Cumberland Pharmaceuticals Inc.

Thank you for joining the Cumberland Pharmaceuticals Second Quarter 2021 Financial Report and Company Update. This 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 Molly Agus, Senior Account Manager at the Dalton Agency, which handles Cumberland's communication. Molly, please go ahead.

Good afternoon, everyone. Today, Cumberland issued a press release containing a company update and financial results for the second quarter ended June 30, 2021. That release with related financial tables is available on the company's 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. Because any such statements reflect the company's current views and expectations concerning future events, They may involve risks and uncertainties. Additionally, there are many factors that could affect Cumberland's future results, including but not limited to natural disasters, economic downturns, public health epidemics, and other events beyond the company's control. Those issues are described under the caption risk factors in Cumberland's form 10-K and any additional updates filed with SEC. And any forward-looking statements made during today's call are qualified by those risk factors. Despite the company's best efforts, actual results could differ materially from expectations, and information shared on this call should be considered current as of today only. Please remember that the company does not assume responsibility to update forward-looking statements, whether as a result of new information or due to future developments. During today's call, there will be references to several of Cumberland's marketed brands. 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 on the corporate website, again, at www.cumberlandpharma.com. Today, the company will also provide some non-GAAP financial measures with respect to performance. An explanation and reconciliation to GAAP measures can be found on the financial tables in the earnings release issued earlier today. With us on today's call are A.J. Kazemi, Cumberland's Chief Executive Officer, Marty Cornell, Chief Commercial Officer, and John Hamm, Chief Financial Officer. The report will start with an overview of Cumberland's progress during the second quarter and follow with a discussion of the company's commercial activities. There will then be a review of the financial results followed by closing remarks before opening the call to any questions. I'll now turn the call over to A.J. Kazemi to begin the discussion of the corporate update and company performance.

Thanks, Molly. Good afternoon, everyone, and we appreciate you joining us. As you heard, today we'll provide an overall company update along with a review of our second quarter financial results. Well, during the past year and a half, we faced the most challenging operating environment in the history of our company. Throughout the pandemic, we worked hard to maintain operations while also ensuring the health and safety of our organization. Although we've been encouraged by the arrival and growing number of vaccinations, we do continue to carefully monitor the situation, especially as variants cause a new spike in COVID cases. During the pandemic, we adjusted our commercial activities by reinventing the ways in which we operate in order to support our customers as well as the patients who can benefit from our medicines. Cumberland continues to face headwinds due to the pandemic, and several of our brands have been negatively impacted. However, we're fortunate to have a diversified product portfolio that includes brands such as Vibative, Crystallose, and Vaprazole that have all delivered a particularly strong performance during the first half of this year. The combined net revenues from our portfolio of FDA-approved brands totaled $9.1 million during the second quarter. And that was a slight decline from the prior year period. However, net revenues for the first six months of this year were $19.6 million, up 9.3% compared to the same period in 2020. In addition, we received a million dollars during the first half of this year associated with divested product rights for two brands that we no longer distribute. As demonstrated in previous quarters, the company's products generate strong performances at different times during the year, which is why we always suggest you evaluate our progress on an annual basis as quarterly progressions do vary. Furthermore, our key promoted brands continue their favorable prescription trends, which is not always apparent in our reported revenues, which represent wholesaler purchases and can fluctuate due to the wholesaler buying patterns. I would like to highlight Crystalos, as the brand has enjoyed an especially strong performance. In the second quarter, Crystalos delivered $5.3 million in revenue, and the brand ended the first half of this year with $8.3 million in revenue, up 22% over the same period last year. Turning to our earnings, we posted a profit of $1.4 million during the first half of this year, a significant turnaround from the $2 million loss during the first half of last year. During the second quarter, we also continued to deliver positive cash flow from operations, which has now totaled $4.5 million year-to-date, up from the $3.7 million in cash flow for the first six months of last year. As of June 30th, we held just under $90 million in total assets, $41 million in liabilities, and $48 million of shareholders' equity. Meanwhile, we've been pleased to announce the results of our 2020 Sustainability Report. detailing Cumberland's activities pertaining to our environmental, social, and governance, or ESG matters. As the largest biopharma company founded and headquartered here in the Mid-South, we hold ourselves to the highest standards of ethical practices, and we understand the importance of addressing our impact on our constituents, the community, as well as the environment. This new report highlighted several activities we've undertaken to fulfill our mission. And during 2020, we delivered nearly 2.5 million doses of our brands for patient use. None of our products were recalled and no studies were terminated due to failure to good clinical standards. We continue to program to serialize all of our commercial products in the United States, which helps prevent which helps prevent counterfeit drugs from entering the market under the Cumberland name. Additionally, the company had no brands listed in the FDA's MedWatch safety alerts, and we had no products identified by the FDA from its adverse event reporting system last year. This ESG report also highlighted Cumberland's engagement with the community, as well as our investment in our employees. And it does note that our workforce was 40% women and 18% of our employees are minorities. And we do remain committed to sustainability and to maintaining transparency of our corporate operations. Finally, we continue to develop our clinical pipeline of treatments for unmet medical needs. Many of our clinical sites have reopened during the first half of this year and started again screening of patients for potential admission into our studies. And we are working closely with these centers as they resume patient enrollment in the various trials for our products. As a reminder, we're sponsoring three key Phase II clinical programs that evaluate our iFitraBand product candidates. These studies involve patients with the cardiomyopathy associated with Duchenne muscular dystrophy, which is a rare fatal genetic neuromuscular disease, and systemic sclerosis or scleroderma, a debilitating autoimmune disease, and aspirin exacerbated respiratory disease, a severe form of asthma. The potential markets for these candidates are quite large for a company our size, And we believe success in any of these programs can have a dramatic, positive impact on our company. We will await results from these studies before then deciding on the best development path leading to the registration of iFiterman, our first new chemical entity. So with that overview and update, I'd now like to ask Marty Cornell, Cumberland's Chief Commercial Officer and President of our sales operations, to share his update on our marketing and sales activities. Marty?

Thank you, AJ. I'd like to start with our two largest brands, Crystalos and Vibati, which have each grown significantly during the first half of 2021. As AJ mentioned, sales of Crystalos have been especially strong this year, increasing 22% compared to the prior year. Crystallose is a prescription strength laxative. It's provided as a pre-measured powder dose that dissolves quickly in just four ounces of water for a virtually taste-free and grit-free solution. It is a unique form of lactulose that compares favorably to the alternative syrup versions. This Crystallose performance has benefited from the support of our co-promotion partners who have expanded our reach for the product by featuring the brand with physicians and facilities that we don't cover. Next, our Vibative product also delivered a strong performance during the first half of the year, with sales growing 21% over the same period last year. During the second quarter, we published a case study dossier, which demonstrates that our Vibative product was effectively used to help COVID-19 patients who developed secondary bacterial infections in their lungs. Vibative is a potent antibiotic designed for difficult-to-treat infections such as hospital-acquired and ventilator-associated pneumonia that result from susceptible organisms. This case study dossier outlines several real-world instances where Vibative effectively and safely treated hospitalized COVID patients. Two of these case studies were provided by Dr. Joseph Riley, a clinical pharmacist specialist for infectious disease and critical care in New Jersey. Within 48 hours of administering Vibative, blood cultures for his patients increased with underlying health conditions who presented with pneumonia and staph infections related to COVID-19 were cleared of the harmful bacteria, resulting in a rapid and effective eradication of life-threatening infections. Meanwhile, our Vaprazole brand has also been helpful in treating COVID and other hospitalized patients suffering from a potentially deadly sodium imbalance known as hyponatremia. In late 2020, an international study of over 4,000 patients found that patients hospitalized with COVID-19 had a high risk of developing hyponatremia. These patients also had a higher incidence of mortality due to their hyponatremia. The study results supported the use of an intravenous Vaptan to treat hyponatremia in critically ill patients afflicted with COVID-19. Hyponatremia is an imbalance of serum sodium to body water. This is the most common electrolyte disorder among hospitalized patients. Cumberland's Vaprazole product is the only intravenously administered Vaptan treatment available in the U.S. Vaprazole has a proven day one response to help normalize serum sodium levels in hyponatremic patients and move them out of the ICU as efficiently as possible. Turning to Caldolor, early last year we implemented the full national launch of our FDA-approved next-generation formulation of the product. As a non-steroidal anti-inflammatory drug, Caldolor may be used as the 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 administration presentation and an improved patented formulation. This ready-to-use product contains 800 milligrams of ibuprofen in a 200 ml formulation designed for injection. It offers hospitals and medical facilities improved dosing accuracy and cost savings. while managing patient pain and significantly reducing their opioid consumption. We're currently selling both the Caldolor vials 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 new presentation was off to a good start following the launch, it was then impacted by the pandemic and resulting postponement, of elective surgeries. Revenues from this product have begun to grow again this year as elective surgeries resume and more facilities gain access to the product. While we're encouraged by the growth I reported today in these four brands, Crystallose, Vibative, Vaprazole, and Caldolor, our remaining brands are at different stages in their life cycle. Acetidote was our first product introduced in 2004, and continues to enjoy sales and market share despite losing its orphan drug exclusivity in 2011. Sales of acetidote have declined this year as more generic competitors entered the market, resulting in a decrease in prices and the business being shared by a growing number of products. Also, we have not shipped or recorded sales of a Meclamox pack so far in 2021. The product's packager encountered difficulties during the pandemic, and as a result, their operations are currently suspended. We're awaiting the resumption of the packaging at this facility to bring new inventory and provide the needed supply of the product. Finally, We continue to prepare for the launch of Readytrex, our new line of injectable methotrexate products. We're encouraged by the positive feedback we've received from physicians about this innovative delivery system. Readytrex is FDA approved for the treatment of active rheumatoid arthritis, juvenile idiopathic arthritis, and severe psoriatic arthritis. We began to introduce this product last November through a soft launch and have modestly increased our sales force to expand our coverage of the rheumatology market in support of this brand. We are introducing this product by targeting a new group of medical practitioners in the rheumatology specialty. We're also working through reimbursement arrangements for the product and awaiting additional supplies. Cumberland has created a positioning and marketing strategy in preparation for the full national product launch, which is scheduled for late September 2021. We believe that ReadyTREX will be a valuable addition to the portfolio and provide a significant contribution to our business for years to come. That completes today's updates on our commercial efforts. AJ, I'll turn the call back over to you.

Thanks, Marty. I'd now like to introduce our new Chief Financial Officer, John Hamm, who assumed that role in May. In this position, John's responsibilities include managing all the company's finance and accounting activities while also continuing to oversee our corporate development as well as our legal matters. John brings to this role over 25 years finance and accounting experience, including 20 years in healthcare. He previously held the position of Chief Operating Officer and Chief Financial Officer of Pharmacy at HealthSpring, Inc., a managed care organization now operating at Cigna HealthSpring. He was also Vice President of Finance at MDON Business Services. MDON is a healthcare technology firm that now operates as Change Healthcare, a NASDAQ-listed company with over $3 billion in annual revenues. John knows Cumberland well, having most recently served as our director of corporate development. He has proven himself to be an integral part of our team, and we're confident he'll continue to serve our company with the highest integrity possible. while delivering quality financial support reports and helping to advance our mission. John will now present the financial review. John?

Thank you, AJ, and pleased to be here. For the three months ended June 30th, 2021, net revenues from continuing operations were $9.1 million, and we recorded an additional $500,000 in revenue from discontinued operations associated with the return of rights to the two products we no longer distribute. We present their results as a discontinued business line. Net revenues by product for the second quarter of 2021 included $5.3 million for Chrysalis, $1.8 million for Vibatav, $0.9 million for Caldolor, and $0.4 million for Vaprizol. It's important to note that given the quarterly fluctuations in buying patterns from our customers, we believe that our performance should be based on annual sales results. Year-to-date revenues were $19.6 million, up 9.3% from the first half of 2020. In addition, we recorded $1 million in revenue from the discontinued operations. Net revenues by product for the first six months of this year included $8.3 million for Crystalos, $6.9 million for Vibative, $2.5 million for Caldolor, and $1.5 million for Vaprazole. Total operating expenses for the second quarter were $10.5 million, down from $11.2 million of expenses during the prior year period. Net income was $1.2 million for the quarter, or $0.08 a share, a significant improvement from the $0.9 million loss during the second quarter of last year. Cash flow from operating activities have remained positive and totaled $4.5 million year-to-date compared to $3.7 million last year. As a reminder, our financial statements have been significantly impacted by the Vibat of Acquisition. The financial terms for this transaction included a $20 million payment upon closing. We subsequently provided a $5 million milestone payment and are also providing royalties based on product sales. From the product's launch in late 2018 through the end of the second quarter of 2021, the product has delivered a total cash contribution of approximately $24 million, which we believe compares favorably to the $25 million in upfront payments to acquire the brand. We accounted for the Vybata 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 the amortization of intangibles and the sales of inventory, the value of these assets totaled $23 million at the end of the second quarter. Turning to our balance sheet as of June 30, 2021, We had $88.9 million in total assets, including $25.7 million in cash and equivalents. Liabilities totaled $41 million, including $14 million on our credit facility. Total shareholders' equity was $48 million at the end of the second quarter. In early 2020, Cumberland received a Paycheck Protection Loan totaling $2.2 million. The loan helped prevent the need for any employee layoffs or furloughs due to the pandemic. The proceeds of the loan were used to fund payroll and related qualifying expenses. At the end of 2020, we submitted a request for the loan's forgiveness. In June of this year, we received formal notice from the US Small Business Administration that the full amount of the loan was forgiven. The loan was previously listed on our balance sheet as a current liability, and we eliminated the debt and recorded it as other income after receiving notice of full forgiveness. Additionally, during the pandemic, we continued our corporate share repurchase program, but did decrease the number of shares repurchased. During the second quarter of 2021, we repurchased an additional 158,000 Cumberland shares. These repurchases included those on the open market as well as those needed to fund the taxes associated with employee vested restricted shares. There is also a 2021 share purchase initiative underway for members of our board of directors who wish to increase their holdings in the company. Six of our board members are participating through share purchase plans and collectively purchased a total of 11,635 shares during the first half of this year. Finally, I'd like to note that Cumberland is 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, AJ.

Thank you, John. Overall, our second quarter and first half of the year were successful, in spite of the continued difficulties related to the pandemic. Our diversified line of FDA-approved brands has allowed us to weather the external challenges, and we remain responsive to the evolving medical market. During 2021, the company has delivered a solid financial performance and advanced key initiatives, including those outlined in our new sustainability report. And we're working to fulfill our mission by building a diversified portfolio of innovative products through a multifaceted strategy that includes both the development of new candidates and the acquisition of established brands. We continue to progress our clinical pipeline, and we continue to incubate future product opportunities at Cumberland Emerging Technologies. We're also leveraging our infrastructure through international partnerships and through co-promotion arrangements, such as those we have in place for Crystalose. and we do look forward to the launch of our ReadyTREX product line this fall. Over the past year and a half, we quickly adjusted market strategies and promotional activities, reinventing the way we interact with our customers and supporting the patients who need our medicines. We do expect to deliver another year of meaningful revenue growth in 2021. We remain dedicated and focused on our mission of advancing patient care through the delivery of high-quality medicines, and will do so the rest of this year and beyond. And finally, I'd just like to note that our shareholders and management interests are closely aligned, given the significant insider ownership in the company. In addition, as mentioned, a majority of our board members are participating in share purchase plans designed to increase their holdings in Cumberland. So with that review and that update, now let's open the call to any questions. 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. If you would like to ask a question, please press the star key followed by the digit 1 on your touchtone telephone.

Well, thank you, everyone, for joining the call today. As I've mentioned in the past, we do understand that many of you prefer a private discussion with management, and if so, please just reach out to us if you'd like to hold such a call, and we'll get it scheduled. We do appreciate your time and interest in our company and we look forward to providing the next update after the end of the third 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 398-5462. Alternatively, a replay of the webcast will be available on the company's website. I would like to thank you for your participation. You may now disconnect.