Cumberland Pharmaceuticals Inc. (CPIX) Earnings Call Transcript & Summary

Thank you for joining the Cumberland Pharmaceuticals Special Company Update. Please note that this conference call is being recorded at the company's request and will be archived on Cumberland's website for 1 week from today's date. Now I would like to introduce Erin Gull, who is responsible for Corporate Relations at Cumberland. Erin, please go ahead.

High, and good afternoon, everyone. Today's call may contain some forward-looking statements within the meaning of the Private Securities Reform Act of 1995. And because the statements in today's call reflects our current views and expectations concerning future events, any forward-looking statements may involve risks and uncertainties. So please note that many factors could affect our future results, as more fully described under the caption Risk Factors in our Form 10-K and any updates filed with the SEC. Any forward-looking statements made during today's call are qualified by those risk factors. And despite our best efforts, actual results could differ materially from our expectations and information shared on the call today should be considered current as of today only. Please remember that Cumberland does not assume any responsibility to update forward-looking statements whether as a result of new information or due to future developments. And during today's call, we will be referring to some of our marketed brands, you can find full prescribing and safety information for those brands as well as other ones that we don't mention today through the links to each brand website housed on our corporate website which is www.cumberlandpharma.com. With me on today's call are A. J. Kazimi, Cumberland's Chief Executive Officer; and also Marty Cearnal, our Chief Commercial Officer. So I'll now turn the call over to A.J. to begin our special company update.

Thank you, Erin. Well, good afternoon, everyone, and thank you for joining us. We appreciate your participation in today's call and as our next earnings report will not be until March, we convene today's session to provide you with an update and additional information on 2 recent major developments here at Cumberland. Today, we will also be issuing our 2020 financial guidance. So let's get started. You may recall our recent announcement that we received notification from the FDA approving the new drug application for our methotrexate line of products. As part of that approval, the FDA also cleared our use of the brand name RediTrex for these new products. During the review process, we were able to address a number of FDA requests for additional information through a series of amendments to our original application. And I'd just like to acknowledge our team that was responsible for the submission, the amendments and this approval, as it was a significant undertaking, and they did an outstanding job. We're pleased with the FDA's decision and very excited to add this new brand to our commercial portfolio. RediTrex is an innovative line of injectable methotrexate products, designed for the treatment of patients with rheumatoid arthritis as well as severe psoriasis. While oral formulations are widely available, injectable methotrexate has been shown to result in increased efficacy, greater continuation rates and less discomfort to these patients. For example, 1 double-blind study published in the Annals of the Rheumatic Diseases, evaluated 395 patients with rheumatoid arthritis and found that injectable methotrexate provided significantly better efficacy rates when compared to the oral formulation. Another study in the same journal evaluated 49 patients, and it concluded that injectable methotrexate has superior bioavailability than its oral counterpart. And in addition a third study found that injectable administration of methotrexate was significantly more effective than oral delivery at the same dosage levels. We believe our methotrexate line will provide enhancements and patient benefits over the conventional vials of injectable methotrexate, which currently dominate the U.S. market. Marty Cearnal, our Chief Commercial Officer, who is also with me here today, will provide further information on our plans for RediTrex and its launch during his upcoming commentary on this call. Well, the second major development we'd like to discuss is the national launch of our next-generation Caldolor product. It's our injectable ibuprofen that can be used as the sole treatment for mild to moderate pain and also part of a multimodal approach for treating severe pain. Caldolor was originally approved in a vial presentation. The new formulation of Caldolor comes in a ready-to-use pre-mixed bag, which contains a patented low-sodium, high-dose formulation of our ibuprofen. This new presentation will provide health care professionals with a formulation that's ready to use and easy to administer. It represents the first and only FDA approved and available in a pre-mixed bag of ready-to-use injectable ibuprofen. There's a growing body of literature, demonstrating the use of Caldolor in hospitals can significantly decrease both surgical pain and the need for opioids in the patients who receive it. Administering Caldolor, just prior to surgery, during surgery and throughout the post-operative period, results in patients' experience statistically significant less pain immediately after surgery and then remaining in less pain afterwards. At the same time, Caldolor has also reduced patients' need for opioids. As we all know, the opioid crisis in America is a public health emergency. And every day over 130 Americans die of an opioid overdose according to The Centers for Disease Control and Prevention. Furthermore, the National Institute on Drug Abuse reports that even short-term opioid used after surgery can lead to long-term addiction. Many patients first encounter opioids that are delivered by injection during a visit to a hospital or other medical facility, and they often go home with an oral opioid prescription and unfortunately, some go on to addiction or abuse of these opioid products. In order to reduce or even eliminate the need for opioids, prudent and careful management of pain needs to be on the mind of every health care provider. And we can help with this new delivery of our non-opioid Caldolor product. I'll now turn the call over to Marty Cearnal, Cumberland's Chief Commercial Officer, to share more detail on these 2 major developments. Marty?

Thank you, A.J. As A.J. just mentioned, the misuse of opioids and addiction to those products has become a national crisis. Reducing or even eliminating the use of opioids in patients hospitalized for surgery or trauma can reduce their risk of addiction and abuse. Caldolor has demonstrated through multiple double-blind controlled studies, the ability to reduce opioid consumption by up to 58%. This means that some patients in these studies required no opioids at all. Equally important is the fact that while using less opioids, these patients reported over a 30% better control of their pain, as measured by validated assessment tools. We believe so much in Caldolor's effectiveness and opioid-sparing properties that we embarked on a pediatric clinical program and an expanded product label after receiving FDA approval for Caldolor's use in children and teens. We've also recently completed a study evaluating our injectable ibuprofen in newborn patients. Our Caldolor clinical studies have now involved nearly 2,000 patients, resulting in an outstanding safety database. We're planning to further expand the product's labeling based on this wealth of new data. Meanwhile, after receiving FDA approval of the next-generation ready-to-use presentation of Caldolor, we commenced a soft launch of the product, given an initial limited supply. We embarked upon the soft launch by first introducing the new product to a group of key hospitals across the country, while awaiting the larger quantities of product inventory to support a full national distribution. Today, I'm pleased to report that this soft launch has gone very well. Based on the early acceptance and growing demand for the product, we've had numerous medical facilities that decided to start purchasing Caldolor for the first time based on the availability of the new presentation. We have also seen a 63% growth in sales among key accounts that have switched from the vial to the pre-mixed bag form of the product. Furthermore, the information we gained during the early months has proven helpful in refining our marketing, promotional and distribution strategy for the brand. Our goal is to triple Caldolor's historic sales volume over time based on the advantages of this ready-to-use presentation. For the national launch, we're using both our newly expanded hospital sales force as well as selected account coverage by our field sales division. This sales organization of 50 individuals will be supported by a full range of marketing and promotional activities, including a national advertising campaign, participation in relevant conferences, a speaker bureau consisting of physicians with hands-on experience with the product and a digital support campaign. As A.J. previously mentioned, careful management of pain is among the most important responsibilities of every health care provider. As a result of this, Cumberland has partnered with 2 of our nation's leading physician service companies, Envision Healthcare and TeamHealth to support educational programs that help medical professionals develop new strategies to control acute chronic pain, particularly in the hospital setting. Through these initiatives, 3 continuing medical education webinars have been developed by an independent and accredited medical education organization. These webinars discuss the challenges with patient pain relief and opioid reduction, evaluate the economic and societal burdens associated with opioid use, introduce health care providers to new therapies available to help treat patients' pain and assess multimodal strategies that can improve pain management and improve patient outcomes. Together with our physician service partners, we are working to combat the nation's opioid crisis by providing critical new training to thousands of medical professionals through these ongoing educational initiatives. Now turning to RediTrex. We are fully engaged in the prelaunch activities and preparation for the national introduction of the brand later this year. The U.S. launch, which will be timed to follow the arrival of the first package and serialize supply expected around mid-2020. We've begun the process of engaging third-party payers with the objective of achieving favorable coverage and reimbursement for RediTrex. We're also establishing a group of physician advisers to help with product positioning and messaging. Furthermore, we're designing an expansion of our field sales force with a target of covering up to 80% of the rheumatology market potential. RediTrex will enter a large and growing injectable methotrexate market that involves over 3 million pack units each year in the U.S. Our brand will be well positioned between the difficult-to-use vial and accompanying syringe treatment option and the expensive auto-injector products. Our products are specifically designed for easy administration, even when handling has been made more difficult due to arthritic challenges. We believe RediTrex will be the easiest way to transition patients from an oral to an injectable methotrexate product thus improving their treatment and their clinical results. The RediTrex delivery system offers patients dosing accuracy, comfort, convenience, and our cost advantages over the other injectable methotrexate products. As a reminder, we secured the exclusive U.S. rights of this methotrexate product line from Nordic Pharma. They are based in Europe, where they're having significant success with the full line of methotrexate products that they market. They've achieved significant market shares in France, the U.K. and Ireland, and their sales volume continues to grow as they expand into additional European markets. We'll provide RediTrex in multiple strengths to allow physicians to accurately match the dosing -- the dosage needs of their patients. Our goal is to build this new line of products to $30 million in annual volume over several years. That completes my update on these 2 important developments A.J. I will now turn the call back over to you.

Thank you, Marty. So as you can imagine, we're very excited about the 2 new growth catalysts we reported on today. These opportunities will be important contributors to the company for years to come. Also we are committed to the continued development of our existing brands, including label expansion into new patient populations and improvement upon existing presentations. As we move into 2020 and beyond, we'll be supporting a diversified portfolio of valuable pharmaceutical brands and also work to selectively add new products, both through the acquisition of approved brands as well as the internal development of new products that address unmet medical needs. We expect 2020 to be a highly successful year for Cumberland exemplified by our financial guidance. We expect to deliver double-digit revenue growth this year, driven by the new catalyst we highlighted today. We also expect to deliver positive cash flow from operations and will continue in our goal to return capital to our shareholders through our share repurchase and other initiatives. So in closing, we appreciate your time and your interest in Cumberland, and we look forward to providing our fourth quarter and full year 2019 financial results in March. The milestones we announced today have been years in the making. The plan to launch our 2 recent approved FDA products this year represents an exciting and valuable growth opportunity for our organization. I'm pleased that the hard work here has resulted in these brands coming to market. And we're confident that they'll better the lives of the patients who receive them. I'm proud of our team's determination in getting these products approved and I commend them for those efforts. Following our strategic review, we enter 2020 with a more focused product line supported by a larger sales organization and featuring new revenue growth drivers. And importantly, we'll continue to remain true to our mission of advancing patient care through the delivery of high-quality medicines. So with that review and update, now let's open the call to any questions that you may have.

[Operator Instructions] Our first question comes from Andrew D'Silva of B. Riley FBR.

Just 3 quick ones for me. Just to start off as it relates to Caldolor. Roughly -- or maybe better yet, can you give some context of what the issues were that made it difficult for you to have a substantial amount of inventory for a full scale launch last year? I thought the excipients were fairly common, and you already had the API access to use the vial version. And then just continuing with Caldolor then, could you also just give a little context around the market, are compounding pharmacies currently making the RTU version and how many units are typically sold if that is the case?

Okay. So 3 points there, let's start with the delays. The delays were really associated with the -- some manufacturing startup issues, that resulted in just a couple of hitches, which is often the case when you begin to manufacture a new product. So we ended up with a lower initial inventory than we had ordered or anticipated, and that actually turned out to be quite beneficial because it gave us the opportunity for a learning experience through the soft launch of the product. And now that those problems are behind us, we have full inventory in place. Starting today, we have a full launch of the Caldolor ready-to-use product and, frankly, have just completed that announcement with our sales organization. To our knowledge, there is no one compounding a ready-to-use ibuprofen product in the United States. As you may be aware, Andy, the ability to effectively produce an ibuprofen solution and stabilize it is not the easiest task as these products are not water soluble. So there is a bit of pharmacology involved to be able to get these products, not only into solution, but also to keep them stable in a solution and to prevent particles from developing. And that's a big part of the reason that both our original vial and our new ready-to-use product are patented.

That was great color, Marty. My next question is just related to guidance. When you're talking about the double-digit revenue growth, should we figure that, that's based on kind of a pro forma comparison of the products that you gave back to Clinigen in 2019 or is that just a gross number on what '19 sales would be versus '20 sales?

It's based on a comparison to '19 without the revenues of the Clinigen products. What we've learned is that those products will be accounted for as an exit business and will be removed from the top line historically as well as going forward and accounted for at the bottom of the income statement. So the double-digit growth reflects sales this year and last from all products, except Ethyol and Totect.

Okay. Perfect. And then the last question that I had is just related to RediTrex. You noted peak sales in a few years could be about $30 million. It was previously $40 million. I know the market has been growing. So maybe just let me understand a little better what the primary factors are here that changed your assumptions from $40 million to $30 million?

You know, I think all we're doing, Andy, is just being a little bit more conservative. We're new into this marketplace. We're trying to be realistic, maybe a little too conservative, but we're looking at a time frame, let's say, of 5 years, and we think that's a very achievable growth objective for us over that period, that's not to say that the product couldn't grow more after that, we have a long-term arrangement for these products.

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

Sure. Yes. Just again, we appreciate everybody's time today and your interest in Cumberland. We do recognize, as we've said in the past, that some of you do prefer a private discussion with management. And if you do, please just reach out to Erin here, and she will help you schedule such a call. We appreciate your time and interest here at Cumberland, and we do look forward to providing you with another update, as we noted, regarding our year-end results and be providing that update in March.

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 2038555. 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.