Cumberland Pharmaceuticals Inc. (NASDAQ:CPIX) Q1 2023 Earnings Call Transcript May 13, 2023

Operator: Good afternoon, and welcome to Cumberland Pharmaceuticals First Quarter 2023 Company Update and Financial Report. This call is being recorded at Cumberland’s request and will be archived on the company’s website for 1 year from today’s date. I would now like to turn it over to Julia Motis, Senior Account Manager at the Dalton Agency, who handles Cumberland’s Communications. Julia, please go ahead.

Julia Motis: Hello, everyone, and good afternoon. Thanks for joining today’s call. Earlier today, Cumberland issued a press release announcing the company’s financial results and operational update for the first quarter ending March 31, 2023. The release, which includes the related financial tables can be found on Cumberland’s website at www.cumberlandpharma.com. Company management will share an overview of those financial results during today’s call. They’ll also provide an overall update, including a discussion of its brands, pipeline and partners. Participating in today’s call are A.J. Kazimi, Cumberland’s Chief Executive Officer; Todd Anthony, Vice President of Organizational Development; and John Hamm, Chief Financial Officer.

Please keep in mind that their discussions may include forward-looking statements as defined in the Private Securities Reform Act. Those statements reflect the company’s current views and expectations concerning future events and may involve risks and uncertainties. There are many factors that could affect Cumberland’s future results, including natural disasters, economic downturn, public health epidemics, international conflicts and others that are beyond the company’s control. Those issues are described under the caption, Risk Factors in Cumberland’s Form 10-K and any additional updates filed with the SEC. Any forward-looking statements made during today’s call are qualified by those risk factors. Despite the company’s best efforts, actual results may differ materially from expectations.

So information shared on this call should be considered current as of today only. Please remember that the company is responsible for updating any forward-looking statements, whether as a result of new information or due to future developments. During today’s call, there will be references to several of Cumberland’s marketed brands. Full prescribing and safety information for each brand is included on the individual product website, and the links to those sites can be found on the corporate website at www.cumberlandpharma.com. The company will also provide some non-GAAP financial measures with respect to its performance. An explanation and reconciliation to GAAP measures can be found in the financial tables of the earnings release that was issued earlier.

If you have any questions, please hold them until the end of the call. At which point, we’ll be happy to answer them. I’ll turn the call over to Cumberland’s Chief Executive Officer, A.J. Kazimi.

A.J. Kazimi : Thank you, Julia. Good afternoon, everyone. We do appreciate you’ve taken the time to join us as we share how the year has gone so far. As Julia mentioned, during today’s call, we’ll provide both the company update as well as a review of our financial results for the first quarter 2023. So let’s get started. During the first quarter, we continued to face challenges in our operating environment, ranging from workforce shortages at health care facilities, supply chain interruptions, rising interest rates, the overall economic downturn and now the recent banking crisis. Despite these difficulties, our team has been working diligently through these headwinds, and they remain dedicated to delivering our FDA-approved products for the patients who need them while also advancing the development of our new medicines for the future.

There have been two important recent developments that I’d like to share with you. First, we expect that Caldolor will be eligible for special Medicare reimbursement under the new no pain legislation. No pain stands for non-opioids prevent addiction in the nation and it was enacted as part of the Consolidated Appropriations Act in 2023. The no Pain Act requires Medicare to provide separate and more favorable reimbursement for non-opioid products that are used to manage pain during surgeries conducted in an outpatient hospital department or in an ambulatory surgical center. This legislation applies to products that are indicated to provide analgesia without acting on the body’s opioid receptors. As a result, we understand that the no pain at will affect Medicare reimbursement for Caldolor, our non-opioid analgesic injection product.

The act is scheduled to go into effect in early 2025, and we expect CMS to issue the reimbursement guidelines for Caldolor in 2024. Second, we were very pleased to learn that the FDA decided to grant a barrier to innovation waiver for drug program fees that we had previously paid for our RediTrex product line. As a result of this waiver, the FDA will provide us with a refund of nearly $2 million. The FDA granted this barrier to innovation waiver after concluding that we did meet the statutory criteria based on the innovation associated with our ifetroban clinical development programs. The request for the waiver provided the rationale that the funds could be better used to advance our clinical programs, which are designed to address a series of unmet medical needs.

So meanwhile, we’ve largely completed the transition of Sancuso, our newest brand from the U.S. affiliate of Japan-based Kyowa Kirin Inc. Sancuso is the first FDA-approved dissolvable prescription patch to help oncology patients tolerate their chemotherapy treatments and has been an important contributor to our business since it joined our product line last year. We’re also pleased to announce that the FDA has approved the manufacture of Sancuso at a new facility, which will be our source of the product’s future supplies. We continue with the transition of RediTrex to Nordic Pharma and our distribution of the product line will conclude at the end of June. We’ve already transferred the marketing authorization to Nordic and we’ll cooperate with them as they assume commercial responsibilities for the brand.

Recall, these new arrangements resulted in a $1 million refund to us, a $1 million credit for us and a return of the 180,000 shares that we get issued to Nordic. We’re also now settled into our new headquarter offices on the Broad West Campus in the Vanderbilt West End corner of Nashville. This new location allows us to remain close to the Vanderbilt Medical Center and continue our collaboration there, while also maintaining our presence in the national health care community, which represents the nation’s largest concentration of health care companies. Turning to some highlights on our financial performance during the first quarter. Net revenues were $9.2 million, similar to the fourth quarter of 2022. These revenues were down from the same quarter last year, primarily due to a delay in international shipments and an unusual number of product returns.

However, our operating expenses were also down nearly 14% from the prior year period, and our gross margin improved to 86% for the first quarter. We posted net income of $20 million for the quarter and adjusted earnings were $1.7 million or $0.11 a share. Total assets at the end of March were $89 million and total liabilities $53 million and total shareholders’ equity of $36 million. So with that overview, I’d now like to turn to Todd Anthony, Cumberland’s Vice President, Organizational Development to further discuss our team and our brands. Todd?

Todd Anthony : Thank you, A.J. During the first quarter, we hosted our spring national sales meeting here in Nashville. We invited our colleagues from across the country to join us for the planning and coordination of our activities during 2023. At this meeting, we emphasized the need to foster collaboration among our field-based sales, medical and national account teams as they interface with our customers. Recall, we now have 3 sales divisions, one focused on Caldolor and Vibativ for key hospital accounts, another supporting Kristalose with select office-based physicians and our newest who features Sancuso at oncology clinics. We are also working to ensure that our corporate culture, which has been fostered at our headquarters is also communicated to and integrated into our national field-based colleagues.

At Cumberland, we are proud to continue expanding our portfolio of FDA-approved products. I’d like to offer an update on each of our major brands. Vibativ is our potent injectable antibiotic product designed to treat certain serious bacterial infections, including hospital-acquired or ventilator-associated pneumonia as well as complicated skin infections. In 2023, we will continue to work to improve Vibativ sales performance with upgraded marketing and sales strategies that feature new initiatives to increase awareness of this important potentially life-saving brand. Kristalose, our prescription strength laxative is packaged in a convenient premeasured powder dose, which dissolves quickly in just 4 ounces of water for a clear taste tree and grid-free solution.

We continue to support Kristalose, our largest brand through our field sales force as well as 2 successful co-promotion partnerships. The brand performs best where we have state Medicaid coverage. The state of New York has recently added Kristalose to their Medicaid formulary, and we are implementing a special initiative to increase our presence and share of voice in that market. Moving on to Caldolor, our injectable ibuprofen for the treatment of pain and fever. We continue to feature the expanded labeling for Caldolor’s use prior to surgery when we see the best results in significantly reducing patients’ pain and their need for opioids. We continue to provide Caldolor in a vial and the newer ready-to-use premixed bag presentations. Caldolor has been a steady performer with an international contribution as well.

We successfully completed the transition of Sancuso to Cumberland from Kyowa Kirin and have taken full commercial responsibility for the brand in the United States, including its national distribution, marketing, promotion and medical support activities. Late last year, we were pleased to learn that the products manufacturer at a new facility was approved by the FDA. And RediTrex, our product line of prefilled syringes launched in the U.S. market and faced difficulties in accessing a new group of office-based physicians and in quickly securing the needed insurance coverage. While RediTrex prescriptions have steadily grown, the volume did not justify our continued investment in the brand. We have amended our agreement with Nordic Pharma, who previously provided us with the license for the U.S. rights for the line and Nordic will assume responsibility for products in the U.S. after June 30 of this year.

As a result, we have transferred the RediTrex marketing authorization to Nordic. They have returned the 180,000 shares we previously issued and refunded the $1 million milestone payment we had provided. Nordic has also issued a credit note for $1 million and provided approximately $900,000 to reimburse us for FDA fees. As we’ve reported previously, the packager for our Omeclamox brand suspended their operations due to supply issues. The facility is now under new ownership and new management, and we are currently awaiting availability of their operations. We are also exploring other alternatives to restart the product’s packaging. Additionally, we’re transitioning to a new manufacturer for our Vaprisol product. We have found a new facility and await the FDA approval of the plant before resuming shipments.

Our new manufacturing partner is working with the FDA to address in a timely manner, several Form 483 and warning letter issues. Meanwhile, we are working with them to prepare a special interim supply of compounded product for critically ill patients. That completes my update for today, and I’ll turn it back to you, A.J.

A.J. Kazimi : Very good. Thank you, Todd. Before we turn to the financial results, I’d like to provide an update on our international activities and our clinical programs. During the first quarter, we continued to support several international partners in their efforts to register our brands in their countries. PiSA Pharmaceuticals is preparing their submission for the approval of Caldolor in Mexico. Tabuk Pharmaceuticals is updating their product approval in Saudi Arabia with new manufacturing information as they plan to introduce Vibativ into the Middle East. DB Pharm, our partner in South Korea, who also distributes Caldolor has now submitted for the approval of Vibativ in their country. And our Vibativ partner for the Chinese market, SciClone Pharmaceuticals has continued to respond to regulatory inquiries as they seek approval for Vibativ in their country.

We now await the approval of these 4 key initiatives and look forward to the launch of our products in those countries. In addition to our expanding international activities, we continue to advance our pipeline of new product candidates designed to address unmet medical needs. We’re advancing a series of clinical programs to evaluate ifetroban, our first new chemical entity. Recall, we hold the worldwide rights to ifetroban, which has now been evaluated in 1,400 patients, resulting in an outstanding safety database in support of the product. Enrollment continues in our Phase II studies of patients with both systemic sclerosis and with Duchenne muscular dystrophy. We previously closed enrollment in our Phase II study in patients with a severe form of asthma.

We then conducted a quality review of the data and clinical sites, close that database for analysis, and we are now awaiting receipt of the top line initial results. Additional preclinical and pilot clinical studies of ifetroban are also underway, including several investigator-initiated studies. Meanwhile, we’ve recently submitted an application to the FDA for our fourth Phase II clinical program which will evaluate the use of ifetroban to treat patients with interstitial lung disease with FDA clearance, we expect the study to launch this summer. Our plan going forward is to complete each of our company-sponsored studies analyzing the data, announcing the top line results and then deciding on the best development path for the registration of ifetroban, which we continue to believe has the potential to benefit many patients with orphan diseases that represent unmet medical needs.

So with that, international and clinical update, I’d now like to turn it over to our Chief Financial Officer, John Hamm, to review our first quarter financial results. John?

Q&A Session

John Hamm : Thank you, A.J. For the 3 months ended March 31, 2023, net revenue for continuing operations was $9.2 million. Net revenues by product for the first quarter of 2023 included $4.3 million for Kristalose, $1.9 million for Sancuso, $1.8 million for Vibativ and $0.9 million for Caldolor. I’d like to note that net revenue for the quarter was impacted by a delay in international shipments and an unusual amount of Sancuso returns. Therefore, we continue to believe that our performance is best evaluated on an annual basis. Turning to our expenditures. Total operating expenses for the first quarter were $10.7 million. Net income for the quarter was $0.2 million, and when the noncash expenses are added back. The resulting adjusted earnings were $1.7 million or $0.11 a share.

Also please note that the adjusted earnings calculations do not include the additional benefit of the $0.5 million cost of goods provide Vibativ and Sancuso during the quarter. That inventory was received as part of each product’s acquisition. As a reminder, our financial statements have been significantly impacted by the Vibativ and Sancuso acquisitions. We accounted for the Vibativ acquisition as a business combination. A total of $34 million in new assets were added as a result of the acquisition, including approximately $21 million in inventory, $12 million of intangible assets and $1 million of goodwill. Due to the amortization of intangibles and the sale of inventory, the value of these assets totaled $16.3 million at the end of the first quarter.

The financial terms for the Vibativ transaction included a $20 million payment upon closing in a subsequent million milestone payment. We also continue to provide royalties tied to product sales. Vibativ was our largest acquisition, and I’m pleased to report that since we assumed responsibility for the product in late 2018, it has delivered a total cash contribution of $33 million to our business and therefore, has begun generating a return on our $25 million investment. Turning to Sancuso, we also accounted for the acquisition as a business combination. We added a total of $19 million in new assets, including approximately $4 million in inventory of intangibles. The estimated value of those assets was $15 million at the end of the first quarter.

We provided $13.5 million at closing for the Sancuso acquisition. During the first quarter, we provided another $1 million milestone payment based on the successful FDA registration of the product’s new manufacturing facility. There are also royalties that we pay based on the brand sales. Since we started shipping Sancuso early last year, the product has already provided a total cash contribution of approximately $11 million, approaching a return on our $14.5 million initial investment. We continue to hold a bank line of credit, which provides up to $20 million in capital, and we accessed that line to help fund the Sancuso acquisition. At the end of the first quarter, the balance outstanding on this loan was $16 million. The refund of the FDA fees associated with the waiver was recorded as other income during the first quarter, along with the receivable, which is expected to be paid in the second quarter.

As of March 31, 2023, we had $89 million in total assets, including $16 million in cash and cash equivalents. Liabilities totaled $53 million and total shareholders’ equity was $36 million. Also, during the first quarter of 2023, we continued our share repurchase program, buying a total of 87,000 shares. These repurchases, including those on the open market as well as those needed to fund the taxes associated with employee vested restricted shares. We are also in the process of establishing new training plans for our Board members who will purchase Cumberland shares over 2023 to increase their holdings in the company. Lastly, I’d like to note that Cumberland continues to hold over $57 million in tax net operating loss carryforwards, with the majority resulting from the prior exercise of stock options.

And that completes our financial report for the first quarter of 2023. Back to you, A.J.

A.J. Kazimi : Thank you, John. Earlier this year, we released our 2022 annual report, which includes the financial results and milestones from last year as well as our updated sustainability metrics. We also recently held our Annual Shareholder Meeting. All of the proposals presented in our proxy were approved, including the reappointment of 3 directors to the Board. We look forward to providing updates on further new developments as the year progresses, and we remain focused on our mission of providing branded medicines to support patient care and improve their quality of life. So now let’s open the call to any questions you may have. Operator, please proceed.

Operator:

A.J. Kazimi : Well, thanks, everyone, for joining today’s call. We understand that many of you prefer a private discussion with management. And if so, please just reach out to us, and we’ll be happy to get a call scheduled for you. As always, we appreciate your time and your interest in Cumberland, and we look forward to providing another update in the coming months.

Operator: Thank you, sir. Ladies and gentlemen, that concludes today’s call. If you would like to listen to a replay of the discussion, please visit the Investor Relations section of Cumberland’s website. I would now like to thank you for your participation. You may now disconnect.