What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-13 compared with 2023-08-11 · 153 added, 171 removed, 266 unchanged (55% of the section changed)

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(“Cumberland,” the “Company,” or as used in the context of “we,” “us,” or “our”), is a specialty pharmaceutical company focused on the acquisition, development and commercialization of branded prescription 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.

We are dedicated to our mission of working together to provide unique products that improve the quality of patient care.

Our primary markets 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.

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• 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.

• Kristalose ® ( lactulose ) for oral solution, a prescription laxative, for the treatment of constipation;

• Omeclamox ® -Pak , ( omeprazole, clarithromycin, amoxicillin ) for the treatment of Helicobacter pylori ( H.

pylori ) infection and related duodenal ulcer disease;

• Sancuso ® ( granisetron) transdermal, for the prevention of nausea and vomiting in patients receiving certain types of chemotherapy treatment;

• Sancuso ® ( granisetron) transdermal system, 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;

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In June 2023, we received FDA clearance to proceed directly to a Phase II study for patients with Idiopathic Pulmonary Fibrosis, the most common form of progressive fibrosing interstitial lung disease.

We are now entering into agreements with medical centers around the country and look forward to initiating the trial.

Cumberland has built core competencies in the acquisition, development and commercialization of pharmaceutical products in the U.S.

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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 seven products approved by the FDA in the United States.

Cumberland’s growth strategy involves maximizing the success of our existing brands while continuing to add differentiated products.

We have built our portfolio of FDA approved products through both development and acquisition.

We are also continuing to establish 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.

Additionally, we look for opportunities to expand our products into new patient populations through clinical trials, improved 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.

Our clinical team is developing a pipeline of new product candidates 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.

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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 focus on under-promoted, FDA-approved drugs as well as late-stage development products that can improve patient care.

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.

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RECENT DEVELOPMENTS

Caldolor for Treating Infants & Supporting Study Publication

In May 2023, we announced that the FDA has approved expanded labeling for Caldolor, an intravenously delivered formulation of ibuprofen, to now include use in infants.

The non-narcotic agent may now be administered for the treatment of pain and fever in patients 3 to 6 months of age.

The newly FDA-approved label includes information regarding the product’s indications and usage, appropriate patient populations, clinical study results, potential side effects, patient safety details and instructions for use in these young children.

With this newly approved labeling, Caldolor is the only non-opioid product approved to treat pain in infants that is delivered through injection.

Ketorolac and meloxicam are not approved for use in children, as the safety and efficacy of those drugs have not been established for pediatric patients.

Acetaminophen injection is not approved for treating pain in children less than 2 years of age, as the safety and efficacy of that drug has not been established for treating pain in those pediatric patients.

In June 2023, we shared the publication of positive results from a clinical study investigating the safety and pharmacokinetics of Caldolor in newborn infants, published in the journal Pediatric Drugs .

The clinical study evaluated the safety and drug exposure profile of Caldolor in 24 hospitalized infants between the ages of 1 and 6 months who required treatment for pain or fever.

Of the 24 patients included in the study, three were under 3 months of age, and the remaining 21 patients were 3 to 6 months of age.

Twenty patients received a single dose, and four patients received multiple doses.

In this study, single and multiple 10 mg/kg doses of Caldolor are reported safe, with no drug-related adverse events or renal concerns.

Drug exposure following a single dose of Caldolor in infants 1 to 6 months of age was similar to what was previously reported in older children.

The results of this study support the growing body of evidence that demonstrates Caldolor is a safe therapeutic option available to practitioners for the treatment of fever and pain in infants and children.

New Vibativ Pediatric Study Publication

In October 2023, we announced a new publication in Antimicrobial Agents and Chemotherapy detailing the results of the first clinical study investigating the safety and pharmacokinetics of our Vibativ injection in children 2 to 17 years of age.

Vibativ is an intravenous antibiotic approved by the FDA for the treatment of hospital-acquired and ventilator-associated bacterial pneumonia as well as complicated skin and skin structure infections caused by certain gram-positive bacteria in adults.

This is the first reported study evaluating Vibativ in pediatric patients.

Antimicrobial resistance poses a significant challenge in the treatment of bacterial infections, necessitating the development of new antibiotic therapies.

The results of this study suggest that a single dose of Vibativ is safe in children and they experience reduced exposure to Vibativ, compared with the same body weight-based dosing in adults.

New Bank Credit Facility

On September 5, 2023, Cumberland entered into a new Revolving Credit Loan Agreement with Pinnacle Bank for a three-year term.

The agreement provides for an aggregate principal funding amount of up to $25 million.

It provides an initial revolving credit line with $20 million of availability, and the ability of Cumberland to increase the amount to $25 million under certain conditions.

The interest rate is based on Benchmark (Term SOFR), plus a spread of 2.75%, and is subject to one financial covenant, the maintenance of a Funded Debt Ratio, determined on a quarterly basis.

Federal NOPAIN Act

We announced in April 2023 that we expect that our Caldolor injection product will 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 requires Medicare to provide separate reimbursement for non-opioid products that are used to manage pain during surgeries conducted in hospital outpatient 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, we expect that the NOPAIN Act will affect Medicare reimbursement for Caldolor, our non-opioid analgesic injection product.

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 will issue regulations implementing the NOPAIN Act and detailing the conditions for, and amount of, the separate reimbursement.

The 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.

In the Medicare Hospital Outpatient Prospective Payment System Proposed Rule , the CMS requested that manufacturers with potentially applicable non-opioid products submit comments and supporting clinical evidence regarding products that should be eligible for separate payment.

We submitted a comment letter along with the requisite clinical information to the CMS in September 2023 explaining why Caldolor should be included and separately reimbursed.

Caldolor is approved by the FDA for use in adults and pediatric patients 3 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.

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and the Cardiomyopathy associated with Duchenne Muscular Dystrophy (“DMD”), a rare and fatal genetic neuromuscular disease that results in deterioration of the skeletal, heart and lung muscles.

In June 2023, we presented results from an interim analysis for the FIGHT DMD TM trial at the 29th annual Parent Project Muscular Dystrophy Conference in Dallas, Texas.

The interim analysis was conducted on data from 25 patients with DMD who completed six of the 12 total months of treatment and assessments.

Both doses of ifetroban were reported well tolerated in DMD participants ages 7 years of age or older.

There was also a positive trend in leg muscle strength, but no statistically significant differences were yet identified at this point.

Cumberland is sponsoring the FIGHT DMD™ trial, a multicenter, randomized, placebo-controlled Phase II study evaluating the safety, pharmacokinetics and efficacy of two doses of oral ifetroban for the treatment of the cardiomyopathy associated DMD.

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This was the first DMD trial awarded such funding.

In June 2023, we presented results from an interim analysis for the FIGHT DMD TM trial at the 29th annual Parent Project Muscular Dystrophy Conference in Dallas, Texas.

The interim analysis was conducted on data from 25 patients with DMD who completed six of the 12 total months of treatment and assessments.

Both doses of ifetroban were reported well tolerated in DMD participants ages 7 years of age or older.

There was also a positive trend in leg muscle strength, but no statistically significant differences have been identified at this point.

In May 2023, we announced that the FDA has cleared the Investigational New Drug Application for a Phase II study in patients with Idiopathic Pulmonary Fibrosis (“IPF”), the most common form of progressive fibrosing interstitial lung disease.

As a result, we will launch our FIGHTING FIBROSIS trial designed to enroll 128 patients in over 20 medical centers of excellence across the U.S.

As a result, we are initiating our FIGHTING FIBROSIS trial designed to enroll 128 patients in over 20 medical centers of excellence across the U.S.

This Phase II clinical trial will study the safety, tolerability and efficacy of oral ifetroban in patients with IPF.

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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.

During the second quarter of 2023, the FDA informed us that it had granted two barrier-to-innovation waivers that would result in a refund of approximately $1.8 million and $1.0 million that we previously paid for prescription drug program fees.

The FDA granted each waiver after concluding that Cumberland met the statutory criteria based on the innovation associated with our 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.

We received both refunds in June 2023.

Sancuso Acquisition and Approval of New Manufacturing Plant

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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.

We assumed commercial responsibility for the product in the U.S.

– including its marketing, promotion, distribution, manufacturing and medical support activities – early last year and largely completed the transition of Sancuso to Cumberland throughout the remainder of the year.

In late 2022, the FDA approved moving the product’s manufacturer to a new facility, which will be a source of future product supplies.

In June 2023, we launched an expanded oncology sales division to feature the product.

– including its marketing, promotion, distribution, manufacturing and medical support activities – early last year and, as of September 2023, have fully completed the transition of Sancuso to Cumberland.

In late 2022, the FDA approved moving the product’s manufacturer to a new facility, and the production of supplies for Cumberland at that plant is planned for the fourth quarter of 2023.

In June 2023, we launched an expanded oncology sales division comprised of both field-based and inside sales personnel to feature the product.

International Agreements

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Pharm to register and commercialize our Vibativ product in South Korea.

Pharm, which also distributes our Caldolor product in South Korea, is progressing their application for the approval of Vibativ.

Pharm also distributes our Caldolor product in South Korea.

They filed for the approval of Vibativ in November 2022 and we have been supporting their efforts through the review process of their application there.

Meanwhile, our Vibativ partner for the Chinese market, SciClone Pharmaceuticals, had their approval application in China accepted for review in September 2021.

We have since been supporting SciClone and their requests associated with review of that submission.

We have since been supporting SciClone and their requests associated with the 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 former line of prefilled methotrexate syringes, marketed under the brand name RediTrex in the U.S., is covered by the License.

Cumberland has transferred the marketing authorization associated with the RediTrex product line to Nordic.

As of July 1, 2023, Nordic assumed responsibility for commercializing the methotrexate products in the U.S.

Now that we have returned the License, Nordic will provide us with a royalty on their future sales of the products through April 2035.

Additionally, 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.

Melinta Settlement

On June 16, 2023, we received consideration related to the breach of contract action with Melinta Therapeutics, LLC and Targanta Therapeutics Corporation (collectively, the “Defendants”) that finalized a settlement agreement that was entered into by the Company and the Defendants to close the case.

In February 2022, the Company filed an action for breach of contract against the Defendants in the United States District Court for the Southern District of New York.

The Company and the Defendants are parties to an agreement (the “Agreement”), pursuant to which the Defendants have a license to develop and commercialize products under certain Company patents, in exchange for the Defendants paying the Company certain milestone payments and royalties on net sales of the licensed products.

Specifically, the Agreement requires the Defendants to, among other things, make a $500,000 payment to the Company within 30 days following the first filing of an sNDA in relation to the product (as defined in the Agreement) and a $500,000 payment to the Company following the approval of the first sNDA in relation to the product.

After the Defendants disclosed the domiciles of its limited partners to the Company, as required by the Court, in October 2022, the action for breach of contract was refiled in the Supreme Court of the State of New York, County of New York in November, 2022.

The complaint alleged that, despite the Defendants filing an NDA and sNDA for the Product and receiving FDA approval for both applications, the Defendants failed to make the required total of $1 million in milestone payments to the Company.

The Company sought damages in the amount of no less than $1 million.

Appointment of New Auditors

Our Board of Directors completed a review of the appointment of Cumberland’s independent registered public accounting firm for the fiscal year ending December 31, 2023.

In May 2023, we informed Carr, Riggs & Ingram CPAs and Advisors (“CRI”) that they were selected as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2023.

CRI had obtained provisional approval as of that date, with the formal engagement of CRI being subject to CRI completing its final client acceptance process.

CRI subsequently completed its final client acceptance approval process and our Audit Committee formally engaged CRI as Cumberland’s independent registered public accounting firm.

Vaprisol Supply Update

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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 FDA approval to relaunch Vaprisol.

Our new manufacturing partner, Nephron Pharmaceuticals (“Nephron”), is working with the FDA to address several Form 483 and warning letter issues in a timely manner.

Meanwhile, we are working with Nephron to provide interim supplies of a special compounded conivaptan product to the market in support of critically ill patients.

The companies will share in the sales of this compounded product, which is expected to be manufactured and released in the fourth quarter of 2023.

We then expect to file for the approval to manufacture branded Vaprisol once all FDA issues at the Nephron site are resolved.

SEC Settlement

On September 27, 2023, the U.S.

Securities and Exchange Commission (the “SEC”) finalized the settlement of an administrative proceeding involving certain instances where some directors and officers of the Company were late in filing public reports regarding changes in their stock ownership pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the Company did not make the needed disclosure concerning these late filings in its Annual Report on Form 10-K as outlined in Item 405 of Regulation S-K.

Without admitting or denying the allegations, the Company agreed to pay a $200,000 civil penalty to the SEC and to commit to the timely filing of such needed disclosures in the future.

The Company does not expect this matter to materially impact its business or operations.

Omeclamox-Pak Supply Update

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We are awaiting availability of those operations, while also exploring other alternatives to restart the product’s packaging.

We remain 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 second half of the year.

We remain committed to our mission of working together to provide unique products that improve the quality of patient care.

To fulfill this mission we are 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 market.

We are prepared for and look forward to future opportunities to carry out our mission throughout the remainder of the year.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

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RESULTS OF OPERATIONS

Three months ended June 30, 2023 compared to the three months ended June 30, 2022

The following table presents the unaudited interim statements of operations for continuing operations for the three months ended June 30, 2023 and 2022:

Three months ended June 30,

Three months ended September 30, 2023 compared to the three months ended September 30, 2022

The following table presents the unaudited interim statements of operations for continuing operations for the three months ended September 30, 2023 and 2022:

Three months ended September 30,

2023 2022 Change

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Total costs and expenses 11,952,529 11,701,660 250,869

Operating income (loss) 22,859 (1,846,538) 1,869,397

Operating loss (1,866,603) (288,588) (1,578,015)

Interest income 98,603 21,602 77,001

Other income 981,806 — 981,806

Other income - gain on insurance proceeds — 611,330 (611,330)

Other income - settlement 475,000 — 475,000

Other income - insurance proceeds 346,800 — 346,800

Interest expense (110,081) (149,340) 39,259

Income (loss) before income taxes 869,091 (1,357,766) 2,226,857

Loss before income taxes (1,056,281) (416,326) (639,955)

Income tax expense (6,938) (6,900) (38)

Net income (loss) $ 862,154 $ (1,364,666) $ 2,226,820

Net loss $ (1,063,219) $ (423,226) $ (639,993)

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

Three months ended June 30,

Three months ended September 30,

2023 2022 Change

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Net revenues.

Net revenues for the three months ended June 30, 2023, were $10.9 million compared to $10.3 million for the three months ended June 30, 2022.

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

Kristalose, Vibativ, Caldolor and Acetadote.

Kristalose revenue of $4.1 million for the second quarter of 2023, represented an increase of $0.5 million when compared to the prior year period.

The increase was primarily the result of increased shipments of the product.

Net revenues for the three months ended September 30, 2023, were $10.1 million compared to $11.4 million for the three months ended September 30, 2022.

As noted in the table above, net revenue increased during the quarter for three of our marketed products:

Vibativ, Caldolor and Acetadote.

Kristalose revenue of $3.9 million for the third quarter of 2023, ended the quarter at the same level as the prior year period.

Acetadote revenue includes net sales of our Acetadote brand and our share of net sales from our Authorized Generic.

During the second quarter of 2023, there was an increase of $0.02 million in the product's revenue when compared to the prior year period due to increased shipments of the product.

There was no Vaprisol revenue for the second quarter of 2023 as Cumberland is currently out of inventory of the product.

Net revenue was positively impacted due to normal adjustments to expired product returns.

During the third quarter of 2023, there was an increase of $0.02 million in the product's revenue when compared to the prior year period due to an increase in shipments.

There was no Vaprisol revenue for the third quarter of 2023 as Cumberland is currently out of inventory of the product.

We await FDA approval on a new manufacturer.

Caldolor revenue was $1.2 million for the second quarter of 2023, similar to the second quarter of 2022.

Vibativ revenue was $2.1 million for the three months ended June 30, 2023, an increase of $0.6 million from the same prior year period.

The increase in net revenue of the product was the result of increased unit shipments.

Sancuso revenue was $1.9 million for the second quarter of 2023, which was $1.5 million lower than the second quarter of 2022.

The decline primarily resulted from larger product returns associated with the inventory acquired at the acquisition of the product and other increased sales deductions.

Omeclamox-Pak had no sales for the second quarter of 2023, as Cumberland is currently out of commercial inventory of this product.

Caldolor revenue was $1.2 million for the third quarter of 2023, which was $0.2 million higher than the third quarter of 2022 primarily due to increased international shipments.

Vibativ revenue was $2.8 million for the three months ended September 30, 2023, an increase of $0.9 million from the same prior year period.

The increase in net revenue of the product was the result of successful implementation of a series of new initiatives in support of the brand as well as a decline in product returns.

Sancuso revenue was $1.9 million for the third quarter of 2023, compared to $4.0 million for the third quarter of 2022.

The decline resulted primarily from deductions from sales including managed care rebates.

Omeclamox-Pak had no sales for the third 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 June 30, 2023, reflects sales deduction adjustments.

Other revenue of $1.3 million for the three months ended June 30, 2023 was $0.8 million higher than the prior year period due to higher milestone payments recognized.

Net revenue for the three months ended September 30, 2023, reflects sales deduction adjustments.

There were no RediTrex sales in the third quarter of 2023, as Cumberland concluded our distribution of the product effective June 30, 2023.

Net revenue for the three months ended September 30, 2023, reflects sales deduction adjustments.

Other revenue was $0.3 million for the three months ended September 30, 2023, compared to $0.5 million for the three months ended September 30, 2022.

Cost of products sold .

Co st of products sold for the second quarter of 2023 and 2022 were $1.5 million and $2.0 million, respectively.

Cost of products sold, as a percentage of net revenues, were 14.0% during the three months ended June 30, 2023, compared to 19.7% during the three months ended June 30, 2022.

Co st of products sold for the third quarter of 2023 and 2022 were $1.8 million and $2.2 million, respectively.

Cost of products sold, as a percentage of net revenues, were 17.5% during the three months ended September 30, 2023, compared to 19.5% during the three months ended September 30, 2022.

The improvement in cost of products sold is primarily due to the availability of new lower cost inventory and less inventory write-downs.

Selling and marketing .

Selling and marketing expense for the second quarter of 2023 increased $0.1 million compared to the same period last year.

This increase is primarily attributable to the timing of spending.

Selling and marketing expense for the third quarter of 2023 increased $0.6 million compared to the same period last year.

This increase is primarily attributable to the timing of the expenditures.

Research and development .

Research and development costs for the second quarter of 2023 and 2022 were $1.1 million and $1.8 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 second quarter of 2023 results from lower FDA fees in 2023.

Research and development costs for the third quarter of 2023 and 2022 were $1.9 million and $1.7 million, respectively.

A portion of our research and development costs is variable as we continue to fund the ongoing clinical initiatives associated with our pipeline product candidates.

These variable costs depend on the number of active trials, study sites and patients as well as the cost per patient in each of our clinical programs.

The larger research and development costs for the third quarter of 2023 resulted from an increase in these study costs.

General and administrative .

General and administrative expense increased to $2.4 million for the second quarter of 2023, compared to $2.2 million for the second quarter of 2022, an increase of $0.2 million.

The increase was primarily attributable to increases in deferred compensation expenses.

General and administrative expense for the third quarter of 2023 was $2.3 million compared to $2.2 million for the same period in 2022.

The increase was primarily due to the settlement of an administrative proceeding with the U.S.

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

Financial Impact of Vibativ Three months ended June 30,

Financial Impact of Vibativ Three months ended September 30,

Net revenue $ 2,789,579 $ 1,909,750

$ 3,147,826 $ 1,596,821

Cost of products sold (1)

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Vibativ contribution $ 1,603,950 $ 985,472

(1) In the second quarter of 2023, net revenue includes a $1,000,000 payment to Cumberland related to a settlement agreement of milestone payments.

(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.

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

Financial Impact of Sancuso Three months ended June 30,

Financial Impact of Sancuso Three months ended September 30,

Net revenue $ 1,933,222 $ 4,060,652

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

Amortization for the three months ended June 30, 2023 and 2022, totaled approximately $1.2 million and $1.5 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.

Amortization for the three months ended September 30, 2023 and 2022, totaled approximately $1.2 million and $1.5 million, respectively.

The decline in amortization expense resulted from adjustments to the useful life of Sancuso as determined by the valuation of the product in December 2022.

Income taxes .

Income tax expense for the three months ended June 30, 2023, was comparable to the income tax expense for the three months ended June 30, 2022.

As of June 30, 2023, we had approximately $53.1 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.

Income tax expense for the three months ended September 30, 2023, was comparable to the income tax expense for the three months ended September 30, 2022.

As of September 30, 2023, we had approximately $53.2 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.

Other income.

In the second quarter of 2023, we recognized a $1.0 million refund of 2023 FDA fees to be used to further our product research efforts.

In the third quarter of 2023, we recognized a gain of $0.5 million to settle a manufacturing dispute and a $0.3 million for a payout earned on a company owned insurance policy.

RESULTS OF OPERATIONS

Six months ended June 30, 2023 compared to the six months ended June 30, 2022

The following table presents the unaudited interim statements of operations for continuing operations for the six months ended June 30, 2023 and 2022:

Six months ended June 30,

Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

The following table presents the unaudited interim statements of operations for continuing operations for the nine months ended September 30, 2023 and 2022:

Nine months ended September 30,

2023 2022 Change

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Other income 2,828,871 — 2,828,871

Other income - gain on insurance proceeds — 611,330 (611,330)

Other income - settlement 475,000 — 475,000

Other income - insurance proceeds 346,800 611,330 (264,530)

Interest expense (489,069) (406,539) (82,530)

Income (loss) before income taxes 1,048,315 (2,753,299) 3,801,614

Loss before income taxes (7,966) (3,169,625) 3,161,659

Income tax expense (20,813) (20,700) (113)

Net income (loss) $ 1,034,440 $ (2,767,099) $ 3,801,539

Net loss $ (28,779) $ (3,190,325) $ 3,161,546

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

Six months ended June 30,

Nine months ended September 30,

2023 2022 Change

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Net revenues.

Net revenues for the six months ended June 30, 2023, were $20.1 million compared to $21.5 million for the six months ended June 30, 2022, a decrease of $1.4 million.

Kristalose revenue was $8.4 million during the first six months of 2023, compared to $7.5 million for the prior year period.

Revenue increased due to overall increased unit volume in 2023.

Sancuso revenue was $3.8 million for the six months ended June 30, 2023, compared to $6.8 million for the same period last year.

The decline resulted from lower sales volume and higher sales deductions in 2023.

Vibativ revenue was $4.0 million for the six months ended June 30, 2023, compared to $4.1 million for the same period last year.

The decrease in net revenue was a result of higher sales volume for the product during the six months ended June 30, 2022.

There was no Vaprisol revenue for the first six months of 2023 as Cumberland is currently out of commercial inventory of the product.

Net revenues for the nine months ended September 30, 2023, were $30.2 million compared to $32.9 million for the nine months ended September 30, 2022, a decrease of $2.7 million.

Kristalose revenue was $12.3 million during the first nine months of 2023, compared to $11.4 million for the prior year period.

Revenue increased due to an overall increase in units shipped during 2023.

Sancuso revenue was $5.7 million for the nine months ended September 30, 2023, compared to $10.8 million for the same period last year.

The decline resulted primarily from deductions from sales including product returns and managed care rebates.

Vibativ revenue was $6.8 million for the nine months ended September 30, 2023, compared to $6.0 million for the same period last year.

The increase in net revenue of the product was the result of successful implementation of a series of new initiatives in support of the brand as well as a decline in product returns.

There was no Vaprisol revenue for the first nine months of 2023 as Cumberland is currently out of commercial inventory of the product.

Net revenue was positively impacted by various sales adjustments.

Omeclamox-Pak had no sales for the six months ended June 30, 2023, as Cumberland is currently out of commercial inventory of this product.

Omeclamox-Pak had no sales for the nine months ended September 30, 2023, 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.

Acetadote revenue includes net sales of our Acetadote brand and our share of net sales from our Authorized Generic.

There was a $0.1 million increase in the product's year to date revenue for the six months ended June 30, 2023, when compared to the prior year period as a result of increased sales of our Authorized Generic and a decrease in expired product returns in 2023.

Caldolor revenue was $2.2 million for the first two quarters of 2023, at the same level as 2022.

Other revenue was $1.5 million for the six months ended June 30, 2023, representing a $0.7 million increase from the same period in 2022, as a result of two milestone payments recognized in 2023.

There was a $0.1 million increase in the product's revenue for the nine months ended September 30, 2023, when compared to the prior year period as a result of a decrease in product returns in 2023.

Caldolor revenue was $3.3 million for the first three quarters of 2023, a $0.2 million increase over 2022.

Higher international revenue is driving the increase.

Other revenue was $1.8 million for the nine months ended September 30, 2023, representing a $0.5 million increase from the same period in 2022, as a result of two milestone payments recognized in 2023.

Cost of products sold .

Co st of products sold for the first six months of 2023 were $2.8 million, a decrease of $1.5 million compared to the same period last year due to the availability of new lower cost inventory and fewer inventory write downs.

Co st of products sold for the first nine months of 2023 were $4.5 million, a decrease of $1.9 million compared to the same period last year due to the availability of new lower cost inventory and fewer inventory write downs.

Selling and marketing .

Selling and marketing expense for the six months ended June 30, 2023, decreased $0.2 million compared to the prior year period.

This decline is primarily attributable to the timing of spending.

Selling and marketing expense for the nine months ended September 30, 2023, increased $0.4 million compared to the prior year period.

This increase is primarily attributable to the timing of the expenditures.

Research and development .

Research and development costs were $2.6 million for the first six months of 2023 compared to $3.6 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 product candidates.

In addition, 2023 R&D costs declined by $0.9 million due to reduced FDA fees.

Research and development costs were $4.6 million for the first nine months of 2023 compared to $5.3 million for the same period last year.

The primary reason for this decline is $0.7 million in reduced FDA fees.

A portion of our research and development costs is variable as we continue to fund the ongoing clinical initiatives associated with our pipeline product candidates.

These variable costs depend on the number of active trials, study sites and patients as well as the cost per patient in each of our clinical programs.

General and administrative .

General and administrative expense for the six months ended June 30, 2023, increased to $4.9 million compared to $4.5 million during the six months ended June 30, 2022.

In 2023, we experienced an increase in deferred compensation and hiring expenses.

General and administrative expense for the nine months ended September 30, 2023, increased to $7.2 million compared to $6.7 million during the nine months ended September 30, 2022.

In 2023, we experienced an increase in deferred compensation, hiring expenses and the settlement of an administrative proceeding with the U.S.

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

Financial Impact of Vibativ Six months ended June 30,

Financial Impact of Vibativ Nine months ended September 30,

Net revenue (1)

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

Financial Impact of Sancuso Six months ended June 30,

Financial Impact of Sancuso Nine months ended September 30,

Net revenue $ 5,736,981 $ 11,106,411

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

Amortization for the six months ended June 30, 2023, and six months ended June 30, 2022, totaled approximately $2.4 million and $3.1 million, respectively.

The decrease was attributable to the valuation of Sancuso acquisition completed in December 2022.

Amortization for the nine months ended September 30, 2023, and nine months ended September 30, 2022, totaled approximately $3.6 million and $4.6 million, respectively.

The decrease was attributable to the valuation of the Sancuso acquisition completed in December 2022.

Income taxes .

Income tax expense for the six months ended June 30, 2023, as a percentage of income (loss) before income taxes, was 1.3% compared to (0.5)% for the six months ended June 30, 2022.

Income tax expense for the nine months ended September 30, 2023, was $0.02 million, similar to the income tax expense recognized for the nine months ended September 30, 2022.

Other income.

In 2023, we recognized a $2.8 million refund of FDA fees for the periods of 2022 and 2023 to be used to further our product research efforts.

In 2023, we recognized a $2.8 million refund of FDA fees for the periods of 2022 and 2023 to further the development of our new product candidates.

We recognized a gain of $0.5 million in the third quarter of 2023 associated with a manufacturing dispute settlement as well as expected proceeds of $0.3 million for a payout associated with a company owned insurance policy.

LIQUIDITY AND CAPITAL RESOURCES

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

The following table summarizes our liquidity and working capital as of June 30, 2023 and December 31, 2022:

June 30, 2023 December 31, 2022

The following table summarizes our liquidity and working capital as of September 30, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

Cash and cash equivalents $ 18,507,965 $ 19,757,970

2 unchanged sentences

Revolving line of credit availability $ 7,076,875 $ 3,800,000

The following table summarizes our net changes in cash and cash equivalents for the six months ended June 30, 2023 and June 30, 2022:

Six months ended June 30,

The following table summarizes our net changes in cash and cash equivalents for the nine months ended September 30, 2023 and September 30, 2022:

Nine months ended September 30,

Net cash provided by (used in):

3 unchanged sentences

Net increase (decrease) in cash and cash equivalents $ (1,250,005) $ (7,499,278)

The net $1.5 million decrease in cash and cash equivalents for the six months ended June 30, 2023, was primarily attributable to cash used in investing and financing activities.

An increase of cash provided by operating activities of $3.8 million was primarily the result of an unfavorable increase in inventory of $0.2 million and the offsetting positive impact from a decrease of accounts receivable of $0.9 million, an increase of net accounts payable and other current liabilities of $0.5 million, an increase of long-term obligations of $0.3 million and the add backs of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $2.6 million.

Cash used in investing activities of $0.3 million was the result of additions to property and equipment and intangibles.

Financing activities use of cash was $5.1 million and include the repayments on our line of credit of $3.1 million, the $0.3 million in cash used to repurchase shares of our common stock as well as the $1.7 million used for the payment of a Sancuso milestone, plus royalties on sales of Vibativ and Sancuso.

The net $8.8 million decrease in cash and cash equivalents for the six months ended June 30, 2022, was primarily attributable to cash used in investing and partially offset by cash provided by operating and financing activities.

Cash provided by operating activities of $2.2 million was primarily the result of a decrease in inventory of $2.9 million, decrease in other assets of $1.2 million and increases in accounts payable and other liabilities of $4.7 million, as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $3.4 million.

The net $1.3 million decrease in cash and cash equivalents for the nine months ended September 30, 2023, was primarily attributable to cash used in investing and financing activities partially offset by cash provided by operating activities.

Cash provided by operating activities totaled $5.1 million for the nine months ended September 30, 2023, primarily the result of the add backs of non-cash expenses including depreciation, amortization and share-based compensation expense totaling $4.0 million.

It also resulted from a decrease of accounts receivable of $0.9 million, a decrease in inventory of $0.4 million and an increase of net accounts payable and other current liabilities of $1.9 million.

It was partially offset by a decrease in non-cash contingent consideration of $1.0 million, an increase in other assets of $0.4 million and a decrease of $0.3 million in other long-term liabilities.

Cash used in investing activities of $0.4 million for the nine months ended September 30, 2023, was the result of additions to property and equipment and intangibles.

Financing activities use of cash totaled $5.9 million for the nine months ended September 30, 2023, and included the repayments on our line of credit of $3.3 million, the $0.6 million in cash used to repurchase shares of our common stock and the $2.1 million used for the payment of a Sancuso milestone, plus royalties on sales of Vibativ and Sancuso.

The $7.5 million decrease in cash and cash equivalents for the nine months ending September 30, 2022, was primarily attributable to cash used in investing and partially offset by cash provided by operating and financing activities.

Cash provided by operating activities totaled $4.8 million for the nine months ending September 30, 2022, primarily the result of the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $5.1 million.

It also resulted from decreases in inventory of $1.3 million, decrease in other assets of $4.4 million and increases in accounts payable and other liabilities of $8.8 million.

This was partially offset by accounts receivable increasing by $8.2 million, mainly from the addition of Sancuso sales, and the decrease in long-term liabilities of $2.5 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 $4.0 million partially offset by the $0.8 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.

Cash used in investing activities for the nine months ending September 30, 2022, was the result of the acquisition of Sancuso.

Our financing activities for the nine months ending September 30, 2022, included the increase in our line of credit of $2.7 million partially offset by the $0.9 million in cash used to repurchase shares of our common stock as well as the $1.1 million used for the payment of royalties for sales of Vibativ and Sancuso.

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 June 30, 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.

On September 5, 2023, the Company entered into a new Revolving Credit Loan Agreement with Pinnacle Bank.

This facility provides for an aggregate principal funding amount of up to $25 million.

The initial revolving line of credit is up to $20 million, with the ability for Cumberland to increase the amount to $25 million, under certain conditions.

It has a three year term expiring on October 1, 2026.

The interest rate is based on Benchmark (Term SOFR) plus a spread of 2.75%.

Cumberland is subject to one financial covenant, the maintenance of a Funded Debt Ratio, determined on a quarterly basis.

Borrowings under the line of credit are collateralized by substantially all of our assets.

OFF-BALANCE SHEET ARRANGEMENTS

During the six months ended June 30, 2023 and 2022, we did not engage in any off-balance sheet arrangements.

During the nine months ended September 30, 2023 and 2022, we did not engage in any off-balance sheet arrangements.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis