Cipher Pharmaceuticals Inc. (CPH) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceutical's Third Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, November 12, 2021. On behalf of the speakers that follow, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the safe harbor provisions of the Canadian Provincial Securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are implied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information about... [Technical Difficulty]

My name is Craig Mull. I'm the Interim Chief Executive Officer of the company. Thank you for joining us today, and good morning, everyone. Joining me on the line today is Scott Langille, Cipher's CFO. On today's call, I would like -- I will make opening remarks before passing the call over to Scott to review the financial results in detail. Following our prepared remarks, we will open the call for your questions. Note that all amounts are in U.S. dollars unless otherwise stated. Our year-to-date results continue to trend positively. Revenue, adjusted EBITDA and EPS all showed growth compared to the same period last year. We generated $8.1 million in cash from operating activities in the 9 months ending September 30, 2021, ending the period with USD 15.6 million in cash or nearly CAD 20 million, placing us in an excellent position as we continue to actively pursue profitable growth opportunities and maximize the income generated from our distribution agreements. During the quarter, the company has signed the office lease for its corporate head office to a third party, which will result in a savings of $2.2 million over the remainder of the lease term. As a result of this transaction, the company paid an inducement payment which impacted EPS. Excluding this charge, EPS for the quarter would have been $0.06 and EPS for the 9 months ended September 30 would have been $0.21. Our year-to-date EPS was also impacted by the legal provision we took earlier this year. If you exclude this, EPS would have been $0.26 per share for the 9 months ended September 30, 2021. Product revenue increased 30% year-to-date and increased 27% in Q3 compared to the same period in the prior year. Product revenue continues to be driven by the strength of the Epuris, which ended the quarter with 43% market share compared to 41% in the prior year. Subsequent to quarter end, Italmex, our distribution partner for isotretinoin products in Mexico received approval for Epuris in the 10-milligram and 20-milligram doses in Mexico. During 2020, Cipher entered into an agreement with Galephar to return the distribution rates for Latin America and Mexico to Galephar in exchange for a single-digit royalty on net sales in its regions. The size of the U.S. -- of the Mexican market for isotretinoin is difficult to estimate, but given this population, this represents a sizable opportunity for Epuris. During the second quarter, we launched Absorica AG with our marketing partner, Sun Pharmaceutical Industries. We believe that this broadens -- this will broaden Cipher's isotretinoin portfolio and here that we have products to serve each segment of this market and maximize the value of this portfolio. According to Symphony Health, the U.S. isotretinoin prescription market increased by 17.8% in the 9-month period ended September 30, 2021 compared to the 9-month period ended September 30, 2020. During the third quarter, license fees were down sequentially due to the combination of normal drawdown of quantities at the -- at the wholesale level as well as seasonally associated -- seasonality associated with the product. Q3 is the seasonally weakest quarter of the year for isotretinoin products due to the summer months, which impact prescription trends typically by 8% to 10%. We believe this phenomenon will normalize in the coming quarters and that looking at Q2 in combination with Q3 provides more insight into the market dynamics rather than looking at Q3 in isolation. Currently, in our isotretinoin portfolio, Cipher is receiving royalties from Sun for the branded product, Absorica, the authorized generic as well as Absorica LD. We are confident that working with Sun Pharma is the right economic decision for Cipher and is consistent with our overall strategy to maximize the value of the isotretinoin portfolio. Our pristine balance sheet was USD 15.6 million or nearly CAD 20 million, placing Cipher in an excellent position to continue to execute on its normal course issuer bid and to actively pursue product and business acquisitions in a prudent manner with a focus on near-term profitability. We are particularly excited about the opportunities in what is typically known as the legacy asset space. We are evaluating a number of potential products and feel that asset values and cash flow dynamics are quite compelling. I will now turn the call over to Scott for a financial review of our quarterly results. Scott?

Thanks, Craig, and good morning, everyone. Total revenue increased by $0.9 million or 4% to $16.1 million for the 9 months ended September 30, 2021, compared to $15.5 million for the same period last year. Total revenue decreased to $4.5 million for the 3 months ended September 30, 2021, compared to $4.8 million in the same period last year. Licensing revenue for the 9 months ended September 30, 2021, decreased $1.3 million to $7.7 million. Licensing revenue for the 3 months ended September 30, 2021, decreased by $0.8 million to $2 million. Licensing revenue from Absorica in the U.S. was $1.4 million for the quarter, a decrease of $0.9 million. Absorica and the authorized generic version of Absorica, market share for the 3 months ended September 30, 2021 was approximately 5.1% compared to approximately 6% for the 3 months ended September 30, 2020, according to Symphony Health. Market share, including Sun's Absorica LD was approximately 6.5%. Overall, Absorica business, Brand AG and LD declined year-over-year from 7.1% market share at September 30, 2020. Licensing revenue from the extended release tramadol product ConZip in the U.S. and Durela in Canada, was $0.13 million for the 3 months ended September 30, 2021, an increase of $0.9 million compared to $0.04 million in the prior period -- in the prior year. License -- Lipofen and the authorized generic of Lipofen was $0.5 million for the 3 months ended September 30, 2021, a decrease of $0.05 million compared to $0.6 million for the 3 months ended September 30, 2020. Product revenue increased by $0.5 million or 27% to $2.5 million for Q3 2021 compared to $2 million for the comparable period in 2020. Product revenue from Epuris was $2.3 million for the quarter, an increase of $0.5 million from $1.8 million for the comparative period. According to IQVIA, Epuris had a prescription market share of approximately 43% in Canada for the 3 months ended September 30, 2021, compared to 41% for the 3 months ended September 30, 2020. Product revenue for the remaining products, Ozanex, Beteflam, Actikerall, Brinavess, Aggrastat and Vaniqa was essentially unchanged when compared to 3 months ended September 30, 2020. Selling, general and administrative expense was $1.7 million for the third quarter, an increase of $0.1 million compared to $1.6 million for the 3 months ended September 30, 2020. Year-to-date, SG&A decreased by 7% to $4.1 million compared to $4.4 million in the prior year. Income from continuing operations was $4.9 million or $0.19 per basic and $0.18 per diluted share for the 9 months ended September 30, 2021 compared to income from continuing operations of $4.5 million or $0.17 per basic and $0.16 per diluted share in a comparative period -- in the comparative period, including the provision for -- or sorry, excluding the provision for legal settlement of $1.25 million, the loss on disposable assets of $0.7 million and a loss of extinguishment of lease of $0.1 million, income from continuing operations per common on both a basic and diluted basis for the 9 months ended September 30, 2021, was $0.26 or CAD 0.33 compared to income per common on both basic and diluted basis of $0.17 and $0.16, respectively, for the 9 months ended September 30, 2020. Income from continuing operations per common share on a basic and diluted basis for the 3 months ended September 30, 2021, was $0.03 compared to income per common share on both a basic and diluted basis of $0.06 for the 3 months ended September 30, 2020. Excluding the loss on the disposal of assets of $0.7 million and the loss on the extinguishment of the lease of $0.1 million, income from continuing operations per common share on both a basic and diluted basis for the 3 months ended September 30, 2021, was $0.06 compared to income per common share on both a basic and diluted basis of $0.06 for the 3 months ended September 30, 2020. Adjusted EBITDA for the 3 months ended September 30, 2021, was $9.8 million compared to $9.8 million for the 9 months ended September 30, 2020. Adjusted EBITDA for the 3 months ended September 30, 2021, was $2.2 million compared to $2.8 million for the same period in the prior year. The company had $15.6 million in cash and no debt at September 30, 2021. The company generated $8.1 million in cash from operating activities for the 9 months ended in 2021. During the quarter, the company has signed the office lease for its corporate office, which will result in savings of CAD 2.2 million over the remainder of the lease term. I will now turn the call back to Craig for closing remarks.

Thanks, Scott. With a profitable business, a reduced cost structure and with a substantial cash position of approximately CAD 20 million, we feel that we are in an excellent position to accelerate our strategic promotional efforts to drive market share with our core brands and actively pursue business opportunities. We will now open the call up to questions. Operator?

[Operator Instructions] It appears that there are no questions at this time. I'll pass the call over back to Mr. Mull for any additional or closing remarks.

Thank you for joining us today. We look forward to reporting on our progress throughout the balance of 2021 as we execute on our priorities discussed today. Thank you for your time, and we look forward to speaking with you in the near future. Back to you, operator.

This concludes today's call. Thank you for your participation. You can now disconnect.