What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-13 compared with 2021-05-14 · 209 added, 129 removed, 165 unchanged (67% of the section changed)

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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.

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

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 poorly met medical needs.

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

We promote our approved products through our hospital 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.

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pylori ) infection and related duodenal ulcer disease;

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

• 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.

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

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.

In addition to these commercial brands, we have Phase II clinical programs underway evaluating our ifetroban product candidates being used by 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 the development and commercialization of pharmaceutical products.

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

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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.

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

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

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

CET partners with academic research institutions to identify and progress promising, new product candidates, which Cumberland has the opportunity to further develop and commercialize.

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

Support and expand the use of our marketed products.

We continue to evaluate our products following their FDA approval to determine if additional clinical data could expand their market and use.

CET partners with academic research institutions to identify and support the progress of promising new product candidates, which Cumberland has the opportunity to further develop and commercialize.

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

Supporting and expanding the use of our marketed products - We continue to evaluate our products following their FDA approval to determine if additional clinical data could expand their market and use.

We will continue to explore opportunities for label expansion to bring our products to new patient populations.

As examples, we have secured pediatric approvals, expanding the labeling for both our Acetadote and Caldolor brands.

Selectively add complementary brands.

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

As examples, we have secured pediatric approval, expanding the labeling for both our Acetadote and Caldolor brands.

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

We focus on under-promoted, FDA-approved drugs as well as late-stage development products that address poorly met medical needs.

We will continue to target product acquisition candidates that are competitively differentiated, have valuable intellectual property or other protective features, and allow us to leverage our existing infrastructure.

Our acquisition of Vibativ represents the largest product acquisition we have completed.

Progress clinical pipeline and incubate future product opportunities at CET.

We believe it is important to build a pipeline of innovative new product opportunities.

Our ifetroban Phase II development programs represent the implementation of this strategy.

At CET, we are supplementing our acquisition and late-stage development activities with the early-stage drug development activities.

Our acquisition of Vibativ is an example of this strategy.

Progressing our clinical pipeline and incubating future product opportunities at CET - We believe it is important to build a pipeline of innovative new product opportunities, such as we are doing through our ifetroban Phase II development programs.

We are also supplementing our acquisition and late-stage development activities with early-stage drug development activities at CET.

CET partners with universities and other research organizations to develop promising, early-stage product candidates, which Cumberland has the opportunity to further develop and commercialize.

Leverage our infrastructure through co-promotion partnerships.

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

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

Our co-promotion partnership with Poly Pharmaceuticals, Inc.

Leveraging our infrastructure through co-promotion partnerships - We believe that our commercial infrastructure can help drive prescription volume and product sales.

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

For example, our co-promotion 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 cover the U.S.

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

Building an international market - We have established our own commercial capabilities, including two sales divisions, to cover the U.S.

market for our products.

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The acquisition of Vibativ resulted in several new international partners and market opportunities.

Manage our operations with financial discipline.

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

Managing our operations with financial discipline - 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.

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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.

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

The Company has managed through the COVID-19 pandemic, 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.

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

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

Throughout the pandemic, we carefully monitored our supply chain, including the flow of raw materials into the plants that manufacture our products, as well as the batches of finished products 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 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.

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.

However, we are fortunate to have a diversified product portfolio that includes other brands, such as Vaprisol, that delivered a strong performance during the pandemic.

We have responded to the pandemic with a fast and coordinated approach to ensure the health and safety of our team.

We were also able to continue the delivery of our products, while addressing the interests of our shareholders, employees, partners and community.

In July 2021, we released our second annual Sustainability Report ("ESG Report"), which details Cumberland’s activities pertaining to environmental, social and governance (“ESG”) matters.

After issuing our inaugural ESG report last year, we remain committed to sustainability and to maintaining transparency of our corporate operations.

As the largest biopharmaceutical company founded and headquartered in the Mid-South, we hold ourselves to the highest standards of ethical practices and understand the importance of recognizing and addressing our impact on our constituents, the community and the environment.

The ESG Report notes that in 2020 we provided nearly 2.5 million patient doses of our products, safely disposed of over 4,000 pounds of expired and damaged products and had no product recalls.

We also had no Company brands that were listed on the FDA’s MedWatch Safety Alerts for Human Medical Products, no Company product issues that were identified by FDA from their Adverse Event Reporting System and no clinical trials that were terminated due to failure to practice good clinical standards.

The ESG Report also highlights several initiatives we implemented as part of our commitment to delivering high-quality pharmaceutical products to improve patient care.

For example, we continued a program to serialize all commercial products sold in the United States, allowing us to track every unit distributed, which helps to prevent counterfeit drugs from entering the market under the Cumberland brand.

In addition, through our coupon program, Cumberland covers up to 90% of patient prescription costs for our gastrointestinal products.

The ESG Report also highlights our investment in our employees through our continuing education programs, employee development initiatives and employee recognition awards.

Cumberland’s workforce is 46% women – and 18% of our employees are minorities.

New Chief Financial Officer Appointment

On May 17, 2021, Cumberland appointed John Hamm as the new Senior Director Finance & Accounting and Chief Financial Officer.

In this role, he will manage all of the Company’s finance and accounting activities while continuing to oversee corporate development and legal matters.

Hamm has more than 25 years of finance and accounting experience, including 20 years in health care.

He previously held the positions of Chief Operating Officer and Chief Financial Officer, Pharmacy at HealthSpring, Inc., a managed care organization now operating as Cigna-HealthSpring.

He was also the Vice President Finance at Emdeon Business Services.

Emdeon Inc., a healthcare technology firm now operates as Change Healthcare Inc., a NASDAQ listed company with over $3 billion in annual revenue.

Hamm holds a Bachelor of Science in Business Administration with a minor in Accounting from Wheeling University.

He earned his Master’s in Business Administration with an emphasis in Accounting from West Virginia University.

He is a Certified Management Accountant (CMA) and Certified Financial Manager (CFM).

Prior to this new appointment, Mr.

Hamm served as Cumberland’s Director Corporate Development.

Paycheck Protection Program

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The PPP is administered by the U.S.

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.

Funds from the loan are to be used to maintain payroll, continue group health care benefits and pay for rent and utilities.

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

From the date of funding, we 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.

Small Business Administration (“SBA”).

Pursuant to the PPP requirements, loan funds were used to maintain payroll, continue group health care benefits, and pay for rent and utilities during the pandemic.

We applied for this loan after carefully considering, with our bank, the eligibility criteria to participate in this program, and determining that Cumberland met those 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, 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

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.

Cumberland used the PPP loan funds for such qualifying expenses.

Due to assistance from our PPP loan, the Company did not lay off or furlough any employees as a result of the COVID-19 pandemic.

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

On June 11, 2021, the Company received a formal notice from the SBA that the full amount of the loan was forgiven.

RediTrex Launch

During late 2018, we completed the submission of and filed with the U.S.

Food and Drug Administration (“FDA”) a New Drug Application for RediTrex, our methotrexate products.

RediTrex is a new line of pre-filled syringes specifically designed for ease of handling and dosing accuracy for the subcutaneous administration of methotrexate in patients with arthritis and psoriasis.

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

We provided initial shipments of RediTrex to select accounts in November 2020 and we are planning to launch the product line nationally in late September 2021.

Ifetroban Phase II Studies

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

We are sponsoring Phase II clinical programs to evaluate our ifetroban product candidates in 1) patients with cardiomyopathy associated with Duchenne Muscular Dystrophy, a rare, fatal, genetic neuromuscular disease that 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.

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

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

Omeclamox-Pak Supply Update

The packager for our Omeclamox-Pak product encountered financial difficulties, and their operations are currently suspended.

We are awaiting the 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.

Generic IV Acetaminophen

Four generic companies have launched acetaminophen for injection products that provide an alternative to our Caldolor product for the treatment of acute surgical pain.

Despite the challenges of operating during a pandemic, Cumberland remains committed to our mission of providing innovative products that improve the quality of care for patients and address poorly met medical needs.

We are working to fulfill this mission by building a portfolio of innovative and differentiated products through a multifaceted strategy that includes development of new candidates and acquisition of established brands.

Our resulting, diversified product line has enabled us to weather external challenges, while our team has remained responsive to the evolving medical market.

We are prepared for and look forward to future opportunities to carry out our mission.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

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RESULTS OF OPERATIONS

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,

Three months ended June 30, 2021 compared to the three months ended June 30, 2020

The following table presents the unaudited interim statements of operations for continuing operations for the three months ended June 30, 2021 and 2020:

Three months ended June 30,

2021 2020 Change

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Interest income 6,591 28,661 (22,070)

Other income 2,187,140 — 2,187,140

Interest expense (25,859) (119,455) 93,596

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

Three months ended March 31,

Three months ended June 30,

2021 2020 Change

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Caldolor 938,328 1,166,569 (228,241)

Vaprisol 399,952 174,159 225,793

Acetadote 152,781 595,310 (442,529)

Omeclamox-Pak (24,109) 10,948 (35,057)

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

RediTrex 7,382 — 7,382

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Net revenues.

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.

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 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 $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.

Net revenues for the three months ended June 30, 2021, were $9.1 million compared to $9.6 million for the three months ended June 30, 2020.

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

Kristalose and Vaprisol during the quarter.

Kristalose revenue increased by 51.7% during the second quarter of 2021 to $5.3 million, when compared to the prior year period.

The increase was primarily the result of growth in shipments of the product to our wholesale customers.

Vaprisol revenue was $0.4 million for the second quarter of 2021, an increase of $0.2 million.

This increase of net sales compared to the second quarter of 2020 is primarily due to increased utilization in supporting patients impacted by COVID-19 infections.

Caldolor revenue was $0.9 million for the second quarter of 2021, a decrease of $0.2 million compared to the same period last year.

The decrease was the result of lower international shipments of the product, due to order timing.

Vibativ revenue was $1.8 million for the three months ended June 30, 2021, compared to $3.3 million the same period last year.

The decrease was a result of decreased domestic and international sales volumes during the period due to order timing.

Omeclamox-Pak had no sales for the second quarter of 2021, as Cumberland is currently out of commercial inventory of this product.

The packager for our Omeclamox-Pak product encountered financial difficulties, and currently is under new management and a reorganization.

We are in discussions about the resumption of packaging the product.

Net revenue for the second quarter of 2021 was 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.

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Cost of products sold .

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.

Co st of products sold for the second quarter of 2021 and 2020 were $1.7 million and $2.6 million, respectively.

Cost of products sold, as a percentage of net revenues, were 19.2% during the three months ended June 30, 2021, compared to 27.2% during the three months ended June 30, 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 decrease 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 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.

Selling and marketing expense for the second quarter of 2021 increased $0.3 million compared to the prior year period.

This increase is primarily attributable to an increase in marketing spending for RediTrex and Vibativ.

Lower royalty costs were partially offset by an increase in direct promotional spending, meeting costs and travel expenses during the second quarter of 2021.

Research and development .

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

Research and development costs were $1.4 million for the second quarter of 2021 and approximately the same as 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 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 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.

General and administrative expense for the second quarter of 2021 were $2.1 million, consistent with the second quarter of 2020.

There were increases in professional, legal and insurance costs which were offset by decreases in non-cash stock based compensation during the second quarter of 2021.

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

Financial Impact of Vibativ Three months ended March 31,

Financial Impact of Vibativ Three months ended June 30,

Net revenue $ 1,844,936 $ 3,299,507

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

Amortization for the three months ended June 30, 2021, and three months ended June 30, 2020, totaled approximately $1.2 million and $1.1 million, respectively.

Income taxes .

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.

Income tax expense for the three months ended June 30, 2021, was comparable to the income tax expense for the three months ended June 30, 2020.

As of June 30, 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

Six months ended June 30, 2021 compared to the six months ended June 30, 2020

The following table presents the unaudited interim statements of operations for continuing operations for the six months ended June 30, 2021 and 2020:

Six months ended June 30,

2021 2020 Change

Net revenues $ 19,592,642 $ 17,928,911 $ 1,663,731

Costs and expenses:

Cost of products sold 4,157,978 4,244,163 (86,185)

Selling and marketing 7,909,157 7,573,082 336,075

Research and development 2,617,765 3,144,057 (526,292)

General and administrative 4,327,639 4,227,048 100,591

Amortization 2,340,132 2,167,524 172,608

Total costs and expenses 21,352,671 21,355,874 (3,203)

Operating income (loss) (1,760,029) (3,426,963) 1,666,934

Interest income 12,017 58,549 (46,532)

Other income 2,187,140 — 2,187,140

Interest expense (50,276) (152,520) 102,244

Income (loss) from continuing operations before income taxes 388,852 (3,520,934) 3,909,786

Income tax (expense) benefit (14,917) (41,695) 26,778

Net income (loss) from continuing operations $ 373,935 $ (3,562,629) $ 3,936,564

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

Six months ended June 30,

2021 2020 Change

Kristalose $ 8,269,443 $ 6,771,433 $ 1,498,010

Vibativ 6,897,179 5,721,708 1,175,471

Caldolor 2,477,824 2,261,286 216,538

Vaprisol 1,534,216 382,016 1,152,200

Acetadote 269,972 1,308,711 (1,038,739)

Omeclamox-Pak (474,371) 124,371 (598,742)

RediTrex (24,870) — (24,870)

Other revenue 643,249 1,359,386 (716,137)

Total net revenues $ 19,592,642 $ 17,928,911 $ 1,663,731

Net revenues.

Net revenues for the six months ended June 30, 2021, were $19.6 million compared to $17.9 million for the six months ended June 30, 2020.

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

Kristalose, Vibativ, Caldolor and Vaprisol during the first six months of 2021 resulting in an overall 9.3% revenue increase.

Kristalose revenue was $8.3 million during the first six months of 2021, an increase of $1.5 million when compared with the prior year period.

Revenue increased due to continued strong sales volume from our Foxland distributor and other wholesalers.

Vibativ revenue was $6.9 million for the six months ended June 30, 2021, an increase of $1.2 million over the same period last year.

The 20.5% increase in net revenue was a result of improved sales volume for the product during the first quarter 2021.

Vaprisol revenue was $1.5 million for the first six months of 2021, which is an increase of net sales of $1.2 million compared to the first six months of 2020 primarily due to increased sales volumes which is the result of increased utilization in supporting patients impacted by COVID-19 infections.

Omeclamox-Pak had no sales for the six months ended June 30, 2021, as Cumberland is currently out of commercial inventory of this product.

The packager for our Omeclamox-Pak product encountered financial difficulties and currently is under new management and a reorganization.

We are in discussions about the resumption of packaging the product.

Net revenue for the first two quarters of 2021 was 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.

There was a decrease of $1.0 million in the product's year to date revenue for the six months ended June 30, 2021, when compared to the prior year period as a result of lower sales volumes for our Authorized Generic.

Caldolor revenue was $2.5 million for the first two quarters of 2021, an increase of $0.2 million compared to the same period last year.

Domestic shipments of the product increased in the second quarter of 2021.

Cost of products sold .

Co st of products sold for the first six months of 2021 and 2020 were both $4.2 million remaining consistent.

Selling and marketing .

Selling and marketing expense for the six months ended June 30, 2021, increased $0.3 million compared to the prior year period.

This increase is primarily attributable to increases in royalty costs as well as an increase in salaries and dispensing fees.

These increases were partially offset by decreases in direct sales promotion costs and travel expenses.

Research and development .

Research and development costs were $2.6 million for the first six months of 2021 compared to $3.1 million for the same period last year.

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

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

We experienced a decrease in study activity and salaries offset by an increase in our consulting fees.

General and administrative .

General and administrative expense for the six months ended June 30, 2021, remained consistent with $4.3 million from $4.2 million during the six months ended June 30, 2020.

Although we experienced increases in advisory, legal and professional fees, we also had a reduction in non-cash stock based compensation and other benefits during the period.

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

Financial Impact of Vibativ Six months ended June 30,

Net revenue $ 6,897,179 $ 5,721,708

Cost of products sold (1)

2,134,962 1,820,745

Royalty and operating expenses 1,170,165 753,177

Vibativ contribution $ 3,592,052 $ 3,147,786

(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 six months ended June 30, 2021, and six months ended June 30, 2020, totaled approximately $2.3 million and $2.2 million, respectively.

Income taxes .

Income tax expense (benefit) for the six months ended June 30, 2021, as a percentage of income (loss) from continuing operations before income taxes, was (3.8)% compared to (1.2)% for the six months ended June 30, 2020.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital

Our primary sources of liquidity are cash flows provided by our operations, the proceeds from the Paycheck Protection Program loan, the amounts borrowed and available under our line of credit and the cash proceeds from our initial public offering of common stock that was completed in August 2009.

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

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

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

March 31, 2021 December 31, 2020

The following table summarizes our liquidity and working capital as of June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

Cash and cash equivalents $ 25,670,462 $ 24,753,796

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Revolving line of credit availability $ 1,000,000 $ —

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,

The following table summarizes our net changes in cash and cash equivalents for the six months ended June 30, 2021 and June 30, 2020:

Six months ended June 30,

Net cash provided by (used in):

3 unchanged sentences

Net increase (decrease) in cash and cash equivalents $ 916,666 $ (838,898)

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 $0.1 million and the payment of $0.2 million to the WHC JV.

The net $0.9 million increase in cash and cash equivalents for the six months ended June 30, 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 $4.5 million was positively impacted by decreases in inventory of $2.3 million and accounts receivable of $3.2 million, as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $2.8 million.

Operating activities were also offset by the decrease in accounts payable of $3.0 million and the forgiveness of our PPP Loan of $2.2 million.

Cash used in 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 $0.8 million in cash used to repurchase shares of our common stock as well as the $1.4 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.

The net $0.8 million decrease in cash and cash equivalents for the six months ended June 30, 2020, was primarily attributable to cash used in investing and financing activities.

Cash provided by operating activities of $3.7 million was positively impacted by decreases in inventory of $1.2 million, as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $2.9 million.

Cash used in investing activities was the result of additions to intangibles of $0.7 million and equipment of $0.1 million.

Our financing activities included the net repayment of $1.5 million on our revolving line of credit, the $1.2 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

On October 7, 2020, we entered into a Fourth Amendment (“Fourth Amendment”) to the Revolving Credit Loan Agreement with Pinnacle Bank (the “Pinnacle Agreement”).

On October 7, 2020, we entered into a Fourth Amendment (“Fourth Amendment”) to the Revolving Credit Loan Agreement, dated July 28, 2017, 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.

1 unchanged sentence

If fully expanded, the Fourth Amendment would provide a maximum principal available for borrowing of up to $20 million.

On May 10, 2019, we entered into a third amendment ("Third Amendment") to the Revolving Credit Loan Agreement, dated July 28, 2017, with Pinnacle Bank (“Pinnacle Agreement”).

On May 10, 2019, we entered into a third amendment ("Third Amendment") to the 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.

4 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 March 31, 2021.

We were in compliance with the Tangible Capital Ratio financial covenant as of June 30, 2021.

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

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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.

In October 2020, we submitted a request for forgiveness of the PPP loan.

The request was approved by the lender, Pinnacle Bank, who then submitted it to the U.S.

Small Business Administration ("SBA") for the SBA's review and approval.

Cumberland used the PPP loan funds for such qualifying expenses.

Due to assistance from our PPP loan, the Company did not lay off or furlough any employees as a result of the COVID-19 pandemic.

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

On June 11, 2021, the Company received a formal notice from the SBA that the full amount of the loan was forgiven.

OFF-BALANCE SHEET ARRANGEMENTS

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

During the six months ended June 30, 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