Cumberland Pharmaceuticals Inc.
Q4 2020 Earnings Call Transcript

Published: 9 Mar 2021

[Operator:]

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.

[Erin Gull:]

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.

[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.

[Martin Cearnal:]

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.

[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?

[Michael Bonner:]

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.

[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.

[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?

[Martin Cearnal:]

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.

[Steve Krueger:]

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?

[Martin Cearnal:]

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.

[Steve Krueger:]

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?

[Martin Cearnal:]

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.

[Steve Krueger:]

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:]

Michael?

[Michael Bonner:]

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.

[Steve Krueger:]

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?

[Michael Bonner:]

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.

[Steve Krueger:]

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.

[Steve Krueger:]

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.

[Operator:]

[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.

[Operator:]

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.