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Edited Transcript of CPH.TO earnings conference call or presentation 7-Nov-19 1:30pm GMT

Q3 2019 Cipher Pharmaceuticals Inc Earnings Call

Mississauga Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Cipher Pharmaceuticals Inc earnings conference call or presentation Thursday, November 7, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Craig J. Mull

Cipher Pharmaceuticals Inc. - Interim CEO, President & Chairman of the Board of Directors

* Nadine Jutlah

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Conference Call Participants

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* Prasath Pandurangan

Bloom Burton & Co., Research Division - Associate of Equity Research

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, thank you for standing by.

Welcome to the Cipher Pharmaceuticals Inc. Fiscal 2019 Third Quarter Results Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded today, Thursday, November 7, 2019.

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

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Craig J. Mull, Cipher Pharmaceuticals Inc. - Interim CEO, President & Chairman of the Board of Directors [2]

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Thank you, operator, and good morning, everyone. Joining me from Cipher is Nadine Jutlah, Interim CFO.

On today's call, I will make a few opening remarks before Nadine reviews the financial results in more detail, after -- we will open the call for questions. And please note, all figures today are in U.S. dollars.

I'll keep my commentary on the financial results to a minimum, as Nadine will focus on this in her presentation. I will also provide a brief progress report on our strategic initiatives that we are undertaking.

At a high level, we are pleased to see Q3 results continue to show evidence of our commitment to increasing profitability, which allowed us to accelerate our debt repayment.

As previously announced, the Board of Directors appointed a special committee to review and evaluate strategic direction of the company and to target strategic distribution partnerships for the Canadian commercial assets.

As part of this strategic review of the business, the company reassessed its efforts to out-license ASF-1096, the remaining asset in the Astion portfolio, and wrote off the net book value of $1.1 million associated with the asset.

In addition, as part of the company's strategic review, the licensing agreements for A-101 and Xydalba were terminated. The company recorded an impairment charge of $2.4 million, representing the carrying value of those assets.

Adjusting for restructuring and impairment charges we took during the quarter, we are pleased to see evidence that the company is returning to its roots as a cost-conscious financially prudent operator focused on building a portfolio of royalties and novel therapies.

With regards to Cipher's Canadian commercial portfolio, we are in discussions with several interested parties who would become our distribution partners. At this point in time, I do not want to delve further into this initiative to avoid any comment that may impact the process. However, I can tell you that discussions are going well.

Cipher has historically had success bringing late-stage assets through the regulatory approval process and commercializing them with the right partners. We intend to focus on this model going forward. The company will transition its 6 marketed products, which are currently marketed directly through our internal sales force to an alternative distribution model. Shifting to a partnership model will eliminate future milestone payments, commercial investments as these costs will be borne by our partners.

The template for our partnership model will be to generate upfront payments, which will recover pre-commercial investment across these products. Through this structure, we will reduce operating expenses and increase profitability. The company intends to use the cash generated from these royalties to pay down debt and focus on near-term development opportunities.

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 process. For example, on October 10, Health Canada approved TRULANCE in the form of a once-daily tablet for the treatment of adults with irritable bowel syndrome. We are pleased TRULANCE achieved Health Canada approval, and we are excited to be able to bring this new and effective treatment to Canadians.

In addition, Cipher continues to work with our technology partner, Galephar, to bring new and exciting products to market with a focus on the U.S. and international markets.

We look forward to providing you with updates on the status of our partnership initiatives as we transition the Canadian commercial portfolio.

I will now turn the call over to Nadine to review the financial results. Nadine?

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Nadine Jutlah, [3]

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Thank you, Craig. Good morning...

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Operator [4]

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Ladies and gentlemen, please standby.

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Craig J. Mull, Cipher Pharmaceuticals Inc. - Interim CEO, President & Chairman of the Board of Directors [5]

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Sorry. Nadine?

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Nadine Jutlah, [6]

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Yes.

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Craig J. Mull, Cipher Pharmaceuticals Inc. - Interim CEO, President & Chairman of the Board of Directors [7]

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Nadine, I didn't mean to disturb, but my apologies to you.

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Nadine Jutlah, [8]

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Thank you, Craig. Good morning, and thank you for joining us. I'll now provide a financial overview of our third quarter results.

Total net revenue for the quarter increased 20% to $5.8 million compared to $4.8 million for the prior year comparative period. Licensing revenue increased 11% to $3.6 million compared to $3.3 million in the comparative period.

Revenue from Absorica was $2.6 million in Q3 2019, which remained relatively unchanged from Q3 2018. Absorica's market share for Q3 2019 was approximately 8% compared to 11% in Q3 2018.

The increase in licensing revenue primarily relates to product sales of Lipofen and the AG.

Product revenue increased 40% to $2.2 million in the current quarter from $1.6 million in the comparative period. Epuris was the main driver of this, with sales of $1.9 million, up from $1.4 million in Q3 2018. Epuris had prescription market share of just over 40% in Q3 2019 compared to 34% in Q3 2018.

Total operating expenses increased 73% in the third quarter to $6.5 million from $3.8 million in the prior year comparative period. The increase in operating expenses is primarily due to intangible asset impairment charges totaling $3.5 million and the restructuring cost of $0.8 million.

SG&A, however, declined 58% in the period to $1.3 million from $3 million in the comparative period, mainly due to cost reductions related to the Canadian commercial operations.

Adjusted EBITDA, which adds back the restructuring and impairment charges, increased 149% to $3.7 million in the quarter compared to $1.5 million in Q3 2018.

Overall, we finished the quarter with a net loss of 2.28 -- I'm sorry, $2.2 million or $0.08 per share compared to net income of $0.7 million or $0.03 per share from continuing operations.

On September 30, 2019, the company entered into a third amendment to its credit facility. The amendment adjusts certain financial covenants for the remainder of the credit facility term. In consideration for the amendment, the company prepaid $2 million against the outstanding balance. There are no prepayment penalties or fees associated with this prepayment.

As at September 30, 2019, the company had $6.4 million in cash and $9.6 million in debt.

We will now open the call for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Prasath Pandurangan, Bloom Burton.

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Prasath Pandurangan, Bloom Burton & Co., Research Division - Associate of Equity Research [2]

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Firstly, I see that TRULANCE prescriptions have been growing steadily in the U.S. according to Symphony. Could you talk about your market size and market share assumptions in Canada as you get into out-licensing discussions?

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Craig J. Mull, Cipher Pharmaceuticals Inc. - Interim CEO, President & Chairman of the Board of Directors [3]

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I don't think that we're in a position to talk about that at the moment, given the negotiations that we're having with potential distribution partners.

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Prasath Pandurangan, Bloom Burton & Co., Research Division - Associate of Equity Research [4]

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Okay. Got it. And any updates on the life cycle management strategy on Absorica and your outlook for Absorica prescriptions in 2020?

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Craig J. Mull, Cipher Pharmaceuticals Inc. - Interim CEO, President & Chairman of the Board of Directors [5]

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Well, we continue to work with Sun, our distribution partner in the U.S. to have extensions on the current product. We're also positioning the product as a prestige product in the category. And we believe that through the marketing of that we'll be able to retain a certain market share.

The life cycle management project is ongoing. We expect to be reaching an agreement with Sun on a potential adjustment to the product that would extend the life.

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Operator [6]

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(Operator Instructions) There are no further questions at this time, please proceed.

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Craig J. Mull, Cipher Pharmaceuticals Inc. - Interim CEO, President & Chairman of the Board of Directors [7]

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Thank you for joining us today. And we look forward to reporting on our progress throughout the balance of 2019 as we execute on the priorities we discussed today. Thank you, and have a great day.

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Operator [8]

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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.