Cumberland Pharmaceuticals Inc. (CPIX) Q4 2014 Earnings Report, Transcript and Summary

Thank you for joining the Cumberland Pharmaceuticals Fourth Quarter and Fiscal 2014 Financial Results Conference Call. Please be advice that this call is being recorded at the company’s request and will be archived on the company’s website for one week from today’s date. At this time, I would like to introduce Erin Smith who handles Corporate Relations for Cumberland Pharmaceuticals. Please go ahead.

Hello, everyone. Earlier today the company issued press release containing financial results for the fourth quarter and full-year ended December 31, 2014. The release, including the financial tables, is available on the company's website at www.cumberlandpharma.com. Before we begin, allow me to read the following safe harbor information. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because these statements reflect the Company's current views, expectations and beliefs concerning future events, these forward-looking statements involve risk and uncertainties. Investors should note that many factors, as more fully described under the caption Risk Factors in our Form 10-K, Form 10-Q and Form 8-K filings with the SEC, could affect the company's future financial results. Those future results could differ materially from those expressed in the forward-looking statements which are qualified by these risk factors. The company does not assume any obligation to publicly update any forward-looking statements, whether as a result of new information, future development or otherwise. We will also discuss supplemental non-GAAP financial measures with respect to our performance today. The definitions and calculations of these supplemental metrics can be found in our earnings release and the related financial table. Also, please note that this conference call is being webcast through our website and will be available there. I will now turn the call over to our Chief Executive Officer, A. J. Kazimi, to begin our discussion of the company's performance.

Good afternoon, everyone, and thank you for joining us, as we review our fourth quarter and annual 2014 results. With me on today's call are Cumberland's Chief Commercial Officer, Marty Cearnal; our Chief Financial Officer, Rick Greene; and Dr. Amy Rock, our Senior Director, Regulatory and Scientific Affairs. We'll start with our recent developments, and then review our marketed products, followed by a clinical update and then a discussion of our financial performance. We'll conclude with a review of the company’s strategy and plans, before then opening the call to any questions. So let's begin. 2014 was a very successful year for Cumberland as we returned the company to growth and profitability. Today you will hear about important progress in several clinical programs including the announcement of a new addition to our product pipeline. Furthermore, we acquired two FDA approved products, strengthened our patent portfolio and expanded our international activities during the year. Also in 2014, we secured a new credit facility and continue to repurchase shares while maintaining a strong balance sheet and financial position for the company. We finished 2014 with net revenues of just under $37 million up 15% compared to the prior year. Our balance sheet included over $95 million in total assets with nearly $55 million in cash and investments. We ended the year with no debt and over $44 million of tax loss carry forwards resulting from the prior exercise of stock options. With the launch of two new products in 2014, our revenue stream became more diverse than ever before. During the year, we completed the acquisition of Vaprisol just a few months after adding Omeclamox-Pak to our portfolio. We launched active promotion of both brands in 2014 and are encouraged by the initial contributions, as well as the favorable response we have…

Thank you, A.J. We were very pleased to expand our product offerings during 2014, diversify our revenue stream and return product sales to a growth trajectory. We started the year with the new marketing strategy for Kristalose to better position the brand relative to other products in the lactulose marketplace. This new strategy has allowed us to better support Kristalose for patients and offer new opportunities to partner with managed care providers. We also introduced a new couponing program with an e-prescribing feature to enhance patient access to the product. These new initiatives positively impacted the brand during 2014 driving accelerated growth as Kristalose became our largest product. We planned to continue this strategy during 2015 as we support Kristalose through our field sales force and with complimentary promotional initiatives. In early 2014, we also launched promotion of Omeclamox-Pak which is also featured by our field sales division. We have seen a favorable response with growth in prescriptions from our targeted physicians. As you may know many stomach ulcers are caused by an infection from the bacteria Helicobacter pylori or H. pylori which colonize in the stomach and duodenum. When present, this bacterial infection has been proven to be the cause of over 90% of duodenal ulcers. These ulcers commonly cause abdominal pain and may lead to serious bleeding. We are targeting gastroenterologists with our promotion and our co-promotion partner Pernix Therapeutics is covering selected primary care physicians in support of the brand. We next launched Vaprisol through our hospital sales division during the second quarter of 2014 and found a favorable reception among critical care physicians and the nephrologists. Vaprisol is the only brand available to treat Hyponatremia in injectable form. The most common electrolyte imbalance seen in U.S. hospitalized patients. Studies have shown that patients with hyponatremia have longer hospital stays and poorer outcomes. Because the symptoms of hyponatremia can be subtle, it can go unrecognized and untreated. Vaprisol offers an elegant solution for this condition. The brand did not been actively promoted for some time prior to our acquisition and many physicians have been pleased to see support return for this product. Our hospital sales division plans to build on this momentum in 2015. Meanwhile Caldolor continued its growth during 2014 and we remain excited about the prospects for this brand. Our hospital sales organization continues to focus on increasing the use of the product in key medical centers across the country, where Caldolor is on formulary and stocked. We look forward to featuring the new clinical data in 2015 as we work to build Caldolor into a more significantly contributor. Finally, Acetadote stabilized during 2014 and remained an important part of our business. We achieved our goal of maintaining a majority of market share between shipments of our brand and our authorized generic. During 2015 we will continue to feature our EDPA 3 formulation. That completes the update on our marketed brands and now I’ll turn it back over to you A. J.

Thank you Marty. Before we return the financial results, I would like to ask Dr. Amy Rock to provide a review of some exciting clinical developments here at Cumberland. Amy.

Thanks A. J. our team has been very busy and today I'm pleased to share our progress on several key initiatives. The results from two Caldolor Phase IV studies were recently published and are currently available as manuscripts in the journal Clinical Therapeutics. These studies included a total of 450 patients enrolled at over 30 leading U.S. medical centers. They evaluate at the tolerability and efficacy of a shortened infusion time for Caldolor. These studies included patients treated for pain during surgeries and hospitalized patients experiencing pain or fever. Both studies allowed for administration of multiple doses of intravenous ibuprofen and demonstrated at the shortened infusion time of five to ten minutes were well tolerated. The safety and efficacy results from these new studies were comparable to data observed in our previous trials. We have now completed a series of Phase IV studies in over a thousand patients including our pediatric pain and fever program. We’ve recently completed and submitted a supplemental new drug application to the FDA for the product. This submission requested changes to the package insert to include pediatric and other updated information from our post marketing studies. In addition to the clinical efforts to support our marketed products, we have also been working on the development of new product candidates. We’ve recently announced the addition of a new Phase II development program to our pipeline. We’ve initiated clinical development of Boxaban which is an oral formulation of ifetroban. We are evaluating this product candidate for the treatment of patients with aspirin-exacerbated respiratory disease or AERD. AERD is a respiratory disease involving chronic asthma and nasal polyposis that is worsened by aspirin. It is characterized by sharp increases in inflammatory mediators and platelets activity within the respiratory system. Preclinical findings suggest that ifetroban may interfere with these…

Thanks for that update, Amy. We are very excited about those new clinical and regulatory developments and we look forward to providing further updates as these important initiatives progress. I will now turn it over to our Chief Financial Officer Rick Greene for the finical review. Rick?

Thank you, A.J. For the full year ended December 31, 2014 Cumberland’s net revenues were $36.9 million up 15% from $32 million in the prior year. Net revenues by product in 2014 were $14.9 million for Kristalose, a $11.9 million for Acetadote, including $5.8 million of our authorized generic; $4.1 million for Omeclamox; $3 million for Vaprisol; and $2.7 million for Caldolor. This represents the most diversified revenue stream in our company’s history. For the three months ended December 31, 2014 net revenues were $9.3 million compared to $8.2 million for the prior year period. Net revenues by product for the fourth quarter were $4 million for Kristalose, $2.9 million for Acetadote including $1.3 million of our authorized generic, $1 million for Vaprisol, $0.8 million for Caldolor and $0.6 million for Omeclamox. I would like to note that during the fourth quarter we encountered temporary supply interruptions for two products which impacted our revenue in that period. Both Omeclamox and Acetadotes, authorized generic were on back order for part of the quarter. These issues were resolved and the normal supply chain resume for both products by the end of the quarter. For the year ended December 31, 2014 our total operating expenses were $33.3 million compared to $35.8 million for 2013. Total operating expenses for the three months ended December 31, 2014 were $8.4 million compared to $10.6 million for the prior year period. These decreases resulted from our incentives to manage expense inline with our revenues; they also reflect the reduced clinical activities during 2014 following the conclusion of several Caldolor Phase IV studies. Beginning this quarter, we are introducing new performance measures that will be included in our reporting going forward. Many companies in our industry and others report certain supplemental or non-GAAP measures. We have evaluated our…

Thank you, Rich. So as you just heard today 2014 was a very productive year for Cumberland. We rebounded strongly from the headwinds we face in the prior year and I was particularly pleased that our team swiftly addresses the challenges we face and return the company to growth and profitability. Our strategy is to now build upon our positive momentum and maximize the full potential of our commercial brands. We will also pursue opportunities to further expand our product portfolio through our business development efforts and through advancement of our internal pipeline. To that end, our objectives for 2015 are to grow our marketed brands while exploring new opportunities to expand the patient population benefiting from those products. We will also pursue new portfolio additions to select acquisitions as well as internal development programs such as our new Boxaban candidate. We’ll also work to grow the international contribution to our business and further expand our patent position. And finally, we aimed to maintain profitability and financial strength while continuing our share buyback program. We are confident that our strong financial operations and position provide the resources to achieve our goals. Most importantly we remained focused on our mission of advancing patient care to delivery of high quality pharmaceutical products. So with that, 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 and we will now open the call for questions. [Operator Instructions] Our first question comes from the line of David Cannon from Aegis Capital.

Good afternoon guys, congratulations on the successful turnaround year.

Thank you.

First question is can you please quantify the impact of the back order status for Omeclamox and Caldolor, what was the cost to you in terms of revenue?

From an estimated we don’t disclose that number, we got the calculation, but if you look at the trend line we would have expected the growth line to continue for those product and we saw declines. So somewhere even though we haven’t disclosed that you would expect it to be – total revenue to be in the $10 million range for the quarter.

Okay. And then you guys alluded to a non-recurring expense I didn’t quite catch that in the first quarter, can you reiterate what that was again please?

Yes, the first quarter, it’s the first quarter 2015 when we filed with the FDA for our Caldolor filing, we incurred a fee of about $1.1 million that will all impact in the first quarter.

Okay, thank you for clarifying that and borrowing that for the balance of the year with the portfolio that you have, are you guys comfortable that you can maintain kind of this level of profitability in cash flow, it seems like you had about $1.8 million per quarter close to $7 million annualized. Is that something you are comfortable with on a go forward basis?

We are not going to provide guidance for 2015, what I would tell you is from an operating expense line item, we expect our 2015 expenses to look very similar on a run rate to 2014 with the exception of our R&D expenses. Look at 2013’s R&D percentage as a proxy for the model, but we are very comfortable with our run rate in expenses where we are right now.

Okay, just from my vantage point as a shareholder, I liked share buybacks. However, its not really impactful of what you are doing and I'm not supposing that you could accomplish the following, but my message really to the Board would be, if you guys were to do something more meaningful such as a Dutch tender and this is of course hypothetical, one never knows what the outcome is buying lets say 7 million shares at $7 a Dutch tender, you have the cash to do that. You are already at a run rate of about $6.5 million of free cash flow annualized, so you are over capitalized. The current quarter would have not been $0.10 on a non-GAAP basis, but had you accomplished this, it would have been $0.18 or 80% than what you reported. So what's wrong with my line of thinking, I mean my message to the board is you guys should be more aggressive, because it seems like you have got a pretty good business here and play offense and create some value for shareholders. You can comment and tell me what's wrong with my reason of thinking.

Rather than criticize or tell you what's wrong, just want to say thank you for that feedback.

Okay, Thank you. End of Q&A

[Operator Instructions] And I see no additional questions at this time. I would like to turn the call back over to management for any closing remarks.

Sure. Thank you, everyone, for joining us on our call today. We do understand that many investors prefer a private discussion with management regarding these results, and we remain prepared to host such calls. We appreciate your time and interest in Cumberland, and we look forward to providing another update following the end of the first quarter. Goodbye.

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 and use the access code 79652184. Alternatively, a replay of the webcast will be available on the company’s website. I would like to thank you for your participation and you may now disconnect.