Assertio Holdings (NASDAQ:ASRT) is a pharmaceutical company that promotes its products in a non-personal manner. Their commercial portfolio includes a variety of branded goods focused mostly on three categories: neurology, rheumatology, and pain and inflammation. By integrating existing items, acquisitions, and patents for more approved products, the corporation has leveraged its portfolio. Assertio gets most of its revenue from product sales in the United States, although has recently engaged in a collaboration and license arrangement with Tribute Pharmaceuticals Canada LTD to commercialize CAMBIA in Canada. Despite being a small-cap company, Assertio has excellent business and financial strategies that position it for future growth and success.

Financials and Business Plans

One of the primary characteristics of Assertio management is its ability to identify and execute acquisitions, mergers, and licensing deals. Their excellent financial position has enabled them to expand their product offerings across the U.S., Canada, and Italy. In reaction to the COVID-19 pandemic in 2020, the management team moved their attention from in-person sales to digital sales methods and invested in building their digital sales platforms. As a result, they effectively switched to a non-personal promotion model using omnichannel marketing and digital selling tactics. This enabled them to rapidly scale their resources in order to meet the increasing needs of their portfolios.

When Dan Peisert took over as CEO about two years ago, his primary focus was on enhancing Assertio’s balance sheet, diversifying its portfolio, and identifying development prospects. Upon reviewing the company’s cash and capital structures, it became obvious that Assertio has sound financials with sustainable development potential for the coming years. INDOCIN, Otrexup, Sympazan, Sprix, and CAMBIA are some of Assertio’s primary products. In the first quarter of 2023, Assertio achieved a net product sales growth of 18%, reaching $41.8 million compared to $33.5 million in the same period of 2022. Additionally, their Adjusted EBITDA and operating cash flows increased to $25.6 million and nearly $23 million respectively. This increase was primarily attributable to INDOCIN and Sympazan’s first-quarter sales following its acquisition.

It is crucial to remember that in January 2023, the exclusivity of CAMBIA and ZIPSOR expired. As a result, the sales of these products were reduced by approximately $5 million due to the approval of generic versions. However, INDOCIN’s growth and the inclusion of Sympazan more than compensated for these losses, resulting in a net rise in product sales over the previous year’s quarter.

Assertio’s management was able to successfully alter their business strategy and recover from the 2020 slump. Notably, their cash balance climbed from $21 million in 2020 to $38.8 million in 2021, and then roughly quadrupled to $68.6 million at the end of 2022. What jumps out about Assertio’s financials is its focus on reducing debt levels and growing cash creation through selective acquisitions. In fact, during the last quarter, the company swapped $30 million of convertible debt for a cash and stock exchange transaction, resulting in a total debt level decline from about $76 million in 2021 to $38.6 million by the end of 2022. Overall, this reduction in debt level will save them $2.0 million on interest exchange payments. They also established a negative net debt level of roughly $(30) million for the first time in recent years. When everything was said and done, Asserio’s large amount of equity, which rose by 144% to over $250 million in 2022 as compared to $102 million at the end of 2021, would create options for both stock and debt financing in the future.

During the previous quarter, Assertio announced its plan to purchase Spectrum Pharmaceutical in an all-stock and contingent value rights transaction. The transaction is planned to be finalized in the third quarter of 2023 and will diversify Assertio’s net product sales. The acquisition of Spectrum’s primary asset, ROLVEDON, is expected to improve operating cash flow by 2024. Assertio’s cash structure has dramatically improved in recent years, particularly with the end of the COVID-19 outbreak. Their operating cash flow surged to approximately $78 million in 2022 from $5.5 million at the end of 2021. However, their operating expenses have also climbed due to increasing costs linked with acquisitions and agreements, notably $2.4 million for the planned acquisition of Spectrum a few months ago. Despite this, stronger operational cash flow has translated into a higher free cash flow of $51 million at the end of 2022 compared to outflow-free cash flows during 2020 and 2021.

After observing how well Assertio’s management has lowered its debt levels in recent years, it is evident that the company has a well-managed leverage position. To acquire a better understanding of the company’s ability to address future liquidity issues, I did a study of its current and cash ratios. The results of this analysis paint a positive image for Assertio, as both ratios have improved over the past few years. Specifically, the current ratio improved dramatically from 0.77x in 2021 to 1.46x by the end of 2022 due to an increase in current assets and a drop in liabilities. Similarly, the cash ratio improved from 0.4x in 2021 to 0.96x in 2022. Overall, Assertio’s liquidity position has shown a constantly increasing trend over the previous few years.

Stock Valuation 

Assertio’s EV/EBITDA ratio for the trailing twelve months is 5.77x, and its net debt level during this period was roughly $(11) million. Furthermore, the company has boosted its Adjusted EBITDA projection for 2023 to $90-$98 million. Using this guidance range and the 55.7 million outstanding shares, the stock’s intrinsic value is predicted to be around $9 till about next year.

Risks

Despite Assertio’s excellent financials and favorable liquidity and leverage conditions, the company is not immune to dangers that must be taken into account. One such concern is the increased competition faced by CAMBIA and Zipsor from generics, which could have a negative influence on their sales. Additionally, the approval of generic versions of other medications, such as INDOCIN, could lead to a reduction in sales for these products in the future. Furthermore, Assertio relies on just one competent supplier for each product, which puts the company exposed to supply chain disruptions that could significantly affect its commercial performance. Finally, it should be mentioned that ASRT stock’s price has historically been erratic.

Conclusion

Apart from the potential dangers linked with the company, its excellent financial structures in terms of cash and capital indicate that it has successfully strengthened its balance sheets by drastically reducing debt levels. Moreover, despite being a small-cap company, Assertio has made tremendous progress in enhancing its liquidity position over the previous few years. Therefore, I believe that a buy recommendation would be acceptable for ASRT shares.

Featured Image: Freepik @ kjpargeter

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