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Edited Transcript of CPIX earnings conference call or presentation 14-May-19 8:30pm GMT

Q1 2019 Cumberland Pharmaceuticals Inc Earnings Call

Nashville Jun 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Cumberland Pharmaceuticals Inc earnings conference call or presentation Tuesday, May 14, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* A. J. Kazimi

Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO

* Erin Smith

Cumberland Pharmaceuticals Inc. - Senior Corporate Relations Associate

* Martin E. Cearnal

Cumberland Pharmaceuticals Inc. - Executive VP of Marketing & Sales, Chief Commercial Officer and Director

* Michael P. Bonner

Cumberland Pharmaceuticals Inc. - CFO and Senior Director of Finance & Accounting

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Conference Call Participants

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* Andrew Jacob D'Silva

B. Riley FBR, Inc., Research Division - Senior Analyst

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Presentation

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Operator [1]

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Thank you for joining Cumberland Pharmaceuticals First Quarter 2019 Financial Report and Company Update Conference Call. Please be advised that this call is being recorded at the company's request and will be archived on Cumberland's website for 1 week from today's date.

Now I would like to introduce, Erin Smith, who handles Corporate Relations at Cumberland. Erin, please go ahead.

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Erin Smith, Cumberland Pharmaceuticals Inc. - Senior Corporate Relations Associate [2]

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Hello, everyone. I was recently married and you have known me previously as Erin Smith, but I've changed my last name, so now you will know me as Erin Gull. And today, I would like to talk about how we issued a press release containing the company's financial results and corporate update for the first quarter ended March 31, 2019. And that release, which includes the first quarter financial tables is available on our website at www.cumberlandpharma.com.

Before we begin, I would also like to review the following safe harbor language. Today's call may contain forward-looking statements within the meaning of the Private Securities Reform Act of 1995. Because the statements in today's call reflect the company's current views and expectations concerning the future events, these forward-looking statements may involve risks and uncertainties.

Investors should note that many factors could affect the company's future results as more fully described under the caption Risk Factors in our Form 10-K and any updates filed with the SEC. Any forward-looking statements made during today's call are qualified by those risk factors. And despite our best efforts, actual results could differ materially from our expectations. And information shared on the call today should be considered current as of today only, and please remember that the company assumes no duty to update any forward-looking statements, whether as a result of new information or due to future developments.

Also during today's call, we'll be referring to several of the company's marketed brands. For more information on those brands, including full prescribing and safety information, you can find links to each of the individual product website at our corporate site at cumberlandpharma.com.

Additionally, please note that today we will provide some GAAP -- some non-GAAP financial measures with respect to our performance, and an explanation and reconciliation to GAAP measures can be found in our earnings release and financial tables.

Also, with us on today's call are A.J. Kazimi, Cumberland's Chief Executive Officer; Marty Cearnal, our Chief Financial Officer; and Michael Bonner, our Chief Financial Officer. And I'll now turn the call over to A.J. to begin our corporate update and discussion of the company's performance.

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A. J. Kazimi, Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO [3]

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Thanks, Erin. Good afternoon, everyone, and thank you for joining us, as we provide an overall company per update and review our first quarter 2019 results.

I'll start with a discussion of our financials as well as our recent developments, and then I'll cover the results of our ongoing strategic review.

Marty will follow with an update on our commercial activities, and I'll provide you with an overview of our clinical and regulatory efforts.

Michael will then review our first quarter financial results, and I'll finish with a discussion on our outlook and plans before opening the call to any questions that you may have.

So let's get started. I'm very pleased to report that we're off to a terrific start in 2019. As you'll hear today, we had a very busy first quarter filled with progress on both our near-term and our long-term goals. We made decisions to modify our product line that will allow us to focus our promotional efforts. We made important advancements on our clinical objectives, commenced the expansion of our sales organization and posted strong financial results.

I believe this quarter is a clear example of the successful execution of our strategy to drive both revenue growth and profitability while advancing our clinical pipeline in order to take Cumberland to the next level.

Now let's go over some of the specific highlights from the quarter.

We delivered an outstanding financial performance in the first quarter of 2019, as revenues surged 38% to $11.9 million, delivering adjusted earnings of $1.8 million or $0.11 a share.

Our financial position remains strong with over $114 million in total assets, including $34 million in cash and investments at the end of the quarter.

We also made significant progress towards achieving our goals of expanding our commercial portfolio while also advancing our regulatory initiatives. Those efforts have led to 3 near-term growth catalysts and they include; the acquisition of Vibativ, which represents our largest transaction to date. It's potentially life-saving antibiotic, designed for difficult to treat infections. And during the first quarter, we largely completed transitioning the brand to Cumberland and we believe it will continue to favorably impact our financial performance.

In January, we received FDA approval for our next-generation Caldolor product, featuring an improved package and formulation. Caldolor has been the fastest-growing brand and we believe this new presentation will help continue that growth.

Also during the first quarter, the FDA accepted for filing our submission for the approval of a new line of methotrexate products. They're designed for the treatment of patients with arthritis and psoriasis, and the FDA has begun its review of the submission and provided us with a target approval decision date for September of this year.

We believe that over time, this new product line has the potential to make a significant contribution to our annual sales.

So to make the most of these 3 opportunities, we initiated a strategic review of our brands, capabilities and international partners.

This review followed our accelerated business development initiative, which delivered a series of transactions over the last 36 months. Therefore, we thought now is an excellent time to take a fresh look at our portfolio, our partners and our organization to ensure we have the proper focus and capabilities.

As a result, in China, the largest market for pharmaceutical products outside the U.S., we have changed partners. Hong Kong WinHealth Pharmaceuticals will assume responsibility for our Acetadote and Caldolor brands in that important market. WinHealth will provide $2 million in milestone payments and an estimated up to $290 million in revenue contributions over a 10-year period, tied to the supplies of both products following their approval in China.

Meanwhile, we plan to return the U.S. rights to the brands of Ethyol and Totect later this year. In exchange, we will receive financial consideration provided to us over a 2-year period. As a result, our hospital product efforts will become focused on our 3 key acute care brands Caldolor, Vibativ and Vaprisol.

We're expanding our hospital sales division as well as our field-based medical science team in order to ensure coverage and support for the majority of our acute care business. And we've also been meeting with our other key international partners and expect to announce additional updates and improvements to that network over the remainder of this year.

Now turning to the clinical front. We've completed enrollment in our study of Caldolor in patients ranging from newborn to 6 months of age. And we look forward to announcing the top line results once that data is collected, verified and analyzed.

We've also continued to advance our ifetroban clinical programs, which feature several potential orphan drug candidates, progressing our Vasculan and Boxaban clinical studies with patient enrollment continuing in each of those Phase II trials.

Additionally, we're supplementing our acquisition and late-stage development activities with the earlier-stage development at Cumberland Emerging Technologies or CET. Recall, CET was awarded a $2 million NIH grant to develop an innovative new product candidate in collaboration with scientists at Vanderbilt University. And during the first quarter, we began to implement that development program, which is associated with the new grant award.

So that completes my overview of the quarter and a series of new announcements. I now like to look to Marty Cearnal, Cumberland's Chief Commercial Officer, to share his update on our marketing and sales activities. Marty?

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Martin E. Cearnal, Cumberland Pharmaceuticals Inc. - Executive VP of Marketing & Sales, Chief Commercial Officer and Director [4]

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Thanks, A.J. During the first quarter of this year, we largely completed the transition of Vibativ to Cumber. We held a very productive National Sales Meeting and provided our hospital sales division with additional training to support our newest brand.

As A.J. mentioned, we took a fresh look at the hospital team's deployment and coverage and then redesigned our national territories.

Our goal is to provide personal support for 80% of the existing and potential business for our key brands.

As a result of this analysis, we decided to increase the size of our hospital sales team by 20% and also expand our medical science liaison team.

At the corporate office, we promoted an individual to lead our infectious disease brand management and we also added an executive with significant antibiotic experience.

We've brought on a sales professional to augment our national account capabilities. These various additions were built into the plan for the Vibativ acquisition and enhance our existing infrastructure to better support that product.

A key element of our growth strategy is to seek opportunities to further develop our FDA-approved products.

Earlier this year, we received FDA approval for our next-generation Caldolor. It offers hospitals and medical facilities a more convenient packaging, improved dosing accuracy and cost savings associated with pharmacy preparation. It also features an improved formulation, easier administration and patent protection until 2032. We have largely completed the plans and have initiated manufacturing for the product's launch later this year.

Our other national sales division calls on select office-based physicians in support of our Kristalose and Omeclamox-Pak brands. That organization will also handle the launch of our new methotrexate product line following the FDA's review and approval.

Similar to the analysis completed for our hospital division, we plan to take a fresh look at the size and deployment of our field division to ensure proper support for the new methotrexate products and our existing gastroenterology products.

We augment our internal commercial capabilities through targeted use of digital meeting -- media and a series of co-promotion partnerships.

We believe these arrangements represent an efficient way to expand our reach and round out our coverage.

That completes today's update on our commercial activities, A.J. I'll turn the call back to you.

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A. J. Kazimi, Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO [5]

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Thank you for the update, Marty. I'd now like to further review the product development efforts underway here at Cumberland. We believe Caldolor is an important product and continue to seek opportunities to introduce it to new market segments.

The product was initially approved for the treatment of pain and fever in adults and then we secured approval for use in pediatric patients, 6 months of age and older.

Next, we initiated a study to evaluate Caldolor in newborns, up to 6 months of age. And as I've mentioned, we've completed enrollment in that study, which we believe, is the first evaluation of ibuprofen in these youngest of patients.

The trial enrolled 30 newborns, evaluating the safety and pharmacokinetics of the product in that new patient population. And we look forward to announcing the top line study results, then providing a full study report to the FDA after which we'll consider filing for additional label expansion.

Late last year, we reported that we've completed and filed the submission for our line of methotrexate products, designed for the treatment of adult and pediatric patients with rheumatoid arthritis as well as adults with psoriasis. We're pleased that during the first quarter of this year, the FDA accepted that submission as complete and ready for their review and then provided us with a target approval decision date for September of this year.

Meanwhile, our other development programs continue to advance, as we are fortunate to have a robust pipeline of promising candidates in Phase II clinical trials. All these products are derived from ifetroban, Cumberland's first new chemical entity. We're pursuing several patient conditions with this molecule that represent unmet medical needs and include candidates for orphan drug designation.

And please note, that the approval of just 1 of these product candidates can meaningfully change the growth trajectory of our company. We continue to advance our Vasculan and Boxaban clinical programs with patient enrollment continuing in each of those Phase II studies during the first quarter of the year.

We're developing Vasculan for patients with systemic sclerosis, the deadliest autoimmune disorder, which involves a thickening of the skin and internal organs.

And Boxaban is in development for the treatment of aspirin-exacerbated respiratory disease, which involves chronic asthma, chronic rhinitis and nasal polyps that are worsened by aspirin.

Once we complete enrollment and gather the data from these 2 remaining studies, we'll then decide which development plan provides the best opportunity for the approval and commercialization of our first new chemical entity. And we look forward to providing you with those conclusions and plans.

Additionally, in order to be successful over the long term, we believe it's important to have a conduit of innovative new product opportunities. So we're supplementing our acquisition in late-stage development with earlier-stage drug development at Cumberland Emerging Technologies or CET. And there, we're establishing a pipeline of new product candidates and fostering innovation by partnering with academic research centers in the southern part of the country.

In February 2019, CET and the Medical University of South Carolina entered into an agreement to collaborate our future co-development programs. You see, this collaboration combines our strengths with the goal of advancing new technologies to clinical practice and towards the marketplace. This agreement adds to CET's roster of academic collaborations, which also includes sign agreements with Vanderbilt University, the University of Mississippi, the University of Tennessee and Louisiana State University.

So that concludes the update on our development and regulatory activities. I'd now like to turn it over to our Chief Financial Officer, Michael Bonner, for the financial review. Michael?

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Michael P. Bonner, Cumberland Pharmaceuticals Inc. - CFO and Senior Director of Finance & Accounting [6]

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Thank you, A.J. For the 3 months ended March 31, 2019, net revenues were $11.9 million compared to $8.6 million for the prior year period. Kristalose delivered $3.3 million of net revenue in the first quarter followed by $3.1 million for Ethyol. Net revenue for our newest brand, Vibativ, was $2.1 million followed by $1.3 million for Caldolor, $0.8 million for Acetadote and $0.6 million for our other brands.

Total operating expenses for the 3-month period were $12.1 million compared to $11 million for the prior year period.

The primary drivers of this increase were the new cost of goods and amortization expenses associated with the addition of Vibativ.

Since the launch of Vibativ in November 2018, we have added $7.1 million in new revenue, a total of $3.3 million in related expenses and delivered an approximate $5.8 million in incremental cash flow from the brand.

Adjusted earnings for the first quarter were $1.8 million or $0.11 per share, a significant improvement over the adjusted loss of $1.4 million during the prior year period.

As of March 31, 2019, we had $114.6 million in total assets, including $34.3 million in cash and marketable securities. Other assets included $10 million of accounts receivable and $11.3 million of inventory.

Liabilities totaled $59.4 million, which included $20 million on our credit facility and $9 million for the royalties that will be payable on Vibativ sales.

Total shareholders equity was just over $55 million at the end of the quarter.

Vibativ was our largest acquisition to date based on both the product size and the overall consideration for the assets. The financial terms for the Vibativ acquisition included $20 million payment upon closing. This initial payment was funded by an expansion of our revolving credit facility with Pinnacle Bank.

We also provided an additional $5 million payment last month and we'll provide tiered royalties of up to 20% on U.S. net product sales. We accounted for the acquisition as a business combination. A total of $34 million in new assets were added as a result of the acquisition, including $21.6 million in inventory, $11.8 million of intangible assets and $882,000 of goodwill. We recorded a liability of $9 million as the fair value of the contingent consideration, resulting from the long-term royalty on product sales.

We expect the addition of Vibativ will continue to be accretive to the company's earnings, as we are largely utilizing our existing infrastructure to support the brand.

As Marty noted, there is some expansion underway of our hospital sales division and our medical science liaison team. Those additional expenses are being phased in over 2019.

Meanwhile, we believe that our shares represent an attractive investment opportunity. In January, our Board of Directors authorized a new $10 million tranche available for our corporate share repurchase initiative. During the first quarter, we repurchased another 121,466 Cumberland shares. That completes our financial report. I'll turn it back over to you, A.J.

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A. J. Kazimi, Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO [7]

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Thanks, Michael. So as you just heard this afternoon, we're working on multiple fronts to build the value here at Cumberland. We remain optimistic that 2019 will be a standout year for the company.

And I'm very encouraged by the progress we've made in the first quarter and do expect our momentum to continue. We're confident we can execute on our strategy to develop and grow the current portfolio while selectively adding new brands, either through acquisition or from internal development.

Our commitment to our strategy is unwavering. And we firmly believe that our best days are ahead. We'll continue to manage our operations with financial discipline and a goal of delivering positive cash flow. We remain in a strong financial position with high margins and a favorable balance sheet. And given the large insider ownership of the company, our interests are closely aligned with our shareholders. With dedicated efforts by our employees, we continue in our mission of advancing patient care through the delivery of high-quality pharmaceutical products.

So with that review and update, now let's open the call to any questions you may have. Operator, please proceed.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Andrew D'Silva with B. Riley FBR.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [2]

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Congrats on the progress in Q1. Just to start off, just a couple of quick bookkeeping items. As far as CET-related sales for the quarter, can you just let me know what that was? And then you noted hospital sales team was increasing by about 20%, how many internal sales team members do you have now? And then the final, just bookkeeping question is related to Vibativ. Should we figure that Q1 is a seasonally weakest quarter?

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A. J. Kazimi, Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO [3]

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Okay. Three questions there. So I'll start -- this is A.J. I'll start with the CET question. We have the $2 million NIH award plus some other miscellaneous revenue coming in at CET. And that $2 million award is spread over the 4 quarters, this year and next year. So overall, the revenue from CET-associated activities is a rather small component of our income statement and the main source of revenue that you see is coming from product sales. Marty, I'll turn it to you to discuss the expansion of the hospital sales force, and then his question on the Vibativ sales result for the last 2 quarters.

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Martin E. Cearnal, Cumberland Pharmaceuticals Inc. - Executive VP of Marketing & Sales, Chief Commercial Officer and Director [4]

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Sure. The short answer is that our hospital sales organization is about 30 sales professionals. As we said, we've also made selected additions inside the organization to provide support, and we continue to look at that as the products grow and look for, as we said in the call, the opportunity to have kind of face-to-face presentation to about 80% of our existing sales and opportunity and cover the rest, either with our co-promotion partnerships or with effective use of digital media.

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A. J. Kazimi, Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO [5]

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And then the 2 quarters of Vibativ sales was his other question.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [6]

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Okay. Should I think Q1 to be the seasonally weakest quarter? That's all.

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Martin E. Cearnal, Cumberland Pharmaceuticals Inc. - Executive VP of Marketing & Sales, Chief Commercial Officer and Director [7]

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Yes. You should. Probably, using the first 6 months of sales, an average of the first 6 months of sales as a run rate is a better way to calculate where Vibativ is likely to end up for the year.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [8]

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Okay. That's good color. And then just last couple of questions from me. With Caldolor, during the first quarter and I believe currently there's been an IV opioid shortage. Has this provided any sort of tailwind for you to get in front of hospitals? Have you started to think about launching the next-generation Caldolor product? And then, as it relates to RediTrex, just refresh my memory, do you still view it as a $40 million annual opportunity? And then if that's correct, just discuss how you view an expected ramp if you obtain approval?

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Martin E. Cearnal, Cumberland Pharmaceuticals Inc. - Executive VP of Marketing & Sales, Chief Commercial Officer and Director [9]

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Okay. So let's start with the opioid issue. There have been some spotty shortages of IV opioid, but nothing really broad-based. What we do see is an interesting trend for the first time hospital use of injectable opioids is declining. And we do view that as an opportunity. We think that the new generation Caldolor product will solve some problems at the pharmacy level in terms of gaining broader use and distribution of the product because it allows the product to be more effectively placed at the point of use, the surgical fixes or in a freestanding surgery center because the product is premixed and doesn't require any pharmacy time associated with preparation of the product. All right?

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [10]

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Okay. And with RediTrex?

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Martin E. Cearnal, Cumberland Pharmaceuticals Inc. - Executive VP of Marketing & Sales, Chief Commercial Officer and Director [11]

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Okay. And if we look at RediTrex, yes, I think we see RediTrex over time as a $40 million to $50 million brand for the company. That's going to take some time to build. But we think we have the right strategy in place in terms of how we plan to position the brand.

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Operator [12]

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Thank you. Speakers, I'm showing no further questions in the queue at this time. I would like to turn the call back over to management for any closing remarks.

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A. J. Kazimi, Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO [13]

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Sure. Well, thanks, everyone, for joining our call today. We do understand that many of you prefer a private discussion with management. And if so, please reach out to Erin Gull here, if you'd like to hold such a call. We do appreciate your time and interest in Cumberland. And we look forward to providing you another update after the end of the second quarter.

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Operator [14]

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Thank you, sir. Ladies and gentlemen, that concludes our conference for today. If you would like to listen to a replay of today's conference, please dial (855) 859-2056 using the access code 1692316. Alternatively, a replay of the webcast will be available on the company's website. I would like to thank you for your participation. You may now disconnect.