Cumberland Pharmaceuticals Inc. — FY2022 Form 10-K Summary
Business context and reporting period
Cumberland Pharmaceuticals is a specialty pharmaceutical company focused on acquiring, developing and commercializing branded prescription products in hospital acute care, gastroenterology and oncology. The filing covers the fiscal year ended December 31, 2022; quarterly information is included, but this is an annual Form 10-K rather than a quarterly filing.
The company marketed eight FDA-approved brands in the United States and continued Phase II programs for ifetroban in Duchenne muscular dystrophy, systemic sclerosis and aspirin-exacerbated respiratory disease. Cumberland had 85 employees at December 31, 2022 and relies on third parties for manufacturing, packaging and distribution.
Financial performance and key metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net revenues | $42.0 million | $36.0 million | Up 16.7% |
| Gross profit | $32.9 million | $27.2 million | Up $5.7 million |
| Gross margin | 78.3% | 75.5% | Up 2.8 percentage points |
| Operating loss | $(5.7) million | $(7.7) million | Improved $2.0 million |
| Operating margin | (13.6%) | (21.3%) | Improved |
| Net loss from continuing operations | $(5.7) million | $(5.6) million | Broadly unchanged |
| Net loss attributable to common shareholders | $(5.6) million | $(3.5) million | Worsened; 2021 included discontinued-operation income |
| Basic and diluted loss per share | $(0.38) | $(0.24) | Worsened |
| Cash flow from operating activities | $8.5 million | $6.3 million | Improved $2.1 million |
| Capital and acquisition investing cash flow | $(13.7) million | $(0.5) million | Primarily Sancuso acquisition |
| Cash and cash equivalents | $19.8 million | $27.0 million | Down $7.3 million |
| Working capital | $17.3 million | $26.4 million | Down $9.1 million |
| Revolving credit borrowings | $16.2 million | $15.0 million | Up $1.2 million |
Product revenue was led by Kristalose at $15.2 million and Sancuso at $13.2 million. Vibativ generated $7.5 million, Caldolor $4.8 million and Acetadote $0.5 million. Vaprisol revenue was negative $0.4 million because of product returns and adjustments associated with its out-of-stock status.
Cost of products sold declined to 21.7% of revenue from 24.5%, primarily due to the product mix following the Sancuso acquisition. Selling and marketing expense increased 11.0% to $16.7 million, research and development increased 17.7% to $6.7 million, and amortization increased to $5.1 million due partly to Sancuso-related intangible assets.
At year-end, total assets were $92.9 million and total liabilities were $57.0 million. Intangible assets were $30.6 million, or approximately 33% of total assets. The revolving facility had $3.8 million of availability, matures in October 2024, and bore interest at 6.875% at year-end. The company reported compliance with its funded-debt-ratio covenant.
Material changes versus the prior comparable period
- Sancuso was acquired from Kyowa Kirin in January 2022 for an upfront payment of $13.5 million. It contributed approximately $13.6 million of revenue and $6.6 million of operating profit in 2022.
- Sancuso increased intangible assets by approximately $14.1 million and added contingent consideration obligations, including a $3.0 million year-end contingent consideration liability and potential milestone payments of up to $3.5 million.
- Vibativ revenue decreased $4.2 million, primarily because 2021 benefited from wholesale stocking of the new packaged product.
- Vaprisol revenue decreased $2.3 million because supplies were unavailable while the company transitioned manufacturing and awaited facility approval.
- Kristalose revenue decreased $0.8 million, while Caldolor revenue decreased $0.1 million. Acetadote revenue decreased $0.3 million, partly because of increased expired-product returns.
- RediTrex revenue was negative $0.1 million after returns and adjustments. Under amended arrangements, Nordic may assume U.S. distribution and commercialization after June 30, 2023; Cumberland is expected to receive royalties on future sales.
- Cumberland repurchased 367,793 shares for approximately $1.0 million in 2022, leaving approximately $3.8 million under its repurchase authorization.
- Cash declined despite positive operating cash flow because of the Sancuso acquisition, additions to intangible assets, contingent consideration payments and share repurchases.
Outlook, risks, contingencies and unusual items
Management did not provide quantitative revenue, earnings or cash-flow guidance. Management stated that internally generated cash flow, working capital and the credit facility are expected to support operations, growth initiatives and capital expenditures for the foreseeable future; however, the company also disclosed that additional capital may be required in the future.
- Omeclamox-Pak remained unavailable because its packager’s operations were suspended; Cumberland was seeking alternatives to restart packaging.
- Vaprisol remained unavailable pending regulatory and manufacturing remediation, including issues related to Form 483 and warning-letter findings at the new facility.
- The company depends on third-party manufacturers and distributors, creating risks of shortages, quality failures, regulatory action and lost sales.
- Three customers each represented at least 10% of consolidated revenue; they accounted for 29%, 24% and 22% of 2022 revenue, respectively.
- Acetadote patent litigation remains important. The company reported favorable rulings and patent protection for its EDTA-free formulation, with relevant patent protection extending into 2025 and beyond depending on the patent.
- Cumberland filed litigation against Melinta and Targanta seeking at least $1.0 million in unpaid milestone payments. Management stated that other legal matters were not expected to materially affect financial position, results of operations or cash flows.
- The company recorded a $0.6 million gain on insurance proceeds in 2022. The $2.2 million PPP loan forgiveness recognized as other income occurred in 2021 and did not recur in 2022.
- Key risks include product liability, generic competition, patent challenges, reimbursement and pricing pressure, FDA and manufacturing compliance, clinical-trial failure, supply-chain disruption, customer concentration, variable-rate debt and the potential need for additional financing.
- The ifetroban programs remain investigational and may not produce favorable results, regulatory approval or commercial revenue.
Important facts for investors to verify
- Whether Sancuso revenue growth and contribution can offset declines or supply constraints affecting Vibativ, Vaprisol and other brands.
- The timing and cost of restoring Vaprisol and Omeclamox-Pak availability.
- Compliance with the Pinnacle Bank covenants and the company’s ability to refinance or repay the $16.2 million revolving balance by October 2024.
- The accuracy and adequacy of sales-related accruals, which increased to $8.3 million from $3.7 million and materially affect reported net revenue.
- Future contingent consideration, royalties and milestone payments related to Vibativ and Sancuso.
- The outcome of the Melinta litigation and the continuing strength and expiration dates of Acetadote and other product intellectual property.
- Clinical enrollment, results and regulatory progress for ifetroban and the new hospital product candidate.
- Whether operating cash flow remains positive while the company reports recurring net losses and funds acquisitions, research and development, debt service and share repurchases.