Unaudited Pro Forma Condensed Combined Financial Statements (amounts in thousands)
Exhibit 99.3
Unaudited Pro Forma Condensed Combined Financial Statements
(amounts in thousands)
On December 15, 2021, Assertio Holdings, Inc. (“Assertio” or the “Company”), through its newly formed subsidiary, Otter Pharmaceuticals, LLC, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Antares Pharma, Inc. (“Antares”), and concurrently consummated the transactions contemplated by the Purchase Agreement (the “Closing”). Pursuant to the terms of the Purchase Agreement, the Company acquired Antares’ rights, title and interest in and to Otrexup® (methotrexate), a drug device combination single-dose once weekly auto-injector for subcutaneous use (“Otrexup”), including certain related assets, intellectual property and product inventory (the “Transaction”) for (i) $18,000 million in cash payable at the Closing, (ii) $16,021 million in cash payable on May 30, 2022 and (iii) and $10,000 million in cash payable on December 15, 2022. Pursuant to the terms of the Purchase Agreement, the Company also assumed certain contracts, liabilities and obligations of Antares relating to Otrexup.
The presentation of the unaudited pro forma condensed combined balance sheet gives effect to the Transaction as if it had occurred on September 30, 2021. The presentation of the unaudited pro forma condensed combined statements of comprehensive income reflects the combined results of operations as if the Transaction had occurred on January 1, 2020, the beginning of the Company’s 2020 fiscal year. The unaudited pro forma condensed combined financial statements include adjustments that reflect the accounting for the Transaction in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
As discussed in Note 3 to the unaudited pro forma condensed combined financial statements, the Company has concluded, in accordance with U.S. GAAP, that Otrexup does not meet the definition of a business. However, for purposes of this Form 8-K, and in accordance with Rule 3-05 and Rule 11-01, the Transaction is considered the purchase of a business given the significance of the purchase consideration in relation to the size of Assertio, and since the historical revenue-generating activities from Otrexup will continue in essentially the same fashion following the Transaction.
The unaudited pro forma condensed combined financial statements should be read in conjunction with (1) the historical financial statements of the Company included in its Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 12, 2021 and its Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2021 filed with the SEC on November 4, 2021 and (2) the Special Purpose Financial Statements of Otrexup as of and for the years ended December 31, 2020 and 2019, and as of September 30, 2021 and for the nine months ended September 30, 2021 and 2020, included in this Form 8-K.
The unaudited pro forma condensed combined financial statements are provided for informational purposes only and are not necessarily indicative of results that would have occurred had the acquisition been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial statements do not purport to be indicative of the future financial position or operating results of the combined operations and do not reflect the costs of any integration activities or benefits that may result from realization of future cost savings from operating efficiencies or revenue synergies expected to result from the Transaction.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 2021
(in thousands)
| Assertio (Historical) |
Otrexup (Historical) Adjusted for Reclassifications |
|
Transaction Accounting Adjustments | Pro
Forma Combined |
||||||||||||||
| Note 2 | ||||||||||||||||||
| ASSETS | ||||||||||||||||||
| Current assets | ||||||||||||||||||
| Cash and cash equivalents | $ | 58,726 | $ | - | $ | (18,000 | ) | Note 3 (a) | $ | 40,726 | ||||||||
| Accounts receivable, net | 36,145 | 36,145 | ||||||||||||||||
| Inventories, net | 5,481 | 4,116 | 3,347 | Note 3 (b)(c) | 12,944 | |||||||||||||
| Prepaid and other current assets | 12,193 | 12,193 | ||||||||||||||||
| Total current assets | 112,545 | 4,116 | (14,653 | ) | 102,008 | |||||||||||||
| Property and equipment, net | 1,678 | 1,678 | ||||||||||||||||
| Intangible assets, net | 179,143 | 91 | 37,467 | Note 3 (b)(d) | 216,701 | |||||||||||||
| Other long-term assets | 5,939 | 5,939 | ||||||||||||||||
| Total assets | $ | 299,305 | $ | 4,207 | $ | 22,814 | $ | 326,326 | ||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||||
| Current liabilities | ||||||||||||||||||
| Accounts payable | $ | 7,666 | $ | - | $ | - | $ | 7,666 | ||||||||||
| Accrued rebates, returns and discounts | 43,830 | 43,830 | ||||||||||||||||
| Accrued liabilities | 13,782 | 27,021 | Note 3 (a) | 40,803 | ||||||||||||||
| Current portion of long-term debt | 12,257 | 12,257 | ||||||||||||||||
| Contingent consideration, current portion | 7,200 | 7,200 | ||||||||||||||||
| Interest payable | 4,193 | 4,193 | ||||||||||||||||
| Other current liabilities | 11,552 | 11,552 | ||||||||||||||||
| Total current liabilities | 100,480 | - | 27,021 | 127,501 | ||||||||||||||
| Long-term debt | 66,410 | 66,410 | ||||||||||||||||
| Contingent consideration | 30,759 | 30,759 | ||||||||||||||||
| Other long-term liabilities | 4,796 | 4,796 | ||||||||||||||||
| Total liabilities | 202,445 | - | 27,021 | 229,466 | ||||||||||||||
| Commitment and contingencies | ||||||||||||||||||
| Shareholders' equity: | ||||||||||||||||||
| Common stock | 4 | 4 | ||||||||||||||||
| Additional paid-in capital | 530,689 | 530,689 | ||||||||||||||||
| Accumulated deficit | (433,833 | ) | (433,833 | ) | ||||||||||||||
| Total shareholders' equity | 96,860 | - | - | 96,860 | ||||||||||||||
| Total liabilities and shareholders' equity | $ | 299,305 | $ | - | $ | 27,021 | $ | 326,326 | ||||||||||
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF COMPREHENSIVE INCOME
Year ended December 31, 2020
(in thousands except per share data)
| Assertio (Historical) |
Otrexup (Historical) Adjusted for Reclassifications |
|
Transaction Accounting Adjustments |
Pro
Forma Combined |
||||||||||||||
| Note 2 | ||||||||||||||||||
| Revenues: | ||||||||||||||||||
| Product sales, net | $ | 93,498 | $ | 15,913 | $ | - | $ | 109,411 | ||||||||||
| Commercialization agreement, net | 11,258 | 11,258 | ||||||||||||||||
| Royalties and milestones | 1,519 | 1,519 | ||||||||||||||||
| Total revenues | 106,275 | 15,913 | - | 122,188 | ||||||||||||||
| Costs and expenses: | ||||||||||||||||||
| Cost of sales (excluding amortization of intangible assets) | 19,872 | 4,232 | 3,347 | Note 3 (b)(c) | 27,451 | |||||||||||||
| Research and development expenses | 4,213 | 41 | 4,254 | |||||||||||||||
| Selling, general and administrative expenses | 104,324 | 8,237 | 112,561 | |||||||||||||||
| Amortization of intangible assets | 24,783 | 4,173 | Note 3 (d) | 28,956 | ||||||||||||||
| Loss on impairment of goodwill and intangible assets | 17,432 | 17,432 | ||||||||||||||||
| Restructuring charges | 17,806 | 17,806 | ||||||||||||||||
| Total costs and expenses | 188,430 | 12,510 | 7,520 | 208,460 | ||||||||||||||
| (Loss) income from operations | (82,155 | ) | 3,403 | (7,520 | ) | (86,272 | ) | |||||||||||
| Other income (expense): | ||||||||||||||||||
| Gain on sale of Gralise | 126,655 | 126,655 | ||||||||||||||||
| Loss on debt extinguishment | (56,113 | ) | (56,113 | ) | ||||||||||||||
| Loss on sale of NUCYNTA | (14,749 | ) | (14,749 | ) | ||||||||||||||
| Interest expense | (15,926 | ) | (15,926 | ) | ||||||||||||||
| Other loss | (3,225 | ) | (3,225 | ) | ||||||||||||||
| Total other income | 36,642 | - | - | 36,642 | ||||||||||||||
| Net (loss) income before income taxes | (45,513 | ) | 3,403 | (7,520 | ) | (49,630 | ) | |||||||||||
| Income tax benefit | 17,369 | 1,029 | Note 4 | 18,398 | ||||||||||||||
| Net (loss) income and Comprehensive (loss) income | $ | (28,144 | ) | $ | 3,403 | $ | (6,491 | ) | $ | (31,232 | ) | |||||||
| Basic net loss per share | $ | (0.27 | ) | $ | (0.30 | ) | ||||||||||||
| Diluted net loss per share | $ | (0.27 | ) | $ | (0.30 | ) | ||||||||||||
| Shares used in computing basic net loss per share | 104,835 | 104,835 | ||||||||||||||||
| Shares used in computing diluted net loss per share | 104,835 | 104,835 | ||||||||||||||||
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF COMPREHENSIVE INCOME
Nine months ended September 30, 2021
(in thousands except per share data)
| Otrexup | Transaction | ||||||||||||||
| Assertio | (Historical) | Accounting | Pro Forma | ||||||||||||
| (Historical) | Adjusted for Reclassifications | Adjustments | Combined | ||||||||||||
| Note 2 | |||||||||||||||
| Revenues | |||||||||||||||
| Product sales, net | $ | 77,271 | $ | 11,061 | $ | - | $ | 88,332 | |||||||
| Royalties and milestones | 1,391 | 1,391 | |||||||||||||
| Other revenue | (976 | ) | (976 | ) | |||||||||||
| Total revenues | 77,686 | 11,061 | - | 88,747 | |||||||||||
| Costs and expenses | |||||||||||||||
| Cost of sales | 10,936 | 2,994 | 13,930 | ||||||||||||
| Research and development expenses | - | 21 | 21 | ||||||||||||
| Selling, general and administrative expenses | 43,279 | 5,334 | 48,613 | ||||||||||||
| Amortization of intangible assets | 20,939 | 3,130 | Note 3 (d) | 24,069 | |||||||||||
| Restructuring charges | 1,089 | 1,089 | |||||||||||||
| Total costs and expenses | 76,243 | 8,349 | 3,130 | 87,722 | |||||||||||
| Income from operations | 1,443 | 2,712 | (3,130 | ) | 1,025 | ||||||||||
| Other income (expense): | |||||||||||||||
| Interest expense | (7,783 | ) | (7,783 | ) | |||||||||||
| Other gain | 747 | 747 | |||||||||||||
| Total other expense | (7,036 | ) | - | - | (7,036 | ) | |||||||||
| Net (loss) income before income taxes | (5,593 | ) | 2,712 | (3,130 | ) | (6,011 | ) | ||||||||
| Income tax (expense) benefit | (294 | ) | 104 | Note 4 | (190 | ) | |||||||||
| Net (loss) income and Comprehensive (loss) income | $ | (5,887 | ) | $ | 2,712 | $ | (3,025 | ) | $ | (6,200 | ) | ||||
| Basic net loss per share | $ | (0.14 | ) | $ | (0.15 | ) | |||||||||
| Diluted net loss per share | $ | (0.14 | ) | $ | (0.15 | ) | |||||||||
| Shares used in computing basic net loss per share | 42,550 | 42,550 | |||||||||||||
| Shares used in computing diluted net loss per share | 42,550 | 42,550 | |||||||||||||
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The unaudited pro forma condensed combined financial statements have been prepared by the Company in accordance with Article 11 of Regulation S-X, are subject to change and are not necessarily indicative of the results that would have been achieved had the acquisition been completed as of the dates indicated or that may be achieved in future periods. The Company believes the fair value recognized for the assets acquired are based on reasonable estimates and assumptions. Preliminary fair value estimates may change as additional information becomes available. There can be no assurance that the final determination will not result in material changes from these preliminary amounts.
The financial statements included in the unaudited pro forma condensed combined financial statements have been prepared in accordance with U.S. GAAP. The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that reflect the accounting for the Transaction in accordance with U.S. GAAP. Where applicable, Assertio has disclosed those adjustments that will not recur in the Company's results of operations beyond a year from the date of the Transaction.
The unaudited pro forma condensed combined financial statements have been compiled in a manner consistent with the accounting policies adopted by Xxxxxxxx. The accounting policies of Otrexup have been determined to be similar in all material respects to Assertio's accounting policies. As a result, no adjustments for accounting policy differences have been reflected in the unaudited pro forma condensed combined financial statements.
Note 2. Reclassifications
Certain reclassifications have been made to the historical presentation of Otrexup to conform to the financial statement presentation of Assertio, as follows:
As of September 30, 2021
| Reclassification | ||||||||||||
| adjustment to | ||||||||||||
| conform Otrexup | Otrexup | |||||||||||
| Otrexup | to Assertio | (Historical) | ||||||||||
| Historical Line Items | presentation | Adjusted for Reclassifications | ||||||||||
| (amounts in thousands) | ||||||||||||
| Inventory | 4,116 | (4,116 | ) | - | ||||||||
| Inventories, net | 4,116 | 4,116 | ||||||||||
| Identified intangible assets, net (patents) | 91 | (91 | ) | - | ||||||||
| Intangible assets, net | 91 | 91 | ||||||||||
Year Ended December 31, 2020
| Reclassification | ||||||||||||
| adjustment to | ||||||||||||
| conform Otrexup | Otrexup | |||||||||||
| Otrexup | to Assertio | (Historical) | ||||||||||
| Historical Line Items | presentation | Adjusted for Reclassifications | ||||||||||
| (amounts in thousands) | ||||||||||||
| Net product revenue | $ | 15,913 | $ | (15,913 | ) | $ | - | |||||
| Product sales, net | 15,913 | 15,913 | ||||||||||
| Cost of product sales | 4,232 | (4,232 | ) | - | ||||||||
| Cost of sales (excluding amortization of intangible assets) | 4,232 | 4,232 | ||||||||||
| Research and development | 41 | (41 | ) | - | ||||||||
| Research and development expenses | 41 | 41 | ||||||||||
| Selling, general and administrative | 8,237 | (8,237 | ) | - | ||||||||
| Selling, general and administrative expenses | 8,237 | 8,237 | ||||||||||
Nine Months Ended September 30, 2021
| Reclassification | ||||||||||||
| adjustment to | ||||||||||||
| conform Otrexup | Otrexup | |||||||||||
| Otrexup | to Assertio | (Historical) | ||||||||||
| Historical Line Items | presentation | Adjusted for Reclassifications | ||||||||||
| (amounts in thousands) | ||||||||||||
| Net product revenue | $ | 11,061 | $ | (11,061 | ) | $ | - | |||||
| Product sales, net | 11,061 | 11,061 | ||||||||||
| Cost of product sales | 2,994 | (2,994 | ) | - | ||||||||
| Cost of sales | 2,994 | 2,994 | ||||||||||
| Research and development | 21 | (21 | ) | - | ||||||||
| Research and development expenses | 21 | 21 | ||||||||||
| Selling, general and administrative | 5,334 | (5,334 | ) | - | ||||||||
| Selling, general and administrative expenses | 5,334 | 5,334 | ||||||||||
Note 3. Transaction Accounting Adjustments
Assertio has accounted for the acquisition of Otrexup as an acquisition of assets in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) 805, Business Combinations, and Accounting Standards Update (ASU) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, whereby the Company recognized assets acquired based on their estimated fair values on the acquisition date. Due to the screen test as required by ASU 2017-01, the acquisition does not meet the definition of a business as, based on the final terms of the Transaction on the closing date, substantially all the fair value of the gross assets acquired is concentrated in a single identifiable asset. Furthermore, Xxxxxxxx concluded that the acquisition does not meet the definition of a business since a substantive process was not acquired. Specifically, (1) no manufacturing, back office, or other employees are transferring to Assertio, (2) Assertio is not acquiring, inheriting or assuming third-party manufacturing contracts essential to the manufacturing of Otrexup, and (3) Assertio is not acquiring certain patent rights, trademarks, manufacturing know-how, and other intellectual property that would be critical to the ability to manufacture Otrexup itself or through a contract with a third party.
For pro forma purposes, the Company has preliminarily allocated the purchase consideration to the acquired assets based on their relative estimated fair values. Therefore, as discussed further below, the assets acquired are provisional and will be finalized after the Company receives and reviews all available data and completes its detailed valuation analysis.
(a) Purchase consideration
The following table summarizes the components of the purchase consideration:
| Pro Forma | ||||
| Adjustment | ||||
| (amounts in thousands) | ||||
| Closing cash payment | 18,000 | |||
| Deferred cash payments(i) | 26,021 | |||
| Total purchase price | 44,021 | |||
| Transaction costs(ii) | 1,000 | |||
| Total purchase consideration | 45,021 | |||
| (i) | Under the terms of the Transaction, Assertio is to make a $16,021 payment to Antares on May 30, 2022 and a $10,000 payment to Antares on December 15, 2022 |
| (ii) | Assertio incurred approximately $1,000 of transaction costs subsequent to September 30, 2021. |
(b) Preliminary purchase price allocation
Assertio has performed a preliminary analysis of the fair value of the Otrexup assets acquired. Assertio has estimated the allocation of the purchase consideration to acquired assets based on their relative fair value. This preliminary purchase price allocation has been used to prepare the transaction accounting adjustments in the unaudited pro forma condensed combined balance sheet and statements of comprehensive income. For purposes of preparing the unaudited pro forma condensed combined financial statements, the fair value amounts and corresponding purchase price allocation incorporate the amount of Otrexup assets on hand as of September 30, 2021 or January 1, 2020, as applicable, as required under Article 11. These amounts are different than those on hand at Closing. The final purchase price allocation will incorporate the Otrexup assets on hand at Closing and will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation is expected to be completed when the Company files its report on Form 10-K for the year ended December 31, 2021 and could differ materially from the preliminary allocation used in preparing the transaction accounting adjustments.
The following table summarizes the allocation of the purchase consideration:
| Less: | ||||||||||||
| Preliminary | Otrexup | Pro Forma | ||||||||||
| Purchase Price Allocation | (Historical) | Adjustment | ||||||||||
| (amounts in thousands) | ||||||||||||
| Inventories | 7,463 | (4,116 | ) | 3,347 | ||||||||
| Intangible assets | 37,558 | (91 | ) | 37,467 | ||||||||
| Total assets acquired | 45,021 | (4,207 | ) | 40,814 | ||||||||
(c) Inventories
As part of the preliminary valuation analysis, Assertio estimated the purchase price allocation to acquired inventories. The fair value was determined based on the estimated selling price of the inventory, less the remaining manufacturing and selling costs and a normal profit margin on those manufacturing and selling efforts. The unaudited pro forma condensed combined statements of comprehensive income for the year ended December 31, 2020 are also adjusted to increase cost of sales by the same amount as the inventory is expected to be sold within 12 months of the acquisition date. Accordingly, this adjustment will not affect the Company’s results of operations beyond 12 months after the acquisition date.
(d) Intangible assets, net
As part of the preliminary valuation analysis, Xxxxxxxx identified as an intangible asset the acquired rights to market and sell Otrexup in the United States (the "product rights"). The products rights consist of certain patents and trademarks, at-market contracts and regulatory approvals, customer lists, marketing assets, and other records, and have been valued as a single intangible asset as they are inextricably linked. The fair value of the product rights was determined primarily using an income approach, namely a discounted cash flow model. The preliminary estimate of fair value will likely differ from the final amount Assertio will calculate after completing a detailed valuation analysis, and the difference could have a material effect on the accompanying unaudited pro forma condensed combined financial statements. However, a 10% change in fair value would not have a material impact on the balance of acquired inventory or amortization expense, assuming a useful life of 9 years.
The following table summarizes the estimated fair value of the acquired product rights and its estimated useful life and uses a straight-line basis of amortization:
| Amortization Expense | Amortization Expense | |||||||||||||||
| Preliminary | Useful | Year Ended | Nine Months Ended | |||||||||||||
| Purchase Price Allocation | Life | December 31, 2020 | September 30, 2021 | |||||||||||||
| (amounts in thousands) | ||||||||||||||||
| Product rights | 37,558 | 9 | 4,173 | 3,130 | ||||||||||||
Note 4: Income Taxes
The pro forma presentation of the effect on income tax expense (benefit) was calculated using the U.S. estimated statutory rate. The adjustments are summarized in the following tables:
Year Ended December 31, 2020
| Net (loss) income | ||||||||||||
| before income taxes | Statutory Tax Rate | Income tax (expense) benefit | ||||||||||
| (amounts in thousands except tax rate) | ||||||||||||
| Combined pro forma adjustments to net (loss) income before income taxes(i) | $ | (7,520 | ) | 25 | % | $ | 1,880 | |||||
| less: income tax on Otrexup income before taxes | 3,403 | 25 | % | (851 | ) | |||||||
| Pro forma adjustment | $ | 1,029 | ||||||||||
| (i) | The tax effects of the adjustment to inventory described in Note 3(c) will not affect the Company’s results of operations beyond 12 months after the acquisition date. |
Nine months Ended September 30, 2021
| Net (loss) income | ||||||||||||
| before income taxes | Statutory Tax Rate | Income tax (expense) benefit | ||||||||||
| (amounts in thousands except tax rate) | ||||||||||||
| Combined pro forma adjustments to net (loss) income before income taxes | $ | (3,130 | ) | 25 | % | $ | 782 | |||||
| less: income tax on Otrexup income before taxes | 2,712 | 25 | % | (678 | ) | |||||||
| Pro forma adjustment | $ | 104 | ||||||||||
