Cumberland Pharmaceuticals Inc. — Q1 2023 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 in hospital acute care, gastroenterology and oncology. Its commercial portfolio includes eight FDA-approved products, supported by U.S. sales forces and international partners. The filing covers the three months ended March 31, 2023, compared with the three months ended March 31, 2022. The financial statements are unaudited.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenues | $9.2 million | $11.2 million | Down $2.0 million |
| Gross profit | $8.0 million | $9.0 million | Down $1.0 million |
| Gross margin | 86.4% | 80.2% | Up 6.2 percentage points |
| Operating loss | $(1.5) million | $(1.3) million | Loss increased $0.2 million |
| Operating margin | (16.6%) | (11.6%) | Lower |
| Net income attributable to common shareholders | $0.2 million | $(1.4) million | Improved $1.6 million |
| Diluted EPS | $0.01 | $(0.09) | Improved |
| Net cash used in operating activities | $(1.4) million | $(0.2) million | Higher use of cash |
Reported net income was substantially affected by $1.8 million of other income from an FDA refund of previously paid RediTrex prescription drug fees. The refund was expected to be received in the second quarter of 2023. Excluding this unusual item, the company remained operating-loss-making.
Cash and cash equivalents were $16.4 million at March 31, 2023, down from $19.8 million at December 31, 2022. Working capital was $18.1 million and the current ratio was 1.7. Revolving credit availability was $3.9 million.
Borrowings under the Pinnacle Bank revolving credit facility were $16.1 million, compared with $16.2 million at year-end 2022. The facility has a $20 million principal capacity, matures October 1, 2024, was subject to an applicable interest rate of 7.375% at March 31, 2023, and is collateralized by substantially all company assets. The company was in compliance with its funded debt ratio covenant.
Total assets were $89.5 million and total equity was $36.0 million at March 31, 2023. The company held $17.7 million of total inventory, including $7.5 million classified as non-current. Federal net operating loss carryforwards were approximately $57.8 million, and management expects minimal income tax payments during 2023 and beyond while these carryforwards are utilized.
Material changes versus the prior comparable period
- Revenue declined 17.5%, primarily because Sancuso revenue fell $1.5 million and Vibativ revenue fell $0.7 million.
- Kristalose revenue increased $0.4 million to $4.3 million, while Acetadote revenue increased $0.1 million.
- Sancuso revenue declined to $1.9 million because of larger product returns associated with acquired inventory and lower sales. The company’s co-promotion agreement with Verity terminated effective February 25, 2023, and related issues are subject to arbitration.
- Vibativ revenue declined to $1.8 million due to lower unit shipments, although its contribution increased modestly to $1.1 million from $1.0 million.
- Cost of products sold declined 43.5% to $1.3 million, reflecting lower-cost inventory and fewer inventory write-offs. Selling and marketing and research and development expenses also declined, while general and administrative expense increased 8.5% to $2.5 million.
- Amortization declined $0.4 million to $1.2 million, primarily due to an adjustment to the useful life of Sancuso.
- Cash used in investing activities was only $0.2 million, compared with $13.5 million in Q1 2022, when the company paid for the Sancuso acquisition.
- Financing activities used $1.8 million, including $1.5 million of Sancuso milestone and product royalty payments and $0.2 million of share repurchases. Approximately $3.6 million remained available under the $10 million repurchase program.
Guidance, outlook, risks and unusual items
Management states that existing working capital, internally generated cash flows and the revolving credit facility are expected to be adequate to finance internal growth, business development initiatives and capital expenditures for the foreseeable future. No quantified revenue or earnings guidance was provided.
- The company continues to develop ifetroban in Phase II programs for AERD, systemic sclerosis and Duchenne muscular dystrophy cardiomyopathy, and expects to launch a fourth program for progressive fibrosing interstitial lung diseases in 2023, subject to FDA-related steps.
- Vaprisol remains unavailable pending resolution of manufacturing facility Form 483 and warning-letter issues and FDA approval of the new manufacturer.
- Omeclamox-Pak remains unavailable because its packager experienced financial difficulties; the company is evaluating alternatives.
- Nordic may assume responsibility for RediTrex commercialization after June 30, 2023. Cumberland expects to receive a royalty on future Nordic sales through April 2035.
- Caldolor may become eligible for separate Medicare reimbursement under the NOPAIN Act for qualifying products furnished from January 1, 2025 through January 1, 2028. CMS regulations and reimbursement amounts had not yet been issued.
- The company adopted the current expected credit loss standard on January 1, 2023; management stated that adoption had no material impact.
- Key risks include product demand and returns, manufacturing and supply interruptions, regulatory approvals, clinical trial outcomes, acquisition and integration execution, access to capital, covenant compliance, inflation, higher interest rates, supply-chain constraints and litigation. Existing litigation is not expected to have a material adverse effect.
- The revolving facility is exposed to interest-rate changes, and its benchmark is scheduled to transition from LIBOR to Term SOFR after June 30, 2023.
Important facts for investors to verify
- Whether the $1.8 million FDA fee refund was received in Q2 2023 and whether any similar nonrecurring benefits affected subsequent results.
- Whether Sancuso sales and product-return levels stabilize following the termination of the Verity co-promotion agreement.
- The timing and conditions for relaunching Vaprisol and restoring Omeclamox-Pak availability.
- Progress, funding requirements and clinical results for the ifetroban Phase II programs.
- Compliance with the revolving credit facility covenants, available borrowing capacity and the LIBOR-to-Term-SOFR transition.
- Revenue and margin trends for Kristalose, Vibativ, Sancuso and Caldolor, including the impact of inventory costs and product returns.
- Whether the company can generate positive operating cash flow while continuing clinical development, milestone payments, royalties and share repurchases.