Assertio Holdings, Inc. (NASDAQ:ASRT) Q2 2022 Earnings Conference Call August 8, 2022 11:30 AM ET
Company Participants
Matthew Kreps – Darrow Associates, IR
Daniel Peisert – President and CEO
Paul Schwichtenberg – SVP and CFO
Conference Call Participants
Scott Henry – ROTH Capital
Mitra Ramgopal – Sidoti
Hamed Khorsand – BWS Financial
Thomas Flaten – Lake Street Capital
Scott Weis – Semco
Operator
Hello, everyone, and welcome to the Assertio Holdings Q2 Earnings Call. My name is Emily, and I’ll be moderating the call today. [Operator Instructions]
I will now hand you over to our host, Matt Kreps from Darrow Associates, Investor Relations for the company. Please go ahead.
Matthew Kreps
Thank you, Emily. Good morning, and thank you all for joining us to discuss Assertio’s second quarter 2022 financials. The news release covering our earnings 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 accompanying presentation as it is important in today’s discussion.
With me today are Dan Peisert, President and CEO; Paul Schwichtenberg, Senior Vice President and CFO. Dan will open the remarks and provide an overview of the business, followed by Paul, who will review our financials. After that, we will open the call for your questions.
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 morning’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.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 Dan. Thank you.
Daniel Peisert
Thank you, Matt and welcome to everyone joining us this morning.
I’m incredibly proud of our second quarter results as we nearly over exceeded them every aspect of our plan for the quarter. Net product sales were $35.4 million in the quarter, just $115,000 shy of last quarter, despite the loss of exclusivity for ZIPSOR, thanks to outperformance in INDOCIN, SPRIX and CAMBIA.INDOCIN returned to volume growth in the quarter. Year-over-year, the suppository volumes were up almost 4% and increased 7% sequentially.
In addition, the mix of heavily discounted products purchased under 340B was down in the second quarter relative to where it has been in the previous six months. We will now have a firm grasp on the trends in this channel and are more comfortable forecasting the mix.
In addition, we’re going to be implementing some enhanced commercial and channel strategies specific to this channel in our third quarter that will positively benefit our fourth quarter and the future outlook for the brand and the company as a whole with respect to this issue. SPRIX is also seeing a strong volume resurgence with 20% year-over-year and 13% sequential paid volume growth from what we believe is a rebound in elective procedures and the market’s desire for non-opioid pain alternatives.
CAMBIA showed volume growth sequentially, but the improvement year-over-year was operational-driven as we focused on profitable volumes. As Paul will describe in a minute, this is helping us exceed our gross profit margin expectations this year.
At the end of the quarter, we pulled the majority of promotion off of CAMBIA and shifted those resources and dollars towards Otrexup. Otrexup declined sequentially in the second quarter due to a decline of 14 days on hand in wholesaler inventories, which was due in part to supply disruptions that we experienced in the quarter and to a lesser extent, continue to experience today.
Our supplier, Antares was acquired and has likely been distracted as these issues impacting supply are minor and fixable. We expect everything to be resolved for commercial supply by the end of August. However, supply of samples has been impacted to a greater extent and may last longer as we prioritize commercial supply. Samples are important for generating demand for this product and were also a big reason why we anticipated an increase in operating expenses after acquiring Otrexup.
Now some of these expenses have been pushed into the second half and into 2023. Longer term, our enthusiasm for growing Otrexup is building as we continue to see new opportunities for the product. Gross margins, operating expenses and cash flows in the quarter all came in better than expected due to continued outstanding execution by the team. As stated in our release, we’re increasing our guidance and narrowing the ranges for both full year net product sales and adjusted EBITDA.
We expect net product sales to be $129 million to $137 million, and adjusted EBITDA to be $73 million to $79 million. The drivers behind the outsized EBITDA improvements relative to revenues are both the actual results shown in the quarter as well as an outlook for better gross profit margins than we had initially assumed given all the improvements we’ve seen year-to-date.
As we look forward, we’re seeing a lot of positive developments in our business. The commercial and channel strategies I mentioned with respect to INDOCIN are expected to have a meaningful and durable positive impact on that brand and will carry over to other products in the company as well.
We will see those benefits on both the top line and in margins. We also saw volume growth return to INDOCIN here in the second quarter, consistent with the historical low to mid-single-digit trend, indicating the decline we saw in the first quarter may have been transient and tied to the Omicron resurgence or labor shortages affecting procedure volumes.
Longer term for INDOCIN, the potential expansion into the moderate risk ERCP segment is a significant opportunity. Our research indicates this segment may be twice as large as the high-risk segment where the product is being used today. The work to get this added to the product label, which would permit promotion for this use is accelerating as well. As you saw in this quarter, SPRIX is beginning to accelerate, and I personally believe that there is a large need for products like SPRIX.
We’ve made minor improvements to its coverage and access, but have room for far more. Otrexup has similar opportunities with coverage and access like SPRIX does. In addition, Otrexup will be the primary beneficiary of our digital commercial platform, which as of July has moved from multichannel to true omnichannel with all key digital channels activated and providing continuous feedback and learnings to measure performance.
I mentioned we pulled promotion from CAMBIA in anticipation of the loss of exclusivity in January of next year. Like we’ve seen with ZIPSOR already here in 2Q, the remainder of the portfolio can cover the shortfall. While CAMBIA is certainly larger than ZIPSOR’s contribution, we do think that the business we have today can still generate net product sales in excess of $120 million in 2023.
Our goal, as it has been, is still to add to the portfolio through business development. The acquisition environment today is very favorable. We’re seeing a number of quality assets and companies and are very lucky to have built in the capacity to be able to handle multiple work streams at the same time, so we can evaluate more than one deal simultaneously.
For example, as I speak, we have three active BD projects underway at various stages. Our big picture BD goals have been to find transactions that meet the following criteria: refinance our existing debt and fund the transaction are accretive, have durable IP, create opportunities to grow and fits with our platform.
One of our shorter-term goals is also to grow our business in 2023. Some of the attractive assets we see now are smaller and like we saw with Otrexup, on a stand-alone basis, won’t likely help us achieve the diversification we needed to successfully execute a full refinancing. Like CAMBIA financed with cash on hand or seller financing. So we may proceed with a smaller tuck-in while we continue to pursue some of the larger opportunities as well.
Now I’ll turn the call over to Paul, who will walk through our quarterly results and guidance in more detail. Paul?
Paul Schwichtenberg
Thank you, Dan.
This morning, I will review the financial highlights from our second quarter of 2022. As in previous quarters, there are slides available on our website that I will reference as I discuss the results.
Starting with Slide 3. Net product sales were $35.4 million for the second quarter of ’22 compared to net product sales of $25.2 million in the prior year quarter and $35.5 million last quarter. The increase in net sales versus the prior year quarter is primarily driven by INDOCIN and the addition of Otrexup. INDOCIN net sales in the second quarter increased by $9.8 million over the prior year quarter and $1.5 million over last quarter due to higher volume and an improvement in net realized price.
Otrexup net sales for the second quarter were $2.6 million versus $3.1 million in the prior quarter. The $500,000 decrease in Otrexup net sales from last quarter is primarily due to a decline in wholesaler inventory levels, partially driven by the supply disruptions that Dan mentioned.
As we stated on previous calls, the wholesaler inventory levels for Otrexup were high at the time of acquisition last December. We expected a decline in wholesaler inventory levels in the first quarter as we delayed shipping until late January. The decline did not occur in the first quarter to the magnitude that was originally expected. After the subsequent decline here in second quarter inventories are now aligned with where we had anticipated they would be, and we expect them to remain steady at these levels.
CAMBIA and SPRIX combined net sales were $1.2 million higher than the prior quarter, primarily due to higher volume on SPRIX and the effective financial and operational execution of more profitable channel strategies for CAMBIA.
This focus on profitability for CAMBIA has led to improved net sales and gross profit margins, and was achieved through lower co-pay and consignment costs, reducing the shipment of free goods resulting in lower gross to net expenses and cost of goods sold.
As a reminder, ZIPSOR lost exclusivity near the end of the first quarter and as expected, we did see a $2 million decline in net sales versus the prior quarter. Overall, portfolio net sales were up 40% versus the prior year quarter.
Please refer to our 10-Q for specific product level net sales information. Cost of goods sold in the second quarter reflect lower cost due to product mix and improved margins on INDOCIN resulting in a gross margin of 87%, an improvement of 275 basis points versus the prior year quarter.
We now expect gross margins to be in the high 80s for the full year with the second half slightly lower than the first half. As Otrexup becomes a larger portion of portfolio revenue, we do expect to see some decline in the overall gross margin percentage going forward.
Also on Slide 3. Adjusted EBITDA for the second quarter was $22.9 million compared to $23.9 million last quarter and an adjusted EBITDA loss of $505,000 in the prior year quarter. Adjusted EBITDA margin was reflected as a percentage of total revenue in the second quarter was 65.2% versus 65.3% in the prior quarter.
The second quarter non-GAAP adjusted earnings per share was $0.28 versus $0.38 in the prior quarter and a loss per share of $0.16 in the prior year quarter. As mentioned last quarter, we do not pay any royalties on the first $20 million of INDOCIN sales. So as we progress throughout the year, we are seeing the royalty impact on adjusted earnings per share as we back out the royalty payable during the period in our adjusted earnings per share calculation.
Summarized on Slide 4, adjusted selling, general and administrative expenses in the second quarter were $8.6 million, which includes a net benefit of $2 million from an insurance settlement. Last year’s operating expenses included an $11.3 million legal accrual, making comparison on a year-over-year basis more difficult.
That said, we do expect an increase in operating expenses in the second half of this year versus our first half run rate adjusted for onetime benefits, funding both increased Otrexup sampling and marketing costs.Q2 operating expenses also included $1 million in costs associated with a debt refinancing effort that we chose not to pursue very early in the quarter because it did not provide us with the flexibility that we needed to pursue business development to grow our business.
Additionally, the rate quotes we received were all variable rates, typically LIBOR spreads the floor of 100 basis points when LIBOR was in a range of 10 to 35 basis points. Given the significant increases in LIBOR to just under 250 basis points over the past few months, in hindsight, any interest savings would have been eliminated.
So it turns out to have been quite a good decision not to pursue the refinancing. We do intend to complete a refinancing at the appropriate time when the rate environment is more stable and most likely in conjunction with the larger acquisition that diversifies our revenues and cash flows. Net income for the second quarter was $7.8 million compared to $9.1 million last quarter and a net loss of $14.2 million in the prior year quarter, which included the $11.3 million legal accrual.
Turning to the balance sheet. On June 30, 2022, our senior secured debt balance shown on Slide 5, was $59 million. On May 2, the company paid scheduled interest and principal of $9.3 million. We also took an aggressive step in the second quarter to reduce our debt level by using our at-the-market facility to raise over $7 million through equity sales in the quarter at an average price of $3.02 per share and using those proceeds to prepay an additional $7 million of principal on June 30.
This prepayment will save the company interest of approximately $500,000 in 2022 and $1.4 million over the remaining life of the debt. Additionally, this additional principal payment improves our debt-to-market cap ratio, which is one of the biggest concerns from our investors and potential lenders.
Also on Slide 5, ending cash on June 30, 2022, was $52.3 million. The net decrease in cash of $9.1 million is mostly due to a scheduled $16 million Otrexup purchase price payment to Antares, partially offset by net cash generated by the business during the quarter.
To date, we primarily focus on debt reduction and maximizing our cash position for business development so that we are ready should the opportunities in our business development pipeline come to fruition. As of June 30, 2022, the company’s net debt to trailing 12-month EBITDA was 0.08, reflecting a substantial reduction from a ratio of 0.7 at the end of 2021 and 0.16 at the end of the prior quarter.
Net cash provided by operating activities as reported in the company’s statement of cash flows for the second quarter was $14.4 million, adding to our first quarter cash flows of $27.4 million. Year-to-date, we have generated $41.9 million in cash flow from operations. This was our fifth consecutive quarter of positive operating cash flow.
I will note that first quarter cash flows were positively impacted by the $8.3 million income tax receipt and second quarter by the net $2 million in favorable insurance settlement receipt. On an annual basis, we expect cash flows to be positive, but due to the timing of working capital, royalties and interest payments, the quarterly operating cash flows will fluctuate. Lastly, as Dan mentioned, we are raising our guidance for a second time this year.
Our updated annual guidance for 2022 summarized on Slide 6 is as follows: Product net sales are now expected to be in the range of $129 million to $137 million compared with our prior expectation of $126 million to $136 million; adjusted EBITDA is expected to be $73 million to $79 million, a considerable step up from our previous guidance of $66 million to $74 million; the updated guidance for 2022 reflects changes in revenue mix, volume and more favorable margins, partially offset by increased net operating expenses for the remainder of 2022.
There are several moving parts within those generalizations, including, new product net sales guidance that includes the following factors: Q1 and Q2 actual net sales; favorable SPRIX volume; favorable channel mix across the portfolio due to lower volume and unprofitable channels; INDOCIN net sales growth driven by the new commercial and channel strategies Dan mentioned.
One of the tactics we will employ as part of launching these new strategies will be to purposely titrate sales and inventories lower in the third quarter. Therefore, INDOCIN sales are likely to be lower than the second quarter before seeing a positive impact beginning in the fourth quarter and continuing into 2023. New adjusted EBITDA guidance reflects Q1 and Q2 actual results, including net sales, gross margin and EBITDA as well as anticipated Q3 and Q4 product revenue and improved margins.
Overall, we’re once again incredibly pleased with the quarter results as they reflect the positive impact of changes we made to the business over the last 18 months, and we look forward to continuing with our strategy to position Assertio for long-term sustainable growth.
And now I’ll turn the call back over to Matt.
Matthew Kreps
Thank you, Paul and Dan Emily, can we go ahead and open up the call for Q&A from our listeners, please?
Question-and-Answer Session
Operator
[Operator Instructions] Our first question today comes from Scott Henry with ROTH Capital. Please go ahead. Scott, your line is open.
Scott Henry
Thank you. Good morning. Strong results. Dan, just a couple of questions. First, on INDOCIN, the roughly $23 million in the quarter, forgetting about inventory changes. Do you think that’s a good base level that we should think about from here on out? And it sounds like you expect to have growth in it as well. Any thoughts?
Daniel Peisert
Yes. I think the results we saw this quarter do reflect a good base level, like Paul just mentioned. We expect it to be a little bit lower here in the third – the upcoming third quarter before recovering again in the fourth, and that’s a purpose tactful – tactical decision that we’re going to be making. Going forward, we obviously intend to improve upon that.
Scott Henry
Okay. And with it, being a larger product as an NSAID, how do you think about the competitive landscape? I mean bigger revenues will make it a bigger target. What are your expectations for competition? And also, the royalty you pay out, I believe that goes through the SG&A line, but I want to confirm if that was the SG&A or through the COGS line.
Daniel Peisert
Paul, do you want to answer that?
Paul Schwichtenberg
So an answer to your second question, Scott, the royalty payout actually does not run through the P&L. The fair value of that royalty is in contingent consideration on the balance sheet. So the royalty payment really only impacts net cash flow, not the P&L and adjusted EPS. We include the accrual for the royalty in the adjusted EPS. So that’s where it’s also captured.
Scott Henry
Okay. And then the competitive landscape.
Daniel Peisert
So INDOCIN has not had traditional regulatory nor IP exclusivity for quite some time now. So it has been in a situation where competitive entrants could pop up at any time. And it’s something that we think about on a daily basis and want to stay ahead of.
So a lot of what Paul and I have talked about over the last 24 months has been how we stay ahead of the competition and how we continue to protect this brand. And many of our life cycle management strategies are surround protecting this brand. So everything that we do is with a conscious decision about how we continue to protect it and stay aware of what the competition might be doing.
Scott Henry
Okay. Fair enough. Shifting to Otrexup. The supply situation, is supply back up to speed currently? And are there any long-term solutions where you can have more control over that supply?
Daniel Peisert
It’s a decent question. So we expect that on a SKU by SKU basis, we’re getting pretty close. We think that by the end of August, we’ll be in a very good position, and we’ll have full supply with many months on hand for all of our products or all of the SKUs under methotrexate other than samples. And hopefully, by the end of this year, early into the next year, we’ll have the samples taken care of as well.
Longer term, that will require some additional work. It’s not necessarily a specific to an Antares activity. This is a downstream supplier of theirs. They’re just ultimately responsible for them. So whether or not it’s us watching over them or Antares. But they have a long-term solution for this, I guess, sub-supplier, we just need to get it put in place.
Scott Henry
Okay. Great. And then, yes, I see that with the capital structure you chose to put out a little equity to reduce debt. When you’re thinking about M&A, how – do you think about equity a little differently? You mean for an M&A, would you prefer not to use your equity because it seems to be undervalued, certainly relative to the merits of the company. Just want to get your thought on how you think of the use of equity with regards to M&A.
Daniel Peisert
So there’s no doubt, we think that our equity is cheap. What we saw in the second quarter was a very unusual phenomenon where, as Paul talked about, shorter-term interest rates went from, at the start of the year, 10 basis points. And are now – I think at the end of the quarter, we’re right around 180 basis points and out today are just under 250 basis points. So there was substantial volatility in those short-term rates that underlie all of the rate quotes that we were getting on a variable nature.
So it made timing of and certainty of debt refinancing, very uncertain. The other component was from the time that we reported our second quarter results to the end of the quarter, our stock had outperformed the market by 60% plus. So what we saw was an opportunity to take advantage of that very, very unusual situation and solve a key problem in any refinancing, which had been debt to cap in that ratio.
And we got that to well under 0.5 now and think that we have solved that issue. So any future discussions that we have with potential lenders, we don’t think that, that’s going to be a concern. So now going forward, we think the future discussions that we have around execution on refinancing will solely concern around the diversification of our revenues and whether or not we’ve achieved what the lenders are looking for.
So it was more of a have we solved or can we solve one of the two big problems in refinancing, and we think we’ve done that.
Scott Henry
Okay. Great. I appreciate the color on that. Final question, just the [indiscernible] role, pipeline compound, any updates there and expectations for a filing?
Daniel Peisert
Good question. I probably should have said something in my prepared remarks that we’re still really excited about NES and [indiscernible]. There really isn’t a material update other than we still expect a value inflection point of some sort, one way or the other to be in 2022. It’s still waiting on some data from outside parties basically is what it is to be able to complete the dossier or the regulatory filing.
So we still – from the update that we received during the quarter, we still expect that to be something that can be achieved this year, and we should be able to know. And once we receive word from NES that they have submitted the filing and whether or not it’s accepted by the FDA, we’ll communicate that to our investors.
Operator
Our next question comes from Mitra Ramgopal with Sidoti. Please go ahead.
Mitra Ramgopal
Yes, hi good morning. Thanks for taking the questions. Nice quarter. Dan, you mentioned you have a few BD projects in the pipeline. I was just wondering if you’re seeing more opportunities given the increased cost of capital, some of maybe players you’re looking at?
Daniel Peisert
I don’t know if it’s because of an increased cost of capital, but we are seeing more opportunities. I think – and I’ve described this more so as the equity markets not being available as opposed to increased cost of capital, and it very well could be the both of them combined. So we’re seeing opportunities come from many different directions and continuing to come from many different directions. And we’re the quality assets, and we’re quite excited about the potential with many of them.
Mitra Ramgopal
Okay. No, that’s great. And could you provide us an update? It’s still early days in terms of the BlinkRx partnership and maybe also on Cove, how those are progressing relative to your expectations?
Daniel Peisert
BlinkRx is specific to Otrexup. I think that’s progressing. The hope and promise of that is as expected. The uptake of it, I think, is progressing a little bit slower than expected and getting the news out to physicians that it’s available.
So we recently just did another round of, I guess, awareness campaigns associated with some of the, I guess, potential disruption in the prescribing from methotrexate post the Roe versus Wade decision where there were some headlines that it was hard to get prescriptions of methotrexate because of that.
So we made physicians more aware of BlinkRx and the ability to solve some of those issues if they saw that as a potential concern at their local pharmacy level. So we’re doing things to drive awareness of Blink so that patients can still use that service. Cove is going fine.
I think we had – I don’t have the exact statistics, but just a little bit over 3% of the – I guess, the volumes or prescriptions for CAMBIA and SPRIX were going through Cove this quarter. So that’s still on track and still doing quite well, and the team is doing some more social media launches. I think there was both a Twitter and a Facebook launch for CAMBIA in July.
Mitra Ramgopal
Okay’s. No, that’s great. And then speaking of the digital, obviously, in terms of the model you have, do you still need to make significant investments in terms of the virtual platform? Or you pretty much where you need to be?
Daniel Peisert
I think the substantial investments have been made, we got it through a true omnichannel platform here in July, upgraded from multichannel. So it’s all talking to each other. And everything that the team intended to launch has been launched. They’ll continue to make tweaks along the way and fail fast, is part of the strategy here.
So we’re excited about what this platform can bring. We will continue to make investments, but all the big investment dollars have been made. And now it’s a matter of watching what the platform can do.
Mitra Ramgopal
Okay. That’s great. And then Paul quickly, how should we think about the tax rate for the remainder of the year?
Paul Schwichtenberg
Yes. So our tax – effective tax rate after considering our NOLs is about 6% to 10%, which is obviously well below the preferred rate, but that’s through the utilization of our NOLs.
Operator
Our next question comes from Hamed Khorsand with BWS Financial. Please go ahead, Hamed.
Hamed Khorsand
Hi. So first off, on the INDOCIN change of strategy. Could you talk about that a little bit more if you’re able to. Is it a pricing strategy or is it a marketing strategy?
Daniel Peisert
It’s actually neither. It’s more directed at this channel. I’d be more inclined to talk specifics about it at a later time after we put some of these tactics in place and put the strategy in place. I’d rather not have competitors nor the market hear about it until we get some of this stuff out. But we do expect this to have – it will be a material benefit to both CAMBIA as well as the company in terms of its trickle down of our other products.
Hamed Khorsand
Okay. Fair enough. And then as far as the Otrexup goes as far as getting more and more physicians to be aware of it, what do you feel like is the overhang for them to cross line actually right prescriptions?
Daniel Peisert
I don’t think it’s an awareness issue of Otrexup. I think it’s more of a coverage and access issue. So that’s where we’re spending a vast majority of our time. The awareness issues are more in the – I guess, the alternative segments where the prior owner didn’t make any calls in the pediatric segment where it does have a labeled indication and where we’re starting to add resources there. So the hard part about us attracting new patients and new prescriptions here is just not having the samples.
So that’s been, I guess, what, in one part is delaying some of the demand creation here is not having samples. So we still have some, and we’ll continue to do something. We’re looking at ways of using Blink to find alternate ways of getting, I guess, introductory prescriptions out to patients as opposed to having a physical sample in a physician’s office.
Hamed Khorsand
Okay. And my last question was, how far along are you on these three active BD projects? Is there any – are any of them happening soon?
Daniel Peisert
Never have a crystal ball, some BD deals that I’ve been in, very large ones, take like two, three months, and then we had Otrexup took us – how long did that one take us, six months. So – and if you would have asked me at the very start of it, and if I would have given you an answer at the very start of it, I would have thought it would have taken 2.5. So there’s never an easy way to predict it.
And the way I always look at these, and I’ve been doing it for a very long time, it’s always 0% until it’s 100%. So we’re going to keep marching along and operating our business, looking for the flexibility in case these do happen and setting goals to make sure that we can accomplish them because we do want to accomplish them, but never do we plan on one or two or three of them coming.
Operator
Our next question comes from Thomas Flaten with Lake Street Capital. Please go ahead, Thomas.
Thomas Flaten
Thanks. Dan, quick question. Just a follow-up on the prior question about infrastructure investment. The acquisitions that you have on the radar, are those all essentially plug-and-play with the infrastructure investment that you’ve made? Or are there additional investments that would need to support those?
Daniel Peisert
Interesting question. So for some of the smaller single assets, like I’d say, the tuck-ins or bolt-ons, they would be immediate plug-and-play, very easy for us to do. In both cases, they would be coming from companies that are like Otrexup, where they were doing 100% in person, and we would be moving that over to digital. Some of the others that we’re looking at, some of the bigger ones, there’s one that’s a portfolio of assets that I’m actually very excited about. That – in that particular case, there would be a launch asset as well.
And if we pursue that, we would likely retain some of the reps that would come with it, so that we can launch those assets or launch that asset. So that would be a situation where we’d be bringing on a more material new set of revenue base and would also be bringing on some additional costs in the form of a physical rep presence again.
Thomas Flaten
Got it. And then against the backdrop of the – sorry, go ahead.
Daniel Peisert
I’m done.
Thomas Flaten
Thinking about the backdrop of a transition to increased virtual engagement. I don’t know if you can provide any color around how sticky those relationships are? Is there more churn than you would expect with a wholly in-person field force. I’m just curious to get some color around that now that you’ve been out there for quite some time with this model?
Daniel Peisert
Well, what you mean, churn of that? Can you elaborate?
Thomas Flaten
Yes. I mean are you seeing a – once you get a customer on board today, do they tend to stick with you in right? Or are they – do they tend to come and go from the program, so to speak? I’m just curious how steady those revenues are over the long term? And how well you can engage with documents purely from a virtual perspective?
Daniel Peisert
We have – you measured it as in – are they consistent writers every month or every quarter. Most of what we’re doing is just awareness. Truly, it’s just awareness campaigns and then measuring to see if the messaging is still driving. So I don’t have data on whether or not they’re churning in and out. My assumption is that they’re staying in and continuing to write.
But I can get back to you on what I guess, our retention statistics are. But what we’re seeing so far is that the response has been on an ROI basis, far higher than anything we ever got with an in-person rep. And I think that shows out in the results that we’re showing with our business today.
Operator
Our next question comes from Scott Weis with Semco. Please go ahead.
Scott Weis
Hi guys. Great quarter, congratulations. I have a few questions. One, I want to flesh out the capital raise a little bit more. You had a decent balance sheet coming into the quarter with $60 million in cash and $70 million in debt. So one, why raise money at $3.02. And can you comment on who it was with. Was it with a hedge fund, an institutional fund? Any kind of color there would be helpful. And two, you suggested in your comments that this resolves the primary issue that you had with lenders with the refinance. So does that mean we should expect something in the near term with regard to a refinancing?
Daniel Peisert
On the last point, Scott, we’ve been consistent. We’re going to continue to be consistent. The refinancing, the appropriate time for that. We think the best chance for execution on that is when we have a BD deal that can diversify our top line. That was issue number one.
Issue number two was debt to cap. We think that this small $7 million of equity raise which was immediately turned into debt prepayment, solves debt to cap. This was done under the ATM. We don’t know who the – and the – who the holders of that are, just simply trades that we executed into the market, probably through the black box through whoever did the trading for us.
So we don’t know who the counterparties were. And then on the balance sheet coming in, we had – this quarter had some pretty big outflows. So to put up a quarter, we paid – the debt principal, we paid…
Paul Schwichtenberg
$0.3 million principal and interest, $16 million to Antares, but yet, our cash balance only dropped by $9 million.
Daniel Peisert
So we think we had a pretty good quarter, and we wanted to keep cash up at these levels to maintain flexibility for BD, which is the primary reason why we used the ATM in the quarter.
Scott Weis
Got it. Okay. Number two, on ZIPSOR. So you lost exclusivity at the end of March. Can you comment how it’s performed relative to your expectations post the Teva launch? And is it possible to put some numbers around that?
Daniel Peisert
The hardest part about putting numbers around it is just the shakeout in the gross to net when in the first quarter after a generic or a loss of the exclusivity event. So we expected to record zero in revenues, and that’s essentially what we recorded, a few hundred grand here and there. So when you have inventory levels looking backwards on demand that are in the 20 days and then your demand drops precipitously that 20 days quickly becomes worth more than a whole entire quarter.
So you don’t expect to ship anything. And we really didn’t ship much. What we were encouraged by was the brand still was being adjudicated. So what we saw was more of the brand inventory was being pulled off the end user shelf than what we had initially anticipated.
So that days on hand at the end customer got more rapidly pulled off than we expected it to, which may indicate that we might be able to make some, I guess, restock of that wholesaler and pharmacy shelf a little bit sooner than expected. So that was the encouraging thing for us, and it might allow us to have some additional ZIPSOR revenue towards the tail end of this year.
Scott Weis
Okay. And then lastly, on INDOCIN, you talked about the long-term expansion into the moderate risk segment of the market and it could be as large as double the high-risk segment of the market. Previously, you’ve spoken about running some studies in the moderate risk with the hope of getting a label. Is there anything new on that and timing on those studies? And how long would those studies last and how much would they cost? And if you can put some numbers around the size of the market, that would be great, too.
Daniel Peisert
Yes. The market, from what we understand from the market research we’ve done that is double what the high-risk segment is. So the market research shows that high risk is about 20%, 2022, and the moderate risk segment is about 40% of the overall market.
So we think it’s a potential doubling of the total TAM for INDOCIN to expand into this additional risk segment. We are currently designing the clinical trial. And we will not be able to answer questions about how long it will take nor how much cost it will be until after we go in front of the FDA and get their blessing. I don’t want to set expectations for either timing or cost until I’ve had that discussion.
Currently, we’re not anticipating filing the IND and having those discussions with the FDA until inside the fourth quarter, like November time frame. So it will be closer to those, around that when we’d be able to communicate that. The nice thing about it is right after you hear from the FDA, you can be up and running in your clinical. So we think the clinical – as long as we get the answers we need from the FDA, we should be able to be up and running in that clinical early in the first quarter of next year.
Scott Weis
And these clinicals last about how long?
Daniel Peisert
That’s the big million dollar question, Scott. So it depends on how many patients we’re going to need all based upon the design of the trial. But each individual – the good news is each individual patient should only need to be followed for 30 days. So theoretically could be short.
Operator
Those are all the questions we have for today. So I’ll turn the call back to Dan Peisert for closing remarks.
Daniel Peisert
We appreciate everyone’s time today, and I look forward to speaking with many of you in person at some of the upcoming conferences that we’ll be attending, including the Midwest Ideas Conference later this month and the Lake Street Conference next month. Thank you for joining us this morning, and I hope you enjoy the rest of your day.
Operator
Thank you, everyone, for joining us today. This concludes our call. You may now disconnect.
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