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Edited Transcript of CPH.TO earnings conference call or presentation 8-May-20 12:30pm GMT

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Q1 2020 Cipher Pharmaceuticals Inc Earnings Call Mississauga May 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Cipher Pharmaceuticals Inc earnings conference call or presentation Friday, May 8, 2020 at 12:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Craig J. Mull Cipher Pharmaceuticals Inc. - Interim CEO, President & Chairman of the Board of Directors ================================================================================ Conference Call Participants ================================================================================ * Douglas W. Loe Echelon Wealth Partners Inc., Research Division - Analyst of Healthcare and Biotech * Prasath Pandurangan Bloom Burton & Co., Research Division - Associate of Equity Research ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals Fiscal First Quarter 2020 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded today, Friday, May 8, 2020. 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 J. Mull, Cipher Pharmaceuticals Inc. - Interim CEO, President & Chairman of the Board of Directors [2] -------------------------------------------------------------------------------- Thank you, operator, and good morning, everyone. On today's call, I will provide a corporate and financial review of our first quarter 2020 results. Following my prepared remarks, I will open the call for questions. Note that all amounts are in U.S. dollars, unless otherwise stated. We are pleased to report that our first quarter results showed our continued focus on cost optimization and profitability. One of our key priorities has been ensuring a self-funding business model, which has become more and increasingly more important over the past few months. First quarter results showed strong top line revenue growth and excellent expense management. The benefit of simultaneously achieving these goals is the impressive operating leverage we achieved in the first quarter. Total revenue was up 15%, while adjusted EBITDA grew 132%, and net income increased 224%. The business delivered material increases in profitability in the first quarter of 2020. Epuris continues to show a strong growth. With the first quarter revenue of $2.4 million compared to $1.6 million last year, Epuris finished the quarter with 40% market share in the Canadian market. During the first quarter, Sun Industries -- Sun Pharmaceutical Industries, Cipher's marketing partner for Absorica, launched ABSORICA LD capsules in the U.S. for the management of severe recalcitrant nodular acne in patients 12 years of age and older. In addition to the benefits of -- that ABSORICA LD will bring to the patients, we are thrilled that the launch will trigger an extension of our agreement with Sun Pharmaceuticals. As previously announced, the company concluded its binding arbitration with Upsher Smith. The arbitration was related to the patent infringement lawsuit alleging Upsher Smith had infringed on at least one or more of Cipher's patents by filing an abbreviated new drug application with the Federal Drug Administration to market a generic version of Absorica. We believe that the launch of ABSORICA LD and the conclusion of the arbitration with Upsher Smith improves and extends the competitive position of our products, placing the company in a strong position to benefit from the future revenue stream associated with both Absorica and ABSORICA LD. During the first quarter, Cipher announced that it received a notice of termination from Bausch Health in connection with the license, development and commercialization agreements of TRULANCE. Cipher believes the notice is without merit and is currently in arbitration with Bausch to resolve the matter. The company would like to take this opportunity to announce that its Board of Directors has concluded the strategic review process that was announced on June 29, 2019. A special committee was formed to review and evaluate the strategic direction of the company and consider various alternatives to maximizing shareholder value. During the process, the focus shifted to target, in the most cost-effective manner, to distribute the Canadian commercial assets. After extensively reviewing all alternatives, including offers for multiple products and from multiple parties and taking into account the demonstrated strengths in Epuris, the Board has determined at this time shareholder value would be best maximized by retaining the Canadian commercial portfolio and distributing the Canadian commercial assets through a distribution partner. I would like to thank the special committee and the Board of Directors for their efforts during this process and assure shareholders that the Board of Directors and management team remain committed to enhancing shareholder value. We have taken substantial cost off the business, and we intend to keep a close eye on our cost structure and profitability. With our cost structure largely optimized, our focus will now shift to looking for the right opportunities for growth. Cipher has assembled an attractive portfolio of assets beyond the currently marketed products, and we are committed to moving our current pipeline products through the regulatory approval process. Further, Cipher will continue to work with our technology partner, Galephar, to explore bringing new exciting products to market with a focus on the U.S. and international markets. I will now provide a financial review of our first quarter results. Again, all figures quoted are in U.S. dollars. Total revenue for the first quarter was $5.9 million, up from $5.1 million in the comparative period. The main driver for this increase was the Canadian commercial product revenues. Licensing revenue was $3.3 million for the first quarter, essentially unchanged from the prior period. Licensing revenue from Absorica in the U.S. was $2.7 million for the 3 months ended March 31, 2020, unchanged from the prior period. Absorica ended the quarter with 6.2% market share. Product revenue increased by $0.7 million or 41% to $2.6 million for first quarter 2020 compared to $1.8 million for the comparable period in 2019. The increase in product revenue was attributed to Epuris, which increased to $2.4 million compared to $1.6 million in the comparative period. According to IQVIA, Epuris had prescription market share of over 40% in Canada for the first 3 months of 2020 compared to 37% for the 3 months ended March 31, 2019. Total operating expenses decreased by $2.3 million for the first quarter of 2020 compared to $3.6 million in the first quarter of 2019. The decrease was primarily driven by a decrease in SG&A expense. SG&A expense was $1.4 million for the first quarter 2020, a decrease of $1.5 million or 51% compared to the prior period. The decrease in SG&A was primarily driven by an overall reduction in costs related to human resources. Net income was $2.65 million or $0.10 per basic and diluted shares or CAD 0.13 in the first quarter of 2020 compared to $0.8 million or $0.03 per basic and diluted share in the first quarter of 2019. Adjusted EBITDA for the first quarter of 2020 increased to $4.1 million compared to $1.7 million in the first quarter of 2019. The company generated $5.4 million in cash from operating activities during the quarter, and net cash increased to $2.5 million in the first quarter. As of March 31, 2020, company had cash of $8.8 million and $5.7 million in -- of debt. Finally, regarding COVID-19, Cipher continues to take appropriate measure to minimize any potential impact on our employees. While the precise impacts of COVID-19 on the company remain unknown, we have yet to see any material negative impact on our business due to the rapid spread of the virus. With that said, we realized the virus may have a material adverse effect on global economic activity, and that can result in volatility along with disruption to the global supply chains, operations and the mobility of people and capital markets. Overall, we are pleased with the company's first quarter results. With our rationalized cost structure in place, Cipher will now focus on several key milestones that will enhance long-term value, including the full year benefit of the cost reduction plan, increased adoption of the ABSORICA LD and a renewed focus on growth. With a profitable business and a reduced cost structure, we feel we are in an excellent position to find the right opportunity for Cipher to grow. We will now open the call up for questions. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Doug Loe, Echelon Wealth Partners. -------------------------------------------------------------------------------- Douglas W. Loe, Echelon Wealth Partners Inc., Research Division - Analyst of Healthcare and Biotech [2] -------------------------------------------------------------------------------- Craig, thanks for the overview on the Q1 results, solid EBITDA and cash flow, as you described. Just wanted to focus on Absorica in comparison to Epuris a little bit, if you don't mind. Your U.S. Absorica royalties were fine in comparison to expectations with market share of 6.2%. That's far lower than what you achieved at peak levels and in comparison to Epuris, which continues to perform well with 40% category market share, continues to be strong, and of course, Absorica and Epuris are the same drug by a different name. Just wondering -- I know that Sun is still responsible for Absorica marketing. And at this point, you collect a check in the mail every month until you get full marketing rights back. But just sort of wondering what strategies might be invoked in the U.S. in order to drive market share up a little bit. I know that the 2 products are priced differentially. But are there any sort of marketing strategies that you've seen that you might be able to improve on in coming years once you reacquire marketing rights? Or are there any pricing strategies that you can invoke? Can you just kind of flush that out a little bit vis-à-vis the clear demonstration that Epuris is regarded well just on its pharmacokinetic profile in Canada? I'm just kind of wondering why that's not resonating quite as much in the U.S. -------------------------------------------------------------------------------- Craig J. Mull, Cipher Pharmaceuticals Inc. - Interim CEO, President & Chairman of the Board of Directors [3] -------------------------------------------------------------------------------- Yes. Again, you're correct in saying that Sun has the responsibilities for the marketing and sales of that product. Having said that, it's in our interest to help them where we can and experiences that we may have in Canada where we would be communicating those to Sun. Again, we're anticipating -- we're expecting that the marketing of these products may change going forward to a certain degree. We're busy looking for different ways to market our products directly to prescribing physicians. And some of those different options could include telemedicine, virtual portals that we can discuss our product with physicians, plus the fact that these portals may be used more to see patients with. And we're spending quite a bit of time in this area. We're right at the moment trying to find innovative ways to get our product out into the marketplace and get more attention, particularly with what we expect to be a changing environment. -------------------------------------------------------------------------------- Douglas W. Loe, Echelon Wealth Partners Inc., Research Division - Analyst of Healthcare and Biotech [4] -------------------------------------------------------------------------------- Great. That's helpful. And then just one other follow-up, if I may. You didn't spend much time in the MD&A on any of your development-stage partnered assets. So I was just wondering what your expectations are on time lines to data for MOB-015 and for CF101 in the nail fungus and psoriasis markets, respectively? -------------------------------------------------------------------------------- Craig J. Mull, Cipher Pharmaceuticals Inc. - Interim CEO, President & Chairman of the Board of Directors [5] -------------------------------------------------------------------------------- Well, we're continuing to move through the regulatory process with the drugs under development. Again, we're -- we believe that we're creating value by increasing the credibility of the products by going through the process. We've got a number of projects, as you know, the tattoo project, which is a longer term project, and we're continuing to validate the quality of the results there. Under the partnership agreement that we have with Galephar, we also have a number of products that we're working with them on that -- in that area, including alitretinoin product for hand eczema. And so we continue to push through the regulatory process, and we believe that we're increasing the value of those products as we do. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Our next question comes from Prasath Pandurangan, Bloom Burton. -------------------------------------------------------------------------------- Prasath Pandurangan, Bloom Burton & Co., Research Division - Associate of Equity Research [7] -------------------------------------------------------------------------------- Congrats on the quarter. Could you give additional color on what's driving the growth in Epuris? Specifically, could you comment on inventory levels in the channel and potential higher prescription filling prior to the social-distancing measures? How much of this $2.4 million would you think is a sustainable quarterly run rate? -------------------------------------------------------------------------------- Craig J. Mull, Cipher Pharmaceuticals Inc. - Interim CEO, President & Chairman of the Board of Directors [8] -------------------------------------------------------------------------------- Well, I think it's a sustainable run rate. Epuris is known as being a very high-quality drug in this particular sector. We believe that more people are changing their prescribing habits, and we expect that this revenue will be maintained for the near term, if not longer. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Your next question comes from [Alan Pasnik], [Pasnik Asset Management]. -------------------------------------------------------------------------------- Unidentified Analyst, [10] -------------------------------------------------------------------------------- Great quarter. Two questions. One is, have you thought about paying a dividend, either a onetime or a quarterly dividend? And the second question is about Epuris. During the strategic review process, were there any offers for that specific product? And can you highlight sort of the -- whether there's a cash off or what the value might have been on an offer for that product? -------------------------------------------------------------------------------- Craig J. Mull, Cipher Pharmaceuticals Inc. - Interim CEO, President & Chairman of the Board of Directors [11] -------------------------------------------------------------------------------- Okay. Starting with your first question, the dividend. Our strategy at the moment is to generate as much income from our products and pay down our debt, bank the money and look for opportunities. And at this point in time, we don't expect to be paying a dividend in the near term. The second question about Epuris and any possible sale. Again, we signed confidentiality agreements with different players in the market. And I don't want to go into the details of any of their offers. But Epuris is of great value to the company, and that was borne out by going through this process. Did I answer that question? Or was there anything more specific that you wanted to hear? -------------------------------------------------------------------------------- Unidentified Analyst, [12] -------------------------------------------------------------------------------- Well, if that's all you can say, that's fine. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- There are no further questions at this time. Please proceed. -------------------------------------------------------------------------------- Craig J. Mull, Cipher Pharmaceuticals Inc. - Interim CEO, President & Chairman of the Board of Directors [14] -------------------------------------------------------------------------------- Thank you for joining us today. We look forward to reporting on our progress throughout the balance of 2020 as we execute the priorities we have discussed today. Thanks again, and have a very good day. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.