CORRESP
Certain
portions of this correspondence have been omitted pursuant to a
request
for confidential treatment which has been filed separately
with the SEC.
June 29, 2007
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
|
|
|
Attention:
|
|
Mr. Jeffrey P. Riedler |
|
|
Assistant Director |
|
|
|
Re:
|
|
Cumberland Pharmaceuticals Inc. |
|
|
Form S-1 Registration Statement |
|
|
File No. 333-142535 |
Ladies and Gentlemen:
We represent Cumberland Pharmaceuticals Inc. (the Company) in connection with its filing of
a Registration Statement on Form S-1 (File No. 333-142535). On June 22, 2007, we responded to a
comment letter of the Commission Staff dated June 8, 2007. In our response to Comment No. 48, we
committed to provide the Staff by a supplemental letter with a reconciliation of the difference
between the strike price of stock options recently granted by the Company and what we anticipate to
be the range of value of the Companys stock sold to investors in the public offering.
In January and February 2007, the Company issued options to purchase 45,460 common shares
(less than 1% of the weighted average shares outstanding as of March 31, 2007). These options were
given a strike price of $22.00 per share, which the Companys board of directors determined to be
the fair market value of a share of the Companys common stock as of January 16, 2007. The board
made this determination based, in part, upon a December 2006 analysis by the firm of Morgan Joseph.
In its analysis, Morgan Joseph applied a valuation methodology based on projected free cash flows
and trading multiples of comparable public companies, taking into account that there was no public
trading market for the Companys common stock. The $22.00 per share price equates to approximately
$220 million total equity value.
In preliminary discussions with the underwriters in the public offering, the underwriters have
indicated that the pre-money valuation of the Company will be in the
range of $[***] to $[***].
The difference in value between the January 2007 and the preliminary valuation range estimated
by the underwriters today is attributable to several factors but is primarily due to an
Adams And Reese llp
United States Securities and Exchange Commission
June 29, 2007
Page 2
increase in the Companys projected net revenue, operating income and cash flows over the next five
years. The following factors contributed to the changes in the revised financial forecast:
|
|
|
Sales of Acetadote have been strong and changes in the market for Acetadote have
caused the Company to raise its forecasts. Clinical studies of Acetadote to
explore other potential indications for the product are underway. |
|
|
|
|
Marketing of Kristalose has progressed considerably, and Miralax and Zelnorm,
two competitors of Kristalose, have left the U.S. prescription laxative market. |
|
|
|
|
The Company has enrolled patients in new clinical trials for Amelior that have
commenced since January and are progressing towards completion. |
|
|
|
|
The Company has continued development of new products and new markets for
existing products. |
Another factor in the valuation difference between January 2007 and June 2007 is that there
was a slightly greater assumed illiquidity discount in the January 2007 valuation.
The higher price range for the IPO also reflects improvement in stock market conditions, as
reflected in the increases in the market indices during the past six months. The Dow Jones
Industrial Average, NASDAQ Composite Index, and Standard and Poors 500 Composite Stock Price Index
have risen eight percent, eight percent, and six percent, respectively, year-to-date in 2007.
We would welcome the opportunity to discuss any questions you may have with the Commission
staff. I can be reached, at your convenience, at (615) 259-1450. In my absence, please ask to
speak with Virginia Boulet.
Sincerely yours,
ADAMS AND REESE LLP
/s/
Martin S. Brown, Jr.
|
|
|
cc:
|
|
Greg Belliston, Esq., United States Securities and Exchange Commission |
|
|
A.J. Kazimi, Cumberland Pharmaceuticals Inc. |
|
|
Donald J. Murray, Esq., Dewey Ballantine LLP, Counsel to the underwriters |