Cumberland Pharmaceuticals Inc: Form 10-Q for the period ended Sep 30, 2023

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 generally unpredictable conditions in national and international markets. 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, 2022, and our 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 pharmaceutical products. We are dedicated to our mission of working together to provide unique products that improve the quality of patient care.

Our primary markets are hospital acute care, gastroenterology and oncology. These medical specialties are characterized by relatively concentrated prescriber bases that we believe can be served effectively by small, targeted sales forces. We promote our approved products through our hospital, oncology and field sales forces in the United States. We have also established international partnerships and are continuing to build a network of companies outside the U.S. to register and provide 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 constipation;
• **Omeclamox®-Pak, (**omeprazole, clarithromycin, amoxicillin) for the treatment of Helicobacter pylori (H. pylori) infection and related duodenal ulcer disease;
• **Sancuso® (**granisetron) transdermal system, for the prevention of nausea and vomiting in patients receiving certain types of chemotherapy treatment;
• **Vaprisol® (**conivaptan) injection, to raise serum sodium levels in hospitalized patients with euvolemic and hypervolemic hyponatremia; and
• **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.

In addition to these commercial brands, we have Phase II clinical programs underway evaluating our ifetroban product candidates for patients with cardiomyopathy associated with 1) Duchenne Muscular Dystrophy (“DMD”), a fatal, genetic neuromuscular disease and 2) Systemic Sclerosis (“SSc”) or scleroderma, a debilitating autoimmune disorder characterized by fibrosis of the skin and internal organs. In June 2023, we received FDA clearance to proceed directly to a Phase II study for patients with Idiopathic Pulmonary Fibrosis, the most common form of progressive fibrosing interstitial lung disease. We are now entering into agreements with medical centers around the country and look forward to initiating the trial.

Cumberland has built core competencies in the acquisition, development and commercialization of pharmaceutical products in the U.S. – and we believe we can leverage this existing infrastructure to support our continued growth both domestically and internationally. Our management team consists of pharmaceutical industry veterans with experience 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 our FDA submissions and staffs our medical call center. Our quality and manufacturing professionals oversee the manufacturing, release and shipment of our products. Our marketing and sales organization is responsible for our commercial activities, and we work closely with our distribution partners to ensure the availability and delivery of our products.

GROWTH STRATEGY

Cumberland’s growth strategy involves maximizing the success of our existing brands while continuing to add differentiated products. We have built our portfolio of FDA approved products through both development and acquisition. We are also continuing to establish international partnerships to bring our medicines to patients in other countries. Additionally, we look for opportunities to expand our products into new patient populations through clinical trials, improved presentations and our support of select, investigator-initiated studies. We actively pursue opportunities to acquire additional marketed products, as well as late-stage development product candidates in our target medical specialties. Our clinical team is developing a pipeline of new product candidates to address poorly met medical needs.

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 support the progress of promising new product candidates, which Cumberland could further develop and commercialize.

Specifically, we are seeking long-term sustainable growth by:

• Supporting and expanding 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. For example, we have secured pediatric approval of Acetadote and Caldolor and expanded the labeling for both brands accordingly. We also added pre-surgery dosing for Caldolor, and recently included newborns to the patients who can benefit from the product. We will continue to explore such opportunities to bring our products to new patient populations.
• Selectively adding complementary brands. In addition to our product development activities, we are also seeking to acquire products or 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 can improve patient care. 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 acquisitions of Vibativ and Sancuso are examples of the implementation of this strategy.
• Progressing our clinical pipeline and incubating future product opportunities at CET. We believe it is important to build a pipeline of innovative new product opportunities, as we are doing though our ifetroban Phase II development programs. We are also supplementing our acquisitions and late-stage development activities with early-stage drug development activities with CET.
• Leveraging our infrastructure through co-promotion partnerships. We believe that our commercial infrastructure can help drive prescription volume and product sales. We look for strategic partners that can complement our capabilities and enhance opportunities for our brands. For example, our co-promotion partnerships have allowed us to expand the support for Kristalose across the U.S.
• Building an international contribution to our business. We have established our own commercial capabilities, including three sales divisions, to cover the U.S. market for our products. We are also building a network of select international partners to register our products and make them available to patients in their countries. We will continue to develop and expand our network of international partners while supporting our partners’ registration and commercialization efforts in their respective territories. The acquisition of Vibativ resulted in several new international partners and market opportunities.
• Managing our operations with financial discipline. We continually work to manage our expenses in line with our revenues to deliver positive cash flow from operations. We remain in a strong financial position, with favorable gross margins and a strong balance sheet.

RECENT DEVELOPMENTS

New Vibativ Pediatric Study Publication

In October 2023, we announced a new publication in Antimicrobial Agents and Chemotherapy detailing the results of the first clinical study investigating the safety and pharmacokinetics of our Vibativ injection in children 2 to 17 years of age. Vibativ is an intravenous antibiotic approved by the FDA for the treatment of hospital-acquired and ventilator-associated bacterial pneumonia as well as complicated skin and skin structure infections caused by certain gram-positive bacteria in adults. This is the first reported study evaluating Vibativ in pediatric patients.

Antimicrobial resistance poses a significant challenge in the treatment of bacterial infections, necessitating the development of new antibiotic therapies. The results of this study suggest that a single dose of Vibativ is safe in children and they experience reduced exposure to Vibativ, compared with the same body weight-based dosing in adults.

New Bank Credit Facility

On September 5, 2023, Cumberland entered into a new Revolving Credit Loan Agreement with Pinnacle Bank for a three-year term. The agreement provides for an aggregate principal funding amount of up to $25 million. It provides an initial revolving credit line with $20 million of availability, and the ability of Cumberland to increase the amount to $25 million under certain conditions. The interest rate is based on Benchmark (Term SOFR), plus a spread of 2.75%, and is subject to one financial covenant, the maintenance of a Funded Debt Ratio, determined on a quarterly basis.

Federal NOPAIN Act

We announced in April 2023 that we expect that our Caldolor injection product will be eligible for special Medicare reimbursement under the Non-Opioids Prevent Addiction in the Nation Act (the “NOPAIN Act”), which was enacted as part of the Consolidated Appropriations Act of 2023.

The NOPAIN Act requires Medicare to provide separate reimbursement for non-opioid products that are used to manage pain during surgeries conducted in hospital outpatient departments or in ambulatory surgical centers. The NOPAIN Act applies, in part, to products that are indicated to provide analgesia without acting upon the body’s opioid receptors. As a result, we expect that the NOPAIN Act will affect Medicare reimbursement for Caldolor, our non-opioid analgesic injection product.

The reimbursement for non-opioid pain alternatives under the NOPAIN Act will apply to those products that are furnished between January 1, 2025 and January 1, 2028. It is anticipated that in 2024, the Centers for Medicare & Medicaid Services (CMS) will issue regulations implementing the NOPAIN Act and detailing the conditions for, and amount of, the separate reimbursement.

In the Medicare Hospital Outpatient Prospective Payment System Proposed Rule, the CMS requested that manufacturers with potentially applicable non-opioid products submit comments and supporting clinical evidence regarding products that should be eligible for separate payment. We submitted a comment letter along with the requisite clinical information to the CMS in September 2023 explaining why Caldolor should be included and separately reimbursed.

Caldolor is approved by the FDA for use in adults and pediatric patients 3 months and older for the management of mild to moderate pain as a sole therapy, and for the management of moderate to severe pain as an adjunct to an opioid. A series of published clinical studies have demonstrated that Caldolor significantly reduces patient pain, while also significantly reducing patients’ need for opioids.

Ifetroban Clinical Studies

We have been evaluating our ifetroban product candidate, a selective thromboxane-prostanoid receptor antagonist, in a series of clinical studies. It has been dosed in nearly 1,400 subjects and has been found to be safe and well tolerated in healthy volunteers and various patient populations. Patient enrollment is well underway in two company sponsored Phase II clinical programs to evaluate ifetroban in Systemic Sclerosis or scleroderma, a debilitating autoimmune disorder characterized by diffuse fibrosis of the skin and internal organs; and the Cardiomyopathy associated with Duchenne Muscular Dystrophy (“DMD”), a rare and fatal genetic neuromuscular disease that results in deterioration of the skeletal, heart and lung muscles.

Cumberland is sponsoring the FIGHT DMD™ trial, a multicenter, randomized, placebo-controlled Phase II study evaluating the safety, pharmacokinetics and efficacy of two doses of oral ifetroban for the treatment of the cardiomyopathy associated DMD. The trial is evaluating 12 months of oral ifetroban in 24 subjects with early-stage cardiomyopathy and 24 subjects with advanced-stage heart disease across 10 U.S. centers that specialize in DMD cardiomyopathy. The safety and efficacy endpoints include left ventricular ejection fraction using cardiac MRI, pulmonary function, quantitative muscle strength, daily activity and quality of life measures.

The FDA Orphan Product Division awarded Cumberland $1 million in funding under its Orphan Products Grants Program to support this trial. This was the first DMD trial awarded such funding.

In June 2023, we presented results from an interim analysis for the FIGHT DMDTM trial at the 29th annual Parent Project Muscular Dystrophy Conference in Dallas, Texas. The interim analysis was conducted on data from 25 patients with DMD who completed six of the 12 total months of treatment and assessments. Both doses of ifetroban were reported well tolerated in DMD participants ages 7 years of age or older. There was also a positive trend in leg muscle strength, but no statistically significant differences have been identified at this point.

In May 2023, we announced that the FDA has cleared the Investigational New Drug Application for a Phase II study in patients with Idiopathic Pulmonary Fibrosis (“IPF”), the most common form of progressive fibrosing interstitial lung disease. As a result, we are initiating our FIGHTING FIBROSIS trial designed to enroll 128 patients in over 20 medical centers of excellence across the U.S. This Phase II clinical trial will study the safety, tolerability and efficacy of oral ifetroban in patients with IPF. Recent studies have shown ifetroban can both prevent and enhance resolution of lung fibrosis in multiple preclinical models.

We have also completed Phase II clinical programs with ifetroban in patients with Hepatorenal Syndrome, Portal Hypertension and Aspirin Exasperated Respiratory Disease. Additional preclinical and pilot clinical studies of ifetroban are underway, including several investigator-initiated trials.

Our plan going forward is to complete each of our Company-sponsored studies, analyze their final data, announce top-line results and decide on the best development path for the registration of ifetroban, which we continue to believe has the potential to benefit many patients with orphan diseases that represent unmet medical needs.

Sancuso Acquisition and Approval of New Manufacturing Plant

In early 2022, Cumberland acquired the U.S. rights to the FDA-approved oncology-supportive care medicine Sancuso from Kyowa Kirin, Inc., the U.S. affiliate of Japan-based Kyowa Kirin Co., Ltd. Sancuso is the first and only FDA-approved prescription patch for the prevention of nausea and vomiting in patients receiving certain types of chemotherapy treatment. We assumed commercial responsibility for the product in the U.S. – including its marketing, promotion, distribution, manufacturing and medical support activities – early last year and, as of September 2023, have fully completed the transition of Sancuso to Cumberland. In late 2022, the FDA approved moving the product’s manufacturer to a new facility, and the production of supplies for Cumberland at that plant is planned for the fourth quarter of 2023.

In June 2023, we launched an expanded oncology sales division comprised of both field-based and inside sales personnel to feature the product.

International Agreements

During the third quarter of 2022, we signed a new agreement with PiSA Pharmaceutical (“PiSA”) for the exclusive supply and distribution of our ibuprofen injection product in Mexico. Cumberland will be responsible for sharing the U.S. dossier and providing product supply, while PiSA will be responsible for obtaining the regulatory approval and then commercializing the product in Mexico. PiSA expects to provide the product in both 400- and 800-milligram vials.

Meanwhile, we continue to support our international partners in their efforts to register our Vibativ brand in their countries.

In late 2022, we announced a new partnership with Saudi Arabia-based Tabuk Pharmaceutical to introduce Vibativ into the Middle East. The arrangement provides Tabuk exclusive rights to distribute Vibativ in Saudi Arabia and Jordan, with the option to expand into other countries in the region. Tabuk is in the process of updating the Vibativ registration in Saudi Arabia with new manufacturing information as they also prepare for the launch in that country.

Also in 2022, we entered into an agreement with D.B. Pharm to register and commercialize our Vibativ product in South Korea. D.B. Pharm also distributes our Caldolor product in South Korea. They filed for the approval of Vibativ in November 2022 and we have been supporting their efforts through the review process of their application there.

Meanwhile, our Vibativ partner for the Chinese market, SciClone Pharmaceuticals, had their approval application in China accepted for review in September 2021. We have since been supporting SciClone and their requests associated with the review of that submission. They are working toward the approval and believe that there is significant potential for Vibativ in their country.

Vaprisol Supply Update

Demand for our Vaprisol product increased in 2020 during the pandemic, and we worked to support the expanded use of the product in hospitals and clinics during the health care crisis. During 2021, we shipped all remaining inventory of the product and notified the FDA that supplies of the product are not currently available. We have since transferred the manufacturing of the product to a new facility. Our new manufacturing partner, Nephron Pharmaceuticals (“Nephron”), is working with the FDA to address several Form 483 and warning letter issues in a timely manner.

Meanwhile, we are working with Nephron to provide interim supplies of a special compounded conivaptan product to the market in support of critically ill patients. The companies will share in the sales of this compounded product, which is expected to be manufactured and released in the fourth quarter of 2023. We then expect to file for the approval to manufacture branded Vaprisol once all FDA issues at the Nephron site are resolved.

SEC Settlement

On September 27, 2023, the U.S. Securities and Exchange Commission (the “SEC”) finalized the settlement of an administrative proceeding involving certain instances where some directors and officers of the Company were late in filing public reports regarding changes in their stock ownership pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the Company did not make the needed disclosure concerning these late filings in its Annual Report on Form 10-K as outlined in Item 405 of Regulation S-K. Without admitting or denying the allegations, the Company agreed to pay a $200,000 civil penalty to the SEC and to commit to the timely filing of such needed disclosures in the future. The Company does not expect this matter to materially impact its business or operations.

Omeclamox-Pak Supply Update

The packager for Omeclamox-Pak encountered financial difficulties in 2020 due to the impact of the COVID-19 pandemic, and their operations were suspended. As a result, we depleted our inventory of the product and notified the FDA that it is currently unavailable. We are awaiting availability of those operations, while also exploring other alternatives to restart the product’s packaging.

Summary

We remain committed to our mission of working together to provide unique products that improve the quality of patient care.

To fulfill this mission we are building a portfolio of innovative and differentiated products through a multifaceted strategy that includes the development of new candidates as well as the acquisition of established brands. Our resulting, diversified product line has enabled us to weather external challenges while our team remains responsive to the evolving market. We are prepared for and look forward to future opportunities to carry out our mission throughout the remainder of the year.

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 2022 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. The Company's most significant estimates include: (1) its allowances for chargebacks and accruals for rebates and product returns, (2) the allowances for obsolescent or unmarketable inventory and (3) valuation of contingent consideration liabilities associated with business combinations.

RESULTS OF OPERATIONS

Three months ended September 30, 2023 compared to the three months ended September 30, 2022

The following table presents the unaudited interim statements of operations for continuing operations for the three months ended September 30, 2023 and 2022:

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

Net revenues. Net revenues for the three months ended September 30, 2023, were $10.1 million compared to $11.4 million for the three months ended September 30, 2022. As noted in the table above, net revenue increased during the quarter for three of our marketed products: Vibativ, Caldolor and Acetadote.

Kristalose revenue of $3.9 million for the third quarter of 2023, ended the quarter at the same level as the prior year period.

Acetadote revenue includes net sales of our Acetadote brand and our share of net sales from our Authorized Generic. During the third quarter of 2023, there was an increase of $0.02 million in the product's revenue when compared to the prior year period due to an increase in shipments.

There was no Vaprisol revenue for the third quarter of 2023 as Cumberland is currently out of inventory of the product. We await FDA approval on a new manufacturer.

Caldolor revenue was $1.2 million for the third quarter of 2023, which was $0.2 million higher than the third quarter of 2022 primarily due to increased international shipments.

Vibativ revenue was $2.8 million for the three months ended September 30, 2023, an increase of $0.9 million from the same prior year period. The increase in net revenue of the product was the result of successful implementation of a series of new initiatives in support of the brand as well as a decline in product returns.

Sancuso revenue was $1.9 million for the third quarter of 2023, compared to $4.0 million for the third quarter of 2022. The decline resulted primarily from deductions from sales including managed care rebates.

Omeclamox-Pak had no sales for the third quarter of 2023, as Cumberland is currently out of commercial inventory of this product. The packager for our Omeclamox-Pak product encountered financial difficulties in 2020. Net revenue for the three months ended September 30, 2023, reflects sales deduction adjustments.

There were no RediTrex sales in the third quarter of 2023, as Cumberland concluded our distribution of the product effective June 30, 2023. Net revenue for the three months ended September 30, 2023, reflects sales deduction adjustments.

Other revenue was $0.3 million for the three months ended September 30, 2023, compared to $0.5 million for the three months ended September 30, 2022.

Cost of products sold. Cost of products sold for the third quarter of 2023 and 2022 were $1.8 million and $2.2 million, respectively. Cost of products sold, as a percentage of net revenues, were 17.5% during the three months ended September 30, 2023, compared to 19.5% during the three months ended September 30, 2022. The improvement in cost of products sold is primarily due to the availability of new lower cost inventory and less inventory write-downs.

Selling and marketing. Selling and marketing expense for the third quarter of 2023 increased $0.6 million compared to the same period last year. This increase is primarily attributable to the timing of the expenditures.

Research and development. Research and development costs for the third quarter of 2023 and 2022 were $1.9 million and $1.7 million, respectively. A portion of our research and development costs is variable as we continue to fund the ongoing clinical initiatives associated with our pipeline product candidates. These variable costs depend on the number of active trials, study sites and patients as well as the cost per patient in each of our clinical programs. The larger research and development costs for the third quarter of 2023 resulted from an increase in these study costs.

General and administrative. General and administrative expense for the third quarter of 2023 was $2.3 million compared to $2.2 million for the same period in 2022. The increase was primarily due to the settlement of an administrative proceeding with the U.S. SEC.

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

(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.

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

(1) The Sancuso 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 2022.

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, 2023 and 2022, totaled approximately $1.2 million and $1.5 million, respectively. The decline in amortization expense resulted from adjustments to the useful life of Sancuso as determined by the valuation of the product in December 2022.

Income taxes. Income tax expense for the three months ended September 30, 2023, was comparable to the income tax expense for the three months ended September 30, 2022.

As of September 30, 2023, we had approximately $53.2 million in federal net operating loss carryforwards including 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 2023 and beyond, through the continued utilization of these net operating loss carryforwards, on any taxable income generated from our operations.

Other income. In the third quarter of 2023, we recognized a gain of $0.5 million to settle a manufacturing dispute and a $0.3 million for a payout earned on a company owned insurance policy.

RESULTS OF OPERATIONS

Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

The following table presents the unaudited interim statements of operations for continuing operations for the nine months ended September 30, 2023 and 2022:

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

Net revenues. Net revenues for the nine months ended September 30, 2023, were $30.2 million compared to $32.9 million for the nine months ended September 30, 2022, a decrease of $2.7 million.

Kristalose revenue was $12.3 million during the first nine months of 2023, compared to $11.4 million for the prior year period. Revenue increased due to an overall increase in units shipped during 2023.

Sancuso revenue was $5.7 million for the nine months ended September 30, 2023, compared to $10.8 million for the same period last year. The decline resulted primarily from deductions from sales including product returns and managed care rebates.

Vibativ revenue was $6.8 million for the nine months ended September 30, 2023, compared to $6.0 million for the same period last year. The increase in net revenue of the product was the result of successful implementation of a series of new initiatives in support of the brand as well as a decline in product returns.

There was no Vaprisol revenue for the first nine months of 2023 as Cumberland is currently out of commercial inventory of the product. Net revenue was positively impacted by various sales adjustments.

Omeclamox-Pak had no sales for the nine months ended September 30, 2023, as Cumberland is currently out of commercial inventory of this product. The packager for our Omeclamox-Pak product encountered financial difficulties and currently is under new management and a reorganization.

Acetadote revenue includes net sales of our Acetadote brand and our share of net sales from our Authorized Generic. There was a $0.1 million increase in the product's revenue for the nine months ended September 30, 2023, when compared to the prior year period as a result of a decrease in product returns in 2023.

Caldolor revenue was $3.3 million for the first three quarters of 2023, a $0.2 million increase over 2022. Higher international revenue is driving the increase.

Other revenue was $1.8 million for the nine months ended September 30, 2023, representing a $0.5 million increase from the same period in 2022, as a result of two milestone payments recognized in 2023.

Cost of products sold. Cost of products sold for the first nine months of 2023 were $4.5 million, a decrease of $1.9 million compared to the same period last year due to the availability of new lower cost inventory and fewer inventory write downs.

Selling and marketing. Selling and marketing expense for the nine months ended September 30, 2023, increased $0.4 million compared to the prior year period. This increase is primarily attributable to the timing of the expenditures.

Research and development. Research and development costs were $4.6 million for the first nine months of 2023 compared to $5.3 million for the same period last year. The primary reason for this decline is $0.7 million in reduced FDA fees. A portion of our research and development costs is variable as we continue to fund the ongoing clinical initiatives associated with our pipeline product candidates. These variable costs depend on the number of active trials, study sites and patients as well as the cost per patient in each of our clinical programs.

General and administrative. General and administrative expense for the nine months ended September 30, 2023, increased to $7.2 million compared to $6.7 million during the nine months ended September 30, 2022. In 2023, we experienced an increase in deferred compensation, hiring expenses and the settlement of an administrative proceeding with the U.S. SEC.

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

(1) 2023 net revenue includes a $1,000,000 payment to Cumberland related to a settlement agreement of milestone payments.

(2) 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.

(1) Net revenue includes a $1,000,000 payment to Cumberland related to a settlement agreement of milestone payments.

(2) 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.

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

(1) The Sancuso 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 2022.

(1) The Sancuso 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 2022.

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, 2023, and nine months ended September 30, 2022, totaled approximately $3.6 million and $4.6 million, respectively. The decrease was attributable to the valuation of the Sancuso acquisition completed in December 2022.

Income taxes. Income tax expense for the nine months ended September 30, 2023, was $0.02 million, similar to the income tax expense recognized for the nine months ended September 30, 2022.

Other income. In 2023, we recognized a $2.8 million refund of FDA fees for the periods of 2022 and 2023 to further the development of our new product candidates. We recognized a gain of $0.5 million in the third quarter of 2023 associated with a manufacturing dispute settlement as well as expected proceeds of $0.3 million for a payout associated with a company owned insurance policy.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital

Our primary sources of liquidity are cash equivalents, cash flows from operations and the amounts borrowed under our line of credit. 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.

The following table summarizes our liquidity and working capital as of September 30, 2023 and December 31, 2022:

The following table summarizes our net changes in cash and cash equivalents for the nine months ended September 30, 2023 and September 30, 2022:

The net $1.3 million decrease in cash and cash equivalents for the nine months ended September 30, 2023, was primarily attributable to cash used in investing and financing activities partially offset by cash provided by operating activities.

Cash provided by operating activities totaled $5.1 million for the nine months ended September 30, 2023, primarily the result of the add backs of non-cash expenses including depreciation, amortization and share-based compensation expense totaling $4.0 million. It also resulted from a decrease of accounts receivable of $0.9 million, a decrease in inventory of $0.4 million and an increase of net accounts payable and other current liabilities of $1.9 million. It was partially offset by a decrease in non-cash contingent consideration of $1.0 million, an increase in other assets of $0.4 million and a decrease of $0.3 million in other long-term liabilities.

Cash used in investing activities of $0.4 million for the nine months ended September 30, 2023, was the result of additions to property and equipment and intangibles.

Financing activities use of cash totaled $5.9 million for the nine months ended September 30, 2023, and included the repayments on our line of credit of $3.3 million, the $0.6 million in cash used to repurchase shares of our common stock and the $2.1 million used for the payment of a Sancuso milestone, plus royalties on sales of Vibativ and Sancuso.

The $7.5 million decrease in cash and cash equivalents for the nine months ending September 30, 2022, was primarily attributable to cash used in investing and partially offset by cash provided by operating and financing activities.

Cash provided by operating activities totaled $4.8 million for the nine months ending September 30, 2022, primarily the result of the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $5.1 million. It also resulted from decreases in inventory of $1.3 million, decrease in other assets of $4.4 million and increases in accounts payable and other liabilities of $8.8 million. This was partially offset by accounts receivable increasing by $8.2 million, mainly from the addition of Sancuso sales, and the decrease in long-term liabilities of $2.5 million.

Cash used in investing activities for the nine months ending September 30, 2022, was the result of the acquisition of Sancuso.

Our financing activities for the nine months ending September 30, 2022, included the increase in our line of credit of $2.7 million partially offset by the $0.9 million in cash used to repurchase shares of our common stock as well as the $1.1 million used for the payment of royalties for sales of Vibativ and Sancuso.

Debt Agreement

On September 5, 2023, the Company entered into a new Revolving Credit Loan Agreement with Pinnacle Bank. This facility provides for an aggregate principal funding amount of up to $25 million. The initial revolving line of credit is up to $20 million, with the ability for Cumberland to increase the amount to $25 million, under certain conditions. It has a three year term expiring on October 1, 2026. The interest rate is based on Benchmark (Term SOFR) plus a spread of 2.75%. Cumberland is subject to one financial covenant, the maintenance of a Funded Debt Ratio, determined on a quarterly basis. Borrowings under the line of credit are collateralized by substantially all of our assets.

OFF-BALANCE SHEET ARRANGEMENTS

During the nine months ended September 30, 2023 and 2022, we did not engage in any off-balance sheet arrangements.

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 at September 30, 2023.

The interest rate risk related to borrowings under our line of credit was based on Term SOFR plus an interest rate spread. The pricing under the Pinnacle Agreement provides for an interest rate spread of 1.75% to 2.75% above Term SOFR with a minimum Term SOFR of 0.90%. The applicable interest rate under the Pinnacle Agreement was 8.25% at September 30, 2023. As of September 30, 2023, we had $12.9 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, 2023 and 2022. Neither a five percent increase nor decrease from current exchange rates would have a material effect on our operating results or financial condition.

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 amended (the "Exchange Act")), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

During the three months ended September 30, 2023, there has not been any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this quarterly report, an investor should consider the risk factors included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Our operations are subject to the effects of a rising rate of inflation.

Inflation rates have increased recently to levels not seen in decades. If our costs, in particular costs related to clinical trial expenses and/or employee-related expenses, were to become subject to significant inflationary pressures, it may adversely impact our business, operating results and financial condition. In addition, the United States Federal Reserve has raised, and is expected to continue to raise, interest rates in response to concerns about inflation. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase economic uncertainty and heighten these risks. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates continue to rise) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, consequences associated with COVID-19, the ongoing conflicts in Eastern Europe and the Middle East, and employee availability and wage increases.