Q4 2019 Earnings Call

[music].

Paul is being recorded at the company's request and will be archived on common as website for one week from today's date.

Now I'd like to introduce Airings, all who is responsible for corporate relations at Cumberland Aaron. Please go ahead.

Good afternoon today, we issued a press release, featuring our fourth quarter and full year 2019 financial result in company update.

You can find that release, including all the related financial tables on our website at www Dot Cumberland pharma dotcom.

Additionally, our call today may contain forward looking statements within the meaning of the private Securities Reform Act of 1995 because of the statements in today's call reflects the companys current views and expectations concerning future events any forward looking statements may involve risks and uncertainties.

Please note that many risk factors could affect the company's future results, including natural disasters public health epidemic and other events beyond our control.

As a monthly described under the caption risk factors in our form 10-K, and any update you file with the FCC.

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 expectation and the information shared on the call today should be considered current as of today only please remember that the company does not have seen any responsibility to update such forward looking statements, whether as a result of new information or due to future development.

And also during today's call, we will be referring to several of our marketed brand.

The full prescribing and safety information for each brand that can be found do the links to the individual product website on our corporate site Cumberland pharma dotcom.

Oh, it 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 table [laughter] with us on today's call. Our Ajay Cassini Cumberlands, Chief Executive Officer, Marty CRE now, our Chief commercial officer, and Michael Boehner, Our Chief Financial Officer.

And I'll now turn the call over to A.J. to begin our discussion of the company's performance in our company update.

Well good afternoon, everyone. Thanks for joining us we appreciate your participation and as Aaron noted provided it overall company update at a review of our fourth quarter as Rolls are full year financial results and I'd, just like to start by noting the serious corona virus outbreak spreading across our country.

Packing the economy in the financial markets for our thoughts so certainly go out to those suffering from this development and specifically the patience is illnesses have led to a life threatening condition.

Please be assured that here at Cumberland, we're taking appropriate action to protect our employees secure our supply chain. It continue to support the patients can benefit from our businesses.

During today's call will first cover highlights on our progress followed by a more indepth update on our commercial and our product development activities and then we'll report our financial results.

Before finishing with some closing remarks at opening the call to any questions.

Well I'm pleased to report the 2019 was a productive and successful year for Cumberland Pharmaceuticals, as you'll hear today, we made good progress in advancing our major initiatives and accomplishing many key objectives.

We set out to delivered double digit revenue growth in 2019, and we did just that.

Moreover, we announced a strategic review of our brands our capabilities that are partners at the beginning of last year.

And then we moved quickly to conduct those efforts and implement our conclusions.

We also expanded our sales organization and we refocused their promotional efforts.

During 2019 is that we advanced our clinical programs obtain twoq <unk> FDA approvals and entered into several new international agreements for our products.

So you just heard we embarked on a long and complex set of tasks last year, but that I'm proud to report our team was up to the challenge.

And as a result begin to see the impact of those efforts both here in 2020 and beyond.

So, let's now review some of those accomplishments in a bit more detail.

We started last year by reporting that we secured if you approval for our next generation Caldor product featuring an improved formulation and are ready to use presentation.

We then ended the year with the FDA approval for ready track slide of new injectable methotrexate products.

These two F.D.A. approvals delivered on our gold expanding or commercial portfolio and we will build upon both in 2020.

Meanwhile, we finished the year strong and delivered significantly improved financial performance in 2090.

Net revenues for the fourth quarter were 13.7 million compared to 13 5.5 billion during the prior year.

Net revenues for the full year 2019 were just over 47 million compared to approximately 40 million during the prior year.

And with this 17% increase we achieved our objective of delivering double digit revenue growth for 2019.

Our adjusted earnings for the fourth quarter for one and a half million dollars.

Here Q, a similar amount for the prior year period, but adjusted earnings for the full year were $5 million for 32 cents a share.

Those sites that those 2019 results represented a $5.4 billion swing or increase in adjusted earnings over the prior year as we also achieved our objective.

If acutely improving our bottom line.

Turning to the strategic review, we finalize international agreements for by Bad It with Hikma pharmaceuticals in the Middle East.

Our pharma in Russia and.

Dr. Reddys in India.

These three companies aren't leaders in their respective markets and we believe represent excellent additions to our network of international partners.

In China wouldn't health Pharmaceuticals will assume responsibility for our Acetadote and Caldolor Brad.

And they also joined our R&D initiative through their 1 million dollar investment Cumberland emerging technologies for CE tea.

In addition, we formed a strategic alliance with wouldn't help to further explore business opportunities that will advance the mission and goals with both our organizations.

Domestically, we returned the U.S. rights to a thoughtful and totex at the end of 2019.

We completed that transition and we will receive $5 billion and payments over the next two years based on the agreement to return those brands.

So as a result will now focus or hospital efforts on our three key acute care brands council or by bad if and Vaprisol.

You see wheels, the full rights to these three brad's, which feature high gross margins at better growth opportunities for our organization.

Also during 2019, we renewed our co promotion partnership with Poly Pharmaceuticals.

If you recall polys detailing kristalose to medical professionals that we don't cover.

They're cereal sales organization, which is slightly larger than our field sales force has been introducing the brand.

Sales of new medical practitioners and they've been able to generate a growing number of prescription from those physicians that they're covering.

We also agreed to conclude our co promotion agreement with Putable critical care during the fourth quarter.

Mirabal was promoting caldolor in Vaprisol two hospitals have hospital accounts that we didn't previously called one and we appreciated parables efforts and those accounts have now been transition to Cumberland.

On the clinical front, we completed our newest capital or pediatric study and yesterday, we announced favorable topline results.

We also announced a new phase two I Fitbit clinical program in young males with Duchenne muscular dystrophy, which involved $1 billion gay orphan drug grant to support that study.

During 2019, we continue to progress enrollment in our other phase two I fit your band Stuttering studies with patients with the aspirin exacerbated respiratory disease and a systemic sclerosis.

So as you as you can hear a 2019 was it was clearly a very busy year as we executed on a host of our objectives, while delivering improved year over year financial performance and importantly, we laid the groundwork through several catalysts that will help.

Our growth this year and beyond.

So with that overview I'd now like to turn to Marty Cornell Cumberlands, Chief commercial officer to provide you with a more information and update for marketing and sales activities Marty.

Thanks, Andrew.

You heard there's been an abundance of activity here at Cumberland, We made meaningful progress in several key areas of our long term growth strategy, we continue to develop and implement programs for our marketed products and we also completed successful transition by bad is to Cumberland.

We finalize plans for the launch of our next generation Caldor product and also began preparations for the upcoming launch of our ready Trex product line.

We were also pleased that our newest drugs by baddie Portola Branson injection, what's the subject to favorable clinical publications during 2019.

Turning to the growing library of literature supporting that brand.

As a reminder.

I bet. It is a patented 50 approved anti infective designed to treat serious bacterial infections, including those that are considered difficult to treat and multi drug resistant. It is a lifesaving product for certain difficult to treat infections and we believe it's an excellent match for our rigs.

Listing infrastructure and big and can become a flagship product for crumbling.

[noise] study analysis reported in infectious diseases in therapy showed numerically superior cure rates for by batted when compared to vancomycin within a set of patients who had hospital acquired pneumonia caused by bacteria with low susceptibility to vancomycin another.

Published in drugs in real world outcomes due to the positive clinical outcomes that resulted from treating multiple infection types with by bad it including complicated skin and skin structure infections.

Bone and joint infections, Bacteremia, and Endo Cordite is and also lower respiratory tract infections.

While we were transitioning vibe additive to Cumberland. This year, we also redesigned our hospital territories, increasing the size of that sales division and expanding our medical science liaison capabilities.

In addition, we added a new inside sales team, enabling us to better support those customers outside the reach of our hospital and field sales organizations.

Our goal is to provide national coverage for most of the existing and potential prescribers associated with our business.

These various personnel additions resulted from our strategic review to ensure that we had the marketing and sales organization needed to provide full inefficient support for our brands.

During 2019, we conducted the initial launch of our Caldolor next generation product.

The new presentation features are ready to use bag that may be administered without the need for dilution.

This improvement overcomes the need for pharmacy preparation of the product, which we believe will enhance the brands performance as the advantages of the new preparation become known to the marketplace.

As a reminder, Cal delors approved as the sole method of treating.

Mild to moderate pain or as part of a multi modal treatment for severe pain and does it is positioned to play an important role in combating the nation's opioid crisis.

The initial launch was focused on a select group of key hospitals across the country based on limited initial suppliers of the product.

It went very well and as a result, we're optimistic about the opportunity to build this next generation product. We've had numerous medical facilities, which started purchasing Calvin lower for the first time.

And we also saw 63% growth in sales among key accounts that have switched from the caldor vile to the pre mixed bag form of the product.

We've been encouraged by the significant number of physicians, who have incorporated Cal galore into their pain management regimens.

The new ready to use presentation of caldor offers hospitals the medical facilities, a more cost effective way to administer this proven product, which can be used to reduce their opioid use.

We also implemented additional manufacturing, which has resulted in the delivery of a larger amount that inventory to support a full national launch of the product.

We recently announced this national launch, which is now underway. The brand is featured by both our newly expanded hospital sales force as well as select account coverage by our field sales division.

Our sales organization at 50 individuals is supported by a full range of marketing and promotional activities, including a national advertising campaign participation and relevant conferences speakers Bureau, consisting of physicians with hands on experience with the product and the digital campaign.

Also during the fourth quarter of 2019, we were very excited to learn of the FDA approval for ready Trex, our new methotrexate brand.

Ready Trex isn't innovative line of injectable products designed for the treatment of patients with rheumatoid arthritis, as well as those patients with severe psoriasis.

We are now actively preparing for the national launch of ready attracts which is expected during the second half of 2020.

Following the arrival of the first package and serialized supply.

Preparation, we began the process of engaging third party payers with the objective of achieving favorable coverage and reimbursement rates.

We're designing an expansion of our field sales force with the target of covering up to 80% of the rheumatology market potential. We're also establishing a group of physician advisors to help with product positioning and messaging.

And we're preparing the full range of marketing and promotional materials to introduce the brain. Thanks.

In closing I'd like to mention that with the Corona virus outbreak there have been many changes and access to medical facilities cancellation of medical conferences and disruption of our planned internal meetings given those developments. Please be assured that we are taking specific action to ensure our.

Innovation maintains contact with and continues to support their colleagues in the medical community.

We're also taking measures to ensure good internal communication and ongoing interaction to operate our activities across the country.

Completes todays update on our marketing and sales activities, Hey, Jay ill turn the call back to you.

Thanks for sharing that progress Murray I'd like to now discuss our clinical update and a little more detail.

During 2019, we completed our third caldor pediatric study, which fulfilled our commitments to the FDA that were associated with the products original approval.

We had previously completed both fever and pain studies in older children.

Then able to expand counselors label with the FDA approval for the products used in children six months of age and older.

We followed then with the study in newborns ranging in age from Bert up to six months.

The trial enrolled 24 newborns for medical centers across the country and it was designed to evaluate the safety and pharmacokinetics of calendar lore, those youngest of patients.

Today I'm pleased to report that during the course of the clinical study, we did not see any significant safety concerns needs very young children.

We also observed that the pharmacokinetics of Calderon caldor behave similarly between these newborns and the children greater than six months of age.

Based on that data it appears that caldor dosed at 10 milligrams per kilogram every six hours is well tolerated and appropriate for children ages birth on up.

Our next steps are to complete the full study report and then submit that information to the FDA.

Our Calgary clinical studies of now involved nearly 2000 patients, resulting in outstanding safety database and and we are planning to further expand the products label based on this well to the new data.

During 2019, we submitted it to the FDA aiming to further expand counter lowers label.

And this update included some more geriatric pediatric pharmacokinetic data as well as data on a shortened infusion time.

Well due to the number of new claims the FDA requested that we divide the new data into a series of separate applications. So now we're in the process of reviewing and prioritizing. This information in preparation for the first of these new submissions and again our goal is to continue to expand the capital.

Or label overtime.

Meanwhile, we also were working to pursue I Sicher band, our first new chemical entity through a series of indications that address unmet medical needs.

As I mentioned earlier, we launched our newest that fit your band clinical program last year. Following a $1 billion reward from the FDA to support our phase two study through their orphan products clinical trials grants program.

Our study is evaluating I sit your bad for the treatment of the cardiomyopathy associated with the Duchenne muscular dystrophy or DMD inpatient seven years of age and older.

DMD is are rare fatal genetic neuromuscular disease that is characterized by the progressive loss of muscle, which results in deterioration of the skeletal alone and the heart muscles.

The heart muscle disease is now the leading cause of death in these patients with DMD and we believe I Sicher ban may uniquely address the heart failure heart failure associated with this deadly condition.

Our study is the first DMD study a proof FDA funding and we very much appreciate the FDA screened support for our novel treatment for these critically ill patients.

In addition, as I mentioned, we also progressed enrollment in our phase two studies of I fits your ban in patients with aspirin exacerbated respiratory disease, which is a severe form of asthma.

And in patients with systemic sclerosis, which has the deadliest audio immune diseases.

And we'll be sure to provide you with an update when enrollment in each of these phase. Two studies is completed and then we will follow with an announcement of the topline results from each of those studies.

You see we're awaiting the results from these various phase to work before then planning the best pass forward for the approval for this important new drug.

Meanwhile, we're also establishing a pipeline of new product candidates at Cumberland emerging technologies or CE T. Our R&D initiative.

The mission of C is to identify breakthroughs at academic research centers, and then team with their scientists to advance the resulting product candidates towards the marketplace.

During 2019, we added a new collaboration to our roster of academic partnerships with an agreement with the medical University of South Carolina to collaborate on future co development programs. It combines the strengths of both organizations with the goal is advancing new products.

Research into clinical practice.

The agreement adds to our roster of academic collaborations which also include Vanderbilt University, the University of Mississippi, The University of Tennessee, and Louisiana State University.

Also added two key individuals at CCT during 2019.

Dolan.

The president and CEO of launch, Tennessee joined the CE T. Board of directors last year.

Margaret is an integral part of the mid South entrepreneurial Committee community and brings a unique blend of business civic experiences that are a great fit for CE as we work to deliver new products and technologies.

In addition, Dr. jeffs defensive join in 2019, Cts director corporate development.

In that role he is responsible for the identification and licensing of new biopharmaceutical products and the also overseas the program management and grant initiatives associated with the growing portfolio of licensed product candidates emerging from Cts University collaborations.

Recall that CE T was awarded a federal small business grant providing $2 million for an innovative program in collaboration with Vanderbilt University.

That award was made in late 2018, and our colleagues a CE Ti work in 2019 to progress new product funded by that award.

Well that concludes a further develop update our development activities and now I'd like to turn to our Chief Financial Officer, Michael Boehner for the financial review Michael.

Thank you AJ for the three months ended December 31, 2019, net revenues were 13.7 million compared to 13.5 million for the prior year period.

Net revenues by product for the fourth quarter included 4.4 million profile 3.2 million for Chrysalis 2.5 million for by Bad US 1.7 million for capital more and 1.2 million for Acetadote.

For the full year ended December 30, Onest 2019, Cumberlands total net revenues were 47.5 million, a 17% increase compared to $40.7 million for the prior year period.

Net revenues by product for the full year 2019 included 12.9 million for Kristalose 12.8 million profile.

8.7 million provide batteries.

5.2 million for Caldor, and 3.8 million preceded.

Total operating expenses for the three months ended December 30, Onest 2019, or 14.7 million down from 15.8 million for the prior year period.

For the full year ended December 30, Onest 2019, our total operating expenses were 51.2 million compared to 48.1 million for 2018.

This increase included additional cost of products sold and an increase in amortization a noncash expense.

Adjusted earnings for the three months ended December 30, Onest 2019 were 1.5 million or nine cents per share compared to 1.6 million or 10 cents per share for the prior year period.

Adjusted earnings for the year ended December 30, Onest 2019 were 5 million or 32 cents per share a significant increase over the losses.

0.5 million or 0.3 cents per share in the prior year period.

As of December 30, Onest 2019, we had 104.5 million total assets, including over 28 million in cash and investments.

Liabilities totaled 53.5 million, including 18.5 million on our credit facility.

Total shareholders equity was just over 51.1 million at the ended the year.

As a reminder, the financial terms for the buyback of acquisition.

Included a 20 million dollar payment to Theravance upon closing.

This initial payment was funded by revolving credit facility with Pinnacle Bank.

We also provided theravance, a $5 million milestone payment in 2019 and tiered royalties on us net product sales.

Also recall, we accounted for the acquisition as a business combination a total of 34.2 million a new assets were added as a result at the buyback of acquisition, including $21.6 million, an inventory 11.8 million of intangible assets and 0.9 million of goodwill.

Due to amortization of intangibles and sales of inventory during the year the value of these assets totaled 30 million at the end to 2019.

In late 2018, we recorded a liability of 9 million associated with the acquisition is the fair value of the contingent consideration, resulting from the long term royalty on product sales.

During 2019, the liability was reduced to 8.6 million as we made payments on our royalty obligation.

We expect the addition of by Bad if we'll continue to be accretive to the company's earnings as we are largely utilizing our existing infrastructure to support the brand.

Through the end of 2019, the brand provided a total of 10.2 million and cash contribution to our business.

We also continued to execute on our share repurchase initiative during the fourth quarter of 2019.

During the quarter, we repurchased an additional 171000 Cumberland shares, bringing the total shares repurchased during the full year to 623000.

During 2019, we launched an insider share repurchase initiatives through a series of Tenbfive one trading plants.

Five members of our board of directors participated and increase their share position in the company.

We also helped one of our directors relinquishes Cumberland shares following a change in his and policy as University employer.

At the end of 2019, we concluded our commercial support and returned the U.S. rights to file and Totex.

There will be a total of $5 million and payments over the next two years associated with the agreement to return these two brands.

Beginning in 2020, we will present the operating results these products as a discontinued business line.

This will result in the sales and direct expenses and 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.

That line will net the 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.

Redirected their focus to our three key hospital brands.

Finally, it's important to note. The Cumberland also has ever 44 million net in tax net operating loss carryforwards, resulting from the prior exercise of stock options.

That completes our financial report.

Thank you Michael.

Well as you've heard we're working hard to build a specialty pharma business that deliver sustained growth and profitable operations.

We're hopeful for the potential of the key catalyst we reported on today, which include the contributions from divide that of acquisition.

The national launch of our new Caldor presentation.

And the pending launch of our ready trips product line.

We believe these brands will be important contributors to the growth.

He 20 and for years to come.

The addressable markets are quite large for a company our size and if we're able to maximize the potential of these brands. We believe it could have a significant impact on our value.

As we move into 2020 will be supporting a we're focused portfolio a valuable brands.

We continue our business development initiatives to selectively add new commercial brands as well as new partners.

We will also work to develop and register new product candidates that address unmet medical needs.

We expect that 2020 will be a successful year for Cumberland.

We are targeting a number of important accomplishments during the year and as of today, we are aiming for double digit revenue growth this year over 2019.

Our goal is to deliver positive cash flow from our operations and we expect to continue to return capital to our shareholders through our share repurchase and other initiatives, while being careful not to impact our growth opportunities.

Meanwhile, we do recognize the importance of managing our supply chain and continuing to deliver our medicines needed by patients during the national Corona virus outbreak.

And as Marty mentioned, we are taking specific action to ensure ongoing access to the medical community to support patient care and also to maintain the needed interactions among our national sales organization to support our brands.

Finally, I'd just like to acknowledge and thank our team we had a terrific year in 2019 and and we appreciate all their efforts and contributions our goals are to advance patient care to the delivery of high quality medicines.

Also building value for all involved with our organization.

So with that review and that update now let's open the call 20 questions. You may have operator can can you. Please proceed.

Thank you, Sir ladies and gentlemen that concludes today's presentation and we will now open the call for any questions. If he would like to ask a question. Please press the Starkey followed by the did one on your touched on telephone.

Our first question comes from the line of Andrew Dsilva with B. Riley FBR. Your line is now.

Hi, good afternoon, Thanks for taking my questions and I hope everyone is okay. After the tornadoes.

Just curious if there has been any sort of disruption due to the tornadoes or.

Covert 19, and really curious about how you're managing the business from a sales and marketing standpoint.

Currently just due to some of the restrictions that have been implemented and if we should just.

Consider that.

As a viable impact to your top line this year.

Well good afternoon.

This is ha and I'll address the tornado then I'll turn to Marty to talk about what we're doing.

From the commercial perspective regarding the Corona virus outbreak.

You are correct you know we encountered a six different tornadoes, which landed in this area recently.

And then which caused extensive damage and unfortunately also there was considerable loss of life.

Fortunately our business and our team was largely unaffected nobody at Cumberland was hurt and there was no significant damage to the operations of the company the facilities over the company or even the homes of our team members. So thankfully we survive those.

Tornadoes and again ill now turn to Marty to describe what we're doing regarding to covert 19 outbreak.

Yes, hi.

Our goal continues to focus on delivering double digit revenue growth in 2020.

We believe it a business like ours is less impacted by any economic downturn patients will still need medications to support their health and treat their conditions and some of our medications are particularly useful in these difficult situations. Furthermore.

Our caldolor product can help treat high fevers associated with viral infections, while our by battery product is approved for the treatment of hospital acquired pneumonia, which.

Can be a major factor.

Secondary to covert 19.

Respiratory disease.

So what we think that we think that we're we're well positioned.

And we have.

I've been working with our sales organization to assure that we maintain appropriate contact.

Okay. Thank you for the color then.

As it relates to the next generation Keller launch.

Can you give a little bit of insight as far as.

Maybe a year to date or from whatever timeframe. You can go from when you actually formally launch the product to now roughly what.

Percent.

Of.

Of the physicians are hospitals that you're working with a transitioned.

To the next generation versus the last generation outlook.

You know we've seen.

Significant adoption of the.

Of the new presentation, we currently so both.

Forms of the product because.

Hospitals prefer to use the files in their pediatric patients where they can.

Where they can.

Mix.

Several bags as these patients require lower doses.

And.

As we as we reported during the call for those hospitals that are that are making the change we're seeing a significant.

Uptake and expansion one of the reasons for that is as we get the product out of the pharmacy and into the picks us machines up on the floor. It's much more convenient for for the product to be used in various parts of the hospital. So not only in a in surgery, but you know BG where are you.

In.

In pediatrics in the E R and even in plastic surgery. So we're seeing an expansion in the areas abuse based on making this product more more convenient.

Okay, Great and just last question for me.

If you could just just let me know how you're going to account for the clinical and financial consideration.

Is that going to be and other revenue line AUO anything actually have to be moved over from a financial consideration standpoint into discontinued operations.

It would be considered discontinued operations that way when you have a comparative number for 2019 versus 2018 they'll both be.

Between.

The revenue component that will be considered as revenue.

So the fine that's sort of $5 million financial consideration over two years will be and on the topline as other revenue.

Yes topline revenue.

Okay.

Perfect. Thank you very much and best of luck.

Right.

Thank you.

Thank you at this time I'd like to turn the call back over the man management for any closing remarks.

Okay, well, we appreciate everyone joining us today as I have mentioned in the past we understand that many prefer a private discussion with management and if you do so please just read out there in here and she will help you a schedule and we'd be happy to host such a call.

We appreciate your time, an interesting Cumberland and we look forward to then providing another update following the end of the first quarter.

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Thank you Sir.

Ladies and gentlemen that concludes our conference call today.

If you would like to listen to a replay of today's conference. Please dial 8558592 056.

Using the access code 9759981.

Alternatively, a replay of the webcast will be available in the company's website.

I would now like to thank you for your participation you may now disconnect.

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