What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-03-11 compared with 2021-03-12 · 150 added, 144 removed, 273 unchanged (52% of the section changed)

4 unchanged sentences

EXECUTIVE SUMMARY

We are a specialty pharmaceutical company focused on the acquisition, development and commercialization of branded prescription products.

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

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

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

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

Our portfolio of FDA approved brands includes:

• 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, amoxicillin ) for the treatment of Helicobacter pylori ( H.

pylori ) infection and related duodenal ulcer disease;

• 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.

Additionally, we have Phase II clinical programs underway evaluating our ifetroban product candidates in patients with cardiomyopathy associated with Duchenne Muscular Dystrophy (“DMD”), Systemic Sclerosis (“SSc”), and Aspirin-Exacerbated Respiratory Disease ("AERD").

We have also completed Phase II clinical programs with ifetroban in patients with Hepatorenal Syndrome (“HRS”) and patients with Portal Hypertension (“PH”).

We promote our approved products through our hospital and gastroenterology sales forces in the United States, which together comprised approximately 40 sales representatives and managers as of December 31, 2020.

We have both product development and commercial capabilities and believe we can leverage our 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 opportunities.

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

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

Our marketing and sales professionals

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

We are a specialty pharmaceutical company focused on the acquisition, development and commercialization of branded prescription pharmaceutical products.

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

Our commercial portfolio includes eight branded products approved for marketing by the U.S.

Food and Drug Administration (“FDA”) - Acetadote ® , Caldolor ® , Kristalose ® , Omeclamox ® -Pak, RediTrex ® , Sancuso ® , Vaprisol ® and Vibativ ® .

In addition to these commercial brands, we have Phase II clinical programs underway evaluating our ifetroban product candidates for 1) patients with cardiomyopathy associated with Duchenne Muscular Dystrophy , a fatal, genetic neuromuscular disease, 2) Systemic Sclerosis or scleroderma, a debilitating autoimmune disorder characterized by fibrosis of the skin and internal organs and 3) Aspirin-Exacerbated Respiratory Disease , a severe form of asthma.

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

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, field and oncology sales divisions in the United States and are establishing a network of international partners to register and provide our medicines to patients in their countries.

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 with significant experience in their areas of responsibility.

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

Our product development team creates proprietary formulations, manages our clinical studies, prepares our FDA 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 organization is responsible for our commercial activities, and we work closely with our distribution partners to ensure the availability of our products.

The following is a summary of our 2021 highlights and recent developments.

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

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

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

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

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

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

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

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

• Agreement to acquire the U.S.

rights to Sancuso ® (granisetron transdermal patch), an FDA-approved oncology supportive care medicine.

• FDA approval of expanded labeling for our Caldolor ® product (intravenously delivered ibuprofen), for use prior to surgery.

• Commencement of the national launch of our RediTrex ® product line (prefilled methotrexate syringes).

• Agreement to relocate our corporate headquarters to the new Broadwest campus in the West End/Vanderbilt corridor in Nashville, with a move planned for late 2022.

• Extension of our line of credit with Pinnacle Bank for a new three-year term, and expansion of the facility for up to $20 million.

• Renewal of our At-the-Market facility, for up to $19 million in equity financing.

• Continuation of our share repurchase initiative along with a group of our Board members purchasing shares through trading plans in the market, in order to add to their holdings in the company.

• Publication of a series of study results and patient case studies in support of several of our brands.

• The release of our second annual Sustainability Report, which details the company’s activities pertaining to its environmental, social and governance (ESG) matters.

COVID-19 Pandemic

In March 2020, the U.S.

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

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

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 pandemic, which included stay-at-home orders, the emergence of new variants, compliance with differing federal, state and local guidelines, among other challenges, to continue 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 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 has faced the same challenges affecting other companies that rely on hospital admissions and patient visits to drive revenue.

Our clinical studies were also 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 into 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, with other brands delivering a strong performance.

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

Despite the challenges of operating during a pandemic, Cumberland has remained committed to our mission of providing innovative products that improve the quality of care for patients.

We continued to build our portfolio of innovative and differentiated products through a multifaceted strategy that includes the 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.

Overall, we have been able to deliver our products while addressing the interests of our shareholders, employees, partners and community.

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

After issuing our inaugural ESG Report the prior year, we remain committed to sustainability and to maintaining transparency of our corporate operations.

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 Sustainability Report notes that during that year 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 the FDA’s Adverse Event Reporting System and no clinical trials terminated due to failure to practice good clinical standards.

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

We reported that women represented 46% of Cumberland’s workforce – and 18% of our employees were minorities.

Cybersecurity

The Company has taken appropriate steps to monitor an adequate level of cybersecurity.

The Company is insured against cyber attacks and has appropriate detection and mitigation controls in place.

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

The Company’s common shares are listed on the Nasdaq stock exchange, our website address is www.cumberlandpharma.com and our various filings are available to the public at www.sec.gov.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

4 unchanged sentences

Actual results could differ from these estimates.

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

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

Revenue Recognition

33 unchanged sentences

A change in our rebate estimate of one percentage point would have impacted net sales by approximately $0.4 million for the years ended December 31, 2021, 2020 and 2019.

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

Fair Value of Marketable Securities

We have historically invested a portion of our cash reserves in short-term cash investments, U.S.

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

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

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

The level of management judgment required in establishing fair value of financial instruments for which there is a quoted price in an active market is minimal.

Similarly, there is little subjectivity or judgment required for instruments valued using valuation models that are standard across the industry and where all parameter inputs are quoted in active markets.

Inputs to the models may include, but are not limited to, reported trades, executable bid and ask prices, broker/dealer quotations, prices or yields of securities with similar characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events.

A change in our product return estimate of one percentage point would have impacted net sales by $0.4 million for the years ended December 31, 2021, and 2020 and $0.3 million for the year ended December 31, 2019.

We record amounts for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and the net realizable value based upon assumptions about remaining shelf life, future demand and market conditions.

2 unchanged sentences

Changes in our estimates would be recorded in our statement of operations in the period of the change.

Non-current inventories consist of API which typically has an extended life and selected finished good products with extended life longer than one year.

We provide for deferred taxes using the asset and liability approach.

10 unchanged sentences

In addition, incremental compensation expense is recognized upon the modification of equity awards.

We issue restricted stock awards at no cost in lieu of stock options to employees, directors and consultants.

Compensation expense for restricted stock granted to employees and directors is generally equal to the fair market value of the underlying common stock on the date of grant.

We issue restricted stock and incentive stock option awards to employees, directors and consultants.

Compensation expense for restricted equity awards granted to employees and directors is generally equal to the fair market value of the underlying common stock on the date of grant.

If a sufficient disincentive for nonperformance does not exist at the date of grant, the compensation cost is remeasured at each reporting date at the then-current fair market value of the underlying common stock until the award vests.

27 unchanged sentences

Interest income 26,081 75,345 (49,264)

Other income 2,187,140 — 2,187,140

Interest expense (98,031) (263,627) 165,596

15 unchanged sentences

Net revenues.

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

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

Kristalose, Vibativ, Caldolor and Vaprisol.

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

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

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

Net revenues for the year ended December 31, 2021 were approximately $36.0 million compared to $37.4 million for the year ended December 31, 2020, representing a decrease of $1.5 million or 3.9%.

As detailed in the table above, net revenue increased during the 2021 period for three of our marketed products:

Kristalose, Vibativ and Vaprisol.

The improvement was led by Vibativ which delivered $0.8 million in revenue growth, followed by Vaprisol, which delivered an additional $0.8 million during 2021 compared to 2020.

Our largest product, Kristalose, contributed $0.4 million in incremental revenue.

These increases were offset by decreased net sales of Caldolor, Acetadote, Omeclamox-Pak and RediTrex.

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

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

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

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

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

The final four installments totaling $2.0 million due from Clinigen were recorded during the year ended December 31, 2021, as discontinued operations.

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

2 unchanged sentences

This $0.8 million or 7.7% increase in net revenue was a result of improved sales volume for the product.

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

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

Caldolor revenue experienced a 6.9% decrease to $5.0 million during the year ended December 31, 2021 compared to $5.3 million in the same period last year.

This decrease in Caldolor revenue for the year ended December 31, 2021 w as the result of lower domestic shipments of the product, significantly impacted by COVID-19 and a reduction in elective surgeries.

Vaprisol revenue increased $0.8 million during the year ended December 31, 2021 compared to the prior year period due primarily to increased sales of the product.

2 unchanged sentences

Omeclamox-Pak revenue decreased $0.6 million during the year ended December 31, 2021 compared to the prior year.

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

The decrease was due to ownership changes at our packager which resulted in a tempoary out of stock situation.

Reditrex revenue decreased $0.8 million in 2021 compared to 2020.

Our wholesale customers initially stocked the product in Q420, but we delayed the launch until October 2021 due to pandemic delays and supply issues.

Cost of products sold .

3 unchanged sentences

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.

The increase in costs of product sold expense was due to the write off of expired inventory.

Selling and marketing .

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

This decrease was primarily a result of decreases in direct promotional spending, meeting costs and travel expenses.

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

Selling and marketing expense for the year ended December 31, 2021 were $15.0 million compared to $14.8 million in the prior year, which was an increase of $0.2 million.

This increase was primarily a result of increases in direct promotional spending.

Research and development .

4 unchanged sentences

General and administrative .

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

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

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

General and administrative expenses for the year ended December 31, 2021 were $9.8 million compared to $10.2 million in the prior year.

The decrease resulted from a decrease in legal and professional fees as well as lower stock based compensation during the period partially offset by corporate bonuses.

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

8 unchanged sentences

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

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

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

Amortization for 2021 totaled approximately $4.4 million consistent with the prior year.

Income taxes .

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

Income taxes totaled $34,891 for the year ended December 31, 2021 and $55,902 for the year ended December 31, 2020.

Year ended December 31, 2020 compared to year ended December 31, 2019

25 unchanged sentences

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

RediTrex 856,657 — 856,657

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

2 unchanged sentences

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

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

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

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

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

Kristalose, Vibativ, Caldolor and Vaprisol.

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

Our newest product, at the time, RediTrex, contributed $0.9 million in incremental revenue during the year.

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

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

As a result, the 2019 and 2018 revenues and expenses associated with the products are combined and reclassified into discontinued operations in our financial statements.

In exchange for the return of these product license rights and associated non-compete provision, Cumberland is receiving $5 million in financial consideration

paid over the two-years following the return date.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Cost of products sold .

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

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

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

Cost of products sold for the year ended December 31, 2020 were $8.7 million compared to $7.4 million in the prior year.

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

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

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

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

Selling and marketing .

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

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

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

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

This decrease was primarily a result of decreases in direct promotional spending, meeting costs and travel expenses.

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

Research and development .

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

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

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

Research and development costs for the year ended December 31, 2020 were $5.8 million, compared to $6.9 million in the prior year, representing a decrease of $1.1 million.

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

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

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

General and administrative .

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

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

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

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

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

Financial Impact of Vibativ Years ended December 31,

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

Cost of products sold (1)

3,366,201 2,716,305

Royalty and operating expenses 1,952,348 1,609,564

Vibativ contribution $ 5,552,441 $ 4,365,681

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

Amortization.

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

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

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

Amortization for 2020 totaled approximately $4.4 million compared to $4.1 million in the prior year.

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

Income taxes .

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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 flows provided by our operations, the amounts borrowed and available under our line of credit and the cash proceeds from our initial public offering of common stock that was completed in August 2009.

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

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

Treasury notes and bonds, corporate bonds and commercial paper.

At December 31, 2021 and December 31, 2020, all our investments had original maturities of less than ninety days and as a result were classified as cash equivalents.

1 unchanged sentence

Cash and cash equivalents $ 27,040,816 $ 24,753,796

Marketable securities — —

Total cash, cash equivalents and marketable securities $ 24,753,796 $ 28,212,635

Total cash and cash equivalents $ 27,040,816 $ 24,753,796

Working capital (current assets less current liabilities) $ 26,409,053 $ 24,302,146

10 unchanged sentences

$ 2,287,020 $ (3,458,839) $ 273,675

The net $2.3 million increase in cash and cash equivalents for the year ended December 31, 2021 was attributable to cash provided by operating activities partially offset by cash used by investing and financing activities.

Cash provided by operating activities of $6.3 million includes a reduction of inventory of $4.8 million, most of which was Vibativ related, and cash payments received of $2.0 million provided by discontinued operations.

Cash used by investing activities of $0.5 million was the result of additions to intangibles of $0.3 million, additions to property and equipment of $0.1 million and the payment of $0.2 million to the WHC joint venture.

Our financing activities included payments of $2.2 million of contingent consideration for Vibativ and $1.4 million in cash used to repurchase shares of our common stock.

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

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

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

working capital that provided net cash of $5.4 million.

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

2 unchanged sentences

Our financing activities included a net repayment of $3.5 million under our line of credit net, $1.9 million in cash used to repurchase shares of our common stock as well as the $0.8 million used for the repurchase of a portion of CET's shares.

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

5 unchanged sentences

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

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

Cash provided by operating activities of $3.1 million was impacted by a net loss for the period of $7.0 million.

This use of operating cash was offset by non-cash expenses of depreciation and amortization and share-based compensation expense totaling $4.3 million.

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

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

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

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

Shelf Registration

9 unchanged sentences

The Company did not issue any shares under this ATM during the year ended December 31, 2021.

On December 27, 2021, the Company filed a related prospectus supplement in connection with the sale and issuance of shares having an aggregate gross sales price of up to $19 million.

The Company amended the At the Market Sales Agreement on December 27, 2021, in order to allow the Company to continue using its ATM feature to sell shares at market prices.

The Company intends to continue an ATM feature through B.

Riley FBR, Inc.

which allows the Company to issue shares of its common stock.

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”).

The Fourth Amendment extends the maturity date of the Pinnacle Agreement through October 1, 2022 and provides for a principal available for borrowing of up to $15 million.

We also have the ability to request an increase of up to an additional $5 million, upon the satisfaction of certain conditions and approval by Pinnacle Bank.

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

On May 10, 2019, we entered into a third amendment ("Third Amendment") to the Pinnacle Agreement, which extended the term of the Pinnacle Agreement through July 31, 2021, as well as modified certain definitions and terms of the existing financial covenants.

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

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

On December 31, 2021, the Company entered into a Fifth Amendment (“Fifth Amendment”) to the Revolving Credit Note and Sixth Amendment to Revolving Credit Loan Agreement with Pinnacle Bank (the Pinnacle Agreement).

The Fifth Amendment increased the principal amount by $5 million to $20 million.

On October 28, 2021, the Company entered into a Fourth Amendment to the Revolving Credit Note and Fifth Amendment to Revolving Credit Loan Agreement with Pinnacle Bank.

Among other terms, the Fourth Amendment extended the maturity date to October 1, 2024.

Under the Pinnacle Agreement, we were initially subject to one financial covenant, the maintenance of a Funded Debt Ratio.

7 unchanged sentences

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

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

We evaluated and provided information on our payroll and other qualifying expenses to determine the amount of PPP funds to apply for.

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

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

The request was approved by the lender, Pinnacle Bank, who then submitted it to the SBA for the SBA's review and approval.

Cumberland elected to account for the proceeds of the loan as a government grant under International Accounting Standard 20 ("IAS 20"), Accounting for Government Grants and Disclosure of Government Assistance.

The permitted analogous use of IAS 20 outlines a model for the accounting for government assistance, including forgivable loans.

As a result, the Company recorded the $2,187,140 as a deferred income liability, which was included as a component of other current liabilities on the condensed consolidated balance sheet at December 31, 2020.

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.

The Company accounted for the forgiveness of the PPP loan under IAS 20 and recorded the $2,187,140 as other income.

Minimum Product Purchase Requirements

9 unchanged sentences

1,505,625 547,500 547,500 410,625 — —

Contingent consideration liability payments (3)

Vibativ contingent consideration liability payments (3)

6,515,627 2,353,789 727,489 636,761 469,455 2,328,133

Sancuso upfront purchase payment 13,500,000 13,500,000 — — — —

Sancuso contingent consideration liability payments (4)

5,814,448 1,071,480 1,746,534 1,200,082 375,267 1,421,085

Operating leases (5)

Purchase obligations (4)

1,111,791 1,019,313 92,478 — — —

$ 43,447,491 $ 18,492,082 $ 3,114,001 $ 17,247,468 $ 844,722 $ 3,749,218

The sum of the individual amounts may not agree due to rounding.

4 unchanged sentences

The contingent consideration liability represents the fair value of the royalty payments of up to 20% of future net sales as part of the Vibativ acquisition.

Represents minimum purchase obligations under our manufacturing agreements.

The contingent consideration liability represents the fair value of the royalty payments of up to 10% of future net sales as part of the Sancuso acquisition.

The Broadwest contractual cash obligation will begin upon commencement in Q4 2022.

OFF-BALANCE SHEET ARRANGEMENTS

1 unchanged sentence

RECENT ACCOUNTING PRONOUNCEMENTS

Recent Adopted Accounting Pronouncements

In November 2018, the FASB issued ASU No.

2018-18, “Collaboration Arrangements:

Clarifying the Interaction between Topic 808 and Topic 606” (ASU 2018-18).

The issuance of ASU 2014-09 raised questions about the interaction between the guidance on collaborative arrangements and revenue recognition.

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

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

In January 2017, the FASB issued ASU No.

2017-04, “Simplifying the Test for Goodwill Impairment” (ASU 2017-04).

The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.

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

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

Recent Accounting Pronouncements - Not Yet Adopted

13 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis