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Segment Results
 9 Months Ended
Sep. 30, 2020
Segment Reporting [Abstract]  
SEGMENT RESULTS
NOTE 5. SEGMENT RESULTS
The Company’s four reportable business segments are Branded Pharmaceuticals, Sterile Injectables, Generic Pharmaceuticals and International Pharmaceuticals. These segments reflect the level at which the chief operating decision maker (CODM) regularly reviews financial information to assess performance and to make decisions about resources to be allocated. Each segment derives revenue from the sales or licensing of its respective products and is discussed in more detail below.
We evaluate segment performance based on Segment adjusted income (loss) from continuing operations before income tax, which we define as Loss from continuing operations before income tax and before certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs and changes in the fair value of contingent consideration; cost reduction and integration-related initiatives such as separation benefits, continuity payments, other exit costs and certain costs associated with integrating an acquired company's operations; asset impairment charges; amortization of intangible assets; inventory step-up recorded as part of our acquisitions; litigation-related and other contingent matters; certain legal costs; gains or losses from early termination of debt; debt modification costs; gains or losses from the sales of businesses and other assets; foreign currency gains or losses on intercompany financing arrangements; and certain other items. Effective January 1, 2020, the Company revised its definition of Segment adjusted income (loss) from continuing operations before income tax to exclude certain legal costs in order to reflect changes in how the CODM reviews segment performance. The Company believes that such costs are not indicative of business performance and that excluding them more accurately reflects each segment’s results and better enables management to compare financial results between periods. Prior period results have been adjusted to reflect this change. Specifically, for the three months ended September 30, 2019, certain legal costs of $14.4 million and $0.1 million have been excluded from our Branded Pharmaceuticals and Generic Pharmaceuticals segments, respectively, and for the nine months ended September 30, 2019, certain legal costs of $49.3 million and $1.0 million have been excluded from our Branded Pharmaceuticals and Generic Pharmaceuticals segments, respectively, resulting in increases to the Segment adjusted income (loss) from continuing operations before income tax for these segments. This change had no impact on our Total consolidated loss from continuing operations before income tax.
Certain of the corporate expenses incurred by the Company are not directly attributable to any specific segment. Accordingly, these costs are not allocated to any of the Company’s segments and are included in the results below as “Corporate unallocated costs.” Interest income and expense are also considered corporate items and not allocated to any of the Company’s segments. The Company’s Total segment adjusted income (loss) from continuing operations before income tax is equal to the combined results of each of its segments.
Branded Pharmaceuticals
Our Branded Pharmaceuticals segment includes a variety of branded prescription products to treat and manage conditions in urology, urologic oncology, endocrinology, pain and orthopedics. The products in this segment include XIAFLEX®, SUPPRELIN® LA, NASCOBAL® Nasal Spray, AVEED®, PERCOCET®, TESTOPEL®, EDEX® and LIDODERM®, among others.
Sterile Injectables
Our Sterile Injectables segment consists primarily of branded sterile injectable products such as VASOSTRICT®, ADRENALIN® and APLISOL®, among others, and certain generic sterile injectable products, including ertapenem for injection (the authorized generic of Merck Sharp & Dohme Corp.’s (Merck) Invanz®) and ephedrine sulfate injection, among others.
Generic Pharmaceuticals
Our Generic Pharmaceuticals segment consists of a product portfolio including solid oral extended-release, solid oral immediate-release, liquids, semi-solids, patches, powders, ophthalmics and sprays and includes products in the pain management, urology, central nervous system disorders, immunosuppression, oncology, women’s health and cardiovascular disease markets, among others.
International Pharmaceuticals
Our International Pharmaceuticals segment includes a variety of specialty pharmaceutical products sold outside the U.S., primarily in Canada through our operating company Paladin Labs Inc. (Paladin). The key products of this segment serve various therapeutic areas, including attention deficit hyperactivity disorder, pain, women’s health and oncology.
The following represents selected information for the Company’s reportable segments for the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net revenues from external customers:
Branded Pharmaceuticals$223,682 $217,313 $557,276 $629,851 
Sterile Injectables251,393 263,635 906,997 777,963 
Generic Pharmaceuticals135,508 218,012 602,670 654,322 
International Pharmaceuticals (1)24,277 30,466 75,910 87,428 
Total net revenues from external customers$634,860 $729,426 $2,142,853 $2,149,564 
Segment adjusted income (loss) from continuing operations before income tax:
Branded Pharmaceuticals$120,368 $105,864 $267,964 $302,682 
Sterile Injectables190,498 197,974 696,147 566,345 
Generic Pharmaceuticals(13,428)29,569 91,293 129,702 
International Pharmaceuticals10,679 11,511 34,180 35,053 
Total segment adjusted income (loss) from continuing operations before income tax$308,117 $344,918 $1,089,584 $1,033,782 
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(1)Revenues generated by our International Pharmaceuticals segment are primarily attributable to external customers located in Canada.
There were no material revenues from external customers attributed to an individual country outside of the U.S. during any of the periods presented.
The table below provides reconciliations of our Total consolidated loss from continuing operations before income tax, which is determined in accordance with U.S. GAAP, to our Total segment adjusted income (loss) from continuing operations before income tax for the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Total consolidated loss from continuing operations before income tax$(64,800)$(24,070)$(18,299)$(120,363)
Interest expense, net135,648 136,903 397,689 404,387 
Corporate unallocated costs (1)39,976 37,891 116,888 124,351 
Amortization of intangible assets104,066 131,932 325,801 417,949 
Upfront and milestone payments to partners275 1,672 2,469 4,055 
Continuity and separation benefits and other cost reduction initiatives (2)67,692 11,023 100,356 15,172 
Certain litigation-related and other contingencies, net (3)1,810 (14,414)(23,938)(4,093)
Certain legal costs (4)18,343 14,556 51,884 50,229 
Asset impairment charges (5)8,412 4,766 106,197 258,652 
Acquisition-related and integration items, net (6)(1,407)16,025 17,100 (26,983)
Gain on extinguishment of debt— — — (119,828)
Foreign currency impact related to the remeasurement of intercompany debt instruments1,663 (922)(2,426)2,874 
Other, net (7)(3,561)29,556 15,863 27,380 
Total segment adjusted income (loss) from continuing operations before income tax$308,117 $344,918 $1,089,584 $1,033,782 
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(1)Amounts include certain corporate overhead costs, such as headcount, facility and corporate litigation expenses and certain other income and expenses.
(2)Included within this line are costs associated with certain continuity and transitional compensation arrangements for certain senior management of the Company, including $4.3 million and $22.2 million during the three and nine months ended September 30, 2020, respectively, and $6.7 million during both the three and nine months ended September 30, 2019. Other amounts primarily relate to the 2020 Restructuring Initiative and certain other cost reduction initiatives, including employee separation, continuity and other benefit-related costs of $53.6 million, accelerated depreciation of $6.3 million and miscellaneous charges of $3.4 million during the three months ended September 30, 2020; employee separation, continuity and other benefit-related costs of $53.6 million, accelerated depreciation of $14.7 million and miscellaneous charges of $9.8 million during the nine months ended September 30, 2020; miscellaneous charges of $4.3 million during the three months ended September 30, 2019; and employee separation, continuity and other benefit-related costs of $2.2 million and miscellaneous charges of $6.3 million during the nine months ended September 30, 2019. Refer to Note 4. Restructuring for further discussion of the 2020 Restructuring Initiative.
(3)Amounts include adjustments to our accruals for litigation-related settlement charges and certain settlement proceeds related to suits filed by our subsidiaries. Our material legal proceedings and other contingent matters are described in more detail in Note 13. Commitments and Contingencies.
(4)Amounts relate to opioid-related legal expenses.
(5)Amounts primarily relate to charges to impair goodwill and intangible assets and operating lease right-of-use assets as further described in Note 9. Goodwill and Other Intangibles and Note 8. Leases, respectively.
(6)Amounts primarily relate to changes in the fair value of contingent consideration.
(7)The amount during the nine months ended September 30, 2020 includes $31.1 million of third-party fees incurred in connection with the June 2020 Refinancing Transactions, which were accounted for as debt modifications. Refer to Note 12. Debt for additional information. Amounts during the three and nine months ended September 30, 2019 include $17.5 million for contract termination costs incurred as a result of certain product discontinuation activities in our International Pharmaceuticals segment and $14.1 million for a premium associated with an extended reporting period endorsement on an expiring insurance program. Remaining amounts in this line primarily relate to gains on sales of businesses and other assets, as further described in Note 16. Other (Income) Expense, Net.
Asset information is not reviewed or included within our internal management reporting. Therefore, the Company has not disclosed asset information for each reportable segment.
During the three and nine months ended September 30, 2020 and 2019, the Company disaggregated its revenue from contracts with customers into the categories included in the table below (in thousands). The Company believes these categories depict how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors.
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Branded Pharmaceuticals:
Specialty Products:
XIAFLEX®$88,167 $82,756 $211,022 $226,118 
SUPPRELIN® LA28,229 20,772 63,344 66,542 
Other Specialty (1)23,724 28,470 68,795 78,397 
Total Specialty Products$140,120 $131,998 $343,161 $371,057 
Established Products:
PERCOCET®$27,508 $28,561 $82,789 $88,199 
TESTOPEL®18,068 13,236 26,877 40,830 
Other Established (2)37,986 43,518 104,449 129,765 
Total Established Products$83,562 $85,315 $214,115 $258,794 
Total Branded Pharmaceuticals (3)$223,682 $217,313 $557,276 $629,851 
Sterile Injectables:
VASOSTRICT®$155,412 $129,691 $572,530 $384,854 
ADRENALIN®30,662 40,311 120,335 133,468 
Ertapenem for injection16,784 21,853 46,648 79,619 
APLISOL®9,443 28,085 25,821 55,996 
Other Sterile Injectables (4)39,092 43,695 141,663 124,026 
Total Sterile Injectables (3)$251,393 $263,635 $906,997 $777,963 
Total Generic Pharmaceuticals (5)$135,508 $218,012 $602,670 $654,322 
Total International Pharmaceuticals (6)$24,277 $30,466 $75,910 $87,428 
Total revenues, net$634,860 $729,426 $2,142,853 $2,149,564 
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(1)Products included within Other Specialty are NASCOBAL® Nasal Spray and AVEED®.
(2)Products included within Other Established include, but are not limited to, EDEX® and LIDODERM®.
(3)Individual products presented above represent the top two performing products in each product category for either the three or nine months ended September 30, 2020 and/or any product having revenues in excess of $25 million during any quarterly period in 2020 or 2019.
(4)Products included within Other Sterile Injectables include ephedrine sulfate injection and others.
(5)The Generic Pharmaceuticals segment is comprised of a portfolio of products that are generic versions of branded products, are distributed primarily through the same wholesalers, generally have no intellectual property protection and are sold within the U.S. During the three and nine months ended September 30, 2019, colchicine tablets (the authorized generic of Takeda Pharmaceuticals U.S.A., Inc.’s (Takeda) Colcrys®), which launched in July 2018, made up 7% and 6% of consolidated total revenues, respectively. No other individual product within this segment has exceeded 5% of consolidated total revenues for the periods presented.
(6)The International Pharmaceuticals segment, which accounted for less than 5% of consolidated total revenues for each of the periods presented, includes a variety of specialty pharmaceutical products sold outside the U.S., primarily in Canada through our operating company Paladin.