Assertio (ASRT) - 2021 Q2 - Quarterly Report

Financial Overview This section provides a comprehensive overview of Assertio's financial performance, position, cash flows, and key asset and liability structures Financial Performance (Income Statement) Assertio reported increased Q2 2021 revenues of $25.4 million and a narrowed net loss, with six-month revenues growing to $52.2 million Financial Performance Summary | Financial Metric | Three Months Ended June 30, 2021 (in thousands) | Three Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $25,373 | $20,617 | $52,213 | $41,534 | | Loss from Operations | $(12,001) | $(25,752) | $(4,492) | $(42,384) | | Net (Loss) Income | $(14,169) | $(34,499) | $(9,625) | $6,731 | | Diluted Net (Loss) Income per Share | $(0.32) | $(1.40) | $(0.23) | $0.30 | Financial Position (Balance Sheet) As of June 30, 2021, Assertio's total assets were $312.0 million, with cash and cash equivalents significantly increasing to $54.4 million and total shareholders' equity improving to $92.3 million Balance Sheet Summary | Balance Sheet Item | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $54,428 | $20,786 | | Total current assets | $119,348 | $94,254 | | Intangible assets, net | $186,318 | $200,082 | | Total assets | $312,016 | $303,274 | | Total current liabilities | $116,914 | $132,686 | | Total liabilities | $219,751 | $247,760 | | Total shareholders' equity | $92,265 | $55,514 | Cash Flow Statement Net cash used in operating activities significantly improved to $(3.3) million in H1 2021, with financing activities providing $36.9 million, resulting in a $33.6 million net increase in cash Cash Flow Summary | Cash Flow Activity | Six Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,262) | $(45,159) | | Net cash provided by investing activities | $0 | $512,802 | | Net cash provided by (used in) financing activities | $36,904 | $(450,347) | | Net increase in cash and cash equivalents | $33,642 | $17,296 | Revenue Analysis Q2 2021 total revenue increased to $25.4 million driven by Zyla merger products, while H1 2021 total revenue reached $52.2 million with no NUCYNTA commercialization revenue Product Sales, Net | Product Sales, net | Three Months Ended June 30, 2021 (in thousands) | Three Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | INDOCIN products | $13,075 | $5,434 | $27,673 | $5,434 | | CAMBIA | $6,128 | $7,780 | $12,590 | $14,054 | | Zipsor | $2,581 | $3,535 | $4,803 | $5,866 | | SPRIX | $2,942 | $1,602 | $4,639 | $1,602 | | Total product sales, net | $24,831 | $20,165 | $51,238 | $29,417 | - The company began recognizing product sales for INDOCIN and SPRIX following the Zyla Merger on May 20, 2020, which is the primary driver for the year-over-year increase in product sales[27] - The company ceased recognizing commercialization revenue for NUCYNTA after its sale on February 13, 2020. In the first six months of 2020, this segment had generated $11.3 million in net revenue[29][121] Debt Structure Assertio's total debt principal decreased to $79.0 million as of June 30, 2021, primarily comprising $75.5 million in 13% Senior Secured Notes due 2024 Debt Components | Debt Component | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | | :--- | :--- | :--- | | 13% Senior Secured Notes due 2024 | $75,500 | $80,250 | | Royalty rights obligation | $3,138 | $3,533 | | 2.50% Convertible Notes due 2021 | $335 | $335 | | Total principal amount | $78,973 | $84,118 | - The 13% Senior Secured Notes require principal payments of 10% per annum, payable semi-annually, and are secured by a lien on substantially all assets of the company[49][50] - The company was in compliance with all debt covenants as of June 30, 2021, including a minimum liquidity requirement[52] Intangible Assets Net intangible assets decreased to $186.3 million as of June 30, 2021 due to amortization, with INDOCIN and SPRIX product rights being the largest components Intangible Assets Net Book Value | Intangible Asset (Net Book Value) | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | | :--- | :--- | :--- | | INDOCIN | $139,867 | $146,288 | | SPRIX | $32,825 | $35,611 | | CAMBIA | $11,925 | $15,197 | | Zipsor | $1,700 | $2,869 | | Total Intangible Assets | $186,318 | $200,082 | - Amortization expense increased to $7.2 million in Q2 2021 from $4.9 million in Q2 2020, primarily due to the timing of the Zyla Merger in May 2020, which added INDOCIN and SPRIX product rights[38][130] - The company expects to recognize $14.4 million in amortization expense for the remainder of 2021 and $26.9 million for the full year 2022[40] Management's Discussion and Analysis This section provides management's perspective on Assertio's financial condition, results of operations, and liquidity Company Overview and COVID-19 Impact Assertio is a commercial pharmaceutical company focused on neurology, hospital, and pain/inflammation products, adapting its commercial approach due to COVID-19 impacts on in-person visits and elective procedures - The company's commercial portfolio focuses on three areas: neurology, hospital, and pain and inflammation[112] - Primary marketed products are INDOCIN, CAMBIA, SPRIX, and Zipsor[113] - Due to COVID-19, the company adapted its commercial approach by increasing virtual visits and experienced prescription volatility due to limitations on elective surgeries[114][23] Results of Operations Analysis Q2 2021 revenue growth was driven by Zyla-acquired products, while cost of sales decreased due to non-recurring charges, and SG&A and R&D expenses were significantly reduced - Cost of sales in Q2 2021 decreased by $1.3 million year-over-year, mainly because a $2.4 million inventory step-up expense from the Zyla Merger in Q2 2020 was not repeated[124][125] - R&D expenses decreased to zero in Q2 and H1 2021, as the company completed all material research and development activities in 2020[126] - SG&A expenses for the six months ended June 30, 2021 decreased by $21.5 million, driven by the absence of 2020 one-time transaction costs, restructuring savings, and a $5.0 million insurance reimbursement for opioid-related expenses[127][86] - Other (expense) income changed significantly due to large one-time events in 2020, including the gain on sale of Gralise ($126.7 million), loss on sale of NUCYNTA ($(14.7) million), and loss on extinguishment of convertible notes ($(47.9) million), which did not recur in 2021[134][135] Liquidity and Capital Resources Assertio significantly improved liquidity in H1 2021 through $45.3 million in net proceeds from stock offerings, with management confident in sufficient cash for the next twelve months - In February 2021, the company completed two registered direct offerings, raising gross proceeds of approximately $14.0 million and $34.3 million, respectively[140] - Management believes that existing cash will be sufficient to fund operations for the next twelve months from the filing date[141] - Cash used in operating activities decreased to $3.3 million in H1 2021 from $45.2 million in H1 2020, driven by favorable working capital changes and lower non-cash adjustments[144] Legal and Risk Disclosures This section details Assertio's material legal proceedings, risk factors, and the effectiveness of its internal controls and procedures Legal Proceedings The company faces ongoing Glumetza antitrust and opioid litigation, recorded an $11.3 million loss contingency, and settled a securities class action lawsuit in July 2021 - A loss contingency provision of $11.3 million was recognized in the three and six months ended June 30, 2021[74] - In the Glumetza antitrust litigation, the court denied all motions for summary judgment, and a trial is expected around October 2021. A liability for this matter has been recorded[76][77] - The company reached an agreement to settle the securities class action lawsuit and related derivative actions on July 30, 2021. A liability has been recorded for these matters[78][79] - The company is named in multidistrict and state-level opioid litigation and intends to defend itself vigorously[82][83] Risk Factors No material changes to risk factors since the 2020 10-K, with key forward-looking risks including COVID-19 impacts, litigation outcomes, and commercial success - There have been no material changes to risk factors since the Annual Report on Form 10-K for the year ended December 31, 2020[153] - Key forward-looking risks include: COVID-19 impacts, success of restructuring plans, integration of the Zyla merger, commercial success of products, outcome of opioid and antitrust litigation, and ability to manage indebtedness[108] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2021, following the finalization of Zyla operations integration into internal controls - Management concluded that disclosure controls and procedures were effective as of the end of the quarter[149] - The integration of Zyla's operations into the company's internal control environment was finalized during the first quarter of 2021[151]