Cipher Pharmaceuticals Inc. (TSE: CPH) Q2 2022 earnings call dated Aug. 12, 2022
Corporate Participants:
Craig Mull — Interim Chief Executive Officer
Scott Langille — Chief Financial Officer
David Miller — Director of Finance
Analysts:
Andre Uddin — Research Capital — Analyst
Doug Loe — Leede Jones Gable Inc. — Analyst
Mike Schimek — — Analyst
Peter Raytech — Raytech Consulting — Analyst
Presentation:
Operator
Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Cipher Pharmaceuticals Second Quarter 2022 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, August 12, 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 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 — Interim Chief Executive Officer
Thank you, operator, and good morning, everyone. Joining me today is Scott Langille, Cipher’s CFO. On today’s call, I will make opening remarks before passing the call over to Scott to review the financial results in detail. Following our prepared remarks we will open the call for questions. And note that all amounts are in US dollars unless otherwise stated.
We are pleased to report that Cipher delivered another strong quarter generating positive net income and cash from operating activities, our results demonstrate the stability of our business and the benefits of our cost reduction strategy. We ended the quarter with $24.2 million in cash or CAD31 million Canadian on our balance sheet, which provides us with tremendous financial flexibility as we evaluate in number of profitable product and company acquisitions to accelerate and continue to drive shareholder value.
In May, the company’s partner Moberg Pharma began patient enrollment for the North American Phase 3 study of MOB-015 to treat nail fungus. The purpose of the study is to facilitate market approval by the US Food and Drug Administration or FDA. Cipher holds the exclusive Canadian rights to MOB-015. In Canada, according to IQVIA, the total prescription market for onychomycosis was greater than CAD75 million per year with a single product having over 90% market share.
In June, the company partner Canfite Biopharma announced positive top line results from its Phase III COMFORT study in the treatment of moderate to severe psoriasis. Based on the safety and efficacy data revealed in the trial, Canfite plans to approach the US FDA and the European EMA with the protocol for a pivotal Phase III study for drug approval and registration.
We are pleased to see the continued progress that Moberg is making to commercialize MOB-015. Patient enrollment is another positive step towards commercialization. And we look forward to competing in this large market with an innovative topical product that would provide a new safe and effective treatment option for many Canadians who suffer from this common nail infection.
On the Canfite Phase III COMFORT results which were positive indication for CF-101, an estimated 1.5 million Canadians suffer from psoriasis and rheumatoid arthritis and Cipher holds the Canadian marketing rights to this new and novel product which we believe holds substantial commercial potential.
We continue to perform formulation and stability testing for our tattoo removal product, DTR-001, and we expect to move into animal studies in the very near future. The product has a significant market potential and it is a highlight and focus of the company to move this product forward.
Moving on to the financial results. Our second quarter results showed relatively stable revenue as we continue to transition through the the launch of Absorica AG. Product revenue increased by $0.2 million or 7% to $3.5 million for the second quarter 2022 compared to $3.3 million for the comparable period in 2021. Product revenue for Epuris was $3.3 million in the second quarter of 2022, up 9% from $3.1 million in the comparative period. Product revenue continues to be driven by the strength of the Epuris which generated $3.3 million in revenue. Again, a 9% increase from the comparative period. We are incredibly pleased with the performance of Epuris which continues to be the most prescribed isotretinoin product in the Canadian market.
Licensing revenue from Absorica in the U.S. was $1.3 million for the 3 months ended June 30 compared to $2.4 million for the 3 months ended June 30, 2021, but relatively unchanged from $1.4 million in the first quarter of 2022. Absorica’s market share was approximately 4.4 compared to 4.2 in Q2 2021 according to Symphony Health. Market share including Sun’s Absorica LD was approximately 5.5%. We believe that the market shares for this portfolio have stabilized and we expect that we will continue to see the same levels of volumes throughout the contract with Sun.
Currently, in our isotretinoin portfolio, Cipher is receiving royalties from Sun Pharma for the branded product Absorica, the authorized generic as well as Absorica LD. In addition, we recently announced an extension of this partnership from November 30, 2022 through December 31, 2026 for Absorica and Absorica AG, which will extend our revenue and cash flow streams for this portfolio.
Overall, Cipher has assembled an attractive portfolio of assets beyond our currently marketed products and we’ll continue to move these products towards commercialization.
We continue to strengthen our balance sheet. At June 30, 2022, our balance sheet had $2.4 million [Phonetic] in cash and no debt. And again, $24.2 million US cash placing Cipher in an excellent position to continue to buy back shares and to actively pursue product and business acquisitions in a prudent manner with a focus on near-term profitability. We believe that Cipher now has a stable runway for growth. Aligned with our stated strategy, we remain focused on identifying and evaluating profitable product and company acquisitions that will accelerate our growth and drive shareholder value. And are continuing to build cash reserves in anticipation of such transactions.
Over the past quarter, Cipher’s focus has been on M&A. We have reviewed many deals and opportunities and are advancing our review and analysis of several of these interesting possibilities. Yesterday evening we announced the appointment of Bryan Jacobs to the role of CFO effective August 15. Bryan’s extensive experience in M&A and strategic leadership will help fortify our management capabilities and drive our next phase of growth. Bryan brings a proven track record of senior financial expertise and enterprise success in the companies that he has been involved with. He also has extensive experience in managing growth, risk management and cost efficiencies. We believe that his expertise will be valuable and will help us focus in pursuing profitable product and business acquisitions. Bryan is an accomplished and strategic financial leader and has extensive experience in public company compliance, financing as well as mergers and acquisitions.
I’m pleased to report that Scott Langille will remain in Cipher and will be focusing on business development and strategic mergers and acquisitions. I would like to thank Scott for his contributions and look forward to working with him as we evaluate a number of profitable product acquisitions, which will help accelerate the growth Cipher and continue to drive shareholder market value.
I now would like to turn the call over to Scott for a financial review.
Scott Langille — Chief Financial Officer
Thanks, Craig and good morning everyone. I’ll provide a financial update for our second quarter results. Total revenue was $5.6 million in the quarter compared to $6.1 million for the comparative period. Licensing revenue was $2 million for the quarter compared to $2.8 million for the prior year. Licensing revenue from Absorica in the U.S. was $1.3 million compared to $2.4 million in the prior year. Absorica and the authorized generic version Absorica market share for the 3 months ended June 2022 was approximately 4.4% compared to approximately 4.2% for the prior year, according to Symphony Health.
Total market share, including the authorized generic and Sun Pharma’s Absorica LD was approximately 5.5% compared to 6.2% in the prior year. Licensing revenue from extended release Tramadol product Conzip and authorized generic version of Conzip in the U.S. was $0.02 million for the 3 months ended June 30, 2022, compared to $0.05 million for the prior quarter. Lipofen and the authorized generic version of Lipofen was $0.7 million for the quarter compared to $0.4 million in the prior quarter. The increase was due to the change in the distribution partners and related terms of the distribution agreement. Product revenue increased by $0.2 million or 7% to $3.5 million for the second quarter compared to $3.3 million for the comparable period in 2021.
Selling, general and administrative expenses were $1.1 million for the second quarter, a decrease of 6% compared to $1.2 million for the 3 months ended June 30, 2021. Total operating expenses for the second quarter were $2.2 million, a decrease of 5% compared to $2.3 million in the prior period.
Net income was $2.1 million or $0.08 per diluted share for the quarter compared to net income of $2.8 million or $0.10 per diluted share in the comparative period. Adjusted EBITDA for the second quarter was $3.6 million compared to $4.1 million for the prior year. The company had $24.2 million in cash and no debt at June 30, 2022. Cipher generated $5.2 million in cash from operating activities for the 6 months ended June 30, 2022.
With a strong balance sheet, a reduced cost structure and additional visibility from the 4 year extension of our relationship with Sun Pharma, we are focused on identifying and evaluating the right assets to drive our growth. We will now open the call up the questions. Operator?
Questions and Answers:
Operator
Thank you. [Operator Instruction] And we will take our first question from Andre Uddin with Research Capital. Please go ahead.
Andre Uddin — Research Capital — Analyst
Hi, Craig and Scott. Some of this, I guess was in your filings. But just wondering if you could just discuss a little bit further in terms of the Absorica competition. And also, if you expect Sun to add any promotional efforts to your LD formulation. Thanks.
Craig Mull — Interim Chief Executive Officer
Andre, it’s Craig here. Thanks for the question. From a competitive standpoint on that, on the isotretinoin market in the U.S. Obviously, we’ve seen the launch of our authorized generic, which was followed by Actavis’ generic launch. And then subsequent to that Epuris also launched. We have found that over since the launch that the market shares for these products have stabilized and that again AG holds the largest share of all, all of the isotretinoin products and we’re not seeing much movement in that share over the last few quarters. The pricing has stabilized as well. We’re not seeing much in the way of increasing gross to net adjustments, and so we believe that this portfolio is stable going forward for Cipher. And Andre, I think that you had a second part of that question that you don’t mind repeating it for me.
Andre Uddin — Research Capital — Analyst
Sure. Just in terms of Sun, do you expect them to add any additional promotional efforts to the LD formulation?
Craig Mull — Interim Chief Executive Officer
The LD formulation that is manufactured by Sun and of which Cipher continues to earn a royalty from and has not gained the market share that had been expected by Sun. I think that they may be considering additional commercial activity around that product, but we’re not privy to it, even though that we’ve been part of the launch of that product. I believe that because it’s the genericized market segment that you’re not likely to see a lot of additional commercial activity for that product.
Andre Uddin — Research Capital — Analyst
That’s fair. And just on the business development front, just I’ve been asking a number of specialty pharma companies just what are the trends that you’re seeing in terms of prices of product acquisitions. Or is it stabilized? Has it dropped? Is it going up? Like what sort of trends are you seeing?
Craig Mull — Interim Chief Executive Officer
Well, we’re seeing a lot more deals being presented to us, and there seems to be quite a bit of movement in the Canadian specialty pharma market. Some of the players have been highly leveraged, and I think that, that might be catching up to them now. But what we’re finding is that we’re getting a lot more calls, a lot more interest of doing deals from the Canadian specialty pharma area but also in product acquisitions that we’ve been looking at.
I think that higher interest rates have met those that are leveraged are concerned about their cash flows and profitability going forward. And that creates a real opportunity for Cipher. We have no debt. We’ve got about CAD30 million on our balance sheet. And we’ve been looking at a lot more deals than we have in previous quarters. Now this quarter, in particular, this past quarter hasn’t been overly productive just because of the number of holidays, particularly European holidays. We expect that’s going to pick up again in September.
Andre Uddin — Research Capital — Analyst
Great. Thank you.
Operator
Alright. And moving on, we’ll hear from Doug Loe with Leede Jones Gable. Please go ahead.
Doug Loe — Leede Jones Gable Inc. — Analyst
Hey. Yeah, thanks a lot Craig and good morning gentlemen. Maybe just sticking with the isotretinoin theme that Andre kick started here. Just I’ve always been interested in Epuris’ historic revenue ramp, which from 9 years post launch, it even continues to establish record quarterly revenue levels, I mean, that’s quite unusual for most branded therapies that we’ve ever tracked.
So just kind of wondering if you have any interesting comments about how your marketing strategy in Canada sort of continues to capture market share from Accutane and Claravis and whether or not you see any possibility that the trend line could continue for what is clearly a fairly mature brand in the Canadian dermatology market. And then I have a follow-up.
Craig Mull — Interim Chief Executive Officer
Thanks for the question, Doug. Craig here. Yeah, Epuris continues to grow. We continue to promote the product, and we’ve taken different methods to do the promotion just because COVID restricted us from getting into the doctor’s office in any meaningful way. We’ve had a number of different seminars and lectures by key opinion leaders on the product, and they’ve been exceptionally well attended not only by dermatologists but we’re finding that family doctors are also interested in prescribing isotretinoin products, and Epuris is often at the top of their selection process.
The product is absolutely valued amongst the dermatology segment. We continue to speak with them on a regular basis, not only about Epuris but also other pipeline products that we’re working on as well. And it’s a resounding response that we get about Epuris. They think it’s the gold standard. And I expect that we’ll continue to increase our volumes and our market share. The family doctor area is obviously a very, very large market, and they often look to the key dermatologists in their regions for advice on what to prescribe, and the product that’s being prescribed is Epuris.
We expect that come September that we will be engaging our contract sales organization to go out and physically promote the product as well. And we expect that we’ll continue to take market share. And if we are able to get some public reimbursement in Quebec and in B.C., the market share increases could be quite substantial.
Doug Loe — Leede Jones Gable Inc. — Analyst
That’s great context. That’s great. And then a boring tax question [Indecipherable]. Just wondering what your strategy would be to being able to realize the considerable tax losses that you acquired in the Correvio acquisition several years ago. So your tax expense continues to be at constituted Ontario tax rates. And just wondering if there is some sort of a strategy through your tax policy in order to realize those tax losses. And I’ll leave it there. Thanks.
Scott Langille — Chief Financial Officer
Scott here. We are indeed realizing those tax losses. We are accruing provision for taxes, but in our tax filings, we are utilizing Cardiome losses for 2021. So we have begun utilizing those tax losses on a filing basis. And we are also actively promoting the hospital products to run the business as it should be. And so we’ve hired a promotional organization to run that business, and we are actively looking for products to enhance that business. So it’s actively being pursued both with the current products and looking for future products to grow that business.
Doug Loe — Leede Jones Gable Inc. — Analyst
Great. Good stuff. Thanks guys.
Operator
Alright. And our next question will come from Mike Schimek [Phonetic], a Private Investor. Please go ahead.
Mike Schimek — — Analyst
Yeah, hi. I have several questions. The first one would be with regards to the NCIB. It appears to have been completed by the end of July, and I was wondering if you expect to renew it.
Craig Mull — Interim Chief Executive Officer
Yes, we expect to renew it. I think it expires in September, and our intention is to renew it.
Mike Schimek — — Analyst
In September?
Craig Mull — Interim Chief Executive Officer
Yes.
Mike Schimek — — Analyst
Okay, great. My second question was related to MOB-015. The release date appears to be at the end of 2023, hopefully, in Europe. And I don’t have a large familiarity with the Canadian pharma industry. So I was wondering how we could expect to see — what we could expect to see in Canada for release date in Canada if Europe is accurate in terms of end of 2023.
Craig Mull — Interim Chief Executive Officer
And Mike, when you say release date, the date that it can be commercialized? Is that the date that you’re referring to?
Mike Schimek — — Analyst
Yes, product launch when they actually start doing sales?
Craig Mull — Interim Chief Executive Officer
So our game plan with MOB is that we will wait for the results to come in, and we’ll get updated results as well. We’re in close contact with Moberg. It’s a very exciting product for them, and they’re wanting as much assistance that they can get, and we’re providing that for them where we can. I expect that the results for this Phase III study that they’re doing in the U.S. will be completed within a year.
It’ll probably take three months to do the reporting and statistical work before they’re in a position to submit to the FDA. If the results are what we hope and expect, Cipher can, in parallel, apply to Health Canada with a complete submission file. Once that complete submission file is submitted, we believe it will take approximately 9 months to a year to get full approval by Health Canada and what — at which point we can commercialize the product.
Mike Schimek — — Analyst
Okay, great. My — I have like two last questions. With regards to the — one of the prior callers asked a question regarding being this as well, I was wondering if you can offer any additional clarity. Sorry for asking for that. Income tax payable at the end of 2020 was $2.6 million, and now income tax payables ramped to $7.9 million. So as mentioned, it was — had something to do with the filing. I was wondering why — if you can offer additional clarity on why that keeps on going up.
Scott Langille — Chief Financial Officer
Sure. We had a discussion with our auditors and for audited — for the financial statements, the decision was made to accrued taxes. However, in our actual filings with revenue on tax returns, we are utilizing the Cardiome losses. So we’re applying those Cardiome losses to the tax returns. But the — with our discussions with the auditors, we decided to accrue taxes on the financial statements or — and that’s a conservative approach, obviously.
Mike Schimek — — Analyst
Okay, great. That’s what I thought it was. Okay. My final question relates to the answer that you gave to a prior caller as well, which I found interesting. You talked of Quebec and B.C. public reimbursement with regards to Epuris. Is it currently the situation that some of our competitors do have public reimbursement and you do not, and if that situation changes, then we can expect to increase — the substantial increase in market share from those markets, is that what you’re saying there effectively?
Craig Mull — Interim Chief Executive Officer
That’s correct.
Mike Schimek — — Analyst
That’s interesting. Okay, great. Well, thank you very much for answering all my questions.
Craig Mull — Interim Chief Executive Officer
Thank you.
Operator
And our next question will come from Peter Raytech [Phonetic] with Raytech Consulting [Phonetic]. Please go ahead.
Peter Raytech — Raytech Consulting — Analyst
Good morning. Craig, I was wondering if you have any updates on efforts to sell isotretinoin in South America, in particular, in the large Brazilian market. I think — we talked about this probably about 6 months ago, and I — while I do appreciate some of the difficulties in getting into those markets, politically and otherwise, well, the question is, are there any updates and in particular, with regards to Brazil, given the size of that market and the nature of the product, et cetera, and then presumably the wide appeal it would have in that market?
Craig Mull — Interim Chief Executive Officer
Peter thanks for the question. Yes, we are making progress in Latin America. In particular, we continue to have issues with the resilient regulatory authority. And it really stems from the fact that they want all products that they allow on to their formularies to be manufactured in Brazil, and that really becomes a nonstarter for us. We’ve looked at other ways to do it. We’re working with Sun in Brazil, who is our commercialized partner — a commercialized partner — commercialization partner at the moment for Brazil. And they are telling us that they’re having extreme difficulties on getting the authorities there to accept our submissions.
They continue to work at it, and they’ve got, I believe, some meetings in the not-too-distant future to try to address some of the difficulties for some of the limitations that we’re having with the regulatory people. On a positive note, the Epuris has now been approved in Mexico, and our partner there, our commercialization partner, Telemex is in the final stages of having a plan set for commercialization, which we expect. In the next few months, the product will be on the market and being sold. We have a royalty arrangement on that product that we will collect the royalty on revenues, products sold in Mexico.
The same company, Telemex, also has branches in other Latin American and South American countries, including Chile, Peru and a number of other ones. And we’re working with them and Galephar to see if we can get approvals in the more lucrative markets. Are there are any other questions on that, Peter?
Peter Raytech — Raytech Consulting — Analyst
I just — I was just wondering if you had any update on the tattoo removal cream that’s in the pipeline.
Craig Mull — Interim Chief Executive Officer
Yes. I mentioned it earlier in my speech here. But we are at the stage where we’re working with contractors to stabilize the formulation. And we need to be able to stabilize the formulation in order to move to the next phase, which would be animal studies. And that’s where we’re at. I believe that, that work is nearly complete — the results are good. We have a stable formulation. And the next step will be putting the product into animals to do animal trials. We’ve gotten a great deal of interest from other groups on this product, and we’re looking at some possible partnerships on the development of the product itself. We have great hopes for this product.
Peter Raytech — Raytech Consulting — Analyst
Okay, terrific. And if I could, just one last question. This is, I guess, really for Scott. With respect to the tax losses that we’ve talked about, it’s my understanding that none of them are close to expiry in terms of, when I say close within the next couple of years so that from a utilization or potential utilization standpoint, none are at risk of falling off the table without being utilized. Is my understanding correct in that regard, Scott?
Scott Langille — Chief Financial Officer
Yeah. There’s — from — are you talking about the Cardiome losses. Is that correct?
Peter Raytech — Raytech Consulting — Analyst
Yes. Yes. Sorry. Sorry, yes.
Scott Langille — Chief Financial Officer
No, no, we’re fine there. We have plenty to utilize on our filings with tax returns.
Peter Raytech — Raytech Consulting — Analyst
Okay. And again, none are near-term expiry?
Scott Langille — Chief Financial Officer
I don’t believe so, Dave, is that your understanding as well?
David Miller — Director of Finance
I think the first year of losses is 2026, or expiry of losses is 2026.
Peter Raytech — Raytech Consulting — Analyst
Okay. So — and then the order of magnitude just roughly on that one, do you have that offhand?
David Miller — Director of Finance
I don’t. No.
Peter Raytech — Raytech Consulting — Analyst
Okay. All right. And then hopefully, the profitability of Cipher is going to well exceed whatever that number is in any event between now and then and, therefore, it will be fully utilized. That’s hopefully the expectation.0
Scott Langille — Chief Financial Officer
That’s the goal.
Peter Raytech — Raytech Consulting — Analyst
Okay, very good. Thank you Craig, Scott and Brian. I appreciate it.
Scott Langille — Chief Financial Officer
Thank you.
Operator
And we have no additional questions. I’ll turn the call back over to Craig Mull for closing remarks.
Craig Mull — Interim Chief Executive Officer
Thanks for joining the meeting today. We look forward to keeping you updated on our progress and for the balance of 2022 as we execute on our priorities. We expect that the coming quarters will be very exciting for Cipher. Again, thanks for your time and look forward to talking to you again next quarter.
Operator
[Operator Closing Remarks]