Cumberland Pharmaceuticals (NASDAQ:CPIX) Q2 2020 Earnings Call

0:00 Thanks to everyone participating on today's call, as Cumberland Pharmaceuticals provides their second quarter 2020 financial report and company update. Please note that this call is being recorded and will be archived on Cumberland's website for one week from today's date. I would now like to introduce Erin Goff, who handles corporate relations for Cumberland. Erin?

0:24 Good afternoon, and I hope everyone is safe and well. Earlier today, we issued a press release containing the company's financial results for the second quarter, ended June 30, 2020. A copy of that release, which also includes a corporate update and series of financial tables for the period, can be found on our website at www.cumberlandpharma.com. Bitterman, James Lowrance Those issues are described under the caption, Risk Factors, in our Form 10-K and any updates we file with the SEC.

1:26 Any forward-looking statements made during today's call are also 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 should be considered current as of today only. Please remember that the company does not assume responsibility to update any forward-looking statements, whether as a result of new information or due to future development. During today's call, we'll be referring to several of our marketed brands, and full prescribing and safety information for those brands can be found through the links to each individual product website located on our corporate site at CumberlandPharma.com. Also, today we'll provide some non-gap financial measures with respect to our performance.

2:13 An explanation and reconciliation to gap measures can be found in our earnings release and its financial tables. Also with us on the call today are A.J. Kazimi, Cumberland's Chief Executive Officer, Marty Cronall, our Chief Commercial Officer, and Michael Bonner, our Chief Financial Officer. On the call today, we'll start with an overview of our progress during the second quarter, and we'll follow with a discussion of our commercial activities. We'll then review our financial results and finish with the closing remarks before opening the call to any questions you may have. I'll now like to turn the call over to AJ to begin our corporate update and discussion of the company's performance.

2:51 Thanks, Erin. Good afternoon, everyone, and thank you for joining us. I hope you and your families are doing well during these difficult times, and we'd hope by now for significant relief from the impact of the novel coronavirus. which unfortunately continues to affect our healthcare system, the economy, employment, and all our daily lives. Our thoughts go out to all those who are suffering, especially those who have resulting life-threatening conditions, as well as those who have lost their jobs or their businesses. But I'd also like to acknowledge and thank the team here for their continued dedication and valuable contributions Bitterman, John Michael Hamm, Todd Anthony Cumberland has faced the same headwinds affecting other companies that rely on hospital admissions and patient visits to drive their revenue.

4:13 The second quarter months of April and May this year were particularly difficult as less patients sought care and our access to medical facilities was substantially limited. Several of our brands were negatively impacted by the lockdowns Bitterman, James Lowrance Herman, Todd Anthony Our total revenues for the second quarter were $9.6 million, up 15% over the first quarter of this year and also up 2% over the prior year period.

5:10 Our adjusted earnings for the quarter were $1.2 million, or $0.08 a share, compared to $0.08 million, or $0.05 a share, during the same period last year. and cash provided by operations grew to $3.7 million during the first half of 2020, which is more than double the 1.5 million operating cash flow we saw during the first half of last year. Meanwhile, during the second quarter, we made a special effort to support the medical professionals treating patient symptoms associated with COVID-19 infections. Bitterman, James Lowrance Employee Practices, and Community Involvement.

6:23 This inaugural report outlined our activities associated with environmental, social, and governance, or ESG matters, and it's designed to address the interests of our shareholders, our employees, our partners, as well as our community. On the clinical front, enrollment in our studies significantly slowed. due to the decrease in patient admissions to medical centers across the country. However, we did work to ensure that patients who had already entered into one of our studies continued to receive their medication. And we also took the opportunity to provide sites with fresh supply of study drug so they were ready to go as their medical centers reopened.

7:08 During the quarter, we also closely monitored our supply chain. With raw materials flowing into our international manufacturing facilities and finished product arriving at our warehouses, as a result, weekly shipments have continued to the distribution centers that supply our nation's hospitals and retail pharmacies. So with that overview, I'd now like to turn to Marty Cornell, Cumberland's Chief Commercial Officer, to share his update on our marketing and sales activities. Marty?

7:43 Thanks, AJ. As AJ mentioned, the second quarter was a difficult one in terms of access to medical facilities. We also noted a steep decline in patient visits to doctor's offices and in the number of elective surgeries, especially in the first two months of the quarter. We believe these changes in healthcare were due to the stay-at-home orders across the country, as well as patient concerns about visiting facilities Bitterman, James Lowrance We have an experienced sales organization with significant tenure at Cumberland and vast industry experience.

8:45 Our brands are promotion sensitive, and we wanted to ensure that we had an established, trained sales organization ready to support our products as the country reopened. During the quarter, our commercial organization continued to remain engaged in communication with healthcare professionals to support the patients who can benefit from our medicines. However, we shifted much of their activities from personal visits to telephonic and electronic communication. We also established new procedures to document and monitor their productivity. The results indicated a resourceful and steadfast effort to maintain awareness of the benefits and the use of our brands, and we appreciate those fine efforts.

9:35 We supplemented these national field efforts with an enhanced internal sales initiative reaching out to hospitals and physician offices from our headquarters. We also launched a national digital media activity and a series of virtual medical meetings. We believe that all these efforts represented an innovative and efficient way to expand our reach, add new coverage, and ensure awareness of our products Bitterman, James Lowrance Our tour study conducted to record population characteristics, prescription information, and real-world clinical outcomes of patients with gram-positive infections treated with Vibative.

10:47 Recall that Vibative is a potent FDA-approved antibiotic for the treatment of certain serious bacterial infections, including hospital-acquired and ventilator-associated bacterial pneumonia. It addresses a range of gram-positive bacterial pathogens, including those that are considered difficult to treat and multidrug resistant, such as MRSA and MSSA. In the TOUR study, a positive clinical response was achieved in over 74% of the patients. This analysis suggests Vibatid is a promising and viable option for patients with bacteremia or endocarditis, including those with MRSA or other susceptible pathogens.

11:36 Furthermore, two studies examined longer-term resistance trends of Vivativ as part of a seven-year antimicrobial surveillance program. These global clinical trials reported that Vivativ maintained excellent antimicrobial activity against multidrug-resistant pathogens, including gram-positive and Staff Aureus isolates. The study also documented the sustained in vitro antimicrobial activity and spectrum of Vybativ for many years after its clinical approval. Another publication presented new data and concluded that our Caldolor product significantly reduced the amount of opioids required to manage pain after traumatic injury. This study evaluated the efficacy of Caldolor in the management of acute pain in orthopedic trauma patients and monitored the use of opioids in those patients.

12:42 The results of this level one trauma center study demonstrated that the use of Caldolor significantly reduced opioid consumption. Moreover, pain was more effectively controlled with Caldolor compared to standard of care narcotics. 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. We launched our next generation Caldolor product at the beginning of 2020 with a new presentation in a pre-mixed bag. This ready-to-use product contains 800 milligrams of ibuprofen, in a 200-milliliter patented formulation for injection.

13:33 It offers hospitals and medical facilities improved dosing accuracy and cost savings while managing pain and fever and reducing opioid consumption. We also continue to prepare for the launch of our FDA-approved injectable methotrexate product line, ReadyTrex. We are implementing a modest expansion of our field sales force with the goal of covering up to 80% of the rheumatology market potential. Additionally, we are establishing a national group of physician experts to advise us on the positioning and messaging for the brand as we prepare a full range of marketing, promotional and patient support materials.

14:18 That completes today's updates on our key commercial efforts. AJ, I'll turn the call back over to you.

14:25 Thanks, Marty. I'd now like to ask our Chief Financial Officer, Michael Bonner, for the financial review. Michael? Thank you, AJ.

14:34 For the three months ended June 30, 2020, net revenues from ongoing operations for $9.6 million. We also recorded an additional $750,000 in discontinued operations during the quarter as consideration for the return of rights to two products that we no longer feature. The second quarter revenues for... For continued operations, we're up 15% over the first quarter and up 2% over the $9.4 million in the prior year period. Net revenues byproduct for the second quarter were led by $3.5 million for Crystallose, $3.3 million for Vibatav, and also included $1.2 million for Caldor and $0.6 million for Acetodote. We had particularly strong international orders in the quarter.

15:22 However, it's important to note that those orders do tend to be more episodic in nature and are better viewed over time to understand their impact on our business. Total operating expenses for the quarter were $11.2 million compared to $10.8 million for the prior year period. The main driver of this change was the increase in cost of goods sold associated with the growth and sales of Vibatav. Recall that significant Vibatav inventory was included in the brand's acquisition price. The cost of goods sold was stepped up over actual manufacturing costs and is also a non-cash item. These and other non-cash expenses such as amortization and stock compensation are added back in our calculation of adjusted earnings.

16:07 We use adjusted earnings to manage our business and we believe it is an important metric for understanding our business. The resulting adjusted earnings for the second quarter were $1.2 million or $0.08 per share. A significant increase over the $0.8 million, or $0.05 per share, during the same period last year. Year-to-date cash flow from operations was $3.7 million through the second quarter of 2020, which is more than double the $1.5 million operating cash flow for the first half of 2019. As a reminder, the financial terms for the ViBAT of acquisition included a $20 million payment upon closing. This initial payment was funded by a revolving credit facility. Bitterman, James Lowrance Herman, John Michael Hamm, Todd Anthony The value of these assets totaled $27 million at the end of the second quarter.

17:20 Vibative has been an important contributor to our business. From the product's launch in late 2018 through the end of this year's second quarter, the product has delivered a total of $14.4 million in cash contribution. At the end of 2019, we concluded our commercial support and returned the U.S. rights to Athial and Totec. This year, we began to present the operating results Thank you. Thank you. Thank you. Similar to the $0.8 million for the same period in 2019.

18:14 The total contribution from discontinued operations this year was primarily the result of the quarterly payments we are receiving this year and next associated with the agreement to return those two brands. As of June 30, 2020, we had $97 million in total assets, including $27.4 million in cash and investments. Liabilities totaled $49.1 million. including $17 million on our credit facility, a net reduction of $1.5 million from year end. Total shareholders' equity was $48.5 million at the end of the quarter. Meanwhile, in April, Cumberland received the funding of a loan in the amount of approximately $2.2 million pursuant to the Paycheck Protection Program under the Federal CARES Act. We carefully assessed and provided information on our payroll and other qualifying expenses to our bank to determine the amount of funds we were qualified to receive.

19:07 We submitted the application after carefully considering and confirming that we met the relevant eligibility criteria. The resulting loan helped prevent the need for any employee layoffs or furloughs as we experienced the impact of the COVID-19 pandemic. Given the uncertainty associated with the pandemic, we began to significantly decrease the number of shares repurchased. During the second quarter, We repurchased an additional 141,463 Cumberland shares, which included a significant number to fund the taxes associated with employee-vested restricted shares. Finally, I'd like to note that Cumberland has over $44 million in tax net operating loss carry-forwards, resulting from the prior exercise of stock options.

19:54 That completes our financial report. I'll turn it back over to you, AJ.

19:57 Thank you, Michael. Bitterman, James Lowrance Herman, Todd Anthony Bitterman, John Michael Hamm, Todd Anthony and we'll continue that diversification strategy as we look to expand our product line both through acquisitions as well as internal development. Our key catalysts for 2020 remain the same. Contributions from the Vybattiv acquisition, growth of our next generation Caldolor product and the pending launch of our new ReadyTREX product line.

20:52 As you know, the COVID-19 pandemic is affecting how many businesses are run here in 2020, and we are taking measures to lessen its impact on us as much as possible. We're focused on protecting our employees' safety and well-being while also staying open for business to supply our medicines for the patients who need them. And we'll continue to utilize these successful practices while managing our operations with financial discipline and working to maintain a favorable financial position. And I'm particularly pleased that the organization was able to remain intact during such trying times, thanks in part to the assistance from the Payroll Protection Program.

21:39 Additionally, we are fortunate to have a robust pipeline of promising candidates in phase two clinical trials. Success in any of those programs can have a significant impact on our business and help take our company to a new level. And finally, I'd just like to once again acknowledge and thank our outstanding team for their dedication and resolve during these trying times. Their efforts have enabled us to continue on our mission of improving patient care through the delivery of high quality pharmaceutical products. So with that review and update, now let's open the call to any questions you may have. Operator, please proceed. Thank you, sir. Ladies and gentlemen, that concludes the company's presentation.

22:29 I will now open the call for any questions. If you would like to ask a question, please press the star key followed by the digit 1 on your touchtone telephone. Our first question comes from the line of Andrew DeSilva with B. Reilly FDR. Please ask your question.

22:48 Thank you. Great. Thank you very much. Good to hear everyone sounds healthy. Just a few quick questions for me. Just out of curiosity, so I can dial in my model, what was other revenue for the quarter, and does that line include international sales, or is it just CET-related revenue right now?

23:12 Michael, you want to take that one, please? Yes, I'll give you a background. It is primarily CET. It also reflects a payment that we received from Nordic as well during this quarter.

23:25 And what was the amount?

23:27 The amount was $500,000 from Nordic as other revenue.

23:33 Oh, I meant for just the other revenue total line. Was it around $800,000? $800,000.

23:40 Yes, it was right at $900,000 for other revenue. $500,000 of it was Nordic payments for Reditrex, and the remainder was CET and grant-related funding.

23:54 Perfect, perfect. Thank you very much. And then just, you know, it's a good transition as it relates to some of your more recently approved offerings. Can you help me better time the Reditrex launch? And then also... Can you give us a sense of what percent of Caldor sales are the ready-to-use version versus the original formulation?

24:19 Well, I'll start by commenting on the timing of the ReadyTrex launch. We're looking later this year to be in a position to make that brand available. It really is dependent upon the arrival of the launch supplies. and so we're thinking in terms of late Q3, early Q4 when those are expected to show up. Marty, can you talk about the breakdown of the cattle we're ready to use versus the old presentation? Sure.

24:50 Andy, the current breakout is approaching 60% for the next generation product and 40% for the original vial presentation. As you might expect, overall development has been affected by the postponement of elective surgeries, but the uptake of the next generation product as a percentage of total business is growing each month.

25:28 Okay, that's good to hear. And just as it relates to your business, is it fair to assume the trough as it relates to the pandemic already passed in the first half of the second quarter? Or are you seeing a lingering low still take place? And then... As it relates to the cadence with COVID-19, you mentioned utilizing tele-rep protocols. How is that from a decision-maker engagement standpoint working out for you? Are you able to get in contact with decision-makers efficiently, or do you assume down the road you'd still need to eventually gravitate to actually going back in the field?

26:25 So I'll start, and then I'll ask Marty to help. Regarding the continued impact of COVID-19, as I mentioned, we had hoped by now that we had seen the end of the pandemic, but unfortunately that's not been the case, and it continues to impact our business in the third quarter. and that's tied directly to a lack of patient visits to hospitals on the one hand for things like elective surgery, but also issues with patients not wanting to go to visit doctor's offices, concern that they might get infected. So there is an ongoing impact from Q2 into Q3, but as you pointed out, we may have hit a low point in April and May. Marty, can you talk a little bit about what we're doing out there in the field in response to the second part of Andy's question?

27:25 Certainly. You know, we've learned a bit during this period. And, I mean, two key important points. There's nothing that is more powerful than face-to-face contact therapy. with physicians and other key decision makers. So as the country reopens, we will continue to expand our face-to-face contact. But we've also learned that these other methods that we've been using as a replacement do have a role, and they can help us build frequency of contact and provide an additional way to reach out to physicians and to provide useful information across the whole spectrum of healthcare providers.

28:18 So we'll expand our activities in that area in the future as well.

28:26 All right. Great. That's everything for me. I'll take the rest of my questions offline. Best of luck going forward this year.

28:35 Thank you. Thank you. Again, if you would like to ask a question, please press the star key followed by the digit 1 on your touch-tone telephone.

28:52 Okay. Well, thank you, everyone, for joining our call today. As I mentioned in the past, we understand that many of you prefer a private discussion with management. And if so, please just reach out to Aaron Gohl here. 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 2247089. Alternatively, a replay of the webcast will be available on the company's website.

29:43 I would like to thank you for your participation. You may now disconnect.