# Cumberland Pharmaceuticals Inc: Form 10-Q for the period ended Sep 30, 2020

- Company: [Cumberland Pharmaceuticals Inc](/companies/cpix.md) (CIK 1087294)
- Form: 10-Q
- Filed: 2020-11-13
- Accepted by EDGAR: Nov 13, 2020, 17:16 ET
- Period: 2020-09-30
- Accession: 0001628280-20-016446
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1087294/000162828020016446/cpix-20200930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1087294/000162828020016446/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-07-01 to 2020-09-30 | $9.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2020-01-01 to 2020-09-30 | $27.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2020-07-01 to 2020-09-30 | $2.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2020-01-01 to 2020-09-30 | $6.4m | us-gaap:CostOfGoodsAndServicesSold |
| Research and development | 3 months, 2020-07-01 to 2020-09-30 | $1.2m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2020-01-01 to 2020-09-30 | $4.4m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2020-07-01 to 2020-09-30 | −$1.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2020-01-01 to 2020-09-30 | −$4.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-07-01 to 2020-09-30 | $75.2k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2020-01-01 to 2020-09-30 | $227.7k | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-07-01 to 2020-09-30 | $3.7k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2020-01-01 to 2020-09-30 | $45.4k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-07-01 to 2020-09-30 | −$481.7k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2020-01-01 to 2020-09-30 | −$2.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-07-01 to 2020-09-30 | −$0.03 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2020-01-01 to 2020-09-30 | −$0.16 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-07-01 to 2020-09-30 | −$0.03 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2020-01-01 to 2020-09-30 | −$0.16 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-07-01 to 2020-09-30 | 15,134,583 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2020-01-01 to 2020-09-30 | 15,206,179 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2020-01-01 to 2020-09-30 | $4.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2020-01-01 to 2020-09-30 | $95.2k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2020-01-01 to 2020-09-30 | $1.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2020-09-30 | $26.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-09-30 | $48.9m | us-gaap:AssetsCurrent |
| Total assets | at 2020-09-30 | $96.0m | us-gaap:Assets |
| Current liabilities | at 2020-09-30 | $23.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-09-30 | $48.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2020-09-30 | $47.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 45,815 characters.

#### Disclosure regarding forward-looking statements

The following discussion contains certain forward-looking statements which reflect management’s current views of future events and operations. These statements involve certain risks and uncertainties, and actual results may differ materially from them. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ significantly from the results discussed in these forward-looking statements. Some important factors which may cause results to differ from expectations include: availability of additional debt and equity capital; market conditions at the time additional capital is required; our ability to continue to acquire branded products; product sales; management of our growth and integration of our acquisitions and impacts on our business as well as national and international markets and economies resulting from the 2020 COVID-19 pandemic. While forward-looking statements reflect our beliefs and best judgment based upon current information, they are not guarantees of future performance. Other important factors that may cause actual results to differ materially from forward-looking statements are discussed in the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” of our Annual Report on Form 10-K for the year ended December 31, 2019, our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and September 30, 2020, respectively, and other filings with the SEC. We do not undertake to publicly update or revise any of our forward-looking statements, even in the event that experience or future changes indicate that the anticipated results will not be realized. The following presentation of management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this report on Form 10-Q.

### OVERVIEW

### Our Business

Cumberland Pharmaceuticals Inc. (“Cumberland,” the “Company,” or as used in the context of “we,” “us,” or “our”), is a specialty pharmaceutical company focused on the acquisition, development and commercialization of branded prescription products. Our primary target markets are hospital acute care and gastroenterology. These medical specialties are characterized by relatively concentrated prescriber bases that we believe can be penetrated effectively by small, targeted sales forces. Cumberland is dedicated to providing innovative products that improve the quality of care for patients and address unmet or poorly met medical needs. We promote our approved products through our hospital and field sales forces in the United States and are establishing a network of international partners to bring our medicines to patients in their countries.

Our portfolio of FDA approved brands includes:

- **Acetadote® (***acetylcysteine*) Injection, for the treatment of acetaminophen poisoning;
- **Caldolor® (***ibuprofen*) Injection, for the treatment of pain and fever;
- **Kristalose® (***lactulose*) for Oral Solution, a prescription laxative, for the treatment of chronic and acute constipation;
- **Omeclamox®-Pak, (***omeprazole, clarithromycin, and amoxicillin*) for the treatment of Helicobacter pylori (*H. pylori*) infection and related duodenal ulcer disease;
- **Vaprisol® (***conivaptan*) Injection, to raise serum sodium levels in hospitalized patients with euvolemic and hypervolemic hyponatremia;
- **Vibativ® (***telavancin*) Injection, for the treatment of certain serious bacterial infections including hospital-acquired and ventilator-associated bacterial pneumonia, as well as complicated skin and skin structure infections, and
- **RediTrex® (***methotrexate*) Injection, for the treatment of active rheumatoid, juvenile idiopathic and severe psoriatic arthritis, as well as disabling psoriasis.

Additionally, we have Phase II clinical programs underway evaluating our ifetroban product candidates in patients with cardiomyopathy associated with Duchenne Muscular Dystrophy, Systemic Sclerosis, and Aspirin-Exacerbated Respiratory Disease. We have also completed initial Phase II clinical studies with ifetroban in patients with Hepatorenal Syndrome and patients with Portal Hypertension.

The Company has both product development and commercial capabilities, and we believe we can leverage our existing infrastructure to support our expected growth. Our management team consists of pharmaceutical industry veterans experienced in business development, product development, regulatory, manufacturing, sales, marketing, and finance. Our business development team identifies, evaluates and negotiates product acquisition, licensing and co-promotion agreements. Our product development team creates proprietary formulations, manages our clinical studies, prepares all regulatory submissions and staffs our medical call center. Our quality and manufacturing professionals oversee the manufacture, release and shipment of our products. Our marketing and sales team is responsible for our commercial activities, and we work closely with our distribution partners to ensure availability and delivery of our products.

### Growth Strategy

Cumberland's growth strategy involves maximizing the potential of our existing brands while continuing to build a portfolio of differentiated products. We currently market six FDA-approved products in the United States and expect to introduce our seventh product, RediTrex, before the end of 2020. Through our international partners, we are working to bring our medicines to patients in their countries. Our clinical team is developing a pipeline of new product candidates largely to address unmet medical needs. We also look for opportunities to expand the approved use of our products for additional patient populations through clinical trials, through new presentations, and through our support for select, investigator-initiated studies. Through our active business development initiative, we are pursuing the acquisition of additional marketed brands and late-stage development product candidates in our target medical specialties.

Furthermore, we are supplementing these activities with the earlier stage drug development at Cumberland Emerging Technologies ("CET"), our majority-owned subsidiary. CET partners with academic research institutions to identify and progress promising, new product candidates, which Cumberland has the opportunity to further develop and commercialize.

Specifically, we are seeking long term sustainable growth by executing on the following:

**Support and expand the use of our marketed products.** We continue to evaluate our products following their FDA approval to determine if additional clinical data could expand their market and use. We will continue to explore opportunities for label expansion to bring our products to new patient populations. As examples, we have secured pediatric approvals, expanding the labeling for both our Acetadote and Caldolor brands.

**Selectively add complementary brands.** In addition to our product development activities, we are also seeking to acquire products and late-stage development product candidates to continue to build a portfolio of complementary brands. We focus on under-promoted, FDA approved drugs, as well as late-stage development products that address poorly met medical needs. We will continue to target product acquisition candidates that are competitively differentiated, have valuable intellectual property or other protective features, and allow us to leverage our existing infrastructure. Our acquisition of Vibativ represents the largest product acquisition we have completed.

**Progress clinical pipeline and incubate future product opportunities at CET.** We believe it is important to build a pipeline of innovative new product opportunities. Our ifetroban Phase II development programs represent the implementation of this strategy. At CET, we are supplementing our acquisition and late-stage development activities with the early-stage drug development activities. CET partners with universities and other research organizations to develop promising, early-stage product candidates, which Cumberland has the opportunity to further develop and commercialize.

**Leverage our infrastructure through co-promotion partnerships.** We believe that our commercial infrastructure can help drive prescription volume and product sales. We also look for strategic co-promotion partners that can complement our capabilities and enhance the opportunity for our brands. Our co-promotion arrangements with Poly Pharmaceuticals, Inc. and Foxland Pharmaceuticals, Inc allow us to expand current promotional support for Kristalose across the U.S.

**Build an international contribution to our business.** We have established our own commercial capabilities, including two sales divisions to promote our approved brands in the U.S. We have also entered into agreements with a group of international partners to register our products and make them available to patients in their countries.

The acquisition of Vibativ resulted in several new international partners and market opportunities. We will continue to support and selectively expand our network of international partners, while assisting with the registration and commercialization efforts in their respective territories.

**Manage our operations with financial discipline.** We work to manage our expenses in line with our revenues in order to deliver positive cash flow from operations. Our goal is to maintain a healthy financial position, with favorable gross margins, and a strong balance sheet.

We were incorporated in 1999 and have been headquartered in Nashville, Tennessee since inception. During 2009, we completed an initial public offering of our common shares and listing on the Nasdaq stock exchange. Our website address is www.cumberlandpharma.com. We make available through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all material press releases and other reports as soon as reasonably practicable after their filing with the U.S. Securities and Exchange Commission, (“SEC”). These filings are also available to the public at *www.sec.gov*. In April 2020, we issued our inaugural Environmental, Social and Governance (“ESG”) report which is also available on our website.

### RECENT DEVELOPMENTS

### COVID-19 Pandemic

In March 2020, the U.S. declared a health care emergency following the outbreak of the (SARS-CoV-2) strain of coronavirus that causes COVID-19, a respiratory illness.

Cumberland’s facilities have remained open, as our business is considered to be essential by the United States Department of Homeland Security. We have implemented measures to address the impact of the novel coronavirus on our operations and taken appropriate action to protect our employees, secure our supply chain, and support the patients who can benefit from our medicines. All our employees have been provided the opportunity to work remotely, and those who wish to work at our offices are asked to follow the health guidelines outlined by the Centers for Disease Control.

Our sales organization has continued to interact with medical professionals, providing information and product samples as requested. However, their contact has shifted from in person to telephonic and electronic communications. Travel across the organization and attendance at medical meetings have largely been discontinued. Cumberland has faced the same headwinds affecting other companies that rely on hospital admissions and patient visits to drive revenue. During this pandemic, less patients sought care, some patients postponed elective surgeries and Cumberland's access to medical facilities was substantially limited.

We rely on third-party organizations around the world to supply components, manufacture and distribute our products. We are aware that we may experience revenue loss, supply interruptions, time delays and incur unplanned expenses as a result of the impact of the ongoing COVID-19 pandemic. We continue to monitor the coronavirus situation both in the U.S. and internationally in order to maintain our employees’ safety and well-being, while also keeping our business operating. Given the uncertainty of such changes, we are unable to quantify the impact on our future results as of the date of this filing. For additional discussion of the risks associated with COVID-19, please review the section entitled “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

### Omeclamox-Pak Supply Update

Cumberland has partnered with a select group of FDA-approved facilities to manufacture its line of branded pharmaceutical products. The Company has been carefully monitoring its supply chain during the pandemic and preparing for its economic impact. The packager for Cumberland’s Omeclamox-Pak product encountered financial difficulties due to the impact of COVID-19, and their operations are currently suspended. Cumberland is awaiting resumption of those operations while also exploring other alternatives to restart the product’s packaging. Meanwhile, we informed the FDA of a shortage of the Omeclamox-Pak effective October 14, 2020, and have not provided a date for the availability of new inventory. Cumberland noted that there is currently some remaining inventory of the product in the distribution channels. For additional discussion of the risks discussed above, see Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q.

### Caldolor Clinical Manuscripts

A non-steroidal anti-inflammatory drug (“NSAID”), Caldolor may be used as the sole method of treatment for mild to moderate pain or as part of a multimodal treatment for severe pain. In January 2020, we commenced the national launch of our next generation Caldolor (*ibuprofen*) Injection product. This formulation of Caldolor comes in a ready-to-use bag that may be administered without dilution for pain relief. This launch follows FDA approval in 2019 of the product's new delivery method. The new, premixed presentation provides healthcare professionals a formulation that is easy to administer, helping manage the treatment of patient pain and fever, while reducing opioid consumption.

In July 2020, Cumberland announced a study published in the *Journal of Orthopedic Trauma*, evaluating the efficacy of Caldolor administration in the management of acute pain in orthopedic trauma patients. The study also measured Caldolor’s ability in minimizing opioid use. This single-center, randomized, double-blind, placebo-controlled study found that Caldolor (ibuprofen) Injection reduced the quantity of opioids required to manage pain after a traumatic injury with fracture. In addition, the time to first narcotic medication was longer in the Caldolor group than with hospital standard of care. Pain was also managed better in the Caldolor group compared to standard of care narcotics.

Additionally, in August 2020, Cumberland announced the results of a review of nine clinical studies evaluating Caldolor. The comprehensive review was published in the journal *Clinical Therapeutics* and involved 1,062 adult patients, with 757 receiving Caldolor and 305 receiving placebo or a comparator medication. The data noted that the use of Caldolor improved post-surgery recovery, decreased surgical stress, and reduced the use of opioids and over-the-counter medication. The study determined that patients given Caldolor experienced less postoperative pain and decreased opioid use. Study authors also concluded that the rapid administration and preemptive use of Caldolor should be considered in Enhanced Recovery After Surgery protocols for the management of postoperative pain including that of traumatic origin.

### Joint Venture Agreement

In August 2020, Cumberland entered into an agreement with WinHealth Investment (Singapore) Ltd creating *WHC Biopharmaceuticals, Pte. Ltd*. The joint venture will focus on acquiring, developing, registering, and commercializing development stage and commercial stage biopharmaceuticals for China, Hong Kong and other Asian markets.

### Paycheck Protection Program

On April 20, 2020, Cumberland received the funding of a loan from Pinnacle Bank in the aggregate amount of $2,187,140 pursuant to the Paycheck Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was enacted March 27, 2020.

The PPP is administered by the U.S. Small Business Administration ("SBA"). The loan matures April 14, 2022, and bears interest at a rate of 1.0% per year, payable monthly commencing during November 2020.

The loan may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the loan are to be used to maintain payroll, continue group health care benefits and pay for rent and utilities.

Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, covered rent payments, and covered utilities. From the date of funding we have used the loan amount for such qualifying expenses.

We applied for this loan after carefully considering, with our bank, the eligibility criteria to participate in this program, and determining that Cumberland met these criteria. We evaluated and provided information on our payroll and other qualifying expenses to determine the amount of PPP funds to apply for.

Cumberland has not laid off or furloughed any employees as a result of the COVID-19 pandemic and, based on assistance from our PPP loan, we currently do not foresee doing so. In October 2020, we submitted a request for forgiveness of the PPP loan. The request was approved by the lender, Pinnacle Bank, who then submitted it to the SBA for the SBA's review and approval.

### Ifetroban Phase II Clinical Programs

We have been evaluating our ifetroban product candidate in a series of clinical studies. We have completed three pilot Phase II studies involving 1) patients suffering from Hepatorenal Syndrome, a life-threatening condition involving liver and kidney failure, 2) patients with Portal Hypertension associated with chronic liver disease and 3) patients suffering from Aspirin-Exacerbated Respiratory Disease, a severe form of asthma. A follow-up Phase II study is currently underway for this asthma indication.

In addition, we are currently evaluating ifetroban in two pilot Phase II studies of 1) patients with Systemic Sclerosis or scleroderma, a debilitating autoimmune disorder characterized by diffuse fibrosis of the skin and internal organs and 2) patients with cardiomyopathy associated with Duchenne Muscular Dystrophy. This rare, fatal, genetic neuromuscular disease results in deterioration of the skeletal, heart and lung muscles.

Additional pilot studies of ifetroban are underway, including several investigator-initiated trials.

Enrollment in our clinical studies was interrupted during 2020 due to the COVID-19 pandemic. While enrollment of new patients is currently limited, we are working to ensure that patients already entered into a trial continue to receive their study drug. Many of our clinical study sites have reopened and resumed screening of patients for potential enrollment into our studies. We are awaiting results from the studies underway before deciding on the best development path for the registration of ifetroban, our first new chemical entity.

### New Hospital Product Candidate

Cumberland was responsible for the formulation, development and FDA approval of both Acetadote and Caldolor. Our Medical Advisory Board has helped us identify additional opportunities that address unmet or poorly met medical needs. As a result, Cumberland has successfully designed, formulated and completed the preclinical studies for a cholesterol-reducing agent for use in the hospital setting.

During 2017, we completed a Phase I study which defined the pharmacokinetic properties and provided a favorable safety profile for this new product candidate. The study results and a proposed clinical development plan were discussed with the FDA. A Phase II study has been initiated and patient enrollment completed. We have completed the study report, filed it with the FDA and are now determining the next steps for this product development program.

### CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

Please see a discussion of our critical accounting policies and significant judgments and estimates in Note 1 to the Company's Condensed Consolidated Financial Statements accompanying this report and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Annual Report on Form 10-K.

### Accounting Estimates and Judgments

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. We base our estimates on past experience and on other factors we deem reasonable given the circumstances. Past results help form the basis of our judgments about the carrying value of assets and liabilities that cannot be determined from other sources. Actual results could differ from these estimates. These estimates, judgments and assumptions are most critical with respect to our accounting for revenue recognition, fair value of marketable securities, inventories, provision for income taxes, fair value of contingent consideration liability, share-based compensation, research and development expenses and intangible assets.

### RESULTS OF OPERATIONS

### Three months ended September 30, 2020 compared to the three months ended September 30, 2019

The following table presents the unaudited interim statements of operations for continuing operations for the three months ended September 30, 2020 and 2019:

|  | Three months ended September 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: |
| Net revenues | $9,250,689 | $6,935,439 | $2,315,250 |
| Costs and expenses: |  |  |  |
| Cost of products sold | 2,142,839 | 1,580,650 | 562,189 |
| Selling and marketing | 3,587,842 | 3,812,467 | (224,625) |
| Research and development | 1,230,335 | 1,672,843 | (442,508) |
| General and administrative | 2,381,273 | 2,032,129 | 349,144 |
| Amortization | 1,117,086 | 1,033,786 | 83,300 |
| Total costs and expenses | 10,459,375 | 10,131,875 | 327,500 |
| Operating income (loss) | (1,208,686) | (3,196,436) | 1,987,750 |
| Interest income | 12,004 | (50,511) | 62,515 |
| Interest expense | (75,210) | (64,877) | (10,333) |
| Income (loss) from continuing operations before income taxes | (1,271,892) | (3,311,824) | 2,039,932 |
| Income tax (expense) benefit | (3,728) | (4,462) | 734 |
| Net income (loss) from continuing operations | $(1,275,620) | $(3,316,286) | $2,040,666 |

The following table summarizes net revenues by product for the periods presented:

| Products: | Three months ended September 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: |
| Acetadote | $218,462 | $777,185 | $(558,723) |
| Omeclamox-Pak | 516,066 | 116,063 | 400,003 |
| Kristalose | 3,615,557 | 2,924,237 | 691,320 |
| Vaprisol | 406,162 | 224,940 | 181,222 |
| Caldolor | 1,416,146 | 1,170,567 | 245,579 |
| Vibativ | 2,813,249 | 1,451,595 | 1,361,654 |
| Other revenue | 265,047 | 270,852 | (5,805) |
| Total net revenues | $9,250,689 | $6,935,439 | $2,315,250 |

*Net revenues.* Net revenues for the three months ended September 30, 2020, were $9.3 million compared to $6.9 million for the three months ended September 30, 2019. As detailed in the table above, net revenue increased for five of our marketed products: Vibativ, Kristalose, Omeclamox-Pak, Caldolor and Vaprisol during the quarter. We returned the exclusive rights to commercialize Ethyol and Totect in the United States to Clinigen effective January 1, 2020. As a result, the 2019 revenues and expenses associated with the products are combined and reclassified into discontinued operations in our financial statements. In exchange for the return of these product license rights and associated non-compete provisions, Cumberland is receiving $5 million in financial consideration paid over the two-years following the return date. The third installment of $0.8 million due from Clinigen was recorded during the three months ended September 30, 2020, as discontinued operations. We do not incur expenses associated with these payments from Clinigen.

Vibativ revenue was $2.8 million for the three months ended September 30, 2020, an increase of $1.4 million over the same period last year. The increase was a result of improved sales volumes.

Kristalose revenue increased by $0.7 million during the third quarter of 2020, when compared to the prior year period. The increase was primarily the result of increased sales volumes for the product.

Caldolor revenue was $1.4 million for the third quarter of 2020, an increase of $0.2 million compared to the same period last year. The improvement in net revenue was the result of an increase in international shipments of Caldolor when compared to the prior year period, which were partially offset by lower domestic shipments of the product.

Vaprisol revenue was $0.4 million for the third quarter of 2020, an increase of $0.2 million. This increase of net sales compared to the third quarter of 2019 is primarily due to increased sales volumes for the product.

Omeclamox-Pak revenue increased $0.4 million for the third quarter of 2020, compared to the third quarter of 2019, primarily due to an increase in sales volumes and improved net pricing.

Acetadote revenue includes net sales of our Acetadote brand and our share of net sales from our Authorized Generic. During the quarter, there was a decrease of $0.6 million in the product's revenue when compared to the prior year period as a result of lower sales volumes during the period.

*Cost of products sold.* Cost of products sold for the third quarter of 2020 and 2019 were $2.1 million and $1.6 million, respectively. Cost of products sold, as a percentage of net revenues, were 23.2% during the three months ended September 30, 2020, compared to 22.8% during the three months ended September 30, 2019. This change in costs of products sold as a percentage of revenue was attributable to a change in the product sales mix, particularly the increase in sales of Vibativ. The increase in Vibativ costs of product sold in the current period was $0.4 million due to increased product sales. The Vibativ inventory sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018. The increase in costs of product sold expense included $0.2 million that was the result of a step up in the fair value of the inventory over the cost to Theravance, as required under purchase accounting rules.

*Selling and marketing*. Selling and marketing expense for the third quarter of 2020 decreased $0.2 million compared to the prior year period. This decrease is primarily attributable to decreases in direct promotional spending, meeting costs and travel expenses. There were partially offsetting increases in royalty costs associated with growth in Vibativ sales during the current quarter.

*Research and development*. Research and development costs were $1.2 million for the third quarter of 2020 and $1.7 million for the same period last year. A portion of our research and development costs is variable based on the number of trials, study sites, cost of the per patient study protocol and patients involved in the development of our new product candidates. We continue to fund our ongoing clinical initiatives associated with our pipeline products. The decrease in costs were primarily the result of decreased study activity as well as decreases in the costs of our medical science liaison activities partially offset by increases in our annual FDA user fees.

*General and administrative*. General and administrative expense for the third quarter of 2020 increased to $2.4 million from $2.0 million during the third quarter of 2019 as a result of increases in business development, professional, legal and insurance costs. These increases were partially offset by decreases in non-cash stock based compensation during the period.

The components of the statements of operations discussed above reflect the following impacts from Vibativ:

| Financial Impact of Vibativ | Three months ended September 30, 2020 | 2019 |
| --- | ---: | ---: |
| Net revenue | $2,813,249 | $1,451,595 |
| Cost of products sold (1) | 945,066 | 524,664 |
| Royalty and operating expenses | 621,244 | 160,968 |
| Vibativ contribution | $1,246,939 | $765,963 |

(1) The Vibativ inventory included in the costs of product sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018.

*Amortization.* Amortization expense is the ratable use of our capitalized intangible assets including product and license rights, patents, trademarks and patent defense costs. Amortization for the three months ended September 30, 2020, and three months ended September 30, 2019, totaled approximately $1.1 million and $1.0 million, respectively.

*Income taxes*. Income tax expense for the three months ended September 30, 2020, was comparable to the income tax expense for the three months ended September 30, 2019.

As of September 30, 2020, we had approximately $44 million of net operating loss carryforwards resulting from the exercise of nonqualified stock options that have historically been used to significantly offset income tax obligations. We expect to continue to pay minimal income taxes during 2020 and beyond, through the continued utilization of these net operating loss carryforwards, on any taxable income generated from our operations.

### RESULTS OF OPERATIONS

### Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

The following table presents the unaudited interim statements of operations for continuing operations for the nine months ended September 30, 2020 and 2019:

|  | Nine months ended September 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: |
| Net revenues | $27,179,600 | $25,082,742 | $2,096,858 |
| Costs and expenses: |  |  |  |
| Cost of products sold | 6,387,002 | 5,031,732 | 1,355,270 |
| Selling and marketing | 11,160,924 | 11,231,778 | (70,854) |
| Research and development | 4,374,392 | 4,788,698 | (414,306) |
| General and administrative | 6,608,322 | 6,839,187 | (230,865) |
| Amortization | 3,284,610 | 3,085,139 | 199,471 |
| Total costs and expenses | 31,815,250 | 30,976,534 | 838,716 |
| Operating income (loss) | (4,635,650) | (5,893,792) | 1,258,142 |
| Interest income | 70,553 | 195,915 | (125,362) |
| Interest expense | (227,730) | (216,988) | (10,742) |
| Income (loss) from continuing operations before income taxes | (4,792,827) | (5,914,865) | 1,122,038 |
| Income tax (expense) benefit | (45,423) | 72,504 | (117,927) |
| Net income (loss) from continuing operations | $(4,838,250) | $(5,842,361) | $1,004,111 |

The following table summarizes net revenues by product for the periods presented:

| Products: | Nine months ended September 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: |
| Acetadote | $1,527,173 | $2,608,160 | $(1,080,987) |
| Omeclamox-Pak | 640,435 | 794,205 | (153,770) |
| Kristalose | 10,387,046 | 9,720,434 | 666,612 |
| Vaprisol | 790,817 | 724,143 | 66,674 |
| Caldolor | 3,677,434 | 3,543,166 | 134,268 |
| Vibativ | 8,551,125 | 6,156,653 | 2,394,472 |
| Other revenue | 1,605,570 | 1,535,981 | 69,589 |
| Total net revenues | $27,179,600 | $25,082,742 | $2,096,858 |

*Net revenues.* Net revenues for the nine months ended September 30, 2020, were $27.2 million compared to $25.1 million for the nine months ended September 30, 2019. As detailed in the table above, net revenue increased during the first nine months of 2020 for four of our marketed products: Vibativ, Kristalose, Caldolor and Vaprisol. This resulted in an overall 8.4% revenue increase partially offset by decreases in our other two products. We returned the exclusive rights to commercialize Ethyol and Totect in the United States to Clinigen effective January 1, 2020. As a result, the 2019 revenues and expenses associated with the products are combined and reclassified into discontinued operations in our financial statements. In exchange for the return of these product license rights and associated non-compete provision, Cumberland is receiving $5 million in financial consideration paid over the two-years following the return date. The first three installments totaling $2.3 million due from Clinigen was recorded during the nine months ended September 30, 2020, as discontinued operations. We do not incur expenses associated with these payments from Clinigen.

Vibativ revenue was $8.6 million for the nine months ended September 30, 2020, an increase of $2.4 million over the same period last year. The 38.9% increase in net revenue was a result of improved sales volume for the product.

Kristalose revenue was $10.4 million during the first nine months of 2020, an increase of $0.7 million for the same period last year. The 7% increase in net revenue was a result of improved sales volume for the product.

Vaprisol revenue was $0.8 million for the first nine months of 2020, which is an increase of net sales of $0.1 million compared to the first nine months of 2019 primarily due to increased sales volumes.

Omeclamox-Pak revenue decreased $0.2 million for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily due to a decrease in sales volumes.

Acetadote revenue includes net sales of our Acetadote brand and our share of net sales from our Authorized Generic. There was a decrease of $1.1 million in the product's year to date revenue for the nine months ended September 30, 2020, when compared to the prior year period as a result of lower sales volumes, partially offset by improved net pricing.

Caldolor revenue was $3.7 million for the first three quarters of 2020, an increase of $0.1 million compared to the same period last year. The 4% improvement in net revenue was the result of an increase in international shipments of Caldolor when compared to the prior year period, which were partially offset by lower domestic shipments of the product, significantly impacted by COVID - 19 and a reduction in elective surgeries.

*Cost of products sold.* Cost of products sold for the first nine months of 2020 and 2019 were $6.4 million and $5.0 million, respectively. Cost of products sold, as a percentage of net revenues, were 23.5% during the nine months ended September 30, 2020, compared to 20.1% during the nine months ended September 30, 2019. This change in costs of products sold as a percentage of revenue was attributable to a change in the product sales mix, particularly the increase in sales of Vibativ. The increase in Vibativ costs of product sold in the current period was $1.0 million due to increased product sales. The Vibativ inventory sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018. The increase in costs of product sold expense included $0.5 million that was the result of a step up in the fair value of the inventory over the cost to Theravance, as required under purchase accounting rules.

*Selling and marketing*. Selling and marketing expense for the nine months ended September 30, 2020 and 2019 were both $11.2 million. Overall, there was a small decrease in selling and marketing expenses, with decreases in direct promotional spending, meeting costs and travel expenses. These decreases were partially offset by increases in salaries as well as increases in royalty costs associated with growth in Vibativ sales during the period.

*Research and development*. Research and development costs were $4.4 million for the first nine months of 2020 and $4.8 million for the same period last year. A portion of our research and development costs is variable based on the number of trials, study sites, cost of the per patient study protocol and patients involved in the development of our new product candidates. We continue to fund our ongoing clinical initiatives associated with our pipeline products. We experienced a decrease in study activity offset by increases in our annual FDA user fees.

*General and administrative*. General and administrative expense for the nine months ended September 30, 2020, decreased to $6.6 million from $6.8 million during the nine months ended September 30, 2019 as a result of decreases in advisory, legal and professional fees. We also experienced a reduction in non-cash stock based compensation during the period. A portion of these decreased costs were for 2019 expenses related to our acquisition of Vibativ.

The components of the statements of operations discussed above reflect the following impacts from Vibativ:

| Financial Impact of Vibativ | Nine months ended September 30, 2020 | 2019 |
| --- | ---: | ---: |
| Net revenue | $8,551,125 | $6,156,653 |
| Cost of products sold (1) | 2,765,810 | 1,760,759 |
| Royalty and operating expenses | 1,325,199 | 1,033,900 |
| Vibativ contribution | $4,460,116 | $3,361,994 |

(1) The Vibativ inventory included in the costs of product sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018.

*Amortization.* Amortization expense is the ratable use of our capitalized intangible assets including product and license rights, patents, trademarks and patent defense costs. Amortization for the nine months ended September 30, 2020, and nine months ended September 30, 2019, totaled approximately $3.3 million and $3.1 million, respectively.

*Income taxes*. Income tax expense (benefit) for the nine months ended September 30, 2020, as a percentage of loss from continuing operations before income taxes, was 0.9%, compared to (1.2)% for the nine months ended September 30, 2019.

### LIQUIDITY AND CAPITAL RESOURCES

### Working Capital

Our primary sources of liquidity are cash flows provided by our operations, the proceeds from the Paycheck Protection Program loan, the amounts borrowed and available under our line of credit and the cash proceeds from our initial public offering of common stock that was completed in August 2009. We believe that our internally generated cash flows, existing working capital and our line of credit will be adequate to finance internal growth, finance business development initiatives, and fund capital expenditures for the foreseeable future.

We invest a portion of our cash reserves in marketable securities including short-term cash investments, U.S. Treasury notes and bonds, corporate bonds and commercial paper. At September 30, 2020 and December 31, 2019, all our investments had original maturities of less than ninety days and as a result were classified as cash equivalents.

The following table summarizes our liquidity and working capital as of September 30, 2020 and December 31, 2019:

|  | September 30, 2020 | December 31, 2019 |
| --- | ---: | ---: |
| Cash and cash equivalents | $26,646,530 | $28,212,635 |
| Marketable securities | — | — |
| Total cash, cash equivalents and marketable securities | $26,646,530 | $28,212,635 |
| Working capital (current assets less current liabilities) | $24,956,038 | $26,012,840 |
| Current ratio (multiple of current assets to current liabilities) | 2.0 | 2.1 |
| Revolving line of credit availability | $3,000,000 | $1,500,000 |

The following table summarizes our net changes in cash and cash equivalents for the nine months ended September 30, 2020 and September 30, 2019:

| Net cash provided by (used in): | Nine months ended September 30, 2020 | 2019 |
| --- | ---: | ---: |
| Operating activities | $4,561,140 | $2,199,356 |
| Investing activities | (1,441,768) | 394,733 |
| Financing activities | (4,685,477) | (3,554,625) |
| Net decrease in cash and cash equivalents | $(1,566,105) | $(960,536) |

The net $1.6 million decrease in cash and cash equivalents for the nine months ended September 30, 2020, was primarily attributable to cash used in investing and financing activities. Cash provided by operating activities of $4.6 million was positively impacted by decreases in inventory of $1.7 million, as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $4.3 million. Cash used by investing activities was the result of additions to intangibles of $1.8 million, equipment of $0.1 million and the payment of $1.0 million to Nordic. Our financing activities included the net repayment of $1.5 million on our revolving line of credit, the $1.6 million in cash used to repurchase shares of our common stock as well as the $0.8 million used for the repurchase of a portion of CET's shares.

The net $1.0 million decrease in cash and cash equivalents for the nine months ended September 30, 2019 was attributable to cash used in financing activities, partially offset by the $2.2 million and the $0.4 million in cash provided by operating and investing activities, respectively. Cash provided by operating activities of $2.2 million was positively impacted by the decrease in inventory as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $4.4 million. Cash provided by investing activities was increased by net sales of marketable securities of $6.1 million, partially offset by the $5.0 million payment to Theravance as part of the acquisition of Vibativ and the additions to intangibles of $0.5 million. Our financing activities reflected the $2.6 million in cash used to repurchase shares of our common stock.

### Debt Agreement

On October 7, 2020, we entered into a Fourth Amendment (“Fourth Amendment”) to the Revolving Credit Loan Agreement with Pinnacle Bank (the “Pinnacle Agreement”). The Fourth Amendment extends the maturity date of the Pinnacle Agreement through October 1, 2022 and provides for a principal available for borrowing of up to $15 million. We also have the ability to request an increase of up to an additional $5 million, upon the satisfaction of certain conditions and approval by Pinnacle Bank. If fully expanded, the Fourth Amendment would provide a maximum principal available for borrowing of up to $20 million. On May 10, 2019, we entered into a third amendment ("Third Amendment") to the Revolving Credit Loan Agreement, dated July 28, 2017, with Pinnacle Bank (“Pinnacle Agreement”). The Third Amendment extended the term of the Pinnacle Agreement through July 31, 2021, as well as modified certain definitions and terms of the existing financial covenants. On October 17, 2018, we entered into a second amendment (“Second Amendment”) which increased the maximum aggregate principal available for borrowing under the Pinnacle Agreement to $20.0 million. For a summary of the material terms of the Pinnacle Agreement, as amended, see Note 7 to the accompanying unaudited condensed consolidated financial statements.

Under the Pinnacle Agreement, we were initially subject to one financial covenant, the maintenance of a Funded Debt Ratio. On August 14, 2018, we amended the Pinnacle Agreement ("First Amendment") to replace the single financial covenant with the maintenance of either the Funded Debt Ratio or a Tangible Capital Ratio, as defined in the First Amendment. The Third Amendment modified the definition of the Funded Debt Ratio and the compliance target of the Tangible Capital Ratio. Both Third Amendment modifications were related to the Vibativ transaction. We were in compliance with the Tangible Capital Ratio financial covenant as of September 30, 2020. We expect to maintain compliance with the Tangible Capital Ratio financial covenant in future periods.

### Paycheck Protection Program Loan

On April 20, 2020, Cumberland received the funding of a loan from Pinnacle Bank in the aggregate amount of $2,187,140 pursuant to the Paycheck Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was enacted March 27, 2020. For a summary of the material terms of the Paycheck Protection Program loan, see Note 7 to the accompanying unaudited condensed consolidated financial statements.

Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, covered rent payments, and covered utilities. From the date of funding we have used the loan amount for such qualifying expenses.

Cumberland has not laid off or furloughed any employees as a result of the COVID-19 pandemic and, based on assistance from our PPP loan, we currently do not foresee doing so. In October 2020, we submitted a request for forgiveness of the PPP loan. The request was approved by the lender, Pinnacle Bank, who then submitted it to the U.S. Small Business Administration ("SBA") for the SBA's review and approval.

### OFF-BALANCE SHEET ARRANGEMENTS

During the nine months ended September 30, 2020 and 2019, we did not engage in any off-balance sheet arrangements.

## Market risk

As filed, 2,363 characters.

### Interest Rate Risk

We are exposed to market risk related to changes in interest rates on our cash on deposit in highly-liquid money market accounts and our revolving credit facility. We do not utilize derivative financial instruments or other market risk-sensitive instruments to manage exposure to interest rate changes. The main objective of our cash investment activities is to preserve principal while maximizing interest income through low-risk investments.

We believe that our interest rate risk related to our cash and cash equivalents is not material. The risk related to interest rates for these accounts would produce less income than expected if market interest rates fall. Based on current interest rates, we do not believe we are exposed to significant downside risk related to a change in interest on our money market accounts. The Company did not have any investments classified as marketable securities at September 30, 2020. Based on current interest rates, we do not believe we are exposed to significant downside risk related to change in interest on our investment accounts.

The interest rate risk related to borrowings under our line of credit is based on LIBOR plus an interest rate spread. The pricing under the Fourth Amendment of the Pinnacle Agreement provides for an interest rate spread of 1.75% to 2.75% above LIBOR with a minimum LIBOR of 0.90%. The applicable interest rate under the Pinnacle Agreement was 2.90% at September 30, 2020, prior to entering into the Fourth Amendment. As of September 30, 2020, we had $17.0 million in borrowings outstanding under our revolving credit facility.

### Exchange Rate Risk

While we operate primarily in the United States, we are exposed to foreign currency risk. Currently, we do not utilize financial instruments to hedge exposure to foreign currency fluctuations. We believe our exposure to foreign currency fluctuation is minimal as our purchases in foreign currency have a maximum exposure of 90 days based on invoice terms with a portion of the exposure being limited to 30 days based on the due date of the invoice. Foreign currency exchange gains and losses were immaterial for the nine months ended September 30, 2020 and 2019. Neither a five percent increase nor decrease from current exchange rates would have a material effect on our operating results or financial condition.

## Controls and procedures

As filed, 973 characters.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’s management has concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

During the three months ended September 30, 2020, there has not been any change in our internal control over financial reporting that has materially affected, or is likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 6,511 characters.

We are updating the following risk factor that appears in the 2019 Annual Report on Form 10-K under the section titled "Risk Factors."

### RISKS RELATED TO OUR BUSINESS

*If any manufacturer or partner we rely upon fails to supply our products in the amounts we require on a timely basis, or fails to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may be unable to meet demand for our products and may lose potential revenues.*

We do not manufacture any of our products, and we do not currently plan to develop any capacity to do so. Our dependence upon third parties for the manufacture of our products could adversely affect our profit margins or our ability to develop and deliver products on a timely and competitive basis. If for any reason we are unable to obtain or retain third-party manufacturers on commercially acceptable terms, we may not be able to sell our products as planned. Furthermore, if we encounter delays or difficulties with contract manufacturers in producing our products, the distribution, marketing and subsequent sales of these products could be adversely affected. A long-term inability to meet demand for our products could result in impairment of our brands overall future and the carrying value of the assets associated with our brands. The recent COVID-19 pandemic may create local issues for our third party-manufacturers and introduce delays in our manufacturing process.

*Acetadote*: We have agreements with two manufacturers, and one manufacturer provided commercial supplies of the product during 2019. If the manufacturer of Acetadote is unable to produce marketable inventory in sufficient quantities, in the agreed upon time period, we could suffer an inability to meet demand for our product.

*Caldolor*: We have agreements with multiple manufacturers for the supply of Caldolor and during 2019 we obtained commercial supplies from three of these manufacturers for our international and domestic Caldolor requirements. If the manufacturers of Caldolor are unable to produce marketable inventory in sufficient quantities, in the agreed upon time period, we could suffer an inability to meet demand for our product.

*Kristalose*: The active pharmaceutical ingredient for Kristalose is manufactured at a single facility by an international supplier. We also have manufacturing relationships with two packagers who provided finished supplies of the product for commercial and sampling purposes during 2019. If these facilities are damaged or destroyed, or if local conditions result in a work stoppage, we could suffer an inability to meet demand for our product. Kristalose is manufactured through a complex process. It would be particularly difficult to find a new manufacturer of Kristalose active pharmaceutical ingredient on an expedited basis. As a result of these factors, our ability to manufacture Kristalose may be substantially impaired if the manufacturer is unable or unwilling to supply sufficient quantities of the product.

*Omeclamox-Pak*: Prior to our asset purchase agreement with GEL that closed in December 2018, GEL managed the packaging and supply of Omeclamox-Pak commercial and sample units. Following our acquisition of the remaining rights to the brand in late 2018, we assumed responsibility for the packaging and supply of the product. During 2019 we entered into a new packaging arrangement for this product. The Company has been carefully monitoring its supply chain during the pandemic and preparing for its economic impact. The packager for Cumberland’s Omeclamox-Pak product encountered financial difficulties due to the impact of COVID-19, and their operations are currently suspended. Cumberland is awaiting resumption of those operations while also exploring other alternatives to restart the product’s packaging. Meanwhile, we informed the FDA of a shortage of the Omeclamox-Pak effective October 14, 2020, and have not provided a date for the availability of new inventory. Cumberland noted that there is currently some remaining inventory of the product in the distribution channels. If we are unable to obtain marketable inventory in the future, we could suffer an inability to meet demand for our product.

*Vaprisol*: As part of the acquisition of Vaprisol, we purchased an existing supply of raw material inventory. In addition, as part of this transaction, we were assigned a commercial supply agreement with the historical Vaprisol manufacturer. In 2018, the manufacturer informed us that they would no longer be able to provide the product following the manufacturing of one final batch which is expected to provide us with a multi-year supply. Therefore, we are evaluating alternatives for a new manufacturer to provide us with long term supplies of the product. If we are unable to produce additional marketable inventory in sufficient quantities of Vaprisol, we could suffer an inability to meet demand for our product.

*Vibativ*: Through our acquisition of Vibativ, we acquired a multi-year supply of raw material, work in process and finished goods inventory. As a result of the agreement, we are now responsible for the future manufacture of the product and completed the transfer of the product’s manufacturing activities to a new supplier in 2019. If we are unable to obtain marketable inventory in the future, we could suffer an inability to meet demand for our product.

*RediTrex*: Under our agreement with Nordic, they will be responsible for providing us the packaged and labeled commercial supply of the RediTrex product. If we are unable to obtain marketable inventory in the future, we could suffer an inability to meet demand for our product.

In addition, all manufacturers of our products and product candidates must comply with current good manufacturing practices, ("GMPs"), enforced by the FDA through its facilities inspection program. These requirements include quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our products may be unable to comply with GMP requirements and with other FDA, state and foreign regulatory requirements.

We have no control over our manufacturers’ compliance with these regulations and standards. If our third-party manufacturers do not comply with these requirements, we could be subject to:

- Fines and civil penalties;
- Suspension of production or distribution;
- Suspension or delay in product approval;
- Product seizure or recall; and
- Withdrawal of product approval.

Filed Nov 13, 2020.
Source: SEC EDGAR, the filing index for accession 0001628280-20-016446. Last ingested by Listed: Nov 11, 2026, 03:05 ET. No prices; not investment advice.