger are not satisfied, including the risk that required approvals for the proposed Merger from the stockholders of Assertio or Zyla are not obtained; (2) the occurrence of any event, change or other circumstances that either could give rise to the right of one or both of Assertio or Zyla to terminate the Agreement; (3) the risk of litigation relating to the proposed Merger; (4) uncertainties as to the timing of the consummation of the proposed transaction and the ability of each party to consummate the proposed Merger; (5) risks related to disruption of management time from ongoing business operations due to the proposed Merger; (6) unexpected costs, charges or expenses resulting from the proposed Merger; (7) the ability of the Assertio and Zyla to retain and hire key personnel; (8) competitive responses to the proposed Merger and the impact of competitive services; (9) certain restrictions during the pendency of the merger that may impact Assertio’s or Zyla’s ability to pursue certain business opportunities or strategic transaction; (10) potential adverse changes to business relationships resulting from the announcement or completion of the proposed transaction; (11) the combined company’s ability to achieve the growth prospects and synergies expected from the transaction, as well as delays, challenges and expenses associated with integrating the combined company’s existing businesses; (12) negative effects of this announcement or the consummation of the proposed Merger on the market price of Assertio’s or Zyla’s common stock, credit ratings and operating results; and (13) legislative, regulatory and economic developments, including changing business conditions in the industries in which Assertio and Zyla operate and (14) natural disasters or calamities, epidemics, pandemics or disease outbreaks (including COVID-19) or any escalation or worsening of the foregoing. These risks, as well as other risks associated with the proposed transaction, are more fully described in the joint proxy statement/prospectus that has been filed with the
No Offer or Solicitation
This communication includes information related to a proposed business combination involving Assertio and Zyla. Such information is for informational purposes only and is neither an offer to purchase, nor a solicitation of an offer to sell, subscribe for or buy any securities or the solicitation of any vote in any jurisdiction pursuant to the proposed transactions or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act.
Additional Information and Where to Find It
This communication may be deemed to be solicitation material in respect of the proposed issuance of shares for Assertio and the proposed Merger for Zyla. The proposed issuance of shares will be submitted to Assertio’s stockholders and the proposed Merger will be submitted to Zyla’s stockholders for their consideration. In connection with the proposed Merger and the solicitation of proxies, Assertio and Zyla have filed, and mailed to their respective stockholders, the Joint Proxy Statement/Prospectus dated
The Joint Proxy Statement, any amendments or supplements thereto and other relevant materials, and any other documents filed by Assertio or Zyla with the
Participants in the Solicitation
Assertio, Zyla and certain of their respective executive officers, directors, other members of management and employees may, under the rules of the
Investor and Media Contact:
Senior Vice President, Chief Financial Officer
Non-GAAP Financial Measures
To supplement the Company’s financial results presented on a
Non-GAAP measures presented within this release exclude specified items. The Company considers specified items to be significant income/expense items not indicative of current operations, including the related tax effect. Specified items include non-cash adjustments to Collegium agreement revenue and cost of sales, adjustments to sales reserves for products the Company is no longer selling, interest income, interest expense, amortization expense, stock-based compensation expense, non-cash interest expense related to debt, depreciation expense, income taxes, transaction-related costs, CEO transition and restructuring costs, legal costs and expenses incurred in connection with opioid-related litigation, investigations and regulations pertaining to the company’s historical commercialization of opioid products, certain types of legal settlements, disputes, fees and costs, gains or losses resulting from debt refinancing or extinguishment, gains or losses from non-cash adjustments to long-lived assets and assets not part of current operations, and adjustments for the tax effect related to each of the non-GAAP adjustments.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
|Three Months Ended
|Product sales, net||$||9,252||$||26,450|
|Commercialization agreement, net||11,258||30,856|
|Royalties and milestones||407||623|
|Costs and expenses:|
|Cost of sales (excluding amortization of intangible assets)||1,399||2,575|
|Research and development expenses||1,041||1,793|
|Selling, general and administrative expenses||27,314||25,045|
|Amortization of intangible assets||7,795||25,444|
|Total costs and expenses||37,549||54,857|
|(Loss) income from operations||(16,632||)||3,072|
|Other income (expense):|
|Gain on sale of Gralise||127,505||—|
|Loss on extinguishment of convertible notes||(31,608||)||—|
|Loss on sale of NUCYNTA||(15,755||)|
|Loss on prepayment of Senior Notes||(8,233||)||—|
|Total other income (expense)||59,910||(17,163||)|
|Net income (loss) before income taxes||43,278||(14,091||)|
|Income tax expense||(2,048||)||(210||)|
|Net income (loss) and Comprehensive income (loss)||$||41,230||$||(14,301||)|
|Basic net income (loss) per share||$||0.58||$||(0.22||)|
|Diluted net income (loss) per share||$||0.58||$||(0.22||)|
|Shares used in computing basic net income (loss) per share||70,940||64,239|
|Shares used in computing diluted net income (loss) per share||71,051||64,239|
CONDENSED CONSOLIDATED BALANCE SHEETS
|Cash and cash equivalents||$||105,973||$||42,107|
|Accounts receivable, net||12,952||42,744|
|Consideration receivable from sale of Gralise||50,019||—|
|Prepaid and other current assets||10,651||15,688|
|Total current assets||180,113||103,951|
|Property and equipment, net||3,233||3,497|
|Intangible assets, net||23,671||400,535|
|Other long-term assets||4,125||6,123|
|LIABILITIES AND SHAREHOLDERS’ EQUITY|
|Accrued rebates, returns and discounts||32,359||58,943|
|Senior Notes, current portion||—||80,000|
|Convertible Notes, current portion||57,866||—|
|Other current liabilities||2,066||2,094|
|Total current liabilities||122,293||184,553|
|Other long-term liabilities||12,944||13,401|
|Commitments and contingencies|
|Additional paid-in capital||442,600||457,751|
|Total shareholders’ equity||84,037||57,958|
|Total liabilities and shareholders' equity||$||219,274||$||527,170|
RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP ADJUSTED EBITDA AND EARNINGS
|Three Months Ended
|2020||2019||Financial Statement Classification|
|Net (loss) income (GAAP)||$||41,230||$||(14,301||)|
|Interest expense||8,674||16,554||Interest expense|
|Income tax (benefit) expense||2,048||210||Income tax benefit (expense)|
|Depreciation expense||273||337||Selling, general and administrative expenses|
|Amortization of intangible assets||7,795||25,444||Amortization of intangible assets|
|NUCYNTA, Lazanda and Gralise revenue reserves (1)||(647||)||(133||)||Product sales, net|
|Commercialization agreement revenues (2)||1,846||1,930||Commercialization agreement, net|
|Transaction-related costs(3)||7,694||—||Selling, general and administrative expenses|
|Expenses for opioid-related litigation, investigations and regulations (4)||2,128||2,500||Selling, general and administrative expenses|
|Stock-based compensation||1,934||2,702||Multiple (5)|
|Gain on sale of Gralise (6)||(127,505||)||—||Gain on sale of Gralise|
|Loss on extinguishment of convertible notes (7)||31,608||—||Loss on extinguishment of convertible notes|
|Loss on sale of NUCYNTA (8)||15,755||—||Loss on sale of NUCYNTA|
|Loss on prepayment of Senior Notes (7)||8,233||—||Loss on prepayment of Senior Notes|
|Change in fair value of warrants||3,146||1,629||Other|
|Adjusted EBITDA (Non-GAAP)||$||6,066||$||36,371|
|Adjusted EBITDA (Non-GAAP)||6,066||36,371|
|Cash portion of Senior Notes interest expense (10)||(1,648||)||(8,206||)|
|Income taxes benefit (expense), as adjusted (11)||6,167||(8,561||)|
|Adjusted Earnings (Non-GAAP)||$||10,312||$||19,267|
|Shares used in calculation (12)||102,410||82,170|
|Adjusted earnings per share (Non-GAAP)||$||0.10||$||0.23|
- Removal of the impact of revenue adjustment estimates related to products that we are no longer commercializing.
- Adjustments relate to non-cash expense for third-party royalties, which have no net impact for the full year period, as well as the amortization of the contract asset.
- Represents one-time transaction-related costs including CEO transition expense and costs related to legal and consulting with the disposition of the Gralise and NUCYNTA and the proposed merger with Zyla Life Sciences during the three months ended
March 31, 2020.
- Legal costs/expenses related to opioid-related litigation, investigations and regulations pertaining to the Company’s historical commercialization of opioid products.
- Stock based compensation for the three months ended
March 31, 2020and 2019, included $0.2 millionand $0.3 millionin Research and development expense, respectively, and $1.7 millionand $2.4 millionin Selling, general and administrative expenses, respectively.
- In connection with the sale of Gralise to Alvogen on
January 10, 2020, the Company recognized a gain of $127.5 millionin Other income on the Company’s Consolidated Statements of Comprehensive Income composed of the $78.6 millionin upfront consideration received and $52.5 millionin contingent consideration expected to be collected on Alvogen’s first $70.0 millionin net sales, net of $3.6 millionin inventory transferred.
- During the three months ended
March 31, 2020, the Company recognized a loss of $31.6 millionand $8.2 millionon the repurchase of $188.0 millionaggregate principal outstanding of the Company’s 2021 Note and 2024 and $162.5 millionin remaining outstanding principal of the Company’s Senior Notes, respectively.
- During the three months ended
March 31, 2020, the Company recognized a net loss of $15.8 millionin Other income which was comprised of the $367.9 millionin upfront consideration received less the $369.1 millioncarrying value of the NUCYNTA intangible derecognized, $5.6 millionin inventory transferred, and $9.0 millionin accrued third-party consent fees.
- Represents a credit loss reserve related the Company’s
$3.0million investment in a company engaged in medical research. This investment is structured as a long-term loan receivable with a convertible feature and is valued at amortized cost.
- Represents the contractual basis interest expense for the Senior Notes. The amount excludes convertible debts interest expense because the Company computes non-GAAP adjusted earnings using the if-converted method assuming the convertible debt is converted to equity at the beginning of each period presented.
- Represents the Company’s income tax expense (benefit) adjusted for the tax effect of pre-tax non-GAAP adjustments excluded from adjusted earnings. The tax effect of pre-tax non-GAAP adjustments excluded from non-GAAP adjusted earnings is computed at the statutory rate of 21%.
- The Company uses the if-converted method to compute adjusted diluted earnings per share with respect to its convertible debt.
RECONCILIATION OF GAAP NET INCOME (LOSS) PER SHARE TO
NON-GAAP ADJUSTED EARNINGS PER SHARE (1)
|Three Months Ended
|GAAP net (loss)/income per share||$||0.58||$||(0.22||)|
|Conversion from basic shares to diluted shares (2)||(0.18||)||0.05|
|NUCYNTA, Lazanda and Gralise revenue reserves||(0.01||)||—|
|Commercialization agreement revenues||0.02||0.02|
|Expenses for opioid-related litigation, investigations and regulations||0.02||0.03|
|Intangible amortization related to product acquisitions||0.08||0.31|
|Gain on sale of Gralise||(1.25||)||—|
|Loss on extinguishment of convertible notes||0.31||—|
|Loss on sale of NUCYNTA||0.15||—|
|Loss on prepayment of Senior Notes||0.08||—|
|Change in fair value of warrants||0.03||0.02|
|Non-cash interest expense on debt (3)||0.07||0.10|
|Income tax effect of non-GAAP adjustments (4)||0.08||(0.11||)|
|Non-GAAP adjusted diluted earnings per share||$||0.10||$||0.23|
(1) Represents per share calculations of adjustments reflective in the Company’s reconciliation of GAAP net (loss) income to non-GAAP adjusted earnings and therefore should be read in conjunction with that reconciliation and respective footnotes.
(2) The Company uses the if-converted method to compute adjusted diluted earnings per share with respect to its convertible debt.
(3) Represents per share adjustment for interest expense, net of cash portion of Senior Notes interest expense.
(4) Represents the Company’s income tax (benefit) expense adjusted for the tax effect of pre-tax non-GAAP adjustments excluded from adjusted earnings. The tax effect of pre-tax non-GAAP adjustments excluded from non-GAAP adjusted earnings is computed at the statutory rate of 21%.
Source: Assertio Therapeutics, Inc.
Minimum 15 minutes delayed.