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

 FORM 10-Q
     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
 OR
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM TO      
 COMMISSION FILE NUMBER 001-39294

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
Accelerated filer
 Non-accelerated filer
Smaller reporting company
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No 
 
The number of issued and outstanding shares of the registrant’s Common Stock, $0.0001 par value, as of November 6, 2023 was 94,668,523.



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



PART I — FINANCIAL INFORMATION

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


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

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4


ASSERTIO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(Unaudited)
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Shareholders’
Equity
SharesAmount
Balances at June 30, 202356,513 $5 $568,881 $(314,615)$254,271 
Issuance of common stock upon exercise of options23 — 54 — 54 
Common stock issuance and other impacts of the vesting and settlement of equity awards 9 — (33)— (33)
Issuance of common stock in connection with the Spectrum Merger, net of fractional share settlement38,008 4 216,257 — 216,261 
Stock-based compensation— — 1,864 — 1,864 
Net loss and comprehensive loss— — — (279,544)(279,544)
Balances at September 30, 202394,553 $9 $787,023 $(594,159)$192,873 


Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Shareholders’
Equity
SharesAmount
Balances at June 30, 202248,172$5 $540,692 $(412,328)$128,369 
Common stock issuance and other impacts of the vesting and settlement of equity awards 25 — (28)— (28)
Stock-based compensation— — 2,400 — 2,400 
Net income and comprehensive income— — — 4,174 4,174 
Balances at September 30, 202248,197 $5 $543,064 $(408,154)$134,915 

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





























5




ASSERTIO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(Unaudited)

Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Shareholders’
Equity
SharesAmount
Balances at December 31, 202248,320 $5 $545,321 $(319,601)$225,725 
Issuance of common stock upon exercise of options133 — 210 — 210 
Common stock issuance and other impacts of the vesting and settlement of equity awards1,102 — (7,980)— (7,980)
Induced exchange of convertible notes - (See Note 15)
6,990 — 26,699 — 26,699 
Issuance of common stock in connection with the Spectrum Merger, net of fractional share settlement38,008 4 216,257 — 216,261 
Stock-based compensation— — 6,516 — 6,516 
Net loss and comprehensive loss— — — (274,558)(274,558)
Balances at September 30, 202394,553 $9 $787,023 $(594,159)$192,873 


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

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6


ASSERTIO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 Nine Months Ended September 30,
 20232022
Operating Activities  
Net (loss) income $(274,558)$21,072 
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization23,321 25,033 
Amortization of debt issuance costs and Royalty Rights350 128 
Loss on impairment of intangible assets238,831  
Recurring fair value measurements of assets and liabilities(7,612)6,845 
Debt-related expenses9,918  
Provisions for inventory and other assets2,129 828 
Stock-based compensation6,516 5,116 
Deferred income taxes47,192  
Changes in assets and liabilities, net of acquisition:
Accounts receivable33,865 (319)
Inventories(8,898)(7,607)
Prepaid and other assets6,769 13,288 
Accounts payable and other accrued liabilities(21,523)(7,193)
Accrued rebates, returns and discounts(11,027)(4,058)
Interest payable(1,376)(1,232)
Net cash provided by operating activities43,897 51,901 
Investing Activities
Purchases of property and equipment(528) 
Purchase of Sympazan(280) 
Net cash acquired in Spectrum Merger1,950  
Purchase of Otrexup (16,889)
Proceeds from sale of investments2,194  
Net cash provided by (used in) investing activities3,336 (16,889)
Financing Activities
Proceeds from issuance of 2027 Convertible Notes 65,916 
Payments in connection with 2027 Convertible Notes(10,500) 
Payment of direct transaction costs related to convertible debt inducement(1,119) 
Payment in connection with 2024 Senior Notes (70,750)
Payment of contingent consideration(15,408)(7,845)
Proceeds from the issuance of common stock 7,020 
Payments related to the vesting and settlement of equity awards, net(7,770)(707)
Other financing activities(489)(630)
Net cash used in financing activities(35,286)(6,996)
Net increase in cash and cash equivalents11,947 28,016 
Cash and cash equivalents at beginning of year64,941 36,810 
Cash and cash equivalents at end of period$76,888 $64,826 
Supplemental Disclosure of Cash Flow Information
Net cash paid (refunded) for income taxes$3,424 $(7,822)
Cash paid for interest$3,651 $7,752 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7


ASSERTIO HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 
NOTE 1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization

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

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

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

Basis of Presentation

The unaudited condensed consolidated financial statements of the Company and its subsidiaries and the related footnote information of the Company have been prepared pursuant to the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information that are normally required by United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company’s management, the accompanying interim unaudited condensed consolidated financial statements include all adjustments necessary for a fair presentation of the information for the periods presented. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of results to be expected for the entire year ending December 31, 2023 or future operating periods.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2022 included in Assertio Holdings, Inc.’s Annual Report on Form 10-K filed with the SEC on March 8, 2023 (the “2022 Form 10-K”). The Condensed Consolidated Balance Sheet as of December 31, 2022 has been derived from the audited financial statements at that date, as filed in the Company’s 2022 Form 10-K.
NOTE 2. ACQUISITIONS
Spectrum Pharmaceuticals

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

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


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

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

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

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

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

9


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

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

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

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

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

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



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

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


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

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

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

Royalties and Milestone Revenue

In November 2010, the Company entered into a license agreement granting the counterparty the rights to commercially market CAMBIA in Canada. The counterparty to the license agreement independently contracts with manufacturers to produce a specific CAMBIA formulation in Canada. The Company receives royalties on net sales on a quarterly basis as well as certain one-time contingent milestone payments upon the occurrence of certain events. The Company recognized revenue related to CAMBIA in Canada of $0.5 million and $1.5 million for the three and nine months ended September 30, 2023, respectively, and $0.5 million and $1.5 million for the three and nine months ended September 30, 2022, respectively.
The Company records contract liabilities in the form of deferred revenue resulting from prepayments from customers in Other current liabilities in the Company’s Condensed Consolidated Balance Sheets. As of September 30, 2023 and December 31, 2022, contract liabilities were zero and $0.2 million, respectively. The Company recognized Milestone revenue associated with the completion of certain service milestones of $0.5 million for both the nine months ended September 30, 2023 and 2022.
11


The Company recognized no Milestone revenue associated with the completion of certain service milestones for both the three months ended September 30, 2023 and 2022.
Other Revenue

Other revenue consists of sales adjustments for previously divested products, which includes adjustments to reserves for product sales allowances (gross-to-net sales allowances) and can result in a reduction to or an increase to total revenue during the period.
NOTE 4. ACCOUNTS RECEIVABLES, NET
 
As of September 30, 2023 and December 31, 2022, accounts receivable, net, of $62.5 million and $45.4 million, respectively, consisted entirely of receivables related to product sales, net of allowances for cash discounts for prompt payment of $1.5 million and $0.9 million, respectively.
NOTE 5.  INVENTORIES, NET
 
The following table reflects the components of inventory, net as of September 30, 2023 and December 31, 2022 (in thousands): 
 September 30, 2023December 31, 2022
Raw materials$15,355 $1,367 
Work-in-process1,330 2,735 
Finished goods26,025 9,594 
Total inventories, net$42,710 $13,696 
    
The Company writes down the value of inventory for potentially excess or obsolete inventories based on an analysis of inventory on hand and projected demand. As of September 30, 2023 and December 31, 2022, the Company recorded inventory write-downs of $5.7 million and $2.8 million, respectively.


NOTE 6. PREPAID AND OTHER CURRENT ASSETS

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

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

Other current assets includes the Company’s investment in NES Therapeutic, Inc. (“NES”). In August 2018, the Company entered into a Convertible Secured Note Purchase Agreement (the “Note Agreement”) with NES. Pursuant the terms of the Note Agreement, the Company purchased a $3.0 million aggregate principal Convertible Secured Promissory Note (the “NES Note”) which accrues interest annually at a rate of 10% for total consideration of $3.0 million, with both the aggregate principal and accrued interest due at maturity on August 2, 2024. Pursuant to the Note Agreement, the NES Note is convertible into equity based on (i) U.S. Food and Drug Administration (“FDA”) acceptance of the New Drug Application (“NDA”), (ii) initiation of any required clinical trials by NES, or (iii) a qualified financing event by NES, as defined in the Note Agreement. The Company’s investment in the NES Note is accounted as a loan receivable and is valued at amortized cost. As of both September 30, 2023 and December 31, 2022, the Company has assessed an estimated $3.5 million expected credit loss reserve on its investment based on its evaluation of probability of default that exists. The expected credit loss reserve recognized in each period represents the entire aggregate principal amount and outstanding interest incurred on the NES Note as of both September 30, 2023 and December 31, 2022. The Company’s investment in NES has been reclassified to Other current assets as of September 30, 2023 as it will mature within one year of the balance sheet date.

12



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

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

NOTE 8.  INTANGIBLE ASSETS AND GOODWILL

Intangible Assets 

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

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

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

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

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

13


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

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

Goodwill

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

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

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

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

14


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

September 30, 2023December 31, 2022
6.5% Convertible Senior Secured Notes due 2027
$40,000$70,000
Royalty Rights obligation470
Total principal amount40,00070,470
Plus: derivative liability for embedded conversion feature764252
Less: unamortized debt issuance costs(1,898)(3,849)
Carrying value38,86666,873
Less: current portion of long-term debt(470)
Long-term debt, net$38,866 $66,403


6.5% Convertible Senior Notes due 2027

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

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

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

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

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

Pursuant to the terms of the Indenture, the Company and its restricted subsidiaries must comply with certain covenants, including mergers, consolidations, and divestitures; guarantees of debt by subsidiaries; issuance of preferred and/or disqualified
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stock; and liens on the Company’s properties or assets. The Company was in compliance with its covenants with respect to the 2027 Convertible Notes as of September 30, 2023.

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

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

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

The Company determined that an embedded conversion feature included in the 2027 Convertible Notes required bifurcation from the host contract and to be recognized as a separate derivative liability carried at fair value. See Note 17, Fair Value, for further details around the estimated fair value of the derivative liability. The estimated fair value of the derivative liability, which represents a Level 3 valuation, was $0.8 million and $0.3 million as of September 30, 2023 and December 31, 2022, respectively, and was determined using a binomial lattice model using certain assumptions and consideration of an increased conversion ratio on the underlying convertible notes that could result from the occurrence of certain events. Accordingly, the Company has recognized a loss on the fair value adjustment of the derivative liability in the amount of $0.5 million in Other (loss) gain in the Consolidated Statements of Comprehensive Loss (Income) for both the three and nine months ended September 30, 2023. There was no gain or loss on the fair value adjustment of the derivative liability for the three and nine months ended September 30, 2022. All of the other embedded features of the 2027 Convertible Notes were clearly and closely related to the debt host and did not require bifurcation as a derivative liability, or the fair value of the bifurcated features was immaterial to the Company’s financial statements.

Royalty Rights Obligation

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

Royalty Rights and debt issuance costs are amortized as interest expense using the effective interest method. The following table reflects debt-related interest included in Interest expense in the Company’s Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2023 and 2022 (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Interest on 2027 Convertible Notes$650$456$2,275$456
Interest on 2024 Secured Notes1,5166,064
Amortization of Royalty Rights(1)
80128
Amortization of debt issuance costs102350
Total interest expense$752$2,052$2,625$6,648
(1)As a result of the extinguishment of the Royalty Rights obligation in the fourth quarter of 2022, there will be no additional amortization expense recognized in future periods.

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

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

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

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

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


NOTE 13.  LEASES

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

Prior to the Company’s corporate headquarters relocation in 2018, the Company had leased its previous corporate office in Newark, California (the “Newark Lease”), which terminated at the end of November 2022. The Newark lease was partially subleased through the lease term of November 2022. Operating lease costs and sublease income related to the Newark facility are accounted for in Other gain in the Company’s Condensed Consolidated Statements of Comprehensive (Loss) Income. Sublease income for the nine months ended September 30, 2022 includes a gain of $0.6 million from the early termination and settlement of a Newark facility sublease during the first quarter of 2022.

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

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


NOTE 14.  COMMITMENTS AND CONTINGENCIES

Jubilant HollisterStier Manufacturing and Supply Agreement

Pursuant to the Zyla Merger, the Company assumed a Manufacturing and Supply Agreement (the “Jubilant HollisterStier Agreement”) with Jubilant HollisterStier LLC (“JHS”) pursuant to which the Company engaged JHS to provide certain services related to the manufacture and supply of SPRIX for the Company’s commercial use. Under the Jubilant HollisterStier Agreement, JHS is responsible for supplying a minimum of 75% of the Company’s annual requirements of SPRIX. The Company agreed to purchase a minimum number of batches of SPRIX per calendar year from JHS over the term of the Jubilant HollisterStier Agreement. Total commitments to JHS through the remainder of 2023 are approximately $1.0 million.

Cosette Pharmaceuticals Supply Agreement

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

Antares Supply Agreement

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

General
The Company is currently involved in various lawsuits, claims, investigations and other legal proceedings that arise in the ordinary course of business. The Company recognizes a loss contingency provision in its financial statements when it concludes that a contingent liability is probable, and the amount thereof is estimable. Costs associated with the Company’s involvement in legal proceedings are expensed as incurred. Amounts accrued for legal contingencies are based on management’s best estimate of a loss based upon the status of the cases described below, assessments of the likelihood of damages, and the advice of counsel and often result from a complex series of judgments about future events and uncertainties that rely heavily on estimates and assumptions including timing of related payments. As of both September 30, 2023 and December 31, 2022, the Company had a legal contingency accrual of approximately $3.2 million. The Company continues to monitor each matter and adjust accruals as warranted based on new information and further developments in accordance with ASC 450-20-25. For matters discussed below for which a loss is not probable, or a probable loss cannot be reasonably estimated, no liability has been recorded. Provisions for loss contingencies are recorded in Selling, general and administrative expense in the Company’s Condensed Consolidated Statements of Comprehensive (Loss) Income and the related accruals are recorded in Accrued liabilities in the Company’s Condensed Consolidated Balance Sheets.

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

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

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

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

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

With respect to the California state court lawsuits, on November 24, 2021, the state court granted in part and denied in part a demurrer by the defendants in the Humana action. That case was consolidated in November 2022 with the HCSC action for pre-trial and trial purposes. On July 5, 2023, the state court denied a motion for judgment on the pleadings filed by the defendants in the Humana action. These California state cases are now in the midst of discovery, and trial is scheduled for 2024.

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

Opioid-Related Request and Subpoenas

As a result of the greater public awareness of the public health issue of opioid abuse, there has been increased scrutiny of, and investigation into, the commercial practices of opioid manufacturers generally by federal, state, and local regulatory and governmental agencies. In March 2017, Assertio Therapeutics received a letter from then-Sen. Claire McCaskill (D-MO), the then-Ranking Member on the U.S. Senate Committee on Homeland Security and Governmental Affairs, requesting certain information regarding Assertio Therapeutics’ historical commercialization of opioid products. Assertio Therapeutics voluntarily furnished information responsive to Sen. McCaskill’s request. Since 2017, Assertio Therapeutics has received and responded to subpoenas from the U.S. Department of Justice (“DOJ”) seeking documents and information regarding its historical sales and marketing of opioid products. Assertio Therapeutics has also received and responded to subpoenas or civil investigative demands focused on its historical promotion and sales of Lazanda, NUCYNTA, and NUCYNTA ER from various state attorneys general seeking documents and information regarding Assertio Therapeutics’ historical sales and marketing of opioid products. In addition, Assertio Therapeutics received and responded to a subpoena from the State of California Department of Insurance (“CDI”) seeking information relating to its historical sales and marketing of Lazanda. The CDI subpoena also seeks information on Gralise, a non-opioid product formerly in Assertio Therapeutics’ portfolio. In addition, Assertio Therapeutics received and responded to a subpoena from the New York Department of Financial Services seeking information relating to its historical sales and marketing of opioid products. The Company has also received a subpoena from the New York Attorney General, pursuant to which the New York Attorney General is seeking information concerning the sales and marketing of opioid products (Lazanda, NUCYNTA, NUCYNTA ER, and OXAYDO) by Assertio Therapeutics and Zyla. The Company also from time to time receives and responds to subpoenas from governmental authorities related to investigations primarily focused on third parties, including healthcare practitioners. The Company is cooperating with the foregoing governmental investigations and inquiries.

In July 2022, the Company became aware that the DOJ issued a press release stating that it had settled claims against a physician whom the DOJ alleged had received payments for paid speaking and consulting work from two pharmaceutical companies, including Depomed, Inc. (“Depomed,” now known as Assertio Therapeutics), in exchange for prescribing certain of the companies’ respective products. As part of the settlement, the physician did not admit liability for such claims and the press release stated that there has been no determination of any liability for such claims. The Company denies any wrongdoing and disputes the DOJ’s characterization of the payments from Depomed.

Multidistrict and Other Federal Opioid Litigation
A number of pharmaceutical manufacturers, distributors and other industry participants have been named in numerous lawsuits around the country brought by various groups of plaintiffs, including city and county governments, hospitals, individuals and others. In general, the lawsuits assert claims arising from defendants’ manufacturing, distributing, marketing and promoting of FDA-approved opioid drugs. The specific legal theories asserted vary from case to case, but the lawsuits generally include federal and/or state statutory claims, as well as claims arising under state common law. Plaintiffs seek various forms of damages, injunctive and other relief and attorneys’ fees and costs.
For such cases filed in or removed to federal court, the Judicial Panel on Multi-District Litigation issued an order in December 2017, establishing a Multi-District Litigation court (“MDL Court”) in the Northern District of Ohio (In re National Prescription Opiate Litigation, Case No. 1:17-MD-2804). Since that time, more than 2,000 such cases that were originally filed in U.S. District Courts, or removed to federal court from state court, have been filed in or transferred to the MDL Court. Assertio Therapeutics is currently involved in a subset of the lawsuits that have been filed in or transferred to the MDL Court. Assertio Holdings has also been named in six such cases. In April 2022, the Judicial Panel on Multi-District Litigation issued an
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order stating that it would no longer transfer new opioid cases to the MDL Court. Since that time, Assertio Therapeutics has been named in lawsuits pending in federal courts outside of the MDL Court (in Georgia and New York). Plaintiffs may file additional lawsuits in which the Company may be named. Plaintiffs in the pending federal cases involving Assertio Therapeutics or Assertio Holdings include individuals; county, municipal and other governmental entities; employee benefit plans, health insurance providers and other payors; hospitals, health clinics and other health care providers; Native American tribes; and non-profit organizations who assert, for themselves and in some cases for a putative class, federal and state statutory claims and state common law claims, such as conspiracy, nuisance, fraud, negligence, gross negligence, negligent and intentional infliction of emotional distress, deceptive trade practices, and products liability claims (defective design/failure to warn). In these cases, plaintiffs seek a variety of forms of relief, including actual damages to compensate for alleged personal injuries and for alleged past and future costs such as to provide care and services to persons with opioid-related addiction or related conditions, injunctive relief, including to prohibit alleged deceptive marketing practices and abate an alleged nuisance, establishment of a compensation fund, establishment of medical monitoring programs, disgorgement of profits, punitive and statutory treble damages, and attorneys’ fees and costs. No trial date has been set in any of these lawsuits, which are at an early stage of proceedings. Assertio Therapeutics and Assertio Holdings intend to defend themselves vigorously in these matters.

State Opioid Litigation

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

Insurance Litigation

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

During the first quarter of 2021, Assertio Therapeutics received $5.0 million in insurance reimbursement for previous opioid-related spend, which was recognized within Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2021.

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

During the second quarter of 2022, Assertio Therapeutics received $2.0 million in insurance reimbursement for previous opioid-related spend, which was recognized within Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Comprehensive (Loss) Income for the year ended December 31, 2022.

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

Stockholder Actions

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

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

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

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

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NOTE 15. SHAREHOLDERS EQUITY

Issuance of Common Stock in the Spectrum Merger

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

Exchanged Convertible Notes

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

At-The-Market Program

The Company is party to a sales agreement with Roth Capital Partners, LLC (“Roth”) as sales agent to sell shares of the Company’s common stock, from time to time, through an at-the-market (“ATM”) offering program having an aggregate offering price of up to $25.0 million. As a result of the issuance of the 2027 Convertible Notes (See Note 11, Debt), the Company has determined to suspend use of its ATM offering program. Prior to suspending the ATM offering program, 2,463,637 shares had been issued and settled at an average price of $3.02, through which the Company received gross proceeds of $7.4 million, and net proceeds after commission and fees of $7.0 million.

Warrant Agreements

Upon the Zyla Merger, the Company assumed Zyla’s outstanding warrants which provided the holder the right to receive shares of the Company’s common stock. The warrants were exercisable at any time at an exercise price of $0.0016 per share, subject to certain ownership limitations including, with respect to Iroko Pharmaceuticals, Inc. and its affiliates, that no such exercise may increase the aggregate ownership of the Company’s outstanding common stock of such parties above 49% of the number of shares of its common stock then outstanding for a period of 18 months.

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


NOTE 16.  NET (LOSS) INCOME PER SHARE

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

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

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

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

NOTE 17.  FAIR VALUE

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
 
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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The following table reflects the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 (in thousands):

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

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