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Assertio Holdings, Inc. - Quarter Report: 2022 September (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 FORM 10-Q
 ☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022
 OR
 ☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM TO      
 COMMISSION FILE NUMBER 001-39294

 ASSERTIO HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware85-0598378
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)		(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
 100 South Saunders Road, Suite 300
Lake Forest, Illinois 60045
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES; ZIP CODE)
 (224) 419-7106
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:    Trading Symbol(s):Name of each exchange on which registered:
Common Stock, $0.0001 par value
 ASRTNasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
☐
Accelerated filer☒
 Non-accelerated filer
☐
Smaller reporting company☒
Emerging growth company
☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒
 
The number of issued and outstanding shares of the registrant’s Common Stock, $0.0001 par value, as of November 1, 2022 was 48,293,613.



ASSERTIO HOLDINGS, INC.
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
Item 1. 
Condensed Consolidated Balance Sheets at September 30, 2022 and December 31, 2021
Item 2. 
Item 3. 
Item 4. 
Item 1. 
Item 1A. 
Item 2.
Item 3. 
2


PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
ASSERTIO HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
 September 30, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$64,826 $36,810 
Accounts receivable, net44,680 44,361 
Inventories, net14,268 7,489 
Prepaid and other current assets2,720 14,838 
Total current assets126,494 103,498 
Property and equipment, net935 1,527 
Intangible assets, net191,617 216,054 
Other long-term assets4,298 5,468 
Total assets$323,344 $326,547 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$8,374 $6,685 
Accrued rebates, returns and discounts48,608 52,662 
Accrued liabilities10,992 14,699 
Long-term debt, current portion2,175 12,174 
Contingent consideration, current portion10,900 14,500 
Other current liabilities11,247 34,299 
Total current liabilities92,296 135,019 
Long-term debt65,982 61,319 
Contingent consideration25,759 23,159 
Other long-term liabilities4,392 4,636 
Total liabilities188,429 224,133 
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.0001 par value, 200,000,000 shares authorized; 48,196,618
 and 44,640,444 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively.
5 4 
Additional paid-in capital543,064531,636 
Accumulated deficit(408,154)(429,226)
Total shareholders’ equity134,915 102,414 
Total liabilities and shareholders' equity$323,344 $326,547 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

ASSERTIO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share data)
(Unaudited)
 
Three Months Ended September 30,Nine Months Ended
September 30,
2022202120222021
Revenues:
Product sales, net$34,279 $25,997 $105,258 $77,271 
Royalties and milestones473 416 1,916 1,391 
Other revenue(540)(941)(1,290)(976)
Total revenues34,212 25,472 105,884 77,686 
Costs and expenses:
Cost of sales4,009 3,050 12,734 10,936 
Selling, general and administrative expenses11,900 9,013 33,084 41,377 
Fair value of contingent consideration3,900 300 6,845 1,902 
Amortization of intangible assets7,969 7,175 24,438 20,939 
Restructuring charges— — — 1,089 
Total costs and expenses27,778 19,538 77,101 76,243 
Income from operations6,434 5,934 28,783 1,443 
Other (expense) income:
Interest expense(2,052)(2,495)(6,648)(7,783)
Other gain2 344 453 747 
Total other expense(2,050)(2,151)(6,195)(7,036)
Net income (loss) before income taxes4,384 3,783 22,588 (5,593)
Income tax expense(210)(46)(1,516)(294)
Net income (loss) and comprehensive income (loss)$4,174 $3,737 $21,072 $(5,887)
Basic net income (loss) per share$0.09 $0.08 $0.45 $(0.14)
Diluted net income (loss) per share$0.08 $0.08 $0.42 $(0.14)
Shares used in computing basic net income (loss) per share48,180 44,969 46,566 42,550 
Shares used in computing diluted net income (loss) per share57,386 45,055 50,470 42,550 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4

ASSERTIO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(Unaudited)
Common StockAdditional
Paid-In
Capital		Accumulated
Deficit		Shareholders’
Equity
SharesAmount
Balances at December 31, 202144,640 $4 $531,636 $(429,226)$102,414 
Issuance of common stock in conjunction with vesting of restricted stock units, net of employee's withholding liability307 — (598)— (598)
Issuance of common stock upon exercise of warrant388 — — — — 
Stock-based compensation— — 982 — 982 
Net income and comprehensive income— — — 9,064 9,064 
Balances at March 31, 202245,335 $4 $532,020 $(420,162)$111,862 
Issuance of common stock in connection with at-the-market program2,464 1 7,019 — 7,020 
Issuance of common stock in conjunction with vesting of restricted stock units, net of employee's withholding liability373 — (81)— (81)
Stock-based compensation— — 1,734 — 1,734 
Net income and comprehensive income— — — 7,834 7,834 
Balances at June 30, 202248,172 $5 $540,692 $(412,328)$128,369 
Issuance of common stock in conjunction with vesting of restricted stock units, net of employee's withholding liability25 — (28)— (28)
Stock-based compensation— — 2,400 — 2,400 
Net income and comprehensive income— — — 4,174 4,174 
Balances at September 30, 202248,197 $5 $543,064 $(408,154)$134,915 

5

Common StockAdditional
Paid-In
Capital		Accumulated
Deficit		Shareholders’
Equity
SharesAmount
Balances at December 31, 202028,392 $3 $483,456 $(427,945)$55,514 
Issuance of common stock upon exercise of options73 — — — — 
Issuance of common stock in connection with stock offerings14,400 1 44,860 — 44,861 
Issuance of common stock in conjunction with vesting of restricted stock units, net of employee's withholding liability211 — (388)— (388)
Issuance of common stock in conjunction with vesting of performance stock units13 — — — — 
Issuance of common stock upon exercise of warrant347 — — — — 
Stock-based compensation— — 772 — 772 
Net income and comprehensive income — — — 4,544 4,544 
Balances at March 31, 202143,436$4 $528,700 $(423,401)$105,303 
Issuance of common stock upon exercise of options— — 193 — 193 
Issuance of common stock under employee stock purchase plan4 — — — — 
Issuance of common stock in conjunction with vesting of restricted stock units, net of employee's withholding liability227 — (19)— (19)
Issuance of common stock upon exercise of warrant845 — — — — 
Stock split fractional shares settlement(18)— — — — 
Stock-based compensation— — 957 — 957 
Net loss and comprehensive loss— — — (14,169)(14,169)
Balances at June 30, 202144,494 $4 $529,831 $(437,570)$92,265 
Issuance of common stock in conjunction with vesting of restricted stock units, net of employee's withholding liability128 — (8)— (8)
Stock-based compensation— — 866 — 866 
Net income and comprehensive income— — — 3,737 3,737 
Balances at September 30, 202144,622 $4 $530,689 $(433,833)$96,860 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6


ASSERTIO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 Nine Months Ended
September 30,
 20222021
Operating Activities  
Net income (loss)$21,072 $(5,887)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization25,033 21,698 
Amortization of debt issuance costs and Royalty Rights128 159 
Recurring fair value measurement of assets and liabilities6,845 1,902 
Stock-based compensation5,116 2,596 
Provision for inventory and other assets828 (86)
Changes in assets and liabilities, net of acquisition:
Accounts receivable(319)8,205 
Inventories(7,607)6,317 
Prepaid and other assets13,288 5,777 
Accounts payable and other accrued liabilities(7,193)(22,405)
Accrued rebates, returns and discounts(4,058)(19,284)
Interest payable(1,232)2,400 
Net cash provided by operating activities51,901 1,392 
Investing Activities
Purchase of Otrexup(16,889)— 
Net cash used in investing activities(16,889)— 
Financing Activities
Proceeds from issuance of 2027 Convertible Notes65,916 — 
Payments in connection with 2021 Convertible Notes— (335)
Payment in connection with 2024 Senior Notes(70,750)(4,750)
Payment of contingent consideration(7,845)(2,495)
Payment of Royalty Rights(630)(510)
Proceeds from issuance of common stock7,020 44,861 
Proceeds from exercise of stock options— 193 
Shares withheld for payment of employee's withholding tax liability(707)(416)
Net cash (used in) provided by financing activities(6,996)36,548 
Net increase in cash and cash equivalents28,016 37,940 
Cash and cash equivalents at beginning of year36,810 20,786 
Cash and cash equivalents at end of period$64,826 $58,726 
Supplemental Disclosure of Cash Flow Information
Net cash refunded for income taxes$(7,822)$— 
Cash paid for interest$7,752 $5,216 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7

ASSERTIO HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 
NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation

The unaudited condensed consolidated financial statements of Assertio Holdings, Inc. (the Company or Assertio) and its subsidiaries and the related footnote information of the Company have been prepared pursuant to the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information that are normally required by U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company’s management, the accompanying interim unaudited condensed consolidated financial statements include all adjustments necessary for a fair presentation of the information for the periods presented. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of results to be expected for the entire year ending December 31, 2022 or future operating periods.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2021 included in Assertio Holdings, Inc.’s Annual Report on Form 10-K filed with the SEC on March 10, 2022 (the 2021 Form 10-K). The Condensed Consolidated Balance Sheet as of December 31, 2021 has been derived from the audited financial statements at that date, as filed in the Company’s 2021 Form 10-K.

Reclassifications

During the first quarter of 2022, the Company made certain reclassifications within Selling, general and administrative expenses related to changes in the fair value of contingent considerations. These fair value adjustments were reclassified from Selling, general and administrative expenses to Fair value of contingent consideration on the Condensed Consolidated Statements of Comprehensive Income, which impacted previously reported amounts for the three and nine months ended September 30, 2021. The reclassifications were made to separately state changes in the fair value of contingent considerations from Selling, general and administrative expenses. Prior period results were recast to conform with these changes, and resulted in a decrease to Selling, general and administrative expenses and an equal and offsetting increase to Fair value of contingent consideration of $0.3 million and $1.9 million for the three and nine months ended September 30, 2021, respectively. Total cost and expenses and Income (loss) from operations as previously reported remains unchanged.

Impact of COVID-19 on our Business

Following the outbreak of COVID-19 during early 2020, the Company’s priority was and remains the health and safety of its employees, their families, and the patients it serves. Because COVID-19 impacted the Company’s ability to see in person providers who prescribe our products, the Company transformed its commercial approach during 2020 and increased virtual visits, ultimately eliminating its in-person sales force in favor of a digital sales strategy. Additionally, due to the limitations on elective surgeries and changes in patient behavior since the outbreak of COVID-19, the Company has experienced a decline and subsequent volatility in prescriptions associated with those elective procedures. The extent to which the Company’s operations may continue to be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including actions by government authorities to contain the outbreak, the emergence of new COVID-19 variants and the related potential for new surges in infections and the impacts of increases in virtual physician visits on prescriber behavior. For example, although many public health restrictions have eased, future surges could result in additional restrictions or other factors that may contribute to decreases in elective procedures. The impact of the pandemic on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact its liquidity. The Company does not yet know the full extent of potential delays or impacts on its business, financing or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which it relies, including suppliers and distributors.

NOTE 2. ACQUISITIONS
Otrexup Acquisition
8

On December 15, 2021, the Company, through a newly-formed subsidiary, Otter Pharmaceuticals, LLC, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Antares Pharma, Inc. (“Antares”), and concurrently consummated the transaction. Pursuant to the terms of the Purchase Agreement, the Company acquired Antares’ rights, title and interest in and to Otrexup, including certain related assets, intellectual property, contracts, and product inventory for (i) $18.0 million in cash paid at closing, (ii) $16.0 million in cash paid on May 31, 2022 and (iii) and $10.0 million in cash payable on December 15, 2022.

The following table summarizes the aggregate amount paid for the assets acquired by the Company in connection with the acquisition of Otrexup (in thousands):
Cash paid to Antares at closing$18,000 
Cash paid in May 202216,021 
Deferred cash payment due in December 202210,000 
Transaction costs1,478 
Total purchase price of assets acquired$45,499 

The acquisition of Otrexup has been accounted for as an asset acquisition in accordance with FASB ASC 805-50. The Company accounted for the acquisition of Otrexup as an asset acquisition because substantially all of the fair value of the assets acquired is concentrated in a single asset, the Otrexup product rights. The Otrexup products rights consist of certain patents and trademarks, at-market contracts and regulatory approvals, customer lists, marketing assets, and other records, and are considered a single asset as they are inextricably linked. ASC 805-10-55-5A includes a screen test, which provides that if substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the assets acquired are not considered to be a business. As an asset acquisition, the cost to acquire the group of assets, including transaction costs, is allocated to the individual assets acquired or liabilities assumed based on their relative fair values. The relative fair values of identifiable assets from the acquisition of Otrexup are based on estimates of fair value using assumptions that the Company believes is reasonable.

The following table summarizes the fair value of assets acquired in the acquisition of Otrexup (in thousands):

Inventories$1,413 
Intangible assets44,086 
Total assets acquired$45,499 

The Otrexup product rights will be amortized over an 8 year period. As of September 30, 2022 and December 31, 2021 deferred cash payable to Antares were $10.0 million and $26.0 million, respectively, and were recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet.

NOTE 3. REVENUE
 
Disaggregated Revenue
 
The following table reflects summary revenue, net for the three and nine months ended September 30, 2022 and 2021 (in thousands): 
9

Three Months Ended September 30,Nine Months Ended
September 30,
2022202120222021
Product sales, net:
INDOCIN products$21,869 $14,541 $66,067 $42,214 
CAMBIA5,808 5,038 17,464 17,628 
Otrexup3,004 — 8,699 — 
Zipsor259 1,999 2,704 6,802 
SPRIX2,455 2,272 6,437 6,911 
Other products884 2,147 3,887 3,716 
Total product sales, net34,279 25,997 105,258 77,271 
Royalties and milestone revenue473 416 1,916 1,391 
Other revenue(540)(941)(1,290)(976)
Total revenues$34,212 $25,472 $105,884 $77,686
Product Sales, net:

For the three and nine months ended September 30, 2022 and 2021, product sales primarily consisted of sales from INDOCIN Products, CAMBIA, Otrexup and SPRIX. The Company acquired Otrexup in December 2021 and began shipping and recognizing product sales for Otrexup in January 2022.
Other products sales include product sales for non-promoted products (OXAYDO and SOLUMATRIX). The Company ceased SOLUMATRIX sales beginning in July 2022.
Royalties and Milestone Revenue

In November 2010, the Company entered into a license agreement with Tribute Pharmaceuticals Canada Ltd. (now known as Miravo Pharmaceuticals) granting them the rights to commercially market CAMBIA in Canada. Miravo independently contracts with manufacturers to produce a specific CAMBIA formulation in Canada. The Company receives royalties on net sales on a quarterly basis as well as certain one-time contingent milestone payments upon the occurrence of certain events. The Company recognized revenue related to CAMBIA in Canada of $0.5 million and $1.5 million for the three and nine months ended September 30, 2022, respectively and $0.4 million and $1.4 million for the three and nine months ended September 30, 2021, respectively.
The Company records contract liabilities in the form of deferred revenue resulting from prepayments from customers in Other current liabilities on the Condensed Consolidated Balance Sheets. As of December 31, 2021, contract liabilities were $0.3 million. For the nine months ended September 30, 2022, the Company recorded an additional $0.3 million in contract liabilities and recognized $0.5 million as Milestone revenue associated with completion of service milestones. As of September 30, 2022, contract liabilities were $0.2 million.

Other Revenue

Other revenue consists of sales adjustments for previously divested products, which includes adjustments to reserves for product sales allowances (gross-to-net sales allowances) and can result in reductions to total revenue during the period. Sales adjustments for previously divested products primarily include Gralise, Nucynta and Lazanda.
NOTE 4. ACCOUNTS RECEIVABLES, NET
 
The following table reflects accounts receivables, net, as of September 30, 2022 and December 31, 2021 (in thousands): 
 September 30, 2022December 31, 2021
Receivables related to product sales, net$42,061 $43,753 
Other2,619 608 
Total accounts receivable, net$44,680 $44,361 
10


As of September 30, 2022 and December 31, 2021, allowances for cash discounts for prompt payment were $1.0 million and $0.9 million, respectively.
NOTE 5.  INVENTORIES, NET
 
The following table reflects the components of inventory, net as of September 30, 2022 and December 31, 2021 (in thousands): 
 September 30,
2022		December 31, 2021
Raw materials$1,755 $1,242 
Work-in-process2,556 823 
Finished goods9,957 5,424 
Total Inventories, net$14,268 $7,489 
    
As of September 30, 2022 and December 31, 2021, inventory reserves were $2.0 million and $3.7 million, respectively.


NOTE 6. PROPERTY AND EQUIPMENT, NET
 
The following table reflects property and equipment, net as of September 30, 2022 and December 31, 2021 (in thousands): 

September 30,
2022		December 31, 2021
Furniture and office equipment$2,353 $2,733 
Laboratory equipment20 20 
Leasehold improvements9,787 10,523 
12,160 13,276 
Less: Accumulated depreciation(11,225)(11,749)
Property and equipment, net$935 $1,527 
 
Depreciation expense was $0.2 million and $0.6 million for the three and nine months ended September 30, 2022, respectively and $0.2 million and $0.8 million for the three and nine months ended September 30, 2021, respectively. Depreciation expense is recognized in Selling, general and administrative expense in the Company’s Condensed Consolidated Statements of Comprehensive Income.
NOTE 7.  INTANGIBLE ASSETS
 
The following table reflects the gross carrying amounts and net book values of intangible assets as of September 30, 2022 and December 31, 2021 (dollar amounts in thousands): 

 September 30, 2022December 31, 2021
Remaining Useful Life
 (In years)		Gross Carrying AmountAccumulated AmortizationNet Book ValueGross Carrying AmountAccumulated AmortizationNet Book Value
Products rights:
INDOCIN9.6$154,100 $(30,285)$123,815 $154,100 $(20,654)$133,446 
CAMBIA0.351,360 (49,372)1,988 51,360 (43,410)7,950 
Otrexup7.244,086 (4,133)39,953 44,086 — 44,086 
SPRIX4.639,000 (13,139)25,861 39,000 (8,960)30,040 
Zipsor0.027,250 (27,250)— 27,250 (26,718)532 
Total Intangible Assets$315,796 $(124,179)$191,617 $315,796 $(99,742)$216,054 
11


Amortization expense was $8.0 million and $24.4 million for the three and nine months ended September 30, 2022, respectively, and $7.2 million and $20.9 million for the three and nine months ended September 30, 2021, respectively.

The following table reflects future amortization expense the Company expects for its intangible assets (in thousands): 

Year Ending December 31,Estimated Amortization Expense
2022 (remainder)$7,969 
202323,924 
202423,924 
202523,924 
202623,924 
Thereafter87,952 
Total$191,617 

We evaluate long-lived assets, including property and equipment and acquired intangible assets consisting of product rights, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. As of September 30, 2022, we determined that there was an indicator of impairment present based on our market capitalization as of September 30, 2022 compared to our carrying value. After grouping the long-lived assets, including purchased developed technology and trademarks, at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets and liabilities, we estimated the future net undiscounted cash flows expected to be generated from the use of the long-lived asset group and its eventual disposition. We then compared the estimated undiscounted cash flows to the carrying amount of the long-lived asset group. Based on this test, we determined that the estimated undiscounted cash flows were in excess of the carrying amount of the long-lived asset group and, accordingly, the long-lived asset group is fully recoverable.
NOTE 8.  OTHER LONG-TERM ASSETS
 
The following table reflects other long-term assets as of September 30, 2022 and December 31, 2021 (in thousands): 

 September 30, 2022December 31, 2021
Investment, net$1,579 $1,579 
Operating lease right-of-use assets262 735 
Prepaid asset and deposits1,760 2,456 
Other 697 698 
Total other long-term assets$4,298 $5,468 

Investment, net consists of the Company’s investment in NES Therapeutic, Inc. (NES). In August 2018, the Company entered into a Convertible Secured Note Purchase Agreement (Note Agreement) with NES. Pursuant the terms of the Note Agreement, the Company purchased a Convertible Secured Promissory Note (NES Note) for $3.0 million which accrues interest annually at a rate of 10% on $3.0 million principal, with both the principal and accrued interest due at maturity on August 2, 2024. Pursuant to the Note Agreement, the NES Note is convertible into equity based on (i) FDA acceptance of the NDA, (ii) initiation of any required clinical trials by NES, or (iii) a qualified financing event by NES. This investment is accounted as a long-term loan receivable and is valued at amortized cost. As of September 30, 2022, the Company continues to assess an estimated $1.9 million expected credit loss on its investment based on evaluation of probability of default that exists.

12

NOTE 9.  ACCRUED LIABILITIES
 
The following table reflects accrued liabilities as of September 30, 2022 and December 31, 2021 (in thousands): 

 September 30, 2022December 31, 2021
Accrued compensation$2,295 $4,122 
Accrued restructuring costs137 828 
Other accrued liabilities7,755 8,062 
Interest payable455 1,687 
Income tax payable350 — 
Total accrued liabilities$10,992 $14,699 


NOTE 10.  DEBT
 
The following table reflects the Company’s debt as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022December 31, 2021
6.5% Senior Convertible Notes due 2027$70,000 $— 
13% Senior Secured Notes due 2024
— 70,750 
Royalty rights obligation2,175 2,743 
Total principal amount72,175 73,493 
Unamortized debt issuance costs(4,018)— 
Less: current portion of long-term debt(2,175)(12,174)
Net, long-term debt$65,982 $61,319 


6.5% Convertible Senior Notes due 2027

On August 22, 2022, Assertio entered into a purchase agreement (the “Purchase Agreement”), with U.S. Bank Trust Company (the “Trustee”), as the Trustee of the initial purchasers (the “Initial Purchasers”) to issue $60.0 million in aggregate principal amount of 6.5% Convertible Senior Notes due 2027 (the “2027 Convertible Notes”). Under the Purchase Agreement, the Initial Purchasers were also granted an overallotment option to purchase up to an additional $10.0 million of the 2027 Convertible Notes solely to cover overallotment (the “Overallotment Option”) within a 13-day period from the date of the initial 2027 Convertible Notes were issued. On August 24, 2022, the Initial Purchasers exercised the Overallotment Option in full for the $10.0 million of additional 2027 Convertible Notes. The 2027 Convertible Notes are senior unsecured obligations of the Company.

The terms of the Notes are governed by the Indenture dated August 25, 2022 (the “Indenture”). The terms of the 2027 Convertible Notes allow for conversion into Common Stock, cash, or a combination of cash and Common Stock, at the Company’s election, at an initial conversion rate of 244.2003 shares of the Company’s Common Stock per $1,000 principal amount (equal to an initial Conversion Price of approximately $4.09 per share), subject to adjustments specified in the Indenture (the “Conversion Rate”). The 2027 Convertible Notes will mature on September 1, 2027, unless earlier repurchased or converted.

The 2027 Convertible Notes bears interest from August 25, 2022 at a rate of 6.5% per annum payable semiannually in arrears on March 1 and September 1 of each year, beginning on March 1, 2023.

Pursuant to the terms of the Indenture, the Company and its restricted subsidiaries must comply with certain covenants, including mergers, consolidations, and divestitures; guarantees of debt by subsidiaries; issuance of preferred and/or disqualified stock; and liens on the Company’s properties or assets. The Company was in compliance with its covenants with respect to the 2027 Convertible Notes as of September 30, 2022.

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The Company incurred approximately $4.0 million in issuance costs including legal fees, accounting service fees, printing fees, and trustee fees associated with the Notes. The issuance costs were recognized as a discount to the 2027 Convertible Notes and are amortized over the term of the 2027 Convertible Notes using the effective interest method. The effective interest rate for the period is 7.8%.

The following table reflects the carrying balance of the 2027 Convertible Notes as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022December 31, 2021
Principal balance$70,000 $— 
Unamortized debt issuance costs(4,018)— 
Convertible note payable, net$65,982 $— 

During the three months ended September 30, 2022, the Company amortized $0.1 million of the debt discount on the 2027 Convertible Notes.

All of the embedded features of the 2027 Convertible Notes were either clearly and closely related to the debt host and did not require bifurcation as a derivative liability, or the fair value of the bifurcated features was immaterial to the Company’s financial statements.

13% Senior Secured Notes due 2024

In accordance with the Zyla Merger, Assertio assumed $95.0 million aggregate principal amount of 13% senior secured notes due 2024 (the 2024 Secured Notes) issued pursuant to an indenture (the Existing Indenture) entered into on January 31, 2019, by and among Zyla Life Sciences, the guarantors party thereto (the Guarantors) and Wilmington Savings Fund Society, FSB (as successor to U.S. Bank National Association), as trustee and collateral agent (the Trustee). The 2024 Secured Notes were issued in two series: $50.0 million of Series A-1 Notes and $45.0 million of Series A-2 Notes.

The Company used the net proceeds from the 2027 Convertible Note Offering to repurchase $59.0 million aggregate principal amount of its outstanding 2024 Secured Notes and $3.0 million in associated interest payment pursuant to privately negotiated exchange agreements entered into concurrently with the pricing of the 2027 Convertible Note Offering. The 2024 Secured Notes were derecognized upon extinguishment with no gain or loss recognized, as no unamortized cost remained at time of extinguishment. Assertio expects to use the remaining net proceeds of the 2027 Convertible Note Offering for general corporate purposes. As of September 30, 2022 there were no outstanding aggregate principal amounts of the 2024 Secured Notes.

Royalty Rights Obligation

In accordance with the Zyla Merger, the Company assumed a royalty rights agreements (the Royalty Rights) with each of the holders of its 2024 Secured Notes pursuant to which the Company will pay the holders of the 2024 Secured Notes an aggregate 1.5% royalty on Net Sales (as defined in the Existing Indenture) through December 31, 2022. The Royalty Rights were determined to be a freestanding element with respect to the 2024 Secured Notes and the Company is accounting for the Royalty Rights obligation relating to future royalties as a debt instrument.

The Company has Royalty Rights obligations of $2.2 million and $2.7 million as of September 30, 2022 and December 31, 2021, respectively, which are classified as current debt in the Company’s Condensed Consolidated Balance Sheets.

The accounting for the Royalty Rights requires the Company to make certain estimates and assumptions about the future net sales. The estimates of the magnitude and timing of net sales are subject to significant variability due to the extended time period associated with the financing transaction and are thus subject to significant uncertainty.
    
Interest Expense

Royalty Rights and debt issuance cost are amortized as interest expense using the effective interest method. The following table reflects debt related interest included in Interest expense in the Company’s Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021 (in thousands):
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Three Months Ended September 30,Nine Months Ended
September 30,
2022202120222021
Interest payable on 2027 Convertible Notes$456$—$456$—
Interest paid on 2024 Secured Notes1,5162,4546,0647,618
Amortization of debt issuance costs and Royalty Rights8041128159
Other———6
Total interest expense$2,052$2,495$6,648$7,783


NOTE 11.  STOCK-BASED COMPENSATION
    
The Company’s stock-based compensation generally includes time-based stock options and restricted stock units (RSUs) and performance-based stock options and RSUs.

For the three and nine months ending September 30, 2022 stock-based compensation of $2.4 million and $5.1 million, respectively, and for the three and nine months ending September 30, 2021, $0.9 million and $2.6 million, respectively, was recognized in Selling, general, and administrative expenses in the Company’s Condensed Consolidated Statements of Comprehensive Income.

During the nine months ended September 30, 2022 the Company granted 1.5 million RSUs at a weighted-average fair market value of $2.54 per share, 1.0 million options at a weighted-average fair market value of $2.28 per share, and collectively 2.0 million performance-based stock options and RSUs at a weighted-average fair value per unit was $2.02.


NOTE 12.  LEASES

As of September 30, 2022, the Company has non-cancelable operating leases for its offices and certain office equipment. The Company has the right to renew the term of the Lake Forest lease for one period of five years, provided that written notice is made to the Landlord no later than twelve months prior to the expiration of the initial term of the lease which is on December 31, 2023. In connection with the Zyla Merger, the Company assumed an operating lease for offices in Wayne, Pennsylvania, which terminated in February 2022.

Prior to the Company’s corporate headquarters relocation in 2018, the Company had leased its previous corporate office in Newark, California (the Newark lease) which will terminate at the end of November 2022 and will not be renewed. The Newark lease is currently partially subleased through the lease term. Operating lease costs and sublease income related to the Newark facility are accounted for in Other gain (loss) in the Condensed Consolidated Statements of Comprehensive Income. During the first quarter of 2022, the Company recognized a gain of $0.6 million from the early termination and settlement of a Newark facility sublease.

The following table reflects lease expense and income for the three and nine months ended September 30, 2022 and 2021 (in thousands):
Three Months Ended September 30,Nine Months Ended
September 30,
Financial Statement Classification2022202120222021
Operating lease costSelling, general and administrative expenses$39 $54 $118 $256 
Operating lease costOther gain148 148 444 443 
Total lease cost$187 $202 $562 $699 
Sublease IncomeOther gain$168 $347 $1,111 $1,040 
The following table reflects supplemental cash flow information related to leases for the three and nine months ended September 30, 2022 and 2021 (in thousands):
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Three Months Ended September 30,Nine Months Ended
September 30,
2022202120222021
Cash paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases$533 $667 $1,593 $2,129 



The following table reflects supplemental balance sheet information related to leases as of September 30, 2022 and December 31, 2021 (in thousands):
Financial Statement ClassificationSeptember 30, 2022December 31, 2021
Liabilities
Current operating lease liabilitiesOther current liabilities$673 $1,978 
Noncurrent operating lease liabilitiesOther long-term liabilities105 397 
Total lease liabilities$778 $2,375 


NOTE 13.  COMMITMENTS AND CONTINGENCIES

Jubilant HollisterStier Manufacturing and Supply Agreement

Pursuant to the Zyla Merger, the Company assumed a Manufacturing and Supply Agreement (the “Agreement”) with Jubilant HollisterStier LLC (“JHS”) pursuant to which the Company engaged JHS to provide certain services related to the manufacture and supply of SPRIX for the Company’s commercial use. Under the Agreement, JHS will be responsible for supplying a minimum of 75% of the Company’s annual requirements of SPRIX. The Company has agreed to purchase a minimum number of batches of SPRIX annually from JHS over the term of the Agreement. Total commitments to JHS through the period ending July 30, 2022 have been met, and total commitments through the period ending July 30, 2023 are approximately $1.1 million.

Cosette Pharmaceuticals Supply Agreement

Pursuant to the Zyla Merger, the Company assumed a Collaborative License, Exclusive Manufacture and Global Supply Agreement with Cosette Pharmaceuticals, Inc. (formerly G&W Laboratories, Inc.) (the “Supply Agreement”) for the manufacture and supply of INDOCIN Suppositories to Zyla for commercial distribution in the United States. On July 9, 2021, the Company and Cosette entered into Amendment No. 3 to the Supply Agreement, to among other things, extend the expiration date of the Supply Agreement from July 31, 2023 to July 9, 2028. The Company is obligated to purchase all of its requirements for INDOCIN Suppositories from Cosette Pharmaceuticals, Inc., and is required to meet minimum purchase requirements each calendar year during the extended term of the agreement. Total commitments to Cosette are approximately $6.3 million annually through the end of the contract term.

Antares Supply Agreement

In connection with the Otrexup acquisition, the Company entered into a Supply Agreement with Antares pursuant to which Antares will manufacture and supply the finished Otrexup products. Under the Supply Agreement, the Company has agreed to annual minimum purchase obligations from Antares, which approximate $2.0 million annually. The Supply Agreement has an initial term through December 2031 with renewal terms beyond.

General
The Company is currently involved in various lawsuits, claims, investigations and other legal proceedings that arise in the ordinary course of business. The Company recognizes a loss contingency provision in its financial statements when it
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concludes that a contingent liability is probable, and the amount thereof is estimable. Costs associated with our involvement in legal proceedings are expensed as incurred. Amounts accrued for legal contingencies are based on management’s best estimate of a loss based upon the status of the cases described below, assessments of the likelihood of damages, and the advice of counsel and often result from a complex series of judgments about future events and uncertainties that rely heavily on estimates and assumptions including timing of related payments. As of September 30, 2022 and December 31, 2021 the Company had a legal contingency accrual of approximately $3.2 million and $3.4 million, respectively. The Company will continue to monitor each matter and adjust accruals as warranted based on new information and further developments in accordance with ASC 450-20- 25. For matters discussed below for which a loss is not probable, or a probable loss cannot be reasonably estimated, no liability has been recorded. Legal expenses are recorded in Selling, general and administrative expense in the Company’s Condensed Consolidated Statements of Comprehensive Income and the related accruals are recorded in Accrued Liabilities in the Company’s Condensed Consolidated Balance Sheets.

Other than matters that we have disclosed below, the Company may from time to time become party to actions, claims, suits, investigations or proceedings arising from the ordinary course of its business, including actions with respect to intellectual property claims, breach of contract claims, labor and employment claims and other matters. The Company may also become party to further litigation in federal and state courts relating to opioid drugs. Although actions, claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, other than the matters set forth below, the Company is not currently involved in any matters that the Company believes may have a material adverse effect on its business, results of operations or financial condition. However, regardless of the outcome, litigation can have an adverse impact on the Company because of associated cost and diversion of management time.

Glumetza Antitrust Litigation
Antitrust class actions and related direct antitrust actions were filed in the Northern District of California against the Company and several other defendants relating to our former drug Glumetza®. The plaintiffs sought to represent a putative class of direct purchasers of Glumetza. In addition, several retailers, including CVS Pharmacy, Inc., Rite Aid Corporation, Walgreen Co., the Kroger Co., the Albertsons Companies, Inc., H-E-B, L.P., and Hy-Vee, Inc. (the “Retailer Plaintiffs”), filed substantially similar direct purchaser antitrust claims.

On July 30, 2020, Humana Inc. also filed a complaint against the Company and several other defendants in federal court in the Northern District of California alleging similar claims related to Glumetza. The claims asserted by Humana in its federal case were ultimately withdrawn, and analogous claims were instead asserted by Humana in an action it filed in California state court on February 8, 2021, and subsequently amended in September 2021. Additionally, on April 5, 2022, Health Care Service Corporation (“HCSC”) filed a complaint against the Company and the same other defendants in California state court alleging similar claims related to Glumetza.

These antitrust cases arise out of a Settlement and License Agreement (the Settlement) that the Company, Santarus, Inc. (Santarus) and Lupin Limited (Lupin) entered into in February 2012 that resolved patent infringement litigation filed by the Company against Lupin regarding Lupin’s Abbreviated New Drug Application for generic 500 mg and 1000 mg tablets of Glumetza. The antitrust plaintiffs allege, among other things, that the Settlement violated the antitrust laws because it allegedly included a “reverse payment” that caused Lupin to delay its entry in the market with a generic version of Glumetza. The alleged “reverse payment” is an alleged commitment on the part of the settling parties not to launch an authorized generic version of Glumetza for a certain period. The antitrust plaintiffs allege that the Company and its co-defendants, which include Lupin as well as Bausch Health (the alleged successor in interest to Santarus), are liable for damages under the antitrust laws for overcharges that the antitrust plaintiffs allege they paid when they purchased the branded version of Glumetza due to delayed generic entry. Plaintiffs seek treble damages for alleged past harm, attorneys’ fees and costs.

On September 14, 2021, the Retailer Plaintiffs voluntarily dismissed all claims against the Company pursuant to a settlement agreement with the Company in return for $3.15 million. On February 3, 2022, the Court issued its final order approving a settlement of the direct purchaser class plaintiffs’ claims against the Company in return for $3.85 million.

With respect to the Humana lawsuit that is continuing in California state court, on November 24, 2021, the state court granted in part and denied in part a demurrer by the defendants. That case is now moving to discovery, and trial is scheduled for August 25, 2023.

The Company intends to defend itself vigorously in the Humana California state court lawsuit, and the more recently filed HCSC lawsuit. A liability for this matter has been recorded in the financial statements.


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Securities Class Action Lawsuit and Related Matters

On August 28, 2022, the U.S. District Court for the Northern District of California issued a final order approving the settlement of a purported federal securities law class action that was pending against the Company, two individuals who formerly served as its chief executive officer and president, and its former chief financial officer, thereby concluding this matter. The action (Huang v. Depomed et al., No. 4:17-cv-4830-JST, N.D. Cal.) alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 related to certain prior disclosures of the Company about its business, compliance, and operational policies and practices concerning the sales and marketing of its former opioid products and contended that the conduct supporting the alleged violations affected the value of Company common stock and was seeking damages and other relief.

Additionally, on December 14, 2021, the Superior Court of California, Alameda County, issued a final order approving the settlement of the shareholder derivative actions that were filed on behalf of the Company against its officers and directors for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and violations of the federal securities laws, thereby concluding these matters. The claims in the shareholder derivative actions arose out of the same factual allegations as the purported federal securities class action described above.

Opioid-Related Request and Subpoenas

As a result of the greater public awareness of the public health issue of opioid abuse, there has been increased scrutiny of, and investigation into, the commercial practices of opioid manufacturers generally by federal, state, and local regulatory and governmental agencies. In March 2017, the Company’s subsidiary Assertio Therapeutics, Inc. (Assertio Therapeutics) received a letter from then-Sen. Claire McCaskill (D-MO), the then-Ranking Member on the U.S. Senate Committee on Homeland Security and Governmental Affairs, requesting certain information regarding Assertio Therapeutics’ historical commercialization of opioid products. Assertio Therapeutics voluntarily furnished information responsive to Sen. McCaskill’s request. Since 2017, Assertio Therapeutics has received and responded to subpoenas from the U.S. Department of Justice (DOJ) seeking documents and information regarding its historical sales and marketing of opioid products. Assertio Therapeutics has also received and responded to subpoenas or civil investigative demands focused on its historical promotion and sales of Lazanda, NUCYNTA, and NUCYNTA ER from various state attorneys general seeking documents and information regarding Assertio Therapeutics’ historical sales and marketing of opioid products. In addition, Assertio Therapeutics received and responded to a subpoena from the State of California Department of Insurance (CDI) seeking information relating to its historical sales and marketing of Lazanda. The CDI subpoena also seeks information on Gralise, a non-opioid product formerly in Assertio Therapeutics’ portfolio. In addition, Assertio Therapeutics received and responded to a subpoena from the New York Department of Financial Services seeking information relating to its historical sales and marketing of opioid products. Assertio Therapeutics also from time to time receives and complies with subpoenas from governmental authorities related to investigations primarily focused on third parties, including healthcare practitioners. Assertio Therapeutics is cooperating with the foregoing governmental investigations and inquiries.
In July 2022, the Company became aware that the DOJ issued a press release stating that it had settled claims against a physician whom the DOJ alleged had received payments for paid speaking and consulting work from two pharmaceutical companies, including Depomed, Inc. (now known as Assertio Therapeutics), in exchange for prescribing certain of the companies’ respective products. As part of the settlement, the physician did not admit liability for such claims and the press release stated that there has been no determination of any liability for such claims. The Company denies any wrongdoing and disputes DOJ’s characterization of the payments from Depomed.

Multidistrict Opioid Litigation
A number of pharmaceutical manufacturers, distributors and other industry participants have been named in numerous lawsuits around the country brought by various groups of plaintiffs, including city and county governments, hospitals, individuals and others. In general, the lawsuits assert claims arising from defendants’ manufacturing, distributing, marketing and promoting of FDA-approved opioid drugs. The specific legal theories asserted vary from case to case, but the lawsuits generally include federal and/or state statutory claims, as well as claims arising under state common law. Plaintiffs seek various forms of damages, injunctive and other relief and attorneys’ fees and costs.
For such cases filed in or removed to federal court, the Judicial Panel on Multi-District Litigation issued an order in December 2017, establishing a Multi-District Litigation court (MDL Court) in the Northern District of Ohio (In re National Prescription Opiate Litigation, Case No. 1:17-MD-2804). Since that time, more than 2,000 such cases that were originally filed in U.S. District Courts, or removed to federal court from state court, have been filed in or transferred to the MDL Court. Assertio Therapeutics is currently involved in a subset of the lawsuits that have been filed in or transferred to the MDL Court. Assertio Holdings has also been named in one such case. Plaintiffs may file additional lawsuits in which Assertio Therapeutics or Assertio Holdings may be named. Plaintiffs in the pending federal cases involving Assertio Therapeutics or Assertio
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Holdings include individuals; county, municipal and other governmental entities; employee benefit plans, health insurance providers and other payors; hospitals, health clinics and other health care providers; Native American tribes; and non-profit organizations who assert, for themselves and in some cases for a putative class, federal and state statutory claims and state common law claims, such as conspiracy, nuisance, fraud, negligence, gross negligence, negligent and intentional infliction of emotional distress, deceptive trade practices, and products liability claims (defective design/failure to warn). In these cases, plaintiffs seek a variety of forms of relief, including actual damages to compensate for alleged personal injuries and for alleged past and future costs such as to provide care and services to persons with opioid-related addiction or related conditions, injunctive relief, including to prohibit alleged deceptive marketing practices and abate an alleged nuisance, establishment of a compensation fund, establishment of medical monitoring programs, disgorgement of profits, punitive and statutory treble damages, and attorneys’ fees and costs. No trial date has been set in any of these lawsuits, which are at an early stage of proceedings. Assertio Therapeutics and Assertio Holdings intend to defend themselves vigorously in these matters.

State Opioid Litigation

Related to the cases in the MDL Court noted above, there have been hundreds of similar lawsuits filed in state courts around the country, in which various groups of plaintiffs assert opioid-drug related claims against similar groups of defendants. Assertio Therapeutics is currently named in a subset of those cases, including cases in Delaware, Missouri, Nevada, Pennsylvania, Texas and Utah. Plaintiffs may file additional lawsuits in which Assertio Therapeutics may be named. In the pending cases involving Assertio Therapeutics, plaintiffs are asserting state common law and statutory claims against the defendants similar in nature to the claims asserted in the MDL cases. Plaintiffs are seeking actual damages, disgorgement of profits, injunctive relief, punitive and statutory treble damages, and attorneys’ fees and costs. The state lawsuits in which Assertio Therapeutics has been served are generally each at an early stage of proceedings. Assertio Therapeutics intends to defend itself vigorously in these matters.

Insurance Litigation

On January 15, 2019, Assertio Therapeutics was named as a defendant in a declaratory judgment action filed by Navigators Specialty Insurance Company (Navigators) in the U.S. District Court for the Northern District of California (Case No. 3:19-cv-255). Navigators is Assertio Therapeutics’ primary product liability insurer. Navigators was seeking declaratory judgment that opioid litigation claims noticed by Assertio Therapeutics (as further described above under “Multidistrict Opioid Litigation” and “State Opioid Litigation”) are not covered by Assertio Therapeutics’ life sciences liability policies with Navigators. On February 3, 2021, Assertio Therapeutics entered into a Confidential Settlement Agreement and Mutual Release with Navigators to resolve the declaratory judgment action and Assertio Therapeutics’ counterclaims. Pursuant to the Settlement Agreement, the parties settled and the coverage action was dismissed without prejudice.

During the first quarter of 2021, Assertio Therapeutics received $5.0 million in insurance reimbursement for previous opioid-related spend, which was recognized within Selling, general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Income.

On July 16, 2021, Assertio Therapeutics filed a complaint for declaratory relief against one of its excess products liability insurers, Lloyd’s of London Newline Syndicate 1218 and related entities (Newline), in the Superior Court of the State of California for the County of Alameda. Newline removed the case to the U.S. District Court for the Northern District of California (Case No. 3:21-cv-06642). Assertio Therapeutics was seeking a declaratory judgment that Newline has a duty to defend Assertio Therapeutics or, alternatively, to reimburse Assertio Therapeutics’ attorneys’ fees and other defense costs for opioid litigation claims noticed by Assertio Therapeutics. On May 18, 2022, Assertio Therapeutics entered into a Confidential Settlement Agreement and Mutual Release with Newline to resolve Assertio Therapeutics’ declaratory judgment action. Pursuant to the Settlement Agreement, the parties settled and the coverage action was dismissed with prejudice.

During the second quarter of 2022, Assertio Therapeutics received $2.0 million in insurance reimbursement for previous opioid-related spend, which was recognized within Selling, general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Income.

On April 1, 2022, Assertio Therapeutics filed a complaint for negligence and breach of fiduciary duty against its former insurance broker, Woodruff-Sawyer & Co. (“Woodruff”), in the Superior Court of the State of California for the County of Alameda (Case No. 22CV009380). Assertio Therapeutics is seeking to recover its damages caused by Woodruff’s negligence and breaches of its fiduciary duties in connection with negotiating and procuring products liability insurance coverage for Assertio Therapeutics. The litigation is in the early stages. Trial is set for February 2, 2024.
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Indemnification Dispute with Collegium Pharmaceutical, Inc.

On May 24, 2022, Assertio Therapeutics filed an action in the Superior Court of Delaware against Collegium Pharmaceutical, Inc. (Collegium) seeking indemnification in excess of $1.8 million for Collegium’s breach of an asset purchase agreement related to Assertio Therapeutics’ former product, Nucynta. Assertio Therapeutics alleges that Collegium agreed to assume certain liabilities associated with customer returns of Nucynta products sold by Collegium, but that Collegium has failed to honor that agreement. On July 14, 2022, Collegium answered the complaint asserting as a defense that, among other things, the Superior Court of Delaware does not have jurisdiction over all aspects of the action because Collegium contends that a portion of the dispute is subject to the alternative dispute resolution procedures under a different agreement. On July 18, 2022, Assertio Therapeutics moved to strike that defense, and on August 8, 2022 in opposition to the motion to strike, Collegium filed a cross-motion to stay the case. Assertio Therapeutics filed its opposition to Collegium’s cross-motion to stay on August 19, 2022. After oral argument on September 20, 2022, the Court granted in part Assertio Therapeutics’ motion to strike and denied in full Collegium’s cross-motion to stay.


NOTE 14.  RESTRUCTURING CHARGES
The Company continually evaluates its operations to identify opportunities to streamline operations and optimize operating efficiencies as an anticipation to changes in the business environment.

    On December 15, 2020, the Company announced the December 2020 Plan which was designed to substantially reduce the Company’s operating footprint through the reduction of its staff at our headquarters office and remote sales force. The Company substantially completed the workforce reduction in the first quarter of 2021.

The following table reflects total expenses related to restructuring activities recognized within the Condensed Consolidated Statement of Comprehensive Income as restructuring costs (in thousands):

Three Months Ended September 30,Nine Months Ended
September 30,
2022202120222021
Employee compensation costs$— $— $— $876 
Other exit costs— — — 213 
Total restructuring costs$— $— $— $1,089 

The following table reflects cash activity relating to the Company’s accrued restructuring cost as of September 30, 2022 (in thousands):
 Employee compensation costsTotal
Balance as of December 31, 2021$828 $828 
Cash paid(340)(340)
Balance as of March 31, 2022$488 $488 
Cash paid(150)(150)
Balance as of June 30, 2022$338 $338 
Cash paid(201)(201)
Balance as of September 30, 2022$137 $137 


NOTE 15. SHAREHOLDERS EQUITY

At-The-Market Program

On December 17, 2021, the Company entered into a Sales Agreement with Roth Capital Partners, LLC (Roth) as sales agent to sell shares of the Company’s common stock, from time to time, through an at-the-market (ATM) offering program
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having an aggregate offering price of up to $25.0 million. As of September 30, 2022, 2,463,637 shares have been issued and settled at an average price of $3.02, through which the Company received gross proceeds of $7.4 million, and net proceeds after commission and fees of $7.0 million. As a result of the issuance of the 2027 Convertible Notes (See Note 10. Debt), the Company has determined to suspend use of its ATM offering program.

Equity Raise

On February 9, 2021, the Company completed a registered direct offering with certain institutional investors and accredited investors to sell 5,650,000 shares of our common stock at a purchase price of $2.48 per share. The gross proceeds from the offering were approximately $14.0 million. After placement agent fees and other offering expenses payable by the Company, Assertio received net proceeds of approximately $13.1 million. On February 12, 2021, the Company completed a registered direct offering with certain institutional investors and accredited investors to sell 8,750,000 shares of our common stock at a purchase price of $3.92 per share. The gross proceeds from the offering were approximately $34.3 million. After placement agent fees and other offering expenses payable by the Company, Assertio received net proceeds of approximately $32.2 million. The Company intends to use proceeds from both offerings for general corporate purposes, including general working capital.

Warrant Agreements

Upon the Zyla Merger, the Company assumed Zyla’s outstanding Warrant Agreements which provides the holder the right to receive shares of the Company’s common stock. The warrants are exercisable at any time at an exercise price of $0.0016 per share, subject to certain ownership limitations including, with respect to Iroko and its affiliates, that no such exercise may increase the aggregate ownership of the Company’s outstanding common stock of such parties above 49% of the number of shares of its common stock then outstanding for a period of 18 months . All of the Company’s outstanding warrants have similar terms whereas under no circumstance may the warrants be net-cash settled. As such, all warrants are equity classified.

During the nine months ended September 30, 2022 and 2021, zero and 392,095 warrants, respectively, were exercised, and zero and 387,802 common shares, respectively, were issued by the Company. As of September 30, 2022, there were no outstanding warrants remaining.


NOTE 16.  NET INCOME PER SHARE

Basic net income per share is calculated by dividing the net income by the weighted-average number of shares of common stock outstanding during the period. Upon consummation of the Zyla Merger in May 2020, the Company inherited outstanding Zyla warrants to purchase Zyla common stock, which were converted into the right to purchase shares of Assertio’s common stock. As these warrants are exercisable at any time at an exercise price of $0.0016 per share, they represent contingently issuable shares and therefore are included in the number of outstanding shares used for the computation of basic income per share. There were zero and 392,095 unexercised shares of common stock issuable upon the exercise of warrants as of September 30, 2022 and 2021, respectively.

Diluted net income per share is calculated by dividing the net income by the weighted-average number of shares of common stock outstanding during the period, plus potentially dilutive common shares, consisting of stock options, awards, and equivalents and convertible debt. For purposes of this calculation, convertible debt and options to purchase stock are considered to be potential common shares and are only included in the calculation of diluted net income per share when their effect is dilutive. The Company uses the treasury-stock method to compute diluted earnings per share with respect to its stock options and equivalents. The Company uses the if-converted method to compute diluted earnings per share with respect to its convertible debt. Under the if-converted method, the Company assumes the 2027 Convertible Notes were converted at the beginning of each period presented. As a result, interest expense and any adjustments recognized in net income for the 2027 Convertible Notes is added back to net income used in the diluted earnings per share calculation. Additionally, the diluted shares used in the diluted earnings per share calculation includes the dilution effect of the 2027 Convertible Notes.
The following table reflects the calculation of basic and diluted earnings per common share for the three and nine months ended September 30, 2022 and 2021 (in thousands, except for per share amounts):
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 Three Months Ended September 30,Nine Months Ended
September 30,
2022202120222021
Basic net income per share  
Net income (loss)$4,174 $3,737 $21,072 $(5,887)
Weighted-average common shares and warrants outstanding48,180 44,969 46,566 42,550 
Basic net income (loss) per share$0.09 $0.08 $0.45 $(0.14)
Diluted net income per share
Net income (loss)$4,174 $3,737 $21,072 $(5,887)
Add: Interest Expense on convertible debt, net of tax497 — 487 — 
Adjusted Net income (loss)4,671 3,737 21,559 (5,887)
Weighted-average common shares and share equivalents outstanding48,180 44,969 46,566 42,550 
Add: effect of dilutive stock-based awards and equivalents1,960 86 1,462 — 
Add: effect of dilutive convertible debt under if-converted method7,246 — 2,442 — 
Denominator for diluted income per share57,386 45,055 50,470 42,550 
Diluted net income (loss) per share$0.08 $0.08 $0.42 $(0.14)
 

The following table reflects outstanding potentially dilutive common shares that are not included in the computation of diluted net income per share, because to do so would be anti-dilutive, for the three and nine months ended September 30, 2022 and 2021 (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
2021 Convertible Notes— 3 — 4 
Stock-based awards and equivalents2,983 2,297 1,329 2,725 
Total potentially dilutive common shares2,983 2,300 1,329 2,729 


NOTE 17.  FAIR VALUE

The following table reflects the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022Financial Statement ClassificationLevel 1Level 2Level 3Total
Liabilities:
Short-term contingent considerationContingent consideration, current portion$— $— $10,900 $10,900 
Long-term contingent considerationContingent consideration— — 25,759 25,759 
Total$— $— $36,659 $36,659 

December 31, 2021Financial Statement ClassificationLevel 1Level 2Level 3Total
Liabilities:
Short-term contingent considerationContingent consideration, current portion$— $— $14,500 $14,500 
Long-term contingent considerationContingent consideration— — 23,159 23,159 
Total$— $— $37,659 $37,659 
    
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Pursuant to the May 2020 Zyla Merger, the Company assumed a contingent consideration obligation which is measured at fair value. The Company has obligations to make contingent consideration payments for future royalties to Iroko based upon annual INDOCIN Product net sales over $20.0 million at a 20% royalty through January 2029. The Company classified the acquisition-related contingent consideration liabilities to be settled in cash as Level 3, due to the lack of relevant observable inputs and market activity.

During the three and nine months ended September 30, 2022, the Company recognized an expense of $3.9 million and $6.8 million, respectively, for the change in fair value of contingent consideration, which was recognized in Fair value of contingent consideration on the Company’s Condensed Consolidated Statements of Comprehensive Income. For the three and nine months ended September 30, 2021, the Company recognized an expense of $0.3 million and $1.9 million, respectively, for the change in fair value of contingent consideration. The fair value of the contingent consideration is determined using an option pricing model under the income approach based on estimated INDOCIN product revenues through January 2029 and discounted to present value. The significant assumptions used in the calculation of the fair value as of September 30, 2022 included revenue volatility of 30%, discount rate of 8.5%, credit spread of 4.0% and updated projections of future INDOCIN Product revenues.

Contingent consideration related to CAMBIA was $0.2 million as of September 30, 2022 and December 31, 2021.

The following table summarizes changes in fair value that are measured on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2022 and 2021 (in thousands):

 Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Fair value, beginning of the period$36,759 $37,659 $37,659 $38,552 
Change in fair value of contingent consideration recorded within costs and expenses3,900 300 6,845 1,902 
Cash payment related to contingent consideration(4,000)— (7,845)(2,495)
Fair value, end of the period$36,659 $37,959 $36,659 $37,959 

The Company estimates the fair value of its convertible notes based on a market approach which represents a Level 2 valuation. The estimated fair value of the 2027 Convertible Notes, which the Company issued on August 22, 2022, was approximately $64.3 million (par value $70.0 million) as of September 30, 2022.

There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the three and nine months ended September 30, 2022.

NOTE 18.  INCOME TAXES
 
As of September 30, 2022, the Company’s net deferred tax assets are fully offset by a valuation allowance, with the exception of a deferred tax liability of $0.3 million for certain separate filing state jurisdictions. The valuation allowance is determined in accordance with the provisions of ASC 740, Income Taxes, which require an assessment of both negative and positive evidence when measuring the need for a valuation allowance. Based on the weight of available evidence, the Company recorded a valuation allowance against the majority of its net deferred tax assets. However, given the current earnings trend, sufficient positive evidence may become available for the Company to release all or a portion of the valuation allowance within twelve months. The exact timing and amount of the valuation allowance releases are subject to change based on the level of profitability achieved in future periods. The Company will continue to assess the realizability of its deferred tax assets on a quarterly basis.

For the nine months ended September 30, 2022, the Company recorded an income tax expense of $1.5 million. The difference between the income tax expense of $1.5 million and the tax at the statutory rate of 21.0% to date on current year operations is principally due to the partial release of valuation allowance related to the current year movement in deferred tax assets.

The Company files income tax returns in the United States federal jurisdiction and in various states, and the tax returns filed for the years 2007 through 2020 and the applicable statutes of limitation have not expired with respect to those returns. Because of NOLs and unutilized R&D credits, substantially all of the Company’s tax years remain open to examination. Interest and penalties, if any, related to unrecognized tax benefits, would be recognized as income tax expense by
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the Company. At September 30, 2022, the Company did not have significant accrued interest and penalties associated with unrecognized tax benefits.

During the first quarter of 2022, the Company received a refund of $8.3 million for the carryback of net operating losses under the Cares Act.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The tax legislation includes a new book-minimum tax on certain large corporations, an excise tax on stock buybacks, and tax incentives to address climate change mitigation and clean energy. The Company considered the income tax accounting implications of the IRA legislation to the Company’s income tax provision calculation for the period ended September 30, 2022 and determined that the impact was not significant.

NOTE 19. SUBSEQUENT EVENTS

On October 27, 2022, Assertio announced the closing of a transaction to acquire an exclusive license for Sympazan® (clobazam) oral film from Aquestive Therapeutics, Inc. (Aquestive). Under the terms of the definitive agreement, the Company acquired an exclusive license for the Sympazan intellectual property from Aquestive for an upfront payment of $9.0 million. Assertio also entered into a long-term supply agreement with Aquestive for Sympazan. Additionally, Aquestive will continue to prosecute an existing patent application that could extend patent coverage to as late as 2039. Upon patent allowance, Assertio will pay a $6.0 million milestone payment and royalties to Aquestive.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

COMPANY OVERVIEW

We are a commercial pharmaceutical company offering differentiated products to patients. Our commercial portfolio of branded products focuses on three areas: neurology, hospital, and pain and inflammation. We have built our commercial portfolio through a combination of increased opportunities with existing products, as well as through the acquisition or licensing of additional approved products. Our primary marketed products are:

INDOCIN® (indomethacin) Suppositories
A suppository form and oral solution of indomethacin used in the hospital as well as in the out-patient setting. Both products are nonsteroidal anti-inflammatory drug (NSAID), approved for:
• Moderate to severe rheumatoid arthritis including acute flares of chronic disease
• Moderate to severe ankylosing spondylitis
INDOCIN® (indomethacin) Oral Suspension
• Moderate to severe osteoarthritis
• Acute painful shoulder (bursitis and/or tendinitis)
• Acute gouty arthritis
CAMBIA® (diclofenac potassium for oral solution)
A prescription NSAID indicated for the acute treatment of migraine attacks with or without aura in adults 18 years of age or older. CAMBIA can help patients with migraine pain, nausea, photophobia (sensitivity to light), and phonophobia (sensitivity to sound). CAMBIA is not a pill, it is a powder, and combining CAMBIA with water activates the medicine in a unique way.
Otrexup® (methotrexate)
injection for subcutaneous use
A once weekly single-dose auto-injector containing a prescription medicine, methotrexate. Methotrexate is used to:
• Treat certain adults with severe, active rheumatoid arthritis, and children with active polyarticular juvenile idiopathic arthritis (pJIA), after treatment with other medicines including non-steroidal anti-inflammatory drugs (NSAIDS) have been used and did not work well.
• Control the symptoms of severe, resistant, disabling psoriasis in adults when other types of treatment have been used and did not work well.
SPRIX® (ketorolac tromethamine) Nasal Spray
A prescription NSAID indicated in adult patients for the short term (up to five days) management of moderate to moderately severe pain that requires analgesia at the opioid level. SPRIX is a non-narcotic nasal spray provides patients with moderate to moderately severe short-term pain a form of ketorolac that is absorbed rapidly but does not require an injection administered by a healthcare provider (HCP).
Zipsor® (diclofenac potassium) Liquid filled capsules
A prescription NSAID used for relief of mild-to-moderate pain in adults (18 years of age and older). Zipsor uses proprietary ProSorb® delivery technology to deliver a finely dispersed, rapid and consistently absorbed formulation of diclofenac.
    

Other commercially available products include OXAYDO® (oxycodone HCI, USP) tablets for oral use only —CII.
On December 15, 2021, we, through a newly-formed subsidiary, Otter Pharmaceuticals, LLC, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Antares Pharma, Inc. (“Antares”), and concurrently consummated the Otrexup transaction. Pursuant to the terms of the Purchase Agreement, we acquired Antares’ rights, title and interest in and to Otrexup, including certain related assets, intellectual property, contracts, and product inventory for (i) $18.0 million in cash paid at closing, (ii) $16.0 million in cash paid on May 31, 2022 and (iii) and $10.0 million in cash payable on December 15, 2022.
Impact of COVID-19 on our Business
    Following the outbreak of COVID-19 in early 2020, our priority was and remains the health and safety of our employees, their families, and the patients we serve. Because COVID-19 impacted our ability to see in-person providers who prescribe our products, we transformed our commercial approach during 2020 and increased virtual visits, ultimately eliminating our in-person sales force in favor a digital sales strategy. Additionally, due to the limitations on elective surgeries and changes in patient behavior since the outbreak of COVID-19, we have experienced a decline and subsequent volatility in prescriptions associated with those elective procedures. The extent to which our operations may continue to be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including actions by government authorities to contain the outbreak, the emergence of new COVID-19 variants and
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the related potential for new surges in infections and the impacts of increases in virtual physician visits on prescriber behavior. For example, although many public health restrictions have eased, future surges could result in additional restrictions or other factors that may contribute to decreases in elective procedures. The impact of the pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our liquidity. We do not yet know the full extent of potential delays or impacts on our business, financing or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely, including suppliers and distributors.

Segment Information

We manage our business within one reportable segment. Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance. To date, substantially all of revenues from product sales are related to sales in the U.S.


FORWARD-LOOKING INFORMATION

Statements made in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q that are not statements of historical fact are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). We have based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements include, but are not necessarily limited to, those relating to:
 
•the commercial success and market acceptance of our products, including the coverage of our products by payors and pharmacy benefit managers;

•our ability to successfully develop and execute our sales, marketing and non-personal and digital promotion strategies, including developing and maintaining relationships with customers, physicians, payors and other constituencies;

•the entry and sales of generics or other products competitive with any of our products;

•our ability to successfully execute business development, strategic partnerships, and investment opportunities to build and grow for the future;

•our ability to achieve the expected financial performance from products we acquire, as well as delays, challenges and expenses, and unexpected costs associated with integrating and operating newly-acquired products;

•our ability to attract and retain key executive leadership;

•the potential impacts of the ongoing COVID-19 pandemic, including volatility in prescriptions associated with elective procedures, on our liquidity, capital resources, operations and business and those of the third parties on which we rely, including suppliers and distributors;

•the ability of our third-party manufacturers to manufacture adequate quantities of commercially salable inventory and active pharmaceutical ingredients for each of our products, and our ability to maintain our supply chain, which relies on single-source suppliers, in the face of global challenges such as the COVID-19 pandemic;

•the outcome of opioid-related investigations, opioid-related litigation and related claims for negligence and breach of fiduciary duty against our former insurance broker, and other disputes and litigation, and the costs and expenses associated therewith;
•our compliance or non-compliance with legal and regulatory requirements related to the development or promotion of pharmaceutical products in the U.S.;

•our ability to obtain and maintain intellectual property protection for our products and operate our business without infringing the intellectual property rights of others;
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•our ability to generate sufficient cash flow from our business to make payments on our indebtedness, our ability to restructure or refinance our indebtedness, if necessary, and our compliance with the terms and conditions of the agreements governing our indebtedness;

•our ability to raise additional capital or refinance our debt, if necessary;

•our estimates regarding contingent consideration obligations and other expenses, future revenues, capital requirements and needs for additional financing;

•our counterparties’ compliance or non-compliance with their obligations under our agreements;

•variations in revenues obtained from commercialization agreements, including contingent milestone payments, royalties, license fees and other contract revenues, including non-recurring revenues, and the accounting treatment with respect thereto;

•the timing and results of any future research and development efforts including potential clinical studies relating to any future product candidates; and
•our common stock maintaining compliance with Nasdaq’s minimum closing bid requirement of at least $1.00 per share.

Factors that could cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described and incorporated by reference in the “RISK FACTORS” section and elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and in our Quarterly Report on Form 10-Q for the three months ended March 31, 2022 and June 30, 2022, respectively. Except as required by law, we assume no obligation to update any forward-looking statement publicly, or to revise any forward-looking statement to reflect events or developments occurring after the date of this Quarterly Report on Form 10-Q, even if new information becomes available in the future.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are those that require significant judgment and/or estimates by management at the time that the financial statements are prepared such that materially different results might have been reported if other assumptions had been made. We consider certain accounting policies related to revenue recognition, accrued liabilities and use of estimates to be critical policies. These estimates form the basis for making judgments about the carrying value of assets and liabilities. We believe there have been no significant changes in our critical accounting policies and significant judgements and estimates since we filed our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 10, 2022 (the 2021 Form 10-K), see ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — Critical Accounting Policies and Estimates in our 2021 Form 10-K for further information.

RESULTS OF OPERATIONS
Revenues
The following table reflects total revenues, net for the three and nine months ended September 30, 2022 and 2021 (in thousands):
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Three Months Ended September 30,Nine Months Ended
September 30,
2022202120222021
Product sales, net:
INDOCIN products$21,869 $14,541 $66,067 $42,214 
CAMBIA5,808 5,038 17,464 17,628 
Otrexup3,004 — 8,699 — 
Zipsor259 1,999 2,704 6,802
SPRIX2,455 2,272 6,437 6,911 
Other products884 2,147 3,887 3,716 
Total product sales, net34,279 25,997 105,258 77,271 
Royalties and milestone revenue473 416 1,916 1,391 
Other revenue(540)(941)(1,290)(976)
Total revenues$34,212 $25,472 $105,884 $77,686 
Product Sales, net
For the three and nine months ended September 30, 2022, product sales primarily consisted of sales from INDOCIN Products, CAMBIA, Otrexup and SPRIX. The Company acquired Otrexup in December 2021 and began shipping and recognizing product sales for Otrexup in January 2022.
INDOCIN net product sales for the three and nine months ended September 30, 2022 increased $7.3 million from $14.5 million to $21.9 million and $23.9 million from $42.2 million to $66.1 million, respectively, as compared to the same period in 2021 primarily due to favorable net pricing as result of increase in gross price and favorable impact of lower returns, partially offset by lower volume.
CAMBIA net product sales for the three months ended September 30, 2022 increased $0.8 million from $5.0 million to $5.8 million as compared to the same period in 2021 primarily due to favorable payor mix partially offset by lower volume. CAMBIA net product sales for the nine months ended September 30, 2022 decreased $0.1 million from $17.6 million to $17.5 million as compared to the same period in 2021 primarily due to lower volume partially offset by favorable payor mix. Certain parties who have entered into settlement agreements with us will be able to market generic versions of Cambia starting in 2023.
Zipsor net product sales for the three and nine months ended September 30, 2022 decreased $1.7 million from $2.0 million to $0.3 million and $4.1 million from $6.8 million to $2.7 million, respectively, as compared to the same period in 2021 primarily due to lower volume and unfavorable payor mix as certain parties who previously entered into settlement agreements with us began to market generic versions of Zipsor in 2022.
SPRIX net product sales for the three months ended September 30, 2022 increased $0.2 million from $2.3 million to $2.5 million as compared to the same period in 2021 primarily due to higher volume partially offset by unfavorable payor mix. SPRIX net product sales for the nine months ended September 30, 2022 decreased $0.5 million from $6.9 million to $6.4 million as compared to the same period in 2021 primarily due to unfavorable payor mix partially offset by higher volume.
Other net product sales include product sales for non-promoted products (OXAYDO and SOLUMATRIX) which were acquired from Zyla in May 2020. In September 2020, we terminated our iCeutica License and as a result no longer manufacture products using SOLUMATRIX technology and ceased sales beginning in July 2022.
The increase in total product sales, net, for the three and nine months ended September 30, 2022 also reflects a decrease year over year in the amounts charged as a reduction to revenue for sales & return allowances, discounts, chargebacks, and rebates, which is attributed to changes in product mix and, specifically, a higher concentration of INDOCIN Products that typically require lower levels of product sales allowances relative to our other products.
    
Royalties & Milestones

In November 2010, we entered into a license agreement with Tribute Pharmaceuticals Canada Ltd. (now known as Miravo Pharmaceuticals) granting them the rights to commercially market CAMBIA in Canada. We receive royalties on net sales as well as certain one-time contingent milestone payments. During the three and nine months ended September 30, 2022, the Company recognized $0.5 million and $1.5 million of revenue related to CAMBIA in Canada, respectively. During the
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three and nine months ended September 30, 2021, we recognized $0.4 million and $1.4 million of revenue related to CAMBIA in Canada, respectively.
During the nine months ended months ended September 30, 2022, we recognized $0.5 million Milestone revenue associated with completion of certain service milestones.

Other Revenue

Other revenue consists of sales adjustments for previously divested products, which includes adjustments to reserves for product sales allowances (gross-to-net sales allowances) and can result in reductions to total revenue during the period. Sales adjustments for previously divested products primarily include Gralise, Nucynta and Lazanda resulted in a revenue reduction of $0.5 million and $1.3 million for the three and nine months ended September 30, 2022, respectively, and revenue reduction of $0.9 million and $1.0 million for the three and nine months ended September 30, 2021, respectively.

Cost of Sales (excluding amortization of intangible assets)
Cost of sales increased $1.0 million from $3.1 million to $4.0 million during the three months ended September 30, 2022 and increased $1.8 million from $10.9 million to $12.7 million during the nine months ended September 30, 2022, respectively, as compared to the same period in 2021 primarily due to the impact of higher net sales and product mix.

For the three months ended September 30, 2022 and 2021, there was no impact to cost of sales related to amortization of inventory step-up related to acquired inventories sold. For the nine months ended September 30, 2022 and 2021 cost of sales included $0.7 million and $0.6 million, respectively, of amortization of inventory step-up related to acquired inventories sold.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased $2.9 million from $9.0 million to $11.9 million for the three months ended September 30, 2022 compared to the same period in 2021 primarily due to an increase of $1.5 million in stock compensation expense, $1.0 million in provision benefit recognized in third quarter of 2021 not repeating in 2022, and remaining increase is due to general operating expenses.

Selling, general, and administrative expenses decreased $8.3 million from $41.4 million to $33.1 million for the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to $11.3 million in loss contingency provisions recognized in second quarter of 2021 that are not repeating in 2022, decrease of approximately $2.5 million in general operating expenses as a result of prior restructuring events, partially offset by a net increase of $3.0 million as a result of the $5.0 million gain for insurance reimbursement in the first quarter of 2021 compared to $2.0 million gain for insurance reimbursement in second quarter of 2022, and an increase of $2.5 million in stock compensation expense.

Fair value of contingent consideration

Fair value of contingent consideration increased by $3.6 million from $0.3 million to $3.9 million and increased by $4.9 million from $1.9 million to $6.8 million for the three and nine months ended September 30, 2022, respectively, as compared to the same period in 2021. The fair value of the contingent consideration is remeasured each reporting period, with changes in the fair value resulting from changes in the underlying inputs being recognized in operating expenses until the contingent consideration arrangement is settled. The fair value of the contingent consideration is determined using an option pricing model under the income approach based on estimated INDOCIN product revenues through January 2029 and discounted to present value. The significant assumptions used in the calculation of the fair value as of September 30, 2022 included revenue volatility of 30%, discount rate of 8.5%, credit spread of 4.0% and updated projections of future INDOCIN Product revenues.

Intangible Assets

The following table reflects amortization of intangible assets for the three and nine months ended September 30, 2022 and 2021 (in thousands):
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Three Months Ended September 30,Nine Months Ended
September 30,
2022202120222021
Amortization of intangible assets - INDOCIN$3,210 $3,210 $9,631 $9,631 
Amortization of intangible assets - SPRIX1,393 1,393 4,179 4,179 
Amortization of intangible assets - CAMBIA1,988 1,988 5,963 5,259 
Amortization of intangible assets - Otrexup1,378 — 4,133—
Amortization of intangible assets - Zipsor— 584 532 1,752 
Amortization of intangible assets - Oxaydo— — — 118 
Total $7,969 $7,175 $24,438 $20,939 
 
Amortization expense increased $0.8 million from $7.2 million to $8.0 million during the three months ended September 30, 2022 and increased $3.5 million from $20.9 million to $24.4 million during the nine months ended September 30, 2022, respectively, as compared to the same period in 2021 primarily due to acquired Otrexup product rights in December 2021 and full amortization of Zipsor and Oxaydo.

Restructuring Charges

We continually evaluate our operations to identify opportunities to streamline operations and optimize operating efficiencies as an anticipation to changes in the business environment.

On December 15, 2020, we announced the December 2020 Plan which was designed to substantially reduce the Company’s operating footprint through the reduction of its staff at our headquarters office and remote sales force. We substantially completed the workforce reduction in the first quarter of 2021.

For the three and nine months ended September 30, 2022 there were no restructuring charges incurred. For the three and nine months ended September 30, 2021 restructuring charges incurred were zero and $1.1 million, respectively.

Other (Expense) Income

The following table reflects other expense for the three and nine months ended September 30, 2022 and 2021 (in thousands):
 Three Months Ended September 30,Nine Months Ended
September 30,
2022202120222021
Interest expense$(2,052)$(2,495)$(6,648)$(7,783)
Other gain2344453 747 
Total other expense$(2,050)$(2,151)$(6,195)$(7,036)

Other expense decreased by $0.1 million from expense of $2.2 million to expense of $2.1 million for the three months ended September 30, 2022 and decreased by $0.8 million from expense of $7.0 million to an expense of $6.2 million for the nine months ended months ended September 30, 2022, respectively, as compared to the same period in 2021 primarily due to lower interest expense.

Sublease income offset by sublease expense is recorded in Other gain within the above table. For the nine months ended months ended September 30, 2022, a gain of $0.6 million was recognized from the early termination and settlement of a Newark facility sublease.

The following table reflects interest expense for the three and nine months ended September 30, 2022 and 2021 (in thousands):
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Three Months Ended September 30,Nine Months Ended
September 30,
2022202120222021
Interest payable on 2027 Convertible Notes$522$—$522$—
Interest paid on 2024 Secured Notes1,5162,4546,0647,618
Amortization of debt discounts and Royalty Rights144162159
Other———6
Total interest expense$2,052$2,495$6,648$7,783

For the three and nine months ended September 30, 2022, total interest expense decreased $0.4 million and decreased $1.1 million, respectively, as compared to the same period in 2021 primarily due to the impact of the principal payments on the 2024 Secured Notes during the period. On August 22, 2022, we issued $70.0 million in aggregate principal amount of 6.5% Convertible Senior Notes due 2027 (the 2027 Convertible Notes). We used the net proceeds from the 2027 Convertible Note Offering to repurchase $59.0 million aggregate principal amount of our outstanding 2024 Secured Notes.

Income Tax Provision

For the three and nine months ended September 30, 2022, we recorded an income tax expense of approximately $0.2 million and $1.5 million, respectively, which represents an effective tax rate of 4.8% and 6.7%, respectively. The difference between income tax expense of $0.2 million and $1.5 million for the three and nine months ended September 30, 2022, respectively, and tax at the statutory rate of 21.0% is principally due to the partial release of valuation allowance related to the current year movement in the deferred tax assets.

In the three and nine months ended September 30, 2021, we recorded an income tax expense of approximately $0.1 million and $0.3 million, respectively, which represents an effective tax rate of 1.2% and 5.3%, respectively. The difference between income tax expense of $0.1 million and $0.3 million for the three and nine months ended September 30, 2021, respectively, and tax at the statutory rate of 21.0% was principally due to the partial release of valuation allowance related to the movement in deferred tax assets.


LIQUIDITY AND CAPITAL RESOURCES

Historically and through September 30, 2022, we have financed our operations and business development efforts primarily from product sales, private and public sales of equity securities, including convertible debt securities, the proceeds of secured borrowings, the sale of rights to future royalties and milestones, upfront license, milestone and fees from collaborative and license partners.

On August 22, 2022, we issued $70.0 million aggregate principal amount of 6.5% Convertible Senior Notes Due 2027 which mature on September 1, 2027 and bear interest at the rate of 6.5% per annum, payable semi-annually in arrears on March 1 and September 1 of each year beginning March 1, 2023. We used the net proceeds from the 2027 Convertible Note Offering to repurchase $59.0 million aggregate principal amount of our outstanding 2024 Secured Notes and $3.0 million in associated interest payment pursuant to privately negotiated exchange agreements entered into concurrently with the pricing of the 2027 Convertible Note Offering. We expect to use the remaining net proceeds of the 2027 Convertible Note Offering for general corporate purposes.

On December 17, 2021, we entered into a Sales Agreement with Roth Capital Partners, LLC (Roth) as sales agent to sell shares of our common stock, from time to time, through an at-the-market (ATM) offering program having an aggregate offering price of up to $25.0 million. As of September 30, 2021, 2,463,637 shares have been issued and settled at an average price of $3.02, through which we received gross proceeds of $7.4 million, and net proceeds after commission and fees of $7.0 million. In connection with the 2027 Convertible Notes (See Note 10. Debt) the company has determined to suspend use of its ATM offering program.

On February 9, 2021, we completed a registered direct offering with certain institutional investors and accredited investors to sell 5,650,000 shares of our common stock at a purchase price of $2.48 per share. The gross proceeds from the offering were approximately $14.0 million. After placement agent fees, we received net proceeds of approximately $13.1 million. On February 12, 2021, we completed a registered direct offering with certain institutional investors and accredited investors to sell 8,750,000 shares of our common stock at a purchase price of $3.92 per share. The gross proceeds from the offering were approximately $34.3 million. After placement agent fees, we received net proceeds of approximately
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$32.2 million. We also incurred $0.5 million direct incremental cost to complete both registered direct offerings. We intend to use proceeds from both offerings for general corporate purposes, including general working capital.

We believe that our existing cash will be sufficient to fund our operations and make the required payments under our debt agreements due for the next twelve months from the date of this filing. We base this expectation on our current operating plan, which may change as a result of many factors.
 
Our cash needs may vary materially from our current expectations because of numerous factors, including:

•acquisitions or licenses of complementary businesses, products, technologies or companies;
•sales of our marketed products;
•expenditures related to our commercialization of our products;
•milestone and royalty revenue we receive under our collaborative development arrangements;
•interest and principal payments on our current and future indebtedness;
•financial terms of definitive license agreements or other commercial agreements we may enter into
•changes in the focus and direction of our business strategy and/or research and development programs;
•potential expenses relating to any litigation matters, including relating to Assertio Therapeutics’ prior opioid product franchise for which we have not accrued any reserves due to an inability to estimate the magnitude and/or probability of such expenses, and former drug Glumetza; and
•effects of the COVID-19 pandemic on our operations.

The inability to raise any additional capital that may be required to fund our future operations, payments due under our debt agreements, or product acquisitions and strategic transactions which we may pursue could have a material adverse effect on our company.

The following table reflects summarized cash flow activities for the nine months ended months ended September 30, 2022 and 2021 (in thousands):
 Nine Months Ended
September 30,
20222021
Net cash provided by operating activities$51,901 $1,392 
Net cash used in investing activities(16,889)— 
Net cash (used in) provided by financing activities(6,996)36,548 
Net increase in cash and cash equivalents$28,016 $37,940 

Cash Flows from Operating Activities

Cash provided by operating activities was $51.9 million during the nine months ended September 30, 2022 compared to $1.4 million in the same period in 2021. The increase of $50.5 million in cash provided from operating activities is primarily due to combination of higher net income excluding non-cash items and favorable working capital cash flows. For the nine months ended September 30, 2022, net income was $21.1 million compared to a net loss of $5.9 million for the same period in 2021. For the nine months ended September 30, 2022, non-cash items contributed approximately $11.7 million more to operating cash flows compared to the same period in 2021 primarily due to higher amortization expense and higher expense for recurring fair value measurement of contingent consideration. For the nine months ended September 30, 2022, working capital contributed approximately $11.9 million more to operating cash flows compared to the same period in 2021 primarily due to less cash used in the settlement of accrued rebates, returns and discounts due to impact of sales product mix as well as timing of settlement, receipt of $8.3 million in tax refund in the first quarter of 2022, and timing of inventory purchases and receipts and accounts receivable settlement.

Cash Flows from Investing Activities

Cash used in investing activities for the nine months ended months ended September 30, 2022 was $16.9 million, which was entirely composed of cash paid in relation to the purchase of Otrexup. There was no cash flow activity from investing activities for the nine months ended September 30, 2021.

Cash Flows from Financing Activities

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Cash used in financing activities for the nine months ended September 30, 2022 was $7.0 million, which primarily consisted of $70.8 million in principal payments on the 2024 Secured Notes and $7.8 million payment for contingent consideration, partially offset by $7.0 million in cash proceeds from the ATM program and $65.9 million in cash proceeds from the issuance of 2027 Convertible Notes. Cash provided by financing activities for the nine months ended September 30, 2021 was $36.5 million, which primarily consisted of $44.9 million proceeds from the registered direct offerings in February 2021, partially offset by $4.8 million in principal payments on the 2024 Secured Notes and $2.5 million payment for contingent consideration.

Off-Balance Sheet Arrangement

There were no off-balance sheet arrangements during the quarter ended September 30, 2022.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective.

We review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis to improve our controls and procedures over time and to correct any deficiencies that we may discover in the future. Our goal is to ensure that our senior management has timely access to all material financial and non-financial information concerning our business. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our business may cause us to significantly modify our disclosure controls and procedures.

Changes in Internal Controls over Financial Reporting

There were no significant changes in our internal controls over financial reporting during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
For a description of our material pending legal proceedings, see “Note 13. Commitments and Contingencies - Legal Matters” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

ITEM 1A.    RISK FACTORS

We are subject to various risks and uncertainties that could have a material impact on our business, results of operations and financial condition, including those hereby incorporated by reference from Part I, Item 1A, “Risk Factors” in (i) our Annual Report on Form 10-K for the year ended December 31, 2021; and (ii) our Quarterly Report on Form 10-Q for the three months ended June 30, 2022. Except as set forth below, there have been no material changes to our risk factors since our Quarterly Report on Form 10-Q for the three months ended June 30, 2022. In addition to other information in this report, the following risk factors (together with the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2021 and our Quarterly Report on Form 10-Q for the three months ended June 30, 2022) should be considered carefully in evaluating an investment in our securities. If any of these risks or uncertainties actually occurs, our business, results of operations or financial condition would be materially and adversely affected. The risks and uncertainties referenced above (including those
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set forth below) are not the only ones facing us. Additional risks and uncertainties of which we are unaware or that we currently deem immaterial may also become important factors that may harm our business, results of operations and financial condition.

We have no patent protection for the INDOCIN Products and Zyla recently began to face competition for INDOCIN suppositories from a 503B outsourcing facility (commonly referred to as a 503B compounder). Zipsor began to face generic competition earlier this year, and Cambia may face generic competition starting in 2023. If we face competition with generic and/or compounded versions of our marketed products, our revenues will be adversely affected.

Under the Federal Food, Drug, and Cosmetic Act (FDCA), the FDA can approve an abbreviated new drug application (“ANDA”) for a generic version of a branded drug without the ANDA applicant undertaking the clinical testing necessary to obtain approval to market a new drug. In place of such clinical studies, an ANDA applicant usually needs only to submit data demonstrating that its product has the same active ingredient(s) and is bioequivalent to the branded product, in addition to any data necessary to establish that any difference in strength, dosage, form, inactive ingredients or delivery mechanism does not result in different safety or efficacy profiles, as compared to the reference drug.

There are no patents covering the INDOCIN Products (which accounted for 55% of our revenue in 2021), which means that a generic drug company could introduce a generic for these drugs at any time. In addition, we are aware of other drug companies that have had interactions with regulatory agencies including FDA relating to indomethacin, which could indicate the development of one or more INDOCIN Product generics or other formulations of indomethacin. Furthermore, a 503B outsourcing facility (commonly referred to as a 503B compounder) recently began compounding 100 mg indomethacin suppositories in violation of certain provisions of the FDCA, including, among others, Section 505 approval requirements for new drugs and labeling requirements related to adequate directions for use. For a 503B compounder to qualify for exemptions from these requirements, the 503B compounder must meet certain conditions set forth in Section 503B of the FDCA, including (1) using only bulk drug substances (i.e., indomethacin) that appear on a list identifying the bulk substances for which FDA has determined that there is clinical need to use in compounding or that the drug product compounded from a bulk drug substance appears on FDA’s drug shortage list; and (2) compounding a drug product that is not “essentially a copy” of an FDA-approved product. We believe that the 503B compounder compounding 100 mg indomethacin suppositories does not meet these conditions as indomethacin is not on FDA’s list of bulk substances for which there is a clinical need and INDOCIN suppositories are not on FDA’s drug shortage list; and we believe that the 100 mg indomethacin suppositories being compounded are “essentially a copy” of Zyla’s FDA-approved INDOCIN suppositories. As a result, Zyla currently faces competition for INDOCIN suppositories from an unlawful compounder and could face generic competition at any time for the INDOCIN Products. Although Zyla is vigorously pursuing remedies against the unlawful compounder, we cannot guarantee that Zyla will be successful in causing it to discontinue sales of its unapproved indomethacin suppository product.

With respect to Cambia and Zipsor (which accounted for 23% and 9% of our revenue in 2021, respectively), we have entered into settlement agreements with generic drug companies, under which generic versions of these products can be marketed beginning in 2023 and 2022, respectively. As a result, we began to face generic competition for Zipsor earlier this year and expect to face generic competition in the near term for Cambia.

Any introduction of one or more generic versions of our products, as well as sales of indomethacin suppositories by compounders, would harm our business, financial condition and results of operations. The filing of the ANDAs described above, or any other ANDA or similar application in respect to any of our products, as well as sales of indomethacin suppositories by compounders, could have an adverse impact on our stock price. Moreover, if the patents covering Otrexup (which expire in 2031) are not upheld in litigation or if a generic competitor is found not to infringe these patents, the resulting generic competition for Otrexup would have a further material adverse effect on our business, financial condition and results of operations.

The market price of our common stock historically has been volatile. Our results of operations have and may continue to fluctuate and affect our stock price and the trading price of our 6.50% Convertible Senior Notes due 2027 (the “2027 Convertible Notes”).

The trading price of our common stock has been, and is likely to continue to be, volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. Factors affecting our operating results and that could adversely affect our stock price include:
•the degree of commercial success and market acceptance of our products;
•the entry and sales of generics or other products competitive with any of our products;
•the outcome of opioid-related investigations, opioid-related litigation and related claims for negligence and breach of fiduciary duty against our former insurance broker, and other disputes and litigation, and the costs and expenses associated therewith;
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•filings and other regulatory or governmental actions, investigations or proceedings related to our products and any future product candidates and those of our commercialization and collaborative partners;
•developments concerning proprietary rights, including patents, infringement allegations, inter parties review proceedings and litigation matters;
•legal and regulatory developments in the U.S.;
•actions taken by industry stakeholders affecting the market for our products;
•our ability to generate sufficient cash flow from our business to make payments on our indebtedness;
•our and our commercialization and collaborative partners’ compliance or noncompliance with legal and regulatory requirements and with obligations under our collaborative agreements;
•our ability to successfully develop and execute our digital and non-personal sales and marketing strategies;
•our plans to acquire, in-license or co-promote other products or compounds or acquire or combine with other companies, and our degree of success in realizing the intended advantages of, and mitigating any risks associated with, any such transactions;
•adverse events related to our products, including recalls;
•interruptions of manufacturing or supply, or other manufacture or supply difficulties;
•variations in revenues obtained from commercialization and collaborative agreements, including contingent milestone payments, royalties, license fees and other contract revenues, including nonrecurring revenues, and the accounting treatment with respect thereto;
•adverse events or circumstances related to our peer companies or our industry or the markets for our products;
•adoption of new technologies by us or our competitors;
•our compliance with the terms and conditions of the agreements governing our indebtedness;
•sales of large blocks of our common stock; and
•variations in our operating results, earnings per share, cash flows from operating activities, deferred revenue, and other financial metrics and non-financial metrics, and how those results are measured, presented and compare to our financial and operating projections and analyst expectations.
As a result of these and other such factors, our stock price may continue to be volatile and investors may be unable to sell their shares at a price equal to, or above, the price paid. Any significant drops in our stock price could give rise to shareholder lawsuits, which are costly and time-consuming to defend against and which may adversely affect our ability to raise capital while the suits are pending, even if the suits are ultimately resolved in our favor.

In addition, if the market for pharmaceutical stocks or the stock market in general experiences uneven investor confidence, the market price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. For example, if one or more securities or industry analysts downgrades our stock or publishes an inaccurate research report about our company, the market price for our common stock would likely decline. The market price of our common stock might also decline in reaction to events that affect other companies within, or outside, our industry even if these events do not directly affect us.

A decrease in the market price of our common stock would likely adversely impact the trading price of the 2027 Convertible Notes. The market price of our common stock could also be affected by possible sales of our common stock by investors who view the 2027 Convertible Notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop involving our common stock. This trading activity could, in turn, affect the trading price of the 2027 Convertible Notes.

Our common stock may be delisted from the Nasdaq Capital Market if we are unable to maintain compliance with Nasdaq's continued listing standards.

Our common stock is listed on the Nasdaq Capital Market. There are a number of continued listing requirements that we must satisfy in order to maintain our listing on The Nasdaq Capital Market, including the requirement to maintain a minimum bid price of at least $1.00 (the “Bid Price Rule”). If a deficiency with respect to this requirement continues for a period of 30 consecutive business days, Nasdaq may require us to satisfy a minimum bid price per share of our common stock of at least $1.00 for a period in excess of ten consecutive business days, but generally no more than 20 consecutive business days, before determining that we have demonstrated an ability to maintain long-term compliance with the Bid Price Rule. Although we are currently in compliance with the Bid Price Rule, we have been unable to comply with this rule in the past and for periods in 2021 our continued listing on the Nasdaq Capital Market required the grant of a grace period from Nasdaq and
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the implementation of a one-for-four reverse stock split. If we fail to comply with the Bid Price Rule in the future, there can be no assurance that we will be granted such grace periods or that we will be able to receive the necessary shareholder approval to implement an additional reverse stock split. In particular, we may encounter difficulties obtaining such shareholder approval due to our heavily retail investor shareholder base, which may also affect our ability to obtain shareholder approval of other significant corporate actions.

Any delisting of our common stock would likely adversely affect the market liquidity and market price of our common stock and our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by investors.
If we were delisted from The Nasdaq Capital Market, it would constitute a “fundamental change” under the 2027 Convertible Notes, which would require us to offer to repurchase the 2027 Convertible Notes and would allow the holders of the 2027 Convertible Notes to convert their 2027 Convertible Notes into our common stock at an increased conversion rate, which would make conversion of the 2027 Convertible Notes more dilutive.

Conversions of the 2027 Convertible Notes or future sales of our common stock or equity-linked securities in the public market could lower the market price for our common stock and adversely impact the trading price of the 2027 Convertible Notes.

In 2022, we issued the 2027 Convertible Notes, and in the future, we may sell additional shares of our common stock or equity-linked securities to raise capital. A substantial number of shares of our common stock is reserved for issuance upon the exercise of restricted stock units and stock options, and upon conversion of the 2027 Convertible Notes. We cannot predict the effect if any, that conversions of the 2027 Convertible Notes or of any future issuances of common stock or equity-linked securities, may have on the market price for our common stock. The issuance and sale or conversion of substantial amounts of common stock or equity-linked securities, or the perception that such issuances and sales may occur, could adversely affect the trading price of the 2027 Convertible Notes and the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities.

Our failure to generate sufficient cash flow from our business to make payments on our debt would adversely affect our business, financial condition and results of operations. Our indebtedness could limit our ability to incur additional debt to fund our operations.

We have significant indebtedness under the 2027 Convertible Notes. Holders of the 2027 Convertible Notes will have the right to require us to repurchase their 2027 Convertible Notes for cash upon the occurrence a “fundamental change” as defined in the indenture for the 2027 Convertible Notes and we may elect to settle all or a portion of the conversion obligation of the 2027 Convertible Notes in cash. Our ability to make scheduled payments of the principal of, to pay interest on, to offer to repurchase the 2027 Convertible Notes upon a fundamental change as defined in the indenture for the 2027 Convertible Notes, or to refinance the 2027 Convertible Notes and any additional debt obligations we may incur depends on our future performance, which is subject to economic, financial, competitive and other factors that may be beyond our control. If we are unable to generate the necessary cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Any failure to generate sufficient cash flow to satisfy our obligations under the 2027 Convertible Notes or any future indebtedness could lead to a default under the 2027 Convertible Notes or such indebtedness.

The indenture for the 2027 Convertible Notes contains covenants limiting our ability in the future to secure our or our subsidiaries’ assets or have our subsidiaries issue guarantees without equally and ratably securing or guaranteeing the 2027 Convertible Notes. These covenants may make it more difficult for us to incur indebtedness to fund our operations on attractive terms or at all.

We may seek to refinance all or a portion of our outstanding indebtedness in the future. Any such refinancing would depend on the capital markets and business and financial conditions at the time, which could affect our ability to obtain attractive terms if or when desired or at all.

In addition, our significant indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences to our business. For example, it could:
•make it more difficult for us to meet our payment and other obligations under our indebtedness;
•result in other events of default under our indebtedness, which events of default could result in all of our debt becoming immediately due and payable;
•make us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;
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•limit our ability to borrow additional amounts for working capital and other general corporate purposes, including funding possible acquisitions of, or investments in, new and complementary businesses, products and technologies, which is a key element of our corporate strategy;
•require the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of our cashflow available for other purposes, including working capital, business development activities, any future clinical trials and/or research and development, capital expenditures and other general corporate purposes;
•limit our flexibility in planning for, or reacting to, changes in our business and our industry; and
•put us at a disadvantage compared to our competitors who have less debt.

Any of these factors can adversely affect our business, financial condition and results of operations. In addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase.

The accounting method for the 2027 Convertible Notes or changes in the accounting method for convertible debt securities that may be settled in cash, such as the 2027 Convertible Notes, could have a material effect on our reported financial results.

If holders do not convert their 2027 Convertible Notes, we could be required under applicable accounting rules to classify all or a portion of the outstanding principal of the 2027 Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an entity must separately account for the liability and equity components of convertible debt instruments (such as the 2027 Convertible Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the 2027 Convertible Notes is that the equity component would be required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet at issuance, and the value of the equity component would be treated as a discount for purposes of accounting for the debt component of the 2027 Convertible Notes. In addition, under certain circumstances, convertible debt instruments (such as the 2027 Convertible Notes) that may be settled entirely or partly in cash may be accounted for utilizing the treasury stock method for earnings per share purposes, the effect of which is that the shares issuable upon conversion of the 2027 Convertible Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the 2027 Convertible Notes exceeds their principal amount.

However, in August 2020, the FASB published an accounting standards update (ASU) 2020-06 (“ASU 2020-06”), which amends these accounting standards by reducing the number of accounting models for convertible instruments and limiting instances of separate accounting for the debt and equity or a derivative component of the convertible debt instruments. ASU 2020-06 also will no longer allow for earnings per share purposes the use of the treasury stock method for convertible instruments and instead require application of the “if-converted” method. Under that method, diluted earnings per share will generally be calculated assuming that all the 2027 Convertible Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive, which could adversely affect our diluted earnings per share. However, if the principal amount of the convertible debt instrument being converted is required to be paid in cash and only the excess is permitted to be settled in shares, the if-converted method will produce a similar result as the treasury stock method prior to the adoption of ASU 2020-06 for such convertible debt instrument. These amendments have become effective for public companies for fiscal years beginning after December 15, 2021. As a result, we do not expect to bifurcate the equity and debt components of the 2027 Convertible Notes on our consolidated balance sheet and expect to apply the if-converted method to calculate the impact of the 2027 Convertible Notes on our diluted earnings per share.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We did not repurchase any shares of the Company’s common stock during the period covered by this Quarterly Report, except for shares surrendered to us, as reflected in the following table, to satisfy tax withholding obligations in connection with the vesting of equity awards.
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(a)
Total Number of Shares (or Units) Purchased (1)

(b) Average Price Paid per Share
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
July 1, 2022 - July 31, 20226,190$2.65N/AN/A
August 1,2022 - August 31, 20226,287$1.90N/AN/A
September 1,2022- September 30,2022——N/AN/A
Total12,477$2.27

(1) Consists of shares withheld to pay employees’ tax liability in connection with the vesting of equity awards granted under our stock-based compensation plans. These shares may be deemed to be “issuer purchases” of shares.

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ITEM 3. EXHIBITS
4.5
4.6
31.1
31.2
32.1*
32.2*
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
_______________________________________________________
(*)    Furnished herewith

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Date: November 8, 2022ASSERTIO HOLDINGS, INC.
  
 /s/ Daniel A. Peisert
 Daniel A. Peisert
 President and Chief Executive Officer
/s/ Paul Schwichtenberg
Paul Schwichtenberg
Senior Vice President and Chief Financial Officer
/s/ Ajay Patel
Ajay Patel
Senior Vice President and Chief Accounting Officer
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