2023-07-19 03:24:29 ET
Summary
- Assertio Holdings showed Q1 2023 net product sales increase of 18%, despite reporting a net loss due to increased expenses.
- Assertio's growth strategy involves expanding product range through acquisitions; plans to acquire Spectrum Pharmaceuticals are underway.
- Concerns surround Assertio's Spectrum acquisition, specifically regarding the competitive nature and complexity of the Chemotherapy-Induced Neutropenia treatment market.
- We recommend a 'Hold' position on Assertio's stock, advising investors to monitor developments due to inherent biotech sector risks.
Introduction
Assertio Holdings ( ASRT ) is a commercial pharmaceutical company specializing in neurology, rheumatology, and pain and inflammation treatments, providing patients with unique products through a non-personal promotional model. Its portfolio includes Indocin suppositories and oral solutions, Otrexup injection, Sympazan oral film, Sprix nasal spray, Cambia oral solution, Zipsor liquid-filled capsules, and Oxaydo tablets. Key to Assertio's strategy is the growth of its product range through acquisitions and licensing, such as the recent acquisition of an exclusive license for Sympazan from Aquestive Therapeutics, and the asset purchase agreement with Antares Pharma for Otrexup.
In this article, we delve into Assertio's financials, strategies, and their intended acquisition of Spectrum Pharmaceuticals ( SPPI ).
Q1 2023 Earnings
In the first quarter, Assertio saw an 18% increase in net product sales to $41.8 million, driven by a rise in Indocin sales (42% up) and the addition of Sympazan. Despite this, the company reported a GAAP net loss of $3.5 million, in contrast to the previous year's net income of $9.1 million, due to increased expenses from the exchange of convertible debt, higher contingent consideration, and increased operating expenses. Adjusted EBITDA increased to $25.6 million from $23.9 million in Q1 2022. The company also reduced its overall debt by 43% through a $30.0 million exchange of convertible debt. Cash and cash equivalents were $68.6 million as of March 31, 2023, and the outstanding principal amount of convertible debt was $40 million. Assertio announced in April that it plans to acquire all shares of Spectrum, diversifying its product portfolio with the addition of Rolvedon.
ASRT Stock Assessment
Per Seeking Alpha data, ASRT offers a mixed picture as per various metrics. Earnings per share [EPS] are expected to show a decrease of 81.92% YoY in 2023 but are projected to increase by 67.12% and 14.13% in 2024 and 2025 respectively. Sales are projected to grow consistently for the next three years. The stock has received a D- rating for earnings revisions, with four downward revisions and no upward revisions.
Assertio's valuation appears attractive, with an A+ rating, demonstrating good value for potential investors. The P/E Non-GAAP [FWD] and P/E GAAP [TTM] ratios are quite low, at 6.60 and 2.93 respectively, suggesting the stock may be undervalued. Its Price/Book [TTM] ratio is also quite low at 1.14, further implying potential undervaluation.
Growth metrics offer a mixed view with a B- rating. While the revenue YoY growth is strong at 34.34%, the revenue 3 Year [CAGR] has decreased by 5.53%. EPS Diluted YoY growth is significantly high, but the Levered FCF YoY shows a significant decrease of 85.31%.
The stock shines in terms of profitability with an A+ rating. High Gross Profit Margin, EBIT Margin, and Net Income Margin along with strong ROE and ROA demonstrate Assertio's ability to convert its revenues into profit efficiently.
Momentum also has an A rating, showing a mixed short-term picture but strong medium- to long-term performance. The company's stock has outperformed the S&P 500 across 6, 9, and 12 month periods, despite recent three-month decline, following their planned acquisition of Spectrum.
Assertio's market cap stands at $291.04M, with total debt of $38.93M and cash of $68.60M, which results in an enterprise value of $261.37M. The company's capital structure seems manageable, with the company's cash position exceeding its total debt.
Q1 2023 Earnings Call Review
According to their most recent earnings call , Assertio aims to boost its non-personal commercial platform, sustain Indocin, and implement M&A strategies for portfolio growth in 2023. Significant investments will fuel platform growth while Sympazan sales exceed expectations and Otrexup supply problems have been resolved, enabling focus on product growth. Indocin demand remains stable, despite exiting an unprofitable segment. Changes in American Society for Gastrointestinal Endoscopy guidelines offer Indocin opportunities, though not factored into Assertio's financial outlook. The company is navigating FDA promotional regulations to update physicians on these guidelines. Indocin might gain a new indication and corresponding exclusivity upon successful execution of clinical trials. Assertio's M&A focus is on diversifying assets that promise future growth and long-term IP, and it expects to generate an additional $32 million gross profit by year-end.
Concerns Surrounding Assertio's Acquisition of Spectrum and Rolvedon
I am concerned about Assertio's planned acquisition of Spectrum and its product Rolvedon. In an article about Spectrum, I pointed out that it was initially anticipated that Rolvedon, with its lower G-CSF dose, could potentially minimize adverse events while still being effective, setting it apart from Neulasta, which is currently favored in the market. However, the available evidence indicates that these drugs are clinically similar, making the decision between them primarily dependent on factors like patient preference, availability, and the relative costs associated with their acquisition. This development is taking place in a crowded market with numerous affordable biosimilars of Neulasta available in both the US and EU markets.
Furthermore, Neulasta's offering includes an on-body injector, Onpro, which automatically administers the dosage around 27 hours post-application, eliminating the need for patients to revisit their doctors the day after chemotherapy. This convenient approach is popular among clinicians and patients. On the other hand, Spectrum is still evaluating Rolvedon for same-day chemotherapy administration, which is not as advanced or convenient as the approach offered by Neulasta's Onpro.
The Chemotherapy-Induced Neutropenia [CIN] treatment market is complex and competitive, already dominated by G-CSFs such as Neulasta and Granix, along with their biosimilars. The decline in demand experienced by Coherus' ( CHRS ) Udenyca is an example of the intense competition in the market, eventually leading to write-downs due to unsold inventory.
Regarding the acquisition details, Assertio has outlined its intention to acquire Spectrum through an all-stock and contingent value rights [CVR] agreement. This deal would grant Assertio ownership of Spectrum's drug Rolvedon. It is important to note, however, that this acquisition would come with an additional annual operating cost of approximately $60 million. Although Assertio claims that the transaction will contribute positively to adjusted EPS and operating cash flow by 2024, the competitive landscape, intricacies of the CIN treatment market, and similarities between Rolvedon and current treatments raise doubts about the true value of this acquisition.
The market has apparently resonated with my viewpoint, as Assertio's stock swiftly responded unfavorably to the news and has subsequently declined by 16%.
My Analysis & Recommendation
In conclusion, Assertio has shown a robust strategic intent through the diversification of its product portfolio and the adoption of a non-personal promotional model. This strategy has paid off in terms of sales growth and profitability. As such, investors have been rewarded with 89% stock gains in the past year. Nevertheless, the company's heavy reliance on strategic acquisitions in the biotech field can be a high-risk gamble, particularly given the intense competition in the CIN treatment market and the complexities inherent in the sector.
While the acquisition of Spectrum and its product Rolvedon presents potential upside, it also comes with significant concerns. The efficacy of Rolvedon compared to existing drugs in the market, as well as its positioning amidst an array of affordable biosimilars, creates uncertainty over its potential to drive meaningful revenue growth for Assertio. Furthermore, the increased operating costs post-acquisition raise questions about Assertio's cost management strategy in an already competitive and saturated market.
Looking forward to the next quarterly earnings, investors should pay close attention to Assertio's ability to maintain its strong sales performance while managing the integration of new acquisitions into its portfolio. The financial impact of the recent acquisition, including its influence on operating expenses and Assertio's ability to leverage Rolvedon's market position, will be important areas of focus. Further insight into Assertio's long-term strategic roadmap, particularly its plans to address market competition and diversify its product portfolio, will also be key.
At present, I would recommend a 'Hold' position on Assertio's stock. While the company has demonstrated strong revenue growth and profitability, much of its future hinges on its ability to successfully navigate a challenging market landscape, manage the integration of acquisitions, and maintain its current sales momentum. Investors should monitor these developments closely and adjust their investment strategy accordingly, bearing in mind the inherent volatility and risk associated with the biotech sector.
For further details see:
Assertio's Small Asset Acquisition Strategy Is Risky, But It May Pay Off