Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Disclosure regarding forward-looking statements
The following discussion contains certain forward-looking statements which reflect management’s current views of future events and operations. These statements involve certain risks and uncertainties, and actual results may differ materially from them. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ significantly from the results discussed in these forward-looking statements. Some important factors which may cause results to differ from expectations include: availability of additional debt and equity capital; market conditions at the time additional capital is required; our ability to continue to acquire branded products; product sales; management of our growth and integration of our acquisitions and generally unpredictable conditions in national and international markets. While forward-looking statements reflect our beliefs and best judgment based upon current information, they are not guarantees of future performance. Other important factors that may cause actual results to differ materially from forward-looking statements are discussed in the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” of our Annual Report on Form 10-K for the year ended December 31, 2022, and our other filings with the SEC. We do not undertake to publicly update or revise any of our forward-looking statements, even in the event that experience or future changes indicate that the anticipated results will not be realized. The following presentation of management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this report on Form 10-Q.
OVERVIEW
Our Business
Cumberland Pharmaceuticals Inc. (“Cumberland,” the “Company,” or as used in the context of “we,” “us,” or “our”), is a specialty pharmaceutical company focused on the acquisition, development and commercialization of branded prescription pharmaceutical products. We are dedicated to providing innovative products that improve the quality of care for patients and address poorly met medical needs.
Our primary target sectors are hospital acute care, gastroenterology and oncology. These medical specialties are characterized by relatively concentrated prescriber bases that we believe can be served effectively by small, targeted sales forces. We promote our approved products through our hospital, oncology and field sales forces in the United States. We have also established international partnerships and are continuing to build a network of companies outside the U.S. to register and provide our medicines to patients in their countries.
Our portfolio of FDA approved brands includes:
•Acetadote® (acetylcysteine) injection, for the treatment of acetaminophen poisoning;
•Caldolor® (ibuprofen) injection, for the treatment of pain and fever;
•Kristalose® (lactulose) oral, a prescription laxative, for the treatment of constipation;
•Omeclamox®-Pak, (omeprazole, clarithromycin, amoxicillin) oral, for the treatment of Helicobacter pylori (H. pylori) infection and related duodenal ulcer disease;
•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 and 2) Systemic Sclerosis (“SSc”) or scleroderma, a debilitating autoimmune disorder characterized by fibrosis of the skin and internal organs. 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.
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.
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. 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. 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 expanded the labeling for both brands accordingly. We also added pre-surgery dosing for Caldolor, and recently included newborns to the patients who can benefit from the product. 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 the implementation 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 across the U.S.
•Building an international contribution to our business. We have established our own commercial capabilities, including three sales divisions, to cover the U.S. market for our products. We are also building a network of select international partners to register our products and make them available to patients in their countries. We will continue to develop and expand our network of international partners while supporting our partners’ registration and commercialization efforts in their respective territories. The acquisition of Vibativ resulted in several new international partners and market opportunities.
•Managing our operations with financial discipline. We continually work to manage our expenses in line with our revenues to deliver positive cash flow from operations. We remain in a strong financial position, with favorable gross margins and a strong balance sheet.
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.
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 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.
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. A series of published clinical studies have demonstrated that Caldolor significantly reduces patient pain, while also significantly reducing patients’ need for opioids.
Ifetroban Clinical Studies
We have been evaluating our ifetroban product candidate, a selective thromboxane-prostanoid receptor 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.
Patient enrollment is well underway in two company sponsored Phase II clinical programs to evaluate ifetroban in Systemic Sclerosis or scleroderma, a debilitating autoimmune disorder characterized by diffuse fibrosis of the skin and internal organs; 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 DMDTM 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. The trial is evaluating 12 months of oral ifetroban in 24 subjects with early-stage cardiomyopathy and 24 subjects with advanced-stage heart disease across 10 U.S. centers that specialize in DMD cardiomyopathy. The safety and efficacy endpoints include left ventricular ejection fraction using cardiac MRI, pulmonary function, quantitative muscle strength, daily activity and quality of life measures.
The FDA Orphan Product Division awarded Cumberland $1 million in funding under its Orphan Products Grants Program to support this trial. This was the first DMD trial awarded such funding.
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. This Phase II clinical trial will study the safety, tolerability and efficacy of oral ifetroban in patients with IPF. Recent studies have shown ifetroban can both prevent and enhance resolution of lung fibrosis in multiple preclinical models.
We have also completed Phase II clinical programs with ifetroban in patients with Hepatorenal Syndrome, Portal Hypertension and Aspirin Exasperated Respiratory Disease. Additional preclinical and pilot clinical studies of ifetroban are underway, including several investigator-initiated trials.
Our plan going forward is to complete each of our Company-sponsored studies, analyze their final data, announce top-line results and decide on the best development path for the registration of ifetroban, which we continue to believe has the potential to benefit many patients with orphan diseases that represent unmet medical needs.
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
In early 2022, Cumberland acquired the U.S. rights to the FDA-approved oncology-supportive care medicine Sancuso from Kyowa Kirin, Inc., the U.S. affiliate of Japan-based Kyowa Kirin Co., Ltd. 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.
International Agreements
During the third quarter of 2022, we signed a new agreement with PiSA Pharmaceutical (“PiSA”) for the exclusive supply and distribution of our ibuprofen injection product in Mexico. Cumberland will be responsible for sharing the U.S. dossier and providing product supply, while PiSA will be responsible for obtaining the regulatory approval and then commercializing the product in Mexico. PiSA expects to provide the product in both 400- and 800-milligram vials.
Meanwhile, we continue to support our international partners in their efforts to register our Vibativ brand in their countries.
In late 2022, we announced a new partnership with Saudi Arabia-based Tabuk Pharmaceutical to introduce Vibativ into the Middle East. The arrangement provides Tabuk exclusive rights to distribute Vibativ in Saudi Arabia and Jordan, with the option to expand into other countries in the region. Tabuk is in the process of updating the Vibativ registration in Saudi Arabia with new manufacturing information as they also prepare for the launch in that country.
Also in 2022, we entered into an agreement with D.B. Pharm to register and commercialize our Vibativ product in South Korea. D.B. Pharm, which also distributes our Caldolor product in South Korea, is progressing their application for the approval of Vibativ.
Meanwhile, our Vibativ partner for the Chinese market, SciClone Pharmaceuticals, had their approval application in China accepted for review in September 2021. We have since been supporting SciClone and their requests associated with review of that submission. They are working toward the approval and believe that there is significant potential for Vibativ in their country.
Nordic Pharma Arrangements
In July 2022, we entered into an amendment to our agreement with Nordic Pharma (“Nordic”) that addresses the responsibilities and financial arrangements regarding our license to Nordic’s methotrexate line of products for the U.S. (the “License”). Our 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
Demand for our Vaprisol product increased in 2020 during the pandemic, and we worked to support the expanded use of the product in hospitals and clinics during the health care crisis. During 2021, we shipped all remaining inventory of the product and notified the FDA that supplies of the product are not currently available. We have since transferred the manufacturing of the product to a new facility. Our new manufacturing partner is working with the FDA to address several Form 483 and warning letter issues in a timely manner. Meanwhile, we are working with them to support a special, interim supply of compounded product for critically ill patients, while awaiting the needed facility FDA approval to relaunch Vaprisol.
Omeclamox-Pak Supply Update
The packager for Omeclamox-Pak encountered financial difficulties in 2020 due to the impact of the COVID-19 pandemic, and their operations were suspended. As a result, we depleted our inventory of the product and notified the FDA that it is currently unavailable. We are awaiting availability of those operations, while also exploring other alternatives to restart the product’s packaging.
Summary
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.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES
Please see a discussion of our critical accounting policies and significant judgments and estimates in Note 1 to the Company's Condensed Consolidated Financial Statements accompanying this report and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report on Form 10-K.
Accounting Estimates and Judgments
The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. We base our estimates on past experience and on other factors we deem reasonable given the circumstances. Past results help form the basis of our judgments about the carrying value of assets and liabilities that cannot be determined from other sources. Actual results could differ from these estimates. The Company's most significant estimates include: (1) its allowances for chargebacks and accruals for rebates and product returns, (2) the allowances for obsolescent or unmarketable inventory and (3) valuation of contingent consideration liabilities associated with business combinations.
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, |
| 2023 | | 2022 | | Change | |
| Net revenues | $ | 10,888,877 | | | $ | 10,299,152 | | | $ | 589,725 | | |
| Costs and expenses: | | | | | | |
| Cost of products sold | 1,520,774 | | | 2,031,884 | | | (511,110) | | |
| Selling and marketing | 4,672,075 | | | 4,556,685 | | | 115,390 | | |
| Research and development | 1,145,038 | | | 1,823,693 | | | (678,655) | | |
| General and administrative | 2,369,883 | | | 2,203,975 | | | 165,908 | | |
| Amortization | 1,158,248 | | | 1,529,453 | | | (371,205) | | |
| Total costs and expenses | 10,866,018 | | | 12,145,690 | | | (1,279,672) | | |
| Operating income (loss) | 22,859 | | | (1,846,538) | | | 1,869,397 | | |
| Interest income | 57,061 | | | 15,066 | | | 41,995 | | |
| Other income | 981,806 | | | — | | | 981,806 | | |
| | | | | | |
| Other income - gain on insurance proceeds | — | | | 611,330 | | | (611,330) | | |
| Interest expense | (192,635) | | | (137,624) | | | (55,011) | | |
| | | | | | |
| Income (loss) before income taxes | 869,091 | | | (1,357,766) | | | 2,226,857 | | |
| Income tax expense | (6,937) | | | (6,900) | | | (37) | | |
| Net income (loss) | $ | 862,154 | | | $ | (1,364,666) | | | $ | 2,226,820 | | |
| | | | | | |
The following table summarizes net revenues by product for the periods presented: | | | | | | | | | | | | | | | | | |
| Three months ended June 30, |
| 2023 | | 2022 | | Change |
| Products: | | | | | |
| Kristalose | $ | 4,110,718 | | | $ | 3,570,272 | | | $ | 540,446 | |
| Sancuso | 1,916,966 | | | 3,398,548 | | | (1,481,582) | |
| Vibativ | 2,147,826 | | | 1,596,821 | | | 551,005 | |
| Caldolor | 1,226,314 | | | 1,193,916 | | | 32,398 | |
| Acetadote | 150,163 | | | 126,789 | | | 23,374 | |
| Vaprisol | 23,857 | | | (134,621) | | | 158,478 | |
| Omeclamox-Pak | 8,062 | | | (26,412) | | | 34,474 | |
| RediTrex | 9,493 | | | 93,676 | | | (84,183) | |
| Other revenue | 1,295,478 | | | 480,163 | | | 815,315 | |
| Total net revenues | $ | 10,888,877 | | | $ | 10,299,152 | | | $ | 589,725 | |
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.
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. 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. 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.
Cost of products sold. Cost 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. 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.
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.
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.
The components of the statements of operations discussed above reflect the following impacts from Vibativ: | | | | | | | | | | | | | | |
| Financial Impact of Vibativ | | Three months ended June 30, |
| | 2023 | | 2022 |
Net revenue (1) | | $ | 3,147,826 | | | $ | 1,596,821 | |
Cost of products sold (2) | | 270,571 | | | 402,320 | |
| Royalty and operating expenses | | 597,019 | | | (17,957) | |
| Vibativ contribution | | $ | 2,280,236 | | | $ | 1,212,458 | |
(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.
(2) The Vibativ inventory included in the costs of product sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018.
The components of the statements of operations discussed above reflect the following impacts from Sancuso:
| | | | | | | | | | | | | | |
| Financial Impact of Sancuso | | Three months ended June 30, |
| | 2023 | | 2022 |
| Net revenue | | $ | 1,916,966 | | | $ | 3,648,548 | |
Cost of products sold (1) | | 281,828 | | | 360,572 | |
| Royalty and operating expenses | | 1,407,097 | | | 992,922 | |
| Sancuso contribution | | $ | 228,041 | | | $ | 2,295,054 | |
(1) The Sancuso inventory included in the costs of product sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2022.
Amortization. Amortization expense is the ratable use of our capitalized intangible assets including product and license rights, patents, trademarks and patent defense costs. Amortization for the three months ended 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.
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. 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.
.
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, |
| 2023 | | 2022 | | Change | |
| Net revenues | $ | 20,113,515 | | | $ | 21,474,197 | | | $ | (1,360,682) | | |
| Costs and expenses: | | | | | | |
| Cost of products sold | 2,771,038 | | | 4,243,769 | | | (1,472,731) | | |
| Selling and marketing | 8,949,393 | | | 9,171,114 | | | (221,721) | | |
| Research and development | 2,644,708 | | | 3,568,829 | | | (924,121) | | |
| General and administrative | 4,868,876 | | | 4,506,324 | | | 362,552 | | |
| Amortization | 2,388,319 | | | 3,122,698 | | | (734,379) | | |
| Total costs and expenses | 21,622,334 | | | 24,612,734 | | | (2,990,400) | | |
| Operating loss | (1,508,819) | | | (3,138,537) | | | 1,629,718 | | |
| Interest income | 107,251 | | | 31,107 | | | 76,144 | | |
| Other income | 2,828,871 | | | — | | | 2,828,871 | | |
| | | | | | |
| Other income - gain on insurance proceeds | — | | | 611,330 | | | (611,330) | | |
| Interest expense | (378,988) | | | (257,199) | | | (121,789) | | |
| | | | | | |
| Income (loss) before income taxes | 1,048,315 | | | (2,753,299) | | | 3,801,614 | | |
| Income tax expense | (13,875) | | | (13,800) | | | (75) | | |
| Net income (loss) | $ | 1,034,440 | | | $ | (2,767,099) | | | $ | 3,801,539 | | |
| | | | | | |
The following table summarizes net revenues by product for the periods presented: | | | | | | | | | | | | | | | | | |
| Six months ended June 30, |
| 2023 | | 2022 | | Change |
| Products: | | | | | |
| Kristalose | $ | 8,425,846 | | | $ | 7,515,368 | | | $ | 910,478 | |
| Sancuso | 3,803,759 | | | 6,795,758 | | | (2,991,999) | |
| Vibativ | 3,996,013 | | | 4,098,255 | | | (102,242) | |
| Caldolor | 2,161,356 | | | 2,153,546 | | | 7,810 | |
| Vaprisol | 39,866 | | | (251,623) | | | 291,489 | |
| Acetadote | 320,019 | | | 237,884 | | | 82,135 | |
| Omeclamox-Pak | 5,544 | | | (3,676) | | | 9,220 | |
| RediTrex | (131,552) | | | 152,904 | | | (284,456) | |
| Other revenue | 1,492,664 | | | 775,781 | | | 716,883 | |
| Total net revenues | $ | 20,113,515 | | | $ | 21,474,197 | | | $ | (1,360,682) | |
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 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. 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.
Cost of products sold. Cost 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.
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.
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.
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.
The components of the statements of operations discussed above reflect the following impacts from Vibativ: | | | | | | | | | | | | | | |
| Financial Impact of Vibativ | | Six months ended June 30, |
| | 2023 | | 2022 |
Net revenue (1) | | $ | 4,996,013 | | | $ | 4,248,255 | |
Cost of products sold (2) | | 517,313 | | | 1,329,480 | |
| Royalty and operating expenses | | 1,116,627 | | | 663,360 | |
| Vibativ contribution | | $ | 3,362,073 | | | $ | 2,255,415 | |
(1) 2023 net revenue includes a $1,000,000 payment to Cumberland related to a settlement agreement of milestone payments.
(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) | | $ | 48,754,498 | |
Cost of products sold (2) | | 16,242,420 | |
| Royalty and operating expenses | | 7,653,817 | |
| Vibativ contribution | | $ | 24,858,261 | |
(1) Net revenue includes a $1,000,000 payment to Cumberland related to a settlement agreement of milestone payments.
(2) The Vibativ inventory included in the costs of product sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018.
The components of the statements of operations discussed above reflect the following impacts from Sancuso: | | | | | | | | | | | | | | |
| Financial Impact of Sancuso | | Six months ended June 30, |
| | 2023 | | 2022 |
| Net revenue | | $ | 3,803,759 | | | $ | 7,045,758 | |
Cost of products sold (1) | | 571,306 | | | 748,836 | |
| Royalty and operating expenses | | 1,822,804 | | | 1,903,022 | |
| Sancuso contribution | | $ | 1,409,649 | | | $ | 4,393,900 | |
(1) The Sancuso inventory included in the costs of product sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2022.
| | | | | | | | |
| Financial Impact of Sancuso | | Since Acquisition |
| Net revenue | | $ | 17,359,362 | |
Cost of products sold (1) | | 2,114,906 | |
| Royalty and operating expenses | | 6,024,830 | |
| Sancuso contribution | | $ | 9,219,626 | |
(1) The Sancuso inventory included in the costs of product sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2022.
Amortization. Amortization expense is the ratable use of our capitalized intangible assets including product and license rights, patents, trademarks and patent defense costs. Amortization for the 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.
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.
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.
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 June 30, 2023 and December 31, 2022: | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| | | |
| Cash and cash equivalents | $ | 18,249,086 | | | $ | 19,757,970 | |
| | | |
| Working capital (current assets less current liabilities) | $ | 16,715,046 | | | $ | 17,290,378 | |
| Current ratio (multiple of current assets to current liabilities) | 1.6 | | | 1.6 | |
| | | |
| Revolving line of credit availability | $ | 6,851,875 | | | $ | 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, |
| 2023 | | 2022 |
| |
| Net cash provided by (used in): | | | |
| Operating activities | $ | 3,817,152 | | | $ | 2,180,038 | |
| Investing activities | (271,261) | | | (13,714,489) | |
| Financing activities | (5,054,775) | | | 2,710,200 | |
| Net increase (decrease) in cash and cash equivalents | $ | (1,508,884) | | | $ | (8,824,251) | |
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. This was partially offset by accounts receivable increasing by $5.5 million, mainly from the addition of Sancuso sales and the decrease in long-term liabilities of $1.7 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.
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.
OFF-BALANCE SHEET ARRANGEMENTS
During the six months ended June 30, 2023 and 2022, we did not engage in any off-balance sheet arrangements.