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Additions and Returns of Product Rights | 3 Months Ended
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Mar. 31, 2020
Business Combinations [Abstract] |
ADDITIONS AND RETURN OF PRODUCT RIGHTS | ADDITIONS AND RETURN OF PRODUCT RIGHTS Vibativ During November 2018, the Company closed on an agreement with Theravance Biopharma ("Theravance") to acquire the global responsibility for Vibativ including the marketing, distribution, manufacturing and regulatory activities associated with the brand. Vibativ is a patented, Food and Drug Administration ("FDA") approved injectable anti-infective for the treatment of certain serious bacterial infections including hospital-acquired and ventilator-associated bacterial pneumonia and complicated skin and skin structure infections. It addresses a range of Gram-positive bacterial pathogens, including those that are considered difficult-to-treat and multidrug-resistant. Cumberland acquired Vibativ to further add to its product offerings, increase its net revenue and positively contribute to the Company's operating results. Cumberland expects to deduct the goodwill acquired in the acquisition for tax purposes. Cumberland has accounted for the transaction as a business combination in accordance with ASC 805 and the product sales are included in the results of operations subsequent to the acquisition date. The Company made an upfront payment of $20.0 million at the closing of the transaction and a $5.0 million milestone payment in early April 2019. In addition, Cumberland has agreed to pay a royalty of up to 20% on future net sales of the product. The future royalty payments are required to be recognized at their acquisition-date fair value as part of the contingent consideration transferred in the business combination. The following table summarizes the initial payments and consideration for the business combination:
Consideration: |
Cash paid at closing | $ | 20,000,000 |
Cash payment during early 2019 | 5,000,000 |
Fair value of contingent consideration - net sales royalty | 9,182,000 |
Total consideration | $ | 34,182,000 |
The contingent consideration liability represents the future net sales royalty payments discussed above. Cumberland prepared the valuations of the contingent consideration liability and the intangible assets utilizing significant unobservable inputs. As a result, the valuations are classified as Level 3 fair value measurements. The following table presents the changes in the fair value of the contingent consideration liability that is remeasured on a recurring basis. The contingent consideration earned and accrued in operating expenses is paid to the seller quarterly.
| Contingent consideration liability
Balance at November 12, 2018 | $ | 9,034,000 |
Change in fair value of contingent consideration included in operating expenses | (40,000) |
Contingent consideration earned and accrued in operating expenses | 508,000 |
Balance at December 31, 2018 | 9,502,000 |
Adjustment to initial fair value of the contingent consideration liability | 148,000 |
Cash payment of royalty during the period | (1,033,108) |
Change in fair value of contingent consideration included in operating expenses | (804,167) |
Contingent consideration earned and accrued in operating expenses | 820,864 |
Balance at December 31, 2019 | 8,633,589 |
Cash payment of royalty during the period | (260,735) |
Change in fair value of contingent consideration included in operating expenses | (543,006) |
Contingent consideration earned and accrued in operating expenses | — |
Balance at March 31, 2020 | $ | 7,829,848 |
The following table summarizes the final allocation of the fair values of the assets acquired as part of the acquisition of Vibativ:
Finished goods inventory | $ | 6,624,000 |
Work in process - unlabeled vials | 3,970,000 |
Work in process - validation vials | 1,827,000 |
Raw materials | 9,129,000 |
Total inventory | $ | 21,550,000 |
Intellectual property amortizable intangible assets | 11,750,000 |
Goodwill | 882,000 |
Total intangibles and goodwill | 12,632,000 |
Total assets acquired | $ | 34,182,000 |
RediTrex In November 2016, the Company announced an Agreement to acquire the exclusive U.S. rights to Nordic Group B.V.’s ("Nordic") injectable methotrexate product line as an asset purchase. The products are designed for the treatment of active rheumatoid arthritis, juvenile idiopathic arthritis, severe psoriatic arthritis, and severe disabling psoriasis. Under the terms of the Agreement, Cumberland is responsible for the products’ FDA submission and registration. As consideration for the license, at closing, Cumberland paid a deposit of $100,000. The Company also recorded a liability of $0.9 million that was settled through 180,000 unvested restricted shares of Cumberland common stock. These shares vested upon the FDA approval of the first Nordic product. Cumberland also agreed to provide Nordic a series of payments tied to the products’ FDA approval, launch and achievement of certain sales milestones. Nordic is responsible for manufacturing and supply of the products. On November 27, 2019, Cumberland received FDA approval for the RediTrex product line and brand name. The 180,000 shares of restricted Cumberland common stock vested and were valued at $0.9 million on the vesting date. In addition, the FDA approval resulted in Cumberland recording an additional $1.0 million other current liability due to Nordic that will be paid during 2020. Ethyol and Totect During May 2019, Cumberland entered into the Dissolution Agreement with Clinigen in which the Company returned the exclusive rights to commercialize Ethyol and Totect in the United States to Clinigen. The Dissolution Agreement originally resulted in a transition from the Company's current arrangement with Clinigen effective September 30, 2019. In early September 2019, Clinigen and Cumberland completed an Amendment to the Dissolution Agreement whereby the transition date was changed to late December 2019. Under the terms of the Dissolution Agreement, Cumberland is no longer involved directly or indirectly with the distribution, marketing and promotion of either Ethyol or Totect or any competing products after December 31, 2019. In exchange for the return of these product license rights and not competing with either product, Cumberland will receive $5 million in financial consideration paid in quarterly installments over the two-years following the transition date. Cumberland recorded the first installment of $0.8 million during the quarter ended March 31, 2020 as discontinued operations and will record each future quarterly installment over the two year period. There are no expenses associated with the installment payments under the Dissolution Agreement, resulting in $0.8 million in discontinued operations income during the quarter ended March 31, 2020. The Ethyol and Totect products provided $3.2 million in revenue, $2.0 million in direct expenses and $1.1 million in discontinued operations income during the three months ended March 31, 2019. These direct expenses do not reflect the selling and marketing costs attributable to the individuals at Cumberland responsible for direct selling and promotion of the Products. Those selling and marketing individuals who supported the Products continue to support Cumberland's other products. The December 31, 2019 current assets of discontinued operations included $0.5 million in inventory for the products sold back to Clinigen as part of the transaction. As of March 31, 2020 and December 31, 2019 the remaining balance of the current assets of discontinued operations were accounts receivable and the current liabilities of discontinued operations were accounts payable associated with Ethyol and Totect. The accounts receivable and accounts payable balances were not sold or disposed of as part of the Dissolution Agreement.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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