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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 JUNE 30, 2021
 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
 ASRTNasdaq Stock Market

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 July 30, 2021 was 44,494,051.



ASSERTIO HOLDINGS, INC.
FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2021
TABLE OF CONTENTS
Item 1. 
Item 2. 
Item 3. 
Item 4. 
Item 1. 
Item 1A. 
Item 2.
Item 6. 
2

Table of Content

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ASSERTIO HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
 June 30, 2021December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$54,428 $20,786 
Accounts receivable, net45,468 44,350 
Inventories, net6,617 11,712 
Prepaid and other current assets12,835 17,406 
Total current assets119,348 94,254 
Property and equipment, net1,915 2,437 
Intangible assets, net186,318 200,082 
Other long-term assets4,435 6,501 
Total assets$312,016 $303,274 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$16,483 $14,808 
Accrued rebates, returns and discounts45,108 63,114 
Accrued liabilities22,867 27,071 
Current portion of long-term debt12,222 11,942 
Contingent consideration, current portion6,850 6,776 
Interest payable1,743 1,793 
Other current liabilities11,641 7,182 
Total current liabilities116,914 132,686 
Long-term debt66,751 72,160 
Contingent consideration30,809 31,776 
Other long-term liabilities5,277 11,138 
Total liabilities219,751 247,760 
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.0001 par value, 200,000,000 shares authorized; 44,494,051
 and 28,392,149 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
4 3 
Additional paid-in capital529,831 483,456 
Accumulated deficit(437,570)(427,945)
Total shareholders’ equity92,265 55,514 
Total liabilities and shareholders' equity$312,016 $303,274 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

Table of Content
ASSERTIO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share data)
(Unaudited)
 
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Revenues:
Product sales, net$24,831 $20,165 $51,238 $29,417 
Commercialization agreement, net   11,258 
Royalties and milestones542 452 975 859 
Total revenues25,373 20,617 52,213 41,534 
Costs and expenses:
Cost of sales3,921 5,238 7,886 6,637 
Research and development expenses 1,626  2,667 
Selling, general and administrative expenses26,235 28,131 33,966 55,445 
Amortization of intangible assets7,218 4,855 13,764 12,650 
Restructuring charges 6,519 1,089 6,519 
Total costs and expenses37,374 46,369 56,705 83,918 
Loss from operations(12,001)(25,752)(4,492)(42,384)
Other (expense) income :
Interest expense(2,605)(1,604)(5,288)(10,278)
Other gain (loss), net137 (499)403 (3,824)
(Loss) Gain on sale of Gralise  (850) 126,655 
Loss on extinguishment of convertible notes (16,272) (47,880)
 Gain (Loss) on sale of NUCYNTA 1,006  (14,749)
Loss on debt extinguishment   (8,233)
Total other (expense) income(2,468)(18,219)(4,885)41,691 
Net loss before income taxes(14,469)(43,971)(9,377)(693)
Income tax benefit (expense)300 9,472 (248)7,424 
Net (loss) income and Comprehensive (loss) income$(14,169)$(34,499)$(9,625)$6,731 
Basic net (loss) income per share$(0.32)$(1.40)$(0.23)$0.30 
Diluted net (loss) income per share$(0.32)$(1.40)$(0.23)$0.30 
Shares used in computing basic net (loss) income per share44,706 24,640 41,321 22,459 
Shares used in computing diluted net (loss) income per share44,706 24,640 41,321 22,559 
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ASSERTIO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(Unaudited)
Common StockAdditional
Paid-In
Capital*
Accumulated
Earnings
(Deficit)
Shareholders’
Equity
Shares*Amount*
Balances at December 31, 202028,392 $3 $483,456 $(427,945)$55,514 
Issuance of common stock upon exercise of options73 — — — — 
Issuance of common stock in connection with stock offerings14,400 1 44,860 — 44,861 
Issuance of common stock in conjunction with vesting of restricted stock units211 — — — — 
Issuance of common stock in conjunction with vesting of performance stock units13 — — — — 
Issuance of common stock upon exercise of warrant347 — — — — 
Stock-based compensation— — 772 — 772 
Shares withheld for payment of employee's withholding tax liability— — (388)— (388)
Net income and comprehensive income — — — 4,544 4,544 
Balances at March 31, 202143,436$4 $528,700 $(423,401)$105,303 
Issuance of common stock upon exercise of options— — 193 — 193 
Issuance of common stock under employee stock purchase plan4 — — — — 
Issuance of common stock in conjunction with vesting of restricted stock units227 — — — — 
Issuance of common stock upon exercise of warrant845 — — — — 
Stock split fractional shares settlement(18)— — — 
Stock-based compensation— — 957 — 957 
Shares withheld for payment of employee's withholding tax liability— — (19)— (19)
Net loss and comprehensive loss— — — (14,169)(14,169)
Balances at June 30, 202144,494$4 $529,831 $(437,570)$92,265 
Balances at December 31, 201920,222 $2 $457,757 $(399,801)$57,958 
Issuance of common stock in conjunction with vesting of restricted stock units109 — — — — 
Reacquisition of equity component of 2021 Notes and 2024 Notes— — (16,814)— (16,814)
Stock-based compensation— — 1,934 — 1,934 
Shares withheld for payment of employee's withholding tax liability— — (271)— (271)
Net income and comprehensive income— — — 41,230 41,230 
Balances at March 31, 202020,331 $2 $442,606 $(358,571)$84,037 
Issuance of common stock under employee stock purchase plan19 — 49 — 49 
Issuance of common stock in conjunction with vesting of restricted stock units54 — — — — 
Issuance of common stock in connection with the Zyla Merger6,370 122,930 — 22,931 
Issuance of warrants and stock options in conjunction with the Zyla Merger— — 11,626 — 11,626 
Reacquisition of equity component of 2021 Notes and 2024 Notes— — (2,718)— (2,718)
Stock-based compensation— — 3,593 — 3,593 
Shares withheld for payment of employee's withholding tax liability— — (41)— (41)
Net loss and comprehensive loss— — — (34,499)(34,499)
Balances at June 30, 202026,774 $3 $478,045 $(393,070)$84,978 

(*) Adjusted to reflect the 1-for-4 reverse stock split effected on May 18, 2021.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ASSERTIO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 Six Months Ended June 30,
 20212020
Operating Activities  
Net (loss) income$(9,625)$6,731 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Gain on sale of Gralise (126,655)
Loss on sale of NUCYNTA 14,749 
Loss on extinguishment of Convertible Notes 47,880 
Loss on prepayment of Senior Notes 8,233 
Depreciation and amortization14,286 13,319 
     Amortization of debt discount, debt issuance costs and royalty rights118 5,511 
Recurring fair value measurement of assets and liabilities1,602 3,629 
Stock-based compensation1,729 5,527 
Provision for inventory and other assets140 1,808 
Other (9)
Changes in assets and liabilities, net of acquisition:
Accounts receivable(1,118)29,414 
Inventories4,955 512 
Prepaid and other assets6,640 4,810 
Accounts payable and other accrued liabilities(3,933)(13,337)
Accrued rebates, returns and discounts(18,006)(39,757)
Interest payable(50)(7,524)
Net cash used in operating activities(3,262)(45,159)
Investing Activities
Purchases of property and equipment (9)
Cash acquired in Zyla Merger 7,585 
Proceeds from sale of NUCYNTA 368,965 
Proceeds from sale of Gralise 130,261 
Proceeds from sale of investments 6,000 
Net cash provided by investing activities 512,802 
Financing Activities
Payments in connection with convertible notes extinguishment (264,731)
Payment in connection with Series A-1 and A-2 debt(4,750) 
Payment of contingent consideration(2,495) 
Payments in connection with Senior Notes settlement (171,775)
Payments on Revolver (10,000)
Payments on Promissory Note (3,000)
Payment of Royalty Rights(498) 
Proceeds from issuance of common stock44,861  
Proceeds from exercise of stock options193  
Shares withheld for payment of employee's withholding tax liability(407)(841)
Net cash provided by (used in) financing activities36,904 (450,347)
Net increase in cash and cash equivalents33,642 17,296 
Cash and cash equivalents at beginning of year20,786 42,107 
Cash and cash equivalents at end of period$54,428 $59,403 
Supplemental Disclosure of Cash Flow Information
Net cash paid for income taxes$ $396 
Cash paid for interest$5,216 $11,213 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ASSERTIO HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 
NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation

The unaudited condensed consolidated financial statements of Assertio Holdings, Inc. (the Company or Assertio) 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 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. Certain amounts in prior periods have been reclassified to conform with current period presentation. The results for the three and six months ended June 30, 2021 are not necessarily indicative of results to be expected for the entire year ending December 31, 2021 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, 2020 included in Assertio Holdings, Inc.’s Annual Report on Form 10-K filed with the SEC on March 12, 2021 (the 2020 Form 10-K). The Condensed Consolidated Balance Sheet as of December 31, 2020 has been derived from the audited financial statements at that date, as filed in the Company’s 2020 Form 10-K. The Company’s significant one-time 2020 transactions such as the sale of the NUCYNTA franchise, sale of Gralise, repayment of its debt obligations, and merger with Zyla Life Sciences are discussed in the 2020 Form 10-K and have not been duplicated in the accompanying unaudited condensed consolidated financial statements and related financial information.

Stock Split

On May 18, 2021, the Company effected a 1-for-4 reverse stock split of its issued and outstanding common stock. The par value of the common stock was not adjusted as a result of the reverse stock split. All common stock share and per-share data included in these financial statements have been retrospectively adjusted to reflect the effect of the reverse stock split for all periods presented.

Impact of COVID-19 on our Business

    Following the outbreak of COVID-19 during early 2020, the Company’s priority was and remains the health and safety of its employees, their families, and the patients it serves. As a result, in March 2020, the Company initiated remote working arrangements and maintained flexible work arrangements for individuals, which continued through the remainder of 2020 and into 2021. In addition to the health and safety of its employees, the Company is focused on ensuring that it continues making its products accessible to the patients who need them. Because COVID-19 impacted the Company’s ability to see in-person providers who prescribe its products, the Company adapted its approach during 2020 and increased its virtual visits. Additionally, due to the limitations on elective surgeries and changes in patient behavior since the outbreak of COVID-19, the Company has experienced a decline and subsequent volatility in prescriptions associated with those elective procedures. The extent to which the Company’s operations may continue to be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak, actions by government authorities to contain the outbreak or treat its impact, the emergence of new COVID-19 variants and the related potential for new surges in infections, and the distribution, public acceptance and efficacy of COVID-19 vaccines including for emerging variants.


NOTE 2. REVENUE
 
Disaggregated Revenue
 
The following table reflects summary revenue, net for the three and six months ended June 30, 2021 and 2020 (in thousands): 
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Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Product sales, net:
INDOCIN products (1)
$13,075 $5,434 $27,673 $5,434
CAMBIA6,128 7,780 12,590 14,054
Zipsor2,581 3,535 4,803 5,866
SPRIX (1)
2,942 1,602 4,639 1,602
Other105 1,814 1,533 2,461
Total product sales, net24,831 20,165 51,238 29,417
Commercialization agreement revenue, net   11,258
Royalties and milestone revenue542 452 975 859
Total revenues$25,373 $20,617 $52,213 $41,534
(1)Products acquired in connection with the May 20, 2020 Zyla Merger.
Product Sales, net:

For the three and six months ended June 30, 2021, product sales primarily consisted of sales from INDOCIN Products, CAMBIA, Zipsor and SPRIX. The Company began shipping and recognizing product sales for INDOCIN Products and SPRIX upon the Zyla Merger on May 20, 2020.
Other product sales includes product sales adjustments for previously divested products, including Gralise, which was divested in January 2020; and product sales for non-promoted products (OXAYDO and SOLUMATRIX) which were acquired from Zyla in May 2020.
The Company records contract liabilities in the form of deferred revenue resulting from prepayments from customers. The Company recorded contract liabilities of $0.3 million in the three months ended June 30, 2021 which are included in Other Current Liabilities on the Condensed Consolidated Balance Sheet.

Pro Forma Information

Supplemental unaudited proforma information is based upon accounting estimates and judgments that the Company believes are reasonable. This supplemental unaudited pro forma financial information has been prepared for comparative purposes only, and is not necessarily indicative of what actual results would have occurred, or of results that may occur in the future. The pro forma consolidated product sales, net for the three and six months ended June 30, 2020, as if the acquisition of Zyla had occurred on January 1, 2020, was $28.2 million and $56.5 million, respectively.

Commercialization Agreement Revenue, net
 
The Company ceased recognizing commercialization revenue and related costs for NUCYNTA effective with the closing of the transaction to sell its rights, title and interest in and to the NUCYNTA franchise to Collegium on February 13, 2020. In connection with the sale, the Commercialization Agreement terminated at closing with certain specified provisions of the Commercialization Agreement surviving in accordance with the terms of the purchase agreement. During the six months ended June 30, 2020, the Company recognized net revenue from the Commercialization Agreement of $11.3 million. This included variable royalty revenue of $13.1 million offset by the amortization of the $1.8 million net contract asset in connection with the termination of the Commercialization Agreement.

Royalties and Milestone Revenue

In November 2010, the Company entered into a license agreement with Tribute Pharmaceuticals Canada Ltd. (now known as Nuvo Pharmaceuticals, Inc.) granting them the rights to commercially market CAMBIA in Canada. Nuvo independently contracts with manufacturers to produce a specific CAMBIA formulation in Canada. 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 $1.0 million for the three and six months ended June 30, 2021, respectively, and $0.5 million and $0.9 million for the three and six months ended June 30, 2020, respectively.
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NOTE 3. ACCOUNTS RECEIVABLES, NET
 
The following table reflects accounts receivables, net, as of June 30, 2021 and December 31, 2020 (in thousands): 
 June 30,
2021
December 31, 2020
Receivables related to product sales, net$45,368 $40,784 
Receivables from Collegium 3,566 
Other100  
Total accounts receivable, net$45,468 $44,350 

As of June 30, 2021 and December 31, 2020, allowances for cash discounts for prompt payment were $0.9 million and $1.3 million, respectively.

NOTE 4.  INVENTORIES, NET
 
The following table reflects the components of inventory, net as of June 30, 2021 and December 31, 2020 (in thousands): 
 June 30,
2021
December 31, 2020
Raw materials$884 $1,136 
Work-in-process252 1,340 
Finished goods5,481 9,236 
Total$6,617 $11,712 
    
As of June 30, 2021 and December 31, 2020, inventory reserves were $2.5 million and $2.3 million, respectively.



NOTE 5. PROPERTY AND EQUIPMENT, NET
 
The following table reflects property and equipment, net as of June 30, 2021 and December 31, 2020 (in thousands): 

June 30,
2021
December 31, 2020
Furniture and office equipment$2,680 $2,680 
Laboratory equipment20 20 
Leasehold improvements10,523 10,523 
13,223 13,223 
Less: Accumulated depreciation and amortization(11,308)(10,786)
Property and equipment, net$1,915 $2,437 
 
Depreciation expense was $0.3 million and $0.5 million for the three and six months ended June 30, 2021, respectively, and $0.4 million and $0.7 million for the three and six months ended June 30, 2020, respectively. Depreciation expense is recognized in Selling, general and administrative expense in the Company’s Condensed Consolidated Statements of Comprehensive Income.
    

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NOTE 6.  INTANGIBLE ASSETS
 
The following table reflects the gross carrying amounts and net book values of intangible assets as of June 30, 2021 and December 31, 2020 (dollar amounts in thousands): 

 June 30, 2021December 31, 2020
Remaining Useful Life
 (In years)
Gross Carrying AmountAccumulated AmortizationNet Book ValueGross Carrying AmountAccumulated AmortizationNet Book Value
Products rights:
INDOCIN10.9$154,100 $(14,233)$139,867 $154,100 $(7,812)$146,288 
SPRIX5.939,000 (6,175)32,825 39,000 (3,389)35,611 
CAMBIA1.551,360 (39,435)11,925 51,360 (36,163)15,197 
Zipsor
Less than 1 year
27,250 (25,550)1,700 27,250 (24,381)2,869 
Oxaydo300 (300) 300 (183)117 
Total Intangible Assets$272,010 $(85,692)$186,318 $272,010 $(71,928)$200,082 

Amortization expense was $7.2 million and $13.8 million for the three and six months ended June 30, 2021, respectively, and $4.9 million and $12.7 million for the three and six months ended June 30, 2020, respectively.

The following table reflects future amortization expense the Company expects for its intangible assets (in thousands): 
Year Ending December 31,Estimated Amortization Expense
2021 (remainder)$14,351 
202226,895 
202318,412 
202418,413 
202518,413 
Thereafter89,834 
Total$186,318 

NOTE 7.  OTHER LONG-TERM ASSETS
 
The following table reflects other long-term assets as of June 30, 2021 and December 31, 2020 (in thousands): 

 June 30,
2021
December 31, 2020
Investment, net$1,579 $1,579 
Operating lease right-of-use assets1,054 1,955 
Deposits952 1,936 
Other 850 1,031 
Total other long-term assets$4,435 $6,501 

Investment consists of the Company’s $3.5 million investment in a company engaged in medical research. This investment is structured as a long-term loan receivable with a convertible feature and is valued at amortized cost. As a result of the Company’s adoption of ASU 2016-13 Financial Instruments-Credit Losses (ASU 2016-13 or Topic 326): Measurement of Credit Losses on Financial Instruments on January 1, 2020, the Company estimated an expected credit loss of approximately $1.9 million on its investment, which was recognized in Other (expense) income in the Company’s Condensed Consolidated Statement of Comprehensive Income in the first quarter of 2020. To calculate the expected credit loss allowance, the Company utilized a probability-of-default method (PDM). This process estimates the probability of the loan being successfully paid back
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or converted into equity based on the ability of the investee to obtain FDA acceptance of its research. The Company’s expected credit losses can vary from period to period based on several factors, such as progress of the medical research and FDA submission, and overall economic environment and the ability of the investee to fund its operations. As of June 30, 2021, the Company continues to assess an estimated $1.9 million expected credit loss on its investment based on evaluation of probability of default that exist.


NOTE 8.  ACCRUED LIABILITIES
 
The following table reflects accrued liabilities as of June 30, 2021 and December 31, 2020 (in thousands): 

 June 30,
2021
December 31, 2020
Accrued compensation$2,122 $5,498 
Accrued restructuring costs2,197 8,744 
Other accrued liabilities18,548 12,829 
Total accrued liabilities$22,867 $27,071 
 

NOTE 9.  DEBT
 
The following table reflects the Company’s debt as of June 30, 2021 and December 31, 2020 (in thousands):

June 30, 2021December 31, 2020
13% Senior Secured Notes due 2024
$75,500 $80,250 
Royalty rights obligation3,138 3,533 
2.50% Convertible Notes due 2021
335 335 
Total principal amount78,973 84,118 
Unamortized debt discounts (16)
Carrying value78,973 84,102 
Less: current portion of long-term debt(12,222)(11,942)
Net, long-term debt$66,751 $72,160 


13% Senior Secured Notes due 2024

In accordance with the Zyla Merger, Assertio assumed $95.0 million aggregate principal amount of 13% senior secured notes due 2024 (the Secured Notes) issued pursuant to an indenture (the Existing Indenture) entered into on January 31, 2019, by and among Zyla Life Sciences, the guarantors party thereto (the Guarantors) and Wilmington Savings Fund Society, FSB (as successor to U.S. Bank National Association), as trustee and collateral agent (the Trustee). The Secured Notes were issued in two series: $50.0 million of Series A-1 Notes and $45.0 million of Series A-2 Notes.

As of May 20, 2020, the Existing Indenture was modified by a Supplemental Indenture (the Supplemental Indenture and the Existing Indenture, as so modified, the Indenture), pursuant to which Assertio (the Issuer) assumed the obligations as issuer of the Secured Notes and the subsidiaries of Assertio became guarantors of the Secured Notes. The Supplemental Indenture, among other things, provides for certain amendments to the restrictive covenants in the Indenture.

Interest on the Secured Notes accrues at a rate of 13% per annum and is payable semi-annually in arrears on May 1 and November 1 of each year (each, a Payment Date). The Existing Indenture also requires payments of outstanding principal on the Secured Notes equal to 10% per annum of the issued principal amount, payable semi-annually on each Payment Date.

The Secured Notes are senior secured obligations of the Issuer and are secured by a lien on substantially all assets of the Issuer and the guarantors. The stated maturity date of the Secured Notes is January 31, 2024. Upon the occurrence of a Change
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of Control, subject to certain conditions (as defined in the Existing Indenture), holders of the Secured Notes may require the Issuer to repurchase for cash all or part of their Secured Notes at a repurchase price equal to 100% of the principal amount of the Secured Notes to be repurchased, plus accrued and unpaid interest to the date of repurchase.

The Company may redeem the Secured Notes at its option, in whole or in part from time to time, at a redemption price equal to 100% of the principal amount of the Secured Notes being redeemed, plus accrued and unpaid interest, if any, through the redemption date. No sinking fund is provided for the Secured Notes.

Pursuant to the Supplemental Indenture, Assertio and its restricted subsidiaries must also comply with certain covenants, including limitations on the issuance of debt; the issuance of preferred and/or disqualified stock; the payment of dividends and other restricted payments; the prepayment, redemption or repurchase of subordinated debt; mergers, amalgamations or consolidations; engaging in certain transactions with affiliates; and the making of investments. In addition, the Issuer must maintain a minimum level of consolidated liquidity, based on unrestricted cash on hand and availability under any revolving credit facility, equal to the greater of (1) the quotient of the outstanding principal amount of the Secured Notes divided by 9.5 and (2) $7.5 million. The Company was in compliance with its covenants with respect to the Secured Notes as of June 30, 2021.

The Company had Senior Secured Notes obligations of $75.5 million as of June 30, 2021, with $9.5 million classified as current and $66.0 million classified as non-current debt in the Company’s Condensed Consolidated Balance Sheets.

Royalty Rights Obligation

In accordance with the Zyla Merger, the Company assumed a royalty rights agreements (the Royalty Rights) with each of the holders of its Secured Notes pursuant to which the Company will pay the holders of the Secured Notes an aggregate 1.5% royalty on Net Sales (as defined in the Existing Indenture) through December 31, 2022. The Royalty Rights were determined to be a freestanding element with respect to the Secured Notes and the Company is accounting for the Royalty Rights obligation relating to future royalties as a debt instrument.

The Company has Royalty Rights obligations of $3.1 million as of June 30, 2021, with $2.4 million classified as current and $0.7 million classified as non-current debt in the Company’s Condensed Consolidated Balance Sheets.

The accounting for the Royalty Rights requires the Company to make certain estimates and assumptions about the future net sales. The estimates of the magnitude and timing of net sales are subject to significant variability due to the extended time period associated with the financing transaction and are thus subject to significant uncertainty.
    
Convertible Notes

2.50% Convertible Senior Notes Due 2021
 
On September 9, 2014, the Company issued $345.0 million aggregate principal amount of 2.50% Convertible Senior Notes Due 2021 (the 2021 Notes). The 2021 Notes were issued pursuant to an indenture, as supplemented by a supplemental indenture dated September 9, 2014, between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee), and mature on September 1, 2021, unless earlier converted, redeemed, or repurchased. The 2021 Notes bear interest at the rate of 2.50% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning March 1, 2015.

On February 19, 2020, the Company entered into purchase agreements with a limited number of holders of the Company’s outstanding 2021 Notes to repurchase $102.5 million aggregate principal amount of 2021 Notes. On April 8, 2020, the Company completed its public tender offers to purchase the $42.1 million in aggregate principal amount outstanding 2021 Notes. As of December 31, 2020 and June 30, 2021, only $0.3 million in aggregate principal amount of the 2021 Notes were outstanding and were classified as part of current portion of long-term debt on the Company’s Condensed Consolidated Balance Sheets.
 
On or after March 1, 2021 to the close of business on the second scheduled trading day immediately preceding the maturity date, the holders of the 2021 Convertible Notes may convert all or any portion of their notes, in multiples of 1,000 principal amount, at the option of the holder. The initial conversion rate of 12.9963 shares of common stock per 1,000 principal amount of Convertible Notes is equivalent to a conversion price of approximately $76.96 per share of common stock. Upon conversion, the Company will pay or deliver, as appropriate, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. If the conversion obligation is satisfied solely in
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cash or through payment and delivery of a combination of cash and shares, the amount of cash and shares, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 40 trading day observation period. As of June 30, 2021, none of the remaining 2021 Notes had been converted.

5.00% Convertible Senior Notes Due 2024

On August 13, 2019, the Company issued $120.0 million aggregate principal of Convertible Senior Notes Due
2024 (the 2024 Notes). On February 19, 2020, the Company entered into purchase agreements with a limited number of holders of the Company’s outstanding 2024 Notes to repurchase $85.5 million aggregate principal amount of 2024 Notes. On April 8, 2020, the Company completed its public tender offers to purchase the remaining $34.5 million in aggregate principal amount outstanding 2024 Notes. As of December 31, 2020 there were no outstanding aggregate principal amount of the 2024 Notes.

Senior Secured Notes

On April 2, 2015, the Company issued $575 million aggregate principal amount of senior secured notes pursuant to a Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement). On February 13, 2020, the Company repaid in full all outstanding indebtedness, and terminated all commitments and obligations, under its Note Purchase Agreement.

Interest Expense

Debt discount and royalty rights are amortized as interest expense using the effective interest method. The following table reflects debt related interest included in the Interest expense in the Company’s Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Stated coupon interest$2,557 $1,476 $5,170 $4,778 
Amortization of debt discount, and royalty rights48 125 1185,511
Total interest expense $2,605$1,601$5,288$10,289


NOTE 10.  STOCK-BASED COMPENSATION
    
The Company’s stock-based compensation generally includes stock options, restricted stock units (RSUs), performance share units (PSUs), and purchases under the Company’s employee stock purchase program (ESPP).

The following table reflects stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Comprehensive Income for the three and six months June 30, 2021 and 2020 (in thousands).

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Cost of sales$$18 $ $41 
Research and development expense80  243 
Selling, general and administrative expense9572,496 1,729 4,244 
Restructuring charges999  999 
Total$957$3,593 $1,729 5,527 

During the six months ended June 30, 2021 the Company granted 1.7 million RSUs at an average fair market value of $3.54 per share.


NOTE 11.  LEASES

As of June 30, 2021, the Company has non-cancelable operating leases for its offices and certain office equipment. The Company has the right to renew the term of the Lake Forest lease for one period of five years, provided that written notice
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is made to the Landlord no later than twelve months prior to the expiration of the initial term of the lease which is on December 31, 2023. In connection with the Zyla Merger, the Company assumed an operating lease for offices in Wayne, Pennsylvania. The Wayne, Pennsylvania office lease terminates in 2022 and will not be renewed. The Company relocated its corporate headquarters from Newark, California to Lake Forest, Illinois in 2018 and subsequently entered into two subleases which,
together, account for the entirety of the Newark facility. Operating lease costs and sublease income related to the Newark facility are accounted for in Other gain (loss) in the Condensed Consolidated Statements of Comprehensive Income.

The following table reflects lease expense for the three and six months ended June 30, 2021 and 2020 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
Financial Statement Classification2021202020212020
Operating lease costSelling, general and administrative expenses$91 $216 $202 $373 
Operating lease costOther gain (loss), net148 147 295 295 
Total lease cost$239 $363 $497 $668 
Sublease IncomeOther gain (loss), net$347 $346 $693 $693 
The following table reflects supplemental cash flow information related to leases for the three and six ended June 30, 2021 and 2020 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Cash paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases697 606 1,462 1,224 
The following table reflects supplemental balance sheet information related to leases as of June 30, 2021 and December 31, 2020 (in thousands):
Financial Statement ClassificationJune 30,
2021
December 31,
2020
Liabilities
Current operating lease liabilitiesOther current liabilities$2,340 $2,683 
Noncurrent operating lease liabilitiesOther long-term liabilities1,290 2,815 
Total lease liabilities$3,630 $5,498 


NOTE 12.  COMMITMENTS AND CONTINGENCIES

Jubilant HollisterStier Manufacturing and Supply Agreement

Pursuant to the Zyla Merger, the Company assumed a Manufacturing and Supply Agreement (the “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 Agreement, JHS will be responsible for supplying a minimum of 75% of the Company’s annual requirements of SPRIX through July 30, 2022. The Company has agreed to purchase a minimum number of batches of SPRIX per calendar year from JHS over the term of the Agreement. Total commitments to JHS are approximately $1.8 million through the period ending July 30, 2022 and are expected to be met.

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 “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 Supply Agreement, to among other things, extend the expiration date of the 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
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requirements each calendar year during the extended term of the agreement. Total commitments to Cosette are approximately $6.3 million annually through the end of the contract term.

Legal Matters
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 our involvement in legal proceedings are expensed as incurred. Based upon the status of the cases described below, management’s assessments of the likelihood of damages, and the advice of counsel, the Company recognized a loss contingency provision of $11.3 million in the three and six months ended June 30, 2021. Amounts accrued for legal contingencies are based on management’s best estimate of a loss 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. The Company will continue to monitor each matter and adjust accruals as might be 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. Legal expenses are recorded in Selling, general and administrative expense in the Company’s Condensed Consolidated Statements of Comprehensive Income and the related accruals are recorded in Accrued Liabilities in the Company’s Condensed Consolidated Balance Sheets.

Other than matters that we have 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 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 have been filed in the Northern District of California against the Company and several other defendants relating to our former drug Glumetza®. The named class representatives in the currently pending actions include Meijer, Inc., Bi-Lo, LLC, Winn-Dixie Logistics, Inc., City of Providence, and KPH Healthcare Services, Inc. These class representatives seek 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., have filed substantially similar direct antitrust claims based on alleged assignments of claims from direct purchaser wholesalers. On December 23, 2019, the Company filed a motion to dismiss all claims in the actions. That motion was heard by the District Court on February 20, 2020. On March 5, 2020 the District Court issued an order denying the motion to dismiss. However, based on the order on the motion, claims previously filed by a putative class of end payor plaintiffs were voluntarily dismissed.

On July 30, 2020, Humana Inc. also filed a complaint against the Company in the Northern District of California alleging similar claims related to Glumetza®. On February 2, 2021, the District Court dismissed Humana’s state-law antitrust claims, but permitted Humana to proceed on its federal claims. On February 8, 2021, Humana refiled those state-law claims against the Company and several other defendants in the Superior Court for the State of California in the County of Alameda.

These antitrust cases arise out of a Settlement and License Agreement (the Settlement) that the Company, Santarus, Inc. (Santarus) and Lupin Limited (Lupin) entered into in February 2012 that resolved patent infringement litigation filed by the Company against Lupin regarding Lupin’s Abbreviated New Drug Application for generic 500 mg and 1000 mg tablets of Glumetza. The antitrust plaintiffs allege, among other things, that the Settlement violated the antitrust laws because it allegedly included a “reverse payment” that caused Lupin to delay its entry in the market with a generic version of Glumetza. The alleged “reverse payment” is an alleged commitment on the part of the settling parties not to launch an authorized generic version of Glumetza for a certain period. The antitrust plaintiffs allege that the Company and its co-defendants, which include Lupin as well as Bausch Health (the alleged successor in interest to Santarus) are liable for damages under the antitrust laws for overcharges that the antitrust plaintiffs allege they paid when they purchased the branded version of Glumetza® due to delayed generic entry. Plaintiffs seek treble damages for alleged past harm, attorneys’ fees and costs.
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In the federal litigation, fact and expert discovery have now closed, and the court heard summary judgment arguments on April 22, 2021. On May 6, 2021, the court denied all motions for summary judgment. The federal court granted class certification in the direct purchaser action on August 15, 2020. In the event that the federal case proceeds to trial, that trial is expected to occur on or about October 2021. With respect to the newly-filed Humana case in California state court, the Company and other defendants filed a motion to dismiss all claims in the action on April 16, 2021. The Company intends to defend itself vigorously in these matters. A liability for this matter has been recorded in the financial statements.

Securities Class Action Lawsuit and Related Matters

On August 23, 2017, the Company, two individuals who formerly served as its chief executive officer and president, and its former chief financial officer were named as defendants in a purported federal securities law class action filed in the U.S. District Court for the Northern District of California (the District Court). The action (Huang v. Depomed et al., No. 4:17-cv-4830-JST, N.D. Cal.) alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 relating to certain prior disclosures of the Company about its business, compliance, and operational policies and practices concerning the sales and marketing of its opioid products and contends that the conduct supporting the alleged violations affected the value of Company common stock and is seeking damages and other relief. In an amended complaint filed on February 6, 2018, the lead plaintiff (referred to in its pleadings as the Depomed Investor Group), which seeks to represent a class consisting of all purchasers of Company common stock between July 29, 2015 and August 7, 2017, asserted the same claims arising out of the same and similar disclosures against the Company and the same individuals as were involved in the original complaint. The Company and the individuals filed a motion to dismiss the amended complaint on April 9, 2018. On March 18, 2019, the District Court granted the motion to dismiss without prejudice, and the plaintiffs filed a second amended complaint on May 2, 2019. The second amended complaint asserted the same claims arising out of the same and similar disclosures against the Company and the same individuals as were involved in the original complaint. The Company and the individuals filed a motion to dismiss the second amended complaint on June 17, 2019, and the District Court granted that motion with prejudice on March 11, 2020. On April 9, 2020, the plaintiffs filed a notice of appeal with the United States Court of Appeals for the Ninth Circuit. The parties completed their briefing of the appeal on December 14, 2020. On March 1, 2021, the court granted the parties’ joint motion to stay the appeal pending settlement discussions. On July 30, 2021, the Company reached an agreement to settle the matter subject to District Court approval. The parties are in the process of seeking preliminary District Court approval.

In addition, five shareholder derivative actions were filed on behalf of the Company against its officers and directors for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and violations of the federal securities laws. The claims arise out of the same factual allegations as the purported federal securities class action described above. The first derivative action was filed in the Superior Court of California, Alameda County on September 29, 2017 (Singh v. Higgins et al., RG17877280). The second and third actions were filed in the Northern District of California on November 10, 2017 (Solak v. Higgins et al., No. 3:17-cv-6546-JST) and November 15, 2017 (Ross v. Fogarty et al., No. 3:17-cv-6592- JST). The fourth action was filed in the District of Delaware on December 21, 2018 (Lutz v. Higgins et al, No. 18-2044-CFC). The fifth derivative action was filed in the Superior Court of California, Alameda County on January 28, 2019 (Youse v. Higgins et al, No. HG19004409). On December 7, 2017, the plaintiffs in Solak v. Higgins, et al. voluntarily dismissed the action. On July 12, 2019, the Singh and Youse actions were consolidated. All of the derivative actions were stayed pending the resolution of the class action, and the stays have been extended pending the resolution of the appeal. On July 30, 2021, the Company reached an agreement to settle these matters subject to court approval. The parties are in the process of seeking preliminary court approval. A liability for these matters and the securities law class action described in the preceding paragraph 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, the Company’s subsidiary Assertio Therapeutics, Inc. (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
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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 also from time to time receives and complies with subpoenas from governmental authorities related to investigations primarily focused on third parties, including healthcare practitioners. Assertio Therapeutics is cooperating with the foregoing governmental investigations and inquiries.

Multidistrict Opioid Litigation
A number of pharmaceutical manufacturers, distributors and other industry participants have been named in numerous lawsuits around the country brought by various groups of plaintiffs, including city and county governments, hospitals, 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, as well as one additional federal lawsuit in the Eastern District of Kentucky. Plaintiffs may file additional lawsuits in which the Company may be named. Plaintiffs in the pending federal cases involving the Company 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. The Company intends to defend itself vigorously in these matters.

State Opioid Litigation

Related to the cases in the MDL Court noted above, there have been hundreds of similar lawsuits filed in state courts around the country, in which various groups of plaintiffs assert opioid-drug related claims against similar groups of defendants. Assertio Therapeutics is currently named in a subset of those cases, including cases in Missouri, Nevada, Pennsylvania, Texas and Utah. Plaintiffs may file additional lawsuits in which Assertio Therapeutics may be named. In the pending cases involving Assertio Therapeutics, 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 has been served are generally each at an early stage of proceedings. The Company intends to defend itself vigorously in these matters.
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Insurance Litigation

On January 15, 2019, the Company was named as a defendant in a declaratory judgment action filed by Navigators Specialty Insurance Company (Navigators) in the U.S. District Court for the Northern District of California (Case No. 3:19-cv-255). Navigators is the Company’s primary product liability insurer. Navigators w