SEC Response Letter
Attorneys at Law
Baton Rouge
Birmingham
Houston
Jackson
Memphis
Mobile
Nashville
New Orleans
Washington, DC
July 6, 2007
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Attention: Mr. Jeffrey Riedler
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Re:
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Cumberland Pharmaceuticals Inc. |
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Registration Statement on Form S-1, Amendment 1 |
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Filed June 22, 2007 |
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File No. 333- 142535 |
Ladies and Gentlemen:
We are responding to comments received in a letter dated July 2, 2007 from Mr. Jeffrey
Riedler to A.J. Kazimi of Cumberland Pharmaceuticals Inc. with respect to Amendment No. 1 to
the Registration Statement on Form S-1 of Cumberland Pharmaceuticals filed June 22, 2007.
For your convenience, we have repeated in bold type the comments and requests for additional
information exactly as set forth in Mr. Riedlers letter. We enclose a copy of Amendment
No. 2 to the Registration Statement filed today, which is marked to reflect the changes made
to Amendment No. 1.
The following paragraphs set forth the responses of Cumberland Pharmaceuticals to the
comments contained in Mr. Riedlers letter of July 2, 2007. Page references in our
responses are to Amendment No. 2.
FORM S-1
General
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1. |
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Please submit on EDGAR the supplemental correspondence and
other information dated June 22, 2007 that you submitted with your response
letter. These documents respond to comments 8, 28, and 48, and you did not
request confidential treatment for them. |
Adams And Reese llp
United States Securities and Exchange Commission
July 6, 2007
Page 2
Response:
The
Company will comply with this request by submitting the supplemental
correspondence dated June 22, 2007 on EDGAR next week. The Company will file an Application for Confidential Treatment with the Commission
related to this supplemental correspondence.
Prospectus Summary, page 1
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2. |
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We note your response to comment 8. Please cite in the filing
the source or sources that support your assertion that NAC is accepted
worldwide as the standard of care for treating acetaminophen overdose. |
Response:
The
Company has complied with this comment by adding a reference to an article
printed in Current Opinion in Pediatrics to the first sentence of the third paragraph discussing
Acetadote on page 2 of the Prospectus Summary.
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We note your response to comment 5. Please disclose your
accumulated deficit in the Risks Affecting Us discussion on page 3. |
Response:
The Company has complied with this comment by adding a new sentence to the end of the
Prospectus Summary section entitled Risks Affecting Us on page 3.
Summary Consolidated Financial Data, page 5
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4. |
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Please revise your table to only present pro forma net income
per share amounts for the most recent fiscal year and interim period presented.
Please refer to Rule 11-01(a) of Regulation S-X. |
Response:
The Company has complied with this comment by revising the table on page 5 of Amendment No. 2
to include only the information required by Rule 11-01(a) of Regulation S-X.
Adams And Reese llp
United States Securities and Exchange Commission
July 6, 2007
Page 3
Use of Proceeds, page 24
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5. |
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We note the revisions pursuant to comment 21. You are registering the
sale of up to $115 million in common stock, and you state specific uses of $32
million. Please state the planned uses for the remainder of the proceeds. |
Response:
The Company has complied with this comment by amending the second paragraph on page 24 with
new disclosure that further clarifies that, while no assurances can be given and the Company is not
currently involved in discussions regarding a material acquisition, the Company hopes to use the
proceeds of this offering to acquire additional products for its sales forces to sell. The Company
has also complied with this comment by inserting a new bullet point in the third paragraph on page
24.
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We note the revisions pursuant to comment 22. Since Amelior
is in phase III trials, please state whether you expect the $4 million you
plan to spend on this drug candidate to be sufficient to complete the
products development and file a new drug application. |
Response:
The Company has complied with this comment by changing the second bullet point in the third
paragraph of the Use of proceeds section on page 24 to clarify that it anticipates that $4.0
million will be sufficient to develop Amelior through the date that the Company submits an NDA on
Amelior to the FDA.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies and Significant Judgments and Estimates
Revenue Recognition, page 32
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Refer to your response to prior comment 26. We continue to
believe that your disclosure related to estimates that reduce gross revenue
such as chargebacks, discounts, rebates and product returns could be
improved. Please revise your disclosure and include the following: |
Adams And Reese llp
United States Securities and Exchange Commission
July 6, 2007
Page 4
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a. |
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A roll forward of the accrual for each estimate for each
period presented showing the following: |
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Beginning balance, |
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Current provision related to sales made in current period, |
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Current provision related to sales made in prior periods, |
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Actual returns or credits in current period related to sales made
in current period, |
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Actual returns or credits in current period related to sales made
in prior periods, and |
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Ending balance. |
Response:
The Company has complied with this comment by including a new table on page 33 of Amendment
No. 2 which includes the requested information with respect to its accruals related to gross
revenue.
Stock-Based Compensation, page 34
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Please refer to your response to prior comment 27. Expand
your disclosure to provide the following information: |
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Please clarify, if true, that the various
measurement models disclosed were used to determine your enterprise
value. Disclose how management selects the amount within the range of
values to determine your enterprise value as of each grant date. |
Response:
The Company has complied with this comment by clarifying that various measurement models were
used to determine enterprise value and by adding a sentence to the second paragraph of the section
entitled Stock-Based Compensation on page 35 to clarify how management formulates its
recommendation to its Board of Directors with respect to the pricing of stock related compensation.
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As previously requested, please disclose the
method used to allocate enterprise value to the outstanding equity to
determine the fair value of the underlying common stock. |
Adams And Reese llp
United States Securities and Exchange Commission
July 6, 2007
Page 5
Response:
The Company has complied with this comment by amending the second paragraph of the section
entitled Stock-Based Compensation on page 35 to clarify that, in determining share value and
option exercise prices, enterprise value is assigned to all shares equally.
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State whether the valuations prepared by
independent third parties were performed contemporaneous or
retrospective. |
Response:
The Company has complied with this comment by adding a sentence to the second paragraph of
the section entitled Stock-Based Compensation on page 35 of Amendment No. 2 indicating that
such valuations were performed contemporaneously with stock issuances and/or option grants.
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Disclose the name of the independent third
party valuation firm and provide their consent in the registration
statement. |
Response:
The
Company has complied with this comment by amending the second paragraph of the section
entitled Stock-Based Compensation on page 35 of Amendment
No. 2 to identify Morgan Joseph & Co. Inc. as the third party which
assisted management in preparing a valuation analysis, and we have
included a consent of Morgan Joseph & Co. Inc. as Exhibit 23.3 to
Amendment No. 2.
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Refer to your response to prior comment 28. Please tell us on
a supplemental basis specifically why you determined these public companies
to be similar. Please address each company individually. Also explain to us
how you determined your expected volatility for 2006 and 2007 based on an
analysis of these companies. |
Response:
There are several factors the Company considers when identifying other companies that it
believes are the most comparable to it for purposes of assigning a likely volatility factor to its
common stock. Specifically, the Company has based its stock volatility analysis on the following
companies for the reasons indicated:
Myriad Genetics due to this companys industry segment (pharmaceutical) and its focus on
development of novel healthcare products, as well as its focus in generating revenue from
Adams And Reese llp
United States Securities and Exchange Commission
July 6, 2007
Page 6
existing
products. Like Cumberland Pharmaceuticals, Myriad has a pipeline for early stage drug candidates
and develops late-stage (Phase III) development products. Additionally, Myriad is similar to the
Company in that its existing products are mid-sized revenue generators. Like Cumberland
Pharmaceuticals, Myriad also has stock-based compensation expense, including stock option grants.
Bradley Pharmaceutical due to this companys focus as a specialty pharmaceutical company
that provides product in niche specialty markets including gastroenterology, an area in which the
Company operates. Bradley is similar to the Company in that it has demonstrated a steady growth in
revenues and profitability. Bradley is also similar in that its revenue is generated by small
and/or mid-sized products, as compared with companies that generate the majority of their revenue
from large, block-buster type products.
Nabi Pharmaceutical due to this companys industry segment (pharmaceuticals) and its focus
on niche and underserved markets, a similar approach to the Company. Like Cumberland
Pharmaceuticals, Nabi has research capabilities to develop drugs as well as having established
marketplace products. Nabis business strategy is similar to the Companys in that both companies
are focused on optimizing the value of their current operations, building value through strategic
partnerships and commercial alliances and providing growth and value through research and
development of late-stage product candidates.
Forest Laboratories due to this companys industry segment, its marketing strategy and its
development strategy and capabilities. Although significantly larger than the Company, Forest
demonstrates a similar business approach. Specifically, both Forest and Cumberland Pharmaceuticals
conduct clinical studies, manage the regulatory approval process, and market products to
physicians. Both companies also co-promote products as well as owning products outright.
Additionally, like Cumberland Pharmaceuticals, Forest incurs stock-based compensation expense
including stock option grants.
Salix Pharmaceuticals due to this companys industry segment, and its focus on specialty
pharmaceuticals in the gastroenterology market. Like Cumberland Pharmaceuticals, Salix focuses
primarily on the U.S. market. Salix approach to research and development aims to identify
late-stage proprietary products, an approach also used by the Company. Both companies outsource
manufacturing and have focused specialty sales forces. Both Salix and Cumberland Pharmaceuticals
have demonstrated top line growth in revenue while forging ahead with development activities. Both
companies use stock-based compensation as a method of compensating their employees. Salix and
Cumberland Pharmaceuticals are both focused on growing their business by adding new products to
their portfolios via expanding the indications
Adams And Reese llp
United States Securities and Exchange Commission
July 6, 2007
Page 7
for their current products, acquiring new products
and/or co-promoting selected third-party products.
With respect to determining its stock volatility in 2006 and 2007, the Company calculated the
volatility for each of these companies based on the term of the option granted. The Company then
took an average of the volatility calculated for these peer companies and used that average as its
volatility rate.
Liquidity and Capital Resources, page 41
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We note the revisions pursuant to comment 32. Please
disclose separately the minimum purchase amounts applying to
Kristalose and Acetadote. |
Response:
The
Company has complied with this comment by amending the sixth paragraph on page 43 of
Amendment No. 2 to disclose minimum purchase requirements for each product.
Business, page 47
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We note your response to comment 37. |
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Please clarify what type of data on the use of intravenous
ibuprofen the license from Vanderbilt University covers, as discussed
at the top of page 54. Also, describe the consideration you are
required to pay to Vanderbilt. This information would appear to be
material to investors. |
Response:
The Company has complied with this comment by amending the paragraph beginning at the bottom
of page 53 and continuing at the top of page 54 in order to describe the data in more detail and
to set forth the consideration it is required to pay to Vanderbilt.
Adams And Reese llp
United States Securities and Exchange Commission
July 6, 2007
Page 8
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We note from the bullet point at the bottom of page 59 that Mayne
Pharma Pty. Ltd. is your exclusive manufacturer for Amelior and will
continue to be the exclusive manufacturer after FDA approval. Please
disclose the aggregate development, regulatory, and inspection and
audit costs you have paid to date. Also, please file this agreement as
an exhibit. |
Response:
The Company has complied with this comment by amending the first bullet point on page 60 to
address the development, regulatory, inspection and audit costs that it has paid to date to Mayne
pursuant to this agreement. Cumberland Pharmaceuticals will also file documentation to verify that
Mayne assumed all of the rights and obligations of F.H. Faulding & Co. Limited under the Strategic
Alliance Agreement dated July 21, 2000, between the Company and F. H. Faulding & Co. Limited
(previously filed as Exhibit 10.8 to the Registration Statement).
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Please revise to disclose the terms of the release between
you and Bertek Pharmaceuticals. |
Response:
The Company has complied with this comment by amending the second full paragraph in the
Kristalose section on page 56 to describe the release entered into by Bertek and the
Company.
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Regarding the agreement with Inventiv Commercial Services, we
understand from a June 27, 2007 conversation with your counsel that the
agreement is currently filed as exhibits 10.4 and 10.5, and it was
assigned to Inventiv by way of exhibit 10.6. Exhibit 10.6 is not yet
filed, but the description of exhibit 10.6 in the exhibit index does
not mention Inventiv. Please ensure that you have filed all agreements,
amendments, and assignments related to this relationship. |
Response:
The Company has complied with this comment by amending its description of Exhibit 10.6 in both
Part II and the Exhibit Index to describe the contractual relationship with Inventiv Commercial
Services.
Adams And Reese llp
United States Securities and Exchange Commission
July 6, 2007
Page 9
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Please disclose the monthly fee you pay to Inventiv, as mentioned
at the bottom of page 58. Also disclose the aggregate amount you have
reimbursed Inventiv for bonuses and expense reimbursements to date. |
Response:
The Company has complied with this comment by inserting the amount of the monthly fee that it
pays to Inventiv as well as the aggregate amount that it has reimbursed Inventiv and its
predecessors for bonuses and expense reimbursements to date in the first paragraph on page 59.
Business Development, page 57
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Please revise this discussion to clarify that the agreement
with Vanderbilt University relating to the CET product candidates and
agreements with University of Mississippi and University of Tennessee are not
material. |
Response:
The Company has complied with this comment by adding an additional sentence at the end of the
last paragraph of the section entitled Business Development on page 57 of Amendment No. 2 stating
that the collaborations are not material to the Companys business at this time.
Consolidated Financial Statements
Notes to Consolidated Financial Statements
(8) Shareholders Equity, page F-22
(9) Stock Options, page F-23
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We acknowledge your response to prior comment 48 and look
forward to your response to the last section of this comment. |
Response:
By letter dated June 29, 2007 and delivered to the Commissions Washington office by hand on
that date, the undersigned responded fully to comment 48 of the Staffs original comment letter.
Adams And Reese llp
United States Securities and Exchange Commission
July 6, 2007
Page 10
We would welcome the opportunity to discuss any questions you may have with the Commission
staff. I can be reached, at your convenience, at (615) 259-1450. In my absence, please ask to
speak with Virginia Boulet.
Sincerely,
ADAMS AND REESE LLP
/s/
Martin S. Brown, Jr.
MSB:jad
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cc:
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Greg Belliston, Esq., United States Securities and Exchange Commission |
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Mr. A.J. Kazimi, Cumberland Pharmaceuticals Inc. |
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Donald J. Murray, Esq., Dewey Ballantine LLP, Counsel to the underwriters |