ACQUISITIONS

12 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

Otrexup Acquisition

On December 15, 2021, the Company, through a newly-formed subsidiary, Otter Pharmaceuticals, LLC, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Antares Pharma, Inc. (“Antares”), and concurrently consummated the transaction. Pursuant to the terms of the Purchase Agreement, the Company acquired Antares’ rights, title and interest in and to Otrexup, including certain related assets, intellectual property, contracts, and product inventory for (i) $18.0 million in cash paid at closing, (ii) $16.0 million in cash payable on May 31, 2022 and (iii) and $10.0 million in cash payable on December 15, 2022.

The following table summarizes the aggregate amount paid for the assets acquired by the Company in connection with the acquisition of Otrexup (in thousands):


Cash paid to Antares at closing	$	18,000
Deferred cash payment due in May and December 2022	26,021
Transaction costs	1,478
Total purchase price of assets acquired	$	45,499

The acquisition of Otrexup has been accounted for as an asset acquisition in accordance with FASB ASC 805-50. The Company accounted for the acquisition of Otrexup as an asset acquisition because substantially all of the fair value of the assets acquired is concentrated in a single asset, the Otrexup product rights. The Otrexup products rights consist of certain patents and trademarks, at-market contracts and regulatory approvals, customer lists, marketing assets, and other records, and are considered a single asset as they are inextricably linked. ASC 805-10-55-5A includes a screen test, which provides that if substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the assets acquired are not considered to be a business. As an asset acquisition, the cost to acquire the group of assets, including transaction costs, is allocated to the individual assets acquired or liabilities assumed based on their relative

fair values. The relative fair values of identifiable assets from the acquisition of Otrexup are based on estimates of fair value using assumptions that the Company believes is reasonable.

The following table summarizes the fair value of assets acquired in the acquisition of Otrexup (in thousands):


Inventories	$	1,413
Intangible assets (Otrexup product rights)	44,086
Total assets acquired	$	45,499

The Otrexup product rights will be amortized over an 8 year period. As of December 31, 2021, cash payable to Antares in 2022 of $26.0 million is recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet.

Zyla Life Sciences Merger

On May 20, 2020, Assertio completed the Zyla Merger pursuant to the Agreement and Plan of Merger dated March 16, 2020. Upon consummation of the Zyla Merger, each issued and outstanding share of Zyla common stock converted into 2.5 shares of Assertio Holding’s common stock (the Exchange Ratio) on a pre-stock split basis, and each outstanding option or warrant to purchase Zyla common stock converted into the right to purchase shares of Assertio’s common stock. The company accounted for the Zyla Merger using the acquisition method of accounting under ASC 805.

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


Total number of Company ordinary shares issued	6,369,635


Assertio share price as of May 20, 2020	$	3.60
Fair value of common shares issued (in thousands)	$	22,931
Fair value of warrants and stock options issued (in thousands) (1)	$	11,626
Taxes paid by the Company on behalf of Zyla (in thousands)	529
Total purchase consideration (in thousands)	$	35,086

(1) Represents 1,243,091 of Zyla warrants outstanding as of May 20, 2020 at the Exchange Ratio or 3,107,728 Company warrants. The Company’s warrants were valued using the Company’s share price of $3.60 as of May 20,2020. As these shares are exercisable at any time at an exercise price of $0.0016 per share and Assertio issued replacement awards for these shares, these shares represent consideration transferred.

Costs incurred that were directly attributable to facilitating the close of the Zyla Merger were $6.6 million and were recognized during the first six months of 2020. These costs were recorded to the Selling, general and administrative expenses in the Consolidated Statements of Comprehensive Income.

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

As of the merger date in 2020, valuations were performed to assess the fair value of certain assets acquired and liabilities assumed. Accounting guidance provides that the allocation of the purchase price may be modified up to one year from the date of the merger as more information is obtained about the fair value of assets acquired and liabilities assumed. The Company finalized the Zyla Merger purchase price allocation effective December 31, 2020.

The following table reflects the initial preliminary and final fair values of the assets acquired and liabilities assumed, and measurement period adjustments during the year ended December 31, 2020, as of the acquisition date (in thousands):


	Initial Preliminary Purchase Price Allocation (PPA) to Fair Value		Measurement period adjustments		Final PPA to Fair Value
Cash	$	7,585	$	—	$	7,585
Accounts receivable	23,133		—		23,133
Inventories	26,742		(12,481)		14,261
Property and equipment	4,512		(3,016)		1,496
Intangible assets	160,900		32,500		193,400
Other assets	9,629		(1,964)		7,665
Total identifiable assets acquired	$	232,501	$	15,039	$	247,540
Accounts payable	21,574		—		21,574
Accrued rebates, returns and discounts	33,254		—		33,254
Other accrued liabilities	15,434		8,424		23,858
Contingent consideration (a)	29,400		10,500		39,900
Debt (b)	111,900		(600)		111,300
Total liabilities assumed	$	211,562	$	18,324	$	229,886
Net identifiable assets acquired	20,939		(3,285)		17,654
Goodwill (c)	14,147		3,285		17,432
Net assets acquired	$	35,086	$	—	$	35,086

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

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


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

Upon the Zyla Merger, the Company assumed and immediately paid off a $3.0 million promissory note. The promissory note was scheduled to mature on July 31, 2020. Additionally upon the Zyla Merger, the Company assumed and immediately paid off a $10.0 million credit agreement. The credit agreement was recognized by Zyla as a related party transaction as the lenders were also holders of a portion of the Zyla’s 13% Notes that were issued on January 31, 2019. The Credit Agreement was scheduled to mature on March 20, 2022. See Note 10, Debt, for further information regarding assumed Debt.

(c) The Company recognized $17.4 million of goodwill which represents the fair value of assets net of the fair value of liabilities assumed in excess of consideration paid. Goodwill arising from the Zyla Merger is not expected to be deductible for tax purposes and is subject to material revision as the purchase price allocation is completed. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Zyla. Refer “Note 7. Intangible Assets” for discussions around related goodwill impairment.

Stock-based Compensation Plan

On June 4, 2020, the Company filed a Registration Statement with the SEC to register the Zyla Life Sciences Amended and Restated 2019 Stock-Based Incentive Compensation Plan (the 2019 Zyla Plan). The 2019 Zyla Plan was assumed in connection with the Zyla Merger. Pursuant to the Zyla Merger Agreement, each outstanding Zyla stock option was cancelled and converted into a stock option to purchase the Company’s Common Stock on the same terms and conditions with (1) the number of shares of Company Common Stock subject to each such option equal to (i) the number of shares of the common stock subject to the option multiplied by (ii) the Merger Exchange Ratio, which was 2.5, rounded on pre-stock split basis, if necessary, to the nearest whole share and (2) an exercise price per share (rounded to the nearest whole cent) equal to the original exercise price of the Zyla stock option divided by (B) the Exchange Ratio. This resulted in the issuance of 1.3 million options with an average fair market value of $2.48 per share value on a post stock split basis, of which $0.4 million was recognized as merger consideration. The term of Zyla options may not exceed 10 years from the date of grant. An option shall be exercisable on or after each vesting date in accordance with the terms set forth in the option agreement. The right to exercise an option generally vests over three years at the rate of at least 33%, by the end of the first year and then ratably in monthly installments over the remaining vesting period of the stock option.

Warrant Agreements

Upon the Zyla Merger, the Company assumed Zyla’s warrant agreements (the “Warrant Agreements”) with Iroko Pharmaceuticals, Inc. (“Iroko”) certain of Iroko’s affiliates and certain other parties entitled to receive shares of the Company’s common stock as consideration pursuant to Zyla’s prior agreements or in satisfaction of certain claims pursuant to the Zyla’s prior reorganization plan. The warrants are exercisable at any time at an exercise price of $0.0016 per share, subject to certain ownership limitations including, with respect to Iroko and its affiliates, that no such exercise may increase the aggregate ownership of the Company’s outstanding common stock of such parties above 49% of the number of shares of its common stock then outstanding for a period of 18 months. All of the Company’s outstanding warrants have similar terms whereas under no circumstance may the warrants be net-cash settled. As such, all warrants are equity-classified.

Pro Forma Information

Supplemental unaudited proforma information is based upon accounting estimates and judgments that the Company believes are reasonable. This supplemental unaudited pro forma financial information has been prepared for comparative purposes only, and is not necessarily indicative of what actual results would have occurred, or of results that may occur in the future. The following table reflects the pro forma consolidated total revenues and net loss for the periods presented, as if the acquisition of Zyla had occurred on January 1, 2020.


	Unaudited
	Twelve Months Ended December 31,
	2020
Total revenues	$	131,969

Net loss	$	(60,105)

The unaudited proforma financial results for the year ended December 31, 2020 reflect adjustments directly attributed to the business combination and the Company’s divestiture of NUCYNTA and Gralise. See Note 3, Revenue, for revenue for the period since the acquisition date to December 31, 2020 related to Zyla acquired products. As the Company operates as one operating entity, earnings of Zyla since the acquisition date are impractical to calculate separate from the consolidated company.