CPHRF - Cipher Pharmaceuticals Inc. (CPHRF) Q2 2023 Earnings Call Transcript

2023-08-11 12:25:02 ET

Start Time: 08:30

End Time: 09:00

Cipher Pharmaceuticals Inc. (CPHRF)

Q2 2023 Earnings Conference Call

August 11, 2023, 08:30 AM ET

Company Participants

Craig Mull - Interim CEO

Bryan Jacobs - CFO

Conference Call Participants

Andre Uddin - Research Capital

Doug Loe - Leede Jones Gable

Presentation

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals Second Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded today, Friday, August 11, 2023.

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 the 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

Good morning, everyone, and thank you for joining the call. As a reminder, all amounts are stated in U.S. dollars, unless otherwise noted. On today's call, I will provide a brief update on our second quarter performance, then I will discuss our pipeline and future growth plans before turning the call over to Bryan Jacobs, our Chief Financial Officer, for insights into our financial performance.

I'm pleased to report that Cipher’s business and product portfolio continues to perform with reliable revenues and bottom line earnings. During the second quarter, we delivered sequentially higher revenue of 5.3 million compared with trailing quarters and strong cash flow from operations, generating an additional 2.9 million increase in our cash balances.

These results, coupled with our efficient lean operating model, has resulted in growth in earnings per share of 35% on a year-to-date basis. Cipher ended the quarter with a strong balance sheet with cash totaling 36.3 million and no debt. Furthermore, our 35 million credit facility places us in an enviable position to drive future growth and value to our shareholders.

Recently in May, Epuris was commercially launched in Mexico through a licensing agreement with our manufacturing partner Galephar and their commercial partner Italmex. As a result of this successful milestone, our first royalty from Epuris sales in Mexico occurred and we are pleased with the early results from this product launch. Epuris has established itself as the number one prescribed isotretinoin product for dermatologists in Canada, and we believe the launch in Mexico is an important step towards growing the Epuris brand.

Turning to our development pipeline. In June of this year, Moberg Pharma announced it had obtained European Union approval for MOB-015, its novel product for the treatment of nail fungus, whereby it demonstrated superior levels of mycological cure rate and a significantly better complete cure rate. MOB-015 was recommended for national approval in 13 European countries. It is important to note Moberg has a proven history of developing and launching nail fungus products, both in Europe and in North American markets.

Among the highlights of MOB-015 and its European product approval is its ability to demonstrate fast-acting visible results in treating nail fungus, which is highly important to patients. Cipher holds the exclusive rights to MOB-015 in Canada, and we believe approval in the European Union reduces the risk of our eventual regulatory approval in Canada, which is a market opportunity in excess of C$80 million.

We continue to work closely with Moberg to make this clinically proven effective treatment available to Canadians as soon as possible. Moberg continues to invest in and advance MOB-015 through an additional Phase 3 trial of 350 patients with sites across the U.S. and Canada. The purpose of this study is to facilitate market approval in North America as well as further strengthen the product’s clinical evidence beyond the mycological and complete cure rates, already demonstrated in the EU. Full enrollment is expected before the end of 2023.

Moving on to our next pipeline product, our partner Canfite recently announced in June that it had received a positive view from the U.S. FDA with respect to its registration plan for the pivotal Phase 3 clinical trial of CF-101 for the treatment of moderate to severe psoriasis. The clinical trial is aimed at demonstrating clinical safety and efficacy for the treatment of patients with moderate to severe plaque psoriasis. The FDA requested two Phase 3 safety and efficacy studies and encouraged Canfite to enroll adolescent patients due to the strong safety profile of the product demonstrated over the development history and prior clinical studies.

To align the request of the European Medicines Agency and the FDA, Canfite plans to conduct two Phase 3 studies in parallel, including adolescent patients. Upon positive conclusion of the Phase 3 program, Canfite expects to submit a new drug application to the FDA and a marketing authorization plan to the European Medicines Agency. The timeline for regulatory submissions to Health Canada will be determined by the progress and successful results of the clinical trial, and we will be monitoring the progress of the trial and its patient enrollment.

We are pleased to see Canfite’s progress and are excited about the commercial potential of this product. The annual Canadian market for plaques psoriasis treatment is 600 million, with the market for moderate to severe plaque psoriasis category is estimated at 45 million. Cipher holds the Canadian marketing rights to this novel product, which we expect possesses substantial commercial potential.

The final product in our development pipeline that I'd like to discuss is DTR-001. Preclinical work continues on tattoo removal cream DTR-001. We have made good progress in optimizing our formulation for clinical use, and look forward to conducting key studies in the near future. We believe that DTR-001 holds substantial market potential and we look forward to providing future updates as we achieve key milestones.

Turning briefly to M&A. Our strong balance sheet and credit facility with RBC puts us in an excellent position to source product and company acquisitions, as rising interest rates are leading many pharmaceutical companies to increasingly turn to asset divestitures to resolve cash flow problems.

We continue to evaluate a number of potential transactions in our M&A pipeline, and we look forward to reporting future developments in this area. With a strong development pipeline and available capital to actively pursue M&A, we are confident in our ability to accelerate growth and drive shareholder value.

I will now turn the call over to Bryan Jacobs for a discussion of our detailed financial results.

Bryan Jacobs

Thanks, Craig, and good morning, everyone. In the second quarter of 2023, Cipher’s efficient business model enabled us to deliver relatively stable operating results, with total net revenue of 5.3 million compared to 5.6 million for the comparative period. Licensing revenue increased 6% to 2.2 million for the second quarter of 2023 compared to 2 million in the prior year.

Licensing revenue from the Absorica portfolio increased 12% to 1.4 million during the quarter, primarily driven by market share gains from Absorica AG. Absorica and the AG’s market share increased to 7.2% compared to 4.4% at June 30, 2022. The increase in market share was the result of new sales approaches employed by our U.S. commercial partner related to generic competitive products.

Licensing revenue from Lipofen and the authorized generic AG version of Lipofen was 0.6 million for the second quarter of 2023 compared to 0.7 million in the prior year. As previously described by Craig, we received our first royalty revenue of 0.1 million during the second quarter from sales of Epuris in Mexico, which represented the initial royalties earned in connection with this licensing arrangement.

The company earns a percentage royalty on product sales of Epuris in Mexico in any Latin America region from our manufacturing partner, Galephar. The Epuris product was commercially launched by Galephar’s commercial partner in Mexico, Italmex in May 2023.

Turning to product revenue. We saw a 0.4 million or 11% decrease to 3.1 million for the second quarter of 2023 compared to 3.5 million in the prior year. Product revenue expressed on a constant currency basis has decreased slightly by 0.2 million or 7% for the second quarter of 2023 compared to the prior year.

Epuris generated 2.7 million in product revenue in the second quarter of 2023, which is a decrease from 3.3 million in the comparative period. As Epuris is transacted in Canadian dollars and subject to foreign exchange, excluding the impact of foreign exchange translation, Epuris revenue decreased by 0.4 million due to lower sales volumes compared to the prior year.

However, as I previously described, the Epuris brand also contributed 0.1 million in royalty licensing revenue from Mexico having launched during the quarter in May 2023. Product revenue from the remaining Canadian portfolio was 0.2 million higher during the quarter compared to the prior year quarter, mainly related to gains and higher sales from Durela and Aggrastat.

SG&A expense was 1.5 million for the second quarter of 2023 compared to 1 million in the prior year. Excluding non-cash stock-based compensation and one-time restructuring costs, SG&A expense was 1.1 million, representing an increase of 0.1 million from the prior year. This increase is primarily the result of new commercial and sales initiatives focused on growing the Epuris brand.

Adjusted EBITDA for the second quarter was 3.1 million compared to 3.6 million in the prior year, a decrease of 0.5 million or 14%. Excluding currency impacts, adjusted EBITDA decreased by 0.3 million or 8%. Net income for the second quarter was 3.1 million or $0.12 per basic common share compared to net income of 2.2 million or $0.08 per basic common share.

At the end of the second quarter, the company had 36.3 million in cash and no debt. Cipher generated 2.9 million in cash, primarily from operating activities during the second quarter and an exceptional 7.5 million cash generated on a year-to-date basis. This is in contrast to 2.3 million during the second quarter of 2022 and 3.6 million on a year-to-date basis last year.

Lastly, I will turn my comments to certain year-to-date metrics and further add to Craig's comments where we feel that the business continues to perform in a robust manner. Total year-to-date revenue in 2023 was 10.2 million compared to 10.3 million in the prior year when expressing last year's revenue on a constant currency basis, representing a minor decline of 0.1 million or 1%.

Total gross margin generated by the business on a year-to-date basis was 8.1 million or 80% margin compared to 8.3 million or 80% margin in 2022 expressed on constant currency, representing a minor decline of 0.2 million or 1.5%. We believe this is important as many businesses are struggling to maintain gross margins in a rising inflation environment where we're demonstrating ours continue to perform.

While delivering relatively constant revenue and gross margin, combined with other SG&A cost initiatives, this has resulted in our year-to-date adjusted EBITDA of 6.2 million in 2023 compared to 6.1 million for the prior year expressed in constant currency, representing a slight increase of 0.1 million or 2%. For these reasons, we believe the business continues to perform, is robust and delivering consistent results.

Now we'll open the call up for questions. Operator?

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now conduct a question-and-answer session. [Operator Instructions]. First question in the queue comes from Andre Uddin with Research Capital. Your line is open. Please proceed.

Andre Uddin

Hi, Craig and Bryan. Just had two quick questions for you. Can you just discuss the market opportunity in Mexico for Epuris? And secondly, are there any key areas in Latin America that you can launch any of your legacy Galephar assets? Are there any other regions?

Craig Mull

Hi, Andre. It’s Craig here. We have started to study the Mexico market in some detail as to the potential. We've just received approval down there. Obviously, it's a very large market. We're trying to work our way around how the government participates in any funding of the drugs and the formularies that need to be communicated with to make sure that we're on the correct formularies for any public reimbursement that there may be. But we're going to have to see how it goes. We haven't been able to receive good data. There is very little competition in the severe acne indication in Mexico, so we believe that if the product is adopted, it could quickly become a market leader for severe acne. We'll keep monitoring the situation. And we'll keep shareholders and analysts updated on how we're doing on that. Andre, would you just remind me of your second question?

Andre Uddin

Sure. Just in terms of looking at your other legacy assets, like you brought in from Galephar, were there any other key areas in Latin America that you haven't launched yet?

Craig Mull

We're in discussions with a number of commercial players, including in Mexico, for our other products and those discussions are advancing. Obviously, the Mexican market is one of the most attractive. Brazil, given its size, would also be attractive, although Brazil has quite rigorous regulatory requirements that we've seen and experienced already. So I think those are the two biggest countries. And I think that will be our initial focus. And we’re looking and dealing with a partner that has operations in most, if not all, Latin American countries. So with their assistance, I think that there's a much better chance of getting approval.

Andre Uddin

Great. Thanks, Craig.

Operator

Thank you. The next question in the queue comes from Doug Loe with Leede Jones Gable.

Doug Loe

Yes, hi. Good morning, gentlemen. Thanks for the quarterly update. Maybe just building on Andre’s theme on Epuris in Mexico, just see through your legacy press releases, I'd forgotten that you actually had a relationship with Italmex dated back to 2018. You talked about the isotretinoin market in Mexico being US$20 million at that time or in 2017, the previous year. Maybe just some commentary on what the existing market size is now in comparison to data that you put in the public domain?

Craig Mull

Well, again, typically, we would try to access results through IQVIA or Symphony as they may call themselves. They don't have that type of service in the Latin American countries that we're aware of. So it's more of what the commercial partner, in this case Italmex, would estimate as the market. And I don't think they were in a position to share their forecast with you at this point in time. But we think it's in excess of what was earlier quoted from the 2018 press release.

Doug Loe

Sure. Fair enough. Secondly, you indicated in the MD&A that the U.S. isotretinoin market experienced a bit of contraction in recent quarters that you said is down 3% year-over-year. Just wondering if you had any insight as to what that was attributable to? Is that like discontinuation of the competitive brand, or are there other competitive medical therapies that are sort of rivaling isotretinoin as a [indiscernible] therapy, just any thoughts that you had on that would be interesting?

Craig Mull

Well, there is some new products for acne in the U.S. But they're targeted more towards mild acne, mild to moderate acne. And we think that perhaps some dermatologists are trying them on some of their patients to see how effective they are, because it would allow them not to have to move into a severe acne indication. So we think that there may be a step that dermatologists are taking with a less complicated drug to cure the moderate acne as part of their treatment steps, I'll call it. And that may have had some effect. The market may have been just down a little bit. And it's not a severe drop in our view. And some of it may even be some seasonality of some type.

Doug Loe

Fair enough. And then just lastly, I see that Aggrastat sales are still fairly modest in comparison to where we think that they could be based on competitive landscape in Canada. Just any thoughts on what the Aggrastat revenue growth trajectory could be from this point going forward, given the two competitive brands that we certainly are aware of global markets are not available in Canada?

Craig Mull

Yes. Thanks, Doug. The trouble with forecasting Aggrastat is part of the benefit that we've had is because of a market participant had left the market. So that's where we really saw the potential for this product and really we got advice from Health Canada that they requested us to have a substantial amount of product on hand, which we do. But the problem with that is, because of that's only relatively recent, it can be a little bit lumpy where we have -- this is a hospital product, where their ordering kind of in batches and not as fluidly as you would have something like Epuris. So we're seeing some volatility in Aggrastat, although obviously growth and good potential going forward. So that's what I'd say about forecasting Aggrastat going forward. Big opportunity, but some of the sales can be a bit lumpy when they're going into hospitals.

Doug Loe

Great. Perfect. Thanks, guys.

Operator

Thank you. Your next question in the queue comes from Peter Raytec with Raytec Consulting [ph]. Please proceed.

Unidentified Analyst

Good morning, gentlemen. I'm wondering if you could just provide a brief update on the status of the NCIB.

Craig Mull

Yes. Thanks, Peter. So our NCIB, it's been open. Recall that we had in last September when we renewed the program, we moved from an automated program to one which is on our option where we can kind of turn it on and off. What I can say is during the second quarter, we weren't choosing any optionality. We were choosing to buy back the max amount that we could on an ongoing basis, but it's limited based on the trade volume of our shares. And one area that we would say is sometimes the volume of shares that's traded on a daily basis doesn't give us the opportunity to buy back as much as the max amount would allow. So those factors are giving us some consideration when we're going to get our renewal point coming up in September. Considering we weren't able to buy back quite as much as we had hoped, we may choose to move to another buyback plan. But those are the things at our disposal that we'll consider for the September timeframe.

Unidentified Analyst

Thank you.

Operator

[Operator Instructions]. The next question in the queue comes from Cal Ray [ph]. Please proceed.

Unidentified Analyst

Good morning, guys. Congratulations on a good quarter. One question. The Epuris as a new competitive product, I guess, Sun Pharma introduced a generic just recently. I was wondering if you can comment on that.

Craig Mull

I think that you're referring to Sun’s approval of a product that they call Absorica LD, which is not a generic. It's a branded product. And at this point, they've received Health Canada approval. And there are several issues that we have with what has gone on there. And we're in discussions with Health Canada about that. But turning the attention to the product itself, this product is just basically a copy of Epuris at a slightly lower dosage point. So instead of a 10 milligram, they'd have a 7 milligram; instead of a 20 milligram, they'd have an 18 milligram. And their idea is that they would go to dermatologists and tell them that it's safer because it's slightly lower dose. And we don't believe that. It isn't significant enough of a difference. The doctors are very familiar with Epuris. They don't know anything about Absorica. And they're going to be selling a product that is likely no better than Epuris. And as a result of the difference in dosing, the dermatologists will have to go through a complicated calculation in order to administer a dose to a patient or prescribe a dose to a patient. And in our discussions with physicians, there are very few that will be doing that. They do not need to go through an education about how to dose this product when it doesn't provide any real benefits. So we know that it's there. The product has been sold in the U.S. for at least four years now. And it has been an absolute disaster in the U.S. They once obtained I believe a 10% market share of the isotretinoin market, and now it's practically at zero. So it has been a flop in the U.S. and we expect it will be a flop in Canada as well.

Unidentified Analyst

Perfect. Thank you, guys.

Bryan Jacobs

What I would add to that is just that we're very data-driven as an organization, I think as many are. Please feel free to look at the data for Absorica LD in the U.S., as Craig described. The product has not performed. It's not a generic to Epuris. We don't believe it poses any significant risk.

Operator

Thank you. There are no further questions at this time. I will now turn the call over to Craig Mull for closing remarks.

Craig Mull

Thank you for joining us today. We look forward to reporting on our progress throughout the balance of 2023 as we execute on priorities discussed today. Thanks for your time and have a great day.

Operator

Thank you. Ladies and gentlemen, this concludes your teleconference. Please disconnect your lines.

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Cipher Pharmaceuticals Inc. (CPHRF) Q2 2023 Earnings Call Transcript