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

Q2 2019 Cumberland Pharmaceuticals Inc Earnings Call

Nashville Sep 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Cumberland Pharmaceuticals Inc earnings conference call or presentation Wednesday, August 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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Presentation

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Operator [1]

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

Now I would like to introduce the host, Erin Gull, 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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Good afternoon, everyone. Today, we issued a press release containing the company's financial results and corporate update for the second quarter ended June 30, 2019. That release is available on our website at www.cumberlandpharma.com.

And before we begin today's update, I'd like to review the following safe harbor language with you. 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 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 we file 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 the information shared on today's call should be considered current as of today only. 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. And during today's call, we'll be referring to several of the company's marketed brands. Full prescribing and safety information for each of these brands can be found through the links to each of the individual product websites on our corporate site at cumberlandpharma.com. Also please note that we'll provide some non-GAAP financial measures with respect to our performance today, and an explanation and reconciliation to GAAP measures can be found in our earnings release and its related financial tables.

With us on today's call are A.J. Kazimi, Cumberland's Chief Executive Officer; Marty Cearnal, our Chief Commercial Officer; and Michael Bonner, our Chief Financial Officer. And I'd now like to 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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Thank you, Erin, and good afternoon, everyone. We appreciate you joining us. I'm pleased to report a very successful second quarter 2019. As you'll hear today, our momentum continues. We delivered strong financial results. During the second quarter, net revenues grew 14% to $11.6 million while year-to-date net revenues were $23.5 million, up 25% from the prior year period. Our adjusted earnings for the quarter were $1.6 million or $0.10 a share, and year-to-date adjusted earnings were $3.4 million or $0.22 per share.

We also concluded the main elements of our strategic review. Those of you who have been following the company know that we've looked to 2019 with great anticipation as we expected our work in prior quarters to deliver solid growth this year. We've said in the past that our progress may not have been evident in the numbers that quarter. But rest assured, we were advancing on our key goals and objectives. And as you'll learn more about our progress today, you'll see that's exactly what's happening.

We continue to be very active, seeking ways to advance our products both here and abroad. Through a series of investments and partnerships in prior quarters, we improved our revenue growth potential and increased our addressable market. We believe we're in the early days of benefiting from those efforts, and our work continues.

Today, we'll detail a host of new international partnerships and product development activities that should continue to expand Cumberland's growth considerably in the coming quarters. We'll also update you this afternoon on our initiatives to enhance our sales and marketing strategy and capabilities. Moreover, our financial position remains strong with $108 million in total assets, including $30 million in cash and investments at the end of the quarter.

So let's get into the details. Earlier this year, we announced a strategic review following our accelerated business development activities, which had resulted in a series of transactions. Because of that progress, we felt it was prudent to take a fresh look at our portfolio, our partners and our organization to ensure we have the proper focus and capabilities going forward. Well, based on that strategic review, we executed a license and distribution agreement with the WinHealth Pharma Group for our Caldolor and Acetadote brands in China. WinHealth will provide $2 million in milestone payments and up to an estimated $290 million in revenue contribution over a 10-year period for supplies of the products following the registration in China.

Additionally, WinHealth entered into an agreement to join as a partner in our R&D subsidiary, Cumberland Emerging Technologies or CET. Recall that CET is working with academic research centers in the Southeastern United States to help us develop a pipeline of innovative, new biopharmaceutical products. WinHealth will make a $1 million investment through the purchase of shares of stock in CET. And as part of that agreement, WinHealth obtains a board position at CET and the first opportunity to license CET products for the Chinese market.

We also entered into a strategic alliance with WinHealth to explore further business opportunities that would advance the mission and goals of both our organizations. Founded in Hangzhou, China and currently headquartered in Hong Kong, WinHealth has developed a wide range of capabilities, including drug licensing, product development and registration. And they've established a strong network of distribution and sales promotion capabilities for the Chinese market. Furthermore, WinHealth has established partnerships with international companies that include Boehringer-Ingelheim, Janssen, Novartis, Pfizer and Roche. And they've generated approximately $330 million in annual sales in 2018.

Our strategic review also resulted in several international agreements for our newest commercial brand, Vibativ. Hikma Pharmaceuticals will register and distribute Vibativ in a number of countries throughout the Middle East. Hikma is a multinational pharma company currently headquartered in London. Originally founded in Amman, Jordan, the company has a particular focus in the Middle East and North Africa regions. Hikma develops, manufactures and markets a broad range of branded and nonbranded medicines, generating over $2 billion in gross sales during 2018.

R-Pharma (sic) [R-Pharm] will distribute Vibativ in Russia and a number of adjacent countries in Eastern Europe. R-Pharma is one of the leading multinational pharma organizations based in Russia. Headquartered in Moscow and focusing on a multitude of therapeutic areas in the specialty and hospital care markets, R-Pharma generated over $1.6 billion in revenue in 2018.

Next, Dr. Reddy's Laboratories will register and distribute Vibativ in India. Dr. Reddy's is a multinational pharma company based in Hyderabad, India. The company currently markets over 190 medications through their commercial operations in over 35 countries. And combined with their extensive network of manufacturing capabilities, Dr. Reddy's generated over $2 billion in sales during their 2018 and '19 fiscal year.

We also signed agreement with DB Pharm Korea for Vibativ in South Korea. Recall, DB Pharm currently and successfully distributes our Caldolor product in that country.

So each of these companies are leaders in their respective markets and represent excellent additions to our network of international partners. These partnerships can help expand the availability of Vibativ, a potentially lifesaving antibiotic to patients in their countries.

Meanwhile, as previously reported, we reached an agreement with Clinigen Healthcare to return the U.S. rights to their Ethyol and Totect brands at the end of the third quarter in exchange for $5 million in financial consideration paid over a 2-year period. As a result, we will now focus our U.S. hospital sales efforts on our 3 key acute-care brands: Caldolor, Vibativ and Vaprisol. And in order to support this acute care business, we've completed the expansion of our hospital sales division as well as our field-based medical science team.

Well, that completes my overview and announcements. And now I'd like to turn to Marty Cearnal, Cumberland's Chief Commercial Officer, to provide a further update. 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. We continued to make progress in the second quarter toward our goal of building a company that offers long-term sustainable growth. As A.J. mentioned, we successfully fulfilled our plans to increase our sales team and expand our national coverage to improve support for our key brands. We created a new hospital sales district to cover the West and Southwest as we added sales personnel in Texas, Louisiana, Oklahoma and California. The creation of the new district allows us to expand coverage and ensure support of our new representatives. In addition, we've expanded our national accounts team to better meet the needs of hospital systems across the country. Further, our medical colleagues have increased the number of medical science liaisons that provide the detailed medical information required for our hospital products. And finally, we're building an inside sales capability, which will allow us to better serve those customers outside the reach of our sales organization.

Our goal is to provide personal coverage for 80% of the existing and potential business for our key brands. These various personnel additions were built into the plans following the acquisition of Vibativ and the subsequent strategic review. And they enhance our existing infrastructure to better support all of our brands.

We're augmenting our sales organization's activities and cover the remaining 20% of our business through the targeted use of digital media, the inside sales capability I mentioned earlier and a series of co-promotion partners. We believe that these arrangements represent an efficient way to expand our reach and to round out our coverage.

Earlier this year, we received FDA approval for our next-generation Caldolor product. After FDA approval, we began initial shipments of the product to select customers. The reception has been favorable, and full launch of this next-generation product is planned once additional supplies are available later in 2019. We're excited about this new formulation of Caldolor because it offers hospitals and medical facilities a more convenient, easy-to-use packaging that requires no mixing, provides improved dosing accuracy and saves the costs associated with pharmacy preparation. It also offers patent protection until 2032.

Our newest product, Vibativ, is an important addition to our hospital product offerings. And we're working hard to ensure the product is considered when treatment for resistant Gram-positive bacteria is required.

The transition into a new field of medicine is always a learning experience. We've been fortunate that many of our sales representatives have prior antibiotic experience and the new reps we have added have recent experience in the area. The transition was aided by Theravance as their representatives introduced our representatives to important health care professionals in institutions across the country.

Further, we've been able to add a recognized antibiotic expert to our team that has close contact with many of the thought leaders in the field. We've instituted an ongoing series of training activities that address not only the science but also the economics of managing serious infections.

It is important to note that no product introduction is without some resistance. In this case, we are confronting a widely reported issue that is impacting the adoption of many new antibiotic agents. That is the issue of cost control at the hospital level. Many hospitals, including some leading academic centers, are choosing to restrict or even avoid the use of newer agents in favor of older, perhaps less effective agents. While this may appear to save costs, the use of newer agents like Vibativ can provide faster resolution of infection, often with less overall cost due to a briefer hospital stay. In many cases, hospitals are moving patients requiring longer-term treatment to outpatient infusion centers. This creates additional opportunities for us to share information and education.

In this increasingly complex environment, we're implementing a domestic strategy built on 4 pillars. The first is scientific information. The basis of our strategy is Vibativ has an outstanding and well-documented record of clinical performance. To that base, we add for our representatives an understanding of the economic realities that exist among the various locations of product use.

We've also implemented a strong effort to build relationships on service and mutual respect while demonstrating the value delivered. Our strategy involves meaningful access to critical decision-makers, including both expanding contacts at the senior levels of integrated delivery networks and outpatient infusion organizations as well as daily interactions with the individual physicians and associated health care providers.

And on the international front, our strategy is to build on securing excellent partners to advance the acceptance of Vibativ in their markets. As A.J. announced, our recent agreements include Russia plus several Eastern European countries, India, the Middle East and South Korea. Our partners in these markets have both the experience and infrastructure to successfully support the adoption of Vibativ to the benefit of patients in their territories.

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

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

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Thank you, Marty. I'd now like to review the product development efforts underway here at Cumberland.

We completed enrollment in our study of Caldolor in newborns, which we believe is the first evaluation of ibuprofen in the youngest of patients. If you recall, Caldolor was initially approved for the treatment of pain and fever in adults. We then secured FDA approval for using pediatric patients 6 months of age and older. Next, we initiated the study to evaluate Caldolor in newborns up to 6 months of age. The trial enrolled 30 patients, evaluating the safety and pharmacokinetics of the product in that new patient population. We've gathered and verified the data from this trial, and we are now completing its evaluation. Once the analysis is complete, we'll then provide top line results from this important study.

Additionally, we submitted a further update to the FDA for Caldolor. Aiming to expand the product's label, we provided important new data generated from our clinical studies regarding an optimal infusion time, additional safety information as well as geriatric and pediatric administration. We believe Caldolor is an important product and continue to seek opportunities to introduce it to new patient populations.

Meanwhile, late last year, we reported we had completed and filed a submission for our new line of methotrexate products designed for the treatment of adult and pediatric patients with rheumatoid arthritis as well as adults with psoriasis. During the second quarter of this year, we provided the FDA with additional data in support of our approval submission for that methotrexate product line. The FDA has provided us with an expected decision date set for September, next month. And we look forward to providing you with further updates as we receive that feedback.

We're fortunate to also have a robust pipeline of promising candidates in Phase II clinical trials. As a reminder, we've now completed study enrollment and reported top line results for Portaban, our portal hypertension clinical program; and for Hepatoren, our product candidate for patients with hepatorenal syndrome. We continue to advance our remaining 2 clinical programs for Vasculan and Boxaban with patient enrollment continuing in each of those Phase II studies during the second quarter. We're developing Vasculan for patients with systemic sclerosis, the deadliest autoimmune disorder, which involves the thickening of the skin and internal organs. Boxaban meanwhile is in development for the treatment of aspirin-exacerbated respiratory disease, a severe form of asthma involving rhinitis, nasal polyps that are worsened by aspirin. Once we complete enrollment and then gather the data from these 2 remaining studies, we'll announce results, and we'll then decide which development plan provides the best opportunity for FDA approval and commercialization.

Remember, all 4 of these product candidates are derived from ifetroban, our first new chemical entity. And we're pursuing several patient conditions with this molecule that represent unmet medical needs and may be candidates for orphan drug designation.

Please note, the approval of just one of these candidates can meaningfully change the growth trajectory of our company.

Well, that completes our clinical update. I'll now turn 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 June 30, 2019, net revenues were $11.6 million compared to $10.2 million for the prior year period. Kristalose delivered $3.5 million of net revenue in the second quarter followed by $2.6 million for our newest brand, Vibativ. Net revenue for Ethyol was $2 million followed by $1.1 million for Caldolor, $1 million for Acetadote and $0.8 million for our other brands.

Total operating expenses for the second quarter were $12.2 million compared to $11 million for the prior year period. The primary drivers of this increase were the increases in sales expenses, cost of goods and amortization expenses associated with the addition of Vibativ. Please note that the Vibativ cost of goods were a noncash item as we purchase a supply of product inventory as part of its acquisition.

Our adjusted earnings for the second quarter were $1.6 million or $0.10 per share compared to $0.2 million or $0.01 per diluted share for the prior year period. While our performance should be measured on an annual basis, we were pleased with the significant improvement in adjusted earnings during the quarter.

As of June 30, 2019, we had $108 million in total assets, including $30 million in cash and marketable securities. Liabilities totaled $54 million, including $20 million on our credit facility. Total shareholders' equity was just under $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. During the second quarter, we extended the term of our bank line of credit until July 2021. This line of credit is available to us on attractive terms for corporate and acquisition purposes. We also provided an additional $5 million payment during the second quarter of 2019 and will 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. Since the company's launch of Vibativ in November 2018, the product has added $9.7 million in new revenue, a total of $4.9 million in related expenses and delivered an approximate $7.6 million in incremental cash flow.

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 second quarter, we repurchased another 85,000 Cumberland shares, resulting in a total of 206,000 shares repurchased during the first half of 2019.

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've just heard, we're working on multiple fronts to build value here at Cumberland. The momentum we've generated during the first half of the year has put us on the path for a very strong second half, and we remain optimistic that 2019 will be a standout year for the company.

I'd like to thank our team for their steadfast efforts thus far in 2019. I'm very encouraged by the progress we've made during the first and second quarters. Our commitment to our strategy is unwavering, and we firmly believe our best days are ahead. We remain in a strong financial position with high margins and a favorable balance sheet. We'll continue to manage our operations with financial discipline and a goal of delivering positive cash flow. And given the large inside ownership at the company, our interests are closely aligned with our shareholders.

We look forward to keeping you updated as we continue to remain focused on our mission: 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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Operator [8]

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(Operator Instructions)

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A. J. Kazimi, Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO [9]

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Okay. So we don't seem to have any questions, which is fine. And thank you, everybody, for joining us for the call today. We do understand that many of you prefer a private discussion with management, and please reach out to Erin Gull here if you would like to hold such a call. We do appreciate your time and interest in Cumberland and look forward to providing another update after the end of the third quarter.

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Operator [10]

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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 3198706. 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.