UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
x
¨
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 001‑13111
ASSERTIO THERAPEUTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
100 South Saunders Road, Suite 300, Lake Forest, Illinois
(Address of Principal Executive Offices)
94‑3229046
(I.R.S. Employer
Identification No.)
60045
(Zip Code)
Registrant’s telephone number, including area code: (224) 419‑7106
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
ASRT
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý
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 x No o
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 x No o
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 ý
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 Act). Yes ¨ No ý
The aggregate market value of the shares of common stock held by non‑affiliates of the registrant, computed by reference to the closing
price as reported on the Nasdaq Stock Market as of June 28, 2019, the last business day of the registrant’s most recently completed second
fiscal quarter, was approximately $220.8 million.
The number of shares outstanding of the registrant’s common stock, $0.0001 par value, as of March 2, 2020 was 81,288,229.
Part III of this Annual Report on Form 10-K incorporates by reference portions of the registrant’s Proxy Statement for its 2020 Annual
Meeting of Stockholders, which Proxy Statement will be filed with the United States Securities and Exchange Commission within 120 days
after the end of the registrant’s 2019 fiscal year.
Documents Incorporated by Reference
ASSERTIO THERAPEUTICS, INC.
FORM 10‑K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019
TABLE OF CONTENTS
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Item 4.
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Item 6.
Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
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NOTE REGARDING FORWARD‑LOOKING STATEMENTS
Statements made in this Annual Report on Form 10‑K that are not statements of historical fact are forward‑looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E
of the Securities Exchange Act of 1934, as amended (the Exchange Act). We have based these forward‑looking statements on
our current expectations and projections about future events. Our actual results could differ materially from those discussed in,
or implied by, these forward‑looking statements. Forward‑looking statements are identified by words such as “believe,”
“anticipate,” “expect,” “intend,” “plan,” “will,” “may” and other similar expressions. In addition, any statements that refer to
expectations, projections or other characterizations of future events or circumstances are forward‑looking statements.
Forward‑looking statements include, but are not necessarily limited to, those relating to:
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our ability to successfully pursue business development, strategic partnerships, and investment opportunities to build
and grow for the future;
the commercial success and market acceptance of our products;
the outcome of our opioid-related investigations, our opioid-related litigation brought by state and local governmental
entities and private parties, and our insurance, antitrust and other litigation, and the costs and expenses associated
therewith;
any additional patent infringement or other litigation, investigation or proceeding that may be instituted related to us or
any of our products, product candidates or products we may acquire;
our ability to generate sufficient cash flow from our business to make payments on our indebtedness, our ability to
restructure or refinance our indebtedness and our compliance with the terms and conditions of the agreements
governing our indebtedness;
our common stock remaining in compliance with Nasdaq’s minimum closing bid requirement of at least $1.00 per
share, and the resulting rights of holders of our Convertible Notes to require us to repurchase their notes if our
common stock ceases to be listed on the Nasdaq Global Select Market (or certain other U.S. stock exchanges specified
in the agreements governing our indebtedness);
our and our collaborative partners’ compliance or non-compliance with legal and regulatory requirements related to
the development or promotion of pharmaceutical products in the U.S.;
our plans to acquire, in-license or co-promote other products, and/or acquire companies;
the timing and results of our and our collaborative partners’ research and development efforts including clinical studies
relating to our and our collaborative partners’ product candidates
our ability to raise additional capital, if necessary;
our ability to successfully develop and execute our sales and marketing strategies;
variations in revenues obtained from commercialization and collaborative agreements, including contingent milestone
payments, royalties, license fees and other contract revenues, including non-recurring revenues, and the accounting
treatment with respect thereto;
our collaborative partners’ compliance or non-compliance with obligations under our collaboration agreements; and
our ability to attract and retain key executive leadership.
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 in “ITEM 1A. RISK FACTORS” and elsewhere in this Annual
Report on Form 10‑K. Forward looking statements are made as of the date of this report. Except as required by law, we assume
no obligation to update any forward‑looking statement, or to revise any forward‑looking statement to reflect events or
developments occurring after the date of this Annual Report on Form 10‑K, even if new information becomes available in the
future. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied
in any such forward‑looking statement.
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ITEM 1. BUSINESS
Our Company
PART I
Assertio Therapeutics, Inc. (Assertio or the Company) is a leading diversified, specialty pharmaceutical company focused
on distinctive products that offer enhanced therapeutic options for patients in need, while maintaining the highest ethical standards
in all our business practices. The Company’s current specialty pharmaceuticals business includes CAMBIA®(diclofenac potassium
for oral solution), a non-steroidal anti-inflammatory drug for the acute treatment of migraine attacks, acquired by the Company
in December 2013, and Zipsor® (diclofenac potassium liquid filled capsules), a non-steroidal anti-inflammatory drug for the
treatment of mild to moderate acute pain, acquired by the Company in June 2012, both of which, are marketed in the United States
(U.S.).
Business Strategy
In 2017, the Company announced that it was in the process of transforming into a leading diversified, specialty
pharmaceutical company with a goal of rapidly deleveraging its balance sheet, growing its core business, and opportunistically
building for the future via business development. The Company has completed the following transactions to advance toward
achieving its stated goals:
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On December 4, 2017, the Company announced a commercialization agreement with Collegium Pharmaceutical, Inc.
(Collegium), pursuant to which the Company granted Collegium the right to commercialize the NUCYNTA franchise of
products in the U.S. (the Commercialization Agreement). Pursuant to the Commercialization Agreement, Collegium
assumed all commercialization responsibilities for the NUCYNTA franchise effective January 9, 2018, including sales
and marketing, and the Company received royalty on all NUCYNTA revenues based on certain net sales thresholds.
On August 13, 2019, the Company entered into separate, privately negotiated exchange agreements (the Exchange
Agreements) with a limited number of holders of Assertio’s 2.50% Convertible Notes due 2021 (the 2021 Notes).
Pursuant to the Exchange Agreements, Assertio exchanged approximately $200 million aggregate principal amount of
Exchanged Notes for a combination of (a) its new 5.00% Convertible Senior Notes due August 15, 2024 (the 2024
Notes), (b) a cash payment plus accrued but unpaid interest on the Exchanged Notes, and (c) an agreed number of
shares of Assertio’s common stock.
On December 12, 2019, the Company announced it entered into an agreement with Golf Acquiror LLC, an affiliate to
Alvogen, Inc. (Alvogen), a global privately held pharmaceutical company, under which Alvogen acquired and assumed
all responsibilities associated with the product Gralise® (gabapentin). Under the terms of the agreement, Alvogen is
expected to pay Assertio a total value of $127.5 million. This included $75.0 million in cash at closing on January 10,
2020, and the balance payable as 75% of Alvogen’s first $70.0 million of Gralise net sales after the closing. Alvogen also
paid the Company for certain inventories relating to Gralise.
On February 6, 2020, the Company announced it entered into a definitive agreement with Collegium pursuant to which
Collegium acquired the NUCYNTA franchise of products from the Company, and assumed certain contracts, liabilities
and obligations of the Company relating to the NUCYNTA products, including those related to manufacturing and supply,
post-market commitments and clinical development costs. Under the terms of the agreement, Collegium paid Assertio
$375.0 million in cash at closing on February 13, 2020, less royalties paid to the Company in 2020. Collegium also paid
the Company for certain inventories relating to the products.
On February 13, 2020, the Company repaid in full its outstanding aggregate principal amount of senior secured notes
(Senior Notes) pursuant to a Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement) and all
subsequent amendments to the Note Purchase Agreement.
On February 19, 2020, the Company announced it entered into separate, privately negotiated agreements with a limited
number of holders of the Company’s 2021 Notes and 2024 Notes to repurchase approximately $188.0 million aggregate
principal amount of the outstanding 2021 Notes and 2024 Notes.
As a result of the transformational impact of these transactions, the Company has positioned itself to actively pursue
business development, strategic partnerships, and investment opportunities to build and grow for the future.
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The transactions above are described in more detail in “Item 8. Financial Statements and Supplemental Data - Notes to
the Consolidated Financial Statements” of this Annual Report on Form 10-K.
Corporate Information
The address of our website is http://www.assertiotx.com. We make available, free of charge through our website or
upon written request, our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K and
other periodic SEC reports, along with amendments to all of those reports, as soon as reasonably practicable after we file the
reports with the SEC.
Assertio was formerly known as Depomed, Inc. and was originally incorporated in California in August 1995. On
August 14, 2018 (Effective Time), we reincorporated from California to Delaware and changed our name to Assertio
Therapeutics, Inc. In connection with this name change, our common stock began trading under the ticker symbol “ASRT.”
The use of the terms “Company,” “we,” “our” and “us” in this filing refers to Depomed any time prior to the Effective Time
and to Assertio any time after the Effective Time.
Our Business Operations
As of December 31, 2019, our business operations consisted of the following:
Products
CAMBIA (Diclofenac Potassium for Oral Solution)
CAMBIA is a non‑steroidal anti‑inflammatory drug (NSAID) indicated for the acute treatment of migraine attacks
with or without aura in adults 18 years of age or older. We acquired CAMBIA in December 2013 from Nautilus
Neurosciences, Inc. (Nautilus). We began shipping and recognizing product sales on CAMBIA in December 2013.
Zipsor (Diclofenac Potassium Liquid‑Filled Capsules)
Zipsor is an NSAID indicated for relief of mild to moderate acute pain in adults. Zipsor uses proprietary ProSorb®
delivery technology to deliver a finely dispersed, rapidly absorbed formulation of diclofenac. We acquired Zipsor in June 2012
from Xanodyne Pharmaceuticals, Inc. (Xanodyne). We began shipping and recognizing product sales on Zipsor in June 2012.
Gralise (Gabapentin)
Gralise is a once‑daily formulation of gabapentin indicated for management of postherpetic neuralgia (PHN), a
persistent pain condition caused by nerve damage during a shingles, or herpes zoster, viral infection. We made Gralise
commercially available in October 2011, following its U.S. Food and Drug Administration (FDA) approval in January 2011.
Effective as of January 10, 2020, we divested our rights, title and interest in and to Gralise to Alvogen.
NUCYNTA ER (Tapentadol Extended Release Tablets) and NUCYNTA IR (NUCYNTA) (Tapentadol)
NUCYNTA ER is an extended-release version of tapentadol that is indicated for the management of pain severe
enough to require daily, around‑the‑clock, long-term opioid treatment, including neuropathic pain associated with diabetic
peripheral neuropathy (DPN) in adults, and for which alternate treatment options are inadequate. NUCYNTA is an immediate
release version of tapentadol that is indicated for the management of moderate to severe acute pain in adults. We acquired the
U.S. rights to NUCYNTA ER and NUCYNTA from Janssen Pharmaceuticals, Inc. (Janssen Pharma) and began shipping and
recognizing product sales on NUCYNTA ER and NUCYNTA in April 2015. We began commercial promotion of NUCYNTA
ER and NUCYNTA in June 2015.
In December 2017, we entered into the Commercialization Agreement with Collegium, which we amended in
November 2018. Pursuant to the Commercialization Agreement, we granted Collegium the right to commercialize the
NUCYNTA franchise of products in the U.S. Collegium assumed all commercialization responsibilities for the NUCYNTA
franchise effective January 9, 2018, including sales and marketing, and received royalties on all NUCYNTA revenues based on
certain net sales thresholds, with a minimum royalty of $132.0 million for the year ended December 31, 2018. Beginning in
2019, we received royalties based on certain annual NUCYNTA net sales thresholds for future years. Effective as of February
13, 2020, we divested our rights, title and interest in and to our NUCYNTA franchise to Collegium.
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The following table shows sales for each of the above-described products over each of the past three fiscal years (in
millions):
Gralise
CAMBIA
Zipsor
NUCYNTA ER and NUCYNTA
Product Sales (1)
Commercialization Agreement (2)
Lazanda (3)
Year ended December 31,
2019
$63.1
$32.5
$12.5
$0.9
$118.6
$(0.2)
2018
$58.1
$35.8
$16.4
$18.9
$155.7
$0.8
2017
$77.0
$31.6
$16.7
$239.5
$0
$15.0
(1) NUCYNTA ER and NUCYNTA product sales reflect our sales between January 1, 2017 and January 8, 2018, prior to the Commercialization Agreement
with Collegium. See “Item 8. Financial Statements and Supplementary Data - Note 2. Revenue” for additional information. Subsequent to January 8,
2018, we continue to recognize sales reserve estimate adjustments related to sales recognized for NUCYNTA products in prior periods.
(2) NUCYNTA ER and NUCYNTA royalties from Collegium reflect royalties earned and inventory sold pursuant to the Commercialization Agreement after
January 8, 2018. Variable royalty revenue became effective for sales beginning January 1, 2019, as recognition of such royalties are constrained by the
sales-based royalty exception related to intellectual property. Other components of net revenue from the Commercialization Agreement include the
amortization of revenue from contract liabilities arising from the warrants and prepayments received, amortization of the contract asset, and variable
consideration revenue for reimbursement of certain shared costs. See “Item 8. Financial Statements and Supplementary Data - Note 2. Revenue” for
additional information.
(3)
In November 2017, we entered into agreements with Slán Medicinal Holdings Limited and certain of its affiliates (Slán) pursuant to which Slán acquired
our rights to Lazanda. Lazanda nasal spray is an intranasal fentanyl drug used to manage breakthrough pain in adults (18 years of age and older) who are
already routinely taking other opioid pain medicines around‑the‑clock for cancer pain. We acquired Lazanda in July 2013 from Archimedes Pharma
US Inc. and its affiliated companies. We continue to recognize sales reserve estimate adjustments related to sales recognized for Lazanda in prior periods.
Collaboration and License Agreements
Nuvo Pharmaceuticals, Inc. (Nuvo) In November 2010, we entered into a license agreement with Tribute
Pharmaceuticals Canada Ltd. (now Nuvo Pharmaceuticals, Inc.) granting them the rights to commercially market CAMBIA in
Canada. Nuvo independently contracts with manufacturers to produce a specific CAMBIA formulation in Canada. We receive
royalties on net sales on a quarterly basis as well as certain one-time contingent milestone payments upon the occurrence of
certain events. During the year ended December 31, 2019, we recognized $2.1 million of revenue related to CAMBIA in
Canada. The revenue recognized in 2019 included a $0.3 million one-time amendment fee to support the continued
collaboration with our partner in Canada following their acquisition and a $0.5 million milestone payment. During the year
ended December 31, 2018, we recognized $0.8 million of revenue related to CAMBIA in Canada. We will receive additional
one-time contingent milestone payments upon the achievement of scaling twelve-month cumulative sales targets and certain
development milestones in the future.
Ironwood Pharmaceuticals, Inc. (Ironwood) In July 2011, we entered into a collaboration and license agreement with
Ironwood granting Ironwood a license for worldwide rights to certain patents and other intellectual property rights to our
Acuform drug delivery technology for IW 3718, an Ironwood product candidate under evaluation for refractory
gastroesophageal reflux disease (GERD). During the second quarter of 2018, we received a $5.0 million milestone payment
related to the dosing of the first patient in a Phase 3 trial. We expect to receive additional contingent milestone payments upon
the occurrence of certain development milestones and royalties on net sales of the product, if approved.
PDL BioPharma, Inc. (PDL) In October 2013, pursuant to the terms and conditions of a Royalty Purchase and Sale
Agreement with PDL (Royalty Purchase Agreement), we sold to PDL our right to receive royalty, milestone and other specified
payments arising on and after October 2013 under each of the following license agreements relating to our Acuform technology
in the Type 2 diabetes therapeutic area: (i) the License and Services Agreement, effective as of March 4, 2011, with Boehringer
Ingelheim International GMBH (BI), relating to potential future development milestones and sales of BI’s investigational fixed-
dose combinations of drugs and extended-release metformin worldwide; (ii) the License Agreement, effective as of August 5,
2010, with Janssen Pharmaceutica N.V. (Janssen), relating to potential future development milestones and sales of Janssen’s
investigational fixed-dose combination of Invokana® (canagliflozin) and extended-release metformin worldwide; (iii) the Non-
Exclusive License, Covenant Not to Sue and Right of Reference Agreement, effective as of July 21, 2009, with Merck & Co.,
Inc., relating to sales of Janumet XR® (sitagliptin and metformin HCL extended-release) worldwide; (iv) the
Commercialization Agreement, effective as of August 22, 2011, with Santarus, Inc. relating to sales of Glumetza® (metformin
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HCL extended-release tablets) in the U.S.; (v) the Amended License Agreement, effective as of January 9, 2007, with LG Life
Sciences Ltd., relating to sales of extended-release metformin in Korea; and (vi) the Amended and Restated License Agreement
(Extended Release Metformin Formulations — Canada), dated as of December 13, 2005, with Biovail Laboratories
International SRL, relating to sales of extended-release metformin in Canada. Under the Royalty Purchase Agreement, PDL
was entitled to receive all payments due under such license agreements until PDL received $481 million, after which all net
payments received were to be shared evenly between us and PDL. In August 2018, we amended the Royalty Purchase
Agreement and sold our remaining interest in such payments to PDL for $20.0 million.
Slán Medicinal Holdings Limited In November 2017, we entered into definitive agreements with Slán Medicinal
Holdings Limited and certain of its affiliates (Slán) pursuant to which we acquired Slán’s rights to market the specialty drug
long-acting cosyntropin (synthetic ACTH) in the U.S. and Canada. On February 6, 2020, the Company entered into an amended
agreement with Eolas Pharma Teoranta (Eolas), an affiliate of Slán. Pursuant to the amendment, the license granted to the
Company for the commercialization of long-acting cosyntropin was terminated. Additionally, the Company may receive up to
$10.0 million in future payments based upon commercial sales of long-acting cosyntropin if Eolas successfully obtains
regulatory approval for and commercializes the product.
Segment and Customer Information
We maintain one operating segment and have operations solely in the U.S. To date, substantially all of our revenues
from product sales are related to sales in the U.S.
The three large, national wholesale distributors represent the vast majority of our revenues and represented the
following percentages of product shipments and consolidated revenue for the years ended December 31, 2019, 2018 and 2017
set forth below. Further, as described above, we entered into the Commercialization Agreement with Collegium pursuant to
which we granted Collegium the right to commercialize the NUCYNTA franchise of products in the U.S., effective January 9,
2018. We received royalties on all NUCYNTA revenues based on certain net sales thresholds. These royalties represented the
following percentage of consolidated revenue for the years ended December 31, 2019, 2018 and 2017.
Consolidated Revenue
Accounts Receivable related to product
shipments
2019
2018
2017
2019
2018
2017
16%
12%
10%
52%
10%
14%
13%
11%
55%
7%
36%
27%
26%
—%
11%
46%
17%
25%
—%
12%
28%
28%
32%
—%
12%
41%
27%
23%
—%
9%
100%
100%
100%
100%
100%
100%
McKesson Corporation
AmerisourceBergen Corporation
Cardinal Health
Collegium
All others
Total
Marketing and Sales
We have developed capabilities in various aspects relating to the commercialization of our marketed products,
including sales, marketing, manufacturing, quality assurance, wholesale distribution, managed market contracting, government
price reporting, medical affairs, and compliance and regulatory affairs. Members of our commercial organization are also
engaged in the commercial and marketing assessments of other potential product candidates.
Our neurology sales organization includes approximately 72 full time employees as of January 31, 2020. Our
neurology sales force primarily calls on neurologists, pain specialists and primary care physicians, and their affiliated physician
assistants and nurse practitioners, throughout most of the U.S. Our marketing and managed care organization is comprised of
professionals who have developed a variety of strategies and tactics to promote our products, including promotional materials,
market access programs, industry publications, advertising and other media.
Seasonality
Our product revenues for Gralise, CAMBIA and Zipsor have historically been lower in the first quarter of the year as
compared to the fourth quarter of the preceding year. This variation is influenced by both wholesaler buying patterns and the
reset of annual limits on deductibles and out-of-pocket costs of many health insurance plans and government programs at the
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beginning of each calendar year. For additional information, please also refer to “Item 1A. Risk Factors - Our product revenues
have typically been lower in the first quarter of the year as compared to the fourth quarter of the preceding year.”
Manufacturing
Our facility is used for office purposes. No commercial manufacturing takes place at our facility.
We are responsible for the supply and distribution of our marketed products. We have manufacturing and supply
agreements with sole commercial suppliers for each of our marketed products, as follows: for Gralise, with Patheon Puerto
Rico Inc. (Patheon); for CAMBIA, with MiPharm, S.p.A. (MiPharm); for Zipsor, with Catalent Ontario Limited (Catalent); for
NUCYTNA ER, with an affiliate of Janssen Pharma; and for NUCYNTA, with Halo Pharmaceutical, Inc. (dba Cambrex
Whippany). Effective as of January 10, 2020, we divested our rights, title and interest in and to Gralise to Alvogen, including
related manufacturing and supply agreements. Effective as of February 13, 2020 we divested our rights, title and interest in and
to our NUCYNTA franchise to Collegium, including related manufacturing and supply agreements.
We have one qualified supplier for the active pharmaceutical ingredient in each of our marketed products. We have
supply and manufacturing agreements with the suppliers of the active pharmaceutical ingredients in each of our marketed
products.
For additional information regarding our manufacturing, please also refer to “Item 1A. Risk Factors - 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, will adversely impact our sales upon depletion of the active ingredient and product inventories.”
Intellectual Property
Our Trademarks
Assertio™, Depomed®, CAMBIA®, Zipsor® and Acuform® are trademarks of Assertio. Gralise® and NUCYNTA®
were trademarks of Assertio until we divested our rights to those products and related trademarks to Alvogen and Collegium on
January 10, 2020 and February 13, 2020, respectively. All other trademarks and trade names referenced in this Annual Report
on Form 10-K are the property of their respective owners.
Our Patents and Proprietary Rights
The material issued in the U.S. patents we own or have in‑licensed, and the marketed products they cover, are as
follows:
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Product
NUCYNTA® ER (1)
NUCYNTA® (1)
Gralise® (4)
Zipsor® (5)
CAMBIA® (6)
U.S. Patent Nos. (Exp. Dates)
8,536,130 (September 22, 2028)(2)(3)
7,994,364 (June 27, 2025)(2)(3)
RE39593 (August 5, 2022)(2)(3)
7,994,364 (June 27, 2025)(2)
RE39593 (August 5, 2022)(2)
7,438,927 (February 26, 2024)
7,731,989 (October 25, 2022)
8,192,756 (October 25, 2022)
8,252,332 (October 25, 2022)
8,333,992 (October 25, 2022)
6,723,340 (October 25, 2021)
6,488,962 (June 20, 2020)
7,662,858 (February 24, 2029)
7,884,095 (February 24, 2029)
7,939,518 (February 24, 2029)
8,110,606 (February 24, 2029)
8,623,920 (February 24, 2029)
6,287,594 (January 15, 2019)
9,561,200 (February 24, 2029)
7,759,394 (June 16, 2026)(2)
8,097,651 (June 16, 2026)(2)
8,927,604 (June 16, 2026) (2)
9,827,197 (June 16, 2026)
(1) Effective as of February 13, 2020, we divested the NUCYNTA patents to Collegium.
(2) Subject to six‑month pediatric patent term extension beyond scheduled expiration date.
(3) Patent rights were exclusively in‑licensed by us until transferred to Collegium on February 13, 2020.
(4) Effective as of January 10, 2020, we divested the Gralise patents to Alvogen.
(5) Certain parties who have entered into settlement agreements with us will be able to market generic
versions of Zipsor starting in 2022.
(6) Certain parties who have entered into settlement agreements with us will be able to market generic
versions of CAMBIA starting in 2023.
Our success will depend in part on our ability to obtain and maintain patent protection for our products and
technologies. Our policy is to seek to protect our proprietary rights, by among other methods, filing patent applications in the
U.S. and foreign jurisdictions to cover certain aspects of our technology. In addition to those patents noted on the above table,
we have one patent application pending in the U.S. Our pending patent application may lack priority over other applications or
may not result in the issuance of a patent. Even if issued, our patents may not be sufficiently broad to provide protection against
competitors with similar technologies and may be challenged, invalidated or circumvented, which could limit our ability to stop
competitors from marketing related products or may not provide us with competitive advantages against competing products.
We also rely on trade secrets and proprietary know how, which are difficult to protect. We seek to protect such information, in
part, through entering into confidentiality agreements with employees, consultants, collaborative partners and others before
such persons or entities have access to our proprietary trade secrets and know how. These confidentiality agreements may not
be effective in certain cases. In addition, our trade secrets may otherwise become known or be independently developed by
competitors. For further information regarding risks associated with the protection of our intellectual property rights, please
also refer to “Item 1A. “Risk Factors - We are not always able to protect our intellectual property and are subject to risks from
liability for infringing the intellectual property of others.” For information regarding currently pending litigation related to
intellectual property matters, please also refer to “Item 8. Financial Statements and Supplementary Data - Note 11.
Commitments and Contingencies.”
Competition
General We believe that we compete favorably in our markets on the basis of the safety and efficacy of our products.
However, competition in pharmaceutical products is intense, and we expect competition to increase through both branded and
generic competitors. There may be other companies developing products competitive with ours of which we are unaware.
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Many of our principal competitors may have greater financial, sales, marketing, personnel and research and development
resources than we do. Competing products developed in the future may prove superior to our products, either generally or in
particular market segments. These developments could make our products noncompetitive or obsolete.
Gralise Gabapentin is currently sold by Pfizer Inc. (Pfizer) as Neurontin® and by several generic manufacturers for
adjunctive therapy for partial onset seizures and for the management of PHN. In addition, Pfizer’s product Lyrica® (pregabalin)
has been approved for marketing in the U.S. for the management of PHN, neuropathic pain associated with DPN (diabetic
peripheral neuropathy), neuropathic pain associated with spinal cord injury, fibromyalgia, and adjunctive therapy in partial
onset seizures. In January 2018, Pfizer began to sell Lyrica® CR, a controlled release formulation of Lyrica for neuropathic pain
associated with DPN and for PHN. Gralise competes against these products and other neuropathic pain treatments, such as anti-
depressants, anti-convulsants, local anesthetics used as regional nerve blockers, anti-arrhythmics and opioids. Arbor
Pharmaceutical, LLC’s Horizant™ (gabapentin enacarbil extended-release tablets) product, a prodrug of gabapentin, is also
marketed for the management of PHN in the U.S. as well as for Restless Leg Syndrome. Effective as of January 10, 2020, we
divested our rights, title and interest in and to Gralise to Alvogen.
CAMBIA Diclofenac potassium, the active pharmaceutical ingredient in CAMBIA, is an NSAID approved in the U.S.
for the acute treatment of migraine in adults. CAMBIA competes with a number of triptans which are used to treat acute
migraine and certain other headaches. Currently, seven triptans are available generically and sold in the U.S. (almotriptan,
eletriptan, frovatriptan, naratriptan, rizatriptan, sumatriptan and zolmitriptan). Branded competitors include Zomig® Nasal
Spray, Onzetra®, Xsail®, Sumavel®, Zembrace® SymTouch® and Treximet®, which is a fixed dose combination product
containing sumatriptan and naproxen. There are other products prescribed for or under development for the treatment or
prevention of migraines that are now or may become competitive with CAMBIA, including calcitonin gene-related peptide
(CGRP) inhibitor products (CGRP brands include Aimovig, Ajovy and Emgality).
Zipsor Diclofenac potassium, the active pharmaceutical ingredient in Zipsor, is an NSAID that is approved in the U.S.
for relief of mild to moderate acute pain. Both branded and generic versions of diclofenac are marketed in the U.S. Zipsor
competes against other drugs that are widely used to treat mild to moderate acute pain. In addition, a number of other
companies are developing NSAIDs in a variety of dosage forms for the treatment of mild to moderate pain and related
indications. Other drugs are in clinical development to treat acute pain.
NUCYNTA ER (tapentadol extended release tablets) NUCYNTA ER competes against other long‑acting opioid
medications. Those include, among others: OxyContin® (oxycodone hydrochloride extended‑release tablets); Butrans®
(buprenorphine); Belbuca™ (buprenorphine buccal film); Hysingla® ER (hydrocodone bitartrate); Xtampza® ER (oxycodone);
Zohydro® ER (hydrocodone bitartrate); Embeda® (morphine sulfate and naltrexone hcl); Arymo® ER (morphine sulfate);
MorphaBond™ ER (morphine sulfate); and numerous generically available long‑acting opioids. New products continue to be
developed and approved, such as Pfizer’s Troxyca, Teva’s Vantrela and Daiichi-Sankyo’s RoxyBond. Effective as of February
13, 2020, we divested our rights, title and interest in and to our NUCYNTA franchise to Collegium.
NUCYNTA (tapentadol) NUCYNTA (tapentadol) competes primarily against other short‑acting opioids. There are
numerous such medicines, including, among others: Oxaydo® (oxycodone hydrochloride (hcl)); generic oxycodone hcl; generic
oxycodone acetaminophen; generic oxymorphone; generic hydrocodone acetaminophen; generic hydromorphone; generic
morphine; generic tramadol hcl and generic tramadol acetaminophen. New short-acting opioids continue to be developed and
approved. Effective as of February 13, 2020, we divested our rights, title and interest in and to our NUCYNTA franchise to
Collegium.
Government Regulation
In the U.S., pharmaceuticals are subject to regulation by federal and state authorities, including the FDA. The Federal
Food, Drug and Cosmetic Act (FDCA) governs the testing, manufacturing, safety, efficacy, labeling, storage, record keeping,
approval, and marketing of pharmaceutical products. Failure to comply with applicable regulatory requirements can, among
other things, result in delays, injunctions, product seizure or detention, product recalls, total or partial suspension of production
and civil suits. The FDA may revoke approved applications or deny approval of pending new drug applications, premarket
approval applications or supplements to approved applications.
Preclinical and Clinical Studies
Governmental approval is required of all potential pharmaceutical products prior to the commercial use of those
products. The regulatory process takes several years and requires substantial funds.
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In the work related to the development or marketing of new pharmaceutical products, the FDA may require pre-
clinical tests that include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to
assess potential efficacy and safety of the product. If preclinical testing is required, we must submit the results of the studies,
together with manufacturing information, analytical data and any available clinical data or literature, among other things, to the
FDA as part of an Investigational New Drug Application (IND), which must become effective before beginning clinical testing
in humans.
Some of the products we have developed have been submitted for approval under Section 505(b)(2) of the FDCA,
which was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the
Hatch‑Waxman Act. Section 505(b)(2) permits the submission of a new drug application (NDA) where at least some of the
information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not
obtained a right of reference.
Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of
qualified investigators in accordance with Current Good Clinical Practice (cGCP), which includes the requirement that all
research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are
conducted under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the
effectiveness criteria to be evaluated. Each protocol intended to study an investigational new drug formulation must be
submitted to the FDA as part of the IND. Additionally, an independent Institutional Review Board (IRB) at each institution
participating in the clinical trial must review and approve the plan for any clinical trial before it commences.
Typically, human clinical evaluation involves a time‑consuming and costly three‑phase process:
•
•
•
In Phase 1, we conduct clinical trials with a small number of subjects to determine a drug’s early safety
profile and its pharmacokinetic pattern.
In Phase 2, we conduct limited clinical trials with groups of patients afflicted with a specific disease in order
to determine preliminary efficacy, optimal dosages and further evidence of safety.
In Phase 3, we conduct large‑scale, multi‑center, comparative trials with patients afflicted with a target
disease in order to provide enough data to statistically evaluate the efficacy and safety of the product
candidate, as required by the FDA.
The FDA closely monitors the progress of each phase of clinical testing. The FDA may, at its discretion, re‑evaluate,
alter, suspend or terminate testing based upon the data accumulated and the FDA’s assessment of the risk/benefit ratio to
patients. The FDA may require additional clinical trials after approvals, known as Phase 4 trials.
Marketing Approval
FDA approval of an NDA is required before a product may be marketed in the U.S. Assuming successful completion
of the required clinical testing, the results of the preclinical and clinical studies, together with detailed information relating to
the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA requesting
approval to market the product for one or more indications. If the FDA determines that the application is not sufficiently
complete to permit substantive review, it may request additional information and decline to accept the application for filing
until the information is provided. Once the submission is accepted for filing, the FDA begins an in-depth substantive review.
The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in
which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety,
quality and purity. During the review process, the FDA also reviews the drug’s product labeling to ensure that appropriate
information is communicated to healthcare professionals and consumers.
As part of an application, the FDA may require submission of a Risk Evaluation and Mitigation Strategy (REMS) plan
to mitigate any identified or suspected serious risks. The REMS plan could include medication guides, physician
communication plans, assessment plans and elements to assure safe use, such as restricted distribution methods, patient
registries or other risk minimization tools. In addition, under the Pediatric Research Equity Act of 2003 (PREA), certain NDAs
or supplements to an NDA must contain adequate data to assess the safety and effectiveness of the drug for the claimed
indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation
for which the product is safe and effective. The FDA may grant deferrals for submission of some or all pediatric data until after
approval of the product for use in adults, or partial or full waivers from the pediatric data requirements.
Before an NDA is approved, the FDA generally inspects one or more clinical sites and facilities at which the drug is
manufactured to ensure they are in compliance with the FDA’s cGCPs and Current Good Manufacturing Practices (cGMP),
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respectively. If the FDA determines the application, data or manufacturing facilities are not acceptable, the FDA may note the
deficiencies in the submission and request additional testing or information.
After evaluating the NDA, including all related information and clinical and manufacturing inspection reports, the
FDA may issue an approval letter, or, in some cases, a complete response letter (CRL). A CRL generally contains a statement of
specific conditions that must be met in order to obtain final approval of the NDA and may require additional clinical or
preclinical testing in order for the FDA to reconsider the application. Even with submission of this additional information, the
FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those
conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter
authorizes commercial marketing of the drug with specific prescribing information for specific indications.
The testing and approval process for an NDA requires substantial time, effort and financial resources. Data obtained
from preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could
delay, limit or prevent regulatory approval. The FDA may not grant approval of an NDA on a timely basis, or at all.
If approved, the FDA may still limit the approved indications for use of the product, require that contraindications,
warnings or precautions be included in the product labeling, require that post-marketing or Phase 4 clinical studies be
conducted, require surveillance programs to monitor the product after commercialization, or impose other conditions, including
distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential
market and profitability of the product. The results of post-marketing studies may cause the FDA to prevent or limit further
marketing of a product. After approval, certain changes to the approved product, such as manufacturing changes, new labeling
claim and new indications, are subject to additional requirements and FDA review and approval.
Foreign regulatory approval of a product must also be obtained prior to marketing a product internationally. The
clinical testing requirements and the time required to obtain foreign regulatory approvals may differ from that required for FDA
approval and the time required for approval may delay or prevent marketing in certain countries.
Manufacturing Requirements
We, our suppliers, contract manufacturers and other entities involved in the manufacturing and distribution of
approved drugs are required to comply with certain post-approval requirements and are subject to periodic unannounced
inspections by the FDA and state agencies to assess compliance with cGMP requirements. Accordingly, manufacturers must
continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. Failure
to achieve or maintain cGMP standards for our products would adversely impact their marketability.
We use third-party manufacturers to produce our products in clinical and commercial quantities, and we cannot be
certain that future FDA inspections will not identify compliance issues at the facilities of our contract manufacturers that may
disrupt production or distribution, or require substantial resources to correct. Additionally, new government requirements may
be established that could delay or prevent regulatory approval of our products under development.
Reimbursement
Sales of pharmaceutical products in the U.S. depend in significant part on the extent of coverage and reimbursement
from government programs, including Medicare and Medicaid, as well as other third-party payers. Third-party payers are
undertaking significant efforts to control the cost of pharmaceutical products, including by implementing cost containment
measures to control, restrict access to or influence the purchase of drugs and other health care products and services.
Government programs may regulate reimbursement, pricing, and coverage of products in order to control costs or to
affect levels of use of certain products. Private health insurance plans may exclude or restrict coverage of some products, such
as by using payer formularies under which only selected drugs are covered, variable co‑payments that make drugs that are not
preferred by the payer more expensive for patients, and utilization management controls, such as requirements for prior
authorization or prior failure on another type of treatment.
Fraud and Abuse
Pharmaceutical companies that participate in federal healthcare programs are subject to various U.S. federal and state
laws pertaining to healthcare “fraud and abuse,” including anti‑kickback and false claims laws. Violations of U.S. federal and
state fraud and abuse laws may be punishable by criminal or civil sanctions, including fines, civil monetary penalties and
exclusion from federal healthcare programs (including Medicare and Medicaid).
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Federal statutes that apply to us include the federal Anti‑Kickback Statute, which prohibits persons from knowingly
and willfully soliciting, offering, receiving or providing remuneration in exchange for or to generate business, including the
purchase or prescription of a drug, that is reimbursable by a federal healthcare program such as Medicare and Medicaid, and
the Federal False Claims Act (FCA), which generally prohibits knowingly and willingly presenting, or causing to be presented,
for payment to the federal government any false, fraudulent or medically unnecessary claims for reimbursed drugs or services.
Government enforcement agencies and private whistleblowers have asserted liability under the FCA for claims submitted
involving inadequate care, kickbacks, improper promotion of off‑label uses and misreporting of drug prices to federal agencies.
Similar state laws and regulations, such as state anti‑kickback and false claims laws, may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by non‑governmental payers, including private
insurers. These state laws may be broader in scope than their federal analogues, such as state false claims laws that apply where
a claim is submitted to any third‑party payer, regardless of whether the payer is a private health insurer or a government
healthcare program, and state laws that require pharmaceutical companies to certify compliance with the pharmaceutical
industry’s voluntary compliance guidelines.
Federal and state authorities have increased enforcement of fraud and abuse laws within the pharmaceutical industry,
and private individuals have been active in alleging violations of the law and bringing suits on behalf of the government under
the FCA and under state and local laws. These laws are broad in scope and there may not be regulations, guidance or court
decisions that definitively interpret these laws and apply them to particular industry practices. In addition, these laws and their
interpretations are subject to change.
Controlled Substances
Tapentadol (Federal and State). The U.S. Drug Enforcement Administration (DEA) is the federal agency responsible
for domestic enforcement of the Controlled Substances Act of 1970 (CSA). The DEA regulates controlled substances as
Schedule I, II, III, IV and V substances. Schedule I substances by definition have high potential for abuse, no currently
accepted medical use in the U.S and lack accepted safety for use under medical supervision and may not be marketed or sold in
the U.S. Except for research and industrial purposes, a pharmaceutical product may be listed as Schedule II, III, IV or V, with
Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of
abuse among such substances. Tapentadol, the active ingredient in NUCYNTA and NUCYNTA ER, is listed by the DEA as a
Schedule II substance under the CSA. Consequently, its manufacture, shipment, storage, sale and use are subject to a high
degree of regulation.
Registration with the DEA is required for any facility that manufactures, distributes, dispenses, imports or exports a
controlled substance. The registration is specific to the particular location, activity and controlled substance schedule. For
example, separate registrations are needed for import and manufacturing, and each registration will specify which schedules of
controlled substances are authorized to be handled under that registration.
The availability and production of all Schedule II substances, including tapentadol, is limited by the DEA through a
quota system that includes a national aggregate quota, production quotas for individual manufacturers and procurement quotas
that authorize the procurement of specific quantities of Schedule II controlled substances for use in drug product
manufacturing. The DEA annually establishes an aggregate quota for total tapentadol production in the U.S. based on the
DEA’s estimate of the quantity needed to meet commercial and scientific need. The aggregate quota of tapentadol that the DEA
allows to be produced in the U.S. is allocated among applicable individual drug manufacturers, which must submit applications
at least annually to the DEA for individual production quotas. In turn, the manufacturers of NUCYNTA and NUCYNTA ER,
which are third-party contract manufacturers, have to obtain a procurement quota to source tapentadol for the production of
NUCYNTA and NUCYNTA ER. The DEA requires substantial evidence and documentation of expected legitimate medical and
scientific needs before assigning quotas for these activities.
The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to
time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. The DEA may
also require drug manufactures to submit applications for individual production quotas on a rolling basis.
Individual states also regulate controlled substances, and we, as well as our third-party active pharmaceutical
ingredient suppliers and manufacturers, are subject to such regulation by several states with respect to the manufacture and
distribution of these products. Effective as of February 13, 2020, we divested our rights, title and interest in and to our
NUCYNTA franchise to Collegium.
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Gabapentin (State). There has been recent regulatory attention focused on gabapentin as a result of abuse potential.
Although gabapentin is neither an opioid nor classified as a controlled substance by the DEA, as a result of the perceived risks
relating to opioid abuse, several states (Alabama, Indiana, Kentucky, Michigan, North Dakota, Tennessee, Virginia and West
Virginia) have scheduled gabapentin as a Schedule V substance. As a result, we, as well as our third-party active
pharmaceutical ingredient suppliers and manufacturers, are subject to regulation by these states with respect to the manufacture
and distribution of Gralise (gabapentin). Effective as of January 10, 2020, we divested our rights, title and interest in and to
Gralise to Alvogen.
Prescription Limitations
Many states, including the Commonwealths of Massachusetts, and Virginia and the States of New York, Ohio,
Arizona, Maine, New Hampshire, Vermont, Rhode Island, Colorado, Wisconsin, Alabama, South Carolina, Washington and
New Jersey, have either recently enacted, intend to enact or have pending legislation or regulations designed to, among other
things, limit the duration and quantity of initial prescriptions of the immediate-release form of opiates (such as NUCYNTA),
mandate the use by prescribers of prescription drug databases and mandate prescriber education. These and other state and local
laws applicable to the pharmaceutical industry may affect our business and operations as well as those of our
commercialization and development partners.
Other U.S. Healthcare Laws
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of
2010 (collectively, the ACA), contains provisions that have impacted or could potentially impact our business, including (a) an
increase in the minimum Medicaid rebate to states participating in the Medicaid program on branded prescription drugs; (b) the
extension of the Medicaid rebate to managed care organizations that dispense drugs to Medicaid beneficiaries; and (c) the
expansion of the 340B Public Health Service Act drug pricing program (340B Program), which provides outpatient drugs at
reduced rates, to include certain children’s hospitals, free standing cancer hospitals, critical access hospitals and rural referral
centers.
Additionally, the federal Physician Payments Sunshine Act (the Sunshine Act) provisions, enacted in 2010 as part of
the ACA, require pharmaceutical manufacturers, among others, to disclose annually to the federal government (for
re‑disclosure to the public) certain payments made to physicians and certain other healthcare practitioners or teaching hospitals.
State laws may also require disclosure of pharmaceutical pricing information and marketing expenditures and impose penalties
for failures to disclose. Many of these laws and regulations contain ambiguous requirements. As a result of the ambiguity in
certain of these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent
federal and state laws and regulations.
Our operations and business are subject to a number of other laws and regulations, including those relating to the
workplace, privacy, laboratory practices and the purchase, storage, movement, import and export and use and disposal of
hazardous or potentially hazardous substances as well as controlled substances. In addition, state laws may also govern the
privacy and security of health information in some circumstances and may contain different or broader privacy protections than
the federal provisions.
For additional information and risks regarding the above-described government regulations, please also refer to
“Item 1A. Risk Factors.”
Employees
We have approximately 125 full‑time employees as of January 31, 2020. None of our employees are represented by a
collective bargaining agreement, nor have we experienced any work stoppage. We believe that our relations with our retained
employees are good.
The Company recognizes that our industry is specialized and dynamic, and a significant aspect of our success is our
continued ability to execute our human capital strategy of attracting, engaging, developing and retaining highly skilled talent.
There is fierce competition for highly skilled talent, and we offer a robust set of benefits, career-enhancing learning experiences
and initiatives aligned with our mission, vision, and values. We offer competitive compensation for our employees and strongly
embrace pay for performance.
Our Employee Handbook and Code of Business Conduct and Ethics clearly outlines our unwavering commitment to
diversity and inclusion, where all employees are welcomed in an environment designed to make them feel comfortable,
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respected, and accepted regardless of their age, race, national origin, gender, religion, disability or sexual orientation. We have
a set of policies explicitly setting forth our expectations for nondiscrimination and a harassment-free work environment. We are
also a proud equal opportunity employer and cultivate a highly collaborative and entrepreneurial culture.
ITEM 1A. RISK FACTORS
In addition to other information in this report, please consider the following discussion of factors that makes an
investment in our securities risky. The risks or uncertainties described in this Form 10‑K can materially and adversely affect our
business, results of operations or financial condition. The risks and uncertainties described below have been grouped under
general risk categories, one or more of which categories may be applicable to the risk factors described. The risks and
uncertainties described in this Form 10‑K 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 can harm our business, results of
operations and financial condition.
Risks Related to Commercial, Regulatory and Other Business Matters
Our success is dependent on our executive management team’s ability to successfully pursue business development,
strategic partnerships and investment opportunities to build and grow for the future.
In 2017, the Company announced that it was in the process of transforming into a leading diversified, specialty
pharmaceutical company with a goal of rapidly de-leveraging its balance sheet, growing its core business and opportunistically
building for the future via business development. Since then, we have completed a number of transactions to advance toward
achieving our stated goals, including the entry into a Commercialization Agreement with Collegium for our NUCYNTA
franchise, the divestiture of Gralise to Alvogen, the divestiture of our remaining rights in the NUCYNTA franchise to
Collegium, the repayment in full of our Senior Notes and the repurchase of approximately $188.0 million aggregate principal
amount of outstanding convertible notes. As a result of the transformation from these transactions, we have positioned the
Company to actively pursue business development, strategic partnerships, and investment opportunities to build and grow for
the future.
If our executive management team is not able, in a timely manner, to develop, implement and execute successful
business strategies and plans to maintain and increase our product revenues following the execution of the transactions above,
our business, financial condition and results of operations will be materially and adversely affected, and the existing business
may be required to take steps to reduce its costs at some point in time. While our Chief Executive Officer and other executive
officers have significant industry-related experience, it may take time to develop, implement and execute our business
strategies and plans. Any delay in the execution of our business plans by our executive management team, or any future
changes to such management team, could affect our ability to develop, implement and execute our business strategies and
plans, which could have a material adverse effect on our business, financial condition and results of operations.
Further, our future business strategies and plans may differ materially, or may continue to evolve, from those we
previously pursued. If our business strategies and plans, or our efforts to realize future operational efficiencies, cause disruption
in our business or operations or do not achieve the level of success or results we anticipate, our business, financial condition
and results of operations will be materially and adversely affected.
If we do not successfully commercialize CAMBIA and Zipsor, or Alvogen does not successfully commercialize Gralise, our
business, financial condition and results of operations will be materially and adversely affected.
In October 2011, we began commercial sales of Gralise®. Effective as of January 10, 2020, we divested our rights, title
and interest in and to Gralise to Alvogen. Under the terms of the agreement, Alvogen will pay us 75% of its first $70.0 million
of Gralise net sales after the closing. In June 2012, we acquired Zipsor and began commercial promotion of Zipsor in July
2012. In December 2013, we acquired CAMBIA and began commercial promotion of CAMBIA in February 2014. In addition
to the risks discussed elsewhere in this section, our ability to successfully commercialize and generate revenues from CAMBIA
and Zipsor, and Alvogen’s ability to successfully commercialize and generate revenues from Gralise, depends on a number of
factors, including, but not limited to, our and Alvogen’s ability to:
•
•
•
develop and execute our sales and marketing strategies for our products and Gralise;
achieve, maintain and grow market acceptance of, and demand for, our products and Gralise;
obtain and maintain adequate coverage, reimbursement and pricing from managed care, government and other
third-party payers;
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• maintain, manage or scale the necessary sales, marketing, manufacturing, managed markets and other capabilities
and infrastructure that are required to successfully integrate and commercialize our products and Gralise;
•
obtain adequate supply of our products and Gralise;
• maintain and extend intellectual property protection for our products and Gralise; and
•
comply with applicable legal and regulatory requirements.
If we and Alvogen are unable to successfully achieve or perform these functions, we will not be able to maintain or
increase our revenues and our business, financial condition and results of operations will be materially and adversely affected.
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, will adversely impact our sales upon depletion of the active ingredient
and product inventories.
We have one qualified supplier for the active pharmaceutical ingredient in each of CAMBIA and Zipsor. Catalent
Ontario Limited (Catalent), which is located in Ontario, Canada, is our sole supplier for Zipsor pursuant to a manufacturing
agreement we entered into with Catalent effective June 30, 2018. MiPharm, S.p.A, which is located in Milan, Italy, is our sole
supplier for CAMBIA pursuant to a manufacturing and supply agreement that we assumed in connection with our acquisition
of CAMBIA in December 2013. 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 our 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 CAMBIA or Zipsor, or the necessary active pharmaceutical
ingredients, excipients or components, from our suppliers would adversely affect our business, results of operations and
financial condition.
The manufacturing process for pharmaceutical products is highly regulated, and regulators may 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 unique 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, or to continue our clinical trials, could be adversely affected. 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 operation and financial condition could be
adversely affected.
Our commercialization, collaborative and other arrangements may give rise to disputes over commercial terms, contract
interpretation and ownership or protection of our intellectual property and may adversely affect the commercial success of
our products.
We currently have collaboration or license arrangements with a number of companies, including Ironwood
Pharmaceuticals, Inc., Nuvo Pharmaceuticals, Inc. and PDL BioPharma, Inc. In addition, we have in the past and may in the
future enter into other commercialization or collaborative arrangements, some of which have been based on less definitive
agreements, such as memoranda of understanding, material transfer agreements, options or feasibility agreements. We may not
execute definitive agreements formalizing these arrangements.
Commercialization and collaborative relationships are generally complex and can give rise to disputes regarding the
relative rights, obligations and revenues of the parties, including the ownership of intellectual property and associated rights
and obligations, especially when the applicable collaborative provisions have not been fully negotiated and documented. Such
disputes can delay collaborative research, development or commercialization of potential products, and can lead to lengthy,
expensive litigation or arbitration. The terms of such arrangements may also limit or preclude us from commercializing
products or technologies developed pursuant to such collaborations. Additionally, the commercialization or collaborative
partners under these arrangements might breach the terms of their respective agreements or fail to maintain, protect or prevent
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infringement of the licensed patents or our other intellectual property rights by third parties. Moreover, negotiating
commercialization and collaborative arrangements often takes considerably longer to conclude than the parties initially
anticipate, which could cause us to enter into less favorable agreement terms that delay or defer recovery of our development
costs and reduce the funding available to support key programs. Any failure by our commercialization or collaborative partners
to abide by the terms of their respective agreements with us (including their failure to accurately calculate, report or pay any
royalties payable to either us or a third party or their failure to repay, in full or in part, either any outstanding receivables or any
other amounts for which we are entitled to reimbursement) may adversely affect our results of operations.
We are not always able to enter into commercialization or collaborative arrangements on acceptable terms, which can
harm our ability to develop and commercialize our current and potential future products and technologies. Other factors
relating to collaborations that may adversely affect the commercial success of our products include:
•
•
•
•
any parallel development by a commercialization or collaborative partner of competitive technologies or products;
arrangements with commercialization or collaborative partners that limit or preclude us from developing products
or technologies;
premature termination of a commercialization or collaboration agreement or the inability to renegotiate existing
agreements on favorable terms; or
failure by a commercialization or collaborative partner to devote sufficient resources to the development and
commercial sales of products using our current and potential future products and technologies.
Our commercialization or collaborative arrangements do not necessarily restrict our commercialization or
collaborative partners from competing with us or restrict their ability to market or sell competitive products. Our current and
any future commercialization or collaborative partners may pursue existing or other development-stage products or alternative
technologies in preference to those being commercialized or developed in collaboration with us.
In addition, contract disputes with customers or other third parties may arise from time to time. Our commercialization
or collaborative partners, or customers or other third parties, may also terminate their relationships with us or otherwise decide
not to proceed with the development, commercialization or purchase of our products.
We and our commercial partners may be unable to compete successfully in the pharmaceutical industry.
Competition in the pharmaceutical industry is intense and we expect competition to increase. Competing products
currently under development or developed in the future may prove superior to our products and may achieve greater
commercial acceptance. Most of our principal competitors have substantially greater financial, sales, marketing, personnel and
research and development resources than we and our commercial partners do.
Branded gabapentin is currently sold by Pfizer as Neurontin for adjunctive therapy for partial onset epileptic seizures
and for the management of PHN. Pfizer’s basic U.S. patents relating to Neurontin have expired, and numerous companies have
received approval to market generic versions of the immediate-release product. In addition to receiving approval for marketing
to treat neuropathic pain associated with DPN, Lyrica (pregabalin) has also been approved for marketing in the U.S. for the
treatment of post-herpetic pain, fibromyalgia, adjunctive therapy for partial onset epileptic seizures and nerve pain associated
with spinal cord injury and has captured a significant portion of the market. Moreover, Pfizer’s patents relating to Lyrica have
expired, and generic versions of Lyrica (pregabalin) launched in July 2019. In January 2018, Pfizer began to sell Lyrica CR
(pregabalin extended-release tablets), a once-daily treatment for the management of DPN and PHN. Arbor Pharmaceuticals,
LLC’s Horizant (gabapentin enacarbil extended-release tablets) is approved for the management of PHN and Restless Leg
Syndrome. There are other products prescribed for or under development for PHN which are now or may become competitive
with Gralise.
An alternate formulation of diclofenac is the active ingredient in CAMBIA that is approved in the U.S. for the acute
treatment of migraines in adults. CAMBIA competes with a number of triptans that are used to treat migraines and certain other
headaches. Currently, eight triptans are available generically and sold in the U.S. (almotriptan, eletriptan, frovatriptan,
naratriptan, rizatriptan, sumatriptan, sumatriptan-naproxen and zolmitriptan). Branded competitors include Zomig Nasal Spray,
Onzetra, Xsail, Sumavel, Zembrace SymTouch and Treximet, which is a fixed-dose combination product containing
sumatriptan and naproxen. There are other products prescribed for or under development for the treatment or prevention of
migraines that are now or may become competitive with CAMBIA, including CGRP inhibitor products.
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Diclofenac, the active pharmaceutical ingredient in Zipsor, is an NSAID that is approved in the U.S. for the treatment
of mild to moderate pain in adults, including the symptoms of arthritis. Both branded and generic versions of diclofenac are
marketed in the U.S. Zipsor competes against other drugs that are widely used to treat mild to moderate pain in the acute
setting. In addition, a number of other companies are developing NSAIDs in a variety of dosage forms for the treatment of mild
to moderate pain and related indications. Other drugs are in clinical development to treat acute pain.
If we or our commercialization partners are unable to negotiate acceptable pricing or obtain adequate reimbursement for
our products from third-party payers, our business will suffer.
Sales of our products depend significantly on the availability of acceptable pricing and adequate reimbursement from
third-party payers such as:
•
•
•
government health administration authorities;
private health insurers;
health maintenance organizations;
• managed care organizations;
•
•
pharmacy benefit management companies; and
other healthcare-related organizations.
If reimbursement is not available for our products or product candidates, demand for our products may be limited.
Further, any delay in receiving approval for reimbursement from third‑party payers could have an adverse effect on our future
revenues.
Third-party payers frequently require pharmaceutical companies to negotiate agreements that provide discounts or
rebates from list prices and that protect the payers from price increases above a specified annual limit. We and our
commercialization partners have agreed to provide such discounts and rebates to certain third-party payers. We expect
increasing pressure to offer larger discounts and rebates or discounts and rebates to a greater number of third-party payers to
maintain acceptable reimbursement levels for and access to our products for patients at co-pay levels that are reasonable and
customary. Consolidation among large third-party payers may increase their leverage in negotiations with pharmaceutical
companies. If we or our commercialization partners are forced to provide additional discounts and rebates to third-party payers
to maintain acceptable access to our products for patients, our results of operations and financial condition could be adversely
affected. If third-party payers do not accurately and timely report the eligibility and utilization of our products under their
plans, our reserves for rebates or other amounts payable to third-party payers may be lower than the amount we are invoiced
and we may be required to dispute the amount payable, which would adversely affect our business, financial condition and
results of operations. For example, we have had, and continue to have, disputes with managed care providers over rebates
related to our products. Even when rebate claims made by such managed care providers are without merit, we may be forced to
pay such disputed amounts to the extent our failure to do so could otherwise adversely impact our business, such as our ability
to maintain a favorable position on such provider’s formulary. In addition, if competitors reduce the prices of their products, or
otherwise demonstrate that they are better or more cost effective than our products, this may result in a greater level of
reimbursement for their products relative to our products, which would reduce sales of our products and harm our results of
operations. The process for determining whether a third-party payer will provide coverage for a product may be separate from
the process for setting the price or reimbursement rate that such third-party payer will pay for the product once coverage is
approved. Third-party payers may limit coverage to specific products on an approved list, or formulary, which might not
include all of the approved products for a particular indication, including one or more of our products. Any third-party payer
decision not to approve pricing for, or provide adequate coverage and reimbursement of, our products, including by reducing,
limiting or denying reimbursement for new products or excluding products that were previously eligible for reimbursement,
would limit the market acceptance and commercial prospects of our products and harm our business, financial condition and
results of operations. In addition, any third-party payer decision to impose restrictions, limitations or conditions on prescribing
or reimbursement of our products, including on the dosing or duration of prescriptions for our products, would harm our
business, financial condition and results of operations.
There have been, and there will continue to be, legislative, regulatory and third-party payer proposals to change the
healthcare system in ways that could impact our ability to commercialize our products profitably. We anticipate that the federal
and state legislatures and the private sector will continue to consider and may adopt and implement healthcare policies, such as
the Patient Protection and Affordable Care Act (ACA) and the Health Care and Education Reconciliation Act, intended to curb
rising healthcare costs. These cost-containment measures may include: controls on government-funded reimbursement for
drugs; new or increased requirements to pay prescription drug rebates to government healthcare programs; controls on
healthcare providers; challenges to or limits on the pricing of drugs, including pricing controls or limits or prohibitions on
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reimbursement for specific products through other means; requirements to try less expensive products or generics before a
more expensive branded product; and public funding for cost effectiveness research, which may be used by government and
private third-party payers to make coverage and payment decisions. In California, voters rejected Proposition 61 in November
2016, a ballot initiative that would have prohibited the state from buying prescription drugs from a drug manufacturer at a price
over the lowest price paid for such drug by U.S. Department of Veterans Affairs. Although Proposition 61 was defeated, these
and other cost-containment or price-control measures, if adopted at the federal or state level, could significantly decrease the
price that we or our commercialization partners receive for our products and any product that we may develop or acquire,
which would harm our business, financial condition and results of operations.
If generic manufacturers use litigation and regulatory means to obtain approval for generic versions of our products, our
business will be materially and adversely affected.
Under the Federal Food, Drug, and Cosmetic Act (FDCA), the FDA can approve an 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.
The FDCA requires an applicant for a drug that relies, at least in part, on the patent of one of our branded drugs to
notify us of its application and potential infringement of our patent rights. Upon receipt of this notice, we would have 45 days
to bring a patent infringement suit in federal district court against the company seeking approval of a product covered by one of
our patents. The discovery, trial and appeals process in such suits can take several years. The filing of a patent infringement
lawsuit triggers a one-time automatic 30-month stay of the FDA’s ability to approve the competitor’s application. Such
litigation is often time-consuming and quite costly and may result in generic competition if the patents at issue are not upheld
or if the generic competitor is found not to infringe such patents. If the litigation is resolved in favor of the applicant or the
challenged patent expires during the 30-month stay period, the stay is lifted and the FDA may thereafter approve the
application based on the standards for approval of ANDAs.
Any introduction of one or more products generic to Gralise, CAMBIA, or Zipsor, whether as a result of an ANDA or
otherwise, would harm our business, financial condition and results of operations. The filing of the ANDAs described above, or
any other ANDA or similar application in respect to any of our products, could have an adverse impact on our stock price.
Moreover, if the patents covering our products are not upheld in litigation or if a generic competitor is found not to infringe
these patents, the resulting generic competition would have a material adverse effect on our business, financial condition and
results of operations.
Business interruptions can limit our ability to operate our business and adversely impact the success of our
commercialization partners.
Our operations and infrastructure, and those of our partners, third-party suppliers, manufacturers and vendors are
vulnerable to damage or interruption from cyber-attacks and security breaches, human error, natural disasters, fire, flood, the
effects of climate change, actual or threatened public health crises, power loss, telecommunications failures, equipment failures,
intentional acts of theft, vandalism, terrorism, public health crises and similar events. We have not established a formal disaster
recovery plan, and our back-up operations and our business interruption insurance may not be adequate to compensate us for
losses that occur. A significant business interruption could result in losses or damages incurred by us and require us to cease or
curtail our operations.
Data breaches and cyber-attacks can compromise our intellectual property or other sensitive information and cause
significant damage to our business.
In the ordinary course of our business, we collect, maintain and transmit sensitive data on our computer networks and
information technology systems, including our intellectual property and proprietary or confidential business information. The
secure maintenance of this information is critical to our business. We believe that companies have been increasingly subject to
a wide variety of security incidents, cyber-attacks and other attempts to gain unauthorized access. These threats can come from
a variety of sources, ranging in sophistication from an individual hacker to a state-sponsored attack and motives (including
corporate espionage). Cyber threats may be generic, or they may be custom-crafted to target our information systems. Cyber-
attacks are becoming increasingly more prevalent and much harder to detect and defend against. Our network and storage
applications and those of our third-party vendors may be subject to unauthorized access by hackers or breached due to operator
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error, malfeasance or other system disruptions.
Although our Board of Directors, through our Audit Committee, regularly discusses with management our policies and
practices regarding information technology systems, information management systems and related infrastructure, including our
information technology and information management security, risk management and back-up policies, practices and
infrastructure, it is often difficult to anticipate or immediately detect such incidents and the damage that may be caused by such
incidents. These data breaches and any unauthorized access or disclosure of our information or intellectual property could
compromise our intellectual property and expose sensitive business information, including our financial information or the
information of our business partners. Cyber-attacks could cause us to incur significant remediation costs, result in product
development delays, disrupt key business operations and divert attention of management and key information technology
resources. Our network security and data recovery measures and those of our third party vendors may not be adequate to
protect against such security breaches and disruptions. These incidents could also subject us to liability, expose us to significant
expense and cause significant harm to our business.
Our success is dependent in large part upon the continued services of our executive management team with whom we do not
have employment agreements.
Our success is dependent in large part upon the continued services of members of our executive management team,
and on our ability to attract and retain key management and operating personnel. We do not have agreements with any of our
executive officers that provide for their continued employment with us. Management, scientific and operating personnel are in
high demand in our industry and are often subject to competing offers. The loss of the services of one or more members of
management or key employees or the inability to hire additional personnel as needed could result in delays in the research,
development and commercialization of our products and potential product candidates, or otherwise adversely impact our
business.
Risks Related to Product Development
The development of drug candidates is inherently difficult and uncertain, and we cannot be certain that any of our product
candidates or those of our collaborative partners will be approved for marketing or, if approved, will achieve market
acceptance.
Clinical development is a long, expensive and uncertain process and is subject to delays and failures. As a condition to
regulatory approval, each product candidate must undergo extensive and expensive preclinical studies and clinical trials to
demonstrate to a statistically significant degree that the product candidate is safe and effective. The results at any stage of the
development process may lack the desired safety, efficacy or pharmacokinetic characteristics. Positive or encouraging results of
prior clinical trials are not necessarily indicative of the results obtained in later clinical trials, as has occurred in the past in
certain of our Phase 3 trials. Further, product candidates in later clinical trials may fail to show the desired safety and efficacy
despite having progressed in development. In addition, data obtained from pivotal clinical trials are susceptible to varying
interpretations, which could delay, limit or prevent regulatory approval.
Product candidates are subject to the risk that any or all of them may be found to be ineffective or unsafe, or otherwise
may fail to receive necessary regulatory clearances. The FDA or other applicable regulatory agencies may determine that our
data is not sufficiently compelling to warrant marketing approval and require us to engage in additional clinical trials or provide
further analysis, which may be costly and time-consuming. A number of companies in the pharmaceutical industry, including
us, have suffered significant setbacks in clinical trials, even in advanced clinical trials after showing positive results in
preclinical studies or earlier clinical trials. If our current or future product candidates fail at any stage of development, they will
not receive regulatory approval, we will not be able to commercialize them and we will not receive any return on our
investment in those product candidates.
Other factors could delay or result in the termination of our or our collaborative partner’s current and future clinical
trials and related development programs, including:
•
•
•
•
•
negative or inconclusive results;
patient enrollment rates;
patient noncompliance with the protocol;
adverse medical events or side effects among patients during the clinical trials;
any findings resulting from FDA inspections of clinical operations;
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•
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•
•
•
•
•
•
failure to meet FDA preferred or recommended clinical trial design, end points or statistical power;
failure to comply with good clinical practices;
failure of third-party clinical trial vendors to comply with applicable regulatory laws and regulations;
compliance with applicable laws and regulations;
inability of third-party clinical trial vendors to satisfactorily perform their contractual obligations, comply with
applicable laws and regulations or meet deadlines;
delays or failures in obtaining clinical materials or manufacturing sufficient quantities of the product candidate for
use in clinical trials;
delays or failures in recruiting qualified patients to participate in clinical trials; and
actual or perceived lack of efficacy or safety of the product candidate.
We are unable to predict whether any product candidates will receive regulatory clearances or be successfully
manufactured or marketed. Further, due to the extended testing and regulatory review process required before marketing
clearance can be obtained, the time frame for commercializing a product is long and uncertain. Even if product candidates
receive regulatory clearance, these products may not achieve or maintain market acceptance. If it is discovered that our or our
collaborators’ products or technologies have potential adverse effects or other characteristics that indicate they may be
ineffective as therapeutics, our product development efforts and our business could be significantly harmed.
Even assuming our or our collaborative partners’ products obtain regulatory approval, successful commercialization
requires:
• market acceptance;
•
•
a cost-effective commercial-scale production; and
reimbursement under private or governmental health plans.
Any material delay or failure in the governmental approval process, the successful production of commercial product
or the successful commercialization of our approved product candidates, or those of our collaborative partners, could adversely
impact our business, financial condition and results of operations.
We and our collaborative partners customarily depend on third-party contract research organizations, clinical investigators
and clinical sites to conduct clinical trials with regard to product candidates, and if they do not perform their regulatory,
legal and contractual obligations, or successfully enroll patients in and manage our clinical trials, we and our collaborative
partners may not be able to obtain regulatory approvals for product candidates.
We and our collaborative partners customarily rely on third-party contract research organizations and other third
parties to assist us in designing, managing, monitoring and otherwise conducting clinical trials. We and our collaborative
partners do not control these third parties and, as a result, we and our collaborative partners may be unable to control the
amount and timing of resources that they devote to our or our collaborative partners’ clinical trials.
Although we and our collaborative partners rely on third parties to conduct clinical trials, we and our collaborative
partners are responsible for confirming that each clinical trial is conducted in accordance with its general investigational plan
and protocol, as well as the FDA’s and other applicable regulatory agencies’ requirements, including good clinical practices, for
conducting, recording and reporting the results of clinical trials to ensure that the data and results are credible and accurate and
that the trial participants are adequately protected. If we, contract research organizations or other third parties assisting us or
our collaborative partners with clinical trials fail to comply with applicable good clinical practices, the clinical data generated
in such clinical trials may be deemed unreliable and the FDA, or other applicable regulatory agencies, may require us or our
collaborative partners to perform additional clinical trials before approving any marketing applications with regard to product
candidates. We cannot be certain that, upon inspection, the FDA or other applicable regulatory agencies will determine that any
of our clinical trials or our collaborative partners comply with good clinical practices. In addition, clinical trials must be
conducted with product produced under the FDA’s cGMP regulations and similar regulations outside of the U.S. Our or our
collaborative partners’ failure, or the failure of our product manufacturers, to comply with these regulations may require the
repeat or redesign of clinical trials, which would delay the regulatory approval process.
We and our collaborative partners also customarily rely on clinical investigators and clinical sites to enroll patients and
other third parties to manage clinical trials and to perform related data collection and analysis. If clinical investigators and
clinical sites fail to enroll a sufficient number of patients in such clinical trials or fail to enroll them on the planned schedule,
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these trials may not be completed or completed as planned, which could delay or prevent us or our collaborative partners from
obtaining regulatory approvals for product candidates.
Agreements with clinical investigators and clinical sites for clinical testing and for trial management services place
substantial responsibilities on these parties, which could result in delays in, or termination of, clinical trials if these parties fail
to perform as expected. If these clinical investigators, clinical sites or other third parties do not carry out their contractual duties
or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised
due to their failure to adhere to clinical protocols or for other reasons, clinical trials may be extended, delayed or terminated,
and we and our collaborative partners may be unable to obtain regulatory approval for, or successfully commercialize, product
candidates.
Failure to obtain or maintain regulatory approval for our products, our raw materials or product candidates, will limit our
ability to commercialize our products, and our business will suffer.
The regulatory process is expensive and time consuming. Even after investing significant time and expenditures on
clinical trials, we may not obtain regulatory approval of our product candidates. Data obtained from clinical trials are
susceptible to varying interpretations, which could delay, limit or prevent regulatory approval, and the FDA may not agree with
our methods of clinical data analysis or our conclusions regarding safety and/or efficacy. Significant clinical trial delays could
impair our ability to commercialize our products and could allow our competitors to bring products to market before we do. In
addition, changes in regulatory policy for product approval during the period of product development and regulatory agency
review of each submitted new application may cause delays or rejections. Even if we receive regulatory approval, this approval
may entail limitations on the indicated uses for which we can market a product.
Further, with respect to our approved products, once regulatory approval is obtained, a marketed product and its
manufacturer are subject to continual review and other requirements. The FDA recently notified the Company it would require
two post-marketing studies related to Gralise. In addition, the discovery of previously unknown problems with a product or
manufacturer may result in restrictions on the product, manufacturer or manufacturing facility, including withdrawal of the
product from the market. Manufacturers of approved products are also subject to ongoing regulation and inspection, including
compliance with FDA regulations governing cGMP or Quality System Regulation (QSR). The FDCA, the CSA and other
federal and foreign statutes and regulations govern and influence the testing, manufacturing, packing, labeling, storing, record
keeping, safety, approval, advertising, promotion, sale and distribution of our products. In addition, we and our partners are also
subject to ongoing DEA regulatory obligations, including annual registration renewal, security, record keeping, theft and loss
reporting, periodic inspection and annual quota allotments for the raw material for commercial production of our products. The
failure to comply with these regulations could result in, among other things, warning letters, fines, injunctions, civil penalties,
recall or seizure of products, total or partial suspension of production, non-renewal of marketing applications or authorizations
or criminal prosecution, which could adversely affect our business, results of operations and financial condition.
We are also required to report adverse events associated with our products to the FDA and other regulatory authorities.
Unexpected or serious health or safety concerns could result in labeling changes, recalls, market withdrawals or other
regulatory actions. Recalls may be issued at our discretion or at the discretion of the FDA or other empowered regulatory
agencies. For example, in June 2010, we instituted a voluntary class 2 recall of 52 lots of our 500mg Glumetza product after
chemical traces of 2,4,6-tribromoanisole (TBA) were found in the product bottle.
We are subject to risks associated with NDAs submitted under Section 505(b)(2) of the FDCA.
The products we and our collaborative partners develop or acquire generally are or will be submitted for approval
under Section 505(b)(2) of the FDCA, which was enacted as part of the Drug Price Competition and Patent Term Restoration
Act of 1984, otherwise known as the Hatch-Waxman Act. Section 505(b)(2) permits the submission of an NDA where at least
some of the information required for approval comes from studies not conducted by or for the applicant and for which the
applicant has not obtained a right of reference. For instance, the NDA for Cambia relies on the FDA’s prior approval of
Cataflam, the diclofenac initially approved by the FDA.
For NDAs submitted under Section 505(b)(2) of the FDCA, the patent certification and related provisions of the
Hatch-Waxman Act apply. In accordance with the Hatch-Waxman Act, such NDAs may be required to include certifications,
known as “Paragraph IV certifications,” that certify any patents listed in the Orange Book publication in respect to any product
referenced in the 505(b)(2) application are invalid, unenforceable and/or will not be infringed by the manufacture, use or sale of
the product that is the subject of the 505(b)(2) application. Under the Hatch-Waxman Act, the holder of the NDA which the 505
(b)(2) application references may file a patent infringement lawsuit after receiving notice of the Paragraph IV certification.
Filing of a patent infringement lawsuit triggers a one-time automatic 30-month stay of the FDA’s ability to approve the 505(b)
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(2) application. Accordingly, we may invest a significant amount of time and expense in the development of one or more
products only to be subject to significant delay and patent litigation before such products may be commercialized, if at all. A
Section 505(b)(2) application may also not be approved until any non-patent exclusivity, such as exclusivity for obtaining
approval of a new chemical entity, listed in the Orange Book for the referenced product has expired. The FDA may also require
us to perform one or more additional clinical studies or measurements to support the change from the approved product. The
FDA may then approve the new formulation for all or only some of the indications sought by us. If the FDA disagrees with the
use of the Section 505(b)(2) regulatory pathway for product candidates, we would need to reconsider our plans and might not
be able to obtain approval for product candidates in a timely or cost-efficient manner, or at all. The FDA may also reject our
future Section 505(b)(2) submissions and may require us to file such submissions under Section 501(b)(1) of the FDCA, which
could be considerably more expensive and time-consuming.
Risks Related to Our Industry
We are subject to risks from changes in laws and regulations applicable to, and increased scrutiny and investigations of, the
pharmaceutical industry, including the opioid market, which can adversely affect our business, financial condition and
results of operations.
The manufacture, marketing, sale, promotion, and distribution of our products are subject to comprehensive
government regulation. Changes in laws and regulations applicable to, and increased scrutiny and investigations of, the
pharmaceutical industry, including the opioid market, could adversely affect our business and our ability to commercialize
CAMBIA and Zipsor as well as Alvogen’s ability to commercialize Gralise, thereby adversely affecting our financial condition
and results of operations.
In addition, various federal and state governmental entities, including the U.S. Department of Justice (DOJ) and a
number of state attorneys general, have launched investigations into the marketing and sales practices of pharmaceutical
companies that market or have marketed opioid and non-opioid pain medications, including us. For instance, we have received
subpoenas or civil investigative demands from the DOJ, several state attorneys general, the New York Department of Financial
Services and other state regulators seeking documentation and information in connection with our historical sales and
marketing of opioid products. We also received a subpoena from the State of California Department of Insurance (CDI) seeking
information relating to our historical sales and marketing of Gralise. There has been recent regulatory attention focused on
gabapentin as a result of a perceived risk of the compound being used as a potentiator for opioid abuse. Although gabapentin is
neither an opioid nor classified as a controlled substance by the DEA, as a result of the perceived risks relating to substance
abuse, several states have scheduled gabapentin as a controlled substance. We have also received notice from the FDA that it
has requested that all companies that hold an NDA for gabapentanoids conduct two clinical trials to assess gabapentin’s abuse
liability. One clinical trial is intended to address the abuse potential of gabapentin alone. The other clinical trial is intended to
evaluate gabapentin’s abuse potential when taken in combination with an opioid drug. Depending on the results of these
studies, additional safety labeling, the implementation of a REMS protocol and/or scheduling of gabapentanoids, as a class or
by formulation type, could be mandated by the FDA which, in turn, could result in increased expenses or have a material
adverse impact on either the commercial prospects of our products or our ability or our partners’ ability to commercialize our
products. Continued changes in regulations and legislation applicable to gabapentin could have a material adverse impact on
the commercial prospects of Gralise which could, in turn, have a material adverse effect on Alvogen’s sales and our business,
financial condition and results of operations.
Governmental regulators could take measures that could have a negative effect on our business and our products. Any
negative regulatory request or action taken by a regulatory agency, including the FDA, with respect to our other products could
adversely affect our business, results of operations, and financial condition.
The regulatory actions described above, as well as the related litigation and investigations, not only create financial
and operational pressure on our company, but could also put pressure on other companies in our industry and with which we
have contractual arrangements. Such pressures could negatively impact our contractual counterparties and may give rise to
contract cancellations, breaches or rejections in bankruptcy. Furthermore, in the event that a contract counterparty seeks to
reject a contract, we may have an unsecured claim for damages, which may not be paid in full (if at all), and we may be forced
to return payments made within 90 days of the date of filing for bankruptcy protection. If any of these events should occur, it
may have a material adverse effect on our business, financial condition and results of operations.
The foregoing and other similar initiatives and actions, whether taken by governmental authorities or other industry
stakeholders, may result in the reduced availability, prescribing, sales and use of our products, which could adversely affect our
ability to commercialize CAMBIA and Zipsor, as well as Alvogen’s ability to commercialize Gralise, thereby adversely
affecting our business, financial condition and results of operations.
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Pharmaceutical marketing is subject to substantial regulation in the U.S. and any failure by us or our commercial and
collaborative partners to comply with applicable statutes or regulations can adversely affect our business.
All marketing activities of Alvogen associated with Gralise, and our current marketing activities associated with
CAMBIA and Zipsor, as well as marketing activities related to any other products that we may acquire, or for which we or our
collaborative partners obtain regulatory approval, are and will be subject to numerous federal and state laws governing the
marketing and promotion of pharmaceutical products. The FDA regulates post-approval promotional labeling and advertising to
ensure that they conform to statutory and regulatory requirements. In addition to FDA restrictions, the marketing of prescription
drugs is subject to laws and regulations prohibiting fraud and abuse under government healthcare programs. For example, the
federal healthcare program anti-kickback statute prohibits giving things of value to induce the prescribing or purchase of
products that are reimbursed by federal healthcare programs, such as Medicare and Medicaid. In addition, federal false claims
laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal
government. Under these laws, in recent years, the federal government has brought claims against drug manufacturers alleging
that certain marketing activities caused false claims for prescription drugs to be submitted to federal programs. Many states
have similar statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, and,
in some states, such statutes or regulations apply regardless of the payer.
Governmental authorities may also seek to hold us responsible for any failure of our commercialization or
collaborative partners to comply with applicable statutes or regulations. If we, or our commercial or collaborative partners, fail
to comply with applicable FDA regulations or other laws or regulations relating to the marketing of our products, we could be
subject to criminal prosecution, civil penalties, seizure of products, injunctions and exclusion of our products from
reimbursement under government programs, as well as other regulatory or investigatory actions against our product candidates,
our commercial or collaborative partners or us.
We may incur significant liability if it is determined that we are promoting or have in the past promoted the “off-label” use
of drugs.
Companies may not promote drugs for “off-label” use—that is, uses that are not described in the product’s labeling
and that differ from those approved by the FDA. Physicians may prescribe drug products for off-label uses, and such off-label
uses are common across some medical specialties. Although the FDA and other regulatory agencies do not regulate a
physician’s choice of treatments, the FDCA and FDA regulations restrict communications on the subject of off-label uses of
drug products by pharmaceutical companies. The Office of Inspector General of the U.S. Department of Health and Human
Services (OIG), the FDA, and the DOJ all actively enforce laws and regulations prohibiting promotion of off-label use and the
promotion of products for which marketing clearance has not been obtained. If any of the investigations of the DOJ, the
attorneys general identified above, and the CDI, as well as the actions filed by states and municipalities against us, result in a
finding that we engaged in wrongdoing, including sales and marketing practices for our current and future products that violate
applicable laws and regulations, we would be subject to significant liabilities. Such liabilities would harm our business,
financial condition and results of operations as well as divert management’s attention from our business operations and damage
our reputation. For additional information regarding potential liability, see also “ - Governmental investigations and inquiries,
regulatory actions and lawsuits brought against us by government agencies and private parties with respect to our historical
commercialization of opioids can adversely affect our business, financial condition and results of operations.”
Healthcare reform can increase our expenses and adversely affect the commercial success of our products.
The ACA includes numerous provisions that affect pharmaceutical companies. For example, the ACA seeks to expand
healthcare coverage to the uninsured through private health insurance reforms and an expansion of Medicaid. The ACA also
imposes substantial costs on pharmaceutical manufacturers, such as an increase in liability for rebates paid to Medicaid, new
drug discounts that must be offered to certain enrollees in the Medicare prescription drug benefit and an annual fee imposed on
all manufacturers of brand prescription drugs in the U.S. The ACA also requires increased disclosure obligations and an
expansion of an existing program requiring pharmaceutical discounts to certain types of hospitals and federally subsidized
clinics and contains cost-containment measures that could reduce reimbursement levels for pharmaceutical products. The ACA
also includes provisions known as the Physician Payments Sunshine Act, which require manufacturers of drugs, biologics,
devices and medical supplies covered under Medicare and Medicaid to record any transfers of value to physicians and teaching
hospitals and to report this data to the Centers for Medicare and Medicaid Services for subsequent public disclosure. Similar
reporting requirements have also been enacted on the state level domestically, and an increasing number of countries worldwide
either have adopted or are considering similar laws requiring transparency of interactions with healthcare professionals. Failure
to report appropriate data may result in civil or criminal fines and/or penalties. These and other aspects of the ACA, including
regulations that may be imposed in connection with the implementation of the ACA, such as the 340B Program (which requires
pharmaceutical manufacturers to provide outpatient drugs to eligible healthcare organizations and covered entities at
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significantly reduced prices), could increase our expenses and adversely affect our ability to successfully commercialize our
products and product candidates.
Many members of Congress and President Trump have pledged to repeal the ACA. In January 2017, the House and
Senate passed a budget resolution that authorized Congressional committees to draft legislation to repeal all or portions of the
ACA and permits such legislation to pass with a majority vote in the Senate. President Trump also issued an executive order in
which he stated that it is his administration’s policy to seek the prompt repeal of the ACA and directed executive departments
and federal agencies to waive, defer, grant exemptions from, or delay the implementation of burdensome provisions of the ACA
to the maximum extent permitted by law. Although several attempts to repeal and replace the ACA failed to pass both houses of
Congress or have been limited or rejected by federal courts, there is still uncertainty with respect to the impact President
Trump’s administration and the Congress may have, if any, and any changes will likely take time to unfold, as will the ACA-
related lawsuits that are working their way through the federal judicial system. Any new laws or regulations that have the effect
of imposing additional costs or regulatory burden on pharmaceutical manufacturers, or otherwise negatively affect the industry,
could adversely affect our ability to successfully commercialize our products and product candidates. In addition, President
Trump, members of Congress, and state elected officials have indicated that reducing the price of prescription drugs will be a
priority. The implementation of any price controls, caps on prescription drugs or price transparency requirements, whether at
the federal level or state level, could adversely affect our business, operating results and financial condition.
Risks Related to the Historical Commercialization of Opioids
Governmental investigations and inquiries, regulatory actions and lawsuits brought against us by government agencies and
private parties with respect to our historical commercialization of opioids can adversely affect our business, financial
condition and results of operations.
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, as well as increased legal action brought by state and local governmental entities and private parties.
For example, we are currently named as a defendant, along with numerous other manufacturers and distributors of opioid
drugs, in multiple lawsuits alleging common-law and statutory causes of action for alleged misleading or otherwise improper
marketing and promotion of opioid drugs. Such litigation and related matters are described in “Item 8. Financial Statements and
Supplementary Data - Note 11. Commitments and Contingencies.”
In March 2017, we received a letter from 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 our historical
commercialization of opioid products. We voluntarily furnished information responsive to Sen. McCaskill’s request. We have
also received subpoenas or civil investigative demands focused on historical promotion and sales of Lazanda, NUCYNTA, and
NUCYNTA ER from various state attorneys general seeking documents and information regarding our historical sales and
marketing of opioid products. In addition, the CDI has issued a subpoena to us seeking information relating to our historical
sales and marketing of Lazanda. The CDI subpoena also seeks information on Gralise, a non-opioid product which we recently
divested to Alvogen. We have also received subpoenas from the DOJ and the New York Department of Financial Services
seeking documents and information regarding our historical sales and marketing of opioid products. We also from time to time
receive and comply with subpoenas from governmental authorities related to investigations primarily focused on third parties,
including healthcare practitioners. We are cooperating with the foregoing governmental investigations and inquiries. These
matters are described in “Item 8. Financial Statements and Supplementary Data - Note 11. Commitments and Contingencies.”
These and other governmental investigations or inquiries, as well as lawsuits, in which we are and may become
involved may result in additional claims and lawsuits being brought against us by governmental agencies or private parties. It is
not possible at this time to predict either the outcome or the potential financial impact of the opioid-related lawsuits mentioned
above or any governmental investigations or inquiries of us or any lawsuits or regulatory responses that may result from such
investigations or inquiries or otherwise. It is also not possible at this time to predict the additional expenses related to such
ongoing opioid-related litigation and investigations, which may be significant. The initiation of any additional investigation,
inquiry or lawsuit relating to us, the costs and expenses associated therewith, or any assertion, claim or finding of wrongdoing
by us, could:
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adversely affect our business, financial condition and results of operations;
result in reputational harm and reduced market acceptance and demand for our products;
harm our ability and our commercial partners’ ability to market our products;
cause us to incur significant liabilities, costs and expenses; and
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cause our senior management to be distracted from execution of our business strategy.
Furthermore, these pending investigations, inquiries and lawsuits could negatively affect our ability to raise capital
and impair our ability to engage in strategic transactions.
We face risks relating to product liability losses and other litigation liability for which we may be unable to maintain or
obtain adequate protection.
We are or may be involved in various legal proceedings, lawsuits and certain government inquiries and investigations,
including with respect to, but not limited to, patent infringement, product liability, personal injury, antitrust matters, securities
class action lawsuits, breach of contract, Medicare and Medicaid reimbursement claims, opioid-related matters, promotional
practices and compliance with laws relating to the manufacture and sale of controlled substances. For example, we, along with
other opioid manufacturers and, often, distributors, have been named in lawsuits related to the manufacturing, distribution,
marketing and promotion of opioids. In addition, we have also received various subpoenas and requests for information related
to the distribution, marketing and sale of our opioid products. Moreover, our primary product liability insurer has sought a
declaratory judgment that opioid litigation claims noticed by us are not covered by our policies with such insurer. Such
litigation and related matters are described in “Item 8. Financial Statements and Supplementary Data - Note 11. Commitments
and Contingencies.” If any of these legal proceedings, inquiries or investigations were to result in an adverse outcome, the
impact could have a material adverse effect on our competitive position, business, financial condition, results of operations and
cash flows.
We have obtained product liability insurance for sales of our products and clinical trials currently underway, but:
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we may be unable to maintain product liability insurance on acceptable terms;
we may be unable to obtain product liability insurance for future trials;
we may be unable to obtain product liability insurance for future products; or
our insurance may not provide adequate protection against potential liabilities (including pending and future
claims relating to opioid litigation), or may provide no protection at all.
Our inability to obtain or maintain adequate insurance coverage at an acceptable cost could prevent or inhibit the
commercialization of our products. Defending a lawsuit could be costly and significantly divert management’s attention from
conducting our business. If third parties were to bring a successful product liability or other claims, or series of claims, against
us for uninsured liabilities, or in excess of our insured liability limits, our business, results of operations and financial condition
could be adversely affected.
Risks Related to Our Intellectual Property
We are not always able to protect our intellectual property and are subject to risks from liability for infringing the
intellectual property of others.
Our success will depend in part on our ability to obtain and maintain patent protection for our products and
technologies, and to preserve our trade secrets. Our policy is to seek to protect our proprietary rights by, among other methods,
filing patent applications in the U.S. and foreign jurisdictions to cover certain aspects of our technology. We hold issued U.S.
patents and have patent applications pending in the U.S. In addition, we are pursuing patent applications relating to our
technologies in the U.S. and abroad. We have also applied for patents in numerous foreign countries. Some of those countries
have granted our applications and other applications are still pending. Our pending patent applications may lack priority over
other applications or may not result in the issuance of patents. Even if issued, our patents may not be sufficiently broad to
provide protection against competitors with similar technologies and may be challenged, invalidated or circumvented, which
could limit our ability to stop competitors from marketing related products or may not provide us with competitive advantages
against competing products. We also rely on trade secrets and proprietary know-how, which are difficult to protect. We seek to
protect such information, in part, by entering into confidentiality agreements with employees, consultants, collaborative
partners and others before such persons or entities have access to our proprietary trade secrets and know-how. These
confidentiality agreements may not be effective in certain cases, due to, among other things, the lack of an adequate remedy for
breach of an agreement or a finding that an agreement is unenforceable. In addition, our trade secrets may otherwise become
known or be independently developed by competitors.
Our ability to develop our technologies and to make commercial sales of products using our technologies also depends
on not infringing other patents or intellectual property rights. We are not aware of any such intellectual property claims directly
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against us. The pharmaceutical industry has experienced extensive litigation regarding patents and other intellectual property
rights. Patents issued to third parties relating to sustained release drug formulations or particular pharmaceutical compounds
could in the future be asserted against us, although we believe that we do not infringe any valid claim of any patents. If claims
concerning any of our products were to arise and it was determined that these products infringe a third party’s proprietary
rights, we or our commercial partners could be subject to substantial damages for past infringement or could be forced to stop
or delay activities with respect to any infringing product, unless we or our commercial partner, as applicable, can obtain a
license, or our product may need to be redesigned so that it does not infringe upon such third party’s patent rights, which may
not be possible or could require substantial funds or time. Such a license may not be available on acceptable terms, or at all.
Even if we, our collaborators or our licensors were able to obtain a license, the rights may be nonexclusive, which could give
our competitors access to the same intellectual property. In addition, any public announcements related to litigation or
interference proceedings initiated or threatened against us, even if such claims are without merit, could cause our stock price to
decline.
From time to time, we may become aware of activities by third-parties that may infringe our patents. Infringement of
our patents by others may reduce our market shares (if a related product is approved) and, consequently, our potential future
revenues and adversely affect our patent rights if we do not take appropriate enforcement action. We may need to engage in
litigation to enforce any patents issued or licensed to us or to determine the scope and validity of third-party proprietary rights.
For instance, we have previously been engaged in ANDA litigation involving NUCYNTA, NUCYNTA ER and NUCYNTA
oral solution as well as Gralise and Zipsor. It is possible our issued or licensed patents may not be held valid by a court of
competent jurisdiction or the Patent Trial and Appeal Board (PTAB). Whether or not the outcome of litigation or the PTAB
proceeding is favorable to us, the litigation and the proceedings may take significant time, may be expensive and may divert
management’s attention from other business concerns. We may also be required to participate in derivation proceedings or other
post-grant proceedings declared by the U.S. Patent and Trademark Office (USPTO) for the purposes of, respectively,
determining the priority of inventions in connection with our patent applications or determining validity of claims in our issued
patents. Adverse determinations in litigation or proceedings at the USPTO could adversely affect our business, results of
operations and financial condition and could require us to seek licenses which may not be available on commercially
reasonable terms, or at all, or subject us to significant liabilities to third parties. If we need but cannot obtain a license, we may
be prevented from marketing the affected product.
Settlements to ANDA litigation can be challenged and have the potential to lead to significant damage awards.
In circumstances where we settle patent litigation claims asserted against generic drug companies, the terms of these
settlements have the potential to generate new litigation. For example, we were recently named as a co-defendant in a putative
class action brought by certain direct and indirect purchasers of Glumetza (metformin), which was previously the subject of
ANDA patent litigation. The plaintiffs in this action allege that a term of the settlement agreement violated antitrust laws and
thus subsequently led to higher prices for Glumetza. While we believe we have substantive defenses to this action, there can be
no assurance that we will prevail in this action. To the extent that we or our co-defendants are found to have acted improperly,
we could be jointly and severally liable for a significant damages award, which could potentially exceed our ability to pay.
Entry into other patent litigation settlement agreements in the future subjects us to additional potential claims challenging these
settlements under antitrust laws or other novel theories.
Risks Related to Our Financial Position
Our existing capital resources are not necessarily sufficient to fund our future operations or product acquisitions and
strategic transactions that we may pursue.
We fund our operations primarily through revenues from product sales and do not have any committed sources of
capital. To the extent that our existing capital resources and revenues from ongoing operations are insufficient to fund our
future operations, or product acquisitions and strategic transactions that we may pursue, or our litigation-related costs, we will
have to raise additional funds through the sale of our equity securities, through additional debt financing, from development
and licensing arrangements or from the sale of assets. We may be unable to raise such additional capital on a timely basis and
on favorable terms, or at all. If we raise additional capital by selling our equity or convertible debt securities, the issuance of
such securities could result in dilution of our shareholders’ equity positions.
Our failure to generate sufficient cash flow from our business to make payments on our debt would adversely affect our
business, financial condition and results of operations.
We have incurred significant indebtedness under the convertible notes we issued in September 2014 and August 2019
(collectively, the Convertible Notes). Our ability to make scheduled payments of the principal of, to pay interest on or to
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refinance the Convertible Notes and any additional debt obligations we may incur depends on our future performance, which is
subject to economic, financial, competitive and other factors that may be beyond our control. Our business may not generate
cash flow from operations in the future sufficient to service our debt and to make necessary capital expenditures. If we are
unable to generate sufficient cash flow or if our results of operations cause us to fail to comply with our financial covenants, we
may be required to take one or more actions, including refinancing our debt, significantly reducing expenses, renegotiating our
debt covenants, restructuring our debt, selling assets or obtaining additional capital, each of which may be on terms that may be
onerous, highly dilutive or disruptive to our business. Our ability to refinance our indebtedness will depend on the capital
markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these
activities on commercially reasonable or acceptable terms, which could result in a default on our obligations, including the
Convertible Notes.
We may seek to refinance all or a portion of our outstanding indebtedness in the future. Any such refinancing would
depend on the capital markets and business and financial conditions at the time, which could affect our ability to obtain
attractive terms if or when desired or at all.
In addition, our significant indebtedness, combined with our other financial obligations and contractual commitments,
could have other important consequences to our business. For example, it could:
• make it more difficult for us to meet our payment and other obligations under the Convertible Notes or our other
indebtedness;
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result in other events of default under our Convertible Notes or our other indebtedness, which events of default
could result in all of our debt becoming immediately due and payable;
• make us more vulnerable to adverse changes in general economic, industry and competitive conditions and
adverse changes in government regulation;
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limit our ability to borrow additional amounts for working capital and other general corporate purposes, including
funding possible acquisitions of, or investments in, new and complementary businesses, products and
technologies, which is a key element of our corporate strategy;
subject us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest
rates;
require the dedication of a substantial portion of our cash flow from operations to service our indebtedness,
thereby reducing the amount of our cash flow available for other purposes, including working capital, clinical
trials, research and development, business development activities, capital expenditures and other general
corporate purposes;
prevent us from raising funds necessary to repurchase the Convertible Notes in the event we are required to do so
following a “fundamental change,” as specified in the indentures governing the Convertible Notes, or to settle
conversions of the Convertible Notes in cash;
result in dilution to our existing shareholders as a result of the conversion of the Convertible Notes into shares of
common stock;
limit our flexibility in planning for, or reacting to, changes in our business and our industry; and
put us at a disadvantage compared to our competitors who have less debt.
Any of these factors can adversely affect our business, financial condition and results of operations. In addition, if we incur
additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase.
Acquisition of new and complementary businesses, products and technologies is a key element of our corporate strategy.
Failure to successfully identify and acquire such businesses, products or technologies will limit our business growth and
prospects.
An important element of our business strategy is to actively seek to acquire products or companies and to in-license or
seek co-promotion rights to additional products. For example, in the past we have acquired NUCYNTA, NUCYNTA ER (both
of which were subsequently divested to Collegium in February 2020), CAMBIA, and Zipsor, amongst other acquisitions. We
cannot be certain that we will be able to successfully identify, pursue and complete any further acquisitions or whether we
would be able to successfully integrate or develop any acquired business, product or technology or retain any key employees. If
we are unable to enhance and broaden our product offerings, our business and prospects will be limited.
Strategic transactions that fail to achieve the anticipated results and synergies will cause our business to suffer.
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We sometimes seek to engage in strategic transactions with third parties, such as product or company acquisitions,
strategic partnerships, joint ventures, divestitures or business combinations. We may face significant competition in seeking
potential strategic partners and transactions, and the negotiation process for acquiring any product or engaging in strategic
transactions can be time-consuming and complex. Engaging in strategic transactions, such as our acquisition in 2015 of the
rights to NUCYNTA and NUCYNTA ER, our completion in 2018 of the commercialization arrangement covering NUCYNTA
and NUCYNTA ER with Collegium, and our divestiture of NUCYNTA and NUCYNTA ER to Collegium in 2020, may require
us to incur non-recurring and other charges, increase our near- and long-term expenditures, pose integration challenges and fail
to achieve the anticipated results or synergies or distract our management and business, which may harm our business.
As part of an effort to acquire a product or company or to enter into other strategic transactions, we conduct business,
legal and financial due diligence with the goal of identifying, evaluating and assessing material risks involved in the
transaction. Despite our efforts, we ultimately may be unsuccessful in ascertaining, evaluating and accurately assessing all such
risks and, as a result, might not realize the intended advantages of the transaction. We may also assume liabilities and legal
risks in connection with a transaction, including those relating to activities of the seller prior to the consummation of the
transaction and contracts that we assume. Failure to realize the expected benefits from acquisitions or strategic transactions that
we may consummate, or that we have completed, such as the acquisition in 2015 of the U.S. rights to NUCYNTA and
NUCYNTA ER, the commercialization arrangement covering NUCYNTA and NUCYNTA ER with Collegium, and our
divestiture of NUCYNTA and NUCYNTA ER to Collegium in 2020, whether as a result of identified or unidentified risks,
integration difficulties, regulatory setbacks, governmental investigations, independent actions of or financial position of our
collaborative partners, litigation or other events, could adversely affect our business, results of operations and financial
condition.
Failure to integrate any business, product or technology we acquire, will cause our business, financial condition and
operating results to suffer.
Integrating any business, product or technology we acquire is expensive and time-consuming and can disrupt and
adversely affect our ongoing business, including product sales, and distract our management. Our ability to successfully
integrate any business, product or technology we acquire depends on a number of factors, including, but not limited to, our
ability to:
• minimize the disruption and distraction of our management and other employees, including our sales force, in
connection with the integration of any acquired business, product or technology;
• maintain and increase sales of our existing products;
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establish or manage the transition of the manufacture and supply of any acquired product, including the necessary
active pharmaceutical ingredients, excipients and components;
identify and add the necessary sales, marketing, manufacturing, regulatory and other related personnel,
capabilities and infrastructure that are required to successfully integrate any acquired business, product or
technology;
• manage the transition and migration of all commercial, financial, legal, clinical, regulatory and other pertinent
information relating to any acquired business, product or technology;
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comply with legal, regulatory and contractual requirements applicable to any acquired business, product or
technology;
obtain and maintain adequate coverage, reimbursement and pricing from managed care, government and other
third-party payers with respect to any acquired product; and
• maintain and extend intellectual property protection for any acquired product or technology.
If we are unable to perform the above functions or otherwise effectively integrate any acquired businesses, products or
technologies, our business, financial condition and operating results will suffer.
We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes in cash, or to
repurchase the Convertible Notes upon a fundamental change.
Holders of the Convertible Notes will have the right to require us to repurchase all or a portion of their Convertible
Notes upon the occurrence of certain events, including events deemed to be a “fundamental change,” at a repurchase price
equal to 100% of the principal amount of the outstanding Convertible Notes to be repurchased, plus accrued and unpaid
interest, if any. Upon conversion of the Convertible Notes, unless we elect to deliver solely shares of our common stock to
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settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash
payments in respect of the Convertible Notes being converted.
However, we may not have enough available cash or be able to obtain financing at the time we are required to make
repurchases of Convertible Notes or pay cash with respect to Convertible Notes being converted. In addition, our ability to
repurchase or to pay cash upon conversion of the Convertible Notes may be limited by law, regulatory authority or agreements
governing our future indebtedness. Moreover, the occurrence of a fundamental change under the indentures governing the
Convertible Notes could constitute an event of default under the indentures governing the Convertible Notes and any
agreements that may govern any future indebtedness. Following an event of default, if the payment of our outstanding
indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay
such indebtedness.
The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and
operating results.
In the event the conditional conversion feature of the Convertible Notes is triggered, holders of Convertible Notes will
be entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more holders elect to
convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common
stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our
conversion obligation in cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert
their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding
principal of the Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our
net working capital.
The market price of our common stock historically has been volatile. Our results of operations have and may continue to
fluctuate and affect our stock price.
The trading price of our common stock has been, and is likely to continue to be, volatile and could be subject to wide
fluctuations in response to various factors, some of which are beyond our control. Factors affecting our operating results and
that could adversely affect our stock price include:
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the degree of commercial success and market acceptance of Gralise, CAMBIA and Zipsor;
the outcome of our opioid-related investigations, our opioid-related litigation brought by state and local
governmental entities and private parties, and our insurance, antitrust and other litigation, and the costs and
expenses associated therewith;
filings and other regulatory or governmental actions, investigations or proceedings related to our products and
product candidates and those of our commercialization and collaborative partners;
developments concerning proprietary rights, including patents, infringement allegations, inter partes review
proceedings and litigation matters;
legal and regulatory developments in the U.S.;
actions taken by industry stakeholders affecting the market for our products;
our ability to generate sufficient cash flow from our business to make payments on our indebtedness;
our and our commercialization and collaborative partners’ compliance or noncompliance with legal and regulatory
requirements and with obligations under our collaborative agreements;
our ability to successfully develop and execute our sales and marketing strategies;
our plans to acquire, in-license or co-promote other products or compounds or acquire or combine with other
companies, and our degree of success in realizing the intended advantages of, and mitigating any risks associated
with, any such transaction;
adverse events related to our products, or product candidates, including recalls;
interruptions of manufacturing or supply, or other manufacture or supply difficulties;
variations in revenues obtained from commercialization and collaborative agreements, including contingent
milestone payments, royalties, license fees and other contract revenues, including nonrecurring revenues, and the
accounting treatment with respect thereto;
adverse events or circumstances related to our peer companies or our industry or the markets for our products;
adoption of new technologies by us or our competitors;
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our compliance with the terms and conditions of the agreements governing our indebtedness;
decisions by collaborative partners to proceed or not to proceed with subsequent phases of a collaboration or
program;
our ability to generate additional revenues from our intellectual property rights;
sales of large blocks of our common stock or the dilutive effect of our Convertible Notes; and
variations in our operating results, earnings per share, cash flows from operating activities, deferred revenue, and
other financial metrics and non-financial metrics, and how those results are measured, presented and compare to
our financial and operating projections and analyst expectations.
As a result of these and other such factors, our stock price may continue to be volatile and investors may be unable to
sell their shares at a price equal to, or above, the price paid. Any significant drops in our stock price could give rise to
shareholder lawsuits, which are costly and time-consuming to defend against and which may adversely affect our ability to
raise capital while the suits are pending, even if the suits are ultimately resolved in our favor.
In addition, if the market for pharmaceutical stocks or the stock market in general experiences uneven investor
confidence, the market price of our common stock could decline for reasons unrelated to our business, operating results or
financial condition. For example, if one or more securities or industry analysts downgrades our stock or publishes an inaccurate
research report about our company, the market price for our common stock would likely decline. The market price of our
common stock might also decline in reaction to events that affect other companies within, or outside, our industry even if these
events do not directly affect us.
We have incurred operating losses in the past and may incur operating losses in the future.
To date, we have recorded revenues from product sales, license fees, royalties, collaborative research and development
arrangements and feasibility studies. In 2019, 2017 and 2016 we incurred net losses of $217.2 million, $102.5 million and
$88.7 million, respectively. We may continue to incur operating losses in future years. Any such losses may have an adverse
impact on our total assets, shareholders’ equity and working capital.
We have significant amounts of long-lived assets 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 over the last few years and property and equipment. We review the
carrying value of our long-lived assets when indicators of impairment are present. Conditions that could indicate impairment of
long-lived assets include, but are not limited to, 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.
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 long-lived assets may be impaired. For
example, during the year ended December 31, 2019, the Company recognized an impairment loss of approximately $189.8
million related to the NUCYNTA intangible, which represented the excess of the carrying amount over the fair value as of
December 31, 2019. The Company determined that the fair value was $375.0 million as of December 31, 2019, which was
lower than the carrying value of $564.8 million. This impairment loss is described in more detail in “Item 8, Note 6. Intangible
Assets” of this Annual Report on Form 10-K. This impairment and any future impairments could have a material adverse effect
on our financial condition and results of operations.
Our customer concentration can materially adversely affect our financial condition and results of operations.
We and our commercialization partners sell a significant amount of our products to a limited number of independent
wholesale drug distributors. If we, or our commercialization partners, were to lose the business of one or more of these
distributors, if any of these distributors failed to fulfill their obligations, if any of these distributors experienced difficulty in
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paying us or our commercialization partners on a timely basis, or if any of these distributors negotiated lower pricing terms, it
could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash
flows.
Our product revenues have typically been lower in the first quarter of the year as compared to the fourth quarter of the
preceding year.
Our product revenues have typically been lower in the first quarter of the year as compared to the fourth quarter of the
preceding year. We believe this arises primarily as a result of wholesalers’ reductions of inventory of our products in the first
quarter and annual changes in health insurance plans that occur at the beginning of the calendar year.
Our wholesalers typically end the calendar year with higher levels of inventory of our products than at the end of the
first quarter of the following year. As a result, in such first quarters, net sales are typically lower than would otherwise have
been the case as a result of the reduction of product inventory at our wholesalers. Any material reduction by our wholesalers of
their inventory of our products in the first quarter of any calendar year as compared to the fourth quarter of the preceding
calendar year can adversely affect our operating results and can cause our stock price to decline.
Many health insurance plans and government programs reset annual limits on deductibles and out-of-pocket costs at
the beginning of each calendar year and require participants to pay for substantially all of the costs of medical services and
prescription drug products until such deductibles and annual out-of-pocket cost limits are met. In addition, enrollment in high-
deductible health insurance plans has increased significantly in recent years. As a result of these factors, patients may delay
filling or refilling prescriptions for our products or substitute less expensive generic products until such deductibles and annual
out-of-pocket cost limits are met. Any reduction in the demand for our products, including those marketed by our
commercialization partners as a result of the foregoing factors or otherwise, can adversely affect our business, operating results
and financial condition.
Changes in fair value of contingent consideration assumed as part of our acquisitions can adversely affect our results of
operations.
Contingent consideration obligations arise from the Zipsor and CAMBIA acquisitions and relate to the potential future
contingent milestone payments and royalties payable under the respective agreements. The contingent consideration is initially
recognized at its fair value on the acquisition date and is remeasured to fair value at each reporting date until the contingency is
resolved with changes in fair value recognized in earnings. The estimates of fair values for the contingent consideration contain
uncertainties as it involves assumptions about the probability assigned to the potential milestones and royalties being achieved
and the discount rate. Significant judgment is employed in determining these assumptions as of the acquisition date and for
each subsequent period. Updates to assumptions could have a significant impact on our results of operations in any given
period.
The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Notes, can have a
material effect on our reported financial results.
In May 2008, the Financial Accounting Standards Board (FASB) issued the FASB Staff Position No. APB 14-1,
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement), which has subsequently been codified as Accounting Standards Codification (ASC) 470-20, Debt with Conversion
and Other Options (ASC 470-20). Under ASC 470-20, an entity must separately account for the liability and equity
components of the convertible debt instruments (such as the Convertible Notes) that may be settled entirely or partially in cash
upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for
the Convertible Notes is that the equity component is required to be included in the additional paid-in capital within
shareholders’ equity on our consolidated balance sheet at the issuance date and the value of the equity component would be
treated as debt discount for purposes of accounting for the debt component of the Convertible Notes. As a result, we have been
required to record a greater amount of non-cash interest expense as a result of the accretion of the discounted carrying value of
the Convertible Notes to their face amount over the term of the notes. We will report lower net income (or larger net losses) in
our financial results because ASC 470-20 requires interest to include both the accretion of the debt discount and the
instrument’s non-convertible coupon interest rate, which adversely affects our reported or future financial results and may
adversely affect the trading price of our common stock.
In addition, if the Convertible Notes become convertible, we are required under applicable accounting rules to
reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than a long-term liability,
which would result in a material reduction of our net working capital. Finally, we use the if-converted method to compute
32
diluted earnings per share with respect to our convertible debt, which could be more dilutive than assuming the debt would be
settled in cash.
Any of these factors could cause a decrease in the market price of our common stock.
If we are unable to satisfy regulatory requirements relating to internal controls, our stock price could suffer.
Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to conduct a comprehensive evaluation of the
effectiveness of their internal control over financial reporting. At the end of each fiscal year, we must perform an evaluation of
our internal control over financial reporting, include in our annual report the results of the evaluation and have our external
auditors also publicly attest to the effectiveness of our internal control over financial reporting.
Our ability to produce accurate financial statements and comply with applicable laws, rules and regulations is largely
dependent on our maintenance of internal control and reporting systems, as well as on our ability to attract and retain qualified
management and accounting personnel to further develop our internal accounting function and control policies. If we fail to
effectively establish and maintain such reporting and accounting systems or fail to attract and retain personnel who are capable
of designing and operating such systems, these failures will increase the likelihood that we may be required to restate our
financial results to correct errors or that we will become subject to legal and regulatory infractions, which may entail civil
litigation and investigations by regulatory agencies including the SEC. In addition, if material weaknesses are found in our
internal controls in the future, if we fail to complete future evaluations on time or if our external auditors cannot attest to the
effectiveness of our internal control over financial reporting, we could fail to meet our regulatory reporting requirements and be
subject to regulatory scrutiny and a loss of public confidence in our internal controls, which could have an adverse effect on our
stock price or expose us to litigation or regulatory proceedings, which may be costly or divert management attention.
Our financial results are impacted by management’s assumptions and use of estimates.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates are
used when accounting for amounts recorded in connection with acquisitions, including initial fair value determinations of assets
and liabilities as well as subsequent fair value measurements. Additionally, estimates are used in determining items such as
sales discounts and returns, depreciable and amortizable lives, share-based compensation assumptions, fair value of contingent
consideration and taxes on income. Although management believes these estimates are based upon reasonable assumptions
within the bounds of its knowledge of our business and operations, actual results could differ materially from these estimates.
Risks Related to Share Ownership and Other Stockholder Matters
We are subject to risks from future proxy fight or the actions of activist shareholders.
On October 17, 2016, we and Starboard Value LP (Starboard) entered into a settlement agreement pursuant to which,
among other things, (i) three independent directors appointed by Starboard joined our Board of Directors, (ii) we amended our
bylaws to move the window for shareholders director nominations and other shareholder proposals for consideration at the
2017 annual meeting of shareholders to March 15, 2017 through April 15, 2017 and (iii) Starboard agreed to withdraw its
request for the Special Meeting scheduled to be held on November 15, 2016. On March 28, 2017, we and Starboard entered
into a cooperation and support agreement pursuant to which, among other things, two additional independent directors
appointed by Starboard joined our Board of Directors and the parties agreed to certain standstill commitments.
Another proxy contest or related activities with Starboard or other activist shareholders could adversely affect our
business for a number of reasons, including, but not limited to the following:
•
•
•
responding to proxy contests and other actions by activist stockholders can be costly and time-consuming,
disrupting our operations and diverting the attention of management and our employees;
perceived uncertainties as to our future direction may result in the loss of potential business opportunities and may
make it more difficult to attract and retain qualified personnel, business partners, customers and others important
to our success, any of which could negatively affect our business and our results of operations and financial
condition; and
if nominees advanced by activist shareholders are elected or appointed to our Board of Directors with a specific
agenda, it may adversely affect our ability to effectively and timely implement our strategic plans or to realize
33
long-term value from our assets, and this could in turn have an adverse effect on our business and on our results
of operations and financial condition.
Proxy contests have in the past and may in the future cause our stock price to experience periods of volatility. Further,
if a proxy contest results in a change in control of our Board of Directors, such an event would subject us to risks relating to
certain third parties’ rights under our existing contractual obligations, which could adversely affect our business.
We are subject to risks related to unsolicited takeover attempts in the future.
We have in the past and may in the future be subject to unsolicited attempts to gain control of our company.
Responding to any such attempt would distract management attention away from our business and would require us to incur
significant costs. Moreover, any unsolicited takeover attempt may disrupt our business by causing uncertainty among current
and potential employees, producers, suppliers, customers and other constituencies important to our success, which could
negatively impact our financial results and business initiatives. Other disruptions to our business include potential volatility in
our stock price and potential adverse impacts on the timing of, and our ability to consummate, acquisitions of products and
companies.
Certain provisions applicable to the Convertible Notes can delay or prevent an otherwise beneficial takeover or takeover
attempt.
Certain provisions applicable to the Convertible Notes and the indentures governing the Convertible Notes make it
more difficult or more expensive for a third party to acquire us. For example, if an acquisition event constitutes a fundamental
change under the indentures for the Convertible Notes, holders of the Convertible Notes will have the right to require us to
repurchase their notes in cash. In addition, if an acquisition event constitutes a “make-whole fundamental change” under the
indentures, we may be required to increase the conversion rate for holders who convert their Convertible Notes in connection
with such make-whole fundamental change. In any of these cases, and in other cases, our obligations under the Convertible
Notes and the indentures, as well as provisions of our organizational documents and other agreements, can increase the cost of
acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.
We do not intend to pay dividends on our common stock, so any returns on shares of our common stock will be limited to
changes in the value of our common stock.
We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain
future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any
cash dividends for the foreseeable future. In addition, our ability to pay cash dividends on our common stock may be prohibited
or limited by the terms of any future debt financing arrangement. Any return to shareholders will therefore be limited to the
increase, if any, of our stock price.
Our common stock may be delisted from the Nasdaq Global Select Market if we are unable to maintain compliance with
Nasdaq's continued listing standards.
Nasdaq imposes, among other requirements, continued listing standards including minimum bid requirement. The
price of our common stock must trade at or above $1.00 to comply with the minimum bid requirement for continued listing on
the Nasdaq Global Select Market. Recently, our common stock has traded at closing bid prices just above and below $1.00. If
the closing bid price of our common stock fails to meet Nasdaq’s minimum closing bid price requirement for a period in excess
of 30 consecutive days, or if we otherwise fail to meet any other applicable requirements of the Nasdaq Global Select Market
and we are unable to regain compliance, Nasdaq may make a determination to delist our common stock. Any delisting of our
common stock would likely adversely affect the market liquidity and market price of our common stock and our ability to
obtain financing for the continuation of our operations and/or result in the loss of confidence by investors. Furthermore, the
delisting of our common stock would give the holders of the Convertible Notes rights to require us to repurchase all or a
portion of their notes at the prices set forth in the indentures governing the Convertible Notes. If this were to happen, we may
not have sufficient funds to repay such indebtedness.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
34
Our corporate headquarters is located in Lake Forest, Illinois, where we lease approximately 31,000 square feet of
office space (the Lake Forest Lease). Our prior corporate headquarters was located in Newark, California where we entered into
an office and laboratory lease agreement to lease approximately 52,500 rentable square feet commencing in December 2012
and approximately 8,000 additional rentable square feet commencing in July 2015 (the Newark Lease). Following the
relocation of our corporate headquarters from Newark, California to Lake Forest, Illinois, we entered into subleases for the
Newark facility. For additional information regarding the Lake Forest Lease and the Newark Lease, see “Item 8. Financial
Statements and Supplementary Data - Note 10. Leases.”
ITEM 3. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, see “Item 8. Financial Statements and Supplementary
Data - Note 11. Commitments and Contingencies.”
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
35
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders of Common Stock
Our common stock trades on the Nasdaq Global Market (Nasdaq) under the symbol “ASRT.” As of December 31,
2019, there were 19 shareholders of record of our common stock, one of which is Cede & Co., a nominee for Depository Trust
Company, or DTC. All of the shares of common stock held by brokerage firms, banks and other financial institutions as
nominees for beneficial owners are deposited into participant accounts at DTC, and are therefore considered to be held of
record by Cede & Co. as one shareholder.
Dividends
We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain
future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any
cash dividends for the foreseeable future. In addition, our ability to pay cash dividends on our common stock may be prohibited
or limited by the terms of any future debt financing arrangement. Any return to shareholders will therefore be limited to the
increase, if any, of our stock price.
Stock Price Performance Graph
The performance graph and related information shall not be deemed to be “soliciting material” or to be “filed” with the SEC,
and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or Exchange Act
The following graph compares the cumulative total return on an investment in our common stock with the cumulative
total return on an investment in each of the Nasdaq Composite Index and the Nasdaq Pharmaceutical Index. The total return for
our common stock and for each index assumes the reinvestment of all dividends, although cash dividends have never been
declared on our common stock.
Comparison of 5-Years Cumulative Total Return
Among Assertio Therapeutics, Inc., the Nasdaq Composite Index and the Nasdaq Pharmaceutical Index
Assumes Initial Investment of $100
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Assertio Therapeutics, Inc.
Nasdaq Composite Index
Nasdaq Pharmaceutical Index
Assertio Therapeutics, Inc.
12/31/2014
100
$
12/31/2015
113
$
12/31/2016
112
$
12/31/2017
50
$
12/31/2018
22
$
12/31/2019
8
$
Nasdaq Composite Index
Nasdaq Pharmaceutical Index
$
$
100
100
$
$
106
102
$
$
114
90
$
$
146
102
$
$
140
107
$
$
189
123
36
Recent Sales of Unregistered Securities
The Company did not sell any equity securities during the period covered by this Annual Report that were not
registered under the Securities Act, except as previously disclosed in our Current Reports on Form 8-K.
Issuer Purchases of Equity Securities
The Company did not repurchase any shares of its common stock during the fourth quarter of 2019.
37
ITEM 6. SELECTED FINANCIAL DATA
The data set forth below is not necessarily indicative of the results of future operations and should be read in
conjunction with the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included
elsewhere in this Annual Report on Form 10‑K and also with “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” The following information is presented in thousands, except per share data.
Consolidated Statements of Operations Data:
Revenues:
Product sales, net
Commercialization Agreement and other revenue (1)
Royalties and milestones
Total revenues
Total costs and expenses (2)
(Loss) income from operations
Net (loss) income before income taxes
Income tax benefit (expense)
Net (loss) income
Basic net (loss) income per share
Diluted net (loss) income per share
Year Ended December 31,
2019
2018
2017
2016
2015
$ 108,806
118,614
$ 129,966
155,743
$ 379,880
—
$ 455,066
—
$ 341,750
—
2,084
26,061
844
831
985
229,504
311,770
380,724
455,897
342,735
423,932
(194,428)
(222,484)
5,283
$ (217,201) $
(3.07) $
$
(3.07) $
$
268,111
43,659
37,975
(1,067)
36,908
0.58
0.57
431,388
24,509
(64,502)
(24,218)
422,904
(42,180)
(103,925)
1,429
393,135
(50,400)
(123,237)
47,499
$ (102,496) $ (88,720) $ (75,738)
(1.26)
$
(1.26)
60,117
(1.45) $
(1.45) $
(1.63) $
(1.63) $
61,297
62,702
$
Shares used in computing basic net (loss) income per share
70,716
63,794
Shares used in computing diluted net (loss) income per
share
70,716
64,208
62,702
61,297
60,117
Consolidated Balance Sheet Data:
Cash, cash equivalents and short term investments (3)
Total assets
Total current liabilities (4)
Contingent consideration liability, non-current
Senior Notes (3)
Convertible Notes (5)
Other long-term liabilities
Accumulated (deficit) earnings
Total shareholders’ equity
2019
2018
2017
2016
2015
December 31,
$
42,107
527,170
184,553
$ 110,949
932,866
$ 128,089
1,038,617
$ 177,420
1,225,337
$ 209,768
1,357,249
246,036
310,580
227,242
219,632
168
1,038
1,457
10,247
11,653
76,443
158,309
274,720
466,051
563,012
194,815
13,233
(399,801)
57,958
287,798
19,350
(182,600)
220,335
269,510
12,842
(219,508)
169,508
252,725
18,284
(116,744)
250,788
237,313
10,584
(28,024)
315,055
(1) Effective January 8, 2018, the Company entered into a Commercialization Agreement to sub-license NUCYNTA, which resulted in income from variable
royalty revenues, net revenue from the amortization of certain contract assets and liabilities, and variable consideration revenue for the reimbursement of
certain shared costs.
(2) At December 31, 2019 the Company recognized an impairment loss of $189.8 million on its NUCYNTA intangible.
(3) The Company made principal payments of $120.0 million and $82.5 million in 2019 and 2018, respectively. The Company prepaid $114.4 million and
$105.0 million of its Senior Notes, including prepayment premiums of $4.4 million and $5.0 million in 2017 and 2016, respectively.
(4) The increase in current liabilities as of December 31, 2017, is primarily due to the reclassification of principal payments due on our Senior Notes in 2018.
(5)
In August 2019 the Company exchanged $200.0 million aggregate principal amount of the Convertible Senior Notes due March 1, 2021 for a
combination of (a) its new $120.0 million aggregate principal amount of 5.00% Convertible Senior Notes due August 15, 2024, (b) an aggregate cash
payment of $30.0 million, and (c) an aggregate of 15.8 million shares of the Company’s common stock.
38
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
intended to help the reader understand our results of operations and financial condition. The MD&A is provided as a
supplement to, and should be read in conjunction with, our consolidated financial statements and notes thereto included in
“Item 8 - Financial Statements and Supplementary Data.”
The MD&A generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018.
Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be
found in Part II Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
Our Company
Assertio Therapeutics, Inc. (Assertio or the Company) is a leading diversified, specialty pharmaceutical company
focused on distinctive products that offer enhanced therapeutic options for patients in need, while maintaining the highest
ethical standards in all our business practices.
As of December 31, 2019, the Company’s specialty pharmaceutical business consisted primarily of Gralise®
(gabapentin), a once-daily product for the management of postherpetic neuralgia (PHN) that we launched in 2011; CAMBIA®
(diclofenac potassium for oral solution), a nonsteroidal anti-inflammatory drug for the acute treatment of migraine attacks
acquired by the Company in December 2013; and Zipsor® (diclofenac potassium liquid filled capsules), a nonsteroidal anti-
inflammatory drug for the treatment of mild to moderate acute pain acquired by the Company in June 2012, marketed in the
U.S.
On December 4, 2017, the Company announced the Commercialization Agreement with Collegium, pursuant to which
the Company granted Collegium the right to commercialize the NUCYNTA franchise of products in the U.S. Pursuant to the
Commercialization Agreement, Collegium assumed all commercialization responsibilities for the NUCYNTA franchise
effective January 9, 2018, including sales and marketing, and the Company received royalties on all NUCYNTA revenues
based on certain net sales thresholds.
On December 12, 2019, the Company announced it entered into an agreement with Golf Acquiror LLC, an affiliate to
Alvogen, Inc. (Alvogen), a global privately held pharmaceutical company, under which Alvogen acquired and assumed all
responsibilities associated with the product Gralise (gabapentin). Under the terms of the agreement, Alvogen will pay Assertio a
total value of $127.5 million. This included $75.0 million in cash at closing on January 10, 2020, and the balance payable as
75% of Alvogen’s first $70.0 million of Gralise net sales after the closing.
On February 6, 2020, the Company announced it entered into a definitive agreement with Collegium pursuant to
which Collegium acquired the NUCYNTA franchise of products from the Company, and assumed certain contracts, liabilities
and obligations of the Company relating to the NUCYNTA products, including those related to manufacturing and supply, post-
market commitments and clinical development costs. Under the terms of the agreement, Collegium paid Assertio $375.0
million in cash at closing on February 13, 2020, less royalties paid to the Company in 2020. Collegium also paid the Company
for certain inventories relating to the products.
On February 13, 2020, the Company repaid in full its outstanding aggregate principal amount of senior secured notes
(the Senior Notes) pursuant to a Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement) and all
subsequent amendments to the Note Purchase Agreement.
On February 19, 2020, the Company announced it entered into separate, privately negotiated agreements with a
limited number of holders of the Company’s 2021 Notes and 2024 Notes to repurchase approximately $188.0 million aggregate
principal amount of the outstanding 2021 Notes and 2024 Notes.
As a result of the transformational impact of these transactions, the Company has positioned itself to actively pursue
business development, strategic partnerships, and investment opportunities to build and grow for the future.
39
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting
principles, or U.S. GAAP, and U.S. Securities and Exchange Commission (SEC) regulations for annual reporting. Our
management’s discussion and analysis of our financial condition and results of operations are based on our consolidated
financials. The preparation of these financial statements may require significant judgment and/or estimates by management at
the time that financial statements are prepared such that materially different results might have been reported if other
assumptions had been made.We base our estimates and judgments on historical experience, information available at the time,
and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially
from these estimates.
We believe the following policies to be the most critical to an understanding of our financial condition and results of
operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain. A
more detailed discussion of our significant accounting policies can be found in “Note 1. Organization and Significant
Accounting Policies,” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report, and the
impact and risks associated with our accounting policies are discussed throughout this Annual Report on Form 10‑K and in the
Notes to the Consolidated Financial Statements.
Revenue Recognition
Our revenues consist primarily of commercial product revenues, license revenue from the Commercialization
Agreement, and royalties and milestone revenue from license agreements. We account for revenue arising from contracts and
customers in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (ASC
606), which was adopted on January 1, 2018 using the modified retrospective transition method. There was no adjustment to
our opening balance of accumulated deficit resulting from the adoption of this guidance. For further information regarding the
adoption of ASC 606, see Note 1 to the Consolidated Financial Statements included herein.
Our accounting policy for revenue recognition will have a substantial impact on reported results and relies on certain
estimates. Estimates are based on historical experience and various other assumptions that we believe are reasonable under the
circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Commercialization Agreement
We derive revenue from the Commercialization Agreement with Collegium whereby we granted Collegium the right
to commercialize the NUCYNTA franchise of products in the U.S. We entered into the Commercialization Agreement in
December 2017, which became effective in January 2018, and amended the agreement in November 2018. Prior to the
amendment, we recognized the portion of the transaction price allocated to the license and facilitation services ratably over the
term as we view our performance obligations as a series of distinct goods or services that are substantially the same and that
have the same pattern of transfer. Prior to the November 2018 amendment, the consideration related to the license and
facilitation services was fixed and recognized ratably over the contract term. Following the November 2018 amendment, the
royalty payments represent variable consideration that are subject to the sales-based royalty exception for licenses of
intellectual property and are recognized at the later of (i) when the subsequent product sales occur or (ii) the performance
obligation, to which some or all of the sales-based royalty has been allocated, has been satisfied.
Product Sales
We sell commercial products to wholesale distributors and specialty pharmacies. Product sales revenue is recognized
when title has transferred to the customer and the customer has assumed the risks and rewards of ownership, which typically
occurs upon delivery to the customer. Our performance obligation is to deliver product to the customer, and the performance
obligation is completed upon delivery. The transaction price consists of a fixed invoice price and variable product sales
allowances, which include rebates, discounts and returns. Product sales revenues are recorded net of applicable reserves for
these product sales allowances. Receivables related to product sales are typically collected one to two months after delivery.
Sales deductions consist primarily of provisions for product returns, wholesaler and pharmacy discounts, prompt pay
discounts, patient discount programs, chargebacks, managed care rebates, and government rebates. These deductions are
considered variable consideration and are recorded as reductions to revenue in the same period as the related revenues are
recognized. These estimates take into consideration the terms of our agreements with customers, historical product returns,
rebates or discounts taken, estimated levels of inventory in the distribution channel, the shelf life of the product and specific
40
known market events, such as competitive pricing and new product introductions. We use the most likely method in estimating
product sales allowances. If actual future results vary from our estimates, we may need to adjust these estimates, which could
have an effect on product sales and earnings in the period of adjustment. Our sales allowances consist of:
Product Returns—We allow customers to return product for credit with respect to that product within six months
before and up to 12 months after its product expiration date. We estimate product returns and associated credit on NUCYNTA
ER and NUCYNTA, Gralise, CAMBIA, Zipsor and Lazanda. Estimates for returns are based on historical return trends by
product or by return trends of similar products, taking into consideration the shelf life of the product at the time of shipment,
shipment and prescription trends, estimated distribution channel inventory levels and consideration of the introduction of
competitive products. We did not assume financial responsibility for returns of NUCYNTA ER and NUCYNTA previously sold
by Janssen Pharma or Lazanda product previously sold by Archimedes Pharma US Inc. Under the Commercialization
Agreement with Collegium for NUCYNTA ER and NUCYNTA and the divestiture of Lazanda to Slán, we are only financially
responsible for product returns for product that were sold by us, which are identified by specific lot numbers.
The shelf life of NUCYNTA ER and NUCYNTA is 24 months to 36 months from the date of tablet manufacture. The
shelf life of Gralise is 24 months to 36 months from the date of tablet manufacture. The shelf life of CAMBIA is 24 months to
48 months from the manufacture date. The shelf life of Zipsor is 36 months from the date of tablet manufacture. The shelf life
of Lazanda is 24 to 36 months from the manufacture date. Because of the shelf life of our products and our return policy of
issuing credits with respect to product that is returned within six months before and up to 12 months after its product expiration
date, there may be a significant period of time between when the product is shipped and when the Company issues credit on a
returned product. Accordingly, we may have to adjust these estimates, which could have an effect on product sales and earnings
in the period of adjustments.
Wholesaler and Pharmacy Discounts—We offer contractually determined discounts to certain wholesale distributors
and specialty pharmacies that purchase directly from it. These discounts are either taken off invoice at the time of shipment or
paid to the customer on a quarterly basis one to two months after the quarter in which product was shipped to the customer.
Prompt Pay Discounts—We offer cash discounts to its customers (generally 2% of the sales price) as an incentive for
prompt payment. Based on our experience, we expect our customers to comply with the payment terms to earn the cash
discount.
Patient Discount Programs—We offer patient discount co-pay assistance programs in which patients receive certain
discounts off their prescriptions at participating retail and specialty pharmacies. The discounts are reimbursed by us
approximately one month after the prescriptions subject to the discount are filled.
Medicaid Rebates—We participate in Medicaid rebate programs, which provide assistance to certain low income
patients based on each individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, we
pay a rebate to each participating state, generally two to three months after the quarter in which prescriptions subject to the
rebate are filled.
Chargebacks—We provide discounts to authorized users of the Federal Supply Schedule (FSS) of the General Services
Administration under an FSS contract with the Department of Veterans Affairs. These federal entities purchase products from
the wholesale distributors at a discounted price, and the wholesale distributors then charge back to us the difference between
the current retail price and the price the federal entity paid for the product.
Managed Care Rebates—We offer discounts under contracts with certain managed care providers. We generally pay
managed care rebates one to three months after the quarter in which prescriptions subject to the rebate are filled.
Medicare Part D Coverage Gap Rebates—We participate in the Medicare Part D Coverage Gap Discount Program
under which it provides rebates on prescriptions that fall within the “donut hole” coverage gap. We generally pay Medicare Part
D Coverage Gap rebates two to three months after the quarter in which prescriptions subject to the rebate are filled.
We believe our estimates related to gross‑to‑net sales adjustments for wholesaler and pharmacy fees and discounts,
prompt payment discounts, patient discount programs and other government chargebacks do not have a high degree of
estimation complexity or uncertainty as the related amounts are settled within a relatively short period of time. We believe that
our estimated product return allowances, managed care rebates and Medicaid rebates are judgmental and are subject to change
based on our experience and certain quantitative and qualitative factors. Adjustments to estimates for these allowances have not
been material.
41
Our product sales allowances and related accruals are evaluated each reporting period and adjusted when trends or
significant events indicate that a change in estimates is appropriate. Such changes in estimate could affect our results of
operations and financial position.
A roll‑forward of our product revenue allowances for the three years ended December 31, 2019 is as follows (in
thousands):
Balance at December 31, 2016
Revenue Allowances:
Contract Sales
Discounts (1)
(2)
Product
Returns (2)
Cash
Discounts (2)
Total
$
107,927
$
23,609
$
2,110
$
133,646
Provision related to current period sales
Changes in estimates related to sales made in prior years
Payments and credits related to sales made in current period
Payments and credits related to sales made in prior periods
Balance at December 31, 2017
Revenue Allowances:
Provision related to current period sales
Changes in estimates related to sales made in prior years
Payments and credits related to sales made in current period
Payments and credits related to sales made in prior periods
Balance at December 31, 2018
Revenue Allowances:
Provision related to current period sales
Changes in estimates related to sales made in prior years
Payments and credits related to sales made in current period
Payments and credits related to sales made in prior periods
Balance at December 31, 2019
325,489
1,483
(224,002)
(104,751)
106,146
123,623
(19,210)
(75,380)
(86,936)
48,243
148,907
(2,561)
(109,181)
(45,682)
39,726
$
$
$
$
$
$
13,555
7,875
—
(15,357)
29,682
5,716
7,327
—
(14,986)
27,739
19,380
(7,861)
—
(20,042)
19,216
$
$
$
14,858
—
(13,358)
(2,110)
1,500
5,024
—
(4,605)
(1,500)
419
5,396
—
(4,155)
(419)
1,241
$
$
$
353,902
9,358
(237,360)
(122,218)
137,328
134,363
(11,883)
(79,985)
(103,422)
76,401
173,683
(10,422)
(113,336)
(66,143)
60,183
(1)
(2)
Includes wholesaler and pharmacy discounts, patient support programs, managed care rebates, and government chargebacks and rebates.
In November 2017, we divested the rights to Lazanda to Slán. In January 2018, we entered into an agreement which granted commercialization rights of
NUCYNTA to Collegium. We continue to recognize sales reserve estimate adjustments related to sales recognized for Lazanda and NUCYNTA in prior
periods.
Stock‑Based Compensation
Our stock-based compensation generally includes stock options, restricted stock units (RSUs), performance share units
(PSUs), and purchases under our employee stock purchase plan (ESPP). The Company accounts for forfeitures as they occur
for each type of award. Stock-based compensation expense related to restricted stock unit awards (RSUs) is based on the
market value of the underlying stock on the date of grant and is recognized ratably over the requisite service period.
The stock-based compensation expense related to performance share units (PSUs) is estimated at grant date based on
the fair value of the award. The PSU awards are measured exclusively to the relative total shareholder return (TSR)
performance, which is measured against the three-year TSR of a custom index of companies. The actual number of shares
awarded is adjusted to between zero and 200% of the target award amount based upon achievement in each of the three
independent successive one-year tranches. TSR relative to peers is considered a market condition under applicable authoritative
guidance. For PSUs granted with vesting subject to market conditions, the fair value of the award is determined at grant date
using the Monte Carlo model, and expense is recognized ratably over the requisite service period regardless of whether or not
the market condition is satisfied. The Monte Carlo valuation model considers a variety of potential future share prices for
Assertio and our peer companies in a selected market index.
We use the Black-Scholes option valuation model to determine the fair value of stock options and employee stock
purchase plan (ESPP) shares. The determination of the fair value of stock-based payment awards on the date of grant using an
42
option valuation model is affected by our stock price as well as assumptions, which include the expected term of the award, the
expected stock price volatility, risk-free interest rate and expected dividends over the expected term of the award. We use
historical option exercise data to estimate the expected term of the options. We estimate the volatility of our common stock
price by using the historical volatility over the expected term of the options. We base the risk-free interest rate on U.S. Treasury
zero coupon issues with terms similar to the expected term of the options as of the date of grant. We do not anticipate paying
any cash dividends in the foreseeable future, and therefore, use an expected dividend yield of zero in the option valuation
model. Stock-based compensation expense related to the ESPP and options are recognized on a straight-line basis over their
respective term.
Intangible Assets
Intangible assets consist of purchased developed technology and trademarks that are accounted for as definite-lived
intangible assets subject to amortization. We determine the fair values of acquired intangible assets as of the acquisition date.
Discounted cash flow models are typically used in these valuations, which require the use of significant estimates and
assumptions, including but not limited to, developing appropriate discount rates and estimating future cash flows from product
sales and related expenses. The fair value recorded is amortized on a straight-line basis over the estimated useful life of the
asset. We evaluate purchased intangibles for impairment whenever events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash
flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The impairment
loss is calculated as the excess of the carrying amount over the fair value. Estimating future cash flows and fair value related to
an intangible asset involves significant estimates and assumptions. If our assumptions are not correct, there could be an
impairment loss or, in the case of a change in the estimated useful life of the asset, a change in amortization expense.
At December 31, 2019 we determined there were indicators of impairment present related to the NUCYNTA
intangible asset based on current unfavorable commercial outlook resulting in a downward revision to the expected future cash
flows from the NUCYNTA franchise. As a result, we recognized an impairment loss of $189.8 million on the NUCYNTA
intangible asset to reduce the carrying value of $564.8 million to its estimated fair value of $375.0 million at December 31,
2019. The evaluation of fair value was determined under ASC 820, Fair Value Measurement (ASC 820) as the price that would
be received to sell the asset in an orderly transaction between market participants at the measurement date of December 31,
2019. The fair value was based on a combination of an income approach and the observable transaction price from Collegium’s
purchase of the NUCYTNA franchise in February 2020. The income approach consisted of the present value of future cash
flows that a market participant would expect to receive from holding the asset in its current use. This included assumptions of a
market participant’s view such as, but not limited to, future product net sales, related operating expenses, competitive
landscape, and a discount rate to reflect the risk inherent in the future cash flows. The use of alternative estimates and
assumptions could increase or decrease the estimated fair value of the assets and could potentially impact the company's results
of operations.
Income Taxes
Our income tax policy is to record the estimated future tax effects of temporary differences between the tax bases of
assets and liabilities and amounts reported in our accompanying consolidated balance sheets, as well as operating loss and tax
credit carryforwards. We follow the guidelines set forth in the applicable accounting guidance regarding the recoverability of
any tax assets recorded on the consolidated balance sheet and provide any necessary allowances as required. Determining
necessary allowances requires us to make assessments about the timing of future events, including the probability of expected
future taxable income and available tax planning opportunities. When we determine that it is more likely than not that some
portion or all of the deferred tax assets will not be realized in the future, the deferred tax assets are reduced by a valuation
allowance. The valuation allowance is sufficient to reduce the deferred tax assets to the amount that we determine is more
likely than not to be realized. At this time, we have recorded a valuation allowance against the net deferred tax assets.
We are subject to examination of our income tax returns by various tax authorities on a periodic basis. We regularly
assess the likelihood of adverse outcomes resulting from such examinations to determine the adequacy of our provision for
income taxes. We have applied the provisions of the applicable accounting guidance on accounting for uncertainty in income
taxes, which requires application of a more‑likely‑than‑not threshold to the recognition and de‑recognition of uncertain tax
positions. If the recognition threshold is met, the applicable accounting guidance permits us to recognize a tax benefit measured
at the largest amount of tax benefit that, in our judgment, is more than 50 percent likely to be realized upon settlement. It
further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in
earnings in the period of such change.
43
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the Tax Act). The Tax Act includes
significant changes to the U.S. corporate income tax system including, but not limited to, a federal corporate rate reduction
from 35% to 21% and limitations on the deductibility of interest expense and executive compensation. In order to calculate the
effects of the new corporate tax rate on our deferred tax balances, ASC 740, Income Taxes (ASC 740) required the re-
measurement of our deferred tax balances as of the enactment date of the Tax Act, based on the rates at which the balances
were expected to reverse in the future. Due to our valuation allowance position and deferred tax liabilities, there is no change to
the presentation of the deferred tax balances on the financial statements, except for the remeasurement of these deferred tax
balances in the income tax footnote which were fully offset by a corresponding change to our valuation allowance. In
December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts
and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one
year of the enactment date. As of December 31, 2018, we completed our accounting for all tax effects related to the Tax Act,
and there were no material adjustments recorded during the year to the previously recorded provisional amounts reflected in
our 2017 financial statements.
RESULTS OF OPERATIONS
Revenues
The following table summarizes total revenue for the years ended December 31, 2019 and 2018 (in thousands):
Product sales, net:
Gralise
CAMBIA
Zipsor
Total neurology product sales, net
NUCYNTA products(1)
Lazanda(2)
Total product sales, net
Commercialization agreement:
Commercialization rights and facilitation services, net
Revenue from transfer of inventory
Royalties and milestone revenue
Total revenues
Year ended December 31,
2019
2018
$
63,124
$
32,453
12,498
108,075
927
(196)
108,806
118,614
—
2,084
58,077
35,803
16,387
110,267
18,944
755
129,966
100,038
55,705
26,061
$
229,504
$
311,770
(1)
NUCYNTA product sales for the year ended December 31, 2018 reflect our sales of NUCYNTA between January 1 and January 8, 2018. During the
year ended December 31, 2018, in connection with the Collegium transaction, we recognized revenue of $12.5 million related to the release of
NUCYNTA sales reserves which were primarily recorded in the fourth quarter of 2017, as financial responsibility for those reserves transferred to
Collegium upon closing of the Commercialization Agreement. Subsequent to January 8, 2018 we continue to recognize sales reserve estimate
adjustments related to sales recognized for NUCYNTA in prior periods.
(2)
We divested Lazanda in November 2017. We continue to recognize sales reserve estimate adjustments related to sales recognized for Lazanda in prior
periods.
Product sales
Gralise net products sales for the year ended December 31, 2019 increased by $5.0 million as compared to the same
period in 2018, primarily due to favorable payer mix offset by increased patient discount programs.
CAMBIA net product sales for the year ended December 31, 2019 decreased by $3.4 million as compared to the same
period in 2018, primarily due to unfavorable payer mix and increased patient discount programs.
Zipsor net product sales for the year ended December 31, 2019 decreased by $3.9 million as compared to the same
period in 2018, primarily due to increased patient discount programs and impact of short-dated product sales returns, offset
partially by higher volume.
44
We ceased recording product sales and related costs for NUCYNTA after commencing the Commercialization
Agreement with Collegium on January 8, 2018. Product sales for the year ended December 31, 2019 reflect adjustments made
for previously recorded sales reserve estimates. Product sales for the year ended December 31, 2018 reflect product sales solely
between January 1 and January 8, 2018 and adjustments for previously recorded sales reserve estimates thereafter.
We ceased recording revenues and related costs associated with Lazanda after we divested the product to Slán in
November 2017. Product sales for the year ended December 31, 2019 and 2018 reflect adjustments made for previously
recorded sales reserve estimates.
We will cease recognizing product sales and related costs for Gralise effective the closing of the transaction to divest
our rights, title and interest in and to Gralise to Alvogen on January 10, 2020.
Commercialization Agreement Revenue
We recognized revenue as a result of the Commercialization Agreement for the years ended December 31, 2019 and
2018 as follows (in thousands):
Royalty revenue
Contract liability amortization (1)
Contract asset amortization, net
Expense reimbursement
Inventory transfer
Total commercialization revenue
Year ended December 31,
2019
2018
$
118,636
2,791
(3,596)
783
$
100,038
—
—
—
—
55,705
$
118,614
$
155,743
(1) The contract liability amortization represents the recognition of revenue related to the warrants received in November 2018 which are being recognized
over the term of the contract.
For the year ended December 31, 2019, we recognized commercialization revenues of $118.6 million related to the
amended Commercialization Agreement with Collegium, effective January 1, 2019. Beginning January 1, 2019, royalties from
Collegium were deemed to be variable consideration subject to the sales-based royalty exception related to intellectual
property. Other components of revenue recognized by us from the Commercialization Agreement include the amortization of
contract assets arising from the transfer of inventory to Collegium net of contract liabilities arising from the warrants and
prepayments received, and variable consideration revenue for reimbursement of certain shared costs.
For the year ended December 31, 2018, we recognized commercialization revenues of $100.0 million related to the
Commercialization Agreement with Collegium for the period January 8, 2018 through December 31, 2018. Royalty revenues
under the original Commercialization Agreement, effective through December 31, 2018, were deemed to be fixed consideration
recognized evenly over the contract term. In addition, we recognized $55.7 million related to the transfer of inventory upon
closing in January 2018.
We will cease recognizing commercialization revenue and related costs for NUCYNTA effective the closing of the
transaction to divest our rights, title and interest in and to the NUCYNTA franchise to Collegium on February 13, 2020.
Royalties & Milestone Revenue
In November 2010, we entered into a license agreement with Tribute Pharmaceuticals Canada Ltd. (now Nuvo
Pharmaceuticals, Inc.) granting it the rights to commercially market CAMBIA in Canada. We receive royalties on net sales as
well as certain one-time contingent milestone payments. During the year ended December 31, 2019, we recognized $2.1
million of revenue related to CAMBIA in Canada. The revenue recognized in 2019 included a $0.3 million one-time
amendment fee and a $0.5 million milestone payment. During the year ended December 31, 2018, we recognized $0.8 million
of revenue related to CAMBIA in Canada.
In October 2013, we sold our interests in royalty and milestone payments under our license agreements relating to our
Acuform technology in the Type 2 diabetes therapeutic area to PDL BioPharma, Inc. (PDL) for $240.5 million. On August 2,
45
2018, we sold our remaining interest in such payments to PDL for $20.0 million. The $20.0 million of revenue was recognized
as royalty revenue for the year ended December 31, 2018.
In July 2011, we entered into a collaboration and license agreement with Ironwood granting Ironwood a license for
worldwide rights to certain patents and other intellectual property rights to our Acuform drug delivery technology for IW‑3718,
an Ironwood product candidate under evaluation for refractory GERD. During the second and third quarters of 2018, we
recognized and collected a $5.0 million contingent milestone payment related to the dosing of the first patient in a Phase 3 trial
for IW 3718.
Cost of Sales
Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs,
royalties payable to third‑parties, inventory write‑downs, amortization of inventory write-ups associated with business
acquisitions, product quality testing, internal employee costs related to the manufacturing process, distribution costs and
shipping costs related to our product sales. Cost of sales excludes the amortization of intangible assets described separately
below under “Intangible Assets.”
Cost of sales decreased by $9.0 million from $18.5 million to $9.5 million for the year ended December 31, 2019 as
compared to the same period in 2018, primarily driven by the inclusion of third-party royalties for NUCYNTA in 2018 and
other NUCYNTA-related costs incurred in the first quarter of 2018. Pursuant to the terms of the Commercialization Agreement
with Collegium, effective January 9, 2018, we no longer record product sales of NUCYNTA and NUCYNTA ER and, as a
result, no longer incur or record the cost of sales of such products. The cost of sales in 2018 also includes $6.2 million related
to the cost of inventory transferred to Collegium on closing of the Commercialization Agreement. Following the divestiture of
Lazanda in November 2017, we no longer record Lazanda product sales or related cost of sales.
The cost of sales as a percentage of sales for Gralise, CAMBIA and Zipsor, combined for the years ended
December 31, 2019 and 2018, was approximately 8.7% and 8.3%, respectively. The increase in cost of sales for the year ended
December 31, 2019 is primarily driven by product mix, compared to the same periods in 2018.
Research and Development Expenses
Our research and development expenses currently include salaries, clinical trial costs, consultant fees, supplies,
manufacturing costs for research and development programs and allocations of corporate costs. It is extremely difficult to
predict the scope and magnitude of future research and development expenses for our product candidates in research and
development, as it is extremely difficult to determine the nature, timing and extent of 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 increased by $2.1 million from $8.0 million to $10.1 million in the year ended
December 31, 2019 as compared to the same period in 2018, primarily due to increased personnel and clinical and regulatory
costs in 2019, partially offset by higher consulting fees in 2018.
Selling, General and Administrative Expenses
Selling, general and administrative expenses primarily consist of personnel, contract personnel, marketing and
promotion expenses associated with our commercial products, personnel expenses to support our administrative and operating
activities, facility costs, and professional expenses, such as legal fees.
Selling, general, and administrative expenses decreased by $10.3 million from $119.2 million to $108.9 million for the
year ended December 31, 2019 as compared to the same period in 2018 primarily due to lower facilities and personnel costs as
a result of the December 2017 restructuring plan, partially offset by the $10.1 million loss on disposal of equipment and other
one-time nonrecurring costs in 2019.
In connection with the Multidistrict Opioid Litigation, the State Opioid Litigation and the Opioid-Related Requests
and Subpoenas described in “Note 11. Commitments and Contingencies - Legal Matters” of the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we expect to incur additional costs and
expenses related to our ongoing opioid-related litigation and investigations, which may be significant and which may increase
in future periods.
46
Intangible Assets
Amortization of intangible assets for the years ended December 31, 2019 and 2018 was composed of (in thousands):
Amortization of intangible assets—NUCYNTA
Amortization of intangible assets—CAMBIA
Amortization of intangible assets—Zipsor
Total amortization of intangible assets
Year ended December 31,
2019
2018
94,301
$
94,301
5,136
2,337
5,136
2,337
101,774
$
101,774
$
$
During the year ended December 31, 2019 we recorded an impairment loss of $189.8 million related to our
NUCYNTA intangible, which represented the excess of the carrying amount over the fair value as of December 31, 2019.
Restructuring Charges
For the years ended December 31, 2019 and 2018, restructuring expenses and one-time termination costs incurred
were $3.9 million and $20.6 million, respectively.
In November 2019, the Company announced an acceleration of cost-saving initiatives that included a decision to
discontinue its relationship with its contract sales organization, changes to our internal processes and a reduction in the use of
certain outside vendors and consultants, and the reorganization of certain functions resulting in a reduction of staff at its
headquarters office and certain remote positions during the fourth quarter of 2019. The 2019 cost-saving initiative was
substantially complete as of December 31, 2019. As a result, we incurred $3.9 million in charges related to severance and other
benefits during the three months ended December 31, 2019. We do not expect to incur significant costs related to the 2019 cost-
saving initiative beyond 2019.
During 2018, we continued to execute the restructuring plan announced in December 2017. We completed the
termination of our pain sales force during the first quarter of 2018. We relocated our corporate headquarters from Newark,
California to Lake Forest, Illinois, which reduced our headquarters office space requirement by approximately 50%. During the
first quarter of 2018, we entered into an Office Lease pursuant to which we lease approximately 31,000 rentable square feet of
space in Lake Forest, Illinois. Our initial tenant improvements in the space were completed in August 2018 and we began
occupying the space at that time. We incurred total costs of $33.8 million related to the December 2017 restructuring plan, of
which $20.6 million was recognized in 2018. The restructuring activities and related liabilities were completed and fully paid as
of December 31, 2019.
Other (Expense) Income
Other (expense) income for the years ended December 31, 2019 and 2018 was composed of the following (in
thousands):
Interest expense
Litigation settlement
Gain on debt extinguishment
Interest and other income
Change in fair value of Collegium warrants
Total other expense
Year ended December 31,
2019
2018
$
$
(58,389) $
—
26,385
3,103
845
(28,056) $
(68,881)
62,000
—
1,197
—
(5,684)
Other expenses increased by $22.4 million from $5.7 million to $28.1 million for the year ended December 31, 2019
as compared to the same period in 2018 primarily due to the inclusion of the litigation Settlement Agreement with Purdue in
47
2018, offset by inclusion of income from the August 2019 Convertible Note Exchange, lower interest expense driven primarily
by Senior Note principal payments, and net sublease income in 2019.
Interest expense for the years ended December 31, 2019 and 2018 was composed of the following (in thousands):
Year ended December 31,
2019
2018
Interest payable on Senior Notes
$
25,559
$
Interest payable on Convertible Notes
Amortization of debt discounts and issuance costs relating to Senior Notes and Convertible
Notes
Changes in fair value of contingent consideration
Other
Total interest expense
8,958
23,764
113
(5)
58,389
$
38,242
8,624
21,877
124
14
$
68,881
The decrease in interest expense in 2019 compared to 2018 is due to principal repayments, offset in part by the impact
of increasing interest rates in 2018 and 2019.
We expect interest expense to decrease in 2020 as a result of the Senior Notes repayment and Convertible Note
repurchase in February 2020.
Income Tax Benefit (Expense)
During 2019, we recognized income tax benefit of approximately $5.3 million that represents an effective tax rate of
2.37% on income from continuing operations. The difference between income tax provision of $5.3 million and the tax at the
statutory rate of 21.0% on current year operations is principally due to the change in the valuation allowance, the release of FIN
48 liabilities based on lapsing of statute of limitation, and tax benefits being recorded as a result of intraperiod tax allocation.
During 2018, we recognized income tax expense of approximately $1.1 million that represents an effective tax rate of
2.81% on income from continuing operations. The difference between income tax provision of $1.1 million and the tax at the
statutory rate of 21.0% on current year operations is principally due the change in the valuation allowance and accrued interest
and penalty related to uncertain tax positions.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents decreased by $68.8 million from $110.9 million to $42.1 million during the year ended
December 31, 2019, primarily attributable to the $120.0 million in principal payments on our Senior Notes and $30.0 million of
cash used in the exchange of our convertible notes, partially offset by the receipt of $32.0 million from the Purdue settlement
and cash generated from operations.
Since inception and through December 31, 2019, we have financed our product development efforts and operations
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 to PDL, upfront license, milestone and termination fees
from collaborative and license partners, and product sales.
In April 2015, we issued $575.0 million aggregate principal amount of senior secured notes (the Senior Notes) for
aggregate gross proceeds of approximately $562.0 million. As of December 31, 2019, the remaining balance of the Senior
Notes was $162.5 million. In connection with the divestiture of Gralise and NUCYNTA we collected $450.0 million in upfront
consideration and used proceeds to repay the outstanding principal of $162.5 million and as a result the Company had repaid in
full all outstanding indebtedness, and terminated all commitments and obligations, under its Note Purchase Agreement. In
connection with the termination of the Note Purchase Agreement, the Company was released from all security interests, liens
and encumbrances under the Note Purchase Agreement. We were in compliance with our covenants with respect to the Senior
Notes as of December 31, 2019 and through the period of the effective payoff on February 13, 2020.
In September 2014, we issued $345.0 million aggregate principal amount of convertible notes due 2021 (the 2021
Notes) resulting in net proceeds to us of $334.2 million. In August 2019, we exchanged $200.0 million aggregate principal
48
amount of the 2021 Notes for a combination of (a) its new $120.0 million aggregate principal amount of 5.00% Convertible
Senior Notes due August 15, 2024 (the 2024 Notes), (b) an aggregate cash payment of $30.0 million, and (c) an aggregate of
15.8 million shares of our common stock. We did not receive any cash proceeds from the issuance of the 2024 Notes or the
issuance of the shares of our common stock. On February 19, 2020, the Company utilized proceeds from the sale of Gralise and
NUCYNTA to repurchase approximately $188.0 million aggregate principal amount of 2021 Notes and 2024 Notes.
We may incur operating losses in future years. We believe that our existing cash combined with proceeds from the sale
of Gralise and NUCYNTA, net of the settlement of existing debt and cash used in operating activities will be sufficient to fund
our operations for the next twelve months from the date of this filing. We base this expectation on our current operating plan,
which may change as a result of many factors.
Our cash needs may vary materially from our current expectations because of numerous factors, including:
acquisitions or licenses of complementary businesses, products, technologies or companies;
sales of our marketed products;
expenditures related to our commercialization of our products;
•
•
•
• milestone and royalty revenue we receive under our collaborative development arrangements;
•
•
•
interest and principal payments on our current and future indebtedness;
financial terms of definitive license agreements or other commercial agreements we may enter into; and
changes in the focus and direction of our business strategy and/or research and development programs.
The inability to raise any additional capital that may be required to fund our future operations or product acquisitions
and strategic transactions which we may pursue could have a material adverse effect on our company.
The following table summarizes our cash flow activities (in thousands):
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash Flows from Operating Activities
Year ended December 31,
2018
2019
$
$
$
90,475
(1,481)
(157,836)
(68,842) $
72,497
(7,082)
(81,350)
(15,935)
Cash provided by operating activities was $90.5 million in 2019 and $72.5 million in 2018. The increase in cash
provided by operating activities in 2019 compared to the same period in 2018 is primarily due to the receipt of $32.0 million
from the Purdue settlement in 2019 partially offset by changes in the working capital accounts.
Cash Flows from Investing Activities
Cash used in investing activities decreased in 2019 compared to the same period in 2018, primarily due to the $3.0
million investment in a convertible instrument and higher purchases of property and equipment in 2018.
Cash Flows from Financing Activities
The increase in cash used in financing activities in 2019 compared to 2018 is primarily due to the $37.5 million of
higher principal payments on our Senior Notes and $30.0 million in cash used in the Convertible Note Exchange in 2019.
Contractual Obligations
As of December 31, 2019, our contractual obligations are shown in the following table (in thousands):
49
Senior Notes—principal(1)
Senior Notes—interest(1)
2.50% Convertible Notes due 2021—principal(1)
2.50% Convertible Notes due 2021—interest(1)
5.00% Convertible Notes due 2024—principal(1)
5.00% Convertible Notes due 2024—interest(1)
Operating leases(2)
Purchase commitments(3)
Total
1 Year
2 - 3 Years
4 - 5 Years
More than
5 Years
Total
$
80,000
$
82,500
$
13,922
2,244
—
145,000
3,625
—
6,250
2,431
3,625
—
12,000
4,511
— $
—
—
—
120,000
12,000
632
— $ 162,500
16,166
—
—
—
—
—
—
145,000
7,250
120,000
30,250
7,574
5,966
$ 112,194
—
$ 249,880
—
$ 132,632
$
—
5,966
— $ 494,706
(1)
In connection with the divestiture of Gralise and NUCYNTA, we collected approximately $450.0 million in upfront consideration and
used proceeds to repay the outstanding principal of $162.5 million of Senior Notes as of February 13, 2020 and repurchase $102.5
million and $85.5 million of 2021 Notes and 2024 Notes, respectively, on February 19, 2020. This table reflects the remaining interest
and principal due on our Senior Notes, 2021 Notes, and 2024 Notes as of December 31, 2019.
(2) Amounts represent payments under non‑cancelable operating leases including office space and sales fleet vehicles. In 2018, we relocated
our corporate headquarters from Newark, California to Lake Forest, Illinois and subsequently entered into two subleases which, together,
account for the entirety of the Newark facility.
(3) As of December 31, 2019, we had non‑cancelable purchase orders and minimum purchase obligations of approximately $3.6 million
under our manufacturing agreements. Additionally, we had non‑cancelable purchase orders related to consulting services of
approximately $2.4 million. The amounts disclosed only represent non-cancelable purchase orders. Actual purchases are expected to
exceed these amounts.
OFF‑BALANCE SHEET ARRANGEMENTS
We did not have any off-balance sheet arrangements as of December 31, 2019.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
See “Item 8. Financial Statements and Supplemental Data - Note 1. Organization and Summary of Significant
Accounting Policies” for additional information on recent accounting pronouncements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We previously were subject to interest rate fluctuation exposure through our senior secured notes (Senior Notes),
pursuant to the Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement) and all subsequent amendments to
the Note Purchase Agreement, which bear a variable interest rate. On February 13, 2020, the Company repaid in full its
outstanding aggregate principal amount of Senior Notes. As of December 31, 2019, we had $265.0 million aggregate principal
amount of convertible senior notes outstanding, which are fixed rate instruments, and therefore, any significant changes in
interest rates would not have a material impact on our financial position and results of operations.
.
Foreign Currency Risk
We have not had any significant transactions in foreign currencies, nor did we have any significant balances that were
due or payable in foreign currencies at December 31, 2019. Accordingly, significant changes in foreign currency rates would
not have a material impact on our financial position and results of operations.
50
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ASSERTIO THERAPEUTICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Schedule II: Valuation and Qualifying Accounts
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Assertio Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Assertio Therapeutics, Inc. (the Company) as of December
31, 2019 and 2018, the related consolidated statements of comprehensive income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the
Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and
2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
2013 framework and our report dated March 10, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1997.
Chicago, Illinois
March 10, 2020
52
ASSERTIO THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid and other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Investments
Other long-term assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued rebates, returns and discounts
Accrued liabilities
Current portion of Senior Notes
Interest payable
Other current liabilities
Total current liabilities
Contingent consideration liability
Senior Notes
Convertible Notes
Other long-term liabilities
Total liabilities
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.0001 par value, 200,000,000 shares authorized; 80,888,134 and
64,185,224 shares issued and outstanding at December 31, 2019 and
December 31, 2018, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders' equity
December 31,
2019
2018
$
$
$
42,107
42,744
3,412
15,688
103,951
3,497
400,535
13,064
6,123
527,170
16,193
58,943
18,948
80,000
8,375
2,094
184,553
168
76,443
194,815
13,233
469,212
110,949
37,211
3,396
56,551
208,107
13,064
692,099
11,784
7,812
932,866
6,138
75,759
31,361
120,000
11,645
1,133
246,036
1,038
158,309
287,798
19,350
712,531
8
457,751
(399,801)
—
57,958
527,170
$
6
402,934
(182,600)
(5)
220,335
932,866
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
53
ASSERTIO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands except per share data)
Revenues:
Product sales, net
Commercialization agreement, net
Royalties and milestones
Total revenues
Costs and expenses:
Cost of sales (excluding amortization of intangible assets)
Research and development expenses
Acquired in-process research and development
Selling, general and administrative expenses
Amortization of intangible assets
Loss on impairment of intangible asset
Restructuring charges
Total costs and expenses
(Loss) income from operations
Other income (expense):
Litigation settlement
Gain on debt extinguishment
Other income, net
Interest expense
Gain on divestiture of Lazanda
Loss on prepayment of Senior Notes
Total other expense
Net (loss) income before income taxes
Income tax benefit (expense)
Net (loss) income
Other comprehensive income:
Unrealized gain on available-for-sale securities, net of tax
Comprehensive (loss) income
Basic net (loss) income per share
Diluted net (loss) income per share
Shares used in computing basic net (loss) income per share
Shares used in computing diluted net (loss) income per share
Year Ended December 31,
2019
2018
2017
$
108,806
$
129,966
$
379,880
118,614
2,084
229,504
9,505
10,106
—
108,866
101,774
189,790
3,891
423,932
(194,428)
—
26,385
3,948
(58,389)
—
—
(28,056)
(222,484)
5,283
(217,201) $
—
(217,201) $
(3.07) $
(3.07) $
70,716
70,716
$
$
$
$
155,743
26,061
311,770
18,476
8,042
—
119,218
101,774
—
20,601
268,111
43,659
62,000
—
1,197
(68,881)
—
—
(5,684)
37,975
(1,067)
36,908
—
36,908
0.58
0.57
63,794
64,208
$
$
$
$
—
844
380,724
72,598
13,718
24,900
195,696
102,745
—
13,247
422,904
(42,180)
—
—
681
(73,552)
17,064
(5,938)
(61,745)
(103,925)
1,429
(102,496)
14
(102,482)
(1.63)
(1.63)
62,702
62,702
The accompanying notes are an integral part of these consolidated financial statements.
54
ASSERTIO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Common Stock
Shares
61,966
Amount
$
6
Additional
Paid-In
Capital
$ 367,545
Accumulated
Earnings
(Deficit)
Accumulated
Other
Comprehensive
Loss
Shareholders’
Equity
$
(116,744) $
(19) $
250,788
Balances at December 31, 2016
Issuance of common stock upon exercise
of options
Issuance of common stock under
employee stock purchase plan
Issuance of common stock in
conjunction with vesting of restricted
stock units
Stock-based compensation
Cumulative effect adjustment from
adoption of ASU No. 2016-09
Shares withheld for payment of
employee's withholding tax liability
Net loss
Unrealized gain on available-for-sale
securities
Balances at December 31, 2017
Issuance of common stock upon exercise
of options
Issuance of common stock under
employee stock purchase plan
Issuance of common stock in
conjunction with vesting of restricted
stock units
Stock-based compensation
Shares withheld for payment of
employee's withholding tax liability
Net income
Balances at December 31, 2018
Issuance of common stock upon exercise
of options
Issuance of common stock under
employee stock purchase plan
Issuance of common stock in
conjunction with vesting of restricted
stock units
Issuance of common stock in
conjunction with the Convertible Note
Exchange
Reacquisition of equity component of
2021 Notes, net of tax loss of $1,445
Equity component of issued 2024 Notes,
net of tax benefit of $7,212
Stock-based compensation
Shares withheld for payment of
employee's withholding tax liability
Unrealized gain on available-for-sale
securities
Net loss
Balances at December 31, 2019
6,979
1,960
—
13,016
268
(753)
—
—
$ 389,015
1,493
527
—
12,585
—
—
—
—
(268)
—
(102,496)
—
$
(219,508) $
—
—
—
—
(686)
—
$ 402,934
$
—
36,908
(182,600) $
25
226
—
(4,763)
23,999
10,596
(571)
—
—
—
—
—
—
—
—
1,001
262
171
—
—
—
—
—
63,400
$
278
107
400
—
—
—
64,185
$
14
169
703
—
—
—
—
—
—
—
—
6
—
—
—
—
—
—
6
—
—
—
—
—
—
—
—
—
80,888
$
—
—
—
—
—
—
8
15,817
2
25,305
—
—
—
—
—
—
—
6,979
1,960
—
13,016
—
(753)
(102,496)
14
(5) $
14
169,508
—
—
—
—
—
—
(5) $
—
—
—
—
—
—
—
—
1,493
527
—
12,585
(686)
36,908
220,335
25
226
—
25,307
(4,763)
23,999
10,596
(571)
—
—
$ 457,751
$
—
(217,201)
(399,801) $
5
—
— $
5
(217,201)
57,958
The accompanying notes are an integral part of these consolidated financial statements.
55
ASSERTIO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2018
2019
2017
$
(217,201) $
36,908
$
(102,496)
Operating Activities
Net (loss) income
Adjustments for non-cash items:
Depreciation and amortization
Accretion of debt discount and debt issuance costs
Provisions for inventory and other assets
Loss on impairment of intangible assets
Loss (gain) on disposal of equipment
Stock-based compensation
Intraperiod tax allocations
(Gain) loss on debt extinguishment and prepayment
Recurring fair value measurement of assets and liabilities
Gain on divestiture of Lazanda
Acquired in-process research and development
Other
Changes in assets and liabilities:
Accounts receivable
Inventories
Prepaid and other assets
Accounts payable and other accrued liabilities
Accrued rebates, returns and discounts
Interest payable
Income taxes payable
Net cash provided by operating activities
Investing Activities
Purchases of property and equipment
Investment in convertible instrument
Proceeds from disposal of property and equipment
Purchases of marketable securities
Proceeds from sale of other assets
Maturities of marketable securities
Sales of marketable securities
Net cash (used in) provided by investing activities
Financing Activities
Payment of contingent consideration liability
Repayment of Senior Notes
Fees for early repayment and modifications of Senior Notes
Fees for modification of Senior Notes
Payments in connection with debt extinguishment
Convertible notes issuance costs
Proceeds from issuance of common stock
Shares withheld for payment of employee's withholding tax liability
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
Supplemental Disclosure of Cash Flow Information
Net cash paid (received) for income taxes
Cash paid for interest
Non-cash consideration for in-process research and development
Accrued research and development
Capital expenditures incurred but not yet paid
$
$
$
$
$
$
102,946
23,764
5,304
189,790
10,076
10,596
(5,767)
(26,385)
(1,715)
—
—
(327)
(5,533)
(316)
40,769
(15,146)
(16,816)
(3,270)
(294)
90,475
(1,481)
—
—
(12,065)
—
4,209
7,856
(1,481)
—
(120,000)
—
(3,249)
(30,000)
(4,268)
251
(570)
(157,836)
(68,842)
110,949
42,107
$
106,426
21,877
598
—
669
12,585
—
—
(391)
—
—
1,023
35,271
9,048
(56,136)
(33,610)
(60,069)
(1,576)
(126)
72,497
(5,507)
(3,000)
145
—
80
—
1,200
(7,082)
(184)
(82,500)
—
—
—
—
2,020
(686)
(81,350)
(15,935)
126,884
110,949
$
4,401
37,788
$
$
— $
— $
$
500
6,472
48,440
$
$
— $
— $
$
212
105,502
19,415
2,673
—
(271)
13,016
—
5,938
(8,024)
(17,064)
24,900
240
30,107
(1,873)
(5,114)
(6,436)
4,292
(2,705)
67
62,167
(666)
—
280
(8,277)
66,557
—
—
57,894
(1,673)
(110,000)
(7,400)
—
—
—
8,940
(753)
(110,886)
9,175
117,709
126,884
121
55,542
19,900
5,000
—
The accompanying notes are an integral part of these consolidated financial statements.
56
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Organization
Our Company
Assertio Therapeutics, Inc. (Assertio or the Company) is a leading diversified, specialty pharmaceutical
company focused on distinctive products that offer enhanced therapeutic options for patients in need, while maintaining the
highest ethical standards in all our business practices.
As of December 31, 2019, the Company’s specialty pharmaceutical business consisted primarily of Gralise®
(gabapentin), a once daily product for the management of postherpetic neuralgia (PHN) that we launched in 2011; CAMBIA®
(diclofenac potassium for oral solution), a nonsteroidal anti-inflammatory drug for the acute treatment of migraine attacks,
acquired by the Company in December 2013; and Zipsor® (diclofenac potassium liquid filled capsules), a nonsteroidal anti-
inflammatory drug for the treatment of mild to moderate acute pain, acquired by the Company in June 2012, marketed in the
U.S.
On December 4, 2017, the Company announced a commercialization agreement with Collegium Pharmaceutical, Inc.
(Collegium), pursuant to which the Company granted Collegium the right to commercialize the NUCYNTA franchise of
products in the U.S. (the Commercialization Agreement). Pursuant to the Commercialization Agreement, Collegium assumed
all commercialization responsibilities for the NUCYNTA franchise effective January 9, 2018, including sales and marketing,
and the Company received royalties on all NUCYNTA revenues based on certain net sales thresholds.
On December 12, 2019, the Company announced it entered into an agreement with Golf Acquiror LLC, an affiliate to
Alvogen, Inc. (Alvogen), a global privately held pharmaceutical company, under which Alvogen acquired and assumed all
responsibilities associated with the product Gralise (gabapentin). Under the terms of the agreement, Alvogen will pay Assertio a
total value of $127.5 million. This included $75.0 million in cash at closing on January 10, 2020, and the balance payable as
75% of Alvogen’s first $70.0 million of Gralise net sales after the closing. Alvogen also paid the Company for certain
inventories relating to Gralise.
On February 6, 2020, the Company announced it entered into a definitive agreement with Collegium pursuant to
which Collegium acquired the NUCYNTA franchise of products from the Company, and assumed certain contracts, liabilities
and obligations of the Company relating to the NUCYNTA products, including those related to manufacturing and supply, post-
market commitments and clinical development costs. Under the terms of the agreement, Collegium paid Assertio $375.0
million in cash at closing on February 13, 2020, less royalties paid to the Company in 2020. Collegium also paid the Company
for certain inventories relating to the products.
On February 13, 2020, the Company repaid in full its outstanding aggregate principal amount of senior secured notes
(Senior Notes) pursuant to a Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement) and all subsequent
amendments to the Note Purchase Agreement.
On February 19, 2020, the Company announced it entered into separate, privately negotiated agreements with a
limited number of holders of the Company’s 2021 Notes and 2024 Notes to repurchase approximately $188.0 million aggregate
principal amount of the outstanding 2021 Notes and 2024 Notes.
Basis of Preparation
The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting
principles (U.S. GAAP) and U.S. Securities and Exchange Commission (SEC) regulations for annual reporting
In connection with the preparation of the financial statements for the year ended December 31, 2019, the Company
evaluated whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to the
entity's ability to continue as a going concern within twelve months after the date of the issuance of these financial statements
noting that there did not appear to be evidence of substantial doubt of the entity's ability to continue as a going concern.
Principles of Consolidation
57
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries,
Depomed Bermuda Ltd (Depo Bermuda), Depo NF Sub, LLC (Depo NF Sub) and Depo DR Sub, LLC (Depo DR Sub). These
subsidiaries are all holding companies created to facilitate certain transactions and serve in certain administrative capacities.
There are no material operating results from these subsidiaries and all intercompany accounts and transactions have been
eliminated on consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
Estimates are used when accounting for amounts recorded in connection with acquisitions, including initial fair value
determinations of assets and liabilities as well as subsequent fair value measurements. Additionally, estimates are used in
determining items such as sales discounts and returns, depreciable and amortizable lives, share-based compensation
assumptions and taxes on income. Although management believes these estimates are based upon reasonable assumptions
within the bounds of its knowledge of the Company, actual results could differ materially from these estimates.
Cash, Cash Equivalents, Short-term Investments and Marketable Securities
The Company considers all highly liquid investments with an original maturity (at date of purchase) of three months
or less to be cash equivalents. All marketable securities with original maturities at the date of purchase greater than three
months and remaining maturities of less than one year are classified as short-term investments. Cash and cash equivalents
consist of cash on deposit with banks, money market instruments and commercial paper. The Company places its cash, cash
equivalents, short-term investments and marketable securities with high-quality U.S. government and financial institutions and
to date has not experienced material losses on any of its balances.
Accounts Receivable
Trade accounts receivable are recorded net of allowances for cash discounts for prompt payment. To date the
Company has not recorded a bad debt allowance since the majority of its product revenue comes from sales to a limited number
of financially sound companies who have historically paid their balances timely. The need for a bad debt allowance is evaluated
each reporting period based on the Company’s assessment of the credit worthiness of its customers or any other potential
circumstances that could result in bad debt.
Inventories
Inventories are stated at the lower of cost or net realizable value with cost determined by specific manufactured lot.
Inventories consist of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs. Additionally,
the Company writes off the value of inventory for potentially excess, dated or obsolete inventories based on an analysis of
inventory on hand and projected demand.
Investments
Assertio has two long-term investments as of December 31, 2019. During the year ended December 31, 2018, Assertio
invested $3.0 million in a company engaged in medical research. This investment is structured as a long-term loan receivable
with a convertible feature and is valued at amortized cost.
Assertio received warrants to purchase Collegium stock in conjunction with the November 2018 amendment to the
Commercialization Agreement. Such warrants are measured at fair value with changes in fair value recorded in Other income,
net on the Company’s Consolidated Statements of Comprehensive Income.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is calculated
using the straight-line method over the estimated useful lives of the respective assets, as follows:
58
Furniture and office equipment
Machinery and equipment
Laboratory equipment
Leasehold improvements
Intangible Assets
3 - 5 years
5 - 7 years
3 - 5 years
Shorter of estimated useful life or lease term
Intangible assets consist of purchased developed technology and trademarks that are accounted for as definite-lived
intangible assets subject to amortization. The Company determines the fair values of acquired intangible assets as of the
acquisition date. Discounted cash flow models are typically used in these valuations, which require the use of significant
estimates and assumptions, including but not limited to, developing appropriate discount rates and estimating future cash flows
from product sales and related expenses. The fair value recorded is amortized on a straight-line basis over the estimated useful
life of the asset. The Company evaluates purchased intangibles for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when the fair
value of the asset is lower than the carrying amount. To test for impairment, the Company estimates undiscounted future cash
flows expected to result from the use of the asset and its eventual disposition and compares that amount to the asset’s carrying
amount. Estimating future cash flows related to an intangible asset involves significant estimates and assumptions.
Revenue Recognition
The Company adopted ASC 606, Revenue from Contracts with Customers (ASC 606) on January 1, 2018 using the
modified retrospective transition method. There was no adjustment to the Company’s opening balance of accumulated deficit
resulting from the adoption of this guidance.
Prior to the adoption of ASC 606, the Company recognized revenue from the sale of its products, royalties earned, and
payments received and services performed under contractual arrangements in accordance with ASC 605. Under ASC 605,
Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred and title has passed,
the price is fixed or determinable and the Company is reasonably assured of collecting the resulting receivable. Revenue
arrangements with multiple elements are evaluated to determine whether the multiple elements meet certain criteria for
dividing the arrangement into separate units of accounting, including whether the delivered element(s) have stand-alone value
to the Company’s customer or licensee. Where there are multiple deliverables combined as a single unit of accounting,
revenues are deferred and recognized over the performance period.
Under ASC 606, the Company recognizes revenue when its customer obtains control of the promised goods or
services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or
services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606,
the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance
obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The
Company only applies the five-step model to contracts when it is probable that Company will collect the consideration it is
entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is
determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and
determines those that are performance obligations and assesses whether each promised good or service is distinct. The
Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance
obligation, when (or as) the performance obligation is satisfied. The Company assesses the term of the contract based upon the
contractual period in which the Company and Collegium have enforceable rights and obligations.
Variable consideration arising from sales or usage-based royalties, promised in exchange for a license of the
Company’s Intellectual Property, is recognized at the later of (i) when the subsequent product sales occur or (ii) the
performance obligation, to which some or all of the sales-based royalty has been allocated, has been satisfied.
The Company recognizes a contract asset relating to its conditional right to consideration for completed performance
obligations. Accounts receivable are recorded when the right to consideration becomes unconditional. A contract liability is
recorded for payments received in advance of the related performance obligation being satisfied under the contract.
Commercialization Agreement
59
The Company derives revenue under the Commercialization Agreement with Collegium whereby the Company
granted Collegium the right to commercialize the NUCYNTA franchise of products in the U.S. The Company entered into the
Commercialization Agreement in December 2017, which became effective in January 2018, and amended the agreement in
August 2018 and in November 2018. The Company views its performance obligations as a series of distinct goods or services
that are substantially the same and that have the same pattern of transfer. Prior to the November 2018 amendment, the
consideration related to the license and facilitation services was fixed and recognized ratably over the contract term. Following
the November 2018 amendment, the royalty payments represent variable consideration that are subject to the sales-based
royalty exception for licenses of intellectual property and are recognized at the later of (i) when the subsequent product sales
occur or (ii) the performance obligation, to which some or all of the sales-based royalty has been allocated, has been satisfied.
The Company is responsible for royalty payments to a third party related to sales of NUCYNTA. Prior to the
November 2018 amendment, Collegium became primarily responsible for these royalties in connection with the
Commercialization Agreement; however, a portion of these payments remained the responsibility of the Company. Following
the November 2018 amendment, effective January 1, 2019, Collegium became responsible for the third-party royalty payments
entirely. As the Company is not actively commercializing NUCYNTA, such royalties are recorded by the Company on a
systematic basis in proportion to the underlying net product sales, subject to the sales-based royalty exemption for license of
intellectual property, and are included as gross-to-net adjustments in the related revenue line in the Company’s Statements of
Comprehensive Income. Such amounts, over the course of the calendar year, have no net impact.
Product Sales
The Company sells commercial products to wholesale distributors and specialty pharmacies. Product sales revenue is
recognized when title has transferred to the customer and the customer has assumed the risks and rewards of ownership, which
typically occurs on delivery to the customer. The Company’s performance obligation is to deliver product to the customer, and
the performance obligation is completed upon delivery. The transaction price consists of a fixed invoice price and variable
product sales allowances, which include rebates, discounts and returns. Product sales revenues are recorded net of applicable
sales tax and reserves for these product sales allowances. Receivables related to product sales are typically collected one to two
months after delivery.
Product Sales Allowances—The Company considers products sales allowances to be variable consideration and
estimates and recognizes product sales allowances as a reduction of product sales in the same period the related revenue is
recognized. Product sales allowances are based on actual or estimated amounts owed on the related sales. These estimates take
into consideration the terms of the Company’s agreements with customers, historical product returns, rebates or discounts
taken, estimated levels of inventory in the distribution channel, the shelf life of the product and specific known market events,
such as competitive pricing and new product introductions. The Company uses the most likely method in estimating product
sales allowances. If actual future results vary from the Company’s estimates, the Company may need to adjust these estimates,
which could have an effect on product sales and earnings in the period of adjustment. The Company’s sales allowances include:
Product Returns—The Company allows customers to return product for credit with respect to that product within six
months before and up to 12 months after its product expiration date. The Company estimates product returns and associated
credit on NUCYNTA ER and NUCYNTA, Gralise, CAMBIA, Zipsor and Lazanda. Estimates for returns are based on historical
return trends by product or by return trends of similar products, taking into consideration the shelf life of the product at the time
of shipment, shipment and prescription trends, estimated distribution channel inventory levels and consideration of the
introduction of competitive products. The Company did not assume financial responsibility for returns of NUCYNTA ER and
NUCYNTA previously sold by Janssen Pharma or Lazanda product previously sold by Archimedes Pharma US Inc. Under the
Commercialization Agreement with Collegium for NUCYNTA ER and NUCYNTA and the divestiture of Lazanda to Slán, the
Company is only financially responsible for product returns for product that were sold by the Company, which are identified by
specific lot numbers.
The shelf life of NUCYNTA ER and NUCYNTA is 24 months to 36 months from the date of tablet manufacture. The
shelf life of Gralise is 24 months to 36 months from the date of tablet manufacture. The shelf life of CAMBIA is 24 months to
48 months from the manufacture date. The shelf life of Zipsor is 36 months from the date of tablet manufacture. The shelf life
of Lazanda is 24 to 36 months from the manufacture date. Because of the shelf life of the Company’s products and its return
policy of issuing credits with respect to product that is returned within six months before and up to 12 months after its product
expiration date, there may be a significant period of time between when the product is shipped and when the Company issues
credit on a returned product. Accordingly, the Company may have to adjust these estimates, which could have an effect on
product sales and earnings in the period of adjustments.
60
Wholesaler and Pharmacy Discounts—The Company offers contractually determined discounts to certain wholesale
distributors and specialty pharmacies that purchase directly from it. These discounts are either taken off invoice at the time of
shipment or paid to the customer on a quarterly basis one to two months after the quarter in which product was shipped to the
customer.
Prompt Pay Discounts—The Company offers cash discounts to its customers (generally 2% of the sales price) as an
incentive for prompt payment. Based on the Company’s experience, the Company expects its customers to comply with the
payment terms to earn the cash discount.
Patient Discount Programs—The Company offers patient discount co-pay assistance programs in which patients
receive certain discounts off their prescriptions at participating retail and specialty pharmacies. The discounts are reimbursed by
the Company approximately one month after the prescriptions subject to the discount are filled.
Medicaid Rebates—The Company participates in Medicaid rebate programs, which provide assistance to certain low
income patients based on each individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate
programs, the Company pays a rebate to each participating state, generally two to three months after the quarter in which
prescriptions subject to the rebate are filled.
Chargebacks—The Company provides discounts to authorized users of the Federal Supply Schedule (FSS) of the
General Services Administration under an FSS contract with the Department of Veterans Affairs. These federal entities
purchase products from the wholesale distributors at a discounted price, and the wholesale distributors then charge back to the
Company the difference between the current retail price and the price the federal entity paid for the product.
Managed Care Rebates—The Company offers discounts under contracts with certain managed care providers. The
Company generally pays managed care rebates one to three months after the quarter in which prescriptions subject to the rebate
are filled.
Medicare Part D Coverage Gap Rebates — The Company participates in the Medicare Part D Coverage Gap Discount
Program under which it provides rebates on prescriptions that fall within the “donut hole” coverage gap. The Company
generally pays Medicare Part D Coverage Gap rebates two to three months after the quarter in which prescriptions subject to
the rebate are filled.
Royalties
For arrangements that include sales-based royalties and the license is deemed to be the predominant item to which the
royalties relate, the Company recognizes royalty revenue at the later of (i) when the related sales occur, or (ii) when the
performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
We currently have the right to receive royalties based on sales of CAMBIA in Canada, which are recognized as
revenue when the related sales occur as there are no continuing performance obligations by the Company under those
agreements.
Milestones
For arrangements that include milestones, the Company recognizes such revenue using the most likely method. As
part of adopting ASC 606, the Company evaluated whether the future milestones should have been included as part of the
transaction price in periods before January 1, 2018. The Company concluded that because of development and regulatory risks
at the time, it was probable that a significant revenue reversal could have occurred. At the end of each subsequent reporting
period, the Company re-evaluates the probability or achievement of each such milestone and any related constraint, and if
necessary, adjusts its estimates of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up
basis, which would affect revenue in the period of adjustment.
Leases
The Company adopted ASC 842, Leases (ASC 842), on January 1, 2019 using the modified retrospective approach
with cumulative effect. There was no adjustment to the Company's opening balance of accumulated deficit resulting from the
adoption of this guidance. In addition, the Company elected the package of practical expedients, which among other things,
allowed for the carryforward of the historical lease classification. The Company did not elect the hindsight practical expedient
to determine the reasonably certain lease term for existing leases. Prior to the adoption of ASC 842, the Company accounted for
61
its operating leases in accordance with ASC 840. Under ASC 840, only capital leases were recognized on the balance sheet and
therefore the Company’s operating leases were reflected in the financial statement footnotes. The adoption of ASC 842 did not
materially affect the Company’s consolidated comprehensive income.
The Company assesses contracts for lease arrangements at inception. Operating right-of-use (ROU) assets and
liabilities are recognized at the lease commencement date equal to the present value of future lease payments using the implicit,
if readily available, or incremental borrowing rate based on the information readily available at the commencement date. ROU
assets include any lease payments as of commencement and initial direct costs but exclude any lease incentives. Lease and non-
lease components are generally accounted for separately and the Company recognizes operating lease expense straight-line
over the term of the lease. Operating leases are included in other long term assets, other current liabilities, and other long term
liabilities in the consolidated balance sheet.
The Company accounts for operating leases with an initial term of 12 months or less on a straight-line basis over the
lease term in the Consolidated Statements of Comprehensive Income.
Stock‑Based Compensation
The Company’s stock-based compensation generally includes stock options, restricted stock units (RSUs),
performance share units (PSUs), and purchases under the Company’s employee stock purchase plan (ESPP). The Company
accounts for forfeitures as they occur for each type of award. Stock-based compensation expense related to restricted stock unit
awards (RSUs) is based on the market value of the underlying stock on the date of grant and the related expense is recognized
ratably over the requisite service period.
The stock-based compensation expense related to performance share units (PSUs) is estimated at grant date based on
the fair value of the award. The PSU awards are measured exclusively to the relative total shareholder return (TSR)
performance, which is measured against the three-year TSR of a custom index of companies. The actual number of shares
awarded is adjusted to between zero and 200% of the target award amount based upon achievement in each of the three
independent successive one-year tranches. TSR relative to peers is considered a market condition under applicable authoritative
guidance. For PSUs granted with vesting subject to market conditions, the fair value of the award is determined at grant date
using the Monte Carlo model, and expense is recognized ratably over the requisite service period regardless of whether or not
the market condition is satisfied. The Monte Carlo valuation model considers a variety of potential future share prices for
Assertio and our peer companies in a selected market index.
The Company uses the Black-Scholes option valuation model to determine the fair value of stock options and
employee stock purchase plan (ESPP) shares. The determination of the fair value of stock-based payment awards on the date of
grant using an option valuation model is affected by our stock price as well as assumptions, which include the expected term of
the award, the expected stock price volatility, risk-free interest rate and expected dividends over the expected term of the award.
The Company uses historical option exercise data to estimate the expected term of the options. The Company estimates the
volatility of our common stock price by using the historical volatility over the expected term of the options. The Company
bases the risk-free interest rate on U.S. Treasury zero coupon issues with terms similar to the expected term of the options as of
the date of grant. The Company does not anticipate paying any cash dividends in the foreseeable future, and therefore, uses an
expected dividend yield of zero in the option valuation model. Stock-based compensation expense related to the ESPP and
options is recognized on a straight-line basis over its respective term.
Research and Development Expense and Accruals
Research and development expenses include salaries, clinical trial costs, consultant fees, supplies, manufacturing costs
for research and development programs, allocations of corporate costs, as well as post-marketing clinical studies. All such costs
are charged to research and development expense as incurred. These expenses result from the Company’s independent research
and development efforts as well as efforts associated with collaborations. The Company reviews and accrues clinical trial
expenses based on work performed, which relies on estimates of total costs incurred based on patient enrollment, completion of
patient studies and other events. The Company follows this method since reasonably dependable estimates of the costs
applicable to various stages of a research agreement or clinical trial can be made. Accrued clinical costs are subject to revisions
as trials progress to completion. Revisions are charged to expense in the period in which the facts that give rise to the revision
become known.
Acquired In-Process Research and Development
62
The initial costs of rights to IPR&D projects acquired in an asset acquisition are expensed as IPR&D unless the project
has an alternative future use. Development costs incurred after an acquisition are expensed as incurred.
Shipping and Handling Costs
Shipping and handling costs incurred for product shipments are recorded in cost of sales in the Statements of
Comprehensive Income.
Advertising Costs
Costs associated with advertising are expensed as incurred. Advertising expense for the years ended December 31,
2019, 2018 and 2017 were $0.7 million, $0.8 million and $3.7 million, respectively.
Restructuring
Restructuring costs are included in (Loss) income from operations in the Consolidated Statements of Comprehensive
Income. The Company has accounted for these costs in accordance with ASC 420, Exit or Disposal Cost Obligations (ASC
420) and ASC 712, Compensation - Nonretirement Postemployment Benefits (ASC 712). The one-time termination benefits are
recorded at the time they are communicated to the affected employees. Ongoing benefits are recognized when they are
estimable and probable.
Income Taxes
The Company’s income tax policy is to record the estimated future tax effects of temporary differences between the
tax bases of assets and liabilities and amounts reported in the Company’s accompanying consolidated balance sheets, as well as
operating loss and tax credit carryforwards. The Company follows the guidelines set forth in the applicable accounting
guidance regarding the recoverability of any tax assets recorded on the consolidated balance sheet and provides any necessary
allowances as required. Determining necessary allowances requires the Company to make assessments about the timing of
future events, including the probability of expected future taxable income and available tax planning opportunities.
The Company is subject to examination of its income tax returns by various tax authorities on a periodic basis. The
Company regularly assesses the likelihood of adverse outcomes resulting from such examinations to determine the adequacy of
its provision for income taxes. The Company has applied the provisions of the applicable accounting guidance on accounting
for uncertainty in income taxes, which requires application of a more-likely-than-not threshold to the recognition and de-
recognition of uncertain tax positions. If the recognition threshold is met, the applicable accounting guidance permits the
Company to recognize a tax benefit measured at the largest amount of tax benefit that, in the Company’s judgment, is more
than 50 percent likely to be realized upon settlement. It further requires that a change in judgment related to the expected
ultimate resolution of uncertain tax positions be recognized in earnings in the period of such change.
Segment Information
The Company operates in one operating segment and has operations and long-lived assets solely in the U.S. To date,
all of the Company’s revenues from product sales are related to sales in the U.S.
Concentration of Risk
The Company is subject to credit risk from its accounts receivable related to product sales and royalties. The three
large, national wholesale distributors represent the vast majority of the Company’s business and represented the following
percentages of product shipments and accounts receivable for the years ended December 31, 2019, 2018 and 2017.
63
McKesson Corporation
AmerisourceBergen Corporation
Cardinal Health
Collegium
All others
Total
Consolidated revenue
Accounts Receivable related to
product sales
2019
2018
2017
2019
2018
2017
16%
12%
10%
52%
10%
14%
13%
11%
55%
7%
36%
27%
26%
—%
11%
46%
17%
25%
—%
12%
28%
28%
32%
—%
12%
41%
27%
23%
—%
9%
100%
100%
100%
100%
100%
100%
Accounts receivable balances related to product sales were $38.4 million and $23.1 million for the years ended
December 31, 2019 and 2018, respectively. To date, the Company has not experienced any bad debt losses with respect to the
collection of its accounts receivable and believes that its entire accounts receivable balances are collectible.
Receivables related to Collegium following the commencement of the Commercialization Agreement in 2018 were
$4.1 million at December 31, 2019. Inventory held on behalf of Collegium, which is in production at contract manufacturers
and will be provided to Collegium following the completion of production of $1.5 million, is held in Prepaid and other current
assets on the Company’s consolidated balance sheets as of December 31, 2019.
The Company is dependent upon third-party manufacturers to supply product for commercialize use. In particular, the
Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for all
commercialized products. Such production arrangements could be adversely affected by a significant interruption which would
negatively impact the supply of final drug product. The Company relies on a single third‑party contract manufacturer
organization in Puerto Rico to manufacture Gralise and one third‑party supplier for the supply of gabapentin, the active
pharmaceutical ingredient in Gralise. The Company also relies on single third party contract suppliers: MiPharm, S.p.A. and
Catalent Ontario Limited for supply of CAMBIA and Zipsor, respectively. Janssen Pharmaceuticals is the sole source supplier
of NUCYNTA ER and Halo is the sole supplier of NUCNYTA. Effective January 10, 2020 and February 13, 2020, the
Company divested its rights, title and interest in and to Gralise and its NUCYNTA franchise, respectively.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02). This guidance enhances comparability
and transparency among organizations by requiring the recognition of right-of-use assets and liabilities on the balance sheet for
both financing and operating leases greater than 12 months. The Company adopted the standard as of January 1, 2019 using the
modified retrospective approach with cumulative effect. There was no adjustment to the Company's opening balance of
accumulated deficit resulting from the adoption of this guidance. In addition, the Company elected the package of practical
expedients, which among other things, allowed for the carryforward of the historical lease classification. The Company did not
elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The new standard did
not materially affect the Company’s consolidated comprehensive income nor have a notable impact on its liquidity. The
standard had no impact on the Company’s debt-covenant compliance under its current agreements.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (ASU 2016-13): Measurement of
Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial
assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss
methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting
periods, and interim periods within those years beginning after December 15, 2019. Early adoption is permitted; however, the
Company will adopt the standard in the first quarter of 2020. The Company determined that the adoption of this guidance will
not have a material impact on the Company’s consolidated financial statements.
In June 2018, the FASB issued ASU 2018-18 Collaborative Arrangements (ASU 2018-18), which clarifies the
interaction between ASC 808, Collaborative Arrangements (ASC 808) and ASC 606, Revenue from Contracts with Customers
(ASC 606). The update clarifies that certain transactions between participants in a collaborative arrangement should be
accounted for under ASC 606 when the counterparty is a customer. In addition, the update precludes an entity from presenting
consideration from a transaction in a collaborative arrangement as revenue if the counterparty is not a customer for that
64
transaction. This update will be effective for the Company for fiscal years beginning after December 15, 2019, and interim
periods within those fiscal years. ASU 2018-18 should be applied retrospectively to the date of initial application of ASC 606
and early adoption is permitted. The Company will adopt the standard in the first quarter of 2020 and has determined that the
adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Accounting for Cloud Computing Arrangements (Subtopic
350-40), which provides new guidance on the accounting for implementation, set-up, and other upfront costs incurred in a
hosted cloud computing arrangement. Under the new guidance, entities will apply the same criteria for capitalizing
implementation costs as they would for an internal-use software license arrangement. This guidance is effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. This ASU can
be adopted prospectively to eligible costs incurred on or after the date of adoption or retrospectively. The Company will adopt
the standard in the first quarter of 2020 and has determined that the adoption of this guidance will not have a material impact on
the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement Disclosure Framework (ASU 2018-03),
which is part of a broader disclosure framework project by the FASB to improve the effectiveness of disclosures by more
clearly communicating the information to the user. Modifications to the required disclosures are effective for fiscal years
beginning after December 15, 2019, and interim periods within those fiscal years. The Company will adopt the standard in the
first quarter of 2020 and has determined that the adoption of this guidance will not materially impact on the Company’s
disclosures.
In December 2019, the FASB issued ASU 2019-12 Income Taxes (ASU 2019-02): Simplifying the Accounting for
Income Taxes. The amendments in this update remove certain exceptions of Topic 740 including: exception to the incremental
approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain from other items;
exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary
becomes an equity method investment; exception to the ability not to recognize a deferred tax liability for a foreign subsidiary
when a foreign equity method investment becomes a subsidiary; and exception to the general methodology for calculating
income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. There are also additional
areas of guidance in regard to: franchise and other taxes partially based on income and the interim recognition of enactment of
tax laws and rate changes. The provisions of this ASU are effective for years beginning after December 15, 2020, with early
adoption permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
NOTE 2. REVENUE
The following table summarizes revenue from contracts with customers for the years ended December 31, 2019, 2018
and 2017 (in thousands) into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows
are affected by economic factors:
65
Product sales, net:
Gralise
CAMBIA
Zipsor
Total neurology product sales, net
NUCYNTA products
Lazanda
Total product sales, net
Commercialization agreement:
Commercialization rights and facilitation services, net
Revenue from transfer of inventory
Royalties and milestone revenue
Total revenues
Year ended December 31,
2019
2018
2017
$
63,124
$
58,077
$
32,453
12,498
108,075
927
(196)
108,806
118,614
—
2,084
35,803
16,387
110,267
18,944
755
129,966
100,038
55,705
26,061
77,034
31,597
16,700
125,331
239,539
15,010
379,880
—
—
844
$
229,504
$
311,770
$
380,724
NUCYNTA product sales for the year ended December 31, 2018 reflect the Company’s sales of NUCYNTA between
January 1 and January 8, 2018. During the first quarter of 2018, in connection with the Collegium transaction, the Company
recognized revenue of $12.5 million related to the release of NUCYNTA sales reserves which were primarily recorded in the
fourth quarter of 2017, as financial responsibility for those reserves transferred to Collegium upon closing of the
Commercialization Agreement. During the years ended December 31, 2019 and 2018, the Company recognized sales reserve
estimate adjustments related to sales recognized for NUCYNTA and Lazanda in prior periods.
Original Commercialization Agreement with Collegium
In December 2017, the Company, Collegium and Collegium NF, LLC, a Delaware limited liability company and
wholly owned subsidiary of Collegium (Newco), entered into a Commercialization Agreement (Commercialization
Agreement), pursuant to which the Company granted Collegium the right to commercialize the NUCYNTA franchise of
products in the U.S. Pursuant to the Commercialization Agreement, Collegium assumed all commercialization responsibilities
for the NUCYNTA franchise effective January 9, 2018, including sales and marketing. The Company also agreed to provide
services to Collegium, including to arrange for the supply of NUCYNTA products by the Company’s existing contract
manufacturing organizations (“CMOs”) (the “Facilitation Services”). The Company identified the following three promised
goods and services under the Commercialization Agreement: (1) the license to commercialize the NUCYNTA products
(License), (2) services to arrange for supplies of NUCYNTA products using the Company’s existing contract manufacturing
contracts with third parties (Facilitation Services); and (3) the transfer of control of all NUCYNTA finished goods held at
closing (Inventory Transfer).
The Inventory Transfer was deemed to be a distinct performance obligation which was completed during the first
quarter of 2018. The Company concluded that the License and the Facilitation Services are not distinct from one another as the
Commercialization Agreement does not grant to Collegium a license to manufacture NUCYNTA. The Company (i) exclusively
controls the intellectual property underlying the NUCYNTA products for the U.S. market, (ii) retains responsibility for
facilitating NUCYNTA product supply through its CMOs, and (iii) exclusively maintains all CMO contractual relationships. As
a result, Collegium’s right to commercialize NUCYNTA is inherently dependent upon the Facilitation Services. Because (i)
Collegium is contractually required to use the Facilitation Services to arrange for product supply and (ii) tapentadol is a
Schedule II controlled substance for which manufacturing arrangements are not easily transferred or bypassed, there is strong
interdependency between the License and the Facilitation Services. These Facilitation Services are administrative in nature but
necessary for the commercialization right to have utility to Collegium.
In January 2018, the Company determined the total fixed elements of the transaction price to be $553.2 million, which
consisted of $537.0 million in total annual minimum royalty payments for years 2018 through 2021, a $10.0 million upfront
fee, and a $6.2 million payment for NUCYNTA finished goods inventory. The Company determined that the duration of the
Commercialization Agreement began on the effective date of January 9, 2018 and lasts through December 31, 2021, including
the minimum royalty period and the period in which Collegium would incur a $25.0 million termination penalty on terminating
the Commercialization Agreement. Beginning January 1, 2022 and for each year of the Commercialization Agreement
thereafter, royalties are: (i) 58% of net sales of NUCYNTA up to $233.0 million, payable quarterly within 45 days of the end of
66
each calendar quarter, plus (ii) 25% of annual net sales of NUCYNTA between $233.0 million and $258.0 million, plus (iii)
17.5% of annual net sales of NUCYNTA above $258.0 million. Payments described in clauses (ii) and (iii) hereof will be paid
annually within 60 days of the end of the calendar year.
The portion of the transaction price allocated to the Inventory Transfer was $55.7 million and was recognized on the
closing date as the control of such inventory was transferred to Collegium. The portion of the transaction price allocated to the
License and Facilitation Services, as a combined performance obligation, was $497.5 million and would be recognized ratably
through December 31, 2021.
In addition, Collegium assumed responsibility for a portion of the royalties owed by the Company to a third party on
sales of NUCYNTA. The royalties owed by Collegium to the third party are 14% of sales with the Company ensuring a
minimum royalty of $34.0 million per year on net sales of NUCYNTA greater than $180.0 million. The Company is obligated
to cover any shortfall between the minimum royalty amount of $34.0 million and the amounts paid to the third party by
Collegium for each of the years ended December 31, 2018 through 2021, as a result of which the Company could be obligated
to pay up to $8.8 million per year for each of the years ended December 31, 2018 through 2021.
Amended Commercialization Agreement with Collegium
On November 8, 2018, the Company, Collegium and Newco entered into a third amendment to the Commercialization
Agreement (the Commercialization Amendment). Pursuant to the Commercialization Amendment, the royalties payable by
Collegium to the Company in connection with Collegium’s commercialization of NUCYNTA were amended such that effective
as of January 1, 2019 through December 31, 2021, the Company will receive: (i) 65% of net sales of NUCYNTA up to $180.0
million, plus (ii) 14% of annual net sales of NUCYNTA between $180.0 million and up to $210.0 million, plus (iii) 58% of
annual net sales of NUCYNTA between $210.0 million and $233.0 million, plus (iv) 20% of annual net sales of NUCYNTA
between $233.0 million and up to $258.0 million, plus (v) 15% of annual net sales of NUCYNTA above $258.0 million. The
Commercialization Amendment does not change the royalties that the Company will receive on annual net sales of NUCYNTA
by Collegium for the period beginning January 1, 2022 and for each year of the Commercialization Agreement term thereafter.
In addition, the Commercialization Amendment provides that Collegium shall reimburse the Company for the amount
of any minimum annual royalties paid by the Company to the third party on net sales of NUCYNTA during the first
four years of the Commercialization Agreement beginning in 2019. The Commercialization Amendment also provides for
Collegium to share certain costs related to the License. The reimbursement and the cost sharing are considered variable
consideration. The Commercialization Amendment is being accounted for prospectively.
In connection with the Commercialization Amendment, Collegium issued the Company a warrant to purchase up to
1,041,667 shares of Collegium common stock at an exercise price of $19.20 per share (Warrant). The Warrant is exercisable for
a period of four years and contains customary terms, including with regard to net exercise. The Warrant was valued at $8.8
million as of the date of the Commercialization Amendment and is considered to be a component of the fixed consideration
associated with the Commercialization Agreement. These Warrants are included in Investments on the Company’s consolidated
balance sheet; however, as they are non-cash they do not impact investing cash flows.
In November 2018, the Company determined the total fixed elements of the transaction price following the
Commercialization Amendment to be $157.0 million, which consisted of $132.0 million in total annual minimum royalty
payments for 2018, the $10.0 million upfront fee, the $6.2 million payment for NUCYNTA finished goods inventory and the
$8.8 million attributed to the Warrant. There were no new performance obligations following the modification of the
Commercialization Agreement and at the time of the modification, the remaining periods in the series of services related to the
single performance obligation to deliver the license and provide facilitation services are distinct from those prior to the
modification. As a result, the modification was accounted for as a termination of the old arrangement and the entering into of a
new agreement, in accordance with the guidance of ASC 606.
Pursuant to the Commercialization Amendment, Collegium may only terminate the Commercialization Agreement
after December 31, 2020, with 12-months’ notice. In the event any such termination notice has an effective date of termination
prior to December 31, 2022, then Collegium shall pay a $5.0 million termination fee to the Company concurrent with the
delivery of such notice. The Company determined that the $5.0 million termination fee is not substantive and therefore the
duration of the Commercialization Agreement is unchanged by the Commercialization Amendment and lasts through December
31, 2021, which is consistent with the contractual period in which the Company and Collegium have enforceable rights and
obligations.
67
The Commercialization Amendment provides that the Company may terminate the Commercialization Agreement
upon 60 days’ prior written notice to Collegium in the event that (i) the net sales of NUCYNTA by Collegium during any
period of 12 consecutive calendar months ending on or before December 31, 2021 are less than $180.0 million, or (ii) the net
sales of NUCYNTA by Collegium during any period of 12 consecutive calendar months commencing on or after January 1,
2022 are less than $170.0 million.
Revenue from the Commercialization Agreement
For the year ended December 31, 2019, the Company recognized net revenue from the Commercialization Agreement
of $118.6 million. This is primarily consisting of sales-based variable royalty revenue for the year ended December 31, 2019 of
$118.6 million. Variable royalty revenue became effective for sales beginning January 1, 2019 as recognition of such royalties
are constrained by the sales-based royalty exception related to intellectual property. Other components of net revenue from the
Commercialization Agreement include the amortization of revenue from contract liabilities arising from the warrants and
prepayments received, amortization of the contract asset arising from the Inventory Transfer, and variable consideration
revenue for reimbursement of certain shared costs. In addition, there were no remaining net expenses related to the third-party
royalties which have been paid in full by Collegium on behalf of Assertio for the year ended December 31, 2019. It is the
Company’s expectation that, in accordance with the amended Commercialization Agreement, Collegium will pay the full
royalty owed to the third-party in 2019, 2020 and 2021 and that such amounts, over the course of the calendar year, will have
no net impact to the Company.
For the year ended December 31, 2018, the Company recognized royalty revenue from the Commercialization
Agreement of $100.0 million. The Company also recognized $55.7 million of revenue related to the Inventory Transfer upon
closing in January 2018.
Effective as of February 13, 2020, the Company divested its rights, title and interest in and to its NUCYNTA franchise
of products in the U.S. to Collegium. In connection with the sale, the Commercialization Agreement terminated at closing with
certain specified provisions of the Commercialization Agreement surviving in accordance with the terms of the purchase
agreement.
Collaboration and License Agreements
Nuvo Pharmaceuticals, Inc. (Nuvo) In November 2010, we entered into a license agreement with Tribute
Pharmaceuticals Canada Ltd. (now Nuvo Pharmaceuticals, Inc.) granting it the rights to commercially market CAMBIA in
Canada. Nuvo independently contracts with manufacturers to produce a specific CAMBIA formulation in Canada. We receive
royalties on net sales on a quarterly basis as well as certain one-time contingent milestone payments upon the occurrence of
certain events. During the year ended December 31, 2019, we recognized $2.1 million of revenue related to CAMBIA in
Canada. The revenue recognized in 2019 included a $0.3 million one-time amendment fee to support the continued
collaboration with our partner in Canada following their acquisition and a $0.5 million milestone payment. During the year
ended December 31, 2018, we recognized $0.8 million of revenue related to CAMBIA in Canada. We will receive additional
one-time contingent milestone payments upon the achievement of scaling twelve-month cumulative sales targets and certain
development milestones in the future.
PDL BioPharma, Inc. (PDL) In October 2013, we sold our interests in royalty and milestone payments under our
license agreements relating to our Acuform technology in the Type 2 diabetes therapeutic area to PDL for $240.5 million. On
August 2, 2018, we sold our remaining interest in such payments to PDL for $20.0 million. The $20.0 million of revenue was
recognized as royalty revenue for the year ended December 31, 2018.
Ironwood Pharmaceuticals, Inc. The future contingent milestones under the Ironwood Agreement are considered
variable consideration and are estimated using the most likely method. At the end of each subsequent reporting period, the
Company re-evaluates the probability or achievement of each such milestone and any related constraint, and if necessary,
adjusts its estimates of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which
would affect revenue in the period of adjustment. There was no revenue recognized under this agreement for the year ended
December 31, 2019. During the second and third quarter of 2018, the Company recognized and collected a $5.0 million
milestone payment related to the dosing of the first patient in a Phase 3 trial.
Contract Assets
The following table presents changes in the Company’s contract assets as of December 31, 2019 (in thousands):
68
Contract assets:
Contract asset - CAMBIA Canada
Contract asset - Collegium, net
Balance as of
December 31,
2018
Additions
Deductions
Balance as of
December 31,
2019
$
$
— $
2,416
2,416
$
300
783
1,083
$
$
(300) $
(1,303)
(1,603) $
—
1,896
1,896
The Collegium contract asset, net represents the conditional right to consideration for completed performance under
the Commercialization Agreement arising from the transfer of inventory to Collegium on the date of closing of the agreement
in January 2018 net of the contract liability of $10.0 million resulting from the upfront payment received and the $8.8 million
of warrants received. Portions of the contract asset are reclassified to accounts receivable when the right to consideration
becomes unconditional. As of December 31, 2019, $0.8 million and $1.1 million of the contract asset has been recorded within
prepaid and other current assets and other long-term assets, respectively.
NOTE 3. ACCOUNTS RECEIVABLES, NET
Accounts receivables, net, consist of the following (in thousands):
Receivables related to product sales, net
Receivables from Collegium
Other
Total accounts receivable, net
December 31,
2019
2018
$
$
38,353
$
4,104
287
23,078
14,011
122
42,744
$
37,211
As of December 31, 2019 and 2018, allowances for cash discounts for prompt payment were $1.2 million and $0.4
million, respectively.
NOTE 4. INVENTORIES, NET
Inventories, net, consist of raw materials, work-in-process and finished goods are stated at the lower of cost or net
realizable value and consists of the following (in thousands):
Raw materials
Work-in-process
Finished goods
Total
December 31,
2019
2018
$
$
1,065
$
426
1,921
3,412
$
1,376
732
1,288
3,396
As of December 31, 2019 and 2018 inventory reserves were $0.4 million and $0.7 million, respectively.
NOTE 5. PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following (in thousands):
69
Furniture and office equipment
Machinery and equipment
Laboratory equipment
Leasehold improvements
Less: Accumulated depreciation and amortization
Property and equipment, net
December 31,
2019
2018
$
2,557
$
2,731
221
9,858
15,367
(11,870)
3,497
$
$
2,237
11,391
351
9,858
23,837
(10,773)
13,064
Depreciation expense was $1.2 million, $4.7 million and $2.0 million for the years ended December 31, 2019, 2018
and 2017, respectively. Depreciation for the year ended December 31, 2018 includes $2.7 million of accelerated depreciation
related to leasehold improvements in our former Newark, California headquarters upon the exit of that facility in 2018.
During the third quarter of 2019, the Company committed to a plan to dispose by abandonment certain owned
machinery, with a carrying value of $9.6 million, residing at a manufacturing supplier as it would no longer be used in future
production. The Company recognized a loss on disposition of equipment of $10.1 million, inclusive of $0.5 million for disposal
costs, in Selling, general and administrative expenses in the Company’s consolidated statements of comprehensive income for
the year ended December 31, 2019.
NOTE 6. INTANGIBLE ASSETS
The gross carrying amounts and net book values of the Company’s intangible assets were as follows (in thousands):
Product
rights
NUCYNTA
CAMBIA
Zipsor
December 31, 2019
December 31, 2018
Remaining
Useful Life
(In years)
Gross
Carrying
Amount
Accumulated
Amortization
Impairment
Net Book
Value
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
6.0
4.0
2.2
$ 1,019,978
$ (455,192) $ (189,790) $
374,996
$ 1,019,978
$ (360,891) $
659,087
51,360
27,250
(31,027)
(22,044)
—
—
20,333
5,206
51,360
27,250
(25,891)
(19,707)
25,469
7,543
$ 1,098,588
$ (508,263)
(189,790) $
400,535
$ 1,098,588
$ (406,489) $
692,099
Amortization expense was $101.8 million, $101.8 million and $102.7 million for the years ended December 31, 2019,
2018 and 2017, respectively.
The Company evaluates the intangible assets for impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. At December 31, 2019 the Company determined there were
indicators of impairment present related to the NUCYNTA intangible asset based on current unfavorable commercial outlook
resulting in a downward revision to the expected future cash flows from the NUCYNTA franchise. As a result, we recognized
an impairment loss of $189.8 million on the NUCYNTA intangible asset to reduce the carrying value of $564.8 million to its
estimated fair value of $375.0 million at December 31, 2019. The evaluation of fair value was determined under ASC 820, Fair
Value Measurement (ASC 820) as the price that would be received to sell the asset in an orderly transaction between market
participants at the measurement date of December 31, 2019. The fair value was based on a combination of an income approach
and the observable transaction price from Collegium’s purchase of the NUCYTNA franchise in February 2020. The income
approach consisted of the present value of future cash flows that a market participant would expect to receive from holding the
asset in its current use. This included assumptions of a market participant’s view such as, but not limited to, future product net
sales, related operating expenses, competitive landscape, and a discount rate to reflect the risk inherent in the future cash flows.
The Company expects future amortization expense, inclusive of the effect of the sale of the NUCYNTA asset on
February 13, 2020, to be as follows (in thousands):
70
Year Ending December 31,
2020
2021
2022
2023
Thereafter
Total
NOTE 7. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
Accrued compensation
Accrued royalties
Accrued restructuring and one-time termination costs
Other accrued liabilities
Total accrued liabilities
NOTE 8. DEBT
Senior Notes
Estimated
Amortization
Expense
$
13,400
7,473
5,668
4,925
—
$
31,466
December 31,
2019
2018
$
$
6,188
$
887
3,763
8,110
18,948
$
5,475
2,773
1,578
21,535
31,361
On April 2, 2015, the Company issued $575.0 million aggregate principal amount of senior secured notes (the Senior
Notes) for aggregate gross proceeds of approximately $562.0 million pursuant to a Note Purchase Agreement dated March 12,
2015 (Note Purchase Agreement) among the Company and Deerfield Private Design Fund III, L.P., Deerfield Partners, L.P.,
Deerfield International Master Fund, L.P., Deerfield Special Situations Fund, L.P., Deerfield Private Design Fund II, L.P.,
Deerfield Private Design International II, L.P., BioPharma Secured Investments III Holdings Cayman LP, Inteligo Bank Ltd.
and Phemus Corporation (collectively, the Purchasers) and Deerfield Private Design Fund III, L.P., as collateral agent. The
Company used $550.0 million of the net proceeds received upon the sale of the Senior Notes to fund a portion of the Purchase
Price paid to Janssen Pharma in connection with the NUCYNTA acquisition. The Company incurred debt issuance costs of $0.5
million for 2015.
The Senior Notes will mature on April 14, 2021 (unless earlier prepaid or repurchased), are secured by substantially all
of the assets of the Company and any subsidiary guarantors, and bear interest at the rate equal to the lesser of (i) 9.75% over the
three-month London Inter-Bank Offer Rate (LIBOR), subject to a floor of 1.0% and (ii) 11.95% (through the third anniversary
of the purchase date) and 12.95% (thereafter). The interest rate is determined at the first business day of each fiscal quarter,
commencing with the first such date following April 2, 2015. The interest rate for the three months ended December 31, 2019
and 2018 was 11.83% and 12.15%, respectively.
In April 2017, the Company prepaid and retired $100.0 million of the Senior Notes and paid a $4.0 million
prepayment fee. In November 2017, the Company prepaid and retired an additional $10.0 million of the Senior Notes and paid
a $0.4 million prepayment fee in connection with the Company’s entry into the Collegium Commercialization Agreement.
During 2017 the Company recorded a net loss on prepayment of the Senior Notes of $5.9 million, which represented the
prepayment fees of $4.4 million and the immediate recognition of unamortized balances of debt discount and debt issuance
costs of $1.5 million. This loss is recorded as a loss on prepayment of Senior Notes in the consolidated statements of operations
for 2017.
The balance of the Senior Notes can be prepaid, at the Company’s option or following a Major Transaction or asset
disposition. If the successor entity in a Major Transaction, as defined in the Note Purchase Agreement, does not satisfy
specified qualification criteria, the Purchasers may require the Company to prepay the Senior Notes upon consummation of the
71
Major Transaction in an amount equal to the principal amount of outstanding Senior Notes, accrued and unpaid interest and a
prepayment premium in an amount equal to what the Company would have otherwise paid in an optional prepayment described
below. In addition, the Company is required to make mandatory prepayments on the Senior Notes in an amount equal to the
proceeds it receives in connection with asset dispositions in excess of $10.0 million, together with accrued and unpaid interest
on the principal amount prepaid.
Pursuant to the Note Purchase Agreement, upon the consummation of the sale of the Senior Notes on April 2, 2015,
the Company and Depo NF Sub, LLC entered into a Pledge and Security Agreement with the Deerfield Private Design Fund lll,
L.P. (the Collateral Agent), pursuant to which the Company and Depo NF Sub each granted the Collateral Agent (on behalf of
the Purchasers) a security interest in substantially all of their assets, other than specifically excluded assets.
On December 4, 2017, the Company and the Purchasers entered into a Second Amendment to the Note Purchase
Agreement (the Second Amendment). The Second Amendment facilitated the Company’s entry into the Collegium
Commercialization Agreement.
In connection with its entry into the Commercialization Agreement, the Purchasers (i) waived the requirement that
some or all of the Asset Disposition Proceeds realized from the granting of the Exclusive License be used to prepay the
outstanding principal amount of the Notes pursuant to Section 2.7(b) of the Note Purchase Agreement and (ii) agreed to (a)
replace the minimum net sales covenant in Section 6.7 of the Note Purchase Agreement with a minimum EBITDA covenant,
and (b) made certain other amendments related to the amortization of the Notes and prepayment premiums, all of which were
revised by subsequent amendments to the Note Purchase Agreement, as noted below. The Commercialization Amendment also
modified the repayment schedule; and required the Company to prepay and retire $10.0 million of the Senior Notes and pay a
$0.4 million prepayment fee. The Company paid a $3.0 million upfront non-refundable amendment fee which was capitalized
and is being amortized over the remaining term of the Senior Notes using the effective interest method. The Purchasers also
consented to terms and conditions of the Commercialization Amendment to the Commercialization Agreement with Collegium
described in “Note 2 - Revenue.”
In January 2019, the Company entered into a Fourth Amendment to the Note Purchase Agreement (the Fourth
Amendment) with respect to the Note Purchase Agreement, dated as of March 12, 2015, among the Company, the other credit
parties party thereto, the purchasers party thereto and Deerfield. Pursuant to the Fourth Amendment, the minimum EBITDA
covenant was replaced with a senior secured debt leverage ratio covenant and a minimum net sales covenant, the prepayment
premium was adjusted to be 3.0% of the principal amount of notes prepaid on or prior to April 14, 2020 and 1.0% of the
principal amount of notes prepaid thereafter, flexibility to sell certain royalty assets and/or modify the terms thereof was added,
certain definitions were amended and certain other amendments were made. The Company paid a $3.2 million upfront non-
refundable amendment fee to the Purchasers in the first quarter of 2019 which was capitalized and is being amortized over the
remaining term of the Senior Notes using the effective interest method.
In August 2019, the Company entered into a Fifth Amendment to the Note Purchase Agreement (the Fifth
Amendment) with respect to the Note Purchase Agreement, dated as of March 12, 2015. The Fifth Amendment modified
certain provision of the Note Purchase Agreement to facilitate the exchange of the Company’s 2.50% Convertible Senior Notes
Due 2021, including providing the Company the ability to use up to $30.0 million in connection with the exchange. The Fifth
Amendment included a $4.4 million exit fee due upon the earlier of the maturity date or date of full repayment of the Senior
Notes, which was accounted as an increase in discount on the Senior Notes and accrued in Other long-term liabilities on the
consolidated balance sheet. The incremental discount is being amortized over the remaining term of the Senior Notes using the
effective interest method.
In December 2019 the Company entered into the Sixth Amendment to the Note Purchase Agreement (the Sixth
Amendment) with respect to the Note Purchase Agreement, dated as of March 12, 2015. The Sixth Amendment was executed in
connection with the divestiture of Gralise and became effective upon the completion of the sale on January 10, 2020. The Sixth
Amendment, among other things, provides that a portion of the purchase price shall be used to prepay $60.5 million principal,
which is subject the applicable prepayment fee. The Sixth Amendment also modified the principal payment schedule and
minimum net sales covenant as of the closing date of the sale, January 10, 2020. The amounts related to the Senior Notes on the
Company’s consolidated balance sheet as of December 31, 2019 do not reflect the prepayment or other amended terms of the
Sixth Amendment. See “Note 15. Acquisitions and Divestitures” for discussion of the transaction.
The Senior Notes and related indenture contain customary covenants, including, among other things, and subject to
certain qualifications and exceptions, covenants that restrict the Company’s ability and the ability of its subsidiaries to: incur or
guarantee additional indebtedness; create or permit liens on assets; pay dividends on capital stock or redeem, repurchase or
retire capital stock or subordinated indebtedness; make certain investments and other restricted payments; engage in mergers,
72
acquisitions, consolidations and amalgamations; transfer and sell certain assets; and engage in transactions with affiliates. The
Company was in compliance with its covenants with respect to the Senior Notes as of December 31, 2019.
The following is a summary of the carrying value of the Senior Notes as of December 31, 2019 and 2018 (in
thousands):
Principal amount of the Senior Notes
Unamortized debt discount balance
Unamortized debt issuance costs
Total Senior Notes
December 31,
2019
2018
$
$
162,500
(4,035)
(2,022)
156,443
$
$
282,500
(2,541)
(1,650)
278,309
The debt discount and debt issuance costs are amortized as interest expense using the effective interest method. The
following is a summary of Senior Notes interest expense for 2019, 2018 and 2017 (in thousands):
Contractual interest expense
Amortization of debt discount and debt issuance costs
Total interest expense
December 31,
2019
2018
2017
$
$
25,559
5,783
31,342
$
$
38,242
3,589
41,831
$
$
44,212
2,631
46,843
As of December 31, 2019, the Company was scheduled to make Senior Notes principal payments of $80.0 million and
$82.5 million prior to December 31, 2020 and December 31, 2021, included within the Current portion of Senior Notes and
Senior Notes on the Company’s consolidated balance sheet, respectively.
2.50% Convertible Senior Notes Due 2021
On September 9, 2014, the Company issued $345.0 million aggregate principal amount of 2.50% Convertible Senior
Notes Due 2021 (the 2021 Notes) resulting in net proceeds to the Company of $334.2 million after deducting the underwriting
discount and offering expenses of $10.4 million and $0.4 million, respectively.
The Convertible Notes were issued pursuant to an indenture, as supplemented by a supplemental indenture dated
September 9, 2014, between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee),
and mature on September 1, 2021, unless earlier converted, redeemed or repurchased. The Convertible Notes bear interest at
the rate of 2.50% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning March 1,
2015.
Prior to March 1, 2021, holders of the 2021 Convertible Notes can convert their securities, at their option: (i) during
any calendar quarter commencing after December 31, 2015, if the last reported sale price of the common stock for at least 20
trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the
immediately preceding calendar quarter is greater than or equal to $25.01 (130% of the $19.24 conversion price) on each
applicable trading day (ii) during the five business day period after any five consecutive trading day period in which the trading
price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of
the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; and (iii) at any
time upon the occurrence of specified corporate transactions, to include a change of control (as defined in the Notes Indenture).
On or after March 1, 2021 to the close of business on the second scheduled trading day immediately preceding the maturity
date, the holders of the 2021 Convertible Notes may convert all or any portion of their notes, in multiples of $1,000 principal
amount, at the option of the holder regardless of the foregoing circumstances. The initial conversion rate of 51.9852 shares of
common stock per $1,000 principal amount of Convertible Notes is equivalent to a conversion price of approximately $19.24
per share of common stock.
Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock
or a combination of cash and shares of the Company’s common stock, at the Company’s election. If the conversion obligation
73
is satisfied solely in cash or through payment and delivery of a combination of cash and shares, the amount of cash and shares,
if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day
in a 40 trading day observation period.
The 2021 Notes bear interest at the rate of 2.50% per annum, payable semi-annually in arrears on March 1 and
September 1 of each year, beginning March 1, 2015.
The Convertible Notes were accounted for in accordance with ASC Subtopic 470-20, Debt with Conversion and Other
Options (ASU Subtopic 470-20). Pursuant to ASC Subtopic 470-20, since the Convertible Notes can be settled in cash, shares
of common stock or a combination of cash and shares of common stock at the Company’s option, the Company is required to
separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of
the liability component of any outstanding debt instrument is computed by estimating the fair value of a similar liability
without the conversion option. The amount of the equity component is then calculated by deducting the fair value of the
liability component from the principal amount of the convertible debt instrument. The effective interest rate used in
determining the liability component of the Convertible Notes was 9.34%. This resulted in the initial recognition of $226.0
million as the liability component net of a $119.0 million debt discount with a corresponding net of tax increase to paid-in
capital of $73.3 million representing the equity component of the Convertible Notes. The underwriting discount of $10.4
million and offering expenses of $0.4 million were allocated between debt issuance costs and equity issuance costs in
proportion to the allocation of the proceeds. Equity issuance costs of $3.7 million related to the convertible notes were recorded
as an offset to additional paid-in capital.
On August 13, 2019, the Company entered into separate, privately negotiated exchange agreements (the Exchange
Agreements) with a limited number of holders of the Company’s 2021 Notes. The Company exchanged (the Convertible Note
Exchange) $200.0 million aggregate principal amount of the 2021 Notes for a combination of (a) its new $120.0 million
aggregate principal amount of 5.00% Convertible Senior Notes due August 15, 2024 (the 2024 Notes), (b) an aggregate cash
payment of $30.0 million, and (c) an aggregate of 15.8 million shares of the Company’s common stock. The Company did not
receive any cash proceeds from the issuance of the 2024 Notes or the issuance of the shares of its common stock. In connection
with the Convertible Note Exchange a beneficial owner holding more than 10% of the Company’s common stock exchanged
$22.0 million in aggregate principal of the 2021 Notes for a combination of $13.2 million in aggregate principal of the 2024
Notes, 1.7 million shares of the Company’s common stock, and $3.5 million in cash.
The Convertible Note Exchange was accounted for in accordance with ASC 470-50, Debt Modifications and
Extinguishments (ASC 470-50). Pursuant to ASC 470-50, the Convertible Note Exchange was deemed to be an extinguishment
of debt as there was a substantive modification in the conversion option of the 2024 Notes from 2021 Notes. During the three
months ended September 30, 2019, the Company recognized a $26.4 million gain on debt extinguishment, which represented
the difference between the carrying value and the fair value of the 2021 Notes just prior to Convertible Note Exchange. The
Company also recognized reacquisition of $6.2 million in additional paid-in capital related to the equity component of the 2021
Notes based on the excess of the fair value of total considerations provided in the Convertible Note Exchange against the fair
value of the 2021 Notes just prior to the Convertible Note Exchange. The components of total consideration given in the
Convertible Note Exchange consisted of (a) the new 2024 Notes, (b) an aggregate cash payment of $30.0 million, and (c) an
aggregate of 15.8 million shares of the Company’s common stock. Upon completion of the Convertible Note Exchange, the
aggregate principal amount of the 2021 Notes was reduced by $200.0 million to $145.0 million, the unamortized debt discount
and debt issuance costs was reduced by $26.1 million to $18.9 million and the carrying amount of the equity component was
reduced by $6.2 million to $112.8 million.
The closing price of the Company’s common stock did not exceed 130% of the $19.24 conversion price, for the
required period during the quarter ended December 31, 2019. As a result, the 2021 Notes are not convertible as of
December 31, 2019.
The following is a summary of the liability component of the Convertible Notes as of December 31, 2019 and 2018 (in
thousands):
74
Principal amount of the 2021 Notes
Unamortized discount of the liability component
Unamortized debt issuance costs
Total 2021 Notes
December 31,
2019
2018
$
$
145,000
(14,963)
(725)
129,312
$
$
345,000
(54,521)
(2,681)
287,798
The debt discount and debt issuance costs are amortized as interest expense using the effective interest method. The
following is a summary of interest expense for 2019, 2018 and 2017 (in thousands):
Stated coupon interest
Amortization of debt discount and debt issuance costs
Total interest expense 2021 Notes
5.00% Convertible Senior Notes Due 2024
December 31,
2019
2018
2017
$
$
6,708
15,398
22,106
$
$
8,624
18,288
26,912
$
$
8,625
16,784
25,409
On August 13, 2019, as part of the Convertible Note Exchange, the Company issued $120.0 million aggregate
principal of 2024 Notes which mature on August 14, 2024 and bear interest at a rate of 5.0%, payable semiannually in arrears
on February 15 and August 15 of each year, beginning on February 15, 2020. The 2024 Notes were issued pursuant to the Third
Supplemental Indenture (the Third Indenture), dated August 13, 2019, to the indenture of the 2021 Notes, dated September 9,
2014, between the Company and the Bank of New York Mellon Trust Company, N.A.
Holders may convert their 2024 Notes at any time prior to the earlier of (i) the close of business on the trading day
immediately preceding the Maturity Date and (ii) if the Company calls the 2024 Notes for optional redemption, the close of
business on the second trading day prior to the redemption date. The 2024 Notes will be convertible at an initial conversion rate
of 323.5198 shares per $1,000 in principal amount, equivalent to a conversion price of approximately $3.09 per share. The
Company may settle conversions in cash, shares of the Company’s common stock or a combination of cash and shares of the
Company’s common stock, at the Company’s election. If the conversion obligation is satisfied solely in cash or through
payment and delivery of a combination of cash and shares of the Company’s common stock, the amount of cash and shares of
common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for
each trading day in a 40 consecutive trading day observation period.
Upon the occurrence of a fundamental change (as defined in the Third Indenture) at any time, the holder of the 2024
Notes will have the right to require the Company to repurchase for cash any or all the 2024 Notes, or any portion of the
principal amount, that is equal to $1,000 or a multiple of $1,000. The price the Company is required to pay equals 100% of the
principal amount plus accrued and unpaid interest (up to but excluding the fundamental change purchase date).
On or after August 20, 2020, the Company may redeem for cash all or part of the notes, at its option, if the last
reported sale price of the Company’s common stock has been at least 150% of the conversion price then in effect for at least 20
trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such
period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of
redemption. The redemption price is equal to 100% of the principal amount of the notes to be redeemed, plus accrued and
unpaid interest to, but excluding, the redemption date. Upon conversion as a result of an optional redemption by the Company,
the holder will also receive a payment equal to all remaining required interest payments due on each $1,000 principal amount
being converted through and including the maturity date (excluding accrued but unpaid interest to the applicable conversion
date), known as an interest make-whole payment. The Company may pay any interest make-whole amount either in cash, in
shares of common stock or a combination thereof, at its election.
Upon the occurrence of an event of default (as defined by the Third Indenture), the holders of the notes may accelerate
the maturity of the notes and 100% of the principal and accrued and unpaid interest shall be due and payable immediately. If
the Company fails to comply with certain reporting covenants under the Supplemental Indenture, the Company may elect to
pay additional interest on the 2024 Notes as the sole remedy for such default.
75
Additionally, if the Company consolidates or merges with or into, sells, conveys, transfers or leases its consolidated
properties and assets substantially as an entirety to a foreign entity, it may be required to pay additional amounts for
withholding taxes, duties, assessments or governmental charges as necessary to the 2024 Note holders.
The 2024 Notes are accounted for in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options
(ASC Subtopic 470-20). Pursuant to ASC Subtopic 470-20, since the 2024 Notes can be settled in cash, shares of common
stock or a combination of cash and shares of common stock at the Company’s option, the Company is required to separately
account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the
liability component of any outstanding debt instrument is computed by estimating the fair value of a similar liability without
the conversion option. The amount of the equity component is then calculated by deducting the fair value of the liability
component from the principal amount of the convertible debt instrument. The effective interest rate used in determining the
liability component of the 2024 Notes was 17.82%. The fair value of the 2024 Notes, which also represents the proceeds
received, was $98.4 million as of the date of the Convertible Note Exchange. This resulted in the recognition of $65.8 million
as the liability component of the 2024 Notes and the recognition of the residual $54.2 million as the debt discount composed of
$21.6 million in fair value discount and $32.6 million for the equity component. The equity component is reflected as an
increase to additional paid-in capital. The total issuance costs of $4.3 million were allocated between the debt and equity
issuance costs in proportion to the allocation of the liability and equity components of the 2024 Notes. Total debt issuance costs
of $2.9 million were recorded on the issuance date and are reflected in the Company’s consolidated balance sheet as a direct
deduction from the carrying value of the associated debt liability. The debt discount and debt issuance costs will be amortized
as non-cash interest expense through maturity, August 14, 2024 using the effective interest method.
The 2024 Notes are not convertible or redeemable as of December 31, 2019. The following is a summary of the
liability component of the 2024 Notes as of December 31, 2019 (in thousands):
Principal amount of the 2024 Notes
Unamortized discount of the liability component
Unamortized debt issuance costs
Total 2024 Notes
December 31,
2019
$
$
120,000
(51,701)
(2,796)
65,503
The debt discount and debt issuance costs are amortized as interest expense using the effective interest method. The
following is a summary of interest expense for the 2024 Notes for year ended December 31, 2019 (in thousands):
Stated coupon interest
Amortization of debt discount and debt issuance costs
Total interest expense 2024 Notes
NOTE 9. RESTRUCTURING CHARGES
December 31,
2019
$
$
2,250
2,583
4,833
The Company continually evaluates its operations to identify opportunities to streamline operations and optimize
operating efficiencies as an anticipation to changes in the business environment. In November 2019, the Company announced
an acceleration of cost-saving initiatives that included a decision to discontinue its relationship with its contract sales
organization, a reduction in the use of certain outside vendors and consultants, and the reorganization of certain functions
resulting in a reduction of staff at its headquarters office and remote positions during the fourth quarter of 2019. The 2019 cost-
saving initiative was substantially complete as of December 31, 2019. As a result, $3.9 million of severance and benefits costs
for the reduction of staff were recognized during the year ended December 31, 2019. The Company does not expect to incur
future costs related to the 2019 cost-saving initiative.
In June 2017, the Company announced a limited reduction-in-force in order to streamline operations that was
completed during the third quarter of 2017. In December 2017, the Company initiated a company-wide restructuring plan
following the entry into the Commercialization Agreement with Collegium. This plan focused on a reduction of the Company’s
pain sales force during the first quarter of 2018, a reduction of the staff at its headquarters office during the second quarter of
76
2018 and a move from its headquarters facility in Newark, California to Lake Forest, Illinois in the third quarter of 2018. The
2017 restructuring plan activities were substantially completed as of December 31, 2018 and no additional charges were
incurred during the year ended December 31, 2019.
The following table summarizes the total expenses related to restructuring activities by type (in thousands):
Employee compensation costs
Fixed Asset disposals and accelerated depreciation of leasehold
improvements
Other exit costs
Total restructuring costs
Year ended December 31,
2019
2018
2017
3,891
$
16,852
$
13,247
—
—
3,511
238
—
—
3,891
$
20,601
$
13,247
$
$
Cash activity related to accrued restructuring is as follows (in thousands):
Net accruals
Non-cash additions/(reductions)
Cash paid
Balance at December 31, 2017
Net accruals
Non-cash additions/(reductions)
Cash paid
Balance at December 31, 2018
Net accruals
Non-cash additions/(reductions)
Cash paid
Balance at December 31, 2019
Employee
separation costs
Other exit costs
Total
13,247
—
(3,764)
9,483
16,852
(2,146)
(22,611)
1,578
3,891
$
$
$
— $
(1,706) $
3,763
$
$
$
$
$
$
$
—
—
—
— $
3,749
(3,511)
(238)
— $
— $
— $
— $
— $
13,247
—
(3,764)
9,483
20,601
(5,657)
(22,849)
1,578
3,891
—
(1,706)
3,763
The December 31, 2018 restructuring liability of $1.6 million related to the 2017 restructuring plan and was entirely
settled during the year ended December 31, 2019. As of December 31, 2019, the remaining accrued restructuring liability
balance of $3.8 million related to the 2019 cost-saving initiative and was classified as a current liability in the consolidated
balance sheet. Non-cash charges during 2018 related to stock based compensation and accelerated amortization of leasehold
improvements at the Newark, CA headquarters in connection with the 2017 restructuring plan.
NOTE 10. LEASES
The Company has non-cancelable operating leases for its office and laboratory facilities, automobiles used by its sales
force, and certain operating leases for office equipment.
The Company relocated its corporate headquarters from Newark, CA to Lake Forest, Illinois in 2018 and subsequently
entered into two subleases which, together, account for the entirety of the Newark facility. Each sublease contains abated rent
periods resulting in reduced operating lease cash flows through May 2019. Operating lease costs and sublease income related to
the Newark facility are accounted for in Other income, net in the Consolidated Statements of Comprehensive Income. The
Company has the right to renew the term of the Lake Forest lease for one period of five years, provided that written notice is
made to the Landlord no later than twelve months prior to the expiration of the initial term of the Lease.
77
Lease expense during the period included the following (in thousands):
Operating lease cost
Operating lease cost
Total lease cost
Financial Statement Classification
Selling, general and administrative expenses
Other income, net
Sublease Income
Other income, net
Year ended
December 31, 2019
$
$
$
718
591
1,309
1,386
Supplemental cash flow and other information related to leases were as follows (in thousands):
Cash paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases
Year ended
December 31, 2019
$
2,446
Supplemental balance sheet information related to leases consisted of the following (in thousands):
Financial Statement Classification
December 31,
2019
Assets
Operating lease right-of-use assets
Other long-term assets
Liabilities
Current operating lease liabilities
Other current liabilities
Noncurrent operating lease liabilities
Other long term liabilities
Total lease liabilities
Maturity of lease liabilities as of December 31, 2019 (in thousands):
2020
2021
2022
Thereafter
Total lease payments
Less: Interest
Present value of lease liabilities
$
$
$
$
$
$
2,776
2,094
4,820
6,914
Operating Leases
2,431
2,323
2,188
632
7,574
660
6,914
Future undiscounted cash flows to be received from subleases is expected to be approximately $1.7 million on an
annual basis in 2020, 2021, and 2022.
Lease term and discount rate consisted of the following:
Weighted-average remaining lease term (years):
Operating leases
Weighted-average discount rate:
Operating leases
78
December 31,
2019
3.2
6.0%
Future minimum lease payments under the Company’s non-cancelable operating leases as of December 31, 2018 were
as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total
Lease Payments
2,624
2,526
2,322
2,188
632
—
10,292
$
$
NOTE 11. COMMITMENTS AND CONTINGENCIES
As of December 31, 2019 and December 31, 2018, the Company had $2.4 million and $6.0 million, respectively, of
non-cancelable purchase orders related to consulting services.
Legal Matters
Company v. NUCYNTA and NUCYNTA ER ANDA Filers
Actavis & Alkem: In July 2013, Janssen Pharma filed patent infringement lawsuits in the U.S. District Court for the
District of New Jersey (the District Court) against Actavis Elizabeth LLC, Actavis Inc. and Actavis LLC (collectively, Actavis),
as well as Alkem Laboratories Limited and Ascend Laboratories, LLC (collectively, Alkem). The patent infringement claims
against Actavis and Alkem relate to their respective ANDAs seeking approval to market generic versions of NUCYNTA® and
NUCYNTA® ER before the expiration of U.S. Reissue Patent No. 39,593 (the ’593 Patent), U.S. Patent No. 7,994,364 (the
’364 Patent) and, as to Actavis only, U.S. Patent No. 8,309,060 (the ’60 Patent). In December 2013, Janssen Pharma filed an
additional complaint in the District Court against Alkem asserting that newly issued U.S. Patent No. 8,536,130 (the ’130
Patent) was also infringed by Alkem’s ANDA seeking approval to market a generic version of NUCYNTA ER. In August 2014,
Janssen Pharma amended the complaint against Alkem to add additional dosage strengths.
Sandoz & Roxane: In October 2013, Janssen Pharma received a Paragraph IV Notice from Sandoz, Inc. (Sandoz) with
respect to NUCYNTA related to the ’364 Patent, and a Paragraph IV Notice from Roxane Laboratories, Inc. (Roxane) with
respect to NUCYNTA related to the ’364 and ’593 Patents. In response to those notices, Janssen Pharma filed an additional
complaint in the District Court against Roxane and Sandoz asserting the ’364 Patent against Sandoz and the ’364 and ’593
Patents against Roxane. In April 2014, Janssen Pharma and Sandoz entered into a joint stipulation of dismissal of the case
against Sandoz, based on Sandoz’s agreement not to market a generic version of NUCYNTA products prior to the expiration of
the asserted patents. In June 2014, in response to a new Paragraph IV Notice from Roxane with respect to NUCYNTA ER,
Janssen Pharma filed an additional complaint in the District Court asserting the ’364, ’593, and ’130 Patents against Roxane.
Watson: In July 2014, in response to a Paragraph IV Notice from Watson Laboratories, Inc. (Watson) with respect to
the NUCYNTA oral solution product and the ’364 and ’593 Patents, Janssen Pharma filed a lawsuit in the District Court
asserting the ’364 and ’593 Patents against Watson.
In each of the foregoing actions, the ANDA filers counterclaimed for declaratory relief of non-infringement and patent
invalidity. At the time that the actions were commenced, Janssen Pharma was the exclusive U.S. licensee of the patents referred
to above. On April 2, 2015, the Company acquired the U.S. rights to NUCYNTA ER and NUCYNTA from Janssen Pharma. As
part of the acquisition, the Company became the exclusive U.S. licensee of the patents referred to above. The Company was
added as a plaintiff to the pending cases and is actively litigating them.
In September 2015, the Company filed an additional complaint in the District Court asserting the ’130 Patent against
Actavis. The ’130 Patent issued in September 2013 and was timely listed in the Orange Book for NUCYNTA ER, but Actavis
did not file a Paragraph IV Notice with respect to this patent. In its new lawsuit, the Company claimed that Actavis would
infringe or induce infringement of the ’130 Patent if its proposed generic products were approved. In response, Actavis
counterclaimed for declaratory relief of non-infringement and patent invalidity, as well as an order requiring the Company to
change the corrected use code listed in the Orange Book for the ’130 Patent.
In February 2016, Actavis, Roxane and Alkem each stipulated to infringement of the ’593 and ’364 patents. On March
9, 2016, a two-week bench trial on the validity of the three asserted patents and infringement of the ’130 patent
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commenced. Closing arguments took place on April 27, 2016. On September 30, 2016, the District Court issued its final
decision. The District Court found that the ’593 Patent, ’364 Patent, and ’130 Patent are all valid and enforceable, that Alkem
will induce infringement of the ’130 Patent, but that Roxane and Actavis will not infringe the ’130 Patent.
On April 11, 2017, the District Court entered final judgment in favor of the Company on the validity and
enforceability of all three patents, on infringement of the ’593 and ’364 Patents by all defendants, and on infringement of the
’130 Patent against Alkem. The judgment includes an injunction enjoining all three defendants from engaging in certain
activities with regard to tapentadol (the active ingredient in NUCYNTA), and ordering the effective date of any approval of
Actavis and Roxane’s ANDAs, and Alkem’s ANDA for NUCYNTA IR to be no earlier than the expiry of the ’364 Patent (June
27, 2025), and the effective date of any approval of Alkem’s ANDA for NUCYNTA ER to be no earlier than the expiry of the
’130 Patent (September 22, 2028). The period of exclusivity with respect to all four defendants may in the future be extended
with the award of pediatric exclusivity.
Notices of appeal were filed by defendants Alkem and Roxane concerning the validity of the ’364 and ’130 patents.
The Company filed its own cross-appeal with regard to the District Court’s finding that Roxane and Actavis will not infringe
the claims of the ’130 Patent. The appeals were consolidated at the U.S. Court of Appeals for the Federal Circuit (the Federal
Circuit). Briefing concluded in March 2018 and oral arguments occurred on September 4, 2018. In March 2019, the Federal
Circuit affirmed the decision in all respects. On April 29, 2019, Alkem filed a petition for panel rehearing and rehearing en banc
with the Federal Circuit, which was denied on May 31, 2019. The period during which Aklem could have petitioned the U.S.
Supreme Court for writ of certiorari has passed. As a result, the District Court’s decision is final and non-appealable as to the
proposed labels of the defendants.
On December 13, 2019, Alkem filed a motion in the District Court, seeking to modify the final judgment and
injunction based on a purported change to Alkem’s proposed label for its generic version of NUCYNTA ER, which change
would make the label similar to those of Actavis and Roxane. Alkem allegedly made this change in June 2019, and argues that
it no longer infringes the asserted ’130 Patent claims based on this change. Accordingly, Alkem is seeking to modify the final
judgment and injunction to allow the effective date for approval of its ANDA to occur upon the expiry of the ’364 Patent (June
27, 2025). Assertio filed an opposition to Alkem’s motion on January 21, 2020. Assertio argues, for instance, that Alkem is not
entitled to such extraordinary relief because this allegedly new circumstance brought about by Alkem was wholly foreseeable
and within Alkem’s control throughout the several years of litigation, including before entry of the final judgment and
injunction. Briefing was completed in February 2020. Resolution of the motion is expected later this year.
Effective as of February 13, 2020, we divested our rights, title and interest in and to this litigation to Collegium.
Company v. Purdue
The Company sued Purdue Pharma L.P (Purdue) for patent infringement in a lawsuit filed in January 2013 in the U.S.
District Court for the District of New Jersey. The lawsuit arose from Purdue’s commercialization of reformulated OxyContin®
(oxycodone hydrochloride controlled-release) in the U.S. and alleges infringement of U.S. Patent Nos. 6,340,475 (the ’475
Patent) and 6,635,280 (the ’280 Patent), which expired in September 2016.
On September 28, 2015, the Court stayed the Purdue lawsuit pending the decision of the U.S. Court of Appeals for the
Federal Circuit (CAFC) in Purdue’s appeal of the Final Written Decisions of the Patent Trial Appeal Board (PTAB) described
below. On June 30, 2016, the district court lifted the stay based on the CAFC’s opinion and judgment affirming the PTAB’s
Final Written Decisions confirming the patentability of the patent claims of the ’475 and ’280 Patents Purdue had challenged.
On June 10, 2016, the Company filed a motion for leave to file a second amended Complaint to plead willful infringement. On
June 21, 2016, Purdue filed an opposition to the Company’s motion for leave to plead willful infringement. On January 31,
2017, the Court granted the Company’s motion for leave to plead willful infringement.
On February 1, 2017, the Company filed a Second Amended Complaint pleading willful infringement. On July 10,
2017, the case was reassigned to Judge Wolfson. On February 15, 2017, Purdue answered the Company’s Second Amended
Complaint and pled counterclaims of non-infringement, invalidity, unenforceability and certain affirmative defenses. On
September 26, 2017, the case was reassigned to Judge Martinotti. On December 22, 2017, the Court set the close of expert
discovery for March 30, 2018. On January 5, 2018, the Court vacated the January 25, 2018 pretrial conference.
On July 9, 2018, the Court issued an order administratively terminating the case pending the outcome of settlement
discussions between the parties. On August 28, 2018, the Company and each of Purdue, The P.F. Laboratories, Inc., a New
Jersey corporation, and Purdue Pharmaceuticals L.P., a Delaware limited partnership (collectively, Purdue Companies), entered
into a Settlement Agreement. Pursuant to the Settlement Agreement: (i) Purdue Companies paid the Company $30 million on
August 28, 2018 and paid the Company an additional $32.0 million on January 30, 2019; (ii) each party covenanted not to the
sue the other with regard to any alleged infringement of such party’s patents or patent rights as a result of the
commercialization of the other party’s current product portfolio; (iii) each party covenanted not to challenge the other party’s
80
patents or patent rights covering such other party’s current product portfolio; and (iv) each party agreed to a mutual release of
claims relating to any claim or potential claim relating to the other party’s current product portfolio.
Glumetza Antitrust Litigation
Antitrust class actions and related direct antitrust actions have been filed in the Northern District of California against
the Company and several other defendants relating to the drug Glumetza®. The named class representatives in these actions
include Meijer, Inc., Bi-Lo, LLC, Winn-Dixie Logistics, Inc., City of Providence, KPH Healthcare Services, Inc., UFCW Local
1500 Welfare Fund, and MSP Recovery Claims, Series LLC. The class representatives seek to represent (i) a putative class of
direct purchasers of Glumetza, and (ii) a putative class of end payers for 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., have filed substantially similar direct antitrust claims based on alleged assignments of claims from direct purchaser
wholesalers.
These antitrust cases arise out of a Settlement and License Agreement (the Settlement) that the Company, Santarus,
Inc. (Santarus) and Lupin Limited (Lupin) entered into in February 2012 that resolved patent infringement litigation filed by
the Company against Lupin regarding Lupin’s Abbreviated New Drug Application for generic 500 mg and 1000 mg tablets of
Glumetza. The antitrust plaintiffs allege, among other things, that the Settlement violated the antitrust laws because it allegedly
included a “reverse payment” that caused Lupin to delay its entry in the market with a generic version of Glumetza. The alleged
“reverse payment” is an alleged commitment on the part of the settling parties not to launch an authorized generic version of
Glumetza for a certain period. The antitrust plaintiffs allege that the Company and its co-defendants, which include Lupin as
well as Bausch Health (the alleged successor in interest to Santarus) are liable for damages under the antitrust laws for
overcharges that the antitrust plaintiffs allege they paid when they purchased the branded version of Glumetza® due to delayed
generic entry. Plaintiffs seek treble damages for alleged past harm, attorneys’ fees and costs.
These lawsuits are in the earliest stages of proceedings, and the Company intends to defend itself vigorously in these
matters.
Securities Class Action Lawsuit and Related Matters
On August 23, 2017, the Company, its current chief executive officer and president, its former chief executive officer
and president, and its former chief financial officer were named as defendants in a purported federal securities law class action
filed in the U.S. District Court for the Northern District of California (the District Court). The action (Huang v. Depomed et al.,
No. 4:17-cv-4830-JST, N.D. Cal.) alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as
amended, and Rule 10b-5 relating to certain prior disclosures of the Company about its business, compliance, and operational
policies and practices concerning the sales and marketing of its opioid products and contends that the conduct supporting the
alleged violations affected the value of Company common stock and is seeking damages and other relief. In an amended
complaint filed on February 6, 2018, the lead plaintiff (referred to in its pleadings as the Depomed Investor Group), which
seeks to represent a class consisting of all purchasers of Company common stock between July 29, 2015 and August 6, 2017,
asserted the same claims arising out of the same and similar disclosures against the Company and the same individuals as were
involved in the original complaint. The Company and the individuals filed a motion to dismiss the amended complaint on April
9, 2018. On March 18, 2019, the District Court granted the motion to dismiss without prejudice, and the plaintiffs filed a
second amended complaint on May 2, 2019. The second amended complaint asserted the same claims arising out of the same
and similar disclosures against the Company and the same individuals as were involved in the original complaint. The
Company and the individuals filed a motion to dismiss the second amended complaint on June 17, 2019. The lead plaintiff filed
an opposition to the motion on August 1, 2019. The Company and the individuals filed a reply in support of their motion to
dismiss on August 30, 2019. The District Court held oral argument on December 18, 2019. The Company believes that the
action is without merit and intends to contest it vigorously.
In addition, five shareholder derivative actions were filed on behalf of the Company against its officers and directors
for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and
violations of the federal securities laws. The claims arise out of the same factual allegations as the class action. The first
derivative action was filed in the Superior Court of California, Alameda County on September 29, 2017 (Singh v. Higgins et al.,
RG17877280). The second and third actions were filed in the Northern District of California on November 10, 2017 (Solak v.
Higgins et al., No. 3:17-cv-6546-JST) and November 15, 2017 (Ross v. Fogarty et al., No. 3:17-cv-6592- JST). The fourth
action was filed in the District of Delaware on December 21, 2018 (Lutz v. Higgins et al, No. 18-2044-CFC). The fifth
derivative action was filed in the Superior Court of California, Alameda County on January 28, 2019 (Youse v. Higgins et al,
No. HG19004409). On December 7, 2017, the plaintiffs in Solak v. Higgins, et al. voluntarily dismissed the first federal
derivative action. The Ross, Singh, and Lutz actions were stayed on January 18, 2018, January 23, 2018, and January 11, 2019,
81
respectively, pending the resolution of the motion to dismiss in the securities class action. On May 28, 2019, during a brief lift
of the stay in the Singh and Youse actions while the parties’ motion to consolidate was pending, after having been ordered to
respond to the Singh and Youse complaints, the Company did so by filing demurrers. On July 12, 2019, the Singh and Youse
actions were consolidated, and the consolidated matter was stayed pending the resolution of the motion to dismiss in the federal
class action. The plaintiffs have indicated that they intend to file an amended consolidated complaint. The Company believes
that these actions are without merit and intends to contest them vigorously.
Opioid-Related Request and Subpoenas
As a result of the greater public awareness of the public health issue of opioid abuse, there has been increased scrutiny
of, and investigation into, the commercial practices of opioid manufacturers generally by federal, state, and local regulatory and
governmental agencies. In March 2017, the Company 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 from the Company regarding its historical commercialization of opioid products. The Company voluntarily
furnished information responsive to Sen. McCaskill’s request. Since 2017, the Company 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. The Company 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 the Company’s historical sales and marketing of opioid products. In addition,
the Company 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 the Company’s portfolio. Most recently, the Company received a subpoena from the New York
Department of Financial Services seeking information relating to its historical sales and marketing of opioid products. The
Company also from time to time receives and complies with 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.
Multidistrict Opioid Litigation
A number of pharmaceutical manufacturers, distributors and other industry participants have been named in numerous
lawsuits around the country brought by various groups of plaintiffs, including city and county governments, hospitals 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 most of the lawsuits include
federal and 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 transferred to the MDL Court. The Company is
currently involved in a subset of the lawsuits that have been transferred to the MDL Court. The Company is also involved in
other federal lawsuits that have not yet been transferred to the MDL Court pending a determination of whether those lawsuits
should proceed in state or other originating court. Plaintiffs may file additional lawsuits in which the Company may be named.
Plaintiffs in the pending federal cases involving the Company include individuals, county and municipal governmental entities,
employee benefit plans, health clinics and health insurance providers who assert federal and state statutory claims and state
common law claims, such as conspiracy, nuisance, fraud, negligence, gross negligence, 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, disgorgement of profits, punitive and
statutory treble damages, and attorneys’ fees and costs. These lawsuits are in the earliest stages of proceedings, and the
Company intends to defend itself vigorously in these matters.
State Opioid Litigation
Related to the cases in the MDL Court noted above, there have been hundreds of similar lawsuits filed in state courts
around the country, in which various groups of plaintiffs assert opioid-drug related claims against similar groups of defendants.
The Company is currently named in a subset of those cases, including cases in Alabama, Florida, Missouri, Pennsylvania,
Texas and Utah. Plaintiffs may file additional lawsuits in which the Company may be named. In the pending cases involving
the Company, plaintiffs are asserting state common law and statutory claims against the defendants similar in nature to the
82
claims asserted in the MDL cases. Plaintiffs are seeking past and future damages, disgorgement of profits, injunctive relief,
punitive and statutory treble damages, and attorneys’ fees and costs. These lawsuits are likewise in their earliest stages, and the
Company intends to defend itself vigorously in these matters.
Insurance Litigation
On January 15, 2019, the Company was named as a defendant in a declaratory judgment action filed by Navigators
Specialty Insurance Company (Navigators) in the U.S. District Court for the Northern District of California (Case No. 3:19-
cv-255). Navigators is the Company’s primary product liability insurer. Navigators is seeking declaratory judgment that opioid
litigation claims noticed by the Company (as further described above under “Multidistrict Opioid Litigation” and “State Opioid
Litigation”) are not covered by the Company’s life sciences liability policies with Navigators. The Company filed a
counterclaim on February 28, 2019. Navigators filed an answer on April 11, 2019. This litigation is ongoing. The parties expect
to file summary judgment briefing relating to Navigators’ duty to defend the opioid litigation in the second quarter of 2020, and
to receive a ruling by the end of 2020.
General
The Company cannot reasonably predict the outcome of the legal proceedings described above, nor can the Company
estimate the amount of loss, range of loss or other adverse consequence, if any, that may result from these proceedings or the
amount of any gain in the event the Company prevails in litigation involving a claim for damages. As such the Company is not
currently able to estimate the impact of the above litigation on its financial position or results of operations.
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 above, the Company is not currently involved in any
matters that the Company believes may have a material adverse effect on its business, results of operations or financial
condition. However, regardless of the outcome, litigation can have an adverse impact on the Company because of associated
cost and diversion of management time.
NOTE 12. STOCK-BASED COMPENSATION
The Company’s stock-based compensation generally includes stock options, restricted stock units (RSUs),
performance share units (PSUs), and purchases under the Company’s employee stock purchase plan (ESPP).
The following table presents stock‑based compensation expense recognized for stock options, RSUs, PSUs, and the
ESPP in the Company’s consolidated statements of comprehensive income (in thousands):
Cost of sales
Research and development expenses
Selling, general and administrative expenses
Restructuring charges
Total
Years Ended December 31,
2019
2018
2017
$
$
106
693
9,797
—
$
30
$
446
9,963
2,146
98
710
12,157
51
10,596
$
12,585
$
13,016
There is no stock‑based compensation recorded within inventory in any of the years presented. The recognized tax
benefits on total stock-based compensation expense during the years ended December 31, 2019, 2018 and 2017 was $0.6
million, $0.7 million and $0.4 million, respectively.
At December 31, 2019, the Company had $9.2 million, $4.4 million, and $1.1 million of total unrecognized
compensation expense related to RSUs, PSUs, and stock option grants, respectively, that will be recognized over a weighted
average vesting period of 1.78, 1.71, and 1.32 years, respectively.
The Company did not grant any options during 2019. The weighted‑average grant date fair value of options granted
during the years ended December 31, 2018 and 2017 was $4.32 and $5.55, respectively. The company used the following
83
assumptions to calculate the fair value of option grants for the years ended December 31, 2019, 2018 and 2017:
Employee and Director Stock Options
Risk-free interest rate
Expected option term (in years)
Expected stock price volatility
2018
2017
2.17%
4.34
1.65 - 1.93%
4.24 - 4.30
61.94%
51.67 - 59.59%
Stock options exercised during 2019 were immaterial. The total intrinsic value of options exercised during the years
ended December 31, 2018 and 2017 was $0.6 million and $5.0 million, respectively. Cash received from stock option exercises
for the years ended December 31, 2018 and 2017 was $1.5 million and $7.0 million, respectively. The total grant date fair value
of options that vested during the years ended December 31, 2019, 2018 and 2017 was $1.4 million, $2.3 million and $4.7
million, respectively.
The weighted‑average grant date fair value of stock purchase rights granted under the ESPP during the years ended
December 31, 2019, 2018 and 2017 was $1.15, $1.73 and $2.97, respectively. The company used the following assumptions to
calculate the fair value of option grants and stock purchase rights granted under the ESPP for the years ended December 31,
2019, 2018 and 2017:
Employee Stock Purchase Plan
Risk-free interest rate
Expected option term (in years)
Expected stock price volatility
2004 Equity Incentive Plan
2019
2018
2017
1.63 - 2.35%
2.05 - 2.50%
1.07 - 1.45%
0.5
0.5
0.5
57.2 - 132.2%
56.1 - 58.6%
52.2 - 82.0%
The Company’s 2004 Equity Incentive Plan (2004 Plan) was adopted by the Board of Directors and approved by the
shareholders in May 2004. The 2004 Plan provides for the grant to employees of the Company, including officers, of incentive
stock options, and for the grant of non-statutory stock options to employees, directors and consultants of the Company. The
number of shares authorized under the 2004 Plan was 14,450,000 shares and there were no more shares available for future
issuance at December 31, 2019.
Generally, the exercise price of all incentive stock options and non-statutory stock options granted under the 2004 Plan
must be at least 100% and 85%, respectively, of the fair value of the common stock of the Company on the grant date. The term
of incentive and non-statutory stock options may not exceed 10 years from the date of grant. An option shall be exercisable on
or after each vesting date in accordance with the terms set forth in the option agreement. The right to exercise an option
generally vests over four years at the rate of at least 25% by the end of the first year and then ratably in monthly installments
over the remaining vesting period of the option.
The following tables summarize the activity for the year ended December 31, 2019 under the 2004 Plan:
84
Options outstanding at December 31, 2018
Options granted
Options exercised
Options forfeited
Options expired
Options outstanding at December 31, 2019
Options vested and expected to vest at December 31, 2019
Options exercisable at December 31, 2019
Shares
1,169,412
$
—
(13,691)
—
(810,515)
345,206
345,206
345,206
$
$
$
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
(in thousands)
7.57
—
1.83
—
—
7.29
7.29
7.29
2.58
2.58
2.58
$
$
$
—
—
—
There were no restricted stock units granted under the 2004 Equity Incentive Plan.
2014 Omnibus Incentive Plan
The Company’s 2014 Omnibus Incentive Plan (2014 Plan) was adopted by the Board of Directors and approved by the
shareholders in May 2014. The 2014 Plan provides for the grant of stock options, stock appreciation rights, stock awards, cash
awards and performance award to the employees, non-employee directors and consultants of the Company. The number of
shares authorized under the 2014 Plan is 15,780,000 shares, of which 7,233,105 were available for future issuance at
December 31, 2019.
Incentive Stock Options
Generally, the exercise price of all incentive stock options and non-statutory stock options granted under the 2014 Plan
must be the fair value of the common stock of the Company on the grant date. The term of incentive and non-statutory stock
options may not exceed 10 years from the date of grant. An option shall be exercisable on or after each vesting date in
accordance with the terms set forth in the option agreement. The right to exercise an option generally vests over four years at
the rate of at least 25% by the end of the first year and then ratably in monthly installments over the remaining vesting period
of the option. The following table summarize the options activity for the year ended December 31, 2019 under the 2014 Plan:
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
(in thousands)
Number of
Shares
Options outstanding at December 31, 2018
1,461,469
$
12.90
Options granted
Options exercised
Options forfeited
Options expired
Options outstanding at December 31, 2019
Options vested and expected to vest at December 31, 2019
Options exercisable at December 31, 2019
Restricted Stock Units
—
—
(102,669)
(180,755)
1,178,045
1,178,045
892,730
$
$
$
—
—
13.86
14.01
12.64
12.64
13.50
6.15
6.15
5.77
$
$
$
—
—
—
RSUs generally vest over three or four years, with 33% or 25% of each award vesting annually, respectively. The
following table summarizes the RSUs activity for the year ended December 31, 2019 under the 2014 Plan:
85
Non-vested restricted stock units at December 31, 2018
Granted
Vested
Forfeited
Non-vested restricted stock units at December 31, 2019
Weighted
Average
Grant Date
Fair
Value
Per Share
Weighted
Average
Remaining
Contractual
Term
(in years)
6.94
3.84
8.08
5.40
4.64
1.05
Number of
Shares
1,938,788
2,750,408
(873,784)
(878,697)
2,936,715
$
$
The total fair value of RSUs that vested during the years ended December 31, 2019, 2018 and 2017 was $3.1 million,
$3.1 million, and $3.9 million, respectively.
Performance-based Restricted Stock Units
During the twelve months ended December 31, 2019, the Company granted PSUs with an aggregate target award of
643,266 units and a weighted-average grant-date fair value of $6.87 per unit. The PSUs vest in annual cliffs over a three year
period based on the Relative Total Shareholder Return (TSR) of the Company’s common stock against the Russell 3000
Pharmaceuticals Total Return Index over the period. The ultimate award, which is determined at the end of the three-year cycle,
can range from zero to 200% of the target. The recipients of the PSU awards will have voting rights and the right to receive a
dividend once the underlying shares have been issued. The grant-date fair value is based upon the Monte Carlo simulation
method. The following table summarizes the PSU activity for the year ended December 31, 2019 under the 2014 Plan (in
thousands, except per share data):
Weighted
Average
Grant Date
Fair
Value
Per Share
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic Value
(in thousands)
Number of
Shares
Non-vested performance-based restricted stock units at
December 31, 2018
374,824
$
10.14
Granted
Vested
Forfeited
Non-vested performance-based restricted stock units at
December 31, 2019
Equity Match Program
643,266
—
(34,247)
983,843
$
6.87
—
6.87
8.11
1.71
$
1,230
On December 6, 2017, the Company Board of Directors approved a one-time incentive program (the Equity Match
Program) for the Company’s Chief Executive Officer (the CEO). The Equity Match Program was intended to provide an
incentive for the CEO to purchase shares of the Company’s common stock, no par value (the Common Stock), through open-
market purchases between December 5, 2017 and February 3, 2018 (the Purchase Period). Under the terms of the Equity Match
Program, for each $100,000 of Common Stock purchased by the CEO during the Purchase Period (up to $600,000 in total), the
Company granted the CEO an award of restricted stock units (the Matching Units) under the Company’s 2014 Omnibus
Incentive Plan with a grant-date value equal to the purchase price of the Common Stock purchased by the CEO (rounded down
to the nearest $100,000). The Matching Units were granted on the first business day following the earlier of: (i) the CEO’s
purchase of a total of $600,000 of Common Stock, or (ii) the end of the Purchase Period. The Matching Units will vest in full
on the third anniversary of the first day during the Purchase Period that the CEO purchased Common Stock in the open market,
subject to the CEO’s continued employment through such date. Notwithstanding the foregoing, the Matching Units may vest in
full upon a termination without cause or resignation for good reason (including following a change of control of the Company),
or upon the CEO’s death or total and permanent disability. Under the Equity Match Program 75,000 shares of the Company
Common Stock were purchased by the CEO at an average price per share of $8.16 and Matching Units of 73,529 shares were
awarded, with a fair value of $8.16 at the grant date.
86
NOTE 13. SHAREHOLDERS' EQUITY
Reincorporation
On August 14, 2018, Depomed reincorporated from California to Delaware (the Reincorporation) and changed its
name to Assertio Therapeutics, Inc. To effectuate the Reincorporation, Depomed merged with and into Assertio Therapeutics,
Inc., a Delaware corporation and wholly owned subsidiary of Depomed prior to the effective time of the merger, with Assertio
continuing as the surviving corporation. Pursuant to the merger, each share of Depomed common stock, no par value, was
converted into one share of Assertio common stock, $0.0001 par value, and all outstanding Depomed equity awards were
assumed by Assertio. As a result of the Reincorporation and the related conversion of each share of Depomed-California
common stock, no par value, into one share of Assertio-Delaware common stock, $0.0001 par value, the Company has
separated the par value of stock within Common Stock from additional-paid-in-capital on the Company's consolidated balance
sheets. The Company has elected to present this impact of the Reincorporation retrospectively. Accordingly, to conform to
current year presentation, the Company reclassified $264.5 million from common stock to additional paid-in capital as of
December 31, 2015 on the Company's consolidated balance sheets.
Employee Stock Purchase Plan
In May 2004, the ESPP was approved by the shareholders. The ESPP is qualified under Section 423 of the Internal
Revenue Code. The ESPP is designed to allow eligible employees to purchase shares of the Company’s common stock through
periodic payroll deductions. The price of the common stock purchased under the ESPP must be equal to at least 85% of the
lower of the fair market value of the common stock on the commencement date of each offering period or the specified
purchase date. The number of shares authorized for issuance under the ESPP as of December 31, 2019 was 3,000,000, of which
133,759 shares were available for future issuance.
In 2019, the Company sold 168,790 shares of its common stock under the ESPP. The shares were purchased at a
weighted‑average purchase price of $1.34 with proceeds of approximately $0.2 million. In 2018, the Company sold 106,500
shares of its common stock under the ESPP. The shares were purchased at a weighted‑average purchase price of $4.95 with
proceeds of approximately $0.5 million.
Option Exercises
Stock options exercised during 2019 were immaterial. Employees exercised options to purchase 278,000 shares of the
Company’s common stock with net proceeds to the Company of approximately $1.5 million during 2018.
NOTE 14. 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
income by the weighted-average number of shares of common stock outstanding during the period, plus potentially dilutive
common shares, consisting of stock options and convertible debt. The Company uses the treasury-stock method to compute
diluted earnings per share with respect to its stock options and equivalents. The Company uses the if-converted method to
compute diluted earnings per share with respect to its convertible debt. For purposes of this calculation, options to purchase
stock are considered to be potential common shares and are only included in the calculation of diluted net (loss) income per
share when their effect is dilutive. Basic and diluted earnings per common share are calculated as follows (in thousands, except
for per share amounts):
87
Basic net income (loss) per share
Net (loss) income
Weighted average common shares outstanding
Basic net (loss) income per share
Diluted net income (loss) per share
Net (loss) income
Weighted average common shares outstanding
Add: effect of dilutive securities
Denominator for diluted income (loss) per share
Diluted net (loss) income per share
Year ended December 31,
2019
2018
2017
(217,201) $
70,716
(3.07) $
36,908
63,794
0.58
$
$
(102,496)
62,702
(1.63)
(217,201) $
70,716
—
70,716
36,908
$
63,794
414
64,208
(3.07) $
0.57
$
(102,496)
62,702
—
62,702
(1.63)
$
$
$
$
The following table sets forth outstanding potential shares of common stock that are not included in the computation
of diluted net income (loss) per share because, to do so would be anti-dilutive (in thousands):
2.5% Convertible Notes due 2021
5.0% Convertible Notes due 2024
Stock options and equivalents
Total potentially dilutive common shares
NOTE 15. ACQUISITIONS AND DISPOSITIONS
Year ended December 31,
2019
2018
2017
13,895
14,895
6,486
35,276
17,931
—
3,701
21,632
17,931
—
5,618
23,549
On November 7, 2017, the Company entered into an agreement with Slán Medicinal Holdings Limited (Slán) under
which it (i) acquired from Slán certain rights to market the specialty drug, long-acting cosyntropin in the U.S. and (ii) divested
to Slán all of its rights to Lazanda® (fentanyl) nasal spray CII.
The acquisition of exclusive rights to market long-acting cosyntropin in the U.S. was treated as an asset acquisition
under the applicable guidance contained with U.S. GAAP. The fair value of the license to market long-acting cosyntropin was
estimated to be approximately $24.9 million which, in accordance with the applicable accounting rules, was recorded as
Acquired in-process research and development in the accompanying consolidated statements of operations as long-acting
cosyntropin is still under development and the rights the Company acquired were deemed to have no alternative future use.
As consideration for this acquisition, the Company provided the seller all of the rights and obligations, as defined
under the arrangement, associated with Lazanda and together with $5.0 million in cash to Slán. The divestiture of Lazanda was
treated as a disposition of a business for accounting purposes and resulted in a gain of approximately $17.1 million which was
recorded as Gain on divestiture of Lazanda in the accompanying consolidated statements of operations. The Company
determined that the divestiture of Lazanda does not qualify for reporting as discontinued operations as the divestiture does not
constitute on its own a strategic shift that will have a major effect on the Company’s operations and financial results.
As outlined in the Slán Agreements, each party would support the development, including clinical development, of the
licensed product and efforts to obtain regulatory approval of the initial NDA. Subsequent to approval of the initial NDA,
Assertio and Slán would share in the net sales of long-acting cosyntropin for a 10-year period (after which time the product will
revert back to Slán). At December 31, 2019 the Company wrote-off $3.2 million of development expenses reimbursable by
Slán as a result of the Company’s assessment of probability of collection. Of the $3.2 million, $1.9 million and $1.3 million
was recognized in Research and development expenses and Selling, general and administrative expenses, respectively, on the
Company’s consolidated statement of comprehensive income reflecting the original allocation of resources billed. As of
December 31, 2019 and 2018 the Company had $2.0 million and $4.6 million, respectively, of reimbursable development
expenses in Prepaid and other current assets on the Company’s consolidated balance sheets.
88
NOTE 16. 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.
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at
fair value on a recurring basis as of December 31, 2019 and December 31, 2018 (in thousands):
December 31, 2019
Assets:
Financial Statement Classification
Level 1
Level 2
Level 3
Total
Collegium warrants
Investments
Total
Liabilities:
Contingent consideration
Contingent consideration liability
$
$
$
$
— $ 9,629
— $ 9,629
$
$
— $ 9,629
— $ 9,629
— $
— $
— $
— $
168
168
$
$
168
168
Total
December 31, 2018
Assets:
Money market funds
Commercial paper
Agency bond
Collegium warrants
Total
Liabilities:
Financial Statement Classification
Level 1
Level 2
Level 3
Total
Cash and cash equivalents
$
11
$
— $
Cash and cash equivalents
Cash and cash equivalents
Investments
— 14,028
—
—
11
1,250
8,784
$ 24,062
$
— $
— 14,028
11
—
1,250
—
8,784
— $ 24,073
$
$
$
Contingent consideration
Contingent consideration liability
Total
— $
— $
— $ 1,038
— $ 1,038
$ 1,038
$ 1,038
The Company generally invests its cash in money market funds and marketable securities including U.S. Treasury and
government agency securities, and commercial paper. These investments are all highly liquid investments with a maturity at
date of purchase of three months or less. These securities are carried at fair value, which is based on readily available quoted
market information. Realized gains or losses have been insignificant and are included in Other income, net in the Consolidated
Statements of Comprehensive Income.
The fair value of the warrants to purchase Collegium’s common stock was calculated using the Black-Scholes option
pricing model. As of November 8, 2018, the significant inputs included the fair value of Collegium’s common stock of $15.56,
an expected term of 4 years and a risk-free rate of 3.05%. As of December 31, 2018, the significant inputs included the fair
value of Collegium’s common stock of $17.17, an expected term of 3.86 years and a risk-free rate of 2.48%. The expected term
was based on the remaining contractual period of 3.86 years, and the volatility was determined using Collegium’s historical
common stock volatility over the expected term. For the year ended December 31, 2019, the Company recorded a gain of $0.8
million in “Other income, net” for the change in fair value of the Collegium warrants.
89
The fair value measurement of the contingent consideration obligations arises from the Zipsor, CAMBIA and Lazanda
acquisitions and relates to fair value of the potential future contingent milestone payments and royalties payable under the
respective agreements which are determined using Level 3 inputs. The remaining contingent consideration liability following
the divestiture of Lazanda in November 2017 was $0.2 million. This liability was settled in the first quarter of 2018. The key
assumptions in determining the fair value are the discount rate and the probability assigned to the potential milestones and
royalties being achieved. At each reporting date, the Company re-measures the contingent consideration obligation arising from
the above acquisitions to their estimated fair values. Any changes in the fair value of contingent consideration resulting from a
change in the underlying inputs are recognized in operating expenses until the contingent consideration arrangement is settled.
Changes in the fair value of contingent consideration resulting from the passage of time are recorded within interest expense
until the contingent consideration is settled.
The table below provides a summary of the changes in fair value recorded in interest expense, selling, general and
administrative expense, and gain on divestiture of Lazanda measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the years ended December 31, 2019, 2018 and 2017 (in thousands):
Fair value, beginning of the period
Changes in fair value recorded in interest expense
Changes in fair value recorded in selling, general and administrative expenses
Royalties and milestone paid
Divestiture of Lazanda
Total
December 31,
2019
2018
2017
$
$
$
1,038
113
(983)
—
—
$
1,613
124
(515)
(184)
—
168
$
1,038
$
14,825
1,079
(7,708)
(3,068)
(3,515)
1,613
The Company estimates the fair value of its convertible notes based on a market approach which represents a Level 2
valuation. The estimated fair value of the 2.50% Convertible Senior Notes Due 2021, which the Company issued on September
9, 2014, was approximately $108.1 million (par value $145.0 million) and $231.8 million (par value $345.00 million) as of
December 31, 2019 and 2018, respectively. The estimated fair value of the 5.00% Convertible Senior Notes Due 2024, which
the Company issued on August 13, 2019, was approximately $81.6 million (par value $120.00 million) as of December 31,
2019. The principal amount of the Senior Notes (as defined in “Note 8. Debt”), approximates their fair value as of
December 31, 2019 and 2018, respectively and represents a Level 2 valuation. When determining the estimated fair value of the
Company’s debt, the Company uses a commonly accepted valuation methodology and market-based risk measurements that are
indirectly observable, such as credit risk.
There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the years ended
December 31, 2019 and 2018.
90
NOTE 17. INCOME TAXES
The (benefit) provision for income taxes consists of the following (in thousands):
Current:
Federal
State
Total current taxes
Deferred:
Federal
State
Total deferred taxes
Total (benefit) provision for income taxes
Year ended December 31,
2019
2018
2017
$
$
$
$
(1,231) $
1,715
484
$
(5,767) $
—
(5,767)
(5,283) $
896
171
1,067
$
$
— $
—
—
1,067
$
384
(1,813)
(1,429)
—
—
—
(1,429)
A reconciliation of income taxes at the statutory federal income tax rate to the actual tax rate included in the
Statements of Comprehensive Income is as follows (in thousands):
Tax at federal statutory rate
State tax, net of federal benefit
Research credit
Stock based compensation
Non-deductible meals and entertainment
Non-deductible other expense
Change in valuation allowance
Uncertain tax provisions
Intraperiod tax allocations
Tax rate changes
Total tax (benefit) expense
Year ended December 31,
2019
2018
2017
(46,722) $
(3,845)
(138)
2,038
129
5,837
48,943
(5,758)
(5,767)
—
(5,283) $
7,975
$
3,280
(41)
1,259
223
308
(12,321)
384
—
—
1,067
$
(36,374)
(3,395)
(41)
159
973
6,508
4,792
(1,611)
—
27,560
(1,429)
$
$
During 2019, the Company recorded income tax benefit of approximately $5.3 million, principally due to the release
of FIN 48 liabilities based on lapsing of statute of limitation, and tax benefits being recorded as a result of intraperiod tax
allocation from the Convertible Note Exchange.
During 2018, the Company recognized a tax expense of approximately $1.1 million, principally due to the increase in
book income from Purdue litigation settlement.
During 2017, the Company recorded income tax benefit of approximately $1.4 million, principally due to release of
liability and accrued interest and penalties associated with uncertain tax.
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the Tax Act). The Tax Act included
significant changes to the U.S. corporate income tax system including, but not limited to, a federal corporate rate reduction
from 35% to 21% and limitations on the deductibility of interest expense and executive compensation. In order to calculate the
effects of the new corporate tax rate on deferred tax balances, ASC 740 Income Taxes (ASC 740) required the re-measurement
of deferred tax balances as of the enactment date of the Tax Act, based on the rates at which the balances were expected to
reverse in the future. Due to the Company’s full valuation allowance position, there was no change to the presentation of the
deferred tax balances on the financial statements, except for the re-measurement of these deferred tax balances in the income
91
tax footnote. The re-measurement resulted in a one-time reduction in federal and state deferred tax assets of approximately
$25.5 million, which was fully offset by a corresponding change to the Company’s valuation allowance. The Company
completed accounting for all tax effects related to the Tax Act in 2019, and there were no material adjustments recorded during
2018 to the previously recorded provisional amounts reflected in the 2017 financial statements.
As of December 31, 2019, the Company had net operating loss carry forwards for federal income tax purposes of
approximately $3.7 million, which begin to expire in 2021. Net operating loss carryforwards for state income tax purposes were
approximately $74.9 million, which began to expire in 2019. The Company had California state research and development
credit carryforwards of $2.4 million, which have no expiration.
Utilization of the Company’s net operating loss and credit carryforwards may be subject to a substantial annual
limitation due to ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating losses and credits before utilization.
Deferred income taxes reflect the temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred
tax assets are as follows (in thousands):
Deferred tax assets:
Net operating losses
Tax credit carryforwards
Intangibles
Stock-based compensation
Operating lease liabilities
Reserves and other accruals not currently deductible
Total deferred tax assets
Valuation allowance for deferred tax assets
Deferred tax liabilities:
Convertible debt
Fixed Assets
Operating lease right-of-use assets
Net deferred tax asset (liability)
December 31,
2019
2018
$
5,885
$
1,411
82,582
1,907
1,577
10,447
103,809
(90,820)
12,989
$
(12,247) $
(109)
(633)
— $
$
$
$
6,618
1,096
33,604
2,286
10,706
54,310
(41,905)
12,405
(12,213)
(192)
—
—
In 2019, the Company recorded a valuation allowance of $90.8 million to offset, in full, the benefit related to its net
deferred tax assets as of December 31, 2019 because realization of the future benefits is uncertain. The Company reviewed both
positive evidence such as, but not limited to, the projected availability of future taxable income and negative evidence such as
the history of cumulative losses in recent years. The Company will continue to assess the realizability of its deferred tax assets
on a quarterly basis, and assess whether an additional reserve or a release of the valuation allowance is required in future
periods.
The valuation allowance increased by $48.9 million, decreased by $12.3 million, and increased by $9.0 million during
the years ended December 31, 2019, 2018 and 2017, respectively.
The Company files income tax returns in the U.S. federal jurisdiction and in various states, and the tax returns filed for
the years 1997 through 2018 and the applicable statutes of limitation have not expired with respect to those returns. Because of
net operating losses and unutilized R&D credits, substantially all of the Company’s tax years remain open to examination.
Interest and penalties, if any, related to unrecognized tax benefits would be recognized as income tax expense by the
Company. At December 31, 2019, the Company had approximately $0.4 million of accrued interest and penalties associated
with any unrecognized tax benefits.
92
The following table summarizes the activity related to the Company’s unrecognized tax benefits for the three years
ended December 31, 2019 (in thousands):
Unrecognized tax benefits—January 1, 2017
Increases related to current year tax positions
Changes in prior year tax positions
Decreases related to lapse of statutes
Unrecognized tax benefits—December 31, 2017
Increases related to current year tax positions
Changes in prior year tax positions
Decreases related to lapse of statutes
Unrecognized tax benefits—December 31, 2018
Increases related to current year tax positions
Changes in prior year tax positions
Decreases related to lapse of statutes
Unrecognized tax benefits—December 31, 2019
$
$
14,687
3,423
(30)
(936)
17,144
611
(1,623)
(68)
16,064
212
(232)
(12,011)
4,033
The total amount of unrecognized tax benefit that would affect the effective tax rate is approximately $4.0 million as
of December 31, 2019 and $16.1 million as of December 31, 2018.
The Company does not expect a significant change to its unrecognized tax benefits over the next twelve months. The
unrecognized tax benefits may increase or change during the next year for items that arise in the ordinary course of business.
NOTE 18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables set forth certain unaudited quarterly financial data for each of the eight quarters beginning with
the quarter ended March 31, 2018 through the quarter ended December 31, 2019 (in thousands). This quarterly financial data is
unaudited, but has been prepared on the same basis as the annual financial statements and, in the opinion of management,
reflects all adjustments, consisting only of normal recurring adjustments necessary for a fair representation of the information
for the periods presented. Operating results for any quarter are not necessarily indicative of results for any future period.
Product sales
Total revenues
Income (loss) from operations (1)
Net (loss) income
Basic net (loss) income per share
Diluted net (loss) income per share
2019 Quarter Ended
March 31,
June 30,
September 30, December 31,
$
26,450
$
25,937
$
27,502
$
28,917
57,929
3,072
(14,301)
57,203
3,618
(13,605)
55,147
(10,133)
3,331
$
$
(0.22) $
(0.22) $
(0.21) $
(0.21) $
0.05
0.05
$
$
59,225
(190,985)
(192,626)
(2.65)
(2.65)
(1) At December 31, 2019 the Company recognized an impairment loss of $189.8 million on its NUCYNTA intangible.
Product sales
Total revenues
Income (loss) from operations
Net income (loss)
Basic net income (loss) per share
Diluted net income (loss) per share
2018 Quarter Ended
March 31,
June 30,
September 30, December 31,
$
44,354
$
26,838
$
29,435
$
29,339
128,404
51,338
33,824
63,274
(4,225)
(21,048)
77,493
9,628
48,270
0.53
0.48
$
$
(0.33) $
(0.33) $
0.76
0.65
$
$
42,599
(13,082)
(24,138)
(0.38)
(0.38)
$
$
93
NOTE 19. SUBSEQUENT EVENTS
Sale of Gralise
On December 12, 2019 the Company entered into a purchase agreement with Golf Acquiror LLC, an affiliate of
Alvogen, Inc. (Alvogen) to divest its rights, title and interest in and to Gralise, including certain related assets, to Alvogen. The
transaction subsequently closed on January 10, 2020. At closing, the Company received approximately $78.6 million, including
a $75.0 million base purchase price and a preliminary positive inventory adjustment equal to approximately $3.6 million. In
addition, the Company is entitled to receive 75% of Alvogen’s first $70.0 million of Gralise net sales after closing. Alvogen has
also assumed, pursuant to the terms of the Asset Purchase Agreement, certain contracts, liabilities and obligations of the
Company relating to Gralise, including those related to manufacturing and supply, post-market commitments and clinical
development costs.
Gralise did not meet the criteria of a discontinued operation as of December 31, 2019 as it was not considered a
component of an entity that comprises operations and cash flows that can be clearly distinguished, operationally and for
financial reporting purposes, from the rest of the Company, nor did it represent a strategic shift of the Company.
Sale of NUCYNTA
On February 6, 2020, the Company entered into a purchase agreement with Collegium, to divest its remaining rights,
title and interest in and to the NUCYNTA franchise of products from the Company, and assumed certain contracts, liabilities
and obligations of the Company relating to the NUCYNTA products, including those related to manufacturing and supply, post-
market commitments and clinical development costs. The transaction subsequently closed on February 13, 2020.
The Company received approximately $368.0 million in net proceeds, which consisted of $375.0 million in base
purchase price, plus approximately $6.0 million in preliminary positive inventory value (Inventory Amount) and less $13.0
million for royalties paid to the Company by Collegium between January 1, 2020 and February 11, 2010 pursuant to the Final
Commercialization Agreement Payment Value of the Asset Purchase Agreement. The Inventory Amount is subject to customary
post-Closing adjustments which are not expected to be material. In connection with the sale, the Company entered into a third-
party consent agreement which requires two lump sum payments of $4.5 million payable in 2021 and 2022 subject to
Collegium achieving certain net sales in 2020 and 2021, respectively.
Since January 9, 2018, Collegium has been responsible for the commercialization of NUCYNTA in the U.S., including
sales and marketing, and the Company received royalties based on certain net sales thresholds, in accordance with the
Commercialization Agreement. The Commercialization Agreement terminated at closing with certain specified provisions of
the Commercialization Agreement surviving in accordance with the terms of the Purchase Agreement.
Senior Notes Repayment
As of February 13, 2020, the Company had repaid in full all outstanding indebtedness, and terminated all
commitments and obligations, under its Note Purchase Agreement. The Company used proceeds from the sale of Gralise and
NUCYNTA to repay the outstanding principal of $162.5 million. In addition, the Company paid approximately $4.9 million
and $4.4 million in prepayment premiums and exit fees, respectively, plus accrued but unpaid interest. In connection with the
termination of the Note Purchase Agreement, the Company was released from all security interests, liens and encumbrances
under the Note Purchase Agreement.
Convertible Notes
On February 19, 2020, the Company entered into separate, privately negotiated purchase agreements (Purchase
Agreements) with a limited number of holders of the Company’s currently outstanding 2021 Notes and 2024 Notes. Pursuant to
the Purchase Agreements, the Company repurchased approximately $188.0 million aggregate principal amount of 2021 Notes
and 2024 Notes for a cash payment plus accrued but unpaid interest.
Termination of Long-acting Cosyntropin Development Partnership
On February 6, 2020, the Company entered into an amended agreement with Eolas Pharma Teoranta (Eolas), an
affiliate of Slán. Pursuant to the amendment the license granted to the Company for the commercialization of long-acting
cosyntropin was terminated and the Company received $2.0 million in settlement of the December 31, 2019 receivable for
reimbursable development expenses. Additionally, the Company may receive up to $10.0 million in future payments based
94
upon commercial sales of long-acting cosyntropin if Eolas successfully obtains regulatory approval for and commercializes the
product.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Description
Sales & return allowances, discounts, chargebacks and rebates:
Year ended December 31, 2019
Year ended December 31, 2018
Year ended December 31, 2017
Description
Deferred tax asset valuation allowance:
December 31, 2019 (3)
December 31, 2018 (4)
December 31, 2017 (5)
Balance at
Beginning of
Year
Additions
Charged as a
Reduction to
Revenue
Deductions(1)
Balance at
End of
Year (2)
$
$
$
76,401
137,328
133,646
Balance at
Beginning of
Year
$
$
$
41,905
54,224
45,206
$
$
$
$
$
$
163,261
122,481
363,260
$
$
$
60,183
(179,479) $
(183,408) $
76,401
(359,578) $ 137,328
Additions
Deductions
Balance at
End of
Year
48,915
$
— $
$
9,018
— $
(12,319) $
— $
90,820
41,905
54,224
(1) Deductions to sales discounts and allowances relate to discounts or allowances actually taken or paid.
(2) Balance includes allowances for cash discounts for prompt payment recognized in Accounts Receivable, net on the Company’s
consolidated balance sheet.
(3) The Company recorded a valuation allowance of $9.0 million during 2017.
(4) The Company reversed a valuation allowance of $12.3 million during 2018.
(5) The Company recorded a valuation allowance of $48.9 million during 2019.
95
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a)
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the
participation of our management, including our principal executive officer, principal financial officer and principal accounting
officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under
Rule 13a‑15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this
evaluation, our principal executive officer, our principal financial officer and principal accounting officer concluded that our
disclosure controls and procedures were effective as of December 31, 2019 to ensure that information to be disclosed by us in
this Annual Report on Form 10‑K was recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and Form 10‑K.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in
our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management,
including our chief executive officer, principal financial officer and principal accounting officer, as appropriate, to allow for
timely decisions regarding required disclosure.
We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing
basis and to correct any material deficiencies that we may discover. Our goal is to ensure that our management has timely
access to material information that could affect 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 modify our disclosure controls
and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired
control objectives, and management is required to apply its judgment in evaluating the cost‑benefit relationship of possible
controls and procedures.
(b)
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rules 13a‑15(f). Under the supervision and with the participation of our management,
including our principal executive officer, principal financial officer and principal accounting officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework).
Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our
internal control over financial reporting was effective as of December 31, 2019. Ernst & Young LLP, our independent registered
public accounting firm, has attested to and issued a report on the effectiveness of our internal control over financial reporting,
which is included herein.
(c)
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2019, there were no changes to our internal control over financial reporting
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
96
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Assertio Therapeutics, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Assertio Therapeutics, Inc.’s internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Assertio Therapeutics, Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Assertio Therapeutics, Inc. as of December 31, 2019 and 2018, the related
consolidated statements of comprehensive income, shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our
report dated March 10, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Chicago, Illinois
March 10, 2020
97
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 is incorporated herein by reference to the information set forth under the
headings “Board of Directors and Director Nominees,” “Executive Officers,” “Corporate Governance – Code of Ethics,”
“Corporate Governance – Board and Board Committees,” “Corporate Governance – Director Nominations” and, if applicable,
“Delinquent Section 16(a) Reports” in our 2020 Proxy Statement to be filed with the SEC in connection with the solicitation of
proxies for our 2020 Annual Meeting of Stockholders (the 2020 Proxy Statement). The 2020 Proxy Statement will be filed with
the SEC within 120 days after the end of our 2019 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by reference to the information set forth under the
headings “Corporate Governance – Compensation Committee Interlocks and Insider Participation,” “Executive Compensation
– Compensation Committee Report” and “Executive Compensation” in our 2020 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
The information required by this Item 12 is incorporated herein by reference to the information set forth under the
headings “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under
Equity Compensation Plans” in our 2020 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 is incorporated herein by reference to the information set forth under the
headings “Certain Relationships and Related Transactions” and “Corporate Governance – Board and Board Committees –
Board Independence” in our 2020 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 is incorporated herein by reference to the information set forth under the
headings “Audit Related Matters – Fees Paid to Independent Registered Public Accounting Firm” and “Audit Related Matters –
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services” in our 2020 Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
List of documents filed as part of this Annual Report on Form 10-K:
(1)
Financial Statements
The financial statements listed in the accompanying Index to Financial Statements included in “Item 8.
Financial Statements and Supplementary Data.”
(2)
Financial Statement Schedules
The following financial statement schedule included in “Item 8. Financial Statements and Supplementary
Data: Schedule II: Valuation and Qualifying Accounts.”
98
(3)
Exhibits:
Exhibit
Number
Description of Document
2.1 Agreement and Plan of Merger, dated August 10, 2018, by and between Depomed Inc., a California corporation
and Assertio Therapeutics, Inc., a Delaware corporation (incorporated by reference to Exhibit 2.1 to the
Company’s Current Report on Form 8-K12B filed on August 15, 2018)
3.1 Certificate of Merger effective August 14, 2018 at 11:59 p.m. Eastern (incorporated by reference to Exhibit 3.1 to
the Company’s Current Report on Form 8-K12B filed on August 15, 2018)
3.2 Certificate of Incorporation of Assertio Therapeutics, Inc. (incorporated by reference to Exhibit 3.2 to the
Company’s Current Report on Form 8-K12B filed on August 15, 2018)
3.3 Bylaws of Assertio Therapeutics, Inc. (incorporated by reference to Exhibit 3.3 to the Company’s Current Report
on Form 8-K12B filed on August 15, 2018)
3.4 Specimen Common Stock Certificate of Assertio Therapeutics, Inc. (incorporated by reference to Exhibit 3.4 to
the Company’s Current Report on Form 8-K12B filed on August 15, 2018)
4.1 Senior Indenture dated as of September 9, 2014 between the Company and The Bank of New York Mellon Trust
Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on
Form 8‑K filed on September 9, 2014)
4.2 First Supplemental Indenture dated as of September 9, 2014 between the Company and The Bank of New York
Mellon Trust Company, N.A., as trustee, supplementing the Senior Indenture dated as of September 9, 2014
(incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on September 9,
2014)
4.3 Second Supplemental Indenture, dated August 14, 2018, by and between Assertio Therapeutics, Inc., a Delaware
corporation, and the Bank of New York Melon Trust Company, N.A. as Trustee (incorporated by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K12B filed on August 15, 2018)
4.4 Third Supplemental Indenture, dated August 13, 2019, by and between Assertio Therapeutics, Inc. and the Bank
of New York Melon Trust Company, N.A. as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s
Quarterly Report on Form 10-Q filed on November 7, 2019)
4.5 Description of Securities
10.1* Form of Indemnification Agreement of Assertio Therapeutics, Inc. (incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K12B filed on August 15, 2018)
10.2* Form of Amended and Restated Management Continuity Agreement of Assertio Therapeutics, Inc. (incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K12B filed on August 15, 2018)
10.3* Form of Amendment No. 1 to Amended and Restated Management Continuity Agreement of Assertio
Therapeutics, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q
filed on November 7, 2019)
10.4* Amended and Restated 2004 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.5 to the
Company’s Quarterly Report on Form 10-Q filed on November 9, 2018)
99
10.5* Second Amended and Restated 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to the
Company’s Quarterly Report on Form 10-Q filed on November 9, 2018)
10.6* Amended and Restated 2014 Omnibus Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed on May 8, 2019)
10.7* Form of Equity Award Documents under Amended and Restated 2014 Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed on November 9, 2018)
10.8* Form of Equity Award Documents for Inducement Grants (incorporated by reference to Exhibit 10.8 to the
Company’s Quarterly Report on Form 10-Q filed on November 9, 2018
10.9* Amended and Restated Annual Bonus Plan, as adopted on February 12, 2019 (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 9, 2019)
10.10* Non‑Employee Director Compensation and Grant Policy (incorporated by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q filed on May 9, 2019)
10.11* Transition and Consulting Agreement dated December 8, 2017 by and between the Company and Matthew M.
Gosling (incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K filed on
March 1, 2018)
10.12* Transition and Consulting Agreement dated December 8, 2017 by and between the Company and August J.
Moretti (incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K filed on
March 1, 2018)
10.13* Offer Letter dated March 28, 2017 between the Company and Arthur J. Higgins (incorporated by reference to
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on May 10, 2017)
10.14* Offer Letter dated October 17, 2017 by and between the Company and Santosh J. Vetticaden, M.D., Ph.D.
(incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on November
9, 2017)
10.15* Offer Letter dated June 1, 2018, between the Company and Phillip B. Donenberg (incorporated by reference to
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed August 8, 2018)
†10.16 Commercial Manufacturing Agreement dated June 1, 2011 between the Company and Patheon Puerto Rico, Inc.
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10‑Q filed on
November 7, 2011)
†10.17 Commercialization Agreement dated August 22, 2011 between the Company and Santarus, Inc. (incorporated by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10‑Q filed on November 7, 2011)
10.18 Asset Purchase Agreement dated June 21, 2012 between the Company and Xanodyne Pharmaceuticals, Inc.
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10‑Q filed on August 3,
2012)
†10.19 Asset Purchase Agreement, dated December 17, 2013 between the Company and Nautilus Neurosciences, Inc.
(incorporated by reference to Exhibit 10.51 to the Company’s Annual Report on Form 10‑K filed on March 17,
2014)
†10.20 Asset Purchase Agreement dated January 15, 2015 between the Company and Janssen Pharmaceuticals, Inc.
(incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10‑K filed on February 26,
2015)
100
†10.21 Assignment and Consent Agreement dated January 13, 2015 between the Company and Grunenthal GmbH
related to the License Agreement (U.S.) dated January 13, 2015 between Grunenthal GmbH and Janssen
Research and Development (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on
Form 10‑Q/A filed on December 18, 2015)
†10.22 Transitional Supply Agreement dated April 2, 2015 among the Company and Janssen Pharmaceuticals, Inc. and
Janssen Ortho LLC (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10‑Q/
A filed on December 18, 2015)
†10.23 Supply Agreement dated April 2, 2015 between the Company and Normaco, Inc. (incorporated by reference to
Exhibit 10.5 to the Company’s Quarterly Report on Form 10‑Q/A filed on December 18, 2015)
†10.24 First Amendment to Supply Agreement dated July 11, 2019 between the Company and Noramco, Inc.
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November
7, 2019)
10.25 Drug Product Manufacturing Services Agreement dated June 6, 2017 by and between the Company and Halo
Pharmaceutical, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-
Q filed on November 9, 2017)
†10.26 Commercialization Agreement dated December 4, 2017 by and among the Company Collegium Pharmaceutical,
Inc. and Collegium NF, LLC (incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on
Form 10-K filed March 1, 2018)
†10.27 Consent Agreement dated as of November 30, 2017 by and between the Company and Grunenthal GmbH related
to the License Agreement (U.S.) dated January 13, 2015 between Grunenthal GmbH and Janssen Research and
Development (incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K filed
March 1, 2018)
10.28 Amendment dated January 9, 2018 to Commercialization Agreement by and among the Company Collegium
Pharmaceutical, Inc. and Collegium NF, LLC (incorporated by reference to Exhibit 10.35 to the Company’s
Annual Report on Form 10-K filed March 1, 2018)
10.29 Amendment No. 2, to Commercialization Agreement, dated as of August 29, 2018, by and among the Company,
Collegium Pharmaceutical, Inc. and Collegium NF, LLC (incorporated by reference to Exhibit 10.11 to the
Company’s Quarterly Report on Form 10-Q filed on November 9, 2018)
10.30 Amendment No. 3 to Commercialization Agreement, dated November 8, 2018, by and among Assertio
Therapeutics, Inc., Collegium Pharmaceutical, Inc., and Collegium NF, LLC. (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 8, 2018)
†10.31 Note Purchase Agreement dated March 12, 2015 among the Company and Deerfield Private Design Fund
III, L.P., Deerfield Partners, L.P., Deerfield International Master Fund, L.P., Deerfield Special Situations
Fund, L.P., Deerfield Private Design Fund II, L.P., Deerfield Private Design International II, L.P. and BioPharma
Secured Investments III Holdings Cayman LP, Inteligo Bank Ltd. And Phemus Corporation and Deerfield Design
Fund III, L.P., as collateral agent (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report
on Form 10‑Q/A filed on December 18, 2015)
†10.32 Pledge and Security Agreement dated April 2, 2015 between the Company and Deerfield Private Design Fund
III, L.P., a collateral agent (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form
10‑Q/A filed on December 18, 2015)
†10.33 Consent and First Amendment to Note Purchase Agreement dated December 29, 2015 between the Company,
Deerfield Private Design Fund III, L.P. and the parties thereto (incorporated by reference to Exhibit 10.28 to the
Company’s Annual Report on Form 10‑K filed on February 26, 2016)
10.34 Waiver and Second Amendment to Note Purchase Agreement dated December 4, 2017 by and among the
Company, the purchases thereto and Deerfield Private Design Fund III, L.P., as collateral agent (Incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed on December 14, 2017)
10.35 Waiver, Consent and Third Amendment to Note Purchase Agreement and Partial Release of Security Interest,
dated August 2, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on August 2, 2018)
101
10.36 Consent to Note Purchase Agreement and Assumption Agreement dated August 10, 2018. (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K12B filed on August 15, 2018)
10.37 Consent, dated November 8, 2018, by and among Assertio Therapeutics, Inc., certain purchasers and Deerfield
Private Design Fund III, L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K filed on November 8, 2018)
10.38 Fourth Amendment to Note Purchase Agreement, dated January 8, 2019 (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on January 9, 2019)
10.39 Fifth Amendment to Note Purchase Agreement, dated August 9, 2019 (incorporated by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K filed on August 9, 2019)
10.40 Form of Exchange Agreement, dated August 8, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on August 9, 2019)
10.41 Sixth Amendment to Note Purchase Agreement, dated December 11, 2019 (incorporated by reference to Exhibit
10.2 to the Company’s Current Report on Form 8-K filed December 12, 2019)
10.42 Agreement dated October 17, 2016 among the Company and Starboard Value LP and certain of its affiliates
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8‑K filed on October 19,
2016)
10.43 Cooperation and Support Agreement dated March 28, 2017 by and among the Company, Starboard Value LP and
certain of its affiliates (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on March 29, 2017)
†10.44 Royalty Purchase and Sale Agreement dated October 18, 2013, among the Company, Depo DR Sub, LLC and
PDL BioPharma, Inc. (incorporated by reference to Exhibit 10.50 to the Company’s Annual Report on
Form 10‑K filed on March 17, 2014)
10.45 Amendment No. 1 to Royalty Purchase and Sale Agreement and Bill of Sale, dated August 2, 2018, by and
among Depomed, Inc., Depo DR Sub, LLC, and PDL Investment Holdings, LLC (as assignee of PDL
BioPharma, Inc.) (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q
filed August 8, 2018)
10.46 Settlement Agreement, dated as of August 28, 2018, by and among the Company, Purdue Pharma L.P., Purdue
Pharmaceuticals L.P. and The P.F. Laboratories, Inc. (incorporated by reference to Exhibit 10.10 to the
Company’s Quarterly Report on Form 10-Q filed on November 9, 2018)
10.47 Asset Purchase Agreement, dated December 11, 2019, by and among the Company, Golf Acquiror LLC and,
solely for the purposes set forth therein, Celtic Intermediate S.A. (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on December 12, 2019)
21.1 List of Subsidiaries
23.1 Consent of Independent Registered Public Accounting Firm
24.1 Power of Attorney (included on signature page hereto)
31.1 Certification pursuant to Rule 13a-14(a) and 15d-14(a) under the Exchange Act
31.2 Certification pursuant to Rule 13a-14(a) and 15d-14(a) under the Exchange Act
32.1** Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2** Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
102
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
† Confidential treatment granted (or certain portions omitted pursuant to the SEC’s rules regarding the redaction of
confidential information)
* Compensatory Plan or Arrangement
** Furnished Herewith
ITEM 16. FORM 10-K SUMMARY
None.
103
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Assertio Therapeutics, Inc.
Date:
March 10, 2020
By
/s/ Arthur J. Higgins
Arthur J. Higgins
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes
and appoints Arthur J. Higgins and Daniel A. Peisert, and each of them acting individually, as his true and lawful
attorneys‑in‑fact and agents, each with full power of substitution, for him in any and all capacities, to sign any and all
amendments to this report on Form 10‑K and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys‑in‑fact and agents, with full power of
each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys‑in‑fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
104
/s/ ARTHUR J. HIGGINS
Arthur J. Higgins
President and Chief Executive Officer
(Principal Executive Officer)
March 10, 2020
/s/ DANIEL A. PEISERT
Daniel A. Peisert
/s/ JAMES P. FOGARTY
James P. Fogarty
/s/ KAREN A. DAWES
Karen A. Dawes
/s/ JAMES J. GALEOTA, JR.
James J. Galeota, Jr.
/s/ HEATHER L. MASON
Heather L. Mason
/s/ WILLIAM T. MCKEE
William T. McKee
/s/ PETER D. STAPLE
Peter D. Staple
/s/ JAMES L. TYREE
James L. Tyree
/s/ DAVID E. WHEADON
David E. Wheadon
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
March 10, 2020
Chairman of the Board of Directors
March 10, 2020
March 10, 2020
March 10, 2020
March 10, 2020
March 10, 2020
March 10, 2020
March 10, 2020
March 10, 2020
Director
Director
Director
Director
Director
Director
Director
105
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21.1
Name of Subsidiary
Depo DR Sub, LLC
Depo NF Sub, LLC
Depomed Bermuda Ltd
State of Jurisdiction or Organization
Delaware
Delaware
Bermuda
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Arthur J. Higgins, certify that:
Exhibit 31.1
1.
I have reviewed this Annual Report on Form 10-K of Assertio Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 10, 2020
By:
/s/ Arthur J. Higgins
Arthur J. Higgins
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
I, Daniel A. Peisert, certify that:
Exhibit 31.2
1.
I have reviewed this Annual Report on Form 10-K of Assertio Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 10, 2020
By:
/s/ Daniel A. Peisert
Daniel A. Peisert
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Assertio Therapeutics, Inc. (the “Company”) for the year
ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Arthur J.
Higgins, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to
§906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 10, 2020
/s/ Arthur J. Higgins
Arthur J. Higgins
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K of Assertio Therapeutics, Inc. (the “Company”) for the year
ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel A.
Peisert, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 10, 2020
/s/ Daniel A. Peisert
Daniel A. Peisert
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)