Aralez Pharmaceuticals (ARLZ) Stock Runs Downhill; Here’s Why
Aralez Pharmaceuticals’ (NASDAQ:ARLZ) share price fell 60% today, leaving the Street at odds over when it will hit a bottom. The reason? The drug maker said this morning that the momentum from its CV drug Zontivity alone is insufficient to sustain the U.S. commercial infrastructure. Additionally, the disappointing launch and subsequent discontinuation of Yosprala as well as capital constraints impeding the company’s ability to execute strategic business development have also contributed to its inability to fully leverage the cost of its U.S. sales force. Consequently, decisive actions are being taken to wind down the U.S. commercial business immediately and ultimately close the U.S. operations.
Aralez Canada has demonstrated solid revenue performance and continues to generate positive Adjusted EBITDA1. Going forward, Aralez Canada will focus on driving organic growth in Canada with Blexten™ and Cambia®, as well as future product and line extension launches, supported by ongoing revenue from its many other products, revenue from the Toprol-XL Franchise as well as Vimovo royalties. This new strategic direction will benefit from a significantly reduced cost structure. Following completion of the transition, Aralez expects that cash operating expenses2 will be reduced to approximately $25 millionon an annualized basis. For reference, the Company’s first quarter 2018 cash operating expenses were approximately $22 million. In addition, the Company will maintain its tax efficient structure.
While these changes are intended to improve the financial profile of the Company, the Company cautions that it has very recently experienced increased generic competition with respect to the Toprol-XL Franchise, with a new generic entrant to the market, which may have a negative impact on future business. In response, the Company is evaluating market dynamics and exploring opportunities to mitigate this risk.
The Company also continues to explore and evaluate a range of strategic business opportunities to enhance liquidity, including (i) active discussions for the continued commercialization of Zontivity with a focus on divesting or out-licensing the U.S. rights, (ii) active discussions to divest the U.S. rights to Yosprala, Fibricor® and Bezalip® SR, and (iii) broader strategic and refinancing alternatives for its business. To this end, Moelis & Company LLC has been engaged to serve as the Company’s financial and strategic advisor.
“We have developed a comprehensive restructuring plan focused on optimizing our Canadian portfolio and significantly reducing our cost base, strengthening the organization, and improving our balance sheet and cash flow,” said Adrian Adams, Chief Executive Officer of Aralez. “The difficult but necessary decision to close the U.S. commercial business comes after careful assessment of our overall business and is consistent with our ongoing efforts to operate as efficiently as possible, while continuing to explore and evaluate strategic business opportunities in the interest of all stakeholders.”