Cumberland Pharmaceuticals Inc. (NASDAQ:CPIX) Q4 2022 Earnings Call Transcript

Cumberland Pharmaceuticals Inc. (NASDAQ:CPIX) Q4 2022 Earnings Call Transcript March 7, 2023

Operator: Good afternoon, and welcome to Cumberland Pharmaceuticals’ 2022 Financial Report and Company Update. 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 Communications. Molly, please go ahead.

Molly Aggas: Hello, everyone, and good afternoon. Thanks for joining today’s call. Cumberland has issued a press release announcing the company’s annual financial results as well as an operational update for the year ending December 31, 2022. 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 of 1995. These statements reflect the company’s current views and expectations concerning future events and may involve risks and uncertainties. Additionally, 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 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.

The information shared on this call should be considered current as of today only. Please remember that the company isn’t 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 a link 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 performance. An explanation and reconciliation to GAAP measures can be found in the financial tables in the earnings release that was issued earlier this afternoon.

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 appreciate you joining us as we recap another successful year here at Cumberland. During today’s call, we’ll provide an update on our 2022 operational and financial results while also commenting on our plans. So let’s begin. First of all, I’m pleased to report that Cumberland delivered significant revenue growth last year despite continuing external challenges. As 2022 progressed, we welcomed the return to a more typical operating environment following the economic and societal effects of the pandemic. We were excited to see enrollment in our clinical trials resume, patient procedures return to more customary levels and access for our sales reps improve as they gain more face-to-face meetings with medical professionals.

While the impact of the pandemic on the company did subside, some industry challenges persisted. Hospitals faced continued staffing shortages, which had a direct impact on patient care. And in addition, the overall economic downturn has led to financial pressures and uncertainty across the health care industry. Well, despite those challenges, our diversified portfolio of FDA-approved brands enabled us to achieve strong year-over-year revenue growth. And that growth was led by contributions from our newest brand, Sancuso, which we acquired early last year from the U.S. affiliate of Japan-based Kyowa Kirin. Sancuso is a unique oncology support transdermal system that has a well-established base of physicians who prescribe it to help cancer patients tolerate certain side effects associated with their chemotherapy treatments.

To help fund the acquisition, we utilized our credit facility, which has $20 million in capital available through a three-year term. Turning to our 2022 financial performance. Our product portfolio delivered combined revenues of $42 million, a 17% increase over the prior year. And Sancuso was a significant driver in this growth, quickly proving to be a valuable addition to our product line. Kristalose and Caldolor continued their steady contributions to the revenue mix, while sales of Vibativ underperformed our expectations. However, it is important to note that both Vibativ and Sancuso continue to deliver attractive returns on the investment associated with their acquisition. Our gross margins remained attractive in 2022, resulting in a favorable EBITDA and a total of $8.5 million in cash generated from operations for the year.

Our balance sheet remains strong as we ended 2022 with $93 million in total assets, $20 million in cash, $57 million in liabilities and $36 million in shareholders’ equity. Towards the end of the year, we successfully moved into our new headquarter offices on the broad West Campus near Vanderbilt University in Nashville. This new state-of-the-art facility will enable us to accommodate our growth, support our team and better serve our patients, customers and partners. So with that overview of our 2022 results. I’d now like to turn it over to Todd Anthony, Cumberland’s Vice President, Organizational Development, to further discuss our brands and our team. Todd?

Todd Anthony: Thank you, A.J. At Cumberland, we recognize that our people are among our most important assets. Throughout the pandemic, we kept our offices open and business operating while taking measures to provide our team with a safe working environment. During 2022, we successfully completed the transition of responsibilities for Sancuso to Cumberland from Kyowa Kirin. We have now 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 very pleased to learn that the move of the product manufacturer to a new facility was approved by the FDA. To support Sancuso, we formed a new sales division, Cumberland Oncology.

It’s comprised of both field-based and inside sales personnel, most of whom moved over to Cumberland from Kyowa Kirin and bring extensive experience in promoting the brand. I’d also like to provide a few updates on some of our other brands. First, I’ll touch on Vibativ, our potent injectable antibiotic product designed to treat certain serious bacterial infections, including hospital-acquired or ventilator-associated pneumonias as well as complicated skin infections. We are working to improve Vibativ’s sales performance in 2023. To achieve that goal, we have taken a fresh look at the marketing and sales strategy and launched a series of new initiatives to increase awareness and use of this important, potentially life-saving brand. Moving next to Kristalose, our prescription strength laxative, which continues to be our largest selling product.

Packaged in a convenient premeasured powder dose, it dissolves quickly in just 4 ounces of water for a clear, taste-free and grit-free solution. During 2022, we continue to support Kristalose through our field sales force as well as our partnerships with Poly Pharmaceuticals and Foxland Pharmaceuticals. We also refreshed Kristalose’s award-winning marketing campaign in 2022 to facilitate increased engagement with our customers and expand patient support for the brand. As a result, it was added to the GoodRx platform. Turning now to Caldolor. We continue to feature expanded labeling for its use prior to surgery when we see the best results in significantly reducing patients’ pain and their need for opioids. During 2022, we continue to provide Caldolor in a vial and the newer ready-to-use premixed bag presentation.

Caldolor has been a steady performer with an international contribution as well. Meanwhile, during 2022, we worked closely with our FDA-approved manufacturers, monitoring our supply chain, including the raw materials as well as the finished goods emerging from those facilities. As we’ve reported previously, the packager for Omeclamox-Pak brand suspended their operations during the pandemic due to supply issues. The facility is now under new ownership and new management, and we’re currently awaiting availability of their operations. We’re 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.

Before we can do so, 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 support a special interim supply of compounded product for critically ill patients. We support our portfolio of FDA-approved medicines through three national sales divisions, including our newest Cumberland Oncology. Our hospital sales division calls on key institutional accounts across the country, and our field sales division covers select office-based physicians. We understand the importance of recognizing and addressing our impact on the environment, our employees and the community. On that front, we are pleased to announce that we have updated our sustainability metrics covering company activities pertaining to environmental, social and governance issues.

Highlights from our latest sustainability metrics include providing 2.2 million doses of our products to patients, safely disposing of over 2,750 pounds of expired and damaged products and having no product recalls or terminated clinical trials due to failure to practice good clinical standards. Lastly, toward the end of 2022, we successfully moved into our new headquarter offices on the Broad West Campus in the Vanderbilt West End corridor of Nashville. We are delighted to continue our presence and participation in the Nashville health care community, which represents the largest concentration of health care companies in the United States. Our new headquarters also keeps us close to Vanderbilt Medical Center, where we continue our collaboration to develop innovative new medicines.

As that completes my update for today, I’ll turn it back to you, A.J.

A.J. Kazimi: Very good. Thank you, Todd. Well, before we review our 2022 financial results, I’d like to provide an update on our international and partnering activities. Caldolor, our nonnarcotic pain relief product continues to enjoy significant market share in the South Korean market. In addition, during 2022, we announced a new agreement with PiSA Pharmaceuticals for the registration and commercialization of Caldolor in Mexico. Under the terms of that agreement, Cumberland will be responsible for providing the product dossier and supplies and PiSA will be responsible for securing regulatory approval for the product in Mexico and then introducing it into that market. We believe Caldolor can serve an important role in the careful management of pain there, and we’re pleased to be working with PiSA and hope to establish a successful partnership.

Last year, we also transitioned our distribution for Caldolor in Australia from CSL Seqirus to Phebra Pty Ltd. Turning next to Vibativ, our potent injectable antibiotic. In March of 2022, we announced the launch of Vibativ in Puerto Rico. That announcement followed an agreement with Verity Pharmaceuticals providing them with the rights and responsibilities to introduce the product for patients into that market. Later in March of last year, we announced a new partnership for – with Saudi Arabia based Tabuk Pharmaceuticals to introduce Vibativ into the Middle East. The arrangements provide Tabuk exclusive rights to distribute Vibativ in Saudi Arabia and Jordan with an option to expand into other countries in the region. Tabuk is a fully owned subsidiary of the Astra Industrial Group, a leading publicly traded conglomerate in Saudi Arabia.

While Vibativ is now approved for sale in that country, we’ve added the needed new manufacturing information to the registration and look forward to next launching the project there. Also in 2022, we entered into an agreement with D.B. Pharm to register and commercialize our Vibativ product in South Korea. After working with them to prepare the submission for registering the brand there, we now await the approval and look forward to the launch of Vibativ in that country. Meanwhile, our Vibativ partner for the Chinese market, SciClone Pharmaceuticals, had their approval application in China accepted for review back in September of 2021, and we’ve since been supporting SciClone and the requests associated with the review of that submission. They’re working towards the approval and believe there’s a significant potential for Vibativ in their country.

As we focus our efforts on the U.S., we are excited to continue building a network of other established companies to bring Vibativ and Caldolor to patients in their countries. Meanwhile, our RediTrex product line of prefilled syringes was designed to provide an innovative delivery of methotrexate for the treatment of arthritis. Following the FDA approval, we launched the product into the U.S. market during the pandemic and unfortunately faced difficulties in accessing a new group of office-based physicians and also in quickly securing the needed insurance coverage. However, during 2022, prescriptions for the RediTrex line did grow steadily but not to a level justifying our continued investment in the brand. The FDA fees alone were nearing $2 million annually.

So we reengaged Nordic Pharma, who previously provided us with a license for the U.S. rights to the line, and we agreed on amending our arrangements, whereby Nordic would assume responsibility for RediTrex in the United States after June 30 of this year. As a result, we’ve transferred the RediTrex marketing authorization to Nordic who, in turn, has provided us back the 180,000 shares that we previously issued to them and refunded the $1 million milestone payment that we previously provided. Nordic has also issued a credit note for $1 million and provided approximately $900,000 to reimburse us for FDA fees. We appreciate Nordic’s cooperation on these changes as we continue to distribute RediTrex until the end of June and then support Nordic on the product transition.

So in addition to our expanding international activities in 2022, we continue to advance an innovative pipeline of new product candidates to address unmet medical needs. As many of you who have been following us know, we’re sponsoring three Phase 2 clinical programs featuring our ifetroban product candidates. And these studies involve patients with aspirin-exacerbated respiratory disease or AERD, a severe form of asthma, and systemic sclerosis a debilitating autoimmune disorder, and Duchenne muscular dystrophy, a genetic neuromuscular disease. This third program is being funded by a $1 million grant provided from the FDA’s Office of orphan drug products. It’s the first study Duchenne muscular dystrophy awarded an FDA orphan product development funding grant.

And while patients in all three studies slowed during the pandemic, it did improve during 2022 as medical centers reopened for clinical research and patients return for their treatments. Last quarter, we announced that enrollment in our Phase 2 asthma or AERD study have been closed. A total of 56 patients were enrolled in 19 medical centers across the United States. This randomized placebo-controlled trial was designed to evaluate whether ifetroban can improve the sinonasal symptoms associated with AERD. Top line results will be announced after completion of the study’s data analysis. Meanwhile, researchers at Brigham and Women’s Hospital completed a separate investigator-initiated study evaluating the impact of ifetroban on the aspirin desensitation process in patients with AERD, the asthma condition I’ve mentioned.

The single center study closed early due to poor patient accrual and because they exhausted their funding. The researchers found no statistical difference in the dose of aspirin needed to improve the patient’s total nasal symptoms. Full results of the study will be provided and the manuscript that the current researchers currently pursuing for publication. It should be noted that the results for this investigator study were inconsistent with those previously published in preclinical findings and that study also differs in design from our corporate-sponsored studies. Meanwhile, we’re also working on an application to the FDA for a fourth Phase 2 clinical program, which will evaluate the use of ifetroban to treat patients with interstitial lung disease.

We look forward to sharing findings from all of these studies as they become available and then building upon those discoveries to continue ifetroban’s development, which we believe has the potential to benefit many patients with orphan diseases that represent unmet medical needs. With that, I’d now like to turn it over to our Chief Financial Officer, John Hamm, to review our 2022 financial results. John?

Q&A Session

John Hamm: Thank you, A.J. For the three months ended December 31, 2022, net revenue from continuing operations were $9.1 million, a nearly 10% increase over the $8.3 million in revenue recorded during the prior year period. Net revenues by product for the fourth quarter of 2022 included $2.4 million for Sancuso, $3.8 million for Kristalose, $1.5 million for Vibativ and $1.8 million for Caldolor. As a reminder, due to quarterly fluctuations in our customers’ purchases, we believe our performance should be assessed based on annual sales results. With that in mind, I’m pleased to report that net revenues for the full year 2022 were $42 million, up 17% over the $36 million in revenue in 2021. Full year product revenues totaled $15.2 million for Kristalose, $13.2 million for Sancuso, $7.5 million for Vibativ and $4.8 million for Caldolor.

Turning to our expenditures. Total operating expenses for the fourth quarter were $11.4 million compared to $12.7 million for the prior year period. Total operating expenses for 2022 were $47.7 million, up from $43.7 million during the prior year. The addition of expenses from our newest acquisition remained a primary driver of this increase, including the costs associated with the products’ amortization, distribution, marketing and selling. The net loss for the quarter was approximately $2.5 million, and we had a net loss of $5.6 million for the year. When noncash expenses are added back, the resulting adjusted earnings for the year were $2.1 million or $0.14 a share, which was a significant $3.3 million improvement on the adjusted loss of $1.2 million last year.

Also, please note that the adjusted earnings calculations do not include the additional benefit of the $1.5 million of Vibativ and Sancuso cost of goods during the quarter, which was a $4.8 million benefit for the full 2022 year. Those goods were received as part of each product’s acquisition. As a result, and taking into account all of these items, total cash flow from operations was $8.5 million in 2022, a $2.2 million increase over the $6.3 million during the prior year. As a reminder, our financial statements have been significantly impacted by the Vibativ and Sancuso acquisitions. The financial terms for the Vibativ transaction included a $20 million payment upon closing and a subsequent $5 million milestone payment. We are also providing royalties based on product sales.

I’m pleased to report that since Vibativ’s launch in late 2018, it has delivered a total cash contribution of $31 million to our business and therefore, has begun generating a return on our $25 million investment. 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, which 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 $16.8 million at the end of 2022. Turning to the Sancuso acquisition. The financial terms included a $13.5 million payment upon closing, up to $3.5 million in milestone payments and tiered royalties on net product sales.

Sancuso is off to a fine start delivering approximately $10 million in cash contribution during 2022. As with Vibativ, we accounted for the Sancuso acquisition as a business combination. We added a total of $19 million in new assets added as a result of the acquisition, including approximately $4 million in inventory and $14 million of intangible assets. The estimated value of these assets was $15.6 million at the end of the year. Previously, we renewed our line of credit for a new 3-year term. During the first quarter of 2022, we expanded our use of the facility to provide $20 million in capital. This new line of credit provided the funding for our most recent product acquisition. More recently, we amended the facility to increase our ability to fully utilize this line.

Turning to our balance sheet. As of December 31, 2022, we had $93 million in total assets, including $20 million in cash and cash equivalents. Liabilities totaled $57 million, including $16 million on our credit facility. Total shareholders’ equity was $36 million at the end of 2022. We continued our corporate share repurchase program in 2022 and through the end of December we purchased a total of 368,000 shares. These repurchases included those on the open market as well as those needed to fund the taxes associated with employee vested restricted shares. That’s in addition to the 180,000 shares that Nordic Pharma returned to us. Lastly, I’d like to note that Cumberland continues to hold over $53 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 final quarter and year-end of 2022. Back to you, A.J.

A.J. Kazimi: Thank you, John. In July of 2022, we welcomed Martin Brown Jr. to our Board of Directors. Martin brought valuable legal, public company health care and civic experience to our Board, and he was previously a long-term board member of Brown-Forman Corporation, a New York Stock Exchange-listed company. We were deeply saddened, however, to lose two of our dedicated Board members over the last year, Joey Jacobs and Marty Cearnal. Each was an outstanding leader, a valued colleague and a dear friend to many. Joey Jacobs was a legendary beloved member of the health care community. He served on our Board of Directors for over a decade, where his support and guidance played a critical role in advancing our mission. As a member of various corporate and civic boards throughout our region, Joey was a sought-after mentor, whose sound advice and guidance was instrumental in growing many area health care organizations.

Marty Cearnal, served as a member of our Board and joined our management team in 2008 to lead our commercial efforts. He built our entire marketing and sales organization, led our product launches and played a key role in our business development initiatives. Marty was such an integral part of our organization, and we’re grateful to have a team of sales and marketing executives who have stepped up to ensure the business has continued to operate without interruption. So overall, we’re pleased to share our progress over the past year. We remain focused on our mission of providing branded medicines to support patient care, and we’re working to maximize the potential of our commercial brands, progressing our pipeline and continuing to pursue select acquisitions.

In fact, our newest acquisition, Sancuso, has proven to have a positive impact on our business, and we’re encouraged by its early success. We’re honored to deliver to oncology patients throughout the country who need it and believe that the contributions from the product will continue to be a catalyst of growth for our company. So with a new brand feature, an improving operating environment, a growing roster of partnerships and a robust pipeline, we’re very optimistic about our future. And we look forward to delivering quality medicines to enhance patients’ quality of life. With that review and update, let’s now open the call to any questions you may have. Operator, please proceed.

Operator: At this time, I’d like to turn the call back to management for closing remarks.

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A.J. Kazimi: Okay. 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 for you. As always, we appreciate your time, your interest in our company, and we look forward to providing you 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.