Assertio (ASRT) - 2022 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of comprehensive income, shareholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, acquisitions, revenue recognition, and other financial details for the periods ended March 31, 2022, and December 31, 2021 Condensed Consolidated Balance Sheets This table presents the company's financial position, detailing assets, liabilities, and shareholders' equity at specific reporting dates Condensed Consolidated Balance Sheets (in thousands): | ASSETS / LIABILITIES AND SHAREHOLDERS' EQUITY | March 31, 2022 | December 31, 2021 | | :-------------------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $61,389 | $36,810 | | Total current assets | $125,115 | $103,498 | | Total assets | $339,135 | $326,547 | | Total current liabilities | $138,527 | $135,019 | | Total liabilities | $227,273 | $224,133 | | Total shareholders' equity | $111,862 | $102,414 | Condensed Consolidated Statements of Comprehensive Income This table outlines the company's financial performance, including revenues, expenses, and net income over specified periods Condensed Consolidated Statements of Comprehensive Income (in thousands, except per share data): | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenues | $36,538 | $26,839 | | Total costs and expenses | $24,979 | $19,332 | | Income from operations | $11,559 | $7,507 | | Net income and Comprehensive income | $9,064 | $4,544 | | Basic net income per share | $0.20 | $0.12 | | Diluted net income per share | $0.20 | $0.12 | Condensed Consolidated Statements of Shareholders' Equity This section details changes in the company's equity, including common stock issuance, stock-based compensation, and net income Changes in Shareholders' Equity (in thousands): | Item | Balances at Dec 31, 2021 | Issuance of common stock (RSUs) | Stock-based compensation | Net income | Balances at Mar 31, 2022 | | :------------------------------------------------------------------------------------------------ | :----------------------- | :------------------------------ | :----------------------- | :--------- | :----------------------- | | Common Shares | 44,640 | 307 | — | — | 45,335 | | Additional Paid-In Capital | $531,636 | $(598) | $982 | — | $532,020 | | Accumulated Earnings (Deficit) | $(429,226) | — | — | $9,064 | $(420,162) | | Shareholders' Equity | $102,414 | $(598) | $982 | $9,064 | $111,862 | - The company's common stock and per-share data have been retrospectively adjusted to reflect a 1-for-4 reverse stock split effected on May 18, 2021[12] Condensed Consolidated Statements of Cash Flows This table summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (in thousands): | Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income | $9,064 | $4,544 | | Net cash provided by (used in) operating activities | $27,426 | $(4,226) | | Net cash used in investing activities | $(404) | $— | | Net cash (used in) provided by financing activities | $(2,443) | $44,473 | | Net increase in cash and cash equivalents | $24,579 | $40,247 | | Cash and cash equivalents at end of period | $61,389 | $61,033 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the significant accounting policies, acquisitions, revenue recognition, and other financial disclosures NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles and policies applied in preparing the condensed consolidated financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with SEC interim reporting requirements, with certain U.S. GAAP footnotes condensed or omitted[18] - All common stock share and per-share data have been retrospectively adjusted to reflect a 1-for-4 reverse stock split effected on May 18, 2021[20] - Product sales adjustments for previously divested products were reclassified from 'Product sales, net' to 'Other revenue' in Q3 2021, impacting prior period amounts for Q1 2021 by increasing Other revenue and decreasing Product sales by $0.4 million[21] - Fair value adjustments of contingent considerations were reclassified from 'Selling, general, and administrative expenses' to 'Fair value of contingent consideration' in Q1 2022, impacting prior period amounts for Q1 2021 by increasing SG&A and decreasing Fair value of contingent consideration by $0.6 million[22] - The COVID-19 pandemic led to a transformation of the company's commercial approach to a digital sales strategy and caused volatility in prescriptions associated with elective procedures[23][24] NOTE 2. ACQUISITIONS This note details the acquisition of Otrexup, including its purchase price allocation and accounting treatment - On December 15, 2021, Assertio acquired Otrexup from Antares Pharma, Inc. for a total purchase price of $45.499 million[25][26] Otrexup Acquisition Purchase Price (in thousands): | Item | Amount | | :--------------------------------------- | :------- | | Cash paid to Antares at closing | $18,000 | | Deferred cash payment due in May and Dec 2022 | $26,021 | | Transaction costs | $1,478 | | Total purchase price of assets acquired | $45,499 | Fair Value of Assets Acquired in Otrexup Acquisition (in thousands): | Asset | Fair Value | | :------------------------------------- | :--------- | | Inventories | $1,413 | | Intangible assets (Otrexup product rights) | $44,086 | | Total assets acquired | $45,499 | - The acquisition was accounted for as an asset acquisition, with Otrexup product rights amortized over an 8-year period[26][28] NOTE 3. REVENUE This note provides a breakdown of total revenues by type and product, highlighting changes and key drivers Total Revenues (in thousands): | Revenue Type | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Product sales, net | $35,546 | $26,027 | | Royalties and milestone revenue | $992 | $434 | | Other revenue | $— | $378 | | Total revenues | $36,538 | $26,839 | Product Sales, Net by Product (in thousands): | Product | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------- | :-------------------------------- | :-------------------------------- | | INDOCIN products | $21,357 | $14,597 | | CAMBIA | $5,473 | $6,462 | | Otrexup | $3,078 | $— | | Zipsor | $2,228 | $2,222 | | SPRIX | $1,766 | $1,697 | | Other products | $1,644 | $1,049 | - The company began recognizing product sales for Otrexup in January 2022 after its acquisition in December 2021[30] - Royalties from CAMBIA in Canada were $0.5 million in Q1 2022, up from $0.4 million in Q1 2021, with milestone revenue of $0.5 million recognized in Q1 2022[31][32] - Other revenue, primarily from sales adjustments for previously divested products (Gralise, Nucynta, Lazanda), was $0 in Q1 2022 compared to $0.4 million in Q1 2021[33] NOTE 4. ACCOUNTS RECEIVABLES, NET This note presents the composition of accounts receivables, net, and related allowances at specific reporting dates Accounts Receivables, Net (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :---------------------------------- | :------------- | :---------------- | | Receivables related to product sales, net | $47,112 | $43,753 | | Other | $1,811 | $608 | | Total accounts receivable, net | $48,923 | $44,361 | - Allowances for cash discounts for prompt payment remained at $0.9 million for both periods[36] NOTE 5. INVENTORIES, NET This note details the components of inventories, net, including raw materials, work-in-process, and finished goods Inventories, Net (in thousands): | Component | March 31, 2022 | December 31, 2021 | | :---------------- | :------------- | :---------------- | | Raw materials | $1,358 | $1,242 | | Work-in-process | $1,176 | $823 | | Finished goods | $6,946 | $5,424 | | Total | $9,480 | $7,489 | - Inventory reserves were $3.7 million for both March 31, 2022, and December 31, 2021[38] NOTE 6. PROPERTY AND EQUIPMENT, NET This note provides a breakdown of property and equipment, net, and associated depreciation expenses Property and Equipment, Net (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :---------------------------------- | :------------- | :---------------- | | Furniture and office equipment | $2,733 | $2,733 | | Laboratory equipment | $20 | $20 | | Leasehold improvements | $9,787 | $10,523 | | Total gross | $12,540 | $13,276 | | Less: Accumulated depreciation | $(11,211) | $(11,749) | | Property and equipment, net | $1,329 | $1,527 | - Depreciation expense decreased to $0.2 million in Q1 2022 from $0.3 million in Q1 2021[40] NOTE 7. INTANGIBLE ASSETS This note details the company's intangible assets, their remaining useful lives, and amortization expenses Intangible Assets, Net (in thousands): | Product Rights | Remaining Useful Life (Years) | Gross Carrying Amount (Mar 31, 2022) | Accumulated Amortization (Mar 31, 2022) | Net Book Value (Mar 31, 2022) | Net Book Value (Dec 31, 2021) | | :------------- | :---------------------------- | :----------------------------------- | :-------------------------------------- | :---------------------------- | :---------------------------- | | INDOCIN | 10.1 | $154,100 | $(23,864) | $130,236 | $133,446 | | Otrexup | 7.7 | $44,086 | $(1,377) | $42,709 | $44,086 | | SPRIX | 5.1 | $39,000 | $(10,354) | $28,646 | $30,040 | | CAMBIA | 0.8 | $51,360 | $(45,397) | $5,963 | $7,950 | | Zipsor | 0.0 | $27,250 | $(27,250) | $— | $532 | | Oxaydo | 0.0 | $300 | $(300) | $— | $— | | Total | | $316,096 | $(108,542) | $207,554 | $216,054 | - Amortization expense increased to $8.5 million in Q1 2022 from $6.5 million in Q1 2021, primarily due to the acquired Otrexup product rights[44][128] Estimated Future Amortization Expense (in thousands): | Year Ending December 31, | Estimated Amortization Expense | | :----------------------- | :----------------------------- | | 2022 (remainder) | $23,906 | | 2023 | $23,924 | | 2024 | $23,924 | | 2025 | $23,924 | | 2026 | $23,924 | | Thereafter | $87,952 | | Total | $207,554 | NOTE 8. OTHER LONG-TERM ASSETS This note outlines the composition of other long-term assets, including investments and operating lease right-of-use assets Other Long-Term Assets (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :---------------------------------- | :------------- | :---------------- | | Investment, net | $1,579 | $1,579 | | Operating lease right-of-use assets | $586 | $735 | | Prepaid asset and deposits | $2,275 | $2,456 | | Other | $697 | $698 | | Total other long-term assets | $5,137 | $5,468 | - The company has an investment in NES Therapeutic, Inc. (NES Note) for $3.0 million, accruing 10% annual interest, with an estimated $1.9 million expected credit loss[47] NOTE 9. ACCRUED LIABILITIES This note provides a breakdown of accrued liabilities, including compensation, restructuring costs, and interest payable Accrued Liabilities (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :---------------------------- | :------------- | :---------------- | | Accrued compensation | $1,985 | $4,122 | | Accrued restructuring costs | $488 | $828 | | Other accrued liabilities | $8,641 | $8,062 | | Interest payable | $3,986 | $1,687 | | Income tax payable | $286 | $— | | Total accrued liabilities | $15,386 | $14,699 | NOTE 10. DEBT This note details the company's debt obligations, including senior secured notes and royalty rights, and related interest expenses Company's Debt (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :---------------------------------- | :------------- | :---------------- | | 13% Senior Secured Notes due 2024 | $70,750 | $70,750 | | Royalty rights obligation | $2,771 | $2,743 | | Total principal amount | $73,521 | $73,493 | | Less: current portion of long-term debt | $(12,271) | $(12,174) | | Net, long-term debt | $61,250 | $61,319 | - The 13% Senior Secured Notes due 2024, assumed from the Zyla Merger, have a principal amount of $95.0 million, accrue interest semi-annually at 13% per annum, and require semi-annual principal payments of 10% per annum[52][53] - The company was in compliance with its debt covenants as of March 31, 2022, including maintaining a minimum consolidated liquidity[55] - A Royalty Rights Obligation, assumed from the Zyla Merger, requires a 1.5% royalty on Net Sales through December 31, 2022, and is accounted for as a debt instrument[57][58] Interest Expense (in thousands): | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Stated coupon interest | $2,299 | $2,614 | | Amortization of debt discount and royalty rights | $28 | $70 | | Total interest expense | $2,327 | $2,684 | NOTE 11. STOCK-BASED COMPENSATION This note outlines the stock-based compensation expenses recognized and the details of RSU grants - Stock-based compensation recognized in Selling, general, and administrative expenses was $1.0 million in Q1 2022, up from $0.8 million in Q1 2021[60] - During Q1 2022, the company granted 0.1 million RSUs at an average fair market value of $2.59 per share[60] NOTE 12. LEASES This note describes the company's operating lease commitments, associated costs, and balance sheet impacts - The company has non-cancelable operating leases for offices and equipment, with the Lake Forest lease renewable for five years and the Newark lease terminating in November 2022[61][62] - A gain of $0.6 million was recognized in Q1 2022 from the early termination and settlement of a Newark facility sublease[62] Lease Expense and Income (in thousands): | Item | Financial Statement Classification | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------- | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Operating lease cost | Selling, general and administrative expenses | $40 | $111 | | Operating lease cost | Other gain | $148 | $148 | | Total lease cost | | $188 | $259 | | Sublease Income | Other gain | $775 | $347 | Supplemental Balance Sheet Information Related to Leases (in thousands): | Liabilities | Financial Statement Classification | March 31, 2022 | December 31, 2021 | | :---------------------------------- | :--------------------------------- | :------------- | :---------------- | | Current operating lease liabilities | Other current liabilities | $1,487 | $1,978 | | Noncurrent operating lease liabilities | Other long-term liabilities | $303 | $397 | | Total lease liabilities | | $1,790 | $2,375 | NOTE 13. COMMITMENTS AND CONTINGENCIES This note details the company's contractual commitments, legal proceedings, and contingent liabilities - The company has supply agreements with Jubilant HollisterStier (SPRIX, $0.4 million commitment through July 2022), Cosette Pharmaceuticals (INDOCIN Suppositories, $6.3 million annually through July 2028), and Antares (Otrexup, $2.0 million annually through December 2031)[68][69][71] - Legal contingency accrual was approximately $4.2 million as of March 31, 2022, up from $3.4 million as of December 31, 2021[72] - In the Glumetza Antitrust Litigation, the company settled with Retailer Plaintiffs for $3.15 million and direct purchaser class plaintiffs for $3.85 million, with Humana and HCSC lawsuits ongoing[74][76][77] - The federal securities class action lawsuit (Huang v. Depomed et al.) was preliminarily approved for settlement on March 21, 2022, with a final hearing scheduled for July 28, 2022, and related shareholder derivative actions were settled and approved in Q4 2021[78][79] - Assertio Therapeutics is cooperating with ongoing opioid-related investigations and subpoenas from the DOJ, state attorneys general, and other governmental authorities regarding historical sales and marketing of opioid products[80][81] - The company is involved in Multidistrict Opioid Litigation and State Opioid Litigation, defending itself vigorously against claims related to manufacturing, distributing, marketing, and promoting opioid drugs[82][83] - In insurance litigation, Assertio Therapeutics settled a declaratory judgment action with Navigators in Q1 2021 and received $5.0 million in insurance reimbursement, with ongoing litigation with Lloyd's of London Newline Syndicate 1218 and its former insurance broker, Woodruff-Sawyer & Co[85][86][87][88] NOTE 14. RESTRUCTURING CHARGES This note reports on restructuring charges incurred, primarily related to workforce reductions - No restructuring charges were incurred in Q1 2022, compared to $1.1 million in Q1 2021, as the December 2020 Plan for workforce reduction was substantially completed in Q1 2021[89][90] Restructuring Costs (in thousands): | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Employee compensation costs | $— | $876 | | Other exit costs | $— | $213 | | Total restructuring costs | $— | $1,089 | NOTE 15. SHAREHOLDERS EQUITY This note describes changes in shareholders' equity, including equity offerings and warrant exercises - In February 2021, the company completed two registered direct offerings, raising approximately $14.0 million and $34.3 million in gross proceeds, with net proceeds of $13.1 million and $32.2 million, respectively, for general corporate purposes[92] - During Q1 2022, 0.4 million warrants were exercised, resulting in the issuance of 0.4 million common shares, with no outstanding warrants remaining as of March 31, 2022[93][94] NOTE 16. NET INCOME PER SHARE This note provides the calculation of basic and diluted net income per share, including the impact of dilutive securities Basic and Diluted Net Income Per Share (in thousands, except per share amounts): | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $9,064 | $4,544 | | Weighted average common shares and warrants outstanding (Basic) | 45,204 | 37,824 | | Basic net income per share | $0.20 | $0.12 | | Weighted average common shares and share equivalents outstanding (Diluted) | 45,204 | 37,824 | | Add: effect of dilutive stock options, awards, and equivalents | 923 | 656 | | Diluted net income per share | $0.20 | $0.12 | - Warrants are included in basic EPS calculation as they are exercisable at a nominal price, and the treasury-stock method is used for stock options and equivalents, and the if-converted method for convertible debt in diluted EPS[94][95] NOTE 17. FAIR VALUE This note details the fair value measurements of financial liabilities, particularly contingent consideration Fair Value Hierarchy for Financial Liabilities (in thousands): | Item | Financial Statement Classification | March 31, 2022 (Level 3) | December 31, 2021 (Level 3) | | :---------------------------------- | :---------------------------------------- | :----------------------- | :-------------------------- | | Short-term contingent consideration | Contingent consideration, current portion | $14,600 | $14,500 | | Long-term contingent consideration | Contingent consideration | $22,859 | $23,159 | | Total | | $37,459 | $37,659 | - Contingent consideration obligations, primarily for future royalties on INDOCIN Product net sales, are classified as Level 3 due to unobservable inputs and valued using an option pricing model[100][101] - The change in fair value of contingent consideration resulted in an expense of $1.6 million in Q1 2022, compared to a benefit of $0.6 million in Q1 2021[101][103] NOTE 18. INCOME TAXES This note explains the company's income tax expense, effective tax rate, and tax refunds received - The company recorded an income tax expense of $0.7 million in Q1 2022, representing an effective tax rate of 7.3%, primarily due to the partial release of a valuation allowance[105][106] - A tax refund of $8.4 million was received during Q1 2022 for the carryback of net operating losses under the CARES Act[107] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and results of operations, including forward-looking statements, an overview of the business, critical accounting policies, detailed analysis of revenues and expenses, and a discussion of liquidity and capital resources for the three months ended March 31, 2022 FORWARD-LOOKING INFORMATION This section highlights the inherent uncertainties in forward-looking statements and factors that could cause actual results to differ - The report contains forward-looking statements based on current expectations about future events, which may differ materially from actual results due to various factors[109] - Key factors that could cause actual results to differ include: * Commercial success and market acceptance of products * Ability to execute sales, marketing, and digital promotion strategies * Entry of generics or other competitive products * Ability to execute business development and strategic partnerships * Expected financial performance from Otrexup acquisition and integration challenges * Impacts of the COVID-19 pandemic on liquidity, capital resources, and operations * Supply chain maintenance and reliance on single-source suppliers * Outcome of opioid-related investigations and litigation, and related insurance claims * Ability to generate sufficient cash flow and manage indebtedness[109][110] COMPANY OVERVIEW This section provides an overview of the company's commercial pharmaceutical business, product portfolio, and strategic focus - Assertio Holdings, Inc. is a commercial pharmaceutical company focused on neurology, hospital, and pain and inflammation, with a portfolio built through existing products and acquisitions[113] - Primary marketed products include: * INDOCIN® (indomethacin) Suppositories & Oral Suspension: NSAID for rheumatoid arthritis, ankylosing spondylitis, osteoarthritis, acute painful shoulder, and acute gouty arthritis * CAMBIA® (diclofenac potassium for oral solution): Prescription NSAID for acute treatment of migraine attacks * Otrexup® (methotrexate) injection: Once-weekly auto-injector for severe, active rheumatoid arthritis, polyarticular juvenile idiopathic arthritis, and severe, resistant psoriasis * SPRIX® (ketorolac tromethamine) Nasal Spray: Prescription NSAID for short-term management of moderate to moderately severe pain at the opioid level * Zipsor® (diclofenac potassium) Liquid filled capsules: Prescription NSAID for relief of mild-to-moderate pain[114] - The company acquired Otrexup in December 2021 for $45.499 million, including cash paid at closing and deferred payments[115] - COVID-19 led to a shift to a digital sales strategy and caused volatility in prescriptions for elective procedures, with potential ongoing impacts on liquidity and operations[116][117] - The company manages its business within one reportable segment, with substantially all product sales revenues from the U.S[118] CRITICAL ACCOUNTING POLICIES This section identifies the company's critical accounting policies, including revenue recognition and accrued liabilities - Critical accounting policies include revenue recognition, accrued liabilities, and the use of estimates, with no significant changes reported since the 2021 Form 10-K[119] RESULTS OF OPERATIONS This section analyzes the company's financial performance, detailing changes in revenues, costs, and expenses Revenues This section analyzes the company's total revenues, breaking down product sales, royalties, and other revenue streams Total Revenues (in thousands): | Revenue Type | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Product sales, net | $35,546 | $26,027 | | Royalties and milestone revenue | $992 | $434 | | Other revenue | $— | $378 | | Total revenues | $36,538 | $26,839 | - Product Sales, Net: * INDOCIN products: Increased by $6.8 million to $21.4 million (YoY), primarily due to higher price, partially offset by lower volume and unfavorable payor mix * CAMBIA: Decreased by $1.0 million to $5.5 million (YoY), primarily due to lower volume, partially offset by favorable payor mix * Otrexup: Generated $3.1 million in sales in Q1 2022, as it was acquired in December 2021 * Zipsor: Unchanged at $2.2 million (YoY); generic versions are expected to enter the market in 2022 * SPRIX: Increased by $0.1 million to $1.8 million (YoY), primarily due to lower volume partially offset by favorable payor mix * Other products: Increased to $1.6 million from $1.0 million (YoY)[120][121][122] - Royalties and milestone revenue increased to $0.992 million in Q1 2022 from $0.434 million in Q1 2021, including $0.5 million in Milestone revenue from service milestones[121][122][123] - Other revenue was $0 in Q1 2022, down from $0.4 million in Q1 2021, as it consists of sales adjustments for previously divested products[121][123] Cost of Sales (excluding amortization of intangible assets) This section discusses the cost of sales, excluding intangible asset amortization, and its drivers - Cost of sales increased by $0.2 million to $4.2 million in Q1 2022 (YoY), driven by higher net sales and inventory step-up amortization, partially offset by favorable product mix[124] - Inventory step-up amortization expense was $0.4 million in Q1 2022, up from $0.2 million in Q1 2021[124] Selling, General and Administrative Expenses This section analyzes changes in selling, general, and administrative expenses, including the impact of insurance reimbursements - Selling, general, and administrative expenses increased by $2.3 million to $10.6 million in Q1 2022 (YoY), primarily due to the non-recurrence of a $5.0 million insurance reimbursement received in Q1 2021, partially offset by lower expenses from prior restructuring plans[125] Fair value of contingent consideration This section explains the changes in the fair value of contingent consideration and its impact on expenses - Fair value of contingent consideration shifted from a $0.6 million benefit in Q1 2021 to a $1.6 million expense in Q1 2022, a $2.2 million increase in expense, due to remeasurement using an option pricing model based on estimated INDOCIN product revenues[126] Intangible Assets This section details the amortization of intangible assets, highlighting the impact of acquired product rights Amortization of Intangible Assets (in thousands): | Product | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------- | :-------------------------------- | :-------------------------------- | | INDOCIN | $3,210 | $3,210 | | SPRIX | $1,394 | $1,393 | | CAMBIA | $1,988 | $1,284 | | Otrexup | $1,377 | $— | | Zipsor | $532 | $584 | | Oxaydo | $— | $76 | | Total | $8,501 | $6,547 | - Amortization expense increased by $2.0 million to $8.5 million in Q1 2022 (YoY), primarily due to the acquired Otrexup product rights[128] Restructuring Charges This section reports on the company's restructuring charges, noting the completion of workforce reduction plans - Restructuring charges were zero in Q1 2022, down from $1.1 million in Q1 2021, following the substantial completion of the December 2020 Plan workforce reduction[129] Other Expense This section analyzes other expenses, including interest expense and gains from sublease terminations Other Expense (in thousands): | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------- | :-------------------------------- | :-------------------------------- | | Interest expense | $(2,327) | $(2,684) | | Other gain | $545 | $269 | | Total other expense | $(1,782) | $(2,415) | - Total other expense decreased by $0.6 million to $1.8 million in Q1 2022 (YoY), primarily due to lower interest expense and a $0.6 million gain from the early termination and settlement of a Newark facility sublease[131] - Interest expense decreased by $0.4 million in Q1 2022 (YoY) due to principal payments on the 13% Senior Secured Notes[133] Income Tax Provision This section discusses the company's income tax expense and effective tax rate, including the impact of valuation allowance releases - Income tax expense was $0.7 million in Q1 2022 (effective tax rate of 7.3%) and $0.5 million in Q1 2021 (effective tax rate of 10.8%), with the difference from the statutory rate primarily due to the partial release of valuation allowance[135] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's financial resources, cash flow activities, and ability to fund operations and debt obligations - The company finances operations through product sales, equity sales, secured borrowings, and license fees[136] - In February 2021, the company completed two registered direct offerings, generating net proceeds of approximately $45.3 million for general corporate purposes[137] - Management believes existing cash will be sufficient to fund operations and debt payments for the next twelve months[138] - Cash needs may vary due to factors such as: * Acquisitions or licenses of businesses/products * Sales of marketed products * Commercialization expenditures * Milestone and royalty revenue * Interest and principal payments on debt * Litigation expenses (e.g., opioid-related, Glumetza) * Effects of the COVID-19 pandemic[138] Summarized Cash Flow Activities (in thousands): | Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $27,426 | $(4,226) | | Net cash used in investing activities | $(404) | $— | | Net cash (used in) provided by financing activities | $(2,443) | $44,473 | | Net increase in cash and cash equivalents | $24,579 | $40,247 | Cash Flows from Operating Activities This section analyzes cash generated or used by the company's primary business operations - Cash provided by operating activities significantly increased to $27.4 million in Q1 2022 from cash used of $4.2 million in Q1 2021, driven by higher net income and favorable working capital, including an $8.4 million tax refund[141] Cash Flows from Investing Activities This section details cash flows related to the acquisition and disposal of long-term assets - Cash used in investing activities was $0.4 million in Q1 2022, primarily for the purchase of Otrexup, with no activity in Q1 2021[142] Cash Flows from Financing Activities This section outlines cash flows from debt, equity, and dividend transactions - Cash used in financing activities was $2.4 million in Q1 2022, mainly for contingent consideration payments and employee withholding tax liability, contrasting with $44.5 million provided in Q1 2021 from registered direct offerings[143] Off-Balance Sheet Arrangement This section confirms the absence of off-balance sheet arrangements during the reporting period - There were no off-balance sheet arrangements during the quarter ended March 31, 2022[144] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section states that quantitative and qualitative disclosures about market risk are not applicable to the company for the reported period - This item is not applicable[145] ITEM 4. CONTROLS AND PROCEDURES This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal controls over financial reporting Evaluation of Disclosure Controls and Procedures This section reports on management's assessment of the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[146] Changes in Internal Controls over Financial Reporting This section confirms whether any significant changes in internal controls over financial reporting occurred - There were no significant changes in internal controls over financial reporting during the three months ended March 31, 2022[148] PART II — OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity security sales, and required exhibits ITEM 1. LEGAL PROCEEDING This section refers to the detailed discussion of material pending legal proceedings found in the Notes to the Condensed Consolidated Financial Statements - For a description of material pending legal proceedings, refer to Note 13. Commitments and Contingencies - Legal Matters in Part I, Item 1[149] ITEM 1A. RISK FACTORS This section states that there have been no material changes to the company's risk factors since its last annual report and directs readers to the 2021 Form 10-K for a comprehensive list - No material changes to risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2021[150] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section reports on the company's equity security transactions, specifically noting no common stock repurchases during the period, except for shares withheld to cover tax withholding obligations related to equity awards - The company did not repurchase any shares of common stock during the period, except for 315,912 shares withheld to satisfy tax withholding obligations in connection with the vesting of equity awards[151][152] Shares Withheld for Tax Withholding Obligations (January 1, 2022 - March 31, 2022): | Period | Total Number of Shares Withheld | Average Price Paid per Share | | :--------------------------- | :------------------------------ | :--------------------------- | | January 1, 2022 - January 31, 2022 | 2,827 | $2.18 | | February 1, 2022 - February 28, 2022 | 304,828 | $1.92 | | March 1, 2022 - March 31, 2022 | 8,257 | $0.74 | | Total | 315,912 | $1.89 | ITEM 6. EXHIBITS This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including various certifications and XBRL-related documents - Exhibits include: * Certifications pursuant to Rule 13a-14(a) and 15d-14(a) under the Exchange Act (31.1, 31.2) * Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (32.1*, 32.2*) * Inline XBRL Instance Document and Taxonomy Extension Documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE) * Cover Page Interactive Data File (104)[154] SIGNATURES This section contains the required signatures of the company's authorized officers, affirming the submission of the report - The report is signed by Daniel A. Peisert (President and CEO), Paul Schwichtenberg (Senior VP and CFO), and Ajay Patel (Senior VP and Chief Accounting Officer) on May 9, 2022[155]