Earnings Call Transcript - CPIX Q1 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Cumberland Pharmaceuticals’ 2020 First Quarter Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference will be recorded. I would now like to hand the conference over to your speaker today, Erin Gull. Thank you, and please go ahead, ma'am.

Erin Gull, Corporate Secretary

Good afternoon, everyone. This afternoon, we issued a press release containing the company's financial results and corporate update for the first quarter ended March 31, 2020. That release, which included a series of financial tables for the period, can be found on our website at www.cumberlandpharma.com. Also please note that on today's call we may talk about forward-looking statements within the meaning of the Private Securities Reform Act of 1995. And because these reflect the company’s current views and expectations concerning future events, any such forward-looking statements may involve risks and uncertainties. There are many factors that could affect the company’s future results, including but not limited to 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. 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 forward-looking statements whether as a result of new information or due to future developments. Also during today’s call, we will be referring to several of our marketed brands. Full prescribing and safety information for each brand can be found through links to each of the individual product websites on our corporate site cumberlandpharma.com. Also, we will provide some non-GAAP financial measures with respect to our performance today. An 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. I will now turn the call over to A. J. to begin our corporate update and discussion of the company’s performance.

A. J. Kazimi, CEO

Good afternoon, everyone and thanks for joining us. We appreciate your participation today in the call. As Erin noted, we'll provide an overall company update along with the review of our first quarter financial results. I'll begin with the overview and discussion of recent company developments, and then Marty will provide an update on our commercial activities. I'll share a report on our clinical efforts and Michael will summarize our first quarter financial results, before we finish with some closing remarks and then open the call to any questions. So, I'd like to start by saying on behalf of all of us at Cumberland, our thoughts go out to those suffering from the novel coronavirus, as well as those who have lost their employment. We’d also like to extend our sincere gratitude to everyone on the front lines who are treating patients and performing essential jobs that allow our country and society to function. I'd like to thank our outstanding team for their dedicated efforts to keep our medicines available for those patients that need them. I'm pleased to report Cumberland has remained open for business during the pandemic, as we’re considered to be an essential business by the United States Department of Homeland Security. Regarding our first quarter financial results, I'm also pleased to report a solid performance despite the impact of the pandemic. Total revenues from ongoing and discontinued operations were $9.1 million. Revenues from the ongoing operations were $8.3 million during the quarter. We also received an additional revenue of $750,000 associated with the return of the U.S. rights to Ethyol and Totect. Recall that divestiture resulted from our strategic review and our reprioritization of the company's product portfolio. Adjusted earnings for the first quarter were $0.2 million or $0.01 a share. We ended the period with $97 million in total assets, $47 million in total liabilities and $50 million of shareholders' equity. As you may have read, Cumberland announced several national initiatives to help medical facilities treat patients with COVID-19 symptoms and conditions such as pneumonia, high fevers, and electrolyte imbalances. Our efforts involve special supply arrangements to help hospitals access our acute care brands during this healthcare emergency. Furthermore, I’m pleased to announce that we recently released our first sustainability report. It articulates the company's activities associated with environmental, social, and governance matters, or ESG. The report details Cumberland's community involvement, our ethical marketing compliance, employee practices, and safety of our drugs. We recognize that these ESG issues have become increasingly important to the investment community, and we're very pleased to share the policies and practices that we’ve built into our daily operations. Cumberland's Board has appointed Caroline Young as the company's first ESG Board Director. She’s the former president of the Nashville Health Care Council, the association of the largest concentration of healthcare organizations in the country. Currently, Caroline is the Executive Director of Nashville Health, an initiative launched with former Senate Majority Leader Dr. Bill Frist that focuses on improving the health of citizens in this part of the country. Our inaugural ESG report notes that during 2019, Cumberland provided nearly 4 million patient doses of our products. We safely disposed of nearly 10,000 pounds of expired and damaged goods and we had no product recalls. We also had no products listed on the FDA safety alert database, and no products identified in the FDA adverse event reporting system during 2019. The sustainability metrics featured in this report are central to our commitment to fulfilling our mission of delivering high-quality medicines that improve patient care. These ESG metrics also address the interests of our shareholders, our employees, our partners, and our community. The publishing of this inaugural ESG report represents a milestone for our company, and we look forward to updating it and building upon the foundation of corporate responsibility that we've been able to establish here at Cumberland. So I'd now like to turn the call over to Marty Cearnal, our Chief Commercial Officer, to provide you with a review of our commercial activities. Marty?

Marty Cearnal, Chief Commercial Officer

Thanks, A.J. Here at Cumberland, we're taking appropriate action to protect our employees, secure our supply chain, and support the patients who can benefit from our medicines. Given the changes in access to hospitals and physician offices, our national sales organization has shifted their promotional efforts to other forms of support, including electronic and telephonic communications. Our primary target markets are hospital acute care and office-based gastroenterology. These medical specialties are characterized by relatively concentrated prescriber bases that can be supported effectively by our team of experienced sales professionals, as they make calls, provide information, and supply product samples as requested. We held a very productive national sales meeting during the first quarter of this year and provided our sales division with additional training and support for navigating the current healthcare landscape. It was our first virtual sales meeting held over three days with good participation, and all agenda items covered. Additionally, we augmented our internal commercial capabilities through targeted use of digital media and a series of co-promotion partnerships. We believe that all these arrangements represent an efficient way to expand our reach, round out our coverage, and ensure the survival of our company as the novel coronavirus impacts the country. We planned for two launches during 2020. The first involves our next-generation Caldolor product, which we launched during the first quarter of this year. This new injectable ibuprofen formulation comes in a ready-to-use bag that can be administered without dilution, for further treatment of pain and fever. As a non-steroidal anti-inflammatory drug or NSAID, 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. The new presentation of Caldolor comes in a pre-mixed bag containing 800 milligrams of ibuprofen in a 200 mL patented formulation for injection. This ready-to-use product provides healthcare professionals with a formulation that is easy to administer and less expensive to prepare. It can help manage the treatment of patient pain and fever while reducing opioid consumption. While the national launch of our next-generation Caldolor got off to a fine start, it has been interrupted by the coronavirus pandemic. As you may know, overall hospital admissions have slowed and many elective surgeries have been postponed. We look forward to supporting the patients who can benefit from Caldolor as the country reopens. We're also preparing for the launch later this year of our recently FDA-approved RediTrex line of injectable methotrexate products. Meanwhile, as A.J. mentioned, we announced three national initiatives during the rise of the coronavirus pandemic to help hospitals and clinics support patients with symptoms associated with COVID-19-related infections. Our first initiative involves Vibativ, our newest product. We launched a national program to support the treatment of patients with hospital-acquired and ventilator-associated pneumonia related to the outbreak of the novel coronavirus. As you recall, Vibativ is a patented FDA-approved injectable anti-infective that addresses a range of Gram-positive bacterial pathogens, including those that are considered difficult-to-treat and multidrug-resistant, such as MRSA and MSSA. Pneumonia caused by secondary bacterial infections is common among patients with viral respiratory conditions. The risk of such infections grows as hospitals see more patients with respiratory symptoms associated with COVID-19. We sponsored a key program with several experts across the country to provide information on the management of complicated respiratory infections resulting from COVID-19. We had a stable and sufficient supply of Vibativ to support not only the current demand but also the potential increased demand due to shortages of other antibiotics, such as vancomycin and daptomycin. Secondly, we announced a national initiative to support hospitals and clinics that use Caldolor for the treatment of patients with fever, severe hyperthermia, and other symptoms associated with COVID-19 infection. Because of the potential dangers of high fever, recent guidelines from the Society of Critical Care Medicine suggest that clinicians consider using pharmacologic agents for controlling fever in COVID-19 patients. Some patients with high fever are unable to swallow or retain oral antipyretic drugs or retain rectal suppositories. Our initiative included the availability of special supply and financial arrangements, including favorable pricing and payment terms for hospitals and clinics to help ensure timely access to Caldolor during this healthcare crisis. Caldolor offered these patients relief, as it is the only injectable non-steroidal anti-inflammatory drug approved for the treatment of fever in the United States. Our third initiative included increased availability of Vaprisol to treat critical care patients with hyponatremia during the COVID-19 pandemic. Recall, Vaprisol is an FDA-approved treatment for hyponatremia, a condition that is particularly prevalent among ICU patients. Hyponatremia frequently occurs when the concentration of sodium in a patient's blood is abnormally low. It can lead to neurologic dysfunction, decreased mental function, and cerebral edema, among other complications. It is our hope that this enhanced access to Vaprisol will help lead to shorter ICU stays, and therefore, free up potentially lifesaving ICU beds that could become scarce during this time. Similar to the other two initiatives, there were special financial arrangements, including favorable pricing and payment terms, for hospitals and clinics to help ensure timely access to Vaprisol during this crisis. That completes today's updates on marketed products. A.J., I'll turn the call back over to you.

A. J. Kazimi, CEO

Thanks for that update, Marty. I'd now like to review the product development efforts underway here at Cumberland. We believe that FDA-approved brands are valuable assets. We continue to explore new ways our products can be delivered and new patient populations that they can benefit. For example, our Caldolor product is now available nationally in the new presentation that Marty mentioned. The product was initially approved for the treatment of pain and fever in adults, and we then secured approval for its use in pediatric patients, six months of age and older. If you've been following Cumberland, you might recall that last year we initiated a study to evaluate Caldolor in newborns, from birth to six months of age. We completed enrollment in that multicenter study and announced topline results during the first quarter of this year. Caldolor was well-tolerated in these very young children, and importantly, there were no safety concerns noted. We're finalizing the study reports, submitting them to the FDA, and are now preparing for an appropriate publication. Meanwhile, we've also been evaluating our new chemical entity ifetroban through a series of clinical programs. Ifetroban is a selective and potent antagonist that blocks activation of the thromboxane receptor. This receptor is found in many tissues and plays a key role in multiple biological processes. We are investigating ifetroban for several patient indications that represent unmet medical needs and potential orphan drug candidates. We have completed three pilot Phase II studies involving patients suffering from Hepatorenal Syndrome, Portal Hypertension, and aspirin-exacerbated respiratory disease, a severe form of asthma. We're currently evaluating ifetroban in three additional Phase II clinical studies. The first involves a follow-on study to the one already completed for severe asthma that I mentioned. The next is a study of patients with systemic sclerosis or scleroderma, a debilitating autoimmune disorder characterized by diffuse fibrosis of the skin and internal organs. We have also initiated a clinical trial for ifetroban in patients with cardiomyopathy associated with Duchenne Muscular Dystrophy, a rare, fatal, genetic neuromuscular disease. Enrollment in these studies is currently limited due to decreased patient flow and other restrictions associated with the COVID-19 pandemic at the medical centers across the country we’re working with. While we await the resumption of new enrollment, we're ensuring that patients who have already entered into a study continue to receive their medication. Our plan regarding these programs is to await results from these three additional studies before deciding on the best path for ifetroban, our first new chemical entity. That completes the clinical update. I'd like to turn it over to our Chief Financial Officer, Michael Bonner, for the financial review. Michael?

Michael Bonner, CFO

Thank you, A.J. For the three months ended March 31, 2020, net revenues from ongoing operations were $8.3 million. We also recorded an additional $750,000 during the first quarter associated with the return of the U.S. rights to Ethyol and Totect. The total revenue from the ongoing and discontinued operations in the first quarter was $9.1 million. During the prior year period, net revenues from continuing operations were $8.7 million, which excludes sales from the divested product rights I mentioned. Net revenues by product for the first quarter included $3.3 million for Kristalose, $2.4 million for Vibativ, $1.1 million for Caldolor, and $0.7 million for Acetadote. Total operating expenses for the three-month period were $10.2 million, similar to the $10.1 million for the prior year period. Adjusted earnings for the first quarter were $0.2 million or $0.01 per share, compared to $0.7 million or $0.04 per share during the same period last year. As of March 31, 2020, we had $97.3 million in total assets, including $27 million in cash and investments. Liabilities totaled $47.5 million, including $18.5 million on our credit facility. Total shareholders' equity was $49.9 million at the end of the quarter. As a reminder, the financial terms for the Vibativ acquisition included a $20 million payment to Theravance upon closing. The initial payment was funded by a revolving credit facility with Pinnacle Bank. We subsequently provided Theravance with a $5 million milestone payment and are providing royalties based on product sales. Recall that 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, the value of these assets totaled $29 million at the end of the first quarter. Vibativ has been an important contributor to our business. From the product launch in late 2018, through the end of this year's first quarter, the product has delivered a total of $12.2 million in cash contributions. We continue to execute on our share repurchase initiative during 2020. During the first quarter, we purchased an additional 165,000 Cumberland shares. At the end of 2019, we concluded our commercial support and returned the U.S. rights to Ethyol and Totect. Beginning this quarter, we're presenting the operating results of these products as a discontinued business line. This results 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. This line will net the historic revenue with the direct expenses associated with the two 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 three key hospital brands. In addition, we will receive a total of $5 million in payments over the next two years associated with the agreement to return those two brands. These payments are being provided each quarter with the first $750,000 received during Q1 of this year, accounted for in discontinued operations with no associated expenses. Meanwhile, Cumberland recently received the funding of a loan from Pinnacle Bank in the amount of approximately $2.2 million, pursuant to the Paycheck Protection Program under the Federal CARES Act. We applied for this loan after carefully considering with our bank the eligibility criteria to participate in this program and determining that Cumberland met those criteria. We evaluated and provided information on our payroll and other qualifying expenses to determine the amount of funds to apply for. Cumberland has not laid off or furloughed any employees as a result of the COVID-19 pandemic. Thanks to assistance from the Paycheck Protection loan, we currently do not foresee doing so. We continue to monitor and evaluate changes to this program as they emerge and will take appropriate action if necessary. Finally, it's important to note that Cumberland also has over $44 million in tax net operating loss carryforwards resulting from the prior exercise of stock options. That completes our financial report. I'll turn it back over to you, A.J.

A. J. Kazimi, CEO

Thank you, Michael. As you can see, we continue to make progress towards our goal of building a specialty pharma business that delivers sustained growth, profitable operations, and long-term value. Our key catalysts moving forward remain the same. They include contributions from the Vibativ acquisition, rolling out our new Caldolor product, and launching our RediTrex product line. We believe all three brands can be important contributors to our business for years to come. We also believe we can add significant value by progressing and expanding our clinical programs, which feature product candidates that address markets that are quite large for a company our size. Presently, we are facing the same headwinds affecting all companies that rely on hospital admissions and patient visits to drive revenue. Therefore, we are implementing measures to try to lessen the impact of the coronavirus on our business here in 2020. Given the limited visibility of both the positive and negative impacts of COVID-19 at this time, we believe it's prudent for us to withdraw our previously issued 2020 guidance. Meanwhile, we continue to monitor the national health and economic situation so we can maintain our employees' safety and well-being while also keeping our business operating and secure. As always, we'll manage our operations with financial discipline, and we'll work to maintain a favorable financial position. Please note, the interests of this organization, our management, and our shareholders remain closely aligned given the significant insider ownership in the company. Finally, we remain focused on our mission of advancing patient care and delivering high-quality pharmaceutical products, and we aim to deliver on that mission here in 2020 and beyond. With that review and update, let’s open the call to any questions you may have. Operator, can you please proceed?

Operator, Operator

And our first question comes from Andrew D'Silva with B. Riley FBR. Your line is now open.

Andrew D'Silva, Analyst

Yes, thanks. Good afternoon. Great to hear everybody sounds healthy. Just a couple of quick questions on my end. So just to start, have you seen any forward purchasing or stocking for any offerings during the quarter due to COVID-19? And so I'm thinking specifically of Vaprisol Vibativ. They seem to fit the build there.

A. J. Kazimi, CEO

Marty, do you want to take that one?

Marty Cearnal, Chief Commercial Officer

Yes. So we've not really seen a lot of forward purchasing. We did have, as we related, Andy, three special programs. They were really designed to meet our current needs as opposed to forward stocking. It's safe to say that as the country reopens, we can expect a fairly normal pattern of purchasing for our products to emerge.

Andrew D'Silva, Analyst

Okay, great. And then, just as it relates to your exposure to elective procedures, do you have any sense of maybe, typically what percent of your business is tied to elective procedures?

A. J. Kazimi, CEO

Marty?

Marty Cearnal, Chief Commercial Officer

Well, for Caldolor, it's a very significant percentage. The surgeons that we maintain consistent contact with are saying that, as the hospitals open up, there’s going to be a pretty significant backlog of patients that have not been able to get access for elective procedures during the pandemic. We expect to see, hopefully, some benefit from that for Caldolor as the hospitals reopen and this backlog of elective surgeries becomes realized.

Andrew D'Silva, Analyst

Got it, perfect. And then just two more quick ones. As it relates to RediTrex, are you still on track to launch this year? And I'll actually just lump my last question in here as well. Can you also give us a sense of when we should expect you to initiate a Phase III or a pivotal study for any of the ifetroban indications? I was just curious what the realistic timeline before we see these advance to pivotals.

A. J. Kazimi, CEO

Marty, can you start with the outlook and plans for RediTrex? Then I'll be happy to handle the clinical questions.

Marty Cearnal, Chief Commercial Officer

Certainly. RediTrex is on track for launch later this year. We are actively engaged in development, a panel of experts, completing the final stages of our market research, developing our draft promotional materials and patient support materials. There’s a full catalog of activities underway. We expect that we will be in a position to launch the product later this year.

A. J. Kazimi, CEO

Thank you, Marty. On the clinical front, as I mentioned, we completed the Caldolor pediatric study and wrapped up that effort with finalizing the report and sending it off to the FDA. As I mentioned, enrollment in the ifetroban studies has slowed due to closures and changes of access at hospitals across the country. We expect that to rebound as the country reopens. It’s hard to predict when these studies will conclude and we move to Phase III because it’s tied to patient enrollment. You did mention Hepatorenal Syndrome. We’ve completed three ifetroban studies and have three more underway. Rather than go broadly in parallel, we’ll focus on the programs that will help us get to market the fastest, deploying our resources accordingly. We'll make decisions once we have data from the three ongoing studies.

Andrew D'Silva, Analyst

Okay, great. Well, I actually have one add-on. As it relates, for example, to the HRS study. It’s been completed; the Phase II has been completed for a little while now. What additional information do you need to decide if you're going to progress to the next stage in clinical development?

A. J. Kazimi, CEO

I'm happy you asked that question. It’s a matter of seeing the data from the other studies so we can determine where to deploy our resources.

Andrew D'Silva, Analyst

Okay.

A. J. Kazimi, CEO

Yes. We want to be cautious about our R&D spend and align it with our revenues to maintain positive cash flow from operations, which we've been able to achieve.

Andrew D'Silva, Analyst

Okay. No, I get what you're saying. Now that makes sense. All right. Great. Well, I'm glad to hear everybody sounds healthy and best of luck going forward.

A. J. Kazimi, CEO

Thank you.

Operator, Operator

Thank you.

A. J. Kazimi, CEO

Thank you everyone for joining the call today. As we've mentioned in the past, we understand that many prefer a private discussion with management. That’s fine. If you'd like to do that, just please reach out to Erin Gull here, and she'll help us schedule such a call. We appreciate your time and interest in our company, and we look forward to providing another update after the end of the second quarter.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.