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 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 partnerships have 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 early 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 resulting COVID-19 pandemic, continuing to operate our business – keeping facilities open and our organization intact. We moved quickly to ensure the health and safety of our team. 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. We carefully monitored our supply chain, including the flow of raw materials and the batches of finished products emerging from the facilities that manufacture our products. 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 that have delivered a strong performance during the pandemic. Overall, we have been able to continue the delivery of our products while addressing the interests of our shareholders, employees, partners and community. RediTrex Launch In late 2019, we received approval from the U.S. Food and Drug Administration (“FDA”) for our New Drug Application for RediTrex, our methotrexate product line. 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 late 2020, we received initial product supplies and then provided shipments of RediTrex to select accounts. Due to the pandemic, we delayed the national launch of the product, which was implemented during the third quarter of 2021. RediTrex treats patients with severe, active rheumatoid arthritis, and polyarticular juvenile idiopathic arthritis who have difficulty tolerating or responding to orally delivered methotrexate. It is also approved for symptomatic control of severe, recalcitrant, disabling psoriasis in adults who are not adequately responsive to other forms of therapy. With more than 54 million Americans living with some form of arthritis, the disease is among the most common causes of work disability in the U.S., according to the CDC. The oral form of methotrexate is typically the first line of treatment for rheumatoid arthritis. As the disease progresses, the dose must be increased to stay effective, often causing intolerable gastrointestinal side effects. Injectable methotrexate has been proven to be more effective than oral delivery, with fewer gastrointestinal reactions. Because of the increased efficacy and tolerability, injectable methotrexate can delay the need to move to costly biologics, lowering overall patient treatment costs. Once disease progression requires the use of biologics, continuing the treatment of injectable methotrexate along with the biologic has been shown to increase overall efficacy. Other injectable methotrexate options available may not optimally meet the needs of arthritis patients who are offered either a vial and syringe for self-injection, or the use of an expensive autoinjector. The vial and syringe method can be difficult for a patient to handle due to limited dexterity in their hands. Additionally, obtaining the exact dose needed while preventing skin exposure to the caustic methotrexate can be quite challenging for many patients. The autoinjectors provide a better alternative to the vial and syringe, but they remove injection control from the patient and can be painful to administer. They are also the most expensive methotrexate delivery. 18 ESG Report In July 2021, we released our second annual Sustainability Report (the "2020 Sustainability Report"), which details Cumberland’s activities pertaining to our environmental, social and governance (“ESG”) matters. After issuing our inaugural ESG report last year (the "2019 Sustainability Report"), 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 2020 Sustainability 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 listed on the FDA’s MedWatch Safety Alerts for Human Medical Products, no Company product issues identified by FDA from their Adverse Event Reporting System and no clinical trials terminated due to failure to practice good clinical standards. The 2020 Sustainability 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 can cover up to 90% of patient prescription costs for our gastrointestinal products. The 2020 Sustainability 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. Ifetroban Clinical 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. Enrollment in these clinical studies was interrupted due to the COVID-19 pandemic. However, many of our clinical study sites have reopened and resumed screening of patients for potential participation 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. In September 2021, our Board of Directors approved a new clinical program for the use of ifetroban to treat Progressive Fibrosing Interstitial Lung Diseases (“PF-ILDs”). Nonclinical studies are complete, and the resulting manuscript has been prepared and submitted for publication. A Phase II clinical study is planned and an application to the FDA is in preparation to support this new clinical program. Additional pilot preclinical and clinical studies of ifetroban are underway, including several investigator-initiated trials. 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 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. Renal Colic Study A clinical trial studying the comparison of intravenous ibuprofen with injectable ketorolac in renal colic pain management demonstrated that ibuprofen is the more rapid-acting drug in controlling pain caused by kidney stones. The study also indicated that the complete relief from pain with ibuprofen was twice as much as that of ketorolac. The findings build upon a body of medical evidence supporting the use of our Caldolor product for the treatment of patient pain. 19 Hyponatremia Publication The Health Outcome Predictive Evaluation (HOPE) COVID-19 Registry Analysis , an international study of over 4,000 patients published in November 2020, 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 Intensive Care Unit as efficiently as possible. New Line of Credit On October 28, 2021, we entered into an amendment to renew our Revolving Credit Loan Agreement with Pinnacle Bank. The amendment extended the term of the loan agreement for a three-year period ending in October 2024. The facility provides for a principal balance available for borrowing up to $15 million and an opportunity to request an increase in availability to $20 million. The interest rate on funds borrowed under the facility ranges from 30-day LIBOR plus 175 to 275 basis points depending on the funded debt ratio. Vibativ International Agreements 1. On August 25, 2021, we signed an agreement with Verity Pharmaceuticals International Limited to license and commercialize Vibativ in Puerto Rico. Verity is a specialty pharmaceutical company with commercial operations in the U.S. and Canada. Vibativ is a patented, FDA-approved injectable anti-infective for the treatment of certain serious bacterial infections, including hospital-acquired and ventilator-associated bacterial pneumonia, and complicated skin and skin structure infections. It addresses a range of Gram-positive bacterial pathogens, including those that are considered difficult-to-treat and multidrug-resistant. In November 2018, Cumberland reached an agreement to acquire Vibativ from Theravance Biopharma and assume global responsibility for the product. 2. SciClone Pharmaceuticals (Holdings) Limited has licensed our Vibativ product for sale and distribution in China. In February 2021, SciClone completed an initial public offering and listing of their shares on the Hong Kong stock exchange. In June 2021, SciClone submitted an application to the Chinese regulatory authority for the approval of Vibativ in that country. In October 2021, we were informed by SciClone that the filing was accepted by the regulatory agency for review. SciClone expects a review period of up to twelve months for their application and believes that the potential for Vibativ in China may be significant. 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 September 30, 2021 compared to the three months ended September 30, 2020 The following table presents the unaudited interim statements of operations for continuing operations for the three months ended September 30, 2021 and 2020: Three months ended September 30, 2021 2020 Change Net revenues $ 8,072,540 $ 9,250,689 $ (1,178,149) Costs and expenses: Cost of products sold 1,328,027 2,142,839 (814,812) Selling and marketing 3,800,288 3,587,842 212,446 Research and development 1,453,873 1,230,335 223,538 General and administrative 2,039,799 2,381,273 (341,474) Amortization 1,013,948 1,117,086 (103,138) Total costs and expenses 9,635,935 10,459,375 (823,440) Operating income (loss) (1,563,395) (1,208,686) (354,709) Interest income 7,394 12,004 (4,610) Interest expense (20,021) (75,210) 55,189 Income (loss) from continuing operations before income taxes (1,576,022) (1,271,892) (304,130) Income tax (expense) benefit (7,458) (3,728) (3,730) Net income (loss) from continuing operations $ (1,583,480) $ (1,275,620) $ (307,860) The following table summarizes net revenues by product for the periods presented: Three months ended September 30, 2021 2020 Change Products: Kristalose $ 4,012,746 $ 3,615,557 $ 397,189 Vibativ 1,896,584 2,813,249 (916,665) Caldolor 1,255,669 1,416,146 (160,477) Vaprisol 325,774 406,162 (80,388) Acetadote 368,733 218,462 150,271 Omeclamox-Pak 22,689 516,066 (493,377) RediTrex 11,459 — 11,459 Other revenue 178,886 265,047 (86,161) Total net revenues $ 8,072,540 $ 9,250,689 $ (1,178,149) Net revenues. Net revenues for the three months ended September 30, 2021, were $8.1 million compared to $9.3 million for the three months ended September 30, 2020. As detailed in the table above, net revenue increased for two of our marketed products: Kristalose and Acetadote during the quarter. Kristalose revenue increased by 11.0% during the third quarter of 2021 to $4.0 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. Acetadote revenue includes net sales of our Acetadote brand and our share of net sales from our Authorized Generic. During the quarter, there was an increase of $0.2 million in the product's revenue when compared to the prior year period as a result of higher sales volumes for the Authorized Generic. Vaprisol revenue was $0.3 million for the third quarter of 2021, a decrease of $0.1 million. This decrease of net sales compared to the third quarter of 2020 is primarily due to cyclical buying trends. Caldolor revenue was $1.3 million for the third 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 $1.9 million for the three months ended September 30, 2021, compared to $2.8 million the same period last year. The decrease was a result of customer buying patterns during the year. Omeclamox-Pak had no sales for the third 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 third quarter of 2021 was positively impacted by various revenue adjustments. Cost of products sold . Co st of products sold for the third quarter of 2021 and 2020 were $1.3 million and $2.1 million, respectively. Cost of products sold, as a percentage of net revenues, were 16.5% during the three months ended September 30, 2021, compared to 23.2% during the three months ended September 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 increase of Kristalose product sales. Selling and marketing . Selling and marketing expense for the third quarter of 2021 increased $0.2 million compared to the prior year period. This increase is primarily attributable to an increase in marketing spending for Kristalose and Vibativ. Lower royalty costs were partially offset by an increase in direct promotional spending, meeting costs and travel expenses during the third quarter of 2021. Research and development . Research and development costs for the third quarter of 2021 and 2020 were $1.5 million and $1.2 million, respectively. 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 third quarter of 2021 were $2.0 million, which were $0.3 million lower than the third quarter of 2020. There were declines in salaries and stock-based compensation expense. The components of the statements of operations discussed above reflect the following impacts from Vibativ: Financial Impact of Vibativ Three months ended September 30, 2021 2020 Net revenue $ 1,896,584 $ 2,813,249 Cost of products sold (1) 407,386 945,067 Royalty and operating expenses 455,814 650,500 Vibativ contribution $ 1,033,384 $ 1,217,682 (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 September 30, 2021, and three months ended September 30, 2020, totaled approximately $1.0 million and $1.1 million, respectively. Income taxes . Income tax expense for the three months ended September 30, 2021, was comparable to the income tax expense for the three months ended September 30, 2020. As of September 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 Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 The following table presents the unaudited interim statements of operations for continuing operations for the nine months ended September 30, 2021 and 2020: Nine months ended September 30, 2021 2020 Change Net revenues $ 27,665,182 $ 27,179,600 $ 485,582 Costs and expenses: Cost of products sold 5,486,005 6,387,002 (900,997) Selling and marketing 11,709,445 11,160,924 548,521 Research and development 4,071,638 4,374,392 (302,754) General and administrative 6,367,438 6,608,321 (240,883) Amortization 3,354,080 3,284,610 69,470 Total costs and expenses 30,988,606 31,815,249 (826,643) Operating income (loss) (3,323,424) (4,635,649) 1,312,225 Interest income 19,411 70,553 (51,142) Other income 2,187,140 — 2,187,140 Interest expense (70,297) (227,730) 157,433 Income (loss) from continuing operations before income taxes (1,187,170) (4,792,826) 3,605,656 Income tax (expense) benefit (22,375) (45,423) 23,048 Net income (loss) from continuing operations $ (1,209,545) $ (4,838,249) $ 3,628,704 The following table summarizes net revenues by product for the periods presented: Nine months ended September 30, 2021 2020 Change Products: Kristalose $ 12,286,729 $ 10,387,046 $ 1,899,683 Vibativ 8,799,891 8,551,125 248,766 Caldolor 3,734,273 3,677,434 56,839 Vaprisol 1,861,130 790,817 1,070,313 Acetadote 638,704 1,527,173 (888,469) Omeclamox-Pak (451,683) 640,435 (1,092,118) RediTrex (13,291) — (13,291) Other revenue 809,429 1,605,570 (796,141) Total net revenues $ 27,665,182 $ 27,179,600 $ 485,582 Net revenues. Net revenues for the nine months ended September 30, 2021, were $27.7 million compared to $27.2 million for the nine months ended September 30, 2020. As detailed in the table above, net revenue increased for our marketed products: Kristalose, Vibativ, Caldolor and Vaprisol during the first nine months of 2021 resulting in an overall 1.8% revenue increase. Kristalose revenue was $12.3 million during the first nine months of 2021, an increase of $1.9 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 $8.8 million for the nine months ended September 30, 2021, an increase of $0.2 million over the same period last year. The 2.9% increase in net revenue was a result of improved sales volume for the product during the first quarter of 2021. Vaprisol revenue was $1.9 million for the first nine months of 2021, which is an increase of net sales of $1.1 million compared to the first nine 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 nine months ended September 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 three 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 $0.9 million in the product's year to date revenue for the nine months ended September 30, 2021, when compared to the prior year period as a result of lower sales volumes for our Authorized Generic. Caldolor revenue was $3.7 million for the first three quarters of 2021, an increase of $0.1 million compared to the same period last year. Domestic shipments of the RTU bag product increased in the third quarter of 2021. Cost of products sold . Co st of products sold for first nine months of 2021 and 2020 were $5.5 million and $6.4 million, respectively. In 2021, we have realized savings for the Authorized Generic of $0.4 million, Omeclamox-Pak of $0.2 million and Vibativ of $0.3 million. Selling and marketing . Selling and marketing expense for the nine months ended September 30, 2021, increased $0.5 million compared to the prior year period. This increase is primarily attributable to increases in royalty costs as well as an increase in direct sales promotion costs and dispensing fees. Research and development . Research and development costs were $4.1 million for the first nine months of 2021 compared to $4.4 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 nine months ended September 30, 2021, remained consistent with $6.4 million from $6.6 million during the nine months ended September 30, 2020. In 2021, we experienced lower salary and non cash stock based compensation expense. The components of the statements of operations discussed above reflect the following impacts from Vibativ: Financial Impact of Vibativ Nine months ended September 30, 2021 2020 Net revenue $ 8,799,891 $ 8,551,126 Cost of products sold (1) 2,542,348 2,765,812 Royalty and operating expenses 1,725,889 1,403,677 Vibativ contribution $ 4,531,654 $ 4,381,637 (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, 2021, and nine months ended September 30, 2020, totaled approximately $3.4 million and $3.3 million, respectively. Income taxes . Income tax expense (benefit) for the nine months ended September 30, 2021, as a percentage of income (loss) from continuing operations before income taxes, was 1.9% compared to 0.9% for the nine months ended September 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 September 30, 2021 and December 31, 2020: September 30, 2021 December 31, 2020 Cash and cash equivalents $ 25,843,231 $ 24,753,796 Working capital (current assets less current liabilities) $ 29,270,145 $ 24,302,146 Current ratio (multiple of current assets to current liabilities) 2.6 1.9 Revolving line of credit availability $ — $ — The following table summarizes our net changes in cash and cash equivalents for the nine months ended September 30, 2021 and September 30, 2020: Nine months ended September 30, 2021 2020 Net cash provided by (used in): Operating activities $ 4,382,763 $ 4,561,140 Investing activities (475,098) (1,441,768) Financing activities (2,818,230) (4,685,477) Net increase (decrease) in cash and cash equivalents $ 1,089,435 $ (1,566,105) The net $1.1 million increase in cash and cash equivalents for the nine months ended September 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 $4.4 million was positively impacted by decreases in inventory of $2.6 million and accounts receivable of $2.5 million, as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $4.0 million. Operating activities were also offset by the decrease in accounts payable of $2.9 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 $0.2 million and the payment of $0.2 million to the WHC JV. Our financing activities included the $1.0 million in cash used to repurchase shares of our common stock as well as the $1.8 million used for the payment of royalties to Theravance for sales of Vibativ. 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. Cash provided by operating activities of $4.6 million was positively impacted by decreases in inventory of $1.7 million, as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $4.3 million. Cash used by investing activities was the result of additions to intangibles of $1.8 million, including the payment of $1.0 million for RediTrex, equipment of $0.1 million and partially offset by proceeds from surrender of life insurance policies of $0.4 million. 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. 26 Debt Agreement On October 28, 2021, the Company and Pinnacle Bank entered into a Fourth Amendment to the Revolving Credit Note and Fifth Amendment ("Fifth Amendment") to the Revolving Credit Loan Agreement to renew the Revolving Credit Loan. The original Pinnacle Agreement was dated July 2017. Beginning on August 14, 2018, and continuing until October 7, 2020, the Company and Pinnacle Bank entered into a series of amendments to extend and update the Revolving Credit Note and Revolving Credit Agreement. The most recent amendment dated October 28, 2021, extends the maturity date three years through October 1, 2024. Consistent with prior Amendments, the Fifth Amendment provides for a principal balance available for borrowing of up to $15 million. The Company has the right to request an increase of up to an additional $5 million providing a maximum principal available of up to $20 million upon the satisfaction of certain conditions and with the approval of Pinnacle Bank. Also consistent with prior Amendments, the Company is required to maintain either a Funded Debt Ratio covenant or a Tangible Capital Ratio covenant. The interest rate on the Pinnacle Agreement is based on LIBOR plus an interest rate spread. The pricing under the Fourth Amendment provides for an interest rate spread of 1.75% to 2.75% above LIBOR with a minimum LIBOR of 0.90%. The applicable interest rate under the Pinnacle Agreement was 3.65% at September 30, 2021. In addition, a fee of 0.25% per year is charged on the unused line of credit. Interest and the unused line fee are payable quarterly. As of September 30, 2021 and December 31, 2020, the Company had $15.0 million in borrowings outstanding under its revolving credit facility. The Company was in compliance with the Tangible Capital Ratio financial covenant as of September 30, 2021. 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 nine months ended September 30, 2021 and 2020, we did not engage in any off-balance sheet arrangements.