Cumberland Pharmaceuticals Inc. (NASDAQ:CPIX) Q2 2023 Earnings Call Transcript

Cumberland Pharmaceuticals Inc. (NASDAQ:CPIX) Q2 2023 Earnings Call Transcript August 12, 2023

Operator: Good afternoon, and welcome to the Cumberland Pharmaceuticals’ Second 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 one year from today’s date. I would now like to turn it over to Molly Aggas, Account Supervisor at The Dalton Agency, who handles Cumberland’s Communication. Molly, please go ahead.

Molly Aggas: Hello, everyone. Good afternoon. Thanks for joining today’s call. Earlier this afternoon, Cumberland issued a press release announcing the company’s financial results and operational update for the second quarter ending June 30, 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 company 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, 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 downturns, 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 as well as 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 the information shared on this call could be considered current as of today only.

Please remember that the company is not 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 several references to Cumberland’s marketed brands. Full prescribing and safety information for each brand is included on the individual product websites, 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 today. If you have any questions, please hold them until the end of the call.

At which point, we’ll be happy to answer them. With that overview, I’ll turn the call over to Cumberland’s Chief Executive Officer, A.J. Kazimi.

A.J. Kazimi: Thank you, Molly, and good afternoon, everyone. We do appreciate you taking the time to join us today. We’ll share how the first half of the year has gone. On today’s call, we’ll provide both the company update as well as a review of our financial results for the second quarter of 2023. So let’s get started. I’m pleased to report an overall successful second quarter and first half of the year. In the second quarter, our team worked diligently to advance our business as the operating environment continued to slowly improve from the pandemic and post-pandemic challenges that we’ve been facing. Revenues for the second quarter this year were $10.9 million, up 6% over the same period last year and up 18% sequentially from the first quarter.

Operating expenses were down for the second quarter in a row, and our gross margin continued to improve to 86% for the quarter. We also delivered positive earnings for the second consecutive quarter, growing adjusted earnings and $3.8 million of cash flow from operations during the first half of the year. Moreover, there were many positive developments during the quarter. In June, we launched our newly expanded oncology sales division to support our Sancuso product. It’s the first FDA-approved transdermal prescription patch to help oncology patients tolerate their chemotherapy treatments and has been contributing to our business since it joined our portfolio last year. We’re also completing the transfer of the products manufactured to a new facility.

Following FDA approval of that site, we’re now planning for the first supplies of Cumberland package product to be manufactured there over the second half of the year. Meanwhile, as of July 1, the transition of RediTrex to Nordic Pharma is largely completed. In May, the FDA approved expanded labeling for our Caldolor product, an intravenously delivered formulation of ibuprofen to now include its use in infants three to six months of age. And in June, we announced the publication in the Pediatric Drugs Journal of positive results from a clinical study investigating the safety and pharmacokinetics of Caldolor in those newborn infants. As a reminder, regarding Caldolor, we believe it will be eligible for special Medicare reimbursement starting in 2025 under the new NOPAIN legislation.

That act was approved earlier this year and requires Medicaid to provide separate and more favorable reimbursement for non-opioid products used to manage pain during surgeries conducted in an outpatient hospital department or in an ambulatory surgical center. Touching next on our clinical programs, we’re continuing to sponsor a series of studies to evaluate ifetroban, a potent and selective thromboxane receptor antagonist in patients with unmet medical needs. In May, the FDA cleared the Investigational New Drug Application for a Phase 2 study of ifetroban in patients with idiopathic pulmonary fibrosis, the most common form progressive fibrosing interstitial lung disease. We look forward to launching that FIGHTING FIBROSIS trial soon. And additionally, we closed and completed the analysis of the data from our Phase 2 study in patients with a severe form of asthma, known as aspirin-exacerbated respiratory disease, and an update on our FIGHT DMD Phase 2 study results in patients with Duchenne Muscular Dystrophy that was presented at the annual Parent Project Muscular Dystrophy Conference in late June.

And we plan to await results from all of these Phase 2 clinical programs before we decide on the best path to further develop the product towards its approval. During the second quarter, the FDA informed Cumberland that it had granted us a second barrier-to-innovation waiver that would bring the total to approximately $3 million in refunds of prescription drug fees that we had previously paid. The FDA granted each waiver after concluding that Cumberland did meet the statutory criteria based on the innovation associated with our ifetroban clinical development programs, as the funds could be better used to advance those studies. We did receive both of those refunds in June. Turning next to some further highlights on our financial performance during the second quarter.

As I mentioned, net revenues were $10.9 million, up 6% over the prior year period and up 18% over the first quarter of this year. Taking a look at our product performance during the second quarter. Kristalose sales were up 15% over the prior year period and the product continues to be our largest selling brand. It’s benefiting from its addition on the New York Medicaid formulary and also the support from our two co-promotion partners. Vibativ sales are rebounding, and they were up 35% over last year, as we do have a number of new initiatives underway to improve that brand’s performance. We’re also working with our partners in their efforts to register and launch Vibativ in several international markets, which should provide further significant catalysts for the product’s future growth.

Caldolor sales were up 3% and we look forward to that special Medicare reimbursement I mentioned that will become available in the future. And Sancuso is the only of our four major brands that underperformed so far this year. And that’s due to an ordinate amount of sales deductions associated with returns and rebates that were part of the brand’s transition. Sancuso has been impacted also by the loss of our co-promotion partner. But looking ahead, we believe those sales deductions I mentioned are largely behind us now. And to replace our co-promotion partner, we recently expanded our oncology sales division. So with that overview now, I’d 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. We support our portfolio of FDA-approved medicines through a national sales organization that’s comprised of three separate divisions. Our hospital group calls on key institutional accounts across the country, while our field sales division covers select office-based physicians. During the second quarter, we expanded our oncology sales division to increase our efforts to deliver our newest brand, Sancuso, to cancer patients, helping them to better tolerate their chemotherapy treatments. I’d like to offer an update on each of our major brands now. I’ll start with Vibativ, 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.

We continue to work on improving Vibativ’s sales performance with updated marketing and sales strategies that feature new initiatives to increase awareness of this important potentially life-saving brand. During the second quarter, we were pleased to see the growing sales of Vibativ in response to these new efforts. Moving next to Kristalose. Our prescription strength laxative, packaged in a convenient premeasured powder dose that dissolves very quickly in just four ounces of water for a clear taste-free and grid-free solution. We continue to support Kristalose through our field sales force as well as two successful co-promotion partnerships, and it continues to be our largest selling product. We have found that the brand performs best in states where we have Medicaid coverage.

New York recently added Kristalose to its Medicaid formulary, and we are implementing a special initiative to increase our presence and share of voice in that state. We believe that this new coverage is contributing to the increased sales of the product. Turning now to Caldolor, which is our injectable ibuprofen for the treatment of pain and fever. We — in May, we announced that the FDA approved expanded labeling for the product to now include its use in infants. The nonnarcotic agent may now be administered for the treatment of pain and fever in patients as young as three months of age. With this newly approved labeling, Caldolor is now the only non-opioid product approved to treat pain in infants that’s delivered through an injection. Other products in the class, like ketorolac or meloxicam, are not approved for use in children as the safety and efficacy of those drugs have not been established for pediatric patients.

Acetaminophen injection is not approved for treating pain in children less than two years of age as the safety and efficacy of that drug has also not been established for treating pain in those pediatric patients. As A.J. has already mentioned, in June, we shared the positive results from a clinical study investigating the safety and pharmacokinetics of Caldolor in newborn infants. The clinical study evaluated the safety and drug exposure profile of Caldolor in 24 hospitalized infants between the ages of one and six months who require treatment for pain or fever. The results of the study, which were published in the journal, Pediatric Drugs, supports the growing body of evidence that demonstrates Caldolor is a safe therapeutic option available to practitioners for the treatment of fever and pain in infants and children.

As A.J. also mentioned, we believe Caldolor will be eligible for special Medicare reimbursement under the new non-opioids prevent addiction in the nation or NOPAIN legislation. We expect CMS to issue the reimbursement guidelines for Caldolor in 2024, and the act itself is scheduled to go into effect in early 2025. Shifting now to Sancuso. 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. And this includes its national distribution, its marketing, its promotion as well as the medical support activities. Late last year, the FDA approved moving the products manufacturer to a new facility, which will be the source of future product supplies.

As for RediTrex, our product line of prefilled syringes, recall that we have amended our agreement with Nordic Pharma, who previously provided us with the license for the U.S. rights for that product line. As of July 1 of this year, Nordic has assumed responsibility for the product in the U.S. As a result, we have transferred the RediTrex marketing authorization to Nordic. They have returned the 180,000 shares we previously issued as well as 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. We launched RediTrex 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 did grow, the volume did not justify our continued investment in the brand. As we reported previously, the packager for our Omeclamox-Pak brand suspended their operations due to supply issues. That facility is now under new ownership and new management, and we’re currently awaiting availability of a potential supply from 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 are awaiting FDA approval for the plant before resuming shipments. Our new manufacturing partner is working with the FDA to address several Form 483 and warning letter issues in a timely manner.

Meanwhile, we are working with them to prepare a special interim supply of compounded product for critically-ill patients. Well, that completes my update for today. So I’ll turn it back to you, A.J.

A.J. Kazimi: Well, thank you, Todd. Before we turn to the financial report, I’d like to provide an update on our international activities. We continue to support several international partners in their efforts to register our brands in their countries during the second quarter. PiSA Pharmaceuticals is preparing their submission for the approval of Caldolor in Mexico. Tabuk Pharmaceuticals is updating thereby that of approval in Saudi Arabia with new manufacturing information as they plan to introduce the product into the Middle East. DB Pharm, who’s our partner in South Korea distributing Caldolor, has now also submitted for the approval of Vibativ in their country. And our Vibativ partner for the Chinese market, SciClone Pharmaceuticals, has continued to respond to the regulatory inquiries there as they seek approval for Vibativ in their country.

We are awaiting the approval of these four initiatives, and we look forward to the launch of our products in those countries. With that international update, I’d now like to turn it over to our Chief Financial Officer, John Hamm, to review our second quarter financial results. John?

Q&A Session

John Hamm: Thank you, A.J. For the three months ended June 30, 2023, net revenue from continuing operations were $10.9 million, an increase of 6% over the prior year period and 18% sequentially from the first quarter of 2023. Net revenue by product for the second quarter of 2023 included $4.1 million for Kristalose, $2.2 million for Vibativ, $1.9 million for Sancuso and $1.2 million for Caldolor. I’d like to note that net revenue for the quarter was impacted by an unusual amount of Sancuso deductions associated with the product’s transition. Therefore, we continue to believe that our performance is best evaluated on an annual basis. Total year-to-date net revenue were $20.1 million. Year-to-date, product revenues totaled $8.4 million for Kristalose, $4 million for Vibativ, $3.8 million for Sancuso and $2.2 million for Caldolor.

We also favorably settled the outstanding litigation we initiated to secure $1 million in milestone payments associated with our Vibativ product. As a result, we received the $1 million, which was recorded as other revenue during the second quarter. Turning to our expenditures. Total operating expenses for the second quarter were $10.9 million compared to $12.1 million for the prior year period. Year-to-date expenses totaled $21.6 million. Net income for the quarter was $0.9 million. And when the noncash expenses are added back, the resulting adjusted earnings were $2.3 million or $0.16 a share. The year-to-date adjusted earnings were $4 million or $0.27 a share. Both net income and adjusted earnings have improved significantly over last year.

Also, please note that the adjusted earnings calculations do not include the additional benefit of the points of the $0.5 million cost of goods for Vibativ and Sancuso during the quarter. Year-to-date, the benefit is $900,000. That inventory was received as part of each product’s acquisition, so total cash flow from operations was $3.8 million. As a reminder, our financial statements have been significantly impacted by the addition of Vibativ and Sancuso to our product portfolio. As a result of the Vibativ acquisition, a total of $34 million in new assets was added, including approximately $21 million in inventory, $12 million of intangible assets and $1 million of goodwill. The financial terms for the Vibativ transaction included a $20 million payment upon closing and a subsequent $5 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 $35 million to our business and therefore, has continued generating a return on our $25 million investment. Sancuso added a total of $19 million in new assets, including approximately $4 million in inventory and $14 million of intangibles. The estimated value of those assets was $14 million at the end of the second quarter. We provided $13.5 million at closing for the Sancuso acquisition. 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 $11.5 million, and we believe it will soon begin to generate 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 access that line to help fund the Sancuso acquisition. We’ve been reducing the balance of this loan. And at the end of the second quarter, it was $13.1 million. The $3 million in refunds of FDA fees associated with their waivers were recorded as other income during the first and second quarters. Both refunds were paid by the FDA during the second quarter. As of June 30, 2023, we had $89.4 million in total assets, including $18.2 million in cash and cash equivalents. Liabilities totaled $52.5 million and total shareholders’ equity was $37.2 million. Also during the second quarter of 2023, we continued our share repurchase program, buying a total of 99,000 shares.

These repurchases included those on the open market as well as those needed to fund the taxes associated with employee-vested restricted shares. We are continuing the process of establishing new trading plans for our Board members who will purchase Cumberland shares over 2023 to increase their holdings in the company. I’d also like to note that Cumberland continues to hold over $53 million in tax net operating loss carryforwards. And that completes our financial report for the second quarter of 2023. Back to you, A.J.

A.J. Kazimi: Thank you, John. So overall, it’s been a successful first half of the year. We’re particularly encouraged by the recent growth in our Kristalose and in our Vibativ business. While Caldolor’s performance has been steady, it has been good to see the growing body of evidence that’s demonstrating that it’s a safe therapeutic option for the treatment in fever, of pain, in nearly all ages, now including infants. We’re also encouraged by the progress with our ifetroban clinical studies as we continue to progress therapeutic solutions for unmet medical needs. And finally, we’re excited about the expansion of our oncology sales division and the opportunity to further help cancer patients. We’ll continue with our strategy seeking to maximize the potential of our commercial brands, progressing our pipeline and also pursuing select acquisitions. Now let’s open the call to any questions. Operator, please proceed.

Operator: Ladies and gentlemen, that concludes the company’s presentation, and we will now open the call for any questions. [Operator Instructions].

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A.J. Kazimi: Well, thanks, everyone for joining today’s call. We do 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 with you and hold such a discussion. 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 on Cumberland’s website. I would like to thank you for your participation. You may now disconnect.