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 primarily for hospital acute care, gastroenterology and rheumatology markets. The company markets seven FDA-approved products in the United States and is developing ifetroban programs in Phase II clinical studies.
This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. The company is a smaller reporting company and its common stock trades on Nasdaq under the symbol CPIX.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
|---|---|---|---|---|
| Net revenues | $9.1 million | $9.6 million | $19.6 million | $17.9 million |
| Gross profit | $7.3 million | $7.0 million | $15.4 million | $13.7 million |
| Gross margin | 80.8% | 72.8% | 78.8% | 76.3% |
| Operating income (loss) | $(1.4) million | $(1.6) million | $(1.8) million | $(3.4) million |
| Operating margin | (15.9)% | (16.5)% | (9.0)% | (19.1)% |
| Net income (loss) attributable to common shareholders | $1.2 million | $(0.9) million | $1.4 million | $(2.0) million |
| EPS attributable to common shareholders | $0.08 | $(0.06) | $0.09 | $(0.13) |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $4.5 million | $3.7 million |
Second-quarter net income included $2.2 million of other income from forgiveness of the company's Paycheck Protection Program loan and $0.5 million from discontinued operations. Six-month net income included $1.0 million from discontinued operations. Results therefore include material nonrecurring or non-operating items.
At June 30, 2021, cash and cash equivalents were $25.7 million, compared with $24.8 million at December 31, 2020. Working capital was $28.0 million, the current ratio was 2.5, and revolving credit availability was $1.0 million. Total inventory was $20.0 million, including $9.9 million classified as non-current.
Revolving credit borrowings were $14.0 million, down from $15.0 million at year-end. The facility matures October 1, 2022, bears interest at LIBOR plus a spread with a 0.90% LIBOR floor, and had an applicable rate of 3.65% at June 30, 2021. Borrowings are secured by substantially all company assets. The company reported compliance with its tangible capital ratio covenant.
Cash Flow, Liquidity and Capital Allocation
- Operating cash flow was $4.5 million for the first six months of 2021, supported by decreases of $3.2 million in accounts receivable and $2.3 million in inventories.
- Investing cash outflow was $0.4 million, including $0.2 million funded to the WHC Biopharmaceuticals joint venture and $0.1 million of intangible-asset additions.
- Financing cash outflow was $3.2 million, including $1.0 million of net revolving-credit repayment, $1.4 million of royalty payments to Theravance, and $0.8 million for common-share repurchases.
- Cash increased by $0.9 million during the six months.
- The company had approximately $5.4 million remaining under its $10 million share-repurchase authorization at June 30, 2021.
- Management stated that existing working capital, internally generated cash flows and the revolving credit facility are expected to fund internal growth, business-development initiatives and capital expenditures for the foreseeable future.
Material Changes Versus the Prior Comparable Period
- Six-month revenue increased 9.3% to $19.6 million, while second-quarter revenue decreased 5.7% to $9.1 million.
- Six-month revenue growth was driven by Kristalose, Vibativ, Caldolor and Vaprisol. Vaprisol revenue increased substantially as utilization rose in treating patients affected by COVID-19.
- Second-quarter revenue declined primarily because Vibativ sales fell by $1.5 million, Acetadote sales fell by $0.4 million, and other revenue declined by $0.4 million. These decreases more than offset higher Kristalose revenue.
- Omeclamox-Pak generated negative revenue of $0.5 million for the first six months because the company was out of commercial inventory and recorded product returns. The product packager experienced financial difficulties and its operations were suspended.
- Cost of products sold declined 33.3% in the second quarter, producing an improved gross margin because of product mix, particularly lower Vibativ sales. Six-month cost of products sold was broadly unchanged.
- Six-month operating loss improved by $1.7 million, reflecting higher revenue, lower research and development expense and controlled total operating costs.
- Research and development expense decreased $0.5 million for the first six months, partly because of lower clinical-study activity during the pandemic. Selling and marketing expense increased $0.3 million.
- The company received formal SBA forgiveness of the entire $2.2 million PPP loan on June 11, 2021, recognizing the amount as other income.
- The company appointed John Hamm as Senior Director of Finance and Accounting and Chief Financial Officer effective May 17, 2021.
Guidance, Outlook, Commentary and Risks
Management did not provide quantitative revenue or earnings guidance. Management expects minimal income taxes during 2021 and beyond because of approximately $56.5 million of federal net operating loss carryforwards, including approximately $44.1 million generated by exercises of nonqualified stock options.
Management planned a national RediTrex launch for late September 2021. The company continues to evaluate its cholesterol-reducing hospital product candidate following completion of Phase II work and is awaiting results from ongoing ifetroban studies before determining the preferred development path.
- COVID-19 continues to affect hospital admissions, elective procedures, physician visits, clinical-study enrollment, access to medical facilities and the supply chain. Management stated that the future financial impact cannot be quantified.
- Omeclamox-Pak availability remains uncertain because of the packager's financial difficulties and reorganization. The company had informed the FDA of a product shortage and had not provided a date for new inventory availability.
- Vibativ sales are subject to order timing, international and domestic demand, royalty obligations and contingent consideration. The contingent consideration liability was $7.4 million at June 30, 2021.
- Acetadote faces generic competition, and four generic companies have launched injectable acetaminophen products that compete with Caldolor.
- The company relies on third parties for manufacturing, packaging, distribution and supply of active pharmaceutical ingredients, creating risks of interruptions, delays, product returns and unplanned costs.
- Clinical programs, including ifetroban, face enrollment, regulatory, efficacy, safety and funding risks. Enrollment was interrupted by COVID-19, although many sites had resumed screening.
- The company has interest-rate exposure through its LIBOR-based secured revolving facility and does not use derivatives to hedge interest-rate or foreign-currency risk.
- No legal proceedings or off-balance-sheet arrangements were reported, and management concluded that disclosure controls were effective as of June 30, 2021.
Most Important Facts for Investors to Verify
- Whether the planned late-September 2021 RediTrex launch occurred as expected and generated meaningful commercial revenue.
- Whether Omeclamox-Pak packaging resumed and whether inventory availability, product returns and negative revenue adjustments improved.
- Whether Vibativ sales recovered from the second-quarter decline and how royalty and contingent-consideration payments affect future cash flow.
- Whether COVID-19 disruptions continue to affect hospital utilization, supply-chain reliability and ifetroban clinical enrollment.
- Whether the company maintains compliance with its tangible capital ratio covenant and preserves sufficient borrowing capacity as the revolving facility approaches its October 2022 maturity.
- How much of reported earnings and operating cash flow is attributable to nonrecurring items, including PPP loan forgiveness and Clinigen dissolution payments from discontinued operations.
- Progress, results and funding requirements for the ifetroban clinical programs and the new hospital product candidate.