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Cipher Pharmaceuticals Inc
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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Cipher Pharmaceuticals quarterly conference call for the company's Q1 2024 results. [Operator Instructions] As a reminder, this conference is being recorded today. Friday, May 10, 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.
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 conference call over to Mr. Craig Mull, Interim Chief Executive Officer of the company. Please go ahead, Mr. Mull.
Good morning, everyone, and thank you for joining us today. Before I begin, I would like to remind everyone that all figures discussed on today's call are expressed in U.S. dollars unless otherwise specified. Cipher's first quarter 2024 results have followed through very nicely from how the business performed in 2023. Profitability and predictable cash generation continued to drive results and we see this trend continuing throughout 2024.
Cipher exited the first quarter with $42 million in cash on the balance sheet, no debt and substantial liquidity to drive future growth of the business. Looking forward, Cipher is focused on 2 areas of growth, organic growth through our pipeline products and inorganic growth through acquisition. To start, I would like to touch on Moberg Pharma and its exciting nail fungus treatment, MOB-015, a product that Cipher holds the exclusive Canadian rights to market and distribute. We are more and more excited about the product as we are 8 months away from results of the pivotal Phase III clinical trial being conducted in the U.S.
But more importantly, this is a product that has already received regulatory approval in countries outside North America. 4 months ago, on May 6, Moberg announced the product received national approvals across 13 European countries, which we believe has further paved the path forward and derisk the eventual Canadian approval by Health Canada. In Canada, current nail fungus therapies are inadequate as complete cure rates are well below 20%.
The existing treatment protocols are long, inconvenient and most importantly, ineffective. Where MOB-015 meets this unmet need is it has already shown a comparatively high mycological cure rate of 76% which provides rapid and visible improvement of curing nail fungus.
The Phase III trial underway has adjusted the dosing to a once-per-week treatment after 8 weeks of treatment which is expected to increase the complete cure rates to the rate that is far greater than the market-leading existing product. Most recent Canadian market share data indicates a total market of CAD 91 million whereby one product currently has over 90% -- 95% of that market.
On February 7, Allderma AB launched MOB-015 in Sweden under the brand name Terclara. And on April 23, Moberg Pharma provided an update provided a launch update to the market. to quote the release Moberg stated, interest in the product exceeds the pharmacy change forecast and chains are increasing their orders given Terclara has occasionally stocked out or sold out at several of the pharmacy chains.
The news release went on to say patients are also verifying the need -- the great need for new treatment options for nail fungus, and we are receiving patient inquiries for many countries as Sweden is the first country where the drug is being launched. Hearing these results in countries where MOB-015 has recently been launched, provides our business and management team comfort in what we have been saying from the beginning. We believe there is a large unmet need in nail fungus treatments and are confident that the launch of MOB-015 in Canada will allow Cipher to capture significant market share quickly when launched in 2026.
Our second pipeline product, Piclidenoson, continues to make regulatory progress with our partner, Can-Fite Biopharma. Piclidenoson pivotal Phase III trial has been approved by both the U.S. FDA and the European Medicines Agency. Can-Fite believes the trial will commence later in 2024. Upon positive conclusion of the trial, Can-Fite will submit both a new drug application to the FDA and a marketing authorization plan to the EMA.
Cipher has in-licensed this product for the distribution in Canada, and it represents a market opportunity to the company in excess of CAD 40 million per year. Moving on to our current M&A initiatives. We remain very positive about the progress that we've made thus far in 2024. We continue to advance work and discussions on a number of acquisition opportunities, and we are becoming more optimistic that we will be able to share the details of one or a combination of these opportunities soon.
However, I feel like this statement needs to be balanced with expectations as M&A tends to take more time than everyone would like and we continue to progress activities in this area. We have been in this position before. In the summer of 2023, we were close to executing a transaction. However, in late stages of that process, things took a turn and we decided to move in a different direction.
This change, of course, led us to initiate a substantial issuer bid, which turned out to be a strong use of capital for the business and our shareholders, which brings me to an important point that I want to emphasize. When Cipher is evaluating a transaction or any other material corporate action, the impact of our shareholders will always be a critical consideration to our decision-making.
As we have previously stated, we are spending most of our time on Cipher's M&A strategy and remain confident in our ability to execute in this area. Thank you again for joining us here today, and I look forward to answering questions -- your questions after our prepared remarks.
I will now pass the call over to our CFO, Bryan Jacobs. Please go ahead, Bryan.
Thank you, Craig, and good morning, everyone. As Craig mentioned at the beginning of today's call, all amounts are provided in U.S. dollars, unless otherwise noted. Today, Cipher Pharmaceuticals is reporting results from the company's first quarter of 2024 in the 3-month period ended March 31, 2024.
Total net revenue was $5.9 million in the first quarter of 2024, an increase of $1 million or 20% when compared to the same period in 2023. Licensing revenue was $2.6 million for the first quarter of 2024 compared to $1.7 million in the prior year quarter, representing a 55% increase. Licensing revenue from Absorica in the U.S. was $1.9 million for the first quarter of 2024, an increase of $0.9 million or 90% when compared to the same period in 2023. This increase was driven by $1.1 million in higher product shipments and slightly offset by a $0.2 million lower net sales royalty.
Market share from the Absorica portfolio, which includes the brand Absorica, the authorized generic or AG in Absorica LD in the U.S. of approximately 6.5% for the 3 months ended March 31, 2024, which decreased by 0.3% compared to the same period last year according to market data. Licensing revenue from Lipofen in the AG of Lipofen was $0.7 million for the first quarter of 2024, which was effectively flat year-over-year.
Moving to our Canadian-based product portfolio. Total product revenue was $3.3 million for the first quarter of 2024, an increase of $0.1 million or 2% from the comparable period in 2023. Sales from Epuris in the first quarter of 2024 was $2.9 million, an increase of $0.2 million or 7% from the prior year quarter. As we have continued to invest in the sales activities related Epuris we're proud to see the third consecutive growth in growth in sales of the product.
Total market share for Epuris was approximately 45% and as at March 31, 2024, representing the leading prescribed isotretinoin product in the treatment of acne across Canada. Selling, general and administrative expenses were $1.5 million for the first quarter of 2024, an increase of $0.3 million or 21% from the compare period in the prior year. The increase is primarily attributable to higher salaries and benefit costs as well as higher other selling and general admin costs incurred in the first quarter of 2024.
Net revenue for the 3 months ended March 31, 2024, was -- sorry, net income for the first 3 months ended March 31, 2024, was $4.9 million or $0.20 per diluted common share compared to $2.6 million or $0.10 per diluted common share for the same period in the prior year. The increase in net income of approximately $2.3 million was primarily attributable to $2 million of income tax recovery in the first quarter of 2024 arising from a change in the company's deferred tax assets associated with unused loss carryforwards.
Cipher's income before taxes, which excludes the earnings attributable to income tax recovery, was approximately $3 million or $0.12 per diluted share for the first 3 months ended March 31, 2024. Adjusted EBITDA for the first quarter of March ended March 31, 2024, was $3.6 million compared to $3.2 million for the prior year quarter. This very strong increase of 13% was mainly driven by the previously mentioned increase in licensing revenue I described. The company had $42 million in cash at the end of the quarter. No debt and continues to generate strong free cash flow from operations.
Cipher continues to remain strongly capitalized with solid financial footing, which really sets us out among our peers. A fortified balance sheet available credit facilities. This places us in a very strong and enviable position to be opportunistic to drive our next legged growth. Now we'll open up the call to questions. Thank you.
[Operator Instructions] Your first question comes from the line of Andre Uddin from Research Capital.
Craig and Bryan. Just wondering if you can elaborate a little bit more on your business development activity. If you what Brian was saying is that the company is also much stronger financially now than it was a year ago. Are you seeing more competition now in terms of trying to get assets -- and are any of those assets actually getting any cheaper.
This is -- Andre, it's Craig here. This is kind of -- this doesn't have a lot of data behind it, but just our feel is that we feel that there's probably less competition and that pricing is getting more reasonable, I'll call it. Our deal flow is very strong, particularly in the Canadian market. But we're also seeing increasing opportunities coming out of the U.S.
That's useful. And just looking at your Phase III results that are going to be -- or not your Phase III results, but I guess Moberg Phase III results are coming out in January. Assuming those are positive, when does Cipher expect to file an NDS, like if the data comes out in January, how long would it take, roughly, do you think?
Good question, Andre. We get that frequently. It's Bryan here. The way we're just trying to look at it pretty pragmatically, we've been getting organized, getting our Canadian dossier ready now. Part of the reason why is because that dossier is going to be based on the European approval. And Health Canada has a bit more of a stream process with the MEA rather than the FDA so we're basing our submission of it.
And as you know, the dossier or at least the formulation of the product isn't changing based on the Phase III trial. So it's easy for us to do that. So once we get the additional results in January, so Q1 of 2025, it will take us another quarter to get the submission in. Health Canada's window then is about 1 year. So that would take us to the second quarter of 2026. So we are focused on a launch in the second half of 2026.
That's great. And something you haven't talked about in a little while is Galephar, and I'm just wondering, are you still doing any research projects with them? And are any of those projects advancing?
We continue to work with Galephar on a number of new products, including modifications perhaps to some of our existing products. They have been an excellent partner and an excellent development partner and really is the origins of Cipher with the 3 products that they developed that still exist for Cipher today.
So we've got a good tight relationship with them and that we're always in communication about different opportunities that they're involved in.
Your next question comes from the line of Doug Loe from Leede Jones Gable.
Yes, sorry for beating the Moberg alliance to death here, but just following up on Andre's question. Can you just walk me through the logic of not filing your NDS based on existing data that EMA regarded as being highly positive. It strikes me as though if you could get an NDS approval even without the U.S. Phase III data to the timing of approval even if you saw now would be after Phase III data would be available.
Just walk me through the logic I'm not trying to get a head start on that process so that you'd be prepared to launch that.
Doug, we are -- it's Craig here. We are getting a head start on our submission. But what we're looking for is to be able to get the claim that we're looking for, and that's that complete cure rate being superior to the existing product in the market.
Yes. Okay. That's fair enough. I brought up this question before. And then just shifting to the collection of nonpros acute care products that you market in Canada. You're generating sort of $0.5 million-ish in revenue in most recent quarters, which is enough to mention, but not enough to get too excited about, but just wondering if there are any products in that portfolio that have any growth trajectory that might provide additional cash flow in future quarters.
I'm thinking Aggrastat might be the most logical candidate, but your comments would be helpful there. And I'll leave it there.
Doug, you're referring to what we term our hospital products. I think, Yes, I think that Aggrastat has got some potential mainly because the main product that was being used was discontinued, and there's some outfit that is trying to make a generic product -- generic equivalent of that product. And we found that we picked up quite a few sales as of the discontinuance of the main product.
I don't see a tremendous amount of growth. The Brinavess non-approval was disappointing in the U.S., as you know, Doug, and that hasn't helped that particular product in Canada for sales. But it's an area that we're going to continue in. There's good reason for that beyond just trying to increase the revenues.
Perfect. And then just one housekeeping question. Bryan, what's the total available tax loss carryforwards that you have from this point going forward?
Yes. So we've been chipping away at them. I would say the total at this -- we're probably sitting at about 170, 175.
That's it for me guys. Congratulations.
Your next question comes from the line of Justin Keywood from Stifel.
On the licensing revenue up pretty substantial year-on-year. Was there anything unusual in that, either seasonality or other?
So the licensing revenue as you know, there's the 2 pieces, and I kind of tried to break it down in my remarks. We kind of have the net sales royalty, but we also get a royalty on product shipments. So product shipments is what can be lumpy where the net sales revenue is not. So we had a higher amount of year-over-year shipments that came into the first quarter. So that, to some extent, causes licensing revenue to not be as predictable quarter-to-quarter, but it does have this benefit.
So we saw that benefit came through in a quarter like Q3 of last year as well as we're seeing a benefit here in this Q1. So that's kind of what happened in the quarter.
Is there a good level to assume for the rest of the year?
When I get asked that question, I always say, just look at the trend, look at the run rate. And you can -- where you have an aspect that's a little bit lumpy, you can kind of average that out. That's kind of the way to look at it. We break it down in our financials. So we have the split between the two.
Is there a confidence that the product revenue could still grow for the remainder of the year?
Yes. We are seeing a trend there as well. And we think that we'll get further growth as we go.
Is it worth investing more?
That is a question that's right in front of us right now and it's being analyzed. We're getting good traction with our salespeople, and we think that perhaps -- and good penetration, particularly the Accutane market share. So we're looking at that, and I'm reviewing some proposals from our commercial people.
So just coming back to capital allocation. You mentioned share buyback pursuit of M&A and then perhaps investing just internally in more sales. How do you balance those 3 areas?
Well, I think that we're -- the organic growth that I mentioned is our pipeline products, and those are progressing, and we don't have a great deal of involvement other than preparing ourselves for the submission and the launch. From an M&A standpoint, I'd say that, that's probably the area that we expect will be most significant in our growth. Lastly, the investment in additional commercial that will be self-funding in my opinion.
That will not require an investment where we won't do it because I expect that the earnings generated from the new salespeople or additional sales efforts will be paid for by paid back immediately with market share.
Okay. And then just one final one. Just on M&A. On the last call, there was confidence expressed in executing on one or more deals in 2024. Does that view still remain the same?
Yes. I'm feeling quite confident and quite optimistic. But again, the footnote is Cipher has made some bad decisions in the past. And we're going to make damn sure that, that's not going to happen again.
There are no further questions at this time. I will now turn the call back to Mr. Mull for closing comments.
Just want to thank everybody for joining us today and your interest in the company and we expect to give you further reports on our progress in the coming months. Thank you for your time.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.