Cumberland Pharmaceuticals(CPIX) - 2019 Q4 - Annual Report

Part I This section provides a comprehensive overview of the company's business operations, product portfolio, strategic initiatives, and associated risk factors Business Cumberland Pharmaceuticals focuses on acquiring, developing, and commercializing branded prescription products for hospital acute care and gastroenterology Company Overview Cumberland Pharmaceuticals is a specialty pharmaceutical company focused on the acquisition, development, and commercialization of branded prescription products, primarily targeting hospital acute care and gastroenterology - The company's primary target markets are hospital acute care and gastroenterology, which are addressed by small, targeted sales forces[9] - Cumberland's portfolio includes seven FDA-approved brands: Acetadote®, Caldolor®, Kristalose®, Omeclamox®-Pak, Vaprisol®, Vibativ®, and RediTrex™[10] - The company is advancing Phase II clinical programs for its ifetroban product candidates for multiple indications, including Duchenne Muscular Dystrophy (DMD) and Systemic Sclerosis (SSc)[11] - Growth strategy focuses on maximizing existing brands, acquiring new products, progressing the clinical pipeline, and expanding internationally[14] Products The company markets a portfolio of seven FDA-approved products, including Acetadote, Caldolor, and Vibativ, while also managing product rights and discontinuing certain distributions Marketed and Approved Products | Products | Indication | Status | | :--- | :--- | :--- | | Acetadote ® | Acetaminophen Poisoning | Marketed | | Caldolor ® | Pain and Fever | Marketed | | Kristalose ® | Chronic and Acute Constipation | Marketed | | Omeclamox ® -Pak | H. pylori infection and related Duodenal Ulcer disease | Marketed | | Vaprisol ® | Euvolemic and Hypervolemic Hyponatremia | Marketed | | Vibativ ® | Serious bacterial infections | Marketed | | RediTrex™ | Arthritis and psoriasis | Approved | - A court ruling upheld the validity of the Acetadote® patent for its EDTA-Free formulation, with a term until August 2025[24] - In January 2019, the FDA approved a next-generation Caldolor® product, with initial shipments beginning in April 2019 and a full launch planned for 2020[32] - The company acquired all remaining assets for Omeclamox-Pak® in December 2018, ending royalty and manufacturing fee payments to GEL[41] - Vibativ® was acquired from Theravance in November 2018, with Cumberland assuming global responsibility for the injectable anti-infective[46] - RediTrex™ received FDA approval in December 2019, with a launch planned for 2020[51] - Following a strategic review in 2019, the company concluded its distribution and support for Ethyol® and Totect®, transitioning responsibilities back to Clinigen[54][57] Pipeline Cumberland's development pipeline focuses on its new chemical entity, ifetroban, advancing multiple Phase II trials for indications like DMD and HRS, alongside a new hospital product candidate - The pipeline is focused on ifetroban, a Phase II product candidate being developed for several niche indications including HRS, AERD, SSc, and PH[59] - A Phase II efficacy study for Boxaban® in patients with AERD was enrolling patients across the U.S. during 2019[64] - In September 2019, the company announced a new Phase II clinical program for ifetroban to treat cardiomyopathy in Duchenne Muscular Dystrophy (DMD), supported by a $1 million FDA Orphan Drug Grant[73] - A new, unnamed hospital product candidate for cholesterol reduction progressed in its Phase II study during 2019[75][76] Our Strategy The company's growth strategy centers on maximizing existing products, acquiring new brands, advancing its clinical pipeline, expanding internationally, and maintaining financial discipline - Support and expand the use of marketed products through label expansions, such as the pediatric approvals for Acetadote and Caldolor[78] - Selectively acquire complementary brands and late-stage product candidates, focusing on under-promoted, FDA-approved drugs[79] - Progress the clinical pipeline, with the ifetroban Phase II programs as a key example, and incubate early-stage opportunities at CET[80] - Leverage infrastructure through co-promotion partnerships, such as the one with Poly Pharmaceuticals for Kristalose[81] - Build an international business by establishing a network of partners to register and commercialize products abroad[82] - Manage operations with financial discipline to deliver positive cash flow and support the ongoing share repurchase program[84] Sales and Marketing Cumberland employs two targeted sales forces, hospital and gastroenterology, to promote its products in the U.S., supported by marketing efforts and national accounts management - The company has approximately 50 sales representatives and district managers across its hospital and gastroenterology sales forces[85] - The hospital sales division promotes Caldolor, Vaprisol, Acetadote, and Vibativ, targeting key hospitals across the U.S.[87] - The gastroenterology sales team promotes Kristalose and Omeclamox-Pak to a targeted group of high-prescribing physicians[89] Material Customers The company's primary customers are wholesale pharmaceutical distributors in the United States. For the year ended December 31, 2019, four major customers accounted for a significant portion of consolidated gross revenues, with individual contributions of 26%, 25%, 16%, and 14% respectively 2019 Revenue by Major Customer (Percentage of Gross Revenue) | Customer | % of Gross Revenue | | :--- | :--- | | Customer 1 | 26% | | Customer 2 | 25% | | Customer 3 | 16% | | Customer 4 | 14% | International Partnerships Cumberland's international strategy involves partnering with local companies to register and commercialize its products globally, with partners handling regulatory and commercial activities - The company's international strategy is to partner with local companies to handle registration and commercialization in their respective countries[96] Key International Partners | International Partner | Product(s) | Territory | Status | | :--- | :--- | :--- | :--- | | Phebra Pty Ltd | Acetadote | Australia and New Zealand | Marketed | | DB Pharm Korea Co., Ltd. | Caldolor & Vibativ | South Korea | Marketed / Registration | | Seqirus (a CSL company) | Caldolor | Australia and New Zealand | Marketed | | WinHealth Pharma Group Co. | Caldolor & Acetadote | China and Hong Kong | Development | | R-Pharm JSC | Vibativ | Russia | Marketed | | Hikma Pharmaceuticals | Vibativ | Arabian Peninsula | Registration | - In 2019, the company continued to transition Vibativ license arrangements for several international markets from Theravance[100] Clinical and Regulatory Affairs Cumberland manages in-house clinical and regulatory affairs, overseeing the entire product lifecycle from trials and submissions to post-approval compliance and medical support - The in-house team manages clinical trials, prepares regulatory submissions (INDs, NDAs), and handles post-approval responsibilities[101][103] - The team successfully secured FDA approvals for Acetadote, Caldolor, and RediTrex[101] - Professional and medical affairs provides support through a medical information call center and medical science liaisons[104] Business Development In 2019, Cumberland expanded international partnerships and refined its portfolio through new license agreements and the dissolution of its strategic alliance with Clinigen - A 2019 strategic review led to an expansion of international partnerships and a refinement of the product portfolio[116][117] - A new license agreement was signed with WinHealth for Caldolor and Acetadote in China and Hong Kong, with anticipated milestone payments of $2 million[118] - The company concluded its strategic alliance with Clinigen, returning the rights to Ethyol and Totect for a $5 million consideration to be paid over two years[129] - The co-promotion agreement with Poly Pharmaceuticals for Kristalose was extended in 2019[124] Manufacturing and Distribution Cumberland outsources all manufacturing and distribution to third parties, maintaining quality oversight and managing diverse supply relationships for its key products - The company partners with third parties for all manufacturing and distribution, managing quality review and release internally[133] - For Vaprisol, the historical manufacturer will no longer provide the product, prompting an evaluation of alternatives for long-term supply. The company has a multi-year supply on hand[136] - Following the Vibativ acquisition, manufacturing activities were transferred to a new supplier in 2019[138] - Cardinal Health exclusively handles all U.S. product logistics, including warehousing and shipping[142] Patents, Trademarks and Other Intellectual Proprietary Rights Cumberland protects its products through patents, trademarks, and FDA exclusivity, holding key patents for Acetadote, Caldolor, and Vibativ, while also pursuing applications for pipeline candidates - The company has multiple patents for its new formulation of Acetadote®, with the '445 patent expiring in August 2025 and the '356 patent expiring in May 2026. The company has successfully defended the '445 patent in court[152][161][167][171] - Caldolor® is protected by a series of patents covering its formulation and methods of use, with expiration dates ranging from 2021 to 2032[173][174][176] - Vibativ® is protected by numerous U.S. and international patents, with eleven listed in the FDA Orange Book. The key composition of matter patent ('623) is scheduled to expire in January 2027[182] - The company has no issued patents for RediTrex, Omeclamox-Pak, and Kristalose, but has patent applications pending for its ifetroban products[183] Competition Cumberland faces intense competition across its product portfolio from branded, generic, and alternative treatments, impacting products like Acetadote, Caldolor, Kristalose, and Vibativ - Acetadote® competes with orally administered NAC and generic injectable formulations, including an Authorized Generic distributed by Perrigo[188][189] - Caldolor®'s primary competitors in the acute pain market include generic injectable opioids (morphine, fentanyl), ketorolac, and branded products like Mallinckrodt's Ofirmev® (IV acetaminophen) and Baudax Bio's Anjeso™ (IV meloxicam)[191] - Kristalose® competes with branded prescription products such as Amitiza®, Movantik®, and Linzess®, as well as generic liquid lactulose and numerous OTC products[196] - Vibativ® competes with major generic antibiotics like vancomycin, linezolid, and daptomycin, as well as newer branded agents including Teflaro®, Dalvance®, and Orbactiv®[204] Government Regulation The company's operations are extensively regulated by the FDA and other governmental bodies, requiring compliance with pre-market approvals, post-market surveillance, and various healthcare legislation - The company is subject to extensive regulation by the FDA, covering research, development, manufacturing, and marketing of its products[206] - Cumberland successfully used the 505(b)(2) NDA pathway, which allows reliance on existing data, to secure approvals for Acetadote, Caldolor, and RediTrex[225] - The company must comply with the Patient Protection and Affordable Care Act (PPACA), which includes an annual pharmaceutical industry fee and reporting requirements under the Physician Payments Sunshine Act[233][234][236] - The company is in compliance with the Drug Supply Chain Security Act (DSCSA), which mandates a national track and trace system for prescription drugs[239] Risk Factors The company faces significant risks that could adversely affect its business. Key risks include dependence on a limited number of products, potential for weakened demand, and reliance on third-party manufacturers, which could lead to supply interruptions. Intense competition from branded and generic drugs, challenges in acquiring and integrating new products, and the potential failure of pipeline candidates to achieve commercial success are major business risks. The company is also subject to stringent government regulation, patent challenges, and potential product liability lawsuits. Financial risks include operating result fluctuations, the need for additional funding, and the potential impairment of intangible assets Risks Related to Our Business The company's business is subject to numerous risks, including potential adverse impacts from public health crises like COVID-19. Its financial success is highly dependent on the performance of its six marketed products, and any negative development or weakened demand could harm revenues. Cumberland relies entirely on third-party manufacturers, creating risks of supply disruption and non-compliance with GMPs. The business faces intense competition, the potential for generic erosion of its brands, and challenges in successfully acquiring and integrating new products. Future growth is also contingent on the successful development and commercialization of its pipeline candidates, which is uncertain - The business could be adversely affected by public health epidemics like the COVID-19 outbreak, potentially causing revenue loss and supply interruptions[258] - The company is dependent on third-party manufacturers for all its products; failure to supply or comply with regulations could lead to an inability to meet demand[266][267] - If generic products competing with Cumberland's branded pharmaceuticals are approved and sold, sales of its products will be adversely affected[284] - Future growth depends on the ability to identify, acquire, and successfully integrate new products, which involves significant competition and risk[289][291] - Pipeline candidates like Hepatoren, Boxaban, and others have not been approved for sale and may never be successfully commercialized, posing a risk to future revenue growth[294] Risks Relating to Government Regulation Cumberland operates in a highly regulated environment, facing stringent oversight from the FDA and other agencies. All aspects of its business, from manufacturing to promotion, are subject to regulations like GMPs. Post-approval, products face ongoing scrutiny, and new safety concerns could lead to recalls or withdrawals. The company must comply with complex pricing and rebate programs like the Medicaid Drug Rebate program and the 340B program, where errors can lead to significant penalties. Additionally, compliance with anti-bribery laws like the Foreign Corrupt Practices Act and transparency laws like the Physician Payment Sunshine Act is mandatory and carries risks of severe penalties for non-compliance - The company is subject to stringent government regulation from agencies like the FDA, FTC, and EPA, covering all aspects of its business[342][343] - Failure to comply with GMPs by third-party manufacturers could result in fines, suspension of production, product seizure, or withdrawal of approval[276][277] - Failure to comply with reporting and payment obligations under the Medicaid Drug Rebate program and other governmental pricing programs could result in penalties, sanctions, and fines[355] - The company must comply with the Physician Payment Sunshine Act, which requires reporting of payments to physicians and teaching hospitals, with severe penalties for failure to report accurately[354] Risks Relating to Intellectual Property The company's success depends on its ability to secure and defend its intellectual property. There is a risk that its patents may provide limited protection or be invalidated. Cumberland has engaged in and may continue to face costly litigation to enforce its patent rights, such as those for Acetadote. The company also relies on trade secrets and confidentiality agreements, which can be breached. If its technology conflicts with third-party IP rights, Cumberland could face substantial liabilities and be unable to commercialize its products. Furthermore, for licensed products, the company depends on its licensors to maintain and enforce the associated IP rights - The company's strategy to secure patent rights may provide only limited protection, and it has engaged in costly litigation to defend its Acetadote patents[370][371] - If the company is unable to protect the confidentiality of its proprietary information and know-how, the value of its technology and products could be adversely affected[374] - Potential conflicts with third-party intellectual property rights could lead to substantial liabilities and prevent the commercialization of products[379] - Breaching license agreements could result in the loss of rights to commercialize key products and product candidates[387] Risks Related to Financial Condition and Results of Operations Cumberland's operating results are subject to fluctuation due to factors like new product launches, acquisition activity, and changes in the competitive environment. A significant portion of its assets consists of intangible assets from acquisitions, which are at risk of impairment and could negatively affect earnings. The company may need additional funding in the future and might be unable to raise capital on favorable terms. Maintaining effective internal financial controls is critical, and failure to do so could lead to reporting failures and regulatory sanctions. Furthermore, officers, directors, and principal shareholders control approximately 40% of the common stock, allowing them to significantly influence corporate actions - Operating results are likely to fluctuate due to new product launches, acquisition activity, and changes in the competitive and regulatory environment[390][391] - Intangible assets from acquisitions represented approximately 30% of total assets as of December 31, 2019, and are subject to impairment risk[392][393] - The company may need additional funding and may be unable to raise capital when needed, which could force delays or reductions in development or commercialization efforts[395] - As of December 31, 2019, officers, directors, and principal shareholders control approximately 40% of the common stock, enabling them to significantly influence corporate actions[411] Risks Related to Owning Our Stock Ownership of the company's stock involves several risks. The market price of the common stock (CPIX) is highly volatile and may fluctuate substantially. Unstable market conditions could adversely affect the business and its ability to secure financing. As a public company, Cumberland incurs significant costs and management time for compliance with regulations like the Sarbanes-Oxley Act. Provisions in the company's charter and bylaws, along with Tennessee law, could inhibit potential acquisition bids, even those that shareholders might consider favorable. The company has never paid cash dividends and future payments are at the discretion of the Board - The market price of the company's common stock is likely to be highly volatile and may fluctuate substantially[414] - Operating as a public company involves significant costs and regulatory risk, requiring management to devote substantial time to compliance initiatives like the Sarbanes-Oxley Act[417] - Provisions in the company's charter, bylaws, and Tennessee law may inhibit potential acquisition bids that shareholders might consider favorable[422] - The company has never paid cash dividends on its capital stock, and any future decision to do so is at the discretion of the Board of Directors[425] Properties As of December 31, 2019, Cumberland Pharmaceuticals leases approximately 25,500 square feet for its corporate headquarters in Nashville, Tennessee, with the lease expiring in October 2022. Its majority-owned subsidiary, CET, leases about 14,200 square feet of office and laboratory space, also in Nashville, under a lease that runs through April 2023. All manufacturing, packaging, and warehousing services are outsourced to third-party contractors - The company leases approximately 25,500 sq. ft. for its corporate headquarters in Nashville, TN, with the lease expiring in October 2022[437] - Its subsidiary, CET, leases approximately 14,200 sq. ft. of office and lab space in Nashville, TN, through April 2023[438] Legal Proceedings The company refers to the discussion of its legal proceedings related to the defense of its Acetadote patents, which is detailed in Part I, Item 1 of this Form 10-K - The company is involved in legal proceedings concerning the defense of its Acetadote patents[439] Part II This part presents the company's market information, selected financial data, management's discussion and analysis of financial condition, and internal controls Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Cumberland's common stock trades on the Nasdaq Global Select Market under the symbol "CPIX". The company has never paid cash dividends and any future dividends are at the Board's discretion. In 2019, the Board established a new $10.0 million share repurchase program. During the year ended December 31, 2019, the company repurchased 623,478 shares for approximately $3.5 million - The company's common stock trades on the Nasdaq Global Select Market under the symbol "CPIX"[441] - No cash dividends have ever been declared or paid on the common stock[442] - The company repurchased 623,478 shares of common stock for approximately $3.5 million during the year ended December 31, 2019[446] Share Repurchases in Q4 2019 (in US Dollars) | Period | Total Shares Purchased | Average Price Paid per Share | Maximum Dollar Value that May Yet Be Purchased | | :--- | :--- | :--- | :--- | | October | 39,536 | $5.64 | $8,667,406 | | November | 65,947 | $4.96 | $8,340,247 | | December | 65,840 | $5.16 | $8,000,709 | | Total | 171,323 | | | Selected Financial Data The company reported net revenues of $47.5 million for the year ended December 31, 2019, an increase from $40.7 million in 2018. This resulted in an operating loss of $3.6 million, an improvement from the $7.4 million loss in the prior year. The net loss attributable to common shareholders was $3.5 million, or ($0.23) per share. As of year-end 2019, total assets were $104.5 million and total equity was $51.1 million Selected Statement of Income Data (in thousands, except per share data) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net revenues | $ 47,534 | $ 40,742 | $ 41,150 | | Operating income (loss) | $ (3,623) | $ (7,391) | $ (4,081) | | Net income (loss) attributable to common shareholders | $ (3,538) | $ (6,963) | $ (7,979) | | Earnings (loss) per share – diluted | $ (0.23) | $ (0.45) | $ (0.50) | Selected Balance Sheet Data (as of December 31, in thousands) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $ 28,213 | $ 27,939 | $ 45,413 | | Working capital | $ 26,013 | $ 31,312 | $ 50,990 | | Total assets | $ 104,549 | $ 112,694 | $ 93,232 | | Total long-term debt and other long-term obligations | $ 29,314 | $ 29,319 | $ 11,616 | | Total equity | $ 51,085 | $ 55,571 | $ 63,922 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) In 2019, Cumberland's net revenues increased 16.7% to $47.5 million, driven by strong performance from Vibativ, Ethyol, and Kristalose. The operating loss narrowed to $3.6 million from $7.4 million in 2018, reflecting higher revenues and controlled expenses. The net loss was $3.5 million. Key 2019 events included a strategic review resulting in new international partnerships and the discontinuation of the Ethyol/Totect distribution. The company received FDA approval for RediTrex and a next-gen Caldolor. Liquidity remains solid with $28.2 million in cash and cash equivalents and access to a $20 million credit line, supporting operations and business development Executive Summary In 2019, Cumberland Pharmaceuticals executed a strategic review, leading to new international license agreements for Caldolor, Acetadote, and Vibativ, while concluding its distribution of Ethyol and Totect. The company saw revenue growth in key products like Caldolor and Kristalose. Significant regulatory milestones were achieved with FDA approval for RediTrex and a next-generation Caldolor product. The clinical pipeline advanced with FDA Orphan Drug Grant funding for a new Phase II study of ifetroban in DMD, and positive study results for Vibativ were published - A strategic review in early 2019 led to new international license agreements and the conclusion of distribution for Ethyol and Totect[462][465] - FDA approval was received for RediTrex, with a 2020 launch planned[467] - The company received FDA Orphan Drug Grant funding of over $1 million to support a Phase II clinical study of ifetroban for Duchenne Muscular Dystrophy (DMD)[468] - Net revenue from Caldolor, Omeclamox, Kristalose, and Ethyol grew in 2019 compared to 2018[466] Critical Accounting Policies and Significant Judgments and Estimates The company's financial statements are prepared under GAAP, requiring significant management estimates and judgments. Critical accounting policies include revenue recognition (ASC 606), where estimates for chargebacks, rebates, and returns are crucial. Other key areas involve valuing marketable securities, assessing inventory for obsolescence, accounting for intangible assets and goodwill, and determining the provision for income taxes, including the realizability of deferred tax assets. Share-based payment expense is also a significant estimate, based on the fair value of awards - Revenue recognition requires significant judgment in estimating allowances for chargebacks, rebates, and product returns[476] - Sales-related accrued liabilities for rebates, returns, and fees totaled $4.8 million as of December 31, 2019[482] - Intangible assets and goodwill are assessed for impairment at least annually, requiring assumptions about future cash flows[499] - The company maintains a full valuation allowance against its deferred tax assets, as it was determined not more likely than not that they would be realized[490] Results of Operations For the year ended December 31, 2019, net revenues increased by 16.7% to $47.5 million, primarily driven by a $3.6 million increase in Vibativ sales. This led to a reduced operating loss of $3.6 million compared to a $7.4 million loss in 2018. For 2018, net revenues were relatively flat at $40.7 million compared to $41.2 million in 2017, with the initial sales of Vibativ offsetting declines in Totect and Acetadote. The operating loss in 2018 widened to $7.4 million from $4.1 million in 2017, mainly due to a $3.3 million increase in R&D expenses Comparison of Fiscal Years 2019 and 2018 In 2019, net revenues rose 16.7% to $47.5 million from $40.7 million in 2018. This growth was primarily driven by Vibativ, which contributed an additional $3.6 million in its first full year, and a $2.2 million increase from Ethyol. The operating loss significantly narrowed to $3.6 million from $7.4 million in the prior year. Total costs and expenses increased modestly to $51.2 million, with a $1.4 million rise in amortization expense from the Vibativ acquisition being a key factor. The net loss improved to $3.5 million from a $7.0 million loss in 2018 Financial Performance Comparison (2019 vs. 2018) (in US Dollars) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Net Revenues | $47,533,637 | $40,741,765 | $6,791,872 | | Operating Loss | $(3,623,005) | $(7,390,772) | $3,767,767 | | Net Loss | $(3,546,511) | $(7,038,772) | $3,492,261 | Net Revenue by Product (2019 vs. 2018) (in US Dollars) | Product | 2019 Revenue | 2018 Revenue | Change | | :--- | :--- | :--- | :--- | | Vibativ | $8,691,550 | $5,075,057 | $3,616,493 | | Ethyol | $12,774,831 | $10,545,906 | $2,228,925 | | Kristalose | $12,895,120 | $12,055,625 | $839,495 | | Vaprisol | $936,615 | $1,763,874 | $(827,259) | | Acetadote | $3,824,449 | $4,284,111 | $(459,662) | - Selling and marketing expenses increased by $1.2 million primarily due to promotional spending and sales force costs related to the addition of Vibativ[512] - Research and development costs decreased by $1.1 million, mainly because a $1.3 million FDA program fee for RediTrex was paid in 2018[513] Comparison of Fiscal Years 2018 and 2017 For 2018, net revenues were nearly flat at $40.7 million compared to $41.2 million in 2017. The launch of Vibativ, which generated $5.1 million, and growth from Caldolor and Kristalose were offset by significant declines in Totect ($3.1 million) and Acetadote ($2.3 million). The operating loss widened to $7.4 million from $4.1 million in 2017. This was primarily driven by a $3.3 million increase in research and development expenses, which included a $1.3 million FDA fee for the RediTrex submission and increased investment in clinical initiatives Financial Performance Comparison (2018 vs. 2017) (in US Dollars) | Metric | 2018 | 2017 | Change | | :--- | :--- | :--- | :--- | | Net Revenues | $40,741,765 | $41,150,131 | $(408,366) | | Operating Loss | $(7,390,772) | $(4,081,348) | $(3,309,424) | | Net Loss | $(7,038,772) | $(8,049,815) | $1,011,043 | Net Revenue by Product (2018 vs. 2017) (in US Dollars) | Product | 2018 Revenue | 2017 Revenue | Change | | :--- | :--- | :--- | :--- | | Vibativ | $5,075,057 | $— | $5,075,057 | | Totect | $850,965 | $3,992,467 | $(3,141,502) | | Acetadote | $4,284,111 | $6,576,720 | $(2,292,609) | | Omeclamox-Pak | $623,297 | $1,761,868 | $(1,138,571) | | Caldolor | $5,001,997 | $4,178,443 | $823,554 | - Research and development costs increased by $3.3 million, driven by a $1.3 million RediTrex FDA submission fee and $1.6 million in additional investment in pipeline products[521] Liquidity and Capital Resources As of December 31, 2019, Cumberland's liquidity is supported by $28.2 million in cash and cash equivalents and a revolving credit facility with up to $20 million available, of which $18.5 million was drawn. Cash provided by operations in 2019 was $3.1 million. Investing activities provided $2.3 million, primarily from the net sale of marketable securities, offset by a $5 million payment for the Vibativ acquisition. Financing activities used $5.1 million, mainly for a $1.5 million net repayment on the credit line and $3.5 million in share repurchases. The company believes its existing cash, operating cash flow, and credit facility are adequate to fund future operations and initiatives Liquidity Summary (as of Dec 31) (in US Dollars) | | 2019 | 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $28,212,635 | $27,938,960 | | Marketable securities | $— | $8,290,679 | | Working capital | $26,012,840 | $31,311,813 | Summary of Cash Flows (Year Ended Dec 31) (in US Dollars) | | 2019 | 2018 | | :--- | :--- | :--- | | Cash from Operating activities | $3,056,356 | $3,112,737 | | Cash from Investing activities | $2,297,848 | $(27,724,818) | | Cash from Financing activities | $(5,080,529) | $7,138,173 | - The company has a Revolving Credit Loan Agreement with Pinnacle Bank, extended through July 2021, with a maximum borrowing capacity of $20.0 million. As of Dec 31, 2019, $18.5 million was outstanding[531][728] Contractual Cash Obligations as of Dec 31, 2019 (in US Dollars) | Contractual obligations | Total | Payments Due by Year... | | :--- | :--- | :--- | | Line of credit | $18,500,000 | $18.5M in 2021 | | Contingent consideration liability | $8,633,589 | Spread over 2020-2023+ | | Operating leases | $3,376,746 | Spread over 2020-2023 | | Total | $31,759,085 | | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risk primarily from changes in interest rates affecting its cash equivalents and its variable-rate revolving credit facility. The objective of its cash investment policy is principal preservation. As of December 31, 2019, the company had $18.5 million in borrowings outstanding under its line of credit, which is based on LIBOR plus a spread. The company also has minimal exposure to foreign currency exchange rate risk, as most operations are in the U.S. and foreign currency purchases have short payment terms. Cumberland does not currently use derivative financial instruments to hedge these risks - The company is exposed to interest rate risk on its cash equivalents and its revolving credit facility, which bears a variable interest rate based on LIBOR[550] - As of December 31, 2019, $18.5 million was outstanding under the revolving line of credit[553] - Exposure to foreign currency fluctuation is considered minimal as operations are primarily in the U.S. and foreign currency purchases have short payment terms[554][555] Controls and Procedures The Chief Executive Officer and Chief Financial Officer evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2019. Management's report on internal control over financial reporting, included on page F-1 of the report, also confirms the effectiveness of these controls. No changes were made to the internal control over financial reporting during the fourth quarter of 2019 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[560] - Management's report on internal control over financial reporting concluded that controls were effective as of December 31, 2019[561][601] Other Information On March 16, 2020, effective as of January 1, 2020, the company entered into new at-will employment agreements with its key executive officers. The agreements established new base salaries for the CEO, A.J. Kazimi ($589,500); CCO, Martin Cearnal ($325,000); CDO, Leo Pavliv ($422,000); CCO, James Herman ($260,000); and CFO, Michael Bonner ($205,500). The agreements include provisions for potential annual bonuses, restricted stock grants, and non-competition covenants but do not contain severance or change-in-control provisions - On March 16, 2020, the company entered into new employment agreements with key executive officers, effective January 1, 2020[562] Executive Base Salaries (Effective Jan 1, 2020) (Annual Base Salary) | Officer | Title | Base Salary | | :--- | :--- | :--- | | A.J. Kazimi | Chief Executive Officer | $589,500 | | Martin Cearnal | EVP and Chief Commercial Officer | $325,000 | | Leo Pavliv | EVP, Operations and Chief Development Officer | $422,000 | | James Herman | SVP, National Accounts and Chief Compliance Officer | $260,000 | | Michael Bonner | Senior Director, Finance and Accounting and CFO | $205,500 | Part III This part incorporates by reference information regarding the company's directors, executive officers, corporate governance, and security ownership from its 2020 proxy statement - Information for Items 10 through 14 is incorporated by reference from the company's 2020 proxy statement[575] Part IV This part lists the exhibits and financial statement schedules filed with the report, along with a note on the absence of a voluntary 10-K summary Exhibits, Financial Statement Schedules This section lists the documents filed as part of the Form 10-K report. It includes the financial statements, the financial statement schedule for Valuation and Qualifying Accounts, and a comprehensive list of exhibits. Key exhibits include the company's charter and bylaws, employment agreements with executive officers, stock incentive plans, and material contracts such as lease agreements and the revolving credit loan agreement - This section contains the financial statements, financial statement schedules, and a list of all exhibits filed with the report[578] Form 10-K Summary The company has elected not to include a voluntary summary of the Form 10-K information under this item - The Company has elected not to include a summary of the 10-K report[591]