What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-14 compared with 2020-11-13 · 126 added, 225 removed, 168 unchanged (68% of the section changed)

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While forward-looking statements reflect our beliefs and best judgment based upon current information, they are not guarantees of future performance.

Other important factors that may cause actual results to differ materially from forward-looking statements are discussed in the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” of our Annual Report on Form 10-K for the year ended December 31, 2019, our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and September 30, 2020, respectively, and other filings with the SEC.

We do not undertake to publicly update or revise any of our forward-looking statements, even in the event that experience or future changes indicate that the anticipated results will not be realized.

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(“Cumberland,” the “Company,” or as used in the context of “we,” “us,” or “our”), is a specialty pharmaceutical company focused on the acquisition, development and commercialization of branded prescription products.

Our primary target markets are hospital acute care and gastroenterology.

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.

Cumberland is dedicated to providing innovative products that improve the quality of care for patients and address unmet or poorly met medical needs.

We promote our approved products through our hospital and field sales forces in the United States and are establishing a network of international partners to bring our medicines to patients in their countries.

Our portfolio of FDA approved brands includes:

Cumberland is dedicated to providing innovative products that improve the quality of care for patients and address poorly met medical needs.

We promote our approved products through our hospital and field sales forces in the United States and are establishing a network of international partners to register and provide our medicines to patients in their countries.

Our portfolio of FDA approved brands include:

• Acetadote ® ( acetylcysteine ) Injection, for the treatment of acetaminophen poisoning;

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• Vaprisol ® ( conivaptan ) Injection, to raise serum sodium levels in hospitalized patients with euvolemic and hypervolemic hyponatremia;

• Vibativ ® ( telavancin ) Injection, for the treatment of certain serious bacterial infections including hospital-acquired and ventilator-associated bacterial pneumonia, as well as complicated skin and skin structure infections, and

• RediTrex ® ( methotrexate ) Injection, for the treatment of active rheumatoid, juvenile idiopathic and severe psoriatic arthritis, as well as disabling psoriasis.

Additionally, we have Phase II clinical programs underway evaluating our ifetroban product candidates in patients with cardiomyopathy associated with Duchenne Muscular Dystrophy, Systemic Sclerosis, and Aspirin-Exacerbated Respiratory Disease.

We have also completed initial Phase II clinical studies with ifetroban in patients with Hepatorenal Syndrome and patients with Portal Hypertension.

The Company has both product development and commercial capabilities, and we believe we can leverage our existing infrastructure to support our expected growth.

In addition to these commercial brands, we have Phase II clinical programs underway evaluating our ifetroban product candidates in patients with cardiomyopathy associated with Duchenne Muscular Dystrophy (“DMD”), a degenerative disease, Systemic Sclerosis (“SSc”), a deadly autoimmune condition, and Aspirin-Exacerbated Respiratory Disease ("AERD"), a severe form of asthma.

Cumberland has built core competencies in both product development and commercial capabilities.

We have established the capabilities needed to acquire, develop and commercialize branded pharmaceuticals in the U.S.

and believe we can leverage this existing infrastructure to support our expected growth.

Our management team consists of pharmaceutical industry veterans experienced in business development, product development, regulatory, manufacturing, sales, marketing and finance.

Our business development team identifies, evaluates and negotiates product acquisition, licensing and co-promotion agreements.

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

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

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

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Cumberland's growth strategy involves maximizing the potential of our existing brands, while continuing to build a portfolio of differentiated products.

We currently market six FDA-approved products in the United States and expect to introduce our seventh product, RediTrex, before the end of 2020.

We currently feature seven FDA products approved for sale in the United States.

Through our international partners, we are working to bring our medicines to patients in their countries.

Our clinical team is developing a pipeline of new product candidates largely to address unmet medical needs.

We also look for opportunities to expand the approved use of our products for additional patient populations through clinical trials, through new presentations, and through our support for select, investigator-initiated studies.

Through our active business development initiative, we are pursuing the acquisition of additional marketed brands and late-stage development product candidates in our target medical specialties.

Furthermore, we are supplementing these activities with the earlier stage drug development at Cumberland Emerging Technologies ("CET"), our majority-owned subsidiary.

We also look for opportunities to expand our products into additional patient populations through clinical trials, new presentations, and our support for 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 largely 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 progress promising, new product candidates, which Cumberland has the opportunity to further develop and commercialize.

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Selectively add complementary brands.

In addition to our product development activities, we are also seeking to acquire products and late-stage development product candidates to continue to build a portfolio of complementary brands.

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 address poorly met medical needs.

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We believe that our commercial infrastructure can help drive prescription volume and product sales.

We also look for strategic co-promotion partners that can complement our capabilities and enhance the opportunity for our brands.

Our co-promotion arrangements with Poly Pharmaceuticals, Inc.

and Foxland Pharmaceuticals, Inc allow us to expand current promotional support for Kristalose across the U.S.

We look for strategic partners that can complement our capabilities and enhance the opportunity for our brands.

Our co-promotion partnership with Poly Pharmaceuticals, Inc.

and Foxland Pharmaceuticals, Inc.

has allowed us to expand the support for Kristalose across the United States.

Build an international contribution to our business.

We have established our own commercial capabilities, including two sales divisions to promote our approved brands in the U.S.

We have also entered into agreements with a group of international partners to register our products and make them available to patients in their countries.

We have established our own commercial capabilities, including two 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.

We will continue to support and selectively expand our network of international partners, while assisting with the registration and commercialization efforts in their respective territories.

Manage our operations with financial discipline.

We work to manage our expenses in line with our revenues in order to deliver positive cash flow from operations.

Our goal is to maintain a healthy financial position, with favorable gross margins, and a strong balance sheet.

We continually work to manage our expenses in line with our revenues in order to deliver positive cash flow from operations.

We remain in a strong financial position, with favorable gross margins, and a strong balance sheet.

We were incorporated in 1999 and have been headquartered in Nashville, Tennessee since inception.

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These filings are also available to the public at www.sec.gov .

In April 2020, we issued our inaugural Environmental, Social and Governance (“ESG”) report which is also available on our website.

RECENT DEVELOPMENTS

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In March 2020, the U.S.

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

Cumberland’s facilities have remained open, as our business is considered to be essential by the United States Department of Homeland Security.

We have implemented measures to address the impact of the novel coronavirus on our operations and taken appropriate action to protect our employees, secure our supply chain, and support the patients who can benefit from our medicines.

All our employees have been provided the opportunity to work remotely, and those who wish to work at our offices are asked to follow the health guidelines outlined by the Centers for Disease Control.

Our sales organization has continued to interact with medical professionals, providing information and product samples as requested.

However, their contact has shifted from in person to telephonic and electronic communications.

Travel across the organization and attendance at medical meetings have largely been discontinued.

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

During this pandemic, less patients sought care, some patients postponed elective surgeries and Cumberland's access to medical facilities was substantially limited.

We rely on third-party organizations around the world to supply components, manufacture and distribute our products.

We are aware that we may experience revenue loss, supply interruptions, time delays and incur unplanned expenses as a result of the impact of the ongoing COVID-19 pandemic.

We continue to monitor the coronavirus situation both in the U.S.

and internationally in order to maintain our employees’ safety and well-being, while also keeping our business operating.

Given the uncertainty of such changes, we are unable to quantify the impact on our future results as of the date of this filing.

For additional discussion of the risks associated with COVID-19, please review the section entitled “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

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.

Hyponatremia Publication

The recently published Health Outcome Predictive Evaluation (HOPE) COVID-19 Registry Analysis, an international study of over 4,000 patients, found that patients hospitalized with COVID-19 had a high risk of developing hyponatremia.

These COVID-19 patients also had a higher incidence of mortality due to their hyponatremia.

The study results support the use of an intravenous vaptan to treat hyponatremia in critically ill patients afflicted with COVID-19.

Hyponatremia, an imbalance of serum sodium to body water, is the most common electrolyte disorder among hospitalized patients.

Our Vaprisol product is one of two branded prescription products indicated for the treatment of hyponatremia, and the only intravenously administered branded treatment.

Vaprisol has a proven day-1 response rate to normalize serum sodium levels in hyponatremic patients and move them out of the ICU as efficiently as possible.

Vibativ Case Studies

Cumberland’s Vibativ product has been used to treat COVID-19 patients who developed secondary bacterial pneumonia and other Gram-positive infections while in the hospital.

The Company subsequently compiled a dossier of patient case studies from across the country outlining several real-world instances where Vibativ effectively and safely treated the hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia resulting from MSSA and MRSA infections that developed in patients hospitalized with COVID-19.

Omeclamox-Pak Supply Update

Cumberland has partnered with a select group of FDA-approved facilities to manufacture its line of branded pharmaceutical products.

The Company has been carefully monitoring its supply chain during the pandemic and preparing for its economic impact.

The packager for Cumberland’s Omeclamox-Pak product encountered financial difficulties due to the impact of COVID-19, and their operations are currently suspended.

Cumberland is awaiting resumption of those operations while also exploring other alternatives to restart the product’s packaging.

Cumberland has partnered with a select group of FDA-approved facilities to manufacture its line of branded pharmaceutical products and has been carefully monitoring its supply chain during the pandemic.

The packager for our Omeclamox-Pak product encountered financial difficulties due to the impact of COVID-19, and their operations are currently suspended.

We are awaiting resumption of those operations, while also exploring other alternatives to restart the product’s packaging.

Meanwhile, we informed the FDA of a shortage of the Omeclamox-Pak effective October 14, 2020 and have not provided a date for the availability of new inventory.

Cumberland noted that there is currently some remaining inventory of the product in the distribution channels.

For additional discussion of the risks discussed above, see Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q.

Caldolor Clinical Manuscripts

A non-steroidal anti-inflammatory drug (“NSAID”), Caldolor may be used as the sole method of treatment for mild to moderate pain or as part of a multimodal treatment for severe pain.

In January 2020, we commenced the national launch of our next generation Caldolor ( ibuprofen ) Injection product.

This formulation of Caldolor comes in a ready-to-use bag that may be administered without dilution for pain relief.

This launch follows FDA approval in 2019 of the product's new delivery method.

The new, premixed presentation provides healthcare professionals a formulation that is easy to administer, helping manage the treatment of patient pain and fever, while reducing opioid consumption.

In July 2020, Cumberland announced a study published in the Journal of Orthopedic Trauma , evaluating the efficacy of Caldolor administration in the management of acute pain in orthopedic trauma patients.

The study also measured Caldolor’s ability in minimizing opioid use.

This single-center, randomized, double-blind, placebo-controlled study found that Caldolor (ibuprofen) Injection reduced the quantity of opioids required to manage pain after a traumatic injury with fracture.

In addition, the time to first narcotic medication was longer in the Caldolor group than with hospital standard of care.

Pain was also managed better in the Caldolor group compared to standard of care narcotics.

Additionally, in August 2020, Cumberland announced the results of a review of nine clinical studies evaluating Caldolor.

The comprehensive review was published in the journal Clinical Therapeutics and involved 1,062 adult patients, with 757 receiving Caldolor and 305 receiving placebo or a comparator medication.

The data noted that the use of Caldolor improved post-surgery recovery, decreased surgical stress, and reduced the use of opioids and over-the-counter medication.

The study determined that patients given Caldolor experienced less postoperative pain and decreased opioid use.

Study authors also concluded that the rapid administration and preemptive use of Caldolor should be considered in Enhanced Recovery After Surgery protocols for the management of postoperative pain including that of traumatic origin.

Joint Venture Agreement

In August 2020, Cumberland entered into an agreement with WinHealth Investment (Singapore) Ltd creating WHC Biopharmaceuticals, Pte.

The joint venture will focus on acquiring, developing, registering, and commercializing development stage and commercial stage biopharmaceuticals for China, Hong Kong and other Asian markets.

RediTrex Launch

During late 2018, we completed the submission and filed with the FDA a New Drug Application for our methotrexate products.

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

In November 2020, we provided initial shipments of RediTrex to select accounts and are currently planning a national launch of the product line in the second half of 2021, once additional product supplies are received and market conditions return to normal.

Paycheck Protection Program

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The PPP is administered by the U.S.

Small Business Administration ("SBA").

The loan matures April 14, 2022, and bears interest at a rate of 1.0% per year, payable monthly commencing during November 2020.

Small Business Administration.

The loan matures April 14, 2022 and bears interest at a rate of 1.0% per year, payable monthly.

The loan may be prepaid at any time prior to maturity with no prepayment penalties.

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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.

From the date of funding, we 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.

Cumberland has not laid off or furloughed any employees as a result of the COVID-19 pandemic and, due to assistance from our PPP loan, we currently do not foresee doing so.

In October 2020, the Company submitted a request for the loan’s forgiveness.

The request has been approved by the lender, Pinnacle Bank, and will require the approval of the U.S.

Small Business Administration which we are awaiting.

Ifetroban Phase II Clinical Programs

We have been evaluating our ifetroban product candidate in a series of clinical studies.

We have completed three pilot Phase II studies involving 1) patients suffering from Hepatorenal Syndrome, a life-threatening condition involving liver and kidney failure, 2) patients with Portal Hypertension associated with chronic liver disease and 3) patients suffering from Aspirin-Exacerbated Respiratory Disease, a severe form of asthma.

A follow-up Phase II study is currently underway for this asthma indication.

In addition, we are currently evaluating ifetroban in two pilot Phase II studies of 1) patients with Systemic Sclerosis or scleroderma, a debilitating autoimmune disorder characterized by diffuse fibrosis of the skin and internal organs and 2) patients with cardiomyopathy associated with Duchenne Muscular Dystrophy.

This rare, fatal, genetic neuromuscular disease results in deterioration of the skeletal, heart and lung muscles.

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

Enrollment in our clinical studies was interrupted during 2020 due to the COVID-19 pandemic.

While enrollment of new patients is currently limited, we are working to ensure that patients already entered into a trial continue to receive their study drug.

Many of our clinical study sites have reopened and resumed screening of patients for potential enrollment into our studies.

We are sponsoring Phase II clinical programs which are underway evaluating our ifetroban product candidates in 1) patients with cardiomyopathy associated with Duchenne Muscular Dystrophy, a rare, fatal, genetic neuromuscular disease results in deterioration of the skeletal, heart and lung muscles, 2) Systemic Sclerosis or scleroderma, a debilitating autoimmune disorder characterized by diffuse fibrosis of the skin and internal organs and 3) Aspirin-Exacerbated Respiratory Disease, a severe form of asthma.

In addition, we have completed two pilot Phase II studies involving 1) patients suffering from Hepatorenal Syndrome, a life-threatening condition involving liver and kidney failure and 2) patients with Portal Hypertension associated with chronic liver disease.

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

Enrollment in our clinical studies was interrupted due to the COVID-19 pandemic.

While enrollment of new patients has been limited, many of our clinical study sites have reopened and resumed screening of patients for potential enrollment into our studies.

We are awaiting results from the studies underway before deciding on the best development path for the registration of ifetroban, our first new chemical entity.

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As a result, Cumberland has successfully designed, formulated and completed the preclinical studies for a cholesterol reducing agent for use in the hospital setting.

During 2017, we completed a Phase I study which defined the pharmacokinetic properties and provided a favorable safety profile for this new product candidate.

We completed a Phase I study which defined the pharmacokinetic properties and provided a favorable safety profile for this new product candidate.

The study results and a proposed clinical development plan were discussed with the FDA.

A Phase II study has been initiated and patient enrollment completed.

We have completed the study report, filed it with the FDA and are now determining the next steps for this product development program.

We also completed a Phase II study to further evaluate administration, dosing and pharmacokinetics of the product.

We are now evaluating the next steps for this product development program.

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, fair value of marketable securities, inventories, provision for income taxes, fair value of contingent consideration liability, share-based compensation, research and development expenses and intangible assets.

These estimates, judgments and assumptions are most critical with respect to our accounting for revenue recognition, inventories, fair value of contingent consideration liability associated with a business combination, share-based compensation and intangible assets.

RESULTS OF OPERATIONS

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

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

Three months ended September 30,

Three months ended March 31, 2021 compared to the three months ended March 31, 2020

The following table presents the unaudited interim statements of operations for continuing operations for the three months ended March 31, 2021 and 2020:

Three months ended March 31,

2021 2020 Change

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

Three months ended September 30,

Three months ended March 31,

2021 2020 Change

Kristalose $ 2,994,378 $ 3,311,696 $ (317,318)

Vibativ 5,052,243 2,425,755 2,626,488

Caldolor 1,539,496 1,096,291 443,205

Acetadote 117,191 713,899 (596,708)

Omeclamox-Pak (450,263) 114,770 (565,033)

Kristalose 3,615,557 2,924,237 691,320

Vaprisol 1,134,264 208,763 925,501

Caldolor 1,416,146 1,170,567 245,579

Vibativ 2,813,249 1,451,595 1,361,654

RediTrex (32,252) — (32,252)

Other revenue 182,102 459,560 (277,458)

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Net revenues.

Net revenues for the three months ended September 30, 2020, were $9.3 million compared to $6.9 million for the three months ended September 30, 2019.

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

Vibativ, Kristalose, Omeclamox-Pak, Caldolor and Vaprisol during the quarter.

Net revenues for the three months ended March 31, 2021, were $10.5 million compared to $8.3 million for the three months ended March 31, 2020.

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

Vibativ, Caldolor and Vaprisol during the quarter.

We returned the exclusive rights to commercialize Ethyol and Totect in the United States to Clinigen effective January 1, 2020.

As a result, the 2019 revenues and expenses associated with the products are combined and reclassified into discontinued operations in our financial statements.

In exchange for the return of these product license rights and associated non-compete provisions, Cumberland is receiving $5 million in financial consideration paid over the two-years following the return date.

The third installment of $0.8 million due from Clinigen was recorded during the three months ended September 30, 2020, as discontinued operations.

The installments of $0.5 million and $0.8 million due from Clinigen were recorded during the three months ended March 31, 2021 and March 31, 2020, as discontinued operations, respectively.

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

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

The increase was a result of improved sales volumes.

Kristalose revenue increased by $0.7 million during the third quarter of 2020, when compared to the prior year period.

The increase was primarily the result of increased sales volumes for the product.

Caldolor revenue was $1.4 million for the third quarter of 2020, an increase of $0.2 million compared to the same period last year.

The improvement in net revenue was the result of an increase in international shipments of Caldolor when compared to the prior year period, which were partially offset by lower domestic shipments of the product.

Vaprisol revenue was $0.4 million for the third quarter of 2020, an increase of $0.2 million.

This increase of net sales compared to the third quarter of 2019 is primarily due to increased sales volumes for the product.

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

Vibativ revenue was $5.1 million for the three months ended March 31, 2021, an increase of $2.6 million over the same period last year.

The 108% increase was a result of increased net pricing and improved sales volumes during the period as a result of increased utilization in supporting patients impacted by COVID-19 infections.

Kristalose revenue decreased by $0.3 million during the first quarter of 2021, when compared to the prior year period.

The decrease was primarily the result of decreased sales volumes for the product.

Caldolor revenue was $1.5 million for the first quarter of 2021, an increase of $0.4 million compared to the same period last year.

The 40.4% improvement in net revenue was the result of an increase in international shipments of Caldolor when compared to the prior year period and an improvement in net pricing.

These improvements were partially offset by lower domestic shipments of the product, impacted by COVID-19 and a reduction in elective surgeries.

Vaprisol revenue was $1.1 million for the first quarter of 2021, an increase of $0.9 million.

This increase of net sales compared to the first quarter of 2020 is primarily due to increased sales volumes during the period as a result of increased utilization in supporting patients impacted by COVID-19 infections.

Omeclamox-Pak revenue decreased $0.6 million for the first quarter of 2021, compared to the first quarter of 2020.

The decrease was the result of no sales during the first quarter of 2021 as Cumberland is currently out of commercial inventory of this product.

The packager for our Omeclamox-Pak product encountered financial difficulties due to the impact of COVID-19, and their operations are currently suspended.

We are awaiting resumption of their operations, while also exploring other alternatives to restart the product’s packaging.

Net revenue for the first quarter of 2021 was also negatively impacted by product returns during the period.

Acetadote revenue includes net sales of our Acetadote brand and our share of net sales from our Authorized Generic.

During the quarter, there was a decrease of $0.6 million in the product's revenue when compared to the prior year period as a result of lower sales volumes during the period.

During the quarter, there was a decrease of $0.6 million in the product's revenue when compared to the prior year period as a result of lower sales volumes during the period, impacted by generic competition.

Cost of products sold .

Co st of products sold for the third quarter of 2020 and 2019 were $2.1 million and $1.6 million, respectively.

Cost of products sold, as a percentage of net revenues, were 23.2% during the three months ended September 30, 2020, compared to 22.8% during the three months ended September 30, 2019.

This change in costs of products sold as a percentage of revenue was attributable to a change in the product sales mix, particularly the increase in sales of Vibativ.

The increase in Vibativ costs of product sold in the current period was $0.4 million due to increased product sales.

Co st of products sold for the first quarter of 2021 and 2020 were $2.4 million and $1.6 million, respectively.

Cost of products sold, as a percentage of net revenues, were 22.9% during the three months ended March 31, 2021, compared to 19.6% during the three months ended March 31, 2020.

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 and increased international sales.

The Vibativ inventory sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018.

The increase in costs of product sold expense included $0.2 million that was the result of a step up in the fair value of the inventory over the cost to Theravance, as required under purchase accounting rules.

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 third quarter of 2020 decreased $0.2 million compared to the prior year period.

This decrease is primarily attributable to decreases in direct promotional spending, meeting costs and travel expenses.

There were partially offsetting increases in royalty costs associated with growth in Vibativ sales during the current quarter.

Selling and marketing expense for the first quarter of 2021 increased $0.1 million compared to the prior year period.

This increase is primarily attributable to increases in royalty costs associated with growth in Vibativ sales during the current quarter.

Higher royalty costs were partially offset by decreases in direct promotional spending, meeting costs and travel expenses during the current quarter.

Research and development .

Research and development costs were $1.2 million for the third quarter of 2020 and $1.7 million for the same period last year.

A portion of our research and development costs is variable based on the number of trials, study sites, cost of the per patient study protocol and patients involved in the development of our new product candidates.

Research and development costs were $1.3 million for the first quarter of 2021 and $1.7 million for the same period last year.

A portion of our research and development costs is variable based on the number of trials, study sites, 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.

The decrease in costs were primarily the result of decreased study activity as well as decreases in the costs of our medical science liaison activities partially offset by increases in our annual FDA user fees.

The cost decreases were primarily the result of decreased study activity as well as a decrease in salaries expense associated with a reduction in personnel.

General and administrative .

General and administrative expense for the third quarter of 2020 increased to $2.4 million from $2.0 million during the third quarter of 2019 as a result of increases in business development, professional, legal and insurance costs.

General and administrative expense for the first quarter of 2021 increased to $2.2 million from $2.0 million during the first quarter of 2020 as a result of increases in professional, legal and insurance costs.

These increases were partially offset by decreases in non-cash stock based compensation during the period.

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

Financial Impact of Vibativ Three months ended September 30,

Financial Impact of Vibativ Three months ended March 31,

Net revenue $ 5,052,243 $ 2,425,755

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

Amortization for the three months ended September 30, 2020, and three months ended September 30, 2019, totaled approximately $1.1 million and $1.0 million, respectively.

Amortization for the three months ended March 31, 2021, and three months ended March 31, 2020, totaled approximately $1.2 million and $1.1 million, respectively.

Income taxes .

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

As of September 30, 2020, we had approximately $44 million of net operating loss carryforwards resulting from the exercise of nonqualified stock options that have historically been used to significantly offset income tax obligations.

Income tax expense for the three months ended March 31, 2021, was comparable to the income tax expense for the three months ended March 31, 2020.

As of March 31, 2021, we had approximately $44 million of net operating loss carryforwards resulting from the exercise of nonqualified stock options that have historically been used to significantly offset income tax obligations.

We expect to continue to pay minimal income taxes during 2021 and beyond, through the continued utilization of these net operating loss carryforwards, on any taxable income generated from our operations.

RESULTS OF OPERATIONS

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

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

Nine months ended September 30,

2020 2019 Change

Net revenues $ 27,179,600 $ 25,082,742 $ 2,096,858

Costs and expenses:

Cost of products sold 6,387,002 5,031,732 1,355,270

Selling and marketing 11,160,924 11,231,778 (70,854)

Research and development 4,374,392 4,788,698 (414,306)

General and administrative 6,608,322 6,839,187 (230,865)

Amortization 3,284,610 3,085,139 199,471

Total costs and expenses 31,815,250 30,976,534 838,716

Operating income (loss) (4,635,650) (5,893,792) 1,258,142

Interest income 70,553 195,915 (125,362)

Interest expense (227,730) (216,988) (10,742)

Income (loss) from continuing operations before income taxes (4,792,827) (5,914,865) 1,122,038

Income tax (expense) benefit (45,423) 72,504 (117,927)

Net income (loss) from continuing operations $ (4,838,250) $ (5,842,361) $ 1,004,111

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

Nine months ended September 30,

2020 2019 Change

Acetadote $ 1,527,173 $ 2,608,160 $ (1,080,987)

Omeclamox-Pak 640,435 794,205 (153,770)

Kristalose 10,387,046 9,720,434 666,612

Vaprisol 790,817 724,143 66,674

Caldolor 3,677,434 3,543,166 134,268

Vibativ 8,551,125 6,156,653 2,394,472

Other revenue 1,605,570 1,535,981 69,589

Total net revenues $ 27,179,600 $ 25,082,742 $ 2,096,858

Net revenues.

Net revenues for the nine months ended September 30, 2020, were $27.2 million compared to $25.1 million for the nine months ended September 30, 2019.

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

Vibativ, Kristalose, Caldolor and Vaprisol.

This resulted in an overall 8.4% revenue increase partially offset by decreases in our other two products.

We returned the exclusive rights to commercialize Ethyol and Totect in the United States to Clinigen effective January 1, 2020.

As a result, the 2019 revenues and expenses associated with the products are combined and reclassified into discontinued operations in our financial statements.

In exchange for the return of these product license rights and associated non-compete provision, Cumberland is receiving $5 million in financial consideration paid over the two-years following the return date.

The first three installments totaling $2.3 million due from Clinigen was recorded during the nine months ended September 30, 2020, as discontinued operations.

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

Vibativ revenue was $8.6 million for the nine months ended September 30, 2020, an increase of $2.4 million over the same period last year.

The 38.9% increase in net revenue was a result of improved sales volume for the product.

Kristalose revenue was $10.4 million during the first nine months of 2020, an increase of $0.7 million for the same period last year.

The 7% increase in net revenue was a result of improved sales volume for the product.

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

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

Acetadote revenue includes net sales of our Acetadote brand and our share of net sales from our Authorized Generic.

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

Caldolor revenue was $3.7 million for the first three quarters of 2020, an increase of $0.1 million compared to the same period last year.

The 4% improvement in net revenue was the result of an increase in international shipments of Caldolor when compared to the prior year period, which were partially offset by lower domestic shipments of the product, significantly impacted by COVID - 19 and a reduction in elective surgeries.

Cost of products sold .

Co st of products sold for the first nine months of 2020 and 2019 were $6.4 million and $5.0 million, respectively.

Cost of products sold, as a percentage of net revenues, were 23.5% during the nine months ended September 30, 2020, compared to 20.1% during the nine months ended September 30, 2019.

This change in costs of products sold as a percentage of revenue was attributable to a change in the product sales mix, particularly the increase in sales of Vibativ.

The increase in Vibativ costs of product sold in the current period was $1.0 million due to increased product sales.

The Vibativ inventory sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018.

The increase in costs of product sold expense included $0.5 million that was the result of a step up in the fair value of the inventory over the cost to Theravance, as required under purchase accounting rules.

Selling and marketing .

Selling and marketing expense for the nine months ended September 30, 2020 and 2019 were both $11.2 million.

Overall, there was a small decrease in selling and marketing expenses, with decreases in direct promotional spending, meeting costs and travel expenses.

These decreases were partially offset by increases in salaries as well as increases in royalty costs associated with growth in Vibativ sales during the period.

Research and development .

Research and development costs were $4.4 million for the first nine months of 2020 and $4.8 million for the same period last year.

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

We experienced a decrease in study activity offset by increases in our annual FDA user fees.

General and administrative .

General and administrative expense for the nine months ended September 30, 2020, decreased to $6.6 million from $6.8 million during the nine months ended September 30, 2019 as a result of decreases in advisory, legal and professional fees.

We also experienced a reduction in non-cash stock based compensation during the period.

A portion of these decreased costs were for 2019 expenses related to our acquisition of Vibativ.

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

Financial Impact of Vibativ Nine months ended September 30,

Net revenue $ 8,551,125 $ 6,156,653

Cost of products sold (1)

2,765,810 1,760,759

Royalty and operating expenses 1,325,199 1,033,900

Vibativ contribution $ 4,460,116 $ 3,361,994

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

Amortization.

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

Amortization for the nine months ended September 30, 2020, and nine months ended September 30, 2019, totaled approximately $3.3 million and $3.1 million, respectively.

Income taxes .

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

LIQUIDITY AND CAPITAL RESOURCES

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We believe that our internally generated cash flows, existing working capital and our line of credit will be adequate to finance internal growth, finance business development initiatives, and fund capital expenditures for the foreseeable future.

We invest a portion of our cash reserves in marketable securities including short-term cash investments, U.S.

Treasury notes and bonds, corporate bonds and commercial paper.

At September 30, 2020 and December 31, 2019, all our investments had original maturities of less than ninety days and as a result were classified as cash equivalents.

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

September 30, 2020 December 31, 2019

The following table summarizes our liquidity and working capital as of March 31, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020

Cash and cash equivalents $ 24,922,925 $ 24,753,796

Marketable securities — —

Total cash, cash equivalents and marketable securities $ 26,646,530 $ 28,212,635

Working capital (current assets less current liabilities) $ 26,535,447 $ 24,302,146

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Revolving line of credit availability $ — $ —

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

Nine months ended September 30,

The following table summarizes our net changes in cash and cash equivalents for the three months ended March 31, 2021 and March 31, 2020:

Three months ended March 31,

Net cash provided by (used in):

2 unchanged sentences

Financing activities (1,298,079) (1,503,279)

Net decrease in cash and cash equivalents $ (1,566,105) $ (960,536)

The net $1.6 million decrease in cash and cash equivalents for the nine months ended September 30, 2020, was primarily attributable to cash used in investing and financing activities.

Net increase (decrease) in cash and cash equivalents $ 169,129 $ (1,185,901)

The net $0.2 million increase in cash and cash equivalents for the three months ended March 31, 2021, was primarily attributable to cash provided by operating activities, partially offset by cash used in investing and financing activities.

Cash provided by operating activities of $1.8 million was positively impacted by decreases in inventory of $1.9 million, as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $1.4 million.

Cash used by investing activities was the result of additions to intangibles of $1.8 million, equipment of $0.1 million and the payment of $1.0 million to Nordic.

Our financing activities included the net repayment of $1.5 million on our revolving line of credit, the $1.6 million in cash used to repurchase shares of our common stock as well as the $0.8 million used for the repurchase of a portion of CET's shares.

The net $1.0 million decrease in cash and cash equivalents for the nine months ended September 30, 2019 was attributable to cash used in financing activities, partially offset by the $2.2 million and the $0.4 million in cash provided by operating and investing activities, respectively.

Cash provided by operating activities of $2.2 million was positively impacted by the decrease in inventory as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $4.4 million.

Cash provided by investing activities was increased by net sales of marketable securities of $6.1 million, partially offset by the $5.0 million payment to Theravance as part of the acquisition of Vibativ and the additions to intangibles of $0.5 million.

Our financing activities reflected the $2.6 million in cash used to repurchase shares of our common stock.

Cash used by investing activities was the result of additions to intangibles of $0.1 million and the payment of $0.2 million to the WHC JV.

Our financing activities included the $0.3 million in cash used to repurchase shares of our common stock as well as the $1.0 million used for the payment of royalties to Theravance for sales of Vibativ.

The net $1.2 million decrease in cash and cash equivalents for the three months ended March 31, 2020 was primarily attributable to cash used in investing and financing activities.

Cash provided by operating activities of $0.9 million was positively impacted by decreases in accounts receivable of $2.0 million and inventory of $0.7 million, as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $1.4 million.

This was partially offset by a decrease in accounts payable of $2.4 million.

Cash used in investing activities was the result of additions to intangibles of $0.5 million.

Our financing activities reflected the $0.4 million in cash used to repurchase shares of our common stock as well as the $0.8 million used for the repurchase of subsidiary shares.

Debt Agreement

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The Third Amendment extended the term of the Pinnacle Agreement through July 31, 2021, as well as modified certain definitions and terms of the existing financial covenants.

On October 17, 2018, we entered into a second amendment (“Second Amendment”) which increased the maximum aggregate principal available for borrowing under the Pinnacle Agreement to $20.0 million.

For a summary of the material terms of the Pinnacle Agreement, as amended, see Note 6 to the accompanying unaudited condensed consolidated financial statements.

3 unchanged sentences

Both Third Amendment modifications were related to the Vibativ transaction.

We were in compliance with the Tangible Capital Ratio financial covenant as of September 30, 2020.

We were in compliance with the Tangible Capital Ratio financial covenant as of March 31, 2021.

We expect to maintain compliance with the Tangible Capital Ratio financial covenant in future periods.

3 unchanged sentences

From the date of funding we have used the loan amount for such qualifying expenses.

From the date of funding we used the loan amount for such qualifying expenses.

Cumberland has not laid off or furloughed any employees as a result of the COVID-19 pandemic and, based on assistance from our PPP loan, we currently do not foresee doing so.

3 unchanged sentences

OFF-BALANCE SHEET ARRANGEMENTS

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

During the three months ended March 31, 2021 and 2020, we did not engage in any off-balance sheet arrangements.

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-Q

Item 2. Management’s Discussion and Analysis