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Assertio Holdings, Inc. - Quarter Report: 2023 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, 2023
 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
 ASRTThe Nasdaq Stock Market LLC

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 6, 2023 was 94,668,523.


ASSERTIO HOLDINGS, INC.
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
Item 1. 
Condensed Consolidated Balance Sheets at September 30, 2023 and December 31, 2022
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022
Item 2. 
Item 3. 
Item 4. 
Item 1. 
Item 1A. 
Item 2.
Item 6. 
2


PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
ASSERTIO HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
 September 30, 2023December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents$76,888 $64,941 
Accounts receivable, net62,467 45,357 
Inventories, net42,710 13,696 
Prepaid and other current assets2,895 8,268 
Total current assets184,960 132,262 
Property and equipment, net804 744 
Intangible assets, net170,413 197,996 
Goodwill19,856 — 
Deferred tax asset— 80,202 
Other long-term assets3,995 2,709 
Total assets$380,028 $413,913 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$19,004 $5,991 
Accrued rebates, returns and discounts59,424 49,426 
Accrued liabilities22,065 12,181 
Long-term debt, current portion— 470 
Contingent consideration, current portion12,800 26,300 
Other current liabilities996 948 
Total current liabilities114,289 95,316 
Long-term debt38,866 66,403 
Contingent consideration16,100 22,200 
Other long-term liabilities17,900 4,269 
Total liabilities187,155 188,188 
Commitments and contingencies (Note 14)
Shareholders’ equity:
Common stock, $0.0001 par value, 200,000,000 shares authorized; 94,553,009
 and 48,319,838 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.
9 5 
Additional paid-in capital787,023 545,321 
Accumulated deficit(594,159)(319,601)
Total shareholders’ equity192,873 225,725 
Total liabilities and shareholders' equity$380,028 $413,913 
        
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

ASSERTIO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands, except per share data)
(Unaudited)
 
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Revenues:
Product sales, net$35,137 $34,279 $116,989 $105,258 
Royalties and milestones490 473 1,910 1,916 
Other revenue— (540)185 (1,290)
Total revenues35,627 34,212 119,084 105,884 
Costs and expenses:
Cost of sales7,060 4,009 17,299 12,734 
Research and development expenses1,316 — 1,819 — 
Selling, general and administrative expenses21,005 11,900 54,680 33,084 
Change in fair value of contingent consideration(17,532)3,900 (8,124)6,845 
Amortization of intangible assets10,184 7,969 22,752 24,438 
Loss on impairment of intangible assets238,831 — 238,831 — 
Restructuring charges3,034 — 3,034 — 
Total costs and expenses263,898 27,778 330,291 77,101 
(Loss) income from operations(228,271)6,434 (211,207)28,783 
Other (expense) income:
Debt-related expenses— — (9,918)— 
Interest expense(752)(2,052)(2,625)(6,648)
Other gain 138 2 1,601 453 
Total other expense(614)(2,050)(10,942)(6,195)
Net (loss) income before income taxes(228,885)4,384 (222,149)22,588 
Income tax expense(50,659)(210)(52,409)(1,516)
Net (loss) income and comprehensive income $(279,544)$4,174 $(274,558)$21,072 
Basic net (loss) income per share$(3.42)$0.09 $(4.35)$0.45 
Diluted net (loss) income per share$(3.42)$0.08 $(4.35)$0.42 
Shares used in computing basic net (loss) income per share81,713 48,180 63,066 46,566 
Shares used in computing diluted net (loss) income per share81,713 57,386 63,066 50,470 

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 June 30, 202356,513 $5 $568,881 $(314,615)$254,271 
Issuance of common stock upon exercise of options23 — 54 — 54 
Common stock issuance and other impacts of the vesting and settlement of equity awards 9 — (33)— (33)
Issuance of common stock in connection with the Spectrum Merger, net of fractional share settlement38,008 4 216,257 — 216,261 
Stock-based compensation— — 1,864 — 1,864 
Net loss and comprehensive loss— — — (279,544)(279,544)
Balances at September 30, 202394,553 $9 $787,023 $(594,159)$192,873 


Common StockAdditional
Paid-In
Capital		Accumulated
Deficit		Shareholders’
Equity
SharesAmount
Balances at June 30, 202248,172$5 $540,692 $(412,328)$128,369 
Common stock issuance and other impacts of the vesting and settlement of equity awards 25 — (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 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.





























5



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, 202248,320 $5 $545,321 $(319,601)$225,725 
Issuance of common stock upon exercise of options133 — 210 — 210 
Common stock issuance and other impacts of the vesting and settlement of equity awards1,102 — (7,980)— (7,980)
Induced exchange of convertible notes - (See Note 15)
6,990 — 26,699 — 26,699 
Issuance of common stock in connection with the Spectrum Merger, net of fractional share settlement38,008 4 216,257 — 216,261 
Stock-based compensation— — 6,516 — 6,516 
Net loss and comprehensive loss— — — (274,558)(274,558)
Balances at September 30, 202394,553 $9 $787,023 $(594,159)$192,873 


Common StockAdditional
Paid-In
Capital		Accumulated
Deficit		Shareholders’
Equity
SharesAmount
Balances at December 31, 202144,640 $4 $531,636 $(429,226)$102,414 
Common stock issuance and other impacts of the vesting and settlement of equity awards705 — (707)— (707)
Issuance of common stock in connection with at-the-market program2,464 1 7,019 — 7,020 
Issuance of common stock upon exercise of warrant388 — — — — 
Stock-based compensation— — 5,116 — 5,116 
Net income and comprehensive income— — — 21,072 21,072 
Balances at September 30, 202248,197 $5 $543,064 $(408,154)$134,915 

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,
 20232022
Operating Activities  
Net (loss) income $(274,558)$21,072 
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization23,321 25,033 
Amortization of debt issuance costs and Royalty Rights350 128 
Loss on impairment of intangible assets238,831 — 
Recurring fair value measurements of assets and liabilities(7,612)6,845 
Debt-related expenses9,918 — 
Provisions for inventory and other assets2,129 828 
Stock-based compensation6,516 5,116 
Deferred income taxes47,192 — 
Changes in assets and liabilities, net of acquisition:
Accounts receivable33,865 (319)
Inventories(8,898)(7,607)
Prepaid and other assets6,769 13,288 
Accounts payable and other accrued liabilities(21,523)(7,193)
Accrued rebates, returns and discounts(11,027)(4,058)
Interest payable(1,376)(1,232)
Net cash provided by operating activities43,897 51,901 
Investing Activities
Purchases of property and equipment(528)— 
Purchase of Sympazan(280)— 
Net cash acquired in Spectrum Merger1,950 — 
Purchase of Otrexup— (16,889)
Proceeds from sale of investments2,194 — 
Net cash provided by (used in) investing activities3,336 (16,889)
Financing Activities
Proceeds from issuance of 2027 Convertible Notes— 65,916 
Payments in connection with 2027 Convertible Notes(10,500)— 
Payment of direct transaction costs related to convertible debt inducement(1,119)— 
Payment in connection with 2024 Senior Notes— (70,750)
Payment of contingent consideration(15,408)(7,845)
Proceeds from the issuance of common stock— 7,020 
Payments related to the vesting and settlement of equity awards, net(7,770)(707)
Other financing activities(489)(630)
Net cash used in financing activities(35,286)(6,996)
Net increase in cash and cash equivalents11,947 28,016 
Cash and cash equivalents at beginning of year64,941 36,810 
Cash and cash equivalents at end of period$76,888 $64,826 
Supplemental Disclosure of Cash Flow Information
Net cash paid (refunded) for income taxes$3,424 $(7,822)
Cash paid for interest$3,651 $7,752 

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.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization

Assertio Holdings, Inc., or the Company, is a commercial pharmaceutical company offering differentiated products to patients. The Company has built its commercial portfolio through a combination of increased opportunities with existing products, as well as through the acquisition or licensing of additional approved products. The Company’s primary marketed products include INDOCIN® (indomethacin) Suppositories, INDOCIN® (indomethacin) Oral Suspension, ROLVEDONTM (elflapegrastim-xnst) injection for subcutaneous use, Otrexup® (methotrexate) injection for subcutaneous use, Sympazan® (clobazam) oral film, SPRIX® (ketorolac tromethamine) Nasal Spray, CAMBIA® (diclofenac potassium for oral solution), and Zipsor® (diclofenac potassium) Liquid filled capsules. Other commercially available products include OXAYDO® (oxycodone HCI, USP) tablets for oral use only —CII.

Unless otherwise noted or required by context, use of “Assertio,” “Company,” “we,” “our” and “us” refer to Assertio Holdings and/or its applicable subsidiary or subsidiaries.

On July 31, 2023 (the “Effective Date”), the Company completed the acquisition of Spectrum Pharmaceuticals, Inc. (“Spectrum”), a commercial stage biopharmaceutical company focused on novel and targeted oncology products, (the “Spectrum Merger”). Refer to Note 2, Acquisitions, for additional information.

Basis of Presentation

The unaudited condensed consolidated financial statements of the Company 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 United States (“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, 2023 are not necessarily indicative of results to be expected for the entire year ending December 31, 2023 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, 2022 included in Assertio Holdings, Inc.’s Annual Report on Form 10-K filed with the SEC on March 8, 2023 (the “2022 Form 10-K”). The Condensed Consolidated Balance Sheet as of December 31, 2022 has been derived from the audited financial statements at that date, as filed in the Company’s 2022 Form 10-K.
NOTE 2. ACQUISITIONS
Spectrum Pharmaceuticals

On the Effective Date, the Company completed the Spectrum Merger pursuant to an Agreement and Plan of Merger (“the Merger Agreement”), dated as of April 24, 2023, with Spectrum surviving the Merger as a wholly-owned subsidiary of the Company. The Company accounted for the Spectrum Merger using the acquisition method of accounting under Accounting Standards Codification (“ASC”) 805 and is considered the accounting acquirer.

Pursuant to the Merger Agreement, each issued and outstanding share of Spectrum common stock as of the Effective Date was converted into the right to receive (i) 0.1783 shares of the Company’s common stock and (ii) one contingent value right (“CVR”) representing a contractual right to receive future conditional payments worth up to an aggregate maximum amount of $0.20, settleable in cash, additional shares of Assertio common stock or a combination of cash and additional shares of Assertio common stock at the Company’s sole discretion, upon the achievement of certain sales milestones related to Spectrum’s product ROLVEDON. Subject to adjustments, each CVR represents the right to receive up to $0.10 payable upon ROLVEDON net sales (less certain deductions) achieving $175 million during the calendar year ending December 31, 2024, and up to $0.10 payable upon ROLVEDON net sales (less certain deductions) achieving $225 million during the calendar year
8

ending December 31, 2025. In addition, upon consummation of the Spectrum Merger, Spectrum’s outstanding employee stock awards and other warrants that were outstanding immediately as of the Effective Date automatically vested (if unvested) and/or cancelled, as applicable, which generally resulted in the issuance of shares of the Company’s common stock and/or CVRs to the holders of such stock awards or other warrants, in each case as dictated by the terms of the Merger Agreement. These shares and CVRs issued are considered part of the consideration transferred, and no compensation expense was recognized because the settlement was a condition of the Merger Agreement and other existing individual agreements, no future performance is required by the holders, and the fair value of the shares and CVRs is equivalent to the fair value of the existing employee stock awards and other warrants.

The following table reflects the components of the consideration transferred in the Spectrum Merger (in thousands, except exchange ratio and per share data):

Assertio shares issued38,013 
Assertio closing price per share as of the Effective Date$5.69 
Fair value of Assertio shares issued$216,294 
Repayment of Spectrum's long-term debt (1)
32,647 
CVRs(2)
3,932 
Total fair value of consideration transferred$252,873 

(1)Represents settlement of Spectrum’s existing long-term debt in connection with the close of the transaction. The Company concluded it did not assume the debt, therefore the amount paid to settle the debt has been accounted for and disclosed as part of the consideration transferred.
(2)Represents the fair value of 223,397 CVRs at $0.0176 per CVR issued to holders of Spectrum common stock, employee stock awards and warrants as of the Effective Date.

The CVRs represent a contingent consideration obligation measured at fair value and classified as liabilities on the Company’s Condensed Consolidated Balance Sheets. The fair value of the CVR contingent consideration is determined using a Monte Carlo simulation model under the income approach and is based on Level 3 inputs. Refer to Note 17, Fair Value, for additional information. Fair value is based on the probability of achievement of 2024 and 2025 annual ROLVEDON net sales milestones. Significant assumptions include the discount rate and the probability assigned to the achievement of the net sales milestones. Achievement of both the 2024 and 2025 annual ROLVEDON net sales milestones would obligate the Company to transfer a maximum of approximately $44.7 million of additional consideration. No additional consideration would be paid by the Company if neither the 2024 nor 2025 annual ROLVEDON net sales milestones are achieved.

9

The following table reflects the preliminary fair value of the assets acquired and liabilities assumed at the Effective Date (in thousands). Goodwill is primarily attributable to expected synergies between the Company and Spectrum and is not expected to be deductible for tax purposes. The Company continues to assess the fair value of the assets acquired and liabilities assumed at the Effective Date, including any which may be impacted by Spectrum’s pending legal proceedings. Accordingly, the provisional fair value estimates of net assets acquired could potentially change, and the Company expects to finalize these values as soon as practical and no later than one year from the Effective Date.

Consideration transferred$252,873 
Assets:
Cash and cash equivalents$34,600 
Marketable securities2,194 
Accounts receivable50,975 
Inventories22,244 
Prepaid and other current assets1,287 
Property and equipment100 
Intangible assets234,000 
Other long-term assets1,396 
Total$346,796 
Liabilities:
Accounts payable$10,108 
Accrued rebates, returns and discounts21,025 
Accrued liabilities36,509 
Other current liabilities784 
Deferred taxes34,250 
Other long-term liabilities11,103 
Total$113,779 
Total Spectrum net assets acquired (1)
$233,017 
Goodwill$19,856 

(1)Application of the acquisition method required the Company to adjust Spectrum assets and liabilities as of the Effective Date, including certain liabilities for variable consideration associated with ROLVEDON, to reflect conformity of Spectrum’s accounting policies to those of Assertio. Liabilities assumed include certain bonuses owed to former Spectrum executives under the terms of existing employment agreements triggered by the consummation of the Spectrum Merger.

The income approach was primarily used to value the acquired intangible assets, representing rights to Spectrum’s product ROLVEDON. Significant assumptions include the amount and timing of projected future cash flows; the discount rate selected to measure the inherent risk of future cash flows; and the assessment of the product’s life cycle and the competitive trends impacting the product. The ROLVEDON product rights will be amortized on a straight-line basis over its estimated useful life of 10 years.

Acquisition costs related to the Spectrum Merger were approximately $2.7 million and $8.5 million for the three and nine months ended September 30, 2023, respectively. These costs are included within Selling, general and administrative expenses in the Condensed Consolidated Statement of Comprehensive (Loss) Income.

The following unaudited pro forma information represents the Company’s results of operations as if the Spectrum Merger had been completed as of January 1, 2022 (in thousands) and includes nonrecurring adjustments for additional costs of sales from the fair value step-up of inventories and transaction costs. The disclosure of pro forma net sales and net loss does not purport to indicate the results that would actually have been obtained had the Spectrum Merger been completed on the assumed date for the periods presented, or which may be realized in the future. The unaudited pro forma information does not reflect any operating efficiencies or cost savings that may be realized from the integration of the acquisition.
10


Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net sales$35,629$34,212 $159,528$42,466 
Net loss(285,658)(22,073)(326,769)(98,616)

See Note 3, Revenue, for net sales of ROLVEDON from the Effective Date to September 30, 2023.


NOTE 3. REVENUE
 
Disaggregated Revenue
 
The following table reflects total revenue, net for the three and nine months ended September 30, 2023 and 2022 (in thousands): 
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Product sales, net:
INDOCIN products$17,948$21,869 $76,369$66,067 
ROLVEDON7,132— 7,132— 
Otrexup2,807 3,004 9,222 8,699 
Sympazan2,103 — 7,232 — 
SPRIX2,545 2,455 6,807 6,437 
CAMBIA1,993 5,808 6,062 17,464 
Zipsor597 259 2,751 2,704 
Other products12 884 1,414 3,887 
Total product sales, net35,137 34,279 116,989 105,258 
Royalties and milestone revenue490 473 1,910 1,916 
Other revenue— (540)185 (1,290)
Total revenues$35,627 $34,212 $119,084 $105,884 
Product Sales, net

Product sales consists of sales of the Company’s products as listed above. As a result of the Spectrum Merger, the Company began recognizing ROLVEDON sales in August 2023. The Company acquired Sympazan and began shipping and recognizing its product sales in October 2022.

Other product sales include product sales for OXAYDO and SOLUMATRIX product.. The Company ceased OXAYDO product sales beginning in September 2023, and ceased SOLUMATRIX sales beginning in July 2022.

Royalties and Milestone Revenue

In November 2010, the Company entered into a license agreement granting the counterparty the rights to commercially market CAMBIA in Canada. The counterparty to the license agreement 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, 2023, respectively, and $0.5 million and $1.5 million for the three and nine months ended September 30, 2022, respectively.
The Company records contract liabilities in the form of deferred revenue resulting from prepayments from customers in Other current liabilities in the Company’s Condensed Consolidated Balance Sheets. As of September 30, 2023 and December 31, 2022, contract liabilities were zero and $0.2 million, respectively. The Company recognized Milestone revenue associated with the completion of certain service milestones of $0.5 million for both the nine months ended September 30, 2023 and 2022.
11

The Company recognized no Milestone revenue associated with the completion of certain service milestones for both the three months ended September 30, 2023 and 2022.
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 a reduction to or an increase to total revenue during the period.
NOTE 4. ACCOUNTS RECEIVABLES, NET
 
As of September 30, 2023 and December 31, 2022, accounts receivable, net, of $62.5 million and $45.4 million, respectively, consisted entirely of receivables related to product sales, net of allowances for cash discounts for prompt payment of $1.5 million and $0.9 million, respectively.
NOTE 5.  INVENTORIES, NET
 
The following table reflects the components of inventory, net as of September 30, 2023 and December 31, 2022 (in thousands): 
 September 30, 2023December 31, 2022
Raw materials$15,355 $1,367 
Work-in-process1,330 2,735 
Finished goods26,025 9,594 
Total inventories, net$42,710 $13,696 
    
The Company writes down the value of inventory for potentially excess or obsolete inventories based on an analysis of inventory on hand and projected demand. As of September 30, 2023 and December 31, 2022, the Company recorded inventory write-downs of $5.7 million and $2.8 million, respectively.


NOTE 6. PREPAID AND OTHER CURRENT ASSETS

The following table reflects prepaid and other current as of September 30, 2023 and December 31, 2022 (in thousands): 

September 30, 2023December 31, 2022
Prepaid assets and deposits$2,614 $8,268 
Other current assets281 — 
Total prepaid and other current assets$2,895 $8,268 

Other current assets includes the Company’s investment in NES Therapeutic, Inc. (“NES”). In August 2018, the Company entered into a Convertible Secured Note Purchase Agreement (the “Note Agreement”) with NES. Pursuant the terms of the Note Agreement, the Company purchased a $3.0 million aggregate principal Convertible Secured Promissory Note (the “NES Note”) which accrues interest annually at a rate of 10% for total consideration of $3.0 million, with both the aggregate 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) U.S. Food and Drug Administration (“FDA”) acceptance of the New Drug Application (“NDA”), (ii) initiation of any required clinical trials by NES, or (iii) a qualified financing event by NES, as defined in the Note Agreement. The Company’s investment in the NES Note is accounted as a loan receivable and is valued at amortized cost. As of both September 30, 2023 and December 31, 2022, the Company has assessed an estimated $3.5 million expected credit loss reserve on its investment based on its evaluation of probability of default that exists. The expected credit loss reserve recognized in each period represents the entire aggregate principal amount and outstanding interest incurred on the NES Note as of both September 30, 2023 and December 31, 2022. The Company’s investment in NES has been reclassified to Other current assets as of September 30, 2023 as it will mature within one year of the balance sheet date.

12


NOTE 7. PROPERTY AND EQUIPMENT, NET
 
The following table reflects property and equipment, net as of September 30, 2023 and December 31, 2022 (in thousands): 

September 30, 2023December 31, 2022
Furniture and office equipment$1,808 $1,712 
Laboratory equipment20 20 
Leasehold improvements2,945 2,945 
Construction in progress528 — 
5,301 4,677 
Less: Accumulated depreciation(4,497)(3,933)
Property and equipment, net$804 $744 
 
Depreciation expense was $0.2 million and $0.6 million for the three and nine months ended September 30, 2023 and 2022, respectively. Depreciation expense is recognized in Selling, general and administrative expense in the Company’s Condensed Consolidated Statements of Comprehensive (Loss) Income.

NOTE 8.  INTANGIBLE ASSETS AND GOODWILL

Intangible Assets 

The following table reflects the gross carrying amounts and net book values of intangible assets as of September 30, 2023 and December 31, 2022 (dollar amounts in thousands): 

 September 30, 2023December 31, 2022
Remaining Useful Life
 (In years)		Gross Carrying AmountAccumulated AmortizationImpairmentNet Book ValueGross Carrying AmountAccumulated AmortizationNet Book Value
Products rights:
INDOCIN8.6$154,100 $(43,126)$(52,463)$58,511 $154,100 $(33,495)$120,605 
ROLVEDON9.8234,000 (3,900)(157,095)73,005 — — — 
Otrexup6.244,086 (9,644)(22,946)11,496 44,086 (5,511)38,575 
Sympazan11.114,550 (1,111)— 13,439 14,550 (202)14,348 
SPRIX3.639,000 (18,711)(6,327)13,962 39,000 (14,532)24,468 
Total intangible assets $485,736 $(76,492)$(238,831)$170,413 $251,736 $(53,740)$197,996 

During the three months ended September 30, 2023, the Company’s market capitalization declined to below the book value of the Company’s equity. Management determined that the Company’s book value of equity exceeding its market capitalization represented an indicator of impairment with respect to its long-lived assets.

Applying the relevant accounting guidance, the Company first assessed the recoverability of its long-lived assets. In performing this assessment, management concluded it was appropriate to group its assets at the entity level, most notably attributed to the significant shared operating cost structure which characterizes Assertio. The Company determined the carrying value of this asset group was not recoverable. Management then assessed and concluded that the fair value of the asset group was less than its carrying value and so recognized an impairment loss of approximately $238.8 million, which was allocated to the individual intangible assets of the group and is classified within Loss on impairment of intangible assets in the Condensed Consolidated Statement of Comprehensive (Loss) Income. The fair value of the asset group was determined using both an income and a market approach and used Level 3 inputs. These inputs included estimates of forecasted cash flows and the selection of comparable revenue and earnings multiples utilizing guideline companies.

Amortization expense was $10.2 million and $22.8 million for the three and nine months ended September 30, 2023, respectively, and $8.0 million and $24.4 million for three and nine months ended September 30, 2022, respectively.

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

Year Ending December 31,Estimated Amortization Expense
2023 (remainder)5,259 
202421,035 
202521,035 
202621,035 
202718,814 
Thereafter83,235 
Total$170,413 

Goodwill

During the three months ended September 30, 2023, the Company recorded $19.9 million of goodwill from the Spectrum Merger. Refer to Note 2, Acquisitions, for additional details. Following the Company’s long-lived asset impairment discussed above, which was determined to be an indicator of impairment with respect to the Company’s goodwill, management tested goodwill for impairment by determining and comparing the fair value of its reporting unit to its carrying value, with the carrying value reflecting the allocated long-lived asset impairment loss. The fair value of the reporting unit was determined using both an income and a market approach and used Level 3 inputs. These inputs included estimates of forecasted cash flows, a discount rate to reflect the risk inherent in the forecasted cash flows, and the selection of comparable revenue and earnings multiples utilizing guideline companies. Management concluded that the fair value of the reporting unit exceeded its carrying value and, accordingly, goodwill was not impaired as of September 30, 2023.
NOTE 9.  OTHER LONG-TERM ASSETS
 
The following table reflects other long-term assets as of September 30, 2023 and December 31, 2022 (in thousands): 

 September 30, 2023December 31, 2022
Operating lease right-of-use assets$1,806 $137 
Prepaid asset and deposits1,493 1,607 
Other 696 965 
Total other long-term assets$3,995 $2,709 

NOTE 10.  ACCRUED LIABILITIES
 
The following table reflects accrued liabilities as of September 30, 2023 and December 31, 2022 (in thousands): 

 September 30, 2023December 31, 2022
Accrued compensation$2,468 $3,117 
Accrued restructuring costs (See Note 19)
4,420 — 
Other accrued liabilities12,778 6,561 
Taxes payable1,353 — 
Interest payable217 1,593 
Accrued royalties829 910 
Total accrued liabilities$22,065 $12,181 

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NOTE 11.  DEBT
 
The following table reflects the Company’s debt as of September 30, 2023 and December 31, 2022 (in thousands):

September 30, 2023December 31, 2022
6.5% Convertible Senior Secured Notes due 2027
$40,000$70,000
Royalty Rights obligation—470
Total principal amount40,00070,470
Plus: derivative liability for embedded conversion feature764252
Less: unamortized debt issuance costs(1,898)(3,849)
Carrying value38,86666,873
Less: current portion of long-term debt—(470)
Long-term debt, net$38,866 $66,403


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 as the trustee (the “2027 Convertible Note 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 aggregate principal amount of the 2027 Convertible Notes solely to cover overallotment (the “Overallotment Option”) within a 13-day period from the date 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 aggregate principal of additional 2027 Convertible Notes. The 2027 Convertible Notes are senior unsecured obligations of the Company.

The Company used the net proceeds from the issuance of the 2027 Convertible Notes to repurchase $59.0 million aggregate principal amount of its then outstanding 13% senior secured notes due 2024 (the “2024 Secured Notes”) assumed in accordance with the Company’s merger with Zyla Life Sciences (“Zyla”) in May 2020 (the “Zyla Merger”) and $3.0 million in associated interest payments pursuant to privately negotiated exchange agreements entered into concurrently with the pricing of the offering of the 2027 Convertible Notes.

On February 27, 2023, the Company completed a privately negotiated exchange of $30.0 million principal amount of the 2027 Convertible Notes (the “Convertible Note Exchange”). Pursuant to the Convertible Note Exchange, 6,990,000 shares of the Company’s common stock, plus an additional $10.5 million in cash, were issued in a partial settlement of the 2027 Convertible Notes (the “Exchanged Notes”). As a result of the Convertible Note Exchange in the first quarter of 2023, the Company recorded an induced conversion expense of approximately $8.8 million and direct transaction costs of approximately $1.1 million, the total of which is reported in Debt-related expenses in the Company’s Condensed Consolidated Statements of Comprehensive (Loss) Income for the nine months ended September 30, 2023. The induced conversion expense represents the fair value of the consideration transferred in the Convertible Note Exchange in excess of the fair value of common stock issuable under the original terms of the 2027 Convertible Notes. Additionally, approximately $1.6 million of unamortized issuance costs related to the Exchanged Notes were recognized as Additional paid-in capital in the Company’s Condensed Consolidated Balance Sheets for the nine months ended September 30, 2023.

The terms of the 2027 Convertible Notes are governed by an indenture dated August 25, 2022 (the “2027 Convertible Note Indenture”). The terms of the 2027 Convertible Notes allow for conversion into the Company’s common stock, cash, or a combination of cash and common stock, at the Company’s election only, 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 2027 Convertible Note Indenture (the “Conversion Rate”). The 2027 Convertible Notes will mature on September 1, 2027, unless earlier repurchased or converted.

The 2027 Convertible Notes bear 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
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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, 2023.

The following table reflects the carrying balance of the 2027 Convertible Notes as of September 30, 2023 and December 31, 2022 (in thousands):

September 30, 2023December 31, 2022
Principal balance$40,000 $70,000 
Derivative liability for embedded conversion feature764 252 
Unamortized debt issuance costs(1,898)(3,849)
Carrying balance$38,866 $66,403 

The debt issuance costs incurred related to the 2027 Convertible Notes are recognized as a debt discount and are being amortized as interest expense over the term of the 2027 Convertible Notes using the effective interest method, with an effective interest rate determined to be 7.8%. During the three and nine months ended September 30, 2023, the Company amortized $0.1 million and $0.4 million, respectively, of the debt discount on the 2027 Convertible Notes. During the nine months ended September 30, 2023, $1.6 million of unamortized issuance costs related to the Exchanged Notes were recognized as Additional paid-in capital.

The Company determined that an embedded conversion feature included in the 2027 Convertible Notes required bifurcation from the host contract and to be recognized as a separate derivative liability carried at fair value. See Note 17, Fair Value, for further details around the estimated fair value of the derivative liability. The estimated fair value of the derivative liability, which represents a Level 3 valuation, was $0.8 million and $0.3 million as of September 30, 2023 and December 31, 2022, respectively, and was determined using a binomial lattice model using certain assumptions and consideration of an increased conversion ratio on the underlying convertible notes that could result from the occurrence of certain events. Accordingly, the Company has recognized a loss on the fair value adjustment of the derivative liability in the amount of $0.5 million in Other (loss) gain in the Consolidated Statements of Comprehensive Loss (Income) for both the three and nine months ended September 30, 2023. There was no gain or loss on the fair value adjustment of the derivative liability for the three and nine months ended September 30, 2022. All of the other embedded features of the 2027 Convertible Notes were 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.

Royalty Rights Obligation

In accordance with the Zyla Merger, the Company assumed a royalty rights agreement (the “Royalty Rights”) with each of the holders of its 2024 Secured Notes pursuant to which the Company agreed to pay an aggregate 1.5% royalty on Net Sales (as defined in the indenture governing the 2027 Secured Notes) through December 31, 2022. The Royalty Rights terminated on December 31, 2022, and the Company paid in cash its remaining Royalty Rights obligations during the second quarter of 2023.
    
Interest Expense

Royalty Rights and debt issuance costs 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 (Loss) Income for the three and nine months ended September 30, 2023 and 2022 (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Interest on 2027 Convertible Notes$650$456$2,275$456
Interest on 2024 Secured Notes—1,516—6,064
Amortization of Royalty Rights(1)
—80—128
Amortization of debt issuance costs102—350—
Total interest expense$752$2,052$2,625$6,648
(1)As a result of the extinguishment of the Royalty Rights obligation in the fourth quarter of 2022, there will be no additional amortization expense recognized in future periods.

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NOTE 12.  STOCK-BASED COMPENSATION
    
The Company’s stock-based compensation generally includes time-based restricted stock units (“RSU”) and options, as well as performance-based RSUs and options.

Stock-based compensation of $1.9 million and $6.5 million, respectively, for the three and nine months ending September 30, 2023, and $2.4 million and $5.1 million, respectively, for the three and nine months ended September 30, 2022, was recognized in Selling, general, and administrative expenses in the Company’s Condensed Consolidated Statements of Comprehensive (Loss) Income.

During the nine months ended September 30, 2023 the Company granted 0.8 million RSUs at a weighted-average fair market value of $5.61 per share, and 0.7 million options at a weighted-average fair market value of $4.51 per share.

As previously disclosed, during the three months ended June 30, 2022, the Company granted a total of 1.0 million market-based performance RSUs (“performance RSUs”) to executive officers under the Company’s Amended and Restated 2014 Omnibus Incentive Plan. At the grant date, the weighted-average fair value of the performance RSUs was determined using a Monte Carlo simulation model to be $2.24 per performance RSU. The market-based conditions of the performance RSUs were achieved in the first quarter of 2023. Then, upon vesting of the performance RSUs in the second quarter of 2023, the compensation committee of the Company’s board of directors elected, under the terms of the performance RSU grants, to settle approximately 0.3 million of the performance RSUs in cash based on their fair market value on the vesting date, and settle 0.2 million of the performance RSUs in shares of the Company’s common stock. Approximately 0.5 million of the performance RSUs were withheld to settle the employees’ tax liability.

During the second quarter of 2023, approximately $2.6 million was paid by the Company to cash settle the performance RSUs and $3.4 million was paid by the Company to settle the employee’s tax liability, which are included in both Common stock issuance and other impacts of the vesting and settlement of equity awards in the Company’s Condensed Consolidated Statements of Shareholders’ Equity, and Payments related to the vesting and settlement of equity awards in the Company’s Condensed Consolidated Statements of Cash Flows.


NOTE 13.  LEASES

As of September 30, 2023, the Company has a non-cancelable operating lease for its corporate office, which is located in Lake Forest, Illinois (the “Lake Forest Lease”). On May 1, 2023, the Company amended the Lake Forest Lease to reduce the size of leased premises and extend the term of the lease through December 31, 2030. In conjunction with the amendment of the Lake Forest Lease on May 1, 2023, the Company recognized an increase to both operating right-of-use asset and noncurrent operating lease liability of approximately $1.3 million, calculated using a discount rate of 7.41%.

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 terminated at the end of November 2022. The Newark lease was partially subleased through the lease term of November 2022. Operating lease costs and sublease income related to the Newark facility are accounted for in Other gain in the Company’s Condensed Consolidated Statements of Comprehensive (Loss) Income. Sublease income for the nine months ended September 30, 2022 includes a gain of $0.6 million from the early termination and settlement of a Newark facility sublease during the first quarter of 2022.

In connection with the Spectrum Merger, the Company assumed leases for two facilities and certain office equipment which Spectrum had previously been the lessee. As of September 30, 2023, the Company has recognized an operating right-of-use asset associated with these leases of $0.4 million, and a current and noncurrent lease liability associated with these leases of $0.7 million and $0.3 million, respectively. Refer to Note 19, Restructuring Charges, for further detail on the accounting for the leases assumed in the Spectrum Merger.

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The following table reflects lease expense and income for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
Financial Statement Classification2023202220232022
Operating lease costSelling, general and administrative expenses$65 $39 $161 $118 
Operating lease costOther gain — 148 — 444 
Total lease cost$65 $187 $161 $562 
Sublease IncomeOther gain $— $168 $— $1,111 
The following table reflects supplemental cash flow information related to leases for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Cash paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases$225 $533 $433 $1,593 
The following table reflects supplemental balance sheet information related to leases as of September 30, 2023 and December 31, 2022 (in thousands):
Financial Statement ClassificationSeptember 30, 2023December 31, 2022
Assets
Operating lease right-of-use assetsOther long-term assets$1,806 $137 
Liabilities
Current operating lease liabilitiesOther current liabilities$970 $401 
Noncurrent operating lease liabilitiesOther long-term liabilities1,679 — 
Total lease liabilities$2,649 $401 


NOTE 14.  COMMITMENTS AND CONTINGENCIES

Jubilant HollisterStier Manufacturing and Supply Agreement

Pursuant to the Zyla Merger, the Company assumed a Manufacturing and Supply Agreement (the “Jubilant HollisterStier 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 Jubilant HollisterStier Agreement, JHS is responsible for supplying a minimum of 75% of the Company’s annual requirements of SPRIX. The Company agreed to purchase a minimum number of batches of SPRIX per calendar year from JHS over the term of the Jubilant HollisterStier Agreement. Total commitments to JHS through the remainder of 2023 are approximately $1.0 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 “Cosette 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 Cosette Supply Agreement, to among other things, extend the expiration date of the Cosette 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 Cosette Supply Agreement. Total
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commitments to Cosette under the Cosette Supply Agreement 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 (the “Antares Supply Agreement”). Under the Antares Supply Agreement, the Company has agreed to annual minimum purchase obligations from Antares, which approximate $2.0 million annually. The Antares 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 concludes that a contingent liability is probable, and the amount thereof is estimable. Costs associated with the Company’s 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 both September 30, 2023 and December 31, 2022, the Company had a legal contingency accrual of approximately $3.2 million. The Company continues 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. Provisions for loss contingencies are recorded in Selling, general and administrative expense in the Company’s Condensed Consolidated Statements of Comprehensive (Loss) Income and the related accruals are recorded in Accrued liabilities in the Company’s Condensed Consolidated Balance Sheets.

Other than matters 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, cash flows 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 U.S. District Court for the Northern District of California against the Company and several other defendants relating to its 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 in the same District Court.

On July 30, 2020, Humana Inc. (“Humana”) also filed a complaint against the Company and several other defendants in the U.S. District Court for 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 the California Superior Court of Alameda 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 the California Superior Court of Alameda 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
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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 District 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 California state court lawsuits, on November 24, 2021, the state court granted in part and denied in part a demurrer by the defendants in the Humana action. That case was consolidated in November 2022 with the HCSC action for pre-trial and trial purposes. On July 5, 2023, the state court denied a motion for judgment on the pleadings filed by the defendants in the Humana action. These California state cases are now in the midst of discovery, and trial is scheduled for 2024.

The Company intends to defend itself vigorously in the consolidated California state court lawsuits. A liability for this matter has been recorded in the financial statements.

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, 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. The Company has also received a subpoena from the New York Attorney General, pursuant to which the New York Attorney General is seeking information concerning the sales and marketing of opioid products (Lazanda, NUCYNTA, NUCYNTA ER, and OXAYDO) by Assertio Therapeutics and Zyla. The Company also from time to time receives and responds to subpoenas from governmental authorities related to investigations primarily focused on third parties, including healthcare practitioners. The Company 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. (“Depomed,” 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 the DOJ’s characterization of the payments from Depomed.

Multidistrict and Other Federal 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 six such cases. In April 2022, the Judicial Panel on Multi-District Litigation issued an
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order stating that it would no longer transfer new opioid cases to the MDL Court. Since that time, Assertio Therapeutics has been named in lawsuits pending in federal courts outside of the MDL Court (in Georgia and New York). Plaintiffs may file additional lawsuits in which the Company may be named. Plaintiffs in the pending federal cases involving Assertio Therapeutics or Assertio 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 federal cases 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, Pennsylvania, Texas and Utah. Assertio Holdings is named as a defendant in one of these cases in Pennsylvania. Plaintiffs may file additional lawsuits in which the Company may be named. In the pending cases involving Assertio Therapeutics or Assertio Holdings, 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 or Assertio Holdings has been served are generally each at an early stage of proceedings. Assertio Therapeutics and Assertio Holdings intend to defend themselves 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 was 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 and Other Federal 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 Company’s Condensed Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2021.

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 Company’s Condensed Consolidated Statements of Comprehensive (Loss) Income for the year ended December 31, 2022.

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
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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 parties are in discovery. Trial is scheduled for February 2024.

Stockholder Actions

Luo v. Spectrum Pharmaceuticals, Inc., et al., U.S. District Court, District of Nevada, Case No. 2:21-cv-01612. On August 31, 2021, this putative securities class action lawsuit was filed by a purported shareholder, alleging that Spectrum and certain of its former executive officers and directors made false or misleading statements and failed to disclose material facts about Spectrum’s business and the prospects of approval for its BLA to the FDA for eflapegrastim (ROLVEDON) in violation of Section 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). On November 1, 2021, four individuals and one entity filed competing motions to be appointed lead plaintiff and for approval of counsel. On July 28, 2022, the Court appointed a lead plaintiff and counsel for the putative class. On September 26, 2022, an amended complaint was filed alleging, inter alia, false and misleading statements with respect to ROLVEDON manufacturing operations and controls and adding allegations that defendants misled investors about the efficacy of, clinical trial data and market need for Poziotinib during a Class Period of March 7, 2018 to August 5, 2021. The amended complaint seeks damages, interest, costs, attorneys’ fees, and such other relief as may be determined by the Court. On November 30, 2022, the defendants filed a motion to dismiss the amended complaint, which was fully briefed as of February 27, 2023 and remains pending. Discovery is stayed pending resolution of the motion to dismiss. There is no hearing date presently scheduled. The Company intends to vigorously defend itself in this matter.

Christiansen v. Spectrum Pharmaceuticals, Inc. et al., Case No. 1:22-cv-10292 (filed December 5, 2022 in the U.S. District Court for the Southern District of New York) (the “New York Action”). Three additional related putative securities class action lawsuits were subsequently filed by Spectrum shareholders against Spectrum and certain of its former executive officers in the U.S. District Court for the Southern District of New York: Osorio-Franco v. Spectrum Pharmaceuticals, Inc., et al., Case No. 1:22-cv-10292 (filed December 5, 2022); Cummings v. Spectrum Pharmaceuticals, Inc., et al., Case No. 1:22-cv-10677 (filed December 19, 2022); and Carneiro v. Spectrum Pharmaceuticals, Inc., et al., Case No. 1:23-cv-00767 (filed January 30, 2023). These three New York lawsuits allege that Spectrum and certain of its former executive officers made false or misleading statements about, inter alia, the safety and efficacy of and clinical trial data for Poziotinib in violation of Section 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a) of the Exchange Act, and seek remedies including damages, interest, costs, attorneys’ fees, and such other relief as may be determined by the Court. On February 15, 2023, the Court consolidated the three New York lawsuits. On March 21, 2023, the Court entered an order designating Steven Christiansen as the lead plaintiff. Lead plaintiff Christiansen filed an amended consolidated complaint in the New York Action under the caption Christiansen v. Spectrum Pharmaceuticals, Inc, et al., on May 30, 2023, alleging a Class Period between March 17, 2022 and September 2022. The defendants filed a motion to dismiss the consolidated New York Action on July 25, 2023, which was fully briefed as of October 19, 2023 and remains pending. Discovery is stayed pending resolution of the motion to dismiss. There is no hearing date presently scheduled. The Company intends to vigorously defend itself in this matter.

Csaba v. Turgeon, et. al, (filed December 15, 2021 in the U.S. District Court District of Nevada); Shumacher v. Turgeon, et. al, (filed March 15, 2022 in the U.S. District Court District of Nevada); Johnson v. Turgeon, et. al, (filed March 29, 2022 in the U.S. District Court District of Nevada); Raul v. Turgeon, et. al, (filed April 28, 2022 in the U.S. District Court District of Delaware); and Albayrak v. Turgeon, et. al, (filed June 9, 2022 in the U.S. District Court District of Nevada). These putative stockholder derivative actions were filed against Spectrum (as a nominal defendant), certain of Spectrum’s former executive officers and directors. The stockholder derivative complaints allege, inter alia, that certain of Spectrum’s former executive officers are liable to Spectrum, pursuant to Section 10(b) and 21(d) of the Exchange Act for contribution and indemnification, if they are deemed (in the Luo class action), to have made false or misleading statements and failed to disclose material facts about Spectrum’s business and the prospects of approval for its BLA to the FDA for eflapegrastim. The complaints generally but not uniformly further allege that certain of Spectrum’s former officers and directors breached their fiduciary duties, and certain of Spectrum’s former directors negligently violated Section 14(a) of the Exchange Act, by allegedly causing such false or misleading statements to be issued and/or failing to disclose material facts about Spectrum’s business and the prospects of approval for its BLA to the FDA for eflapegrastim. The allegations state that as a result of the violations, certain of Spectrum’s former executive officers and directors committed acts of gross mismanagement, abuse of control, or were unjustly enriched. The plaintiffs generally seek corporate reforms, damages, interest, costs, attorneys’ fees, and other unspecified equitable relief.

The parties have agreed to stay all derivative actions until there is a decision on a motion to dismiss in the Luo Nevada securities class action.

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NOTE 15. SHAREHOLDERS EQUITY

Issuance of Common Stock in the Spectrum Merger

Pursuant to the Merger Agreement, shares of Spectrum common stock issued and outstanding immediately prior to the Effective Date, as well as Spectrum restricted stock units, certain stock appreciation rights, certain options to purchase Spectrum common stock, and warrants to purchase Spectrum common stock, which, in each case, were outstanding immediately prior to the Effective Date and were either vested or became vested as a result of the Spectrum Merger on the Effective Date, were converted into the right to receive fully paid and non-assessable shares of the Company’s common stock based on the exchange ratio as set forth in the Merger Agreement (see Note 2, Acquisitions). Accordingly, on the Effective Date the Company issued approximately 38.0 million shares of its common stock to the previous holders of Spectrum common stock, net of a fractional share settlement.

Exchanged Convertible Notes

Related to the Convertible Note Exchange (See Note 11, Debt) in the first quarter of 2023, the Company paid an aggregate of $10.5 million in cash and issued an aggregate of approximately 7.0 million shares of its common stock in the transactions. The Company did not receive any cash proceeds from the issuance of the shares of its common stock but recognized additional paid-in capital of $28.3 million during the nine months ended September 30, 2023 related to the common stock share issuance, net of approximately $1.6 million of unamortized issuance costs related to the Exchanged Notes.

At-The-Market Program

The Company is party to 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 having an aggregate offering price of up to $25.0 million. As a result of the issuance of the 2027 Convertible Notes (See Note 11, Debt), the Company has determined to suspend use of its ATM offering program. Prior to suspending the ATM offering program, 2,463,637 shares had 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.

Warrant Agreements

Upon the Zyla Merger, the Company assumed Zyla’s outstanding warrants which provided the holder the right to receive shares of the Company’s common stock. The warrants were exercisable at any time at an exercise price of $0.0016 per share, subject to certain ownership limitations including, with respect to Iroko Pharmaceuticals, Inc. 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.

During the nine months ended September 30, 2022, 0.4 million warrants were exercised, and 0.4 million of the Company’s common shares, were issued by the Company. Subsequent to these warrant exercises in the nine months ended September 30, 2022, there were no outstanding warrants remaining.


NOTE 16.  NET (LOSS) INCOME PER SHARE

Basic net (loss) income per share is calculated by dividing the net (loss) income by the weighted-average number of shares of common stock outstanding during the period.

Diluted net (loss) income per share is calculated by dividing the net (loss) income by the weighted-average number of shares of common stock outstanding during the period, plus potentially dilutive common shares, consisting of stock-based awards and equivalents, and convertible debt. For purposes of this calculation, stock-based awards and convertible debt 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-based awards 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 any convertible debt outstanding was converted at the beginning of each period presented when the effect is dilutive. As a result, interest expense, net of tax, and any other income statement impact associated with the 2027 Convertible Notes, net of tax, is added back to net (loss) income used in the diluted earnings per share calculation. Additionally, the diluted shares used in the diluted earnings per share calculation includes the potential dilution effect of the convertible debt if converted into the Company’s common stock. For the three and nine months
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ended September 30, 2022, the Company’s potentially dilutive stock-based awards and convertible debt were included in the computation of diluted net income per share. However, as the Company was in a net loss position for the three and nine months ended September 30, 2023, the Company’s potentially dilutive stock-based awards and convertible debt were not included in the computation of diluted net loss per share, because to do so would be anti-dilutive.

The following table reflects the calculation of basic and diluted (loss) earnings per common share for the three and nine months ended September 30, 2023 and 2022 (in thousands, except for per share amounts):

 Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Basic net (loss) income per share
Net (loss) income $(279,544)$4,174 $(274,558)$21,072 
Weighted-average common shares outstanding81,713 48,180 63,066 46,566 
Basic net (loss) income per share$(3.42)$0.09 $(4.35)$0.45 
Diluted net (loss) income per share
Net (loss) income $(279,544)$4,174 $(274,558)$21,072 
Add: Convertible debt interest expense, net of tax— 497 — 487 
Adjusted net (loss) income (279,544)4,671 (274,558)21,559 
Weighted-average common shares and share equivalents outstanding81,713 48,180 63,066 46,566 
Add: effect of dilutive stock-based awards and equivalents— 1,960 — 1,462 
Add: effect of dilutive convertible debt under if-converted method— 7,246 — 2,442 
Denominator for diluted net (loss) income per share81,713 57,386 63,066 50,470 
Diluted net (loss) income per share$(3.42)$0.08 $(4.35)$0.42 
 
The following table reflects outstanding potentially dilutive common shares that are not included in the computation of diluted net (loss) income per share, because to do so would be anti-dilutive, for the three and nine months ended September 30, 2023 and 2022 (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Convertible notes9,768 — 11,324 — 
Stock-based awards and equivalents7,016 2,983 7,641 1,329 
Total potentially dilutive common shares16,784 2,983 18,965 1,329

NOTE 17.  FAIR VALUE

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
 
•Level 1: Quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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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, 2023 and December 31, 2022 (in thousands):

September 30, 2023Financial Statement ClassificationLevel 1Level 2Level 3Total
Assets:
U.S. TreasuriesCash and cash equivalents$— $38,204 $— $38,204 
Money market fundsCash and cash equivalents22,797 — — 22,797 
Total$22,797 $38,204 $— $61,001 
Liabilities:
Short-term contingent considerationContingent consideration, current portion$— $— $12,800 $12,800 
Long-term contingent considerationContingent consideration— — 16,100 16,100 
Derivative liabilityLong-term debt— — 764 764 
Total$— $— $29,664 $29,664 

December 31, 2022Financial Statement ClassificationLevel 1Level 2Level 3Total
Assets:
Commercial paperCash and cash equivalents$— $4,983 $— $4,983 
U.S. TreasuriesCash and cash equivalents— 3,981 — 3,981 
U.S. Government agenciesCash and cash equivalents— 10,937 — 10,937 
Money market fundsCash and cash equivalents38,478 — — 38,478 
Total$38,478 $19,901 $— $58,379 
Liabilities:
Short-term contingent considerationContingent consideration, current portion$— $— $26,300 $26,300 
Long-term contingent considerationContingent consideration— — 22,200 22,200 
Derivative liabilityLong-term debt— — 252 252 
Total$— $— $48,752 $48,752 
    
Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity date of purchase of three months or less to be cash equivalents. The Company invests its cash in money market funds and marketable securities including U.S. Treasury and government agency securities, commercial paper, and higher quality debt securities of financial and commercial institutions. The Company classified money market funds as Level 1, due to their short-term maturity, and measured the fair value based on quoted prices in active markets for identical assets. The Company classified commercial paper, U.S. Treasury and government agency securities as Level 2, as the inputs used to value these instruments are directly observable or can be corroborated by observable market data for substantially the full term of the assets.

Contingent Consideration Obligations

Spectrum Merger Contingent Variable Right

Pursuant to the Spectrum Merger, the Company issued CVRs (See Note 2, Acquisitions) that represent a contingent consideration obligation which is measured at fair value. The Company has a contingent obligation to make payments to the holders of the CVRs representing a contractual right to receive consideration worth up to an aggregate maximum amount of $0.20 per CVR, contingent on the achievement of annual sales milestones in 2024 and 2025 of Spectrum’s product ROLVEDON. The Company classified the acquisition-related contingent consideration liabilities as a Level 3 measurement, due to the lack of relevant observable inputs and market activity.

The initial fair value of the CVR determined as of the Effective Date of the Spectrum Merger was $3.9 million. As of September 30, 2023, the fair value of the Company’s CVR liability related to the Spectrum Merger was determined by the
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Company to be zero. During both the three and nine months ended September 30, 2023, the Company recognized a benefit of $3.9 million for the change in fair value of the CVR contingent consideration, which was recognized in Change in fair value of contingent consideration in the Company’s Condensed Consolidated Statements of Comprehensive (Loss) Income. The fair value of the CVR contingent consideration is determined using a Monte Carlo simulation model under the income approach based on the probability of achievement of ROLVEDON net sales milestones using projections of 2024 and 2025 net sales and discounted to present value. The significant assumptions used in the calculation of the fair value as of September 30, 2023 included the discount rate of 18.0% and updated projections of future ROLVEDON product net sales, which resulted in no probability of achievement under the Monte Carlo simulation.

Zyla Merger Contingent Consideration Obligation
Pursuant to the 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 an affiliate of CR Group L.P. 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 a Level 3 measurement, due to the lack of relevant observable inputs and market activity. As of September 30, 2023 and December 31, 2022, INDOCIN product contingent consideration was $28.9 million and $48.5 million, respectively, with $12.8 million and $26.3 million classified as current and $16.1 million and $22.2 million classified as long-term contingent consideration, respectively, in the Company’s Condensed Consolidated Balance Sheets.

During the three and nine months ended September 30, 2023, the Company recognized a benefit of $17.5 million and $8.1 million, respectively, for the change in fair value of contingent consideration, which was recognized in Change in fair value of contingent consideration in the Company’s Condensed Consolidated Statements of Comprehensive (Loss) Income. 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. 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, 2023 included revenue volatility of 30%, discount rate of 8.5%, credit spread of 3.8% and updated projections of future INDOCIN product revenues.

The following table summarizes changes in fair value of the Company’s contingent consideration obligations that are measured on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2023 and 2022 (in thousands):

 Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Fair value, beginning of the period$42,500 $36,759 $48,500 $37,659 
Fair value of contingent consideration incurred in Spectrum Merger3,932 — 3,932 — 
Change in fair value of contingent consideration recorded within costs and expenses(17,532)3,900 (8,124)6,845 
Cash payment related to contingent consideration— (4,000)(15,408)(7,845)
Fair value, end of the period$28,900 $36,659 $28,900 $36,659 

Derivative Liability
The Company determined that an embedded conversion feature included in the 2027 Convertible Notes required bifurcation from the host contract and to be recognized as a separate derivative liability carried at fair value. The estimated fair value of the derivative liability, which represents a Level 3 valuation, was $0.8 million and $0.3 million as of September 30, 2023 and December 31, 2022, respectively, and was determined using a binomial lattice model using certain assumptions and consideration of an increased conversion ratio on the underlying convertible notes that could result from the occurrence of certain events. Accordingly, the Company has recognized a loss on the fair value adjustment of the derivative liability in the amount of $0.5 million in Other (loss) gain in the Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023. There was no gain or loss on the fair value adjustment of the derivative liability for the three and nine months ended September 30, 2022.

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The following table summarizes changes in fair value of the derivative liability that is measured on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2023 (in thousands):

Three Months Ended September 30, 2023Nine Months Ended September 30, 2023
Fair value, beginning of the period$252 $252 
Change in fair value of derivative liability recorded within Other (loss) gain512 512 
Fair value, end of the period$764 $764 

There was no change in the fair value of the derivative liability for the three and nine months ended September 30, 2022.

Financial Instruments Not Required to be Remeasured at Fair Value

The Company’s other financial assets and liabilities, including trade accounts receivable and accounts payable, are not remeasured to fair value, as the carrying cost of each approximates its fair value. As of September 30, 2023, the estimated fair value of the 2027 Convertible Notes, excluding the bifurcated embedded conversion option, was approximately $41.8 million, compared to a par value of $40.0 million. As of December 31, 2022, the estimated fair value of the 2027 Convertible Notes, excluding the bifurcated embedded conversion option, was approximately $92.5 million, compared to a par value of $70.0 million. The Company estimated the fair value of its 2027 Convertible Notes as of September 30, 2023 and December 31, 2022 based on a market approach which represents a Level 2 valuation.

NOTE 18.  INCOME TAXES
 
As of September 30, 2023, the Company’s net deferred tax assets are expected to be fully offset by a valuation allowance for the year ending December 31, 2023. 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. 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 continues to assess the realizability of its deferred tax assets on a quarterly basis. As part of its valuation allowance assessment as of September 30, 2023, the Company was no longer able to rely on its projected availability of future taxable income from pre-tax income forecasts. As such, the Company primarily relied on its reversing taxable temporary differences to assess its valuation allowance, which resulted in the recording of the full valuation allowance during the three months ended September 30, 2023. If it is determined that a portion or all of the valuation allowance is not required, it will generally be a benefit to the income tax provision in the period such determination is made.

For the three and nine months ended September 30, 2023, the Company recorded an income tax expense of $50.7 million and $52.4 million, respectively. The difference between the income tax expense in each period and the tax at the federal statutory rate of 21.0% on current year operations is principally due to the impact of the valuation allowance, offset by state taxes, disallowed officer’s compensation, and capital expenses.

The Company files income tax returns in the United States federal jurisdiction and in various states. The statutes of limitations for the Company's tax returns filed for the years 2007 through 2021 have not expired. Because of net operating losses and unutilized research and development 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 the Company. As of September 30, 2023, the Company did not have significant accrued interest and penalties associated with unrecognized tax benefits.

NOTE 19.  RESTRUCTURING CHARGES

In August 2023, the Company implemented a reorganization plan of its workforce and other resources primarily designed to realize the synergies of the Spectrum Merger (the “Spectrum Reorganization Plan”). The Spectrum Reorganization Plan was primarily focused on the reduction of staff at the Company’s headquarters office and the exit of certain leased facilities and office equipment. The Company will continue to implement additional measures under the Spectrum Reorganization Plan as needed and expects the recognition of any costs and cash payments under the Spectrum Reorganization Plan to be completed by the end of the third quarter of 2024.

The staff reductions under the Spectrum Reorganization Plan are the result of a distinct severance plan approved by the Company’s board of directors and are not being executed as part of established Company policies or plans. Accordingly, the related employee compensation costs were primarily recognized in the third quarter of 2023, which is when the plan and
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underlying terms were finalized, approved by the Company’s board of directors, and communicated to the impacted staff, and since the reductions were effective immediately. Total employee compensation costs recognized under the Spectrum Reorganization Plan through September 30, 2023 were approximately $2.3 million. In addition, the leased facilities and office equipment referenced above are not expected to be in use for any business purpose by the end of 2023, and the Company will not sublease the facilities and office equipment due to the short remaining lease terms. Accordingly, the criteria for abandonment accounting to be applied to the leased facilities and office equipment were met in the third quarter of 2023. The facility exit costs represent the acceleration of the underlying right-of-use asset amortization to align with the cease use date for the abandoned facilities and office equipment. Total facility exit costs under the Spectrum Reorganization Plan are expected to be $1.3 million.

The following table reflects total expenses related to the Spectrum Reorganization Plan recognized within the Condensed Consolidated Statement of Comprehensive (Loss) Income as Restructuring charges for three and nine months ended September 30, 2023 (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
20232023
Employee compensation costs$2,257 $2,257 
Facility exit costs777 777 
Total restructuring charges$3,034 $3,034 

The following table summarizes the changes in the Company’s accrued restructuring liability under the Spectrum Reorganization Plan, which is classified within Accrued liabilities in the Condensed Consolidated Balance Sheet as of September 30, 2023 (in thousands):
 Employee compensation costs
Balance as of December 31, 2022$— 
Restructuring accrual assumed in Spectrum Merger (See Note 2)
7,508 
Net accrual additions2,257 
Cash paid(5,345)
Balance as of September 30, 2023$4,420 

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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. 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 and oral solution of indomethacin used both in hospitals and out-patient settings. Both products are nonsteroidal anti-inflammatory drug (NSAID), indicated 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
ROLVEDONTM (eflapegrastim-xnst) injection for subcutaneous use
A novel long-acting granulocyte colony-stimulating factor for the treatment of chemotherapy-induced neutropenia.
Otrexup® (methotrexate)
injection for subcutaneous use
A once weekly single-dose auto-injector containing a prescription medicine, methotrexate. Otrexup is a folate analog metabolic inhibitor indicated for the:
• Management of patients with severe, active rheumatoid arthritis (RA) and polyarticular juvenile idiopathic arthritis (pJIA), who are intolerant of or had an inadequate response to first-line therapy. 


• Symptomatic control of severe, recalcitrant, disabling psoriasis in adults who are not adequately responsive to other forms of therapy.
Sympazan® (clobazam) oral filmA benzodiazepine indicated for the adjunctive treatment of seizures associated with Lennox-Gastaut Syndrome (LGS) in patients aged two years of age or older . Sympazan is the only product to offer clobazam in a convenient film with PharmFilm® technology. Sympazan is taken without water or liquid, adheres to the tongue, and dissolves to deliver clobazam.
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 an opioid level. SPRIX is a non-narcotic nasal spray that 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.
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.
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 July 31, 2023 (the “Effective Date”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as of April 24, 2023, we completed the acquisition of Spectrum Pharmaceutical, Inc. (“Spectrum”), a commercial stage biopharmaceutical company focused on novel and targeted oncology products (the “Spectrum Merger”). We accounted for the Spectrum Merger using the acquisition method of accounting under Accounting Standards Codification (“ASC”) 805 and are considered the accounting acquirer. The results of operations of Spectrum are included in our condensed consolidated financial statements as of the Effective Date.

Pursuant to the Merger Agreement, each issued and outstanding share of Spectrum common stock as of the Effective Date was converted into the right to receive (i) 0.1783 shares of our common stock and (ii) one contingent value right (“CVR”)
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representing a contractual right to receive future conditional payments worth up to an aggregate maximum amount of $0.20, settleable in cash, additional shares of Assertio common stock or a combination of cash and additional shares of Assertio common stock at our sole discretion, upon the achievement of certain sales milestones related to Spectrum’s product ROLVEDON. Subject to adjustments, each CVR represents the right to receive up to $0.10 payable upon ROLVEDON net sales (less certain deductions) achieving $175 million during the calendar year ending December 31, 2024, and up to $0.10 payable upon ROLVEDON net sales (less certain deductions) achieving $225 million during the calendar year ending December 31, 2025. In addition, upon consummation of the Spectrum Merger, Spectrum’s outstanding employee stock awards and other warrants that were outstanding immediately as of the Effective Date automatically vested (if unvested) and/or cancelled, as applicable, which generally resulted in the issuance of shares of Assertio common stock and/or CVRs to the holders of such stock awards or other warrants, in each case as dictated by the terms of the Merger Agreement. These shares and CVRs issued are considered part of the consideration transferred, and no compensation expense was recognized because the settlement was a condition of the Merger Agreement and other existing individual agreements, no future performance is required by the holders, and the fair value of the shares and CVRs is equivalent to the fair value of the existing employee stock awards and other warrants.

On August 22, 2022, we issued $70.0 million aggregate principal amount of Convertible Senior Notes 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 (the “2027 Convertible Notes”). We used the net proceeds from the issuance of the 2027 Convertible Notes to repurchase the remaining $59.0 million aggregate principal amount of our then outstanding 13.0% Senior Secured Notes due 2024 (the “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 Notes. We expect to use the remaining net proceeds from the 2027 Convertible Notes for general corporate purposes.

On February 27, 2023, we completed a privately negotiated exchange of $30.0 million principal amount of the 2027 Convertible Notes (the “Convertible Note Exchange”). Pursuant to the Convertible Note Exchange, 6,990,000 shares of the Company’s common stock, plus an additional $10.5 million in cash, were issued in a partial settlement of the 2027 Convertible Notes (the “Exchanged Notes”). Refer to Note 11, Debt, of the accompanying Condensed Consolidated Financial Statements for additional information on the 2027 Convertible Notes.

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 our 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, 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,” “seek,” “estimate,” “could,” “might,” “should,” “goal,” “target,” “project,” “approximate”, “potential,” “opportunity,” “pursue,” “strategy,” “prospective” 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 of our products (including the INDOCIN products which are not patent protected and now face generic competition as a result of the August 2023 approval and launch of generic indomethacin suppositories and potential additional generic competition at any time after the 180-day Competitive Generic Therapy (“CGT”) exclusivity expires) and/or other products competitive with any of our products (including indomethacin suppositories compounded by hospitals and other institutions including a 503B compounder that commenced sales of
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its competitive product in the second half of 2022, in what we believe to be violation of certain provisions of the Food, Drug and Cosmetic Act);

•the uncertainty around the potential impacts of the August 2023 approval and launch of generic indomethacin suppositories, as well as potential additional generic indomethacin suppositories after the 180-day CGT exclusivity expires, on our future results of operations, financial condition, and cash flows;

•our ability to successfully execute our business strategy, business development, strategic partnerships, and investment opportunities to build and grow for the future, including through product acquisitions, commercialization agreements, licensing or technology agreements, equity investments, and business combinations;

•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, including our expectations around the sales and growth prospect of ROLVEDON;

•our expectations regarding industry trends, including pricing pressures and managed healthcare practices;

•our ability to execute on and realize anticipated benefits from our reorganization plan in connection with the Spectrum Merger;

•our ability to attract and retain key executive leadership;

•the potential impacts of future outbreaks of epidemics, pandemics or other diseases, 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 on commercially reasonable terms and in compliance with their contractual obligations to us, and our ability to maintain our supply chain, which relies on single-source suppliers;

•the outcome of, and our intentions with respect to, any litigation or investigations, including antitrust litigation, opioid-related investigations, opioid-related litigation and related claims for negligence and breach of fiduciary duty against our former insurance broker, as well as Spectrum’s legacy shareholder litigation, and other disputes and litigation, and the costs and expenses associated therewith;

•our compliance or non-compliance with, or being subject to, legal and regulatory requirements related to the development or promotion of pharmaceutical products in the United States (“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;

•our ability to generate sufficient cash flow from our business to fund operations and 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 intentions or expectations regarding the use of available funds and any future earnings or the use of net proceeds from securities offerings;

•our commitments and estimates regarding future obligations, 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;

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•the timing, cost and results of any future research and development efforts including potential clinical studies relating to any future product candidates;
•the estimation, projection or availability of net operating losses or credit carryforwards;
•the potential impacts of adverse business and economic conditions including inflationary pressures, general economic slowdown or a recession, increasing interest rates, changes in monetary policy and financial institution instability; and
•our common stock maintaining compliance with The Nasdaq Capital Market’s minimum closing bid requirement of at least $1.00 per share.

This document also contains statements about the Spectrum Merger. Many factors could cause actual results to differ materially from these forward-looking statements with respect to the Spectrum Merger, including (1) the tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the new combined company’s operations resulting from the Spectrum Merger; (2) the impact of pending Spectrum litigation and potential litigation relating to the Spectrum Merger; (3) the impact of disruption of management time from ongoing business operations due to the Spectrum Merger; (4) unexpected costs, charges or expenses resulting from the Spectrum Merger; (5) our and Spectrum’s ability to retain and hire key personnel; (6) competitive responses to the Spectrum Merger and the impact of competitive services; (7) potential adverse changes to business relationships resulting from the announcement or completion of the Spectrum Merger; (8) the combined company’s ability to achieve the growth prospects and synergies expected from the Spectrum Merger, as well as delays, challenges and expenses associated with integrating the combined company’s existing businesses; (9) negative effects of the announcement or the consummation of the Spectrum Merger on the market price of our common stock, credit ratings and operating results; and (10) legislative, regulatory and economic developments, including changing business conditions in the industries in which the new combined company operates. These risks, as well as other risks associated with the Spectrum Merger, are more fully discussed in the Amended Registration Statement on Form S-4 that we filed with the U.S. Securities and Exchange Commission in connection with the Spectrum Merger on June 14, 2023. While the list of factors presented here and in the Amended Registration Statement on Form S-4 are considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements.

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, and in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission on March 8, 2023 (the “2022 Form 10-K”). 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, acquisitions, contingent consideration obligations, impairment of long-lived assets, goodwill, and income taxes to be critical policies. These estimates form the basis for making judgments about the carrying value of assets and liabilities. Except for critical accounting policies related to the accounting for goodwill discussed below, we believe there have been no significant changes in our critical accounting policies and significant judgements and estimates since we filed our 2022 Form 10-K. See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — Critical Accounting Policies and Significant Estimates in our 2022 Form 10-K for further information.

Goodwill

Under the purchase method of accounting pursuant to Accounting Standards Codification (“ASC”) 805, goodwill is calculated as the excess of the purchase price over the fair value of the assets acquired and liabilities assumed. Goodwill is recognized within other long-term assets, and is not amortized but subject to an annual review for impairment. Goodwill is tested for impairment at the reporting unit level at least annually or when a triggering event occurs that could indicate a potential impairment by assessing qualitative factors or performing a quantitative analysis in determining whether it is more
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likely than not that the fair value of net assets are below their carrying amounts. A reporting unit is the same as, or one level below, an operating segment. Our operations are currently comprised of a single reporting unit.

During the three months ended September 30, 2023, we recorded $19.9 million of goodwill from the Spectrum Merger. Also, during the three months ended September 30, 2023, we recognized a long-lived asset impairment, which was determined to be an indicator of impairment with respect to our goodwill, and as a result management tested goodwill for impairment by determining and comparing the fair value of its reporting unit to its carrying value, with the carrying value reflecting the allocated long-lived asset impairment loss. The fair value of the reporting unit was determined using both an income and a market approach and used Level 3 inputs. These inputs included estimates of forecasted cash flows, a discount rate to reflect the risk inherent in the forecasted cash flows, and the selection of comparable revenue and earnings multiples utilizing guideline companies. Management concluded that the fair value of the reporting unit exceeded its carrying value and, accordingly, goodwill was not impaired as of September 30, 2023.

RESULTS OF OPERATIONS
Revenues
The following table reflects total revenues, net for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Product sales, net:
INDOCIN products$17,948 $21,869 $76,369 $66,067 
ROLVEDON7,132 — 7,132 — 
Otrexup2,807 3,004 9,222 8,699 
Sympazan2,103 — 7,232 — 
SPRIX2,545 2,455 6,807 6,437 
CAMBIA1,993 5,808 6,062 17,464 
Zipsor597 259 2,751 2,704 
Other products12 884 1,414 3,887 
Total product sales, net35,137 34,279 116,989 105,258 
Royalties and milestone revenue490 473 1,910 1,916 
Other revenue— (540)185 (1,290)
Total revenues$35,627 $34,212 $119,084 $105,884 
Product sales, net
INDOCIN net product sales for the three months ended September 30, 2023 decreased $3.9 million from $21.9 million to $17.9 million, as compared to the same period in 2022 due to lower volume as a result of the August 2023 approval and launch of generic indomethacin suppositories and the sales by a 503B compounder of its competitive products. INDOCIN net product sales for the nine months ended September 30, 2023 increased $10.3 million from $66.1 million to $76.4 million, as compared to the same period in 2022 due to favorable net pricing as a result of a shift to more profitable channels, partially offset by a decrease in volume as a result of the August 2023 approval and launch of generic indomethacin suppositories and the sales by a 503B compounder of its competitive products. We expect INDOCIN volumes to continue to be impacted unfavorably by increasing competition as a result of the August 2023 approval and launch of generic indomethacin suppositories and the sales by a 503B compounder of its competitive products.
We acquired ROLVEDON on July 31, 2023 and began shipping and recognizing product sales for ROLVEDON immediately. ROLVEDON net product sales were $7.1 million during both the three and nine months ended September 30, 2023. Our initial assessment indicates there were several dynamics that impacted net product sales of ROLVEDON during the third quarter. While the early phase of the launch benefited from favorable reimbursement; expectations for an incremental demand increase from a permanent J-code issued by Centers for Medicare & Medicaid Services, effective April 1, 2023, have not been achieved, and there were high levels of inventory in the channel at the end of the second quarter of 2023.
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ROLVEDON net product sales are impacted by the dynamic reimbursement environment and competitive market, changes in which will have an impact on sales recognized by us in future periods.
Otrexup net product sales for the three months ended September 30, 2023 decreased $0.2 million from $3.0 million to $2.8 million, as compared to the same period in 2022, primarily due to unfavorable payor mix, partially offset by higher volume. Otrexup net product sales for the nine months ended September 30, 2023 increased $0.5 million from $8.7 million to $9.2 million, as compared to the same period in 2022, primarily due to higher volume, partially offset by unfavorable payor mix.
We acquired Sympazan and began shipping and recognizing its product sales in October 2022. Sympazan net product sales totaled $2.1 million and $7.2 million for the three and nine months ended September 30, 2023.
SPRIX net product sales totaled $2.5 million for both the three months ended September 30, 2023 and 2022. SPRIX net product sales for the nine months ended September 30, 2023 increased $0.4 million from $6.4 million to $6.8 million, as compared to the same period in 2022, primarily due to favorable payor mix, partially offset by lower volume.
CAMBIA net product sales for the three and nine months ended September 30, 2023 decreased $3.8 million from $5.8 million to $2.0 million, and decreased $11.4 million from $17.5 million to $6.1 million, respectively, as compared to the same periods in 2022, primarily due to lower volume caused by generic entrants in 2023.
Zipsor net product sales for the three and nine months ended September 30, 2023 increased $0.3 million from $0.3 million to $0.6 million, and increased $0.1 million from $2.7 million to $2.8 million, respectively, as compared to the same periods in 2022, primarily due to favorable payor mix.
Other net product sales include sales for OXAYDO and SOLUMATRIX products. We ceased OXAYDO product sales beginning in September 2023, and ceased SOLUMATRIX product sales beginning in July 2022.
The increase in total product sales, net, for the three and nine months ended September 30, 2023, also reflects a decrease year over year in the amounts charged as a reduction to revenue for sales and return allowances, discounts, chargebacks, and rebates, which is attributed to changes in product mix and, specifically, a higher concentration of products that require lower levels of product sales allowances relative to our other products.
    
Royalties & Milestone revenue

In November 2010, we entered into a license agreement granting the counterparty the rights to commercially market CAMBIA in Canada. We receive royalties on net sales as well as certain one-time contingent milestone payments. We recognized revenue related to CAMBIA in Canada of $0.5 million and $1.5 million for the three and nine months ended September 30, 2023, respectively, and $0.5 million and $1.5 million for the three and nine months ended September 30, 2022, respectively.
We recognized Milestone revenue associated with the completion of certain service milestones of $0.5 million for both the nine months ended September 30, 2023 and 2022. We recognized no Milestone revenue for both the three months ended September 30, 2023 and 2022.

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 or an increase to total revenue during the period.

Cost of Sales (excluding amortization of intangible assets)
Cost of sales for the three months ended September 30, 2023 increased $3.1 million from $4.0 million to $7.1 million as compared to the same period in 2022, primarily due to (i) $2.6 million of cost of sales, including inventory step-up amortization, attributable to ROLVEDON, which began shipping in August 2023, and (ii) a $1.0 million increase in cost of sales attributable to Otrexup and SPRIX for the three months ended September 30, 2023 compared to the same period last year, partially offset by the impact of product mix.

Cost of sales for the nine months ended September 30, 2023 increased $4.6 million from $12.7 million to $17.3 million as compared to the same period in 2022, primarily due to: (i) $2.6 million of cost of sales, including inventory step-up amortization, attributable to ROLVEDON, (ii) a $3.4 million increase in cost of sales attributable to Otrexup and
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SPRIX, and (iii) $1.8 million of cost of sales attributable to Sympazan, which began shipping in October 2022, partially offset by the impact of product mix.

Cost of sales are impacted by both product volume and mix, changes in which will have an impact on Cost of sales recognized by us in future periods.

Research and Development Expenses
Research and development expenses include salaries, costs for planned clinical trials, consultant fees, supplies, and allocations of corporate costs. It is difficult to predict the scope and magnitude of future research and development expenses for our product candidates in research and development, as it is difficult to determine the nature, timing and extent of planned clinical trials and studies and the FDA’s requirements for a particular drug. As potential products proceed through the development process, each step is typically more extensive, and therefore more expensive, than the previous step. Therefore, success in development generally results in increasing expenditures until actual product approval.

Research and development expenses were $1.3 million and $1.8 million for the three and nine months ended September 30, 2023, respectively, representing primarily costs directly associated with ongoing clinical trial activity for ROLVEDON. We did not have research and development expenses during the three and nine months ended September 30, 2022.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased $9.1 million from $11.9 million for the three months ended September 30, 2022 to $21.0 million for the three months ended September 30, 2023, primarily due to: (i) $2.7 million of transaction-related expenses, primarily legal and professional fees, associated with the Spectrum Merger, (ii) $4.9 million of higher operating expenses as a result of the Spectrum Merger, (iii) $1.0 million of higher selling and marketing expenses related to Sympazan, and (iv) a net increase of $0.5 million in other general operating expenses.

Selling, general, and administrative expenses increased $21.6 million from $33.1 million for the nine months ended September 30, 2022 to $54.7 million for the nine months ended September 30, 2023, primarily due to: (i) $8.5 million of transaction-related expenses, primarily legal and professional fees, associated with the Spectrum Merger, (ii) $5.6 million of higher operating expenses as a result of the Spectrum Merger, (iii) $4.3 million of higher selling and marketing expenses for Sympazan and Otrexup, (iv) a gain of $2.0 million in the second quarter of 2022 for insurance reimbursement for previous opioid-related spend not repeating in 2023, and (v) an increase of $1.4 million in stock-based compensation expense.

Change in fair value of contingent consideration

Pursuant to the Spectrum Merger, we issued contingent value rights (“CVRs”) that represent a contingent consideration obligation which is measured at fair value. Pursuant to our merger with Zyla Life Sciences (“Zyla”) in May 2020 (the “Zyla Merger”), we assumed a contingent consideration obligation for future royalties on annual INDOCIN product net sales which is measured at fair value. The fair value of both contingent considerations are remeasured each reporting period, with changes in the fair values resulting from changes in the respective underlying inputs being recognized in operating expenses until both the contingent considerations arrangements are settled. Changes in the fair values of the contingent considerations are recognized in Change in fair value of contingent consideration in the Company’s Condensed Consolidated Statements of Comprehensive Loss (Income).

During the three and nine months ended September 30, 2023, we recognized a benefit of $17.5 million and $8.1 million, respectively, for the change in fair value of contingent consideration, compared to an expense of $3.9 million and $6.8 million recognized for the three and nine months ended September 30, 2022, respectively.

The fair value of the CVR contingent consideration is determined using a Monte Carlo simulation model under the income approach based on the probability of achievement of ROLVEDON net sales milestones using projections of 2024 and 2025 net sales and discounted to present value. The initial fair value of the CVR determined as of the Effective Date of the Spectrum Merger was $3.9 million. As of September 30, 2023, the fair value of the CVR liability was determined to be zero. Accordingly, during both the three and nine months ended September 30, 2023, the Company recognized a benefit of $3.9 million for the change in fair value of the CVR contingent consideration. The significant assumptions used in the calculation of the fair value as of September 30, 2023 included the discount rate of 18.0% and updated projections of future ROLVEDON product net sales, which resulted in no probability of achievement under the Monte Carlo simulation.

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The fair value of the contingent consideration obligation incurred in the Zyla Merger 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, 2023 included revenue volatility of 30%, discount rate of 8.5%, credit spread of 3.8% and updated projections of future INDOCIN product revenues. Accordingly, during the three and nine months ended September 30, 2023, we recognized a benefit in costs and expenses of $13.6 million and $4.2 million, respectively, attributable to a decrease in the fair value of the contingent consideration incurred in the Zyla Merger in each of the periods, compared to an expense of $3.9 million and $6.8 million recognized for the three and nine months ended September 30, 2022, respectively

Intangible Assets

The following table reflects amortization of intangible assets for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Amortization of intangible assets—INDOCIN$3,210 $3,210 $9,631 $9,631 
Amortization of intangible assets—ROLVEDON3,900 — 3,900 — 
Amortization of intangible assets—Otrexup1,378 1,378 4,133 4,133 
Amortization of intangible assets—Sympazan303 — 909 — 
Amortization of intangible assets—SPRIX1,393 1,393 4,179 4,179 
Amortization of intangible assets—CAMBIA— 1,988 — 5,963 
Amortization of intangible assets—Zipsor— — — 532 
Total $10,184 $7,969 $22,752 $24,438 
 
Amortization expense for the three months ended September 30, 2023 increased $2.2 million from $8.0 million to $10.2 million, as compared to the same period in 2022, primarily due to the additional amortization of the ROLVEDON and Sympazan product rights acquired in July 2023 and October 2022, respectively, offset by the full amortization of CAMBIA intangible assets in the fourth quarter of 2022.

Amortization expense for the nine months ended September 30, 2023 decreased $1.7 million from $24.4 million to $22.8 million, respectively, as compared to the same period in 2022, primarily due to the full amortization of CAMBIA intangible assets in the fourth quarter of 2022 and the full amortization of Zipsor intangible assets in the first quarter of 2022, partially offset by additional amortization of the ROLVEDON and Sympazan product rights acquired in July 2023 and October 2022, respectively.

Loss on Impairment of Long-Lived Assets

During the three months ended September 30, 2023, our market capitalization declined to below the book value of our equity. Management determined that the Company’s book value of equity exceeding its market capitalization represented an indicator of impairment with respect to its long-lived assets.

Applying the relevant accounting literature, we first assessed the recoverability of our long-lived assets. In performing this assessment, management concluded it was appropriate to group its assets at the entity level, most notably attributed to the significant shared operating cost structure which characterizes Assertio. We determined the carrying value of this asset group was not recoverable. Management then assessed and concluded that the fair value of the asset group was less than its carrying value and so recognized an impairment loss of approximately $238.8 million, which was allocated to the intangible assets of the group and is classified within Loss on impairment of intangible assets in the Condensed Consolidated Statement of Comprehensive (Loss) Income. The fair value of the asset group was determined using both an income and a market approach and used Level 3 inputs. These inputs included estimates of forecasted cash flows and the selection of comparable revenue and earnings multiples utilizing guideline companies.
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Restructuring Charges

Restructuring charges were $3.0 million during both the three and nine months ended September 30, 2023. In August 2023, we implemented a reorganization plan of our workforce and other resources primarily designed to realize the synergies of the Spectrum Merger (the “Spectrum Reorganization Plan”). The Spectrum Reorganization Plan was primarily focused on the reduction of staff at our headquarters office and the exit of certain leased facilities. We will continue to implement additional measures under the Spectrum Reorganization Plan as needed and expect the recognition of any costs and cash payments under the Spectrum Reorganization Plan to be completed by the end of the third quarter of 2024.

The staff reductions under the Spectrum Reorganization Plan are the result of a distinct severance plan approved by our board of directors and are not being executed as part of established Company policies or plans. Accordingly, the related employee compensation costs were primarily recognized in the third quarter of 2023, which is when the plan and underlying terms were finalized, approved by our board of directors, and communicated to the impacted staff, and since the reductions were effective immediately. Total employee compensation costs recognized under the Spectrum Reorganization Plan through September 30, 2023 were approximately $2.3 million. In addition, the leased facilities referenced above are not expected to be in use for any business purpose by the end of 2023, and we will not sublease the facilities due to the short remaining lease terms. Accordingly, the criteria for abandonment accounting to be applied to the leased facilities were met in the third quarter of 2023. We recognized facility exit costs of $0.7 million for the three months ended September 30, 2023, representing the acceleration of the underlying right-of-use asset amortization to align with the cease use date for the abandoned facilities. Total facility exit costs under the Spectrum Reorganization Plan are expected to be $1.3 million.

For the three and nine months ended September 30, 2022, there were no restructuring charges.

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

Other (Expense) Income

The following table reflects other expense (income) for the three and nine months ended September 30, 2023 and 2022 (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Debt-related expenses$— $— $(9,918)$— 
Interest expense(752)(2,052)(2,625)(6,648)
Other gain 138 2 1,601 453 
Total other expense$(614)$(2,050)$(10,942)$(6,195)

Other expense decreased from $2.1 million to $0.6 million for the three months ended September 30, 2023, as compared to the same period in 2022, primarily due to lower interest expense and an increase in other gain, as further described below. Other expense increased from $6.2 million to $10.9 million for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily due to debt-related expenses incurred in the current year, partially offset by lower interest expense and increase in other gain, as further described below.

Debt-related expenses for the nine months ended September 30, 2023 consist of an induced conversion expense of approximately $8.8 million and direct transaction costs of approximately $1.1 million incurred as a result of the $30.0 million Convertible Note Exchange in the first quarter of 2023, as described in Note 11, Debt, of the accompanying Condensed Consolidated Financial Statements.
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The following table reflects interest expense for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Interest payable on 2027 Convertible Notes$650 $522 $2,275 $522 
Interest paid on 2024 Secured Notes— 1,516 — 6,064 
Amortization of Royalty Rights(1)
— 14 — 62 
Amortization of debt issuance costs102 — 350 — 
Total interest expense$752 $2,052 $2,625 $6,648 
(1)As a result of the extinguishment of the Royalty Rights obligation during the fourth quarter of 2022, there will be no additional amortization expense recognized in future periods. Refer to Note 11 of the accompanying Condensed Consolidated Financial Statements for additional information on the Royalty Rights obligation.

For the three and nine months ended September 30, 2023, total interest expense decreased $1.3 million and $4.0 million, respectively, as compared to the same periods in 2022, primarily due to lower amounts of interest incurred on debt outstanding. On August 22, 2022, we issued $70.0 million in aggregate principal amount of 2027 Convertible Notes. We used the net proceeds from the 2027 Convertible Notes issuance to repurchase the remaining $59.0 million aggregate principal amount of our 2024 Secured Notes, which were outstanding during the three months ended September 30, 2022, and carried a higher interest rate.

For the three and nine months ended September 30, 2023, other gain increased $0.1 million and $1.1 million, respectively, as compared to the same periods in 2022, primarily due to higher interest income, partially offset by a loss of $0.5 million recognized in both the three and nine months ended September 30, 2023 for the change in the fair value of a derivative liability associated with an embedded derivative feature of our 2027 Convertible Notes, and a gain of $0.6 million from the early termination and settlement of a Newark facility sublease in 2022 that did not repeat in subsequent periods.

Income Tax Provision

For the three and nine months ended September 30, 2023, we recorded an income tax expense of $50.7 million and $52.4 million, respectively. The difference between the income tax expense in each period and the tax at the federal statutory rate of 21.0% on current year operations is principally due to the impact of the valuation allowance, offset by state taxes, disallowed officer’s compensation, and capital expenses. As part of our valuation allowance assessment as of September 30, 2023, we were no longer able to rely on our projected availability of future taxable income from pre-tax income forecasts. As such, we primarily relied on our reversing taxable temporary differences to assess our valuation allowance, which resulted in recording of the full valuation allowance during the three months ended September 30, 2023.

For the three and nine months ended September 30, 2022, we recorded an income tax expense of $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, and tax at the federal statutory rate of 21.0% was principally due to the partial release of the valuation allowance related to the movement in deferred tax assets.


LIQUIDITY AND CAPITAL RESOURCES

Historically and through September 30, 2023, 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.

As previously disclosed, in the three months ended June 30, 2022, we granted a total of 1.0 million market-based performance RSUs (“performance RSUs”) to executive officers under our Amended and Restated 2014 Omnibus Incentive Plan. The market-based conditions of the performance RSUs were achieved in the first quarter of 2023. Then, upon vesting of the performance RSUs in the second quarter of 2023, the compensation committee of our board of directors elected, under the terms of the performance RSU grants, to settle approximately 0.3 million of the outstanding performance RSUs in cash based on their fair market value on the vesting date, resulting in a cash payment of approximately $2.6 million, with the remaining
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performance RSUs and the employee’s tax withholding liabilities settled in shares of our common stock. The total cash payment of taxes related to net share settlement of the performance RSUs was approximately $3.4 million.

On August 22, 2022, we issued $70.0 million aggregate principal amount of 2027 Convertible Notes which mature on September 1, 2027 and bear interest at a 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 Notes to repurchase the remaining $59.0 million aggregate principal amount of our then 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 Notes. We expect to use the remaining net proceeds from the 2027 Convertible Notes for general corporate purposes.

On February 27, 2023, we completed the Convertible Note Exchange pursuant to which we exchanged $30.0 million principal amount of our 2027 Convertible Notes for 6,990,000 shares of our common stock, plus an additional $10.5 million in cash. As a result of the Convertible Note Exchange in the first quarter of 2023, we recorded a non-cash induced conversion expense of approximately $8.8 million and direct transaction costs of approximately $1.1 million. As a result of the Convertible Note Exchange, we expect our cash interest expense in future periods to decrease in accordance with the decrease in the aggregate principal amount of the 2027 Convertible Notes outstanding.

The terms of the 2027 Convertible Notes are governed by an indenture dated August 25, 2022 (the “2027 Convertible Note Indenture”). Pursuant to the terms of the 2027 Convertible Note Indenture, we and our 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 our properties or assets. We were in compliance with our covenants with respect to the 2027 Convertible Notes as of September 30, 2023.

We are party to 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 a result of the issuance of the 2027 Convertible Notes, we suspended use of the ATM offering program. Prior to our suspension of the ATM offering program, 2,463,637 shares of our common stock had 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.

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;
•declines in sales of our marketed products, including those resulting from the entry and sales of generics and/or other products competitive with any of our products;
•expenditures related to our commercialization of our products, including our efforts to enhance the long-term prospects of ROLVEDON product sales;
•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;
•potential additional expenses relating to the Spectrum Reorganization Plan; and
•expenditures related to future clinical trial costs.

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 the Company.

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The following table reflects summarized cash flow activities for the nine months ended September 30, 2023 and 2022 (in thousands):
 Nine Months Ended September 30,
20232022
Net cash provided by operating activities$43,897 $51,901 
Net cash provided by (used in) investing activities3,336 (16,889)
Net cash used in financing activities(35,286)(6,996)
Net increase in cash and cash equivalents$11,947 $28,016 

Cash Flows from Operating Activities

Cash provided by operating activities was $43.9 million for the nine months ended September 30, 2023 compared to $51.9 million in the same period in 2022, primarily due to lower net income excluding non-cash items, partially offset by lower net working capital cash used in operations compared to last year.

For the nine months ended September 30, 2023, net loss was $274.6 million compared to net income of $21.1 million for the same period in 2022. For the nine months ended September 30, 2023, adjustments for non-cash items contributed approximately $282.7 million more to operating cash flows compared to the same period in 2022, primarily due to a $238.8 million loss on impairment of intangible assets, deferred income taxes, and debt-related expenses, of which there were none in the prior year period. For the nine months ended September 30, 2023, net working capital cash used in operations of approximately $2.2 million was $4.9 million lower than net working capital cash used in operations of approximately $7.1 million in the same period in 2022, primarily due to increased cash from accounts receivable payments, partially offset by (i) increased cash used in the payment of accounts payable and accrued liabilities due to timing, (ii) increased cash used in the settlement of accrued rebates, returns and discounts due to impact of sales product mix as well as timing of settlement, and (iii) the receipt of an $8.3 million one-time tax refund in the first quarter of 2022 not repeating.

Cash flows from operating activities are impacted by, among other things, product revenue, operating profit and changes in working capital. Fluctuations in any of these will impact our cash flows from operating activities recognized in future periods.

Cash Flows from Investing Activities

Cash provided by investing activities for the nine months ended September 30, 2023 was $3.3 million, which consisted of $2.2 million of proceeds from the sale of investments, and $2.0 million of net cash acquired in the Spectrum Merger, partially offset by cash paid for the transaction costs incurred with the acquisition of Sympazan and cash paid for purchases of property and equipment. Cash used in investing activities for the nine months ended September 30, 2022 was $16.9 million, which consisted entirely of cash paid for the transaction costs incurred with the acquisition of Otrexup.

Cash Flows from Financing Activities

Cash used in financing activities for the nine months ended September 30, 2023 was $35.3 million, which primarily consisted of (i) a $15.4 million payment for contingent consideration, (ii) $10.5 million in cash payments related to the Company’s 2027 Convertible Notes, (iii) $1.1 million of direct transaction cost payments made in connection with the Convertible Note Exchange, and (iv) cash payments related to the vesting and settlement of equity awards, of which $2.6 million related to the cash settlement of the vested performance RSUs, $3.4 million related to the total cash payment of taxes for the net share settlement of the vested performance RSUs, and $1.8 million related to cash used for employees’ withholding tax liability on stock award releases, net of cash received from stock option exercises. 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 $65.9 million in cash proceeds from the issuance of the 2027 Convertible Notes and $7.0 million in cash proceeds from the Company’s ATM offering program.

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Contractual Obligations

Our principal material cash requirements consist of obligations related to our debt, our contingent consideration obligations, payments for rebates, returns and discounts, non-cancelable contractual obligations for our purchase commitments, remaining compensation and other potential cash payments under the Spectrum Reorganization Plan, and a non-cancelable lease for our office space. There were no material changes to our material cash requirements from contractual or other obligations outside the ordinary course of business or due to other factors since our Annual Report on Form 10-K for the year ended December 31, 2022. For a description of our material contractual or other obligations, see “Note 14. Commitments and Contingencies” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and therefore are not required to provide the information called for by this Item 3.

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 as of September 30, 2023.

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

We are finalizing the process of integrating our acquisition of Spectrum, including evaluating our internal controls, and designing and implementing an internal control structure over Spectrum’s operations, which we expect to complete in the first quarter of 2024.

There were no other changes in our internal controls over financial reporting during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, see “Note 14. Commitments and Contingencies” 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.

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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 our Annual Report on Form 10-K for the year ended December 31, 2022, and our Quarterly Report on Form 10-Q for the three months ended June 30, 2023. Except as set forth below and in our Quarterly Report on Form 10-Q for the three months ended June 30, 2023, there have been no material changes since our Annual Report on Form 10-K for the year ended December 31, 2022. In addition to other information in this report, the following information and risk factors, and the risks and uncertainties referenced above, 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 that 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.

On July 31, 2023, we announced the completion of our acquisition of Spectrum. Additional material risks related to Spectrum could have a material impact on our business. For more information on the risks associated with the Spectrum business, see the “Risk Factors” section in the Annual Report on Form 10-K filed by Spectrum on March 31, 2023, as amended on May 1, 2023, and for more information on the risks associated with the combined company, see the “Risks Relating to the Combined Company” section in the Amended Registration Statement on Form S-4 that we filed on June 14, 2023.

Cambia, Zipsor and INDOCIN suppositories recently began facing competition from generics, which adversely affects our business. Approval of additional generic versions of our products would have an adverse effect on our business.

Under the Food, Drug and Cosmetic Act (the “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 64% of our revenue in 2022 and the first nine months of 2023), which means that a generic drug company could introduce a generic for these drugs at any time. In August 2023, a generic pharmaceutical company received approval from the FDA, and has started to manufacture and market 50mg indomethacin suppositories, the generic version of INDOCIN Suppositories. As a result, INDOCIN Suppositories now face competition from generic indomethacin suppositories. In addition, we are aware of other drug companies that have had interactions with regulatory agencies including the FDA relating to indomethacin, which could indicate the development of one or more additional INDOCIN product generics or other formulations of indomethacin. Accordingly, we could face competition from other generic versions of the INDOCIN products at any time after the 180-day Competitive Generic Therapy (“CGT”) exclusivity expires. In addition, we also face competition for INDOCIN Suppositories from hospitals and other institutions, including a 503B outsourcing facility (commonly referred to as a 503B compounder), which began compounding 100 mg indomethacin suppositories in the second half of 2022 in what we believe to be violation of state and federal requirements for new drugs and labeling requirements related to adequate directions for use. For a 503B compounder to qualify for exemptions from these state and federal 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 the 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 the 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, while it is included on the FDA’s Category 1 list of bulk substances it is evaluating, is not on the FDA’s list of bulk substances for which there is a clinical need and INDOCIN Suppositories are not on the FDA’s drug shortage list; and we believe that the 100 mg indomethacin suppositories being compounded are “essentially a copy” of our FDA-approved INDOCIN Suppositories. Although we are vigorously pursuing remedies against this compounder, we cannot guarantee that we will be successful in causing it to discontinue sales of its unapproved indomethacin suppository product. We filed an unfair competition lawsuit in the United States District Court (S.D. Tex.) against this 503B compounder, which was dismissed on September 27, 2023; we have filed a notice of appeal.

With respect to Cambia and Zipsor (which accounted for 16% and 2% of our revenue in 2022, respectively), we have entered into settlement agreements with generic drug companies, under which generic versions of these products can be marketed beginning in January 2023 and March 2022, respectively. As a result, we face generic competition for Cambia and Zipsor.

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The introduction of known and potential additional generic versions of our products, as well as sales of indomethacin suppositories by compounders, or disclosure of ANDA filings and/or similar applications in respect to any of our products, have and in the future could adversely impact our business, financial condition, results of operations and stock price. Moreover, if the orange book patents covering Otrexup (which expire in 2031) and/or Sympazan (which expire in 2040) are not upheld in litigation or if a generic competitor is found not to infringe these patents, the resulting generic competition for Otrexup and/or Sympazan would have a further adverse effect on our business, financial condition and results of operations.

We depend on one qualified supplier for the active pharmaceutical ingredient in each of our products, and we depend on third parties that are single source suppliers to manufacture our products. Insufficient availability of our products or the active pharmaceutical ingredients and other raw materials necessary to manufacture our products, or the inability of our suppliers to manufacture and supply our products on commercially reasonable terms, will adversely impact our sales and/or margins upon depletion of the active ingredient and product inventories.

We have one qualified supplier for the active pharmaceutical ingredient in each of our products. We do not have, and we do not intend to establish in the foreseeable future, internal commercial-scale manufacturing capabilities. Rather, we intend to use the facilities of third parties to manufacture products for commercialization and clinical trials. Our dependence on third parties for the manufacture of our products and any future product candidates may adversely affect our ability to obtain such products on a timely or competitive basis, if at all. Any stock out, quality concern or failure to obtain sufficient supplies of our products, or the necessary active pharmaceutical ingredients, excipients or components, from our suppliers, including as a result of disruptions to supplier operations resulting from factors such as supply chain delays, public health emergencies, climate events or political unrest, or failures by us to satisfy minimum order requirements due to declines in product demand or otherwise, would adversely affect our business, results of operations and financial condition. In particular, our suppliers may be impacted by ongoing supply chain disruptions and inflationary pressures related to the COVID-19 pandemic and general macroeconomic conditions, which may result in supply delays and cost increases.

The manufacturing process for pharmaceutical products is highly regulated, and regulators may from time to time shut down manufacturing facilities that they believe do not comply with regulations. We, our third-party manufacturers and our suppliers are subject to numerous regulations, including current FDA regulations governing manufacturing processes, stability testing, record keeping, product serialization and quality standards. Similar regulations are in effect in other countries. Our third-party manufacturers and suppliers are independent entities who are subject to their own operational and financial risks which are out of our control. If we or any third-party manufacturer or supplier fails to perform as required or fails to comply with the regulations of the FDA and other applicable governmental authorities, our ability to deliver adequate supplies of our products to our customers on a timely basis and on commercially reasonable terms, or to conduct clinical trials, could be adversely affected. For example, in October 2023, Spectrum’s drug product manufacturer for ROLVEDON demanded a significant price increase despite fixed pricing provisions in Spectrum’s supply agreement through the latter half of 2025. Additionally, although we have fixed pricing with our contract manufacturer for INDOCIN Suppositories through July 2028, we understand the active pharmaceutical ingredient (API) provider to our INDOCIN contract manufacturer has demanded a significant price increase to continue supplying API to our contract manufacturer on a purchase order basis. We are assessing the legal and business implications of these circumstances and cannot predict how they may ultimately be resolved. The manufacturing processes of our third-party manufacturers and suppliers may also be found to violate the proprietary rights of others. To the extent these risks materialize and adversely affect such third-party manufacturers’ and/or suppliers’ performance obligations to us, and we are unable to contract for a sufficient supply of required products on acceptable terms, or if we encounter delays and difficulties in our relationships with manufacturers or suppliers, our business, results of operations and financial condition could be adversely affected.

We have significant amounts of long-lived assets and goodwill which depend upon future positive cash flows to support the values recorded in our balance sheet. We are subject to increased risk of future impairment charges should actual financial results differ materially from our projections.

Our consolidated balance sheet contains significant amounts of long-lived assets, including intangible assets representing the product rights which we have acquired, and goodwill recorded from the Spectrum Merger. We review the carrying value of our long-lived assets and goodwill when indicators of impairment are present, as was the case in the three months ended September 30, 2023. Conditions that could indicate impairment of long-lived assets and/or goodwill include, but are not limited to, our market capitalization declining below the book value of our equity, a significant adverse change in market conditions, significant competing product launches by our competitors, significant adverse change in the manner in which the long-lived asset is being used, and adverse legal or regulatory outcomes.

During the three months ended September 30, 2023, we determined that our book value of equity exceeding its market capitalization represented an indicator of impairment with respect to our long-lived assets. Applying the relevant accounting literature, management first assessed the recoverability of our long-lived assets. In performing this assessment, management concluded it was appropriate to group its assets at the entity level, most notably attributed to the significant shared operating cost structure which characterizes Assertio. We determined the carrying value of this asset group was not recoverable.
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Management then assessed and concluded that the fair value of the asset group was less than its carrying value and so recognized an impairment loss of approximately $238.8 million, which was allocated to the intangible assets of the group and is classified within Loss on impairment of intangible assets in the Condensed Consolidated Statement of Comprehensive (Loss) Income. The fair value of the asset group was determined using both an income and a market approach and used Level 3 inputs. These inputs included estimates of forecasted cash flows and the selection of comparable revenue and earnings multiples utilizing guideline companies.

Following our long-lived asset impairment, which was determined to be an indicator of impairment with respect to our goodwill, management tested goodwill for impairment in the three months ended September 30, 2023 by determining and comparing the fair value of its reporting unit to its carrying value, with the carrying value reflecting the allocated long-lived asset impairment loss. The fair value of the reporting unit was determined using both an income and a market approach and used Level 3 inputs. These inputs included estimates of forecasted cash flows, a discount rate to reflect the risk inherent in the forecasted cash flows, and the selection of comparable revenue and earnings multiples utilizing guideline companies. Management concluded that the fair value of the reporting unit exceeded its carrying value and, accordingly, goodwill was not impaired as of September 30, 2023.

In performing our impairment tests, which assess the recoverability of our assets, we utilize our future projections of cash flows. Projections of future cash flows are inherently subjective and reflect assumptions that may or may not ultimately be realized. Significant assumptions utilized in our projections include, but are not limited to, our evaluation of the market opportunity for our products, the current and future competitive landscape and resulting impacts to product pricing, future regulatory actions, planned strategic initiatives and the realization of benefits associated with our existing patents. Given the inherent subjectivity and uncertainty in projections, we could experience significant unfavorable variances in future periods or revise our projections downward. This would result in an increased risk that our goodwill and long-lived assets may be impaired. Any future impairments could have a material adverse effect on our financial condition and results of operations.

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.
                                 
(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, 2023 - July 31, 20232,226$5.42N/AN/A
August 1, 2023 - August 30, 20233,787$2.91N/AN/A
September 1, 2023- September 30, 2023—$—N/AN/A
Total6,013$3.84

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

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ITEM 6. EXHIBITS
10.1
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, 2023ASSERTIO 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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