Cumberland Pharmaceuticals Inc (CPIX) 2019 Q4 法說會逐字稿

Thank you for joining the Cumberland Pharmaceuticals Fourth Quarter 2019 Financial Results -- 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.

Good afternoon. Today, we issued a press release featuring our fourth quarter and full year 2019 financial results and company update. You can find that release, including all the related financial tables on our website at www.cumberlandpharma.com.

Additionally, our call today may contain forward-looking statements within the meaning of the Private Securities Reform Act of 1995. Because the statements in today's call reflects the company's current views and expectations concerning future events. Any forward-looking statements may involve risks and uncertainties. So please note that many risk factors could affect the company's future results, including natural disasters, public health epidemics and other events beyond our control, as more fully described under the caption risk factors in our Form 10-K and any updates we file with the SEC. Any forward-looking statements made during today's call are qualified by those risk factors. And despite our best efforts, actual results could differ materially from our expectations, and the information shared on the call today should be considered current as of today only. Please remember that the company does not assume any responsibility to update such forward-looking statements, whether as a result of new information or due to future developments.

And also during today's call, we will be referring to several of our marketed brands. If you'd like to see full prescribing and safety information for each brand that can be found through the links to the individual product websites on our corporate site cumberlandpharma.com. Also, we'll provide some non-GAAP financial measures with respect to our performance today, and explanation and reconciliation to GAAP measures can be found in our earnings release and financial tables. With us on today's call are A.J. Kazimi, Cumberland's Chief Executive Officer; Marty Cearnal, our Chief Commercial Officer; and Michael Bonner, our Chief Financial Officer.

And I will now turn the call over to A.J. to begin our discussion of the company's performance and our company update.

Well, good afternoon, everyone, and thanks for joining us. We appreciate your participation. And as Erin noted, we'll provide an overall company update and review our fourth quarter as well as our full year financial results.

And I'd just like to start by noting the serious coronavirus outbreak spreading across our country, impacting the economy and the financial markets. Our thoughts certainly go out to those suffering from this development and especially the patients whose illnesses have led to a life-threatening condition.

Please be assured that here at Cumberland, we are taking appropriate actionto protect our employees, secure our supply chain and continue to support the patients who can benefit from our medicines. During today's call, we'll first cover highlights on our progress, followed by a more in-depth update on our commercial and our product development activities. And then we'll report our financial results before finishing with some closing remarks and opening the call to any questions.

While I'm pleased to report that 2019 was a productive and successful year for Cumberland Pharmaceuticals. As you'll hear today, we made good progress in advancing our major initiatives and accomplishing many key objectives. We set out to deliver double-digit revenue growth in 2019, and we did just that.

Moreover, we announced the strategic review of our brands, our capabilities and our partners at the beginning of last year. And then we moved quickly to conduct those efforts and implement our conclusions. We also expanded our sales organization, and we refocused their promotional efforts.

During 2019, we advanced our clinical programs, obtained 2 key FDA approvals and entered into several new international agreements for our products. So you just heard we reembarked on a long and complex set of tasks last year but I'm proud to report that our team was up to the challenge.

And as a result, we begin to see the impact of those efforts both here in 2020 and beyond. So let's now review some of those accomplishments in a bit more detail. We started last year by reporting that we secured FDA approval for our next-generation Caldolor product, featuring an improved formulation and a ready-to-use presentation. We then ended the year with the FDA approval for our RediTrex line of new injectable methotrexate products. These 2 FDA approvals delivered on our goal of expanding our commercial portfolio, and we will build upon both in 2020.

Meanwhile, we finished the year strong and delivered a significantly improved financial performance in 2019. Net revenues for the fourth quarter were $13.7 million compared to $13.5 million during the prior year. And net revenues for the full year 2019 were just over $47 million compared to approximately $40 million during the prior year. And with this 17% increase, we achieved our objective of delivering double-digit revenue growth for 2019.

Our adjusted earnings for the fourth quarter were $1.5 million compared to a similar amount for the prior year period, but adjusted earnings for the full year were $5 million or $0.32 a share. And those 2019 results represented a $5.4 million swing or increase in adjusted earnings over the prior year as we also achieved our objective of significantly improving our bottom line.

Turning to the strategic review. We finalized international agreements for Vibativ with Hikma Pharmaceuticals in the Middle East, R-Pharma in Russia and Dr. Reddy's in India. These 3 companies are leaders in their respective markets, and we believe represent excellent additions to our network of international partners.

In China, WinHealth Pharmaceuticals will assume responsibility for our Acetadote and Caldolor brands and they've also joined our R&D initiative through their $1 million investment into Cumberland Emerging Technologies, or CET. In addition, we formed a strategic alliance with WinHealth to further explore business opportunities that will advance the mission and goals of both our organizations.

Domestically, we returned the U.S. rights to Ethyol and Totect at the end of 2019. We completed that transition, and we will receive $5 million in payments over the next 2 years based on the agreement to return those brands.

So as a result, we'll now focus our hospital efforts on our 3 key acute care brands, Caldolor, Vibativ and Vaprisol. You see we own the full rights to these 3 brands, which feature high gross margins and better growth opportunities for our organization.

Also during 2019, we renewed our co-promotion partnership with Poly Pharmaceuticals. If you recall, Poly is detailing Kristalose to medical professionals that we don't cover, and their sales organization, which is slightly larger than our field sales force, has been introducing the brand to thousands of new medical practitioners, and they've been able to generate a growing number of prescription from those physicians that they're covering.

We also agreed to conclude our co-promotion agreement with Piramal Critical Care during the fourth quarter. Piramal was promoting Caldolor and Vaprisol to hospital accounts that we didn't previously call on, and we appreciated Piramal's efforts, and those accounts have now been transitioned to Cumberland.

On the clinical front, we completed our newest Caldolor pediatric study. And yesterday, we announced favorable top line results. We also announced a new Phase II ifetroban clinical program in young males with Duchenne Muscular Dystrophy, which involved a $1 million FDA Orphan Drug Grant to support that study.

During 2019, we continued to progress enrollment in our other Phase II ifetroban studies with patients with aspirin-exacerbated respiratory disease and systemic sclerosis. So as you can hear, 2019 was clearly a very busy year as we executed on a host of our objectives, while delivering improved year-over-year financial performance. And importantly, we laid the groundwork through several catalysts that will help drive our growth this year and beyond.

So with that overview, I'd now like to turn to Marty Cearnal, Cumberland's Chief Commercial Officer, to provide you with more information and an update on our marketing and sales activities. Marty?

Thanks, A.J. As you heard, there's been an abundance of activity here at Cumberland. We made meaningful progress in several key areas of our long-term growth strategy. We continue to develop and implement programs for our marketed products, and we also completed the successful transition of Vibativ to Cumberland. We finalized plans for the launch of our next-generation Caldolor product and also began preparations for the upcoming launch of our RediTrex product line.

We were also pleased that our newest drug, Vibativ or telavancin injection was the subject of 2 favorable clinical publications during 2019, adding to the growing library of literature supporting that brand.

As a reminder, Vibativ, is a patented FDA-approved anti-infective designed to treat serious bacterial infections, including those that are considered difficult-to-treat and multidrug resistant. It is a life-saving product for certain difficult-to-treat infections, and we believe it's an excellent match for our existing infrastructure and can become flagship product for Cumberland.

Study analysis reported in infectious diseases and therapy showed numerically superior cure rates for Vibativ when compared to vancomycin within a set of patients who had hospital-acquired pneumonia caused by bacteria with low susceptibility to vancomycin.

Another manuscript published in Drugs and Real World Outcomes detailed the positive clinical outcomes that resulted from treating multiple infection types with Vibativ, including complicated skin and skin structure infections, bone and joint infections, bacteremia and endocarditis and also lower respiratory tract infections. While we were transitioning Vibativ to Cumberland this year, we also redesigned our hospital territories, increasing the size of that sales division and expanding our medical science liaison capabilities.

In addition, we added a new inside sales team, enabling us to better support those customers outside the reach of our hospital and field sales organizations. Our goal is to provide national coverage for most of the existing and potential prescribers associated with our business. These various personnel additions resulted from our strategic review to ensure that we have the marketing and sales organization needed to provide full and efficient support for our brands.

During 2019, we conducted the initial launch of our Caldolor next-generation product. The new presentation features a ready-to-use bag that may be administered without the need for dilution. This improvement overcomes the need for pharmacy preparation of the product, which we believe will enhance the brand's performance as the advantages of the new preparation become known to the marketplace.

As a reminder, Caldolor is approved as the sole method of treating mild-to-moderate pain or as part of a multimodal treatment for severe pain. And thus, it is positioned to play an important role in combating the nation's opioid crisis. The initial launch was focused on a select group of key hospitals across the country based on limited initial supplies of the product. It went very well. And as a result, we are optimistic about the opportunity to build this next-generation product. We've had numerous medical facilities that started purchasing Caldolor for the first time, and we also saw a 63% growth in sales among key accounts that have switched from the Caldolor vial to the premix bag form of the product. We've been encouraged by the significant number of physicians who have incorporated Caldolor into their pain management regimens. The new ready-to-use presentation of Caldolor offers hospitals and medical facilities, a more cost-effective way to administer this proven product, which can be used to reduce their opioid use.

We also implemented additional manufacturing, which has resulted in the delivery of a larger amount of inventory to support a full national launch of the product. We recently announced this national launch, which is now underway. The brand is featured by both our newly expanded hospital sales force as well as select account coverage by our field sales division.

Our sales organization of 50 individuals is supported by a full range of marketing and promotional activities, including a national advertising campaign, participation in relevant conferences, a speakers bureau consisting of physicians with hands-on experience with the product and a digital campaign.

Also during the fourth quarter of 2019, we were very excited to learn of the FDA approval for RediTrex, our new methotrexate brand. RediTrex is an innovative line of injectable products designed for the treatment of patients with rheumatoid arthritis as well as those patients with severe psoriasis.

We are now actively preparing for the national launch of RediTrex, which is expected during the second half of 2020, following the arrival of the first package and serialized supply.

In preparation, we've begun the process of engaging third-party payers with the objective of achieving favorable coverage and reimbursement rates. We're designing an expansion of our field sales force with the target of covering up to 80% of the rheumatology market potential. We're also establishing a group of physician advisers to help with product positioning and messaging, and we're preparing the full range of marketing and promotional materials to introduce the brand.

In closing, I'd like to mention that with the coronavirus outbreak, there have been many changes in access to medical facilities, cancellation of medical conferences and disruption of our planned internal meetings. Given those developments, please be assured that we are taking specific action to ensure our sales organization maintains contact with and continues to support their colleagues in the medical community. We're also taking measures to ensure good internal communication and ongoing interaction to operate our activities across the country. That completes today's update on our marketing and sales activities.

A.J., I'll turn the call back to you.

Well, thanks for sharing that progress Marty. I'd like to now discuss our clinical update in a little more detail. During 2019, we completed our third Caldolor pediatric study, which fulfilled our commitments to the FDA that were associated with the product's original approval. We have previously completed both fever and pain studies in older children, and we were then able to expand Caldolor's label with FDA approval for the product's use in children 6 months of age and older. We followed then with a study in newborns, ranging in age from birth up to 6 months. The trial enrolled 24 newborns at 4 medical centers across the country and was designed to evaluate the safety and pharmacokinetics of Caldolor in those youngest of patients.

Today, I'm pleased to report that during the course of the clinical study, we did not see any significant safety concerns in these very young children. We also observed that the pharmacokinetics of Caldolor behave similarly between these newborns and the children greater than 6 months of age. Based on that data, it appears that Caldolor dosed at 10 milligrams per kilogram every 6 hours is well tolerated and appropriate for children, ages birth on up.

Our next steps are to complete the full study report, and then submit that information to the FDA. Our Caldolor clinical studies have now involved nearly 2,000 patients resulting in an outstanding safety database. And we are planning to further expand the products label based on this wealth of new data.

During 2019, we submitted it to the FDA, aiming to further expand Caldolor's label. And this update included some more geriatric, pediatric, pharmacokinetic data as well as data on a shortened infusion time. Well, due to the number of new claims, the FDA requested that we divide the new data into a series of separate applications. So now we're in the process of reviewing and prioritizing this information in preparation for the first of these new submissions. And again, our goal is to continue to expand the Caldolor label over time.

Meanwhile, we also are working to pursue ifetroban, our first new chemical entity through a series of indications that address unmet medical needs. As I mentioned earlier, we launched our new ifetroban clinical program last year, following a $1 million reward from the FDA to support our Phase II study through their orphan products clinical trials grants program.

Our study is evaluating ifetroban for the treatment of the cardiomyopathy associated with Duchenne Muscular Dystrophy or DMD in patients 7 years of age and older. DMD is a rare, fatal, genetic neuromuscular disease that is characterized by the progressive loss of muscle, which results in deterioration of the skeletal, the lung and the heart muscles. The heart muscle disease is now the leading cause of death in these patients with DMD, and we believe ifetroban may uniquely address the heart failure associated with this deadly condition. Our study is the first DMD study approved for FDA funding, and we very much appreciate the FDA's grant support for our novel treatment for these critical ill patients.

In addition as I mentioned, we also progressed enrollment in our Phase II studies of ifetroban in patients with aspirin exacerbated respiratory disease, which is a severe form of asthma, and in patients with systemic sclerosis, which is the deadliest of the autoimmune diseases. And we'll be sure to provide you with an update when enrollment in each of these Phase II studies is completed, and then we'll follow-up with an announcement of the top line results from each of those studies.

You see we're awaiting the results from these various Phase II work before then planning the best path forward for the approval of this important new drug. Meanwhile, we're also establishing a pipeline of new product candidates at Cumberland Emerging Technologies, or CET, our R&D initiative. The mission of CET is to identify breakthroughs at academic research centers and then team with their scientists to advance the resulting product candidates towards the marketplace.

During 2019, we added a new collaboration to our roster of academic partnerships with an agreement with the Medical University of South Carolina to collaborate on future co-development programs. It combines the strengths of both organizations with the goal of advancing new products from research into clinical practice. The agreement adds to our roster of academic collaborations, which also include Vanderbilt University, the University of Mississippi, the University of Tennessee and Louisiana State University.

And we also added 2 key individuals at CET during 2019. Margaret Dolan, the President and CEO of Launch Tennessee, joined the CET Board of Directors last year. Margaret is an integral part of the mid-south entrepreneurial committee -- community and brings a unique blend of business civic experiences that are a great fit for CET as we work to deliver new products and technologies.

In addition, Dr. Jim Stefansic joined in 2019 as CET's Director of Corporate Development. In that role, he's responsible for the identification and licensing of new biopharmaceutical products and he also oversees the program management and grant initiatives associated with the growing portfolio of licensed product candidates emerging from CET's university collaborations.

Recall that CET was awarded a Federal Small Business Grant, providing $2 million for an innovative program in collaboration with Vanderbilt University. That award was made in late 2018, and our colleagues at CET worked in 2019 to progress the new product funded by that award.

Well, that concludes a further update on our development activities, and now I'd like to turn to our Chief Financial Officer, Michael Bonner, for the financial review. Michael?

Thank you, A.J. For the 3 months ended December 31, 2019, net revenues were $13.7 million compared to $13.5 million for the prior year period. Net revenues by product for the fourth quarter included $4.4 million for Ethyol, $3.2 million for Kristalose, $2.5 million for Vibativ, $1.7 million for Caldolor and $1.2 million for Acetadote.

For the full year ended December 31, 2019, Cumberland's total net revenues were $47.5 million, a 17% increase compared to $40.7 million for the prior year period. Net revenues by product for the full year 2019 included $12.9 million for Kristalose, $12.8 million for Ethyol, $8.7 million for Vibativ, $5.2 million for Caldolor and $3.8 million for Acetadote.

Total operating expenses for the 3 months ended December 31, 2019, were $14.7 million, down from $15.8 million for the prior year period. For the full year ended December 31, 2019, our total operating expenses were $51.2 million, compared to $48.1 million for 2018. This increase included additional cost of products sold and an increase in amortization and noncash expense.

Adjusted earnings for the 3 months ended December 31, 2019, were $1.5 million or $0.09 per share compared to $1.6 million or $0.10 per share for the prior year period. Adjusted earnings for the year ended December 31, 2019 were $5 million or $0.32 per share, a significant increase over the loss of $0.5 million or $0.03 per share in the prior year period. As of December 31, 2019, we had $104.5 million in total assets, including over $28 million in cash and investments. Liabilities totaled were $53.5 million, including $18.5 million on our credit facility.

Total shareholders' equity was just over $51.1 million at the end of the year. As a reminder, the financial terms for the Vibativ acquisition included a $20 million payment to Theravance upon closing. This initial payment was funded by our revolving credit facility with Pinnacle Bank. We also provided Theravance a $5 million milestone payment in 2019 and tiered royalties on U.S. net product sales. Also recall, 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. Due to amortization of intangibles and sales of inventory during the year, the value of these assets totaled $30 million at the end of 2019.

In late 2018, we recorded a liability of $9 million associated with the acquisition as the fair value of the contingent consideration resulting from the long-term royalty on product sales. During 2019, the liability was reduced to $8.6 million as we made payments on our royalty obligation. 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. Through the end of 2019, the brand provided a total of $10.2 million in cash contribution to our business.

We also continued to execute on our share repurchase initiative during the fourth quarter of 2019. During the quarter, we repurchased an additional 171,000 Cumberland shares, bringing the total shares repurchased during the full year to 623,000. During 2019, we launched an insider share repurchase initiative through a series of 10b5 trading plans. 5 members of our Board of Directors participated and increased their share position in the company. We also helped one of our directors relinquish his Cumberland shares following a change in policy at his university employer.

At the end of 2019, we concluded our commercial support and returned the U.S. rights to Ethyol and Totect. There will be a total of $5 million in payments over the next 2 years associated with the agreement to return these 2 brands.

Beginning in 2020, we will present the operating results of these products as a discontinued business line. This will result in the sales and direct expenses of the products being removed from prior year reporting and incorporated into a single line described as discontinued operations at the bottom of our income statement. That line will net the revenue with the direct expenses associated with the 2 brands.

However, it's important to note that it will not include any indirect expenses, such as those associated with our marketing and sales organization, who have redirected their focus to our 3 key hospital brands. Finally, it's important to note that Cumberland also has over $44 million in net -- in tax net operating loss carryforwards, resulting from the prior exercise of stock options.

That completes our financial report.

Thank you, Michael. Well, as you've heard, we're working hard to build a specialty pharma business that delivers sustained growth and profitable operations. We're hopeful for the potential of the key catalysts we reported on today, which include the contributions from the Vibativ acquisition, the national launch of our new Caldolor presentation and the pending launch of our RediTrex product line. We believe these brands will be important contributors to the growth in 2020 and for years to come. The addressable markets are quite large for a company our size. And if we are able to maximize the potential of these brands, we believe it can have a significant impact on our value.

As we move into 2020, we'll be supporting a more focused portfolio of valuable brands. We'll continue our business development initiatives to selectively add new commercial brands as well as new partners. We'll also work to develop and register new product candidates that address unmet medical needs. We expect that 2020 will be a successful year for Cumberland. We are targeting a number of important accomplishments during the year, and as of today, we are aiming for double-digit revenue growth this year over 2019.

Our goal is to deliver positive cash flow from our operations and we expect to continue to return capital to our shareholders through our share repurchase and other initiatives while being careful not to impact our growth opportunities. Meanwhile, we do recognize the importance of managing our supply chain and continuing to deliver our medicines needed by patients during the national coronavirus outbreak.

And as Marty mentioned, we are taking specific action to ensure ongoing access to the medical community to support patient care and also to maintain the needed interactions among our national sales organization to support our brands.

And finally, I'd just like to acknowledge and thank our team. We had a terrific year in 2019, and we appreciate all their efforts and contributions. Our goals are to advance patient care through the delivery of high-quality medicines, while also building value for all involved with our organization.

So with that review and that update, now let's 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 with B. Riley FBR.

And I hope everyone is okay after the tornadoes. Just curious if there has been any sort of disruption due to the tornadoes or COVID-19 and really curious about how you're managing the business from a sales and marketing standpoint currently just due to some of the restrictions that have been implemented? And if we should just consider that as a viable impact to your top line this year?

Well, this is A.J. and I'll address the tornado, and then I'll turn to Marty to talk about what we're doing from the commercial perspective regarding the coronavirus outbreak. You are correct, we encountered 6 different tornadoes, which landed in this area recently, and -- which caused extensive damage. And unfortunately, also, there was a considerable loss of life. Fortunately, our business and our team was largely unaffected. Nobody at Cumberland was hurt and there was no significant damage to the operations of the company, the facilities of the company or even the homes of our team members. So thankfully, we survived those tornadoes. And again, I'll now turn to Marty to describe what we're doing regarding the COVID-19 outbreak.

Yes. Our goal continues to focus on delivering double-digit revenue growth in 2020. We believe that bids like ours is less impacted by any economic downturn. Patients will still need medications to support their health and treat their conditions and some of our medications are particularly useful in these difficult situations. Furthermore, our Caldolor product can help treat high fevers associated with viral infections, while our Vibativ product is approved for the treatment of hospital-acquired pneumonia, which can be a major factor secondary to COVID-19 respiratory disease. So we think that we're well positioned, and we have -- we've been working with our sales organization to assure that we maintain appropriate contact.

Okay. As it relates to the next-generation Caldolor launch. Can you give a little bit of insight as far as -- maybe year-to-date, or from whatever time frame you can from when you actually formally launch the product to now roughly what percent of the physicians or hospitals that you're working with the transition to the next-generation versus the last generation Caldolor?

We've seen significant adoption of the new presentation. We currently sell both forms of the product because hospitals prefer to use the files in their pediatric patients, where they can mix several bags as these patients require lower doses. And as we reported during the call, for those hospitals that are making the change, we're seeing significant uptake and expansion. One of the reasons for that is as we get the product out of the pharmacy and into the Pyxis machines up on the floor, it's much more convenient for the product to be used in various parts of the hospital. So not only in surgery, but in OB/GYN, in pediatrics, in the ER and even in plastic surgery. So we're seeing an expansion in the areas of use based on making this product more convenient.

Okay. Great. And just last question for me. If you could just let me know how you're going to account for the Clinigen financial consideration. Is that going to be an other revenue line? Or will anything actually have to be moved over from a financial consideration standpoint into discontinued operations?

It will be considered discontinued operations. That way, when you have a comparative number for 2019 versus 2018, they'll both be in. The revenue component that will be considered as revenue.

So the $5 million financial consideration over 2 years will be on the top line as other revenue?

Yes, top line revenue.

Thank you. At this time, I'd like to turn the call back over to management for any closing remarks.

Okay. Well, we appreciate everyone joining us today. As I have mentioned in the past, we understand that many prefer a private discussion with management. And if you do so, please just reach out to Erin here, and she will help you schedule, and we'll be happy to host such a call. We appreciate your time and interest in Cumberland, and we look forward to then providing another update following the end of the first quarter.

Thank you, sir. Ladies and gentlemen, that concludes our conference call today. If you would like to listen to a replay of today's conference, please dial (855) 859-2056 using the access code 9759981. Alternatively, a replay of the webcast will be available on the company's website. I would now like to thank you for your participation. You may now disconnect.