Earnings Call Transcript - CPIX Q4 2023

Operator, Operator

Good afternoon, and welcome to Cumberland Pharmaceuticals 2023 Financial Report and Company Update. This call is being recorded at Cumberland's request and will be archived on the company's website for one year from today's date. I would now like to turn it over to Molly Aggas, Account Supervisor at the Dalton Agency, who handles Cumberland's communications. Molly, please go ahead.

Molly Aggas, Account Supervisor

Hello, everyone. Good afternoon. Thanks for joining us today. This afternoon, Cumberland issued a press release announcing the company's annual financial results with an operational update for the year ending December 31, 2023. The release, which includes the related financial tables can be found on the company's website at www.cumberlandpharma.com. Management will share an overview of those financial results during today's call. They'll also provide an overall company update, including a discussion of Cumberland's brand, pipeline, and partners. Participating in today's call are A. J. Kazimi, Cumberland's Chief Executive Officer; Todd Anthony, Vice President, Organizational Development; and John Hamm, Chief Financial Officer. Please keep in mind that their discussions may include forward-looking statements as defined in the Private Securities Reform Act. Those statements reflect the company's current views and expectations concerning future events, and may involve risks and uncertainties. There are many factors that could affect Cumberland's future results, including natural disasters, economic downturns, public health epidemics, international conflicts, and others that are beyond the company's control. Those issues are described under the caption Risk Factors in Cumberland's Form 10-K and any additional updates filed with the SEC. Any forward-looking statements made during today's call are qualified by those risk factors. Despite the company's best efforts, actual results may differ materially from expectations. So information shared on this call should be considered current as of today only. Please remember that the company isn't responsible for updating any forward-looking statements, whether as a result of new information or due to future developments. During today's call, there'll also be references to several of Cumberland's marketed brands; full prescribing and safety information for each brand is included on the individual product websites. You can find the links to those sites can be found on the corporate website at www.cumberlandpharma.com. The company will be providing some non-GAAP financial measures with respect to its performance. An explanation and reconciliation to GAAP measures can be found in the financial tables of the earnings release that was issued earlier today. If you have any questions, please hold them until the end of the call, at which point, we'll be happy to answer them. Management is also prepared to hold a follow-up conversation after the call if you prefer. So with that introduction, I'll turn the call over to Cumberland's Chief Executive Officer, A. J. Kazimi.

A. J. Kazimi, CEO

Thank you, Molly, and good afternoon, everyone. We appreciate you joining us as we recap our progress here at Cumberland. As Molly mentioned, during today's call, we'll provide both a company update as well as a review of our 2023 financial results. So, let's begin. In many ways, 2023 was a productive and important year for Cumberland, as we were able to take key steps in laying the foundation for future success. We continued to integrate our newest products while also delivering a number of significant achievements, which we'll recap on today's call. In 2023, Cumberland delivered net revenues of $40 million. Sancuso has become a valuable addition to our product line with continued significant shipments during 2023, but also an unusual amount of sales deductions during that year. Meanwhile, Kristalose, Caldolor, and Vibativ continued their steady contributions to our revenue mix. In fact, Vibativ sales rebounded in 2023, with the brand beginning to deliver an attractive return on the investment associated with its acquisition. Our gross margins remained attractive in 2023, resulting in $6 million in cash generated from operations for the year. Our balance sheet also remained strong as we ended the year with $82 million in total assets, including $20 million in cash, $53 million in liabilities, and $30 million of shareholders' equity. Now, I'm pleased to share a series of exciting developments that occurred in 2023, including several growth opportunities for our brands. Throughout the year, we continued to work with our partners in their efforts to register and launch Vibativ in several international markets, which can provide significant catalysts for the brands in the future. SciClone Pharmaceuticals, our partner for the Chinese market, has continued to respond to regulatory inquiries as they seek approval for Vibativ in their country. Tabuk Pharmaceuticals has updated Vibativ's approval in Saudi Arabia with new manufacturing information as they plan to introduce the product into the Middle East. And DB Pharma, our partner in South Korea who also distributes Caldolor there, is awaiting the approval of Vibativ in their market. So we now await the clearance of these submissions associated with these three initiatives and look forward to the launch of Vibativ in these three countries. Meanwhile, following the FDA's approval to expand the labeling for Caldolor in 2023, our non-opioid agent may now be administered for the treatment of pain and fever in patients three to six months of age. In early 2023, the Federal No Pain Act was passed, which is expected to provide special favorable reimbursement for non-opioid products like Caldolor. We submitted a request to CMS that Caldolor be included in the favorable reimbursement, and we look forward to learning more this year in preparation for the Act's implementation in 2025. During 2023, we also completed the expansion of our Oncology Sales Division as we work to deliver our newest brand, Sancuso, to cancer patients. And our largest-selling product, Kristalose, began benefiting from its listing on the New York State Medicaid formulary during the year. So with that overview, I'd now like to turn to Todd Anthony, Cumberland's Vice President, Organizational Development, to further discuss our brands and our teams. Todd?

Todd Anthony, Vice President, Organizational Development

Thank you, A.J. There was a lot happening at Cumberland in 2023, so I want to update you on each of our major brands. In October, we released a publication in Antimicrobial Agents and Chemotherapy that presented findings from the first clinical study on the safety and pharmacokinetics of our Vibativ product in children aged two to 17. Vibativ, an intravenous antibiotic approved by the FDA, is used to treat hospital-acquired and ventilator-associated bacterial pneumonia as well as complicated skin and skin structure infections caused by certain gram-positive bacteria. The study results indicate that a single dose of Vibativ is safe for children and that they had less exposure to Vibativ compared to adults given the same body weight-based dosing. Antimicrobial resistance remains a significant challenge in treating bacterial infections, highlighting the need for new antibiotic therapies. We're encouraged to see that Vibativ sales have continued to grow, increasing by 18% in 2023, due to several new initiatives aimed at enhancing the brand's performance. Next, regarding Kristalose, our prescription strength laxative which is conveniently pre-measured and dissolves quickly in just four ounces of water. Kristalose remains our top-selling product, benefiting from support from our two co-promotion partners, with sales up 5% this year over the previous year. We have found that the brand performs exceptionally well in states where we have Medicaid coverage, and New York State recently added Kristalose to its Medicaid formulary. We are launching a special initiative to boost our presence and market share in that area, and we believe this new coverage is aiding in the product's growth. Now moving on to Caldolor, our non-opioid analgesic injection. With the new pediatric labeling that A.J. mentioned, it is now the only non-opioid product approved for treating pain in infants via injection. Other similar products, like Ketorolac and meloxicam, are not approved for children, as their safety and efficacy have not been demonstrated. Additionally, acetaminophen injection is not approved for treating pain in children under two years, also due to safety concerns. In 2023, we shared positive results from a clinical study on the safety and pharmacokinetics of Caldolor in newborns, evaluating its safety and drug exposure profile in 24 hospitalized infants aged one to six months needing pain or fever treatment. The study published in the Journal Pediatric Drugs supports evidence that Caldolor is a safe, therapeutic option for infants, children, and adults. We are glad to have expanded the product’s labeling for use across nearly all ages and have initiated a marketing campaign highlighting this new indication. We also anticipate that Caldolor will qualify for special Medicare reimbursement under the new No Pain legislation enacted as part of the Consolidated Appropriations Act of 2023. This act requires Medicare to provide more favorable reimbursement for non-opioid products used to manage pain during surgeries in outpatient settings. We believe this will positively impact Medicare reimbursement for Caldolor. As per the proposed rule for the Medicare Hospital Outpatient Prospective Payment System, CMS invited manufacturers of applicable non-opioid products to submit supportive clinical evidence for those eligible for separate payment, and we submitted our letter and supporting clinical information to CMS in September 2023, advocating for Caldolor's inclusion for separate reimbursement. We are eagerly awaiting further information from CMS this year, including potential new reimbursement levels for Caldolor. The act is set to take effect in early 2025 and will initially cover products administered between January 1, 2025, and January 1, 2028. Next, regarding Sancuso, the first FDA-approved prescription patch for preventing nausea and vomiting in patients undergoing certain chemotherapy treatments. After acquiring the U.S. rights in 2022, we have completed the transition from Kyowa Kirin to Cumberland in 2023, including the NDA transfer and the successful manufacturing transition to a new facility. Following FDA approval, we are now ready to ship newly packaged Cumberland product this year. It is important to note that Sancuso’s net sales in 2023 were considerably lower than the previous year due to higher sales deductions. We are actively working to improve these deductions, which include fees, rebates, and product returns. Throughout the year, we expanded our oncology sales division to promote the brand, helping cancer patients better tolerate chemotherapy. We are already noticing a positive impact from this division, which we intend to grow further in 2024. During the pandemic, demand for our Vaprisol product increased, and we adapted to support its utilization in hospitals and clinics amid the healthcare crisis. We shipped all remaining inventory and informed the FDA that product supplies were unavailable. We have now transitioned manufacturing to a new partner, who is addressing FDA compliance issues. In the meantime, we are collaborating to provide an interim compounded product for critically ill patients, which we introduced in late 2023 and plan to sell in early 2024. Both companies will share sales from this interim product, and we expect to file for approval to produce branded Vaprisol once all FDA matters are resolved. Regarding RediTrex, we updated our agreement with Nordic Pharma, who has taken over responsibility for the product in the U.S. as of July 1, 2023. Our portfolio of FDA-approved medicines is supported by three national sales divisions, including our newest, Cumberland Oncology, which comprises both field and inside sales personnel. Our hospital division focuses on key institutional accounts nationwide, while our field sales team engages select office-based physicians. Lastly, I would like to emphasize Cumberland's commitment to sustainability. We have updated our metrics and I am pleased to share our key findings for 2023, which include providing 3 million doses of our products to patients, safely disposing of nearly 6,000 pounds of damaged and expired products, and achieving no product recalls or clinical trial terminations due to failure to adhere to clinical standards. That concludes my update for today, and now I'll turn it back over to you, A.J.

A. J. Kazimi, CEO

Thank you, Todd. Now I'd like to take a few minutes to provide an update on our clinical program. We continue to progress our pipeline of innovative products designed to improve patient care and patients' quality of life. Our ifetroban product candidate, a potent and selective thromboxane receptor antagonist, is being evaluated in three phase, two clinical studies for patients with a series of unmet medical needs. It's now been dosed in nearly 1,400 subjects and has been found to be safe and well-tolerated in those individuals. Patient enrollment is well underway in two of those company-sponsored Phase II clinical programs. The first involves patients with systemic sclerosis or scleroderma, a debilitating autoimmune disorder characterized by diffuse fibrosis, the skin, and internal organs. The other is evaluating ifetroban in patients with cardiomyopathy associated with Duchenne Muscular Dystrophy or DMD. It's a rare and fatal genetic neuromuscular disease that results in the deterioration of the skeletal heart and lung muscles. We're sponsoring the FIGTH DMD trial, a multi-center randomized placebo-controlled Phase II study, which is enrolling patients across 10 centers across the United States and centers that specialize in DMD. We've completed enrollment in the younger age group of patients and are now working to finish enrollment in the older patient cohort with DMD. Recall the FDA has provided grant awards of over a million dollars to support the study. We're also developing an oral capsule of ifetroban to treat idiopathic pulmonary fibrosis or IPF, the most common form of progressive fibrosing interstitial lung disease. Following FDA clearance of our investigational new drug application in May of 2023, we're now in the process of initiating our Phase II FIGHTING FIBROSIS trial designed to enroll 128 patients in over 20 medical centers of excellence across the U.S. Recent studies have shown ifetroban can both prevent and enhance the resolution of lung fibrosis in multiple preclinical models. Well, in addition to these sponsored studies, there are several other preclinical and pilot patient studies of ifetroban underway, including several investigator-initiated studies. We believe ifetroban has the potential to benefit many patients, and we look forward to sharing the results from our company-sponsored studies as they emerge. Our plan is to then decide on the best development path for the product, which represents our first new chemical entity. So with that update on our ongoing clinical trials, I'd now like to turn it over to our Chief Financial Officer, John Hamm, to review our 2023 financial results. John?

John Hamm, CFO

Thank you, A.J. For the three months ended December 31, 2023, net revenue from continuing operations was $9.4 million, an increase over the $9.1 million in revenue recorded during the prior year period. Net revenue by product for the fourth quarter of 2023 included $2.4 million for Sancuso, $3.7 million for Kristalose, $2 million for Vibativ, and $1 million for Caldolor. As a reminder, due to quarterly fluctuation in our customers' purchases, we believe our performance should be assessed based on annual sales results. With that in mind, I'm pleased to report that net revenue for the full year 2023 was $40 million. Full year product revenue totaled $16 million for Kristalose, $8.1 million for Sancuso, $8.8 million for Vibativ, and $4.3 million for Caldolor. Turning to our expenditures, total operating expenses for the fourth quarter were $15.5 million compared to $11.4 million for the prior year period. Total operating expenses for 2023 were $49.1 million, up from $47.7 million during the prior year. The net loss for the quarter and the year was approximately $6.3 million, which includes a $3.3 million one-time write-down of Omeclamox in tangible assets. When non-cash expenses are added back, the resulting adjusted earnings for the year were $2.4 million, or $0.17 a share. Also, please note that the adjusted earnings calculations do not include the benefit of the $0.6 million of Vibativ and Sancuso costs of goods during the fourth quarter, which was a $2.3 million benefit for the full 2023 year. Those goods were received as part of each product's acquisition. As a result, when taking into account all these items, total cash flow from operations was $6 million in 2023. As a reminder, the additions of Vibativ and Sancuso to our product portfolio have continued to significantly impact our financial statements. As a result of the Vibativ acquisition, a total of $34 million in new assets were added, including approximately $21 million in inventory, $12 million of intangible assets, and $1 million of goodwill. The financial terms for the Vibativ transaction included a $20 million payment upon closing and a subsequent $5 million milestone payment. We also continue to provide royalties tied to product sales. Vibativ was our largest acquisition, and I'm pleased to report that since we assumed responsibility for the product in late 2018, it has delivered a total cash contribution of $38.4 million to our business and therefore is now generating a return on our $25 million investment. Sancuso added a total of $19 million in new assets, including approximately $4 million in inventory and $14 million of intangibles. The estimated value of those assets was $13.3 million at the end of 2023. We provided $13.5 million at closing for the Sancuso acquisition, and there are also royalties that we pay based on the brand sales. Since we started shipping Sancuso in early 2022, the product has already provided a total cash contribution of approximately $13.3 million and therefore is expected to begin generating a return on our $14.5 million investment in 2024. Turning to our balance sheet, as of December 31, 2023, we had $82 million in total assets, including $18 million in cash and cash equivalents. Liabilities totaled $53 million, including $12.8 million on our credit facility. Total shareholders' equity was $30 million at the end of 2023. In September 2023, we entered into a new revolving credit loan agreement with Pinnacle Bank for a three-year term. The agreement provides for an aggregate principal funding amount of up to $25 million. It provides an initial revolving credit line with $20 million of availability and the ability of Cumberland to increase the amount to $25 million under certain conditions. The interest rate is based on benchmark term SOFR and is subject to one financial covenant determined on a quarterly basis. We continued our corporate share repurchase program in 2023, and through the end of December, we repurchased a total of 444,000 shares. These repurchases included those on the open market, as well as those needed to fund the taxes associated with employee-vested restricted shares. We also continued the process of implementing new trading plans for our board members who purchased Cumberland shares throughout 2023 to increase their holdings in the company. Lastly, I'd like to note that Cumberland continues to hold over $51 million in tax net operating loss carry-forwards, primarily resulting from the prior exercise of stock options. And that completes our financial report for the final quarter and year-end of 2023. Back to you.

A. J. Kazimi, CEO

Thank you, John. Well, as you may recall, in 2023, we took a fresh look at our mission statement, and we refined it to better capture the spirit of what we do each day here at Cumberland. Our mission is now working together to provide unique products that improve the quality of patient care. In designing this statement, we considered several factors. First, we wanted it to address the constituencies we serve, which includes patients in need of care, as well as the healthcare providers, our employees, shareholders, partners, and our community. We also sought to reflect Cumberland's culture, where teamwork is prized, emphasized, and expected in order to achieve our goals. Next, we needed to demonstrate our focus on developing, acquiring, and distributing differentiated brands. And finally, we wanted to emphasize that the patient is at the core of everything we do. Our collective efforts are directed at providing unique products that serve as better alternatives for poorly met medical needs. We remain committed to fulfilling this mission by building a portfolio of specialty pharmaceutical brands, which we do by maximizing the potential of our commercial brands, progressing our pipeline, and also pursuing select acquisitions. Overall, it was a good year, and we are encouraged by the developments that we've shared with you today. It's been particularly encouraging to see the recent growth in our Kristalose business, along with the rebound in Vibativ sales. We're excited about the expansion of our oncology sales division and the opportunity to further help cancer patients. And we believe the special reimbursement associated with the Federal No Pain Act can have a meaningful impact on Caldolor's future growth. We're pleased to share the recent pediatric studies involving favorable results for both Vibativ and Caldolor in children, as well as FDA's approval of the expanded labeling for Caldolor to now include infants. So, with that, let's open the call to any questions you may have. Operator, please proceed.

Operator, Operator

Thank you. This concludes today's program. Thank you all for participating. You may now disconnect.