Cipher Pharmaceuticals Inc. (OTCPK:CPHRF) Q2 2022 Earnings Conference Call August 12, 2022 8:30 AM ET
Company Participants
Craig Mull – Interim Chief Executive Officer
Scott Langille – Chief Financial Officer
David Miller – Director, Finance
Conference Call Participants
André Uddin – Research Capital
Doug Loe – Leede Jones Gable
Operator
[Abruptly started]
…compliance, financing as well as mergers and acquisitions.
I am pleased to report that Scott Langille will remain with Cipher and will be focusing on business development at strategic mergers and acquisitions. I would like to thank Scott for his contributions and look forward to working with him as he evaluates a number of profitable product acquisitions which will help accelerate the growth of Cipher and continue to drive shareholder market value.
I now would like to turn the call over to Scott for a financial review.
Scott Langille
Thanks, Craig and good morning everyone. I’ll provide a financial update for our second quarter results. Total revenue was $5.6 million in the quarter compared to $6.1 million for the comparative period. Licensing revenue was $2 million for the quarter compared to $2.8 million for the prior year. Licensing revenue from Absorica in the U.S. was $1.3 million compared to $2.4 million in the prior year. Absorica and the authorized generic versus Absorica market share for the three months ended June 2022 was approximately 4.4% compared to approximately 4.2% for the prior year, according to Symphony Health.
Total market share, including the authorized generic and Sun Pharmas ABSORICA LD was approximately 5.5% compared to 6.2% in the prior year. Licensing revenue from extended release Tramadol product concept and authorized generic version of concept in the U.S. was $0.02 million for the three months ended June 30 2022, compared to $0.05 for the prior quarter. Lipofen and the authorized generic version of Lipofen was $0.7 million for the quarter compared to $0.4 million in the prior quarter. The increase was due to the change in the distribution partners and related terms of the distribution agreement. Product revenue increased by $0.2 million or 7% to $3.5 million for the second quarter compared to $3.3 million for the comparable period in 2021.
Selling, general and administrative expenses were $1.1 million for the second quarter a decrease of 6% compared to $1.2 million for the three months ended June 30 2021. Total operating expenses for the second quarter were $2.2 million, a decrease of 5% compared to $2.3 million in the prior period.
Net income was $2.1 million or $0.08 per diluted share for the quarter compared to net income of $2.8 million or $0.10 per diluted share in the comparative period. Adjusted EBITDA for the second quarter was $3.6 million compared to $4.1 million for the prior year. The company had $24.2 million in cash and no debt at June 30 2022. Cipher generated $5.2 million in cash from operating activities for the six months ended June 30 2022.
With a strong balance sheet, a reduced cost structure and additional visibility from the four year extension of our relationship with Sun Pharma, we are focused on identifying and evaluating the right assets to drive our growth. I will now open the call up the questions. Operator.
Question-and-Answer Session
Operator
Thank you. [Operator Instruction] And we will take our first question from André Uddin with Research Capital. Please go ahead.
André Uddin
Hi, Craig and Scott. Some of this, I guess was in your filings. But just wondering if you could just discuss a little bit further in terms of the Absorica competition. And also, if you could, if you expect Sun to add any promotional efforts to your LD formulation. That would be great. Thanks.
Craig Mull
André, it’s Craig here. Thanks for the question. From a competitive standpoint on that, on the isotretinoin market in the U.S. Obviously, we’ve seen the launch of our authorized generic, which was followed by Actavis generic launch. And then subsequent to that Epuris also launched. We have found that over since the launch that the market shares for these products have stabilized and that again AG holds the largest share of all, all of the isotretinoin products and we’re not seeing much movement in that share over the last few quarters.
The pricing has stabilized as well. We’re not seeing much in the way of increasing gross to net adjustments, and so we believe that this portfolio is stable going forward for Cipher. And André, I think that you had a second part of that question that you don’t mind repeating it for me.
André Uddin
Sure. Just in terms of Sun, do you expect them to add any additional promotional efforts to the LD formulation?
Craig Mull
The LD formulation that is manufactured by Sun and of which Cipher continues to earn a royalty from and has not gained the market share that had been expected by Sun. I think that they may be considering additional commercial activity around that product, but we’re not privy to it, even though that we’ve been part of the launch of that product. I believe that because it’s the genericized market segment that you’re not likely to see a lot of additional commercial activity from that product.
André Uddin
That’s fair. And just on the business development front, just I’ve been asking a number of specialty pharma companies just what are the trends that you’re seeing in terms of prices of product acquisitions. Or is it stabilized? Has it dropped? Is it going up? Like what sort of trends are you seeing?
Craig Mull
Well, we’re seeing a lot more deals being presented to us, and there seems to be quite a bit of movement in the Canadian specialty pharma market. Some of the players have been highly leveraged, and I think that, that might be catching up to them now. But what we’re finding is that we’re getting a lot more calls, a lot more interest of doing deals from the Canadian specialty pharma area but also in product acquisitions that we’ve been looking at.
I think that higher interest rates have met those that are leveraged are concerned about their cash flows and profitability going forward. And that creates a real opportunity for Cipher. We have no debt. We’ve got about C$30 million on our balance sheet. And we’ve been looking at a lot more deals than we have in previous quarters. Now this quarter, in particular, this past quarter hasn’t been overly productive just because of the number of holidays, particularly European holidays. We expect that’s going to pick up again in September.
André Uddin
That’s great. Thank you.
Operator
Alright. And moving on, we’ll hear from Doug Loe with Leede Jones Gable. Please go ahead.
Doug Loe
Maybe just sticking with the isotretinoin theme that Andre just started here. Just I’ve always been interested in Epuris historic revenue ramp, which 9 years post launch, and it continues to establish record quarterly revenue levels, and it’s quite unusual for most branded therapies that we’ve ever tracked. So just kind of wondering if you have any interesting comments about how your marketing strategy in Canada sort of continues to capture market share from Accutane and Epuris and whether or not you see any possibility that the trend line could continue for what is clearly a fairly mature brand in the Canadian dermatology market. And then I have a follow-up.
Craig Mull
Thanks for the question, Doug. Craig here. Yes, Epuris continues to grow. We continue to promote the product, and we’ve taken different methods to do the promotion just because COVID restricted us from getting into the doctor’s office in any meaningful way. We’ve had a number of different seminars and lectures by key opinion leaders on the product, and they’ve been exceptionally well attended not only by dermatologists but we’re finding that family doctors are also interested in prescribing isotretinoin products, and Epuris is often at the top of their selection process.
The product is absolutely valued amongst the dermatology segment. We continue to speak with them on a regular basis, not only about Epuris but also other pipeline products that we’re working on as well. And it’s a resounding response that we get about Epuris. They think it’s the gold standard. And I expect that we’ll continue to increase our volumes and our market share. The family doctor area is obviously a very, very large market, and they often look to the key dermatologists in their regions for advice on what to prescribe, and the product that’s being prescribed as Epuris.
We expect that come September that we will be engaging our contract sales organization to go out and physically promote the product as well. And we expect that we’ll continue to take market share. And if we are able to get some public reimbursement in Quebec and in DC, the market share increases could be quite substantial.
DougLoe
That’s great context. That’s great. And then a boring tax question to Scott. Just wondering what your strategy would be to being able to realize the considerable tax losses that you acquired in the Correvio acquisition several years ago. So your tax expense continues to be a constituted Ontario tax rates. And just wondering if there is some sort of a strategy through your tax policy in order to realize those tax losses. I’ll leave it there. Thanks.
Scott Langille
Scott, Doug here. We are indeed realizing those tax losses. We are accruing a provision for taxes, but in our tax filings, we are utilizing recurring losses for 2021. So we have begun utilizing those tax losses on a filing basis. And we are also actively promoting the hospital products to run the business as it should be. And so we’ve hired a promotional organization to run that business, and we are actively looking for products to enhance that business. So it’s actively being pursued both with the current products and looking for future products to grow that business.
Doug Loe
Great. Thanks, Scott.
Operator
Alright. And our next question will come from Mike Schimek [Ph], a private investor. Please go ahead.
Unidentified Analyst
Yes, hi I have several questions. The first one would be with regards to the NCIB. It appears to have been completed by the end of July, and I was wondering if you expect to renew it.
Craig Mull
Yes, we expect to renew it. I think it expires in September, and our intention is to renew it.
Unidentified Analyst
In September?
Craig Mull
Yes.
Unidentified Analyst
Okay. Great. My second question was related to MOB 18. The release date appears to be at the end of 2023, hopefully, in Europe. And I don’t have a last familiarity with the Canadian pharma industry. So I was wondering how we could expect to see — what we could expect to see in Canada for release date in Canada if Europe is accurate in terms of end of 2023.
Craig Mull
And Mike, when you say release date, the date that they can be commercialized? Is that the date that…
Unidentified Analyst
Yes, product launch when they actually start doing sales?
Craig Mull
So our game plan with MOB is that we will wait for the results to come in, and we’ll get updated results as well. We’re in close contact with Moberg. It’s a very exciting product for them, and they’re wanting as much assistance that they can get, and we’re providing that for them where we can. I expect that the results for this Phase III study that we’re doing in the U.S. will be completed within the year. We’ll probably take three months to do the reporting and statistical work before they’re in a position to submit to the FDA.
If the results are what we hope and expect, Cipher can, in parallel, apply to Health Canada with a complete submission file. Once that complete submission file is submitted, we believe it will take approximately nine months to a year to get full approval by Health Canada and what at which point we can commercialize the product.
Unidentified Analyst
Okay. Great. Thank you very much for [Indiscernible] My — I have like two last questions. With regards to the — one of the prior callers asked a question regarding being this as well, I was wondering if you can offer any additional clarity. Sorry for asking for that. Income tax payable at the end of 2020 was $2.6 million, and now income tax payables ramped to $7.9 million. As I mentioned, I was — had something to do with the filing. I was wondering why — if you can offer additional clarity on why that keeps on going up.
Scott Langille
Sure. We had a discussion with our auditors and for audited for the financial statements, the decision was made to accrue taxes. However, in our actual filings with revenue on tax returns, we are utilizing the recurring [Ph] losses. So we’re applying those recurring [Ph] losses to the tax returns. But the — with our discussions with the auditors, we decided to accrue taxes on the financial statements or — and that’s a conservative approach, obviously.
Unidentified Analyst
Okay. Great. That’s what I found it was. Okay. My final question relates to the answer that you gave to a prior caller as well, which I found interesting. You talked of Quebec and BC public reimbursement with regards to Epuris. Is it currently the situation that some of our competitors do have public reimbursement and you do not — and if that situation changes, then we can expect to increase — the substantial increase in market share from those markets, is that what you’re saying there effectively.
Craig Mull
That’s correct.
Unidentified Analyst
Oh, that’s interesting. Okay, great. Well thank you very much for answering all my questions.
Craig Mull
Thank you.
Operator
And our next question will come from Peter Raytec [Ph] with Raytec Consulting. Please go ahead.
Unidentified Analyst
Good morning. Craig, I was wondering if you have any updates on efforts to sell isotretinoin in South America, in particular, in the large Brazilian market. I think — we talked about this probably about six months ago, and I — while I do appreciate some of the difficulties in getting into those markets, politically and otherwise, well, the question is, are there any updates and in particular, with regards to Brazil, given the size of that market and the nature of the product, etcetera, and then presumably the wide appeal it would have in that market?
Craig Mull
Hi Peter, thanks for the question. Yes, we are making progress in Latin America. In particular, we continue to have issues with the resilient regulatory authority. And it really stems from the fact that they want all products that they allow on to their formularies to be manufactured in Brazil, and that really becomes a nonstarter for us. We’ve looked at other ways to do it. We’re working with Sun in Brazil, who is our commercialized partner, a commercialized partner — commercialization partner at the moment for Brazil.
And they are telling us that they’re having extreme difficulties on getting the authorities there to accept our submissions. They continue to work at it, and they’ve got, I believe, some meetings in the not-too-distant future to try to address some of the difficulties for some of the limitations that we’re having with the regulatory people.
On a positive note, the Epuris has now been approved in Mexico, and our partner there, our commercialization partner, Telemex is in the final stages of having a plan set for commercialization, which we expect. In the next few months, the product will be on the market and being sold. We have a royalty arrangement on that product that we will collect the royalty on revenues, products sold in Mexico.
The same company, Telemax, also has branches in other Latin American and South American countries, including Chile, Peru and a number of other ones. And we’re working with them and Galephar to see if we can get approvals in the more lucrative markets. Okay. There are any other questions on that, Peter?
Unidentified Analyst
I just — I was just wondering if you had any update on the tattoo removal cream that’s in the pipeline.
Craig Mull
Yes. I mentioned it earlier in my speech here. But we are at the stage where we’re working with contractors to stabilize the formulation. And we need to be able to stabilize the formulation in order to move to the next phase, which would be animal studies. And that’s where we’re at. I believe that, that work is nearly complete — the results are good. We have a stable formulation. And the next step will be putting the product into animals to do animal trials. We’ve gotten a great deal of interest from other groups on this product, and we’re looking at some possible partnerships on the development of the product itself. We have great hopes for this product.
Unidentified Analyst
Okay. Terrific. And — and if I could, just one last question. This is, I guess, really for Scott. With respect to the tax losses that we’ve talked about, it’s my understanding that none of them are close to expiry in terms of, when I say close within the next couple of years so that from a utilization or potential utilization standpoint, none are at risk of falling off the table without being utilized. Is my understanding correct in that regard, Scott?
Scott Langille
Yes. There’s — from are you talking about the Cardiome losses. Is that correct?
Unidentified Analyst
Yes. Yes. Sorry.
Scott Langille
No, no, we’re fine there. We have plenty to utilize on our filings and tax teams.
Unidentified Analyst
Okay. And again, not our near-term expiry.
Scott Langille
I don’t believe so, Dave, is that your understanding as well?
David Miller
I think the first year of losses or expiry, you have losses of 2026.
Unidentified Analyst
Okay. So and then the order of magnitude just roughly on that one, do you have that offhand?
David Miller
I don’t. No.
Unidentified Analyst
Okay. All right. And then hopefully, the profitability of Cipher is going to well exceed whatever that number is in any event between now and then and, therefore, it will be fully utilized. That’s hopefully in. Yes. Yes. Okay. Very good thank you Greg, Scott, David. I appreciate it.
Craig Mull
That’s the goal.
Operator
And we have no additional questions. I’ll turn the call back over to Craig Mull for closing remarks.
Craig Mull
Thanks for joining the meeting today. We look forward to keeping you updated on our progress and for the balance of 2022 as we execute on our priorities. We expect that the coming quarters will be very exciting for Cipher. Again, thanks for your time and look forward to talking to you again next quarter.
Operator
And this concludes today’s call. We thank you again for your participation. You may disconnect.
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