Cipher Pharmaceuticals Inc. (OTCPK:CPHRF) Q3 2022 Earnings Conference Call November 11, 2022 8:30 AM ET
Company Participants
Craig Mull – Interim Chief Executive Officer
Bryan Jacobs – Chief Financial Officer
David Miller – Director, Finance
Conference Call Participants
Doug Loe – Leede Jones Gable
Operator
Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Cipher Pharmaceuticals Third Quarter 2022 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, Friday, November 11, 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 the 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.
Craig Mull
Thank you, operator, and good morning, everyone. On today’s call, I will provide some insights into our continued strong financial performance in the third quarter of 2022. I will discuss recent leadership changes at Cipher and provide an update on our product portfolio, which is driving our impressive quarterly results. Additionally, I will provide an update on our development product pipeline, which we are growing more and more excited about.
I’m joined today by Bryan Jacobs, Cipher’s recently appointed CFO. In an effort to strengthen our leadership team, deep and focused on efficient growth and continued — continue to enhance shareholder value. Cipher appointed Bryan Jacobs to the role of CFO in August of this year.
Bryan is an attentive and collaborative leader. And I’m thrilled to have him join the team and believe his experience in strategic leadership will help fortify our management capabilities and drive our next phase of growth. After my remarks, I will pass the call over to Bryan to review the financial results in detail. Please note that all amounts discussed in this call are in U.S dollars, unless otherwise stated.
Turning to our third quarter results, we are pleased to report that Cipher delivered another strong quarter, demonstrating the stability of our cash flow and the resilient nature of our business. As I’ve described in past quarters. Cipher continues to benefit from enhanced sales and distribution agreements, key leadership appointments and the strength of our product portfolio. These factors have combined to drive a meaningful increase in profitability in third quarter, highlighted by a 67% increase in EBITDA and an over 250% increase in earnings per share compared to the third quarter of 2021.
During the third quarter, we continue to generate positive cash flow and strengthen our balance sheet. At quarter end, we had $27.5 million of U.S dominated cash and no debt, providing us the ability to fund our development pipeline and evaluate profitable product and company acquisitions to accelerate and drive shareholder value.
Moving to our products, our isotretinoin, isotretinoin portfolio continues to perform extremely well. We’ve experienced normal seasonality in the third quarter caused by patient sensitivity to peak summer exposure months. Additionally, our Canadian portfolio continues to show impressive growth as well.
I would now like to briefly touch on a number of key products in our development pipeline. In a significant update this quarter, our partner Canfite Biopharma, announced in September of 2022 its Phase III COMFORT study for Piclidenoson, which is used in the treatment of psoriasis met, which met its primary endpoints of superiority and achieved a better tolerability profile in a comparative analysis.
Based on the safety and efficacy data revealed in this trial, Canfite plans to approach the U.S FDA and the European EMA with a protocol for a pivotal Phase III study for the drug approval and registration. We are pleased to see Canfite’s positive results and are excited about the commercial potential for this product. An estimated 1 million Canadians suffer from psoriasis and Cipher holds the Canadian marketing rights to this novel product, which we expect possess a substantial commercial potential.
Secondly, in May, the company’s partner Moberg Pharma began patient enrollment for their North American Phase III study for MOB-015 to treat nail fungus. The purpose of the study is to facilitate market approval for the USF Food and Drug Administration. In general, a study of this nature will take approximately 12 to 18 months to complete. Therefore, we are eagerly — we eagerly anticipate the results of the clinical studies conducted by our partner Moberg by no later than this time next year.
Cipher holds the exclusive Canadian rights for MOB-015. In Canada, according to IQVIA, the total prescription market for onychomycosis or nail fungus was greater than CAD$75 million with a single product having over 90% market share. We are pleased to see the continued progress that Marburg is making to commercialize MOB-015 in this large market, with an innovative topical product that would provide a new, safe and effective treatment option for the many Canadians who suffer from this common nail infection.
Lastly, we continued to support and advance preclinical animal studies and formulation testing work on DTR-001, our novel pipeline product for tattoo removal. We believe DTR-001 holds significant market potential, and we will look forward to providing future updates as we achieve key milestones.
I will now turn the call over to Bryan for an overview of our financial results and other business matters.
Bryan Jacobs
Thanks, Craig, and good morning, everyone. This is my first conference call. I’d like to say I’m delighted to join Cipher. I look forward to working with our CEO, Craig, our Board and our entire Cipher team. We will continue to drive profitability of the business as well as grow the business. To start, my focus is going to be twofold: to provide financial and risk management leadership and to have a dedicated focus on business development, pursuing accretive growth opportunities.
I will now provide a financial update on our third quarter results. A reminder, that all results are denominated in U.S dollars. Total net revenue was $4.8 million in the third quarter compared to $4.5 million for the comparative period representing an increase of 7%. Product revenue was $2.8 million in that 3-month period ended September 30, 2022, which was a $0.3 million or 12% higher than the comparative period of $2.5 million.
Licensing revenue was consistent at $2 million for the quarter compared to the prior year quarter, displaying stability in the licensing revenue area of the business. Licensing revenue from ABSORICA in the U.S was $1.2 million in the third quarter compared to $1.4 million in the prior year quarter in 2021.
Absorica and the authorized generic of Absorica’s market share for the 3 months ended September 30, 2022 was approximately 4.7% compared to 5.1% for the prior year according to Symphony Health. Total market share, including the authorized generic and Sun Pharma’s Absorica LD product was approximately 5.6% compared to 6.5% in the prior year, according to Symphony Health.
Lipofen and the authorized generic version of Lipofen was $0.8 million for the quarter compared $2.5 million in the comparative quarter. This increase was due to a change in distribution partners in related terms of the distribution agreement.
Selling, general and administrative expenses were flat at $1.7 million for the third quarter compared to the prior year quarter in 2021. This trend indicates we have our cost structure under control and continues to be actively managed. Total operating expenses for the third quarter were $2.6 million for the 3 months ended September 30, 2022, compared to $2.5 million in the prior year quarter, representing a slight increase of $0.1 million or 4%.
Net income was $2.7 million and $0.10 per diluted share for the third quarter compared to net income of $0.8 million and $0.03 per diluted share in the comparative quarter. The increase in net income remain mainly relates to the reversal of an uncertain tax position.
Adjusted EBITDA for the third quarter was $2.6 million, compared to $2.2 million in the prior year quarter, representing a strong 18% increase. The company had $27.5 million in cash and no debt at September 30, 2022. Cipher generated $1.1 million in cash from operating activities for the 9 months ended September 30, 2022. We believe Cipher is positioned very well with strong cash flows and healthy balance sheet at an economic time when these two things matter the most. This place is safer and an excellent position to actively pursue product and business acquisitions in a prudent manner with a focus on maximizing shareholder profitability.
Now we’ll open up the call to questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] We’ll take our first question from Doug Loe with Leede Jones Gable. Your line is now open. Mr. Doug, your line is open. Hello.
Doug Loe
Sorry, I had it on mute. Yes, so congratulations gentlemen on the quarter. Just kind of want to shift to Absorica, if I may here. Your revenue was sort of stabilizing in the $1.2 million to $1.4 million range here I think now and going forward, and experiencing a little bit of a sequential decline on generic competition and other factors I guess. But the fact that Epuris is doing so strong and Canada just leaves me to suggest that there’s probably some sort of a strategic revisiting on how to stabilize Absorica at or above current levels, one of which I’ve sort of explored in prior calls was just rationalizing your pricing to be a little bit more Epuris like and Absorica like. So just some general observations around how your partner Sun might be conceptualizing how to drive market share in a market where Absorica is — has well documented bioavailability superiority to other forms, and yet its revenue was not reflecting that superiority. So just kind of talk about strategy a little bit and how you might be able to stabilize or grow U.S market share into future quarters. I’ll leave it there. Thanks.
Craig Mull
Doug, Craig Mull here. Thanks for your question. We, as you rightfully pointed out, Sun is the commercial partner that we have for Absorica in U.S. Under that scenario, they really make the decisions around pricing, although we’re very much in contact and in communication with them about their plan. As a matter of fact, we’re expecting to receive this year’s coming business plan very shortly in the next few days, as a matter of fact and we intend to go through that and meet with Sun about what their marketing efforts will be and how we can, as you pointed out, promote the benefits of the products over the existing products on the market. So it’s a good point that you bring up and we think that some discussions and working with Sun may bear some fruit in that area from a marketing standpoint.
Doug Loe
Okay. Good to hear that. Thanks, Craig.
Operator
[Operator Instructions] I’m showing that we have no further questions. I’ll now turn the call back over to Craig Mull for any additional or closing remarks.
Craig Mull
Thank you, operator, and thank you everyone for joining the call this morning. We look forward to reporting our progress throughout the balance of 2022 as we execute on the priority — some of the priorities that we discussed today. Thanks again and have a good day.
Operator
Ladies and gentlemen, that does conclude today’s conference. We thank you for your participation. You may now disconnect your lines.
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