Cumberland Pharmaceuticals Inc. (CPIX) Q2 2013 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to Cumberland Pharmaceuticals Second Quarter 2013 Earnings Conference Call. [Operator Instructions] This call is being recorded and a replay will be available for one week, shortly following the conclusion. At this time, I would like to turn the call over to Elizabeth Davis, who handles corporate relations for Cumberland Pharmaceuticals. Please go ahead.

Good afternoon, everyone. And before we begin, we'd like to advise that this call will include forward-looking statements, which reflect our current views about future events. Such forward-looking statements are subject to the risks outlined in the Safe Harbor section of today's press release and are detailed in our 10-K and 10-Q reports on file with SEC. Despite our best efforts, actual results could differ materially from our expectations. Information shared on the call today should be considered current as of today only, and please remember that the company assumes no duty to update it. Today, we issued a press release featuring our second quarter 2013 financial results and company update. If you have not seen our press release issued today, you can access it on our website at www.cumberlandpharma.com. We also post and maintain the current version of our corporate presentation as well as any other press releases and company updates on the investor portion of our website. Additionally, please note that this conference call is being webcast through our website and will be available there. I'll now turn the call over to our Chief Executive Officer, A.J. Kazimi.

Thanks, Elizabeth. Good afternoon, everyone, and thank you for joining us as we review our second quarter results for 2013. With me on today's call are Cumberland's Chief Commercial Officer, Martin Cearnal; and, our Chief Financial Officer, Rick Greene. We'll start by reviewing highlights from the quarter, then we'll provide an update on our products, followed by a discussion of our financial performance. And lastly, we'll provide an overview of our strategy before opening the call to any questions. So let's begin. During the second quarter, we announced that the FDA had approved updated labeling for Acetadote. The new labeling revises the product's indication and offers new dosing guidance for specific patient populations. The new indication states that Acetadote is an antidote for acetaminophen overdose indicated to prevent or lessen hepatic injury after ingestion of a potentially hepatotoxic quantity of acetaminophen. The product's previous indication included the qualifying phrase, "Administered intravenously within 8 to 10 hours," which was originally intended to repress the urgency for early treatment. However, this phrase has now been removed due to potential confusion concerning efficacy. Furthermore, specific dosing guidance is now included for patients weighing over 100 kilograms. A new language has also been added to alert health care providers that, in certain clinical situations, therapy should be extended for some patients. The Acetadote labeling changes reflect our commitment to this patient population by providing clearer and more extensive dosing guidance to assist health care professionals when treating patients in a time-urgent and life-threatening situation. Additionally, you may recall, we've been working to expand the labeling on our Caldolor brand. Today, we're pleased to announce that we've completed enrollment in our pediatric fever study. In that study, we evaluated the safety and efficacy of Caldolor, compared to acetaminophen, in treating fevers in hospitalized children. The top line results from this study indicate that we met our primary endpoint, demonstrating greater overall fever reduction with Caldolor versus the acetaminophen comparator. Turning to other positive developments. On the international front, we entered into 2 new agreements for the registration and commercialization of Caldolor outside the United States during the second quarter of 2013. The first agreement is with Laboratorios Grifols, a Spanish-based company, for a territory that features our first European countries, Spain and Portugal, along with much of South America, including Argentina, Chile, Brazil, Ecuador, Peru and Uruguay. The second agreement is with our Indonesian partner, PT. SOHO Industri Pharmasi. And that new agreement with SOHO add several Pacific Rim countries, including Singapore, Thailand, Vietnam, Cambodia Laos, Brunei and the Philippines. Also, during the second quarter, we amended our agreement with our Chinese partner, Harbin Gloria, by extending their territory to now include Hong Kong and Macau. This growing number of international partnerships represents the successful implementation of our international growth strategy. As a reminder, we do own the worldwide rights to all our products, and we expect that our network of international partners will be an important contributor to Cumberland's long-term growth. I'll now turn it over to Marty Cearnal, to provide an update on our marketed products. Marty?

Thank you, A.J. Let's begin with Acetadote. Early in 2013, Acetadote encountered generic competition. Therefore, we approved the launch of our authorized generic product distributed by Perrigo. Both Acetadote and our authorized generic feature our new formulation, which is free of EDTA and any other chelating or preservative agents. Our goal has been to maintain a majority share of this market in 2013 through the combined sales of our Acetadote brand and the authorized generic. Through the second quarter of 2013, we have done just that. We've provided active sales support for key medical facilities and poison control centers across the country through our hospital sales division. We've also utilized additional non-personnel promotional tools to extend our communication efforts. These targeted promotional efforts support our new formulation and consistently contain the EDTA-free message, as well as describing its enhanced stability compared to the old formulation. We believe the differences between our EDTA-free product and the EDTA-containing generic version are meaningful, and we continue to feature that message to the medical community. Now on Kristalose. Our sales of the product remain steady through the second quarter of 2013. We promote this brand as the lead product through our field-based sales force to key gastroenterology, pediatric and other office-based prescribers across the country. We've also expanded our promotion to a larger audience through a telemarketing campaign covering all high potential users of the product. During the second quarter, we continued our pilot couponing program and we launched an e-prescribing feature. Turning to Caldolor. We're supporting the product through both our hospital and field sales forces. These sales teams are focusing their efforts in high-priority accounts where Caldolor is already stocked in order to drive pull-through sales and help more patients in those institutions. The shift in sales force time towards our priority-targeted accounts is paying off, as we continue to see significant growth in the product compared to prior periods. Furthermore, each month additional medical centers are stocking the product as we approach our goal of reaching 1,000 facilities stocking Caldolor by the end of 2013. We believe that our more focused approach to support Acetadote and our authorized generic, combined with increased and highly targeted promotion of Caldolor and the enhanced reach of Kristalose promotion, creates a highly concentrated sales effort that will more effectively access the potential of our targeted physicians and accounts. With that, A.J., I'll turn the call back over to you.

Thank you, Marty. As I mentioned earlier, today, we are pleased to announce top line results from our clinical pediatric fever study. We evaluated the pharmacokinetic safety and efficacy of Caldolor, our ibuprofen injection product, compared to acetaminophen in treating fevers greater than or equal to 101 degrees Fahrenheit in hospitalized patients who ranged from 6 months of age to 16 years old. 100 patients were enrolled in this multicenter, randomized, open-label active comparator study, and they received either 10 mg per kilogram of intravenous ibuprofen, not exceeding 400 mg a dose, or 10 mg per kilogram acetaminophen, not to exceed 650 mg per dose. The primary endpoint of the study was to assess the area under the curve for changing temperature versus time curve for baseline to 2 hours after the start of the initial dose of study drug. And in 2 hours following dosing, pediatric patients receiving intravenous ibuprofen experienced a greater temperature reduction compared to patients receiving acetaminophen with a P value of 0.012, therefore meeting the primary endpoint of the study. After a single dose, significantly more patients receiving intravenous ibuprofen, 93%, were considered to be no longer febrile, with temperatures under 100.4 degrees, compared to patients receiving acetaminophen, 78%, with a P value of 0.036. Patients receiving intravenous ibuprofen experienced a greater temperature reduction compared to patients receiving acetaminophen upon all temperature assessments during the 4 hours after dosing, with the reductions reaching statistical significance by 90 minutes post-dose. Importantly, no safety concerns were identified, as the incidence of adverse events was similar across treatment groups. This now completes our pediatric program for Caldolor following the previously announced pediatric pain study results. Meanwhile, in February of this year, we announced favorable top line results from a pilot clinical study evaluating the safety and analgesic efficacy of Caldolor compared to ketorolac injection in treating pain following knee arthroscopy procedures in adult patients. Today, we're announcing initiation of a follow-up larger multicenter study to further evaluate the safety and analgesic efficacy of Caldolor compared to ketorolac injection in treating the pain following knee arthroscopy procedures in adult patients. 100 patients are to be enrolled across 3 U.S. medical centers. This multicenter trial is currently underway and our goal is to complete enrollment in this year. Following completion of this study, we then expect to incorporate all of our new Caldolor data into an FDA submission to seek updated and expanded labeling for the product. I'd like to now acknowledge our product development team that has completed 5 Phase IV studies involving Caldolor in over 1,000 patients. We believe Caldolor is an outstanding drug. In each of its clinical studies, it continues to demonstrate its effectiveness with a strong safety profile. And we remain confident that Caldolor will play an important role in helping patients and their health care providers. The last update I'd like to provide is regarding our distribution arrangements. Like many other pharmaceutical companies, we engage a third-party partner with appropriate facilities and logistical expertise to support our distribution efforts. Since August of 2002, Cardinal Health has exclusively handled U.S. product logistic efforts, including warehousing, shipping, billing and collections for us at Cumberland. We elected to extend that distribution relationship with Cardinal in May of this year. The amendment primarily serves to extend the term of the agreement through June 2016. And through this agreement, Cardinal is the exclusive distribution agent for our Acetadote, Caldolor and Kristalose brands in the United States and Puerto Rico. I'd now like to turn it over to Rick Greene, Cumberland's Chief Financial Officer, for a review of our second quarter financial results. Rick?

Thanks, A.J. For the 3 months ended June 30, 2013, net revenues were $7.1 million, compared to $12.4 million for the prior year period. This decrease was driven by the impact of generic competition on Acetadote sales. Net revenues by product were $4.1 million for Acetadote, which included $2.1 million of our share of the authorized generic revenue; $2 million for Kristalose; and $0.6 million for Caldolor. Other revenues were $0.3 million and primarily included upfront payments recognized as a result of our new international agreements. For the 6 months ended June 30, 2013, net revenues were $17.3 million, compared to $22.6 million for the 6 months ended June 30, 2012. Total operating expenses for the 3 months ended June 30, 2013, were $8.2 million, down from $10.4 million in 2012. This decrease was primarily driven by lower sales and marketing expenses, as we carefully work to manage our costs in line with our change in revenues. Total operating expenses for the first 6 months of 2013 were $17.2 million, down from $20 million for 2012. For the 3 months ended June 30, 2013, we had a net loss of $0.6 million, compared to net income of $0.7 million for the prior year period. Net income for the 6 months ended June 30, 2013, was $0.2 million, compared to $2.2 million in 2012. The diluted loss per share for the second quarter was $0.03, compared to earnings per share of $0.09 in the second quarter of 2012. Diluted EPS for the 6 months ended June 30, 2013, was $0.01, compared to $0.11 for the same prior year period. As of June 30, 2013, we had just under $70 million in cash and securities, with approximately $50 million in cash and cash equivalents, and approximately $20 million in marketable securities. Total assets at the end of the second quarter were $95 million. With that, I'll turn the call back over to you, A.J.

Thank you for that financial review, Rick. Before we move to take any questions, I'd like to share some closing thoughts. I'm sure you can imagine we were disappointed with the FDA's decision to approve a generic of the old formulation of Acetadote containing EDTA, which resulted in the introduction of a generic competitor. Clearly, the Acetadote market has transitioned in 2013 as expected. However, we still derive significant revenue between our branded and authorized generic sales of the product. We will continue to manage the product's life cycle and will vigorously defend our intellectual property. Furthermore, we expect growth from Kristalose and Caldolor in the remainder of the year and further contributions on the international front. I'd also like to point out that as our clinical work for Caldolor nears completion, our product development team is now shifting their focus to accelerating new pipeline opportunities. We have a goal of delivering a series of new development products to the market in the coming years. Our team has a proven track record, having overseen the successful development and registration of both Caldolor and Acetadote. And moreover, we're fortunate to own products that are approved and in development with untapped potential. Importantly, our strong balance sheet can more than support our business during this transition period. And finally, we do remain very active on the business development front, as we seek new commercial stage assets that fit well with our organization and can make immediate contributions to our business. We're working actively on multiple opportunities and will provide updates as appropriate. With that, let's open the call to any questions. Operator, can you please proceed?

[Operator Instructions] Our first question comes from the line of Abbott Keller of Kestrel Investment.

I was wondering on what your thoughts were on share repurchase going forward.

Well, the company has -- the board of the company has authorized a $10 million share repurchase initiative early this year. And each quarter, we have been repurchasing shares. We did repurchase shares in the prior quarter just reported and expected to continue to do so.

Okay. About the same rate you would expect, or no?

This is Rick. We acquired 240,000 shares in the second quarter, and we would expect to purchase in that kind of same level going forward. But we do evaluate it at the end of each quarter.

At this time, I would like to turn the call back over to management for any closing remarks.

Sure. Just wanted to thank everyone for joining our call today. We do appreciate your time and interest in Cumberland. And we'll plan and look forward to providing you with another update after the end of the third quarter. Thank you, and goodbye.

Ladies and gentlemen, that concludes our conference for today. If you would like to listen to a phone replay of today's conference, please dial (855) 859-2056, using the access code 24879662, through August 13. Alternatively, a replay of the webcast will be available on the company's Investor Relations website. I would like to thank you for your participation. You may now disconnect.