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Edited Transcript of CPIX earnings conference call or presentation 12-Nov-19 9:30pm GMT

Q3 2019 Cumberland Pharmaceuticals Inc Earnings Call

Nashville Nov 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Cumberland Pharmaceuticals Inc earnings conference call or presentation Tuesday, November 12, 2019 at 9:30:00pm 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 Gull

Cumberland Pharmaceuticals Inc. - Senior Corporate Relations Associate

* Ines Macias-Perez;Principal Scientist, Product Development

* 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 the Cumberland Pharmaceuticals Third Quarter 2019 Financial Report and Company Update. Please note that this conference 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 Gull, who is responsible for Corporate Relations at Cumberland. Erin, please go ahead.

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

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Good afternoon, everyone. Today's call may contain forward-looking statements within the meaning of the Private Securities Reform Act of 1995. And because the statements in today's call reflect the company's current views and expectations concerning future events, any forward-looking statements may involve risks and uncertainties. And please 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 expectation. Information shared on the call today should be considered current as of today only. Please remember that the company does not assume any responsibility to update any forward-looking statement, whether as a result of new information or due to future developments.

During today's call, we'll be referring to several of our marketed brands, and full prescribing and safety information for each brand can be found through the links to each individual product website through our corporate site at www.cumberlandpharma.com. Also, 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 financial tables.

With us on today's call are A.J. Kazimi, Cumberland's Chief Executive Officer; Marty Cearnal, our Chief Commercial Officer; Michael Bonner, our Chief Financial Officer; and Ines Macias-Perez, our Principal Scientist, Product Development.

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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Good afternoon, everyone. Thank you for joining us, and we appreciate your participation in today's call. As Erin noted, we'll provide an overall company update along with a review of our third quarter financial results. As you'll hear today, there's been an abundance of activity here at Cumberland. And let's review the key highlights of our third quarter, starting with our strong top line financial performance.

I'm pleased to report that 2019 continues to deliver the success we had hoped for. You may recall that we look to this year with great anticipation, and after posting another solid quarter, you can see why. Net revenues for the third quarter were $10.4 million, a 22% increase over the prior year period. Our adjusted earnings for the quarter were $0.1 million and year-to-date were $3.5 million or $0.22 a share, which represents a $0.35 per share increase from the prior year period.

Moreover, our success in the quarter was not limited to our financial results. During the third quarter, we were pleased to announce the advancement of our ifetroban pipeline with a new Phase II clinical program. The FDA awarded Cumberland just over $1 million through their Orphan Drug Grant initiative, and we subsequently started a new Phase II study. Through this program, we're developing ifetroban for the treatment of the cardiomyopathy associated with Duchenne's muscular dystrophy, a rare, fatal neuromuscular disease for which there is currently no universally effective treatment. This new program is an excellent fit for Cumberland given our mission to develop new medicines that address unmet medical needs. And since ifetroban uniquely addressed the heart failure associated with this deadly disease, we very much appreciate the FDA grant support of our novel treatment for these critically ill patients.

We'll recall, earlier in the year, we announced a strategic review of our brands, our partners and our capabilities. And during the first half of the year, we concluded many elements of that review and addressed and expanded our international arrangements, partnering with companies like SciClone Pharma for Vibativ in China and R-Pharm for Vibativ in Russia. We've also added select personnel at our home office and expanded our hospital sales force and our field-based medical liaison team. As part of the strategic review during the third quarter, we finalized an agreement with Dr. Reddy's Laboratories for the registration and distribution of Vibativ in India. Dr. Reddy's is a multinational pharma company based in India, with over $2 billion in annual revenue.

We also extended the arrangements with Clinigen to continue to support their Ethyol and Totect brands in the U.S. until the end of the year. We will then return the U.S. rights to Ethyol and Totect late in the fourth quarter, and we'll receive a $5 million in financial consideration paid over a 2-year period afterwards.

And lastly, we agreed to conclude our co-motion arrangement with Piramal Critical Care. Piramal was promoting Caldolor and Vaprisol at the hospital accounts that we didn't cover, and we appreciate their efforts. And a transition plan is being implemented to return those accounts from Piramal to Cumberland.

In addition to those developments associated with our strategic review, we've also made progress on our goals of expanding our commercial portfolio and advancing our product pipeline. We continue to support the approval process for RediTrex, our new methotrexate product line. These injectables are designed for the treatment of adults and pediatric patients with rheumatoid arthritis as well as adults with severe psoriasis. While oral formulations are widely available, injectable methotrexate has been shown to result in increased efficacy, greater continuation rates and less discomfort for patients. And we believe our methotrexate products will provide enhancements and patient benefits over conventional injectable products currently available here in the United States.

Also during the third quarter, we largely completed the transition of Vibativ to Cumberland. We also pursued label expansion for Caldolor and advanced our clinical pipeline featuring several new product candidates in Phase II studies. And as we've previously mentioned, if just one of those products in development obtains FDA approval, it could provide a significant growth catalyst for our company.

So with that introduction, I'll now turn the call over to Marty Cearnal, Cumberland's Chief Commercial Officer, to provide an update on our commercial 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. This is an exciting time for our commercial endeavors. We continue to develop and implement programs for our marketed products, including our newest product, Vibativ, while also planning for the pending launches of our next-generation Caldolor and our new RediTrex product line.

Earlier this year, we completed the transition of Vibativ to Cumberland from Theravance Biopharma. Vibativ is our patented, FDA-approved injectable anti-infective for the treatment of serious -- certain serious bacterial infections, including hospital-acquired and ventilator-associated bacterial pneumonia and complicated skin and skin structure infections. It addresses a range of Gram-positive bacterial pathogens, including those that are considered difficult-to-treat and multidrug resistant.

During the third quarter, a new study was published revealing a superiority of Vibativ over vancomycin in select patients with bacterial pneumonia. These study results were published in Infectious Diseases and Therapy, and they showed a superior cure rate for telavancin compared to vancomycin within a subset of patients who enrolled in our product's Phase III trials. These patients had hospital-acquired pneumonia that was caused by bacteria with low susceptibility to vancomycin.

Also during the third quarter, we completed the initial stages of our hospital sales force expansion and increased relationships with key regional customers. We also continued our planning for the RediTrex launch, including initiating the first stage of our activities with third-party payers. Additionally, as A.J. mentioned, we've completed transitioning Piramal accounts to Cumberland. I'd like to thank Piramal Critical Care management and their representatives for their efforts in support of Cumberland products over the past several years.

That completes today's updates on our key marketed brands. 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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Thanks for sharing that progress, Marty. Next, I'd like to introduce Dr. Ines Macias-Perez, who's the Principal Scientist in Product Development here at Cumberland and ask her to provide an update on our ifetroban clinical program, which she is leading. Ines?

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Ines Macias-Perez;Principal Scientist, Product Development, [6]

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Thank you, A.J., and good afternoon. As you know, Cumberland has been evaluating the new chemical entity, ifetroban, in a series of clinical studies. Ifetroban is a selective and potent antagonist that blocks activation of the thromboxane receptor. This receptor is found in many tissues and plays a key role in multiple biological processes. As ifetroban was initially discovered and developed by a large pharmaceutical company, Cumberland has acquired the worldwide rights to this molecule, and we're investigating it for several patient indications that represent unmet medical needs and could also provide orphan drug designation.

As A.J. mentioned, the FDA recently awarded us over $1 million in funding through their Office of Orphan Products Development Clinical Trial Grant Program to support and advance our new clinical program for Duchenne Muscular Dystrophy, or DMD. DMD is a rare and fatal neuromuscular disease that affects approximately 1 in every 3,500 live male births. It results in loss of ambulation between ages 7 and 13, respiratory failure and cardiomyopathy at any age and inevitably, premature death of affected young men in their late 20s. DMD is the most common fatal genetic disorder diagnosed in childhood, and there is currently no cure. Significant advances in respiratory care have exposed cardiomyopathy as the leading cause of death for DMD patients.

Our promising preclinical findings in DMD were recently published in the Journal of the American Heart Association and compelled us to design the current multi-center, randomized, double-blind, placebo-controlled trial to evaluate the safety and efficacy of ifetroban. The FDA cleared our application to study ifetroban in DMD patients 7 years of age and older. As a result, we are initiating our Phase II study to evaluate ifetroban for the treatment of cardiomyopathy associated with DMD. Cumberland's Phase II study is the first DMD clinical trial awarded the FDA orphan product development funding. This study's findings will inform the design of the pivotal Phase III study supporting approval of ifetroban for this rare and debilitating disease where no current therapy exists. These studies have the potential to make the greatest impact on reducing death and disability in patients with DMD.

As a reminder, we have completed 4 ifetroban Phase II studies involving patients suffering from hepatorenal syndrome, a life-threatening condition involving liver and kidney failure; patients with portal hypertension associated with chronic liver disease; patients suffering from aspirin-exacerbated respiratory disease, a severe form of asthma; and lastly, patients with systemic sclerosis or scleroderma, a debilitating autoimmune disorder characterized by diffuse fibrosis of the skin and internal organs. Through this series of exciting programs, we are working to provide important new medicines that address these unmet medical needs.

That completes the update on our ifetroban pipeline, and I'd like to now turn things over back to you, A.J.

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

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Thank you, Ines. Well, as many of you that have been following us know, we've also filed an application for the FDA approval of our next-generation product late last year. This next-generation product features an easier-to-administer package and an improved patented formulation. We're excited about this new formulation of Caldolor because it offers hospitals and medical facilities improved dosing accuracy as well as cost savings.

Earlier this year, the FDA approved our application. And with limited initial supplies, we did begin shipments of the product to select customers across the country. It's been great to see the growing demand for this new product. And with additional lots on the way, we're now planning for the full launch in the coming months. Additionally, to further expand Caldolor's label, we submitted an application to the FDA that includes new geriatric, pediatric and safety data. The proposed new label would also include a shortened infusion time for the product as well as a class update. Because of the number of new claims, the FDA has asked us to divide the submission into several separate applications, each containing a single proposed labeling claim or a group of related claims with additional supporting data.

The FDA also offered a Type A meeting to discuss their recommendations, and we are indeed planning to do so in order to progress this new labeling initiative. Meanwhile, we also completed the study to evaluate Caldolor in newborns up to 6 months of age. We're still gathering the final data from this study, and soon we'll report the top line results and also consider filing for additional label expansion supported by this new data.

Late last year, we reported we had completed and filed a submission for a new -- 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 this year, we've had several communications with the FDA, and they did request additional data and then more time to complete their review of our application. The approval decision date is early December. And pending a favorable decision, our goal would be to introduce these methotrexate products using the RediTrex brand name in the new year.

That completes our regulatory updates. And now I'd like to 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 [8]

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Thanks, A.J. For the 3 months ended September 30, 2019, net revenues were $10.4 million compared to $8.5 million for the prior year period. Total net revenues for the 9 months ended September 30, 2019, were $33.9 million compared to $27.2 million for the prior year. Net revenue by product for the 3 months ended September 30, 2019, included $3.3 million for Ethyol and $2.9 million for Kristalose. Our newest brand, Vibativ, contributed $1.5 million followed by $1.2 million for Caldolor, $0.8 million for Acetadote and $0.5 million for our other brands.

Total operating expenses for the 3 months ended September 30, 2019, were $12.2 million compared to $10.3 million for the prior year period. The primary drivers of this increase were the cost of goods and other expenses related to the growth in sales as well as the amortization expenses associated with the addition of Vibativ. Total operating expenses for the first 9 months of 2019 were $36.5 million compared to $32.4 million for 2018.

Adjusted earnings for the third quarter were $0.1 million, a significant improvement from a loss of $0.8 million for the prior year period. Adjusted earnings for the first 9 months of 2019 were $3.5 million or $0.22 per diluted share, which represents a $0.35 per share turnaround from the prior year period.

During the third quarter, our balance sheet had total assets of over $103 million, including $29.2 million in cash and marketable securities. Liabilities at the end of the quarter totaled $52.1 million, including $20 million on our credit facility. Total shareholders' equity was $51.7 million at the end of the period.

As a reminder, we funded a $20 million upfront payment for the acquisition of Vibativ through our revolving credit loan with Pinnacle Bank. The line had initial availability of $12 million with the ability to increase the principal borrowing amount to $20 million. Earlier this year, 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 general corporate and acquisition purposes. We also provided an additional $5 million payment during the second quarter of 2019, 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 $34.2 million in new assets were added as a result of the Vibativ acquisition, including $21.6 million in inventory, $11.8 million of intangible assets and $0.9 million 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 $11.2 million in new revenue, a total of $6 million in related expenses and delivered an approximate $8.5 million in incremental cash flow.

We also continue to execute on our share repurchase initiative. During the third quarter, we repurchased an additional 246,000 Cumberland shares, bringing the total shares repurchased this year to 452,000. It is important to note that Cumberland also has approximately $44 million in tax net operating loss carryforwards, resulting from the prior exercise of stock options.

That completes our financial report for the third quarter of 2019.

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

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Thanks for that financial review, Michael. Well, as you heard today, we're working hard to build a specialty pharma business that delivers sustained growth, profitable operations and long-term value. And we're very excited about the key catalysts we reported on today, including the contributions from the Vibativ acquisition, the launch of our new Caldolor product and the pending launch of our RediTrex product line.

As we continue through the end of 2019, we're confident that our strategy is on track as we build and support a diversified portfolio of valuable pharmaceutical brands. We'll continue to manage our operations with financial discipline with the goal of delivering positive cash flow, and we remain in a strong financial position with high margins and a favorable balance sheet. And please note that the interest of this organization, its management and our shareholders remain closely aligned given the significant insider ownership in the company. And finally, I'd like to acknowledge and thank our team for their dedicated efforts and hard work in 2019 as we continue on our mission of advancing patient care with 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 from B. Riley FBR.

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

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Just right out of the gate, I'm just curious on the revenue front. If you could give a little bit of color on why I said like Vibativ and Ethyol, the rest of the business effectively declined year-over-year? And then as it relates to Vibativ, it seems to have slumped a little bit as well as you look throughout the whole year. Can you give a little bit of context as to maybe seasonality or anything that you're seeing?

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

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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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Sure. Our product portfolio is really comprised of a diversified group of brands at different stages of their life cycle. So we manage a branded product line to deliver annual growth in our total net revenues. So while we're very pleased with the net revenues in the third quarter and they did grow significantly, it's best to evaluate our results on an annual basis. And for the year-to-date, net revenues have increased 26% over 2018. We have seen small variations product to product, but I don't think there's any important signals there.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [5]

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Okay. All right. Great. And then as it really relates to RediTrex, obviously, the new PDUFA date's in December. Can you give a little bit of context as far as some of the amendments that were submitted to the FDA? I'm assuming they were minor, based on the extension request time line, but any info there would be valuable. And that's my last question.

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A. J. Kazimi, Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO [6]

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Sure. We felt that the requests were reasonable and actually rather routine. And they included manufacturing information and insight during -- that was provided during the summer and some labeling updates based on what's happening across all brands at the FDA. The original PDUFA date was in September. And given the breadth of the additional information we provided, we understood that FDA needed a few more months to complete their review. So we look forward to their decision by early December. And if favorable, then we will be building inventory for a launch as soon as the second quarter, maybe late second quarter of next year.

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Operator [7]

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At this time, I would now like to turn back the call over to the management for any closing remarks.

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A. J. Kazimi, Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO [8]

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Okay. Well, I just want to say thanks, everyone, for joining our call today. And as we've noted in the past, we do understand that many prefer a private discussion with management. And if so, please just reach out to Erin Gull here, and she will help hold such -- schedule such a call. And meanwhile, we do appreciate your time and interest in our company, and we look forward to providing another update after the end of the fourth quarter.

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Operator [9]

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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 9865969. Alternatively, a replay for the webcast will be available on the company's website. I would now like to thank you for your participation. You may now disconnect.