ASSERTIO HOLDINGS, INC. FORWARD-LOOKING INFORMATION
Statements made in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q that are not statements of historical fact are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). We have based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Forward-looking statements are identified by words such as "believe," "anticipate," "expect," "intend," "plan," "will," "may" and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements include, but are not necessarily limited to, those relating to: •the potential impacts of disasters, acts of terrorism or global pandemics, including the ongoing COVID-19 pandemic, on our liquidity, capital resources, operations and business and those of the third parties on which we rely, including suppliers and distributors;
•our ability to execute and achieve the expense savings expected from our
restructuring plan announced in
•our ability to achieve the growth prospects and synergies expected from our merger withZyla Life Sciences , as well as delays, challenges and expenses, and unexpected costs associated with integrating and operating the combined company's businesses;
•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 coverage of our products by payors and pharmacy benefit managers;
•the entry of generics for any of our products;
•the outcome of opioid-related investigations, opioid-related litigation and related claims for insurance coverage, and other disputes and litigation, and the costs and expenses associated therewith;
•the outcome of our antitrust litigation relating to our former drug Glumetza®;
•our ability to obtain and maintain intellectual property protection for our products and operate our business without infringing the intellectual property rights of others;
•our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;
•our ability to generate sufficient cash flow from our business to make payments on our indebtedness, our ability to restructure or refinance our indebtedness, if necessary, and our compliance with the terms and conditions of the agreements governing our indebtedness;
•our common stock maintaining compliance with Nasdaq's minimum closing bid
requirement of at least
•our compliance or non-compliance with legal and regulatory requirements related
to the development or promotion of pharmaceutical products in the
•our plans to acquire, in-license or co-promote other products, and/or acquire companies;
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Table of Content •the timing and results of our research and development efforts including clinical studies relating to any future product candidates;
•our ability to raise additional capital, if necessary;
•our ability to successfully develop and execute our sales, marketing and non-personal and digital promotion strategies, including developing relationships with customers, physicians, payors and other constituencies;
•variations in revenues obtained from commercialization agreements, including contingent milestone payments, royalties, license fees and other contract revenues, including non-recurring revenues, and the accounting treatment with respect thereto;
•our counterparties' compliance or non-compliance with their obligations under our 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 and incorporated by reference in the "RISK FACTORS" section and elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 and in our Quarterly Report on Form 10-Q for the three months endedMarch 31, 2021 . Except as required by law, we assume no obligation to update any forward-looking statement publicly, or to revise any forward-looking statement to reflect events or developments occurring after the date of this Quarterly Report on Form 10-Q, even if new information becomes available in the future. 23 -------------------------------------------------------------------------------- Table of Content COMPANY OVERVIEW We are a commercial pharmaceutical company offering differentiated products to patients. Our commercial portfolio of branded products focuses on three areas: neurology, hospital, and pain and inflammation. We have built our commercial portfolio through a combination of increased opportunities with existing products, as well as through the acquisition or licensing of additional approved products. Our primary marketed products are:
INDOCIN® (indomethacin) A suppository form and oral solution of indomethacin, a nonsteroidal Suppositories
anti-inflammatory drug (NSAID), approved for:
•Moderate to severe rheumatoid arthritis including acute flares of
INDOCIN® (indomethacin) Oral chronic disease
Suspension •Moderate to severe ankylosing spondylitis
•Moderate to severe osteoarthritis
•Acute painful shoulder (bursitis and/or tendinitis)
•Acute gouty arthritisCAMBIA® (diclofenac potassium A prescription medicine used to treat migraine attacks in adults. for oral solution)
CAMBIA does not prevent or lessen the number of migraines one has, and
it is not for other types of headaches. It contains diclofenac
potassium, a non-steroidal anti-inflammatory drug (NSAID).
SPRIX® (ketorolac tromethamine) A prescription NSAID indicated in adult patients for the short term (up
Nasal Spray to five days) management of moderate to moderately severe pain that
requires analgesia at the opioid level.
Zipsor® (diclofenac potassium) A prescription NSAID used for relief of mild-to-moderate pain in adults Liquid filled capsules
(18 years of age and older)
Other commercially available products include OXAYDO® (oxycodone HCI, USP) tablets for oral use only -CII. Impact of COVID-19 on our Business
Following the outbreak of COVID-19 during early 2020, our priority was and remains the health and safety of our employees, their families, and the patients we serve. As a result, inMarch 2020 , we initiated remote working arrangements and maintained flexible work arrangements for individuals, which continued through the remainder of 2020 and into 2021. In addition to the health and safety of our employees, we are focused on ensuring that we continue making our products accessible to the patients who need them. Because COVID-19 impacted our ability to see in-person providers who prescribe our products, we adapted our approach during 2020 and increased our virtual visits. Additionally, due to the limitations on elective surgeries and changes in patient behavior since the outbreak of COVID-19, we have experienced a decline and subsequent volatility in prescriptions associated with those elective procedures. We implemented a restructuring plan inDecember 2020 which, we believe, allows our business to continue to provide our differentiated products to patients and better positions ourselves for future success. We believe that we are prepared with sufficient product inventory, technology to facilitate virtual and/or digital communications, and operations prepared to adapt our work environment as needed. The extent to which our operations may continue to be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak, actions by government authorities to contain the outbreak or treat its impact, the emergence of new COVID-19 variants and the related potential for new surges in infections, and the distribution, public acceptance and efficacy of COVID-19 vaccines including for emerging variations. Segment Information We manage our business within one reportable segment. Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance. To date, substantially all of revenues from product sales are related to sales in theU.S.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that require significant judgment and/or
estimates by management at the time that the financial statements are prepared
such that materially different results might have been reported if other
assumptions
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had been made. We consider certain accounting policies related to revenue
recognition, accrued liabilities and use of estimates to be critical policies.
These estimates form the basis for making judgments about the carrying value of
assets and liabilities. We believe there have been no significant changes in our
critical accounting policies and significant judgements and estimates since we
filed our Annual Report on Form 10-K for the year ended December 31, 2020 filed
with the SEC on March 12, 2021 (the 2020 Form 10-K), see ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Critical Accounting Policies and Estimates in our 2020 Form 10-K for further
information.
RESULTS OF OPERATIONS
Revenues
The following table reflects total revenues, net for the three and six months
ended June 30, 2021 and 2020 (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Product sales, net:
INDOCIN products (1) $ 13,075 $ 5,434 $ 27,673 $ 5,434
CAMBIA 6,128 7,780 12,590 14,054
Zipsor 2,581 3,535 4,803 5,866
SPRIX (1) 2,942 1,602 4,639 1,602
Other 105 1,814 1,533 2,461
Total product sales, net 24,831 20,165 51,238 29,417
Commercialization agreement revenue, net - - - 11,258
Royalties and milestone revenue 542 452 975 859
Total revenues $ 25,373 $ 20,617 $ 52,213 $ 41,534
(1)Products acquired in connection with May 20, 2020 Zyla Merger.
Product Sales, net
For the three and six months ended June 30, 2021 , product sales primarily
consisted of sales from INDOCIN Products, CAMBIA, Zipsor and SPRIX. We began
shipping and recognizing product sales for INDOCIN Products and SPRIX upon the
Zyla Merger on May 20, 2020 .
CAMBIA net product sales for the three and six months ended June 30, 2021
decreased $1.7 million from $7.8 million to $6.1 million and $1.5 million from
$14.1 million to $12.6 million , respectively, primarily due to lower volume
partially offset by favorable payor mix.
Zipsor net product sales for the three and six months ended June 30, 2021
decreased $1.0 million from $3.5 million to $2.6 million and $1.1 million from
$5.9 million to $4.8 million , respectively, primarily due to lower volume
partially offset by favorable payor mix.
Other product sales includes product sales adjustments for previously divested
products, including Gralise, which was divested in January 2020 ; and product
sales for non-promoted products (OXAYDO and SOLUMATRIX) which were acquired from
Zyla in May 2020 . Product sales for our non-promoted products were $0.5 million
and $1.6 million , respectively, for the three and six months ended June 30,
2021 . In September 2020 , we terminated our iCeutica License and as a result will
no longer manufacture products using SOLUMATRIX technology. Product sales
adjustments for previously divested products include adjustments to recorded
sales reserve estimates.
Commercialization Agreement Revenue, net
We ceased recognizing commercialization revenue and related costs for NUCYNTA effective the closing of the transaction to divest its rights, title and interest in and to the NUCYNTA franchise to Collegium onFebruary 13, 2020 . During the six months endedJune 30, 2020 , we recognized net revenue from the Commercialization Agreement of$11.3 million . This 25
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included variable royalty revenue of
Royalties & Milestones
InNovember 2010 , we entered into a license agreement withTribute Pharmaceuticals Canada Ltd. (now known as Nuvo Pharmaceuticals, Inc.) granting them the rights to commercially market CAMBIA inCanada . We receive royalties on net sales as well as certain one-time contingent milestone payments. During the three and six months endedJune 30, 2021 , the Company recognized$0.5 million and$1.0 million of revenue related to CAMBIA inCanada , respectively. During the three and six endedJune 30, 2020 , the Company recognized$0.5 million and$0.9 million of revenue related to CAMBIA inCanada , respectively.
Cost of Sales (excluding amortization of intangible assets)
Cost of sales decreased$1.3 million from$5.2 million to$3.9 million during the three months endedJune 30, 2021 as compared to the same period in 2020 primarily due to higherZyla Merger related inventory step-up expense in the second quarter of 2020 not repeating in the current period partially offset by lower cost of sales for Zyla products in the second quarter 2020 based on timing ofZyla Merger onMay 20, 2020 . Cost of sales increased$1.2 million from$6.6 million to$7.9 million during the six months endedJune 30, 2021 as compared to the same period in 2020 primarily due to higher cost of sales for Zyla products in the current period based on timing ofZyla Merger onMay 20, 2020 , partially offset by lower cost of sales as a result of the Gralise divestiture in the first quarter of 2020 and lowerZyla Merger related inventory step-up expense in current period. The three and six months endedJune 30, 2021 cost of sales included$0.3 million and$0.6 million , respectively, of amortization of inventory step-up related to Zyla acquired inventories sold. The three and six months endedJune 30, 2020 cost of sales included$2.4 million and$2.4 million , respectively, of amortization of inventory step-up related to Zyla acquired inventories sold.
Research and Development Expenses
Research and development expense decreased$1.6 million from$1.6 million to zero for the three months endedJune 30, 2021 and decreased$2.7 million from$2.7 million to zero for the six months endedJune 30, 2021 as compared to the same period in 2020 primarily due to the completion of all material research and development activities in 2020. As a result of theDecember 2020 restructuring plan, we do not expect to incur significant research and development costs in 2021.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses decreased$1.9 million from$28.1 million to$26.2 million for the three months endedJune 30, 2021 primarily due to lower employee costs in 2021 as a result of prior restructuring plans partially offset by additional expense for loss contingency provision recognized in the current period. Selling, general, and administrative expenses decreased$21.5 million from$55.4 million to$34.0 million for the six months endedJune 30, 2021 , as compared to the same period in 2020 primarily due to one-time transaction costs in 2020 not repeating, lower employee costs in 2021 as a result of prior restructuring plans, receipt of insurance reimbursement in the first quarter of 2021 for previous opioid-related expenses, partially offset by additional expense for loss contingency provision recognized in the second quarter of 2021.
Intangible Assets
The following table reflects amortization of intangible assets for the three and
six months ended
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Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Amortization of intangible assets -
INDOCIN $ 3,210 $ 1,941 $ 6,420 $ 1,941
Amortization of intangible assets -
SPRIX 1,393 948 2,786 948
Amortization of intangible assets -
CAMBIA 1,988 1,284 3,272 2,568
Amortization of intangible assets -
Zipsor 584 585 1,168 1,169
Amortization of intangible assets -
Oxaydo 43 97 118 97
Amortization of intangible assets -
NUCYNTA - - - 5,927
Total $ 7,218 $ 4,855 $ 13,764 $ 12,650
Amortization expense during the three months ended June 30, 2021 increased $2.4
million from $4.9 million to $7.2 million as compared to the same period in 2020
primarily due to the timing of Zyla Merger in May 2020 , where we acquired
product rights for INDOCIN Products, SPRIX, and OXAYDO which are being amortized
on a straight-line basis over their respective estimated useful lives.
Amortization expense during the six months ended June 30, 2021 increased $1.1
million from $12.7 million to $13.8 million as compared to the same period in
2020 primarily due to the timing of Zyla Merger in May 2020 partially offset by
the February 2020 divestiture of our rights, title and interest to the NUCYNTA
franchise of products to Collegium. As a result, we derecognized the remaining
carrying value of the NUCYNTA product rights and ceased recognizing related
amortization.
Restructuring Charges
We continually evaluate our operations to identify opportunities to streamline operations and optimize operating efficiencies as an anticipation to changes in the business environment. OnDecember 15, 2020 , we announced theDecember 2020 Plan which was designed to substantially reduce the Company's operating footprint through the reduction of its staff at our headquarters office and remote sales force. We substantially completed the workforce reduction in the first quarter of 2021. InMay 2020 , we began implementing reorganization plans of our workforce and other restructuring activities to realize the synergies of the Zyla Merger and to re-align resources to strategic areas and drive growth (Zyla Merger Reorganization). We completed the restructuring activities in 2020 and do not expect to incur significant costs related to the Zyla Merger Reorganization in 2021. For the three and six months endedJune 30, 2021 restructuring charges and one-time termination costs incurred were zero and$1.1 million , respectively. The restructuring charges cost and one-time termination costs incurred for the three and six months endedJune 30, 2020 were$6.5 million and$6.5 million , respectively. Other (Expense) Income
The following table reflects other (expense) income for the three and six months
ended
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(Loss) Gain on sale of Gralise $ - $ (850) $ - $ 126,655
Loss on extinguishment of convertible notes - (16,272) - (47,880)
Gain (Loss) on sale of NUCYNTA - 1,006 - (14,749)
Change in fair value of Collegium warrants - (484) - (3,629)
Interest expense (2,605) (1,604) (5,288) (10,278)
Loss on prepayment of Senior Notes - - - (8,233)
Other gain (loss) 137 (15) 403 (195)
Total other (expense) income $ (2,468) $
(18,219)
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Other (expense) income changed by$15.8 million from other expense of$18.2 million to$2.5 million for the three months endedJune 30, 2021 and changed$46.6 million from other income of$41.7 million to other expense of$4.9 million for the six months endedJune 30, 2021 , respectively, as compared to the same period in 2020 primarily due to the prior year (loss) gain on the sale of Gralise, gain (loss) on sale of NUCYNTA, loss on debt extinguishment and change in fair value of Collegium warrants not repeating. Sublease income offset by sublease expense is recorded in Other gain (loss) within the above table.
The following table reflects interest expense for the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Interest payable on 13% Senior Secured Notes
1,407 $ - $ 1,407 due 2024 Interest payable on Senior Notes - - 5,164 1,648 Interest payable on Convertible Notes - 69 6 1,723 Amortization of debt discounts, and royalty 48 125 118 5,511 rights Other - 3 - (11) Total interest expense$ 2,605 $ 1,604$ 5,288 $ 10,278 For the three and six months endedJune 30, 2021 , total interest expense increased$1.0 million , and decreased$5.0 million , respectively, primarily due the settlement of the remaining principal of our Senior Notes and the repurchase of a portion of our 2021 and 2014 Notes in the second quarter of 2020 partially offset by interest expense associated with 13% Senior Secured Notes assumed from the Zyla Merger inMay 2020 . Income Tax Provision For the three and six months endedJune 30, 2021 , we recorded an income tax benefit of approximately$0.3 million and income tax expense of approximately$0.2 million , respectively, which represents an effective tax rate of 2.1% and (2.6)%, respectively. The difference between the income tax benefit of$0.3 million and income tax expenses of$0.2 million for the three and six months endedJune 30, 2021 , respectively, and the tax at the statutory rate of 21.0% to date on current period operations is principally due to the partial release of valuation allowance related to the current year movement in deferred tax assets. In the three and six months endedJune 30, 2020 , we recorded an income tax benefit of approximately$9.5 million and$7.4 million , respectively, that represents an effective tax rate of 21.5% and 1071.3%, respectively. The difference between income tax benefit of$9.5 million and income tax benefit of$7.4 million for the three and six months endedJune 30, 2020 , respectively, and the tax at the statutory rate of 21.0% was principally due to the valuation allowance recorded against the beginning of year deferred tax asset related the NOL carryback to the 2018 and 2019 tax years permitted by the CARES Act.
LIQUIDITY AND CAPITAL RESOURCES
Historically and throughJune 30, 2021 , we have financed our operations and business development efforts primarily from product sales, private and public sales of equity securities, including convertible debt securities, the proceeds of secured borrowings, the sale of rights to future royalties and milestones, upfront license, milestone and fees from collaborative and license partners. OnFebruary 9, 2021 , we completed a registered direct offering with certain institutional investors and accredited investors to sell 22,600,000 shares of our common stock at a purchase price of$0.62 per share. The gross proceeds from the offering were approximately$14.0 million . After placement agent fees, we received net proceeds of approximately$13.1 million . OnFebruary 12, 2021 , we completed a registered direct offering with certain institutional investors and accredited investors to sell 35,000,000 shares of our common stock at a purchase price of$0.98 per share. The gross proceeds from the offering were approximately$34.3 million . After placement agent fees, we received net proceeds of approximately$32.2 million . We also incurred$0.5 million direct incremental cost to complete both registered direct offerings. We intend to use proceeds from both offerings for general corporate purposes, including general working capital. 28
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We may incur operating losses in future years. We believe that our existing cash 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; •changes in the focus and direction of our business strategy and/or research and development programs; •potential expenses relating to ongoing litigation matters, including relating toAssertio Therapeutics' prior opioid product franchise for which we have not accrued any reserves due to an inability to estimate the magnitude and/or probability of such expenses, and former drug Glumetza; and •effects of the COVID-19 pandemic on our operations. The inability to raise any additional capital that may be required to fund our future operations or product acquisitions and strategic transactions which we may pursue could have a material adverse effect on our company.
The following table reflects summarized cash flow activities for the six months
ended
Six Months Ended
2021 2020
Net cash used in operating activities $ (3,262) $ (45,159)
Net cash provided by investing activities - 512,802
Net cash provided by (used in) financing activities 36,904 (450,347)
Net increase in cash and cash equivalents $
33,642
Cash Flows from Operating Activities
Cash used in operating activities was$3.3 million during the six months endedJune 30, 2021 compared to$45.2 million in the same period in 2020. The decrease in cash used from operating activities is primarily due to combination of lower net income offset by lower non-cash adjustments and favorable working capital cash flows.
Cash Flows from Investing Activities
There was no cash flow activity from investing activities for the six months endedJune 30, 2021 . Cash provided from investing activities for the six months endedJune 30, 2020 was$512.8 million , which included cash received for the sales of NUCYNTA, Gralise and Collegium warrants as well as cash acquired inZyla Merger .
Cash Flows from Financing Activities
Cash provided by financing activities for the six months endedJune 30, 2021 was$36.9 million , which primarily consisted of proceeds from the registered direct offerings inFebruary 2021 partially offset by payments of our debt as well as contingent consideration. Cash used in financing activities for the six months endedJune 30, 2020 was$450.3 million , which was primarily due to the settlement of our Senior Notes and the repurchase of our outstanding 2021 Notes and 2024 Notes.
Off-Balance Sheet Arrangement
There were no off-balance sheet arrangements during the quarter ended
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