(Mark One)
For the quarterly period ended June 30, 2020
For the transition period from             to             .
Commission file number: 001-33637 
Cumberland Pharmaceuticals Inc.
(Exact Name of Registrant as Specified In Its Charter)
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
2525 West End Avenue, Suite 950,
Nashville, Tennessee
(Address of Principal Executive Offices)
(Zip Code)
(615) 255-0068
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Securities registered pursuant to Section 12(b) of the Act:
ClassTrading SymbolName of exchanged on which registeredOutstanding at August 10, 2020
Common stock, no par valueCPIXNASDAQ Global Select Market15,138,623


Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
June 30, 2020December 31, 2019
Current assets:
Cash and cash equivalents$27,373,737  $28,212,635  
Accounts receivable, net7,924,338  7,843,917  
Inventories7,627,270  8,871,254  
Current assets of discontinued operations744,403  2,477,813  
Prepaid and other current assets2,085,230  2,757,456  
Total current assets45,754,978  50,163,075  
Non-current inventories15,640,060  15,554,992  
Property and equipment, net631,534  747,796  
Intangible assets, net29,151,228  30,920,324  
Goodwill882,000  882,000  
Deferred tax assets, net21,802  21,802  
Operating lease right-of-use assets2,502,850  2,960,569  
Other assets2,939,003  3,298,725  
Total assets$97,523,455  $104,549,283  
Current liabilities:
Accounts payable$10,829,982  $9,993,578  
Current liabilities of discontinued operations  1,918,868  
Operating lease current liabilities967,656  920,431  
Other current liabilities10,866,765  11,317,358  
Total current liabilities22,664,403  24,150,235  
Revolving line of credit17,000,000  18,500,000  
Operating lease noncurrent liabilities1,580,203  2,076,472  
Other long-term liabilities7,867,679  8,737,323  
Total liabilities49,112,285  53,464,030  
Commitments and contingencies
Shareholders’ equity:
Common stock—no par value; 100,000,000 shares authorized; 15,181,276 and 15,263,355 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively
49,246,129  49,914,478  
Retained earnings (deficit)(765,500) 1,208,395  
Total shareholders’ equity48,480,629  51,122,873  
Noncontrolling interests(69,459) (37,620) 
Total equity48,411,170  51,085,253  
Total liabilities and equity$97,523,455  $104,549,283  
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Condensed Consolidated Statements of Operations

Three months ended June 30,Six months ended June 30,
Net revenues$9,598,177  $9,417,443  $17,928,911  $18,147,303  
Costs and expenses:
Cost of products sold2,609,982  1,792,293  4,244,163  3,451,082  
Selling and marketing3,865,406  3,982,379  7,573,082  7,419,311  
Research and development1,421,502  1,716,169  3,144,057  3,115,856  
General and administrative2,190,764  2,270,318  4,227,048  4,807,057  
Amortization1,091,485  1,029,708  2,167,524  2,051,353  
Total costs and expenses11,179,139  10,790,867  21,355,874  20,844,659  
Operating income (loss)(1,580,962) (1,373,424) (3,426,963) (2,697,356) 
Interest income28,661  130,565  58,549  246,426  
Interest expense(119,455) (91,200) (152,520) (152,111) 
Income (loss) from continuing operations before income taxes(1,671,756) (1,334,059) (3,520,934) (2,603,041) 
Income tax (expense) benefit(7,455) (4,462) (41,695) 76,966  
Net income (loss) from continuing operations(1,679,211) (1,338,521) (3,562,629) (2,526,075) 
Discontinued operations738,622  771,709  1,556,895  1,918,845  
Net income (loss)(940,589) (566,812) (2,005,734) (607,230) 
Net (income) loss at subsidiary attributable to noncontrolling interests22,314  17,305  31,839  (16,155) 
Net income (loss) attributable to common shareholders$(918,275) $(549,507) $(1,973,895) $(623,385) 
Earnings (loss) per share attributable to common shareholders
- Continuing operations - basic$(0.11) $(0.09) $(0.23) $(0.16) 
- Discontinued operations - basic0.05  0.05  0.10  0.12  
$(0.06) $(0.04) $(0.13) $(0.04) 
- Continuing operations - diluted$(0.11) $(0.09) $(0.23) $(0.16) 
- Discontinued operations - diluted0.05  0.05  0.10  0.12  
$(0.06) $(0.04) $(0.13) $(0.04) 
Weighted-average shares outstanding
- basic15,241,463  15,523,628  15,241,020  15,497,989  
- diluted15,241,463  15,523,628  15,241,020  15,497,989  
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


Condensed Consolidated Statements of Cash Flows
Six months ended June 30,
Cash flows from operating activities:
Net income (loss)$(2,005,734) $(607,230) 
Discontinued operations1,556,895  1,918,845  
Net income (loss) from continuing operations(3,562,629) (2,526,075) 
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities:
Depreciation and amortization expense2,334,669  2,174,397  
Deferred tax expense  43,605  
Share-based compensation542,923  760,982  
Decrease in non-cash contingent consideration(645,571) (321,894) 
Noncash interest expense22,973  28,111  
Noncash investment gains  (125,804) 
Net changes in assets and liabilities affecting operating activities:
Accounts receivable(80,421) (652,652) 
Inventories1,158,916  883,545  
Other current assets and other assets1,017,650  141,577  
Accounts payable and other current liabilities2,413,768  (163,530) 
Other long-term liabilities(869,644) (342,940) 
Net cash provided by (used in) operating activities from continuing operations2,332,634  (100,678) 
Discontinued operations1,371,437  1,565,604  
Net cash provided by (used in) operating activities3,704,071  1,464,926  
Cash flows from investing activities:
Additions to property and equipment(50,883) (89,070) 
Purchases of marketable securities  (9,627,191) 
Proceeds from sale of marketable securities  8,563,988  
Cash paid for acquisition  (5,000,000) 
Additions to intangible assets(722,131) (395,005) 
Net cash used in investing activities(773,014) (6,547,278) 
Cash flows from financing activities:
Borrowings on line of credit35,500,000  36,000,000  
Repayments on line of credit(37,000,000) (36,000,000) 
Cash payment of contingent consideration(260,735) (684,738) 
Repurchase of subsidiary shares from noncontrolling interest(800,000)   
Repurchase of common shares(1,209,220) (1,220,690) 
Net cash used in financing activities(3,769,955) (1,905,428) 
Net decrease in cash and cash equivalents(838,898) (6,987,780) 
Cash and cash equivalents at beginning of period$28,212,635  $27,938,960  
Cash and cash equivalents at end of period$27,373,737  $20,951,180  
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Condensed Consolidated Statements of Equity
Common stockRetained earningsNoncontrolling interestsTotal equity
Balance, December 31, 201815,481,497  $51,098,613  $4,746,154  $(274,266) $55,570,501  
Share-based compensation187,486  364,434  —  —  364,434  
Repurchase of common shares(121,466) (703,790) —  —  (703,790) 
Net loss—  —  (73,878) 33,460  (40,418) 
Balance, March 31, 201915,547,517  $50,759,257  $4,672,276  $(240,806) $55,190,727  

Balance, March 31, 201915,547,517  $50,759,257  $4,672,276  $(240,806) $55,190,727  
Share-based compensation8,000  396,548  —  —  396,548  
Repurchase of subsidiary shares from noncontrolling interest—  (685,805) —  (114,195) (800,000) 
Repurchase of common shares(84,447) (531,746) —  —  (531,746) 
Net loss—  —  (549,507) (17,305) (566,812) 
Balance, June 30, 201915,471,070  $49,938,254  $4,122,769  $(372,306) $53,688,717  
Common stockRetained earnings (deficit)Noncontrolling interestsTotal equity
Balance, December 31, 201915,263,555  $49,914,478  $1,208,395  $(37,620) $51,085,253  
Share-based compensation219,850  264,574  —  —  264,574  
Repurchase of common shares(164,866) (441,624) —  —  (441,624) 
Net loss—  —  (1,055,620) (9,525) (1,065,145) 
Balance, March 31, 202015,318,539  $49,737,428  $152,775  $(47,145) $49,843,058  

Balance, March 31, 202015,318,539  $49,737,428  $152,775  $(47,145) $49,843,058  
Share-based compensation4,200  278,349  —  —  278,349  
Repurchase of common shares(141,463) (769,648) —  —  (769,648) 
Net loss—  —  (918,275) (22,314) (940,589) 
Balance, June 30, 202015,181,276  $49,246,129  $(765,500) $(69,459) $48,411,170  

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


Notes to Condensed Consolidated Financial Statements
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 products. The Company's primary target markets are hospital acute care and gastroenterology. These medical specialties are characterized by relatively concentrated prescriber bases that the Company believes can be penetrated effectively by small, targeted sales forces. Cumberland is dedicated to providing innovative products that improve quality of care for patients and address unmet or poorly met medical needs.
Cumberland focuses its resources on maximizing the commercial potential of its products, as well as developing new product candidates, and has both internal development and commercial capabilities. The Company’s products are manufactured by third parties, which are overseen by Cumberland’s quality control and manufacturing professionals. The Company works closely with its third-party distribution partners to make its products available in the United States.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company have been prepared on a basis consistent with the December 31, 2019 audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly present the information set forth herein. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission (the “SEC”), and certain information and disclosures have been condensed or omitted as permitted by the SEC for interim period presentation. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report on Form 10-K”). The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the entire fiscal year or any future period.
Discontinued Operations
As discussed further in Note 10, during May 2019, Cumberland entered into a Dissolution Agreement ("Dissolution Agreement") with Clinigen Healthcare Limited ("Clinigen") in which the Company returned the exclusive rights to commercialize Ethyol and Totect in the United States to Clinigen. Under the terms of the Dissolution Agreement, Cumberland is no longer involved directly or indirectly with the distribution, marketing and promotion of either Ethyol or Totect or any competing products following December 31, 2019. The Company's exit from the products meets the accounting criteria to be reported as discontinued operations and the discontinued operating results have been reclassified on the face of the financial statements and footnotes for all periods presented to reflect the discontinued status of these products. Refer to Note 10, for additional information.
Reclassification of prior period amounts
The Company has made certain reclassifications to prior period amounts to conform to the current-year presentation of the reporting of research and development expense and general and administrative expense on the condensed consolidated statements of operations. Certain costs and expenses related to research and development were previously reported as general and administrative expenses on the condensed consolidated statements of operations. These reclassifications have no effect on the reported operating loss or equity for the 2019 periods presented.
COVID-19 Pandemic
In March 2020, the U.S. declared a health care emergency following the outbreak of the (SARS-CoV-2), a novel strain of coronavirus that causes COVID-19, a respiratory illness.
Cumberland has remained open for business, as the Company is considered to be essential by the United States Department of Homeland Security. The Company has implemented measures to address the impact of the novel coronavirus on the business and taken appropriate action to protect the employees, secure the supply chain, and support the patients who can benefit from its medicines. All of the Company's corporate, sales and Cumberland Emerging Technologies (“CET”) employees have been given the opportunity to work remotely, and those that wish to work from Cumberland's office and laboratories are encouraged to practice the behaviors outlined by the Centers for Disease Control.
Cumberland's sales organization has continued to interact with medical professionals, providing information and product samples as requested. However, much of their contact has shifted from in person to telephonic and electronic communications. Travel across the organization and attendance at medical meetings have largely been discontinued.

Cumberland relies on third-party organizations around the world to supply components, manufacture and distribute its products. The Company is aware that it may experience revenue loss, supply interruptions, time delays and incur unplanned expenses as a result of the impact of the ongoing COVID-19 pandemic. Given the uncertainty, magnitude and impact of such changes, the Company is unable to quantify the impact on the future results as of the date of this filing.
The Company continues to monitor the COVID-19 pandemic situation both in the U.S. and internationally in order to maintain the employees’ safety and well-being, while also keeping its business operating.
Recent Accounting Guidance

Recent Adopted Accounting Pronouncement
In November 2018, the FASB issued ASU No. 2018-18, “Collaboration Arrangements: Clarifying the Interaction between Topic 808 and Topic 606” (ASU 2018-18). The issuance of ASU 2014-09 raised questions about the interaction between the guidance on collaborative arrangements and revenue recognition. ASU 2018-18 addresses this uncertainty by (1) clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASU 2014-09 when the collaboration arrangement participant is a customer, (2) adding unit of account guidance to assess whether the collaboration arrangement or a part of the arrangement is with a customer and (3) precluding a company from presenting transactions with collaboration arrangement participants that are not directly related to sales to third parties together with revenue from contracts with customers. Cumberland adopted the standard effective January 1, 2020 with no impact on the Company's consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment” (ASU 2017-04). The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. As a result of the revised guidance, a goodwill impairment will be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The new standard was adopted by Cumberland effective January 1, 2020 and was applied prospectively with no impact on the Company's consolidated financial statements.
Recent Accounting Pronouncements - Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses,” which changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, companies will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, companies will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. Companies will have to disclose additional information, including information they use to track credit quality by year of origination for most financing receivables. Companies will apply the ASU’s provisions as a cumulative-effect adjustment, if any, to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.
Related to ASU No. 2016-13 discussed above, in May 2019, the FASB issued ASU 2019-05, "Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief" which provides transition relief for ASU 2016-13 by providing entities with an alternative to irrevocably electing the fair value option for eligible financial assets measured at amortized cost upon adoption of the new credit losses standard. Certain eligibility requirements must be met and the election must be applied on an instrument-by-instrument basis. The election is not available for either available-for-sale or held-to-maturity debt securities. The Company will adopt both ASU 2016-13 and ASU 2019-05 on January 1, 2023 . The adoption of ASU 2016-13 and ASU 2019-05 are not expected to have a material impact on the Company’s consolidated financial statements.
Accounting Policies:
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates under different assumptions and conditions. 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 (3) assumptions used in estimating acquisition date fair value of assets acquired in business combinations and (4) valuation of contingent consideration liability associated with business combinations.

Operating Segments
The Company has one operating segment which is specialty pharmaceutical products. Management has chosen to organize the Company based on the type of products sold. Operating segments are identified as components of an enterprise about which separate discrete financial information is evaluated by the chief operating decision maker, or decision-making group, in making decisions regarding resource allocation and assessing performance. The Company, which uses consolidated financial information in determining how to allocate resources and assess performance, has concluded that our specialty pharmaceutical products compete in similar economic markets and similar circumstances. Substantially all of the Company’s assets are located in the United States and total revenues are primarily attributable to U.S. customers.
The Company invests in marketable securities in order to maximize its return on cash. Marketable securities consist of short-term cash investments, U.S. Treasury notes and bonds, corporate bonds and commercial paper. At the time of purchase, the Company classifies marketable securities as either trading securities or available-for-sale securities, depending on the intent at that time. As of June 30, 2020 and December 31, 2019, marketable securities were comprised solely of trading securities. Trading securities are carried at fair value with unrealized gains and losses recognized as a component of interest income in the consolidated statements of operations. As of June 30, 2020 and December 31, 2019, all trading securities were investments with original maturities of less than ninety days and as a result, were classified as cash equivalents.
The Company's fair value measurements follow the appropriate rules as well as the fair value hierarchy that prioritizes the information used to develop the measurements. It applies whenever other guidance requires (or permits) assets or liabilities to be measured at fair value and gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
A summary of the fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels is described below:
Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 - Significant inputs to the valuation model are unobservable.
The Company's fair values of marketable securities are determined based on valuations provided by a third-party pricing service, as derived from such service's pricing models, and are considered either Level 1 or Level 2 measurements, depending on the nature of the investment. The Company has no marketable securities in which the fair value is determined based on Level 3 measurements. The level of management judgment required in evaluating fair value for Level 1 investments is minimal. Similarly, there is little subjectivity or judgment required for Level 2 investments valued using valuation models that are standard across the industry and whose parameter inputs are quoted in active markets. Inputs to the models may include, but are not limited to, reported trades, executable bid and ask prices, broker/dealer quotations, prices or yields of securities with similar characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events. Based on the information available, the Company believes that the valuations provided by the third-party pricing service, as derived from such service's pricing models, are representative of prices that would be received to sell the assets at the measurement date (exit prices). There were no transfers of assets between levels within the fair value hierarchy.
The following table summarizes the fair value of our marketable securities, by level within the fair value hierarchy, as of each period end:
June 30, 2020December 31, 2019
Level 1Level 2TotalLevel 1Level 2Total
Commercial paper        $2,119,607  $2,119,607  
Total fair value of marketable securities        $2,119,607  $2,119,607  


The following table reconciles the numerator and denominator used to calculate diluted earnings (loss) per share for the three and six months ended June 30, 2020 and 2019:

Three months ended June 30,
Net income (loss) from continuing operations$(1,679,211) $(1,338,521) 
Discontinued operations738,622  771,709  
Net (income) loss at subsidiary attributable to noncontrolling interest22,314  17,305  
Net income (loss) attributable to common shareholders$(918,275) $(549,507) 
Weighted-average shares outstanding – basic15,241,463  15,523,628  
Dilutive effect of other securities—  —  
Weighted-average shares outstanding – diluted15,241,463  15,523,628  

Six months ended June 30,
Net income (loss) from continuing operations$(3,562,629) $(2,526,075) 
Discontinued operations1,556,895  1,918,845  
Net income (loss) at subsidiary attributable to noncontrolling interest31,839  (16,155) 
Net income (loss) attributable to common shareholders$(1,973,895) $(623,385) 
Weighted-average shares outstanding – basic15,241,020  15,497,989  
Dilutive effect of other securities    
Weighted-average shares outstanding – diluted15,241,020  15,497,989  
As of June 30, 2020 and 2019, restricted stock awards and options to purchase 199,210 and 13,500 shares of common stock, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive.


Product Revenues
The Company accounts for revenues from contracts with customers under ASC 606, which became effective January 1, 2018. As part of the adoption of ASC 606, the Company applied the new standard on a modified retrospective basis analyzing open contracts as of January 1, 2018.
The Company’s net revenues consisted of the following for the three and six months ended June 30, 2020 and 2019:
Three months ended June 30,Six months ended June 30,
Acetadote$595,310  $983,473  $1,308,711  $1,832,976  
Omeclamox-Pak10,948  478,604  124,371  678,141  
Kristalose3,477,471  3,476,807  6,771,433  6,785,050  
Vaprisol174,159  212,526  382,016  499,202  
Caldolor1,166,569  1,054,718  2,261,286  2,372,599  
Vibativ3,299,507  2,599,280  5,721,708  4,659,471  
Other revenue874,213  612,035  1,359,386  1,319,864  
Total net revenues$9,598,177  $9,417,443  $17,928,911  $18,147,303  

Other Revenues
The Company has agreements with international partners for commercialization of the Company's products with associated payments included in other revenues. Those agreements provide that each of the partners are responsible for seeking regulatory approvals for the product, and following approval, each partner will be responsible for the ongoing distribution and sales in the respective international territories. The Company provides a dossier for product registration and maintains responsibility for the relevant intellectual property. Cumberland is typically entitled to receive a non-refundable, up-front payment at the time each agreement is executed as consideration for the product dossier and for the rights to the distinct intellectual property rights in the respective international territory. These agreements also typically provide for additional payments upon a partner’s achievement of a defined regulatory approval and sales milestones. The Company may also be entitled to receive royalties on future sales of the products and a transfer price on supplies. The contractual payments associated with the partner’s achievement of regulatory approvals, sales milestones and royalties on future sales are recognized as revenue upon occurrence, or at such time that the Company has a high degree of confidence that the revenue would not be reversed in a subsequent period.
Other revenues also include funding from federal grant programs including those secured by CET through the Small Business Administration as well as lease income generated by CET’s Life Sciences Center. The Life Sciences Center is a research center that provides scientists with access to flexible lab space and other resources to develop biomedical products. Grant revenue from these programs totaled approximately $0.1 million and $0.2 million for the three months ended June 30, 2020 and 2019, and $0.3 million and $0.8 million for the six months ended June 30, 2020 and 2019, respectively.
The Company works closely with third parties to manufacture and package finished goods for sale. Based on the arrangements with the manufacturer or packager, the Company will either take title to the finished goods at the time of shipment or at the time of arrival at the Company’s warehouses. The Company then holds such goods in inventory until distribution and sale. These finished goods inventories are stated at the lower of cost or net realizable value with cost determined using the first-in, first-out method.
The Company evaluates inventory for potential losses due to excess, obsolete or slow-moving goods by comparing sales history and projections to the inventory on hand. When evidence indicates that the carrying value may not be recoverable, a charge is taken to reduce the inventory to its current net realizable value. At June 30, 2020 and December 31, 2019, there were no cumulative obsolescence and discontinuance losses necessary.
The Company is responsible for the purchase of the active pharmaceutical ingredient (“API”) for Kristalose and maintains the inventory at multiple locations. As that API is consumed in production, the value of the API is transferred from raw materials to finished goods inventory. Cumberland also maintains API for its Vaprisol brand which is classified as raw materials inventory.

The consigned inventory represents Authorized Generic product which is shipped to the Company’s distribution partner and stored until sale.
As part of the Vibativ acquisition, Cumberland acquired API and work in process inventories that are classified as non-current inventories. The Company also has obtained $0.4 million in non-current inventory for API related to its ifetroban clinical initiatives.
At June 30, 2020 and December 31, 2019, total non-current inventory, including Vibativ and ifetroban, was $15.6 million. The Company did not have any finished goods included in the non-current inventories at June 30, 2020 or December 31, 2019, respectively.
The Company's net inventories consisted of the following:
June 30, 2020December 31, 2019
Raw materials and work in process$19,660,890  $19,345,723  
Consigned inventory219,228  416,468  
Finished goods3,387,212  4,664,055  
Total inventories23,267,330  24,426,246  
less non-current inventories(15,640,060) (15,554,992) 
Total inventories classified as current$7,627,270  $8,871,254  

In March 2016, the FASB issued ASU 2016-02. ASU 2016-02’s core principle is to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information. The primary effect of adopting ASU 2016-02 to the Company was to record right-of-use assets and obligations for the leases classified as operating leases.
Cumberland’s significant operating leases include the lease of approximately 25,500 square feet of office space in Nashville, Tennessee for its corporate headquarters. This lease currently expires in October 2022. The operating leases also include the lease of approximately 14,200 square feet of wet laboratory and office space in Nashville, Tennessee by CET, our majority-owned subsidiary, where it operates the CET Life Sciences Center. This lease currently expires in April 2023.
Operating lease liabilities are recorded as the present value of remaining lease payments not yet paid for the lease term discounted using the incremental borrowing rate associated with each lease. Operating lease right-of-use assets represent operating lease liabilities adjusted for lease incentives and initial direct costs. As Cumberland’s leases do not contain implicit borrowing rates, the incremental borrowing rates were calculated based on information available at January 1, 2019. Incremental borrowing rates reflect the Company’s estimated interest rates for collateralized borrowings over similar lease terms. The weighted-average incremental borrowing rate used to discount the present value of the remaining lease payments is 7.42%. The weighted-average remaining lease term at June 30, 2020 is 2.5 years.
Lease Position
At June 30, 2020 and December 31, 2019 , the Company's lease assets and liabilities were as follows:

Right-of-Use AssetsJune 30, 2020December 31, 2019
Operating lease right-of-use assets$2,502,850  $2,960,569  

Lease LiabilitiesJune 30, 2020December 31, 2019
Operating lease current liabilities$967,656  $920,431  
Operating lease noncurrent liabilities1,580,203  2,076,472  
Total$2,547,859  $2,996,903  


Maturity of Leases Liabilities at June 30, 2020
Operating Leases
After 2023  
Total lease payments2,823,393  
Less: Interest(275,534) 
Present value of lease liabilities$2,547,859  

Share repurchases
Cumberland currently has a share repurchase program to repurchase up to $10 million of its common stock pursuant to Rule 10b-18 of the Securities Exchange Act of 1934. In January 2019, the Company's Board of Directors established the current $10 million repurchase program to replace the prior authorizations. During the six months ended June 30, 2020 and June 30, 2019, the Company repurchased 306,329 shares and 205,913, respectively, of common stock for approximately $1.2 million during both 2020 and 2019.
Share purchases and sales
During the Company's March 2020 trading window, several members of Cumberland's Board of Directors entered into share purchase agreements of the Company's stock pursuant to Rule 10b-18 of the Securities Exchange Act of 1934. These purchases are designed to increase ownership in the Company by the members of the Board.
Share Sale
In November 2017, Cumberland filed a Shelf Registration on Form S-3 with the SEC associated with the sale of up to $100 million in corporate securities. The Shelf Registration was declared effective in January 2018 including an At-The-Market ("ATM") feature enabling the Company to sell shares at market prices. The Company did not issue any shares under the ATM during the six months ended June 30, 2020 or June 30, 2019.
Restricted Share Grants
During the six months ended June 30, 2020, and June 30, 2019, the Company issued 229,141 shares and 222,469 shares of restricted stock to employees and directors, respectively. Restricted stock issued to employees generally cliff-vests on the fourth anniversary of the date of grant and for directors on the one-year anniversary of the date of grant. Stock compensation expense is presented as a component of general and administrative expense in the condensed consolidated statements of operations.
Cumberland Emerging Technologies
In April 2019, Cumberland Emerging Technologies ("CET"), our majority-owned subsidiary, entered into an agreement whereby Hongkong WinHealth Pharma Group Ltd. ("WinHealth") made a $1 million investment in CET through the purchase of shares of its common stock. As part of the agreement, WinHealth obtained the rights to name an individual for appointment to the CET Board of Directors as well as the first opportunity to license CET products for the Chinese market. In connection with WinHealth's investment in CET, during 2019, Cumberland also made an additional $1 million investment in CET. Cumberland purchased additional CET common shares through contribution of $0.3 million in cash and a conversion of $0.7 million in intercompany loans payable. Upon completion of the additional investment by WinHealth and Cumberland, Gloria Pharmaceuticals returned its shares in CET in exchange for $0.8 million that was funded during 2020.
Debt Agreement
On May 10, 2019, the Company entered into a third amendment ("Third Amendment") to the Revolving Credit Loan Agreement, dated July 28, 2017, with Pinnacle Bank (“Pinnacle Agreement”). The Third Amendment extended the term of the Pinnacle Agreement through July 31, 2021 as well as modified certain definitions and terms of the existing financial covenants, including the definition of the Funded Debt Ratio and the compliance target of the Tangible Capital Ratio. Both Third Amendment modifications were related to the Vibativ transaction. Under the Pinnacle Agreement, Cumberland was initially subject to one financial covenant, the maintenance of a Funded Debt Ratio, as such term is defined in the agreement and determined on a quarterly basis. On August 14, 2018, the Company amended the Pinnacle Agreement ("First Amendment") to replace the single financial covenant with the maintenance of either the Funded Debt Ratio or a Tangible Capital Ratio, as

defined in the First Amendment. The Company was in compliance with the Tangible Capital Ratio financial covenant as of June 30, 2020.
The initial revolving line of credit under the Pinnacle Agreement was for up to an aggregate principal amount of $12.0 million with the ability to increase the principal amount available for borrowing up to $20.0 million, upon the satisfaction of certain conditions. On October 17, 2018, the Company entered into a second amendment (“Second Amendment”) which increased the maximum aggregate principal available for borrowing under the Pinnacle Agreement to $20.0 million.
The interest rate on the Pinnacle Agreement is based on LIBOR plus an interest rate spread. There is no LIBOR minimum and the LIBOR pricing provides for an interest rate spread of 1.75% to 2.75% (representing an interest rate of 2.92% at June 30, 2020). 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. Borrowings under the line of credit are collateralized by substantially all of our assets. As of June 30, 2020 and December 31, 2019, the Company had $17.0 million and $18.5 million in borrowings outstanding under our revolving credit facility, respectively.
Paycheck Protection Program Loan
On April 20, 2020, Cumberland received the funding of a loan from Pinnacle Bank in the aggregate amount of $2,187,140 pursuant to the Paycheck Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was enacted March 27, 2020.
The PPP is administered by the U.S. Small Business Administration. The loan matures April 14, 2022, and bears interest at a rate of 1.0% per year, payable monthly commencing during November 2020. The note may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the loan are to be used to maintain payroll, continue group health care benefits and pay for rent and utilities.
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. From the date of funding the Company has used the loan amount for such qualifying expenses. Cumberland has elected to account for the proceeds of the loan as a government grant under International Accounting Standard 20 ("IAS 20"), Accounting for Government Grants and Disclosure of Government Assistance. The permitted analogous use of IAS 20 outlines a model for the accounting for government assistance, including forgivable loans. As result, the Company has recorded the $2,187,140 as a deferred income liability, which is included as a component of other current liabilities on the condensed consolidated balance sheet. The Company intends to apply IAS 20 to the PPP loan forgiveness and has presented the amounts expected to be forgiven as deferred income. The Company will account for the anticipated forgiveness of the PPP loan under IAS 20 when the Company believes that the forgiveness is reasonably assured.
Cumberland applied for this loan after carefully considering, with its bank, the eligibility criteria to participate in this program, and determining that Cumberland met these criteria. The Company evaluated and provided information on our payroll and other qualifying expenses to determine the amount of PPP funds to apply for.
Cumberland has not laid off or furloughed any employees as a result of the COVID-19 pandemic and, based on assistance from the PPP loan, the Company currently does not foresee doing so. Cumberland will continue to monitor and evaluate changes to this program as they emerge and will take appropriate action, if necessary.

As of June 30, 2020, the Company has approximately $56.3 million in federal net operating loss carryforwards including approximately $44.1 million of net operating loss carryforwards resulting from the exercise of nonqualified stock options. These have historically been used to significantly offset income tax obligations. The Company expects it will continue to pay minimal income taxes during 2020 and beyond, through the continued utilization of these net operating loss carryforwards, on any taxable income generated from our operations. The Company does not allocate any portion of its income tax expense (benefit) to discontinued operations.


Cumberland is a party to several collaborative arrangements with research institutions to identify and pursue promising pharmaceutical product candidates. The funding for these programs is primarily provided through Federal Small Business Administration (SBIR/STTR) and other grant awards. The Company has determined that these collaborative agreements, with the exception of the collaborative payment discussed in Note 10 do not meet the criteria for accounting under ASC Topic 808, Collaborative Agreements. The agreements do not specifically designate each party’s rights and obligations to each other under the collaborative arrangements. Except for patent defense costs, expenses incurred by one party are not required to be reimbursed by the other party. Expenses incurred under these collaborative agreements are included in research and development expenses and funding received from grants are recorded as net revenues in the condensed consolidated statements of operations.
During November 2018, the Company closed on an agreement with Theravance Biopharma ("Theravance") to acquire the global responsibility for Vibativ including the marketing, distribution, manufacturing and regulatory activities associated with the brand. Vibativ is a patented, Food and Drug Administration ("FDA") approved injectable anti-infective for the treatment of certain serious bacterial infections including hospital-acquired and ventilator-associated bacterial pneumonia and complicated skin and skin structure infections. It addresses a range of Gram-positive bacterial pathogens, including those that are considered difficult-to-treat and multidrug-resistant. Cumberland acquired Vibativ to further add to its product offerings, increase its net revenue and positively contribute to the Company's operating results. The Company expects to deduct the goodwill acquired in the acquisition for tax purposes.
Cumberland has accounted for the transaction as a business combination in accordance with ASC 805 and the product sales are included in the results of operations subsequent to the acquisition date. The Company made an upfront payment of $20.0 million at the closing of the transaction and a $5.0 million milestone payment in early April 2019. In addition, Cumberland has agreed to pay a royalty of up to 20% on future net sales of the product. The future royalty payments are required to be recognized at their acquisition-date fair value as part of the contingent consideration transferred in the business combination.
The following table summarizes the initial payments and consideration for the business combination:
Cash paid at closing$20,000,000  
Cash payment during 20195,000,000  
Fair value of contingent consideration - net sales royalty9,182,000  
Total consideration $34,182,000  

The following table summarizes the final allocation of the fair values of the assets acquired as part of the acquisition of Vibativ:
Finished goods inventory$6,624,000  
Work in process - unlabeled vials3,970,000  
Work in process - validation vials1,827,000  
Raw materials9,129,000  
Total inventory$21,550,000  
Intellectual property amortizable intangible assets11,750,000  
Total intangibles and goodwill12,632,000  
Total assets acquired$34,182,000  

The contingent consideration liability represents the future net sales royalty payments discussed above. Cumberland prepared the valuations of the contingent consideration liability and the intangible assets utilizing significant unobservable inputs. As a result, the valuations are classified as Level 3 fair value measurements.

The following table presents the changes in the fair value of the contingent consideration liability that is remeasured on a recurring basis. The contingent consideration earned and accrued in operating expenses is paid to the seller quarterly.
Balance at December 31, 2019$8,633,589  
Cash payment of royalty during the period(260,735) 
Change in fair value of contingent consideration included in operating expenses(645,571) 
Contingent consideration earned and accrued in operating expenses573,279  
Balance at June 30, 2020
The contingent consideration liability of $8.3 million was classified as other current liabilities of $2.8 million and other long-term liabilities of $5.5 million on the condensed consolidated balance sheet as of June 30, 2020.
In November 2016, the Company announced an agreement with the Nordic Group B.V.’ ("Nordic") to acquire the exclusive U.S. rights to Nordic’s injectable methotrexate product line designed for the treatment of active rheumatoid arthritis, juvenile idiopathic arthritis, severe psoriatic arthritis, and severe disabling psoriasis.
As consideration for the license Cumberland paid a deposit of $100,000 at closing. The Company provided $0.9 million in consideration through a grant of 180,000 restricted shares of Cumberland common stock to be vested upon the FDA approval of the first Nordic product. Cumberland also agreed to provide Nordic a series of payments tied to the products’ FDA approval, launch and achievement of certain sales milestones. Under the terms of the agreement, Cumberland is responsible for the product registration and commercialization in the U.S. Nordic is responsible for product manufacturing and supply.
On November 27, 2019, Cumberland received FDA approval for the first Nordic injectible product and authorization to market them under the RediTrex brand name. The 180,000 shares of restricted Cumberland common stock previously provided to Nordic vested upon approval and were valued at $0.9 million on the vesting date. The FDA approval also resulted a $1.0 million milestone payment due to Nordic. This milestone payment was paid in July 2020 and is recorded as an other current liability at both June 30, 2020 and December 31, 2019. During the three months ended June 30, 2020, Cumberland recognized $0.5 million of other revenue in its condensed consolidated statement of operations for a collaborative payment due from Nordic. The payment was received during July 2020.
Ethyol and Totect
During May 2019, Cumberland entered into the Dissolution Agreement with Clinigen in which the Company returned the exclusive rights to commercialize Ethyol and Totect (“the Products”) in the United States to Clinigen. This Dissolution Agreement originally targeted a transition from the Company's arrangements with Clinigen effective September 30, 2019, but was then amended to change the transition date to December 31, 2019. Under the terms of the Dissolution Agreement, Cumberland was no longer responsible for the distribution, marketing and promotion of either the Products or any competing products after December 31, 2019. In exchange for the return of these product license rights and the non-compete provisions of the Dissolution Agreement, Cumberland is receiving $5 million in financial consideration paid in quarterly installments over the two-years following the transition date. Cumberland recorded the first two quarterly installments totaling $1.5 million during the six months ended June 30, 2020 as discontinued operations and will record each future quarterly installment over the two year period. As there are no expenses associated with these payments, approximately $1.5 million in discontinued operations income was recorded during the period ended June 30, 2020.
The Products provided $5.3 million in revenue, with $3.4 million in direct expenses resulting in $1.9 million in discontinued operations income during the six months ended June 30, 2019. These direct expenses do not reflect the direct selling and marketing costs attributable to the individuals at Cumberland responsible for promotion of the Products. Those sales and marketing individuals who supported the Products have subsequently shifted their efforts to support other Cumberland brands.
The December 31, 2019 current assets of discontinued operations included $0.5 million in remaining inventory for the Products sold and returned to Clinigen as part of the transaction. As of June 30, 2020, and December 31, 2019, the remaining balance of the current assets of discontinued operations were accounts receivable and the current liabilities of discontinued operations were accounts payable associated with Ethyol and Totect. The accounts receivable and accounts payable balances were not sold or disposed of as part of the Dissolution Agreement.


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 impacts on our business as well as national and international markets and economies resulting from the 2020 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 ended December 31, 2019, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and 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.


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 products. Our primary target markets are hospital acute care and gastroenterology. These medical specialties are characterized by relatively concentrated prescriber bases that we believe can be penetrated effectively by small, targeted sales forces. Cumberland is dedicated to providing innovative products that improve the quality of care for patients and address unmet or poorly met medical needs. We promote our approved products through our hospital and field sales forces in the United States and are establishing a network of international partners to bring our medicines to patients in their countries.
Our portfolio of FDA approved brands includes:
Acetadote® (acetylcysteine) Injection, for the treatment of acetaminophen poisoning;
Caldolor® (ibuprofen) Injection, for the treatment of pain and fever;
Kristalose® (lactulose) for Oral Solution, a prescription laxative, for the treatment of chronic and acute constipation;
Omeclamox®-Pak, (omeprazole, clarithromycin, and amoxicillin) for the treatment of Helicobacter pylori (H. pylori) infection and related duodenal ulcer disease;
Vaprisol® (conivaptan) Injection, to raise serum sodium levels in hospitalized patients with euvolemic and hypervolemic hyponatremia;
Vibativ® (telavancin) Injection, for the treatment of certain serious bacterial infections including hospital-acquired and ventilator-associated bacterial pneumonia, as well as complicated skin and skin structure infections, and
RediTrex® (methotrexate) Injection, for the treatment of active rheumatoid, juvenile idiopathic and severe psoriatic arthritis, as well as disabling psoriasis.
Additionally, we have Phase II clinical programs underway evaluating our ifetroban product candidates in patients with cardiomyopathy associated with Duchenne Muscular Dystrophy, Systemic Sclerosis, and Aspirin-Exacerbated Respiratory Disease. We have also completed initial Phase II clinical studies with ifetroban in patients with Hepatorenal Syndrome and patients with Portal Hypertension.
The Company has both product development and commercial capabilities, and we believe we can leverage our existing infrastructure to support our expected growth. Our management team consists of pharmaceutical industry veterans experienced in business development, product development, regulatory, manufacturing, sales, marketing, and finance. Our business development team identifies, evaluates and negotiates product acquisition, licensing and co-promotion agreements. Our product development team creates proprietary formulations, manages our clinical studies, prepares all regulatory submissions and staffs our medical call center. Our quality and manufacturing professionals oversee the manufacture, release and shipment of our products. Our marketing and sales team is responsible for our commercial activities, and we work closely with our distribution partners to ensure availability and delivery of our products.
Growth Strategy
Cumberland's growth strategy involves maximizing the potential of our existing brands while continuing to build a portfolio of differentiated products. We currently market six FDA-approved products in the United States and expect to market our seventh product, RediTrex, before the end of 2020. Through our international partners, we are working to bring our medicines to patients in their countries. Our clinical team is developing a pipeline of new product candidates largely to address unmet medical needs. We also look for opportunities to expand the approved use of our products for additional patient populations through clinical trials, through new presentations, and through our support for select, investigator-initiated studies. Through our active business development initiative, we are pursuing the acquisition of additional marketed brands and late-stage development product candidates in our target medical specialties.
Furthermore, 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 progress promising, new product candidates, which Cumberland has the opportunity to further develop and commercialize.


Specifically, we are seeking long term sustainable growth by executing on the following:
Support and expand 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. We will continue to explore opportunities for label expansion to bring our products to new patient populations. As examples, we have secured pediatric approval, expanding the labeling for both our Acetadote and Caldolor brands.
Selectively add complementary brands. In addition to our product development activities, we are also seeking to acquire products and 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 acquisition of Vibativ represents the largest product acquisition we have completed.
Progress clinical pipeline and incubate future product opportunities at CET. We believe it is important to build a pipeline of innovative new product opportunities. Our ifetroban Phase II development programs represent the implementation of this strategy. At CET, we are supplementing our acquisition and late-stage development activities with the early-stage drug development activities. CET partners with universities and other research organizations to develop promising, early-stage product candidates, which Cumberland has the opportunity to further develop and commercialize.
Leverage our infrastructure through co-promotion partnerships. We believe that our commercial infrastructure can help drive prescription volume and product sales. We also look for strategic co-promotion partners that can complement our capabilities and enhance the opportunity for our brands. Our co-promotion arrangements with Poly Pharmaceuticals, Inc. and Foxland Pharmaceuticals, Inc allow us to expand current promotional support for Kristalose across the U.S.
Build an international contribution to our business. We have established our own commercial capabilities, including two sales divisions to promote our approved brands in the U.S. We have also entered into agreements with a group of international partners to register our products and make them available to patients in their countries.
The acquisition of Vibativ resulted in several new international partners and market opportunities. We will continue to support and selectively expand our network of international partners, while assisting with the registration and commercialization efforts in their respective territories.