Cumberland Pharmaceuticals Inc. — Q1 2021 Form 10-Q Summary
Business Context and Reporting Period
Cumberland Pharmaceuticals is a specialty pharmaceutical company focused on acquiring, developing and commercializing branded prescription products serving hospital acute care, gastroenterology and rheumatology markets. The filing covers the three months ended March 31, 2021. The financial statements are unaudited.
The company markets seven FDA-approved products, including Vibativ, Caldolor, Kristalose, Acetadote, Omeclamox-Pak, Vaprisol and RediTrex. It also has Phase II ifetroban programs and early-stage development activities through majority-owned Cumberland Emerging Technologies.
Financial Performance and Key Metrics
- Net revenues: $10.5 million, up $2.2 million, or 26.5%, from $8.3 million in Q1 2020.
- Gross profit: $8.1 million, compared with $6.7 million in the prior-year period. Gross margin was approximately 77.1%, down from 80.4%, primarily due to product mix and Vibativ purchase-accounting inventory costs.
- Operating loss: $0.3 million, compared with a $1.8 million operating loss in Q1 2020. Operating margin improved to approximately negative 3.1% from negative 22.2%.
- Loss from continuing operations: $0.4 million, compared with a $1.9 million loss in Q1 2020.
- Discontinued operations: $0.5 million of income from quarterly payments received from Clinigen related to the returned Ethyol and Totect rights, compared with $0.8 million in Q1 2020.
- Net income attributable to common shareholders: $0.2 million, or $0.01 per diluted share, compared with a $1.1 million loss, or $0.07 per diluted share, in Q1 2020. The continuing-operations loss was $0.02 per diluted share.
- Operating cash flow: $1.8 million, including $1.3 million from continuing operations, compared with $0.9 million in Q1 2020.
- Capital expenditures and investing: Net cash used in investing activities was $0.3 million, including $0.2 million funded to the WHC Biopharmaceuticals joint venture and $0.1 million of intangible-asset additions.
- Cash balance: $24.9 million at March 31, 2021, compared with $24.8 million at December 31, 2020.
- Working capital: $26.5 million, compared with $24.3 million at year-end 2020; the current ratio was 2.2 versus 1.9.
- Debt: $15.0 million outstanding under the revolving credit facility, bearing interest at 3.65% at March 31, 2021. The facility matures October 1, 2022 and is secured by substantially all company assets. The company also had a $2.2 million PPP loan recorded as deferred income and awaiting SBA forgiveness approval.
- Share repurchases: 91,724 shares were repurchased for approximately $0.3 million during the quarter. Approximately $5.9 million remained available under the $10 million repurchase authorization at March 31, 2021.
Revenue and Expense Drivers
- Vibativ: Revenue increased to $5.1 million from $2.4 million, driven by higher net pricing, improved volume and increased utilization in treating patients with COVID-19-related infections.
- Vaprisol: Revenue increased to $1.1 million from $0.2 million, primarily due to increased utilization in COVID-19-affected hospitalized patients.
- Caldolor: Revenue increased to $1.5 million from $1.1 million, reflecting higher international shipments and improved pricing, partly offset by lower U.S. shipments and reduced elective procedures.
- Kristalose: Revenue declined to $3.0 million from $3.3 million due primarily to lower sales volume.
- Acetadote: Revenue declined to $0.1 million from $0.7 million, primarily because of generic competition.
- Omeclamox-Pak: Revenue was negative $0.5 million versus $0.1 million, reflecting product returns and the absence of sales while the company remained out of commercial inventory.
- RediTrex: Revenue was negative $0.03 million, reflecting product returns or related adjustments. A broader national launch is planned for the second half of 2021, subject to product supply and market conditions.
- Research and development: Expense decreased $0.5 million to $1.3 million because of lower study activity and reduced personnel costs, partly reflecting COVID-19-related clinical enrollment constraints.
- General and administrative: Expense increased $0.2 million to $2.2 million, primarily due to higher professional, legal and insurance costs.
Material Changes, Outlook, Risks and Unusual Items
- Results benefited materially from stronger Vibativ and Vaprisol demand, while several products remained exposed to reduced hospital admissions, elective procedures and physician visits during the COVID-19 pandemic.
- The Omeclamox-Pak packager experienced financial difficulties and suspended operations. Cumberland is awaiting resumption while evaluating alternatives. The company has notified the FDA of a product shortage and has not provided a date for new inventory availability.
- The company expects to receive the remaining quarterly installments under the $5 million Clinigen dissolution arrangement during the balance of 2021. These payments are reported as discontinued operations and do not carry associated operating expenses.
- The PPP loan forgiveness request was approved by Pinnacle Bank and submitted to the SBA; final SBA approval remained pending as of the filing.
- Cumberland was in compliance with the tangible capital ratio covenant under its revolving credit agreement and expects to remain compliant. Revolving credit availability was reported as zero at March 31, 2021.
- COVID-19 caused supply-chain, clinical-trial enrollment and market-access risks. Management stated that the future financial impact cannot be quantified due to continuing uncertainty.
- The Vibativ contingent consideration liability was $7.3 million at March 31, 2021, including $1.0 million of royalty payments made during the quarter and a $0.3 million decrease in fair value.
- The company expects to pay minimal income taxes in 2021 and beyond because of approximately $56.3 million of federal net operating-loss carryforwards, including approximately $44.1 million related to nonqualified stock-option exercises.
- Management stated that internally generated cash flows, existing working capital and the credit facility should be adequate to fund operations, internal growth, business development and capital expenditures for the foreseeable future, although forward-looking statements remain subject to capital-market, product-sales, acquisition and COVID-19 risks.
Important Facts for Investors to Verify
- Whether Vibativ and Vaprisol demand remains elevated as COVID-19-related hospital utilization changes.
- The timing and reliability of Omeclamox-Pak manufacturing resumption or replacement-packager arrangements.
- The status of final SBA approval for forgiveness of the $2.2 million PPP loan.
- The company’s ability to maintain compliance with the tangible capital ratio covenant and refinance or repay the $15.0 million revolving facility before its October 2022 maturity.
- RediTrex supply availability and execution of the planned second-half 2021 national launch.
- Progress, enrollment and results of the ifetroban Phase II clinical programs, which were affected by the pandemic.
- The sustainability of positive operating cash flow, particularly because Q1 cash generation benefited from a $1.9 million decrease in inventory.
- The effect of product returns, generic competition, contingent consideration royalties and inventory obsolescence on future margins and earnings.