CUMBERLAND PHARMACEUTICALS INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Disclosure regarding forward-looking statements The following discussion contains certain forward-looking statements which reflect management’s current views of future events and operations. These statements involve certain risks and uncertainties, and actual results may differ materially from them. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ significantly from the results discussed in these forward-looking statements. Some important factors which may cause results to differ from expectations include: availability of additional debt and equity capital; market conditions at the time additional capital is required; our ability to continue to acquire branded products; product sales; management of our growth and integration of our acquisitions and impacts on our business as well as national and international markets and economies resulting from the COVID-19 pandemic. While forward-looking statements reflect our beliefs and best judgment based upon current information, they are not guarantees of future performance. Other important factors that may cause actual results to differ materially from forward-looking statements are discussed in the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” of our Annual Report on Form 10-K for the year ended December 31, 2020, and our other filings with the SEC. We do not undertake to publicly update or revise any of our forward-looking statements, even in the event that experience or future changes indicate that the anticipated results will not be realized. The following presentation of management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this report on Form 10-Q. 15 OVERVIEW Our Business Cumberland Pharmaceuticals Inc. (“Cumberland,” the “Company,” or as used in the context of “we,” “us,” or “our”), is a specialty pharmaceutical company focused on the acquisition, development and commercialization of branded prescription products. 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 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. Our portfolio of FDA approved brands include: • Acetadote ® ( acetylcysteine ) Injection, for the treatment of acetaminophen poisoning; • Caldolor ® ( ibuprofen ) Injection, for the treatment of pain and fever; • Kristalose ® ( lactulose ) for Oral Solution, a prescription laxative, for the treatment of chronic and acute constipation; • Omeclamox ® -Pak , ( omeprazole, clarithromycin, and amoxicillin ) for the treatment of Helicobacter pylori ( H. pylori ) infection and related duodenal ulcer disease; • 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; and • Vibativ ® ( telavancin ) Injection, for the treatment of certain serious bacterial infections including hospital-acquired and ventilator-associated bacterial pneumonia, as well as complicated skin and skin structure infections. In addition to these commercial brands, we have Phase II clinical programs underway evaluating our ifetroban product candidates 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. 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 product formulations, manages our clinical studies, prepares all regulatory submissions and staffs our medical call center. Our quality and manufacturing professionals oversee the manufacturing, release and shipment of our products. Our marketing and sales team is responsible for our commercial activities, and we work closely with our distribution partners to ensure availability and delivery of our products. 16 Growth Strategy Cumberland's growth strategy involves maximizing the potential of our existing brands while continuing to build a portfolio of differentiated products. We currently 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. 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 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 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 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. 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 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. We are also building a network of select international partners to register our products and make them available to patients in their countries. We will continue to develop and expand our network of international partners while supporting our partners’ registration and commercialization efforts in their respective territories. The acquisition of Vibativ resulted in several new international partners and market opportunities. Managing our operations with financial discipline - We continually work to manage our expenses in line with our revenues 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. During 2009, we completed an initial public offering of our common shares and listing on the Nasdaq stock exchange. Our website address is www.cumberlandpharma.com. We make available through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all material press releases and other reports as soon as reasonably practicable after their filing with the U.S. Securities and Exchange Commission, (“SEC”). These filings are also available to the public at www.sec.gov . 17 RECENT DEVELOPMENTS COVID-19 Pandemic In March 2020, the U.S. 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 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 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. ESG Report 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. 18 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. Mr. 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. Mr. 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 On April 20, 2020, Cumberland received the funding of a loan from Pinnacle Bank in the aggregate amount of $2,187,140 pursuant to the Paycheck Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which was enacted March 27, 2020. The PPP is administered by the U.S. Small Business Administration (“SBA”). 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. 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 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. 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 that is associated with chronic liver disease. 19 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. New Hospital Product Candidate Cumberland was responsible for the formulation, development and FDA approval of both Acetadote and Caldolor. Our Medical Advisory Board has helped us identify additional opportunities that address unmet or poorly met medical needs. As a result, Cumberland has successfully designed, formulated and completed the preclinical studies for a cholesterol-reducing agent for use in the hospital setting. 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. 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. 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, 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. Summary 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. 20 CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES Please see a discussion of our critical accounting policies and significant judgments and estimates in Note 1 to the Company's Condensed Consolidated Financial Statements accompanying this report and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Annual Report on Form 10-K. Accounting Estimates and Judgments The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. We base our estimates on past experience and on other factors we deem reasonable given the circumstances. Past results help form the basis of our judgments about the carrying value of assets and liabilities that cannot be determined from other sources. Actual results could differ from these estimates. These estimates, judgments and assumptions are most critical with respect to our accounting for revenue recognition, inventories, fair value of contingent consideration liability associated with a business combination, share-based compensation and intangible assets. 21 RESULTS OF OPERATIONS 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 Net revenues $ 9,055,483 $ 9,598,177 $ (542,694) Costs and expenses: Cost of products sold 1,740,649 2,609,982 (869,333) Selling and marketing 4,121,817 3,865,406 256,411 Research and development 1,360,398 1,421,502 (61,104) General and administrative 2,097,130 2,190,764 (93,634) Amortization 1,171,218 1,091,485 79,733 Total costs and expenses 10,491,212 11,179,139 (687,927) Operating income (loss) (1,435,729) (1,580,962) 145,233 Interest income 6,591 28,661 (22,070) Other income 2,187,140 — 2,187,140 Interest expense (25,859) (119,455) 93,596 Income (loss) from continuing operations before income taxes 732,143 (1,671,756) 2,403,899 Income tax (expense) benefit (7,459) (7,455) (4) Net income (loss) from continuing operations $ 724,684 $ (1,679,211) $ 2,403,895 The following table summarizes net revenues by product for the periods presented: Three months ended June 30, 2021 2020 Change Products: Kristalose $ 5,275,065 $ 3,477,471 $ 1,797,594 Vibativ 1,844,936 3,299,507 (1,454,571) 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) RediTrex 7,382 — 7,382 Other revenue 461,148 874,213 (413,065) Total net revenues $ 9,055,483 $ 9,598,177 $ (542,694) Net revenues. 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. 22 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. During the quarter, there was a decrease of $0.4 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 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. Selling and marketing . 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 $1.4 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. General and administrative . 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 June 30, 2021 2020 Net revenue $ 1,844,936 $ 3,299,507 Cost of products sold (1) 678,146 1,220,054 Royalty and operating expenses 767,813 834,395 Vibativ contribution $ 398,977 $ 1,245,058 (1) The Vibativ inventory included in the costs of product sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018. Amortization. Amortization expense is the ratable use of our capitalized intangible assets including product and license rights, patents, trademarks and patent defense costs. Amortization for the three months ended 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 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. 23 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 Products: 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. 24 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, 2021 2020 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. 25 LIQUIDITY AND CAPITAL RESOURCES Working Capital 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 June 30, 2021 and December 31, 2020: June 30, 2021 December 31, 2020 Cash and cash equivalents $ 25,670,462 $ 24,753,796 Working capital (current assets less current liabilities) $ 28,033,715 $ 24,302,146 Current ratio (multiple of current assets to current liabilities) 2.5 1.9 Revolving line of credit availability $ 1,000,000 $ — 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, 2021 2020 Net cash provided by (used in): Operating activities $ 4,484,770 $ 3,704,071 Investing activities (366,854) (773,014) Financing activities (3,201,250) (3,769,955) Net increase (decrease) in cash and cash equivalents $ 916,666 $ (838,898) 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 $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. 26 Debt 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. We also have the ability to request an increase of up to an additional $5 million, upon the satisfaction of certain conditions and approval by Pinnacle Bank. If fully expanded, the Fourth Amendment would provide a maximum principal available for borrowing of up to $20 million. On May 10, 2019, we entered into a third amendment ("Third Amendment") to the Pinnacle Agreement. 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. For a summary of the material terms of the Pinnacle Agreement, as amended, see Note 6 to the accompanying unaudited condensed consolidated financial statements. Under the Pinnacle Agreement, we were initially subject to one financial covenant, the maintenance of a Funded Debt Ratio. On August 14, 2018, we amended the Pinnacle Agreement ("First Amendment") to replace the single financial covenant with the maintenance of either the Funded Debt Ratio or a Tangible Capital Ratio, as defined in the First Amendment. The Third Amendment modified the definition of the Funded Debt Ratio and the compliance target of the Tangible Capital Ratio. Both Third Amendment modifications were related to the Vibativ transaction. We were in compliance with the Tangible Capital Ratio financial covenant as of June 30, 2021. We expect to maintain compliance with the Tangible Capital Ratio financial covenant in future periods. Paycheck Protection Program Loan On April 20, 2020, Cumberland received the funding of a loan from Pinnacle Bank in the aggregate amount of $2,187,140 pursuant to the Paycheck Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was enacted March 27, 2020. For a summary of the material terms of the Paycheck Protection Program loan, see Note 6 to the accompanying unaudited condensed consolidated financial statements. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, covered rent payments, and covered utilities. 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. 27 OFF-BALANCE SHEET ARRANGEMENTS During the six months ended June 30, 2021 and 2020, we did not engage in any off-balance sheet arrangements.