UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 FORM 10-Q

 ☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

 OR

 ☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 FOR THE TRANSITION PERIOD FROM TO      

 COMMISSION FILE NUMBER 001-39294

 ASSERTIO HOLDINGS, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware	85-0598378
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)	(I.R.S. EMPLOYER IDENTIFICATION NUMBER)

 100 South Saunders Road, Suite 300

Lake Forest, Illinois 60045

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES; ZIP CODE)

 (224) 419-7106

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol(s):	Name of each exchange on which registered:
Common Stock, $0.0001 par value	ASRT	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

The number of issued and outstanding shares of the registrant’s Common Stock, $0.0001 par value, as of October 30, 2020 was 107,223,287.

ASSERTIO HOLDINGS, INC.

FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019
	Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2020 and 2019
	Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2020 and 2019
	Notes to Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.	Exhibits
	Signatures

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ASSERTIO HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(Unaudited)

	September 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	34,737	$	42,107
Accounts receivable, net	39,223		42,744
Inventories, net	13,469		3,412
Prepaid and other current assets	17,063		15,688
Total current assets	104,492		103,951
Property and equipment, net	3,773		3,497
Intangible assets, net	206,628		400,535
Goodwill	9,008		—
Other long-term assets	8,896		19,187
Total assets	$	332,797	$	527,170
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	22,981	$	16,193
Accrued rebates, returns and discounts	48,932		58,943
Accrued liabilities	33,062		18,948
Current portion of long-term debt	11,010		80,000
Contingent consideration, current portion	6,475		—
Interest payable	5,829		8,375
Other current liabilities	3,085		2,094
Total current liabilities	131,374		184,553
Long-term debt	77,235		271,258
Contingent consideration	35,188		168
Other long-term liabilities	13,050		13,233
Total liabilities	256,847		469,212
Commitments and contingencies
Shareholders’ equity:
Common stock	12		8
Additional paid-in capital	479,530		457,751
Accumulated deficit	(403,592)		(399,801)
Total shareholders’ equity	75,950		57,958
Total liabilities and shareholders' equity	$	332,797	$	527,170

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ASSERTIO HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues:
Product sales, net	$	34,266	$	27,502	$	63,683	$	79,889
Commercialization agreement, net	—		27,304		11,258		89,163
Royalties and milestones	299		341		1,158		1,226
Total revenues	34,565		55,147		76,099		170,278
Costs and expenses:
Cost of sales (excluding amortization of intangible assets)	6,462		2,243		13,099		6,942
Research and development expenses	1,316		1,476		3,983		4,531
Selling, general and administrative expenses	25,746		36,117		81,191		85,917
Amortization of intangible assets	5,587		25,444		18,237		76,331
Restructuring charges	268		—		6,787		—
Total costs and expenses	39,379		65,280		123,297		173,721
Loss from operations	(4,814)		(10,133)		(47,198)		(3,443)
Other income (expense):
Gain on sale of Gralise	—		—		126,655		—
(Loss) Gain on extinguishment of convertible notes	—		26,385		(47,880)		26,385
Loss on sale of NUCYNTA	—		—		(14,749)		—
Interest expense	(3,050)		(13,872)		(13,328)		(45,268)
Change in fair value of contingent consideration	(1,861)		—		(1,861)		—
Loss on prepayment of Senior Notes	—		—		(8,233)		—
Other gain (loss)	253		(764)		(3,571)		(2,613)
Total other (expense) income	(4,658)		11,749		37,033		(21,496)
Net (loss) income before income taxes	(9,472)		1,616		(10,165)		(24,939)
Income tax (expense) benefit	(1,050)		1,715		6,374		364
Net (loss) income and Comprehensive (loss) income	$	(10,522)	$	3,331	$	(3,791)	$	(24,575)
Basic and diluted net (loss) income per share	$	(0.09)	$	0.05	$	(0.04)	$	(0.36)
Shares used in computing basic and diluted net (loss) income per share	119,564		72,747		99,832		67,332

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

ASSERTIO HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

(Unaudited)

	Common Stock			Additional Paid-In Capital		Accumulated Earnings (Deficit)		Shareholders’ Equity
	Shares	Amount
Balances at December 31, 2019	80,888	$	8	$	457,751	$	(399,801)	$	57,958
Issuance of common stock upon exercise of options	—	—		—		—		—
Issuance of common stock in conjunction with vesting of restricted stock units	434	—		—		—		—
Reacquisition of equity component of 2021 Notes and 2024 Notes	—	—		(16,814)		—		(16,814)
Stock-based compensation	—	—		1,934		—		1,934
Shares withheld for payment of employee's withholding tax liability	—	—		(271)		—		(271)
Net income and comprehensive income	—	—		—		41,230		41,230
Balances at March 31, 2020	81,322	$	8	$	442,600	$	(358,571)	$	84,037
Issuance of common stock under employee stock purchase plan	76	—		49		—		49
Issuance of common stock in conjunction with vesting of restricted stock units	215	—		—		—		—
Issuance of common stock in connection with the Zyla Merger	25,479	3		22,928		—		22,931
Issuance of warrants and stock options in conjunction with the Zyla Merger	—	—		11,626		—		11,626
Reacquisition of equity component of 2021 Notes and 2024 Notes	—	—		(2,718)		—		(2,718)
Stock-based compensation	—	—		3,593		—		3,593
Shares withheld for payment of employee's withholding tax liability	—	—		(41)		—		(41)
Net loss and comprehensive loss	—	—		—		(34,499)		(34,499)
Balances at June 30, 2020	107,092	$	11	$	478,037	$	(393,070)	$	84,978
Issuance of common stock in conjunction with vesting of restricted stock units	82	1		—		—		1
Stock-based compensation	—	—		1,511		—		1,511
Shares withheld for payment of employee's withholding tax liability	—	—		(18)		—		(18)
Net loss and comprehensive loss	—	—		—		(10,522)		(10,522)
Balances at September 30, 2020	107,174	$	12	$	479,530	$	(403,592)	$	75,950

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

	Common Stock			Additional Paid-In Capital		Accumulated Earnings (Deficit)		Accumulated Other Comprehensive Loss		Shareholders’ Equity
	Shares	Amount
Balances at December 31, 2018	64,185	$	6	$	402,934	$	(182,600)	$	(5)	$	220,335
Issuance of common stock upon exercise of options	14	—		25		—		—		25
Issuance of common stock in conjunction with vesting of restricted stock units	132	—		—		—		—		—
Stock-based compensation	—	—		2,702		—		—		2,702
Shares withheld for payment of employee's withholding tax liability	—	—		(216)		—		—		(216)
Net loss and comprehensive loss	—	—		—		(14,301)		—		(14,301)
Balances at March 31, 2019	64,331	$	6	$	405,445	$	(196,901)	$	(5)	$	208,545
Issuance of common stock under employee stock purchase plan	64	—		158		—		—		158
Issuance of common stock in conjunction with vesting of restricted stock units	426	—		—		—		—		—
Stock-based compensation	—	—		2,634		—		—		2,634
Shares withheld for payment of employee's withholding tax liability	—	—		(293)		—		—		(293)
Net loss and comprehensive loss	—	—		—		(13,605)		—		(13,605)
Balances at June 30, 2019	64,821	$	6	$	407,944	$	(210,506)	$	(5)	$	197,439
Issuance of common stock in conjunction with vesting of restricted stock units	42	—		—		—		—		—
Issuance of common stock in conjunction with the Convertible Note Exchange	15,817	2		25,305		—		—		25,307
Reacquisition of equity component of 2021 Notes, net of tax	—	—		(4,796)		—		—		(4,796)
Equity component of issued 2024 Notes, net of tax	—	—		24,165		—		—		24,165
Stock-based compensation	—	—		3,004		—		—		3,004
Shares withheld for payment of employee's withholding tax liability	—	—		(19)		—		—		(19)
Unrealized loss on available-for-sale securities	—	—		—		—		5		5
Net income and comprehensive income	—	—		—		3,331		—		3,331
Balances at September 30, 2019	80,680	$	8	$	455,601	$	(207,175)	$	—	$	248,434

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

ASSERTIO HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2020		2019
Operating Activities
Net loss	$	(3,791)	$	(24,575)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Gain on sale of Gralise	(126,655)		—
Loss on sale of NUCYNTA	14,749		—
Gain (Loss) on extinguishment of Convertible Notes	47,880		(26,385)
Loss on prepayment of Senior Notes	8,233		—
Depreciation and amortization	19,468		77,225
Loss on disposal of equipment	—		10,076
Amortization of debt discount, debt issuance costs and royalty rights	5,614		18,090
Recurring fair value measurement of assets and liabilities	5,485		4,843
Stock-based compensation	7,038		8,340
Provision for inventory and other assets	2,561		295
Deferred income tax benefit	—		(5,636)
Other	—		(328)
Changes in assets and liabilities:
Accounts receivable	24,944		(6,216)
Inventories	(792)		(213)
Income tax receivable	(6,979)		—
Prepaid and other assets	8,816		38,600
Accounts payable and other accrued liabilities	(18,447)		17,381
Accrued rebates, returns and discounts	(43,265)		(14,780)
Interest payable	(4,449)		(4,958)
Income taxes payable	—		(9,139)
Net cash (used in) provided by operating activities	(59,590)		82,620
Investing Activities
Purchases of property and equipment	(10)		(1,526)
Cash acquired in Zyla Merger	7,585		—
Proceeds from sale of NUCYNTA	368,965		—
Proceeds from sale of Gralise	130,261		—
Proceeds from sale of investments	6,000		—
Purchases of marketable securities	—		(12,065)
Sales of marketable securities	—		4,209
Maturities of marketable securities	—		7,856
Net cash provided by (used in) investing activities	512,801		(1,526)
Financing Activities
Payments in connection with convertible notes extinguishment	(264,731)		(30,000)
Payments in connection with Senior Notes settlement	(171,775)		(100,000)
Payment in connection with Series A-1 and A-2 debt	(10,000)		—
Payments on Revolver	(10,000)		—
Payments on Promissory Note	(3,000)		—
Convertible notes issuance costs	—		(4,268)
Payment of contingent consideration	(261)		—
Fees for modification of Senior Notes	—		(3,249)
Proceeds from issuance of common stock	—		183
Shares withheld for payment of employee's withholding tax liability	(814)		(528)
Net cash used in financing activities	(460,581)		(137,862)
Net decrease in cash and cash equivalents	(7,370)		(56,768)
Cash and cash equivalents at beginning of year	42,107		110,949
Cash and cash equivalents at end of period	$	34,737	$	54,181
Supplemental Disclosure of Cash Flow Information
Net cash paid for income taxes	$	865	$	420
Cash paid for interest	$	12,100	$	32,054

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

ASSERTIO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) 

NOTE 1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

On May 20, 2020, Assertio Holdings, Inc. (Assertio or the Company) completed a Merger (the Zyla Merger) with Zyla Life Sciences (Zyla) pursuant to an Agreement and Plan of Merger (Merger Agreement), dated as of March 16, 2020. Prior to the consummation of the Zyla Merger, Assertio Therapeutics, Inc. implemented a holding company reorganization (Assertio Reorganization) pursuant to an Agreement and Plan of Merger, dated as of May 19, 2020, by and among Assertio Therapeutics, Inc., the Company and a wholly-owned subsidiary formed to effectuate the Assertio Reorganization. As a result of the Assertio Reorganization, Assertio Therapeutics, Inc. became a direct, wholly-owned subsidiary of the Company, with the Company assuming Assertio Therapeutics, Inc.’s listing on the Nasdaq Stock Market and being deemed as successor issuer to Assertio Therapeutics, Inc. under applicable securities law. Each issued and outstanding share of common stock, $0.0001 par value per share, of Assertio Therapeutics, Inc. immediately prior to the Assertio Reorganization automatically converted into an equivalent corresponding share of common stock, $0.0001 par value per share, of the Company having the same designations, rights, powers, preferences, qualifications, limitations and restrictions as the converted share of Assertio Therapeutics, Inc. common stock. Unless otherwise noted or required by context, the Company uses “Assertio” to refer to Assertio Reorganization and Assertio Holdings, Inc. following the Assertio Reorganization.

Assertio is a commercial pharmaceutical company offering differentiated products to patients. The Company’s commercial portfolio of branded products focuses on three areas: neurology; hospital; and pain and inflammation. The Company has built its commercial portfolio through a combination of increased opportunities with its existing products, as well as through the acquisition or licensing of additional approved products.

The Company’s primary marketed products include:

SPRIX Nasal Spray® (ketorolac)	A nonsteroidal anti-inflammatory drug (NSAID) indicated in adult patients for the short term (up to five days) management of moderate to moderately severe pain that requires analgesia at the opioid level.
CAMBIA® (diclofenac potassium for oral solution)	A prescription medicine used to treat migraine attacks in adults. It does not prevent or lessen the number of migraines one has, and it is not for other types of headaches. It contains diclofenac potassium, an NSAID.
INDOCIN® (indomethacin) Suppositories INDOCIN® (indomethacin) Oral Suspension	A suppository form and oral solution of indomethacin approved for: •Moderate to severe rheumatoid arthritis including acute flares of chronic disease •Moderate to severe ankylosing spondylitis •Moderate to severe osteoarthritis •Acute painful shoulder (bursitis and/or tendinitis) •Acute gouty arthritis
ZIPSOR® (diclofenac potassium) Liquid filled capsules)	A prescription NSAID used for relief of mild-to-moderate pain in adults (18 years of age and older)

Additional commercially available products include ZORVOLEX® (diclofenac), VIVLODEX® (meloxicam) (collectively the SOLUMATRIX® products), and OXAYDO® (oxycodone HCI, USP) tablets for oral use only —CII.

In September 2020, the Company terminated its Second Amended and Restated Nano-Reformulated Compound License Agreement as of January 27, 2020 (the “iCeutica License”), with iCeutica Inc. and iCeutica Pty Ltd. (collectively, “iCeutica”). The iCeutica License allowed the Company to utilize certain technology and intellectual property related to iCeutica’s SOLUMATRIX technology and certain other rights of iCeutica. The intellectual property related to SOLUMATRIX technology will no longer be used by the Company and the Company will no longer manufacture products using SOLUMATRIX technology.

On February 13, 2020, the Company completed the sale of its remaining rights, title and interest in and to the NUCYNTA® franchise to Collegium Pharmaceutical, Inc. (Collegium) for $375.0 million, less royalties, in cash at closing.

8

Collegium assumed certain contracts, liabilities and obligations relating to the NUCYNTA products, including those related to manufacturing and supply, post-market commitments and clinical development costs. Collegium also paid for certain inventories relating to the products.

On January 10, 2020, the Company completed the sale of Gralise® (gabapentin) to Golf Acquiror LLC, an affiliate to Alvogen, Inc. (Alvogen), for cash proceeds of $130.3 million. The total value included $75.0 million in cash at closing, with the balance receivable as 75% of Alvogen’s first $70.0 million of Gralise net sales after the closing (consideration receivable). Alvogen also paid for certain inventories relating to Gralise. On June 3, 2020, the Company entered into an agreement with Alvogen to settle the remaining balance of $39.7 million in consideration receivable, whereby the Company reduced the consideration receivable by $0.9 million and Alvogen paid $38.8 million in cash.

Basis of Presentation

The unaudited condensed consolidated financial statements of Assertio and its subsidiaries and the related footnote information of the Company have been prepared pursuant to the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information that are normally required by U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company’s management, the accompanying interim unaudited condensed consolidated financial statements include all adjustments necessary for a fair presentation of the information for the periods presented. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the entire year ending December 31, 2020 or future operating periods.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2019 included in Assertio Therapeutics, Inc.’s Annual Report on Form 10-K filed with the SEC on March 10, 2020 (the 2019 Form 10-K). The Consolidated Condensed Balance Sheet as of December 31, 2019 has been derived from the audited financial statements at that date, as filed in the Company’s 2019 Form 10-K.

In connection with the preparation of the financial statements for the three and nine months ended September 30, 2020, the Company evaluated whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to the entity's ability to continue as a going concern within twelve months after the date of the issuance of these financial statements noting that there did not appear to be evidence of substantial doubt of the entity's ability to continue as a going concern.

Principles of Consolidation

The condensed consolidated financial statements of Assertio include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are used when accounting for amounts recorded in connection with acquisitions, including initial fair value determinations of assets and liabilities as well as subsequent fair value measurements. Additionally, estimates are used in determining items such as sales discounts and product returns, depreciable and amortizable lives, share-based compensation assumptions and taxes on income. Although management believes these estimates are based upon reasonable assumptions within the bounds of its knowledge of the Company’s business and operations, actual results could differ materially from these estimates.

Segment Information

The Company manages its business within one reportable segment. Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance. To date, substantially all of the Company’s revenues from product sales are related to sales in the United States.

9

Acquisitions

The Company accounts for acquired businesses using the acquisition method of accounting under ASC 805, Business Combinations (ASC 805), which requires that assets acquired and liabilities assumed be recorded at date of acquisition at their respective fair values. The fair value of the consideration paid, including contingent consideration, is assigned to the underlying net assets of the acquired business based on their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Significant judgments are used in determining the estimated fair values assigned to the assets acquired and liabilities assumed and in determining estimates of useful lives of long-lived assets. Fair value determinations and useful life estimates are based on, among other factors, estimates of expected future net cash flows, estimates of appropriate discount rates used to present value expected future net cash flows, the assessment of each asset’s life cycle, and the impact of competitive trends on each asset’s life cycle and other factors. These judgments can materially impact the estimates used to allocate acquisition date fair values to assets acquired and liabilities assumed and the resulting timing and amounts charged to, or recognized in current and future operating results. For these and other reasons, actual results may vary significantly from estimated results.

Any changes in the fair value of contingent consideration resulting from a change in the underlying inputs is recognized in operating expenses until the contingent consideration arrangement is settled. Changes in the fair value of contingent consideration resulting from the passage of time are recorded within interest expense until the contingent consideration is settled.

If the acquired net assets do not constitute a business under the acquisition method of accounting, the transaction is accounted for as an asset acquisition and no goodwill is recognized. In an asset acquisition, the amount allocated to acquired in-process research and development (IPR&D) with no alternative future use is charged to expense at the acquisition date.

Revenue Recognition

Under ASC 606, Revenue from Contracts with Customers (ASC 606), the Company recognizes revenue when its customer obtains control of the promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation, when (or as) the performance obligation is satisfied. The Company assesses the term of the contract based upon the contractual period in which the Company and Collegium have enforceable rights and obligations.

Variable consideration arising from sales or usage-based royalties, promised in exchange for a license of the Company’s Intellectual Property, is recognized at the later of (i) when the subsequent product sales occur or (ii) the performance obligation, to which some or all of the sales-based royalty has been allocated, has been satisfied.

The Company recognizes a contract asset relating to its conditional right to consideration for completed performance obligations. Accounts receivable are recorded when the right to consideration becomes unconditional. A contract liability is recorded for payments received in advance of the related performance obligation being satisfied under the contract.

Product Sales

The Company sells commercial products to wholesale distributors and specialty pharmacies. Product sales revenue is recognized when title has transferred to the customer and the customer has assumed the risks and rewards of ownership, which typically occurs on delivery to the customer. The Company’s performance obligation is to deliver product to the customer, and the performance obligation is completed upon delivery. The transaction price consists of a fixed invoice price and variable product sales allowances, which include rebates, discounts and returns. Product sales revenues are recorded net of applicable sales tax and reserves for these product sales allowances. Receivables related to product sales are typically collected one to two months after delivery.

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Product Sales Allowances—The Company considers products sales allowances to be variable consideration and estimates and recognizes product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on actual or estimated amounts owed on the related sales. These estimates take into consideration the terms of the Company’s agreements with customers, historical product returns, rebates or discounts taken, estimated levels of inventory in the distribution channel, the shelf life of the product and specific known market events, such as competitive pricing and new product introductions. The Company uses the most likely method in estimating product sales allowances. If actual future results vary from the Company’s estimates, the Company may need to adjust these estimates, which could have an effect on product sales and earnings in the period of adjustment. The Company’s sales allowances include:

Product Returns—The Company allows customers to return product for credit with respect to that product within six months before and up to 12 months after its product expiration date. The Company estimates product returns and associated credit on NUCYNTA, Gralise, CAMBIA, Zipsor, Lazanda and products acquired from Zyla, INDOCIN, ZORVOLEX, VIVLODEX and OXAYDO. Estimates for returns are based on historical return trends by product or by return trends of similar products, taking into consideration the shelf life of the product at the time of shipment, shipment and prescription trends, estimated distribution channel inventory levels and consideration of the introduction of competitive products. The Company did not assume financial responsibility for returns of NUCYNTA previously sold by Janssen Pharma or Lazanda product previously sold by Archimedes Pharma US Inc. Under the Commercialization Agreement with Collegium for NUCYNTA, the divestiture of Lazanda to Slán and the divestiture of Gralise to Alvogen, the Company is only financially responsible for product returns for product that were sold by the Company, which are identified by specific lot numbers. Shelf lives, from the respective manufacture dates, for the Company’s products range from 24 months to 48 months.

Because of the shelf life of the Company’s products and its return policy of issuing credits with respect to product that is returned within six months before and up to 12 months after its product expiration date, there may be a significant period of time between when the product is shipped and when the Company issues credit on a returned product. Accordingly, the Company may have to adjust these estimates, which could have an effect on product sales and earnings in the period of adjustments.

Wholesaler and Pharmacy Discounts—The Company offers contractually determined discounts to certain wholesale distributors and specialty pharmacies that purchase directly from it. These discounts are either taken off invoice at the time of shipment or paid to the customer on a quarterly basis one to two months after the quarter in which product was shipped to the customer.

Prompt Pay Discounts—The Company offers cash discounts to its customers (generally 2% of the sales price) as an incentive for prompt payment. Based on the Company’s experience, the Company expects its customers to comply with the payment terms to earn the cash discount.

Patient Discount Programs—The Company offers patient discount co-pay assistance programs in which patients receive certain discounts off their prescriptions at participating retail and specialty pharmacies. The discounts are reimbursed by the Company to program administrators approximately one month after the prescriptions subject to the discount are filled.

Medicaid Rebates—The Company participates in Medicaid rebate programs, which provide assistance to certain low income patients based on each individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, the Company pays a rebate to each participating state, generally two to three months after the quarter in which prescriptions subject to the rebate are filled.

Chargebacks—The Company provides discounts to authorized users of the Federal Supply Schedule (FSS) of the General Services Administration under an FSS contract with the Department of Veterans Affairs and 340B eligible entities. These federal and 340B entities purchase products from the wholesale distributors at a discounted price, and the wholesale distributors then charge back to the Company the difference between the current retail price and the price the federal entity paid for the product.

Managed Care Rebates—The Company offers discounts under contracts with certain managed care providers. The Company generally pays managed care rebates one to three months after the quarter in which prescriptions subject to the rebate are filled.

Medicare Part D Coverage Gap Rebates — The Company participates in the Medicare Part D Coverage Gap Discount Program under which it provides rebates on prescriptions that fall within the “donut hole” coverage gap. The Company

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generally pays Medicare Part D Coverage Gap rebates two to three months after the quarter in which prescriptions subject to the rebate are filled.

Royalty Revenue

For arrangements that include sales-based royalties and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes royalty revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

The Company currently has the right to receive royalties based on sales of CAMBIA in Canada, which are recognized as revenue when the related sales occur as there are no continuing performance obligations by the Company under those agreements.

Milestones

For arrangements that include milestones, the Company recognizes such revenue using the most likely method. As part of adopting ASC 606, the Company evaluated whether the future milestones 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. 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 revenue in the period of adjustment.

Leases

The Company adopted ASC 842, Leases (ASC 842), on January 1, 2019 using the modified retrospective approach with cumulative effect. There was no adjustment to the Company's opening balance of accumulated deficit resulting from the adoption of this guidance. In addition, the Company elected the package of practical expedients, which among other things, allowed for the carryforward of the historical lease classification. The Company did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases. Prior to the adoption of ASC 842, the Company accounted for its operating leases in accordance with ASC 840. Under ASC 840, only capital leases were recognized on the balance sheet and therefore the Company’s operating leases were reflected in the financial statement footnotes. The adoption of ASC 842 did not materially affect the Company’s Condensed Consolidated Statements of Comprehensive Income.

The Company assesses contracts for lease arrangements at inception and, if applicable, upon any partial or full lease termination event. Operating right-of-use (ROU) assets and liabilities are recognized at the lease commencement date equal to the present value of future lease payments using the implicit, if readily available, or incremental borrowing rate based on the information readily available at the commencement date. ROU assets include any lease payments as of commencement and initial direct costs but exclude any lease incentives. Lease and non-lease components are generally accounted for separately and the Company recognizes operating lease expense straight-line over the term of the lease. Operating leases are included in other long term assets, other current liabilities, and other long term liabilities in the Condensed Consolidated Balance Sheet.

The Company accounts for operating leases with an initial term of 12 months or less on a straight-line basis over the lease term in the Condensed Consolidated Statements of Comprehensive Income.

Stock Based Compensation

The Company’s stock-based compensation generally includes stock options, restricted stock unit awards (RSUs), performance share unit awards (PSUs), and purchases under the Company’s employee stock purchase plan (ESPP). The Company accounts for forfeitures as they occur for each type of award. Stock-based compensation expense related to RSUs is based on the market value of the underlying stock on the date of grant and the related expense is recognized ratably over the requisite service period.

The stock-based compensation expense related to PSUs is estimated at grant date based on the fair value of the award. The PSU awards are measured exclusively to the relative total shareholder return (TSR) performance, which is measured against the three-year TSR of a custom index of companies. The actual number of shares awarded is adjusted to between zero and 200% of the target award amount based upon achievement in each of the three independent successive one-year tranches. TSR relative to peers is considered a market condition under applicable authoritative guidance. For PSUs granted with vesting subject to market conditions, the fair value of the award is determined at grant date using the Monte Carlo model, and

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expense is recognized ratably over the requisite service period regardless of whether or not the market condition is satisfied. The Monte Carlo valuation model considers a variety of potential future share prices for Assertio and our peer companies in a selected market index.

The Company uses the Black-Scholes option valuation model to determine the fair value of stock options and ESPP shares. The determination of the fair value of stock-based payment awards on the date of grant using an option valuation model is affected by our stock price as well as assumptions, which include the expected term of the award, the expected stock price volatility, risk-free interest rate and expected dividends over the expected term of the award. The Company uses historical option exercise data to estimate the expected term of the options. The Company estimates the volatility of our common stock price by using the historical volatility over the expected term of the options. The Company bases the risk-free interest rate on U.S. Treasury zero coupon issues with terms similar to the expected term of the options as of the date of grant. The Company does not anticipate paying any cash dividends in the foreseeable future, and therefore, uses an expected dividend yield of zero in the option valuation model. Stock-based compensation expense related to the ESPP and options is recognized on a straight-line basis over its respective term.

Intangible and Long-Lived Assets

Intangible assets consist of purchased developed technology and trademarks that are accounted for as definite-lived intangible assets subject to amortization. The Company determines the fair value of acquired intangible assets as of the acquisition date. Discounted cash flow models are typically used in these valuations, which require the use of significant estimates and assumptions, including but not limited to, developing appropriate discount rates and estimating future cash flows from product sales and related expenses. The fair value recorded is amortized on a straight-line basis over the estimated useful life of the asset. The Company estimated the useful life of the assets by considering competition by products prescribed for the same indication, the likelihood and estimated future entry of non-generic and generic competition for the same or similar indication and other related factors. The Company evaluates purchased intangibles for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The impairment loss is calculated as the excess of the carrying amount over the fair value. Estimating future cash flows and fair value related to an intangible asset involves significant estimates and assumptions. If the Company’s assumptions are not correct, there could be an impairment loss or, in the case of a change in the estimated useful life of the asset, a change in amortization expense.

The Company assess the recoverability of our long-lived assets, which include property and equipment and product rights whenever significant events or changes in circumstances indicate impairment may have occurred. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset are compared to the carrying amount to determine whether the asset’s value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset and a charge to operating results.

Goodwill

Under the purchase method of accounting pursuant to ASC 805, Goodwill is calculated as the excess of the purchase price over the fair value of the assets acquired and liabilities assumed. Goodwill, which is not tax-deductible, is recognized within other long-term assets, and is not amortized but subject to an annual review for impairment. Goodwill is tested for impairment at the reporting unit level at least annually or when a triggering event occurs that could indicate a potential impairment by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that the fair value of net assets are below their carrying amounts. A reporting unit is the same as, or one level below, an operating segment. The Company’s operations are currently comprised of a single reporting unit.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (ASU 2016-13 or Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The Company adopted this standard on January 1, 2020 and updated its internal controls to include certain forward-looking considerations in the current process of developing and recognizing credit losses for in scope financial assets, which primarily included accounts receivable and a $3.5 million investment in a company engaged in medical research. ASC 326 had an immaterial impact to our allowance for credit losses reported in accounts receivable on our Condensed Consolidated Balance Sheet upon adoption. The investment is structured as a long-term loan receivable with a convertible feature and carried at amortized cost with accruing interest. To

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calculate the expected credit loss allowance, the Company utilized a probability-of-default method (PDM). This process estimates the probability of the loan being successfully paid back or converted into equity based on the ability of the investee to obtain FDA acceptance of its research.

As of September 30, 2020, the Company estimated an expected credit loss of approximately $1.9 million, which was recognized in Other (expense) income in the Company’s Condensed Consolidated Statement of Comprehensive Income in the first quarter of 2020 and is included in Investments, net in the Company’s Condensed Consolidated Balance Sheet. The Company’s expected credit losses can vary from period to period based on several factors, such as progress of the medical research and FDA submission, and overall economic environment and the ability of the investee to fund its operations. The primary factor that contributed to the provision for expected credit losses as of the second quarter of 2020 was an evaluation of probability of default to exist based on the outlook of the macro environment due to the COVID-19 pandemic and its impact to delay the FDA acceptance process combined with the investee’s ability to fund its operations and raise capital if required.

In June 2018, the FASB issued ASU 2018-18 Collaborative Arrangements (ASU 2018-18), which clarifies the interaction between ASC 808, Collaborative Arrangements (ASC 808) and ASC 606, Revenue from Contracts with Customers (ASC 606). The update clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, the update precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue if the counterparty is not a customer for that transaction. The Company adopted the standard as of January 1, 2020 and have applied modified retrospective transition method to the date of initial application of ASC 606. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Accounting for Cloud Computing Arrangements (Subtopic 350-40), which provides new guidance on the accounting for implementation, set-up, and other upfront costs incurred in a hosted cloud computing arrangement. Under the new guidance, entities will apply the same criteria for capitalizing implementation costs as they would for an internal-use software license arrangement. Effective January 1, 2020, the Company adopted the standard using the prospective approach to eligible costs incurred on or after the date of adoption. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement Disclosure Framework (ASU 2018-03), which is part of a broader disclosure framework project by the FASB to improve the effectiveness of disclosures by more clearly communicating the information to the user. The Company adopted the standard as of January 1, 2020 and included these disclosures in the condensed consolidated financial statements. The additional elements of this release did not impact the Company's condensed consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (ASU 2019-12): Simplifying the Accounting for Income Taxes which simplifies the accounting for income taxes by removing certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and by clarifying and amending existing guidance in order to improve consistent application of and simplify GAAP for other areas of Topic 740. ASU 2019-12 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Company early adopted the standard effective January 1, 2020. The new standard was applied to the presentation of the Company’s reacquisition of $19.5 million in equity component of the Company’s Convertible Notes, as a result of the private purchase in February 2020 and tender offer in April 2020.

NOTE 2. ACQUISITIONS

Business Combination

Zyla Life Sciences

On May 20, 2020, Assertio completed the Zyla Merger pursuant to the Agreement and Plan of Merger dated March 16, 2020. Upon consummation of the Zyla Merger, each issued and outstanding share of Zyla common stock converted into 2.5 shares of Assertio Holding’s common stock (the Exchange Ratio), and each outstanding option or warrant to purchase Zyla common stock converted into the right to purchase shares of Assertio’s common stock. The Company anticipates the Zyla Merger will capture operating and product portfolio synergies, accelerate revenue growth and create shareholder value.

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The following table reflects the acquisition date fair value of the consideration transferred with respect to the Zyla Merger:

Total number of Company ordinary shares issued	25,478,539
Assertio share price as of May 20, 2020	$	0.90
Fair value of common shares issued (in thousands)	$	22,931
Fair value of warrants and stock options issued (in thousands) (1)	11,626
Taxes paid by the Company on behalf of Zyla (in thousands)	529
Total purchase consideration (in thousands)	$	35,086

(1) Represents 4,972,365 of Zyla warrants outstanding as of May 20, 2020 at the Exchange Ratio or 12,430,913 Company warrants.     The Company’s warrants were valued using the Company’s share price of $0.90 as of May 20,2020. As these shares are exercisable at any time at an exercise price of $0.0004 per share and Assertio will issue replacement awards for these shares, these shares have been determined to represent consideration transferred. In addition represents merger consideration portion of the fair value of Zyla outstanding stock options as of May 20, 2020 which were converted to Company stock options at the Exchange Ratio.

Costs incurred that were directly attributable to facilitating the close of the Zyla Merger were $6.6 million and were recognized in the first six months of 2020. There were no costs incurred during the three months ended September 30, 2020. These costs were recorded to the Selling, general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Income.

Pursuant to ASC 805, one of the companies in the transactions shall be designated as the acquirer for accounting purposes based on the evidence available. For accounting purposes, Assertio was treated as the acquiring entity. The Zyla Merger transaction was accounted for as a business combination under the acquisition method of accounting in accordance with ASC 805. Under this method, the acquisition was recorded by allocating the purchase price consideration to the tangible and intangible assets acquired and liabilities assumed from Zyla, based on the estimated fair values at the acquisition date. The excess of purchase price over the fair value of the acquired net assets was recorded as goodwill. The results of operations of this transaction have been included in the Company’s condensed consolidated financial statements from the date of acquisition.

The valuations performed in the second quarter of 2020 to assess the fair value of certain assets acquired and liabilities assumed were considered preliminary as a result of the short time period between the closing of the merger and the end of the second quarter of 2020. Accounting guidance provides that the allocation of the purchase price may be modified up to one year from the date of the merger as more information is obtained about the fair value of assets acquired and liabilities assumed. During the third quarter of 2020, certain modifications were made to preliminary valuation amounts primarily related to acquired inventory, plant, property and equipment, intangible assets, and contingent consideration resulting in a $5.1 million net decrease to goodwill. The preliminary amounts recognized are subject to further revision to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. Any changes to the fair value assessments may affect the purchase price allocation and could potentially impact goodwill.

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The following table reflects the initial and adjusted estimated preliminary fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

	Initial Preliminary Purchase Price Allocation to Fair Value		Adjustments to Purchase Price Allocation to Fair Value		Adjusted Preliminary Purchase Price Allocation to Fair Value
Cash	$	7,585	$	—	$	7,585
Accounts receivable	23,133		—		23,133
Inventories	26,742		(12,481)		14,261
Property and equipment	4,512		(3,016)		1,496
Intangible assets	160,900		32,500		193,400
Other assets	9,629		(1,964)		7,665
Total identifiable assets acquired	$	232,501	$	15,039	$	247,540
Accounts payable	21,574		—		21,574
Accrued rebates, returns and discounts	33,254		—		33,254
Other accrued liabilities	15,434		—		15,434
Contingent consideration (a)	29,400		10,500		39,900
Debt (b)	111,900		(600)		111,300
Total liabilities assumed	$	211,562	$	9,900	$	221,462
Net identifiable assets acquired	20,939		5,139		26,078
Goodwill (c)	14,147		(5,139)		9,008
Net assets acquired	$	35,086	$	—	$	35,086

(a) Contingent consideration was recognized and measured at an estimated fair value as of the acquisition date. The contingent consideration liability assumed is the result of Zyla’s previous acquisition of INDOCIN. The liability assumed included contingent consideration related to royalties payable in the form of an earnout provision based on INDOCIN product revenue estimates and a probability assessment with respect to the likelihood of achieving the level of net sales that would trigger the contingent payment. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in fair value measurement accounting. The key assumptions in determining the fair value are the discount rate and the probability assigned to the potential milestones being achieved. At each reporting date, the Company will subsequently re-measure the contingent consideration obligation to estimated fair value. Any changes in the fair value of contingent consideration will be recognized in operating expenses until the contingent consideration arrangement is settled.

(b) The fair value of acquired debt is comprised of the following (in thousands):

13% Senior Secured Note due 2024	$	95,000
Royalty rights obligation	3,300
Promissory note	3,000
Credit agreement	10,000
	$	111,300

Upon the Zyla Merger, the Company assumed and immediately paid off a $3.0 million promissory note. The promissory note was scheduled to mature on July 31, 2020. Additionally upon the Zyla Merger, the Company assumed and immediately paid off a $10.0 million credit agreement. The credit agreement was recognized by Zyla as a related party transaction as the lenders were also holders of a portion of the Zyla’s 13% Notes that were issued on January 31, 2019. The Credit Agreement was scheduled to mature on March 20, 2022. See Note 9, Debt, for further information regarding assumed Debt.

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(c) The Company recognized $9.0 million of goodwill which represents the fair value of assets net of the fair value of liabilities assumed in excess of consideration paid. Goodwill arising from the Zyla Merger is not expected to be deductible for tax purposes and is subject to material revision as the purchase price allocation is completed. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Zyla.

Stock-based Compensation Plan

On June 4, 2020, the Company filed a Registration Statement with the SEC to register the Zyla Life Sciences Amended and Restated 2019 Stock-Based Incentive Compensation Plan (the 2019 Zyla Plan). The 2019 Zyla Plan was assumed in connection with the Zyla Merger. Pursuant to the Zyla Merger Agreement, each outstanding Zyla stock option was cancelled and converted into a stock option to purchase the Company’s Common Stock on the same terms and conditions with (1) the number of shares of Company Common Stock subject to each such option equal to (i) the number of shares of the common stock subject to the option multiplied by (ii) the Merger Exchange Ratio, which was 2.5, rounded, if necessary, to the nearest whole share and (2) an exercise price per share (rounded to the nearest whole cent) equal to the original exercise price of the Zyla stock option divided by (B) the Exchange Ratio. This resulted in the issuance of 5.0 million options with an average fair market value of $0.62 per share value, of which $0.4 million was recognized as merger consideration. The term of Zyla options may not exceed 10 years from the date of grant. An option shall be exercisable on or after each vesting date in accordance with the terms set forth in the option agreement. The right to exercise an option generally vests over three years at the rate of at least 33% , by the end of the first year and then ratably in monthly installments over the remaining vesting period of the stock option.

Warrant Agreements

Upon the Zyla Merger, the Company assumed Zyla’s warrant agreements (the “Warrant Agreements”) with Iroko Pharmaceuticals, Inc. (“Iroko”) certain of Iroko’s affiliates and certain other parties entitled to receive shares of the Company’s common stock as consideration pursuant to Zyla’s prior agreements or in satisfaction of certain claims pursuant to the Zyla’s prior reorganization plan. The warrants are exercisable at any time at an exercise price of $0.0004 per share, subject to certain ownership limitations including, with respect to Iroko and its affiliates, that no such exercise may increase the aggregate ownership of the Company’s outstanding common stock of such parties above 49% of the number of shares of its common stock then outstanding for a period of 18 months. All of the Company’s outstanding warrants have similar terms whereas under no circumstance may the warrants be net-cash settled. As such, all warrants are equity-classified. See Note 14, Net Income (Loss) per Share.

Supplemental unaudited proforma information is based upon accounting estimates and judgments that the Company believes are reasonable. This supplemental unaudited pro forma financial information has been prepared for comparative purposes only, and is not necessarily indicative of what actual results would have occurred, or of results that may occur in the future. The following table reflects the pro forma consolidated total revenues and net loss for the periods presented, as if the acquisition of Zyla had occurred on January 1, 2019.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Total revenues	$	33,965	$	61,390	$	101,492	$	184,949
Net loss	$	(11,122)	$	(23,102)	$	(36,053)	$	(120,254)

The unaudited proforma financial results for the three and nine months ended September 30, 2020 and September 30, 2019 reflect adjustments directly attributed to the business combination and the Company’s divestiture of NUCYNTA and Gralise. Additionally, the supplemental unaudited proforma information for the nine months ended September 30, 2019 was adjusted and excludes income of $115.2 million related to Zyla’s January 2019 Reorganization.

See Note 3, Revenue, for revenue for the period since the acquisition date to September 30, 2020 related to Zyla acquired products. As the Company operates as one operating entity, earnings of Zyla since the acquisition date are impractical to calculate separate from the consolidated company.

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NOTE 3. REVENUE

Disaggregated Revenue

The following table reflects summary revenue, net for the three and nine months ended September 30, 2020 and 2019 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Product sales, net:
CAMBIA	$	7,449	$	8,135	$	21,503	$	23,701
Zipsor	3,395		3,273		9,261		9,028
INDOCIN products(1)	13,773		—		19,207		—
SPRIX Nasal Spray(1)	5,642		—		7,244		—
Other(2)	4,007		16,094		6,468		47,160
Total product sales, net	34,266		27,502		63,683		79,889
Commercialization agreement, net	—		27,304		11,258		89,163
Royalties and milestone revenue	299		341		1,158		1,226
Total revenues	$	34,565	$	55,147	$	76,099	$	170,278

(1)Products acquired in connection with Zyla Merger represent product sales, net for the period of May 20, 2020 through September 30, 2020.

(2)Includes product sales for Gralise, which was divested in January 2020; product sales adjustments for previously divested products NUCYNTA and Lazanda; and, product sales for non-promoted products Oxaydo and SOLUMATRIX, which were acquired from Zyla in May 2020.

Product Sales

For the three and nine months ended September 30, 2020, product sales primarily consisted of sales from CAMBIA, Zipsor, INDOCIN products, and SPRIX Nasal Spray. Product sales for the Company’s non-promoted products acquired upon the Zyla Merger were $3.4 million and $4.8 million for the three and nine months ended September 30, 2020. The Company began shipping and recognizing product sales for INDOCIN products, SPRIX Nasal Spray, and SOLUMATRIX products upon the Zyla Merger on May 20, 2020.

The Company completed the sale of Gralise to Alvogen on January 10, 2020, and therefore ceased recognizing product sales related to Gralise effective on the transaction close date. Product sales related to Gralise for the nine months ended September 30, 2020 were $0.4 million for sales reserve estimate adjustments related to sales recognized in prior periods . Product sales of Gralise for the three and nine months ended September 30, 2019 were $14.9 million and $46.0 million.

The Company ceased recognizing product sales related to NUCYNTA in January 2018 and the NUCYNTA Commercialization Agreement in February 2020 (see Commercialization Agreement below). The Company divested and ceased recognizing product sales related to Lazanda in November 2017. Product sales related to NUCYNTA and Lazanda during the period relate to sales reserve estimate adjustments related to sales recognized in prior periods. 

Commercialization Agreement

In December 2017, the Company and Collegium entered into the Commercialization Agreement (Commercialization Agreement), pursuant to which the Company granted Collegium the right to commercialize the NUCYNTA franchise of pain products in the U.S.  Pursuant to the Commercialization Agreement, Collegium assumed all commercialization responsibilities for the NUCYNTA franchise effective January 9, 2018, including sales and marketing. In November 2018 the Company entered into an amendment to the Commercialization Agreement (Commercialization Amendment). Prior to the November 2018 amendment, the consideration related to the license and facilitation services was fixed and recognized ratably over the contract term. Following the November 2018 amendment, the royalty payments represented variable consideration that are subject to the sales-based royalty exception for licenses of intellectual property and are recognized at the later of (i) when the

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subsequent product sales occur or (ii) the performance obligation, to which some or all of the sales-based royalty has been allocated, has been satisfied.

In addition, the Company was responsible for royalty payments to a third party related to sales of NUCYNTA. Prior to the November 2018 amendment, Collegium became primarily responsible for these royalties in connection with the Commercialization Agreement; however, a portion of these payments remained the responsibility of the Company. Following the November 2018 amendment, effective January 1, 2019, Collegium became responsible for the third-party royalty payments entirely. As the Company was not actively commercializing NUCYNTA, such royalties were recorded by the Company on a systematic basis in proportion to the underlying net product sales, subject to the sales-based royalty exemption for license of intellectual property, and were included as gross-to-net adjustments in the related revenue line in the Company’s Condensed Consolidated Statements of Comprehensive Income. Such amounts, over the course of the calendar year, had no net impact.

Effective February 13, 2020, the Company divested its rights, title and interest in and to its NUCYNTA franchise of products in the U.S. to Collegium. In connection with the sale, the Commercialization Agreement terminated at closing with certain specified provisions of the Commercialization Agreement surviving in accordance with the terms of the purchase agreement. During the first quarter of 2020, the Company recognized net revenue from the Commercialization Agreement of $11.3 million. This included variable royalty revenue of $13.1 million offset by the amortization of the $1.8 million net contract asset in connection with the termination of the Commercialization Agreement as a result of the divestiture of NUCYNTA to Collegium.

For the three and nine months ended September 30, 2019, the Company recognized $2.9 million and $5.0 million, respectively, of net expense related to the third-party royalties which were paid by Collegium on behalf of Assertio. Collegium paid the full royalty owed to the third-party in 2019 and such amounts, over the course of the calendar year, had no net impact to the Company’s Condensed Consolidated Statement of Comprehensive Income.

Contract Assets

The following table reflects changes in the Company’s contract assets as of September 30, 2020 (in thousands):

	Balance as of			Balance as of
	December 31, 2019	Additions	Deductions	September 30, 2020
Contract asset - Collegium, net	1,896	—	(1,896)	—

The Collegium contract asset, net represented the conditional right to consideration for completed performance under the Commercialization Agreement arising 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 and the $8.8 million of warrants received in connection with the Commercialization Amendment. In connection with the divestiture of NUCYNTA to Collegium the Company amortized the remaining balance of the contract asset in the first quarter of 2020.

Royalties and Milestone Revenue

In November 2010, the Company entered into a license agreement with Tribute Pharmaceuticals Canada Ltd. (now known as Nuvo Pharmaceuticals, Inc.) granting them the rights to commercially market CAMBIA in Canada. Nuvo independently contracts with manufacturers to produce a specific CAMBIA formulation in Canada. The Company receives royalties on net sales on a quarterly basis as well as certain one-time contingent milestone payments upon the occurrence of certain events. The Company recognized revenue related to CAMBIA in Canada, $0.3 million and $1.2 million, respectively, for the three and nine months ended September 30, 2020, and 2019.

NOTE 4. ACCOUNTS RECEIVABLES, NET

The following table reflects accounts receivables, net, as of September 30, 2020 and December 31, 2019 (in thousands): 

19

	September 30, 2020		December 31, 2019
Receivables related to product sales, net	$	38,502	$	38,353
Receivables from Collegium	—		4,104
Other	721		287
Total accounts receivable, net	$	39,223	$	42,744

As of September 30, 2020 and December 31, 2019, allowances for cash discounts for prompt payment were $1.3 million and $1.2 million, respectively.

NOTE 5.  INVENTORIES, NET

The following table reflects the components of inventory, net as of September 30, 2020 and December 31, 2019 (in thousands): 

	September 30, 2020		December 31, 2019
Raw materials	$	206	$	1,065
Work-in-process	3,451		426
Finished goods	9,812		1,921
Total	$	13,469	$	3,412

As of September 30, 2020 and December 31, 2019, inventory reserves were $0.1 million and $0.4 million, respectively.

NOTE 6.