CUMBERLAND PHARMACEUTICALS INC. Disclosure regarding forward-looking statements
The following discussion contains certain forward-looking statements which reflect management's current views of future events and operations. These statements involve certain risks and uncertainties, and actual results may differ materially from them. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ significantly from the results discussed in these forward-looking statements. Some important factors which may cause results to differ from expectations include: availability of additional debt and equity capital; market conditions at the time additional capital is required; our ability to continue to acquire branded products; product sales; management of our growth and integration of our acquisitions and impacts on our business as well as national and international markets and economies resulting from the COVID-19 pandemic. While forward-looking statements reflect our beliefs and best judgment based upon current information, they are not guarantees of future performance. Other important factors that may cause actual results to differ materially from forward-looking statements are discussed in the sections entitled "Risk Factors" and "Special Note Regarding Forward-Looking Statements" of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , and our other filings with theSEC . 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. 16 --------------------------------------------------------------------------------
OVERVIEW Our BusinessCumberland 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, oncology, gastroenterology and rheumatology. These medical specialties are characterized by relatively concentrated prescriber bases that we believe can be served effectively by small, targeted sales forces. We promote our approved products through our hospital, oncology and field sales forces inthe United States . We have also established partnerships inPuerto Rico and theMiddle East for our Vibativ® product and are continuing to build a network of international partners 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.
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 inthe 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 theU.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.
18
--------------------------------------------------------------------------------RECENT DEVELOPMENTS
New Headquarters Location
We recently announced the relocation of our headquarters into new offices located on the Broadwest campus in the Vanderbilt/West End corridor ofNashville in lateOctober 2022 . We are delighted to continue our presence and participation in theNashville healthcare community, which represents the largest concentration of healthcare companies in the country. Our new, state-of-the-art headquarters keeps us close to theVanderbilt University Medical Center , enabling our continued collaboration, as we work to develop new medicines for the future. Broadwest is a 1.2 million-square-foot urban, mixed-use complex and business park - with office space, aConrad Hilton hotel and supportive retail space. Our move allows us to accommodate recent growth and better serve our international base of customers and partners. Following this relocation, our organization is expected to grow to over 100 individuals, with a majority employed at ourNashville headquarters.
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
Additionally, during the third quarter of 2022, we entered into an agreement withPhebra PTY Ltd. ("Phebra") to market and distribute Caldolor inAustralia . Caldolor was registered and launched by CSL Seqirus inAustralia , with the marketing authorization and distribution now shifted to Phebra who also distributes our Acetadote product in that country. Caldolor, our proprietary, intravenously delivered formulation of ibuprofen, can be a key component in cost-effective Enhanced Recovery After Surgery multimodal treatment protocols. When administered immediately prior to surgery, the non-narcotic pain reliever enables patients to wake in significantly less pain and to suffer significantly less pain during their recovery. Ibuprofen delivered through intravenous injection can also considerably reduce the need for post-operative opioids and improve recovery by reducing the side effects associated with those narcotics.
Sancuso Acquisition and Promotion
In early 2022, Cumberland acquired theU.S. rights to the FDA-approved oncology-supportive care medicine Sancuso fromKyowa Kirin, Inc. , theU.S. affiliate ofJapan -based Kyowa Kirin Co., Ltd. We largely completed the transition of Sancuso to Cumberland during the third quarter of 2022. Cumberland has assumed commercial responsibility for the product in theU.S. - including its marketing, promotion, distribution, manufacturing and medical support activities. 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. To support Sancuso we formed a specialty sales division, Cumberland Oncology. To augment those efforts we also entered into a co-promotion agreement withVerity Pharmaceuticals ("Verity") to feature Sancuso through their national oncology sales organization. Verity completed training of its sales force and inJuly 2022 launched their promotion of Sancuso. Verity will promote the product across the U.S. market for an initial three-year term, with an option to extend for an additional two years. Verity and Cumberland will share in the incremental contribution margin resulting from Verity's efforts. 19
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Nordic Pharma Arrangements
InJuly 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 theU.S. (the "License"). Our line of prefilled methotrexate syringes, marketed under the brand name RediTrex® in theU.S. , is covered by the License. Based on the amendment, Nordic may assume responsibility for commercializing the methotrexate products in theU.S. afterMarch 31, 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 throughApril 2035 . The companies will continue to collaborate on any transition and the ongoing commercialization of the product line. Cumberland will transfer the marketing authorization associated with the RediTrex product line to Nordic. Nordic has agreed to return the 180,000 shares we issued to Nordic associated with the License and will refund the$1 million we paid to Nordic following the brand's approval in theU.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. 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 awaiting results from the studies underway before deciding on the best development path for the registration of ifetroban, which we believe has the potential to help many patients. 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 are currently preparing an application to the FDA to support the new program. In addition to our Company-sponsored studies, researchers atBrigham 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.
Vaprisol Supply Update
We are transitioning to a new manufacturer for our Vaprisol product. During
2021, we shipped all remaining inventory of the product and notified the FDA
that supplies of the product were then not currently available. We have
transferred manufacturing to a new facility and await the submission and FDA
approval for that plant before resuming shipments. During the second quarter of
2022, the new manufacturer was issued an FDA Form 483 followed by a warning
letter in the fourth quarter, after an inspection of their facility. The FDA
notified us that our application to manufacture Vaprisol at the new facility
would need to be resubmitted once those 483 issues are satisfactorily resolved.
Our new manufacturing partner is working with the FDA to address those issues on
a timely basis. Meanwhile, we plan to provide an interim supply of compounded
product to the market while awaiting the needed facility approval.
20
--------------------------------------------------------------------------------Omeclamox-Pak Supply Update
The packager for our Omeclamox-Pak product has been unable to provide us with supplies of the product, having encountered difficulties and therefore suspending operations during the pandemic. We are currently awaiting the facility's packaging to resume, while also exploring other alternatives to restart the product's packaging before we seek to resupply the market.
Financial Statement Adjustment
After announcing preliminary earnings onNovember 8, 2022 , Cumberland identified a balance sheet adjustment, which is reflected in the financial results included in this Quarterly Report on Form 10-Q. As a result of this adjustment, accounts receivable were increased by$0.15 million , property and equipment were reduced by$0.8 million and current liabilities were reduced by$0.65 million from the amounts reported in the earnings release as ofSeptember 30, 2022 . This adjustment only affected the balance sheet and the statement of cash flows but did not change net loss for the period.
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.
21
--------------------------------------------------------------------------------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 2021 Annual Report on Form 10-K.
Accounting Estimates and Judgments
The preparation of condensed consolidated financial statements in conformity withU.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. 22 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Three months ended
The following table presents the unaudited interim statements of operations for continuing operations for the three months endedSeptember 30, 2022 and 2021: Three months ended September 30, 2022 2021 Change Net revenues$ 11,413,072 $ 8,072,540 $ 3,340,532 Costs and expenses: Cost of products sold 2,224,443 1,328,027 896,416 Selling and marketing 4,110,397 3,800,288 310,109 Research and development 1,714,254 1,453,873 260,381 General and administrative 2,166,118 2,039,799 126,319 Amortization 1,486,448 1,013,948 472,500 Total costs and expenses 11,701,660 9,635,935 2,065,725 Operating income (loss) (288,588) (1,563,395) 1,274,807 Interest income 21,602 7,394 14,208 Interest expense (149,340) (20,021) (129,319) Income (loss) from continuing operations before income taxes (416,326) (1,576,022) 1,159,696 Income tax (expense) benefit (6,900) (7,458) 558
Net income (loss) from continuing operations
The following table summarizes net revenues by product for the periods
presented:
Three months ended September 30,
2022 2021 Change
Products:
Kristalose $ 3,903,305 $ 4,012,746 $ (109,441)
Sancuso 3,960,652 - 3,960,652
Vibativ 1,909,750 1,896,584 13,166
Caldolor 921,811 1,255,669 (333,858)
Vaprisol (436) 325,774 (326,210)
Acetadote 99,792 368,733 (268,941)
Omeclamox-Pak 35,600 22,689 12,911
RediTrex 85,809 11,459 74,350
Other revenue 496,789 178,886 317,903
Total net revenues
Net revenues. Net revenues for the three months endedSeptember 30, 2022 , were$11.4 million compared to$8.1 million for the three months endedSeptember 30, 2021 . As detailed in the table above, net revenue increased during the quarter for two of our marketed products: RediTrex and Vibativ. We also continued significant shipments of Sancuso which we launched earlier in the year. Kristalose revenue of$3.9 million for the third quarter of 2022, represented a decrease of$0.1 million when compared to the prior year period. The decrease was primarily the result of timing of shipments to one of our co-promotion partners. Acetadote revenue includes net sales of our Acetadote brand and our share of net sales from our Authorized Generic. During the quarter, there was a decrease in the branded product's revenue due to sales adjustments related to expired product returns. There was no Vaprisol revenue for the third quarter of 2022, a decrease of$0.3 million compared to the same period last year. This decrease is primarily due to the lack of inventory of the product, as we await FDA approval on a new manufacturer. 23 -------------------------------------------------------------------------------- Caldolor revenue was$0.9 million for the third quarter of 2022, a decrease of$0.3 million , compared to the third quarter of 2021. The decrease was due to the timing of international shipments of the product in 2021 and 2022.
Vibativ revenue was
Sancuso revenue was$4.0 million for the third quarter of 2022, which was$1.1 million higher than the third quarter of 2021 U.S. results reported by Kyowa Kirin, from whom Cumberland acquired theU.S. rights to Sancuso onJanuary 3, 2022 . Omeclamox-Pak had no sales for the third quarter of 2022, as Cumberland is currently out of commercial inventory of this product. The packager for our Omeclamox-Pak product encountered financial difficulties, and currently is under new management and a reorganization. We are in discussions about the resumption of packaging the product. Net revenue for the three months endedSeptember 30, 2022 , was positively impacted by various revenue adjustments. Cost of products sold. Cost of products sold for the third quarter of 2022 and 2021 were$2.2 million and$1.3 million , respectively. Cost of products sold, as a percentage of net revenues, were 19.5% during the three months endedSeptember 30, 2022 , compared to 16.5% during the three months endedSeptember 30, 2021 . Selling and marketing. Selling and marketing expense for the third quarter of 2022 increased$0.3 million compared to the same period last year. This increase is primarily attributable to an increase in marketing expenses associated with the Sancuso acquisition, including royalty costs, promotional spending and the costs associated with our new oncology sales division. Research and development. Research and development costs for the third quarter of 2022 and 2021 were$1.7 million and$1.5 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. General and administrative. General and administrative expense increased to$2.2 million for the third quarter of 2022, compared to$2.0 million for the third quarter of 2021, an increase of$0.1 million . The increase was primarily attributable to increases in compensation expenses. 24 -------------------------------------------------------------------------------- The components of the statements of operations discussed above reflect the following impacts from Vibativ: Financial Impact of Vibativ Three months ended September 30, 2022 2021 Net revenue$ 1,909,750 $ 1,896,584 Cost of products sold (1) 1,103,581 407,386 Royalty and operating expenses (179,303) 455,814 Vibativ contribution $ 985,472$ 1,033,384 (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 September 30,
2022 2021
Net revenue (1) $ 4,060,652 $ -
Cost of products sold (2) 388,535 -
Royalty and operating expenses 1,024,014 -
Sancuso contribution $ 2,648,103 $ -
(1) In the third quarter of 2022, net revenue includes a
(2) 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 endedSeptember 30, 2022 and 2021, totaled approximately$1.5 million and$1.0 million , respectively. The increase in amortization expense is due to the acquisition of Sancuso. Income taxes. Income tax expense for the three months endedSeptember 30, 2022 , was comparable to the income tax expense for the three months endedSeptember 30, 2021 . As ofSeptember 30, 2022 , we had approximately$56.6 million in federal net operating loss carryforwards including approximately$44 million of net operating loss carryforwards resulting from the exercise of nonqualified stock options that have historically been used to significantly offset income tax obligations. We expect to continue to pay minimal income taxes during 2022 and beyond, through the continued utilization of these net operating loss carryforwards, on any taxable income generated from our operations. . 25
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RESULTS OF OPERATIONS
Nine months ended
The following table presents the unaudited interim statements of operations for continuing operations for the nine months endedSeptember 30, 2022 and 2021: Nine months ended September 30, 2022 2021 Change Net revenues$ 32,887,269 $ 27,665,182 $ 5,222,087 Costs and expenses: Cost of products sold 6,468,212 5,486,005 982,207 Selling and marketing 13,281,511 11,709,445 1,572,066 Research and development 5,283,083 4,071,638 1,211,445 General and administrative 6,672,442 6,367,438 305,004 Amortization 4,609,146 3,354,080 1,255,066 Total costs and expenses 36,314,394 30,988,606 5,325,788 Operating income (loss) (3,427,125) (3,323,424) (103,701) Interest income 52,709 19,411 33,298 Other income - gain on debt forgiveness - 2,187,140 (2,187,140) Other income - gain on insurance proceeds 611,330 - 611,330 Interest expense (406,539) (70,297) (336,242) Income (loss) from continuing operations before income taxes (3,169,625) (1,187,170) (1,982,455) Income tax (expense) benefit (20,700) (22,375) 1,675
Net income (loss) from continuing operations
The following table summarizes net revenues by product for the periods
presented:
Nine months ended September 30,
2022 2021 Change
Products:
Kristalose $ 11,418,673 $ 12,286,729 $ (868,056)
Sancuso 10,756,411 - 10,756,411
Vibativ 6,008,005 8,799,891 (2,791,886)
Caldolor 3,075,355 3,734,273 (658,918)
Vaprisol (252,059) 1,861,130 (2,113,189)
Acetadote 337,685 638,704 (301,019)
Omeclamox-Pak 31,925 (451,683) 483,608
RediTrex 238,712 (13,291) 252,003
Other revenue 1,272,562 809,429 463,133
Total net revenues
Net revenues. Net revenues for the nine months endedSeptember 30, 2022 , were$32.9 million compared to$27.7 million for the nine months endedSeptember 30, 2021 , an increase of$5.2 million . The addition of our newest product Sancuso contributed to an overall 18.9% revenue increase. Kristalose revenue was$11.4 million during the first nine months of 2022, compared to$12.3 million for the prior year period. Revenue decreased due to slightly lower sales volume associated with one of our co-promotion partners in 2022. 26
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Vibativ revenue was
Vaprisol revenue was
Omeclamox-Pak had no sales for the nine months endedSeptember 30, 2022 , 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 decrease in the product's year to date revenue for the nine months endedSeptember 30, 2022 , when compared to the prior year period as a result of an increase in expired product returns in 2022.
Caldolor revenue was
Cost of products sold. Cost of products sold for the first nine months of 2022 were$6.5 million , an increase of$1.0 million compared to the same period last year due to the addition of Sancuso to the product mix. Selling and marketing. Selling and marketing expense for the nine months endedSeptember 30, 2022 , increased$1.6 million compared to the prior year period. This increase is primarily attributable to an increase in marketing expenses associated with the Sancuso acquisition including royalty costs, promotional spending and the costs associated with our new oncology sales division. Research and development. Research and development costs were$5.3 million for the first nine months of 2022 compared to$4.1 million for the same period last year. A portion of our research and development costs is variable based on the number of trials, study sites, cost of the per patient study protocol and patients involved in the development of our new product candidates. We continue to fund our ongoing clinical initiatives associated with our pipeline product candidates. General and administrative. General and administrative expense for the nine months endedSeptember 30, 2022 , remained consistent with$6.7 million compared to$6.4 million during the nine months endedSeptember 30, 2021 . In 2022, we experienced a slight increase in compensation expense. The components of the statements of operations discussed above reflect the following impacts from Vibativ: Financial Impact of Vibativ Nine months ended September 30, 2022 2021 Net revenue (1)$ 6,158,005 $ 8,799,891 Cost of products sold (2) 2,433,061 2,542,348 Royalty and operating expenses 484,057 1,725,889 Vibativ contribution$ 3,240,887 $ 4,531,654
(1) 2022 net revenue includes a
(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.
Financial Impact of Vibativ Since Acquisition Net revenue (1)
$ 42,279,028 Cost of products sold (2) 14,622,317 Royalty and operating expenses 6,938,102 Vibativ contribution$ 20,718,609
(1) Net revenue includes a
(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.
27
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The components of the statements of operations discussed above reflect the
following impacts from Sancuso:
Financial Impact of Sancuso Nine months ended September 30,
2022 2021
Net revenue (1) $ 11,106,411 $ -
Cost of products sold (2) 1,134,670 -
Royalty and operating expenses 3,135,140 -
Sancuso contribution $ 6,836,601 $ -
(1) 2022 net revenue includes a
(2) 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 nine months endedSeptember 30, 2022 , and nine months endedSeptember 30, 2021 , totaled approximately$4.6 million and$3.4 million , respectively. The increase was attributable to the Sancuso acquisition. Income taxes. Income tax expense for the nine months endedSeptember 30, 2022 , as a percentage of income (loss) from continuing operations before income taxes, was 0.7% compared to 1.9% for the nine months endedSeptember 30, 2021 .
Other income. In 2022, we recognized a gain on insurance proceeds of
28
--------------------------------------------------------------------------------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
September 30, 2022 December 31, 2021
Cash and cash equivalents $ 19,541,538 Working capital (current assets less current liabilities)$ 23,854,383
1.9 2.4
Revolving line of credit availability $ 2,300,000
The following table summarizes our net changes in cash and cash equivalents for
the nine months ended
Nine months ended September 30,
2022 2021
Net cash provided by (used in):
Operating activities $ 4,815,365 $ 4,382,763
Investing activities (13,033,684) (475,098)
Financing activities 719,041 (2,818,230)
Net increase (decrease) in cash and cash equivalents
The net$7.5 million decrease in cash and cash equivalents for the nine months endedSeptember 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$4.8 million was primarily the result of a 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 , as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling$5.1 million . This was partially offset by accounts receivable increasing by$8.2 million , mainly from the addition of Sancuso sales and the increase 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$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. The net$1.1 million increase in cash and cash equivalents for the nine months endedSeptember 30, 2021 , was primarily attributable to cash provided by operating activities, partially offset by cash used in investing and financing activities. Cash provided by operating activities of$4.4 million was positively impacted by decreases in inventory of$2.6 million and accounts receivable of$2.5 million , as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling$4.0 million . Operating activities were also offset by the decrease in accounts payable of$2.9 million and the forgiveness of our PPP Loan of$2.2 million . Cash used in investing activities was the result of additions to intangibles of$0.2 million and the payment of$0.2 million to the WHC JV. Our financing activities included the$1.0 million in cash used to repurchase shares of our common stock as well as the$1.8 million used for the payment of royalties to Theravance for sales of Vibativ. 29 --------------------------------------------------------------------------------
Debt Agreement
OnSeptember 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 endedSeptember 30, 2022 , we were in compliance with the Funded Debt Ratio financial covenant. OnJune 30, 2022 , the Company entered into the Eighth Amendment to the Revolving Credit Loan Agreement with Pinnacle Bank permitting the Maximum Funded DebtRatio 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. OnMarch 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. OnDecember 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
The original Pinnacle Agreement was datedJuly 2017 . Beginning onAugust 14, 2018 , and continuing untilOctober 7, 2020 , the Company and Pinnacle Bank entered into a series of amendments to extend and update the Revolving Credit Note and Revolving Credit Agreement. The Fifth Amendment extends the maturity date three years throughOctober 1, 2024 . The interest rate on the Pinnacle Agreement is based on LIBOR plus an interest rate spread. The current pricing under the Pinnacle Agreement provides for an interest rate spread of 1.75% to 2.75% above LIBOR with a minimum LIBOR of 0.90%. The applicable interest rate under the Pinnacle Agreement was 5.25% atSeptember 30, 2022 . In addition, a fee of 0.25% per year is charged on the unused line of credit. Interest and the unused line fee are payable quarterly. The parties have agreed on a process to determine a new interest rate benchmark at the point the LIBOR rate is expected to be discontinued over the next 12 to 24 months. As ofSeptember 30, 2022 andDecember 31, 2021 , the Company had$17.7 million and$15.0 million , respectively, in borrowings outstanding under its revolving credit facility.
Paycheck Protection Program Loan
On
Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, covered rent payments, and covered utilities. Cumberland used the PPP loan funds for such qualifying expenses. Due to assistance from our PPP loan, the Company did not lay off or furlough any employees as a result of the COVID-19 pandemic.
InOctober 2020 , Cumberland submitted a request for the loan's forgiveness. OnJune 11, 2021 , the Company received a formal notice from the SBA that the full amount of the loan was forgiven. 30 --------------------------------------------------------------------------------
OFF-BALANCE SHEET ARRANGEMENTS
During the nine months ended
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