Cumberland Pharmaceuticals(CPIX) - 2020 Q4 - Annual Report

Part I Business Cumberland Pharmaceuticals specializes in acquiring, developing, and commercializing branded prescription products for hospital acute care, gastroenterology, and rheumatology - The company's primary target markets are hospital acute care, gastroenterology, and rheumatology, which are addressed by small, targeted sales forces[10] - The COVID-19 pandemic created headwinds by reducing hospital admissions and elective surgeries, which impacted revenues. However, the company's diversified product portfolio provided some resilience[18] Portfolio of FDA Approved Brands | Product | Indication | | :--- | :--- | | Acetadote® | Acetaminophen Poisoning | | Caldolor® | Pain and Fever | | Kristalose® | Chronic and Acute Constipation | | Omeclamox®-Pak | H. pylori infection and related Duodenal Ulcer disease | | Vaprisol® | Euvolemic and Hypervolemic Hyponatremia | | Vibativ® | Serious bacterial infections | | RediTrex® | Arthritis and psoriasis | - The company's growth strategy focuses on maximizing existing brands, acquiring new products, advancing its clinical pipeline, leveraging co-promotion partnerships, and expanding internationally[14][75] Products The company markets seven FDA-approved products, including Acetadote, Caldolor, Vibativ, and RediTrex, with Omeclamox-Pak currently unavailable - Acetadote® and its Authorized Generic, both using an EDTA-free formulation, maintained a significant market share in 2020. The product's patent is upheld until August 2025[24][26] - A full-scale launch of the new ready-to-use Caldolor® product began in January 2020 but was impacted by the COVID-19 pandemic and the postponement of elective surgeries[36] - Demand for Vibativ® grew in 2020, as it was used to treat pneumonia from secondary bacterial infections in hospitalized COVID-19 patients[57] - The packager for Omeclamox®-Pak suspended operations in 2020 due to financial difficulties, leading to the product being currently unavailable. The FDA has been notified[51] - RediTrex®, for arthritis and psoriasis, received FDA approval in December 2019 and began initial shipments in November 2020, with a national launch planned for the second half of 2021[60] Pipeline The pipeline focuses on ifetroban candidates in Phase II for AERD, SSc, and DMD, with enrollment slowed by COVID-19 - The clinical pipeline is focused on ifetroban, with Phase II programs for Aspirin-Exacerbated Respiratory Disease (AERD), Systemic Sclerosis (SSc), and Duchenne Muscular Dystrophy (DMD)[62][65][70] - The Phase II study for ifetroban in DMD is supported by over $1 million in funding from the FDA's Orphan Drug Grant program[70] - Clinical trial enrollment was significantly slowed during 2020 due to the COVID-19 pandemic, but many study sites have since reopened[61][112] - A Phase II study for a new hospital-based cholesterol-reducing agent has completed patient enrollment, and the company has filed the study report with the FDA[73][114] Sales, Marketing, and Customers Cumberland employs two sales forces targeting hospitals and specialists, with three major distributors accounting for 71% of 2020 gross revenues - The company operates two specialized sales forces: a hospital division and a field sales team for gastroenterology and rheumatology, totaling approximately 50 representatives and managers[82][83][85] 2020 Revenue Concentration by Customer | Customer | Percentage of Gross Revenue | | :--- | :--- | | Customer 1 | 25% | | Customer 2 | 25% | | Customer 3 | 21% | Patents, Trademarks and Other Intellectual Proprietary Rights The company protects products via patents and trademarks, with key patents for Acetadote and Caldolor extending to 2025-2032 - A series of patents protect the Acetadote® EDTA-free formulation, with the '445 patent expiring in August 2025 and the '356 patent expiring in May 2026. The company has successfully defended the '445 patent in court, securing an injunction against a generic version until 2025[152][160][168] - Caldolor® is protected by numerous patents, including formulation patent '286 (expiring Nov 2021) and several method-of-use patents expiring between 2029 and 2032[172][173][176] - Vibativ® is protected by eleven patents listed in the FDA Orange Book, including a composition of matter patent ('623) that expires in January 2027[182] - The company has no issued patents for its RediTrex, Omeclamox-Pak, and Kristalose products[183] Competition Cumberland faces intense competition from branded, generic, and alternative treatments across its Acetadote, Caldolor, and Vibativ portfolios - Acetadote® competes with generic injectable products, including an Authorized Generic version of its own EDTA-free formulation distributed by Perrigo, and older formulations containing EDTA from competitors like Akorn and Fresenius Kabi[189][190] - Caldolor®'s primary competitors in the acute pain market include generic injectable opioids, ketorolac, and branded non-narcotic analgesics such as Mallinckrodt's Ofirmev® (IV acetaminophen) and Baudax Bio's Anjeso™ (IV meloxicam)[191][192] - Vibativ® faces competition from major generic antibiotics like vancomycin, linezolid, and daptomycin, as well as newer branded agents including Teflaro®, Dalvance®, and Orbactiv®[206][207] Risk Factors The company faces risks from COVID-19, third-party manufacturing, competition, regulation, IP, and financial volatility - The COVID-19 pandemic has adversely impacted the business by disrupting day-to-day activities, limiting sales force access to medical facilities, and potentially causing revenue loss and supply interruptions[278][280] - The company is highly dependent on third-party manufacturers for all its products. Any failure by these suppliers to produce sufficient quantities or comply with GMP regulations could lead to product shortages and lost revenue. The packager for Omeclamox-Pak suspended operations due to COVID-19's financial impact[288][289][294] - Competition from generic equivalents poses a significant threat. The introduction of a generic can lead to a substantial loss in revenues for a branded product[306][308] - The company's strategy of acquiring products has resulted in significant intangible assets (29% of total assets as of Dec 31, 2020), which are subject to amortization and potential impairment, potentially harming operating results[419][420] - As of December 31, 2020, officers and directors control approximately 41% of the company's common stock, allowing them to significantly influence corporate actions[437] Properties Cumberland leases its Nashville headquarters and a subsidiary's office/lab space, relying on third-party manufacturers - The company leases approximately 25,500 sq. ft. for its corporate headquarters in Nashville, TN, with the lease expiring in October 2022[461] - Its subsidiary, CET, leases approximately 14,200 sq. ft. of office and lab space in Nashville, TN, through April 2023, with an option to extend to 2028[462] Legal Proceedings Legal proceedings, particularly Acetadote patent defense, are referenced from the Business section - Information regarding legal proceedings, particularly concerning Acetadote patent defense, is incorporated by reference from the Business section (Part 1, Item 1)[463] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Cumberland's common stock trades on Nasdaq, with no cash dividends paid, and a share repurchase program active in 2020 - The company's common stock trades on the Nasdaq Global Select Market under the symbol CPIX[465] - The company has a $10.0 million share repurchase program and repurchased 503,626 shares for approximately $1.8 million during the year ended December 31, 2020[469] Share Repurchases in Q4 2020 | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | October | 38,501 | $3.14 | | November | 31,162 | $3.02 | | December | 26,280 | $3.06 | | Total | 95,943 | | Selected Financial Data The company reported increased net revenues in 2020 but continued operating and net losses, with total assets and equity declining Selected Historical Financial Data (in thousands, except per share data) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net revenues | $37,441 | $34,388 | $29,345 | | Operating income (loss) | $(6,382) | $(9,288) | $(11,173) | | Net income (loss) from continuing operations | $(6,626) | $(9,212) | $(10,821) | | Net income (loss) attributable to common shareholders | $(3,339) | $(3,538) | $(6,963) | | Earnings (loss) per share – diluted | $(0.22) | $(0.23) | $(0.45) | | Total assets | $96,463 | $104,549 | $112,694 | | Total equity | $46,873 | $51,085 | $55,571 | Management's Discussion and Analysis of Financial Condition and Results of Operations Net revenues increased by 8.9% in 2020, narrowing the operating loss, while liquidity remained solid with positive cash from operations Results of Operations Net revenues rose 8.9% to $37.4 million in 2020, driven by Kristalose and Vibativ, improving the operating loss Net Revenues by Product (2020 vs. 2019, in thousands) | Product | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Kristalose | $15,568 | $12,895 | $2,673 | | Vibativ | $10,871 | $8,692 | $2,179 | | Caldolor | $5,337 | $5,222 | $115 | | Acetadote | $1,874 | $3,824 | $(1,950) | | Omeclamox-Pak | $257 | $838 | $(581) | | Vaprisol | $1,077 | $937 | $140 | | RediTrex | $857 | $0 | $857 | | Total Net Revenues | $37,441 | $34,388 | $3,053 | - Operating loss for 2020 improved to $(6.4) million from $(9.3) million in 2019, a change of $2.9 million, driven by revenue growth and cost management[508] - Cost of products sold as a percentage of net revenues increased from 21.6% in 2019 to 23.1% in 2020, mainly due to a shift in product mix towards Vibativ, which has a higher cost basis due to purchase accounting[516] - Selling and marketing expenses decreased by $0.5 million in 2020 due to lower promotional spending and travel, while R&D costs decreased by $1.1 million due to reduced study activity[517][518] Liquidity and Capital Resources Cash and equivalents decreased to $24.8 million in 2020, with positive operating cash flow and a $15 million credit facility Liquidity Summary (as of Dec 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Cash and cash equivalents ($) | $24,753,796 | $28,212,635 | | Working capital ($) | $24,302,146 | $26,012,840 | | Revolving line of credit availability ($) | $0 | $1,500,000 | Summary of Cash Flows (Year ended Dec 31) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Operating activities ($) | $5,415,061 | $3,056,356 | | Investing activities ($) | $(1,757,789) | $2,297,848 | | Financing activities ($) | $(7,116,111) | $(5,080,529) | - In April 2020, the company received a $2,187,140 loan under the Paycheck Protection Program (PPP) and submitted a request for forgiveness in October 2020[549][744] - The company has a revolving credit agreement with Pinnacle Bank, extended through October 2022, with up to $15 million available. As of Dec 31, 2020, $15.0 million was outstanding[545][737] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk from its variable-rate credit facility but minimal foreign currency risk - The company has interest rate risk from its revolving line of credit, which is based on LIBOR plus a spread of 1.75% to 2.75%. As of Dec 31, 2020, $15.0 million was outstanding[565] - Foreign currency exchange rate risk is considered minimal as operations are primarily in the U.S. and foreign currency transactions are limited[566][567] Controls and Procedures Disclosure controls and internal control over financial reporting were deemed effective as of December 31, 2020 - Management concluded that as of December 31, 2020, the company's disclosure controls and procedures were effective[571] - Based on the COSO framework, management concluded that internal control over financial reporting was effective as of December 31, 2020[610][611] Other Information New employment agreements for key executive officers, effective January 2021, updated base salaries and covenants - New employment agreements were executed for key officers, including the CEO, CCO, CDO, and CFO, effective January 1, 2021[574][575] - The new agreement for CEO A.J. Kazimi sets his base salary at $610,132[576] Part III Part III Information for Part III (Items 10-14) is incorporated by reference from the company's 2021 proxy statement - Information for Part III (Items 10-14) is incorporated by reference from the registrant's Proxy Statement for its 2021 annual meeting of shareholders[587] Part IV Part IV Exhibits, Financial Statement Schedules This section lists all documents filed as part of the Form 10-K report, including financial statements and exhibits - This section contains the list of financial statements, schedules, and exhibits filed with the Form 10-K[591]