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Edited Transcript of CPIX.OQ earnings conference call or presentation 10-Nov-20 9:30pm GMT

·19 min read

Q3 2020 Cumberland Pharmaceuticals Inc Earnings Call Nashville Nov 19, 2020 (Thomson StreetEvents) -- Edited Transcript of Cumberland Pharmaceuticals Inc earnings conference call or presentation Tuesday, November 10, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * A. J. Kazimi Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO * Erin Smith Gull Cumberland Pharmaceuticals Inc. - Senior Corporate Relations Associate * Martin E. Cearnal Cumberland Pharmaceuticals Inc. - Executive VP, Chief Commercial Officer & Director * Michael P. Bonner Cumberland Pharmaceuticals Inc. - CFO and Senior Director of Finance & Accounting ================================================================================ Conference Call Participants ================================================================================ * James Melvin Terwilliger Northland Capital Markets, Research Division - MD & Senior Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for joining the Cumberland Pharmaceuticals Third Quarter 2020 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 one week from today's date. Now I would like to introduce Erin Gull, who handles Corporate Relations at Cumberland. Erin, please go ahead. -------------------------------------------------------------------------------- Erin Smith Gull, Cumberland Pharmaceuticals Inc. - Senior Corporate Relations Associate [2] -------------------------------------------------------------------------------- Good afternoon, everyone. Earlier today, we issued a press release containing the company's financial results for the third quarter ended September 30, 2020. You can find a copy of that release on our website at www.cumberlandpharma.com. Please note that today's discussion may include forward-looking statements as defined in the Private Securities Reform Act of 1995. And because any such statements reflect the company's current views and expectations concerning future events, they may involve risks and uncertainties. Additionally, there are many factors that could affect the company's future results, including, but not limited to, natural disasters, public health epidemics, economic downturns and other events beyond our control. Those issues are described under the caption Risk Factors in our Form 10-K and any additional updates filed with the SEC. And also 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 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 statements, whether as a result of new information or due to future developments. During the call today, we will be referring to several of our marketed brands and full prescribing and safety information for each brand can be found on the individual product website, and the links to those product sites can be found on our corporate site at cumberlandpharma.com. Also today, we'll provide some non-GAAP financial measures with respect to our performance, and 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; Martin Cearnal, our Chief Commercial Officer; and Michael Bonner, our Chief Financial Officer. We'll start today with an overview of our progress during the third quarter and will follow with a discussion of our commercial activities, and then we'll review our financial results and finish with the closing remarks before opening the call to any questions. I will now turn the call over to A.J. Kazimi, Cumberland's Chief Executive Officer, to begin our corporate update and discussion of the company's performance. -------------------------------------------------------------------------------- A. J. Kazimi, Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO [3] -------------------------------------------------------------------------------- Good afternoon, everyone, and thank you for joining us. I'd like to start by saying, I hope you and your families are safe and well. As we move to the close of 2020, we certainly recognize it's been a particularly difficult year with the pandemic impacting all our daily lives. And our thoughts continue to go out to those who have suffered, especially those with life-threatening or health conditions as well as those who have lost their jobs or their businesses as a result of the pandemic. And I'd like to provide a special thanks to our team for their steadfast efforts during these difficult times. I'm pleased to report that our facilities continue to remain open, including our headquarter offices and our CET laboratories. While the pandemic has impacted hospital admissions and physician office visits, we are very fortunate that our business has remained steady. Our portfolio of FDA-approved brands delivered combined revenues of $9.3 million during the third quarter, a 33% increase over the prior year period. As we've previously stated, our performance should be evaluated on an annual basis, and we were also pleased to see an overall 8% increase in year-to-date revenues through September when compared to 2019. Furthermore, we delivered $4.5 million in cash flow from operating activities year-to-date, more than double the prior year period. Adjusted earnings for the third quarter were $0.2 million or $0.02 a share, also a significant increase over last year. Our balance sheet at the end of September included $96 million in total assets with over $26 million in cash. Total liabilities were approximately $48 million, resulting in $48 million of total shareholders' equity as well. During the quarter, our Vibativ product was used to help hospitalized COVID patients who go on to develop bacterial infections in their lungs. Vibativ of potent antibiotic designed for difficult-to-treat infections and is FDA-approved to treat hospital-acquired and ventilator associated bacterial pneumonia that can result from COVID, flu or other infections. It's been very rewarding to learn of cases from around the country where Vibativ has been successfully used to cure pneumonia in those type of patients. Meanwhile, we're finalizing plans for the launch of our newly FDA-approved RediTrex product line. Given the pandemic's continued impact on physician access, we've decided to implement a soft launch this month and will follow with a full commercial launch of the brand next spring. Additionally, we do have a modest expansion underway for both our field and our hospital sales forces as we prepared for launching this new product line. Furthermore, we announced 2 favorable study publications during the third quarter for Caldolor, our ibuprofen for injection, which added to the growing library of literature supporting the brand. On the clinical front, enrollment in our studies significantly slowed during the pandemic due to the decrease in patient admissions to medical centers across the country. However, we have started to see an improvement as some centers have begun to reopen and a return of patients eligible for our trials at those sites. We're fortunate to have a robust clinical pipeline of promising candidates designed to treat poorly-met medical needs. And as we've previously noted, success in any of those programs could have a significant impact on our company and help us further build and diversify our business. So with that overview, I'd like to now ask Marty Cearnal, Cumberland's Chief Commercial Officer, to share his update on our marketing and our sales activities. Marty? -------------------------------------------------------------------------------- Martin E. Cearnal, Cumberland Pharmaceuticals Inc. - Executive VP, Chief Commercial Officer & Director [4] -------------------------------------------------------------------------------- Thank you. As A.J. mentioned, the pandemic is affecting how many businesses are run in 2020, and we've taken measures to lessen its impact on Cumberland as much as possible. We're focused on protecting everyone's safety and well-being, while also continuing to supply and support our medicines for the patients who need them. Recall, we launched our next-generation Caldolor product at the beginning of 2020 with a new presentation in a pre-mixed bag. This ready-to-use product contains 800 milligrams of ibuprofen and a patented 200 milliliter formulation designed for injection. It offers hospitals and medical facilities, improved dosing accuracy and cost savings while managing pain and reducing opioid consumption. As a nonsteroidal anti-inflammatory drug, Caldolor may be used as the sole method of treatment for mild to moderate pain or as part of a multimodal treatment for severe pain. During the third quarter, we announced new data from a clinical study featuring Caldolor that was published in the Journal of Orthopedic Trauma. The study evaluated the efficacy of Caldolor in the management of acute pain and orthopedic trauma patients and monitor the use of opioids in those patients. The results of this level one trauma center study demonstrated that the use of Caldolor significantly reduced opioid consumption. Moreover, pain was more effectively controlled with Caldolor when compared to standard of care narcotics. Additionally, important results from a review of 9 clinical studies evaluating Caldolor was also recently published. This comprehensive review was presented in the Journal of Clinical Therapeutics and involved over 1,000 adult patients with over 750 receiving Caldolor and another 300 receiving placebo or a comparator medication. The data compiled in this review noted that the use of Caldolor decreased surgical stress and improved post-surgery recovery. The study also determined that patients given Caldolor experienced less post-operative pain and, in turn, decreased opioid use. We're currently selling both the Caldolor vials and the premixed bags, are pleased that the new ready-to-use presentation comprises over half of the brand sales. While the national launch of our next-generation Caldolor got off to a fine start, it was unfortunately impacted by the pandemic and postponement of elected surgeries. Nonetheless, we do expect even stronger performance of the product as more accounts gain access to the new presentation and once the country fully reopens. Meanwhile, we are now ready to launch RediTrex, our FDA-approved injectable methotrexate product line. Launch supplies have arrived and we'll hold a virtual sales meeting to kick off our efforts. As A.J. mentioned, we're starting with a soft launch, given the limitations on access to physicians' offices. Please note that we'll focus on rheumatologists in support of the brand, and that this is a new medical specialty for our company. As we establish these new relationships and learn from the soft launch activities, we plan to follow with a full national launch of the brand in the spring of next year. To support this new product, we are implementing a modest expansion of our field sales force with a goal of covering up to 80% of the rheumatology market potential. We do believe that RediTrex will be a valuable addition to the portfolio and provide a significant contribution to our business. Our national sales teams have continued to remain engaged in communication with health care professionals to support the patients who can benefit from our medicines. However, during the year, we implemented new methods of interaction such as telephonic, electronic, and videoconferencing communications. We established new procedures to document and monitor productivity, and the results indicate the resourceful and steadfast effort to maintain awareness of the benefits and the use of our brands. We supplemented those national sales activities with an enhanced internal sales capability, reaching out to hospitals and physician offices from our headquarters. We also launched a national digital media activity and a series of virtual medical meetings this year. We believe that all these efforts represented an innovative and efficient way to expand our reach, add new coverage, and assure awareness of our products during these unparalleled times. Cumberland relies on a group of 12 FDA-approved manufacturers to supply our line of branded pharmaceutical products. And we've been carefully monitoring our supply chain during the pandemic and resulting economic impact. You may be aware of the U.S. drug shortages that have resulted from the pandemic on pharmaceutical manufacturing plants worldwide. Overall, our supply chain has been intact with one recent exception. Unfortunately, our Omeclamox-Pak supplier encountered financial difficulties due to the impact of the pandemic. And as a result, their operations are currently suspended. While there is some Omeclamox-Paks in the distribution channels, we've depleted our inventory of the product. We're awaiting a resumption of packaging at the current facility while also pursuing other alternatives to provide the needed supply of the product. That completes today's updates on our key commercial efforts. A.J., I'll turn the call back over to you. -------------------------------------------------------------------------------- A. J. Kazimi, Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO [5] -------------------------------------------------------------------------------- Thank you, Marty. I'd now like to ask our Chief Financial Officer, Michael Bonner, for the financial review. Michael? -------------------------------------------------------------------------------- Michael P. Bonner, Cumberland Pharmaceuticals Inc. - CFO and Senior Director of Finance & Accounting [6] -------------------------------------------------------------------------------- Thank you, A,J. For the 3 months ended September 30, 2020, net revenues from continuing operations were $9.3 million, a 33% increase over $6.9 million during the prior year period. We also reported an additional $750,000 in the third quarter of this year as discontinued operations associated with return of rights to 2 products that we no longer distribute. Net revenues by product for the third quarter included $3.6 million for Krisatlos, $2.8 million from Vibativ, and $1.4 million from Caldolor. Total operating expenses for the quarter were $10.5 million compared to $10.1 million for the prior year period. The main driver of this change was the increase in cost of goods sold associated with the growth in sales of Vibativ. Recall that significant Vibativ inventory was transferred to Cumberland as part of the acquisition of the brand during 2018. As part of the acquisition accounting, the fair value of these units sold included a significant step-up of our actual manufacturing costs. The resulting adjusted earnings for the third quarter were $0.2 million or $0.02 per share, a significant turnaround from the loss of $1.7 million, a loss of $0.11 per share during the prior year period. Year-to-date cash flow from operating activities in the third quarter of 2020 was $4.5 million, more than double the $2.2 million for the same period during 2019. As a reminder, the financial terms for the Vibativ acquisition included a $20 million payment upon closing. This initial payment was funded by our revolving credit facility. We subsequently provided a $5 million milestone payment and are providing royalties based on product sales. We accounted for the Vibativ acquisition as a business combination. A total of $34.2 million in new assets were added as a result of the acquisition, including $21.5 million in inventory, $11.8 million of intangible assets and $0.9 million of goodwill. Due to amortization of intangibles and sales of inventory, the value of these assets totaled $26 million at the end of the third quarter. Vibativ has been a very important contributor to our business. From the products launch in late 2018 through the end of this year's third quarter, the product has delivered a total of $16.4 million in cash contribution. At the end of 2019, we completed our commercial support and returned the U.S. rights to a file on subject. This year, we began to present the operating results for these products as a discontinued business line. This results in the sales and direct expenses of the products having been removed from prior year reporting and incorporated into a single line described as discontinued operations at the bottom of our income statement. That line nets the historic revenue with the historic direct expenses associated with 2 brands. During the third quarter, there was a $0.8 million benefit from discontinued operations compared to $1.3 million for the same period in 2019. The total contribution from discontinued operations this year was primarily the result of the quarterly payments we are receiving this year and the next, associated with the agreement to return those 2 brands. As of September 30, 2020, we had over $96 million in total assets, including $26.6 million in cash and cash equivalents. Liabilities totaled $48.2 million, including $17 million on our credit facility, a net reduction of $1.5 million from year-end. Total shareholders' equity was $47.9 million at the end of the quarter. Meanwhile, as we previously announced, Cumberland received the funding of a loan in the amount of $2.2 million pursuant to the Paycheck Protection Program under the federal CARES Act. The resulting loan helped prevent the need for any employee layoffs or furloughs as we experienced the impact of the pandemic. The proceeds of the loan were used to fund payroll and related qualifying expenses. Therefore, in October, we submitted a request for the loan's forgiveness. The request was approved by our lender and will next require the approval of the U.S. Small Business Administration. Additionally, given the uncertainty associated with pandemic, we began to significantly decrease the number of shares repurchased this year. During the third quarter, we repurchased an additional 100,000 common shares, which included repurchases to fund the taxes associated with employee vested restricted shares. Finally, I'd like to note that Cumberland has also has over $44 million in tax net operating loss carryforwards, resulting from the prior extra shock to stock options. That completes our financial report. I'll turn it back over to you, A.J. -------------------------------------------------------------------------------- A. J. Kazimi, Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO [7] -------------------------------------------------------------------------------- Thank you, Michael. So overall, our third quarter was quite successful given all the challenges of operating a business in the wake of the pandemic. We were able to generate solid financial performance and also advance on important initiatives. During the quarter, we continue to implement procedures to monitor the productivity of our sales organization and also redirect their promotional efforts. Despite being faced with numerous challenges, we rapidly adjusted to the changing landscape as our team applied creative ways to support our brands and interact with our customers. We are especially pleased with our favorable quarterly financial performance. We posted both sequential and year-over-year revenue growth, which is no small feat we feel in the pandemic operating environment. That speaks to the durability of our product portfolio as well as the commitment of our commercial organization. The catalyst for our business moving forward remain the same, and they include contributions from the Vibativ acquisition, introduction of the new Caldolor formulation, the launching of the RediTrex product line as well as further development of the company's clinical programs. Our commercial brands, combined with new products from our pipeline, will be important growth contributors to our business for years to come. The addressable markets are quite large for a company of Cumberland's size. And if we're able to maximize the potential of these opportunities, we believe that can have a significant impact on our value. We'll continue to focus on these growth drivers while also managing our operations with financial discipline. We're working on multiple fronts to build the value of Cumberland. And we'll also continue our business development efforts as we seek the selective additions that complement our commercial portfolio. And I'd just like to close by noting that we're headquartered here in Nashville, Tennessee, which has the largest concentration of healthcare companies in the country. We're part of the local community, which is on the front lines in the battle against the novel coronavirus. Furthermore, we're also part of the biopharmaceutical industry, which is providing the testing, the treatments and preventative solutions for this devastating disease. Our Medical Director, Dr. Todd Rice, also oversees the intensive care units at the Vanderbilt Medical Center, where he supervises all COVID care there. And Dr. Rice is leading a national clinical study to determine if antibody-rich convalescent plasma can alleviate or even cure COVID-19. He's the principal investigator of this study over at Vanderbilt, which involves a $30 million -- $34 million trial, enrolling 1,000 patients from 50 medical centers across the country. And if the use of convalescent plasma has proven to be a benefit to patients with COVID 19, it could indeed become an important advance in the fight against the coronavirus. And we wish him and his colleagues at Vanderbilt well in their quest to evaluate that possibility. Here at Cumberland, we are grateful to be part of the healthcare community in Nashville, the national biopharmaceutical industry, and we're also grateful for our association with both Dr. Rice and Vanderbilt University. And we're all working to deliver medicines to help COVID-19 patients, while also working to develop new ones for the future. And as we move to the last quarter -- through the last quarter of 2020, I'd just like to thank our team for all their hard work and their dedicated efforts during such a challenging year. We are confident we have the key pieces in place to help us build our business and deliver on our goal of improving patient care through the delivery of high-quality medicines. So with that review and update, now let's open the call to any questions you may have. Operator, would you please proceed? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question will come from the line of James Terwilliger from Northland Capital. -------------------------------------------------------------------------------- James Melvin Terwilliger, Northland Capital Markets, Research Division - MD & Senior Research Analyst [2] -------------------------------------------------------------------------------- Congrats on the tone of the conference call, it seems very positive concerning your performance for the quarter, especially underneath the COVID cloud. I'm kind of new to the name. Can you tell me anything more about the RediTrex launch? You're going to do a limited or soft launch, which makes a lot of sense, and then when does that pick up momentum? And how should we think -- how should I think about that in 2021? -------------------------------------------------------------------------------- A. J. Kazimi, Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO [3] -------------------------------------------------------------------------------- Okay. Marty? -------------------------------------------------------------------------------- Martin E. Cearnal, Cumberland Pharmaceuticals Inc. - Executive VP, Chief Commercial Officer & Director [4] -------------------------------------------------------------------------------- Yes. As you noted, we're going to use a soft launch because this is a new medical specialty, and there is limited access to physicians' offices. So we want to build relationships during the next few months. We'll go with a full launch in the springtime. And at that point, kind of unleash all of the resources that we have built to effectively launch this product, but do it with the knowledge that we've gained during this soft launch period. So we would expect modest sales through the balance of this year with gradually increasing sales as we move into 2021. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- (Operator Instructions) All right, I don't have any further questions at this time. I'd like to turn the call back over to management for any closing remarks. -------------------------------------------------------------------------------- A. J. Kazimi, Cumberland Pharmaceuticals Inc. - Founder, Chairman, President & CEO [6] -------------------------------------------------------------------------------- Sure. We do understand that many of you prefer a private discussion with management. And if you'd like to do so, please just reach out to Erin Gull here, and she can help us a schedule such a call for you. We certainly appreciate your time and interest in Cumberland, and we do look forward to providing another update after the end of the third quarter. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.