Assertio (US:ASRT)2022-11-07 16:00PART I — FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) The unaudited financial statements show cash and equivalents increased to $64.8 million, with net income of $21.1 million for nine months, and operating cash flow at $51.9 million Condensed Consolidated Balance Sheets Total assets slightly decreased to $323.3 million, while total liabilities reduced to $188.4 million, leading to an increase in shareholders' equity to $134.9 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $64,826 | $36,810 | | Total current assets | $126,494 | $103,498 | | Intangible assets, net | $191,617 | $216,054 | | Total assets | $323,344 | $326,547 | | Liabilities & Equity | | | | Total current liabilities | $92,296 | $135,019 | | Total liabilities | $188,429 | $224,133 | | Total shareholders' equity | $134,915 | $102,414 | | Total liabilities and shareholders' equity | $323,344 | $326,547 | Condensed Consolidated Statements of Comprehensive Income Q3 2022 revenues rose to $34.2 million with $4.2 million net income, while nine-month revenues reached $105.9 million, shifting from a $5.9 million net loss to $21.1 million net income Statement of Comprehensive Income Summary (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $34,212 | $25,472 | $105,884 | $77,686 | | Income from operations | $6,434 | $5,934 | $28,783 | $1,443 | | Net income (loss) | $4,174 | $3,737 | $21,072 | $(5,887) | | Diluted net income (loss) per share | $0.08 | $0.08 | $0.42 | $(0.14) | Condensed Consolidated Statements of Cash Flows Nine-month operating cash flow significantly increased to $51.9 million, with $16.9 million used in investing and $7.0 million in financing activities Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $51,901 | $1,392 | | Net cash used in investing activities | $(16,889) | $0 | | Net cash (used in) provided by financing activities | $(6,996) | $36,548 | | Net increase in cash and cash equivalents | $28,016 | $37,940 | Notes to Condensed Consolidated Financial Statements Notes detail the $45.5 million Otrexup acquisition, $70 million debt restructuring, ongoing legal proceedings, and the subsequent Sympazan® license acquisition - Acquired Otrexup from Antares Pharma for a total purchase price of $45.5 million, accounted for as an asset acquisition2425 - Issued $70.0 million of 6.5% Convertible Senior Notes due 2027 and used the proceeds to repurchase outstanding 13% Senior Secured Notes due 20245258 - As of September 30, 2022, the company had a legal contingency accrual of approximately $3.2 million related to various lawsuits and investigations73 - Subsequent to the quarter end, on October 27, 2022, the company acquired an exclusive license for Sympazan® from Aquestive Therapeutics for an upfront payment of $9.0 million112 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong nine-month performance to increased INDOCIN sales and successful debt restructuring, believing current cash is sufficient for the next twelve months Results of Operations Q3 2022 revenues grew 34% to $34.2 million, driven by INDOCIN sales, while nine-month revenues increased 36% to $105.9 million, with reduced SG&A expenses Net Product Sales Comparison (in millions) | Product | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | INDOCIN products | $21.9 | $14.5 | $66.1 | $42.2 | | CAMBIA | $5.8 | $5.0 | $17.5 | $17.6 | | Otrexup | $3.0 | $0.0 | $8.7 | $0.0 | | Zipsor | $0.3 | $2.0 | $2.7 | $6.8 | - The increase in total product sales was also supported by a decrease in gross-to-net deductions, attributed to a higher concentration of INDOCIN sales which have lower allowance levels131 - SG&A expenses for the nine months ended Sep 30, 2022 decreased by $8.3 million compared to the same period in 2021, primarily because a $11.3 million loss contingency provision from 2021 did not repeat137 Liquidity and Capital Resources Liquidity improved with $51.9 million cash from operations, bolstered by issuing $70.0 million in convertible notes to repurchase $59.0 million of higher-interest debt - In August 2022, the company issued $70.0 million of 6.5% Convertible Senior Notes due 2027 and used the net proceeds to repurchase $59.0 million of its 13% Senior Secured Notes due 2024150 - The company suspended its at-the-market (ATM) offering program after raising net proceeds of $7.0 million151 - Cash provided by operating activities increased to $51.9 million for the nine months ended Sep 30, 2022, compared to $1.4 million in the prior year, driven by higher net income and favorable working capital changes156 Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable for the current reporting period - Not applicable159 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no significant changes in internal controls during Q3 2022 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period160 - No significant changes in internal controls over financial reporting were identified during the third quarter of 2022162 PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, including Glumetza antitrust and extensive opioid-related litigation, as detailed in Note 13 - The company refers to Note 13 for a description of its material pending legal proceedings163 Item 1A. Risk Factors Significant risks include lack of patent protection for INDOCIN, generic competition for Zipsor and Cambia, potential Nasdaq delisting, and substantial debt obligations - The company faces competition for INDOCIN from a 503B compounder and could face generic competition at any time due to a lack of patent protection165167 - Generic competition for Zipsor began in 2022, and generic competition for Cambia is expected to start in 2023, which will adversely affect revenues165168 - The company's common stock may be delisted from Nasdaq if it fails to maintain the minimum $1.00 bid price requirement, which would trigger a 'fundamental change' under its 2027 Convertible Notes174177 - Significant indebtedness under the 2027 Convertible Notes poses a risk to the business, as failure to generate sufficient cash flow could lead to default and limit operational flexibility179180 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2022, 12,477 shares were surrendered at an average price of $2.27 to satisfy tax withholding for employee equity awards Issuer Purchases of Equity Securities (Q3 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2022 | 6,190 | $2.65 | | August 2022 | 6,287 | $1.90 | | September 2022 | 0 | — | | Total | 12,477 | $2.27 | - The shares purchased were withheld to pay employees' tax liability in connection with the vesting of equity awards and were not part of a publicly announced repurchase program186188 Item 3. Exhibits This section lists exhibits filed with Form 10-Q, including the Indenture for 6.50% Convertible Senior Notes, officer certifications, and XBRL data