Erin Smith - Corporate Relations A.J. Kazimi - CEO Martin Cearnal - EVP and CCO Michael Bonner - Senior Director Finance and Accounting and CFO.

Analysts:.

Thank you for joining the Cumberland Pharmaceuticals Company Update and Second Quarter 2017 Financial Report. Please be advised that this conference call is being recorded at the company's request and will be archived on Cumberland's website for one week from today's date.

Now I'd like to introduce Erin Smith, who handles Corporate Relations for Cumberland. Erin, please go ahead..

Hi, everyone. Before we begin today, I would like to note that earlier we put out a company-issued press release containing an update in our financial tables, our financial results for the second quarter ended June 30, 2017. The release including the financial tables is available on the company's website at www.cumberlandpharma.com.

I'd also like to share the following Safe Harbor language. This call today may contain forward-looking statements within the meaning of the Private Securities Reform Act of 1995, because they reflect the company's current views and expectations concerning future events. These forward-looking statements may involve risks and uncertainties.

Investors should note that many factors could affect the company's future results, as more fully described under the caption, Risk Factors in our Form 10-K and any updates filed with the SEC. Any forward-looking statements made during today's call are qualified by those risk factors.

Our future results could differ materially from the views expressed in today's call and we don't assume any obligation to publicly update any forward-looking statements whether as a result of new information or future developments.

Also, please note that today we'll provide some non-GAAP financial measures with respect to our performance and an explanation and reconciliation to GAAP measures can be found in our earnings release and in financial tables. I'll now turn the call over to our Chief Executive Officer, A.J.

Kazimi, to begin the discussion and the Company's performance and plans..

Good afternoon everyone and thanks for joining us, as we provide you an update on our recent activities and review our second quarter results. We're off to a fine start in 2017 and appreciate your participation in today's call, as we share what's happening here at Cumberland.

Also with me on the call are Marty Cearnal, our Chief Commercial Officer and Michael Bonner, Cumberland's Chief Financial Officer. We'll first cover some recent developments and then follow with a discussion of our commercial activities. We'll provide an update on our clinical programs and review our second quarter financial results.

We'll then conclude with a discussion of the company's strategy before addressing any questions you may have. So as on past calls, we will detail the pillars of our strategy and update you on our progress and I'm pleased to report our continued success on multiple fronts.

For more than a year, the company has taken steps to transform Cumberland by adding new products, increasing the number of sales reps supporting the portfolio, launching new marketing strategies, expanding product labeling, protecting our intellectual property and advancing the clinical pipeline.

The result of these efforts has strengthened our market presence, further diversified our revenue stream and has led to double-digit revenue growth each quarter over the last four quarters.

We are hard at work to establish a platform that puts us on a trajectory of sustainable revenue growth and increased profitability and we're confident, if we execute on our key areas of focus, we'll treat significant shareholder value.

I'd like to take a few minutes and update you on certain key initiatives we're focused on to deliver that long-term sustainable growth. One important pillar is to leverage Cumberland's infrastructure through select corporate partnerships in support of our commercial brands.

In April, we executed on their strategy by entering into a new co-promotion agreement with Kristalose, our lead gastroenterology product. Our new partner Poly Pharmaceuticals, is now promoting Kristalose to physician audiences that we don't cover. They feature the benefits of the brand to thousands of new medical providers.

We're excited to have secured this partnership and we expect Poly's efforts will support the growth in Kristalose during multi-year term of the new agreement. Another of our key pillars is to selectively add complementary brands to our commercial product portfolio.

You see, we seek to acquire rights to select additional products that represent a good match for our commercial organization. The goal of this acquisition initiative is to add one new product each year.

While last year, we introduced the Ethyol, our first oncology support brand, which has begun to contribute meaningful revenues in each of the first two quarters of 2017. This year, we completed the acquisition of the U.S. rights to Totect, another oncology support brand.

Well, today I'm pleased to share that the FDA approved new labeling for Totect and as a result, Cumberland recently began the U.S. distribution in sales of that product.

These three key developments, the co-promotion of Kristalose, the growth of Ethyol revenues and the launch of Totect all represent important near-term catalysts to support our revenue growth and business. In fact, during the second quarter of 2017, our revenues grew 17% over the prior year quarter as we continued our double-digit growth trend.

For the first half of 2017, revenues are now up 21% compared to the first half of the prior year. While our performance should be judged on an annual basis, we do continue to expect double-digit revenue growth for the full year 2017.

I'll now look to Marty Cearnal, Cumberland's Chief Commercial Officer to provide some more detail on these commercial activities and growth catalysts.

Marty?.

Thanks A.J. As A.J. mentioned, we're determined to maximize the potential of our existing brands. Our co-promotion partnership with Poly Pharmaceuticals for Kristalose moves us towards that end. This partnership will expand promotional activities for Kristalose and allow us to reach new physicians segments in support of the brand.

The Poly sales force is slightly larger than the company field sales organization, which has been promoting Kristalose. The Poly cover some 6,000 family practitioners, pediatricians, nurse practitioners and physician assistants that we are not targeting at Cumberland.

These complementary activities should add well over 1,000 monthly calls on potential Kristalose prescribers, more than doubling the prior coverage.

Soon after entering into the agreement, we hosted a national meeting of the Poly sales organization and provided training and promotional materials based on the expertise that we've developed in building the Kristalose brand.

The Poly's team then initiated their promotional efforts in June and we look forward to building the brand together over the three-year agreement term. We're very excited about the potential of this arrangement. Also we recently initiated the U.S. distribution of Totect, following FDA approval of the updated labeling and product manufacturer.

Totect is an emergency, oncology support product indicated to treat the toxic effects associated with certain cancer treatments. Totect treats anthracycline extravasation. Extravasation occurs when an injected medicine escapes from the blood vessels and circulates into the surrounding tissues of the body.

When this happens with an anthracycline anti-cancer agent, it can cause severe damage and serious complications for the patient. Totect can limit such damage without the need for surgery and additional procedures in most cases, enabling patients to continue their essential anti-cancer treatment.

We introduced this product on an urgent basis due to a shortage of other dexrazoxane products in United States. This earlier than planned introduction was initiated to help hospitals across the country, maintain plans treatment programs for their cancer patients.

Totect is Cumberland's seventh commercial brand and our second product in support of oncology patients. We are currently making it available to hospitals and oncology centers throughout the United States and will kick off medical and sales support for this brand at the fall national meeting of our hospital sales team.

Meanwhile, we continue the reintroduction of branded Ethyol, which continues its sales trend to become our largest selling hospital product.

While there are two generic amifostine products approved in the U.S., our branded product is the only one currently available and we are working to create brand awareness and brand loyalty in order to create a sustainable long-term branded business.

At the end of the second quarter, the announcement was made by the Centers for Medicaid & Medicare Services or CMS that their reimbursement would now cover the full acquisition cost of Ethyol.

This development will further enhance our opportunity to reestablish the product as a critical support for many cancer patients undergoing select radiation or chemotherapy treatments. That completes today's update on our key commercial activities. A.J., I'll turn the call back over to you..

Thanks for sharing our progress, Marty. Well, another key pillar of our operational strategy is to progress our clinical pipeline. Our product development team has successfully registered two brands with the FDA and they're now working hard to deliver additional FDA approvals. They're focused on ifetroban, Cumberland's first new chemical entity or NCE.

As a reminder, ifetroban was initially discovered and researched by a large pharma company and Cumberland now has the worldwide rights to the program. The safety in activity of ifetroban is well established in studies, including over 1,000 patients.

And we're pursuing four patient conditions that represent unmet medical needs and include candidates for orphan drug designation. Our pipeline is compelling and worth studying. We believe it's an attribute of the company that may not be fully appreciated by investors.

Collectively, these products in development address markets with hundreds of millions of dollars in revenue potential. Last quarter, remember, we've reported on the FDA clearance to continue our Boxaban clinical program.

We're developing Boxaban for the treatment of aspirin-exacerbated respiratory disease or AERD, a disease involving chronic asthma, chronic rhinitis and nasal polyps that are worsened by aspirin. AERD is characterized by sharp increases in inflammatory mediators and platelet activity within the respiratory system.

We've already completed an initial Phase II study led by researchers at the Scripps Institute with encouraging results. Following the FDA clearance , the second phase II trial for Boxaban is now underway and we're currently setting up sites and medical centers across the country.

We also have Phase II clinical studies progressing for our Vasculan and our Portaban, ifetroban development programs. As you may recall, we're developing Vasculan for patients with systemic sclerosis, the deadliest autoimmune disorder, which involves a thickening of the skin and internal organs.

Portaban, is in development for the treatment of portal hypertension associated with liver disease. With FDA clearance and sites initiated, patient enrollment is now well underway for these Vasculan and Portaban clinical studies and completion of enrollment and announcement of top line results will be our next milestone for each of these programs.

We also continue to advance our Hepatoren product candidate. We're developing Hepatoren for patients with hepatorenal syndrome or HRS. These patients suffer from progressive kidney and liver failure, leading to a high mortality rate.

Earlier this year, we completed the data analysis reports from the initial Phase II study and we've been working with an international expert in this field to develop the design for a follow-up efficacy study. And lastly, as we previously reported on our agreement with the Nordic Group to acquire the exclusive U.S.

rights to their injectable methotrexate product line, which is used in the treatment of arthritis. While oral formulations are available, injectable methotrexate has been shown to result in increased efficacy, greater continuation rates and less discomfort for patients.

While these methotrexate products has been approved for use in Europe, we will be seeking FDA approval for their use here in the United States. We're building this submission for the initial methotrexate products and have been in discussions with the FDA regarding the approval pathway.

The next milestone for this program is the submission of the application to the FDA for approval. Recall, we currently are estimating the annual U.S. market potential for this methotrexate product line to be approximately $40 million a year. That completes our update on Cumberland's pipeline activities.

I'd now like to turn to our Chief Financial Officer, Michael Bonner for the financial review.

Michael?.

Thanks A.J. For the three months ended June 30 2017, net revenues were $8.7 million, a 17% increase over $7.4 million for the prior year period. Kristalose delivered $2.9 million of revenue in the second quarter, followed by $2.1 million for Ethyol and $1.7 million for Acetadote.

Net revenues for the quarter were 1.1 million for Caldolor, approximately $0.4 million for Omeclamox-Pak and $0.3 million for Vaprisol. Total net revenues for the six months ended June 30, 2017 were up 21% at $18.3 million compared to 15.2 million for the prior year period.

Total operating expenses for the three months ended June 30, 2017 were $10.3 million compared to $7.5 million for the prior year period. Total operating expenses for the first six months of 2017 were 20.6 million compared to 15.8 million for 2016.

The largest items responsible for this increase in expenses were the cost of goods and royalties associated with the growth in sales during the periods. We also incurred $400,000, an additional research and development expense, as we continue to invest in our ongoing clinical and product development initiatives.

The adjusted loss for the second quarter was $0.7 million or $0.05 per share compared to a gain of $0.7 million or $0.04 per share in the prior year period. I'd like to point out that the key driver of this loss was a reserve of approximately $700,000 we established here in the quarter for Medicaid rebate associated with our Kristalose product.

We were recently informed of the change in the rebate formula, effective January 1, 2017. While we are evaluating the magnitude of the additional rebates, we felt it was prudent to reserve for additional exposure.

Adjusted loss for the six months ended June 30, 2017 was 0.5 million or $0.03 per share compared to earnings of $1 million or $0.06 per share in 2016. During the second quarter, our balance sheet remained strong with total assets of nearly $88 million, including $ 49 million in cash and marketable securities.

Liabilities at the end of the quarter totaled $21.3 million, including $6.7 million on our credit facility. We are using this line of credit to fund acquisitions and the increase reflects royalties associated with the acquisition of U.S. rights to Ethyol. Total shareholders' equity was $66.7 million at the end of the period.

As I previously reported, new rules were issued by the Financial Accounting Standards Board and became effective January 1, 2017, impacting the accounting for stock-based compensation.

As a result of this new accounting standard, during the first quarter, we added new deferred tax assets to our balance sheet, accompanied by related significant valuation allowance. We also increased the allowance associated with prior R&D tax credits.

During the second quarter, we took a fresh look at the remaining tax assets on our balance sheet and decided it would be prudent to increase the allowance. As a result, the tax asset is now fully allowed and we will not need to make any further such allowance increases in the future.

This accounting negatively impacted our earnings for the quarter, but as a non-cash item, it did not impact our adjusted earnings. In spite of this balance sheet adjustment, we continue to have the tax carry-forwards available for approximately $44 million related to the prior exercise of stock options.

We moved our line of credits Pinnacle Bank, which is also headquartered in Nashville and one of the 50 largest financial institutions in the United States. The new facility features improved terms and provides for up to $20 million and we will continue to use this to support our growth and acquisition initiatives.

Meanwhile, we also continue to execute on our share repurchase initiatives. During the second quarter, we repurchased an additional 127,000 Cumberland shares, bringing the total shares repurchased this year to 282,856. That completes our financial report for the second quarter of 2017..

Thanks, Michael. You see our goals are straightforward. We're working to build a specialty pharmaceutical business that delivers sustained growth, profitable operations and long-term value.

We're working hard to keep Cumberland on a solid foundation for long-term growth and we continue to advancing towards that goal during the second quarter with enhanced our marketing efforts, increased the number of sales reps, detailing our products, expanded our product portfolio and advanced our clinical pipeline.

As we continue through the second half of 2017, these same initiatives remain our focus. We'll continue to see complementary brands and our acquisition of rights to Ethyol, Totect and Methotrexate represent our implementation of that strategy.

We also aim to leverage our infrastructure through co-promotion partnerships as evidenced by our recent Kristalose agreement with Poly Pharma. As we continue to manage our operations with financial discipline, we remain in a strong financial position with high margins, positive cash flow and a favorable balance sheet.

I'd like to take a moment to acknowledge and thank our team for their efforts during the first half of 2017 and we believe we are poised to make a meaningful progress on our goals this year, as we remain focused on our mission of advancing patient care through the delivery of high quality pharmaceutical products.

So with that review and update, now, let's open the call to any questions you may have. Operator, please proceed..

Operator:.

Okay. Well, thank you everyone for joining us for the call today. We do understand that many of you may prefer a private discussion with management and if so, please reach out to Erin Smith here if you like to hold such a conversation.

We do appreciate your time and interest in Cumberland and we look forward to providing another update after the end of the third quarter..

Ladies and gentlemen, that does conclude our conference for today. If you'd like to listen to the replay of today's conference, please dial 855-859-2056 using the access code, 48389040, alternatively a replay of the webcast will be available on the company's website. I would like to thank you for your participation. You may now disconnect.