REVENUE

Disaggregated Revenue

The following table summarizes revenue from contracts with customers for the three and nine months ended September 30, 2018 and 2017 (in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018		2017
Product sales, net
Gralise	$	14,630		$	21,103	$	43,272	$	57,777
CAMBIA	10,365			8,164		24,870		23,862
Zipsor	4,441			3,232		13,175		12,286
Total neurology product sales, net	29,436			32,499		81,317		93,925
NUCYNTA products	11			58,665		18,782		183,299
Lazanda	(12		)	4,040		528		13,239
Pharmacy benefit manager dispute reserve	—			—		—		(4,742		)
Total product sales, net	29,435			95,204		100,627		285,721
Commercialization agreement:
Commercialization rights and facilitation services, net	27,781			—		87,055		—
Revenue from transfer of inventory	—			—		55,705		—
Royalties and milestone revenue	20,277			209		25,784		596
Total revenues	$	77,493		$	95,413	$	269,171	$	286,317

NUCYNTA product sales for the nine months ended September 30, 2018 reflect the Company's sales of NUCYNTA between January 1 and January 8, 2018. During the three and nine months ended September 30, 2018 the Company recognized an insignificant amount of sales reserve estimate adjustments related to sales recognized for NUCYNTA and Lazanda in prior periods. During the first quarter of 2018, in connection with the Collegium transaction, the Company recognized revenue of $12.5 million related to the release of NUCYNTA sales reserves which were primarily recorded in the fourth quarter of 2017, as financial responsibility for those reserves transferred to Collegium upon closing of the Commercialization Agreement.

Commercialization Agreement with Collegium

In January 2018, the Company entered into a Commercialization Agreement with Collegium (Commercialization Agreement), pursuant to which the Company granted Collegium the right to commercialize the NUCYNTA pain products in the U.S. Under the Commercialization Agreement, Collegium assumed all commercialization responsibilities for NUCYNTA effective January 9, 2018, including sales and marketing. The Company will receive a royalty on all NUCYNTA revenues based on certain net sales thresholds, with a minimum royalty of $132 million for the year ended December 31, 2018. Pursuant to the Amendment to the Commercialization Agreement described in Note 17, royalties for fiscal years beginning 2019 will be based on certain annual NUCYNTA net sales thresholds for future years. The Company received an upfront payment of $10.0 million as well as $6.2 million with respect to the inventory of finished goods which was transferred to Collegium on closing of the transaction in January 2018.

The Company identified the following three performance obligations under the Commercialization Agreement:


1.	License to commercialize the NUCYNTA pain products,


2.	Services to arrange for supplies of NUCYNTA pain products using the Company’s existing contract manufacturing contracts with third parties; and


3.	Transfer of control of all NUCYNTA finished goods held at closing.

In January 2018, the Company determined the total transaction price to be $553.2 million, which consists of $537.0 million in total annual minimum royalty payments, the $10.0 million upfront fee, and a $6.2 million payment for NUCYNTA finished goods inventory at cost. In accordance with the relevant Accounting Standard, the Company determined that the duration of the Commercialization Agreement begins on the effective date of January 9, 2018 and lasts through December 31, 2021, which is consistent with the contractual period in which the Company and Collegium have enforceable rights and obligations which include the minimum royalty period and the period in which Collegium would incur a $25.0 million termination penalty on terminating the agreement. See Note 17, for information regarding the Amendment to the Commercialization Agreement which impacts certain of these provisions in the fourth quarter of 2018.

The transaction price was allocated to the performance obligations noted above in proportion to their standalone selling prices and will be recognized as these performance obligations are satisfied by the Company. The transaction price allocated to the inventory transferred to Collegium on closing was $55.7 million and was recognized on the closing date as the control of such inventory was transferred to Collegium. The transaction price allocated to the other remaining performance obligations of the license to commercialize NUCYNTA and the related services to arrange for supplies was $497.5 million. This amount will be recognized ratably over time through December 31, 2021, which represents the period over which enforceable rights and obligations exist after considering the various termination rights for either parties that exist in the contract. For the three and nine months ended September 30, 2018, the Company recognized $27.8 million and $87.1 million, respectively, related to the right to commercialize NUCYNTA and related facilitation services. Total revenue recognized for the three and nine months ended September 30, 2018 were $27.8 million and $142.8 million, respectively, which includes the portion of the transaction price allocated to inventory. The commercialization revenues were reduced by anticipated additional royalties payable to Grünenthal by the Company. See "Collegium" below for additional discussion.

The annual minimum royalty amounts are payable by Collegium in equal quarterly installments of $33.8 million, and are initially received through a lockbox sweep mechanism. Remittances from customers on product sales of NUCYNTA made by Collegium are deposited to a designated lockbox account, separate from Collegium’s other receivables. On a daily basis, 35% of the cash receipts in this lockbox account are swept to Assertio’s bank accounts up to the minimum cash royalty amounts which are $30.8 million for the three months ended March 31, 2018 and $33.8 million per quarter, thereafter. If the cash receipts received by Assertio in a quarter are lower than the minimum quarterly royalty, or if the royalty receivable to Assertio is above the minimum quarterly amount, Collegium is responsible to remit the remaining royalty payment within 45 days after the end of the each quarter. For the nine months ended September 30, 2018, $98.3 million was received by Assertio. See Note 17 for information regarding the Amendment to the Commercialization Agreement.

Contract Assets and Liabilities

The following table presents changes in the Company’s contract assets and liabilities for the nine months ended September 30, 2018 (in thousands):



	Balance							Balance
	as of							as of
	December 31, 2017		Additions		Deductions			September 30, 2018
Contract assets:
Contract asset, net - Collegium	$	—	$	55,705	$	(23,654	)	$	32,051
Contract asset - Ironwood	—		5,000		(5,000		)	—
	—		60,705		(28,654		)	32,051

Collegium

The Company receives payments from Collegium based on the above described schedule as established in the Company’s contracts. Contract asset relates to conditional right to consideration for completed performance under the Commercialization Agreement. This contract asset relates to the revenue recognized by the company from the transfer of inventory to Collegium on the date of closing of the agreement in January 2018 net of the contract liability of $10.0 million resulting from the upfront payment received. Accounts receivable are recorded when the right to consideration becomes unconditional. As of September 30, 2018, $9.9 million and $22.1 million of the contract asset has been recorded within “Prepaid and other current assets” and “Other long-term assets,” respectively.

The Company acquired the U.S. rights to NUCYNTA from Janssen Pharmaceuticals, Inc. (Janssen) in April 2015. As part of that transaction, the Company also acquired the related royalty obligations for NUCYNTA to Grünenthal, the originator of tapentadol. Pursuant to the terms of the Commercialization Agreement, Collegium will now remit payment on behalf of the Company to satisfy this royalty obligation In addition, as a condition of giving its consent to the Commercialization Agreement with Collegium, Grünenthal amended the terms of the original royalty agreement to require payment of a minimum royalty of $34.0 million per year on net sales of NUCYNTA greater than $180.0 million and equal to, or less than, $243.0 million for each of the years ended December 31, 2018 through 2021. In return for this agreement to pay minimum royalties, the Company received the right to share royalties with Grünenthal on annual net sales of NUCYNTA above $243.0 million during the same period. The Company is obligated to cover any shortfall between the minimum royalty amount of $34.0 million and the amounts paid to Grünenthal by Collegium for each of the years ended December 31, 2018 through 2021, as a result of which the Company could be obligated to pay up to $8.8 million per year for each of the years ended December 31, 2018 through 2021.

In the three months ended September 30, 2018, the Company recorded a royalty payable to Grünenthal of $3.7 million in anticipation of the Collegium payments to Grünenthal falling below the minimum of royalty amount of $34.0 million for the full 2018 fiscal year. Grünenthal royalties related to NUCYNTA sales for the three and nine months ended September 30, 2018 were $10.8 million and $25.2 million, respectively, of which approximately $7.1 million and $21.5 million, respectively, were paid directly by Collegium to Grünenthal. These royalties were recorded as a gross-to-net adjustment in the Revenue from Commercialization Agreement, net line in the Company’s Statement of Operations. Pursuant to the Amendment, Collegium will reimburse the Company for the amount of any minimum annual royalties paid by the Company to Grünenthal on net sales of NUCYNTA from 2019 to 2021 related to this Commercialization Agreement.

Collaboration and License Agreements

Ironwood Pharmaceuticals, Inc. In July 2011, the Company entered into a collaboration and license agreement with Ironwood (Ironwood Agreement) granting Ironwood a license for worldwide rights to certain patents and other intellectual property rights to the Company’s Acuform drug delivery technology for IW 3718, an Ironwood product candidate under development for refractory GERD. The Company has received $3.4 million under the agreement, including a contingent milestone payment of $1.0 million in March 2014 as a result of the initiation of clinical trials relating to IW 3718 by Ironwood. The Company is entitled to receive additional contingent milestone payments upon the occurrence of certain development milestones and royalties on net sales of the product if approved.

The Company identified the following two performance obligations under the Ironwood Agreement: (1) the license to the Acuform technology and (2) formulation work associated with IW-3718. The license was granted in 2011 and the formulation work was completed in 2012. The Company has no ongoing performance obligations and has recognized all proceeds received to date as revenue.

The future contingent milestones under the Ironwood Agreement are considered variable consideration and are estimated using the most likely method. As part of implementation of ASC 606, the Company evaluated whether the future milestones under the Ironwood Agreement should have been included as part of the transaction price in periods before January 1, 2018. The Company concluded that because of development and regulatory risks at the time, it was probable that a significant revenue reversal could have occurred. Accordingly, the associated future contingent milestone values were not included in the transaction price for periods before January 1, 2018. At the end of each subsequent reporting period, the Company re-evaluates the probability or achievement of each such milestone and any related constraint, and if necessary, adjusts its estimates of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. During the nine months ended September 30, 2018, the Company recognized and collected a $5.0 million milestone payment related to the dosing of the first patient in a Phase 3 trial. There was no revenue recognized under this agreement for the three and nine months ended September 30, 2017.

PDL BioPharma, Inc. In October 2013, the Company sold its interests in royalty and milestone payments under its license agreements relating to our Acuform technology in the Type 2 diabetes therapeutic area to PDL BioPharma, Inc. (PDL) for $240.5 million. On August 2, 2018 the Company sold its remaining interest in such payments to PDL for $20.0 million. The $20 million of revenue was recognized as royalty revenue in the three months ended September 30, 2018.