Cumberland Pharmaceuticals Inc.

Good afternoon, and thank you for joining Cumberland Pharmaceuticals' 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. I would now like to introduce Molly Agus, Account Supervisor at the Dalton Agency who handles Cumberland's communications. Molly, please go ahead.

Hi, everyone. Good afternoon. Earlier today, Cumberland issued a press release announcing the company's annual financial results. as well as an operational update for the year ending December 31, 2021. The release includes related financial tables and can be found on Cumberland's website at www.cumberlandpharma.com. Company management will provide an overview of these results and the recent developments during today's call. With us today are A.J. Kazemi, Cumberland's Chief Executive Officer, Todd Anthony, Vice President, Organizational Development, and John Hamm, Chief Financial Officer. Please note that today's discussion may include forward-looking statements as defined in the Private Securities Reform Act of 1995. These statements reflect the company's current views and expectations concerning future events and may involve risks and uncertainties. Additionally, there are many factors that could affect Cumberland's future results, including natural disasters, economic downturns, public health epidemics, international conflicts, 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. Any forward-looking statements made during today's call are qualified by those risk factors. Despite the company's best efforts, actual results may differ materially from expectations, so information shared on this call should be considered current as of today only. Please remember that the company is not responsible for updating any 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 is included on the individual product websites, and links to those sites can be found on the corporate website at www.cumberlandpharma.com. Today, the company will be providing 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 this afternoon. And without background and commentary, I'll now turn the call over to Cumberland's Chief Executive Officer, A.J. Kazemi, to begin the discussion.

Good afternoon, everyone. We're glad you could join us and appreciate your participation in today's call. This afternoon, we'll share highlights of our company's progress and review our commercial activities. We'll also discuss our 2021 financial results and finish with closing remarks before then opening the call to any questions you may have. I'll start by sharing an exciting and significant development. In December of 2021, we signed an agreement with Japan-based Kiowa Kirin for the acquisition of the U.S. assets and rights associated with their oncology support brand, Sankuso. It's the first and only FDA-approved prescription patch for the prevention of nausea and vomiting in cancer patients receiving certain types of chemotherapy. Sancuso will be supported by our new sales division, Cumberland Oncology. We closed the transaction in early January and then assumed full commercial responsibility for the brand in the United States. including its marketing, promotion, distribution, manufacturing, and medical support activities. Following the closing in early January, we began making product shipments. Keoa Kiran will retain international rights to San Cuso, continuing to deliver the product to support oncology patients throughout the rest of the world. The financial terms of the acquisition include included a $13.5 million payment to Kiyo Akira upon closing, up to $3.5 million in milestone payments, and tiered royalties of up to 10% on net product sales. In 2021, net sales of the brand in the U.S. were approximately $13 million. I'd also like to report that in the fourth quarter of 2021, we extended our bank line of credit for a new three-year term and expanded the facility to provide up to $20 million in capital, and that alliance supported the acquisition of the Sancuso. In addition, during the fourth quarter of 2021, we received FDA approval for the expanded labeling of our Caldolor product, a non-narcotic pain reliever. This intravenously delivered formulation of ibuprofen is now approved for use prior to surgery. Orthopedic surgeon Dr. Steven Southworth, who has published extensively on intravenous ibuprofen, has supported this development, stating that when administered immediately prior to surgery, patients given Caldor experience less postoperative pain and a decrease in their opioid use. We're proud of our regulatory team's successful efforts to expand the FDA-approved labeling for Caldor's use in surgical care. And now we'll incorporate this important development into our promotional and medical support for the product, which can provide additional insight into how intravenous ibuprofen can help healthcare professionals manage patients' pain as elective surgeries resume. In 2021, we also implemented the national launch of Readytrex, our FDA-approved line of injectable methotrexate products. Readytrex's pre-filled syringes feature an innovative delivery system for easy handling and dosing accuracy. They're designed for patients with arthritis to increase the efficacy of their treatment while also providing greater continuation rates and less discomfort. It has been a difficult launch for such a new brand during the pandemic, but we are making steady progress in the adoption and in the insurance coverage needed for the brand. Meanwhile, we were pleased to share a number of new publications regarding our Vibative, Caldolor, and Vaprazole brands during 2021. We issued a series of case studies describing the effectiveness of Vibative in treating secondary bacterial infections in COVID-19 patients. And we'll discuss those publications in a little more detail during the marketing and sales portion of today's call. Well, turning to our 2021 financial performance, total net revenues for the year were $36 million. They resulted in an adjusted loss of $1 million, or $0.08 a share. and cash flow from our operations increased to over $6 million in 2021. We ended the year with $85 million in total assets, including $27 million in cash and investments, $42 million in total liabilities, and approximately $43 million in shareholders' equity. So with that overview, I'd now like to introduce Todd Anthony. who was recently promoted to our vice president, organizational development. Todd has 25 years' experience in the pharmaceutical industry, including 12 years here at Cumberland after joining us as director of sales training. Prior to that, he held a variety of positions with growing responsibilities at Bayer Healthcare Pharmaceuticals. Todd's responsible for our human resource, office administration, and organizational development activities. Among his accomplishments is the establishment of the Cumberland Way, which provides consistent direction, procedures, and training for our sales organization, who have all joined with experience from many other biopharmaceutical companies. So, Todd, I'll turn it over to you.

Thank you, A.J., There certainly has been a lot of activity at Cumberland, and we're especially proud to share these developments amid the ongoing challenges we have faced throughout the COVID-19 pandemic. During the past two years, we have faced the most challenging operating environment in the history of our company. Throughout the pandemic, we have worked hard to maintain operations while also ensuring the health and safety of our organization. We have taken measures to improve the safety features of our offices and support our team through flexible working arrangements. We're encouraged to see COVID cases declining, especially after the spikes associated with the Delta and the Omicron variants. We are optimistic about the future and remain committed to keeping our operations running smoothly while also keeping the health and safety of our team a top priority. During the pandemic, we adjusted our commercial activities by reinventing the way we operate in order to support our customers and the patients who can benefit from our medicines. We worked with our sales professionals across the country to develop a series of new ways for them to communicate and interact with the medical community, including the use of virtual engagements. Cumberland continues to face headwinds due to the pandemic which have included decreased access to medical facilities, and postponement of surgical and other patient procedures. However, our diversified product portfolio of FDA-approved brands has helped us to mitigate the negative effects of the pandemic on our business, delivering a steady overall performance in 2021. During the year, we also maintained compliance with the many requirements that apply to us as a publicly traded pharmaceutical company. Additionally, we work closely with the FDA-approved manufacturers that supply our products, closely monitoring our supply chain, including the needed raw materials as well as the finished goods emerging from those facilities. I'm excited to share that during the fourth quarter, we announced a new agreement to relocate our corporate headquarters. Later this year, we will be moving to the new Broad West Campus, which is also located in Nashville's West End Vanderbilt Corridor. This new location keeps us close to the internationally recognized Vanderbilt Medical Center with whom we regularly collaborate. It will also provide us with a long-term home with increased efficiency and convenience for our overall operations. That completes my update for now, AJ. I'd like to turn it back to you.

Thank you, Todd. Meanwhile, enrollment has begun to pick up in our clinical programs that have been interrupted by the pandemic. As many of you who have been following us know, we're sponsoring three Phase II clinical programs featuring our iFitraBand product candidates. These studies involve patients with Duchenne muscular dystrophy, a genetic neuromuscular disease, systemic sclerosis, a debilitating autoimmune disorder, and aspirin exacerbated respiratory disease, a severe form of asthma. We're also designing another phase two program to evaluate the use of ifitroban to treat patients with progressive fibrosing interstitial lung diseases, and we're currently preparing an application to the FDA to support this new program. In addition to our company-sponsored studies, An NIH-funded Harvard clinical investigator-led trial has also been enrolling patients with aspirin-exacerbated respiratory disease. That Phase II placebo-controlled study complements the work we're doing to help those asthma patients. Well, today I'm pleased to announce that patient enrollment in that study has closed. And next, following the data analysis, we'll be announcing the results from that study. We also look forward to sharing results once each of the other Phase II programs are completed, and then we'll decide on the best development path for the registration of iFitraBand. iFitraBand has the potential to help many patients, and we look forward to learning more from the studies now underway. And we believe that success in any one of these programs can provide significant benefits for our company and for the patients we serve. As Marty Cornell, our Chief Commercial Officer, can't be with us today, I'd also like to ask Todd Anthony, Vice President, for an update on our marketing and sales activities. Todd?

Thank you, AJ. As you've heard today, we continue to expand our portfolio of FDA-approved medicines with the recent acquisition of Sancuso, an oncology support drug acquired from Keoa Curran. The active drug in Sancuso, Granicitron, slowly dissolves in the thin layer of adhesive that sticks to the patient's skin and is released into their bloodstream over seven days, working continuously to prevent chemotherapy-induced nausea and vomiting, or CINV. It's applied 24 to 48 hours before receiving chemotherapy and then can prevent CINV for up to five consecutive days. Alternative oral treatments must be taken several times, day and night, to deliver the same therapeutic doses. In 2020, there were nearly 2 million new cases of cancer in the United States. Each year, over half a million Americans undergo chemotherapy, with many suffering from the side effects of their treatment. Our new Sancuso product provides patients a simple, easy-to-apply preventative solution that doesn't require swallowing any pills, which can be difficult for patients experiencing nausea. As AJ mentioned earlier, we have created a new division called Cumberland Oncology to support the promotion of the product throughout the country. This new group represents our third national sales division. Of the other two divisions, one calls on key hospital accounts across the country, while the other details select office-based physicians. We are honored to take responsibility for the Sancuso brand and introduce it through our commercial organization, ensuring that it's delivered to the oncology patients across the country who need it. As AJ also noted, we implemented the national launch of our ReadyTREX line in 2021, which is FDA-approved to treat patients with active rheumatoid arthritis, juvenile idiopathic arthritis, or severe psoriatic arthritis who have difficulty tolerating or responding to orally delivered methotrexate. The pre-filled syringes assure accurate and safe dosing and have an automatic retractable, extra-thin, 29-gauge needle to reduce pain and the risk of needle sticks. They also have a large grip and concave plunger that allow patients with limited dexterity to self-administer the injection at a controlled speed. ReadyTrex provides these benefits while also being less expensive than auto-injectors. Launching this new brand during the pandemic has proved difficult, especially as we establish relationships with a new group of physicians that focus on rheumatology. In addition, Analysis and coverage by managed care plans for the product has progressed slowly. Sales during 2021 were limited as physician prescriptions began to pull through the product that we had stocked into the distribution channels. We are encouraged by the positive feedback we've received about the innovative delivery system, and we believe that with time, ReadyTricks can be a valuable contributor to our business. Regarding the new publications that we shared in 2021, let's first discuss those concerning Vibative. As a reminder, Vibative is a patented, FDA-approved, anti-infective, injectable product designed to treat certain serious bacterial infections, including hospital-acquired or ventilator-associated pneumonia and complicated skin infections. While many recently introduced antibiotics are losing the battle to fight infections because bacteria have become drug resistant, Vybattic was specifically designed to address that resistance problem. During 2021, we helped raise awareness of the prevalence of secondary bacterial infections by supporting a continuing medical education program. We have been very pleased to see Vibative being used to help COVID-19 patients who develop these secondary bacterial pneumonias and other gram-positive infections while in the hospital. Last year, we released a dossier of patient case studies outlining real-world instances in which Vibative was used to effectively and safely treat COVID patients, particularly those with significant health problems such as obesity, diabetes, and heart disease. Turning now to Caldolor, I'd like to touch on several developments from last year. Most significantly, the FDA approved the use of Caldolor just prior to surgery, which results in patients waking up from their procedure in significantly less pain and needing significantly fewer opioids. Last year, we also announced a study showing that ibuprofen acts twice as fast as Ketorolac in controlling kidney stone pain. These findings build upon a body of medical evidence supporting the use of Caldolor to treat pain and reduce opioid use in patients. Additionally, during a national podcast, Dr. Stephen Southworth put forward Caldolor as the foundational step in enhanced recovery after surgery or ERAS protocols as an alternative to opioids. Next, turning to our Vaprosol brand, which also has proven helpful in treating COVID-19 and other hospitalized patients. Vaprosol addresses a potentially deadly sodium imbalance known as hyponatremia, which is the most common electrolyte disorder among hospitalized patients. We reported on an international study of over 4,000 patients which found that those hospitalized with COVID-19 were at high risk of developing hyponatremia and dying from it. The results supported the use of an intravenous Vaptan to treat hyponatremia in critically ill patients suffering from serious COVID-19 and related infections. Our Vaprosol product is the only intravenously administered Vactan treatment available in the United States, and it has a proven day one response to help normalize serum sodium levels in hyponatremic patients so that they can be moved out of the ICU. I'd like next to discuss Crystallose, our prescription strength laxative product. It comes in a pre-measured powder dose that dissolves quickly in just four ounces of water for a taste-free and grit-free solution. Crystalose, our largest selling product, benefited greatly from the support of our co-promotion partners in 2021. Through these partnerships, we were able to put the brand in front of physicians and facilities that Cumberland does not cover. And finally, I'd like to note that our Omiclomox pack packager was unable to provide us with supplies of the product having encountered difficulties and therefore suspending operations during the pandemic. We're currently awaiting the facility's packaging to resume before we build new inventory and resupply the market with this product. That completes our updates for our key commercial efforts, and I'll turn the call back over to you, AJ.

Thanks, Todd. Before we review our 2021 financial results, I'd like to share an update on our international activities. As we focus our efforts on the U.S. market, we're building a network of other established companies to bring our products like Vibative to patients in their countries. We have reached an agreement to launch Vibative in Puerto Rico with our partner there, Verity Pharmaceuticals. We're glad to report that Vibative is now available for order in that territory. Verity has a strong presence in Puerto Rico, which they say is in need of a product with the features of Vibative. The island has a high number of elderly citizens and residents living with chronic diseases like diabetes, which increase the risk of hospitalization and infection. Meanwhile, Skyclone Pharmaceuticals, our partner in the Chinese market for Vibative, had their approval application in that country accepted for review during 2021. Sky Clone advised us that the review period would be about 12 months. And they also believe that Vibatim has significant potential in the Chinese market, and we look forward to providing more updates on this initiative later in the year. So with that international update, I'd now like to introduce Jon Hamm, who assumed the role of Cumberland's Chief Financial Officer in early 2021. John has over 25 years finance and accounting experience, including 20 years working in health care. Prior to joining Cumberland, he was Chief Operating Officer and CFO of Pharmacy at HealthSpring, a managed care organization that now operates as Cigna HealthSpring. He was also the Vice President of Finance and MD on Business Services at which is a healthcare technology firm that now operates as Change Healthcare, a NASDAQ-listed company with over $3 billion in annual revenue. So, John, let's now present the financial review.

Thank you, A.J. For the three months ended December 31, 2021, net revenues from continuing operations were $8.3 million. We also 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 that additional revenue in a discontinued business line. Net revenues by product for the fourth quarter of 2021 included $3.7 million for Crystalos, $2.9 million for Vibatif, $1.2 million for Caldolor, and $0.2 million for acetodote. It's important to note that given the quarterly fluctuations in buying patterns from our customers, we believe that our performance should be assessed based on annual sales results. Annual 2021 net revenues by product include $16 million for Crystallose, $12 million for Vibatav, $5 million for Caldolor, $0.9 million for acetodote, and $1.9 million for VAP results. Net revenues for the full year 2021 were $36 million. In addition, we recorded a total of $2 million during the full year for discontinued operations associated with the two products we no longer distribute. Total operating expenses for the fourth quarter were $12.7 million. Total operating expenses for the full year 2021 were $43.6 million. We had an adjusted loss of $1.9 million during the fourth quarter. Adjusted loss for the full year were $1 million, or 8 cents per share. Please note that the adjusted earnings calculation does not include the benefit of the $2 million in payments received for the two products returned. It also does not include the benefit of the $3.7 million of cost of goods associated with sales of the product during the year, which was received with the product acquisition. We recorded an additional $1.2 million in a one-time write-off of expired inventory, also received as part of the acquisition. As a result, in taking into account all these items, a total of $6.4 million in cash flow was provided from operations in 2021. As a reminder, our financial statements have been significantly impacted by the Vibatop transaction, our largest acquisition to date. The financial terms for the transaction included a $20 million payment upon closing, and we subsequently provided a $5 million milestone payment and are also providing royalties based on product sales. Since the product's launch in late 2018, it has delivered a total cash contribution of approximately $26.5 million and is now beginning to generate a return on our investment. We accounted for the Vibatav 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 $21.5 million at the end of 2021. Looking at our balance sheet as of December 31, 2021, we had $84.5 million in total assets, including $27 million in cash and equivalents. Liabilities totaled $42 million, including $15 million on our credit facility. Total shareholders' equity was $41.8 million at the end of 2021. Meanwhile, as we previously mentioned, we renewed our line of credit for a new three-year term. During the fourth quarter of 2021, we expanded the facility to provide up to $20 million in capital. This new line of credit allowed us to acquire the U.S. rights to San Cuso, which was mentioned earlier. We continued our corporate share repurchase program in 2021, and through the end of December, we repurchased a total of 438,000 shares during the year. These repurchases included those on the open market, as well as those needed to fund the taxes associated with employee-vested restricted shares. We also had a share repurchase initiative for our board of directors in 2021, enabling them to increase their holdings in the company. Six of our board members participated through share repurchase trading plans and collectively purchased 67,300 shares in 2021. Lastly, I'd like to note that Cumberland continues to hold over $56 million in tax net operating loss carry-forwards primarily resulting from the prior exercise of stock options. And that completes our financial report.

Well, thank you, John. So like other companies that rely on hospital admissions and patient visits to drive revenue, Cumberland certainly faced its challenges in 2021 as the pandemic carried on. However, our team remained focused on our mission of advancing patient care to the delivery of high-quality medicines. And I'd like to extend my sincerest thanks to my colleagues here at Cumberland for their valuable contributions over the past year. And we look forward to a successful 2022 and we'll keep you updated on our progress along the way. Our strategy involves advancing our clinical pipeline and incubating future opportunities at Cumberland Emerging Technologies. We'll continue to build a diversified portfolio of innovative products, both through internal development as well as the acquisition of established brands such as Sancuso. We'll also continue to look for strategic partners that can complement our capabilities and enhance the opportunity for our brands. Additional international partnerships and additional co-promotion arrangements will such as those we have in place for Vibatav and Crystallose, will allow us to leverage our commercial portfolio and reach many more patients and physicians. And we look forward to the expanded use of Caldolor, especially now that we've received FDA approval for its use prior to surgery, and as we do our part to help address the nation's opioid epidemic. And lastly, I'd like to highlight Cumberland's ongoing focus on and commitment to sustainability. In 2021, we issued our latest sustainability report detailing Cumberland's activities pertaining to our environment, social, and governance matters. As noted in the report, we provided nearly 2.5 million patient doses, safely disposed of over 4,000 pounds of expired and damaged products, and had no recalls. We also actively supported our team and engaged with our community. And we look forward to continuing these sustainability initiatives and providing such reporting annually. We look forward to returning to a more normal operating environment here in 2022. And with the contributions from our newest product, Sancuso, we do expect to deliver double-digit revenue growth this year while continuing to generate positive cash flow from our operations. So with that review and update, now let's open the calls 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 any questions. If you'd like to ask a question, please press the star key followed by the digit 1 on your phone.

Well, thanks, everyone, for joining today's call. As always, we understand that many of you prefer a private discussion with management, and if so, please just reach out to us, and we'll gladly get it scheduled and hold such a call with you. We very much appreciate your time and your interest in Cumberland, and we look forward to providing another update following the end of the first quarter.

Thank you, sir. Ladies and gentlemen, that concludes today's call. If you'd like to listen to a replay of the discussion, please dial 855-859-2056 using the access code 1497637. Alternatively, a replay of the webcast will be available on Cumberland's website. I would like to thank you for your participation. You may now disconnect.