Cumberland Pharmaceuticals Inc. — Q3 2021 Form 10-Q Summary
Business context and reporting period
Cumberland is a specialty pharmaceutical company focused on acquiring, developing and commercializing branded prescription products in hospital acute care, gastroenterology and rheumatology. Its portfolio includes Kristalose, Vibativ, Caldolor, Vaprisol, Acetadote, Omeclamox-Pak and RediTrex, with ifetroban Phase II programs in development.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. The company reported 14,850,526 shares outstanding at September 30, 2021 and 14,809,628 shares as of November 8, 2021.
Financial performance and key metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Net revenues | $8.1 million | $9.3 million | $27.7 million | $27.2 million |
| Gross profit | $6.7 million | $7.1 million | $22.2 million | $20.8 million |
| Gross margin | 83.5% | 76.8% | 80.2% | 76.5% |
| Operating income (loss) | $(1.6) million | $(1.2) million | $(3.3) million | $(4.6) million |
| Net income (loss) from continuing operations | $(1.6) million | $(1.3) million | $(1.2) million | $(4.8) million |
| Net income (loss) attributable to common shareholders | $(1.1) million | $(0.5) million | $0.3 million | $(2.5) million |
| EPS attributable to common shareholders | $(0.07) | $(0.03) | $0.02 | $(0.16) |
Third-quarter revenue declined 12.7%, while nine-month revenue increased 1.8%. The third-quarter operating margin was approximately negative 19.4%; the nine-month operating margin was approximately negative 12.0%. The nine-month net income attributable to common shareholders included $1.5 million of income from discontinued operations and $2.2 million of other income from forgiveness of the PPP loan.
Nine-month net cash provided by operating activities was $4.4 million, compared with $4.6 million in 2020. Investing activities used $0.5 million, and financing activities used $2.8 million. Cash increased by $1.1 million to $25.8 million during the nine-month period.
At September 30, 2021, current assets were $47.2 million, current liabilities were $17.9 million, working capital was $29.3 million and the current ratio was 2.6. Total assets were $87.6 million and total equity was $46.6 million.
Debt consisted primarily of $15.0 million outstanding under the revolving credit facility. The applicable interest rate was 3.65%, and the company was in compliance with its tangible capital ratio covenant. The balance sheet presentation reported no revolving credit availability at September 30, 2021 because the facility was fully drawn.
Material changes versus the prior comparable periods
- Q3 revenue decreased by $1.2 million, primarily because Vibativ revenue declined $0.9 million, Omeclamox-Pak revenue declined $0.5 million, and Caldolor and Vaprisol also decreased. Kristalose increased $0.4 million and Acetadote increased $0.2 million.
- Nine-month revenue increased $0.5 million, led by Kristalose, up $1.9 million; Vaprisol, up $1.1 million; and Vibativ, up $0.2 million. These increases were partly offset by declines in Omeclamox-Pak of $1.1 million, Acetadote of $0.9 million and other revenue of $0.8 million.
- Omeclamox-Pak remained unavailable commercially because its packager experienced financial difficulties and entered reorganization. The company reported negative nine-month revenue of $0.5 million after product returns and channel adjustments.
- Gross margin improved because of product mix, particularly higher Kristalose sales, and cost savings involving the Authorized Generic, Omeclamox-Pak and Vibativ.
- Operating loss improved by $1.3 million for the nine-month period, reflecting lower cost of products sold, research and development and general and administrative expenses. Selling and marketing expense increased $0.5 million and amortization increased $0.1 million.
- RediTrex received its national launch during Q3 2021 after a pandemic-related delay, but reported only $11,459 of Q3 revenue and negative nine-month revenue of $13,291 due to adjustments.
- The SBA formally forgave the $2.2 million PPP loan on June 11, 2021, producing equivalent other income.
- The company repurchased 326,537 common shares for approximately $1.0 million during the first nine months, leaving approximately $5.2 million under its repurchase authorization at September 30, 2021.
Guidance, outlook, risks and unusual items
Management did not provide quantified revenue, earnings or cash flow guidance. Management stated that existing working capital, internally generated cash flows and the credit facility are expected to support internal growth, business development initiatives and capital expenditures for the foreseeable future.
- COVID-19 continued to affect hospital admissions, elective procedures, physician visits, clinical study enrollment, product demand and supply-chain operations. Management stated that the future quantitative impact could not be determined.
- The company depends on third parties to manufacture, package and distribute its products. Omeclamox-Pak supply disruption remains an important operational and revenue risk.
- The company expects to pay minimal income taxes during 2021 and beyond by using approximately $56.5 million of federal net operating loss carryforwards, including approximately $44.1 million related to nonqualified stock option exercises.
- On October 28, 2021, after quarter-end, the revolving credit facility was renewed through October 1, 2024. It provides up to $15 million of borrowing capacity, with a potential increase to $20 million subject to conditions and bank approval.
- Vibativ international expansion includes a Puerto Rico licensing agreement and a China regulatory submission that was accepted for review in October 2021. Timing and commercial outcomes remain uncertain.
- The company’s contingent consideration liability related to Vibativ was $6.9 million at September 30, 2021, including $2.6 million current and $4.3 million long term.
- Discontinued operations generated $1.5 million during the first nine months from remaining installment payments associated with the return of Ethyol and Totect rights. One final quarterly installment was expected in Q4 2021.
- Management reported no legal proceedings, no off-balance-sheet arrangements and effective disclosure controls as of September 30, 2021.
Most important facts for investors to verify
- Whether Omeclamox-Pak packaging resumes and when commercial inventory will become available.
- Whether RediTrex achieves meaningful commercial traction following its delayed national launch.
- The sustainability of revenue growth in Kristalose, Vibativ and Vaprisol and the effect of hospital and physician-utilization trends.
- Cash generation relative to the $15.0 million revolving debt balance and the availability and covenant terms of the renewed facility.
- The timing, cost and results of the ifetroban Phase II programs, including the planned PF-ILD study.
- The impact of COVID-19 on supply, clinical trials, product demand and international commercialization.
- The effect of Vibativ royalties and contingent consideration payments on future cash flow and margins.
- Whether the nine-month return to positive net income is repeatable without the nonrecurring PPP forgiveness and discontinued-operations income.