Cumberland Pharmaceuticals Inc.

Good afternoon and welcome to Cumberland Pharmaceuticals' second quarter 2022 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 year from today's date. I would now like to introduce Molly Agus, Account Supervisor at the Dalton Agency who handles Cumberland's communication. Molly, please go ahead.

Hello everyone and good afternoon. I hope you're doing well, and thank you for joining today's call. Earlier this afternoon, Cumberland issued a press release containing a company update and financial results for the second quarter of 2022. The release, which includes related financial tables, can be found on Cumberland's website at www.cumberlandpharma.com. Company management will share an overview of those financial results during today's call. It will also provide an overall company update, including a discussion of its brands, pipeline, and partners. With us today are A.J. Kazemi, Cumberland's Chief Executive Officer, Todd Anthony, Vice President, and John Hamm, Chief Financial Officer, who will all participate in today's report. Please keep in mind that their discussions 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 others that are 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 the 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 isn't 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 the links to those sites can be found on the corporate website at www.cumberlandpharma.com. Also, today the company will 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 that was issued earlier this afternoon. If you have any questions, please hold them until the end of the call, at which point we'll be happy to answer them. And with that overview, I'll turn the call over to Cumberland's Chief Executive Officer, A.J. Kazemi, to begin the discussion.

Thank you, Molly, and good afternoon, everyone. We do appreciate you joining us today. Well, I'm pleased to report that Cumberland had a successful second quarter delivering on our goal of double-digit revenue growth for the period. And we've largely transitioned our newest brand, Sancuso, from Keoa Kiran and began supporting the product through our newest sales division, Cumberland Oncology. We're very pleased to have added another quality brand with proven performance to our portfolio. And Sancuso has quickly become one of our most important products and is already a significant contributor to our business. It's an innovative oncology support care medicine that's delivered through a prescription patch and designed to prevent nausea and vomiting during certain chemotherapy treatments. By addressing those issues, we can help patients tolerate and continue their needed treatments for the cancers. In January, we acquired Sancuso from the Japanese-based Kiowa Kieran's U.S. affiliate, and under the terms of that agreement, we assumed full commercial responsibility for the product, including its marketing, promotion, distribution, manufacturing, and medical support here in the United States. To fund the acquisition, we extended our bank line of credit for a new three-year term, and we also expanded the facility to provide up to $20 million in capital. To support Sancuso, we appointed a new marketing executive and, as I mentioned, formed a new sales division, Cumberland Oncology. This new division has been staffed by a group of individuals who came over to Cumberland from Keogh-Akiran, bringing significant experience with the brand and helping us continue the key customer contacts needed to support prescriptions of the product. Also, during the second quarter, we entered into a significant co-promotion agreement with Verity Pharmaceuticals to feature Sancuso through their national oncology sales organization. Following their success in building their 12-star oncology brand, Verity has expanded their sales organization and now launched their national co-promotion efforts in support of Sancuso in early July. We have a team working closely with Verity to coordinate our joint marketing and sales efforts, and we look forward to their efforts to expand the number of cancer patients who can benefit from the brand. Fueled by the additional initial Sancuso sales, our product portfolio of FDA-approved brands delivered combined revenues of $10.3 million during the second quarter, 2022, a 14% increase over the prior year period. Year-to-date cash flow from operations was $2.2 million, and year-to-date adjusted earnings were $0.3 million. As a result of the Sancuso acquisition, our total assets have grown to $93 million by the end of the second quarter, with $53 million in total liabilities and nearly $40 million of shareholders' equity. So with that overview, I'd now like to introduce Todd Anthony, our Vice President, Organizational Development, for an update on our team and our brands. Recall, Todd has over 30 years' experience in the pharmaceutical industry, including a variety of positions with growing responsibilities at Bayer Healthcare Pharma before coming here over to Cumberland. His responsibilities now include development of our entire organization with an emphasis on our sales divisions. So, Todd?

Thank you, AJ. I would first like to touch on Vibative, our potent injectable antibiotic product designed to treat certain serious bacterial infections, including hospital-acquired or ventilator-associated pneumonias and complicated skin infections. There are two different settings where Vibative can be used to help treat and cure these difficult infections. The first is in our country's medical centers where our hospital sales division is supporting medical professionals in their use of the product. The second is in the outpatient marketplace, which is the focus of our national accounts team. During the first half of 2022, our marketing and sales leadership has taken a fresh look at how we can support Vibative and launched a series of new initiatives to increase awareness and use of this important, potentially life-saving brand. Next, I'd like to turn to Crystallose, our prescription strength laxative product. It's packaged in a convenient pre-measured powder dose, which dissolves quickly in just four ounces of water for a clear, taste-free, and grit-free solution. As our largest selling brand, Crystallose's steady performance continues to benefit from the co-promotion partnerships we've established for the product. While our field sales division continues to feature Crystallose, our co-promotion partners expand our reach by taking the product to physicians and facilities that Cumberland doesn't cover. We've also continued to refresh the award-winning marketing campaign we have been using to support Crystallose. Turning now to Caldolor, our intravenously delivered formulation of ibuprofen, designed to significantly reduce fever and pain in patients unable to tolerate oral medications. You may recall that late last year, we announced the FDA's approval of Caldolor's use prior to surgery. When our non-narcotic pain reliever is administered just prior to their surgeries, patients wake up from the procedure in significantly less pain and need significantly fewer opioids. As more patients return for elective surgeries, we are pleased to see the growth and are ready to use Caldolor presentation of the product. International shipments are also contributing to the brand's performance. Next, I'd like to discuss the newest medication in our portfolio, Sancuso. It is the first and only FDA-approved prescription patch for the prevention of serious side effects experienced by patients receiving certain types of chemotherapy. When it's applied 24 to 48 hours before receiving the cancer treatment, it can prevent nausea and vomiting for up to five consecutive days. Alternative oral treatments must be taken several times a day to deliver the same therapeutic doses and can be difficult to swallow for patients experiencing nausea. We believe in the potential of Sancuso and are honored to deliver it to oncology patients throughout the country who need it. I'd now like to provide an update on Readytrex, our methotrexate line of pre-filled syringes designed for the safe and simple treatment of active rheumatoid, juvenile idiopathic, and severe psoriatic arthritis. They are designed specifically for patients who have difficulty tolerating or responding to orally delivered methotrexate. The pre-filled syringes assure accurate dosing and have an automatic retractable extra thin 29-gauge needle that reduces pain and the risk of needle sticks. We launched the product in the fourth quarter of last year, and while doing so amid a pandemic was difficult, We are encouraged by the positive feedback we've received about the product's innovative delivery system. Further, quarterly prescriptions for the product are growing steadily in 2022. And, as we announced during our last earnings call, ReadyTREX is now covered by a growing number of managed care plans, including those associated with Cigna, Anthem, and UnitedHealthcare. Regarding our Vaprosol product, we are transitioning to a new manufacturer. During 2021, we shipped all remaining Vaprosol inventory and notified the FDA that supplies of the product were no longer currently available. We've transferred manufacturing to a new facility and await the FDA approval for that plant before resuming shipments. During the second quarter, after an inspection of the new facility, the FDA issued the manufacturer a form 483, noting several observations that need attention. The FDA then notified us that our application to manufacture Vaprosol at this new facility will need to be resubmitted once those 483 issues are satisfactory resolved. Our new manufacturing partner is working with the FDA to address these issues in a timely manner Meanwhile, we are working with them to support a special interim supply of compounded product for critically ill patients while awaiting the needed facility approval to relaunch Vaprosol. Also, the packager for our Omeclomox pack brand has been unable to provide us with supplies of the product, having encountered difficulties and therefore suspending their operations during the pandemic. The facility is now under new ownership and management. We are currently awaiting the facility's operations to resume in order to build new inventory and resupply the market. So, in summary, we support our portfolio of FDA-approved medicines through three national sales divisions, including Cumberland Oncology, which was formed to support our newly acquired Sancuso product. Our hospital sales division calls on key institutional accounts across the country, while our field sales division primarily covers select office-based physicians. As that completes my updates for today, I will turn it back to you, A.J.

Okay, thank you, Todd. As we work to build an innovative pipeline of new product opportunities, we are excited to be sponsoring three Phase II clinical studies currently underway to evaluate our iFitraband candidate in patients with a series of unmet medical needs. Those studies involve patients with aspirin-exacerbated respiratory disease, which is a severe form of asthma, systemic sclerosis, a debilitating autoimmune disorder, and Duchenne muscular dystrophy, a genetic neuromuscular disease. This third program is being funded by a $1 million FDA grant. We're also working on an application to the FDA for a fourth Phase II program, which will evaluate the use of ifitriban to treat patients with progressive fibrosing interstitial lung diseases. In June, the American Journal of Respiratory and Critical Care Medicine published a series of preclinical studies that support the use of ifitriban, our selective thromboxane receptor antagonist, as a promising therapeutic for patients with pulmonary fibrosis associated with their lung disease. Specifically, the researchers reported that ifitriban was used to block thromboxane receptor signaling in three preclinical models of lung fibrosis. Ifitriban reduced pro-fibrotic signaling in the lungs and prevented lung fibrosis due to multiple causes, bleomycin, genetic, and radiation. In addition to these sponsored studies, our company is supporting select investigator-initiated studies. Harvard clinical investigators have led a Phase II trial in patients with the severe form of asthma I mentioned, and their study is supported by a $5 million grant from NIH and designed to understand the mechanism of IFIT or BAN in those patients and therefore complements the work that we have underway. With patient enrollment now closed and their study analysis underway, we look forward to sharing the results and data once we receive them. After our other Phase II studies are complete, we'll be sharing those results as well. And at that point, we'll then decide on the best development path for the registration of ifitriban, which we believe has the potential to help many patients. Next, I'd like to share a brief overview of several international activities we have underway, starting with Vibative, our injectable antibiotic used to treat patients with pneumonias and serious skin infections. In March, we announced a new partnership with Saudi-based Tabook Pharmaceuticals to introduce Vibative into the Middle East. The arrangements provide Tabook exclusive rights to distribute Vibative in Saudi Arabia and Jordan with the option to expand into other countries in the region. Tabook's a fully owned subsidiary of the Astra Industrial Group, a leading and publicly traded industrial conglomerate in Saudi Arabia. While Vibatav is now approved for sale in that country, we are adding new manufacturing information in order to then begin supplying the product for there. Meanwhile, our Vibatav partner in the Chinese market, SkyClone Pharmaceuticals, had their approval application in China accepted for review last September. Since then, we've been supporting SkyClone and requests associated with the review of their submission. While Cumberland remains focused on promoting Vibatav here in the United States, we are excited and eager to bring the product to patients in other countries through partnerships like those we formed and just described with Tabook and SkyClone. Today, I'd also like to report that Cumberland has entered into an amendment for our agreement with Nordic Pharma. who previously provided us with a license for the U.S. rights for our ReadyTrex line of pre-filled methotrexate syringes. Based on the amendment, Cumberland will transfer the marketing authorization associated with the ReadyTrex back to Nordic. In exchange, Nordic will return the 180,000 shares we issued to them that were associated with the original license and they will also refund the $1 million we provided them following the brand's approval in the United States. Nordic will also waive the $1 million due from us following our launch of the product line. We'll provide Nordic with the opportunity to assume responsibility for the distribution of the products in the U.S. after March 31, 2023. Until then, we'll continue our efforts to distribute and support ReadyTREX. And then following any return of the license, Nordic will provide us with a royalty on future sales of the product through April 2035. Together, we'll continue to collaborate on any transition and ongoing commercialization of the product line. So with that update on our pipeline and our partners, I'd now like to turn to John Hamm. Cumberland's Chief Financial Officer, to present a review of the second quarter financial results. John?

Thank you, AJ. For the three months ended June 30, 2022, net revenue from continuing operations were $10.3 million, a 14% increase over the $9.1 million in revenue recorded during the prior year period. Net revenue by product for the second quarter of 2022 included $3.6 million for Crystalos, $3.4 million for Sancuso, $1.6 million for Vybatov, and $1.2 million for Caldolor. 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. Year-to-date net revenues were $21.5 million, up 10% from the first six months of 2021. Year-to-date product revenues totaled $7.5 million for Crystalos, $6.8 million for Sancuso, $4.1 million for Vibatav, and $2.2 million for Caldolor. Total operating expenses for the second quarter were $12.1 million compared to $10.5 million for the prior year period. The primary driver of this increase was the addition of San Cuso expenses, including those associated with the product's amortization and marketing. Year-to-date expenses totaled $25 million. The net loss for the quarter was $1.3 million, or 9 cents per share. Year-to-date, we have a net loss of $2.7 million. When non-cash expenses are added back, the resulting adjusted loss for the second quarter were $0.3 million, or one cent per share, and the year-to-date adjusted earnings were $0.3 million. Also, please note that those adjusted earnings do not include the additional benefit of the $0.7 million of Vibatov and Sancuso cost of goods during the quarter. Year-to-date, the benefit is $1.9 million. Those goods were received as part of each product's acquisition. So total cash flow from operations was $2.2 million. I'd like to remind you that our financial statements have been significantly impacted by the Vibatov and Sancuso acquisitions. The financial terms for the Vybatov transaction included a $20 million payment upon closing and a subsequent $5 million milestone payment. We're also providing royalties based on product sales. I'm pleased to report that since Vybatov's launch in late 2018, it has delivered a total cash contribution of $30 million to our business and therefore has begun generating a return on our $25 million 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 sale of inventory, the value of these assets totaled $18.4 million at the end of the second quarter. Turning to the Sancuso acquisition, the financial terms included a $13.5 million payment upon closing, up to $3.5 million in milestone payments, and tiered royalties on net product sales. Sancuso is off to a fine start, delivering $5.3 million in cash contribution during the first half of 2022. As with Vybatov, we accounted for the Sancuso acquisition as a business combination. We are developing the final valuation of the San Cuso transaction, and on a preliminary basis, we estimate a total of $19 million in new assets added as a result of the acquisition, including approximately $5 million in inventory, $12 million of intangible assets, and $1 million of goodwill. The estimated value of these assets were $16.4 million at the end of the second quarter. Previously, we renewed our line of credit for a new three-year term. During the first quarter of 2022, we expanded our use of the facility to provide $20 million in capital. This new line of credit allowed us to acquire the US rights to San Cuso. More recently, we amended the facility to increase our ability to fully utilize this line. Turning to our balance sheet, as of June 30, 2022, we had $92.5 million in total assets, including $18.2 million in cash and cash equivalents. Liabilities totaled $53.3 million, including $19 million on our credit facility. Total shareholders' equity was $39.5 million at the end of the second quarter. During the second quarter, we continued our corporate share repurchase program, and repurchased a total of 83,000 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. Year to date, we have repurchased a total of 258,000 shares. A group of our board members also continued to purchase Cumberland shares through trading plans designed to increase their holdings in the company. So far in 2022, they have purchased a total of 13,000 shares. I'd also 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 for the second quarter of 2022. AJ, back to you.

Thank you, John. So overall, Cumberland has delivered a successful second quarter and first half of the year. We'll continue with our strategy of maximizing the potential of our commercial brands, progressing our pipeline, and continuing to pursue select acquisitions. We're particularly encouraged by the arrival of Sancuso and the positive impact it's having on our business. We believe that the contributions from this newest product will provide a catalyst for growth and also better care for cancer patients. We're also pleased with the latest addition to our board of directors. Martin Brown Jr. is an attorney with over 30 years of corporate law experience. He also previously served 10 years on the board of Brown Foreman Corporation, a large American spirits and wine company whose shares are listed on the New York Stock Exchange. Additionally, he has served since 2018 on the board of directors of the parent company of Aegis Sciences Corporation, a federally certified healthcare laboratory headquartered here in Nashville. Martin's also been an active board member for many community organizations and brings significant legal, public company, healthcare, and civil experience to our board, civic experience to our board. We believe these contributions will be valuable in our efforts as we work to acquire, develop, and deliver innovative products to improve the quality of care for patients. Also, ahead of today's call, we release the results of our newest sustainability report detailing Cumberland's impact on environmental, social, and governance matters. A few highlights from the report include that we provided 2.4 million doses of product up to patients. We also safely disposed of over 6,000 pounds of expired and damaged goods and no products were recalled with no studies terminated due to failure to practice good clinical standards. The sustainability report also highlights our investment in our community to the Cumberland Foundation and our investment in our employees through our continuing educational programs, career development initiatives, and recognition awards. So, with new products and presentations to promote an improving selling environment and a robust pipeline, we're very optimistic about our future prospects, and we continue to expect 2022 to be a year of double-digit revenue growth. With that review and update, let's open the call to any questions you may have. Operator, please proceed.

Thank you. 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 on your phone, followed by the digit 1 twice. That's star 1 1. Please stand by.

Well, thanks, everyone, for joining today's call. And we do understand that many of you prefer a private discussion with management. And if so, please feel free to reach out to us, and we'll be happy to get such a discussion scheduled. As always, we very much appreciate your time and your interest in our company, and we look forward to providing you with another update in a few months.

Thank you, sir. Ladies and gentlemen, that concludes today's call. If you would like to listen to a replay of the discussion, please visit the investor relations section on Cumberland's website. I would like to thank you for your participation. You may now disconnect.

The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.