NOTE 8 – ASSET PURCHASE AGREEMENT WITH UPSHER-SMITH

On June 30, 2023 (the “Closing”), pursuant to an Asset Purchase Agreement (the “Asset Purchase Agreement”) entered into on June 23, 2023 with USL, the Company completed the acquisition of certain assets related to Zembrace® SymTouch® (sumatriptan injection) 3 mg (“Zembrace”) and Tosymra® (sumatriptan nasal spray) 10 mg (“Tosymra”) products (such businesses collectively, the “Business”) and certain inventory related to the Business for an aggregate purchase price of approximately $26.5 million, including certain deferred payments and subject to customary adjustments (such transaction, the “USL Acquisition”).

On June 30, 2023, in connection with the USL Acquisition, the Company and USL entered into a Transition Services Agreement (the “Transition Services Agreement”), pursuant to which USL will provide certain transition services to the Company for base fees equal to $100,000 per month for the first six months, and $150,000 per months for the seventh through ninth months, plus additional monthly fees for each service category totaling up to $150,000 per month.

As consideration for acquisition of the Business and certain product-related inventories, the Company paid an aggregate upfront purchase price of approximately $22.2 million in cash. The closing cash consideration was later adjusted upwards by approximately $1.3 million upon the determination of the value of the acquired inventory on hand as of June 30, 2023. The inventory adjustment payment is expected to be settled in the third quarter of 2023. On the earlier of March 2024 and the completion of the transition services to be provided by USL, as described above, the Company agreed to pay an additional deferred payment of $3.0 million in cash. The following table summarizes the components of the purchase consideration (in thousands):

The USL Acquisition was accounted for as a business combination using the acquisition method, in accordance with the provisions of ASC 805, Business Combinations and ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The tangible and intangible assets acquired were recorded at their estimated fair values on the acquisition date, and the difference between the fair value of these assets and the purchase price has been recorded as goodwill. The purchase price allocation is based upon preliminary valuations and estimates and assumptions which are subject to change. As the Company receives additional information about facts and circumstances that existed at the acquisition date, the fair values of the acquired inventory and intangible assets may be adjusted, with the offset recorded to goodwill. The acquisition-date fair value analyses will be finalized as soon as practicable, but in no event later than one year after the acquisition date.

The following table represents the preliminary allocation of the purchase price to the assets acquired by the Company in the USL Acquisition recognized in the Company’s consolidated balance sheets (in thousands):

The acquired inventory consists of USL’s raw materials, semi-finished goods, and finished goods inventory as of the Closing date. The fair value was determined based on the estimated selling price of the inventory, less the estimated total costs to complete, disposal effort and holding costs.

The $1.0 million of goodwill arising from the USL Acquisition represents expected synergies from combining operations, intangible assets that do not qualify for separate recognition, and other factors, of which all is expected to be deductible for tax purposes, subject to any limitations.

Intangible assets eligible for recognition separate from goodwill were those that satisfied either the contractual or legal criterion or the separability criterion in the accounting guidance. The identifiable intangible assets acquired and their estimated useful lives for amortization are as follows (in thousands):

The developed technology intangible assets related to Zembrace and Tosymra includes the value associated with the acquired patents, customer relationships, and trademarks and trade names associated with the technology. The developed technology intangible assets were valued as composite assets under the premise that each asset is reliant on one another to generate cash flow, is not considered separable from the technology, and are assumed to have similar useful lives. The composite intangible assets were valued using a multi-period excess earnings method and are being amortized over their estimated useful lives using the straight-line method of amortization. The key assumptions used in estimating the fair values of intangible assets include forecasted financial information, the weighted average cost of capital, customer retention rates, and certain other assumptions.

The fair values assigned to the assets acquired are based on reasonable assumptions and estimates that market participants would use. Actual results may differ from these estimates and assumptions. 

As the Closing occurred on the last day of the second quarter of 2023, the operations of the Business had no impact on the Company’s operating results for the three or six months ended June 30, 2023.

Supplemental Pro Forma Information

The following unaudited pro forma consolidated financial information reflects the results of operations of the Company for the three and six months ended June 30, 2023 and 2022 as if the USL Acquisition had occurred as of January 1, 2022 and gives effect to transactions that are directly attributable to the acquisition. These amounts are based on financial information of the acquired business and are not necessarily indicative of what the Company’s operating results would have been had the acquisition taken place on the date presented, nor is it indicative of the Company’s future operating results.

The pro forma information for all periods presented include additional amortization expense related to the fair value of the acquired intangible assets as if such assets were acquired on January 1, 2022. The pro forma financial information for the three and six months ended June 30, 2022 also reflects an increase in Cost of Sales related to the preliminary acquisition-date fair value adjustment to inventory. This adjustment is not reflected in the three or six months ended June 30, 2023 as the acquired inventory is expected to be sold within one year from the acquisition date.