Cipher Pharmaceuticals Inc. (TSX: CPH) Q4 2020 earnings call dated Mar. 19, 2021
Corporate Participants:
Craig Mull — Interim Chief Executive Officer
Scott Langille — Chief Financial Officer
Analysts:
Douglas Loe — Leede Jones Gable — Analyst
Presentation:
Operator
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals Inc. Fiscal 2020 Fourth Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today Friday, March 19, 2021.
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 on 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 your questions. Note that all numbers are in U.S. dollars unless otherwise stated.
Fiscal 2020 results showed stable revenue and strong cost control, which translated into a 8.6% improvement in adjusted EBITDA and a 60% increase in earnings per common share. In 2020, we were laser-focused on executing against our priorities, including reducing our cost structure, utilizing cash flow to pay off our credit line, establishing the right partnerships to drive growth and implementing a mechanism to allow us to buy back our stock at what we believe are attractive prices.
COVID limited access to doctor’s offices during the year, which caused us to delay our — some of our partnership plans. But subsequent to year end, Cipher entered into a promotional agreement with Verity Pharmaceuticals for marketing, sales and co-promotion of Brinavess, Aggrastat, and Trevyent.
Under the terms of the agreement, Verity will be responsible for the co-promotion of all hospital products, inclusive of all cost and expenses associated with these products. Verity will be compensated by receiving a tiered percentage of net margin of the products. We are pleased to have finalized our agreement with Verity as we continue growing the hospital business and providing industry-leading products. We believe Verity’s sales force will help to manage our cost efficiencies and drive growth and profitability within our hospital business.
As I previously mentioned, earnings increased 60% in 2020 to $0.16 per share and $0.10 per share in the prior year. Net income and earnings per share were both impacted by a $5.3 million non-cash impairment of intangible assets related to the arbitration process with Bausch. Although we are disappointed with the results of this arbitration, it is important to note that Trulance was not currently being marketed or generating revenue for Cipher. Excluding this non-cash impairment charge, EPS for the year would have come in at $0.30 — $0.36 per EPS and EPS for the quarter would have been $0.19.
In addition to our strong earnings from continuing operations, the company generated $11.7 million in cash from operating activities, which allowed us to pay the last installment of $1.7 million towards the balance of our credit facilities, concluding our obligation on the credit facilities with our Canadian lender and leaving the company debt free.
In August, Cipher announced that it filed and the Toronto Stock Exchange accepted a notice of intention to make a normal course issuer bid. In 2020, Cipher repurchased 103,500 shares at an average cost or a price of $1 for cancellation. And we intend to apply for an authorized repurchase program which would allow us more flexibility to buy back stock during self-imposed blackout periods. With our pristine balance sheet, Cipher is now in an excellent position to continue to execute on the normal course issuer bid and to selectively pursue product and business acquisitions in a prudent manner with a focus on high growth potential and near-term profitability.
One avenue for growth continues to be with our development partner Galephar. There are a number of interesting projects we are evaluating, including key products in the Lucy portfolio. One product of interest is a drug for severe hand eczema for the U.S. and Canadian markets. Cipher and Galephar are working closely and expect to receive feedback from the FDA on our clinical protocol submissions. Cipher continues to evaluate the market potential for this product.
In our tattoo product — in our tattoo program, the U.S. Patent Office issued a notice of allowance for the U.S. patent application covering tattoo dermal compositions. We have received encouraging results from the proof-of-concept studies and identified a lead candidate compound. Planning is currently underway for the next focused animal study that will incorporate test parameters that will potentially broaden and reinforce the existing IP portfolio.
Our development partner, Moberg has developed their proprietary formulation that can deliver a higher concentration of active drug to the nail than competing products on the market. To date, Moberg has conducted two North American Phase 3 studies. In these studies, the overall cure rates were lower than competing products at 4.5%. However, in contrast to the competing products, the mycological cure rate was 50% in less than 24 weeks, while the competing product required longer to reach this rate. Moberg is considering conducting additional trials to address the complete cure rate by shortening the treatment period.
From a financial perspective, fourth quarter results were encouraging. We are pleased to share that Epuris continue to perform well in the quarter with revenue at $2.1 million compared to $2 million in the comparative period. Epuris finished the quarter with a 40% market share in the Canadian market, up from 39% in the comparative period. We are extremely pleased with the performance of Epuris and the stability of revenue and cash flow during these challenging times.
Licensing revenue from Absorica was $3 million in the fourth quarter, down from $3.1 million in the same period last year. Absorica’s market share for the year ended December 31, 2020 was approximately 5.5% compared to 7% for the year ended December 31, 2019. Overall, Absorica’s because, brand and LD remained steady over the year at 7% market share. Cipher has assembled an attractive portfolio of assets beyond our currently marketed products. And we will continue to selectively look for additional products and businesses with growth potential, while remaining focused on profitability.
I will now turn the call over to Scott for a financial review of our fourth quarter results.
Scott Langille — Chief Financial Officer
Thanks, Craig. Revenue in the fourth quarter was $6.1 million compared to $5.9 million for the comparative period. Licensing revenue increased by 3% to $3.9 million for the quarter compared to $3.8 million for the same period last year. Licensing revenue from Absorica in the U.S. was $3 million for the three months ended December 31, 2020, a decrease of $0.1 million or 3% compared to $3.1 million in Q4 2019.
Licensing revenue from Lipofen and the authorized generic version of Lipofen was $0.8 million for Q4 2020, an increase of $0.2 million compared to revenue of $0.6 million for Q4 2019. Licensing revenue for the extended release tramadol, Conzip and Durela, was $0.1 million, which remained relatively unchanged for the comparative period.
Product revenue increased by $0.1 million or 5% to $2.3 million for Q4 2020 compared to $2.2 million for the comparable period in 2019. The increase in product revenue was attributable to a Epuris in respect of which revenue increased to $2.1 million compared to $2 million for the comparative period. According to IQVIA, Epuris had a prescription market share of 40% in Canada for the three months ended December 2020 — December 31, 2020 compared to 39% for the three months ended December 31, 2019.
Product revenue for Ozanex, Beteflam, Actikerall, Brinavess, Aggrastat and Vaniqa was $0.3 million in the aggregate compared to $2.2 million for the compared period. Total operating expenses were $8 million for Q4 2020 compared to $2.2 million for Q4 2019. The increase was primarily driven by the non-cash impairment of intangible assets related to Trulance of $5.3 million.
Loss from continuing operations was $0.1 million or a loss of $0.00 per basic and diluted share in Q4 2020 compared to income from continuing operations of $2.6 million or $0.10 per basic and diluted share in Q4 2019. Income from continuing operations was impacted by the impairment of intangible assets of $5.3 million. Adjusted EBITDA for Q4 2020 was $3.9 million compared to $4.2 million in Q4 2019.
The company had $9.1 million in cash and no debt at December 31, 2020. The company generated $11.7 million in cash from operating activities for the year ended December 31, 2020 and used approximately $8.9 million in cash during the year, which included $7.7 million in principal repayments. Cipher has purchased for cancellation 103,500 common shares during the fiscal year. And while our strengthened balance sheet, we are in an excellent position to continue to execute on our NCIB, while selective looking at attractive product acquisitions.
I will now turn the call back to Craig for closing remarks.
Craig Mull — Interim Chief Executive Officer
Cipher’s business and operations have demonstrated resilience as the COVID-19 pandemic continues to impact the world. With a profitable business and a reduced cost structure, we feel that we are in an excellent position to start accelerating our strategic promotional efforts to drive market share and our core brands and explore attractive product and business acquisitions in a prudent manner.
We will now open up the call for questions. Operator?
Questions and Answers:
Operator
[Operator Instructions] First question comes from Doug Loe at Leede Jones Gable. Please go ahead.
Douglas Loe — Echelon Wealth Partners — Analyst
Yeah. Thanks very much, and good morning, Craig. As always, just want to start with the Absorica question, if you don’t mind. It’s kind of reflecting on the fact that Epuris market share in Canada is exceedingly strong and continues to grow, while Absorica market share in the U.S. was strong and continues to shrink, notwithstanding the absolute growth royalty back to you is correspondingly strong. Just wonder if you are starting to have contemplated whether a more Epuris like pricing strategy in the U.S. might be a way to capture Epuris like market share there and if that might be a strategy that you could be contemplating, particularly when genericization of the product could very well be on the horizon?
Craig Mull — Interim Chief Executive Officer
We’ve had many conversations with Sun about the Absorica strategy. And they feel, as we do, that reduction in price would not necessarily increase the volume of the product. The product is known as a premium product. And if you start reducing the price, that image of premium could also disappear. So it’s something that we’re looking at, Doug, constantly. But at this point in time, we believe a price reduction would not necessarily yield increased volume.
Douglas Loe — Echelon Wealth Partners — Analyst
Okay. That makes sense. And then I haven’t been in front of a Bloomberg Terminal for a while [Indecipherable] why. So I don’t have the numbers on Absorica versus ABSORICA LD in the quarter. Is that the split that you’d be prepared to share?
Craig Mull — Interim Chief Executive Officer
The ABSORICA LD was launched, it was November of ’20. What year — what month was it launched? February. Sorry, February. And it — due to COVID and perhaps other issues, it hasn’t gained the market share that was expected. It is growing. It represents about a 25% share of the Absorica market at this point. Without — go ahead, Doug.
Douglas Loe — Echelon Wealth Partners — Analyst
I was just acknowledging the number, that’s fine.
Craig Mull — Interim Chief Executive Officer
Yeah. So it really gained as expected.
Douglas Loe — Echelon Wealth Partners — Analyst
Okay. That’s fine as well. And then thirdly, I think in your MD& you indicated that you aren’t going to undertake those marketing studies on Brinavess as part of the Verity portfolio. Just thought that was an interesting observation. Just wondered what sort of market analysis or intel that you have about Brinavess’ potential adoption in Canada considering this negative regulatory in the U.S.? And I’ll leave it there. Thanks.
Craig Mull — Interim Chief Executive Officer
We believe that the product is a strong candidate for the hospital sector. We believe that Verity, who has a background with these products through Cardiome, will do a good job of increasing the number of hospitals that we have on our roster. And we’ll have feet on the ground and they will be promoting those products, particularly Brinavess.
Douglas Loe — Echelon Wealth Partners — Analyst
That’s great. Thanks, Craig.
Craig Mull — Interim Chief Executive Officer
Thanks, Doug.
Operator
Thank you. [Operator Instructions] There are no further questions. I will now turn the call back over to Craig Mull for closing comments.
Craig Mull — Interim Chief Executive Officer
Thank you, operator. Thank you for joining us today. We look forward to reporting on our progress throughout the balance of 2021 as we execute on the priorities discussed today. Thank you.
Operator
[Operator Closing Remarks]