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Additions and Returns of Product Rights | 9 Months Ended
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Sep. 30, 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. The Company 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 2019 | 5,000,000 |
Fair value of contingent consideration - net sales royalty | 9,182,000 |
Total consideration | $ | 34,182,000 |
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 |
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.
Balance at December 31, 2019 | $ | 8,633,589 |
Cash payment of royalty during the period | (834,014) |
Change in fair value of contingent consideration included in operating expenses | (806,390) |
Contingent consideration earned and accrued in operating expenses | 1,112,393 |
Balance at September 30, 2020 | $ | 8,105,578 |
The contingent consideration liability of $8.1 million was classified as other current liabilities of $2.8 million and other long-term liabilities of $5.3 million on the condensed consolidated balance sheet as of September 30, 2020. RediTrex In November 2016, the Company announced an agreement with the Nordic Group B.V.’ ("Nordic") to acquire the exclusive U.S. rights to Nordic’s injectable methotrexate product line designed for the treatment of active rheumatoid arthritis, juvenile idiopathic arthritis, severe psoriatic arthritis, and severe disabling psoriasis. As consideration for the license Cumberland paid a deposit of $100,000 at closing. The Company provided $0.9 million in consideration through a grant of 180,000 restricted shares of Cumberland common stock to be 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. Under the terms of the agreement, Cumberland is responsible for the product registration and commercialization in the U.S. Nordic is responsible for product manufacturing and supply. On November 27, 2019, Cumberland received FDA approval for the first Nordic injectible product and authorization to market them under the RediTrex brand name. The 180,000 shares of restricted Cumberland common stock previously provided to Nordic vested upon approval and were valued at $0.9 million on the vesting date. The FDA approval also resulted in a $1.0 million milestone payment due to Nordic. This milestone payment was paid in July 2020 and was recorded as an other current liability at December 31, 2019. Cumberland has approximately $1.9 million in net intangible assets related to RediTrex at September 30, 2020. During the three months ended June 30, 2020, Cumberland recognized $0.5 million of other revenue in its condensed consolidated statement of operations for a collaborative payment due from Nordic. The payment was received during July 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 (“the Products”) in the United States to Clinigen. This Dissolution Agreement originally targeted a transition from the Company's arrangements with Clinigen effective September 30, 2019, but was then amended to change the transition date to December 31, 2019. Under the terms of the Dissolution Agreement, Cumberland was no longer responsible for the distribution, marketing and promotion of either the Products or any competing products after December 31, 2019. In exchange for the return of these product license rights and the non-compete provisions of the Dissolution Agreement, Cumberland is receiving $5 million in financial consideration paid in quarterly installments over the two-years following the transition date. Cumberland recorded the first three quarterly installments totaling $2.3 million during the nine months ended September 30, 2020 as discontinued operations and will record each future quarterly installment over the two year period. As there are no expenses associated with these payments, approximately $2.3 million in discontinued operations income was recorded during the period ended September 30, 2020. The Products provided $8.8 million in revenue, with $5.5 million in direct expenses resulting in $3.3 million in discontinued operations income during the nine months ended September 30, 2019. These direct expenses do not reflect the direct selling and marketing costs attributable to the individuals at Cumberland responsible for promotion of the Products. Those sales and marketing individuals who supported the Products have subsequently shifted their efforts to support other Cumberland brands. The December 31, 2019 current assets of discontinued operations included $0.5 million in remaining inventory for the Products sold and returned to Clinigen as part of the transaction. As of 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. As of September 30, 2020, the remaining balance of the current assets of discontinued operations was accounts receivable. 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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