Cumberland Pharmaceuticals Inc (CPIX) 2014 Q4 法說會逐字稿

Thank you for joining the Cumberland Pharmaceuticals fourth-quarter and FY14 financial results conference call. Please be advised that this call is being recorded at the Company's request and will be archived on the Company's website for one week from today's date. At this time, I would like to introduce Erin Smith, who handles Corporate Relations for Cumberland pharmaceuticals. Please go ahead.

Hello, everyone. Earlier today the Company issued a press release containing financial results for the fourth quarter and full year ended December 31, 2014. The release, including the financial tables, is available on the Company's website at www.cumberlandpharma.com. Before we begin, allow me to read the following Safe Harbor information.

This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because these statements reflect the Company's current views, expectations and beliefs concerning future events, these forward-looking statements involve risks and uncertainties. Investors should note that many factors, as more fully described under the caption, risk factors, in our Form 10-K, Form 10-Q and Form 8-K filings with the SEC could affect the Company's future financial results.

Those future results could differ materially from those expressed in the forward-looking statements, which are qualified by these risk factors. The Company does not assume any obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. We will also discuss supplemental non-GAAP financial measures with respect to our performance today.

The definitions and calculations of these supplemental metrics can be found in our earnings release and the related financial tables. Also, please note that this conference call is being webcast through our website and will be available there. I will now turn the call over to our Chief Executive Officer, AJ Kazimi, to begin our discussion of the Company's performance.

Good afternoon, everyone, and thank you for joining us as we review our fourth-quarter and annual 2014 results. With me on today's call are Cumberland's Chief Commercial Officer, Marty Cearnal; our Chief Financial Officer, Rick Greene; and Dr. Amy Rock, our Senior Director, Regulatory and Scientific Affairs. We will start with our recent developments, and then review our marketed products, followed by a clinical update, and then a discussion of our financial performance. We will conclude with a review of the Company's strategy and plans before then opening the call to any questions.

So, let's begin. 2014 was a very successful year for Cumberland, as we returned the Company to growth and profitability. Today, you will hear about important progress in several clinical programs, including the announcement of a new addition to our product pipeline. Furthermore, we acquired two FDA approved products, strengthened our patent portfolio and expanded our international activities during the year.

Also in 2014, we secured a new credit facility and continued to repurchase shares, while maintaining a strong balance sheet and financial position for the Company. We finished 2014 with net revenues of just under $37 million, up 15% compared to the prior year. Our balance sheet included over $95 million in total assets, with nearly $55 million in cash and investments. We ended the year with no debt and over $44 million of tax loss carry forwards resulting from the prior exercise stock options.

With the launch of two new products in 2014, our revenue stream became more diverse than ever before. During the year, we completed the acquisition of Vaprisol just a few months after adding Omeclamox-Pak to our portfolio. We launched active promotion of both brands in 2014 and are encouraged by the initial contributions as well as the favorable response we've received in the medical community to both products. During 2014, we structured a new senior credit facility for up to $20 million with SunTrust Bank.

We also arranged $2 million in new funding for our research activities at Cumberland Emerging Technologies, or CET, that included an investment from one of our international partners, China's Gloria Pharmaceuticals. Also during 2014, we secured and listed two new patents each for Acetadote and Caldolor, further expanding our intellectual property position for those two brands. We completed significant Phase IV clinical work for Caldolor, concluding our pediatric pain and fever studies.

Those studies provided the basis for expanded labeling, and today, I am pleased to announce that we filed the sNDA with the FDA, requesting the addition of pediatric information to our Caldolor package insert. This is one of several recent developments in a busy start to 2015 for our clinical and regulatory department. In January, we announced the publication of two large Phase IV registry studies supporting a shortened infusion time for Caldolor.

In February, we announced a new development program for Boxaban, an oral formulation of ifetroban, and today, we will be providing initial top-line data from our Phase II Hepatoren trial. I'll ask Dr. Rock to provide an overview of these exciting clinical developments in just a few moments. First, I would like to ask Marty Cearnal, our Chief Commercial Officer, to provide an update on our marketed products. Marty?

Thank you, AJ. We were very pleased to expand our product offerings during 2014, diversify our revenue stream and return product sales to a growth trajectory. We started the year with a new marketing strategy for Kristalose to better position the brand relative to other products in the laxative marketplace. This new strategy has allowed us to better support Kristalose for patients and offer new opportunities to partner with managed care providers.

We also introduced a new couponing program, with an e-prescribing feature, to enhance patient access to the product. These new initiatives positively impacted the brand during 2014, driving accelerated growth as Kristalose became our largest product. We plan to continue this strategy during 2015, as we support Kristalose through our field sales force and with complementary promotional initiatives. In early 2014, we also launched promotion of Omeclamox-Pak, which is also featured by our field sales division.

We have seen a favorable response with growth in prescriptions from our targeted physicians. As you may know, many stomach ulcers are caused by an infection from the bacteria Helicobacter pylori, or H. pylori, which colonize in the stomach and duodenum. When present, this bacterial infection has been proven to be the cause of over 90% of duodenal ulcers. These ulcers commonly cause abdominal pain and may lead to serious bleeding.

We are targeting gastroenterologists with our promotion and our co-promotion partner, Pernix Therapeutics, is covering selected primary care physicians in support of the brand. We next launched Vaprisol through our hospital sales division during the second quarter of 2014 and found a favorable reception among critical care physicians and nephrologists. Vaprisol is the only brand available to treat hyponatremia in injectable form, the most common electrolyte imbalance seen in US hospitalized patients.

Studies have shown that patients with hyponatremia have longer hospital stays and poorer outcomes. Because the symptoms of hyponatremia can be subtle, it can go unrecognized and untreated. Vaprisol offers an elegant solution for this condition. The brand had not been actively promoted for some time, prior to our acquisition, and many physicians have been pleased to see support return for this product. Our hospital sales division plans to build on this momentum in 2015.

Meanwhile, Caldolor continued its growth during 2014, and we remain excited about the prospects for this brand. Our hospital sales organization continues to focus on increasing the use of the product in key medical centers across the country where Caldolor is on formulary and stocked. We look forward to featuring the new clinical data in 2015 as we work to build Caldolor into a more significant contributor.

Finally, Acetadote sales stabilized during 2014 and remained an important part of our business. We achieved our goal of maintaining a majority market share between shipments of our brand and our authorized generic. During 2015, we will continue to feature our EDTA-free formulation. That completes the update on our marketed brands, and now I'll turn it back over to you, AJ.

Thank you, Marty. Before we return to the financial results, I'd like ask Dr. Amy Rock to provide a review of some exciting clinical developments here at Cumberland. Amy?

Thanks, AJ. Our team has been very busy, and today, I am pleased to share our progress on several key initiatives. The results from two Caldolor Phase IV studies were recently published and are currently available as manuscripts in the journal, Clinical Therapeutics. These two studies included a total of 450 patients enrolled at over 30 leading US medical centers. They evaluated the tolerability and efficacy of a shortened infusion time for Caldolor.

These studies included patients treated for pain during surgeries and hospitalized patients experiencing pain or fever. Both studies allowed for administration of multiple doses of intravenous ibuprofen and demonstrated that the shortened infusion time of 5 to 10 minutes was well tolerated. The safety and efficacy results from these new studies were comparable to data observed in our previous trials. We have now completed a series of Phase IV studies in over 1,000 patients, including our pediatric pain and fever program.

We have recently completed and submitted a supplemental new drug application to the FDA for the product. This submission requested changes to the package insert to include pediatric and other updated information from our post-marketing studies. In addition to the clinical efforts to support our marketed products, we have also been working on the development of new product candidates. We recently announced the addition of a new Phase II development program to our pipeline.

We've initiated clinical development of Boxaban, which is an oral formulation of ifetroban. We are evaluating this product candidate for the treatment of patients with aspirin exacerbated respiratory disease, or AERD. AERD is a respiratory disease involving chronic asthma and nasal polyposis that is worsened by aspirin. It is characterized by sharp increases in inflammatory mediators and platelet activity within the respiratory system.

Pre-clinical findings suggest that ifetroban may interfere with these pathways to modify the disease and provide symptomatic relief. Approximately 1 in 20 asthmatic adults, which is approximately 1 million patients in the United States, suffer from AERD, and the awareness of this disease is growing throughout the medical community. Current treatment of AERD remains a challenge as novel and effective treatment modalities are lacking for this poorly met medical need.

We have completed manufacturing of the Boxaban oral capsules and received clearance from the FDA for our request to initiate the clinical program for the product. As a result, today, I am pleased to announce that the Phase II multi-center study has been initiated, with enrollment now underway.

Finally, I would like to review some top-line results for our other pipeline candidate, Hepatoren. Our Phase II trial was designed to evaluate the pharmacokinetics, safety and tolerability of ifetroban administered as daily intravenous doses. This multi-center, double-blind, randomized, controlled study includes patients recently diagnosed with a hepatorenal syndrome, or HRS.

This condition involves reduced kidney and liver function, which can lead to failure of these organs and a high mortality rate for patients. In our study, patients were stratified based upon disease type, either Type I or Type II HRS diagnosis, depending upon the seriousness of their condition. We started with low doses, then escalated to subsequent higher dose levels, contingent upon the safety and tolerability of each dose level as determined by an independent data safety monitoring board.

Cumberland completed enrollment in the Type II HRS patient cohort at the end of 2014 and four dose levels were enrolled and evaluated. Top-line results indicate that ifetroban was well tolerated in HRS patients at all dose levels with no safety concerns identified. Importantly, we found that the patients receiving the higher dose levels of ifetroban were more likely to experience increases in their urine output compared to patients who received placebo.

This signal of improvement in kidney function is encouraging and certainly warrants continuation of the development program. Next steps include further analysis of the full data set, completion of enrollment for the Type II patients and design of the follow-up study based on these findings. That completes our clinical update, and I will now turn the call back over to you, AJ.

Thanks for that update, Amy. We are very excited about those new clinical and regulatory developments, and we look forward to providing further updates as these important initiatives progress. I will now turn it over to our Chief Financial Officer, Rick Greene, for the financial review. Rick?

Thank you, AJ. For the full year ended December 31, 2014, Cumberland's net revenues were $36.9 million, up 15% from $32 million in the prior year. Net revenues by product in 2014 were $14.9 million for Kristalose; $11.9 million for Acetadote, including $5.8 million of our authorized generic; $4.1 million for Omeclamox; $3 million for Vaprisol; and $2.7 million for Caldolor. This represents the most diversified revenue stream in our Company's history.

For the three months ended December 31, 2014, net revenues were $9.3 million, compared to $8.2 million for the prior-year period. Net revenues by product for the fourth quarter were $4 million for Kristalose; $2.9 million for Acetadote, including $1.3 million of our authorized generic; $1 million for Vaprisol; $0.8 million for Caldolor; and $0.6 million for Omeclamox.

I'd like to note that during the fourth quarter, we encountered temporary supply interruptions for two products which impacted our revenue in that period. Both Omeclamox and Acetadote's authorized generic were on backorder for part of the quarter. These issues were resolved and the normal supply chain resumed for both products by the end of the quarter.

For the year ended December 31, 2014, our total operating expenses were $33.3 million, compared to $35.8 million for 2013. Total operating expenses for the three months ended December 31, 2014 were $8.4 million, compared to $10.6 million for the prior-year period. These decreases resulted from our initiatives to manage expenses in line with our revenues. They also reflect the reduced clinical activities, during 2014, following the conclusion of several Caldolor Phase IV studies.

Beginning this quarter, we are introducing new performance measures that will be included in our reporting going forward. Many companies in our industry and others report certain supplemental or non-GAAP measures. We have evaluated our reporting and determined that these supplemental measures should provide investors with meaningful metrics that the Company uses to evaluate its operations, in addition to the traditional GAAP net income and diluted earnings per share.

This is due to the magnitude of certain non-cash items including taxes and amortization expenses. As a reminder, Cumberland does not pay significant federal or state income taxes because of our net loss carry forwards. We will begin reporting adjusted earnings in total and per share. These underlying earnings represent our earnings before interest, taxes, depreciation and amortization, and the definition and reconciliation to our GAAP net income is included in our earnings press release.

With that said, adjusted earnings for 2014 were $6.3 million, or $0.35 per diluted share, compared to a loss of $1.8 million in 2013, a loss of $0.10 per diluted share. Adjusted earnings for the fourth quarter were $1.8 million, or $0.10 per share, compared to a loss of $1.9 million in the prior-year period. We were very pleased with the improved financial performance and return to profitability for Cumberland in 2014.

Meanwhile, we continue to believe our shares represent an attractive investment opportunity. During the fourth quarter, we repurchased approximately 300,000 shares, for a total of nearly 4.4 million shares repurchased through the program since its inception. In late January, our Board of Directors authorized an additional $10 million available for repurchase of Cumberland shares using our excess cash flow generated from operations.

As of December 31, 2014, we had $95 million in total assets, including $55 million in cash and marketable securities. We had no debt and tax loss carry forwards of over $44 million. We had approximately 17.1 million common shares issued and outstanding at the end of the year, compared with approximately 18 million shares at the end of the prior year.

Please note that the recent Caldolor submission involved an FDA fee of over $1 million. While this significant, non-recurring expense will impact our operating results in the first quarter, our goal is to maintain annual profitability again in 2015.

Before I close, I would like to comment on our foreign currency arrangements. The strengthening US dollar has impacted many international businesses. While we have both licensing and manufacturing agreements with partners outside the US, the vast majority of our payments are denominated in US dollars, so our foreign exchange exposure is de minimis.

That completes our financial report for the full year and for the fourth quarter of 2014. Now, AJ, I will turn it back over to you.

Thank you, Rick. So as you just heard today, 2014 was a very productive year for Cumberland. We rebounded strongly from the headwinds we faced in the prior year, and I was particularly pleased that our team swiftly addressed the challenges we faced and returned the Company to growth and profitability. Our strategy is to now build upon our positive momentum and maximize the full potential of our commercial brands.

We'll also pursue opportunities to further expand our product portfolio through our business development efforts and through advancement of our internal pipeline. To that end, our objectives for 2015 are to grow our marketed brands while exploring new opportunities to expand the patient populations benefiting from those products. We'll also pursue new portfolio additions, through select acquisitions, as well as internal development programs such as our new Boxaban candidate.

We'll also work to grow the international contribution to our business and further expand our patent position. Finally, we aim to maintain profitability and financial strength while continuing our share buyback program. We are confident that our strong financial operations and position provide the resources to achieve our goals. Most importantly, we remain focused on our mission of advancing patient care through the delivery of high-quality pharmaceutical products.

With that, now let's open the call to any questions you may have. Operator, please proceed.

Ladies and gentlemen, that concludes the Company's presentation and we will now open the call for questions.

(Operator Instructions)

David Cannon, Aegis Capital.

First question is, can you please quantify the impact of the backorder status for Omeclamox and Acetadote? What was the cost to you in terms of revenue?

From an estimated -- we don't disclose that number. We've got the calculation, but if you look at the trend line we would have expected the growth to be -- the growth line to continue for those products and we saw declines. Somewhere, even though we haven't disclosed it, you would expect total revenue to be in the $10 million range for the quarter.

You guys alluded to a non-recurring expense. I didn't quite catch that, in the first quarter. Can you reiterate what that was again please?

It's the first quarter of 2015 when we filed with the FDA for our Caldolor filing we incurred a fee of about $1.1 million that will all impact the first quarter.

Barring that, for the balance of the year with the portfolio that you have, are you guys comfortable that you can maintain this level of profitability and cash flow? It seems like you're at about $1.8 million per quarter, close to $7 million annualized. Is that something you are comfortable with on a go-forward basis?

We're not going to provide guidance for 2015. What I would tell you is from an operating expense line item, we expect our 2015 expenses to look very similar on a run rate to 2014 with the exception of our R&D expenses. Look at 2013's R&D percentage as a proxy for the model, but we are very comfortable with our run rate and expenses where we are right now.

From my vantage point as a shareholder, I like share buybacks. However, it is not really impactful what you are doing and I am not supposing that you could accomplish the following. But my message to the Board would be, if you guys were to do something more meaningful such as a Dutch tender -- and this is of course hypothetical, one never knows what the outcome is, buying let's say 7 million shares at $7 of Dutch tender, you have the cash to do that you.

You are already at a run rate of about $6.5 million of free cash flow annualized, so you are over capitalized. The current quarter would have not been $0.10 on a non-GAAP basis, but had you accomplished this, it would have been $0.18 or 80% higher than what you reported. So what is wrong with my line of thinking?

My message to the Board is you guys should be more aggressive because it seems like you have got a pretty good business here and play offense and create some value for shareholders. You can comment and tell me what is wrong with my reason of thinking.

Rather than criticize or tell you what's wrong, just want to say thank you for that feedback.

(Operator Instructions)

I see no additional questions. At this time, I would like to turn the call back over to Management for any closing remarks.

Thank you, everyone for joining us on our call today. We do understand that many investors prefer a private discussion with Management regarding these results and we do remain prepared to host such calls. We appreciate your time and interest in Cumberland and we look forward to providing another update following the end of the first quarter. Goodbye.

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 and use the access code 79652184. 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.