What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-12 compared with 2020-03-20 · 171 added, 199 removed, 246 unchanged (60% of the section changed)

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We are 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.

Our primary target markets are hospital acute care, gastroenterology and rheumatology.

These medical specialties are characterized by relatively concentrated prescriber bases that we believe can be penetrated effectively by small, targeted sales forces.

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Our product development team creates proprietary product formulations, manages our clinical studies, prepares all regulatory submissions and manages our medical call center.

Our quality and manufacturing

professionals oversee the manufacture, release and shipment of our products.

Our marketing and sales professionals are responsible for our commercial activities, and we work closely with our distribution partners to ensure availability and delivery of our products.

Our quality and manufacturing professionals oversee the manufacture, release and shipment of our products.

Our marketing and sales professionals

are responsible for our commercial activities, and we work closely with our distribution partners to ensure availability and delivery of our products.

The following is a summary of our 2020 highlights and recent developments.

For more information, please see Part I, Item I, Business , of this Form 10-K.

• Early in 2019, we announced a strategic review of our brands, capabilities, and international partners.

This review followed an accelerated business development initiative, which resulted in a series of transactions.

Because of that progress, we felt that it was prudent to take a fresh look at our product portfolio, partners, and organization to ensure proper focus and capabilities.

• We executed a License and Distribution agreement with HongKong WinHealth Pharma Group Co.

Limited (“WinHealth”) for our Caldolor and Acetadote brands in China and Hong Kong.

• We also entered into a Strategic Alliance agreement with WinHealth to explore future business opportunities that will further the mission and goals of each organization.

• We completed the assignment and amendment of a Commercialization Agreement with R-Pharma JSC (“R Pharma”) associated with ongoing distribution of Vibativ in Russia and a number of adjacent countries in Eastern Europe.

• We completed the assignment and amendment of a Commercialization Agreement with Hikma Pharmaceuticals LLC (“Hikma”) to register and distribute Vibativ in a number of countries throughout the Middle East.

• We also completed the assignment and amendment of a Commercialization Agreement with Dr.

Reddy’s Laboratories Limited (“Dr.

Reddy’s”) for the registration and distribution of Vibativ in India.

• We concluded our distribution and support for Ethyol and Totect at the end of 2019 and transitioned the responsibility for these products back to Clinigen.

• Net revenue from sales of each of Caldolor, Omeclamox, Kristalose and Ethyol grew in 2019 compared to 2018.

• In January 2019, the FDA approved the application for our next generation Caldolor product.

In April 2019, we began initial shipments of the product to select customers.

During the third and fourth quarters of 2019, there was a growing demand for the new product from these select accounts and we began planning for a full-scale launch in 2020 .

• In late 2019, we received FDA approval for RediTrex and began planning for a 2020 launch of this product line.

• On September 24, 2019, Cumberland announced U.S.

Food and Drug Administration ("FDA") Orphan Drug Grant funding for a new Phase II clinical program.

The Company has initiated the clinical development of ifetroban for the treatment of cardiomyopathy associated with Duchenne Muscular Dystrophy (“DMD”).

In addition, Cumberland has been awarded just over $1 million in funding from the FDA through their Orphan Drug Grant program to support this Phase II DMD clinical study.

• In October 2019, a new study was published revealing the superiority of Vibativ (telavancin) over vancomycin in select patients with bacterial pneumonia.

• In November 2019, we announced another study, published online in Drugs - Real World Outcomes , detailing the positive clinical outcomes that resulted from treating multiple infection types with Vibativ.

• During 2019, Cumberland largely completed the transition of activities to support Vibativ, which Cumberland acquired from Theravance Biopharma during 2018.

• Early in 2020, we implemented the national launch of our Next Generation Caldolor product featuring a ready to use formulation in a pre-mixed bag, offering time and cost savings associated with its administration.

• We launched several national initiatives during 2020 to help hospitals access our acute care brands during this healthcare emergency.

Our Vibativ product was used to help COVID patients who developed bacterial infections in their lungs.

• We entered into an agreement with Win Health Pharma and formed WHC Biopharmaceuticals, Pte.

Ltd – a joint venture based in Singapore to acquire, develop and commercialize products for China and adjacent Asian markets.

• We announced a series of publications featuring important new data associated with our Caldolor and Vibativ brands.

• We ended the year with the initial introduction of our FDA-approved RediTrex line of injectable methotrexate products, featuring an innovative delivery system for patients with arthritis.

COVID-19 Pandemic

In March 2020, the U.S.

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

The Company managed through the COVID-19 pandemic during 2020, continuing to operate our business - keeping facilities open and our organization intact.

We also maintained our ongoing compliance with the many laws and regulations that apply to us as a publicly traded, pharmaceutical company.

Throughout the pandemic, Cumberland faced the same headwinds affecting other companies that rely on hospital admissions and patient visits to drive revenue.

Our business and our clinical studies were impacted as less patients sought elective surgeries and our access to medical facilities was substantially limited.

During 2020, we carefully monitored our supply chain during the pandemic including the flow of raw materials into the plants that manufacture our products as well as the batches of finished product emerging from those facilities.

Several of our brands were negatively impacted by the lockdowns and postponement of physician office visits and elective procedures.

However, we are fortunate to have a diversified product portfolio, with other brands delivering a strong performance.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

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Actual results could differ from these estimates.

These estimates, judgments and assumptions are most critical with respect to our accounting for revenue recognition, marketable securities, inventory, intangible assets, research and development accounting, contingent consideration liability, provision for income taxes and share-based payments.

These estimates, judgments and assumptions are most critical with respect to our accounting for revenue recognition, marketable securities, inventory, intangible assets and goodwill, research and development accounting, contingent consideration liability, provision for income taxes and share-based payments.

Revenue Recognition

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2014-09, "Revenue from Contracts with Customers," (ASC 606).

Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and are reported in accordance with ASC 605.

Our revenue is derived primarily from the product sales of our FDA approved pharmaceutical brands.

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Payment terms typically range from 30 to 60 days from date of shipment.

Our net product revenue reflects the reduction from gross product revenue for estimated allowances for chargebacks, discounts and damaged goods, and reflects sales related accruals for rebates, coupons, product returns, and certain administrative and service fees.

Our net product revenue reflects the reduction from gross product revenue for estimated allowances for chargebacks, and discounts and reflects sales related accruals for rebates, coupons, product returns, and certain administrative and service fees.

Significant judgments must be made in determining the transaction price for our sales of products related to these adjustments.

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Other income was approximately 4.3% percent of net revenues in 2020, 5.8% in 2019, and 1.8% in 2018 respectively.

Our financial statements reflect accounts receivable allowances of $0.8 million and $0.9 million at December 31, 2019 and 2018, respectively, for chargebacks, discounts and allowances for product damaged in shipment.

Our financial statements reflect accounts receivable allowances of $1.0 million and $0.8 million at December 31, 2020 and 2019, respectively, for chargebacks and early pay discounts for products.

The following table reflects our sales-related accrual activity for the periods indicated below:

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Balance, December 31 $ 4,063,435 $ 4,593,167 $ 4,961,631

The allowances for chargebacks, discounts, and damaged products and sales related accruals for rebates and product returns are determined on a product-by-product basis.

The allowances for chargebacks and discounts and sales related accruals for rebates, fee for service and product returns are determined on a product-by-product basis.

We establish them using our best estimate at the time of sale based on:

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• The contractual terms with direct and indirect customers;

• Analyses of historical levels of chargebacks, discounts and credits claimed for damaged and expired product;

• Analyses of historical levels of chargebacks, discounts and returns of product;

• Communications with customers;

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If the actual amount of cash discounts, chargebacks, rebates, and product returns differs from the amounts estimated by management, material differences may result from the amount of our revenue recognized from product sales.

A change in our rebate estimate of one percentage point would have impacted net sales by approximately $0.4 million for the year ended December 31, 2019 and $0.3 million for the years ended December 31, 2018 and 2017, respectively.

A change in our product return estimate of one percentage point would have impacted net sales by $0.5 million, $0.4 million and $0.4 million for the years ended December 31, 2019, 2018 and 2017, respectively.

A change in our rebate estimate of one percentage point would have impacted net sales by approximately $0.4 million for the years ended December 31, 2020, 2019 and 2018.

A change in our product return estimate of one percentage point would have impacted net sales by $0.3 million for the years ended December 31, 2020, 2019 and 2018.

Fair Value of Marketable Securities

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Treasury notes and bonds, corporate bonds and commercial paper in order to maximize our return on cash.

We classify these investments as trading securities, and mark the investments to fair value at the end of each reporting period, with the adjustment being recognized in the statement of income as a component of interest income.

We mark the investments to fair value at the end of each reporting period, with the adjustment being recognized in the statement of income as a component of interest income.

These investments are generally valued using observable market prices by third-party pricing services, or are derived from such services' pricing models.

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Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

We adopted FASB ASU 2016-09, "Compensation - Stock Compensation:

Improvements to Employee Share-Based Payment Accounting" effective January 1, 2017.

The impact of adoption on our consolidated financial statements included the recording of $44.1 million in previously unrecognized net operating loss carryforwards, net of valuation allowances, generated from the exercise of nonqualified options during 2009.

These net operating loss carryforwards occurred as a result of the actual tax benefit realized upon employee exercise exceeding the cumulative book compensation charge associated with the options.

The adoption resulted in the recording of $1.1 million in net non-current deferred tax assets and retained earnings effective as of January 1, 2017.

The $1.1 million in net non-current deferred tax assets was the result of a deferred tax asset of $17.0 million, net of a related valuation allowance of $15.9 million.

Under the previous accounting guidance, these benefits had been recognized in the year in which they were able to reduce current income taxes payable and we recorded these benefits directly to equity.

As part of our adoption of the FASB guidance and its continued evaluation of our utilization of net operating loss carryforwards and other deferred tax assets, including updates to our forecasts of future taxable income, we also recorded an additional valuation allowance of $1.0 million for our federal Orphan Drug and Research and Development tax credits that expire between 2021 and 2036.

During the second quarter of 2017, as part of our continued evaluation of the utilization of our net operating loss carryforwards we recorded an additional valuation allowance of $3.5 million for our remaining deferred tax assets.

All deferred tax assets have a full valuation allowance.

The net operating loss carryforwards generated during 2009 consisted of $44.1 million in federal and $45.4 million in state amounts.

Since they were generated, we have utilized these net operating loss carryforwards to pay minimal income taxes.

We will continue to experience a reduction in income taxes paid in future years, through the continued utilization of these net operating loss carryforwards, as we are able to achieve taxable income through our operations.

The Company’s accounting policy with respect to interest and penalties arising from income tax settlements is to recognize them as part of the provision for income taxes.

On December 22, 2017, the Tax Cut and Jobs Act (the "Tax Act”) was signed into law.

The Tax Act provides for significant changes in the U.S.

Internal Revenue Code of 1986, as amended.

The Tax Act contains provisions with separate effective dates but is generally effective for taxable years beginning after December 31, 2017.

Certain provisions of the Tax Act were effective during our fiscal year ending December 31, 2018 with all provisions of the Tax Act effective as of the beginning of our fiscal year ending December 31, 2019.

Under ASC Topic 740, Income Taxes (“ASC 740”), we are required to revalue any deferred tax assets or liabilities in the period of enactment of change in tax rates.

The Tax Act lowers the corporate income tax rate from

As a result of the Tax Act discussed above, we will experience a positive impact to our future results of operations to the extent we achieve taxable income through our operations.

Share-Based Payments

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Income tax (expense) benefit (55,902) 79,316 (135,218)

Net income (loss) $ (3,546,511) $ (7,038,772) $ 3,492,261

Net income (loss) from continuing operations $ (6,625,779) $ (9,211,688) $ 2,585,909

The following table summarizes net revenues for the years presented:

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2020 2019 Change

Kristalose $ 15,567,562 $ 12,895,120 $ 2,672,442

Vibativ 10,870,990 8,691,550 2,179,440

Caldolor 5,336,943 5,222,282 114,661

Acetadote 1,874,206 3,824,449 (1,950,243)

Omeclamox-Pak 257,088 837,829 (580,741)

Kristalose 12,895,120 12,055,625 839,495

Vaprisol 1,077,227 936,615 140,612

Caldolor 5,222,281 5,001,997 220,284

Ethyol 12,774,831 10,545,906 2,228,925

Totect 369,912 850,965 (481,053)

Vibativ 8,691,550 5,075,057 3,616,493

RediTrex 856,657 — 856,657

Other 1,600,461 1,980,450 (379,989)

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Net revenues for the year ended December 31, 2020 were approximately $37.4 million compared to $34.4 million for the year ended December 31, 2019, representing an increase of $3.1 million or 8.9%.

Five of our products, Omeclamox-Pak, Kristalose, Caldolor, Vibativ and Ethyol, experienced an increase in revenue during 2019.

The 16.7% improvement was led by our newest product, Vibativ, which delivered an additional $3.6 million during the full year of 2019 compared to a partial year during 2018.

These increases were partially offset by decreased net product sales of Acetadote, Vaprisol and Totect.

Kristalose revenue increased by $0.8 million, or 7.0%, compared to December 31, 2018 primarily as a result of increased wholesale prices.

The product's net revenue was also positively impacted by lower managed care rebates, resulting in improved net pricing for the product for the year ended December 31, 2019.

As detailed in the table above, net revenue increased during the 2020 for four of our marketed products:

Kristalose, Vibativ, Caldolor and Vaprisol.

The improvement was led by largest product, Kristalose which delivered $2.7 million in revenue growth, followed by Vibativ, which delivered an additional $2.2 million during 2020 compared to 2019.

Our newest product, RediTrex, contributed $0.9 million in incremental revenue during the year after its late 2020 soft launch.

These increases were partially offset by decreased net product sales of Acetadote and Omeclamox-Pak.

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 four installments totaling $3.0 million due from Clinigen was recorded during the year ended December 31, 2020, as discontinued operations.

We do not incur expenses associated with these payments from Clinigen.

Kristalose revenue increased by $2.7 million, or 20.7%, compared to December 31, 2019 primarily as a result of improved sales volume for the product.

Vibativ revenue was $10.9 million compared to $8.7 million in the prior year.

This $2.2 million or 25.1% increase in net revenue was a result of improved sales volume for the product.

Caldolor revenue experienced a 2.2% increase to $5.3 million during the year ended December 31, 2020 compared to $5.2 million in the same period last year.

This increase in Caldolor revenue for the year ended December 31, 2019 was the result of an 11% increase in domestic shipments of the product and improved net pricing.

These changes were partially offset by a reduction in international shipments of Caldolor when compared to the same period last year.

Ethyol revenue for the year ended December 31, 2019 was $12.8 million, which is an increase of $2.2 million or 21.1% from the year ended December 31, 2018.

The increase in net revenue is primarily a result of increases in sales volumes and improved net pricing, including a reduction in chargeback deductions related to the Public Health Service's 340B drug pricing program.

Omeclamox-Pak revenue increased $0.2 million or 34.4% during the year ended December 31, 2019 compared to the prior year.

The increase was largely the result of increased sales volume partially offset by higher expired product sales returns.

Vaprisol revenue decreased $0.8 million during the year ended December 31, 2019 compared to the prior year period due primarily to decreased sales of the product.

The prior year period sales were higher as a result of the arrival of a new lot of the product during April 2018 resolving temporary supply issues associated with the product.

Totect revenue decreased $0.5 million for the year ended December 31, 2019 compared to the prior year.

The decrease is primarily due to a decrease in product sales volume compared to the prior year period.

This increase in Caldolor revenue for the year ended December 31, 2020 w as the result of an increase in international shipments when compared to the prior year, which were partially offset by lower domestic shipments of the product, significantly impacted by COVID-19 and a reduction in elective surgeries.

Vaprisol revenue increased $0.1 million during the year ended December 31, 2020 compared to the prior year period due primarily to increased sales of the product.

Acetadote revenue included net sales of our branded product and our share of net sales from our Authorized Generic.

For the year ended December 31, 2019, the Acetadote net revenue decreased $0.5 million or 10.7% compared to the prior year due to a reduction in sales volume as a result of generic competition.

For the year ended December 31, 2020, the Acetadote net revenue decreased $2.0 million compared to the prior year due to a reduction in sales volume, primarily impacting the Authorized Generic.

Omeclamox-Pak revenue decreased $0.6 million during the year ended December 31, 2020 compared to the prior year.

The decrease was largely the result of decreased sales volume, which were negatively impacted by COVID-19.

Cost of products sold .

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As a percentage of net revenues, cost of products sold were 23.1% compared to 21.6% during the prior year.

The improvement in costs of products sold as a percentage of revenue was attributable to a change in the product sales mix during the period compared to the prior year.

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 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 was also 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 year ended December 31, 2019 were $21.4 million, which was an increase of $1.2 million compared to the prior year's expense of $20.3 million.

This increase was primarily attributable to promotional spending and sales force costs, including salary and benefits for the increased sales force.

The increase in the sales force and promotional spending is due largely to the addition of our newest brand, Vibativ, during the fourth quarter of 2018.

Selling and marketing expense for the year ended December 31, 2020 were $14.8 million compared to $15.3 million in the prior year, which was a decrease of $0.5 million.

This decrease was primarily a result of 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 for the year ended December 31, 2020 were $5.8 million, compared to $6.9 million last year, representing a decrease of $1.1 million.

A portion of our research and development costs are variable based on the number of trials, study sites and patients involved in the development of our product candidates.

The decrease was primarily the result of the FDA program fee of $1.3 million paid during 2018 associated with the successful RediTrex FDA submission.

A portion of our research and development costs is variable based on the number of trials, study sites, number of patients and the cost per patient in each of our clinical programs.

We continue to fund our ongoing clinical initiatives associated with our pipeline products.

During 2020, we experienced a decrease in study activity which was partially offset by increases in our annual FDA user fees.

General and administrative .

General and administrative expense for the year ended December 31, 2019 was $10.4 million for 2019, compared to $10.2 million last year.

The $0.2 million or, 2.1%, increase from the same period for the prior year was primarily driven by an increase in compensation and benefits, including non-cash stock based compensation and deferred compensation.

General and administrative expenses for the year ended December 31, 2020 were $10.2 million compared to $10.0 million last year.

The increase resulted from an increase in legal and professional fees partially offset by lower stock based compensation during the period.

A portion of these increased 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 Years ended December 31,

Net revenue $ 10,870,990 $ 8,691,550

Cost of products sold (1)

3,366,198 2,716,305

Royalty and operating expenses 1,952,449 1,609,564

Vibativ contribution $ 5,552,343 $ 4,365,681

(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 2019 totaled approximately $4.1 million, which was an increase of $1.4 million over the prior year.

The increase in expense was attributable to the amortization of additional product rights and capitalized patents, including those assets associated with the Vibativ acquisition.

Amortization expenses represent the ratable use of our capitalized intangible assets including product and license rights, patents, trademarks and patent defense costs.

Amortization for 2020 totaled approximately $4.4 million compared to $4.1 million in the prior year, which was an increase of $0.3 million over the prior year.

The increase in expense was attributable to the amortization of additional product rights and capitalized patents.

Income taxes .

Income tax benefit for the year ended December 31, 2019 was $79,316.

As a percentage of income (loss) before income taxes, income taxes were a benefit of 2.2% for the year ended December 31, 2019 compared to income tax expense as a percentage of loss before income taxes of 0.2% for the year ended December 31, 2018.

Income taxes were an expense of $55,902 for the year ended December 31, 2020 and a benefit of $79,316 for the year ended December 31, 2019.

Year ended December 31, 2019 compared to year ended December 31, 2018

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Income tax (expense) benefit 79,316 (16,636) 95,952

Net income (loss) $ (7,038,772) $ (8,049,815) $ 1,011,043

Net income (loss) from continuing operations $ (9,211,688) $ (10,820,996) $ 1,609,308

The following table summarizes net revenues for the years presented:

Years ended December 31,

2019 2018 Change

Kristalose $ 12,895,120 $ 12,055,625 $ 839,495

Vibativ 8,691,550 5,075,057 3,616,493

Caldolor 5,222,282 5,001,997 220,285

Acetadote 3,824,449 4,284,111 (459,662)

Omeclamox-Pak 837,829 623,297 214,532

Kristalose 12,055,625 11,455,805 599,820

Vaprisol 936,615 1,763,874 (827,259)

Caldolor 5,001,997 4,178,443 823,554

Ethyol 10,545,906 10,835,038 (289,132)

Totect 850,965 3,992,467 (3,141,502)

Vibativ 5,075,057 — 5,075,057

Other 1,980,450 540,933 1,439,517

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Net revenues.

Net revenues for the year ended December 31, 2018 were approximately $40.7 million compared to $41.2 million for the year ended December 31, 2017, representing a decrease of $0.4 million or 1.0%.

Three of our products:

Acetadote, Omeclamox-Pak and Totect experienced a decrease in revenue during 2018, with the largest decrease coming from our Totect product.

We began shipments of Totect during a national shortage of dexrazoxane, resulting in strong initial demand for the product.

Following our launch, supplies of dexrazoxane became available from competing suppliers.

These decreases were partially offset by the initial product sales of our newest product, Vibativ, as well as three of our marketed products experienced increases in net revenue during the period:

Kristalose, Vaprisol and Caldolor.

Kristalose revenue increased by $0.6 million, or 5.2%, compared to December 31, 2017 primarily as a result of increased sales volume.

The product's net revenue was positively impacted by increased sales volumes and lower managed care and Medicare rebates, that resulted in improved net pricing for the product for the year ended December 31, 2018.

Caldolor revenue experienced a 20% increase to $5.0 million during the year ended December 31, 2018 compared to $4.2 million in the same period last year.

This increase in Caldolor revenue for the year ended December 31, 2018 was positively impacted by increased domestic and international shipments.

Domestic net revenue improved from increased sales volumes and improved pricing.

Vaprisol revenue increased $0.2 million during the year ended December 31, 2018 compared to the prior year period due to increased sales of the product.

Sales of Vaprisol surged during the second quarter of 2018 due to shipments of newly arrived inventory following a period of time when there were limited supplies of the product.

During April 2018, the Vaprisol supply issue was resolved as we received new shipments from our manufacturer.

The 12% net revenue increase was partially offset by an increase in expired product sales returns during the period.

Ethyol revenue for the year ended December 31, 2018 was $10.5 million, which was a decrease of $0.3 million from the year ended December 31, 2017.

The decrease in net revenue was primarily a result of increases in chargeback deductions related to the Public Health Service's 340B drug pricing program.

Totect revenue decreased $3.1 million for the year ended December 31, 2018 compared to the prior year.

The decrease was primarily due to a decrease in product sales volume compared to the prior year period.

Omeclamox-Pak revenue decreased $1.1 million during the year ended December 31, 2018 compared to the prior year.

The decrease was largely the result of lower sales volume and much higher expired product sales returns.

Net revenues for the year ended December 31, 2019 were approximately $34.4 million compared to $29.3 million for the year ended December 31, 2018, representing an increase of $5.0 million or 17.2%.

Four of our products, Omeclamox-Pak, Kristalose, Caldolor and Vibativ, experienced an increase in revenue during 2019.

The 17.2% improvement was led by our newest product, Vibativ, which delivered an additional $3.6 million during the full year of 2019 compared to a partial year during 2018.

These increases were partially offset by decreased net product sales of Acetadote and Vaprisol.

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 and 2018 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.

We do not incur expenses associated with these payments from Clinigen.

Kristalose revenue increased by $0.8 million, or 7.0%, compared to December 31, 2018 primarily as a result of increased wholesale prices.

The product's net revenue was also positively impacted by lower managed care rebates, resulting in improved net pricing for the product for the year ended December 31, 2019.

Caldolor revenue experienced a 4.4% increase to $5.2 million during the year ended December 31, 2019 compared to $5.0 million in during 2018.

This increase in Caldolor revenue for the year ended December 31, 2019 was the result of an 11% increase in domestic shipments of the product and improved net pricing.

The changes were partially offset by a reduction in international shipments of Caldolor in 2019 over 2018.

Omeclamox-Pak revenue increased $0.2 million or 34.4% during the year ended December 31, 2019 compared to the prior year.

The increase was largely the result of increased sales volume partially offset by higher expired product sales returns.

Vaprisol revenue decreased $0.8 million during the year ended December 31, 2019 compared to the prior year period due primarily to decreased sales of the product.

The prior year period sales were higher as a result of the arrival of a new lot of the product during April 2018 resolving temporary supply issues associated with the product.

Acetadote revenue included net sales of our branded product and our share of net sales from our Authorized Generic.

For the year ended December 31, 2018, the Acetadote net revenue decreased $2.3 million compared to the prior year due to a reduction in sales volume as a result of generic competition.

For the year ended December 31, 2019, the Acetadote net revenue decreased $0.5 million or 10.7% compared to 2018 due to a reduction in sales volume as a result of generic competition.

Cost of products sold .

Cost of products sold for the year ended December 31, 2018 were $7.4 million, remaining consistent with the prior year.

As a percentage of net revenues, cost of products sold were 18.1% compared to 17.9% during the prior year.

The change in costs of products sold as a percentage of revenue was attributable to a change in the product sales mix during the period compared to the prior year.

Cost of products sold for the year ended December 31, 2019 were $7.4 million, compared to $6.0 million during 2018.

As a percentage of net revenues, cost of products sold were 21.6% compared to 20.5% during 2018.

The change in costs of products sold as a percentage of revenue was attributable to a change in the product sales mix during the period compared to 2018.

Selling and marketing .

Selling and marketing expense for the year ended December 31, 2018 were $20.3 million, which was a decrease of $1.2 million compared to the prior year's expense of $21.5 million.

The decrease was primarily attributable to lower royalty expense related to product sales as well as lower promotional spending for the year ended December 31, 2018.

Selling and marketing expense for the year ended December 31, 2019 were $15.3 million, which was an increase of $1.3 million compared to 2018's expense of $14.0 million.

This increase was primarily attributable to promotional spending and sales force costs, including salary and benefits for the increased sales force.

The increase in the sales force and promotional spending is due largely to the addition of our newest brand, Vibativ, during the fourth quarter of 2018.

Research and development .

Research and development costs for the year ended December 31, 2018 were $7.6 million, compared to $4.3 million last year, which represented an increase of $3.3 million.

Research and development costs for the year ended December 31, 2019 were $6.9 million, compared to $7.6 million during 2018, representing a decrease of $0.7 million.

A portion of our research and development costs are variable based on the number of trials, study sites and patients involved in the development of our product candidates.

The increase was partially the result of additional investments in our ongoing clinical initiatives associated with our pipeline products of $1.6 million.

There was also an increase in our products FDA program fees including the $1.3 million fee associated with our RediTrex submission.

Research and development costs also increased for salary, wages and benefits.

The decrease was primarily the result of the FDA program fee of $1.3 million paid during 2018 associated with the successful RediTrex FDA submission.

General and administrative .

General and administrative expense for the year ended December 31, 2018 was $10.2 million for 2018, compared to $9.7 million last year.

The $0.5 million or, 5.2%, increase from the prior year was primarily driven by an increase in compensation and benefits along with increases in legal and consulting expenses.

General and administrative expense for the year ended December 31, 2019 was $10.0 million for 2019, compared to $10.2 million during 2018.

The $0.2 million or, 1.7%, decrease from the same period for 2018 was primarily driven by a decrease in compensation and benefits, including non-cash stock based compensation and deferred compensation.

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 2018 totaled approximately $2.8 million, which was an increase of $0.3 million over the prior year.

The increase in amortization was attributable to additional product and license rights and capitalized patents.

Income tax expense .

Income tax expense for the year ended December 31, 2018 was $16,636, compared to approximately $4.2 million in the year ended December 31, 2017.

As a percentage of income (loss) before income taxes, income taxes were 0.2% for the year ended December 31, 2018 compared to 107.7% for the year ended December 31, 2017.

As discussed in our consolidated financial statements, the effective tax rate for the year ended December 31, 2017 was primarily impacted by recording a valuation allowance of $1.0 million for our federal Orphan Drug and Research and Development tax credits and an additional valuation allowance of $3.5 million for our remaining deferred tax assets.

These non-cash valuation allowance adjustments impacted our effective tax rate during the year ended December 31, 2017 .

Ethyol revenue for the year ended December 31, 2017 was $10.8 million, which is an increase of $10.0 million from the year ended December 31, 2016.

The Company began generating revenue from the sale of Ethyol during the third quarter of 2016.

The increase resulted from a full year of sales of the product as well as increased demand for our branded Ethyol product during 2017.

Amortization expenses represent the ratable use of our capitalized intangible assets including product and license rights, patents, trademarks and patent defense costs.

Amortization for 2019 totaled approximately $4.1 million, which was an increase of $1.4 million over 2018.

The increase in expense was attributable to the amortization of additional product rights and capitalized patents, including those assets associated with the Vibativ acquisition.

Income taxes .

Income tax benefit for the year ended December 31, 2019 was $79,316.

As a percentage of income (loss) before income taxes, income taxes were a benefit of 0.9% for the year ended December 31, 2019 compared to income tax expense as a percentage of loss before income taxes of 0.2% for the year ended December 31, 2018.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash flows provided by our operations, 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, including its recent expansion to $20 million, will be adequate to finance internal growth, finance business development initiatives, and fund capital expenditures for the foreseeable future.

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, commercial paper and other marketable securities.

At December 31, 2019, all our investments were in commercial paper with maturity dates under thirty days and classified as cash.

At December 31, 2018, we had approximately $8.3 million invested in marketable securities.

Treasury notes and bonds, corporate bonds and commercial paper.

At December 31, 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 the years ended December 31:

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$ (3,458,839) $ 273,675 $ (17,473,908)

The net $3.5 million decrease in cash and cash equivalents for the year ended December 31, 2020 was attributable to cash used by investing and financing activities partially offset by cash provided by operating activities.

Cash provided by operating activities of $5.4 million included non-cash expense add backs for depreciation and amortization and share-based compensation expense totaling $5.8 million and changes in our working capital that provided net cash of $5.4 million.

The cash provided by operating activities included $3.5 million provided by discontinued operations.

This increase was partially offset by a net loss for the period of $6.6 million.

Cash used by investing activities of $1.8 million was the result of additions to intangibles of $2.0 million, which included the payment of $1.0 million for product rights, additions to property and equipment of $0.1 million and partially offset by proceeds from the surrender of life insurance of $0.5 million.

Our financing activities included a net repayment of $3.5 million under our line of credit net, $1.9 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.

As noted above, we continue to repurchase shares of our common stock, as discussed in Part II, Item 5, "Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities", of this Form 10-K.

The net $0.3 million increase in cash and cash equivalents for the year ended December 31, 2019 was attributable to cash provided by operating and investing activities offset by cash used in financing activities.

Cash provided by operating activities of $3.1 million included non-cash expense add backs for depreciation and amortization and share-based compensation expense totaling $5.9 million.

This increase was partially offset by a net loss for the period of $3.5 million and changes in our working capital that used net cash of $1.4 million.

The cash provided by operating activities included $5.5 million provided by discontinued operations.

These increases were partially offset by a net loss for the period of $3.5 million.

Changes in our working capital provided net cash of $1.6 million.

Cash provided by investing activities of $2.3 million included net sales of marketable securities of $8.3 million, partially offset by the $5 million payment to Theravance as part of the acquisition of Vibativ and the addition to intangibles of $0.8 million.

Our financing activities included a net repayment of $1.5 million under our line of credit net and $3.5 million in cash used to repurchase shares of our common stock.

The net $17.5 million decrease in cash and cash equivalents for the year ended December 31, 2018 was attributable to cash used by investing activities offset by cash provided by operating and financing activities.

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Changes in our working capital provided net cash of $5.2 million.

The cash provided by operating activities included $4.5 million provided by discontinued operations.

Cash used in investing activities included $20 million in cash paid for the acquisition of Vibativ during 2018, the use of cash to complete a net increase in marketable securities of $3.4 million, and the addition to intangibles of $3.8 million.

Our financing activities included $10.2 million in net cash provided by borrowings under our line of credit net of $2.9 million in cash used to repurchase shares of our common stock.

The net $10.9 million increase in cash and cash equivalents for the year ended December 31, 2017 was attributable to cash provided by investing and financing activities offset by cash used in operating activities.

Cash used in operating activities of $0.6 million was primarily impacted by a net loss for the period of $8.0 million.

These uses of operating cash were offset by deferred tax expenses of $4.2 million and non-cash expenses of depreciation and amortization and share-based compensation expense totaling $4.1 million.

Changes in our working capital used net cash of $0.8 million, including accounts receivable, inventory and other current assets of $3.5 million offset by cash provided by accounts payable increases of $2.3 million.

Cash provided by investing activities included net proceeds from marketable securities of $11.0 million offset by additions to intangibles of $1.2 million.

Our financing activities included $24.5 million in cash provided by borrowings under our line of credit and $3.7 million in cash used to repurchase shares of our common stock.

Shelf Registration

In November 2017, the Company filed its Shelf Registration on Form S-3 with the SEC associated with the sale of up to $100 million in corporate securities.

The Shelf Registration which was declared effective in January 2018.

The Shelf Registration was declared effective in January 2018.

It also included an At the Market ("ATM") feature that allows the Company to sell common shares at market prices, along with an agreement with B.

Riley FBR to support such a placement of shares.

Riley FBR Inc.

to support such a placement of shares.

The Company filed an updated Form S-3 with the SEC in December 2020, which was declared effective in January 2021.

The Company intends to continue an ATM feature through B.

Riley FBR, Inc.

that would allow the Company to issue shares of its common stock.

The Company did not issue any shares under this ATM during the year ended December 31, 2020.

Debt Agreement

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 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 Pinnacle Agreement, which 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 9 to the accompanying notes to consolidated financial statements.

Under the Pinnacle Agreement, we were initially subject to one financial covenant, the maintenance of a Funded Debt Ratio, as such term is defined in the agreement and determined on a quarterly basis.

For a summary of the material terms of the Pinnacle Agreement, as amended, see Note 9 to the accompanying notes to the 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.

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We were in compliance with the Tangible Capital Ratio financial covenant as of December 31, 2020 and we expect to maintain compliance with the Tangible Capital Ratio financial covenant in future periods.

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.

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.

Minimum Product Purchase Requirements

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The estimated interest on debt represents the interest on the principal outstanding on the line of credit.

These amounts are based on the $18.5 million line of credit assuming the current $18.5 million balance outstanding on December 31, 2019 is consistently outstanding through maturity of July 2021.

These amounts are based on the $15.0 million line of credit assuming the current $15.0 million balance outstanding on December 31, 2020 is consistently outstanding through maturity of October 2022.

Interest and unused line of credit payments are due and payable quarterly in arrears.

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Recent Adopted Accounting Pronouncements

In May 2014, the FASB issued amended guidance in the form of ASU No.

2014-09, “Revenue from Contracts with Customers” (“ASC 606”).

The core principle of the new guidance is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.

The new guidance defines a five-step process to achieve this core principle and, in doing so, additional judgments and estimates may be required within the revenue recognition process.

The new standard replaced most of the existing revenue recognition standards in U.S.

GAAP when it became effective.

In July 2015, the FASB issued a one-year deferral of the adoption date, which extended the effective date for us to January 1, 2018, at which point Cumberland adopted the standard.

The Company evaluated its revenues and the new guidance had immaterial impacts to recognition practices upon adoption on January 1, 2018.

As part of the adoption, the Company elected to apply the new guidance on a modified retrospective basis.

We did not record a cumulative effect adjustment to historical retained earnings for initially applying the new guidance as no revenue recognition differences were identified in the timing or amount of revenue.

In February 2016, the Financial Accounting Standards Board ("FASB") issued guidance in the form of a FASB Accounting Standards Update ("ASU") No.

2016-02, “Leases.” The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months.

Leases will be classified as either finance (formerly "capital leases") or operating, with classification affecting the pattern of expense recognition in the income statement.

The standard provides for a modified retrospective transition approach for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain optional practical expedients.

In July 2018, the FASB issued ASU 2018-11, "Leases:

Targeted Improvements", allowing for an alternative transition method (the effective date approach).

It allows an entity to initially apply the new lease guidance at the adoption date (rather than at the beginning of the earliest period presented).

Cumberland adopted the lease guidance effective January 1, 2019 using the package of transition practical expedients.

This allowed us to retain the lease classification for any leases existing prior to adoption, in addition to other benefits.

Recent Accounting Pronouncements - Not Yet Adopted

In June 2016, the FASB issued ASU No.

2016-13, “Financial Instruments-Credit Losses,” which changes the impairment model for most financial assets and certain other instruments.

For trade and other receivables, held-to-maturity debt securities, loans and other instruments, companies will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses.

Companies will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.

This standard is effective for Cumberland on January 1, 2020.

We continue to evaluate this new standard on our trade and other receivables but do not expect a material impact on our consolidated financial statements.

In May 2019, the FASB issued ASU 2019-05, "Financial Instruments-Credit Losses (Topic 326):

Targeted Transition Relief" which provides transition relief for ASU 2016-13 by providing entities with an alternative to irrevocably elect the fair value option for eligible financial assets measured at amortized cost upon adoption of the new credit losses standard.

Certain eligibility requirements must be met, the election must be applied on an instrument-by-instrument basis, and the election is not available for either available-for-sale or held-to-maturity debt securities.

The effective date is the same as ASU 2016-13, January 1, 2020.

We continue to evaluate this new standard on our trade and other receivables but do not expect a material impact on our consolidated financial statements.

In November 2018, the FASB issued ASU No.

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ASU 2018-18 addresses this uncertainty by (1) clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASU 2014-09 when the collaboration arrangement participant is a customer, (2) adding unit of account guidance to assess whether the collaboration arrangement or a part of the arrangement is with a customer and (3) precluding a company from presenting transactions with collaboration arrangement participants that are not directly related to sales to third parties together with revenue from contracts with customers.

The new standard will be effective for Cumberland on January 1, 2020.

We continue to evaluate this new standard on our trade and other receivables but do not expect a material impact on our consolidated financial statements.

We adopted the standard effective January 1, 2020 with no impact to our consolidated financial statements.

In January 2017, the FASB issued ASU No.

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As a result of the revised guidance, a goodwill impairment will be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

The new standard will be effective for Cumberland on January 1, 2020.

We continue to evaluate this new standard but do not expect a material impact on our consolidated financial statements and related disclosures.

The new standard was adopted by Cumberland effective January 1, 2020 and was applied prospectively with no impact on our consolidated financial statements.

Recent Accounting Pronouncements - Not Yet Adopted

In June 2016, the FASB issued ASU No.

2016-13, “Financial Instruments-Credit Losses,” which changes the impairment model for most financial assets and certain other instruments.

For available-for-sale debt securities with unrealized losses, companies will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities.

Companies will have to disclose additional information, including information they use to track credit quality by year of origination for most financing receivables.

Companies will apply the ASU’s provisions as a cumulative-effect adjustment, if any, to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.

Related to ASU No.

2016-13 discussed above, in May 2019, the FASB issued ASU 2019-05, "Financial Instruments-Credit Losses (Topic 326):

Targeted Transition Relief" which provides transition relief for ASU 2016-13 by providing entities with an alternative to irrevocably electing the fair value option for eligible financial assets measured at amortized cost upon adoption of the new credit losses standard.

Certain eligibility requirements must be met and the election must be applied on an instrument-by-instrument basis.

The election is not available for either available-for-sale or held-to-maturity debt securities.

We will adopt both ASU 2016-13 and ASU 2019-05 on January 1, 2023.

The adoption of ASU 2016-13 and ASU 2019-05 are not expected to have a material impact on the Company’s consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis