Cumberland Pharmaceuticals(CPIX) - 2020 Q1 - Quarterly Report

FORM 10-Q INDEX PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements, including balance sheets, operations, cash flows, equity, and notes Condensed Consolidated Balance Sheets Balance Sheet Summary | Metric | March 31, 2020 | December 31, 2019 | Change (vs. Dec 31, 2019) | | :-------------------------- | :------------- | :---------------- | :------------------------ | | Total Assets | $97,419,137 | $104,549,283 | $(7,130,146) | | Total Liabilities | $47,576,079 | $53,464,030 | $(5,887,951) | | Total Equity | $49,843,058 | $51,085,253 | $(1,242,195) | | Cash and Cash Equivalents | $27,026,734 | $28,212,635 | $(1,185,901) | | Accounts Receivable, net | $5,949,910 | $7,843,917 | $(1,894,007) | | Inventories | $8,150,152 | $8,871,254 | $(721,102) | | Total Current Assets | $44,737,017 | $50,163,075 | $(5,426,058) | | Total Current Liabilities | $19,372,591 | $24,150,235 | $(4,777,644) | Condensed Consolidated Statements of Operations and Comprehensive Income (loss) Operating Results and Comprehensive Income (Loss) | Metric (Three months ended March 31) | 2020 | 2019 | Change (YoY) | | :----------------------------------- | :------------ | :------------ | :------------ | | Net Revenues | $8,330,734 | $8,729,860 | $(399,126) | | Total Costs and Expenses | $10,176,735 | $10,053,792 | $122,943 | | Operating Income (Loss) | $(1,846,001) | $(1,323,932) | $(522,069) | | Net Income (Loss) from Continuing Operations | $(1,883,418)$ | $(1,187,554)$ | $(695,864)$ | | Discontinued Operations | $818,273 | $1,147,136 | $(328,863) | | Net Income (Loss) | $(1,065,145)$ | $(40,418)$ | $(1,024,727)$ | | Net Income (Loss) attributable to common shareholders | $(1,055,620)$ | $(73,878)$ | $(981,742)$ | | EPS - Continuing Operations - Basic | $(0.12)$ | $(0.08)$ | $(0.04)$ | | EPS - Discontinued Operations - Basic | $0.05$ | $0.08$ | $(0.03)$ | | EPS - Basic | $(0.07)$ | $—$ | $(0.07)$ | Condensed Consolidated Statements of Cash Flows Cash Flow Summary | Cash Flow Activity (Three months ended March 31) | 2020 | 2019 | Change (YoY) | | :----------------------------------------------- | :------------ | :------------ | :------------ | | Net cash provided by (used in) operating activities | $888,539 | $(385,733)$ | $1,274,272$ | | Net cash used in investing activities | $(571,161)$ | $(1,723,388)$ | $1,152,227$ | | Net cash used in financing activities | $(1,503,279)$ | $(1,220,424)$ | $(282,855)$ | | Net decrease in cash and cash equivalents | $(1,185,901)$ | $(3,329,545)$ | $2,143,644$ | | Cash and cash equivalents at end of period | $27,026,734$ | $24,609,415$ | $2,417,319$ | - Cash provided by operating activities in Q1 2020 was positively impacted by decreases in accounts receivable ($2.0 million) and inventory ($0.7 million), and non-cash expenses totaling $1.4 million, partially offset by a $2.4 million decrease in accounts payable[108] - Cash used in investing activities in Q1 2020 was primarily due to additions to intangible assets of $0.5 million[108] - Financing activities in Q1 2020 included $0.4 million for common stock repurchases and $0.8 million for subsidiary share repurchases[108] Condensed Consolidated Statements of Equity Equity Changes | Metric (Three months ended March 31) | 2020 | 2019 | | :----------------------------------- | :------------ | :------------ | | Balance, December 31 | $51,085,253$ | $55,570,501$ | | Share-based compensation | $264,574$ | $364,434$ | | Repurchase of common shares | $(441,624)$ | $(703,790)$ | | Net loss | $(1,055,620)$ | $(73,878)$ | | Balance, March 31 | $49,843,058$ | $55,190,727$ | Notes to the Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the unaudited condensed consolidated financial statements, covering company organization, accounting policies, significant estimates, and specific financial line items (1) ORGANIZATION AND BASIS OF PRESENTATION Describes Cumberland Pharmaceuticals Inc. as a specialty pharmaceutical company focused on acquiring, developing, and commercializing branded prescription products for hospital acute care and gastroenterology, and outlines the basis of financial statement preparation Discontinued Operations - Cumberland returned exclusive rights to commercialize Ethyol and Totect in the U.S. to Clinigen, effective December 31, 2019[22] - Operating results for Ethyol and Totect have been reclassified as discontinued operations for all periods presented[22] COVID-19 Pandemic - Company is considered essential and has allowed employees to work remotely; sales contact shifted from in-person to telephonic/electronic[24] - Anticipates potential revenue loss, supply interruptions, time delays, and unplanned expenses due to COVID-19[25] - Unable to fully quantify the impact on future results due to uncertainty[28] Recent Accounting Guidance - Adopted ASU 2018-18 (Collaboration Arrangements) and ASU 2017-04 (Goodwill Impairment) effective January 1, 2020, with no impact on financial statements[29][30] - Will adopt ASU 2016-13 and ASU 2019-05 (Financial Instruments-Credit Losses) on January 1, 2023, with no material impact expected[31] Accounting Policies: Use of Estimates - Significant estimates include allowances for chargebacks, rebates, product returns, obsolescent inventory, acquisition date fair value of assets, and contingent consideration liability[32] Operating Segments - The Company has one operating segment: specialty pharmaceutical products[34] - Substantially all assets are in the U.S., and total revenues are primarily from U.S. customers[34] (2) INVESTMENTS IN CASH EQUIVALENTS AND MARKETABLE SECURITIES Details the company's investment strategy in marketable securities, primarily short-term commercial paper classified as cash equivalents, and their fair value measurement using Level 1 or Level 2 inputs - Marketable securities consist solely of trading securities (commercial paper with <90-day maturities) classified as cash equivalents[35] Marketable Securities Fair Value | Marketable Securities (Fair Value) | March 31, 2020 | December 31, 2019 | | :--------------------------------- | :------------- | :---------------- | | Commercial paper (Level 2) | $498,008 | $2,119,607 | | Total | $498,008 | $2,119,607 | (3) EARNINGS (LOSS) PER SHARE Reconciles the numerator and denominator used to calculate diluted earnings (loss) per share for the three months ended March 31, 2020, and 2019, noting the impact of antidilutive securities EPS Calculation | EPS Calculation (Three months ended March 31) | 2020 | 2019 | | :-------------------------------------------- | :------------ | :------------ | | Net income (loss) attributable to common shareholders | $(1,055,620)$ | $(73,878)$ | | Weighted-average shares outstanding – basic | $15,240,614$ | $15,472,952$ | | Dilutive effect of other securities | $337,695$ | $418,618$ | | Weighted-average shares outstanding – diluted | $15,578,309$ | $15,891,570$ | - Restricted stock awards and options for 431,226 shares (2020) and 263,919 shares (2019) were antidilutive and excluded from diluted EPS calculation[38] (4) REVENUES Details the company's net revenues by product for the three months ended March 31, 2020, and 2019, and describes the recognition of other revenues from international partnerships and grant funding Product Revenues Product Revenues Breakdown | Product (Three months ended March 31) | 2020 | 2019 | Change (YoY) | | :------------------------------------ | :---------- | :---------- | :----------- | | Acetadote | $713,899$ | $849,502$ | $(135,603)$ | | Omeclamox-Pak | $114,770$ | $199,537$ | $(84,767)$ | | Kristalose | $3,311,696$ | $3,307,658$ | $4,038$ | | Vaprisol | $208,763$ | $286,676$ | $(77,913)$ | | Caldolor | $1,096,291$ | $1,317,074$ | $(220,783)$ | | Vibativ | $2,425,755$ | $2,060,195$ | $365,560$ | | Other revenue | $459,560$ | $709,218$ | $(249,658)$ | | Total net revenues | $8,330,734$ | $8,729,860$ | $(399,126)$ | - Kristalose revenue increased slightly due to improved net pricing[104] - Vibativ revenue increased by $0.4 million due to improved sales volumes and net pricing[104] - Caldolor revenue decreased by $0.2 million, primarily due to a reduction in international shipments, despite higher domestic shipments and improved net pricing[106] Other Revenues - International agreements provide non-refundable upfront payments, milestone payments, royalties, and transfer prices for product supplies[40] - CET generates revenue from federal Small Business grant programs and lease income from its Life Sciences Center[42] - Grant revenue from these programs was approximately $0.2 million in Q1 2020, down from $0.6 million in Q1 2019[42] (5) INVENTORIES Describes the company's inventory accounting policies, including valuation at the lower of cost or net realizable value, and provides a breakdown of current and non-current inventory components - Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method[43] - Non-current inventories, primarily Vibativ and ifetroban API, totaled $15.6 million at March 31, 2020, and December 31, 2019[43] Inventory Breakdown | Inventory Type | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Raw materials and work in process | $19,456,867 | $19,345,723 | | Consigned inventory | $245,354 | $416,468 | | Finished goods | $4,017,923 | $4,664,055 | | Total inventories | $23,720,144 | $24,426,246 | | Less non-current inventories | $(15,569,992)$ | $(15,554,992)$ | | Total current inventories | $8,150,152$ | $8,871,254$ | (6) LEASES Details the company's accounting for operating leases under ASU 2016-02, including the recognition of right-of-use assets and liabilities for its corporate headquarters and CET's lab space - Adopted ASU 2016-02, recognizing right-of-use assets and obligations for operating leases on the balance sheet[46] - Significant operating leases include corporate headquarters (expires Oct 2022) and CET's lab/office space (expires Apr 2023)[47] Lease Position Summary | Lease Position | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets | $2,733,782$ | $2,960,569$ | | Current operating lease liabilities | $943,807$ | $920,431$ | | Noncurrent operating lease liabilities | $1,831,274$ | $2,076,472$ | | Total lease liabilities | $2,775,081$ | $2,996,903$ | - Weighted-average incremental borrowing rate for leases is 7.42%, and the weighted-average remaining lease term at March 31, 2020, is 2.7 years[47] (7) SHAREHOLDERS' EQUITY AND DEBT Covers activities related to shareholders' equity, including share repurchases, restricted stock grants, investments in Cumberland Emerging Technologies (CET), and details of the company's revolving credit facility Share repurchases - Repurchased 164,876 shares for approximately $0.7 million in Q1 2020[49] - Repurchased 121,466 shares for approximately $0.7 million in Q1 2019[49] Share purchases and sales - Board members purchased company stock in March 2020 to increase ownership[49] - No shares were issued under the At-The-Market (ATM) feature of the Shelf Registration in Q1 2020 or Q1 2019[49] Restricted Share Grants - Issued 229,141 restricted shares in Q1 2020 and 222,269 in Q1 2019 to employees and directors[50] - Employee restricted stock generally cliff-vests on the fourth anniversary, while director grants vest on the one-year anniversary[50] Cumberland Emerging Technologies - In April 2019, WinHealth invested $1 million in CET, gaining a board position and licensing opportunity for the Chinese market[51] - Cumberland also invested an additional $1 million in CET through cash and conversion of intercompany loans[51] - Gloria Pharmaceuticals returned its CET shares for $0.8 million[51] Debt Agreement - Third Amendment extended the Pinnacle Agreement term to July 31, 2021, and modified financial covenants (Funded Debt Ratio, Tangible Capital Ratio)[52] - Maximum borrowing under the revolving credit facility increased to $20.0 million in October 2018[53] - Interest rate is LIBOR plus 1.75% to 2.75% (3.73% at March 31, 2020), with $18.5 million outstanding[53] - Company was in compliance with the Tangible Capital Ratio financial covenant as of March 31, 2020[52] (8) INCOME TAXES Discusses the impact of the Tax Cuts and Jobs Act, the company's significant net operating loss carryforwards, and its expectation to pay minimal income taxes in 2020 and beyond - Company has approximately $44.1 million in net operating loss carryforwards from nonqualified stock options[55] - Expects to pay minimal income taxes in 2020 and beyond by utilizing these NOL carryforwards[55] (9) COLLABORATIVE AGREEMENTS Explains that the company's collaborative agreements with research institutions for product candidates do not meet ASC Topic 808 criteria, with funding primarily from federal grants recorded as net revenues and expenses as R&D - Collaborative agreements with research institutions are primarily funded by federal Small Business grant programs[56] - Grant funding is recorded as net revenues, and expenses are included in R&D[56] (10) ADDITIONS AND RETURN OF PRODUCT RIGHTS Details significant changes in the company's product portfolio, including the acquisition of Vibativ, the FDA approval of RediTrex, and the return of Ethyol and Totect rights Vibativ - Acquired global rights to Vibativ in November 2018 for $20 million upfront and a $5 million milestone payment in April 2019, plus up to 20% royalty on future net sales[57][58] - Vibativ is an FDA-approved injectable anti-infective for serious bacterial infections[57] - Contingent consideration liability for future royalties was $7,829,848 at March 31, 2020[63] Vibativ Acquisition Assets | Assets Acquired (Vibativ) | Fair Value | | :------------------------ | :----------- | | Total inventory | $21,550,000 | | Intellectual property | $11,750,000 | | Goodwill | $882,000 | | Total assets acquired | $34,182,000 | RediTrex - Received FDA approval for RediTrex product line in November 2019[63] - FDA approval resulted in the vesting of 180,000 restricted shares ($0.9 million value) and a $1.0 million current liability to Nordic[63] Ethyol and Totect - Returned exclusive U.S. rights for Ethyol and Totect to Clinigen effective December 31, 2019[65] - Will receive $5 million in financial consideration over two years; $0.8 million recorded as discontinued operations income in Q1 2020[65] - Ethyol and Totect generated $3.2 million in revenue and $1.1 million in discontinued operations income in Q1 2019[65] (11) SUBSEQUENT EVENTS Discloses the company's receipt of a $2.187 million loan under the Paycheck Protection Program (PPP) in April 2020, intended for payroll, benefits, rent, and utilities, with potential for forgiveness - Received a $2,187,140 loan under the Paycheck Protection Program (PPP) on April 20, 2020[66] - Loan matures April 14, 2022, with a 1.0% interest rate, and funds are for payroll, benefits, rent, and utilities[67] - Company intends to use the majority of the loan for qualifying expenses, which may be forgiven[68] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on the company's financial condition, results of operations, and future outlook, including discussions on business strategy, recent developments, critical accounting policies, and liquidity OVERVIEW Presents an overview of Cumberland Pharmaceuticals Inc.'s business as a specialty pharmaceutical company, its portfolio of FDA-approved products, and its strategic approach to growth through product expansion, acquisitions, pipeline development, and international partnerships Our Business - Specialty pharmaceutical company targeting hospital acute care and gastroenterology[74] - Portfolio includes seven FDA-approved brands: Acetadote, Caldolor, Kristalose, Omeclamox-Pak, Vaprisol, Vibativ, and RediTrex[74] - Also has Phase II clinical programs for ifetroban in various conditions[75] Growth Strategy - Strategy includes expanding use of marketed products (e.g., pediatric approval for Acetadote and Caldolor)[80] - Seeks to acquire under-promoted, FDA-approved drugs and late-stage development candidates, with Vibativ being the largest acquisition to date[81] - Progressing ifetroban Phase II programs and incubating early-stage opportunities at CET[82] - Leveraging commercial infrastructure through co-promotion partnerships (e.g., Kristalose with Poly Pharmaceuticals and Foxland Pharmaceuticals)[83] - Building international business through partners and supporting their registration/commercialization efforts[84][85] - Aims to manage operations with financial discipline to deliver positive cash flow and maintain a healthy financial position[86] RECENT DEVELOPMENTS Highlights key recent operational and strategic developments, including new product launches, clinical study results, responses to the COVID-19 pandemic, ESG initiatives, and pipeline progress Caldolor ® - Launched a new ready-to-use Caldolor (ibuprofen) Injection in January 2020, the first FDA-approved pre-mixed bag of ibuprofen[89] - Announced positive topline results in March 2020 for a pediatric study of Caldolor in children from birth up to six months, indicating it was well tolerated[89] COVID-19 Pandemic - Company is essential, allowing remote work and shifting sales calls to telephonic/electronic[90] - Anticipates potential revenue loss, supply interruptions, and unplanned expenses due to the pandemic[90] - Unable to quantify the impact on future results due to uncertainty[90] Acute Care Product Special Supply Arrangements - Expanded availability of Vibativ, Caldolor, and Vaprisol to hospitals with special financial arrangements (favorable pricing/payment terms) during the health crisis[91] - Sponsored a national program with infectious disease experts on managing COVID-19 related respiratory infections[91] Paycheck Protection Program - Received a $2,187,140 loan under the Paycheck Protection Program (PPP) on April 20, 2020, to cover payroll, benefits, rent, and utilities[93][94] - Intends to use the majority for qualifying expenses eligible for loan forgiveness[94] - Has not laid off or furloughed employees and does not foresee doing so due to the PPP loan[94] Environmental, Social and Governance (ESG) Activities - Released first Sustainability Report in April 2020, covering community involvement, ethical marketing, and drug safety[95] - Appointed Caroline R. Young as the company's first ESG board director[95] - In 2019, provided nearly 4 million patient doses, safely disposed of over 9,700 pounds of expired products, and had no product recalls or FDA safety alerts[95] Ifetroban Phase II Clinical Programs - Ongoing Phase II studies for ifetroban in cardiomyopathy associated with Duchenne Muscular Dystrophy, Systemic Sclerosis, and Aspirin-Exacerbated Respiratory Disease[96] - Enrollment in clinical studies declined in Q1 2020 due to the COVID-19 pandemic[96] New Hospital Product Candidate - Completed preclinical and Phase I studies for a new cholesterol-reducing agent for hospital use, showing a favorable safety profile[97] - Phase II study patient enrollment completed, and results are being evaluated to determine next development steps[97] CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES Refers to Note 1 of the financial statements and the 2019 Annual Report on Form 10-K for a detailed discussion of critical accounting policies and significant judgments and estimates, which are crucial for financial statement preparation - Management's estimates and judgments are critical for revenue recognition, fair value of marketable securities, inventories, income taxes, contingent consideration, share-based compensation, R&D expenses, and intangible assets[100] RESULTS OF OPERATIONS Provides a comparative analysis of the company's financial performance for the three months ended March 31, 2020, versus 2019, detailing changes in net revenues, costs, and expenses, leading to an increased net loss from continuing operations Three months ended March 31, 2020 compared to the three months ended March 31, 2019 Comparative Operating Results | Metric (Three months ended March 31) | 2020 | 2019 | Change (YoY) | % Change | | :----------------------------------- | :------------ | :------------ | :------------ | :------- | | Net Revenues | $8,330,734 | $8,729,860 | $(399,126)$ | (4.6)% | | Cost of products sold | $1,634,181$ | $1,658,789$ | $(24,608)$ | (1.5)% | | Selling and marketing | $3,707,676$ | $3,436,932$ | $270,744$ | 7.9% | | Research and development | $1,722,555$ | $1,399,687$ | $322,868$ | 23.1% | | General and administrative | $2,036,284$ | $2,536,739$ | $(500,455)$ | (19.7)% | | Amortization | $1,076,039$ | $1,021,645$ | $54,394$ | 5.3% | | Total costs and expenses | $10,176,735$ | $10,053,792$ | $122,943$ | 1.2% | | Operating income (loss) | $(1,846,001)$ | $(1,323,932)$ | $(522,069)$ | (39.4)% | | Net income (loss) from continuing operations | $(1,883,418)$ | $(1,187,554)$ | $(695,864)$ | (58.6)% | - Selling and marketing expenses increased by $0.3 million due to higher salaries and a non-cash expense related to life insurance, partially offset by lower royalty costs[106] - Research and development costs increased by $0.3 million, primarily due to increased annual FDA user fees[106] - General and administrative expenses decreased by $0.5 million due to reductions in advisory, legal, professional fees, and non-cash stock-based compensation[106] - Income tax expense (benefit) shifted from a benefit of $81,428 in 2019 to an expense of $34,240 in 2020[104] LIQUIDITY AND CAPITAL RESOURCES Discusses the company's liquidity sources, including cash flows from operations, the PPP loan, and its revolving credit facility, and provides a summary of working capital and cash flow changes Working Capital - Primary liquidity sources are cash flows from operations, PPP loan, and a $20 million revolving credit facility[108] - Believes current liquidity is adequate to finance internal growth, business development, and capital expenditures[108] Working Capital and Liquidity | Metric | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $27,026,734$ | $28,212,635$ | | Working capital | $25,364,426$ | $26,012,840$ | | Current ratio | 2.3 | 2.1 | | Revolving line of credit availability | $1,500,000$ | $1,500,000$ | Debt Agreement - Third Amendment extended the Pinnacle Agreement through July 31, 2021, and modified financial covenants (Funded Debt Ratio, Tangible Capital Ratio)[111] - Company was in compliance with the Tangible Capital Ratio financial covenant as of March 31, 2020[111] OFF-BALANCE SHEET ARRANGEMENTS The company did not engage in any off-balance sheet arrangements during the three months ended March 31, 2020, and 2019 - No off-balance sheet arrangements were engaged in during Q1 2020 or Q1 2019[112] Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses the company's exposure to market risks, primarily interest rate risk on cash and its revolving credit facility, and minimal exchange rate risk, without using derivative financial instruments for hedging Interest Rate Risk - Exposed to interest rate risk on cash in money market accounts and its revolving credit facility[112] - Does not use derivative financial instruments to manage interest rate exposure[112] - Believes interest rate risk is not material, with $18.5 million outstanding on the LIBOR-based revolving credit facility (3.73% at March 31, 2020)[112] Exchange Rate Risk - Operates primarily in the U.S. but has minimal foreign currency risk exposure[113] - Foreign currency exchange gains and losses were immaterial for Q1 2020 and Q1 2019[113] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2020, and no material changes to internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2020[114] - No material changes to internal control over financial reporting occurred during Q1 2020[114] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company reported no legal proceedings during the period - No legal proceedings were reported[117] Item 1A. Risk Factors Updates the risk factors from the 2019 Annual Report on Form 10-K, emphasizing new and existing risks related to business operations, government regulation, financial condition, and stock ownership, particularly in light of the COVID-19 pandemic RISKS RELATED TO OUR BUSINESS Highlights risks to the business including the adverse impact of the COVID-19 pandemic, dependence on third-party manufacturers and service providers, and reliance on key personnel Impact of natural disasters, public health epidemics (COVID-19) - COVID-19 outbreak has significantly disrupted activities, potentially causing revenue loss, supply interruptions, time delays, and unplanned expenses[119] - The pandemic's impact on global markets could affect future access to liquidity and materially adversely affect results of operations and financial condition[120][121] Dependence on third-party manufacturers - Company does not manufacture its products and depends on third parties, risking adverse effects on profit margins and product delivery[123] - Delays or difficulties with contract manufacturers, potentially exacerbated by COVID-19, could adversely affect product distribution and sales[123] - Specific products like Kristalose (single API facility) and Vaprisol (seeking new manufacturer) face unique supply risks[128][130] - Non-compliance by third-party manufacturers with GMPs could lead to fines, production suspension, product recalls, or withdrawal of approvals[133][134] Dependence on other third parties - Relies on third parties like Cardinal Health for logistics and fulfillment, and Vanderbilt University/WinHealth for CET[135] - Failure of these third parties could disrupt business, increase expenses, or adversely affect operating results, with additional risks from COVID-19[138] Dependence on key personnel - Highly dependent on principal members of management, scientific staff, and sales, especially CEO A.J. Kazimi[140] - Loss of key personnel could lead to delays in product development, loss of customers, and diversion of management resources[140] RISKS RELATING TO GOVERNMENT REGULATION The company faces stringent government regulation across all business activities, including manufacturing, marketing, and pricing, with potential for regulatory challenges, decreased product demand, and penalties for non-compliance Stringent government regulation and regulatory challenges - Business activities are regulated by FDA, FTC, EPA, and comparable agencies, requiring compliance with GMPs[142][143] - Post-market developments (e.g., new scientific info, recalls, labeling changes) or increased scrutiny on advertising/pricing could decrease product demand[144][148] - Failure to comply with regulations could lead to warning letters, penalties, suspension of approvals/trials, or product recalls[149] - COVID-19 pandemic may impact FDA regulations and timelines[151] Compliance with Medicaid Drug Rebate and other governmental pricing programs - Required to participate in Medicaid Drug Rebate, 340B drug pricing, and Medicare Part B average sales price reporting programs[153][154][158][160] - Healthcare Reform Act changes increased compliance costs and complexity for Medicaid Drug Rebate and 340B programs[155][157][158] - Errors in pricing data submission can lead to retroactive rebates, civil monetary penalties, or termination of Medicaid rebate agreement[161][162][164] - Cannot predict financial implications of temporary or permanent healthcare reform measures introduced by COVID-19[168] RISKS RELATED TO OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS The company's operating results are expected to fluctuate due to new product launches, acquisitions, R&D expenses, competitive/regulatory changes, and potential lawsuits, with the COVID-19 pandemic adding to market volatility Fluctuating operating results - Operating results are likely to fluctuate due to new product launches, acquisition activity, R&D expenses, competitive/regulatory changes, and unexpected claims[170] - COVID-19 has negatively impacted financial markets and may create additional risk for customers' ability to pay[171] RISKS RELATED TO OWNING OUR STOCK Risks associated with owning the company's stock include substantial market price fluctuations, potential declines from sales of large share volumes, and adverse impacts from unstable market conditions, all exacerbated by the COVID-19 pandemic Market price volatility - The market price of common stock is highly volatile and may fluctuate substantially[173] Sales of substantial shares - Sales of a substantial number of shares or the perception of such sales could cause the market price to decline[175] - Realization of any risk factors could dramatically impact stock price, potentially leading to securities class action litigation[176] - COVID-19 pandemic may increase risk to stock liquidity and trading price[176] Unstable market conditions - Unpredictable and unstable market conditions, including a radical economic downturn, could require additional financing on unfavorable or dilutive terms[177] - Equity and lending markets are negatively impacted by the COVID-19 pandemic, posing risks to operating goals[177] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the company's share repurchase program, under which it repurchased 164,876 shares for approximately $0.7 million during Q1 2020, leaving $7.3 million available under the $10 million program - Company has a $10 million share repurchase program, replacing prior authorizations in January 2019[178] Share Repurchase Program Details | Period | Total Shares Purchased | Average Price Paid per Share | Dollar Value Remaining Under Program | | :------- | :--------------------- | :--------------------------- | :----------------------------------- | | January | 34,817 | $5.19 | $7,820,088 | | February | 10,629 | $4.49 | $7,772,394 | | March | 119,430 | $3.74 | $7,326,010 | | Total | 164,876 | | | - 66,057 shares were repurchased directly through private purchases[178] Item 6. Exhibits Lists the exhibits filed with the Form 10-Q, including employment agreements, certifications, and XBRL taxonomy documents - Includes employment agreements for key executives, CEO/CFO certifications, and XBRL instance/taxonomy documents[180] SIGNATURES