Cumberland Pharmaceuticals Inc. — 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, oncology, gastroenterology and rheumatology. The company markets eight FDA-approved products primarily in the United States and is developing ifetroban Phase II clinical programs.
This filing covers the three and six months ended June 30, 2022. The financial statements are unaudited. The company reported 14,661,937 shares outstanding as of August 8, 2022.
Key financial metrics
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Net revenues | $10.3 million | $9.1 million | $21.5 million | $19.6 million |
| Operating income (loss) | $(1.8) million | $(1.4) million | $(3.1) million | $(1.8) million |
| Net income (loss) attributable to common shareholders | $(1.3) million | $1.2 million | $(2.7) million | $1.4 million |
| EPS attributable to common shareholders | $(0.09) | $0.08 | $(0.19) | $0.09 |
| Net cash provided by operating activities | Not separately presented for the quarter | $2.2 million | $4.5 million |
- Gross margin was approximately 80.3% in the second quarter and 80.2% for the first six months, compared with approximately 80.8% and 78.8%, respectively, in the prior-year periods.
- Operating margin was approximately negative 17.9% in the second quarter and negative 14.6% for the first six months, compared with approximately negative 15.9% and negative 9.0% in the prior-year periods.
- Cash and cash equivalents were $18.2 million at June 30, 2022, down from $27.0 million at December 31, 2021. Working capital was $19.5 million and the current ratio was 1.8.
- Revolving credit borrowings were $19.0 million, versus $15.0 million at December 31, 2021. Approximately $1.0 million remained available under the facility.
- Total assets were $92.5 million and total liabilities were $53.3 million at June 30, 2022. Intangible assets increased to $33.0 million, primarily reflecting the Sancuso acquisition.
Material changes versus the prior comparable period
- Six-month revenue increased 9.6% to $21.5 million, principally due to $6.8 million of Sancuso revenue following its acquisition in January 2022.
- Revenue declined for Vibativ by $2.8 million, Vaprisol by $1.8 million, Kristalose by $0.8 million and Caldolor by $0.3 million. Vaprisol was affected by the lack of commercial inventory, while Vibativ benefited from unusually strong wholesaler stocking in the prior-year period.
- Second-quarter Kristalose revenue declined $1.7 million because of shipment timing to a co-promotion partner. Caldolor revenue increased $0.3 million, primarily from higher international shipments.
- Omeclamox-Pak had no meaningful product sales because the company remained out of commercial inventory after its packager encountered financial difficulties. RediTrex revenue improved modestly but remained limited.
- Total costs and expenses increased 15.3% for the first six months. Selling and marketing expense rose $1.3 million, research and development expense rose $1.0 million, and amortization rose $0.8 million, primarily due to Sancuso-related commercial and intangible-asset costs.
- The company moved from a prior-year profit to a continuing-operations loss. The 2021 period benefited from $2.2 million of PPP loan forgiveness and $1.0 million of discontinued-operations income; neither item recurred in 2022.
- Cash used in investing activities was $13.7 million, including the $13.5 million cash acquisition payment for Sancuso. Financing activities provided $2.7 million, including a net $4.0 million increase in revolving-credit borrowings, partially offset by $0.8 million of share repurchases.
Guidance, outlook, risks and unusual items
- The filing does not provide formal quantitative revenue or earnings guidance. Management states that existing working capital, operating cash flow and the revolving credit facility are expected to support operations, internal growth, business development and capital expenditures for the foreseeable future.
- Management expects minimal cash income taxes during 2022 and beyond because of approximately $56.6 million of federal net operating loss carryforwards.
- The company recognized a $0.6 million gain on insurance proceeds in the second quarter of 2022. Prior-year results included $2.2 million of PPP loan forgiveness and discontinued-operations income from the former Ethyol and Totect businesses.
- The company slightly exceeded its Maximum Funded Debt Ratio for the quarter but relied on the June 30, 2022 amendment to its Pinnacle Bank agreement. The amended covenant permits a maximum ratio of 3.00 to 1.00 for the second and third quarters of 2022 and 2.50 to 1.00 thereafter. The facility matures October 1, 2024, bears interest at LIBOR plus 1.75% to 2.75%, subject to a 0.90% LIBOR floor, and was priced at 3.87% at quarter-end.
- COVID-19-related hospital and physician-visit disruptions, third-party manufacturing dependence, supply interruptions and product returns remain risks. The company cannot quantify the future effect of the pandemic.
- Vaprisol supply remains constrained. The new manufacturer received an FDA Form 483, and the company must resubmit its application after the cited issues are resolved. The company plans to provide interim compounded product while awaiting approval.
- On July 12, 2022, after the reporting period, Nordic agreed to assume U.S. RediTrex commercialization after March 31, 2023. Nordic will return 180,000 shares, refund a $1.0 million milestone payment, provide a $1.0 million credit for an unpaid milestone and pay Cumberland a future royalty.
- The company entered a national co-promotion agreement for Sancuso with Verity Pharmaceuticals; Verity began its promotional efforts in July 2022.
- The company has three ongoing Phase II ifetroban programs and is preparing a fourth program for progressive fibrosing interstitial lung diseases. Development outcomes, regulatory approvals and funding requirements remain uncertain.
- At June 30, 2022, approximately $4.0 million remained under the company’s $10 million share-repurchase authorization.
Facts investors should verify
- Whether Sancuso revenue and contribution can offset higher selling, marketing, amortization and financing costs.
- Progress toward restoring Vaprisol supply and resuming Omeclamox-Pak packaging.
- Compliance with the amended funded-debt covenant and the company’s limited $1.0 million undrawn credit availability.
- The final valuation and contingent consideration associated with the Sancuso acquisition.
- The operational and financial impact of transferring RediTrex commercialization to Nordic after March 31, 2023.
- Cash-flow sustainability given the six-month operating cash inflow of $2.2 million, $19.0 million of debt and ongoing clinical-development spending.
- Enrollment, results and regulatory progress for the ifetroban Phase II programs.