Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
Form 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of Report (Date of earliest event reported):  November 6, 2019
 
ASSERTIO THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
001-13111
 
94-3229046
(State or Other Jurisdiction of
Incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
100 S. Saunders Road, Suite 300, Lake Forest, IL 60045
(Address of Principal Executive Offices; Zip Code)
 
(224) 419-7106
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
    
Trading Symbol(s):
 
Name of each exchange on which registered:
Common Stock, $0.0001 par value
 
ASRT
 
The Nasdaq Stock Market LLC
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
o                                    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o                                    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o                                    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o                                    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company o
 
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.  o

 





Item 2.02
 
Results of Operations and Financial Condition.

On November 6, 2019, Assertio Therapeutics, Inc. (the “Company”) issued a press release announcing its financial results for the three and nine months ended September 30, 2019.  The press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.
 
The information in Item 2.02 of this Current Report on Form 8-K shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. The information contained herein shall not be incorporated by reference into any filing with the Securities and Exchange Commission made by the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Item 2.05
 
Costs Associated with Exit or Disposal Activities.

On November 6, 2019, the Company announced an acceleration of cost saving initiatives that are expected to deliver $15 million in annual savings beginning in 2020 and $20 million in annual savings thereafter. These cost saving initiatives resulted from a review of the Company’s organizational structures, budgets, capital projects and capabilities. Pursuant to these cost saving initiatives, the Company expects to incur a charge of approximately $4.0 million in one-time severance and other benefits in the fourth quarter of 2019. The estimate of costs that the Company expects to incur and the timing thereof are subject to a number of assumptions and actual results may differ.

Item 9.01
 
Financial Statements and Exhibits.
 
 
 
 
 
(d)
 
Exhibits
 
 
 
 
 
 
 
99.1
 





SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
ASSERTIO THERAPEUTICS, INC.
 
 
 
Date: November 6, 2019
By:
/s/ Daniel A. Peisert
 
 
Daniel A. Peisert
 
 
Senior Vice President and Chief Financial Officer



Exhibit
Exhibit 99.1
 http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13185151&doc=3
Assertio Therapeutics Announces Third-Quarter 2019 Results

-- Company Implements New Cost Savings Initiatives Expected to Deliver Annualized Savings of $20.0 Million --

-- Raises Full-Year 2019 Earnings Guidance Ranges --

-- Lowers Full-Year 2019 Neurology Franchise Net Sales Guidance --

-- Reduces Total Debt by $200.0 Million Year to Date --

-- Extends Significant Portion of Convertible Debt Maturity to 2024 --


Lake Forest, Ill., November 6, 2019 - Assertio Therapeutics, Inc. (NASDAQ: ASRT) today reported financial results for the quarter ended September 30, 2019 and provided an update on its business performance and strategic initiatives.

Third-Quarter Financial Highlights:
(unaudited)
 
 Third Quarter 2019
(in millions, except earnings per share)
GAAP
Non-GAAP(1) 
Total Revenues
$55.1
Net Income
$3.3
$23.2
Earnings Per Share
$0.05
$0.24
Adjusted EBITDA
$34.3
        
(1) All non-GAAP measures included in this earnings release are reconciled to the corresponding GAAP measures in the schedules attached.

“We reported another quarter of strong earnings growth, exceeding non-GAAP adjusted EBITDA expectations for the fifth time in the last six quarters, despite some softness in our top line,” said Arthur Higgins, President and CEO of Assertio. “As a result of this strong performance, as well as our outlook for the fourth quarter, today we are raising our non-GAAP adjusted EBITDA guidance range for the full year. We have achieved significant operational efficiencies over the past two years - and today we are announcing additional initiatives that we expect will deliver $15.0 million in annual savings beginning in 2020 and $20.0 million in annual savings thereafter. Our priority was, and remains, delivering strong cash flows as we rapidly de-lever the Company and better position it to pursue new growth opportunities.”

1


Third-Quarter Business Highlights:

Acceleration of Cost Savings Initiatives: Today the Company announced an acceleration of cost savings initiatives that it expects will deliver $15.0 million in savings beginning in 2020 and $20.0 million in annual savings thereafter. The Company will take a charge of approximately $4.0 million in the fourth quarter of 2019 related to these initiatives. This acceleration in cost savings was completed after a thorough review of the Company’s organizational structures, budgets, capital projects and capabilities.

Announced Debt Refinancing: The Company announced in August that it entered into separate, privately negotiated exchange agreements (Exchange Agreements) with a limited number of holders of Assertio’s currently outstanding 2.50% Convertible Notes due 2021 (2021 Notes). Pursuant to the Exchange Agreements, Assertio exchanged approximately $200.0 million aggregate principal amount of 2021 Notes for a combination of (a) $120.0 million of its 5.00% Convertible Senior Notes due August 15, 2024 (2024 Notes), (b) $30.0 million in cash plus accrued but unpaid interest on the 2021 Notes, and (c) the issuance of 15.8 million shares of Assertio’s common stock. This transaction reduces total outstanding debt, de-levers the balance sheet, extends maturity of a substantial portion of the Company’s convertible debt, and makes Assertio a potentially more attractive business development partner.

Significant Reduction in Secured Debt: As of September 30, 2019, the Company has made scheduled principal repayments of $100.0 million in 2019, reducing the Company’s senior secured debt to $182.5 million. The Company also paid an additional $20.0 million principal payment in October 2019, further reducing its senior secured debt to $162.5 million. Combined with the $80.0 million of debt reduced in our debt refinancing, the Company has reduced its gross debt leverage to 3.4x of the mid-point of its adjusted EBITDA guidance range.













2


Favorable NUCYNTA® Patent Ruling Upheld: In the third quarter, there was a period during which the defendants could have petitioned the U.S. Supreme Court for writ of certiorari. That period has now passed. As a result, the District Court’s favorable decision is final and non-appealable. Previously, the United States Court of Appeals for the Federal Circuit ruled in favor of Assertio with respect to the Company’s patent litigation against three filers of Abbreviated New Drug Applications (ANDAs) for the NUCYNTA franchise. The Federal Circuit’s ruling affirms the decision of the United States District Court (D.N.J.), which found U.S. patent No. 7,994,364 (the ’364 Patent) to be valid and infringed by the defendants. The ’364 Patent covers the entire NUCYNTA franchise until December 2025.* The NUCYNTA franchise is commercialized by Collegium Pharmaceutical, Inc. (Collegium). The Company receives royalties from Collegium based on net sales of the franchise.

Cosyntropin: The Company announced on October 21, 2019 that its development partner West Therapeutic Development, LLC (West) has received a Complete Response Letter (CRL) from the U.S. Food and Drug Administration (FDA) for its New Drug Application (NDA) for its injectable formulation of long-acting cosyntropin (synthetic adrenocorticotropic hormone, or ACTH). West is seeking approval for use as a diagnostic drug in the screening of patients presumed to have adrenocortical insufficiency. The primary focus of the CRL relates to the FDA determination that certain pharmacodynamic parameters were not adequately achieved. West and Assertio will work together to determine if the FDA’s comments set forth in the CRL can be adequately addressed.
















*Patent expiration dates reflect the addition of six months of pediatric patent term extension Assertio anticipates securing from the United States Food and Drug Administration.

3


Revenue Summary:
(in thousands, unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Product sales, net
 

 
 

 
 

 
 

Gralise
$
14,931

 
$
14,630

 
$
46,008

 
$
43,272

CAMBIA
8,135

 
10,365

 
23,701

 
24,870

Zipsor
3,273

 
4,441

 
9,028

 
13,175

Total neurology product sales, net
26,339

 
29,436

 
78,737

 
81,317

NUCYNTA products
1,254

 
11

 
1,153

 
18,782

Lazanda
(91
)
 
(12
)
 
(1
)
 
528

Total product sales, net
27,502

 
29,435

 
79,889

 
100,627

Commercialization agreement:
 
 
 
 
 
 
 
Commercialization rights and facilitation services
27,304

 
27,781

 
89,163

 
87,055

Revenue from transfer of inventory

 

 

 
55,705

Royalties and Milestone Revenue
341

 
20,277

 
1,226

 
25,784

Total revenues
$
55,147

 
$
77,493

 
$
170,278

 
$
269,171


2019 Financial Guidance:
The Company is raising its previous 2019 earnings guidance range and lowering its Neurology Franchise Net Sales guidance to $102 to $105 million.
 
Prior 2019 Guidance
Current 2019 Guidance
Neurology Franchise Net Sales
Low Single Digit Growth
$102 to $105 million
GAAP Net Loss(1)
($68) to ($58) million
($47) to ($42) million
Non-GAAP Adjusted EBITDA(1)(2)
$118 to $128 million
$124 to $129 million
(1) Guidance includes $2.8 million of non-cash Collegium warrant related income and excludes any future warrant mark-to-market adjustments, which cannot be estimated.
(2) Guidance excludes any Collegium warrant mark-to-market adjustments.












4


Conference Call and Webcast:
Assertio will host a conference call today, Wednesday, November 6, 2019 beginning at 4:30 p.m. ET to discuss its results. This event can be accessed in three ways:

From the Assertio website: http://investor.assertiotx.com. Please access the website 15 minutes prior to the start of the call to download and install any necessary audio software.

By telephone: Participants can access the call by dialing (877) 550-3745 (United States) or (281) 973-6277 (International) referencing Conference ID 8382875.

By replay: A replay of the webcast will be located under the Investor Relations section of Assertio’s website approximately two hours after the conclusion of the live call.

About Assertio Therapeutics, Inc.
Assertio Therapeutics is committed to providing responsible solutions to advance patient care in the Company’s core areas of neurology, orphan and specialty medicines. Assertio currently markets three FDA-approved products and continues to identify, license and develop new products that offer enhanced options for patients that may be under served by existing therapies. To learn more about Assertio, visit www.assertiotx.com.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
This news release contains forward-looking statements. These statements involve inherent risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to regulatory approval and clinical development of long-acting cosyntropin, expectations regarding royalties to be received based on sales of NUCYNTA and NUCYNTA ER, expectations regarding potential business opportunities and other risks outlined in the Company’s public filings with the Securities and Exchange Commission, including the Company’s most recent annual report on Form 10-K and subsequent Quarterly Reports on Form 10-Q. All information provided in this news release speaks as of the date hereof. Except as otherwise required by law, the Company undertakes no obligation to update or revise its forward-looking statements.

Investor and Media Contact:
John B. Thomas
Senior Vice President, Investor Relations and Corporate Communications
jthomas@assertiotx.com



5


Non-GAAP Financial Measures
To supplement the Company’s financial results presented on a U.S. generally accepted accounting principles (GAAP) basis, the Company has included information about non-GAAP revenue, non-GAAP adjusted earnings, non-GAAP adjusted diluted earnings per share, non-GAAP adjusted EBITDA and other non-GAAP financial measures as useful operating metrics. The Company believes that the presentation of these non-GAAP financial measures, when viewed with results under GAAP and the accompanying reconciliation, provides supplementary information to analysts, investors, lenders, and the Company’s management in assessing the Company’s performance and results from period to period. The Company uses these non-GAAP measures internally to understand, manage and evaluate the Company’s performance, and in part, in the determination of bonuses for executive officers and employees. These non-GAAP financial measures should be considered in addition to, and not a substitute for, or superior to, net income or other financial measures calculated in accordance with GAAP. Non-GAAP financial measures used by us may be calculated differently from, and therefore may not be comparable to, non-GAAP measures used by other companies.

Specified Items
Non-GAAP measures presented within this release exclude specified items. The Company considers specified items to be significant income/expense items not indicative of current operations, including the related tax effect. Specified items include non-cash adjustment to Collegium agreement revenue and cost of sales, release of NUCYNTA and Lazanda sales reserves for products the Company is no longer selling, interest income, interest expense, amortization, acquired in-process research and development and non-cash adjustments related to product acquisitions, stock-based compensation expense, non-cash interest expense related to debt, depreciation, taxes, transaction costs, CEO transition, restructuring costs, adjustments to net sales related to reserves recorded prior to the Company’s exit of opioid commercialization activities, legal costs and expenses incurred in connection with opioid-related litigation, investigations and regulations pertaining to the company’s historical commercialization of opioid products, certain types of legal settlements, disputes, fees and costs, gains or losses resulting from debt refinancing transactions and disposal or impairment of long-lived assets, and to adjust for the tax effect related to each of the non-GAAP adjustments.



6


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Product sales, net
$
27,502

 
$
29,435

 
$
79,889

 
$
100,627

Commercialization agreement, net
27,304

 
27,781

 
89,163

 
142,760

Royalties and milestones
341

 
20,277

 
1,226

 
25,784

Total revenues
55,147

 
77,493

 
170,278

 
269,171

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales (excluding amortization of intangible assets)
2,243

 
2,975

 
6,942

 
17,772

Research and development expenses
1,476

 
2,127

 
4,531

 
5,835

Selling, general and administrative expenses
36,117

 
33,409

 
85,917

 
93,750

Amortization of intangible assets
25,444

 
25,443

 
76,331

 
76,331

Restructuring charges

 
3,911

 

 
18,742

Total costs and expenses
65,280

 
67,865

 
173,721

 
212,430

(Loss) income from operations
(10,133
)
 
9,628

 
(3,443
)
 
56,741

Other income (expense):
 
 
 
 
 
 
 
Litigation settlement

 
62,000

 

 
62,000

Gain on debt extinguishment
26,385

 

 
26,385

 

Interest expense
(13,872
)
 
(17,190
)
 
(45,268
)
 
(52,268
)
Other (expense) income, net
(764
)
 
677

 
(2,613
)
 
973

Total other expense (income)
11,749

 
45,487

 
(21,496
)
 
10,705

Net income (loss) before income taxes
1,616

 
55,115

 
(24,939
)
 
67,446

Income tax benefit (expense)
1,715

 
(6,845
)
 
364

 
(6,400
)
Net income (loss)
$
3,331

 
$
48,270

 
$
(24,575
)
 
$
61,046

Basic net income (loss) per share
0.05

 
0.76

 
(0.36
)
 
0.96

Diluted net income (loss) per share
0.05

 
0.65

 
(0.36
)
 
0.93

Shares used in computing basic net income (loss) per share
72,747

 
63,917

 
67,332

 
63,714

Shares used in computing diluted net income (loss) per share
72,747

 
82,690

 
67,332

 
82,282



7


CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
 
 
September 30, 2019
 
December 31, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
54,181

 
$
110,949

Accounts receivable, net
43,427

 
37,211

Inventories, net
3,314

 
3,396

Prepaid and other current assets
23,480

 
56,551

Total current assets
124,402

 
208,107

Property and equipment, net
3,873

 
13,064

Intangible assets, net
615,768

 
692,099

Investments
7,244

 
11,784

Other long-term assets
5,579

 
7,812

Total assets
$
756,866

 
$
932,866

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
22,700

 
$
6,138

Accrued rebates, returns and discounts
60,979

 
75,759

Accrued liabilities
33,270

 
31,361

Current portion of Senior Notes
80,000

 
120,000

Interest payable
6,687

 
11,645

Other current liabilities
2,096

 
1,133

Total current liabilities
205,732

 
246,036

Contingent consideration liability
981

 
1,038

Senior Notes
94,661

 
158,309

Convertible Notes
190,923

 
287,798

Other long-term liabilities
16,135

 
19,350

Total liabilities
508,432

 
712,531

Commitments and contingencies
 
 
 
Shareholders’ equity:
 
 
 
Common stock
8

 
6

Additional paid-in capital
455,601

 
402,934

Accumulated deficit
(207,175
)
 
(182,600
)
Accumulated other comprehensive loss

 
(5
)
Total shareholders’ equity
248,434

 
220,335

Total liabilities and shareholders' equity
$
756,866

 
$
932,866



8

Exhibit 99.1

RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP ADJUSTED EBITDA
(in thousands)
(unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
GAAP net (loss)/income
$
3,331

 
$
48,270

 
$
(24,575
)
 
$
61,046

Commercialization agreement revenues (1)
3,804

 
2,862

 
7,667

 
(46,426
)
Commercialization agreement cost of sales (2)

 

 

 
6,200

NUCYNTA and Lazanda revenue reserves (3)
(1,163
)
 
2

 
(1,152
)
 
(11,249
)
Expenses for opioid-related litigation, investigations and regulations (4)
2,174

 
1,313

 
7,024

 
4,360

Intangible amortization related to product acquisitions
25,444

 
25,443

 
76,331

 
76,331

Contingent consideration related to product acquisitions

 
(117
)
 
(142
)
 
(658
)
Purdue litigation settlement

 
(62,000
)
 

 
(62,000
)
Stock-based compensation
3,004

 
2,944

 
8,340

 
7,890

Interest and other income
(218
)
 
(677
)
 
(915
)
 
(973
)
Interest expense
13,872

 
17,190

 
45,268

 
52,268

Depreciation
278

 
(1,252
)
 
894

 
1,677

Income tax (benefit) expense
(1,715
)
 
6,845

 
(364
)
 
6,400

Restructuring and related costs  (5)

 
4,079

 

 
19,383

Other costs

 
75

 

 
123

Loss on disposal of equipment (6)
10,070

 

 
10,076

 

Gain on debt extinguishment, net (7)
(25,968
)
 

 
(25,968
)
 

Change in fair value of warrants
1,423

 

 
4,900

 

Non-GAAP adjusted EBITDA
$
34,336

 
$
44,977

 
$
107,384

 
$
114,372


(1) For the period from January 8, 2018 through November 8, 2018, the adjustment relates to the non-cash value assigned to inventory transferred to Collegium. As of the date of the Commercialization Amendment, on November 8, 2018, the Company ceased recognition of fixed revenues and began the recognition of variable revenues when they become due beginning in January 2019. The adjustment for the three and nine months ended September 30, 2019 relates to non-cash expense for third-party royalties, which are expected to have no net impact for the full year period, as well as the amortization of the contract asset.
(2) Represents the cash received for inventory transferred to Collegium at the commencement of the Commercialization Agreement. 
(3) Removal of the impact of revenue adjustment estimates related to products that we are no longer commercializing. The three months ended March 31, 2018 included a $12.5 million benefit related to the release of sales reserves for which the Company is no longer financially responsible, net of $1.8 million in royalties payable to a third party.
(4) Legal costs/expenses related to opioid-related litigation, investigations and regulations pertaining to the Company’s historical commercialization of opioid products. 
(5) Restructuring and other costs represents non-recurring costs associated with the Company’s restructuring, reincorporation, headquarters relocation and CEO transition.
(6) Recognition of $10.1 million loss on the September 2019 disposal of equipment residing at a manufacturing supplier that will no longer be used in future production.
(7) In connection with the August 2019 debt refinancing of the convertible notes the Company recognized a net gain of $26.0 million, comprised of a $26.4 million gain on debt extinguishment offset by approximately $0.4 million of nonrecurring related expenses.


9


RECONCILIATION OF GAAP NET INCOME/(LOSS) TO NON-GAAP ADJUSTED EARNINGS
(in thousands, except per share amounts)
(unaudited) 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
GAAP net (loss)/income
$
3,331

 
$
48,270

 
$
(24,575
)
 
$
61,046

Commercialization agreement revenues (1)
3,804

 
2,862

 
7,667

 
(46,426
)
Commercialization agreement cost of sales (2)

 

 

 
6,200

Non-cash interest expense on debt
5,870

 
5,490

 
18,090

 
16,298

Nucynta and Lazanda revenue reserves (3)
(1,163
)
 
2

 
(1,152
)
 
(11,249
)
Expenses for opioid-related litigation, investigations and regulations (4)
2,174

 
1,313

 
7,024

 
4,360

Purdue litigation settlement

 
(62,000
)
 

 
(62,000
)
Intangible amortization related to product acquisitions
25,444

 
25,443

 
76,331

 
76,331

Contingent consideration related to product acquisitions

 
(117
)
 
(142
)
 
(658
)
Stock-based compensation
3,004

 
2,944

 
8,340

 
7,890

Restructuring and related costs (5)

 
4,079

 

 
19,383

Other costs

 
75

 
(332
)
 
123

Loss on disposal of equipment (6)
10,070

 

 
10,076

 

Gain on debt extinguishment, net (7)
(25,968
)
 

 
(25,968
)
 

Change in fair value of warrants
1,423

 

 
4,900

 

Income tax effect of non-GAAP adjustments (8)
(4,800
)
 
4,551

 
(20,963
)
 
(1,159
)
Non-GAAP adjusted earnings
$
23,189

 
$
32,912

 
$
59,296

 
$
70,139

Add interest expense of convertible debt, net of tax (9)
1,770

 
1,704

 
5,176

 
5,110

Numerator
$
24,959

 
$
34,616

 
$
64,472

 
$
75,249

Shares used in calculation (9)
105,322

 
82,690

 
90,198

 
82,282

Non-GAAP adjusted diluted earnings per share
$
0.24

 
$
0.42

 
$
0.71

 
$
0.91

 
(1) For the period from January 8, 2018 through November 8, 2018, the adjustment relates to the non-cash value assigned to inventory transferred to Collegium. As of the date of the Commercialization Amendment, on November 8, 2018, the Company ceased recognition of fixed revenues and began the recognition of variable revenues when they become due beginning in January 2019. The adjustment for the three and nine months ended September 30, 2019 relates to non-cash expense for third-party royalties, which are expected to have no net impact for the full year period, as well as the amortization of the contract asset.
(2) Represents the cash received for inventory transferred to Collegium at the commencement of the Commercialization Agreement. 
(3) Removal of the impact of revenue adjustment estimates related to products that we are no longer commercializing. The three months ended March 31, 2018 included a $12.5 million benefit related to the release of sales reserves for which the Company is no longer financially responsible, net of $1.8 million in royalties payable to a third party.
(4) Legal costs/expenses related to opioid-related litigation, investigations and regulations pertaining to the Company’s historical commercialization of opioid products. 
(5) Restructuring and other costs represents non-recurring costs associated with the Company’s restructuring, reincorporation, headquarters relocation and CEO transition.
(6) Recognition of $10.1 million loss on the September 2019 disposal of equipment residing at a manufacturing supplier that will no longer be used in future production.
(7) In connection with the August 2019 debt refinancing of the convertible notes the Company recognized a net gain of $26.0 million, comprised of a $26.4 million gain on debt extinguishment offset by approximately $0.4 million of nonrecurring related expenses.
(8) Calculated by taking the pre-tax non-GAAP adjustments and applying the statutory tax rate. 
(9) The Company uses the if-converted method to compute diluted earnings per share with respect to its convertible debt.

10


RECONCILIATION OF GAAP NET INCOME (LOSS) PER SHARE TO
NON-GAAP ADJUSTED EARNINGS PER SHARE
(unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
GAAP net (loss)/income per share
$
0.05

 
$
0.76

 
$
(0.36
)
 
$
0.96

Conversion from basic shares to diluted shares
(0.02
)
 
(0.17
)
 
0.08

 
(0.22
)
Commercialization agreement revenues
0.04

 
0.03

 
0.09

 
(0.57
)
Commercialization agreement cost of sales

 

 

 
0.08

Non-cash interest expense on debt
0.06

 
0.07

 
0.20

 
0.20

NUCYNTA and Lazanda revenue reserves
(0.01
)
 

 
(0.01
)
 
(0.14
)
Expenses for opioid-related litigation, investigations and regulations
0.02

 
0.01

 
0.08

 
0.05

Purdue litigation settlement

 
(0.75
)
 

 
(0.75
)
Intangible amortization related to product acquisitions
0.24

 
0.31

 
0.85

 
0.92

Contingent consideration related to product acquisitions

 

 

 

Stock based compensation
0.03

 
0.03

 
0.09

 
0.10

Restructuring and related costs

 
0.05

 

 
0.23

Loss on disposal of equipment
0.10

 

 
0.11

 

Gain on debt extinguishment, net
(0.25
)
 

 
(0.29
)
 

Change in fair value of warrants
0.01

 

 
0.05

 

Income tax effect of non-GAAP adjustments
(0.05
)
 
0.06

 
(0.24
)
 
(0.01
)
Add interest expense of convertible debt, net of tax
0.02

 
0.02

 
0.06

 
0.06

Non-GAAP adjusted diluted earnings per share
$
0.24

 
$
0.42

 
$
0.71

 
$
0.91



11


RECONCILATIONS OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION
For the three months ended September 30, 2019
(in thousands)
(unaudited)

 
 
Commercialization agreement revenues
 
Product Sales
 
Royalties and milestones
 
Cost of sales
 
Research and development expense
 
Selling, general and administrative expense
 
Amortization of intangible assets
 
Interest expense
 
Other (Expense) Income, Net
 
Income taxes (expense) benefit
GAAP as reported
 
$
27,304

 
$
27,502

 
$
341

 
$
2,243

 
$
1,476

 
$
36,117

 
$
25,444

 
$
(13,872
)
 
$
25,621

 
$
1,715

Commercialization agreement revenues and cost of sales
 
3,804

 

 

 

 

 

 

 

 

 

Non-cash interest expense on debt
 

 

 

 

 

 

 

 
5,870

 

 

NUCYNTA and Lazanda revenue reserves
 

 
(1,163
)
 

 

 

 

 

 

 

 

Expenses for opioid-related litigation, investigations and regulations
 

 

 

 

 

 
(2,174
)
 

 

 

 

Intangible amortization related to product acquisitions
 

 

 

 

 

 

 
(25,444
)
 

 

 

Stock based compensation
 

 

 

 
(28
)
 
(165
)
 
(2,811
)
 

 

 

 

Restructuring and other costs
 

 

 

 

 

 

 

 

 

 

Loss on disposal of equipment
 

 

 

 

 

 
(10,070
)
 

 

 

 

Gain on debt extinguishment, net
 

 

 

 

 

 

 

 

 
(25,968
)
 

Change in fair value of warrants
 

 

 

 

 

 

 

 

 
1,423

 

Income tax effect of non-GAAP adjustments
 

 

 

 

 

 

 

 

 

 
(4,800
)
Non-GAAP adjusted
 
$
31,108

 
$
26,339

 
$
341

 
$
2,215

 
$
1,311

 
$
21,062

 
$

 
$
(8,002
)
 
$
1,076

 
$
(3,085
)


12


RECONCILATIONS OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION
For the nine months ended September 30, 2019
(in thousands)
(unaudited)

 
 
Commercialization agreement revenues
 
Product Sales
 
Royalties and milestones
 
Cost of sales
 
Research and development expense
 
Selling, general and administrative expense
 
Amortization of intangible assets
 
Interest expense
 
Other (Expense) Income, Net
 
Income taxes (expense) benefit
GAAP as reported
 
$
89,163

 
$
79,889

 
$
1,226

 
$
6,942

 
$
4,531

 
$
85,917

 
$
76,331

 
$
(45,268
)
 
$
23,772

 
$
364

Commercialization agreement revenues and cost of sales
 
7,667

 

 

 

 

 

 

 

 

 

Non-cash interest expense on debt
 

 

 

 

 

 

 

 
18,090

 

 

NUCYNTA and Lazanda revenue reserves
 

 
(1,152
)
 

 

 

 

 

 

 

 

Expenses for opioid-related litigation, investigations and regulations
 

 

 

 

 

 
(7,024
)
 

 

 

 

Intangible amortization related to product acquisitions
 

 

 

 

 

 

 
(76,331
)
 

 

 

Contingent consideration related to product acquisitions
 

 

 

 

 

 
142

 

 

 

 

Stock based compensation
 

 

 

 
(78
)
 
(514
)
 
(7,748
)
 

 

 

 

Restructuring and other costs
 

 

 

 

 

 

 

 

 

 

Loss on disposal of equipment
 

 

 

 

 

 
(10,076
)
 

 

 

 

Gain on debt extinguishment, net
 

 

 

 

 

 

 

 

 
(25,968
)
 

Change in fair value of warrants
 

 

 

 

 

 

 

 

 
4,900

 

Other costs
 

 

 

 

 

 

 

 

 
(332
)
 

Income tax effect of non-GAAP adjustments
 

 

 

 

 

 

 

 

 

 
(20,963
)
Non-GAAP adjusted
 
$
96,830

 
$
78,737

 
$
1,226

 
$
6,864

 
$
4,017

 
$
61,211

 
$

 
$
(27,178
)
 
$
2,372

 
$
(20,599
)


13


RECONCILATIONS OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION
For the three months ended September 30, 2018
(in thousands)
(unaudited)

 
 
Commercialization agreement revenues
 
Product Sales
 
Royalties and milestones
 
Cost of sales
 
Research and development expense
 
Selling, general and administrative expense
 
Restructuring Charges
 
Amortization of intangible assets
 
Interest expense
 
Other (Expense) Income, Net
 
Income taxes (expense) benefit
GAAP as reported
 
$
27,781

 
$
29,435

 
$
20,277

 
$
2,975

 
$
2,127

 
$
33,409

 
$
3,911

 
$
25,443

 
$
(17,190
)
 
$
62,677

 
$
(6,845
)
Commercialization agreement revenues and cost of sales
 
2,862

 

 

 

 

 

 
 
 

 

 

 

Non-cash interest expense on debt
 

 

 

 

 

 

 

 

 
5,490

 

 

NUCYNTA and Lazanda revenue reserves
 

 
2

 

 

 

 

 

 

 

 

 

Expenses for opioid-related litigation, investigations and regulations
 

 

 

 

 

 
(1,313
)
 

 

 

 

 

Intangible amortization related to product acquisitions
 

 

 

 

 

 

 

 
(25,443
)
 

 

 

Contingent consideration related to product acquisitions
 

 

 

 

 

 
117

 

 

 

 

 

Stock based compensation
 

 

 

 

 
(270
)
 
(2,674
)
 
173

 

 

 

 

Restructuring and other costs
 

 

 

 

 

 
(243
)
 
(4,084
)
 

 

 

 

Purdue litigation settlement
 

 

 

 

 

 

 

 

 

 
(62,000
)
 

Income tax effect of non-GAAP adjustments
 

 

 

 

 

 

 

 

 

 

 
4,551

Non-GAAP adjusted
 
$
30,643

 
$
29,437

 
$
20,277

 
$
2,975

 
$
1,857

 
$
29,296

 
$

 
$

 
$
(11,700
)
 
$
677

 
$
(2,294
)



14


RECONCILATIONS OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION
For the nine months ended September 30, 2018
(in thousands)
(unaudited)
 
 
Commercialization agreement revenues
 
Product Sales
 
Royalties and milestones
 
Cost of sales
 
Research and development expense
 
Selling, general and administrative expense
 
Restructuring Charges
 
Amortization of intangible assets
 
Interest expense
 
Other (Expense) Income, Net
 
Income taxes (expense) benefit
GAAP as reported
 
142,760

 
100,627

 
25,784

 
17,772

 
5,835

 
93,750

 
18,742

 
76,331

 
(52,268
)
 
62,973

 
(6,400
)
Commercialization agreement revenues and cost of sales
 
(46,426
)
 
 
 

 
(6,200
)
 

 

 
 
 

 

 

 

Non-cash interest expense on debt
 

 

 

 

 

 

 

 

 
16,298

 

 

NUCYNTA and Lazanda revenue reserves
 

 
(11,249
)
 

 

 

 

 

 

 

 

 

Expenses for opioid-related litigation, investigations and regulations
 

 

 

 

 

 
(4,360
)
 

 

 

 

 

Intangible amortization related to product acquisitions
 

 

 

 

 

 

 

 
(76,331
)
 

 

 

Contingent consideration related to product acquisitions
 

 

 

 

 

 
658

 

 

 

 

 

Stock based compensation
 

 

 

 
(30
)
 
(337
)
 
(7,523
)
 
(2,385
)
 

 

 

 

Restructuring and other costs
 

 

 

 

 

 
(764
)
 
(16,357
)
 

 

 

 

Purdue litigation settlement
 

 

 

 

 

 

 

 

 

 
(62,000
)
 

Income tax effect of non-GAAP adjustments
 

 

 

 

 

 

 

 

 

 

 
(1,159
)
Non-GAAP adjusted
 
96,334

 
89,378

 
25,784

 
11,542

 
5,498

 
81,761

 

 

 
(35,970
)
 
973

 
(7,559
)


15


FULL-YEAR 2019 NON-GAAP GUIDANCE RECONCILATION
(in millions)
(unaudited)
 
Earnings (1)
 
Low End
High End
GAAP
 
$
(47
)
 
$
(42
)
Specified Items(2)
 
$
171

 
$
171

Non-GAAP
 
$
124

 
$
129

 
(1) GAAP net loss guidance refers to GAAP net loss and non-GAAP earnings guidance refers to non-GAAP adjusted EBITDA.
 
(2) For purposes of this forward-looking reconciliation, a description of the categories of specified items included in this reconciliation are detailed in the tables above.

16


SENIOR SECURED NOTE COVENANT DISCLOSURES

The Company was in compliance with its covenants, including the Senior Secured Debt Leverage Ratio and Net Sales covenants, with respect to the Company’s senior secured notes as of September 30, 2019. Set forth below are additional disclosures that the Company is required to make in connection with the senior secured notes.

RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP ADJUSTED EBITDA
For the Rolling Twelve Month Period Ended September 30, 2019
(in thousands)
(unaudited)

The below reconciliation discloses the calculation of Adjusted EBITDA (as defined in the Company’s senior secured notes) on a rolling twelve month basis to support covenant compliance in connection with our senior secured notes.
 
Twelve Months Ended
 
September 30, 2019
GAAP net (loss)/income
$
(48,713
)
Commercialization agreement revenues (1)
28,929

Nucynta and Lazanda revenue reserves (2)
(2,176
)
Expenses for opioid-related litigation, investigations and regulations (3)
10,561

Intangible amortization related to product acquisitions
101,774

Contingent consideration related to product acquisitions
1

Stock-based compensation
10,889

Interest and other income
(1,139
)
Interest expense
61,881

Depreciation
1,148

Income taxes expense (benefit)
(5,697
)
Restructuring and related costs  (4)
1,881

Loss on disposal of equipment (5)
10,076

Gain on debt extinguishment, net (6)
(25,968
)
Change in fair value of warrants
4,900

Adjusted EBITDA
$
148,347


(1) The adjustment for the twelve months ended September 30, 2019 relates to non-cash expense for third-party royalties, which are expected to have no net impact for the full year period, as well as the amortization of the contract asset.
(2) Removal of the impact of revenue adjustment estimates related to products that we are no longer commercializing. 
(3) Legal costs/expenses related to opioid-related litigation, investigations and regulations pertaining to the Company’s historical commercialization of opioid products. 
(4) Restructuring and other costs represents non-recurring costs associated with the Company’s restructuring, reincorporation, headquarters relocation and CEO transition.
(5) Recognition of $10.1 million loss on the September 2019 disposal of equipment residing at a manufacturing supplier that will no longer be used in future production.
(6) In connection with the August 2019 debt refinancing of the convertible notes the Company recognized a net gain of $26.0 million, comprised of a $26.4 million gain on debt extinguishment offset by approximately $0.4 million of nonrecurring related expenses.

Additional Covenant Disclosures

Long-acting cosyntropin has not yet been launched for commercial sale and therefore no revenue in respect of this product was recognized by the Company as of September 30, 2019.

During the rolling twelve month period ended September 30, 2019, the Company collected $123.4 million in cash receipts, net of cash payments made, in connection with the Company’s Commercialization Agreement with Collegium.

17