Item 2. Management’s Discussion and Analysis
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 generally unpredictable conditions in national and international markets. 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, 2022, 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.
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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 pharmaceutical 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 sectors are hospital acute care, gastroenterology 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, oncology and field sales forces in the United States. We have also established international partnerships and are continuing to build a network of companies outside the U.S. to register and provide 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 ) oral, a prescription laxative, for the treatment of constipation;
• Omeclamox ® -Pak , ( omeprazole, clarithromycin, amoxicillin ) oral, 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;
• Sancuso ® ( granisetron) transdermal, for the prevention of nausea and vomiting in patients receiving certain types of chemotherapy treatment;
• 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 for patients with cardiomyopathy associated with 1) Duchenne Muscular Dystrophy (“DMD”), a fatal, genetic neuromuscular disease; 2) Systemic Sclerosis (“SSc”) or scleroderma, a debilitating autoimmune disorder characterized by fibrosis of the skin and internal organs; and 3) Aspirin-Exacerbated Respiratory Disease (“AERD”), a severe form of asthma. We are designing a fourth Phase II program to evaluate the use of ifetroban to treat patients with Progressive Fibrosing Interstitial Lung Diseases, and we have submitted an application to the FDA to support the new program, which we expect to launch in 2023.
Cumberland has built core competencies in the acquisition, development and commercialization of pharmaceutical products in the U.S. – and we believe we can leverage this existing infrastructure to support our continued growth both domestically and internationally. Our management team consists of pharmaceutical industry veterans with experience in business development, product development, regulatory, manufacturing, sales, marketing and finance.
Our business development team identifies, evaluates, and negotiates product acquisition, licensing and co-promotion agreements. Our product development team creates proprietary formulations, manages our clinical studies, prepares 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 and delivery of our products.
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GROWTH STRATEGY
Cumberland’s growth strategy involves maximizing the success of our existing brands while continuing to build a portfolio of differentiated products. We currently feature eight products approved by the FDA in the United States. We are also continuing to explore international partnerships to bring our medicines to patients in other countries. Additionally, we look for opportunities to expand our products into additional patient populations through clinical trials, new presentations and our support of 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 could 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. For example, we have secured pediatric approval of Acetadote and Caldolor and are expanding the labeling for both brands accordingly. We also recently further expanded the labeling for Caldolor to allow its use prior to surgery. We will continue to explore such opportunities to bring our products to new patient populations.
• 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 to build a portfolio of complementary brands. We focus on under-promoted, FDA-approved drugs as well as late-stage development products that address poorly met medical needs. 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 acquisitions of Vibativ and Sancuso are examples 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, as we are doing though our ifetroban Phase II development programs. We are also supplementing our acquisitions and late-stage development activities with early-stage drug development activities with CET.
• 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 the support for Kristalose and Sancuso across the U.S.
• Building an international contribution to our business. We have established our own commercial capabilities, including three 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 to deliver cash flow from operations. We remain in a strong financial position, with favorable gross margins and a strong balance sheet.
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RECENT DEVELOPMENTS
New Headquarters Location
In late 2022, we opened our new headquarter offices at the Broadwest campus in the Vanderbilt/West End corridor of Nashville. Our move into the new state-of-the-art facilities will accommodate our growth, support our team, and better serve our international base of customers and partners. The location allows us to remain close to and continue our collaboration with the Vanderbilt Medical Center, while also maintaining our presence in the Nashville healthcare community – which represents the nation’s largest concentration of healthcare companies.
International Agreements
During the third quarter of 2022, we signed a new agreement with PiSA Pharmaceutical ("PiSA") for the exclusive supply and distribution of our ibuprofen injection product in Mexico. Cumberland will be responsible for sharing the U.S. dossier and providing product supply, while PiSA will be responsible for obtaining the regulatory approval and then commercializing the product in Mexico. PiSA expects to provide the product in both 400- and 800-milligram vials.
Meanwhile, we continue to support our international partners in their efforts to register our Vibativ brand in their countries.
In late 2022, we announced a new partnership with Saudi Arabia-based Tabuk Pharmaceutical to introduce Vibativ into the Middle East. The arrangement provides Tabuk exclusive rights to distribute Vibativ in Saudi Arabia and Jordan, with the option to expand into other countries in the region. Tabuk is in the process of updating the Vibativ registration in Saudi Arabia with new manufacturing information as they also prepare for the launch in that country.
Also in 2022, we entered into an agreement with D.B. Pharm to register and commercialize our Vibativ product in South Korea. D.B. Pharm who also distributes our Caldolor product in South Korea, is progressing their application for the approval of Vibativ.
Meanwhile, our Vibativ partner for the Chinese market, SciClone Pharmaceuticals, had their approval application in China accepted for review in September 2021. We’ve since been supporting SciClone and their requests associated with review of that submission. They are working toward the approval and believe that there is significant potential for Vibativ in their country.
Nordic Pharma Arrangements
In July 2022, we entered into an amendment to our agreement with Nordic Pharma (“Nordic”) that addresses the responsibilities and financial arrangements regarding our license to Nordic’s methotrexate line of products for the U.S. (the “License”). Our line of prefilled methotrexate syringes, marketed under the brand name RediTrex ® in the U.S., is covered by the License.
Based on the amendment, Nordic may assume responsibility for commercializing the methotrexate products in the U.S. after June 30, 2023. We will continue to distribute and support the RediTrex product line during a transition period until then. Following the return of the License, Nordic will provide us with a royalty on their future sales of the products through April 2035. The companies will continue to collaborate on any transition and the ongoing commercialization of the product line.
Cumberland has transferred the marketing authorization associated with the RediTrex product line to Nordic. Nordic has returned the 180,000 shares we issued to them associated with the original License and has refunded the $1 million we paid following the brand’s approval in the U.S. Nordic has also issued a credit note in favor of Cumberland in the amount of $1 million for the unpaid milestone payment due from us which was associated with our launch of the product line.
Sancuso Acquisition and Promotion
In early 2022, Cumberland acquired the U.S. rights to the FDA-approved oncology-supportive care medicine Sancuso from Kyowa Kirin, Inc., the U.S. affiliate of Japan-based Kyowa Kirin Co., Ltd. In early 2022, Cumberland assumed commercial responsibility for the product in the U.S. – including its marketing, promotion, distribution, manufacturing and medical support activities. During 2022 we largely completed the transition of Sancuso to Cumberland. In late 2022, the FDA approved moving the product’s manufacturer to a new facility, which will be a source of future product supplies.
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Sancuso is the first and only FDA-approved prescription patch for the prevention of nausea and vomiting in patients receiving certain types of chemotherapy treatment. The active drug in Sancuso, granisetron, slowly dissolves in the thin layer of adhesive that sticks to the patient’s skin and is released into their bloodstream over several days, working continuously to prevent chemotherapy-induced nausea and vomiting (“CINV”). It is applied 24 to 48 hours before receiving chemotherapy and can prevent CINV for up to five consecutive days. Alternative oral treatments must be taken several times (day and night) to deliver the same therapeutic doses.
In early 2022, we formed a new sales division, Cumberland Oncology, to support the brand. The division was comprised of both field-based and inside sales representatives that were formerly associated with Kyowa Kirin. In April 2022, we entered into an agreement with Verity Pharmaceuticals International Limited (“Verity”) for the national co-promotion of Sancuso. Verity is a specialty pharmaceutical company that agreed to utilize its established oncology commercial organization to co-promote Sancuso throughout the United States. Verity was to provide sales representation in the U.S. market for an initial three-year term, with an option to extend for an additional two years. In January 2023, we sent a 30-day notice of default to Verity due to failure of the parties to reach agreement regarding fundamental elements of the agreement, including targets and detailing obligations, among other items. As a result, the agreement t erminated effective February 25, 2023. The agreement provides for arbitration of any unresolved issues and we are in agreement with Verity that such arbitration should proceed.
Ifetroban Clinical Studies
We have been evaluating our ifetroban product candidate, a selective thromboxane-prostanoid receptor (“TPr”) antagonist, in a series of clinical studies. It has been dosed in nearly 1,400 subjects and has been found to be safe and well tolerated in healthy volunteers and various patient populations.
Cumberland is currently sponsoring three Phase II clinical programs to evaluate ifetroban in patients with:
1) Aspirin-Exacerbated Respiratory Disease, ("AERD") a severe form of asthma;
2) Systemic Sclerosis or scleroderma, a debilitating autoimmune disorder characterized by diffuse fibrosis of the skin and internal organs; and
3) patients with cardiomyopathy associated with Duchenne Muscular Dystrophy, a genetic neuromuscular disease that results in deterioration of the skeletal, heart and lung muscles.
We are also designing a fourth Phase II program to evaluate the use of ifetroban to treat patients with Progressive Fibrosing Interstitial Lung Diseases, and we have submitted an application to the FDA to support the new program, which we expect to launch in 2023.
In late 2022, we closed enrollment in our Phase II study in patients with AERD. We then conducted a quality review of the data and clinical sites, closed the database for the study and are awaiting the initial results.
We have also completed Phase II clinical programs with ifetroban in patients with Hepatorenal Syndrome (“HRS”) and patients with Portal Hypertension (“PH”). Additional preclinical and pilot clinical studies of ifetroban are underway, including several investigator-initiated trials.
Our plan going forward is to complete each of our Company-sponsored studies, analyze their final data, announce top-line results and decide on the best development path for the registration of ifetroban, which we continue to believe has the potential to benefit many patients with orphan diseases that represent unmet medical needs.
In addition to our Company-sponsored studies, researchers at Brigham and Women’s Hospital have completed an investigator-initiated study evaluating the impact of ifetroban on the aspirin desensitization process in patients with AERD. This single center study closed early due to poor patient accrual and exhausted funding. The researchers found no statistical difference in the dose of aspirin needed to provide an increase in an extended version of the patient’s total nasal symptom score. A publication by the researchers with the full study results will be forthcoming. It should be noted that the results from this investigator study were inconsistent with the previously published preclinical findings that demonstrated ifetroban blockade inhibited all features of aspirin reactions in a model of AERD.
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Vaprisol Supply Update
Demand for the product increased in 2020 during the pandemic, and we worked to support the expanded use of the product in hospitals and clinics during the health care crisis. During 2021, we shipped all remaining inventory of the product and have notified the FDA that supplies of the product are not currently available. We have since transferred the manufacturing of the product to a new facility. Our new manufacturing partner is working with the FDA to address several Form 483 and warning letter issues in a timely manner. Meanwhile, we are working with them to support a special, interim supply of compounded product for critically ill patients, while awaiting the needed facility approval to relaunch Vaprisol.
Omeclamox-Pak Supply Update
The packager for Omeclamox-Pak encountered financial difficulties in 2020 due to the impact of COVID-19, and their operations were suspended. As a result, we depleted our inventory of the product and notified the FDA that it is currently unavailable. We are awaiting resumption of those operations, while also exploring other alternatives to restart the product’s packaging.
Sustainability Report
Earlier this year we provided updated sustainability metrics, which cover company activities pertaining to environmental, social and governance issues. Highlights for 2022 include:
a. Providing 2.2 million doses of our products to patients;
b. Safely disposing of over 2,750 pounds of expired and damaged products; and
c. Having no product recalls or terminated clinical trials due to failure to practice good clinical standards.
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. Through our sustainability initiatives, we will continue to identify and address critical industry issues, monitor relevant guidelines and utilize best practices.
FDA Fee Waiver
In March 2023, the FDA informed us that it had granted a barrier-to-innovation waiver, which will result in a refund of approximately $1.8 million that we previously paid for prescription drug program fees associated with the RediTrex ® product line.
The FDA granted the barrier-to-innovation waiver after concluding that the Company met the statutory criteria, based on the innovation associated with Cumberland’s ifetroban clinical development programs, as the funds could be better used to advance those studies which are designed to address a series of unmet medical needs.
The FDA’s decision was in response to a request for reconsideration that Cumberland provided on November 28, 2021, after the agency had initially denied Cumberland’s submission for a waiver in a decision dated November 1, 2021. Cumberland paid the FDA the fiscal year 2022 RediTrex prescription drug program fees in the amount of approximately $1.8 million on or about October 4, 2021. The fees were assessed under the Prescription Drug User Fee Act.
The FDA informed Cumberland on March 30, 2023, that the agency’s Office of Financial Management had been asked to provide a refund of the fees, which is expected within 45 days.
Federal NOPAIN Act
In April 2023, Cumberland announced that it expects that its Caldolor ® injection product should be eligible for special Medicare reimbursement under the Non-Opioids Prevent Addiction in the Nation Act (the “NOPAIN Act”), which was enacted as part of the Consolidated Appropriations Act of 2023.
The NOPAIN Act requires Medicare to provide separate reimbursement for non-opioid products that are used to manage pain during surgeries conducted in outpatient hospital departments or in ambulatory surgical centers. The NOPAIN Act applies, in part, to products that are indicated to provide analgesia without acting upon the body’s opioid receptors. As a result, the Company expects that the NOPAIN Act will affect Medicare reimbursement for Caldolor, Cumberland’s non-opioid analgesic injection product.
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The methodology for reimbursement for non-opioid pain alternatives under the NOPAIN Act will apply to those products that are furnished between January 1, 2025 and January 1, 2028. It is anticipated that in 2024, the Centers for Medicare & Medicaid Services (CMS) will issue regulations implementing the NOPAIN Act and detailing the conditions for, and amount of, the separate reimbursement.
Caldolor is approved by the U.S. Food and Drug Administration (FDA) for use in adults and pediatric patients six months and older, for the management of mild to moderate pain as a sole therapy, and for the management of moderate to severe pain as an adjunct to an opioid. A series of published clinical studies have demonstrated that Caldolor significantly reduces patient pain, while also significantly reducing patients’ need for opioids.
Summary
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 the development of new candidates as well as the acquisition of established brands. Our resulting, diversified product line has enabled us to weather external challenges while our team remains responsive to the evolving medical market. We are prepared for and look forward to future opportunities to carry out our mission throughout the remainder of the year.
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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 2022 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. The Company's most significant estimates include: (1) its allowances for chargebacks and accruals for rebates and product returns, (2) the allowances for obsolescent or unmarketable inventory and (3) valuation of contingent consideration liabilities associated with business combinations.
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RESULTS OF OPERATIONS
Three months ended March 31, 2023 compared to the three months ended March 31, 2022
The following table presents the unaudited interim statements of operations for continuing operations for the three months ended March 31, 2023 and 2022:
Three months ended March 31,
2023 2022 Change
Net revenues $ 9,224,638 $ 11,175,045 $ (1,950,407)
Costs and expenses:
Cost of products sold 1,250,264 2,211,885 (961,621)
Selling and marketing 4,277,318 4,614,429 (337,111)
Research and development 1,499,670 1,745,136 (245,466)
General and administrative 2,498,993 2,302,349 196,644
Amortization 1,230,071 1,593,245 (363,174)
Total costs and expenses 10,756,316 12,467,044 (1,710,728)
Operating income (loss) (1,531,678) (1,291,999) (239,679)
Interest income 50,190 16,041 34,149
Other income 1,847,065 — 1,847,065
Interest expense (186,353) (119,575) (66,778)
Income (loss) before income taxes 179,224 (1,395,533) 1,574,757
Income tax (expense) benefit (6,938) (6,900) (38)
Net income (loss) $ 172,286 $ (1,402,433) $ 1,574,719
The following table summarizes net revenues by product for the periods presented:
Three months ended March 31,
2023 2022 Change
Products:
Kristalose $ 4,315,128 $ 3,945,097 $ 370,031
Sancuso 1,886,793 3,397,209 (1,510,416)
Vibativ 1,848,187 2,501,434 (653,247)
Caldolor 935,043 959,634 (24,591)
Acetadote 169,856 111,090 58,766
Vaprisol 16,008 (117,000) 133,008
Omeclamox-Pak (2,518) 22,737 (25,255)
RediTrex (141,045) 59,226 (200,271)
Other revenue 197,186 295,618 (98,432)
Total net revenues $ 9,224,638 $ 11,175,045 $ (1,950,407)
Net revenues. Net revenues for the three months ended March 31, 2023, were $9.2 million compared to $11.2 million for the three months ended March 31, 2022. As noted in the table above, net revenue increased during the quarter for two of our marketed products: Kristalose and Acetadote.
Kristalose revenue of $4.3 million for the first quarter of 2023, represented an increase of $0.4 million when compared to the prior year period. The increase was primarily the result of increased shipments of the product.
Acetadote revenue includes net sales of our Acetadote brand and our share of net sales from our Authorized Generic. During the first quarter of 2023, there was an increase of $0.1 million in the branded product's revenue when compared to the prior year period due to increased shipments of the product.
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There was no Vaprisol revenue for the first quarter of 2023, an increase of $0.1 million compared to the same period last year. This increase is primarily due to normal adjustments to expired product reserves. We await FDA approval on a new manufacturer.
Caldolor revenue was $0.9 million for the first quarter of 2023, similar to the first quarter of 2022.
Vibativ revenue was $1.8 million for the three months ended March 31, 2023, which declined $0.7 million from the same prior year period. The decrease in net revenue of the product was the result of lower unit shipments.
Sancuso revenue was $1.9 million for the first quarter of 2023, which was $1.5 million lower than the first quarter of 2022. The decline resulted from larger product returns associated with the inventory acquired at the acquisition of the product and lower sales.
Omeclamox-Pak had no sales for the first quarter of 2023, as Cumberland is currently out of commercial inventory of this product. The packager for our Omeclamox-Pak product encountered financial difficulties in 2020. Net revenue for the three months ended March 31, 2023, reflects sales deduction adjustments.
Cost of products sold . Co st of products sold for the first quarter of 2023 and 2022 were $1.3 million and $2.2 million, respectively. Cost of products sold, as a percentage of net revenues, were 13.6% during the three months ended March 31, 2023, compared to 19.8% during the three months ended March 31, 2022. The improvement in cost of products sold is primarily due to the availability of new lower cost inventory and less inventory write-offs.
Selling and marketing . Selling and marketing expense for the first quarter of 2023 decreased $0.3 million compared to the same period last year. This decrease is primarily attributable to lower royalty expenses.
Research and development . Research and development costs for the first quarter of 2023 and 2022 were $1.5 million and $1.7 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 product candidates. The decrease in costs for the first quarter of 2023 results from lower FDA fees in 2023.
General and administrative . General and administrative expense increased to $2.5 million for the first quarter of 2023, compared to $2.3 million for the first quarter of 2022, an increase of $0.2 million. The increase was primarily attributable to increases in deferred compensation expenses.
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The components of the statements of operations discussed above reflect the following impacts from Vibativ:
Financial Impact of Vibativ Three months ended March 31,
2023 2022
Net revenue (1)
$ 1,848,187 $ 2,651,434
Cost of products sold (2)
246,742 927,160
Royalty and operating expenses 519,608 681,317
Vibativ contribution $ 1,081,837 $ 1,042,957
(1) 2022 net revenue includes a $150,000 payment to Cumberland required under the terms of a new licensee agreement.
(2) 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.
The components of the statements of operations discussed above reflect the following impacts from Sancuso:
Financial Impact of Sancuso Three months ended March 31,
2023 2022
Net revenue $ 1,886,793 $ 3,397,209
Cost of products sold (1)
289,478 388,264
Royalty and operating expenses 415,707 910,100
Sancuso contribution $ 1,181,608 $ 2,098,845
(1) The Sancuso 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 2022.
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 March 31, 2023 and 2022, totaled approximately $1.2 million and $1.6 million, respectively. The decline in amortization expense resulted from adjustments to the useful life of Sancuso during the valuation of the product in December 2022.
Income taxes . Income tax expense for the three months ended March 31, 2023, was comparable to the income tax expense for the three months ended March 31, 2022.
As of March 31, 2023, we had approximately $57.8 million in federal net operating loss carryforwards including 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 2023 and beyond, through the continued utilization of these net operating loss carryforwards, on any taxable income generated from our operations.
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LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Our primary sources of liquidity are cash equivalents, cash flows from operations and the amounts borrowed under our line of credit. We believe that our internally generated cash flows, existing working capital and our line of credit will be adequate to finance internal growth, finance business development initiatives, and fund capital expenditures for the foreseeable future.
The following table summarizes our liquidity and working capital as of March 31, 2023 and December 31, 2022:
March 31, 2023 December 31, 2022
Cash and cash equivalents $ 16,386,166 $ 19,757,970
Working capital (current assets less current liabilities) $ 18,103,385 $ 17,290,378
Current ratio (multiple of current assets to current liabilities) 1.7 1.6
Revolving line of credit availability $ 3,927,714 $ 3,800,000
The following table summarizes our net changes in cash and cash equivalents for the three months ended March 31, 2023 and March 31, 2022:
Three months ended March 31,
2023 2022
Net cash provided by (used in):
Operating activities $ (1,418,209) $ (150,498)
Investing activities (174,453) (13,541,898)
Financing activities (1,779,142) 3,918,365
Net increase (decrease) in cash and cash equivalents $ (3,371,804) $ (9,774,031)
The net $3.4 million decrease in cash and cash equivalents for the three months ended March 31, 2023, was primarily attributable to cash used in operating and financing activities. A decrease of cash used in operating activities of $1.4 million was primarily the result of an increase of accounts receivable of $1.4 million (which includes a $1.8 million receivable for the approved PDUFA fee refund), a decrease of net accounts payable and other current liabilities of $1.1 million and the offsetting positive impact from the add backs of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $1.3 million. Cash used in investing activities of $0.2 million was the result of additions to property and equipment and intangibles. Financing activities use of cash was $1.8 million and include the repayments on our line of credit of $0.1 million, the $0.2 million in cash used to repurchase shares of our common stock as well as the $1.5 million used for the payment of a Sancuso milestone, plus royalties on sales of Vibativ and Sancuso.
The net $9.8 million decrease in cash and cash equivalents for the three months ended March 31, 2022, was primarily attributable to cash used in investing and partially offset by cash provided by financing activities. Cash used in operating activities of $0.2 million was primarily the result of accounts receivable increasing by $7.8 million mainly from Sancuso sales, positively impacted by decreases in inventory of $2.3 million and increases in accounts payable and other liabilities of $4.4 million, as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $1.8 million. Cash used in investing activities was the result of the acquisition of Sancuso. Our financing activities included the increase in our line of credit of $5.0 million partially offset by the $0.6 million in cash used to repurchase shares of our common stock as well as the $0.5 million used for the payment of royalties for sales of Vibativ and Sancuso.
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Debt Agreement
On September 29, 2022, the Company entered into the Ninth Amendment to the Revolving Credit Loan Agreement with Pinnacle Bank (as amended, the "Pinnacle Agreement") to update the Funded Debt Ratio to mean the ratio of (i) Funded Debt less the amount of Unrestricted Cash in excess of $8,500,000, to (ii) EBITDA, as determined at the end of each fiscal quarter on a rolling four (4) quarter basis. For the quarter ended March 31, 2023, we were in compliance with the Funded Debt Ratio financial covenant.
On June 30, 2022, the Company entered into the Eighth Amendment to the Revolving Credit Loan Agreement with Pinnacle Bank permitting the Maximum Funded Debt Ratio to be calculated on a rolling four-quarter basis to be no more than 3.00 to 1.00 for the second and third quarters of 2022 and 2.50 to 1.00 for each quarter thereafter.
On March 31, 2022, the Company and Pinnacle Bank entered into a Seventh Amendment to the Revolving Credit Loan Agreement to revise and update the Maximum Funded Debt Ratio financial covenant and to delete from the Pinnacle Agreement the Funded Debt to Tangible Capital Ratio financial covenant. These changes were made to more appropriately reflect the impact from the Sancuso acquisition.
On December 31, 2021, the Company and Pinnacle Bank entered into the Fifth Amendment to the Revolving Credit Note and the Sixth Amendment to the Revolving Credit Loan Agreement in order to increase the principal amount of the Note from $15 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.
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OFF-BALANCE SHEET ARRANGEMENTS
During the three months ended March 31, 2023 and 2022, we did not engage in any off-balance sheet arrangements.