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

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals First Quarter 2022 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, May 13, 2022. 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 factors that could cause results to vary, please refer to the risks identified in the company's annual information form and other filings with Canadian regulatory authorities. Except as required by Canadian securities laws, the company does not undertake to update any forward-looking statements. Such statements speak only as of the date made. I would now like to turn the call over to Mr. Craig Mull, Interim Chief Executive Officer of the company. Please go ahead, Mr. Mull.

Thank you, operator, and good morning, everyone. Joining me today is Scott Langille, Cipher's CFO; and Dave Miller, the company's VP of Finance. On today's call, 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. Cipher's first quarter results delivered a meaningful increase in profitability, highlighted by a 60% increase in our earnings per share. Our strong results have been driven by our reduced cost structure in addition to improved distribution and supply agreements. Through 2021 and continuing into 2022, a key focus for Cipher was to negotiate the extended distribution and supply agreements with key partners for the company's portfolio with an emphasis on improving visibility and long-term profitability. During the first quarter, Cipher announced an extension of the distribution and supply agreement with Sun Pharmaceutical Industries through December 31, 2026. The extension will provide Cipher with an additional 4 years of visibility into stable revenue and cash flow on the isotretinoin portfolio. In March, the company's partner, Moberg Pharma, submitted a regulatory filing for the next clinical Phase III study for MOB-015 to the U.S. Food and Drug Administration. Cipher holds the exclusive Canadian rights to MOB-015. MOB-015 is a product to treat an infection of the nail that causes discoloration, thickening and separation from the nail bed. In Canada, the total prescription market for this form of nail infection was greater than CAD 75 million as of December 31, 2021, with a single product having 90% of this market share. We are pleased to see the continued progress that Moberg is making to commercialize MOB-015. The product is showing promising results, and we look forward to competing in this large market with an innovative topical product that would provide a new, safe and effective treatment option for many Canadians who suffer from this nail infection. First quarter results showed relatively stable revenues as we continue to transition through the launch of Absorica AG. Product revenues increased 24% to $3.3 million compared to $2.6 million in the prior year, while licensing revenue declined to $2.1 million from $2.8 million in the prior year. Product revenue continues to be driven by the strength of Epuris, which generated $3.2 -- sorry, $3.1 million in revenue during the quarter, an increase of $0.6 million from the prior period. Licensing revenue for Absorica was $1.4 million compared to $2.3 million in the comparative period. Currently, in our isotretinoin portfolio, Cipher is receiving royalties from Sun Pharma for the branded product, Absorica, the authorized generic as well as Absorica LD. In addition, we recently announced an extension of this partnership from November 30, 2022, through to the end of December 2026 for Absorica, for Absorica AG, which will extend our revenue and cash flow stream of this portfolio. Overall, Cipher has assembled an attractive portfolio of assets beyond our currently marketed products, and we'll continue to move these products towards commercialization. These products include, as mentioned previously, the MOB-015 product from Moberg. The tattoo removal product, DTR-001, which is showing encouraging results in proof-of-concept studies. And lastly, a product from Can-Fite, which is a psoriasis product, is currently undergoing a clinical trial called the Comfort study. We are waiting for results on that study. But from what we've seen so far, it has been very encouraging. Our balance sheet now has USD 21.9 million in cash, and no debt, placing Cipher in an excellent position to continue to execute on the normal course issuer bid and to actively pursue product and business acquisitions in a prudent manner with a focus on near-term profitability. In addition, extending our relationship with Sun Pharma provides an additional 4 years of visibility on the isotretinoin portfolio. With disciplined cost reductions, and the extension of the agreement with Sun Pharma, we believe that Cipher now has a stable runway for growth. Aligned with our stated strategy, we remain focused on identifying and evaluating profitable product and company acquisitions that will accelerate our growth and drive shareholder value, and are continuing to build cash reserves in anticipation of such transactions. We are excited about legacy assets and are evaluating a number of products which look very compelling. I will now turn the call over to Scott for a financial review. Scott?

Thanks, Craig, and good morning, everyone. I will provide a financial update for our first quarter results. Total revenue was $5.4 million in the quarter compared to $5.4 million for the comparative quarter. Licensing revenue was $2.1 million for the quarter compared to $2.8 million. For the prior year, licensing revenue from Absorica in the U.S. was $1.4 million compared to $2.3 million in the prior year. Absorica and the authorized generic version of the Absorica market share for the 3 months ended March 31, 2022, was approximately 4.3% compared to approximately 4.2% for the prior year according to Symphony Health. Total market share, including the authorized generic and Sun Pharma's Absorica LD was approximately 5.2% compared to 5.4% in the prior year. Licensing revenue from extended release tramadol product, which is concept in the U.S. and Durela in Canada, was $0.4 million for the 3 months ended March 31, 2022, compared to $0.11 million for the prior year. Lipofen and the authorized generic version of Lipofen was $0.7 million for the quarter compared to $0.4 million in the prior year. Product revenue increased by $0.6 million or 24% to $3.3 million for the first quarter compared to $2.7 million for the comparable period in 2021. The selling, general and administrative expenses was $1.3 million for the first quarter, an increase of $0.1 million compared to $1.2 million for the 3 months ended March 31, 2022 -- yes, that should be compared to the $1.2 million for the 3 months ended March 31, 2021. Total operating expenses for the first quarter were $2.3 million, a decrease of $0.9 million compared to $3.4 million in the prior year. The decrease was primarily driven by a provision of legal settlement in Q1 2021 of $1.3 million. Net income was $2.2 million or $0.08 per basic and diluted share for the quarter compared to net income of $1.3 million or $0.05 per basic and diluted share in the comparative period. The EBITDA increased 38% to $3.1 million for the first quarter compared to $2.2 million in Q1 of 2021. Adjusted EBITDA for the first quarter was $3.1 million compared to $3.6 million for the prior year. The company had $21.9 million in cash, and no debt, at March 31, 2022. Cipher generated $2.1 million in cash from operating activities for the 3 months ended March 31, 2022. With a strong balance sheet, a reduced cost structure and additional visibility from a 4-year extension of our relationship with Sun Pharma, we are focused on identifying and evaluating the right assets to drive our growth. We'll now open up the call for questions. Operator?

[Operator Instructions] And we will hear from Doug Loe with Leede Jones Gable.

Congratulations on the quarter. Craig, I just wanted to return to the theme that I brought up on prior conference calls, just with regard to pricing on Absorica versus Epuris. I mean Epuris strength is clearly escalating, and its pricing in Canada is a little bit approximated by other isotretinoin alternatives. So I was just wondering if you and/or Sun and/or both of you have sort of taking the time recently to revisit pricing strategy to see if you wanted to capture higher market share at the expense of perhaps reducing price. So that's -- this pricing strategy there would be helpful. And then my second question, just with regard to your cash flow, it looked like you're carrying a fairly sizable receivables deficit in the quarter. You don't have a history of receivables deficits. So just wondering if there's anything special in there if we can expect that to flip back to the surplus as soon as next quarter. That's it for me.

Okay. Doug, thanks for joining the call. I'll answer the first question, and then I'm going to refer the AR question to Scott and Dave. On the pricing -- and I'm expecting we're assuming that you're talking about the pricing for Absorica versus Epuris. Is that correct?

Correct. That's correct. Yes.

Yes. So we're in constant communication with Sun on this strategy. And part of the pricing is dictated by what -- by what our competitors are doing in this particular segment. But there is a chance that we might be able to gain more market share by introducing perhaps a slight reduction. But the problem there is that our competitors can quickly match that. So I'm not sure that would be a long-term strategy, but it is an area that we are in discussions with Sun about. And with the AR, Scott, would you have some input?

Yes. Doug, I don't think there's anything unusual in there. It's just timing of payments from our royalty partners. So there's nothing in there that is abnormally -- so I would expect that, obviously, that will be reduced through payments from the licensed partners. But I would remind you that Sun Pharma is -- year-end is March 31. So that may be a factor as well.

[Operator Instructions] And there are no additional questions in the queue. I'll turn the call back to Craig Mull for closing remarks.

Thank you for joining us today. We look forward to reporting on our progress throughout the balance of 2022 as we execute on the priorities discussed today. Thanks again for your time, and I hope to speak with you soon. Thank you.

And this concludes today's call. We thank you again for your participation, and you may now disconnect.