UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED December 31, 2019

¨ 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: 001‑13111

ASSERTIO THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)



Delaware (State or Other Jurisdiction of Incorporation or Organization)	94‑3229046 (I.R.S. Employer Identification No.)
100 South Saunders Road, Suite 300, Lake Forest, Illinois (Address of Principal Executive Offices)	60045 (Zip Code)

Registrant’s telephone number, including area code: (224) 419‑7106

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý

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 x No o

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 x No o

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 ý	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 Act). Yes ¨ No ý

The aggregate market value of the shares of common stock held by non‑affiliates of the registrant, computed by reference to the closing price as reported on the Nasdaq Stock Market as of June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $220.8 million.

The number of shares outstanding of the registrant’s common stock, $0.0001 par value, as of March 2, 2020 was 81,288,229.

Documents Incorporated by Reference

Part III of this Annual Report on Form 10-K incorporates by reference portions of the registrant’s Proxy Statement for its 2020 Annual Meeting of Stockholders, which Proxy Statement will be filed with the United States Securities and Exchange Commission within 120 days after the end of the registrant’s 2019 fiscal year.

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ASSERTIO THERAPEUTICS, INC.

FORM 10‑K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019

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PART I
Item 1.	Business
Item 1A.	Risk Factors
Item 1B.	Unresolved Staff Comments
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Mine Safety Disclosures

PART II
Item 5.	Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 6.	Selected Financial Data
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.	Controls and Procedures
Item 9B.	Other Information

PART III
Item 10.	Directors, Executive Officers and Corporate Governance
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13.	Certain Relationships and Related Transactions, and Director Independence
Item 14.	Principal Accountant Fees and Services

PART IV
Item 15.	Exhibits and Financial Statement Schedules
Item 16.	Form 10-K Summary
	Signatures

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NOTE REGARDING FORWARD‑LOOKING STATEMENTS

Statements made in this Annual Report on Form 10‑K that are not statements of historical fact are forward‑looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). We have based these forward‑looking statements on our current expectations and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward‑looking statements. Forward‑looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward‑looking statements. Forward‑looking statements include, but are not necessarily limited to, those relating to:


•	our ability to successfully pursue business development, strategic partnerships, and investment opportunities to build and grow for the future;


•	the commercial success and market acceptance of our products;


•	the outcome of our opioid-related investigations, our opioid-related litigation brought by state and local governmental entities and private parties, and our insurance, antitrust and other litigation, and the costs and expenses associated therewith;


•	any additional patent infringement or other litigation, investigation or proceeding that may be instituted related to us or any of our products, product candidates or products we may acquire;


•	our ability to generate sufficient cash flow from our business to make payments on our indebtedness, our ability to restructure or refinance our indebtedness and our compliance with the terms and conditions of the agreements governing our indebtedness;


•	our common stock remaining in compliance with Nasdaq’s minimum closing bid requirement of at least $1.00 per share, and the resulting rights of holders of our Convertible Notes to require us to repurchase their notes if our common stock ceases to be listed on the Nasdaq Global Select Market (or certain other U.S. stock exchanges specified in the agreements governing our indebtedness);


•	our and our collaborative partners’ compliance or non-compliance with legal and regulatory requirements related to the development or promotion of pharmaceutical products in the U.S.;


•	our plans to acquire, in-license or co-promote other products, and/or acquire companies;


•	the timing and results of our and our collaborative partners’ research and development efforts including clinical studies relating to our and our collaborative partners’ product candidates


•	our ability to raise additional capital, if necessary;


•	our ability to successfully develop and execute our sales and marketing strategies;


•	variations in revenues obtained from commercialization and collaborative agreements, including contingent milestone payments, royalties, license fees and other contract revenues, including non-recurring revenues, and the accounting treatment with respect thereto;


•	our collaborative partners’ compliance or non-compliance with obligations under our collaboration agreements; and


•	our ability to attract and retain key executive leadership.

Factors that could cause actual results or conditions to differ from those anticipated by these and other forward‑looking statements include those more fully described in “ITEM 1A. RISK FACTORS” and elsewhere in this Annual Report on Form 10‑K. Forward looking statements are made as of the date of this report. Except as required by law, we assume no obligation to update any forward‑looking statement, or to revise any forward‑looking statement to reflect events or developments occurring after the date of this Annual Report on Form 10‑K, even if new information becomes available in the future. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in any such forward‑looking statement.

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PART I

ITEM 1. BUSINESS

Our Company

Assertio Therapeutics, Inc. (Assertio or the Company) is a leading diversified, specialty pharmaceutical company focused on distinctive products that offer enhanced therapeutic options for patients in need, while maintaining the highest ethical standards in all our business practices. The Company’s current specialty pharmaceuticals business includes CAMBIA^®(diclofenac potassium for oral solution), a non-steroidal anti-inflammatory drug for the acute treatment of migraine attacks, acquired by the Company in December 2013, and Zipsor^® (diclofenac potassium liquid filled capsules), a non-steroidal anti-inflammatory drug for the treatment of mild to moderate acute pain, acquired by the Company in June 2012, both of which, are marketed in the United States (U.S.).

Business Strategy

In 2017, the Company announced that it was in the process of transforming into a leading diversified, specialty pharmaceutical company with a goal of rapidly deleveraging its balance sheet, growing its core business, and opportunistically building for the future via business development. The Company has completed the following transactions to advance toward achieving its stated goals:

•

On December 4, 2017, the Company announced a commercialization agreement with Collegium Pharmaceutical, Inc. (Collegium), pursuant to which the Company granted Collegium the right to commercialize the NUCYNTA franchise of products in the U.S. (the Commercialization Agreement). Pursuant to the Commercialization Agreement, Collegium assumed all commercialization responsibilities for the NUCYNTA franchise effective January 9, 2018, including sales and marketing, and the Company received royalty on all NUCYNTA revenues based on certain net sales thresholds.

•

On August 13, 2019, the Company entered into separate, privately negotiated exchange agreements (the Exchange Agreements) with a limited number of holders of Assertio’s 2.50% Convertible Notes due 2021 (the 2021 Notes). Pursuant to the Exchange Agreements, Assertio exchanged approximately $200 million aggregate principal amount of Exchanged Notes for a combination of (a) its new 5.00% Convertible Senior Notes due August 15, 2024 (the 2024 Notes), (b) a cash payment plus accrued but unpaid interest on the Exchanged Notes, and (c) an agreed number of shares of Assertio’s common stock.

•

On December 12, 2019, the Company announced it entered into an agreement with Golf Acquiror LLC, an affiliate to Alvogen, Inc. (Alvogen), a global privately held pharmaceutical company, under which Alvogen acquired and assumed all responsibilities associated with the product Gralise^® (gabapentin). Under the terms of the agreement, Alvogen is expected to pay Assertio a total value of $127.5 million. This included $75.0 million in cash at closing on January 10, 2020, and the balance payable as 75% of Alvogen’s first $70.0 million of Gralise net sales after the closing. Alvogen also paid the Company for certain inventories relating to Gralise.

•

On February 6, 2020, the Company announced it entered into a definitive agreement with Collegium pursuant to which Collegium acquired the NUCYNTAfranchise of products from the Company, and assumed certain contracts, liabilities and obligations of the Company relating to the NUCYNTA products, including those related to manufacturing and supply, post-market commitments and clinical development costs. Under the terms of the agreement, Collegium paid Assertio $375.0 million in cash at closing on February 13, 2020, less royalties paid to the Company in 2020. Collegium also paid the Company for certain inventories relating to the products.


•	On February 13, 2020, the Company repaid in full its outstanding aggregate principal amount of senior secured notes (Senior Notes) pursuant to a Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement) and all subsequent amendments to the Note Purchase Agreement.


•	On February 19, 2020, the Company announced it entered into separate, privately negotiated agreements with a limited number of holders of the Company’s 2021 Notes and 2024 Notes to repurchase approximately $188.0 million aggregate principal amount of the outstanding 2021 Notes and 2024 Notes.

As a result of the transformational impact of these transactions, the Company has positioned itself to actively pursue business development, strategic partnerships, and investment opportunities to build and grow for the future.

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The transactions above are described in more detail in “Item 8. Financial Statements and Supplemental Data - Notes to the Consolidated Financial Statements” of this Annual Report on Form 10-K.

Corporate Information

The address of our website is http://www.assertiotx.com. We make available, free of charge through our website or upon written request, our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K and other periodic SEC reports, along with amendments to all of those reports, as soon as reasonably practicable after we file the reports with the SEC.

Assertio was formerly known as Depomed, Inc. and was originally incorporated in California in August 1995. On August 14, 2018 (Effective Time), we reincorporated from California to Delaware and changed our name to Assertio Therapeutics, Inc. In connection with this name change, our common stock began trading under the ticker symbol “ASRT.” The use of the terms “Company,” “we,” “our” and “us” in this filing refers to Depomed any time prior to the Effective Time and to Assertio any time after the Effective Time.

Our Business Operations

As of December 31, 2019, our business operations consisted of the following:

Products

CAMBIA (Diclofenac Potassium for Oral Solution)

CAMBIA is a non‑steroidal anti‑inflammatory drug (NSAID) indicated for the acute treatment of migraine attacks with or without aura in adults 18 years of age or older. We acquired CAMBIA in December 2013 from Nautilus Neurosciences, Inc. (Nautilus). We began shipping and recognizing product sales on CAMBIA in December 2013.

Zipsor (Diclofenac Potassium Liquid‑Filled Capsules)

Zipsor is an NSAID indicated for relief of mild to moderate acute pain in adults. Zipsor uses proprietary ProSorb^® delivery technology to deliver a finely dispersed, rapidly absorbed formulation of diclofenac. We acquired Zipsor in June 2012 from Xanodyne Pharmaceuticals, Inc. (Xanodyne). We began shipping and recognizing product sales on Zipsor in June 2012.

Gralise (Gabapentin)

Gralise is a once‑daily formulation of gabapentin indicated for management of postherpetic neuralgia (PHN), a persistent pain condition caused by nerve damage during a shingles, or herpes zoster, viral infection. We made Gralise commercially available in October 2011, following its U.S. Food and Drug Administration (FDA) approval in January 2011. Effective as of January 10, 2020, we divested our rights, title and interest in and to Gralise to Alvogen.

NUCYNTA ER (Tapentadol Extended Release Tablets) and NUCYNTA IR (NUCYNTA) (Tapentadol)

NUCYNTA ER is an extended-release version of tapentadol that is indicated for the management of pain severe enough to require daily, around‑the‑clock, long-term opioid treatment, including neuropathic pain associated with diabetic peripheral neuropathy (DPN) in adults, and for which alternate treatment options are inadequate. NUCYNTA is an immediate release version of tapentadol that is indicated for the management of moderate to severe acute pain in adults. We acquired the U.S. rights to NUCYNTA ER and NUCYNTA from Janssen Pharmaceuticals, Inc. (Janssen Pharma) and began shipping and recognizing product sales on NUCYNTA ER and NUCYNTA in April 2015. We began commercial promotion of NUCYNTA ER and NUCYNTA in June 2015.

In December 2017, we entered into the Commercialization Agreement with Collegium, which we amended in November 2018. Pursuant to the Commercialization Agreement, we granted Collegium the right to commercialize the NUCYNTA franchise of products in the U.S. Collegium assumed all commercialization responsibilities for the NUCYNTA franchise effective January 9, 2018, including sales and marketing, and received royalties on all NUCYNTA revenues based on certain net sales thresholds, with a minimum royalty of $132.0 million for the year ended December 31, 2018. Beginning in 2019, we received royalties based on certain annual NUCYNTA net sales thresholds for future years. Effective as of February 13, 2020, we divested our rights, title and interest in and to our NUCYNTA franchise to Collegium.

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The following table shows sales for each of the above-described products over each of the past three fiscal years (in millions):



	Year ended December 31,
	2019	2018	2017
Gralise	$63.1	$58.1	$77.0
CAMBIA	$32.5	$35.8	$31.6
Zipsor	$12.5	$16.4	$16.7
NUCYNTA ER and NUCYNTA
Product Sales ⁽¹⁾	$0.9	$18.9	$239.5
Commercialization Agreement ⁽²⁾	$118.6	$155.7	$0
Lazanda⁽³⁾	$(0.2)	$0.8	$15.0

(1)

NUCYNTA ER and NUCYNTA product sales reflect our sales between January 1, 2017 and January 8, 2018, prior to the Commercialization Agreement with Collegium. See “Item 8. Financial Statements and Supplementary Data - Note 2. Revenue” for additional information. Subsequent to January 8, 2018, we continue to recognize sales reserve estimate adjustments related to sales recognized for NUCYNTA products in prior periods.

(2)

NUCYNTA ER and NUCYNTA royalties from Collegium reflect royalties earned and inventory sold pursuant to the Commercialization Agreement after January 8, 2018. Variable royalty revenue became effective for sales beginning January 1, 2019, as recognition of such royalties are constrained by the sales-based royalty exception related to intellectual property. Other components of net revenue from the Commercialization Agreement include the amortization of revenue from contract liabilities arising from the warrants and prepayments received, amortization of the contract asset, and variable consideration revenue for reimbursement of certain shared costs. See “Item 8. Financial Statements and Supplementary Data - Note 2. Revenue” for additional information.

(3)

In November 2017, we entered into agreements with Slán Medicinal Holdings Limited and certain of its affiliates (Slán) pursuant to which Slán acquired our rights to Lazanda. Lazanda nasal spray is an intranasal fentanyl drug used to manage breakthrough pain in adults (18 years of age and older) who are already routinely taking other opioid pain medicines around‑the‑clock for cancer pain. We acquired Lazanda in July 2013 from Archimedes Pharma US Inc. and its affiliated companies. We continue to recognize sales reserve estimate adjustments related to sales recognized for Lazanda in prior periods.

Collaboration and License Agreements

Nuvo Pharmaceuticals, Inc. (Nuvo) In November 2010, we entered into a license agreement with Tribute Pharmaceuticals Canada Ltd. (now 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. We receive royalties on net sales on a quarterly basis as well as certain one-time contingent milestone payments upon the occurrence of certain events. During the year ended December 31, 2019, we recognized $2.1 million of revenue related to CAMBIA in Canada. The revenue recognized in 2019 included a $0.3 million one-time amendment fee to support the continued collaboration with our partner in Canada following their acquisition and a $0.5 million milestone payment. During the year ended December 31, 2018, we recognized $0.8 million of revenue related to CAMBIA in Canada. We will receive additional one-time contingent milestone payments upon the achievement of scaling twelve-month cumulative sales targets and certain development milestones in the future.

Ironwood Pharmaceuticals, Inc. (Ironwood) In July 2011, we entered into a collaboration and license agreement with Ironwood granting Ironwood a license for worldwide rights to certain patents and other intellectual property rights to our Acuform drug delivery technology for IW 3718, an Ironwood product candidate under evaluation for refractory gastroesophageal reflux disease (GERD). During the second quarter of 2018, we received a $5.0 million milestone payment related to the dosing of the first patient in a Phase 3 trial. We expect to receive additional contingent milestone payments upon the occurrence of certain development milestones and royalties on net sales of the product, if approved.

PDL BioPharma, Inc. (PDL) In October 2013, pursuant to the terms and conditions of a Royalty Purchase and Sale Agreement with PDL (Royalty Purchase Agreement), we sold to PDL our right to receive royalty, milestone and other specified payments arising on and after October 2013 under each of the following license agreements relating to our Acuform technology in the Type 2 diabetes therapeutic area: (i) the License and Services Agreement, effective as of March 4, 2011, with Boehringer Ingelheim International GMBH (BI), relating to potential future development milestones and sales of BI’s investigational fixed-dose combinations of drugs and extended-release metformin worldwide; (ii) the License Agreement, effective as of August 5, 2010, with Janssen Pharmaceutica N.V. (Janssen), relating to potential future development milestones and sales of Janssen’s investigational fixed-dose combination of Invokana^® (canagliflozin) and extended-release metformin worldwide; (iii) the Non-Exclusive License, Covenant Not to Sue and Right of Reference Agreement, effective as of July 21, 2009, with Merck & Co., Inc., relating to sales of Janumet XR^® (sitagliptin and metformin HCL extended-release) worldwide; (iv) the Commercialization Agreement, effective as of August 22, 2011, with Santarus, Inc. relating to sales of Glumetza^® (metformin

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HCL extended-release tablets) in the U.S.; (v) the Amended License Agreement, effective as of January 9, 2007, with LG Life Sciences Ltd., relating to sales of extended-release metformin in Korea; and (vi) the Amended and Restated License Agreement (Extended Release Metformin Formulations — Canada), dated as of December 13, 2005, with Biovail Laboratories International SRL, relating to sales of extended-release metformin in Canada. Under the Royalty Purchase Agreement, PDL was entitled to receive all payments due under such license agreements until PDL received $481 million, after which all net payments received were to be shared evenly between us and PDL. In August 2018, we amended the Royalty Purchase Agreement and sold our remaining interest in such payments to PDL for $20.0 million.

Slán Medicinal Holdings Limited In November 2017, we entered into definitive agreements with Slán Medicinal Holdings Limited and certain of its affiliates (Slán) pursuant to which we acquired Slán’s rights to market the specialty drug long-acting cosyntropin (synthetic ACTH) in the U.S. and Canada. On February 6, 2020, the Company entered into an amended agreement with Eolas Pharma Teoranta (Eolas), an affiliate of Slán. Pursuant to the amendment, the license granted to the Company for the commercialization of long-acting cosyntropin was terminated. Additionally, the Company may receive up to $10.0 million in future payments based upon commercial sales of long-acting cosyntropin if Eolas successfully obtains regulatory approval for and commercializes the product.

Segment and Customer Information

We maintain one operating segment and have operations solely in the U.S. To date, substantially all of our revenues from product sales are related to sales in the U.S.

The three large, national wholesale distributors represent the vast majority of our revenues and represented the following percentages of product shipments and consolidated revenue for the years ended December 31, 2019, 2018 and 2017 set forth below. Further, as described above, we entered into the Commercialization Agreement with Collegium pursuant to which we granted Collegium the right to commercialize the NUCYNTA franchise of products in the U.S., effective January 9, 2018. We received royalties on all NUCYNTA revenues based on certain net sales thresholds. These royalties represented the following percentage of consolidated revenue for the years ended December 31, 2019, 2018 and 2017.



	Consolidated Revenue						Accounts Receivable related to product shipments
	2019		2018		2017		2019		2018		2017
McKesson Corporation	16	%	14	%	36	%	46	%	28	%	41	%
AmerisourceBergen Corporation	12	%	13	%	27	%	17	%	28	%	27	%
Cardinal Health	10	%	11	%	26	%	25	%	32	%	23	%
Collegium	52	%	55	%	—	%	—	%	—	%	—	%
All others	10	%	7	%	11	%	12	%	12	%	9	%
Total	100	%	100	%	100	%	100	%	100	%	100	%

Marketing and Sales

We have developed capabilities in various aspects relating to the commercialization of our marketed products, including sales, marketing, manufacturing, quality assurance, wholesale distribution, managed market contracting, government price reporting, medical affairs, and compliance and regulatory affairs. Members of our commercial organization are also engaged in the commercial and marketing assessments of other potential product candidates.

Our neurology sales organization includes approximately 72 full time employees as of January 31, 2020. Our neurology sales force primarily calls on neurologists, pain specialists and primary care physicians, and their affiliated physician assistants and nurse practitioners, throughout most of the U.S. Our marketing and managed care organization is comprised of professionals who have developed a variety of strategies and tactics to promote our products, including promotional materials, market access programs, industry publications, advertising and other media.

Seasonality

Our product revenues for Gralise, CAMBIA and Zipsor have historically been lower in the first quarter of the year as compared to the fourth quarter of the preceding year. This variation is influenced by both wholesaler buying patterns and the reset of annual limits on deductibles and out-of-pocket costs of many health insurance plans and government programs at the

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beginning of each calendar year. For additional information, please also refer to “Item 1A. Risk Factors - Our product revenues have typically been lower in the first quarter of the year as compared to the fourth quarter of the preceding year.”

Manufacturing

Our facility is used for office purposes. No commercial manufacturing takes place at our facility.

We are responsible for the supply and distribution of our marketed products. We have manufacturing and supply agreements with sole commercial suppliers for each of our marketed products, as follows: for Gralise, with Patheon Puerto Rico Inc. (Patheon); for CAMBIA, with MiPharm, S.p.A. (MiPharm); for Zipsor, with Catalent Ontario Limited (Catalent); for NUCYTNA ER, with an affiliate of Janssen Pharma; and for NUCYNTA, with Halo Pharmaceutical, Inc. (dba Cambrex Whippany). Effective as of January 10, 2020, we divested our rights, title and interest in and to Gralise to Alvogen, including related manufacturing and supply agreements. Effective as of February 13, 2020 we divested our rights, title and interest in and to our NUCYNTA franchise to Collegium, including related manufacturing and supply agreements.

We have one qualified supplier for the active pharmaceutical ingredient in each of our marketed products. We have supply and manufacturing agreements with the suppliers of the active pharmaceutical ingredients in each of our marketed products.

For additional information regarding our manufacturing, please also refer to “Item 1A. Risk Factors - We depend on one qualified supplier for the active pharmaceutical ingredient in each of our products, and we depend on third parties that are single source suppliers to manufacture our products. Insufficient availability of our products or the active pharmaceutical ingredients and other raw materials necessary to manufacture our products, or the inability of our suppliers to manufacture and supply our products, will adversely impact our sales upon depletion of the active ingredient and product inventories.”

Intellectual Property

Our Trademarks

Assertio™, Depomed^®, CAMBIA^®, Zipsor^® and Acuform^® are trademarks of Assertio. Gralise^®and NUCYNTA^® were trademarks of Assertio until we divested our rights to those products and related trademarks to Alvogen and Collegium on January 10, 2020 and February 13, 2020, respectively. All other trademarks and trade names referenced in this Annual Report on Form 10-K are the property of their respective owners.

Our Patents and Proprietary Rights

The material issued in the U.S. patents we own or have in‑licensed, and the marketed products they cover, are as follows:

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Product		U.S. Patent Nos. (Exp. Dates)
NUCYNTA^® ER ⁽¹⁾		8,536,130 (September 22, 2028)⁽²⁾⁽³⁾
		7,994,364 (June 27, 2025)⁽²⁾⁽³⁾
		RE39593 (August 5, 2022)⁽²⁾⁽³⁾
NUCYNTA^{® (1)}		7,994,364 (June 27, 2025)⁽²⁾
		RE39593 (August 5, 2022)⁽²⁾
Gralise^{® (4)}		7,438,927 (February 26, 2024)
		7,731,989 (October 25, 2022)
		8,192,756 (October 25, 2022)
		8,252,332 (October 25, 2022)
		8,333,992 (October 25, 2022)
		6,723,340 (October 25, 2021)
		6,488,962 (June 20, 2020)
Zipsor^®⁽⁵⁾		7,662,858 (February 24, 2029)
		7,884,095 (February 24, 2029)
		7,939,518 (February 24, 2029)
		8,110,606 (February 24, 2029)
		8,623,920 (February 24, 2029)
		6,287,594 (January 15, 2019)
		9,561,200 (February 24, 2029)
CAMBIA^®⁽⁶⁾		7,759,394 (June 16, 2026)⁽²⁾
		8,097,651 (June 16, 2026)⁽²⁾
		8,927,604 (June 16, 2026) ⁽²⁾
		9,827,197 (June 16, 2026)

(1) Effective as of February 13, 2020, we divested the NUCYNTA patents to Collegium. (2) Subject to six‑month pediatric patent term extension beyond scheduled expiration date. (3) Patent rights were exclusively in‑licensed by us until transferred to Collegium on February 13, 2020. (4) Effective as of January 10, 2020, we divested the Gralise patents to Alvogen. (5) Certain parties who have entered into settlement agreements with us will be able to market generic versions of Zipsor starting in 2022. (6) Certain parties who have entered into settlement agreements with us will be able to market generic versions of CAMBIA starting in 2023.

Our success will depend in part on our ability to obtain and maintain patent protection for our products and technologies. Our policy is to seek to protect our proprietary rights, by among other methods, filing patent applications in the U.S. and foreign jurisdictions to cover certain aspects of our technology. In addition to those patents noted on the above table, we have one patent application pending in the U.S. Our pending patent application may lack priority over other applications or may not result in the issuance of a patent. Even if issued, our patents may not be sufficiently broad to provide protection against competitors with similar technologies and may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products or may not provide us with competitive advantages against competing products. We also rely on trade secrets and proprietary know how, which are difficult to protect. We seek to protect such information, in part, through entering into confidentiality agreements with employees, consultants, collaborative partners and others before such persons or entities have access to our proprietary trade secrets and know how. These confidentiality agreements may not be effective in certain cases. In addition, our trade secrets may otherwise become known or be independently developed by competitors. For further information regarding risks associated with the protection of our intellectual property rights, please also refer to “Item 1A. “Risk Factors - We are not always able to protect our intellectual property and are subject to risks from liability for infringing the intellectual property of others.” For information regarding currently pending litigation related to intellectual property matters, please also refer to “Item 8. Financial Statements and Supplementary Data - Note 11. Commitments and Contingencies.”

Competition

General We believe that we compete favorably in our markets on the basis of the safety and efficacy of our products. However, competition in pharmaceutical products is intense, and we expect competition to increase through both branded and generic competitors. There may be other companies developing products competitive with ours of which we are unaware.

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Many of our principal competitors may have greater financial, sales, marketing, personnel and research and development resources than we do. Competing products developed in the future may prove superior to our products, either generally or in particular market segments. These developments could make our products noncompetitive or obsolete.

Gralise Gabapentin is currently sold by Pfizer Inc. (Pfizer) as Neurontin^® and by several generic manufacturers for adjunctive therapy for partial onset seizures and for the management of PHN. In addition, Pfizer’s product Lyrica^® (pregabalin) has been approved for marketing in the U.S. for the management of PHN, neuropathic pain associated with DPN (diabetic peripheral neuropathy), neuropathic pain associated with spinal cord injury, fibromyalgia, and adjunctive therapy in partial onset seizures. In January 2018, Pfizer began to sell Lyrica^® CR, a controlled release formulation of Lyrica for neuropathic pain associated with DPN and for PHN. Gralise competes against these products and other neuropathic pain treatments, such as anti-depressants, anti-convulsants, local anesthetics used as regional nerve blockers, anti-arrhythmics and opioids. Arbor Pharmaceutical, LLC’s Horizant^™ (gabapentin enacarbil extended-release tablets) product, a prodrug of gabapentin, is also marketed for the management of PHN in the U.S. as well as for Restless Leg Syndrome. Effective as of January 10, 2020, we divested our rights, title and interest in and to Gralise to Alvogen.

CAMBIA Diclofenac potassium, the active pharmaceutical ingredient in CAMBIA, is an NSAID approved in the U.S. for the acute treatment of migraine in adults. CAMBIA competes with a number of triptans which are used to treat acute migraine and certain other headaches. Currently, seven triptans are available generically and sold in the U.S. (almotriptan, eletriptan, frovatriptan, naratriptan, rizatriptan, sumatriptan and zolmitriptan). Branded competitors include Zomig^® Nasal Spray, Onzetra^®, Xsail^®, Sumavel^®, Zembrace^® SymTouch^® and Treximet^®, which is a fixed dose combination product containing sumatriptan and naproxen. There are other products prescribed for or under development for the treatment or prevention of migraines that are now or may become competitive with CAMBIA, including calcitonin gene-related peptide (CGRP) inhibitor products (CGRP brands include Aimovig, Ajovy and Emgality).

Zipsor Diclofenac potassium, the active pharmaceutical ingredient in Zipsor, is an NSAID that is approved in the U.S. for relief of mild to moderate acute pain. Both branded and generic versions of diclofenac are marketed in the U.S. Zipsor competes against other drugs that are widely used to treat mild to moderate acute pain. In addition, a number of other companies are developing NSAIDs in a variety of dosage forms for the treatment of mild to moderate pain and related indications. Other drugs are in clinical development to treat acute pain.

NUCYNTA ER (tapentadol extended release tablets) NUCYNTA ER competes against other long‑acting opioid medications. Those include, among others: OxyContin^® (oxycodone hydrochloride extended‑release tablets); Butrans^® (buprenorphine); Belbuca^™ (buprenorphine buccal film); Hysingla^® ER (hydrocodone bitartrate); Xtampza^® ER (oxycodone); Zohydro^® ER (hydrocodone bitartrate); Embeda^® (morphine sulfate and naltrexone hcl); Arymo^® ER (morphine sulfate); MorphaBond^™ ER (morphine sulfate); and numerous generically available long‑acting opioids. New products continue to be developed and approved, such as Pfizer’s Troxyca, Teva’s Vantrela and Daiichi-Sankyo’s RoxyBond. Effective as of February 13, 2020, we divested our rights, title and interest in and to our NUCYNTA franchise to Collegium.

NUCYNTA (tapentadol) NUCYNTA (tapentadol) competes primarily against other short‑acting opioids. There are numerous such medicines, including, among others: Oxaydo^® (oxycodone hydrochloride (hcl)); generic oxycodone hcl; generic oxycodone acetaminophen; generic oxymorphone; generic hydrocodone acetaminophen; generic hydromorphone; generic morphine; generic tramadol hcl and generic tramadol acetaminophen. New short-acting opioids continue to be developed and approved. Effective as of February 13, 2020, we divested our rights, title and interest in and to our NUCYNTA franchise to Collegium.

Government Regulation

In the U.S., pharmaceuticals are subject to regulation by federal and state authorities, including the FDA. The Federal Food, Drug and Cosmetic Act (FDCA) governs the testing, manufacturing, safety, efficacy, labeling, storage, record keeping, approval, and marketing of pharmaceutical products. Failure to comply with applicable regulatory requirements can, among other things, result in delays, injunctions, product seizure or detention, product recalls, total or partial suspension of production and civil suits. The FDA may revoke approved applications or deny approval of pending new drug applications, premarket approval applications or supplements to approved applications.

Preclinical and Clinical Studies

Governmental approval is required of all potential pharmaceutical products prior to the commercial use of those products. The regulatory process takes several years and requires substantial funds.

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In the work related to the development or marketing of new pharmaceutical products, the FDA may require pre-clinical tests that include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess potential efficacy and safety of the product. If preclinical testing is required, we must submit the results of the studies, together with manufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an Investigational New Drug Application (IND), which must become effective before beginning clinical testing in humans.

Some of the products we have developed have been submitted for approval under Section 505(b)(2) of the FDCA, which was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch‑Waxman Act. Section 505(b)(2) permits the submission of a new drug application (NDA) where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference.

Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with Current Good Clinical Practice (cGCP), which includes the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol intended to study an investigational new drug formulation must be submitted to the FDA as part of the IND. Additionally, an independent Institutional Review Board (IRB) at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences.

Typically, human clinical evaluation involves a time‑consuming and costly three‑phase process:


•	In Phase 1, we conduct clinical trials with a small number of subjects to determine a drug’s early safety profile and its pharmacokinetic pattern.


•	In Phase 2, we conduct limited clinical trials with groups of patients afflicted with a specific disease in order to determine preliminary efficacy, optimal dosages and further evidence of safety.


•	In Phase 3, we conduct large‑scale, multi‑center, comparative trials with patients afflicted with a target disease in order to provide enough data to statistically evaluate the efficacy and safety of the product candidate, as required by the FDA.

The FDA closely monitors the progress of each phase of clinical testing. The FDA may, at its discretion, re‑evaluate, alter, suspend or terminate testing based upon the data accumulated and the FDA’s assessment of the risk/benefit ratio to patients. The FDA may require additional clinical trials after approvals, known as Phase 4 trials.

Marketing Approval

FDA approval of an NDA is required before a product may be marketed in the U.S. Assuming successful completion of the required clinical testing, the results of the preclinical and clinical studies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA requesting approval to market the product for one or more indications. If the FDA determines that the application is not sufficiently complete to permit substantive review, it may request additional information and decline to accept the application for filing until the information is provided. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity. During the review process, the FDA also reviews the drug’s product labeling to ensure that appropriate information is communicated to healthcare professionals and consumers.

As part of an application, the FDA may require submission of a Risk Evaluation and Mitigation Strategy (REMS) plan to mitigate any identified or suspected serious risks. The REMS plan could include medication guides, physician communication plans, assessment plans and elements to assure safe use, such as restricted distribution methods, patient registries or other risk minimization tools. In addition, under the Pediatric Research Equity Act of 2003 (PREA), certain NDAs or supplements to an NDA must contain adequate data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or partial or full waivers from the pediatric data requirements.

Before an NDA is approved, the FDA generally inspects one or more clinical sites and facilities at which the drug is manufactured to ensure they are in compliance with the FDA’s cGCPs and Current Good Manufacturing Practices (cGMP),

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respectively. If the FDA determines the application, data or manufacturing facilities are not acceptable, the FDA may note the deficiencies in the submission and request additional testing or information.

After evaluating the NDA, including all related information and clinical and manufacturing inspection reports, the FDA may issue an approval letter, or, in some cases, a complete response letter (CRL). A CRL generally contains a statement of specific conditions that must be met in order to obtain final approval of the NDA and may require additional clinical or preclinical testing in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

The testing and approval process for an NDA requires substantial time, effort and financial resources. Data obtained from preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval of an NDA on a timely basis, or at all.

If approved, the FDA may still limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-marketing or Phase 4 clinical studies be conducted, require surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The results of post-marketing studies may cause the FDA to prevent or limit further marketing of a product. After approval, certain changes to the approved product, such as manufacturing changes, new labeling claim and new indications, are subject to additional requirements and FDA review and approval.

Foreign regulatory approval of a product must also be obtained prior to marketing a product internationally. The clinical testing requirements and the time required to obtain foreign regulatory approvals may differ from that required for FDA approval and the time required for approval may delay or prevent marketing in certain countries.

Manufacturing Requirements

We, our suppliers, contract manufacturers and other entities involved in the manufacturing and distribution of approved drugs are required to comply with certain post-approval requirements and are subject to periodic unannounced inspections by the FDA and state agencies to assess compliance with cGMP requirements. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. Failure to achieve or maintain cGMP standards for our products would adversely impact their marketability.

We use third-party manufacturers to produce our products in clinical and commercial quantities, and we cannot be certain that future FDA inspections will not identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. Additionally, new government requirements may be established that could delay or prevent regulatory approval of our products under development.

Reimbursement

Sales of pharmaceutical products in the U.S. depend in significant part on the extent of coverage and reimbursement from government programs, including Medicare and Medicaid, as well as other third-party payers. Third-party payers are undertaking significant efforts to control the cost of pharmaceutical products, including by implementing cost containment measures to control, restrict access to or influence the purchase of drugs and other health care products and services.

Government programs may regulate reimbursement, pricing, and coverage of products in order to control costs or to affect levels of use of certain products. Private health insurance plans may exclude or restrict coverage of some products, such as by using payer formularies under which only selected drugs are covered, variable co‑payments that make drugs that are not preferred by the payer more expensive for patients, and utilization management controls, such as requirements for prior authorization or prior failure on another type of treatment.

Fraud and Abuse

Pharmaceutical companies that participate in federal healthcare programs are subject to various U.S. federal and state laws pertaining to healthcare “fraud and abuse,” including anti‑kickback and false claims laws. Violations of U.S. federal and state fraud and abuse laws may be punishable by criminal or civil sanctions, including fines, civil monetary penalties and exclusion from federal healthcare programs (including Medicare and Medicaid).

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Federal statutes that apply to us include the federal Anti‑Kickback Statute, which prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration in exchange for or to generate business, including the purchase or prescription of a drug, that is reimbursable by a federal healthcare program such as Medicare and Medicaid, and the Federal False Claims Act (FCA), which generally prohibits knowingly and willingly presenting, or causing to be presented, for payment to the federal government any false, fraudulent or medically unnecessary claims for reimbursed drugs or services. Government enforcement agencies and private whistleblowers have asserted liability under the FCA for claims submitted involving inadequate care, kickbacks, improper promotion of off‑label uses and misreporting of drug prices to federal agencies.

Similar state laws and regulations, such as state anti‑kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non‑governmental payers, including private insurers. These state laws may be broader in scope than their federal analogues, such as state false claims laws that apply where a claim is submitted to any third‑party payer, regardless of whether the payer is a private health insurer or a government healthcare program, and state laws that require pharmaceutical companies to certify compliance with the pharmaceutical industry’s voluntary compliance guidelines.

Federal and state authorities have increased enforcement of fraud and abuse laws within the pharmaceutical industry, and private individuals have been active in alleging violations of the law and bringing suits on behalf of the government under the FCA and under state and local laws. These laws are broad in scope and there may not be regulations, guidance or court decisions that definitively interpret these laws and apply them to particular industry practices. In addition, these laws and their interpretations are subject to change.

Controlled Substances

Tapentadol (Federal and State). The U.S. Drug Enforcement Administration (DEA) is the federal agency responsible for domestic enforcement of the Controlled Substances Act of 1970 (CSA). The DEA regulates controlled substances as Schedule I, II, III, IV and V substances. Schedule I substances by definition have high potential for abuse, no currently accepted medical use in the U.S and lack accepted safety for use under medical supervision and may not be marketed or sold in the U.S. Except for research and industrial purposes, a pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. Tapentadol, the active ingredient in NUCYNTA and NUCYNTA ER, is listed by the DEA as a Schedule II substance under the CSA. Consequently, its manufacture, shipment, storage, sale and use are subject to a high degree of regulation.

Registration with the DEA is required for any facility that manufactures, distributes, dispenses, imports or exports a controlled substance. The registration is specific to the particular location, activity and controlled substance schedule. For example, separate registrations are needed for import and manufacturing, and each registration will specify which schedules of controlled substances are authorized to be handled under that registration.

The availability and production of all Schedule II substances, including tapentadol, is limited by the DEA through a quota system that includes a national aggregate quota, production quotas for individual manufacturers and procurement quotas that authorize the procurement of specific quantities of Schedule II controlled substances for use in drug product manufacturing. The DEA annually establishes an aggregate quota for total tapentadol production in the U.S. based on the DEA’s estimate of the quantity needed to meet commercial and scientific need. The aggregate quota of tapentadol that the DEA allows to be produced in the U.S. is allocated among applicable individual drug manufacturers, which must submit applications at least annually to the DEA for individual production quotas. In turn, the manufacturers of NUCYNTA and NUCYNTA ER, which are third-party contract manufacturers, have to obtain a procurement quota to source tapentadol for the production of NUCYNTA and NUCYNTA ER. The DEA requires substantial evidence and documentation of expected legitimate medical and scientific needs before assigning quotas for these activities.

The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. The DEA may also require drug manufactures to submit applications for individual production quotas on a rolling basis.

Individual states also regulate controlled substances, and we, as well as our third-party active pharmaceutical ingredient suppliers and manufacturers, are subject to such regulation by several states with respect to the manufacture and distribution of these products. Effective as of February 13, 2020, we divested our rights, title and interest in and to our NUCYNTA franchise to Collegium.

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Gabapentin (State). There has been recent regulatory attention focused on gabapentin as a result of abuse potential. Although gabapentin is neither an opioid nor classified as a controlled substance by the DEA, as a result of the perceived risks relating to opioid abuse, several states (Alabama, Indiana, Kentucky, Michigan, North Dakota, Tennessee, Virginia and West Virginia) have scheduled gabapentin as a Schedule V substance. As a result, we, as well as our third-party active pharmaceutical ingredient suppliers and manufacturers, are subject to regulation by these states with respect to the manufacture and distribution of Gralise (gabapentin). Effective as of January 10, 2020, we divested our rights, title and interest in and to Gralise to Alvogen.

Prescription Limitations

Many states, including the Commonwealths of Massachusetts, and Virginia and the States of New York, Ohio, Arizona, Maine, New Hampshire, Vermont, Rhode Island, Colorado, Wisconsin, Alabama, South Carolina, Washington and New Jersey, have either recently enacted, intend to enact or have pending legislation or regulations designed to, among other things, limit the duration and quantity of initial prescriptions of the immediate-release form of opiates (such as NUCYNTA), mandate the use by prescribers of prescription drug databases and mandate prescriber education. These and other state and local laws applicable to the pharmaceutical industry may affect our business and operations as well as those of our commercialization and development partners.

Other U.S. Healthcare Laws

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the ACA), contains provisions that have impacted or could potentially impact our business, including (a) an increase in the minimum Medicaid rebate to states participating in the Medicaid program on branded prescription drugs; (b) the extension of the Medicaid rebate to managed care organizations that dispense drugs to Medicaid beneficiaries; and (c) the expansion of the 340B Public Health Service Act drug pricing program (340B Program), which provides outpatient drugs at reduced rates, to include certain children’s hospitals, free standing cancer hospitals, critical access hospitals and rural referral centers.

Additionally, the federal Physician Payments Sunshine Act (the Sunshine Act) provisions, enacted in 2010 as part of the ACA, require pharmaceutical manufacturers, among others, to disclose annually to the federal government (for re‑disclosure to the public) certain payments made to physicians and certain other healthcare practitioners or teaching hospitals. State laws may also require disclosure of pharmaceutical pricing information and marketing expenditures and impose penalties for failures to disclose. Many of these laws and regulations contain ambiguous requirements. As a result of the ambiguity in certain of these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent federal and state laws and regulations.

Our operations and business are subject to a number of other laws and regulations, including those relating to the workplace, privacy, laboratory practices and the purchase, storage, movement, import and export and use and disposal of hazardous or potentially hazardous substances as well as controlled substances. In addition, state laws may also govern the privacy and security of health information in some circumstances and may contain different or broader privacy protections than the federal provisions.

For additional information and risks regarding the above-described government regulations, please also refer to “Item 1A. Risk Factors.”

Employees

We have approximately 125 full‑time employees as of January 31, 2020. None of our employees are represented by a collective bargaining agreement, nor have we experienced any work stoppage. We believe that our relations with our retained employees are good.

The Company recognizes that our industry is specialized and dynamic, and a significant aspect of our success is our continued ability to execute our human capital strategy of attracting, engaging, developing and retaining highly skilled talent. There is fierce competition for highly skilled talent, and we offer a robust set of benefits, career-enhancing learning experiences and initiatives aligned with our mission, vision, and values. We offer competitive compensation for our employees and strongly embrace pay for performance.

Our Employee Handbook and Code of Business Conduct and Ethics clearly outlines our unwavering commitment to diversity and inclusion, where all employees are welcomed in an environment designed to make them feel comfortable,

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respected, and accepted regardless of their age, race, national origin, gender, religion, disability or sexual orientation. We have a set of policies explicitly setting forth our expectations for nondiscrimination and a harassment-free work environment. We are also a proud equal opportunity employer and cultivate a highly collaborative and entrepreneurial culture.

ITEM 1A. RISK FACTORS

In addition to other information in this report, please consider the following discussion of factors that makes an investment in our securities risky. The risks or uncertainties described in this Form 10‑K can materially and adversely affect our business, results of operations or financial condition. The risks and uncertainties described below have been grouped under general risk categories, one or more of which categories may be applicable to the risk factors described. The risks and uncertainties described in this Form 10‑K are not the only ones facing us. Additional risks and uncertainties of which we are unaware or that we currently deem immaterial may also become important factors that can harm our business, results of operations and financial condition.

Risks Related to Commercial, Regulatory and Other Business Matters

Our success is dependent on our executive management team’s ability to successfully pursue business development, strategic partnerships and investment opportunities to build and grow for the future.

In 2017, the Company announced that it was in the process of transforming into a leading diversified, specialty pharmaceutical company with a goal of rapidly de-leveraging its balance sheet, growing its core business and opportunistically building for the future via business development. Since then, we have completed a number of transactions to advance toward achieving our stated goals, including the entry into a Commercialization Agreement with Collegium for our NUCYNTA franchise, the divestiture of Gralise to Alvogen, the divestiture of our remaining rights in the NUCYNTA franchise to Collegium, the repayment in full of our Senior Notes and the repurchase of approximately $188.0 million aggregate principal amount of outstanding convertible notes. As a result of the transformation from these transactions, we have positioned the Company to actively pursue business development, strategic partnerships, and investment opportunities to build and grow for the future.

If our executive management team is not able, in a timely manner, to develop, implement and execute successful business strategies and plans to maintain and increase our product revenues following the execution of the transactions above, our business, financial condition and results of operations will be materially and adversely affected, and the existing business may be required to take steps to reduce its costs at some point in time. While our Chief Executive Officer and other executive officers have significant industry-related experience, it may take time to develop, implement and execute our business strategies and plans. Any delay in the execution of our business plans by our executive management team, or any future changes to such management team, could affect our ability to develop, implement and execute our business strategies and plans, which could have a material adverse effect on our business, financial condition and results of operations.

Further, our future business strategies and plans may differ materially, or may continue to evolve, from those we previously pursued. If our business strategies and plans, or our efforts to realize future operational efficiencies, cause disruption in our business or operations or do not achieve the level of success or results we anticipate, our business, financial condition and results of operations will be materially and adversely affected.

If we do not successfully commercialize CAMBIA and Zipsor, or Alvogen does not successfully commercialize Gralise, our business, financial condition and results of operations will be materially and adversely affected.

In October 2011, we began commercial sales of Gralise^®. Effective as of January 10, 2020, we divested our rights, title and interest in and to Gralise to Alvogen. Under the terms of the agreement, Alvogen will pay us 75% of its first $70.0 million of Gralise net sales after the closing. In June 2012, we acquired Zipsor and began commercial promotion of Zipsor in July 2012. In December 2013, we acquired CAMBIA and began commercial promotion of CAMBIA in February 2014. In addition to the risks discussed elsewhere in this section, our ability to successfully commercialize and generate revenues from CAMBIA and Zipsor, and Alvogen’s ability to successfully commercialize and generate revenues from Gralise, depends on a number of factors, including, but not limited to, our and Alvogen’s ability to:


•	develop and execute our sales and marketing strategies for our products and Gralise;


•	achieve, maintain and grow market acceptance of, and demand for, our products and Gralise;


•	obtain and maintain adequate coverage, reimbursement and pricing from managed care, government and other third-party payers;

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•	maintain, manage or scale the necessary sales, marketing, manufacturing, managed markets and other capabilities and infrastructure that are required to successfully integrate and commercialize our products and Gralise;


•	obtain adequate supply of our products and Gralise;


•	maintain and extend intellectual property protection for our products and Gralise; and


•	comply with applicable legal and regulatory requirements.

If we and Alvogen are unable to successfully achieve or perform these functions, we will not be able to maintain or increase our revenues and our business, financial condition and results of operations will be materially and adversely affected.

We depend on one qualified supplier for the active pharmaceutical ingredient in each of our products, and we depend on third parties that are single source suppliers to manufacture our products. Insufficient availability of our products or the active pharmaceutical ingredients and other raw materials necessary to manufacture our products, or the inability of our suppliers to manufacture and supply our products, will adversely impact our sales upon depletion of the active ingredient and product inventories.

We have one qualified supplier for the active pharmaceutical ingredient in each of CAMBIA and Zipsor. Catalent Ontario Limited (Catalent), which is located in Ontario, Canada, is our sole supplier for Zipsor pursuant to a manufacturing agreement we entered into with Catalent effective June 30, 2018. MiPharm, S.p.A, which is located in Milan, Italy, is our sole supplier for CAMBIA pursuant to a manufacturing and supply agreement that we assumed in connection with our acquisition of CAMBIA in December 2013. We do not have, and we do not intend to establish in the foreseeable future, internal commercial-scale manufacturing capabilities. Rather, we intend to use the facilities of third parties to manufacture products for commercialization and clinical trials. Our dependence on third parties for the manufacture of our products and our product candidates may adversely affect our ability to obtain such products on a timely or competitive basis, if at all. Any stock out, quality concern or failure to obtain sufficient supplies of CAMBIA or Zipsor, or the necessary active pharmaceutical ingredients, excipients or components, from our suppliers would adversely affect our business, results of operations and financial condition.

The manufacturing process for pharmaceutical products is highly regulated, and regulators may shut down manufacturing facilities that they believe do not comply with regulations. We, our third-party manufacturers and our suppliers are subject to numerous regulations, including current FDA regulations governing manufacturing processes, stability testing, record keeping, product serialization and quality standards. Similar regulations are in effect in other countries. Our third-party manufacturers and suppliers are independent entities who are subject to their own unique operational and financial risks which are out of our control. If we or any third-party manufacturer or supplier fails to perform as required or fails to comply with the regulations of the FDA and other applicable governmental authorities, our ability to deliver adequate supplies of our products to our customers on a timely basis, or to continue our clinical trials, could be adversely affected. The manufacturing processes of our third-party manufacturers and suppliers may also be found to violate the proprietary rights of others. To the extent these risks materialize and adversely affect such third-party manufacturers’ and/or suppliers’ performance obligations to us, and we are unable to contract for a sufficient supply of required products on acceptable terms, or if we encounter delays and difficulties in our relationships with manufacturers or suppliers, our business, results of operation and financial condition could be adversely affected.

Our commercialization, collaborative and other arrangements may give rise to disputes over commercial terms, contract interpretation and ownership or protection of our intellectual property and may adversely affect the commercial success of our products.

We currently have collaboration or license arrangements with a number of companies, including Ironwood Pharmaceuticals, Inc., Nuvo Pharmaceuticals, Inc. and PDL BioPharma, Inc. In addition, we have in the past and may in the future enter into other commercialization or collaborative arrangements, some of which have been based on less definitive agreements, such as memoranda of understanding, material transfer agreements, options or feasibility agreements. We may not execute definitive agreements formalizing these arrangements.

Commercialization and collaborative relationships are generally complex and can give rise to disputes regarding the relative rights, obligations and revenues of the parties, including the ownership of intellectual property and associated rights and obligations, especially when the applicable collaborative provisions have not been fully negotiated and documented. Such disputes can delay collaborative research, development or commercialization of potential products, and can lead to lengthy, expensive litigation or arbitration. The terms of such arrangements may also limit or preclude us from commercializing products or technologies developed pursuant to such collaborations. Additionally, the commercialization or collaborative partners under these arrangements might breach the terms of their respective agreements or fail to maintain, protect or prevent

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infringement of the licensed patents or our other intellectual property rights by third parties. Moreover, negotiating commercialization and collaborative arrangements often takes considerably longer to conclude than the parties initially anticipate, which could cause us to enter into less favorable agreement terms that delay or defer recovery of our development costs and reduce the funding available to support key programs. Any failure by our commercialization or collaborative partners to abide by the terms of their respective agreements with us (including their failure to accurately calculate, report or pay any royalties payable to either us or a third party or their failure to repay, in full or in part, either any outstanding receivables or any other amounts for which we are entitled to reimbursement) may adversely affect our results of operations.

We are not always able to enter into commercialization or collaborative arrangements on acceptable terms, which can harm our ability to develop and commercialize our current and potential future products and technologies. Other factors relating to collaborations that may adversely affect the commercial success of our products include:


•	any parallel development by a commercialization or collaborative partner of competitive technologies or products;


•	arrangements with commercialization or collaborative partners that limit or preclude us from developing products or technologies;


•	premature termination of a commercialization or collaboration agreement or the inability to renegotiate existing agreements on favorable terms; or


•	failure by a commercialization or collaborative partner to devote sufficient resources to the development and commercial sales of products using our current and potential future products and technologies.

Our commercialization or collaborative arrangements do not necessarily restrict our commercialization or collaborative partners from competing with us or restrict their ability to market or sell competitive products. Our current and any future commercialization or collaborative partners may pursue existing or other development-stage products or alternative technologies in preference to those being commercialized or developed in collaboration with us.

In addition, contract disputes with customers or other third parties may arise from time to time. Our commercialization or collaborative partners, or customers or other third parties, may also terminate their relationships with us or otherwise decide not to proceed with the development, commercialization or purchase of our products.

We and our commercial partners may be unable to compete successfully in the pharmaceutical industry.

Competition in the pharmaceutical industry is intense and we expect competition to increase. Competing products currently under development or developed in the future may prove superior to our products and may achieve greater commercial acceptance. Most of our principal competitors have substantially greater financial, sales, marketing, personnel and research and development resources than we and our commercial partners do.

Branded gabapentin is currently sold by Pfizer as Neurontin for adjunctive therapy for partial onset epileptic seizures and for the management of PHN. Pfizer’s basic U.S. patents relating to Neurontin have expired, and numerous companies have received approval to market generic versions of the immediate-release product. In addition to receiving approval for marketing to treat neuropathic pain associated with DPN, Lyrica (pregabalin) has also been approved for marketing in the U.S. for the treatment of post-herpetic pain, fibromyalgia, adjunctive therapy for partial onset epileptic seizures and nerve pain associated with spinal cord injury and has captured a significant portion of the market. Moreover, Pfizer’s patents relating to Lyrica have expired, and generic versions of Lyrica (pregabalin) launched in July 2019. In January 2018, Pfizer began to sell Lyrica CR (pregabalin extended-release tablets), a once-daily treatment for the management of DPN and PHN. Arbor Pharmaceuticals, LLC’s Horizant (gabapentin enacarbil extended-release tablets) is approved for the management of PHN and Restless Leg Syndrome. There are other products prescribed for or under development for PHN which are now or may become competitive with Gralise.

An alternate formulation of diclofenac is the active ingredient in CAMBIA that is approved in the U.S. for the acute treatment of migraines in adults. CAMBIA competes with a number of triptans that are used to treat migraines and certain other headaches. Currently, eight triptans are available generically and sold in the U.S. (almotriptan, eletriptan, frovatriptan, naratriptan, rizatriptan, sumatriptan, sumatriptan-naproxen and zolmitriptan). Branded competitors include Zomig Nasal Spray, Onzetra, Xsail, Sumavel, Zembrace SymTouch and Treximet, which is a fixed-dose combination product containing sumatriptan and naproxen. There are other products prescribed for or under development for the treatment or prevention of migraines that are now or may become competitive with CAMBIA, including CGRP inhibitor products.

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Diclofenac, the active pharmaceutical ingredient in Zipsor, is an NSAID that is approved in the U.S. for the treatment of mild to moderate pain in adults, including the symptoms of arthritis. Both branded and generic versions of diclofenac are marketed in the U.S. Zipsor competes against other drugs that are widely used to treat mild to moderate pain in the acute setting. In addition, a number of other companies are developing NSAIDs in a variety of dosage forms for the treatment of mild to moderate pain and related indications. Other drugs are in clinical development to treat acute pain.

If we or our commercialization partners are unable to negotiate acceptable pricing or obtain adequate reimbursement for our products from third-party payers, our business will suffer.

Sales of our products depend significantly on the availability of acceptable pricing and adequate reimbursement from third-party payers such as:


•	government health administration authorities;


•	private health insurers;


•	health maintenance organizations;


•	managed care organizations;


•	pharmacy benefit management companies; and


•	other healthcare-related organizations.

If reimbursement is not available for our products or product candidates, demand for our products may be limited. Further, any delay in receiving approval for reimbursement from third‑party payers could have an adverse effect on our future revenues.

Third-party payers frequently require pharmaceutical companies to negotiate agreements that provide discounts or rebates from list prices and that protect the payers from price increases above a specified annual limit. We and our commercialization partners have agreed to provide such discounts and rebates to certain third-party payers. We expect increasing pressure to offer larger discounts and rebates or discounts and rebates to a greater number of third-party payers to maintain acceptable reimbursement levels for and access to our products for patients at co-pay levels that are reasonable and customary. Consolidation among large third-party payers may increase their leverage in negotiations with pharmaceutical companies. If we or our commercialization partners are forced to provide additional discounts and rebates to third-party payers to maintain acceptable access to our products for patients, our results of operations and financial condition could be adversely affected. If third-party payers do not accurately and timely report the eligibility and utilization of our products under their plans, our reserves for rebates or other amounts payable to third-party payers may be lower than the amount we are invoiced and we may be required to dispute the amount payable, which would adversely affect our business, financial condition and results of operations. For example, we have had, and continue to have, disputes with managed care providers over rebates related to our products. Even when rebate claims made by such managed care providers are without merit, we may be forced to pay such disputed amounts to the extent our failure to do so could otherwise adversely impact our business, such as our ability to maintain a favorable position on such provider’s formulary. In addition, if competitors reduce the prices of their products, or otherwise demonstrate that they are better or more cost effective than our products, this may result in a greater level of reimbursement for their products relative to our products, which would reduce sales of our products and harm our results of operations. The process for determining whether a third-party payer will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that such third-party payer will pay for the product once coverage is approved. Third-party payers may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication, including one or more of our products. Any third-party payer decision not to approve pricing for, or provide adequate coverage and reimbursement of, our products, including by reducing, limiting or denying reimbursement for new products or excluding products that were previously eligible for reimbursement, would limit the market acceptance and commercial prospects of our products and harm our business, financial condition and results of operations. In addition, any third-party payer decision to impose restrictions, limitations or conditions on prescribing or reimbursement of our products, including on the dosing or duration of prescriptions for our products, would harm our business, financial condition and results of operations.

There have been, and there will continue to be, legislative, regulatory and third-party payer proposals to change the healthcare system in ways that could impact our ability to commercialize our products profitably. We anticipate that the federal and state legislatures and the private sector will continue to consider and may adopt and implement healthcare policies, such as the Patient Protection and Affordable Care Act (ACA) and the Health Care and Education Reconciliation Act, intended to curb rising healthcare costs. These cost-containment measures may include: controls on government-funded reimbursement for drugs; new or increased requirements to pay prescription drug rebates to government healthcare programs; controls on healthcare providers; challenges to or limits on the pricing of drugs, including pricing controls or limits or prohibitions on

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reimbursement for specific products through other means; requirements to try less expensive products or generics before a more expensive branded product; and public funding for cost effectiveness research, which may be used by government and private third-party payers to make coverage and payment decisions. In California, voters rejected Proposition 61 in November 2016, a ballot initiative that would have prohibited the state from buying prescription drugs from a drug manufacturer at a price over the lowest price paid for such drug by U.S. Department of Veterans Affairs. Although Proposition 61 was defeated, these and other cost-containment or price-control measures, if adopted at the federal or state level, could significantly decrease the price that we or our commercialization partners receive for our products and any product that we may develop or acquire, which would harm our business, financial condition and results of operations.

If generic manufacturers use litigation and regulatory means to obtain approval for generic versions of our products, our business will be materially and adversely affected.

Under the Federal Food, Drug, and Cosmetic Act (FDCA), the FDA can approve an ANDA for a generic version of a branded drug without the ANDA applicant undertaking the clinical testing necessary to obtain approval to market a new drug. In place of such clinical studies, an ANDA applicant usually needs only to submit data demonstrating that its product has the same active ingredient(s) and is bioequivalent to the branded product, in addition to any data necessary to establish that any difference in strength, dosage, form, inactive ingredients or delivery mechanism does not result in different safety or efficacy profiles, as compared to the reference drug.

The FDCA requires an applicant for a drug that relies, at least in part, on the patent of one of our branded drugs to notify us of its application and potential infringement of our patent rights. Upon receipt of this notice, we would have 45 days to bring a patent infringement suit in federal district court against the company seeking approval of a product covered by one of our patents. The discovery, trial and appeals process in such suits can take several years. The filing of a patent infringement lawsuit triggers a one-time automatic 30-month stay of the FDA’s ability to approve the competitor’s application. Such litigation is often time-consuming and quite costly and may result in generic competition if the patents at issue are not upheld or if the generic competitor is found not to infringe such patents. If the litigation is resolved in favor of the applicant or the challenged patent expires during the 30-month stay period, the stay is lifted and the FDA may thereafter approve the application based on the standards for approval of ANDAs.

Any introduction of one or more products generic to Gralise, CAMBIA, or Zipsor, whether as a result of an ANDA or otherwise, would harm our business, financial condition and results of operations. The filing of the ANDAs described above, or any other ANDA or similar application in respect to any of our products, could have an adverse impact on our stock price. Moreover, if the patents covering our products are not upheld in litigation or if a generic competitor is found not to infringe these patents, the resulting generic competition would have a material adverse effect on our business, financial condition and results of operations.

Business interruptions can limit our ability to operate our business and adversely impact the success of our commercialization partners.

Our operations and infrastructure, and those of our partners, third-party suppliers, manufacturers and vendors are vulnerable to damage or interruption from cyber-attacks and security breaches, human error, natural disasters, fire, flood, the effects of climate change, actual or threatened public health crises, power loss, telecommunications failures, equipment failures, intentional acts of theft, vandalism, terrorism, public health crises and similar events. We have not established a formal disaster recovery plan, and our back-up operations and our business interruption insurance may not be adequate to compensate us for losses that occur. A significant business interruption could result in losses or damages incurred by us and require us to cease or curtail our operations.

Data breaches and cyber-attacks can compromise our intellectual property or other sensitive information and cause significant damage to our business.

In the ordinary course of our business, we collect, maintain and transmit sensitive data on our computer networks and information technology systems, including our intellectual property and proprietary or confidential business information. The secure maintenance of this information is critical to our business. We believe that companies have been increasingly subject to a wide variety of security incidents, cyber-attacks and other attempts to gain unauthorized access. These threats can come from a variety of sources, ranging in sophistication from an individual hacker to a state-sponsored attack and motives (including corporate espionage). Cyber threats may be generic, or they may be custom-crafted to target our information systems. Cyber-attacks are becoming increasingly more prevalent and much harder to detect and defend against. Our network and storage applications and those of our third-party vendors may be subject to unauthorized access by hackers or breached due to operator

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error, malfeasance or other system disruptions.

Although our Board of Directors, through our Audit Committee, regularly discusses with management our policies and practices regarding information technology systems, information management systems and related infrastructure, including our information technology and information management security, risk management and back-up policies, practices and infrastructure, it is often difficult to anticipate or immediately detect such incidents and the damage that may be caused by such incidents. These data breaches and any unauthorized access or disclosure of our information or intellectual property could compromise our intellectual property and expose sensitive business information, including our financial information or the information of our business partners. Cyber-attacks could cause us to incur significant remediation costs, result in product development delays, disrupt key business operations and divert attention of management and key information technology resources. Our network security and data recovery measures and those of our third party vendors may not be adequate to protect against such security breaches and disruptions. These incidents could also subject us to liability, expose us to significant expense and cause significant harm to our business.

Our success is dependent in large part upon the continued services of our executive management team with whom we do not have employment agreements.

Our success is dependent in large part upon the continued services of members of our executive management team, and on our ability to attract and retain key management and operating personnel. We do not have agreements with any of our executive officers that provide for their continued employment with us. Management, scientific and operating personnel are in high demand in our industry and are often subject to competing offers. The loss of the services of one or more members of management or key employees or the inability to hire additional personnel as needed could result in delays in the research, development and commercialization of our products and potential product candidates, or otherwise adversely impact our business.

Risks Related to Product Development

The development of drug candidates is inherently difficult and uncertain, and we cannot be certain that any of our product candidates or those of our collaborative partners will be approved for marketing or, if approved, will achieve market acceptance.

Clinical development is a long, expensive and uncertain process and is subject to delays and failures. As a condition to regulatory approval, each product candidate must undergo extensive and expensive preclinical studies and clinical trials to demonstrate to a statistically significant degree that the product candidate is safe and effective. The results at any stage of the development process may lack the desired safety, efficacy or pharmacokinetic characteristics. Positive or encouraging results of prior clinical trials are not necessarily indicative of the results obtained in later clinical trials, as has occurred in the past in certain of our Phase 3 trials. Further, product candidates in later clinical trials may fail to show the desired safety and efficacy despite having progressed in development. In addition, data obtained from pivotal clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval.

Product candidates are subject to the risk that any or all of them may be found to be ineffective or unsafe, or otherwise may fail to receive necessary regulatory clearances. The FDA or other applicable regulatory agencies may determine that our data is not sufficiently compelling to warrant marketing approval and require us to engage in additional clinical trials or provide further analysis, which may be costly and time-consuming. A number of companies in the pharmaceutical industry, including us, have suffered significant setbacks in clinical trials, even in advanced clinical trials after showing positive results in preclinical studies or earlier clinical trials. If our current or future product candidates fail at any stage of development, they will not receive regulatory approval, we will not be able to commercialize them and we will not receive any return on our investment in those product candidates.

Other factors could delay or result in the termination of our or our collaborative partner’s current and future clinical trials and related development programs, including:


•	negative or inconclusive results;


•	patient enrollment rates;


•	patient noncompliance with the protocol;


•	adverse medical events or side effects among patients during the clinical trials;


•	any findings resulting from FDA inspections of clinical operations;

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•	failure to meet FDA preferred or recommended clinical trial design, end points or statistical power;


•	failure to comply with good clinical practices;


•	failure of third-party clinical trial vendors to comply with applicable regulatory laws and regulations;


•	compliance with applicable laws and regulations;


•	inability of third-party clinical trial vendors to satisfactorily perform their contractual obligations, comply with applicable laws and regulations or meet deadlines;


•	delays or failures in obtaining clinical materials or manufacturing sufficient quantities of the product candidate for use in clinical trials;


•	delays or failures in recruiting qualified patients to participate in clinical trials; and


•	actual or perceived lack of efficacy or safety of the product candidate.

We are unable to predict whether any product candidates will receive regulatory clearances or be successfully manufactured or marketed. Further, due to the extended testing and regulatory review process required before marketing clearance can be obtained, the time frame for commercializing a product is long and uncertain. Even if product candidates receive regulatory clearance, these products may not achieve or maintain market acceptance. If it is discovered that our or our collaborators’ products or technologies have potential adverse effects or other characteristics that indicate they may be ineffective as therapeutics, our product development efforts and our business could be significantly harmed.

Even assuming our or our collaborative partners’ products obtain regulatory approval, successful commercialization requires:


•	market acceptance;


•	a cost-effective commercial-scale production; and


•	reimbursement under private or governmental health plans.

Any material delay or failure in the governmental approval process, the successful production of commercial product or the successful commercialization of our approved product candidates, or those of our collaborative partners, could adversely impact our business, financial condition and results of operations.

We and our collaborative partners customarily depend on third-party contract research organizations, clinical investigators and clinical sites to conduct clinical trials with regard to product candidates, and if they do not perform their regulatory, legal and contractual obligations, or successfully enroll patients in and manage our clinical trials, we and our collaborative partners may not be able to obtain regulatory approvals for product candidates.

We and our collaborative partners customarily rely on third-party contract research organizations and other third parties to assist us in designing, managing, monitoring and otherwise conducting clinical trials. We and our collaborative partners do not control these third parties and, as a result, we and our collaborative partners may be unable to control the amount and timing of resources that they devote to our or our collaborative partners’ clinical trials.

Although we and our collaborative partners rely on third parties to conduct clinical trials, we and our collaborative partners are responsible for confirming that each clinical trial is conducted in accordance with its general investigational plan and protocol, as well as the FDA’s and other applicable regulatory agencies’ requirements, including good clinical practices, for conducting, recording and reporting the results of clinical trials to ensure that the data and results are credible and accurate and that the trial participants are adequately protected. If we, contract research organizations or other third parties assisting us or our collaborative partners with clinical trials fail to comply with applicable good clinical practices, the clinical data generated in such clinical trials may be deemed unreliable and the FDA, or other applicable regulatory agencies, may require us or our collaborative partners to perform additional clinical trials before approving any marketing applications with regard to product candidates. We cannot be certain that, upon inspection, the FDA or other applicable regulatory agencies will determine that any of our clinical trials or our collaborative partners comply with good clinical practices. In addition, clinical trials must be conducted with product produced under the FDA’s cGMP regulations and similar regulations outside of the U.S. Our or our collaborative partners’ failure, or the failure of our product manufacturers, to comply with these regulations may require the repeat or redesign of clinical trials, which would delay the regulatory approval process.

We and our collaborative partners also customarily rely on clinical investigators and clinical sites to enroll patients and other third parties to manage clinical trials and to perform related data collection and analysis. If clinical investigators and clinical sites fail to enroll a sufficient number of patients in such clinical trials or fail to enroll them on the planned schedule,

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these trials may not be completed or completed as planned, which could delay or prevent us or our collaborative partners from obtaining regulatory approvals for product candidates.

Agreements with clinical investigators and clinical sites for clinical testing and for trial management services place substantial responsibilities on these parties, which could result in delays in, or termination of, clinical trials if these parties fail to perform as expected. If these clinical investigators, clinical sites or other third parties do not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to clinical protocols or for other reasons, clinical trials may be extended, delayed or terminated, and we and our collaborative partners may be unable to obtain regulatory approval for, or successfully commercialize, product candidates.

Failure to obtain or maintain regulatory approval for our products, our raw materials or product candidates, will limit our ability to commercialize our products, and our business will suffer.

The regulatory process is expensive and time consuming. Even after investing significant time and expenditures on clinical trials, we may not obtain regulatory approval of our product candidates. Data obtained from clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval, and the FDA may not agree with our methods of clinical data analysis or our conclusions regarding safety and/or efficacy. Significant clinical trial delays could impair our ability to commercialize our products and could allow our competitors to bring products to market before we do. In addition, changes in regulatory policy for product approval during the period of product development and regulatory agency review of each submitted new application may cause delays or rejections. Even if we receive regulatory approval, this approval may entail limitations on the indicated uses for which we can market a product.

Further, with respect to our approved products, once regulatory approval is obtained, a marketed product and its manufacturer are subject to continual review and other requirements. The FDA recently notified the Company it would require two post-marketing studies related to Gralise. In addition, the discovery of previously unknown problems with a product or manufacturer may result in restrictions on the product, manufacturer or manufacturing facility, including withdrawal of the product from the market. Manufacturers of approved products are also subject to ongoing regulation and inspection, including compliance with FDA regulations governing cGMP or Quality System Regulation (QSR). The FDCA, the CSA and other federal and foreign statutes and regulations govern and influence the testing, manufacturing, packing, labeling, storing, record keeping, safety, approval, advertising, promotion, sale and distribution of our products. In addition, we and our partners are also subject to ongoing DEA regulatory obligations, including annual registration renewal, security, record keeping, theft and loss reporting, periodic inspection and annual quota allotments for the raw material for commercial production of our products. The failure to comply with these regulations could result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, non-renewal of marketing applications or authorizations or criminal prosecution, which could adversely affect our business, results of operations and financial condition.

We are also required to report adverse events associated with our products to the FDA and other regulatory authorities. Unexpected or serious health or safety concerns could result in labeling changes, recalls, market withdrawals or other regulatory actions. Recalls may be issued at our discretion or at the discretion of the FDA or other empowered regulatory agencies. For example, in June 2010, we instituted a voluntary class 2 recall of 52 lots of our 500mg Glumetza product after chemical traces of 2,4,6-tribromoanisole (TBA) were found in the product bottle.

We are subject to risks associated with NDAs submitted under Section 505(b)(2) of the FDCA.

The products we and our collaborative partners develop or acquire generally are or will be submitted for approval under Section 505(b)(2) of the FDCA, which was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Act. Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. For instance, the NDA for Cambia relies on the FDA’s prior approval of Cataflam, the diclofenac initially approved by the FDA.

For NDAs submitted under Section 505(b)(2) of the FDCA, the patent certification and related provisions of the Hatch-Waxman Act apply. In accordance with the Hatch-Waxman Act, such NDAs may be required to include certifications, known as “Paragraph IV certifications,” that certify any patents listed in the Orange Book publication in respect to any product referenced in the 505(b)(2) application are invalid, unenforceable and/or will not be infringed by the manufacture, use or sale of the product that is the subject of the 505(b)(2) application. Under the Hatch-Waxman Act, the holder of the NDA which the 505(b)(2) application references may file a patent infringement lawsuit after receiving notice of the Paragraph IV certification. Filing of a patent infringement lawsuit triggers a one-time automatic 30-month stay of the FDA’s ability to approve the 505(b)

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(2) application. Accordingly, we may invest a significant amount of time and expense in the development of one or more products only to be subject to significant delay and patent litigation before such products may be commercialized, if at all. A Section 505(b)(2) application may also not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired. The FDA may also require us to perform one or more additional clinical studies or measurements to support the change from the approved product. The FDA may then approve the new formulation for all or only some of the indications sought by us. If the FDA disagrees with the use of the Section 505(b)(2) regulatory pathway for product candidates, we would need to reconsider our plans and might not be able to obtain approval for product candidates in a timely or cost-efficient manner, or at all. The FDA may also reject our future Section 505(b)(2) submissions and may require us to file such submissions under Section 501(b)(1) of the FDCA, which could be considerably more expensive and time-consuming.

Risks Related to Our Industry

We are subject to risks from changes in laws and regulations applicable to, and increased scrutiny and investigations of, the pharmaceutical industry, including the opioid market, which can adversely affect our business, financial condition and results of operations.

The manufacture, marketing, sale, promotion, and distribution of our products are subject to comprehensive government regulation. Changes in laws and regulations applicable to, and increased scrutiny and investigations of, the pharmaceutical industry, including the opioid market, could adversely affect our business and our ability to commercialize CAMBIA and Zipsor as well as Alvogen’s ability to commercialize Gralise, thereby adversely affecting our financial condition and results of operations.

In addition, various federal and state governmental entities, including the U.S. Department of Justice (DOJ) and a number of state attorneys general, have launched investigations into the marketing and sales practices of pharmaceutical companies that market or have marketed opioid and non-opioid pain medications, including us. For instance, we have received subpoenas or civil investigative demands from the DOJ, several state attorneys general, the New York Department of Financial Services and other state regulators seeking documentation and information in connection with our historical sales and marketing of opioid products. We also received a subpoena from the State of California Department of Insurance (CDI) seeking information relating to our historical sales and marketing of Gralise. There has been recent regulatory attention focused on gabapentin as a result of a perceived risk of the compound being used as a potentiator for opioid abuse. Although gabapentin is neither an opioid nor classified as a controlled substance by the DEA, as a result of the perceived risks relating to substance abuse, several states have scheduled gabapentin as a controlled substance. We have also received notice from the FDA that it has requested that all companies that hold an NDA for gabapentanoids conduct two clinical trials to assess gabapentin’s abuse liability. One clinical trial is intended to address the abuse potential of gabapentin alone. The other clinical trial is intended to evaluate gabapentin’s abuse potential when taken in combination with an opioid drug. Depending on the results of these studies, additional safety labeling, the implementation of a REMS protocol and/or scheduling of gabapentanoids, as a class or by formulation type, could be mandated by the FDA which, in turn, could result in increased expenses or have a material adverse impact on either the commercial prospects of our products or our ability or our partners’ ability to commercialize our products. Continued changes in regulations and legislation applicable to gabapentin could have a material adverse impact on the commercial prospects of Gralise which could, in turn, have a material adverse effect on Alvogen’s sales and our business, financial condition and results of operations.

Governmental regulators could take measures that could have a negative effect on our business and our products. Any negative regulatory request or action taken by a regulatory agency, including the FDA, with respect to our other products could adversely affect our business, results of operations, and financial condition.

The regulatory actions described above, as well as the related litigation and investigations, not only create financial and operational pressure on our company, but could also put pressure on other companies in our industry and with which we have contractual arrangements. Such pressures could negatively impact our contractual counterparties and may give rise to contract cancellations, breaches or rejections in bankruptcy. Furthermore, in the event that a contract counterparty seeks to reject a contract, we may have an unsecured claim for damages, which may not be paid in full (if at all), and we may be forced to return payments made within 90 days of the date of filing for bankruptcy protection. If any of these events should occur, it may have a material adverse effect on our business, financial condition and results of operations.

The foregoing and other similar initiatives and actions, whether taken by governmental authorities or other industry stakeholders, may result in the reduced availability, prescribing, sales and use of our products, which could adversely affect our ability to commercialize CAMBIA and Zipsor, as well as Alvogen’s ability to commercialize Gralise, thereby adversely affecting our business, financial condition and results of operations.

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Pharmaceutical marketing is subject to substantial regulation in the U.S. and any failure by us or our commercial and collaborative partners to comply with applicable statutes or regulations can adversely affect our business.

All marketing activities of Alvogen associated with Gralise, and our current marketing activities associated with CAMBIA and Zipsor, as well as marketing activities related to any other products that we may acquire, or for which we or our collaborative partners obtain regulatory approval, are and will be subject to numerous federal and state laws governing the marketing and promotion of pharmaceutical products. The FDA regulates post-approval promotional labeling and advertising to ensure that they conform to statutory and regulatory requirements. In addition to FDA restrictions, the marketing of prescription drugs is subject to laws and regulations prohibiting fraud and abuse under government healthcare programs. For example, the federal healthcare program anti-kickback statute prohibits giving things of value to induce the prescribing or purchase of products that are reimbursed by federal healthcare programs, such as Medicare and Medicaid. In addition, federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government. Under these laws, in recent years, the federal government has brought claims against drug manufacturers alleging that certain marketing activities caused false claims for prescription drugs to be submitted to federal programs. Many states have similar statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, and, in some states, such statutes or regulations apply regardless of the payer.

Governmental authorities may also seek to hold us responsible for any failure of our commercialization or collaborative partners to comply with applicable statutes or regulations. If we, or our commercial or collaborative partners, fail to comply with applicable FDA regulations or other laws or regulations relating to the marketing of our products, we could be subject to criminal prosecution, civil penalties, seizure of products, injunctions and exclusion of our products from reimbursement under government programs, as well as other regulatory or investigatory actions against our product candidates, our commercial or collaborative partners or us.

We may incur significant liability if it is determined that we are promoting or have in the past promoted the “off-label” use of drugs.

Companies may not promote drugs for “off-label” use—that is, uses that are not described in the product’s labeling and that differ from those approved by the FDA. Physicians may prescribe drug products for off-label uses, and such off-label uses are common across some medical specialties. Although the FDA and other regulatory agencies do not regulate a physician’s choice of treatments, the FDCA and FDA regulations restrict communications on the subject of off-label uses of drug products by pharmaceutical companies. The Office of Inspector General of the U.S. Department of Health and Human Services (OIG), the FDA, and the DOJ all actively enforce laws and regulations prohibiting promotion of off-label use and the promotion of products for which marketing clearance has not been obtained. If any of the investigations of the DOJ, the attorneys general identified above, and the CDI, as well as the actions filed by states and municipalities against us, result in a finding that we engaged in wrongdoing, including sales and marketing practices for our current and future products that violate applicable laws and regulations, we would be subject to significant liabilities. Such liabilities would harm our business, financial condition and results of operations as well as divert management’s attention from our business operations and damage our reputation. For additional information regarding potential liability, see also “ - Governmental investigations and inquiries, regulatory actions and lawsuits brought against us by government agencies and private parties with respect to our historical commercialization of opioids can adversely affect our business, financial condition and results of operations.”

Healthcare reform can increase our expenses and adversely affect the commercial success of our products.

The ACA includes numerous provisions that affect pharmaceutical companies. For example, the ACA seeks to expand healthcare coverage to the uninsured through private health insurance reforms and an expansion of Medicaid. The ACA also imposes substantial costs on pharmaceutical manufacturers, such as an increase in liability for rebates paid to Medicaid, new drug discounts that must be offered to certain enrollees in the Medicare prescription drug benefit and an annual fee imposed on all manufacturers of brand prescription drugs in the U.S. The ACA also requires increased disclosure obligations and an expansion of an existing program requiring pharmaceutical discounts to certain types of hospitals and federally subsidized clinics and contains cost-containment measures that could reduce reimbursement levels for pharmaceutical products. The ACA also includes provisions known as the Physician Payments Sunshine Act, which require manufacturers of drugs, biologics, devices and medical supplies covered under Medicare and Medicaid to record any transfers of value to physicians and teaching hospitals and to report this data to the Centers for Medicare and Medicaid Services for subsequent public disclosure. Similar reporting requirements have also been enacted on the state level domestically, and an increasing number of countries worldwide either have adopted or are considering similar laws requiring transparency of interactions with healthcare professionals. Failure to report appropriate data may result in civil or criminal fines and/or penalties. These and other aspects of the ACA, including regulations that may be imposed in connection with the implementation of the ACA, such as the 340B Program (which requires pharmaceutical manufacturers to provide outpatient drugs to eligible healthcare organizations and covered entities at

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significantly reduced prices), could increase our expenses and adversely affect our ability to successfully commercialize our products and product candidates.

Many members of Congress and President Trump have pledged to repeal the ACA. In January 2017, the House and Senate passed a budget resolution that authorized Congressional committees to draft legislation to repeal all or portions of the ACA and permits such legislation to pass with a majority vote in the Senate. President Trump also issued an executive order in which he stated that it is his administration’s policy to seek the prompt repeal of the ACA and directed executive departments and federal agencies to waive, defer, grant exemptions from, or delay the implementation of burdensome provisions of the ACA to the maximum extent permitted by law. Although several attempts to repeal and replace the ACA failed to pass both houses of Congress or have been limited or rejected by federal courts, there is still uncertainty with respect to the impact President Trump’s administration and the Congress may have, if any, and any changes will likely take time to unfold, as will the ACA-related lawsuits that are working their way through the federal judicial system. Any new laws or regulations that have the effect of imposing additional costs or regulatory burden on pharmaceutical manufacturers, or otherwise negatively affect the industry, could adversely affect our ability to successfully commercialize our products and product candidates. In addition, President Trump, members of Congress, and state elected officials have indicated that reducing the price of prescription drugs will be a priority. The implementation of any price controls, caps on prescription drugs or price transparency requirements, whether at the federal level or state level, could adversely affect our business, operating results and financial condition.

Risks Related to the Historical Commercialization of Opioids

Governmental investigations and inquiries, regulatory actions and lawsuits brought against us by government agencies and private parties with respect to our historical commercialization of opioids can adversely affect our business, financial condition and results of operations.

As a result of the greater public awareness of the public health issue of opioid abuse, there has been increased scrutiny of, and investigation into, the commercial practices of opioid manufacturers generally by federal, state and local regulatory and governmental agencies, as well as increased legal action brought by state and local governmental entities and private parties. For example, we are currently named as a defendant, along with numerous other manufacturers and distributors of opioid drugs, in multiple lawsuits alleging common-law and statutory causes of action for alleged misleading or otherwise improper marketing and promotion of opioid drugs. Such litigation and related matters are described in “Item 8. Financial Statements and Supplementary Data - Note 11. Commitments and Contingencies.”

In March 2017, we received a letter from Sen. Claire McCaskill (D-MO), the then-Ranking Member on the U.S. Senate Committee on Homeland Security and Governmental Affairs, requesting certain information regarding our historical commercialization of opioid products. We voluntarily furnished information responsive to Sen. McCaskill’s request. We have also received subpoenas or civil investigative demands focused on historical promotion and sales of Lazanda, NUCYNTA, and NUCYNTA ER from various state attorneys general seeking documents and information regarding our historical sales and marketing of opioid products. In addition, the CDI has issued a subpoena to us seeking information relating to our historical sales and marketing of Lazanda. The CDI subpoena also seeks information on Gralise, a non-opioid product which we recently divested to Alvogen. We have also received subpoenas from the DOJ and the New York Department of Financial Services seeking documents and information regarding our historical sales and marketing of opioid products. We also from time to time receive and comply with subpoenas from governmental authorities related to investigations primarily focused on third parties, including healthcare practitioners. We are cooperating with the foregoing governmental investigations and inquiries. These matters are described in “Item 8. Financial Statements and Supplementary Data - Note 11. Commitments and Contingencies.”

These and other governmental investigations or inquiries, as well as lawsuits, in which we are and may become involved may result in additional claims and lawsuits being brought against us by governmental agencies or private parties. It is not possible at this time to predict either the outcome or the potential financial impact of the opioid-related lawsuits mentioned above or any governmental investigations or inquiries of us or any lawsuits or regulatory responses that may result from such investigations or inquiries or otherwise. It is also not possible at this time to predict the additional expenses related to such ongoing opioid-related litigation and investigations, which may be significant. The initiation of any additional investigation, inquiry or lawsuit relating to us, the costs and expenses associated therewith, or any assertion, claim or finding of wrongdoing by us, could:


•	adversely affect our business, financial condition and results of operations;


•	result in reputational harm and reduced market acceptance and demand for our products;


•	harm our ability and our commercial partners’ ability to market our products;


•	cause us to incur significant liabilities, costs and expenses; and

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•	cause our senior management to be distracted from execution of our business strategy.

Furthermore, these pending investigations, inquiries and lawsuits could negatively affect our ability to raise capital and impair our ability to engage in strategic transactions.

We face risks relating to product liability losses and other litigation liability for which we may be unable to maintain or obtain adequate protection.

We are or may be involved in various legal proceedings, lawsuits and certain government inquiries and investigations, including with respect to, but not limited to, patent infringement, product liability, personal injury, antitrust matters, securities class action lawsuits, breach of contract, Medicare and Medicaid reimbursement claims, opioid-related matters, promotional practices and compliance with laws relating to the manufacture and sale of controlled substances. For example, we, along with other opioid manufacturers and, often, distributors, have been named in lawsuits related to the manufacturing, distribution, marketing and promotion of opioids. In addition, we have also received various subpoenas and requests for information related to the distribution, marketing and sale of our opioid products. Moreover, our primary product liability insurer has sought a declaratory judgment that opioid litigation claims noticed by us are not covered by our policies with such insurer. Such litigation and related matters are described in “Item 8. Financial Statements and Supplementary Data - Note 11. Commitments and Contingencies.” If any of these legal proceedings, inquiries or investigations were to result in an adverse outcome, the impact could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.

We have obtained product liability insurance for sales of our products and clinical trials currently underway, but:


•	we may be unable to maintain product liability insurance on acceptable terms;


•	we may be unable to obtain product liability insurance for future trials;


•	we may be unable to obtain product liability insurance for future products; or


•	our insurance may not provide adequate protection against potential liabilities (including pending and future claims relating to opioid litigation), or may provide no protection at all.

Our inability to obtain or maintain adequate insurance coverage at an acceptable cost could prevent or inhibit the commercialization of our products. Defending a lawsuit could be costly and significantly divert management’s attention from conducting our business. If third parties were to bring a successful product liability or other claims, or series of claims, against us for uninsured liabilities, or in excess of our insured liability limits, our business, results of operations and financial condition could be adversely affected.

Risks Related to Our Intellectual Property

We are not always able to protect our intellectual property and are subject to risks from liability for infringing the intellectual property of others.

Our success will depend in part on our ability to obtain and maintain patent protection for our products and technologies, and to preserve our trade secrets. Our policy is to seek to protect our proprietary rights by, among other methods, filing patent applications in the U.S. and foreign jurisdictions to cover certain aspects of our technology. We hold issued U.S. patents and have patent applications pending in the U.S. In addition, we are pursuing patent applications relating to our technologies in the U.S. and abroad. We have also applied for patents in numerous foreign countries. Some of those countries have granted our applications and other applications are still pending. Our pending patent applications may lack priority over other applications or may not result in the issuance of patents. Even if issued, our patents may not be sufficiently broad to provide protection against competitors with similar technologies and may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products or may not provide us with competitive advantages against competing products. We also rely on trade secrets and proprietary know-how, which are difficult to protect. We seek to protect such information, in part, by entering into confidentiality agreements with employees, consultants, collaborative partners and others before such persons or entities have access to our proprietary trade secrets and know-how. These confidentiality agreements may not be effective in certain cases, due to, among other things, the lack of an adequate remedy for breach of an agreement or a finding that an agreement is unenforceable. In addition, our trade secrets may otherwise become known or be independently developed by competitors.

Our ability to develop our technologies and to make commercial sales of products using our technologies also depends on not infringing other patents or intellectual property rights. We are not aware of any such intellectual property claims directly

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against us. The pharmaceutical industry has experienced extensive litigation regarding patents and other intellectual property rights. Patents issued to third parties relating to sustained release drug formulations or particular pharmaceutical compounds could in the future be asserted against us, although we believe that we do not infringe any valid claim of any patents. If claims concerning any of our products were to arise and it was determined that these products infringe a third party’s proprietary rights, we or our commercial partners could be subject to substantial damages for past infringement or could be forced to stop or delay activities with respect to any infringing product, unless we or our commercial partner, as applicable, can obtain a license, or our product may need to be redesigned so that it does not infringe upon such third party’s patent rights, which may not be possible or could require substantial funds or time. Such a license may not be available on acceptable terms, or at all. Even if we, our collaborators or our licensors were able to obtain a license, the rights may be nonexclusive, which could give our competitors access to the same intellectual property. In addition, any public announcements related to litigation or interference proceedings initiated or threatened against us, even if such claims are without merit, could cause our stock price to decline.

From time to time, we may become aware of activities by third-parties that may infringe our patents. Infringement of our patents by others may reduce our market shares (if a related product is approved) and, consequently, our potential future revenues and adversely affect our patent rights if we do not take appropriate enforcement action. We may need to engage in litigation to enforce any patents issued or licensed to us or to determine the scope and validity of third-party proprietary rights. For instance, we have previously been engaged in ANDA litigation involving NUCYNTA, NUCYNTA ER and NUCYNTA oral solution as well as Gralise and Zipsor. It is possible our issued or licensed patents may not be held valid by a court of competent jurisdiction or the Patent Trial and Appeal Board (PTAB). Whether or not the outcome of litigation or the PTAB proceeding is favorable to us, the litigation and the proceedings may take significant time, may be expensive and may divert management’s attention from other business concerns. We may also be required to participate in derivation proceedings or other post-grant proceedings declared by the U.S. Patent and Trademark Office (USPTO) for the purposes of, respectively, determining the priority of inventions in connection with our patent applications or determining validity of claims in our issued patents. Adverse determinations in litigation or proceedings at the USPTO could adversely affect our business, results of operations and financial condition and could require us to seek licenses which may not be available on commercially reasonable terms, or at all, or subject us to significant liabilities to third parties. If we need but cannot obtain a license, we may be prevented from marketing the affected product.

Settlements to ANDA litigation can be challenged and have the potential to lead to significant damage awards.

In circumstances where we settle patent litigation claims asserted against generic drug companies, the terms of these settlements have the potential to generate new litigation. For example, we were recently named as a co-defendant in a putative class action brought by certain direct and indirect purchasers of Glumetza (metformin), which was previously the subject of ANDA patent litigation. The plaintiffs in this action allege that a term of the settlement agreement violated antitrust laws and thus subsequently led to higher prices for Glumetza. While we believe we have substantive defenses to this action, there can be no assurance that we will prevail in this action. To the extent that we or our co-defendants are found to have acted improperly, we could be jointly and severally liable for a significant damages award, which could potentially exceed our ability to pay. Entry into other patent litigation settlement agreements in the future subjects us to additional potential claims challenging these settlements under antitrust laws or other novel theories.

Risks Related to Our Financial Position

Our existing capital resources are not necessarily sufficient to fund our future operations or product acquisitions and strategic transactions that we may pursue.

We fund our operations primarily through revenues from product sales and do not have any committed sources of capital. To the extent that our existing capital resources and revenues from ongoing operations are insufficient to fund our future operations, or product acquisitions and strategic transactions that we may pursue, or our litigation-related costs, we will have to raise additional funds through the sale of our equity securities, through additional debt financing, from development and licensing arrangements or from the sale of assets. We may be unable to raise such additional capital on a timely basis and on favorable terms, or at all. If we raise additional capital by selling our equity or convertible debt securities, the issuance of such securities could result in dilution of our shareholders’ equity positions.

Our failure to generate sufficient cash flow from our business to make payments on our debt would adversely affect our business, financial condition and results of operations.

We have incurred significant indebtedness under the convertible notes we issued in September 2014 and August 2019 (collectively, the Convertible Notes). Our ability to make scheduled payments of the principal of, to pay interest on or to

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refinance the Convertible Notes and any additional debt obligations we may incur depends on our future performance, which is subject to economic, financial, competitive and other factors that may be beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and to make necessary capital expenditures. If we are unable to generate sufficient cash flow or if our results of operations cause us to fail to comply with our financial covenants, we may be required to take one or more actions, including refinancing our debt, significantly reducing expenses, renegotiating our debt covenants, restructuring our debt, selling assets or obtaining additional capital, each of which may be on terms that may be onerous, highly dilutive or disruptive to our business. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on commercially reasonable or acceptable terms, which could result in a default on our obligations, including the Convertible Notes.

We may seek to refinance all or a portion of our outstanding indebtedness in the future. Any such refinancing would depend on the capital markets and business and financial conditions at the time, which could affect our ability to obtain attractive terms if or when desired or at all.

In addition, our significant indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences to our business. For example, it could:


•	make it more difficult for us to meet our payment and other obligations under the Convertible Notes or our other indebtedness;


•	result in other events of default under our Convertible Notes or our other indebtedness, which events of default could result in all of our debt becoming immediately due and payable;


•	make us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;


•	limit our ability to borrow additional amounts for working capital and other general corporate purposes, including funding possible acquisitions of, or investments in, new and complementary businesses, products and technologies, which is a key element of our corporate strategy;


•	subject us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates;


•	require the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of our cash flow available for other purposes, including working capital, clinical trials, research and development, business development activities, capital expenditures and other general corporate purposes;


•	prevent us from raising funds necessary to repurchase the Convertible Notes in the event we are required to do so following a “fundamental change,” as specified in the indentures governing the Convertible Notes, or to settle conversions of the Convertible Notes in cash;


•	result in dilution to our existing shareholders as a result of the conversion of the Convertible Notes into shares of common stock;


•	limit our flexibility in planning for, or reacting to, changes in our business and our industry; and


•	put us at a disadvantage compared to our competitors who have less debt.

Any of these factors can adversely affect our business, financial condition and results of operations. In addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase.

Acquisition of new and complementary businesses, products and technologies is a key element of our corporate strategy. Failure to successfully identify and acquire such businesses, products or technologies will limit our business growth and prospects.

An important element of our business strategy is to actively seek to acquire products or companies and to in-license or seek co-promotion rights to additional products. For example, in the past we have acquired NUCYNTA, NUCYNTA ER (both of which were subsequently divested to Collegium in February 2020), CAMBIA, and Zipsor, amongst other acquisitions. We cannot be certain that we will be able to successfully identify, pursue and complete any further acquisitions or whether we would be able to successfully integrate or develop any acquired business, product or technology or retain any key employees. If we are unable to enhance and broaden our product offerings, our business and prospects will be limited.

Strategic transactions that fail to achieve the anticipated results and synergies will cause our business to suffer.

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We sometimes seek to engage in strategic transactions with third parties, such as product or company acquisitions, strategic partnerships, joint ventures, divestitures or business combinations. We may face significant competition in seeking potential strategic partners and transactions, and the negotiation process for acquiring any product or engaging in strategic transactions can be time-consuming and complex. Engaging in strategic transactions, such as our acquisition in 2015 of the rights to NUCYNTA and NUCYNTA ER, our completion in 2018 of the commercialization arrangement covering NUCYNTA and NUCYNTA ER with Collegium, and our divestiture of NUCYNTA and NUCYNTA ER to Collegium in 2020, may require us to incur non-recurring and other charges, increase our near- and long-term expenditures, pose integration challenges and fail to achieve the anticipated results or synergies or distract our management and business, which may harm our business.

As part of an effort to acquire a product or company or to enter into other strategic transactions, we conduct business, legal and financial due diligence with the goal of identifying, evaluating and assessing material risks involved in the transaction. Despite our efforts, we ultimately may be unsuccessful in ascertaining, evaluating and accurately assessing all such risks and, as a result, might not realize the intended advantages of the transaction. We may also assume liabilities and legal risks in connection with a transaction, including those relating to activities of the seller prior to the consummation of the transaction and contracts that we assume. Failure to realize the expected benefits from acquisitions or strategic transactions that we may consummate, or that we have completed, such as the acquisition in 2015 of the U.S. rights to NUCYNTA and NUCYNTA ER, the commercialization arrangement covering NUCYNTA and NUCYNTA ER with Collegium, and our divestiture of NUCYNTA and NUCYNTA ER to Collegium in 2020, whether as a result of identified or unidentified risks, integration difficulties, regulatory setbacks, governmental investigations, independent actions of or financial position of our collaborative partners, litigation or other events, could adversely affect our business, results of operations and financial condition.

Failure to integrate any business, product or technology we acquire, will cause our business, financial condition and operating results to suffer.

Integrating any business, product or technology we acquire is expensive and time-consuming and can disrupt and adversely affect our ongoing business, including product sales, and distract our management. Our ability to successfully integrate any business, product or technology we acquire depends on a number of factors, including, but not limited to, our ability to:


•	minimize the disruption and distraction of our management and other employees, including our sales force, in connection with the integration of any acquired business, product or technology;


•	maintain and increase sales of our existing products;


•	establish or manage the transition of the manufacture and supply of any acquired product, including the necessary active pharmaceutical ingredients, excipients and components;


•	identify and add the necessary sales, marketing, manufacturing, regulatory and other related personnel, capabilities and infrastructure that are required to successfully integrate any acquired business, product or technology;


•	manage the transition and migration of all commercial, financial, legal, clinical, regulatory and other pertinent information relating to any acquired business, product or technology;


•	comply with legal, regulatory and contractual requirements applicable to any acquired business, product or technology;


•	obtain and maintain adequate coverage, reimbursement and pricing from managed care, government and other third-party payers with respect to any acquired product; and


•	maintain and extend intellectual property protection for any acquired product or technology.

If we are unable to perform the above functions or otherwise effectively integrate any acquired businesses, products or technologies, our business, financial condition and operating results will suffer.

We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes in cash, or to repurchase the Convertible Notes upon a fundamental change.

Holders of the Convertible Notes will have the right to require us to repurchase all or a portion of their Convertible Notes upon the occurrence of certain events, including events deemed to be a “fundamental change,” at a repurchase price equal to 100% of the principal amount of the outstanding Convertible Notes to be repurchased, plus accrued and unpaid interest, if any. Upon conversion of the Convertible Notes, unless we elect to deliver solely shares of our common stock to

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settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Convertible Notes being converted.

However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Convertible Notes or pay cash with respect to Convertible Notes being converted. In addition, our ability to repurchase or to pay cash upon conversion of the Convertible Notes may be limited by law, regulatory authority or agreements governing our future indebtedness. Moreover, the occurrence of a fundamental change under the indentures governing the Convertible Notes could constitute an event of default under the indentures governing the Convertible Notes and any agreements that may govern any future indebtedness. Following an event of default, if the payment of our outstanding indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay such indebtedness.

The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the Convertible Notes is triggered, holders of Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation in cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The market price of our common stock historically has been volatile. Our results of operations have and may continue to fluctuate and affect our stock price.

The trading price of our common stock has been, and is likely to continue to be, volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. Factors affecting our operating results and that could adversely affect our stock price include:


•	the degree of commercial success and market acceptance of Gralise, CAMBIA and Zipsor;


•	the outcome of our opioid-related investigations, our opioid-related litigation brought by state and local governmental entities and private parties, and our insurance, antitrust and other litigation, and the costs and expenses associated therewith;


•	filings and other regulatory or governmental actions, investigations or proceedings related to our products and product candidates and those of our commercialization and collaborative partners;


•	developments concerning proprietary rights, including patents, infringement allegations, inter partes review proceedings and litigation matters;


•	legal and regulatory developments in the U.S.;


•	actions taken by industry stakeholders affecting the market for our products;


•	our ability to generate sufficient cash flow from our business to make payments on our indebtedness;


•	our and our commercialization and collaborative partners’ compliance or noncompliance with legal and regulatory requirements and with obligations under our collaborative agreements;


•	our ability to successfully develop and execute our sales and marketing strategies;


•	our plans to acquire, in-license or co-promote other products or compounds or acquire or combine with other companies, and our degree of success in realizing the intended advantages of, and mitigating any risks associated with, any such transaction;


•	adverse events related to our products, or product candidates, including recalls;


•	interruptions of manufacturing or supply, or other manufacture or supply difficulties;


•	variations in revenues obtained from commercialization and collaborative agreements, including contingent milestone payments, royalties, license fees and other contract revenues, including nonrecurring revenues, and the accounting treatment with respect thereto;


•	adverse events or circumstances related to our peer companies or our industry or the markets for our products;


•	adoption of new technologies by us or our competitors;

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•	our compliance with the terms and conditions of the agreements governing our indebtedness;


•	decisions by collaborative partners to proceed or not to proceed with subsequent phases of a collaboration or program;


•	our ability to generate additional revenues from our intellectual property rights;


•	sales of large blocks of our common stock or the dilutive effect of our Convertible Notes; and


•	variations in our operating results, earnings per share, cash flows from operating activities, deferred revenue, and other financial metrics and non-financial metrics, and how those results are measured, presented and compare to our financial and operating projections and analyst expectations.

As a result of these and other such factors, our stock price may continue to be volatile and investors may be unable to sell their shares at a price equal to, or above, the price paid. Any significant drops in our stock price could give rise to shareholder lawsuits, which are costly and time-consuming to defend against and which may adversely affect our ability to raise capital while the suits are pending, even if the suits are ultimately resolved in our favor.

In addition, if the market for pharmaceutical stocks or the stock market in general experiences uneven investor confidence, the market price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. For example, if one or more securities or industry analysts downgrades our stock or publishes an inaccurate research report about our company, the market price for our common stock would likely decline. The market price of our common stock might also decline in reaction to events that affect other companies within, or outside, our industry even if these events do not directly affect us.

We have incurred operating losses in the past and may incur operating losses in the future.

To date, we have recorded revenues from product sales, license fees, royalties, collaborative research and development arrangements and feasibility studies. In 2019, 2017 and 2016 we incurred net losses of $217.2 million, $102.5 million and $88.7 million, respectively. We may continue to incur operating losses in future years. Any such losses may have an adverse impact on our total assets, shareholders’ equity and working capital.

We have significant amounts of long-lived assets which depend upon future positive cash flows to support the values recorded in our balance sheet. We are subject to increased risk of future impairment charges should actual financial results differ materially from our projections.

Our consolidated balance sheet contains significant amounts of long-lived assets, including intangible assets representing the product rights which we have acquired over the last few years and property and equipment. We review the carrying value of our long-lived assets when indicators of impairment are present. Conditions that could indicate impairment of long-lived assets include, but are not limited to, a significant adverse change in market conditions, significant competing product launches by our competitors, significant adverse change in the manner in which the long-lived asset is being used and adverse legal or regulatory outcomes.

In performing our impairment tests, which assess the recoverability of our assets, we utilize our future projections of cash flows. Projections of future cash flows are inherently subjective and reflect assumptions that may or may not ultimately be realized. Significant assumptions utilized in our projections include, but are not limited to, our evaluation of the market opportunity for our products, the current and future competitive landscape and resulting impacts to product pricing, future regulatory actions, planned strategic initiatives and the realization of benefits associated with our existing patents. Given the inherent subjectivity and uncertainty in projections, we could experience significant unfavorable variances in future periods or revise our projections downward. This would result in an increased risk that our long-lived assets may be impaired. For example, during the year ended December 31, 2019, the Company recognized an impairment loss of approximately $189.8 million related to the NUCYNTA intangible, which represented the excess of the carrying amount over the fair value as of December 31, 2019. The Company determined that the fair value was $375.0 million as of December 31, 2019, which was lower than the carrying value of $564.8 million. This impairment loss is described in more detail in “Item 8, Note 6. Intangible Assets” of this Annual Report on Form 10-K. This impairment and any future impairments could have a material adverse effect on our financial condition and results of operations.

Our customer concentration can materially adversely affect our financial condition and results of operations.

We and our commercialization partners sell a significant amount of our products to a limited number of independent wholesale drug distributors. If we, or our commercialization partners, were to lose the business of one or more of these distributors, if any of these distributors failed to fulfill their obligations, if any of these distributors experienced difficulty in

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paying us or our commercialization partners on a timely basis, or if any of these distributors negotiated lower pricing terms, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.

Our product revenues have typically been lower in the first quarter of the year as compared to the fourth quarter of the preceding year.

Our product revenues have typically been lower in the first quarter of the year as compared to the fourth quarter of the preceding year. We believe this arises primarily as a result of wholesalers’ reductions of inventory of our products in the first quarter and annual changes in health insurance plans that occur at the beginning of the calendar year.

Our wholesalers typically end the calendar year with higher levels of inventory of our products than at the end of the first quarter of the following year. As a result, in such first quarters, net sales are typically lower than would otherwise have been the case as a result of the reduction of product inventory at our wholesalers. Any material reduction by our wholesalers of their inventory of our products in the first quarter of any calendar year as compared to the fourth quarter of the preceding calendar year can adversely affect our operating results and can cause our stock price to decline.

Many health insurance plans and government programs reset annual limits on deductibles and out-of-pocket costs at the beginning of each calendar year and require participants to pay for substantially all of the costs of medical services and prescription drug products until such deductibles and annual out-of-pocket cost limits are met. In addition, enrollment in high-deductible health insurance plans has increased significantly in recent years. As a result of these factors, patients may delay filling or refilling prescriptions for our products or substitute less expensive generic products until such deductibles and annual out-of-pocket cost limits are met. Any reduction in the demand for our products, including those marketed by our commercialization partners as a result of the foregoing factors or otherwise, can adversely affect our business, operating results and financial condition.

Changes in fair value of contingent consideration assumed as part of our acquisitions can adversely affect our results of operations.

Contingent consideration obligations arise from the Zipsor and CAMBIA acquisitions and relate to the potential future contingent milestone payments and royalties payable under the respective agreements. The contingent consideration is initially recognized at its fair value on the acquisition date and is remeasured to fair value at each reporting date until the contingency is resolved with changes in fair value recognized in earnings. The estimates of fair values for the contingent consideration contain uncertainties as it involves assumptions about the probability assigned to the potential milestones and royalties being achieved and the discount rate. Significant judgment is employed in determining these assumptions as of the acquisition date and for each subsequent period. Updates to assumptions could have a significant impact on our results of operations in any given period.

The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Notes, can have a material effect on our reported financial results.

In May 2008, the Financial Accounting Standards Board (FASB) issued the FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which has subsequently been codified as Accounting Standards Codification (ASC) 470-20, Debt with Conversion and Other Options (ASC 470-20). Under ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments (such as the Convertible Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Convertible Notes is that the equity component is required to be included in the additional paid-in capital within shareholders’ equity on our consolidated balance sheet at the issuance date and the value of the equity component would be treated as debt discount for purposes of accounting for the debt component of the Convertible Notes. As a result, we have been required to record a greater amount of non-cash interest expense as a result of the accretion of the discounted carrying value of the Convertible Notes to their face amount over the term of the notes. We will report lower net income (or larger net losses) in our financial results because ASC 470-20 requires interest to include both the accretion of the debt discount and the instrument’s non-convertible coupon interest rate, which adversely affects our reported or future financial results and may adversely affect the trading price of our common stock.

In addition, if the Convertible Notes become convertible, we are required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than a long-term liability, which would result in a material reduction of our net working capital. Finally, we use the if-converted method to compute

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diluted earnings per share with respect to our convertible debt, which could be more dilutive than assuming the debt would be settled in cash.

Any of these factors could cause a decrease in the market price of our common stock.

If we are unable to satisfy regulatory requirements relating to internal controls, our stock price could suffer.

Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to conduct a comprehensive evaluation of the effectiveness of their internal control over financial reporting. At the end of each fiscal year, we must perform an evaluation of our internal control over financial reporting, include in our annual report the results of the evaluation and have our external auditors also publicly attest to the effectiveness of our internal control over financial reporting.

Our ability to produce accurate financial statements and comply with applicable laws, rules and regulations is largely dependent on our maintenance of internal control and reporting systems, as well as on our ability to attract and retain qualified management and accounting personnel to further develop our internal accounting function and control policies. If we fail to effectively establish and maintain such reporting and accounting systems or fail to attract and retain personnel who are capable of designing and operating such systems, these failures will increase the likelihood that we may be required to restate our financial results to correct errors or that we will become subject to legal and regulatory infractions, which may entail civil litigation and investigations by regulatory agencies including the SEC. In addition, if material weaknesses are found in our internal controls in the future, if we fail to complete future evaluations on time or if our external auditors cannot attest to the effectiveness of our internal control over financial reporting, we could fail to meet our regulatory reporting requirements and be subject to regulatory scrutiny and a loss of public confidence in our internal controls, which could have an adverse effect on our stock price or expose us to litigation or regulatory proceedings, which may be costly or divert management attention.

Our financial results are impacted by management’s assumptions and use of estimates.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the 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 returns, depreciable and amortizable lives, share-based compensation assumptions, fair value of contingent consideration and taxes on income. Although management believes these estimates are based upon reasonable assumptions within the bounds of its knowledge of our business and operations, actual results could differ materially from these estimates.

Risks Related to Share Ownership and Other Stockholder Matters

We are subject to risks from future proxy fight or the actions of activist shareholders.

On October 17, 2016, we and Starboard Value LP (Starboard) entered into a settlement agreement pursuant to which, among other things, (i) three independent directors appointed by Starboard joined our Board of Directors, (ii) we amended our bylaws to move the window for shareholders director nominations and other shareholder proposals for consideration at the 2017 annual meeting of shareholders to March 15, 2017 through April 15, 2017 and (iii) Starboard agreed to withdraw its request for the Special Meeting scheduled to be held on November 15, 2016. On March 28, 2017, we and Starboard entered into a cooperation and support agreement pursuant to which, among other things, two additional independent directors appointed by Starboard joined our Board of Directors and the parties agreed to certain standstill commitments.

Another proxy contest or related activities with Starboard or other activist shareholders could adversely affect our business for a number of reasons, including, but not limited to the following:


•	responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees;


•	perceived uncertainties as to our future direction may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel, business partners, customers and others important to our success, any of which could negatively affect our business and our results of operations and financial condition; and


•	if nominees advanced by activist shareholders are elected or appointed to our Board of Directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plans or to realize

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long-term value from our assets, and this could in turn have an adverse effect on our business and on our results of operations and financial condition.

Proxy contests have in the past and may in the future cause our stock price to experience periods of volatility. Further, if a proxy contest results in a change in control of our Board of Directors, such an event would subject us to risks relating to certain third parties’ rights under our existing contractual obligations, which could adversely affect our business.

We are subject to risks related to unsolicited takeover attempts in the future.

We have in the past and may in the future be subject to unsolicited attempts to gain control of our company. Responding to any such attempt would distract management attention away from our business and would require us to incur significant costs. Moreover, any unsolicited takeover attempt may disrupt our business by causing uncertainty among current and potential employees, producers, suppliers, customers and other constituencies important to our success, which could negatively impact our financial results and business initiatives. Other disruptions to our business include potential volatility in our stock price and potential adverse impacts on the timing of, and our ability to consummate, acquisitions of products and companies.

Certain provisions applicable to the Convertible Notes can delay or prevent an otherwise beneficial takeover or takeover attempt.

Certain provisions applicable to the Convertible Notes and the indentures governing the Convertible Notes make it more difficult or more expensive for a third party to acquire us. For example, if an acquisition event constitutes a fundamental change under the indentures for the Convertible Notes, holders of the Convertible Notes will have the right to require us to repurchase their notes in cash. In addition, if an acquisition event constitutes a “make-whole fundamental change” under the indentures, we may be required to increase the conversion rate for holders who convert their Convertible Notes in connection with such make-whole fundamental change. In any of these cases, and in other cases, our obligations under the Convertible Notes and the indentures, as well as provisions of our organizational documents and other agreements, can increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.

We do not intend to pay dividends on our common stock, so any returns on shares of our common stock will be limited to changes in the value of our common stock.

We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, our ability to pay cash dividends on our common stock may be prohibited or limited by the terms of any future debt financing arrangement. Any return to shareholders will therefore be limited to the increase, if any, of our stock price.

Our common stock may be delisted from the Nasdaq Global Select Market if we are unable to maintain compliance with Nasdaq's continued listing standards.

Nasdaq imposes, among other requirements, continued listing standards including minimum bid requirement. The price of our common stock must trade at or above $1.00 to comply with the minimum bid requirement for continued listing on the Nasdaq Global Select Market. Recently, our common stock has traded at closing bid prices just above and below $1.00. If the closing bid price of our common stock fails to meet Nasdaq’s minimum closing bid price requirement for a period in excess of 30 consecutive days, or if we otherwise fail to meet any other applicable requirements of the Nasdaq Global Select Market and we are unable to regain compliance, Nasdaq may make a determination to delist our common stock. Any delisting of our common stock would likely adversely affect the market liquidity and market price of our common stock and our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by investors. Furthermore, the delisting of our common stock would give the holders of the Convertible Notes rights to require us to repurchase all or a portion of their notes at the prices set forth in the indentures governing the Convertible Notes. If this were to happen, we may not have sufficient funds to repay such indebtedness.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

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Our corporate headquarters is located in Lake Forest, Illinois, where we lease approximately 31,000 square feet of office space (the Lake Forest Lease). Our prior corporate headquarters was located in Newark, California where we entered into an office and laboratory lease agreement to lease approximately 52,500 rentable square feet commencing in December 2012 and approximately 8,000 additional rentable square feet commencing in July 2015 (the Newark Lease). Following the relocation of our corporate headquarters from Newark, California to Lake Forest, Illinois, we entered into subleases for the Newark facility. For additional information regarding the Lake Forest Lease and the Newark Lease, see “Item 8. Financial Statements and Supplementary Data - Note 10. Leases.”

ITEM 3. LEGAL PROCEEDINGS

For a description of our material pending legal proceedings, see “Item 8. Financial Statements and Supplementary Data - Note 11. Commitments and Contingencies.”

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Holders of Common Stock

Our common stock trades on the Nasdaq Global Market (Nasdaq) under the symbol “ASRT.” As of December 31, 2019, there were 19 shareholders of record of our common stock, one of which is Cede & Co., a nominee for Depository Trust Company, or DTC. All of the shares of common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC, and are therefore considered to be held of record by Cede & Co. as one shareholder.

Dividends

Stock Price Performance Graph

The performance graph and related information shall not be deemed to be “soliciting material” or to be “filed” with the SEC, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or Exchange Act

The following graph compares the cumulative total return on an investment in our common stock with the cumulative total return on an investment in each of the Nasdaq Composite Index and the Nasdaq Pharmaceutical Index. The total return for our common stock and for each index assumes the reinvestment of all dividends, although cash dividends have never been declared on our common stock.

Comparison of 5-Years Cumulative Total Return

Among Assertio Therapeutics, Inc., the Nasdaq Composite Index and the Nasdaq Pharmaceutical Index

Assumes Initial Investment of $100



	12/31/2014		12/31/2015		12/31/2016		12/31/2017		12/31/2018		12/31/2019
Assertio Therapeutics, Inc.	$	100	$	113	$	112	$	50	$	22	$	8
Nasdaq Composite Index	$	100	$	106	$	114	$	146	$	140	$	189
Nasdaq Pharmaceutical Index	$	100	$	102	$	90	$	102	$	107	$	123

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Recent Sales of Unregistered Securities

The Company did not sell any equity securities during the period covered by this Annual Report that were not registered under the Securities Act, except as previously disclosed in our Current Reports on Form 8-K.

Issuer Purchases of Equity Securities

The Company did not repurchase any shares of its common stock during the fourth quarter of 2019.

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ITEM 6. SELECTED FINANCIAL DATA

The data set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10‑K and also with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The following information is presented in thousands, except per share data.



	Year Ended December 31,
	2019			2018			2017			2016			2015
Consolidated Statements of Operations Data:
Revenues:
Product sales, net	$	108,806		$	129,966		$	379,880		$	455,066		$	341,750
Commercialization Agreement and other revenue ⁽¹⁾	118,614			155,743			—			—			—
Royalties and milestones	2,084			26,061			844			831			985
Total revenues	229,504			311,770			380,724			455,897			342,735
Total costs and expenses ⁽²⁾	423,932			268,111			422,904			431,388			393,135
(Loss) income from operations	(194,428		)	43,659			(42,180		)	24,509			(50,400		)
Net (loss) income before income taxes	(222,484		)	37,975			(103,925		)	(64,502		)	(123,237		)
Income tax benefit (expense)	5,283			(1,067		)	1,429			(24,218		)	47,499
Net (loss) income	$	(217,201	)	$	36,908		$	(102,496	)	$	(88,720	)	$	(75,738	)
Basic net (loss) income per share	$	(3.07	)	$	0.58		$	(1.63	)	$	(1.45	)	$	(1.26	)
Diluted net (loss) income per share	$	(3.07	)	$	0.57		$	(1.63	)	$	(1.45	)	$	(1.26	)
Shares used in computing basic net (loss) income per share	70,716			63,794			62,702			61,297			60,117
Shares used in computing diluted net (loss) income per share	70,716			64,208			62,702			61,297			60,117



	December 31,
	2019			2018			2017			2016			2015
Consolidated Balance Sheet Data:
Cash, cash equivalents and short term investments ⁽³⁾	$	42,107		$	110,949		$	128,089		$	177,420		$	209,768
Total assets	527,170			932,866			1,038,617			1,225,337			1,357,249
Total current liabilities ⁽⁴⁾	184,553			246,036			310,580			227,242			219,632
Contingent consideration liability, non-current	168			1,038			1,457			10,247			11,653
Senior Notes ⁽³⁾	76,443			158,309			274,720			466,051			563,012
Convertible Notes ⁽⁵⁾	194,815			287,798			269,510			252,725			237,313
Other long-term liabilities	13,233			19,350			12,842			18,284			10,584
Accumulated (deficit) earnings	(399,801		)	(182,600		)	(219,508		)	(116,744		)	(28,024		)
Total shareholders’ equity	57,958			220,335			169,508			250,788			315,055


(1)	Effective January 8, 2018, the Company entered into a Commercialization Agreement to sub-license NUCYNTA, which resulted in income from variable royalty revenues, net revenue from the amortization of certain contract assets and liabilities, and variable consideration revenue for the reimbursement of certain shared costs.


(2)	At December 31, 2019 the Company recognized an impairment loss of $189.8 million on its NUCYNTA intangible.


(3)	The Company made principal payments of $120.0 million and $82.5 million in 2019 and 2018, respectively. The Company prepaid $114.4 million and $105.0 million of its Senior Notes, including prepayment premiums of $4.4 million and $5.0 million in 2017 and 2016, respectively.


(4)	The increase in current liabilities as of December 31, 2017, is primarily due to the reclassification of principal payments due on our Senior Notes in 2018.


(5)	In August 2019 the Company exchanged $200.0 million aggregate principal amount of the Convertible Senior Notes due March 1, 2021 for a combination of (a) its new $120.0 million aggregate principal amount of 5.00% Convertible Senior Notes due August 15, 2024, (b) an aggregate cash payment of $30.0 million, and (c) an aggregate of 15.8 million shares of the Company’s common stock.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and notes thereto included in “Item 8 - Financial Statements and Supplementary Data.”

The MD&A generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be found in Part II Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Our Company

As of December 31, 2019, the Company’s specialty pharmaceutical business consisted primarily of Gralise^® (gabapentin), a once-daily product for the management of postherpetic neuralgia (PHN) that we launched in 2011; CAMBIA^®(diclofenac potassium for oral solution), a nonsteroidal anti-inflammatory drug for the acute treatment of migraine attacks acquired by the Company in December 2013; and Zipsor^® (diclofenac potassium liquid filled capsules), a nonsteroidal anti-inflammatory drug for the treatment of mild to moderate acute pain acquired by the Company in June 2012, marketed in the U.S.

On December 4, 2017, the Company announced the Commercialization Agreement with Collegium, pursuant to which the Company granted Collegium the right to commercialize the NUCYNTA franchise of 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, and the Company received royalties on all NUCYNTA revenues based on certain net sales thresholds.

On December 12, 2019, the Company announced it entered into an agreement with Golf Acquiror LLC, an affiliate to Alvogen, Inc. (Alvogen), a global privately held pharmaceutical company, under which Alvogen acquired and assumed all responsibilities associated with the product Gralise (gabapentin). Under the terms of the agreement, Alvogen will pay Assertio a total value of $127.5 million. This included $75.0 million in cash at closing on January 10, 2020, and the balance payable as 75% of Alvogen’s first $70.0 million of Gralise net sales after the closing.

On February 13, 2020, the Company repaid in full its outstanding aggregate principal amount of senior secured notes (the Senior Notes) pursuant to a Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement) and all subsequent amendments to the Note Purchase Agreement.

On February 19, 2020, the Company announced it entered into separate, privately negotiated agreements with a limited number of holders of the Company’s 2021 Notes and 2024 Notes to repurchase approximately $188.0 million aggregate principal amount of the outstanding 2021 Notes and 2024 Notes.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, and U.S. Securities and Exchange Commission (SEC) regulations for annual reporting. Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financials. The preparation of these financial statements may require significant judgment and/or estimates by management at the time that financial statements are prepared such that materially different results might have been reported if other assumptions had been made.We base our estimates and judgments on historical experience, information available at the time, and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates.

We believe the following policies to be the most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain. A more detailed discussion of our significant accounting policies can be found in “Note 1. Organization and Significant Accounting Policies,” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report, and the impact and risks associated with our accounting policies are discussed throughout this Annual Report on Form 10‑K and in the Notes to the Consolidated Financial Statements.

Revenue Recognition

Our revenues consist primarily of commercial product revenues, license revenue from the Commercialization Agreement, and royalties and milestone revenue from license agreements. We account for revenue arising from contracts and customers in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (ASC 606), which was adopted on January 1, 2018 using the modified retrospective transition method. There was no adjustment to our opening balance of accumulated deficit resulting from the adoption of this guidance. For further information regarding the adoption of ASC 606, see Note 1 to the Consolidated Financial Statements included herein.

Our accounting policy for revenue recognition will have a substantial impact on reported results and relies on certain estimates. Estimates are based on historical experience and various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Commercialization Agreement

We derive revenue from the Commercialization Agreement with Collegium whereby we granted Collegium the right to commercialize the NUCYNTA franchise of products in the U.S. We entered into the Commercialization Agreement in December 2017, which became effective in January 2018, and amended the agreement in November 2018. Prior to the amendment, we recognized the portion of the transaction price allocated to the license and facilitation services ratably over the term as we view our performance obligations as a series of distinct goods or services that are substantially the same and that have the same pattern of transfer. 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 represent 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 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.

Product Sales

We sell 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 upon delivery to the customer. Our 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 reserves for these product sales allowances. Receivables related to product sales are typically collected one to two months after delivery.

Sales deductions consist primarily of provisions for product returns, wholesaler and pharmacy discounts, prompt pay discounts, patient discount programs, chargebacks, managed care rebates, and government rebates. These deductions are considered variable consideration and are recorded as reductions to revenue in the same period as the related revenues are recognized. These estimates take into consideration the terms of our 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

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known market events, such as competitive pricing and new product introductions. We use the most likely method in estimating product sales allowances. If actual future results vary from our estimates, we may need to adjust these estimates, which could have an effect on product sales and earnings in the period of adjustment. Our sales allowances consist of:

Product Returns—We allow 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. We estimate product returns and associated credit on NUCYNTA ER and NUCYNTA, Gralise, CAMBIA, Zipsor and Lazanda. 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. We did not assume financial responsibility for returns of NUCYNTA ER and NUCYNTA previously sold by Janssen Pharma or Lazanda product previously sold by Archimedes Pharma US Inc. Under the Commercialization Agreement with Collegium for NUCYNTA ER and NUCYNTA and the divestiture of Lazanda to Slán, we are only financially responsible for product returns for product that were sold by us, which are identified by specific lot numbers.

The shelf life of NUCYNTA ER and NUCYNTA is 24 months to 36 months from the date of tablet manufacture. The shelf life of Gralise is 24 months to 36 months from the date of tablet manufacture. The shelf life of CAMBIA is 24 months to 48 months from the manufacture date. The shelf life of Zipsor is 36 months from the date of tablet manufacture. The shelf life of Lazanda is 24 to 36 months from the manufacture date. Because of the shelf life of our products and our 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, we 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—We offer 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—We offer cash discounts to its customers (generally 2% of the sales price) as an incentive for prompt payment. Based on our experience, we expect our customers to comply with the payment terms to earn the cash discount.

Patient Discount Programs—We offer 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 us approximately one month after the prescriptions subject to the discount are filled.

Medicaid Rebates—We participate 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, we pay a rebate to each participating state, generally two to three months after the quarter in which prescriptions subject to the rebate are filled.

Chargebacks—We provide 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. These federal entities purchase products from the wholesale distributors at a discounted price, and the wholesale distributors then charge back to us the difference between the current retail price and the price the federal entity paid for the product.

Managed Care Rebates—We offer discounts under contracts with certain managed care providers. We generally pay 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—We participate in the Medicare Part D Coverage Gap Discount Program under which it provides rebates on prescriptions that fall within the “donut hole” coverage gap. We generally pay Medicare Part D Coverage Gap rebates two to three months after the quarter in which prescriptions subject to the rebate are filled.

We believe our estimates related to gross‑to‑net sales adjustments for wholesaler and pharmacy fees and discounts, prompt payment discounts, patient discount programs and other government chargebacks do not have a high degree of estimation complexity or uncertainty as the related amounts are settled within a relatively short period of time. We believe that our estimated product return allowances, managed care rebates and Medicaid rebates are judgmental and are subject to change based on our experience and certain quantitative and qualitative factors. Adjustments to estimates for these allowances have not been material.

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Our product sales allowances and related accruals are evaluated each reporting period and adjusted when trends or significant events indicate that a change in estimates is appropriate. Such changes in estimate could affect our results of operations and financial position.

A roll‑forward of our product revenue allowances for the three years ended December 31, 2019 is as follows (in thousands):



	Contract Sales Discounts (1)(2)			Product Returns (2)			Cash Discounts (2)			Total
Balance at December 31, 2016	$	107,927		$	23,609		$	2,110		$	133,646
Revenue Allowances:
Provision related to current period sales	325,489			13,555			14,858			353,902
Changes in estimates related to sales made in prior years	1,483			7,875			—			9,358
Payments and credits related to sales made in current period	(224,002		)	—			(13,358		)	(237,360		)
Payments and credits related to sales made in prior periods	(104,751		)	(15,357		)	(2,110		)	(122,218		)
Balance at December 31, 2017	$	106,146		$	29,682		$	1,500		$	137,328
Revenue Allowances:
Provision related to current period sales	123,623			5,716			5,024			134,363
Changes in estimates related to sales made in prior years	(19,210		)	7,327			—			(11,883		)
Payments and credits related to sales made in current period	(75,380		)	—			(4,605		)	(79,985		)
Payments and credits related to sales made in prior periods	(86,936		)	(14,986		)	(1,500		)	(103,422		)
Balance at December 31, 2018	$	48,243		$	27,739		$	419		$	76,401
Revenue Allowances:
Provision related to current period sales	148,907			19,380			5,396			173,683
Changes in estimates related to sales made in prior years	(2,561		)	(7,861		)	—			(10,422		)
Payments and credits related to sales made in current period	(109,181		)	—			(4,155		)	(113,336		)
Payments and credits related to sales made in prior periods	(45,682		)	(20,042		)	(419		)	(66,143		)
Balance at December 31, 2019	$	39,726		$	19,216		$	1,241		$	60,183


(1)	Includes wholesaler and pharmacy discounts, patient support programs, managed care rebates, and government chargebacks and rebates.


(2)	In November 2017, we divested the rights to Lazanda to Slán. In January 2018, we entered into an agreement which granted commercialization rights of NUCYNTA to Collegium. We continue to recognize sales reserve estimate adjustments related to sales recognized for Lazanda and NUCYNTA in prior periods.

Stock‑Based Compensation

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

The stock-based compensation expense related to performance share units (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 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.

We use the Black-Scholes option valuation model to determine the fair value of stock options and employee stock purchase plan (ESPP) shares. The determination of the fair value of stock-based payment awards on the date of grant using an

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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. We use historical option exercise data to estimate the expected term of the options. We estimate the volatility of our common stock price by using the historical volatility over the expected term of the options. We base 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. We do not anticipate paying any cash dividends in the foreseeable future, and therefore, use an expected dividend yield of zero in the option valuation model. Stock-based compensation expense related to the ESPP and options are recognized on a straight-line basis over their respective term.

Intangible Assets

Intangible assets consist of purchased developed technology and trademarks that are accounted for as definite-lived intangible assets subject to amortization. We determine the fair values 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. We evaluate 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 our 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.

At December 31, 2019 we determined there were indicators of impairment present related to the NUCYNTA intangible asset based on current unfavorable commercial outlook resulting in a downward revision to the expected future cash flows from the NUCYNTA franchise. As a result, we recognized an impairment loss of $189.8 million on the NUCYNTA intangible asset to reduce the carrying value of $564.8 million to its estimated fair value of $375.0 million at December 31, 2019. The evaluation of fair value was determined under ASC 820, Fair Value Measurement (ASC 820) as the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date of December 31, 2019. The fair value was based on a combination of an income approach and the observable transaction price from Collegium’s purchase of the NUCYTNA franchise in February 2020. The income approach consisted of the present value of future cash flows that a market participant would expect to receive from holding the asset in its current use. This included assumptions of a market participant’s view such as, but not limited to, future product net sales, related operating expenses, competitive landscape, and a discount rate to reflect the risk inherent in the future cash flows. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of the assets and could potentially impact the company's results of operations.

Income Taxes

Our income tax policy is to record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in our accompanying consolidated balance sheets, as well as operating loss and tax credit carryforwards. We follow the guidelines set forth in the applicable accounting guidance regarding the recoverability of any tax assets recorded on the consolidated balance sheet and provide any necessary allowances as required. Determining necessary allowances requires us to make assessments about the timing of future events, including the probability of expected future taxable income and available tax planning opportunities. When we determine that it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future, the deferred tax assets are reduced by a valuation allowance. The valuation allowance is sufficient to reduce the deferred tax assets to the amount that we determine is more likely than not to be realized. At this time, we have recorded a valuation allowance against the net deferred tax assets.

We are subject to examination of our income tax returns by various tax authorities on a periodic basis. We regularly assess the likelihood of adverse outcomes resulting from such examinations to determine the adequacy of our provision for income taxes. We have applied the provisions of the applicable accounting guidance on accounting for uncertainty in income taxes, which requires application of a more‑likely‑than‑not threshold to the recognition and de‑recognition of uncertain tax positions. If the recognition threshold is met, the applicable accounting guidance permits us to recognize a tax benefit measured at the largest amount of tax benefit that, in our judgment, is more than 50 percent likely to be realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of such change.

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On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the Tax Act). The Tax Act includes significant changes to the U.S. corporate income tax system including, but not limited to, a federal corporate rate reduction from 35% to 21% and limitations on the deductibility of interest expense and executive compensation. In order to calculate the effects of the new corporate tax rate on our deferred tax balances, ASC 740, Income Taxes (ASC 740) required the re-measurement of our deferred tax balances as of the enactment date of the Tax Act, based on the rates at which the balances were expected to reverse in the future. Due to our valuation allowance position and deferred tax liabilities, there is no change to the presentation of the deferred tax balances on the financial statements, except for the remeasurement of these deferred tax balances in the income tax footnote which were fully offset by a corresponding change to our valuation allowance. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As of December 31, 2018, we completed our accounting for all tax effects related to the Tax Act, and there were no material adjustments recorded during the year to the previously recorded provisional amounts reflected in our 2017 financial statements.

RESULTS OF OPERATIONS

Revenues

The following table summarizes total revenue for the years ended December 31, 2019 and 2018 (in thousands):



	Year ended December 31,
	2019			2018
Product sales, net:
Gralise	$	63,124		$	58,077
CAMBIA	32,453			35,803
Zipsor	12,498			16,387
Total neurology product sales, net	108,075			110,267
NUCYNTA products⁽¹⁾	927			18,944
Lazanda⁽²⁾	(196		)	755
Total product sales, net	108,806			129,966
Commercialization agreement:
Commercialization rights and facilitation services, net	118,614			100,038
Revenue from transfer of inventory	—			55,705
Royalties and milestone revenue	2,084			26,061
Total revenues	$	229,504		$	311,770

(1)

NUCYNTA product sales for the year ended December 31, 2018 reflect our sales of NUCYNTA between January 1 and January 8, 2018. During the year ended December 31, 2018, in connection with the Collegium transaction, we 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. Subsequent to January 8, 2018 we continue to recognize sales reserve estimate adjustments related to sales recognized for NUCYNTA in prior periods.


(2)	We divested Lazanda in November 2017. We continue to recognize sales reserve estimate adjustments related to sales recognized for Lazanda in prior periods.

Product sales

Gralise net products sales for the year ended December 31, 2019 increased by $5.0 million as compared to the same period in 2018, primarily due to favorable payer mix offset by increased patient discount programs.

CAMBIA net product sales for the year ended December 31, 2019 decreased by $3.4 million as compared to the same period in 2018, primarily due to unfavorable payer mix and increased patient discount programs.

Zipsor net product sales for the year ended December 31, 2019 decreased by $3.9 million as compared to the same period in 2018, primarily due to increased patient discount programs and impact of short-dated product sales returns, offset partially by higher volume.

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We ceased recording product sales and related costs for NUCYNTA after commencing the Commercialization Agreement with Collegium on January 8, 2018. Product sales for the year ended December 31, 2019 reflect adjustments made for previously recorded sales reserve estimates. Product sales for the year ended December 31, 2018 reflect product sales solely between January 1 and January 8, 2018 and adjustments for previously recorded sales reserve estimates thereafter.

We ceased recording revenues and related costs associated with Lazanda after we divested the product to Slán in November 2017. Product sales for the year ended December 31, 2019 and 2018 reflect adjustments made for previously recorded sales reserve estimates.

We will cease recognizing product sales and related costs for Gralise effective the closing of the transaction to divest our rights, title and interest in and to Gralise to Alvogen on January 10, 2020.

Commercialization Agreement Revenue

We recognized revenue as a result of the Commercialization Agreement for the years ended December 31, 2019 and 2018 as follows (in thousands):



	Year ended December 31,
	2019			2018
Royalty revenue	$	118,636		$	100,038
Contract liability amortization ⁽¹⁾	2,791			—
Contract asset amortization, net	(3,596		)	—
Expense reimbursement	783			—
Inventory transfer	—			55,705
Total commercialization revenue	$	118,614		$	155,743

(1) The contract liability amortization represents the recognition of revenue related to the warrants received in November 2018 which are being recognized over the term of the contract.

For the year ended December 31, 2019, we recognized commercialization revenues of $118.6 million related to the amended Commercialization Agreement with Collegium, effective January 1, 2019. Beginning January 1, 2019, royalties from Collegium were deemed to be variable consideration subject to the sales-based royalty exception related to intellectual property. Other components of revenue recognized by us from the Commercialization Agreement include the amortization of contract assets arising from the transfer of inventory to Collegium net of contract liabilities arising from the warrants and prepayments received, and variable consideration revenue for reimbursement of certain shared costs.

For the year ended December 31, 2018, we recognized commercialization revenues of $100.0 million related to the Commercialization Agreement with Collegium for the period January 8, 2018 through December 31, 2018. Royalty revenues under the original Commercialization Agreement, effective through December 31, 2018, were deemed to be fixed consideration recognized evenly over the contract term. In addition, we recognized $55.7 million related to the transfer of inventory upon closing in January 2018.

We will cease recognizing commercialization revenue and related costs for NUCYNTA effective the closing of the transaction to divest our rights, title and interest in and to the NUCYNTA franchise to Collegium on February 13, 2020.

Royalties & Milestone Revenue

In November 2010, we entered into a license agreement with Tribute Pharmaceuticals Canada Ltd. (now Nuvo Pharmaceuticals, Inc.) granting it the rights to commercially market CAMBIA in Canada. We receive royalties on net sales as well as certain one-time contingent milestone payments. During the year ended December 31, 2019, we recognized $2.1 million of revenue related to CAMBIA in Canada. The revenue recognized in 2019 included a $0.3 million one-time amendment fee and a $0.5 million milestone payment. During the year ended December 31, 2018, we recognized $0.8 million of revenue related to CAMBIA in Canada.

In October 2013, we sold our interests in royalty and milestone payments under our 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,

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2018, we sold our remaining interest in such payments to PDL for $20.0 million. The $20.0 million of revenue was recognized as royalty revenue for the year ended December 31, 2018.

In July 2011, we entered into a collaboration and license agreement with Ironwood granting Ironwood a license for worldwide rights to certain patents and other intellectual property rights to our Acuform drug delivery technology for IW‑3718, an Ironwood product candidate under evaluation for refractory GERD. During the second and third quarters of 2018, we recognized and collected a $5.0 million contingent milestone payment related to the dosing of the first patient in a Phase 3 trial for IW 3718.

Cost of Sales

Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs, royalties payable to third‑parties, inventory write‑downs, amortization of inventory write-ups associated with business acquisitions, product quality testing, internal employee costs related to the manufacturing process, distribution costs and shipping costs related to our product sales. Cost of sales excludes the amortization of intangible assets described separately below under “Intangible Assets.”

Cost of sales decreased by $9.0 million from $18.5 million to $9.5 million for the year ended December 31, 2019 as compared to the same period in 2018, primarily driven by the inclusion of third-party royalties for NUCYNTA in 2018 and other NUCYNTA-related costs incurred in the first quarter of 2018. Pursuant to the terms of the Commercialization Agreement with Collegium, effective January 9, 2018, we no longer record product sales of NUCYNTA and NUCYNTA ER and, as a result, no longer incur or record the cost of sales of such products. The cost of sales in 2018 also includes $6.2 million related to the cost of inventory transferred to Collegium on closing of the Commercialization Agreement. Following the divestiture of Lazanda in November 2017, we no longer record Lazanda product sales or related cost of sales.

The cost of sales as a percentage of sales for Gralise, CAMBIA and Zipsor, combined for the years ended December 31, 2019 and 2018, was approximately 8.7% and 8.3%, respectively. The increase in cost of sales for the year ended December 31, 2019 is primarily driven by product mix, compared to the same periods in 2018.

Research and Development Expenses

Our research and development expenses currently include salaries, clinical trial costs, consultant fees, supplies, manufacturing costs for research and development programs and allocations of corporate costs. It is extremely difficult to predict the scope and magnitude of future research and development expenses for our product candidates in research and development, as it is extremely difficult to determine the nature, timing and extent of clinical trials and studies and the FDA’s requirements for a particular drug. As potential products proceed through the development process, each step is typically more extensive, and therefore more expensive, than the previous step. Therefore, success in development generally results in increasing expenditures until actual product approval.

Research and development expenses increased by $2.1 million from $8.0 million to $10.1 million in the year ended December 31, 2019 as compared to the same period in 2018, primarily due to increased personnel and clinical and regulatory costs in 2019, partially offset by higher consulting fees in 2018.

Selling, General and Administrative Expenses

Selling, general and administrative expenses primarily consist of personnel, contract personnel, marketing and promotion expenses associated with our commercial products, personnel expenses to support our administrative and operating activities, facility costs, and professional expenses, such as legal fees.

Selling, general, and administrative expenses decreased by $10.3 million from $119.2 million to $108.9 million for the year ended December 31, 2019 as compared to the same period in 2018 primarily due to lower facilities and personnel costs as a result of the December 2017 restructuring plan, partially offset by the $10.1 million loss on disposal of equipment and other one-time nonrecurring costs in 2019.

In connection with the Multidistrict Opioid Litigation, the State Opioid Litigation and the Opioid-Related Requests and Subpoenas described in “Note 11. Commitments and Contingencies - Legal Matters” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we expect to incur additional costs and expenses related to our ongoing opioid-related litigation and investigations, which may be significant and which may increase in future periods.

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Intangible Assets

Amortization of intangible assets for the years ended December 31, 2019 and 2018 was composed of (in thousands):



	Year ended December 31,
	2019		2018
Amortization of intangible assets—NUCYNTA	$	94,301	$	94,301
Amortization of intangible assets—CAMBIA	5,136		5,136
Amortization of intangible assets—Zipsor	2,337		2,337
Total amortization of intangible assets	$	101,774	$	101,774

During the year ended December 31, 2019 we recorded an impairment loss of $189.8 million related to our NUCYNTA intangible, which represented the excess of the carrying amount over the fair value as of December 31, 2019.

Restructuring Charges

For the years ended December 31, 2019 and 2018, restructuring expenses and one-time termination costs incurred were $3.9 million and $20.6 million, respectively.

In November 2019, the Company announced an acceleration of cost-saving initiatives that included a decision to discontinue its relationship with its contract sales organization, changes to our internal processes and a reduction in the use of certain outside vendors and consultants, and the reorganization of certain functions resulting in a reduction of staff at its headquarters office and certain remote positions during the fourth quarter of 2019. The 2019 cost-saving initiative was substantially complete as of December 31, 2019. As a result, we incurred $3.9 million in charges related to severance and other benefits during the three months ended December 31, 2019. We do not expect to incur significant costs related to the 2019 cost- saving initiative beyond 2019.

During 2018, we continued to execute the restructuring plan announced in December 2017. We completed the termination of our pain sales force during the first quarter of 2018. We relocated our corporate headquarters from Newark, California to Lake Forest, Illinois, which reduced our headquarters office space requirement by approximately 50%. During the first quarter of 2018, we entered into an Office Lease pursuant to which we lease approximately 31,000 rentable square feet of space in Lake Forest, Illinois. Our initial tenant improvements in the space were completed in August 2018 and we began occupying the space at that time. We incurred total costs of $33.8 million related to the December 2017 restructuring plan, of which $20.6 million was recognized in 2018. The restructuring activities and related liabilities were completed and fully paid as of December 31, 2019.

Other (Expense) Income

Other (expense) income for the years ended December 31, 2019 and 2018 was composed of the following (in thousands):



	Year ended December 31,
	2019			2018
Interest expense	$	(58,389	)	$	(68,881	)
Litigation settlement	—			62,000
Gain on debt extinguishment	26,385			—
Interest and other income	3,103			1,197
Change in fair value of Collegium warrants	845			—
Total other expense	$	(28,056	)	$	(5,684	)

Other expenses increased by $22.4 million from $5.7 million to $28.1 million for the year ended December 31, 2019 as compared to the same period in 2018 primarily due to the inclusion of the litigation Settlement Agreement with Purdue in

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2018, offset by inclusion of income from the August 2019 Convertible Note Exchange, lower interest expense driven primarily by Senior Note principal payments, and net sublease income in 2019.

Interest expense for the years ended December 31, 2019 and 2018 was composed of the following (in thousands):



	Year ended December 31,
	2019			2018
Interest payable on Senior Notes	$	25,559		$	38,242
Interest payable on Convertible Notes	8,958			8,624
Amortization of debt discounts and issuance costs relating to Senior Notes and Convertible Notes	23,764			21,877
Changes in fair value of contingent consideration	113			124
Other	(5		)	14
Total interest expense	$	58,389		$	68,881

The decrease in interest expense in 2019 compared to 2018 is due to principal repayments, offset in part by the impact of increasing interest rates in 2018 and 2019.

We expect interest expense to decrease in 2020 as a result of the Senior Notes repayment and Convertible Note repurchase in February 2020.

Income Tax Benefit (Expense)

During 2019, we recognized income tax benefit of approximately $5.3 million that represents an effective tax rate of 2.37% on income from continuing operations. The difference between income tax provision of $5.3 million and the tax at the statutory rate of 21.0% on current year operations is principally due to the change in the valuation allowance, the release of FIN 48 liabilities based on lapsing of statute of limitation, and tax benefits being recorded as a result of intraperiod tax allocation.

During 2018, we recognized income tax expense of approximately $1.1 million that represents an effective tax rate of 2.81% on income from continuing operations. The difference between income tax provision of $1.1 million and the tax at the statutory rate of 21.0% on current year operations is principally due the change in the valuation allowance and accrued interest and penalty related to uncertain tax positions.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents decreased by $68.8 million from $110.9 million to $42.1 million during the year ended December 31, 2019, primarily attributable to the $120.0 million in principal payments on our Senior Notes and $30.0 million of cash used in the exchange of our convertible notes, partially offset by the receipt of $32.0 million from the Purdue settlement and cash generated from operations.

Since inception and through December 31, 2019, we have financed our product development efforts and operations primarily from product sales, private and public sales of equity securities, including convertible debt securities, the proceeds of secured borrowings, the sale of rights to future royalties and milestones to PDL, upfront license, milestone and termination fees from collaborative and license partners, and product sales.

In April 2015, we issued $575.0 million aggregate principal amount of senior secured notes (the Senior Notes) for aggregate gross proceeds of approximately $562.0 million. As of December 31, 2019, the remaining balance of the Senior Notes was $162.5 million. In connection with the divestiture of Gralise and NUCYNTA we collected $450.0 million in upfront consideration and used proceeds to repay the outstanding principal of $162.5 million and as a result the Company had repaid in full all outstanding indebtedness, and terminated all commitments and obligations, under its Note Purchase Agreement. In connection with the termination of the Note Purchase Agreement, the Company was released from all security interests, liens and encumbrances under the Note Purchase Agreement. We were in compliance with our covenants with respect to the Senior Notes as of December 31, 2019 and through the period of the effective payoff on February 13, 2020.

In September 2014, we issued $345.0 million aggregate principal amount of convertible notes due 2021 (the 2021 Notes) resulting in net proceeds to us of $334.2 million. In August 2019, we exchanged $200.0 million aggregate principal

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amount of the 2021 Notes for a combination of (a) its new $120.0 million aggregate principal amount of 5.00% Convertible Senior Notes due August 15, 2024 (the 2024 Notes), (b) an aggregate cash payment of $30.0 million, and (c) an aggregate of 15.8 million shares of our common stock. We did not receive any cash proceeds from the issuance of the 2024 Notes or the issuance of the shares of our common stock. On February 19, 2020, the Company utilized proceeds from the sale of Gralise and NUCYNTA to repurchase approximately $188.0 million aggregate principal amount of 2021 Notes and 2024 Notes.

We may incur operating losses in future years. We believe that our existing cash combined with proceeds from the sale of Gralise and NUCYNTA, net of the settlement of existing debt and cash used in operating activities will be sufficient to fund our operations for the next twelve months from the date of this filing. We base this expectation on our current operating plan, which may change as a result of many factors.

Our cash needs may vary materially from our current expectations because of numerous factors, including:


•	acquisitions or licenses of complementary businesses, products, technologies or companies;


•	sales of our marketed products;


•	expenditures related to our commercialization of our products;


•	milestone and royalty revenue we receive under our collaborative development arrangements;


•	interest and principal payments on our current and future indebtedness;


•	financial terms of definitive license agreements or other commercial agreements we may enter into; and


•	changes in the focus and direction of our business strategy and/or research and development programs.

The inability to raise any additional capital that may be required to fund our future operations or product acquisitions and strategic transactions which we may pursue could have a material adverse effect on our company.

The following table summarizes our cash flow activities (in thousands):



	Year ended December 31,
	2019			2018
Net cash provided by operating activities	$	90,475		$	72,497
Net cash (used in) provided by investing activities	(1,481		)	(7,082		)
Net cash used in financing activities	(157,836		)	(81,350		)
Net (decrease) increase in cash and cash equivalents	$	(68,842	)	$	(15,935	)

Cash Flows from Operating Activities

Cash provided by operating activities was $90.5 million in 2019 and $72.5 million in 2018. The increase in cash provided by operating activities in 2019 compared to the same period in 2018 is primarily due to the receipt of $32.0 million from the Purdue settlement in 2019 partially offset by changes in the working capital accounts.

Cash Flows from Investing Activities

Cash used in investing activities decreased in 2019 compared to the same period in 2018, primarily due to the $3.0 million investment in a convertible instrument and higher purchases of property and equipment in 2018.

Cash Flows from Financing Activities

The increase in cash used in financing activities in 2019 compared to 2018 is primarily due to the $37.5 million of higher principal payments on our Senior Notes and $30.0 million in cash used in the Convertible Note Exchange in 2019.

Contractual Obligations

As of December 31, 2019, our contractual obligations are shown in the following table (in thousands):

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							More than
	1 Year		2 - 3 Years		4 - 5 Years		5 Years		Total
Senior Notes—principal⁽¹⁾	$	80,000	$	82,500	$	—	$	—	$	162,500
Senior Notes—interest⁽¹⁾	13,922		2,244		—		—		16,166
2.50% Convertible Notes due 2021—principal⁽¹⁾	—		145,000		—		—		145,000
2.50% Convertible Notes due 2021—interest⁽¹⁾	3,625		3,625		—		—		7,250
5.00% Convertible Notes due 2024—principal⁽¹⁾	—		—		120,000		—		120,000
5.00% Convertible Notes due 2024—interest⁽¹⁾	6,250		12,000		12,000		—		30,250
Operating leases⁽²⁾	2,431		4,511		632		—		7,574
Purchase commitments⁽³⁾	5,966		—		—		—		5,966
Total	$	112,194	$	249,880	$	132,632	$	—	$	494,706

(1)

In connection with the divestiture of Gralise and NUCYNTA, we collected approximately $450.0 million in upfront consideration and used proceeds to repay the outstanding principal of $162.5 million of Senior Notes as of February 13, 2020 and repurchase $102.5 million and $85.5 million of 2021 Notes and 2024 Notes, respectively, on February 19, 2020. This table reflects the remaining interest and principal due on our Senior Notes, 2021 Notes, and 2024 Notes as of December 31, 2019.


(2)	Amounts represent payments under non‑cancelable operating leases including office space and sales fleet vehicles. In 2018, we relocated our corporate headquarters from Newark, California to Lake Forest, Illinois and subsequently entered into two subleases which, together, account for the entirety of the Newark facility.

(3)

As of December 31, 2019, we had non‑cancelable purchase orders and minimum purchase obligations of approximately $3.6 million under our manufacturing agreements. Additionally, we had non‑cancelable purchase orders related to consulting services of approximately $2.4 million. The amounts disclosed only represent non-cancelable purchase orders. Actual purchases are expected to exceed these amounts.

OFF‑BALANCE SHEET ARRANGEMENTS

We did not have any off-balance sheet arrangements as of December 31, 2019.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

See “Item 8. Financial Statements and Supplemental Data - Note 1. Organization and Summary of Significant Accounting Policies” for additional information on recent accounting pronouncements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We previously were subject to interest rate fluctuation exposure through our senior secured notes (Senior Notes), pursuant to the Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement) and all subsequent amendments to the Note Purchase Agreement, which bear a variable interest rate. On February 13, 2020, the Company repaid in full its outstanding aggregate principal amount of Senior Notes. As of December 31, 2019, we had $265.0 million aggregate principal amount of convertible senior notes outstanding, which are fixed rate instruments, and therefore, any significant changes in interest rates would not have a material impact on our financial position and results of operations.

Foreign Currency Risk

We have not had any significant transactions in foreign currencies, nor did we have any significant balances that were due or payable in foreign currencies at December 31, 2019. Accordingly, significant changes in foreign currency rates would not have a material impact on our financial position and results of operations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ASSERTIO THERAPEUTICS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2019 and 2018

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017

Notes to Consolidated Financial Statements

Schedule II: Valuation and Qualifying Accounts

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Assertio Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Assertio Therapeutics, Inc. (the Company) as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notesand financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework and our report dated March 10, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1997.

Chicago, Illinois

March 10, 2020

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ASSERTIO THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



	December 31,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	42,107		$	110,949
Accounts receivable, net	42,744			37,211
Inventories, net	3,412			3,396
Prepaid and other current assets	15,688			56,551
Total current assets	103,951			208,107
Property and equipment, net	3,497			13,064
Intangible assets, net	400,535			692,099
Investments	13,064			11,784
Other long-term assets	6,123			7,812
Total assets	$	527,170		$	932,866
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	16,193		$	6,138
Accrued rebates, returns and discounts	58,943			75,759
Accrued liabilities	18,948			31,361
Current portion of Senior Notes	80,000			120,000
Interest payable	8,375			11,645
Other current liabilities	2,094			1,133
Total current liabilities	184,553			246,036
Contingent consideration liability	168			1,038
Senior Notes	76,443			158,309
Convertible Notes	194,815			287,798
Other long-term liabilities	13,233			19,350
Total liabilities	469,212			712,531
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.0001 par value, 200,000,000 shares authorized; 80,888,134 and 64,185,224 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively	8			6
Additional paid-in capital	457,751			402,934
Accumulated deficit	(399,801		)	(182,600		)
Accumulated other comprehensive loss	—			(5		)
Total shareholders’ equity	57,958			220,335
Total liabilities and shareholders' equity	$	527,170		$	932,866

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

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ASSERTIO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands except per share data)



	Year Ended December 31,
	2019			2018			2017
Revenues:
Product sales, net	$	108,806		$	129,966		$	379,880
Commercialization agreement, net	118,614			155,743			—
Royalties and milestones	2,084			26,061			844
Total revenues	229,504			311,770			380,724
Costs and expenses:
Cost of sales (excluding amortization of intangible assets)	9,505			18,476			72,598
Research and development expenses	10,106			8,042			13,718
Acquired in-process research and development	—			—			24,900
Selling, general and administrative expenses	108,866			119,218			195,696
Amortization of intangible assets	101,774			101,774			102,745
Loss on impairment of intangible asset	189,790			—			—
Restructuring charges	3,891			20,601			13,247
Total costs and expenses	423,932			268,111			422,904
(Loss) income from operations	(194,428		)	43,659			(42,180		)
Other income (expense):
Litigation settlement	—			62,000			—
Gain on debt extinguishment	26,385			—			—
Other income, net	3,948			1,197			681
Interest expense	(58,389		)	(68,881		)	(73,552		)
Gain on divestiture of Lazanda	—			—			17,064
Loss on prepayment of Senior Notes	—			—			(5,938		)
Total other expense	(28,056		)	(5,684		)	(61,745		)
Net (loss) income before income taxes	(222,484		)	37,975			(103,925		)
Income tax benefit (expense)	5,283			(1,067		)	1,429
Net (loss) income	$	(217,201	)	$	36,908		$	(102,496	)
Other comprehensive income:
Unrealized gain on available-for-sale securities, net of tax	—			—			14
Comprehensive (loss) income	$	(217,201	)	$	36,908		$	(102,482	)
Basic net (loss) income per share	$	(3.07	)	$	0.58		$	(1.63	)
Diluted net (loss) income per share	$	(3.07	)	$	0.57		$	(1.63	)
Shares used in computing basic net (loss) income per share	70,716			63,794			62,702
Shares used in computing diluted net (loss) income per share	70,716			64,208			62,702

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

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ASSERTIO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)



	Common Stock			Additional Paid-In Capital			Accumulated Earnings (Deficit)			Accumulated Other Comprehensive Loss			Shareholders’ Equity
	Shares	Amount		Additional Paid-In Capital			Accumulated Earnings (Deficit)			Accumulated Other Comprehensive Loss			Shareholders’ Equity
Balances at December 31, 2016	61,966	$	6	$	367,545		$	(116,744	)	$	(19	)	$	250,788
Issuance of common stock upon exercise of options	1,001	—		6,979			—			—			6,979
Issuance of common stock under employee stock purchase plan	262	—		1,960			—			—			1,960
Issuance of common stock in conjunction with vesting of restricted stock units	171	—		—			—			—			—
Stock-based compensation	—	—		13,016			—			—			13,016
Cumulative effect adjustment from adoption of ASU No. 2016-09	—	—		268			(268		)	—			—
Shares withheld for payment of employee's withholding tax liability	—	—		(753		)	—			—			(753		)
Net loss	—	—		—			(102,496		)	—			(102,496		)
Unrealized gain on available-for-sale securities	—	—		—			—			14			14
Balances at December 31, 2017	63,400	$	6	$	389,015		$	(219,508	)	$	(5	)	$	169,508
Issuance of common stock upon exercise of options	278	—		1,493			—			—			1,493
Issuance of common stock under employee stock purchase plan	107	—		527			—			—			527
Issuance of common stock in conjunction with vesting of restricted stock units	400	—		—			—			—			—
Stock-based compensation	—	—		12,585			—			—			12,585
Shares withheld for payment of employee's withholding tax liability	—	—		(686		)	—			—			(686		)
Net income	—	—		—			36,908			—			36,908
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 under employee stock purchase plan	169	—		226			—			—			226
Issuance of common stock in conjunction with vesting of restricted stock units	703	—		—			—			—			—
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 loss of $1,445	—	—		(4,763		)	—			—			(4,763		)
Equity component of issued 2024 Notes, net of tax benefit of $7,212	—	—		23,999			—			—			23,999
Stock-based compensation	—	—		10,596			—			—			10,596
Shares withheld for payment of employee's withholding tax liability	—	—		(571		)	—			—			(571		)
Unrealized gain on available-for-sale securities	—	—		—			—			5			5
Net loss	—	—		—			(217,201		)	—			(217,201		)
Balances at December 31, 2019	80,888	$	8	$	457,751		$	(399,801	)	$	—		$	57,958

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

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ASSERTIO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



	Year Ended December 31,
	2019			2018			2017
Operating Activities
Net (loss) income	$	(217,201	)	$	36,908		$	(102,496	)
Adjustments for non-cash items:
Depreciation and amortization	102,946			106,426			105,502
Accretion of debt discount and debt issuance costs	23,764			21,877			19,415
Provisions for inventory and other assets	5,304			598			2,673
Loss on impairment of intangible assets	189,790			—			—
Loss (gain) on disposal of equipment	10,076			669			(271		)
Stock-based compensation	10,596			12,585			13,016
Intraperiod tax allocations	(5,767		)	—			—
(Gain) loss on debt extinguishment and prepayment	(26,385		)	—			5,938
Recurring fair value measurement of assets and liabilities	(1,715		)	(391		)	(8,024		)
Gain on divestiture of Lazanda	—			—			(17,064		)
Acquired in-process research and development	—			—			24,900
Other	(327		)	1,023			240
Changes in assets and liabilities:
Accounts receivable	(5,533		)	35,271			30,107
Inventories	(316		)	9,048			(1,873		)
Prepaid and other assets	40,769			(56,136		)	(5,114		)
Accounts payable and other accrued liabilities	(15,146		)	(33,610		)	(6,436		)
Accrued rebates, returns and discounts	(16,816		)	(60,069		)	4,292
Interest payable	(3,270		)	(1,576		)	(2,705		)
Income taxes payable	(294		)	(126		)	67
Net cash provided by operating activities	90,475			72,497			62,167
Investing Activities
Purchases of property and equipment	(1,481		)	(5,507		)	(666		)
Investment in convertible instrument	—			(3,000		)	—
Proceeds from disposal of property and equipment	—			145			280
Purchases of marketable securities	(12,065		)	—			(8,277		)
Proceeds from sale of other assets	—			80			66,557
Maturities of marketable securities	4,209			—			—
Sales of marketable securities	7,856			1,200			—
Net cash (used in) provided by investing activities	(1,481		)	(7,082		)	57,894
Financing Activities
Payment of contingent consideration liability	—			(184		)	(1,673		)
Repayment of Senior Notes	(120,000		)	(82,500		)	(110,000		)
Fees for early repayment and modifications of Senior Notes	—			—			(7,400		)
Fees for modification of Senior Notes	(3,249		)	—			—
Payments in connection with debt extinguishment	(30,000		)	—			—
Convertible notes issuance costs	(4,268		)	—			—
Proceeds from issuance of common stock	251			2,020			8,940
Shares withheld for payment of employee's withholding tax liability	(570		)	(686		)	(753		)
Net cash used in financing activities	(157,836		)	(81,350		)	(110,886		)
Net (decrease) increase in cash and cash equivalents	(68,842		)	(15,935		)	9,175
Cash and cash equivalents at beginning of year	110,949			126,884			117,709
Cash and cash equivalents at end of period	$	42,107		$	110,949		$	126,884
Supplemental Disclosure of Cash Flow Information
Net cash paid (received) for income taxes	$	4,401		$	6,472		$	121
Cash paid for interest	$	37,788		$	48,440		$	55,542
Non-cash consideration for in-process research and development	$	—		$	—		$	19,900
Accrued research and development	$	—		$	—		$	5,000
Capital expenditures incurred but not yet paid	$	500		$	212		$	—

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Our Company

As of December 31, 2019, the Company’s specialty pharmaceutical business consisted primarily of Gralise^® (gabapentin), a once daily product for the management of postherpetic neuralgia (PHN) that we launched in 2011; CAMBIA^®(diclofenac potassium for oral solution), a nonsteroidal anti-inflammatory drug for the acute treatment of migraine attacks, acquired by the Company in December 2013; and Zipsor^® (diclofenac potassium liquid filled capsules), a nonsteroidal anti-inflammatory drug for the treatment of mild to moderate acute pain, acquired by the Company in June 2012, marketed in the U.S.

On December 4, 2017, the Company announced a commercialization agreement with Collegium Pharmaceutical, Inc. (Collegium), pursuant to which the Company granted Collegium the right to commercialize the NUCYNTA franchise of products in the U.S. (the Commercialization Agreement). Pursuant to the Commercialization Agreement, Collegium assumed all commercialization responsibilities for the NUCYNTA franchise effective January 9, 2018, including sales and marketing, and the Company received royalties on all NUCYNTA revenues based on certain net sales thresholds.

On December 12, 2019, the Company announced it entered into an agreement with Golf Acquiror LLC, an affiliate to Alvogen, Inc. (Alvogen), a global privately held pharmaceutical company, under which Alvogen acquired and assumed all responsibilities associated with the product Gralise (gabapentin). Under the terms of the agreement, Alvogen will pay Assertio a total value of $127.5 million. This included $75.0 million in cash at closing on January 10, 2020, and the balance payable as 75% of Alvogen’s first $70.0 million of Gralise net sales after the closing. Alvogen also paid the Company for certain inventories relating to Gralise.

On February 13, 2020, the Company repaid in full its outstanding aggregate principal amount of senior secured notes (Senior Notes) pursuant to a Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement) and all subsequent amendments to the Note Purchase Agreement.

Basis of Preparation

The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and U.S. Securities and Exchange Commission (SEC) regulations for annual reporting

In connection with the preparation of the financial statements for the year ended December 31, 2019, 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

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The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Depomed Bermuda Ltd (Depo Bermuda), Depo NF Sub, LLC (Depo NF Sub) and Depo DR Sub, LLC (Depo DR Sub). These subsidiaries are all holding companies created to facilitate certain transactions and serve in certain administrative capacities. There are no material operating results from these subsidiaries and all intercompany accounts and transactions have been eliminated on consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the 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 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, actual results could differ materially from these estimates.

Cash, Cash Equivalents, Short-term Investments and Marketable Securities

The Company considers all highly liquid investments with an original maturity (at date of purchase) of three months or less to be cash equivalents. All marketable securities with original maturities at the date of purchase greater than three months and remaining maturities of less than one year are classified as short-term investments. Cash and cash equivalents consist of cash on deposit with banks, money market instruments and commercial paper. The Company places its cash, cash equivalents, short-term investments and marketable securities with high-quality U.S. government and financial institutions and to date has not experienced material losses on any of its balances.

Accounts Receivable

Trade accounts receivable are recorded net of allowances for cash discounts for prompt payment. To date the Company has not recorded a bad debt allowance since the majority of its product revenue comes from sales to a limited number of financially sound companies who have historically paid their balances timely. The need for a bad debt allowance is evaluated each reporting period based on the Company’s assessment of the credit worthiness of its customers or any other potential circumstances that could result in bad debt.

Inventories

Inventories are stated at the lower of cost or net realizable value with cost determined by specific manufactured lot. Inventories consist of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs. Additionally, the Company writes off the value of inventory for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand and projected demand.

Investments

Assertio has two long-term investments as of December 31, 2019. During the year ended December 31, 2018, Assertio invested $3.0 million in a company engaged in medical research. This investment is structured as a long-term loan receivable with a convertible feature and is valued at amortized cost.

Assertio received warrants to purchase Collegium stock in conjunction with the November 2018 amendment to the Commercialization Agreement. Such warrants are measured at fair value with changes in fair value recorded in Other income, net on the Company’s Consolidated Statements of Comprehensive Income.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, as follows:

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Furniture and office equipment	3 - 5 years
Machinery and equipment	5 - 7 years
Laboratory equipment	3 - 5 years
Leasehold improvements	Shorter of estimated useful life or lease term

Intangible 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 values 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 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 the fair value of the asset is lower than the carrying amount. To test for impairment, the Company estimates undiscounted future cash flows expected to result from the use of the asset and its eventual disposition and compares that amount to the asset’s carrying amount. Estimating future cash flows related to an intangible asset involves significant estimates and assumptions.

Revenue Recognition

The Company adopted ASC 606, Revenue from Contracts with Customers (ASC 606) on January 1, 2018 using the modified retrospective transition method. There was no adjustment to the Company’s opening balance of accumulated deficit resulting from the adoption of this guidance.

Prior to the adoption of ASC 606, the Company recognized revenue from the sale of its products, royalties earned, and payments received and services performed under contractual arrangements in accordance with ASC 605. Under ASC 605, Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred and title has passed, the price is fixed or determinable and the Company is reasonably assured of collecting the resulting receivable. Revenue arrangements with multiple elements are evaluated to determine whether the multiple elements meet certain criteria for dividing the arrangement into separate units of accounting, including whether the delivered element(s) have stand-alone value to the Company’s customer or licensee. Where there are multiple deliverables combined as a single unit of accounting, revenues are deferred and recognized over the performance period.

Under 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.

Commercialization Agreement

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The Company derives revenue under the Commercialization Agreement with Collegium whereby the Company granted Collegium the right to commercialize the NUCYNTA franchise of products in the U.S. The Company entered into the Commercialization Agreement in December 2017, which became effective in January 2018, and amended the agreement in August 2018 and in November 2018. The Company views its performance obligations as a series of distinct goods or services that are substantially the same and that have the same pattern of transfer. 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 represent 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 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 is 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 is not actively commercializing NUCYNTA, such royalties are 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 are included as gross-to-net adjustments in the related revenue line in the Company’s Statements of Comprehensive Income. Such amounts, over the course of the calendar year, have no net impact.

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.

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 ER and NUCYNTA, Gralise, CAMBIA, Zipsor and Lazanda. 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 ER and NUCYNTA previously sold by Janssen Pharma or Lazanda product previously sold by Archimedes Pharma US Inc. Under the Commercialization Agreement with Collegium for NUCYNTA ER and NUCYNTA and the divestiture of Lazanda to Slán, the Company is only financially responsible for product returns for product that were sold by the Company, which are identified by specific lot numbers.

The shelf life of NUCYNTA ER and NUCYNTA is 24 months to 36 months from the date of tablet manufacture. The shelf life of Gralise is 24 months to 36 months from the date of tablet manufacture. The shelf life of CAMBIA is 24 months to 48 months from the manufacture date. The shelf life of Zipsor is 36 months from the date of tablet manufacture. The shelf life of Lazanda is 24 to 36 months from the manufacture date. 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.

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

Royalties

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).

We currently have 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

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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 consolidated comprehensive income.

The Company assesses contracts for lease arrangements at inception. 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 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 Consolidated Statements of Comprehensive Income.

Stock‑Based Compensation

The Company’s stock-based compensation generally includes stock options, restricted stock units (RSUs), performance share units (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 restricted stock unit awards (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 Company uses the Black-Scholes option valuation model to determine the fair value of stock options and employee stock purchase plan (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.

Research and Development Expense and Accruals

Research and development expenses include salaries, clinical trial costs, consultant fees, supplies, manufacturing costs for research and development programs, allocations of corporate costs, as well as post-marketing clinical studies. All such costs are charged to research and development expense as incurred. These expenses result from the Company’s independent research and development efforts as well as efforts associated with collaborations. The Company reviews and accrues clinical trial expenses based on work performed, which relies on estimates of total costs incurred based on patient enrollment, completion of patient studies and other events. The Company follows this method since reasonably dependable estimates of the costs applicable to various stages of a research agreement or clinical trial can be made. Accrued clinical costs are subject to revisions as trials progress to completion. Revisions are charged to expense in the period in which the facts that give rise to the revision become known.

Acquired In-Process Research and Development

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The initial costs of rights to IPR&D projects acquired in an asset acquisition are expensed as IPR&D unless the project has an alternative future use. Development costs incurred after an acquisition are expensed as incurred.

Shipping and Handling Costs

Shipping and handling costs incurred for product shipments are recorded in cost of sales in the Statements of Comprehensive Income.

Advertising Costs

Costs associated with advertising are expensed as incurred. Advertising expense for the years ended December 31, 2019, 2018 and 2017 were $0.7 million, $0.8 million and $3.7 million, respectively.

Restructuring

Restructuring costs are included in (Loss) income from operations in the Consolidated Statements of Comprehensive Income. The Company has accounted for these costs in accordance with ASC 420, Exit or Disposal Cost Obligations (ASC 420) and ASC 712, Compensation - Nonretirement Postemployment Benefits (ASC 712). The one-time termination benefits are recorded at the time they are communicated to the affected employees. Ongoing benefits are recognized when they are estimable and probable.

Income Taxes

The Company’s income tax policy is to record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the Company’s accompanying consolidated balance sheets, as well as operating loss and tax credit carryforwards. The Company follows the guidelines set forth in the applicable accounting guidance regarding the recoverability of any tax assets recorded on the consolidated balance sheet and provides any necessary allowances as required. Determining necessary allowances requires the Company to make assessments about the timing of future events, including the probability of expected future taxable income and available tax planning opportunities.

The Company is subject to examination of its income tax returns by various tax authorities on a periodic basis. The Company regularly assesses the likelihood of adverse outcomes resulting from such examinations to determine the adequacy of its provision for income taxes. The Company has applied the provisions of the applicable accounting guidance on accounting for uncertainty in income taxes, which requires application of a more-likely-than-not threshold to the recognition and de-recognition of uncertain tax positions. If the recognition threshold is met, the applicable accounting guidance permits the Company to recognize a tax benefit measured at the largest amount of tax benefit that, in the Company’s judgment, is more than 50 percent likely to be realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of such change.

Segment Information

The Company operates in one operating segment and has operations and long-lived assets solely in the U.S. To date, all of the Company’s revenues from product sales are related to sales in the U.S.

Concentration of Risk

The Company is subject to credit risk from its accounts receivable related to product sales and royalties. The three large, national wholesale distributors represent the vast majority of the Company’s business and represented the following percentages of product shipments and accounts receivable for the years ended December 31, 2019, 2018 and 2017.

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	Consolidated revenue						Accounts Receivable related to product sales
	2019		2018		2017		2019		2018		2017
McKesson Corporation	16	%	14	%	36	%	46	%	28	%	41	%
AmerisourceBergen Corporation	12	%	13	%	27	%	17	%	28	%	27	%
Cardinal Health	10	%	11	%	26	%	25	%	32	%	23	%
Collegium	52	%	55	%	—	%	—	%	—	%	—	%
All others	10	%	7	%	11	%	12	%	12	%	9	%
Total

Assertio Therapeutics, Inc 10-K