Cipher Pharmaceuticals Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 12, 2023

There are 7 speakers on the call.

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals First Quarter 2023 Resolvers 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 As a reminder, this conference is being recorded today, Friday, May 12, 2023.

Operator

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 Security 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 Canadian regulatory authorities. Except as required by Canadian Security Laws, the company does not undertake to update any forward looking statements.

Operator

Such statements speak only as of the date made. I would now like to turn the call over to Mr. Craig Moll, Interim Chief Executive Officer of Company, please go ahead, Mr. Moe.

Speaker 1

Good morning, everyone, and thank you for joining the call. As a reminder, all amounts stated are in U. S. Dollars unless otherwise noted. On today's call, I will provide some insights into the current market for pharmaceutical assets, provide a brief product update and then discuss our plans for growth.

Speaker 1

I will then turn the call over to Brian for his insights into our financial performance. Recent issues in the banking sector, tightening credit conditions and rapidly increasing interest rates have impacted many industries, including our pharmaceutical industry. As a result, the number of opportunities being brought to our attention have increased significantly in recent months whereby pharmaceutical companies are needing to turn to asset monetization to stay afloat. In the Q1 of 2023, Cipher generated $4,700,000 in cash from operating activities with nearly all of it flowing to our balance sheet, Strengthening our cash reserves, which now exceed US33 $1,000,000 Additionally, Cipher demonstrated exceptional foresight negotiating a $35,000,000 acquisition facility with RBC at the end of 2022, which closed in February of 2023. With both cash on hand and available credit facilities totaling nearly US70 $1,000,000 We believe this gives us the upper hand in what is becoming an increasingly more attractive M and A market.

Speaker 1

Cipher's strong balance sheet and cash generating abilities puts us in a unique position to benefit from the current market environment as we evaluate product and business acquisitions. Cipher's 1st quarter results Once again demonstrate the power of our light and lean operating model, which is a key differentiator from our peers. In the Q1, Cipher delivered consistent operating results with our robust product portfolio generating substantial cash flow from operations. During the quarter, Cipher achieved a 54% net margin and delivered 25% year over year growth in EPS. We ended the quarter with US33.4 million dollars in cash or CAD45.2 million dollars and again we have no debt.

Speaker 1

On a share basis, Cipher has $1.33 per share in cash were CAD1.80 in cash per share. Our product business generated 66% of our Q1 revenue, while our licensing business contributed 34% of our Q1 revenue. I would now like to briefly touch on recent events on product on our key products in development. The first product I would like to discuss is CanFeet's biopharma's CF-one hundred and one or picladenesin. In January of 2023, CanFeet submitted its market registration plan to the European Medicines Agency stating that a submission to the FDA would follow.

Speaker 1

In April of 2023, CanFeet announced that it received a positive opinion from the Committee of Medicinal Products for Human Use of the European Medicines Agency with respect to the submission of a restoration plan for a pivotal Phase 3 clinical trial for the treatment of moderate to severe Psoriasis, the pivotal Phase 3 study and the safety of the 3 milligram twice daily dose of piclodenosine were accepted by the agency. Following additional feedback from the FDA, the company intends to initiate a perspective double blind placebo controlled and randomized clinical trial with its lead product piclodendison aimed at demonstrating clinical safety and efficacy for the treatment of moderate to severe psoriasis sufficient to support a marketing authorization application. We are pleased to see CanFeet's progress and are excited about the commercial potential of this product. The annual Canadian market for plaque psoriasis treatments is $600,000,000 With the market for moderate to severe plaque psoriasis estimated at approximately $45,000,000 Cipher holds Canadian marketing rights to this novel product, which we expect possesses substantial commercial potential. 2nd product I'd like to discuss is Moberg Pharma's MOB-fifteen.

Speaker 1

The North American study with MOB-fifteen is progressing as Moberg has planned. There are now 30 different clinics in the U. S. And Canada, which are treating patients in the study. The randomized vehicle controlled multicenter Phase 3 study The patients are being evaluated over 52 weeks and the primary endpoint will be the proportion of subjects achieving a complete cure rate Of their target now.

Speaker 1

EU product approval is expected in 2023. Top line results from the ongoing North American Phase 3 study are expected 15 months after full patient enrollment, which would set the timeline for the Q1 of 2025. Cipher holds the exclusive Canadian rights to MOB-fifteen. In Canada, according to IQVIA, The total prescription market for onychomycosis was CAD82 million with a single product having over 90% of that market. We are pleased to see the continued progress that Moberg is making to commercialize MOB-fifteen.

Speaker 1

We look forward to competing in this large market with an innovative topical product that would provide a safe and effective treatment option for many Canadians who suffer from this common nail infection. Cipher's primary focus for the remainder of 2023 remains on effectively allocating our capital in order to maximize value for our shareholders. This involves a continued emphasis on investing in our commercial products to drive organic growth, Advancing our product pipeline and increasingly spending time accessing opportunities for profitable product and company acquisitions. With these levers at our disposal, we are confident in our ability to accelerate growth and drive shareholder value. I will now turn the call over to Brian for a discussion on our financial results.

Speaker 2

Thank you, Craig, and good morning, everyone. Sailown Businesses report strong earnings quarter after quarter and that's what Quarter of 2023 compared to $5,400,000 in Q1 of 2022. Licensing revenue was $1,700,000 for the Q1 compared to $2,100,000 in the prior year quarter, a decrease of $400,000 arising from the Absorica portfolio. Licensing revenue from the Absorica portfolio in the U. S.

Speaker 2

Was $1,000,000 compared to $1,400,000 in the prior year quarter. This decrease is primarily Attributable to lower royalty rates earned on the Absorica portfolio in connection with the renegotiated distribution and supply agreement entered into with Sun Pharmaceuticals toward the end of Q1 2022. Despite the decrease in licensing revenue during the quarter for the Absorica portfolio, Both Absorica and the authorized generic of Absorica's market share was approximately 6.1% compared to 4.3% as of March 31, 2023, According to Symphony Health, licensing revenue from Lipofin in the authorized generic Version of Lipofin was flat year over year at $700,000 Product revenue decreased by $100,000 were 3% to $3,200,000 for the 3 months ended March 31, 2023, compared to $3,300,000 for the 3 months ended March 31, 2022. Product revenue from Epuris was $2,700,000 for the 3 months ended March 31, 2023, a decrease of $400,000 or 13% from $3,100,000 for the 3 months ended March 31, 2022. Product revenue from Apyris is transacted in Canadian dollars and therefore subject to foreign exchange changes with the U.

Speaker 2

S. Dollar. Excluding the impact from foreign exchange translation of $200,000 We are optimistic on the potential for a Pure sales for the remainder of the year. The product revenue from the rest of the Canadian portfolio was $500,000 in Q1 2023 compared to $200,000 in Q1 'twenty two, an increase of 300,000 Selling, general and administrative expenses of $1,200,000 was flat for the 3 months ended March 31, 2023, 2022 due to active management of general business costs. Excluding higher non cash based share based compensation included in SG and A, Cash costs decreased by $400,000 during Q1 2023.

Speaker 2

Adjusted EBITDA for the Q1 was $3,200,000 compared to $3,100,000 in the prior year quarter, an increase of $100,000 Focus management teams are those who adapt and manage both the top and the bottom line to ensure they deliver value and consistent earnings. It is because of this management style we've been able to preserve earnings levels in the Q1 of Q1 2023 with both our comparative quarter and our trailing quarters. Net income for the quarter ended March 31, 2022 was 2,600,000 My apologies. Net income for the quarter ended March 31, 2023 was 2,600,000 or $0.10 per basic common share, 25 percent higher than net income at March 31, 2022 of $2,200,000 or $0.08 per basic common share. The company had 33 $400,000 in cash and no debt at the end of the quarter.

Speaker 2

Cipher generated $4,700,000 in cash from operating activities, A total net increase of cash balances of $4,600,000 during the 3 months ended March 31, 2023. Cipher has a demonstrated track record whereby net income, positive cash generation and earnings metrics Such as EBITDA are tightly correlated. This is what we believe is how Saone businesses are managed. I'm also proud to highlight at the end of February 2023, we announced the closing of a US35 $1,000,000 credit facility with the Royal Bank of Canada, which is at our disposal and greatly expands our reach for future M and A opportunities. In today's M and A market, The ability to move quick and close in short timeframes are what sellers are looking for.

Speaker 2

And with our cash on hand And our available credit facility, this positions Cipher uniquely among our peers. Now I'll open up the call to questions. Operator?

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a 3 tone prompt acknowledging your request. Questions will be taken in the order received. Your first question comes from the line of Doug Loe from Lee Jones Cable.

Operator

Please go ahead.

Speaker 3

Yes. Thanks very much and good morning all. Congratulations on the quarter, gentlemen. Couple of thoughts, one of which is notwithstanding the Issues with regard to royalty rate on Absorica, your cash flow from that product continues to decline And yet fenofibrate, which competes in an equally competitive generic environment, has been remarkably Stable for several years now actually. So I was just kind of wondering if there were any sort of key learnings from your marketing partners with regard to how Fenner Freybright stability might be ascribed to how Absorica could be marketed in order to generate comparable stability, mindful that they So that's the first thing.

Speaker 3

And then second of all, congratulations on the uptick in non Epuris Product sales in Canada, you provided several of the brands that you sell into derma and acute care hospital markets in your MD and A, but without specifically identifying which of those products might have been a key revenue driver in the quarter. Just wondered if you could provide Some additional granularity in which of the non Epuris products in Canada might be generating some of that growth and what sort of growth trajectory we might expect going forward based on that feedback. I'll leave it there. Thanks.

Speaker 2

Hey, Doug. Yes, thanks for the question. The questions And good morning. On Absorica, your observation on some of the licensing revenue It's correct. We've actually been in discussions with Sun Pharma and they've noticed over Recent periods that their market share had been declining.

Speaker 2

Recall with Absorica, there are a number of generics In the U. S. Market, so they're kind of competing both the brand and the authorized generic are kind of competing for space. So where they saw some erosion and you heard me talk about the Symphony Health metrics, they're actually moving in the right direction. So they have taken some tactical moves with their channel partners to prevent the erosion of from share that they've seen.

Speaker 2

And we believe that they'll have some opportunity there in the coming quarters. So we recently had that call with Sun and we believe that they're taking the right tactical moves.

Speaker 1

Just to add to that, Doug, as Brian said that we are meeting constantly with Sun with regards to this Issue about market share for Absarica, the entire Absarica portfolio. We think that they've made some gains recently at the wholesale level, which will help that the issue of declining or Increasing market share in this case. On the phenylthibrate side, I believe that our Revenue flow or royalty flow from that product in the U. S. Has been improved by based on the fact that we changed Commercial partners down in the U.

Speaker 1

S. From Koa to Annie and they appear to have very strong connections At the wholesale level, and I think that we're benefiting from some of that.

Speaker 2

And then Doug, on your other question of Kind of the key contributors from the other remaining Canadian portfolio, the ones that I would highlight is we made the move to Selling Dorela directly. We before we had a channel partner that was managing that in the past. And that was that move was made at the beginning of last year or didn't actually flow through until Q3 of last year. So that's kind of one of the year over year business changes that we made that's contributing to growth there. And then the other one I would call out is AGGRASTAT sales contributed to the $500,000 as well.

Speaker 2

We had $100,000 of AGGRASTAT sales as we've seen a competitor leave the market and have supply disruption. So we think that there's good opportunity for AGGRASTAT going forward as well, as you saw in Q1.

Speaker 3

Yes. Well, I actually thought you might have specifically flagged AGGRASTAT in preference to Dorela there. I mean, the absence of Integralin and Reapro in the Canadian market Would give me some comfort that your AGGRASTAT sales could grow and not shrink going forward. Do you have any sort of sense on how you might be able to quantify that in coming quarters?

Speaker 2

All I'd offer is what you saw in Q1, we believe is a good way of looking at it Going forward, and but we also hope to grow on that. So we hope to come into future earnings calls And have good outcomes there as well.

Speaker 1

We're currently working with Verity, our hospital partner, and are focused on what they call 45 cath labs throughout Canada that require this product And we're making good headway, and I think that will continue into the future here.

Speaker 3

Good feedback. Thanks, guys.

Operator

Thank you. And your next question comes from the line of Andrew Usdin from Research Capital. Please go ahead.

Speaker 4

Good morning, Greg and Brian. Just wanted to ask you in terms of An update on your pipeline, can you give us a little color in terms of what's going on with Galafar? Are you advancing any products there? Is that more Research at this point?

Speaker 1

No. We are in discussions with Galliphar about A number of potential products that they have in their development pipeline, nothing that I could report at this point in time, but we're hopeful That we will be able to find another successful drug as we have Absorica Fenofibrate and Gallifar has got a knack for finding products, we're developing products that are Improvements on existing products usually through a 505(2) pathway. And we hope to report in the coming quarters results of our discussions and negotiations with Galliphar.

Speaker 4

And just in terms of the M and A front, I know you've been looking both our products and companies. Can you give us a little bit of color? Are you looking more towards on the U. S. Side or Canadian side and how?

Speaker 1

I would say both. We've had a lot of focus on the U. S. Market, but Opportunities have arisen here in Canada with some of the existing players And we've allocated some of our time to reviewing those potential, either product acquisitions, company acquisitions Or perhaps some type of royalty arrangement. So I think that Both sides of the border we're looking at the moment as opportunities arise.

Speaker 2

It's also not that the U. S. Is a much larger market than Canada. So we are spending relative time there and we believe Because of the larger market, there may be bigger growth opportunities there.

Speaker 4

Great. Thank you.

Operator

Thank you. And your next question comes from the line of Graham Graham. Please go ahead.

Speaker 5

Hey, guys. Good morning. A few quarters ago, you guys mentioned that you held the rights to South American distribution. I was just wondering if you guys could comment on this. And yes, go ahead.

Speaker 1

We have a partnership with Gallifar And that partnership includes Latin America and South America. The product Absarica was recently launched and we're in the process of being launched in Mexico at the moment. Gallifar supplies the product and pays us a royalty on sales.

Speaker 5

I was wondering when financial gains or not.

Speaker 2

My apologies. Can you repeat that question? I couldn't hear you.

Speaker 5

I was just wondering when you thought the results of launching it there would be realized on the financial?

Speaker 1

I think we're expecting to start collecting royalties in the near term, No, but that will be based on the sales of the product in Mexico in this case. The product is being sold in Mexico by a company called the Telemex. And they're in the midst of launching that product. So I think We would expect to see royalties being generated in the near term.

Operator

Thank you. And your next question comes from the line of Peter Ratajk from Raytech Consulting. Please go ahead.

Speaker 6

Good morning, gentlemen. I'm wondering if you could provide a brief update On the activity and status of the normal course issuer bid?

Speaker 2

Hi. Good morning. It's Brian here. On the normal course issuer bid, obviously, because during Q1 and the longer Period to release our annual results, we were largely in blackout. So the opportunity to buyback It was a lot lower and we do have a selective program.

Speaker 2

So it's not the automated program that was Proved in years before that, but as we get out of blackout and come out of Q1 here, we anticipate that We are going to restart that as we believe our share price is undervalued, and we see Opportunity to return value to shareholders by recommencing the NCIB.

Speaker 6

Yes. No, I mean, I'm sure as you're well aware at current levels, your cash position Per share is now exceeding 50% of the market value. Okay. All right. No, thank you.

Speaker 2

Thanks, Peter. Thanks, Peter.

Operator

Thank you. Mr. Moll, there are no further questions at this time. Please proceed.

Speaker 1

As both Brian and I have discussed today, current M and A environment is presenting us With attractive opportunities and our pipeline of potential deals continues to grow. We intend to be diligent evaluating deals and are seeing an increasing number of potential transactions come our way. Until we are confident in completing 1 or more of these Transactions, we will continue to grow our substantial cash balance. Thank you very much for joining us today.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may all disconnect.

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