2023-07-26 03:37:48 ET
Summary
- The stock is down 33% from its 52-week high.
- Q2 revenue estimates are low.
- Lead product’s use may be expanding.
- Recently acquired drug almost exceeded yearly guidance in two quarters.
Assertio Holdings ( ASRT ), the small ($320 million market cap) specialty pharmaceutical company, is one of the year’s success stories. Since September, my previous coverage of this continually undervalued stock has seen max upsides since publication (see Figure 1) of 65% (9/7/22-1/6/23), 74% (1/20-3/9) and 36% (5/4-5/11). Such gains are a testament to President, CEO & Director Daniel Peisert’s near-flawless execution and not resting on his laurels. Shares have cooled from the $8.01 52-week high on May 11, yet ASRT still sports an A+ in Valuation from Seeking Alpha’s Quant system. The recent Spectrum Pharmaceuticals ( SPPI ) merger/acquisition for $248 million and future considerations for Spectrum stockholders has complicated things, as investors have to calculate in real time which among the two is the better deal (ASRT at around 5.61x SPPI price), as buyers of either will eventually end up with ASRT stock. While management's performance is a cause for long-term confidence, in the short term, one of their recent acquisitions will likely spark an earnings beat for the second quarter.
Figure 1. Performance of CSI's Buys and Strong Buys from September 2022 compared to reference SPDR S&P 500 ETF Trust ( SPY )
At Q1 earnings [there is no current SA transcript], Mr. Peisert reiterated the strategy he laid out 26 months ago during his first call as CEO, which was to develop a sustainable business model, improve profitability and cash flow generation, improve balance sheet and reduce cost of capital, protect INDOCIN, add new products to diversify our business and extend the portfolio's duration, and mitigate legacy legal uncertainties. His moves led to an A+ for Quant system Profitability, and despite the recent pullback, ASRT retains an A in Momentum. At March 31, 2023, cash and equivalents was $68.6 million , compared to $64.9 million at the end of 2022; it was unaffected by the all-stock Spectrum M&A. With the loss of exclusivity on CAMBIA, Assertio became more reliant on its lead nonsteroidal anti-inflammatory drug INDOCIN, which it sells as branded rectal suppositories and oral suspension; the NSAID’s $30.3 million generated in Q1 represented 73% of the $41.8 million total product haul (Figure 2). CAMBIA sales were down 59% year-over-year, but overall improvement was 18% (Table 1).
Table 1. Assertio Quarterly Revenues (in thousands in US$)
Q1 '22 | Q2 '22 | Q3 ‘22 | Q4 ‘22 | ||
INDOCIN products | 21,357 | 22,841 | 21,869 | 34,271 | 30,346 |
CAMBIA | 5,473 | 6,183 | 5,808 | 7,256 | 2,264 |
Otrexup | 3,078 | 2,616 | 3,004 | 2,450 | 2,822 |
SPRIX | 1,766 | 2,216 | 2,455 | 2,673 | 1,889 |
Sympazan | 1,768 | 2,502 | |||
Other products | 1,644 | 1,358 | 884 | 787 | 796 |
Zipsor | 2,228 | 216 | 259 | 661 | 1,150 |
Total product sales, net | 35,540 | 35,430 | 34,279 | 49,866 | 41,769 |
Royalties and milestone revenue | 992 | 451 | 473 | 487 | 697 |
Total revenues | 36,538 | 35,131 | 34,212 | 50,353 | 42,466 |
The last time prices were this low was pre-Q1, and then revenues beat Wall Street estimates for the 11 th straight quarter. The mixed results were still initially viewed positively by the market, propelling shares to $8. On the other hand, access to ASRT by addition to the Russell 3000 Index on June 23 tanked the stock by -7% in the highest volume day of the year, eclipsing the Spectrum deal’s -16% thrashing on April 25. This may be a sign that the buying of the stock that typically accompanies inclusion to indexes hasn't occurred yet. Nevertheless, management upped guidance by $7 million to a range of $157.0-$167.0 Million, which doesn’t consider the recent American Society for Gastrointestinal Endoscopy (ASGE) guideline change on INDOCIN or the Spectrum acquisition which hasn’t closed.
In December, the ASGE strongly recommended INDOCIN (rectal NSAID) for patients undergoing endoscopic retrograde cholangiopancreatography (ERCP) procedures, to prevent post-ERCP pancreatitis. Pancreatitis is occasionally fatal and costs the healthcare system in the $100 of millions annually. There may be competition from other NSAIDs not available on the market as rectal formulations but may be compounded pharmacies at significantly lower cost. However, the FDA doesn’t encourage this use, due to lack of standardization. Furthermore, INDOCIN’s $434 average wholesale price is still the cost-effective choice for prophylaxis of PEP in an average-risk patient.
In response, or perhaps out of ignorance, Pro analysts appear to be inviting another rally by projecting only $39.83 million for Q2 (+13% YOY, but a 6% decrease from last quarter). The negativity is keeping the Quant Revision grade at D-. Perhaps they think seasonality will have suppressed INDOCIN demand (which happened in 2021). However, they likely again forgotten about Sympazan, which was touted as broadly covered by insurance health plans ; although first launched in 2018, the branded clobazam oral film is enjoying a renaissance under Assertio and has vastly outperformed the $4.5 million full-year expectations upon being acquired from Aquestive.
At last week's closing price of $5.35, ASRT is a better bargain than SPPI, which correspondingly should be at $0.954 per share, but is trading at $1. This conversion doesn't account for the contingent value rights of $0.10 per share payable upon Spectrum's ROLVEDON net sales achieving $175 million during 2024 (probable), and another $0.10 on net sales of $225 million during 2025 (likely). However, those shares may have to be locked-in to reap the rewards. It bears repeating the biggest risk against ASRT is that there is no patent protection for INDOCIN, but so far, no generic competition for these branded indomethacin products are on the horizon, and there may be a high barrier of entry for manufacturing suppositories.
Since the last article's publication, ASRT has underperformed the S&P by a staggering 20%. Consequently, the current P/E FWD fell to 7.28, less than half the 16.37 average for the Medical - Drugs Industry , a peer group of 174 specialty pharmaceutical and biopharmaceutical companies. Similarly, the P/E GAAP TTM is only 3.23, meaning ASRT is trading much lower based on the prices the market is willing to pay for other companies in the same industry. Seeking Alpha lists Assertio's PEG TTM ratio as 0.00 compared to 1.62 for the Zacks Medical - Drugs industry. So again, ASRT is undervalued to its growth rate and investors are paying much less for each unit of earnings growth compared to others in the industry. Along with great sales from the M&A products expected in Q2, there is no reason to change the bull thesis from the previous coverages. To conclude, Assertio has returned to great value at these price levels, and will likely beat Q2 revenues. Just remember to take profits if it rises too high in comparison to SPPI.
For further details see:
Assertio Holdings Is Back As A High-Value Play