Cipher Pharmaceuticals Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 15, 2024

There are 6 speakers on the call.

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals 4th Quarter and Full Year 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

As a reminder, this conference is being recorded today, Friday, March 15, 2024. 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.

Operator

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 Moll, Interim Chief Executive Officer of the company. Please go ahead.

Speaker 1

Good morning, everyone, and thanks for joining us today. On today's call, I will give a brief update on Cipher's product pipeline and growth plans before I turn it over to our CFO, Brian Jacobs, to walk you through the key financial metrics of 2023. In 2023, Cipher's results demonstrate that the company's base business remains on solid footing and we view this strong foundation as a platform for future growth. When I took on the role of CEO back in 2019, my initial goal was to refocus the business towards cash generation and profitability. Today, I'm proud to say that the entire Cipher team has executed this vision, which is clearly demonstrated by our 2023 results.

Speaker 1

With a strong balance sheet, substantial liquidity and predictable cash generating base business, Cipher is now moving into a phase of growth, driven by both new products and strategic M and A. I will begin with a brief update on our product pipeline before giving a high level description of how we plan to accelerate growth by making strategic and opportunistic acquisitions. Cipher through its in licensing partnership with Moberg Pharma is less than 1 year away from key Phase 3 data for MOB-fifteen. To remind listeners, MOB-fifteen, we believe will be a very significant impactful product for the company. Current nail fungus therapies are inadequate as complete cure rates are well below 50% and treatment protocols are tedious, inconvenient and more importantly, ineffective.

Speaker 1

To date, the data surrounding MOB-fifteen is extremely encouraging and we look forward to Phase 3 results, which we expect in the Q1 of 2025. With positive results from this trial, we anticipate submitting a new drug submission to Health Canada in the first half of twenty twenty five. Many specialists we have consulted with in the field have communicated to us that if Cipher can bring an L fungus treatment product to the Canadian market with a higher complete cure rate than the present day product, they will immediately prescribe it. This leads us to believe that once launched, MOB-fifteen will rapidly take market share in the total CAD91 1,000,000 market for nail fungus indication. Our second pipeline product, piclodenosine continues to make regulatory progress.

Speaker 1

Our partner CanFeet Biopharma received positive feedback from both U. S. FDA on the design of its pivotal trial, Phase 3 trial recently in December 2023. To align requests for the FDA and the EMA, CanFET plans to run 2 Phase 3 studies in parallel and upon positive conclusion of both programs, we'll submit both a new drug application to the FDA and a marketing authorization plan to the EMA. Cipher has in licenses product for distribution within Canada and it represents a market opportunity to the company in excess of CAD40 1,000,000 To conclude my opening remarks, I would like to briefly touch on Cipher's M and A strategy.

Speaker 1

As we have successfully transitioned the business into a streamlined profitable operation, the company is moving into new chapter of growth. Due to the company's strong balance sheet, access to substantial liquidity and predictable free cash flow generation, Cipher finds itself in an enviable position within the Canadian specialty pharma landscape. Throughout 2023, several opportunities have been presented have presented themselves to the company and we plan to take this opportunity to build upon the existing platform and accelerate growth of the overall business. Brian and I are spending most of our time evaluating and negotiating with several groups and a handful of these opportunities we believe have the potential to close in the near term. We are hopeful that Cipher will be able to announce 1 or more of these transactions in the near future and we feel that these transactions will be a major catalyst for Cipher and its shareholders.

Speaker 1

I am very excited about the direction of the company and look forward to updating the market as we execute on our overall strategy. I will now pass the call over to Brian Jacobs, our CFO. Please go ahead, Brian.

Speaker 2

Thank you, Craig, and good morning, everyone. As a reminder, all amounts provided are in U. S. Dollars unless I otherwise know. I'll first provide highlights on our results for the Q4, the 3 month period ended December 31, 2023, and then turn my comments to our highlights from our 2023 annual results.

Speaker 2

As Craig mentioned earlier, our base business continues to consistently perform. Total net revenue was $4,900,000 for the Q4 of 2023 and was flat or consistent with revenues in the comparative period. Overall licensing revenue was $1,500,000 for the 4th quarter compared to $2,000,000 in the prior year quarter. Licensing revenue from the Absorica portfolio in the U. S.

Speaker 2

Was $1,000,000 down from $1,300,000 in the comparative period in 2022. The decrease in licensing revenue from the Absorica portfolio resulted from lower royalties earned on net sales from our distribution partner. Absorica and the authorized generic version of Absorica and Absorica LD's market share for the year ended December 31, 2023 increased by 1% compared to the prior year, which was approximately 6.9% at the end of 2023. Revenue from Lipofin in the authorized generic version of Lipofin was $500,000 for the quarter compared to $700,000 in the comparative quarter. This decrease was attributable to lower sales volumes and net sales from our distribution partner.

Speaker 2

Moving to our Canadian product portfolio, total product revenue was $3,400,000 compared to $2,900,000 in the compared period of 2022. The increase of $500,000 was primarily due to market share gains from Apirus. Sales from Apuris in the 4th quarter were $2,900,000 compared to $2,600,000 in the prior year quarter, representing an increase of around 10%. Selling and marketing and administrative expenses were 1 point 4th quarter compared to $1,000,000 in the comparative period in 2022. The increase is primarily attributable to our contract sales force and marketing initiatives focused on Epuris.

Speaker 2

Adjusted EBITDA for the 4th quarter was $2,900,000 compared to $3,100,000 in the prior year quarter. The decrease is mainly driven, as I previously mentioned, the sequential decrease in licensing revenue in the quarter. I'll now turn my comments towards our annual results for the year. Total net revenue for the year ended December 31, 2023 was $21,200,000 compared to $20,700,000 in the year ended December 31, 2022, representing a total increase of 2%. Licensing revenue for the year was $8,500,000 compared to $8,100,000 in the prior year, representing an increase of 4%.

Speaker 2

Licensing revenue from the Absorica portfolio in the U. S. Was $6,100,000 for the year, an increase of $900,000 compared to $5,200,000 in the year ended December 31, 2022. The year over year increase is primarily attributable to increased sales volumes from Absorica AG combined with higher product shipments in the Q3 of this year. Product revenue increased by $200,000 or 1 percent to $12,700,000 for the year ended December 31, 2023 compared to $12,500,000 for the year ended December 31, 2022.

Speaker 2

Our product revenue relates to the sales of our products here in Canada, therefore, are subject to foreign exchange. On a constant currency basis, product revenue increased $600,000 or 5% year over year. Product revenue from Epuris was $10,800,000 for the year ended December 31, 2023, a decrease of 0 point $5,000,000 or 4 percent from the $11,300,000 in the comparative year. Excluding the foreign exchange impact of $400,000, Appiris revenues were largely consistent with 2022 levels. Further, Apperes' market share increased by 2.2% to 45% at the end of December 31, 2023, according to market based data.

Speaker 2

Product revenue from all other Canadian portfolio products was $1,800,000 for the year, representing an increase of 54%. Selling, general and administrative expenses were $5,700,000 for the year, an increase of $1,100,000 or 25% from the previous year. The increase is mainly driven by non cash stock based compensation of $800,000 $300,000 of restructuring costs that were incurred in the period that are non recurring. Income tax recovery was $7,700,000 for the year ended December 31, 2023 compared to an income tax recovery of 15,200,000 for the year ended December 31, 2022. The $7,500,000 decrease in the total tax recovery is due to a lower change in the company's deferred tax assets in 2023 compared to 2022 associated with unused tax loss carry forwards.

Speaker 2

As of December 31, 2023, the company had recognized a deferred tax asset in the consolidated financial statements of $19,900,000 The company believes it is probable that future tax income will be available against which these tax losses can be utilized. Adjusted EBITDA for the year was $12,700,000 compared to $12,400,000 in the prior year, an increase of 2%. Our EBITDA and adjusted EBITDA margins remain strong relative to our peers in the industry, coming in at 57% 60% respectively. Net income for the year was $20,400,000 or $0.82 per common share compared to net income of $26,600,000 dollars or $1.05 per common share in the prior year. The decrease in net income is due to the reduced income tax recovery associated with the lower change in the company's deferred tax assets I previously described.

Speaker 2

As of December 31, 2023, the company has $39,800,000 in cash and no debt. We generated $16,000,000 in cash from operating activities and a total increase in cash balances of $11,000,000 for the 12 months ended December 31, 2023. Additionally, we executed a highly successful substantial issuer bid, which closed in the Q4, which we're very proud to announce, where we acquired 1,300,000 shares for $4,700,000 Our share acquisition price of CAD 4.65 was an accretive allocation of capital, whereby our present share price is well above this level. With our cash on hand, available credit facilities and favorable positioning, as Craig talked about earlier, we're in an excellent position to be opportunistic and act quickly on strategic M and A transactions. Now we'll open up the call to questions.

Operator

Thank you. And your first question comes from the line of Andre O'Dea from Research Capital. Your line is open.

Speaker 3

Hi, Craig and Brian. Just looking into the future, if I read your press release, you mentioned that you're developing MOB 15 in terms of a commercial launch plan. How many sales reps do you think you'll require for that future launch? And is there a minimum number of sales reps that you would require by your partner? That'd be great.

Speaker 3

Thanks.

Speaker 1

Those plans are all in process right now. But what we're looking at is having a specialized sales force that will focus on this product and the product launch itself. And currently, as Brian indicated, we use a contract sales organization and that group has done very well for us with the Puris. And just to give listeners a little bit of the history with Impress, which is our contract sales group. Impress were the group that launched Epuris back in 2012 as well.

Speaker 1

Impress was also the group that launched Jubilee for Bausch. So we think that they've got a good idea of what the market requires and we're working closely with them. But I would say that we're going to probably start within the range of 8 to 10 sales reps. We do have some requirements under our license with MOB, but it's well within that level with number of salespeople. And I think that as we get closer to the launch, we will have a very clear plan of what we're going to follow.

Speaker 4

That's

Speaker 3

great. Thanks. And then just in terms of the U. S. Market, if we're looking at the market dynamics surrounding Absorica, are there any major changes that you're seeing in terms of pricing competition?

Speaker 3

Could you just maybe comment on that? That'd be great.

Speaker 1

Andre, we're seeing what I believe is quite a stable market now. It's gone the product's gone through the genericization process. We're still have significant share of that entire market. And we don't see a lot of switching going on at this point. We believe it's stabilized.

Speaker 2

And to add on to that, there have been opportunities that our distribution partner took to gain some market share like we've disclosed. So I think there's tactical moves from the different generic players in order to drive volumes. But otherwise, we as Craig said, we just see it as a very stable product in royalty stream for us.

Speaker 3

Okay. That's great. That's it for me. Thank you.

Operator

And your next question comes from the line of Justin Keywood from Stifel. Your line is open.

Speaker 4

Good morning. Thanks for taking my call. Just coming back to those comments on Absorica being a stable royalty stream, is that how you see it going forward because it was down 30% in the quarter year on year?

Speaker 2

We're seeing volatility there, Justin, like on an overall basis, I think as you heard, we were higher than last year. Q4 was a bit lower. Q3, we were sequentially quite a bit higher, which drove a lot of our sales. So really what we're seeing is our distribution partner has been able to use their clout, they're a large pharmaceutical organization to drive greater volumes. When you have a distribution partner that has many products and many generics, they have the ability to do that and drive volume.

Speaker 2

So that's where we really see the benefit from it. Year over year, we were higher on that royalty stream and we think it's going to be a good cash contributor in the future.

Speaker 4

Okay. And has the pricing stabilized? It sounds like there's some volume growth there, but what about the pricing?

Speaker 1

Justin, could you just repeat that question? We had some background noise here.

Speaker 4

Sure. The pricing for Absorica, has that largely stabilized?

Speaker 2

The pricing for Absorica largely does not change unless our distribution partner will run certain promotional programs. So that's something that we did see occurred in the middle of last year in 2023. So they may run pricing programs, but relatively our price for the product and most of the volumes are on the authorized generic don't largely change nor do our competitors' pricing largely change.

Speaker 4

Understood. Thank you. And then on potential M and A, obviously, the balance sheet is in fantastic shape. About a third of the market cap is in cash. I believe there is a substantial tax loss credits that could be potentially used.

Speaker 4

And the cash flow accretion could be quite substantial on M and A. So if you're just able to describe the pipeline, the therapeutic areas that you're looking at, the potential size of transactions and then the target multiples?

Speaker 5

Okay.

Speaker 1

Again, I think that we indicated that in my speech anyway that we're looking at both product and company acquisitions. And those products are both in Canada and the U. S. We're looking for products that would be typically referred to as legacy products, products that have got very stable cash flow and preferably some type of moat built around it to defend against potential competitors. And those modes could include like safety programs or patents or some type of restriction on API, for example.

Speaker 1

And those are the product types that we're looking for. On the acquisition side, we would prefer to continue to specialize in derm and we've got a couple of targets that would fit those bills. We're also looking perhaps at expanding into another therapeutic area that seems to have some of that built in protection that we're looking for and that would be CNS. We believe that those drugs, once they start being prescribed, physicians are very reluctant to change their ordering patterns for those particular patients. So I think that we're looking both Canada, U.

Speaker 1

S. For product acquisitions and company acquisitions and our preference our first preference is in derm.

Speaker 4

Understood. Any indication of size? Yes. Thanks.

Speaker 1

Well, I think that we've got capability, we've got $40,000,000 in the bank and we've got a line that we could use up to $35,000,000 with RBC. I think if the right acquisition came along that we would go even higher than that. But we certainly have the capability to do a deal at $75,000,000 and I would say quite a bit higher.

Speaker 2

We decided to do that. $75,000,000 is the floor really because we don't have to do too much more and we can upsize for the right deal to quite easily to twice that size.

Speaker 4

Understood. And I believe in the opening remarks there was mention of possibly executing on an acquisition in the near term. Is near term, is it fair to say in 2024?

Speaker 1

Yes, that would be fair.

Speaker 4

Thank you very much.

Speaker 1

Thanks, Justin. Thanks, Justin.

Operator

And your next question comes from the line of Deane Trautier. Your line is open.

Speaker 5

Hi there. Good morning. I just have a couple of quick questions. The generic version or I guess it's not the generic version, SunLaunch Absortica in Canada, I believe in mid December. I'm wondering if you guys are seeing any impact as we're almost done in the Q1 here in 2024.

Speaker 1

No, we have not heard any impact. We are tracking that very closely. They're out promoting the product. We believe that they're going to have some fairly significant challenges with that product. It is being promoted as the same as Epuris.

Speaker 1

Physicians in Canada are not aware of the brand name Absarica and it's Absarica LD. The LD stands for lower dose. So what they're bringing to market is a product that they're saying is the same as Epuris, but only slight the difference is that it's slightly lower dose. So they're implying that there's a it's a safer product, which isn't

Speaker 5

true. Okay. That's

Speaker 1

Go ahead, sir. No, we're tracking it. Our focus is in converting Accutane users and we've been doing a good job of that. At the same time, we're defending against that LD product because it is not it doesn't present any value, added value over Epuris and it will require physicians to do a separate calculation on dosing. And I think that based on the fact that they don't think there's value there that there would be very few that would convert to that.

Speaker 5

Okay. That's very helpful. Thanks. The other question, it's not related to any of the products specifically, but about a week ago, there was a couple of articles published that Health Canada was reviewing a finding in the States around a toxic amount of benzene in some of the acne products. I was wondering if you could comment on what that if that has any implications for Epirus or any of the other products?

Speaker 1

I mean, thinking positively here, physicians might decide not to tell the patient to go to the pharmacy and buy the product that this product over the counter, they may say, hey, it would be better for you just to go on a safe prescription instead. And that would be the purist. Those are different category of products, but thinking positively, there may be some increase in any peers because of it, but I think it's low profit.

Speaker 5

Okay. That's helpful. And then the last one is just any update you have or you can share with the launch of Vipuris in Mexico. I think it was Q2 of 2023 it was launched. And I'm just wondering, I know it's a quite a different market and everything, but any color you can provide would be helpful.

Speaker 1

I think Telemaque has gotten off to a good start with launching the product. Sales are going slower than we had expected. We don't have great expectations overall for that business. But it will be a nice add on and we're doing what we can to help Telemaque get some more traction on their launch.

Speaker 5

Okay. All right. Thanks. That's very helpful. Thanks.

Speaker 5

Have a good rest of your day guys.

Speaker 2

Thank you. Thank you.

Operator

Thank you. And there are no further questions at this time. I would like to turn it back to Mr. Craig Moll for closing remarks.

Speaker 1

Thank you. Just to conclude, we think that we are in a very good position right now. We're very excited about some potential acquisitions here that we're working very hard on. And I expect that in the coming quarters we will have much more to talk about. Thank you very much for your time today and we look forward to keeping you updated on our progress.

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Cipher Pharmaceuticals Q4 2023
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