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CPIX > SEC Filings for CPIX > Form 10-Q on 12-May-2014All Recent SEC Filings




Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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. We caution you that our actual results may differ significantly from the results we discuss in these forward looking statements. Some important factors which may cause results to differ from expectations include: availability of additional debt and equity capital required to finance the business model; market conditions at the time additional capital is required; our ability to continue to acquire branded products; product sales; and management of our growth and integration of our acquisitions. Other important factors that may cause actual results to differ materially from forward-looking statements are discussed in "Risk Factors" on pages 19 through 34, and "Special Note Regarding Forward-Looking Statements" on page 34 of our Annual Report on Form 10-K for the year ended December 31, 2013. 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 Form 10-Q.

Our Business
Cumberland Pharmaceuticals Inc. ("Cumberland," "we," "our," or the "Company" ), 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 quality of care for patients and address unmet or poorly met medical needs. We market and sell our approved products through our hospital and gastroenterology sales forces in the United States and are establishing a network of international partners to bring our products to patients in their countries. Our product portfolio 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, amoxicillin) for Helicobacter pylori (H. pylori) infection and duodenal ulcer disease,

• Vaprisol® (conivaptan) Injection, to raise serum sodium levels in hospitalized patients with euvolemic and hypervolemic hyponatremia, and

• Hepatoren®(ifetroban) Injection, a Phase II candidate for the treatment of critically ill hospitalized patients suffering from hepatorenal syndrome (HRS).

We have both product development and commercial capabilities, and 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, in-licensing and out-licensing opportunities. Our product development team develops proprietary product formulations, manages our clinical trials, prepares all regulatory submissions and manages our medical call center. Our quality and manufacturing professionals oversee the manufacture and release of our products. Our marketing and sales professionals are responsible for our commercial activities, and we work closely with our distribution partners to ensure availability and delivery of our products. Growth Strategy
Our growth strategy involves maximizing the potential of our existing products while continuing to build a portfolio of new, differentiated products. Specifically, we expect to grow by executing the following plans:

• Continue to internally develop a line of late stage product candidates that address unmet medical needs. Our development team that has successfully registered our Acetdote and Caldolor products is working to identify and develop new late stage product candidates. Those efforts have led to the advancement of Hepatoren into a multicenter Phase II study. We will also continue to explore opportunities for label expansion to bring our marketed products to new patient populations.

• Expand our product portfolio by acquiring rights to additional marketed products and late stage product candidates. In addition to our product development activities, we are also seeking to acquire products or late-stage development product candidates to continue to build a portfolio of complementary products. We focus on under-promoted, FDA-approved drugs as well as late-stage development products that address poorly met medical needs, which we believe helps mitigate our exposure to risk, cost and time associated with drug discovery and research. We plan to continue to target products that are competitively differentiated, have valuable intellectual property or other protective features, and allow us to leverage our existing infrastructure. The addition of Omeclamox-Pak and Vaprisol reflects our strategy and commitment to selectively expanding our product portfolio as both meet our acquisition criteria.

• Expand our global presence through select international partnerships. We have established our own commercial capabilities, including a sales organization to cover the U.S. market for our products. We are building a network of select international partners to register our products and make them available to patients in their countries. We will continue to expand our network of international partners and continue to support our partners' registration and commercialization efforts in their respective territories.

• Develop a pipeline of early-stage products through Cumberland Emerging Technologies. In order to build our product pipeline, we are supplementing our acquisition and late-stage development activities with the early-stage drug development activities at Cumberland Emerging Technologies ("CET"), our majority-owned subsidiary. CET partners with universities and other research organizations to develop promising, early-stage product candidates, and Cumberland has the opportunity to negotiate rights to further develop and commercialize them.

We were incorporated in 1999 and have been headquartered in Nashville, Tennessee since inception. In 2009, we completed an initial public offering of our common stock and listing of our shares on the NASDAQ exchange. Our website address is We make available through our website our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments, as well as other documents following their filing with the SEC. These filings are also made available to the public by the SEC at

Recent Developments and Highlights

Launch of Omeclamox-Pak
We launched our promotion and distribution efforts to support Omeclamox-Pak in early 2014. Our field sales force promotes Omeclamox-Pak to the gastroenterologist segment, which accounts for the largest component of the prescriber base for this product. Omeclamox-Pak is a branded prescription product used for the treatment of Helicobacter pylori (H. pylori) infection and duodenal ulcer disease. This innovative product combines three well-known and widely prescribed medications: omeprazole, clarithromycin, and amoxicillin. Omeclamox-Pak is the first FDA approved triple therapy combination medication to contain omeprazole as the proton pump inhibitor, which works to decrease the amount of acid the stomach produces. Clarithromycin and amoxicillin are both antibiotic agents which hinder the growth of H. pylori. Interaction of these agents allows the stomach lining to heal effectively. The medications are packaged together on convenient daily dosing cards, making it simple to follow the twice a day dosing before meals.
While there are competing products, Omeclamox-Pak is one of the few actively marketed products for this condition. In addition, compared to the competing branded products, Omeclamox-Pak has the lowest pill burden, fewest days of therapy and the lowest cost. Our involvement with Omeclamox-Pak was effective October 2013, through an agreement with Pernix Therapeutics ("Pernix"). Pernix continues to promote the product through its specialty sales force focusing on select primary care physicians. We are responsible for the marketing, sale and distribution of the product. Omeclamox-Pak contributed $1.1 million in product revenue for the three months ended March 31, 2014.

Acquisition of Vaprisol
In February 2014, we entered into an agreement with Astellas Pharma US, Inc. ("Astellas") to acquire certain product rights, intellectual property and related assets of Vaprisol. Vaprisol is a patented, prescription brand indicated to raise serum sodium levels in hospitalized patients with euvolemic and hypervolemic hyponatremia. The product was developed and registered by Astellas and then launched in 2006. It is one of two branded prescription products indicated for the treatment of hyponatremia, and the first and only intravenously administered treatment.
Hyponatremia, an imbalance of serum sodium to body water, is the most common electrolyte disorder among hospitalized patients. These electrolyte disturbances occur when the sodium ion concentration in the plasma is lower than normal and are often associated with a variety of critical care conditions including congestive heart failure, liver failure, kidney failure and pneumonia. Vaprisol raises serum sodium to appropriate levels and promotes free water secretion. Upon acquisition of Vaprisol during the first quarter of 2014, we became responsible for the product's commercial supply, distribution and medical support. Included in the purchased assets are the regulatory approvals for Vaprisol, including two New Drug Applications or NDA's and two Investigational New Drug Applications or IND's. As part of the transaction we assumed responsibility to complete two Phase IV clinical studies.
We believe that Vaprisol, an injectable hospital product, used in the critical care setting, is an excellent strategic fit for Cumberland as it overlays well with the existing efforts of our sales organization. We re-launched active promotion of the brand in early May 2014 by our hospital sales force, which also features our Caldolor and Acetadote products. We began shipping Vaprisol in early March 2014 and the product contributed $0.3 million in revenue during the first quarter of 2014.
International Agreement
In April 2014, we received approximately $1 million from Harbin Gloria Pharmaceuticals Co., Ltd. ("Gloria") for their participation in Cumberland Emerging Technologies Inc. ("CET"). As a result, Gloria received shares representing approximately a 12.5% interest in CET. As part of this transaction Gloria will have the first right to negotiate a license to CET products for the Chinese market. The funds from this new investment will be used to accelerate the development of CET product candidates. Caldolor®
Caldolor Pediatric Presentation
Data from our Caldolor pediatric fever study was presented at the Society of Pediatric Anesthesiology meeting in Ft. Lauderdale, Florida in March 2014. The presentation entitled "A Multi-Center, Open-Label, Parallel, Active-Comparator, Multiple Dose Trial to Determine the Efficacy, Safety, and Pharmacokinetics of Intravenous Ibuprofen in Pediatric Patients" was presented by Dr. Samia N. Khalil, M.D., Department of Anesthesiology, the University of Texas Medical School at Houston. The meeting was co-sponsored by the Society for Pediatric Anesthesia and the American Academy of Pediatrics Section on Anesthesiology and Pain Medicine.
The pediatric study met its primary endpoint demonstrating that Caldolor was associated with a statistically significant reduction in temperature within the first 2 hours of dosing when compared to acetaminophen. Equally important, no safety concerns were observed during the study. During the study, febrile hospitalized children ranging in age from less than 1 year to 16 years, were administered Caldolor (ibuprofen) injection or oral or rectal acetaminophen as a single or multiple dose therapy for up to five days. One hundred and three patients were enrolled in this multi-center, randomized, open-label active comparator study. The pediatric patients received either 10 mg/kg intravenous ibuprofen (not to exceed 400 mg per dose) or 10 mg/kg acetaminophen (not to exceed 650 mg per dose).
Acetadote Patents
We developed a new formulation of Acetadote (acetylcysteine) Injection as part of the Phase IV commitment in response to a request by the FDA. Since 2012, the United States Patent and Trademark Office (the "USPTO") has issued the following patents to us associated with Acetadote:

 Date issued    U.S. Patent number   Expiration                  Patent claims
 April 2012         8,148,356         May 2026     Acetadote formulation and composition of
 March 2013         8,399,445        August 2025   200 mg/ml Acetadote formulation to treat
                                                   patients with acetaminophen overdose
February 2014       8,653,061        August 2025   200 mg/ml Acetadote formulation to treat
                                                   patients with acetaminophen overdose

In February 2014, we also received a notice of allowance for additional claims associated with Acetadote directed to the administration method of acetylcysteine injection, without specification of the presence or lack of EDTA in the formulation. We are continuing to seek additional claims to protect our intellectual property associated with Acetadote and have additional patent applications relating to Acetadote which are pending with the USPTO. We intend to vigorously defend and protect our Acetadote product and related intellectual property rights. Information and discussion regarding our Acetadote patent defense is contained in Part 1, Item 1, Business -Trademarks and Patents, of our Form 10-K for the year ended December 31, 2013, which is incorporated by reference herein. We have no recent developments that would impact those disclosures.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES Please see a discussion of our critical accounting policies and significant judgments and estimates on pages 40 through 43 in "Management's Discussion and Analysis" of our Annual Report on Form 10-K for the year ended December 31, 2013.
Accounting Estimates and Judgments
The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. We base our estimates on past experience and on other factors we deem reasonable given the circumstances. Past results help form the basis of our judgments about the carrying value of assets and liabilities that cannot be determined from other sources. Actual results could differ from these estimates. These estimates, judgments and assumptions are most critical with respect to our accounting for revenue recognition, fair value of marketable securities, inventories, provision for income taxes, share-based compensation, research and development expenses and intangible assets.

Three months ended March 31, 2014 compared to the three months ended March 31, 2013
Net revenues. Net revenues for the three months ended March 31, 2014 were approximately $8.1 million compared to $10.3 million for the three months ended March 31, 2013. The change was attributable to a decrease in Acetadote product revenue of $4.5 million. This decrease was partially offset by increased revenues among the balance of our products, including an increase in Kristalose product revenue of $1.3 million. We also generated revenues of $1.1 million and $0.3 million from our new products, Omeclamox-Pak and Vaprisol, respectively. The 59.5% increase in Kristalose revenue was primarily due to new positioning for the product. We increased the price of Kristalose during the first quarter of 2014 to bring Kristalose more in line with the other marketed branded prescription products in its class. Concurrent with the price increase, we increased our patient focused initiatives to enhance patient affordability and increase demand.
The decrease in Acetadote net revenue was due to decreased sales volume of the branded Acetadote product largely as a result of increasing generic competition. Our Acetadote product revenue also included $1.3 million in sales of our authorized generic in 2014 and $3.0 million in 2013.
Cost of products sold. As a percentage of net revenues, cost of products sold increased to 13.0% during the three months ended March 31, 2014 compared to 10.8% during the three months ended March 31, 2013. The increase in costs of sales as a percentage of revenue was attributable to a change in the product sales mix.
Selling and marketing. Selling and marketing expense for the three months ended March 31, 2014 totaled approximately $3.6 million, which was a decrease from the prior year's expense of $3.7 million. Our selling and marketing efforts continue to be refined under our commercial strategy, including the promotion of our recently added products.
Research and development. Research and development costs for the three months ended March 31, 2014 totaled approximately $0.8 million, compared to $1.4 million in the three months ended March 31, 2013, representing a decrease of approximately $0.6 million, or 43.0%. This change is a result of decreased product development and clinical study costs during 2014 compared to 2013 following the conclusion of clinical studies related to Caldolor.
General and administrative. General and administrative expense was $1.9 million for the three months ended March 31, 2014, compared to $2.6 million for first quarter of 2013. The $0.7 million decrease was driven by reductions in salary expense and consulting fees. We also experienced a decrease in inventory donations compared to the first quarter of 2013 when we incurred $0.1 million in expense for inventory donations made for humanitarian needs. Amortization. Amortization expense is the ratable use of our capitalized intangible assets including product and license rights, patents, trademarks and patent defense costs. Amortization for the three months ended March 31, 2014 totaled approximately $0.3 million, representing an increase of approximately $0.2 million over the three months ended March 31, 2013. The increase was primarily due to increased capitalized patents and patent defense costs. Income tax expense. Income tax expense for the three months ended March 31, 2014 totaled approximately $0.2 million, representing a decrease in expense of approximately $0.4 million, from the same period in 2013. As a percentage of income before income taxes, income tax expense was 40.6% for the three months ended March 31, 2014 compared to 39.9% for the same period last year.

As of March 31, 2014, we have approximately $43.2 million of unrecognized net operating loss carryforwards resulting from the exercise of nonqualified stock options in 2009 that will be used to significantly offset future income tax obligations. These benefits will be recognized in the year in which they are able to reduce current income taxes payable.

Working Capital
Our primary sources of liquidity are cash flows provided by our operations, our availability under our line of credit and the cash proceeds from our initial public offering of common stock that was completed in August 2009. For the three months ended March 31, 2014 and 2013, we generated $1.0 million and $1.7 million in cash flow from operations, respectively. We believe that our internally generated cash flows and amounts available under our line of credit will be adequate to service existing debt, finance internal growth and fund capital expenditures.
We invest a portion of our cash reserves in variable rate demand notes ("VRDNs") and a portfolio of government-backed securities (including U.S. Treasuries, government-sponsored enterprise debentures and government-sponsored adjustable rate, mortgage-backed securities). The VRDNs are generally issued by municipal governments and are backed by a financial institution letter of credit. We hold a put right on the VRDNs, which allows us to liquidate the investments relatively quickly (less than one week). The government-backed securities have an active secondary market that generally provides for liquidity in less than one week. At March 31, 2014 and December 31, 2013, we had approximately $13.5 million and $14.0 million invested in marketable securities, respectively. The following table summarizes our liquidity and working capital as of March 31, 2014 and December 31, 2013:

                                                          March 31,        December 31,
                                                             2014              2013

Cash and cash equivalents                              $   39,047,959     $  40,869,457
Marketable securities                                      13,531,808        14,019,761
Total cash, cash equivalents and marketable securities $   52,579,767     $  54,889,218

Working capital (current assets less current
liabilities)                                           $   57,916,274     $  61,133,945
Current ratio (multiple of current assets to current
liabilities)                                                      6.1               9.1

Revolving line of credit availability                  $   10,000,000     $  10,000,000

The following table summarizes our net changes in cash and cash equivalents for the three months ended March 31, 2014 and March 31, 2013:

                                             Three months ended March 31,
                                                2014               2013

Net cash provided by (used in):
Operating activities                      $       982,572     $  1,670,651
Investing activities                           (2,072,495 )     (3,305,169 )
Financing activities                             (731,575 )     (1,505,319 )
Net decrease in cash and cash equivalents $    (1,821,498 )   $ (3,139,837 )

The decrease in cash and cash equivalents for the three months ended March 31, 2014 was mainly attributable to our $2.0 million acquisition of Vaprisol. The cash used in these investing activities was partially offset by net proceeds of $0.3 million associated with our investment activities in marketable securities. In addition, we continue to repurchase shares of our common stock, totaling $0.9 million during the period. Cash provided by operating activities of $1.0 million, including net income of $0.3 million, partially offset the cash used by investing and financing activities.
The net decrease in cash and cash equivalents for the three months ended March 31, 2013 was primarily attributable to the $2.3 million net investment in certain government and government-backed securities. We also repurchased shares of our common stock totaling $1.9 million during the period. These decreases were partially offset by $0.8 million in net income.
As of March 31, 2014, we have approximately $43.2 million of unrecognized net operating loss carryforwards resulting from the exercise of nonqualified stock options in 2009 that will be used to significantly offset future income tax obligations. These benefits will be recognized in the year in which they are able to reduce current income taxes payable.

During the three months ended March 31, 2014 and 2013, we did not engage in any off-balance sheet arrangements.

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