CPHRF - Cipher Pharmaceuticals Inc. (CPHRF) Q3 2023 Earnings Call Transcript
2023-11-10 10:37:09 ET
Cipher Pharmaceuticals Inc. (CPHRF)
Q3 2023 Earnings Conference Call
November 10, 2023, 08:30 AM ET
Company Participants
Craig Mull - Interim Chief Executive Officer
Bryan Jacobs - Chief Financial Officer
Conference Call Participants
Andre Uddin - Research Capital
Douglas Loe - Leede Jones Gable
Presentation
Operator
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals Third Quarter 2023 Results Conference Call. At this time, all participants are in listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. [Operator Instructions] As a reminder, the conference is being recorded today, Friday, November 10, 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 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, sir.
Craig Mull
Good morning everyone and thank you for joining us today. As a reminder, all amounts provided are in U.S. dollars, unless otherwise noted. I will be providing updates on our strong business performance this morning before turning my comments to our near-term product pipeline developments and future growth plans. Bryan Jacobs, our Chief Financial Officer, will then provide more details on our third quarter financial results.
I am proud of Cipher's third quarter results which demonstrated both top line and bottom line growth in 2023 compared to the same period in 2022. These results are a continued demonstration of the resilience of our base business and Cipher's business philosophy focused on cash generation and profitability.
Our top line results reflect strong performance from our isotretinoin portfolio, highlighted by 11% constant currency growth of Epuris in Canada and strong growth in licensing revenue driven by the Absorica portfolio in the U.S. market. Bryan will expand on these product results in his remarks.
Robust top line growth combined with our focus on operational efficiency enabled us to deliver significant year-over-year growth in adjusted EBITDA. Net income and EPS. Our results orientated business focus allowed us to generate $13.3 million in cash year-to-date and we ended the third quarter with $42.1 million in cash and no debt. Again, please remember that all of these figures provided are in U.S. dollars.
Turning now to our product pipeline, we are pleased to see that Moberg Pharma, our partner on our near-term product candidate MOB-015 announced on October 6, the completion of patient recruitment and enrollment in its Phase 3 North American study. This was ahead of the end of 2023 full enrollment plan Moberg previously communicated as it relates to this clinical study. 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 through the products European Union approval.
We look forward to the top line results from this study, which Moberg expects to be available in January 2025 and well ahead of its original clinical development plan. This high potential product which Cipher holds the exclusive Canadian rights targets an attractive market in Canada that is in excess of CAD$80 million annually. We continue to work closely with Moberg to make this clinically proven and effective treatment available to Canadians as soon as possible.
Moving on to our next pipeline product, in June 2023, our partner Can-Fite, announced that it had received a positive view from the FDA with respect to its registration plan for the pivotal Phase 3 clinical trial of CF101 for the treatment of moderate-to-severe psoriasis. Upon positive conclusion of the Phase 3 program, Can-Fite expects to submit a New Drug Application to the U.S. FDA and Marketing Authorization Plan to the European Medicines Agency.
Earlier in November, Can-Fite reported the clinical program and development activities remain solidly on track and the company expects enrollment to commence shortly. We are pleased to see Can-Fite's progress and are excited about the commercial potential for this product. The annual Canadian market for plaque psoriasis treatments is $600 million, with the market for moderate-to-severe plaque psoriasis 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 the tattoo removal cream DTR-001. Preclinical work continues on DTR-001. We have a good -- we have made good progress in optimizing the formulation for clinical use and look forward to conducting key studies in the near future. We believe that DTR-001 holds significant market potential and we look forward to providing future updates as we achieve key milestones.
On the business development front, we continue to work with our advisors in our pursuit of acquiring currently market target products or company acquisitions. We appreciate our shareholders patience as we are reviewing multiple opportunities with this objective of inorganically expanding Cipher's business.
I will now turn the call over to Bryan for a review of our financial results.
Bryan Jacobs
Thank you. Review of our financial results. Thank you, Craig and good morning everyone. During the third quarter, our business performed exceptionally well with robust year-over-year growth in revenue and earnings. Our product revenue and licensing revenue are firing on all cylinders in the third quarter. We are also effectively managing the business costs in 2023, during a highly inflationary macro environment we live in today where many of our peers are unable to do the same.
Total net revenue in Q3 was $6.1 million, up 27% from $4.8 million in the comparative period. Licensing revenue continued to be an important revenue driver for us with a 54% increase to $3.1 million in the third quarter compared to $2 million in the same quarter in the prior year. More specifically, licensing revenue from the Absorica portfolio in the U.S. was $2.6 million, a 117% increase from $1.2 million in the prior year. This increase is primarily attributable to increased sales volumes from the Absorica authorized generic or AG combined with higher royalties from supply product sales.
Total market share from the Absorica portfolio increased by 1.3% to 6.9% market share at September 30, 2023 from 5.3% in the prior year according to Symphony Health. Absorica in the authorized generics market share was 6.2% compared to 4.8% in the prior year. The increase in market share of the Absorica portfolio partially offset the impact from the reduction in the total isotretinoin market in the U.S., which declined 1.5% as of September 30, 2023 when compared to the prior year, according to Symphony Health.
Licensing revenue from Lipofen in the AG version of Lipofen was $0.4 million for the three months ended September 30, 2023, compared to $0.8 million for the three months ended September 30, 2022.
Turning now to product revenue, we saw a 7% year-over-year increase to $3 million for Q3 2023 compared to $2.8 million for Q3 2022. On a constant currency basis, total product revenue increased by $0.3 million or 10% versus the prior year. Product revenue from Epuris was $2.5 million for Q3 2023, an increase of 8% from $2.3 million in Q3 2022 due to higher sales volumes.
Product revenue from Epuris is transacted in Canadian dollars and is therefore subject to foreign exchange with the US dollar. Excluding this foreign exchange impact Epuris revenue increased by 11% over the same period prior year. The product's market share increased by 1.7% year-over-year to 46.1% at the end of the third quarter.
Selling, general and administrative expenses of $1.7 million for Q3 20 23 compared to $1.4 million in the prior year quarter was primarily due to higher share based compensation in certain professional fees during the quarter.
Cipher continued to generate strong profitability during the quarter with adjusted EBITDA reaching $3.6 million, an increase of 37% compared to $2.6 million for the same quarter in the prior year. The net income for Q3 2023 increased to $7 million or $0.27 per diluted share versus $2.7 million or $0.10 per diluted share in the prior year. Net income benefited from an income tax recovery of $3.9 million in the third quarter.
One of the important financial highlights of the quarter was the execution of our Substantial Issuer Bid to repurchase shares, which we announced during the quarter on September the 5th and we concluded on October the 11th. We were highly successful in deploying the full allotment of capital of CAD$6 million that we had targeted at onset of the offering. At these valuation levels, we believe this represented a highly attractive use of capital and an excellent lever to drive long-term shareholder value.
At the end of the third quarter, we continue to have a very strong financial position with no debt and U.S.$42 million in cash, an increase of 46% from year end 2022. Combined with an undrawn $35 million revolving credit facility, we have substantial resources and financial flexibility to pursue acquisitions and we continue to be very focused in this area.
In addition to our commercial portfolio, which continues to generate positive cash flow, we have assembled an attractive pipeline development portfolio and continue to progress these products towards commercialization.
Now we'll open up the call to questions. Operator?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Andre Uddin - Research Capital. Please go ahead. Your line is open.
Andre Uddin
Hi, Craig and Bryan. Nice quarter. Just if possible, can you please discuss what you think was the driver of Epuris this quarter? Was there a particular reason and even for the growth in Absorica AG the authorized generic? The reason I'm asking is Q3 is usually a seasonally weaker quarter for those two drugs, so do you have any reason for that? Thanks.
Craig Mull
Andre, it's Craig here. I'll break it down into two questions, the performance of Epuris and then separately the performance of Sun with Absorica in the U.S. We started with our contract sales organization in March of this year and it has taken some time for them to get fully engaged. And I think what you're seeing now is some of the results of that marketing, increased marketing of the product specifically to nonusers of Epuris. And when I say nonusers, we have now focused very specifically on Accutane and we are -- we were out discussing the product and its benefits over Accutane specifically with long-term Accutane users and we're finding significant success with that. So I'd say a lot of the performance of Epuris which I think is going to continue as well, is related to the full engagement of the sales force and some innovative marketing methods that we've been using through conferences and lectures, et cetera, we feel the product has got much better attention and we expect that that growth to continue.
On the licensing end in the U.S., we have been working with Sun to get clear distribution through the supply chains and Sun has taken us up on different marketing and pricing methods that they've implemented and we're seeing growth as it relates to that on that product end. Does that answer the question, Andre?
Andre Uddin
That's pretty useful. Thanks Craig. And just listen, since I've got you on this topic, maybe I'll also ask you, what's the Canadian Accutane market size currently? And also in the U.S. for the Absorica brand, were there any price changes on those fronts?
Craig Mull
On the U.S. side, Sun has been more aggressive with their pricing of the product and I think that has a significant impact on the increase in the business there. In Canada the entire Epuris has 44.4% of the market which is up almost 2% from last year and continues to grow. So based on market share, I think you can work out the total.
Andre Uddin
Okay, that's great, thanks. And then just one last question, just if I look at DTR-001, what is your development strategy there? Are you going to advance that product into clinical trials on your own or like what do you -- what are you thinking with that product?
Craig Mull
The plan there is for us to complete some formulation work and get a proof of concept from there and then discussions have already taken place. We think it would be best to partner with somebody that would handle the further development of that product and there's a couple of large pharma companies there specifically looking at these markets and we've had discussions about development agreements going forward, but we need to get to the proof of concept studies completed prior to advancing it further.
Andre Uddin
Okay, great. Thanks, Craig.
Operator
Thank you. [Operator Instructions] Now the next question comes from the line of Doug Loe at Leede Jones Gable. Please go ahead. Your line is open.
Douglas Loe
Yes, thanks operator and good morning gentlemen. Congratulations on another solid quarter. Just shifting to pipeline activities beyond DTR-001, so you mean you commented on Moberg's MOB-015 and the fact that the U.S. Phase 3 testing completed patient enrollment, obviously a positive driver and the drug was actually approved in several EU countries in July. I think I asked you this question in the last conference call, but I'll ask it again. Have you any new thoughts on whether or not the filing that clearly supported EU approval might be sufficiently positive for you to file with Health Canada earlier than would otherwise be possible if you waited for U.S. Phase 3 data for Moberg? So that's the first thing.
And then second of all is in regard to Can-Fite's piclidenoson CF101, I appreciate the feedback on status of their Phase 3 clinical activities. I hadn't really seen anything in the public domain on that front actually other than that they indicated that U.S. regulators requested that they do, that they test adolescence as well as adults in the future Phase 3 testing. And I noticed from Can-Fite's last quarterly update that they are fairly cash constrained in comparison to all the clinical activities they have ongoing including for piclidenoson. So and then they talk about partnering that drug fairly transparently as well. So maybe just if there is any details on piclidenoson activity either from Can-Fite or otherwise that you can share with regard to Phase 3 study design or status of their partnering activities for that drug that would clearly be required, that would be helpful as well? And that's it from me. Thanks.
Craig Mull
I'll start with the question about the MOB-015 and quite frankly I'm not even sure I can remember what the question was.
Douglas Loe
Oh just what have you look out in 20 words or less, the EU filing was clearly sufficient to support approval in Europe. So what, what, yes, okay.
Craig Mull
So yes, we could file in Canada now, but we are waiting for that enhanced, yes indication that we believe will come out of that North American trial in the U.S. We also have milestone payments that are related to the results of the clinical trials and I don't think that we want to -- we want to wait until we get that milestone checked off before we would file in Canada. So that's the MOB-015 approach. Go ahead.
Bryan Jacobs
And then Can-Fite Doug, the Can-Fite continues to be very active on piclidenoson . I think it's one of their main pipeline products. They did get greater feedback from the FDA associated with the, like you said, the younger age group which they needed to add to their pivotal trial plan. So that is taking them a bit of time to respond to the FDA. But we're pretty confident in our communications with them and they had indicated in November that it continues to be on track and that there is no further plans to not expect for those pipeline products to continue. So we've been in communication with them. They've been in communication with the market that everything is on track with their development plan and they had planned on having the pivotal Phase 3 organized by the end of 2023.
Douglas Loe
Okay. Well, again, this is more a question for them than for you, I guess. But I mean it's pretty clear that they have insufficient capital to complete a Phase 3 psoriasis program. So I mean, do you have any insights on the whole partnership activities or their activities in soliciting other sources of capital are going?
Craig Mull
We are expecting to have a meeting with them in the coming 10 days and we've got a few questions along that those lines as well that we're hoping to get answered and we'd be happy to come back to you afterwards.
Douglas Loe
That's great. Thanks guys. Congratulations again.
Craig Mull
Thanks.
Operator
Thank you. And our next question comes from the line of [indiscernible], who is an investor. Please go ahead. Your line is open.
Unidentified Analyst
Hey gentlemen, Congrats on the quarter. That was obviously a surprise from some of the U.S. markets and great to see some of your -- the products you already have. Just thinking about the opportunity set, I think you both mentioned that you're exploring opportunities to grow organically with a large pile of cash you have. How should we think about that opportunity set currently? Is the market -- are there several opportunities out there that you're looking into that look great or you are just continuing to turn over rocks there?
And then additionally I thought the Substantial Issuer Bid was a huge success this quarter especially where company is trading today and how does that fit into your plans for future capital allocation? Would you continue to do share buybacks if you're able to? And how do you weigh that against the opportunities you're seeing in the market today?
Craig Mull
All right, thanks. Thanks for the question. I'll take that and obviously in two parts. From the business development perspective, there is quite a bit on the go. So if you're asking a question of what it's looking like in the market, certainly it's a very competitive. There are a lot of pharmaceutical companies that are looking to pursue acquisitions, so the competitiveness has not come down. Unfortunately, where the access to capital is starting to dry up, there is still capital on the sidelines. So that's what's happening in the market to answer your question. But we have a lot of opportunities in our pipeline and we're pursuing a lot of them. We have a lot of advisors working with us as well on that front. So it's more than turning over stones. I think we're hoping to be able to give further announcements on that as we get into 2024.
Your other question related to the SIB, you can take a look at how much capital that we have. So when the Cipher's Board earmarked CAD $6 million, it was really to catch us up to what Cipher had done in a number of years prior where we had bought back over 1 million shares. And over the past year because we had an optional NCIB, a non-automated approach we were prohibited from getting the same volume that we had in years. So the SIB, we viewed it as a catch-up to buying back in excess of 1 million shares as we had done in the two years prior. So that was our plan and we executed it in our view perfectly. It worked really well and it was a great return on capital and we've demonstrated that that is a means to allocate capital. So you can be confident we'll be thinking about that as we go forward.
Unidentified Analyst
Great. Thanks for answering both of them and again congrats on the quarter.
Craig Mull
Thank you.
Operator
Thank you. Our next question comes from the line of Alan Jacobs, who is a shareholder. Please go ahead. Your line is open.
Unidentified Analyst
Thanks. Can you hear me?
Craig Mull
Yes.
Unidentified Analyst
Okay, yes, my question is relating to the increase in the deferred tax assets on the balance sheet and the, I guess the increase in the net income as a result in the quarter. Can you give some guidance as to assuming that you continue doing as well as you've been doing recently, is that something that's likely to be repeated in the next few quarters or can you give us some guidance on that issue?
Bryan Jacobs
Thanks for the question. Yes, on that one that we had an increase in the deferred tax and as you know by nature that's accounting mechanism that takes a look at the future profitability of the company. So as you can expect we do have a number of products in our pipeline. We announced today that Moberg is becoming ever closer to coming through and bringing that through to commercialization. So the accounting rules require the recognition in our deferred tax assets related to profitability in the future driven by our pipeline. So we, you know, I can't comment on what the increase in deferred tax assets may be in future quarters, but that was the driver of it this quarter.
Unidentified Analyst
Okay. So it's related to the fact that Moberg may start in a, let's say year, year and a half rather than what profits you've been making recently?
Bryan Jacobs
The increase is related to Moberg, the Moberg pipeline product coming through into market sooner, that's correct.
Unidentified Analyst
Okay, thank you.
Operator
Thank you. And as there are no further questions on the line at this time, I'll hand the floor back to our speakers for the closing comments.
Craig Mull
Thank you for joining us today. It was a strong quarter financially and highly positive development results in our pipeline, which are ahead of their original plan. As we look ahead, we continue to focus on enhancing long-term shareholder value and effectively allocating our capital. This involves a continued emphasis on investing in our commercial products to drive organic growth, advancing our development pipeline with our partners and assessing opportunities for profitable acquisitions. We believe our track record of strong business management and an emphasis on growth will drive shareholder returns in the future. Thank you very much for joining today.
Operator
This now concludes the conference. Thank you all very much for attending. You may now disconnect your lines.
For further details see:
Cipher Pharmaceuticals Inc. (CPHRF) Q3 2023 Earnings Call Transcript