Cumberland Pharmaceuticals, Inc. (NASDAQ:CPIX) Q4 2020 Earnings Conference Call March 9, 2021 4:30 PM ET
Erin Gull - Corporate Relations Manager
A. J. Kazimi - Chairman and Chief Executive Officer
Martin Cearnal - Executive Vice President and Chief Commercial Officer
Michael Bonner - Senior Director Finance & Accounting, Chief Financial Officer
Conference Call Participants
Steve Kruger - Foresight Investment
Thank you for joining the Cumberland Pharmaceuticals Fourth Quarter 2020 Financial Report and Company Update. This conference call is being recorded at the company's request and will be archived on Cumberland's website for one 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, everyone. Earlier today, we issued a press release containing the company's financial results for the fourth and the full year ended December 31, 2020. You can find a copy of that release on our website at www.cumberlandpharma.com. Please note that today's discussion may include forward-looking statements as defined in the Private Securities Reform Act of 1995. And because any such statements reflect the company's current views and expectations concerning future events, they may involve some risks and uncertainties.
Additionally, there are many factors that could affect the company's future results, including, but not limited to, natural disasters, public health epidemics, economic downturns and other events beyond our control. Those issues are described under the caption Risk Factors in our Form 10-K and any additional updates we filed 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 today's call should be considered current as of today only.
Please remember that the company does not assume any responsibility to update any forward-looking statements, whether as a result of new information or due to future developments. During today's call, we will be referring to several of our marketed brands and full prescribing and safety information for each brand can be found on the individual product websites, and the links to those product sites can be found via our corporate site at cumberlandpharma.com.
Also today, we'll provide some non-GAAP financial measures with respect to our performance, and explanation and reconciliation to GAAP measures can be found in the financial tables in our earnings release that was issued earlier today.
With me on today's call are A.J. Kazimi, Cumberland's Chief Executive Officer; Martin Cearnal, our Chief Commercial Officer; and also Michael Bonner, our Chief Financial Officer.
Today we will start with an overview of our progress during the fourth quarter follow with a discussion of our commercial activities. We'll then review our financial results and will finish with the closing remarks before opening the call to any questions. I will now turn the call over to A.J. Kazimi, Cumberland's Chief Executive Officer, to begin the discussion of our corporate update and company performance.
A. J. Kazimi
Good afternoon, everyone, and thank you for joining us. As Erin noted, today, we'll provide an overall company update along with a review of our fourth quarter and full year 2020 financial results.
Well, what a year it's been, like many other companies, we encountered a variety of challenges as a result of the pandemic and I'm pleased to report that our team rose to the occasion despite the significant headwinds we face. On balance, we were able to successfully manage through the most difficult operating environment we faced as a company. Importantly, our facilities remained open, our operations continued. And we were able to keep our organization intact.
And I just like to start by recognizing and thanking our team for their dedicated efforts, which enabled Cumberland to support the patients who rely on our products. As we've previously stated, the decline in hospital admissions and physician office visits has negatively impacted several of our brands. Unfortunately, though, that the diversity of our product portfolio and our customer base helped to mitigate that impact. Moreover, we adjusted certain market strategies and we reinvented the way in which we operate our business and interacted with our customers.
Changes in access to medical facilities and providers required us to employ innovative methods of communication and support. And as a result of all those efforts, we were able to deliver continued growth during 2020. Our fourth quarter revenues were $10 million, up 10% over the prior year period. And our revenues for the full year were 37 million growing 9% over the prior year. This favorable performance was led by our two largest brands, Vibativ and Kristalose. During 2020 our Vibativ product was used to help COVID-19 patients who developed bacterial infections in their lungs. It's a potent antibiotic designed for difficult to treat infections. Vibativ is FDA approved to treat both hospital acquired and ventilator associated pneumonia that results from susceptible organisms. And it's been very rewarding to learn about cases from across the country, where Vibativ has been successfully used to cure secondary bacterial pneumonia in hospitalized COVID patients.
Kristalose meanwhile, benefited from the support of our co-promotion partners who feature the brand with physicians and facilities that we don't cover. We were able to augment our capabilities through the successful implementation of the sales collaborations, which helped result in Kristalose growth last year. Meanwhile, we have been closely monitoring our supply chain, including the facilities that supply the raw materials along with those that manufacture our products. We oversaw the resulting finished goods that were being shipped to us and then on to warehouses that support the country's hospital and retail pharmacies.
Understandably, enrollment in our clinical studies did decline during 2020 due to closures and restrictions in the institutions that were recruiting our needed patients. We have been working with the study sites as they begin to reopen and we do look forward to resumption of patient accrual on a more normalized basis as we work with the completion of each of the clinical trials.
During 2020, we were also able to maintain compliance with the many requirements that apply to us as a publicly traded pharmaceutical company. Included in those efforts was our successful hosting of an FDA audit of our corporate facility and our processes here. So with that overview, I'd now like to turn to Marty Cearnal, Cumberland's, Executive Vice President and Chief Commercial Officer to share his update on our marketing and sales activities. Marty?
Thank you A.J. Following an incredibly dynamic year of change, we remained steadfast and navigating through the challenges of the pandemic and maximizing the potential of our commercial portfolio. To that end, we announced several national initiatives to help medical facilities treat patients with the conditions associated with COVID infections, such as pneumonia, high fevers, and electrolyte imbalances.
Additionally, our national sales organization altered many of their promotional tactics using more electronic and telephonic communication. We supplemented those activities with an enhanced internal sales capability, reaching out to hospitals and physician offices directly from our headquarters.
We also established new procedures to document and monitor the productivity of our sales team. The results indicated a resourceful and steadfast effort to engage our customers and communicate the benefits of our brands. We believe these innovative and efficient ways to expand our reach, add new coverage and ensure awareness of our products allowed us to stay on a growth trajectory during these unparallel times.
As many of you have been following us know. Earlier this year, we launched our FDA approved next generation Caldolor product as a non-steroidal anti inflammatory drug, Caldolor may be used as a sole method of treatment for mild to moderate pain, or as part of a multimodal treatment for severe pain. The next generation product features an easier to administer presentation and an improved patented formulation. This ready to use product contains 800 milligrams of ibuprofen in a patented 200 milliliter formulation designed for injection. It offers hospitals and medical facilities improve dosing accuracy and cost savings while managing pain and reducing opioid consumption.
We're currently selling both the Caldolor viles and the pre-mixed bags and are pleased that the new ready to use presentation now comprises over half of the brand's sales. While the national launch of our next generation Caldolor got off to a flying start. It was unfortunately impacted by the pandemic and the postponement of elective surgeries. As a result, we believe that the potential of our next generation Caldolor was not fully realized, due to the COVID-19 constraints put on health care facilities. Nonetheless, we do expect a stronger performance of the product, as elective surgeries fully resumed and as more facilities gain access to the new presentation.
In 2020, we had two favorable investigator trials published comparing Caldolor to other pain treatments in adult patients, adding to the growing body of literature in support of the brand. A clinical study that evaluated the efficacy of Caldolor in the management of acute pain in orthopedic trauma patients and monitor the use of opioids in those patients was featured in the Journal of Orthopedic Trauma. 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. The Journal of Clinical therapeutics reported on an analysis of nine published clinical studies evaluating Caldolor. This comprehensive review involved over 1000 adult patients with over 750 receiving Caldolor and another 300 receiving placebo or comparator medications. This analysis found that the use of Caldolor decreased surgical stress and improved post surgery recovery. It also determined that patients given Caldolor experienced less post operative pain and decreased opioid use.
In addition to these new Caldolor publications, there were also important manuscripts reporting our new findings associated with the use of Vibativ. One publication presented a sub analysis of the telavancin observational use registry or TOUR study conducted to record population characteristics, prescription information in a real-world clinical outcomes of patients with gram-positive infections treated with Vibativ.
It addressed a range of gram-positive bacterial pathogens, including those that are considered difficult to treat and multi-drug resistant, such as MRSA and MSSA. This publication reported that a positive clinical response was achieved in over 74% of patients receiving Vibativ. It concluded that Vibativ is a promising and viable option for patients with bacteremia or endocarditis, including those with MRSA or other resistance pathogens.
Two additional newly published studies examined longer term resistance trends of Vibativ as part of a seven year anti microbial surveillance program. These global clinical trials reported by Vibativ maintained excellent anti microbial activity against multi-drug resistant pathogens. These studies also documented the sustained in vitro anti-microbial activity and spectrum of Vibativ for many years after its clinical approval.
Lastly, we ended 2020 with a brand new product introduction. We posted initial sales for our RediTrex, methotrexate line of products, which are FDA approved for the treatment of active rheumatoid arthritis, juvenile idiopathic arthritis and severe psoriatic arthritis. Given the ongoing issues associated with physician access during the pandemic, along with the need to manufacture additional product supplies, we're targeting September for the full RediTrex launch.
We are very encouraged by the positive feedback we've been receiving regarding this innovative delivery system. We've implemented a modest expansion of our field sales force to expand our coverage of the rheumatology market potential for this brand. And we believe that RediTrex will be a valuable addition to the portfolio, providing a significant contribution to our business for years to come. That completes today's updates of our commercial efforts. A.J., I'll turn the call back over to you.
A. J. Kazimi
Many thanks, Marty for that update. Now I'd like to ask our Senior Director and Chief Financial Officer, Michael Bonner for the financial review. Michael?
Thank you, A.J.
For the three months ended December 31, 2020, net revenues from continuing operations were 10.3 million, a 10% increase of the 9.3 million in revenue during the prior year period. We also recorded an additional 0.9 million in the fourth quarter of this year, as discontinued operations associated with the return of right to two products that we no longer distribute.
Net revenue by product for the fourth quarter included 5.2 million for Kristalose, 2.3 million for Vibativ, 1.7 million for Caldolor, and 0.9 million for RediTrex. Net revenues for the full year 2020 were 37.4 million, which was an 8.9% increase over the prior year. In addition, we recorded a total of 3.2 million during the full year for discontinued operations associated with the two products we no longer distribute.
Annual 2020 net revenues by products include 15.6 million for Kristalose, 10.9 million for Vibativ, 5.3 million for Caldolor, 1.9 million for Acetadote, and 0.9 million RediTrex, our newest brand.
Total operating expenses for the quarter were 12 million, down from 12.7 million for the prior year period. Total operating expenses for the full year 2020 were 43.8 million, similar to the 43.7 million during the prior year. Cost of goods sold increased during 2020 compared to the prior year due to the growth in sales of Vibativ. Recall that significant Vibativ inventory was transferred to Cumberland as part of the acquisition of the assets associated with the brand. Based on the acquisition accounting, the fair value of this inventory included a significant step up over actual manufacturing cost.
Future loss of the product manufactured for Cumberland are expected to have a much lower cost associated with their supply and sale. Amortization expenses grew due to the Vibativ acquisition. Both marketing and sales and research and development expenses decreased during the fourth quarter and full year 2020. The resulting adjusted earnings for the fourth quarter were 0.2 million, or $0.01 per share a significant turnaround from the loss of 1.9 million, a loss of $0.12 per share during the prior year period.
Adjusted earnings for the full year were a negative 0.1 million, or a loss of $0.01 a share, a significant turnaround from prior year's loss of 3.4 million, which represented a loss of $0.22 per share. Please note that the adjusted earnings calculation does not include the benefit of the $3 million in payments received for the two products returned. It also excludes the benefit of the 3.4 million of Vibativ cost of goods sold during the year, which was received with the product acquisition in 2018. As a result, a total of 5.4 million in cash flow was provided from operations in 2020, compared to 3.1 million for the prior year.
As a reminder, the financial terms for the Vibativ acquisition included a $20 million payment upon closing. This initial payment was funded by a revolving credit facility. We subsequently provided a $5 million milestone payment and are providing royalties based on product sales. Vibativ has been an important contributor to our business, from the products launch in late 2018 to the end of 2020, the product has delivered a total cash contribution of 18 million, which we believe compares favorably to the 25 million in upfront payments to acquire the brand.
We accounted for the Vibativ acquisition as a business combination, a total of 34 million in new assets were added as a result of the acquisition, including approximately 21 million in inventory 12 million of intangible assets and 1 million of goodwill due to amortization of intangibles and sales of inventory, the value of these assets totaled 25 million at the end of the fourth quarter.
At the end of 2019, we concluded our commercial support and returned the U.S. rights to Ethyol and Totect. During 2020, we no longer distribute the two brands and began to present their operating results as a discontinued business line. Both product sales and direct expenses were removed from 2019s reporting and incorporated into a single line described as discontinued operations at the bottom of our income statement. That line nets both historic and current revenue with direct expenses associated with the two brands.
During the fourth quarter of 2020 there was $0.9 million benefit from discontinued operations compared to 2.4 million for the prior period. For the full year 2020, the benefit was 3.2 million, compared with 5.7 million during the prior year. The main contributor to the discontinued operations for 2020 was the $3 million and payments associated with the agreement to return the two brands. Those payments will continue through the end of 2021 with an additional 2 million repaid in quarter equal quarterly increments through Q4 of 2021.
Turning back to our balance sheet as of December 31, 2020, we had over 96 million in total assets, including 24.8 million in cash and equivalents. Liabilities totaled 9.6 million, including 15 million on our credit facility, which represented a net reduction of 3.5 million on that line compared to the prior.
Total shareholders equity was 47 million at the end of 2020. Meanwhile, as we previously announced, Cumberland received the funding of a loan in the amount of 2.2 million at the beginning of the second quarter 2020 pursuant to the paycheck protection program under the Federal CARES Act. The resulting loan helped to prevent the need for any employee layoffs or furloughs as we experienced the impact and uncertainty of the pandemic. The proceeds of the loan were used to fund payroll and related qualifying expenses. Therefore, in October, we submitted a request for the loan forgiveness. The request was approved by our lender and will next require the approval of the U.S. Small Business Administration. The loan is listed on our balance sheet has an other current liability and we will eliminate the debt and record it as other income if and when the forgiveness is fully approved.
Additionally, during the pandemic, we began to decrease the number of shares repurchased. During the fourth quarter, we repurchased an additional 96,000 Cumberland shares, resulting in a total of just over 500,000 shares repurchased for the year. These repurchases included those on the open market, as well as those needed to fund the taxes associated with employee vested restricted shares. Finally, I'd like to note that Cumberland also has over 44 million in tax net operating loss carry forwards, 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
Thank you, Michael.
As I stated earlier, we're grateful that we've been able to keep our business operating and our organization intact during 2020. Over the past year, we quickly adjusted market strategies and promotional activities, reinventing how we interact with our customers, and support the patients who need our medications. As a result and despite the challenges we faced, we were still able to post annual revenue growth and improved profitability during 2020 as you heard.
We've continued to expand our product portfolio through a series of successful business development initiatives. And we now featured seven FDA approved brands with a robust pipeline of new product candidates in development. The catalyst for our business moving forward include the growing contributions from the Vibativ acquisition and the Kristalose co-promotions, the expanded availability of our next generation Caldolor product, the potential of our newly introduced RediTrex live, and the further development of the company's clinical programs.
Our commercial brands combined with the new products from our pipeline, will be important growth contributors to our business for years to come. The addressable markets for these products are quite large for a company of Cumberland size and maximizing these opportunities can have a significant impact on our value. Our organization is focused on realizing the potential of our existing brands, while continuing to add selected differentiated products. And I'm confident we can build upon the success we had in 2020.
We will also continue to efficiently manage the business through these challenging times, while remaining dedicated and focused on our mission of advancing patient care through the delivery of high-quality medicines. And we're grateful to be working in the biopharmaceutical industry, which is developing and delivering new treatments and preventions including those for life threatening COVID infections.
So with that review and update, now let's open the call if any questions you may have. Operator, please proceed.
Thank you, sir. Ladies and gentlemen, that concludes the company's presentation and we will now open the call for any questions. [Operator Instructions] Our first question comes from the line of Steve Krueger of Foresight Investment.
Q - Steve Krueger
Could you give us some sense of where your greatest opportunities for revenue growth are. When I look at the lineup of branded products that you have and most of them seem to be somewhat mature in their revenue growth. And I'm just wondering, where the greatest opportunity for growth lies at this point, where do you see that?
A. J. Kazimi
Marty, you want to take that one?
If you take a look at our product sales year-on-year, you'll still see there's significant growth opportunity in several of our products. Kristalose had a very strong year this year, and we expect with the Co-promotion activities that we've developed that product will continue to grow. Vibativ had a very good year-on-year growth and we expect that to continue. Caldolor with the introduction of the new presentation represents a continuing growth opportunity and of course, RediTrex as a new product introduction also represents a growth opportunity.
So in terms of our inline products, I think there are four of our inline products that represent opportunities for continued growth. And then on top of that, the pipeline products that we're developing represent very significant opportunities for the future.
So Marty, maybe give me some sense in the order of magnitude of the growth opportunity? In aggregate, are we talking about a company that's expecting to grow at 10% a year? Or do you see something in the pipeline that is going to accelerate the growth in a meaningful way?
We don't really provide guidance, especially going into a year that still contains a component of the pandemic. But A.J., I don't know how much we want to talk about some of the future products, but when we talk about ifetroban products down the road, we're talking about order of magnitude changes.
Okay. So ifetroban would be in that category. How about RediTrex or Vibativ, do you see them being real game changer kind of products, possibly for the size of the company?
Well, what we've said is that we expect Vibativ to grow in the range of $20 million to $30 million product over time a nice year-on-year growth this year. And we certainly have seen in terms of our sales that product double over the last two years. The RediTrex, we've said that product is $30 million to $40 million sales potential out over the next several years. So just between those two products, we see a significant opportunity.
That's great. That's very helpful. Thanks. Another question, inventories. Can you tell us what's included in the non-current inventory?
A. J. Kazimi
Yes. The non-current inventory is made up primarily of API and in some work in process inventory for Vibativ, so that was related to the Vibativ acquisition.
So I mean, why do you characterize it as non-current? I mean, that means you don't expect to sell it within the next 12 months?
That's correct. It's going to be -- it's multiple years of API that does not expire that we expect to use for multiple years for the product and that was a really good add as we've added the product.
Okay. I mean, if I look at the inventory turn ratio, it's very high. It’s like you've got in total anyway in aggregate over two years worth of inventory. Do you have any plans to bring that down to a more rational number more in line with typical business practice, would say?
A. J. Kazimi
Yes. Now, again, we acquired Vibativ and with that acquisition came quite a bit of inventory. And we have been working that down and we will continue to do so which should bring our overall inventories down over time.
Do you have any kind of guidance or target for what kind of inventory current rate is your ultimate goal? Again, let’s say in the next 2, 3, 4 years?
A. J. Kazimi
Yes. No, not yet. But the other issue here is that, we want to be cautious with the API inventory, because we want to make sure that we have plenty of raw materials to supply our markets. And one of the barriers to entry for our business is the difficulty in manufacturing, the API's we use. So even though it seems like we maybe we have a little extra inventory on hand, we think that's prudent for making sure we continue to supply our important brands here.
A. J. Kazimi
Okay. Well, I just want to thank everybody for joining us on today's call. And as I've mentioned in the past, we do understand that many prefer a private discussion with management and we're certainly available, if that's what you would like to do just reach out to Erin Gull here to hold such a call. We appreciate your time and your interest in our company and our activities. And we do look forward to providing another update after the end of the next quarter.
Thank you, sir. Ladies and gentlemen, that concludes our conference for today. If you would like to listen to a replay of today's conference, please dial 855-859-2056 using the access code 7005878. Alternatively, a replay of the webcast will be available on the company's Web site. I would like to thank you for your participation. You may now disconnect.