Cipher Pharmaceuticals Inc. ($CPH)

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals quarterly conference call for the company's fourth quarter and full year 2025 results. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, March 13, 2026. 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 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.

Good morning, and thank you for joining our call today. Before I begin, I would like to remind everyone that all figures discussed on today's call are expressed in U.S. dollars unless otherwise specified. Cipher's 2025 fiscal year was one of considerable growth with a more than doubling of our revenue and earnings in comparison to the most recent full fiscal year prior to our acquisition of the U.S.-based Natroba business. Since acquiring the Natroba business in July 2024, the business has performed above our expectations. Sales from Natroba and its authorized generic, Spinosad, were $7.4 million during the fourth quarter of 2025, a 14% increase over sales from the same quarter last year of $6.5 million. Sales from Natroba and its authorized generic, Spinosad were $30 million for the full year 2025 compared to $12 million for the 5 months of 2024 during which we owned the business. Additionally, the Natroba business continues to have strong profitability with a gross margin percentage of 83% during the 2025 fiscal year. This strong profitability was a driver for the adjusted EBITDA from the Natroba business of $17.4 million for 2025 fiscal year which contributed to our total combined business adjusted EBITDA of $28.1 million for 2025. Cipher's base business in Canada continued to be a reliable source of revenue and earnings overall, with $20.5 million in revenue for the full year 2025 compared to $21.4 million for 2024 and adjusted EBITDA of $10.7 million in 2025 compared to $10.6 million in 2024. Our base business experienced year-over-year gains for almost all products in this portfolio led by Epuris. However, these gains were offset by reduced licensing revenue earned on Cipher's products that are market and distributed by commercial partners in the U.S. Our most recent full fiscal year prior to the acquisition of the U.S.-based Natroba business, was fiscal 2023, during which period, Cipher had $21.2 million in revenue and $12.7 million in adjusted EBITDA whereas in the first fiscal -- full fiscal year following the acquisition of the Natroba business, fiscal 2025, total revenue was $50.5 million, and adjusted EBITDA was $28.1 million, representing an increase in revenue of 138% and adjusted EBITDA of 121% compared to our pre-acquisition revenue and adjusted EBITDA. Our earnings continued to translate almost directly to free cash flow providing available funds to deleverage the business. During 2025, we made a series of repayments on our revolving credit facility totaling $35 million, reducing the outstanding balance of our credit facility to $5 million at December 31, 2025. This represents a near full repayment within 18 months of the $40 million drawn on our revolving credit facility to partially fund the acquisition of the Natroba business. This is an achievement, not many other companies can say that they have reached, which highlights Cipher's strong cash generation and disciplined approach to capital allocation. Our CFO, Ryan Mailling, will provide a detailed overview of our financial results following my commentary. I'd like to spend my remaining time providing an update on our business development activities, which we are very active in and where myself and along with many members of our team are focusing on a significant amount of our time. We have 4 distinct strategies ongoing at the moment to drive shareholder value and grow our business. Firstly, invest in the Natroba business and our U.S. operations. Secondly, we're looking for acquisitions. We're in-licensing of complementary products, particularly for our U.S. platform. We're looking for Health Canada to approve and launch and we will launch Natroba in Canada. We are very active in discussions and negotiations with out-licensing partners for Natroba globally. And then lastly, we're viewing possible acquisitions of strategic value. And I've referred to this particular segment of our growth strategy as opportunistic acquisitions. The first strategy of investing and building upon Natroba business and the U.S. operations to position it as a platform for further growth includes the launch of a direct-to-consumer or DTC sales model to implement our existing sales or supplement our existing sales approach. We believe Natroba is well suited for this model. Much work has gone into the development of the DTC sales model. And just recently, within the last week, we have launched this DTC platform. Those in need of an effective treatment for head lice and scabies, can now go to natroba.com to connect directly with a health care professional to determine if they qualify for a prescription for Natroba. If qualified, our platform will streamline the process to obtain a prescription, efficiently adjudicate a claim and provide a convenient local pickup or delivery option to consumers. The strategy also includes partnerships with retailers to ensure Natroba and Spinosad is adequately stocked in states and city centers across the U.S. so it is available through this platform. We are excited about the launch of our new DTC strategy and expect it to provide an efficient way for those in need of an effective treatment for head lice and scabies to obtain a prescription for our product, Natroba. The second area of our business development strategy is the pursuit of acquiring or in-licensing complementary products, which can be directly commercialized through our existing U.S. and Canadian commercial infrastructures, particularly our well-established U.S. sales force. We are currently active in discussions with various parties, and we continue to progress these discussions as well as explore additional opportunities. As we have said previously, although we continue to pursue various opportunities, business development activities do take time and the opportunities may or may not come to realization. We will continue to provide updates in this area. The third strategy is that we're pursuing and launching Natroba in Canada. As recently announced on January 28, Health Canada accepted for a review our new drug submission for Natroba. This puts us one step closer to providing Canadians with an effective single treatment option for head lice and scabies, and we believe Natroba will fit an unmet need in Canada for a highly effective treatment. We expect to receive Health Canada's decision with respect to its review of Natroba by the end of 2026. We will continue to provide updates as developments occur with Health Canada's review process. The fourth strategy we are undertaking is pursuing out-license opportunities for Natroba globally. We continue to believe there is a high unmet need for a highly effective product like Natroba to address both head lice and scabies indications in other territories globally. However, as mentioned on previous calls, we believe it is important to find the right fit with our out-licensing partner for Natroba. And as a result, the strategy is taking time. Product pricing in territories outside of the U.S. is an important element we must consider when finding the right fit for out-licensing. With that being said, we hope to provide exciting updates as developments in this area occur. Fifth and lastly, as part of our strategic plan for growing the business is evaluating and pursuing company acquisitions, which may have strategic value to Cipher. We believe that Cipher would benefit from additional size and scale including its pursuit of the business development strategies I previously mentioned. Accordingly, acquiring companies that would add to our size and scale as well as provide other strategic benefits has also become a focus of our strategies to drive shareholder value. Accordingly, we are actively sourcing, evaluating and pursuing company acquisitions that achieve these objectives. We look forward to providing updates on this area of our business as we progress. Thank you again for joining us here today, and I look forward to answering questions after our prepared remarks. I will now pass the call over to our CFO, Ryan Mailling. Please go ahead, Ryan.

Thanks, Craig, and good morning, everyone. As Craig mentioned, at the beginning of today's call, all amounts provided are expressed in U.S. dollars, unless otherwise noted. Today, Cipher Pharmaceuticals is reporting results from the company's fourth quarter and full fiscal year 2025 to 3- and 12-month periods ended December 31, 2025. I will first discuss the highlights from our fourth quarter results and turn my comments to our 2025 annual results. Highlights for the fourth quarter include Total net revenue for the 3-month period ended December 31, 2025, was $12.2 million. Net revenue for the fourth quarter of 2025 increased by $0.4 million or 3% compared to the same quarter in the prior year. The increase was attributable to growth in the U.S.-based Natroba business and Canadian product portfolio, which was partially offset by reduced licensing revenue. Product revenue from the U.S.-based Natroba business comprised of the brand Natroba and its authorized generic, Spinosad was $7.4 million for the fourth quarter of 2025 compared to $6.5 million for the same period in the prior year representing an increase of $0.9 million or 14%. Product revenue for the Canadian product portfolio for the fourth quarter of 2025 was $4.2 million compared to $4 million for the same period in 2024, representing an increase of $0.2 million or 5%. The product that's comprising our Canadian portfolio benefited from a combination of increased sales volumes and favorable changes in product mix for certain products for the fourth quarter of 2025 compared to the same period in the prior year, contributing to the overall increase in revenue. Moving on to our U.S. licensing revenue. Total licensing revenue for the fourth quarter of 2025 was $0.6 million. Licensing revenue decreased by $0.8 million for the 3 months ended December 31, 2025, compared to the same period in prior year, primarily due to reduced revenue from product shipments to Cipher's distribution partners combined with lower net sales realized by these distribution partners on which Cipher earns a royalty. Gross margin for the fourth quarter of 2025 was 81% compared to 57% for the same period in 2024. Gross margin during the first quarter of 2024 was impacted by fair value adjustments to acquired inventory that are included in the cost of products sold, which is in connection with the company's acquisition of the U.S.-based Natroba business during the prior year. Excluding the impact of these nonrecurring fair value adjustments in the prior year, Cipher has experienced approximately 1% increase in gross margin year-over-year, benefiting from additional revenues of Natroba, partially offset by the impact of reduced licensing revenue during the fourth quarter of 2025. Selling, general and administrative expenses for the 3 months ended December 31, 2025 were $3.9 million compared to $5.7 million during the 3 months ended December 31, 2024. Selling, general and administrative expenses for the fourth quarter of 2025 of $3.9 million represented a decrease of $1.8 million or 32% compared to the same quarter in the prior year. The decrease was primarily attributable to nonrecurring acquisition-related costs in the prior year in connection with the U.S. based Natroba acquisition combined with a reduction of $0.7 million in legal costs associated with matters subject to arbitration in the fourth quarter of 2025 as compared to the same period in 2024. The remaining decrease is driven by operational efficiencies gained with respect to selling, marketing and general and administrative expenses within the U.S.-based Natroba business year-over-year. Net income for the 3 months ended December 31, 2025, was $13.3 million or $0.51 per diluted common share. compared to $3.3 million or $0.13 per diluted common share for the same period in prior year. Additional operating income in the fourth quarter of 2025 from the U.S.-based Natroba business contributed to an increase in net income including reduced operating expenses due to the $2.7 million in nonrecurring fair value adjustments to inventory and the $0.9 million of nonrecurring acquisition-related costs in connection with the Natroba acquisition which occurred during the fourth quarter of 2024. Additionally, net income for the fourth quarter of 2025 benefited from $0.7 million reduction of legal costs that are referred to previously compared to the same period in 2024. Finally, movements in foreign exchange rates for the comparative period have also had opposite effects on net income resulting in a foreign exchange gain of $0.5 million on the translation of the company's net assets and earnings denominated in Canadian dollars during the fourth quarter of 2025 compared to a foreign exchange loss of $1.8 million during the same period in 2024. Adjusted EBITDA for the fourth quarter of 2025 was $7 million compared to $5 million for the fourth quarter of 2024, representing an increase of $2 million or 40% the increase in adjusted EBITDA was mainly driven by the U.S.-based Natroba business. For the fourth quarter of 2025, we continue to generate strong cash flows from operations, with the business having generated $8.7 million in cash during the quarter. I will now turn your attention to our results for the full year of 2025. Total net revenue for the year ended December 31, 2025 was $50.5 million compared to $33.4 million for the year ended December 31, 2024. Net revenue for 2025 increased by $17.1 million or 51% compared to 2024. This increase was largely attributable to the U.S.-based business, combined with growth in the Canadian product portfolio which is then partially offset by reduced licensing revenue. Product revenue was $46.9 million for the year ended December 31, 2025 compared to $26.7 million in the prior year. This represents an increase of $20.2 million or 75% compared to 2024. Contributing to the increase in product revenue for the year ended December 31, 2025 was a full year of sales activity for Natroba and its authorized generic, Spinosad compared to a 5-month period for 2024, which is subsequent to the July 2024 acquisition of this business. Product revenue for the U.S.-based Natroba business comprised of the brand Natroba and its authorized generic, Spinosad was $30 million for the year ended December 31, 2025, compared to $12 million for the year ended December 31, 2024. Product revenue for our Canadian product portfolio was $16.9 million for the year ended December 31, 2025 compared to $14.7 million for 2024. This was an increase of $2.2 million or 15%, largely attributable to Epuris, which was further supported by increased revenue from the vast majority of the remaining products in our Canadian portfolio. Revenue from Epuris increased $1.7 million or 13% from $13 million for the year ended December 31, 2024 up to $14.7 million for 2025. On a constant currency basis, excluding the impact of foreign exchange translation, Epuris revenue increased $2.2 million or 15% in '25 compared to 2024. The increase in revenue from Epuris was largely attributable to higher sales volumes year-over-year. Overall, licensing revenue of $3.6 million for the year ended December 31, 2025, decreased by $3 million compared to $6.6 million for 2024. Licensing revenue from the Absorica portfolio in the U.S. was $1.8 million for 2025, representing a decrease of $2.7 million compared to 2024. Revenue from Absorica for 2025 was impacted by year-over-year declines in product shipments on which we earn revenue from supplying product to our distribution partner. The decline in the Absorica licensing portfolio for 2025 was also impacted by lower royalty revenue, contributed to by lower sales volumes and net sales realized by our distribution partner, on which Cipher earns a net sales royalty. The products continue to face pressure in a highly competitive market, saturated by generic competition. The royalties earned on net sales faced further downward pressure during 2025, and since these royalties were earned at a lower rate for the full year of '25 in comparison to this lower rate only impacting the second half of 2024 with a contractual rate reduction occurring in the third quarter of 2024. Further reductions to licensing revenue from the portfolio are due to Cipher no longer earning a royalty on Absorica LD in the U.S. market for 2025. Licensing revenue from Lipofen and the authorized generic, Lipofen was $1.6 million for 2025, representing a decrease of $0.4 million compared to the same period in 2024. This was attributable to lower sales volumes and net sales realized by our partner on these products on which Cipher earns a net sales royalty. Selling, general and administrative expenses for the year ended December 31, 2025 were $16.7 million, an increase of $1.7 million or 11% compared to $15 million for 2024. The increase was attributable to a full year of SG&A expenses for the acquired U.S. business in 2024 compared to only 5 months of these expenses in 2024 post acquisition. The increase in selling, general and administrative expenses were partially offset by $2.7 million in nonrecurring acquisition-related costs in connection with the U.S.-based Natroba business acquisition, which occurred in 2024 and these costs did not recur in 2025. Net income for the year ended December 31, 2025 was $27.3 million or $1.05 per diluted common share compared to $11.5 million or $0.46 per diluted common share in 2024. Net income for the year ended December 31, 2025 benefited from the inclusion of the U.S.-based Natroba business for the full year compared to only 5 months in 2024 post acquisition of this business. The increase in net income year-over-year was further contributed to by the $2.7 million of nonrecurring acquisition-related costs and $1.9 million of noncash fair value adjustments to acquire inventory in connection with the Natroba acquisition, which occurred in 2024 did not recur in 2025. Adjusted EBITDA for the year ended December 31, 2025 was $28.1 million compared to $15.7 million for 2024. This increase is 79% in adjusted EBITDA when compared to 2024 and was mainly driven by the results of our U.S.-based Natroba business for 2025, combined with growth in the Canadian product portfolio led by Epuris, partially offset by the declines we experienced in U.S. licensing revenue. The company had $7.5 million in cash and $5 million in outstanding debt as of December 31, 2025. Cipher continues to generate strong free cash flow from operations with $29.7 million in operating cash flows during 2025, including $8.7 million during the fourth quarter of 2025. During the year, Cipher allocated $35 million of its accumulated cash to repayments on its revolving credit facility and utilized an additional $5.4 million accumulated cash for repurchases of common shares under our normal course issuer bid. Due to the revolving nature of Cipher's credit facility, after making these repayments, we continue to have $85 million of potential financing available to us comprising $60 million remaining available on our revolving credit facility, plus an additional $25 million accordion option. Cipher is well capitalized with very low leverage, strong cash flows from operations and access to debt financing, which positions us very well to execute on our business strategy, pursuing growth opportunities, which Craig highlighted during his remarks. We will now open the call up to questions.

[Operator Instructions] Your first question is from Justin Keywood from Stifel.

Thanks for the overview. On the DTC or direct-to-consumer strategy, are you able to provide some additional information around the strategy? Is it with one partner or multiple? And how does that work? Is there any increased OpEx to fuel that initiative? And how should we look at Natroba growth as a result for 2026?

Justin, it's Craig Mull here -- that we described in our commentary here is really a completely full integrated process for a patient to be able to go online, connect with it -- or first of all, find out about the product and then see a physician online and obtain a prescription. And then from there, for the product to be delivered or delivered to their homes or an indication of where they can pick the product up close to where they live. So it's a fully integrated system. And we believe that Natroba is well fitted for this, given the nature of the indications of head lice and scabies. People want the product as quickly as possible. They don't necessarily want to wait in line to see their family doctor or wait to get an appointment, then see the doctor. And then they also want to be able to obtain the product quickly. And so we think that this DTC platform that we've developed would meet a lot of those needs. In addition to that, we may be able to add other products to the same platform that have similar characteristics for indications that have similar characteristics of head lice and scabies. We believe that once working effectively, that it's possible that we could actually lower our sales cost. On the growth potential with this platform, the ease of getting the product may result in significant increase in volumes just due to the convenience. So we're quite excited about it. And as I indicated, it's gone live about a week ago. Did I answer your question, Justin?

Maybe just a follow-up. So this is an internally developed DTC platform, if I understand?

Yes. We have different groups, different outside companies that are experts in the various areas I described as part of our partnership. So it's not really directly developed in-house. We have consultants and advisers that are helping us do it.

Understood. How do consumers discover the platform? Like how are they aware of this platform?

Well, to get greater awareness of the platform, we're using Google and other social media platforms to attract and educate patients so that they know where to go.

Understood. And I guess it's pretty early. Did you say it just went live last week?

Yes, less than a week ago.

Okay. All right. We'll look forward to those developments. And then just on the business development, it sounds like there's two pursuits. One is for M&A into the U.S. and leverage the platform there with Natroba and then if I understand correctly, there's opportunistic M&A. Would that be outside of the U.S.? Or are you able just to provide some additional color on that?

It would be North American.

And what differentiates M&A into the U.S. versus opportunistic M&A? What's the difference there?

Well, Justin, we believe that we need to get larger. We need to be able to compete against much larger companies on acquisitions. And so we may be looking to acquire a company that has excellent EBITDA percentages and numbers and allow us to be able to use that cash flow to be more aggressive on acquisitions. It also might be easier to lead to a NASDAQ listing, which is something that we've -- one of our goals that we've talked about before.

Understood. Maybe just a quick one for Ryan. If you can remind us of the tax loss balance.

The tax loss balance is about $134 million at the end of the year.

And that's USD?

Yes. And that is -- that's obviously before the tax effect on it.

And your next question is from Doug Loe from Leede Financial.

And congratulations on the quarter, gents. A couple of things. First of all, just on your sort of international out-licensing possibilities for Natroba, you've talked many times about the potential to enter their regional licensing deals. And while I would assert as you would that a bad deal is worse than no deal, it's been a few quarters since you articulated that strategy. Just wondering if you're encountering lack of interest in the product? Or if you're just -- if there's still a delta between deal terms that you're willing to accept and partners are willing to accept? Just kind of walk me through the dynamics there and over what time frame you think that you might be able to execute on that strategy specifically.

Doug, it's Craig here. It's taking longer than we had hoped. The main issue is not whether our potential partners think the product is effective or that it would sell. It's more at the selling price that is the hurdle to get over at the moment. Although we've made good progress, obviously, you know that drugs in the U.S. are sold at a much higher price than in Europe and in Asia, for example. And so that has been one issue that we're hoping to get agreement on with our partners, but there has been a significant amount of interest.

Okay. That's good feedback. And just on the pipeline, I mean, in your MD&A, I mean, I see you still flagged that piclidenoson as a potential opportunity when Can-Fite completes Phase III testing in a few years. But you also included MOB-015, which we thought was a dead project. I'm not sure whether you put that in the MD&A just for motherhood reasons or if that's actually still live, if you think you might file that in with Health Canada or elsewhere. So just kind of walk me through the -- what is real and what is not in your product pipeline as described in the MD&A? And I'll leave it there.

We continue to list MOB as an opportunity because we haven't decided that we do not want to pursue it any longer. We don't -- we've got a license in place. There's no need to just cancel that. We know that there's been some activity with Moberg in Europe, where they partnered up with the owners of Lamisil, which is a highly complementary product to theirs. And so we're monitoring their progress with that. We think that the performance in the Scandinavian countries was impressive, and I don't think we just want to discard this opportunity. But it hasn't been a high priority for us.

There are no further questions -- sorry, we still have one more, Andre Uddin from Research Capital.

How many sales reps do you currently have right now in the U.S.? And then just a couple of questions, what is the current run rate for the Absorica franchise in the U.S.? And would you be looking to add more sales reps next year? [ Do you take that product on ]?

Andre, I'm going to answer the question about the sales reps and if I'm going to hand it over to Ryan about the Absorica royalty. We have about 28 sales reps in the U.S. at the moment, a combination of inside reps and external reps. As we grow that business, I expect that we would likely need more reps as we add more products to their bags. We're hoping that the DTC platform we've discussed earlier will augment their activity and be another strategy for us getting the awareness and the availability of the product out to patients. So I'd say that as we in-license, we acquire more products for the U.S. platform, we'll likely need more reps and part of that will be augmented by the DTC platform.

And then in terms of the run rate for the Absorica business, I would say it's going to be for -- on an annualized basis, it will be closer to -- if you looked at Q3 2025 kind of run rate that quarter. But obviously, we're not very pleased with the performance of our partner and we're obviously investigating other opportunities or investigating their performance as well.

Could you just let us know roughly what that -- in sales in terms of what the Absorica sales are? Roughly run rate.

So for Q3 of 2025, the run rate was about -- or that quarter was about $350,000 for the quarter.

Was that royalties or sales?

Sorry, that's the royalties earned.

He wants the sales.

I'd have to double check what the actual sales from at Sun were that quarter. They do fluctuate, but their net sales have been declining.

If there isn't any more questions -- so before signing off, I'd like to take this opportunity to thank everyone for joining us today, and we look forward to providing further updates on Cipher's continued growth. Thank you.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.