Cumberland Pharmaceuticals Inc (CPIX) 2018 Q2 法說會逐字稿

Thank you for joining the Cumberland Pharmaceuticals Second Quarter 2018 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'd like to introduce Erin Smith, who is responsible for corporate relations at Cumberland. Erin, please go ahead.

Hello, everyone. Before we begin today, I'd like to point out that earlier today, we issued a press release containing Cumberland's financial results and corporate update for the second quarter ended June 30, 2018. That announcement, including our second quarter financial statements, is available on our website at www.cumberlandpharma.com.

I'd next 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 such statements reflect the company's current views and expectations concerning future events, they 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 most recent 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.

Future results could differ materially from the views expressed in today's call, and you should note that we don't assume any obligation to publicly update such forward-looking statements, whether as a result of new information or future developments.

Also during today's call, we'll be referring to several of the company's marketed brands. For more information on our brands, including full prescribing and safety information, please see the links to the products' website found on our website at cumberlandpharma.com.

Also, please note that today we'll provide adjusted earnings financial metrics with respect to our performance, and explanation and reconciliation to GAAP measures can be found in our earnings release and in financial tables.

I'll now turn the call over to our Chief Executive Officer, A.J. Kazimi, to begin our corporate update and discussion of the company's performance.

Well, good afternoon, everyone, and thank you for joining us. We appreciate your participation in today's call as we share what's happening here at Cumberland. As Erin noted, today, we'll provide a review of our second quarter financial results as well as an overall update on the company. Also with me on today's call are Marty Cearnal, our Chief Commercial Officer; and Michael Bonner, Cumberland's Chief Financial Officer.

I'll first share an overview of our financial performance and then provide an update on several important developments. Marty will share an overview of our commercial activities, and I'll then discuss our clinical programs. Michael will then more fully review our second quarter financial results, then I'll conclude with a discussion of the company's position and strategy before addressing any questions.

So I'm pleased to start by saying we've had numerous positive developments to report from our second quarter. Perhaps the most significant near-term news coming out of the quarter was our improved financial performance. We posted solid double-digit revenue growth, both year-over-year and sequentially. That performance was largely driven by a rebound in Vaprisol sales following its limited supply.

However, it also points out a significant benefit of our business model. We were able to weather the impact of the limited supply due to our diversified portfolio of 7 FDA-approved brands. That product strategy affords us the ability to lessen the effects of shortages or temporary supply fluctuations in ordering patterns on any given product. And our efforts to expand our portfolio are far from over.

In fact, we're busy working on a number of -- on growing the number of approved products to our clinical programs. When you study Cumberland, we encourage you to take a close look at our pipeline. You'll find 5 drug candidates in various stages of development. And importantly, many of those programs may be eligible for orphan drug designation.

Please note that the approval of just one of those product candidates can meaningfully change the growth trajectory of the company. And you'll also hear, in addition to that pipeline, about the potential enhancements to our Caldolor brand that, if approved, will provide, we believe, meaningfully stronger competitive profile.

So as many of you have been following us know, we have a stated goal of building a business that generates sustainable growth and profitability. And this quarter, we made solid progress advancing on that objective. 2 examples of the progress are the imminent NDA filing for our methotrexate product line and the potential approval of an improved version of Caldolor.

Moreover, with the supply of Vaprisol back to normal levels, we were able to generate strong second quarter results. The $10.2 million in revenue for Q2 represents a 17% increase over the prior year period as well as an 18% increase over the first quarter of this year.

And it's also worth noting, our gross margin was 85% for the second quarter. That revenue growth delivered adjusted earnings of $0.2 million, another significant improvement over the same period last year. We also continued to maintain a strong balance sheet, ending the quarter with approximately $91 million in total assets, including over $50 million in cash and investments.

Well, I'd now like to take a few minutes and update you in a little more detail on certain key initiatives that I highlighted at the beginning of this call. Starting with Caldolor, in early 2018, we completed and filed our application to the FDA for the approval of our next-generation product.

This new injectable ibuprofen features an improved package and formulation, which is covered by claims associated with issued patents that have terms lasting until 2032. We recently received a complete response from the FDA requesting additional information for this application. So our next steps are to discuss the details with the FDA and then address their requests.

We also had a second major regulatory initiative underway this year as we're finalizing our new drug application, or NDA, for the approval of our methotrexate product line. That application follows 2 meetings held with the FDA to discuss the pathway for approval and the requirements for the submission. Once this NDA is filed, we'll then await FDA's determination of its completeness and acceptance for their review.

Meanwhile, we continue to advance our clinical pipeline. Today, I'm pleased to report that during the second quarter, we completed patient enrollment in the initial Phase II study in the company's portal hypertension program. We've also continued to advance our Vasculan and Boxaban clinical studies with patient enrollment progressing in each of those Phase II trials.

We continue to work through Cumberland Emerging Technologies, or CET, to establish our long-term pipeline. There we're building a portfolio of earlier-stage product candidates through collaboration with several academic research centers. And during the second quarter, we expanded those arrangements by entering into a new agreement with Louisiana State University. Under the terms of that agreement, we'll be working with scientists at LSU Health Sciences to identify promising discoveries and then together advance them towards the marketplace.

So with those financial and company highlights, I'd now like to look to Marty Cearnal, our Chief Commercial Officer, to provide a briefing on our sales and marketing activities. Marty?

Thanks, A.J. We are determined to maximize the potential of our existing brands. We had a breakthrough during the second quarter with the manufacture, release and arrival of new Vaprisol supplies.

During the prior 2 quarters, our quantities of Vaprisol were limited due to delays at our manufacturer who was impacted by the hurricanes, which damaged pharmaceutical plants across Puerto Rico. With fresh supplies, Vaprisol shipments during the second quarter were larger than expected as we replenished inventory levels at the wholesale warehouses and distribution centers across the country.

We're also encouraged by the resulting pull-through sales, with hundreds of hospital accounts showing a renewed interest in the brand. The product's second quarter sales were supported by our sales and marketing efforts to communicate availability and create new awareness and use of this critical care product.

In the second half of the year, we expect Vaprisol sales to return to normalized levels, but we will be working to build the brand's renewed interest with new programs directed to the hospital community.

We're also beginning preparations for the launch of our methotrexate product line. Methotrexate is approved in the United States as a treatment for several diseases, including arthritis. We are working to introduce a line of new injectable methotrexate products in the U.S. intended for the treatment of active rheumatoid arthritis, juvenile idiopathic arthritis and severe psoriatic arthritis. We've selected the name RediTrex and completed the package design for the product line. Market research is underway as we refine our strategy for these products.

After submitting our application, we'll await the FDA's determination of acceptance and then review of our approval submission. During their review, we'll establish a long-term manufacture and supply plan for the products. Our goal is to introduce these methotrexate products by the end of 2019, pending a favorable and timely FDA decision.

We previously reported on our agreement with Gastro-Entero Logic or GEL to acquire the assets associated with Omeclamox-Pak, including the product's FDA approval, trademarks and other assets. As a result of this acquisition, Cumberland will no longer provide GEL with royalties on sales or fees for overseeing the product's manufacturing. We will become responsible for maintaining the FDA approval and overseeing the product's packaging. The closing of this agreement will occur once we complete the arrangements for transferring the manufacture of Omeclamox-Pak to Cumberland.

On the international front, we were delighted to learn the approval of the Caldolor brand for sale in India by the regulatory authorities there. With that successful registration, we have manufactured, packaged and shipped the product supplies needed to introduce Caldolor into that market. We're also working closely with our partner in India to train their sales organization and design the marketing initiatives to support the product's upcoming launch.

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

Thank you, Marty. We just announced a new appointment in our Clinical and Regulatory Affairs Department. Dr. Adam Haeberle has joined us as Senior Director from Amgen Inc., where he held a series of clinical development roles, including responsibility for innovating and increasing the overall efficiency of Amgen's cardiovascular portfolio. Adam's background also includes positions at Baxter Healthcare and the U.S. Army's Medical Service Corps. He earned his BS in Biology at John Hopkins University, his MBA at Pepperdine and his doctorate in neurosciences at Louisiana State University. We welcome Adam's arrival and look forward to his augmenting our team and driving our clinical programs.

We continue to advance a robust clinical pipeline, which, as I mentioned, include several potential orphan drug candidates. As noted, we've completed study enrollment in -- for our Portaban or portal hypertension clinical program. Portaban is a form of ifetroban development for the treatment of portal hypertension associated with liver disease.

Preclinical studies have shown that ifetroban can reduce portal pressure, inflammation and fibrosis in multiple models of liver injury. And we've enrolled 30 patients in our initial Phase II study at 6 U.S. hepatology centers. The next steps include completion of data gathering from these centers, then a full analysis of the data set and eventual announcement of the top line results.

We also continue to advance our Vasculan and Boxaban clinical program for the patient enrollment, continuing in each of those Phase II studies. As you may recall, we're developing Vasculan for patients with systemic sclerosis, the deadliest autoimmune disorder, which involves a thickening of the skin and internal organs.

Boxaban is in development for the treatment of aspirin-exacerbated respiratory disease, a disease involving chronic asthma, chronic rhinitis and nasal polyps that are worsened by aspirin. With FDA clearance of the study protocols and sites established, patient enrollment is now well underway for those 2 clinical programs.

So that's our clinical update. And now I'd like to look to our Chief Financial Officer, Michael Bonner, for the financial review. Michael?

Thank you, A.J. For the 3 months ended June 30, 2018, net revenues were $10.2 million, a 17% increase over $8.7 million for the prior year period. Kristalose delivered $3.2 million of revenue in the second quarter, followed by $2.8 million for Ethyol and $1.7 million for Vaprisol. Net revenues for the quarter also included $1.1 million for Caldolor and $0.8 million for Acetadote.

This double-digit second quarter revenue growth followed a slower first quarter and a strong 2017 year-end. Therefore, we continue to believe that our performance should be measured on an annual basis. Recall that our revenues grew 25% during the last full calendar year, fueled by our new oncology support brands.

We do expect a more modest revenue increase this year as we prepare for the next growth drivers associated with the launch of our new Caldolor product and our new methotrexate product line. For the 3 months ended June 30, 2018, total operating expenses were $11 million, a 7% increase over $10.3 million during the prior year period.

The primary reasons for this increase were the additional royalties associated with revenue growth and added costs associated with the company's Phase II clinical programs. Please note that we will have a onetime expense of $1.2 million payable to the FDA associated with the planned filing of the methotrexate approval application during the third quarter.

Adjusted earnings for the second quarter were $0.2 million or $0.01 per diluted share compared to a loss of $0.7 million or $0.05 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.

During the second quarter, our balance sheet had total assets of $90.4 million, including $50.7 million in cash and marketable securities. Liabilities at the end of the quarter totaled $30.8 million, including $12 million on our credit facility. Total shareholders' equity was $59.9 million at the end of the period.

Meanwhile, please note that we continue to have tax loss carryforwards available of approximately $44 million related to the prior exercise of stock options. With the recent changes in the tax laws, these carryforwards no longer expire, and our estimated tax rate has been significantly lowered from 42% to 25% on future earnings.

That completes our financial report for the second quarter of 2018.

Thank you, Michael. Well, we're working hard to build a specialty pharma company that delivers sustained growth, profitable operations and long-term value. Our strategy for achieving that goal is to establish a diversified portfolio of brands through both acquisition and internal development.

Our next expected catalysts include the next-generation Caldolor product and the methotrexate product line. Our pipeline involves a growing number of clinical programs based on our ifetroban new chemical entity, and we continue to believe that success in any of those programs can have significant impact on our business and help take our company to a new level. And for the long term, we're building a portfolio of earlier-stage product candidates at CET based on discoveries at several academic research centers located here in the Mid-South section of the country.

Meanwhile, we're also continuing our acquisition initiative, evaluating opportunities to selectively add either late-stage or commercial-stage products. Our criteria include products with competitive advantages, attractive margins, those that match our specialty focus and that are available on reasonable terms. Our strong balance sheet and credit facility put us in a good position to move quickly to close on such an opportunity.

In addition, we continue to add international markets for Caldolor where it's approved in Australia, South Korea and now India. The registration process is also underway in several additional countries. And over time, we believe these international sales can become a meaningful part of our business.

As we continue through the second half of 2018, these same initiatives remain our focus, and we'll continue to manage our operations with financial discipline with a goal of delivering positive cash flow. We remain in a strong financial position with high margins and a favorable balance sheet. And we're confident our strategy of building a diversified product portfolio is on track and well suited to deliver the sustained growth and profitability we seek in the coming years.

I'd like to take a moment to acknowledge and thank our team for their efforts during the first half of 2018, and we do remain focused on our mission of advancing patient care through the delivery of high-quality pharmaceutical products.

So with that review and update, now we can open the call to any questions you may have. Operator, can you please proceed?

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

Just a few quick ones. First off, could you maybe give us a little insight on how to think about Vaprisol sales going forward? I know it's a one-off and officially lumpy quarter, but should it essentially reset to where it was in 2017? Or should we expect it to at least to be at some sort of a higher annualized run rate going forward?

Yes. So we did enjoy a larger-than-expected sales of Vaprisol in the second quarter as new supplies of the product arrived, and we refilled the distribution channels. But we are also pleased to note larger-than-expected uptake at the hospital level. So going forward, sales will certainly return to more normalized levels. But we do expect some growth over the historical levels of the product given the -- what we're seeing as a renewed interest in the brand.

Okay, great. And then did you say that Caldolor, the new formulation, received a CRL? And then if so, what is the FDA looking for? And when do you expect to submit your revised SNDA?

Yes, we got a complete response or CRL, and the FDA appears to be looking for additional quality and nonclinical information. They've offered a call to clarify those requirements, and we've agreed to have such a meeting, which we will be working to hold soon. And then once we have that discussion, we'll have a better idea of exactly what is needed and how long it will take to address those requirements.

Okay. So no real guess on what the time line could look like at this point?

Not yet. It's important to have that FDA discussion, and then we'll be in a much better position to provide that outlook.

Okay, great. And then maybe you can just educate me or refresh my memory on what's the goal on acquiring the GEL assets? Is there a growth opportunity here that I'm not understanding at this point? I'm just a little bit confused because the offering, they have declined fairly significantly year-over-year and just in general, it's been relatively small. So I'm just trying to figure out what the strategy is with the acquisition.

Yes, Marty here. There are 2 things that we're looking at there. One is that we, through the acquisition, end up with much more favorable terms that allow us increased flexibility in terms of marketing the product and reduce a series of fixed costs. At the same time, we are exploring a series of opportunities to expand the penetration of this product by contracting with managed care. That will give us a more favorable reimbursement positioning and enhance the opportunity for continued growth of the product.

Okay. And just 2 more quick questions. As far as Acetadote goes, do you know what percent of total sales for the product line were the generic EDTA-free version sold through your marketing partner?

Yes. The split out was -- of the $0.8 million that we sold, about $0.6 million in the quarter was the authorized generic.

Okay. And then the final question, just assuming everything goes to plan with the regulatory process for RediTrex, is that $40 million opportunity after a few years still your target? Is that reasonable? Or should we kind of take a step back and think about that a little bit more since it's been a little while since you actually put that press release out?

No. I think that we continue to believe that $30 million to $50 million is the range for eventual sales of the product. And given FDA approval during 2019, we expect to launch and begin the process of building that brand.

Our next question comes from the line of James Terwilliger from Paulson Investment Company.

I'm a new shareholder. And thanks for taking my questions, and I apologize for -- maybe my questions won't be as astute. When you talk about the GEL acquisition, one of my questions was the benefits, and I think you discussed that on the last question. What are some of the risks or concerns that you're picking up or responsibilities as you acquire these assets?

Well, picking up responsibilities does add to workload. That is for sure. But as we mentioned, consolidating the ownership of all the assets here, we think will lead to an improved performance of the brand. We'll give it a little more attention, as Marty mentioned, and work to drive top line growth. But it'll also improve the profitability and contribution of the sales we do generate.

And so you have the bandwidth to take that additional responsibilities on in your normal course of business per se. I mean, this won't be a difficult integration, I would imagine?

No. The areas affected are primarily regulatory and supply chain. And we do have the bandwidth within those departments to absorb another brand.

Excellent. Good, some economies of scale. Really quickly, how much -- and again, I apologize. I'm new to the story, and thanks again for taking my questions, how much international revenue do you currently do? And you -- can you give me any additional information on this opportunity in India with -- that you alluded to here with launch preparations underway?

Yes. Thanks for the question on international. We don't typically break that component out. So -- but we will evaluate that in the future. We may contribute that information, but we don't historically provide that. And then I think from India, I think that'd be -- I think right now, it's beginning to shape up, and we'll know a little bit more as we move into that.

And then just lastly, and again, I completely respect what you disclose and what you don't disclose, what should I -- can you help me in terms of what the timing and the market opportunity would be there in terms of maybe this potential launch in India, in terms of timing and just maybe the total addressable market as you define it today?

Yes. We certainly expect that product to launch this year. The -- as we said during the call, the supplies have all been manufactured, packaged and shipped to India. So there, we sent our training staff over to work with their people a couple of weeks ago. And they're in the process of just finalizing their marketing materials. And so we expect a launch perhaps during the third quarter.

(Operator Instructions) At this time, I'd like to turn the call back over to management for any closing remarks.

Sure. I just want to thank everyone again for joining us for today's call. As I've mentioned in the past, we understand that some of you may prefer a private discussion with management. And if so, we're prepared to do that. Just reach out to Erin Smith here. If you'd like to hold such a call, we'll get that scheduled. We do appreciate your time and interest in Cumberland, and we look forward to providing another update after the end of the third quarter.

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 6256649. 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.