Cipher Pharmaceuticals Reports Q3 2018 Results

Canadian product revenue increased 27%

MISSISSAUGA, ON, Nov. 7, 2018 /CNW/ - Cipher Pharmaceuticals Inc. (TSX:CPH) ("Cipher" or "the Company") today announced its financial and operating results for the three and nine months ended September 30th, 2018. Unless otherwise noted, all figures are in U.S. dollars.

Q3 2018 Financial and Corporate Highlights
(all figures compared to Q3 2017, unless otherwise noted)

The Company continues to execute on its revised corporate strategy focusing on long term growth that was introduced last year by the new management team. Utilizing strong cash flows from its profitable global licensing business, the Company continues to invest in and build a diversified portfolio of prescription products across a broad range of therapeutic areas that meet unmet medical needs. In 2018, Cipher launched two new products in Canada and completed six transactions that demonstrate meaningful progress in the execution of this strategy. Key highlights during and subsequent to the quarter are:

  • In July, Cipher amended its distribution and supply agreement with Sun Pharmaceuticals Inc. ("Sun") to provide Sun with the ability to launch novel isotretinoin products used to treat severe acne prior to the expiry of the current agreement in November 2022. Cipher will receive a royalty on net sales of all Sun isotretinoin products launched prior to December 2024.
     
  • In September, Cipher acquired the exclusive rights to MOB-015 from Moberg Pharma AB ("Moberg"). MOB-015 is a patented proprietary formulation of terbinafine for the topical treatment of onychomycosis, a fungal infection of the nail. Moberg is currently running the phase III trial required for regulatory submission to Health Canada.
     
  • In September, Cipher received Health Canada approval of Xydalba (dalbavancin hydrochloride), the first and only one-dose treatment option for acute bacterial skin and skin structure infections in adults available in Canada. Cipher plans on launching Xydalba in the first half of 2019.
     
  • In October, Cipher launched Brinavess® (vernakalant hydrochloride) for the rapid conversion of recent onset atrial fibrillation ("AF"), (an irregular and often rapid heart rate that can increase the risk of stroke, heart failure and other heart-related complications) to sinus rhythm ("SR"), (a normal heart beat) for non-surgery patients with duration of AF less than seven days and post-cardiac surgery patients with duration of AF less than three days.
     
  • Revenue from commercial product sales in Canada increased 27% to $1.6 million up from $1.2 million.

 

Q3 2018 Financial Review
(All figures are in U.S. dollars)

Total revenue was $4.8 million for Q3 2018 compared to $10.0 million for Q3 2017.  The year-over-year decrease mainly reflects lower revenue from Absorica®. As previously disclosed, fiscal 2017 was an unusually strong year for Absorica revenue based on the success of Cipher's partner's promotional program, which drove significant market share gains prior to the end of the program in November 2017.

Licensing revenue for Q3 2018 was $3.3 million compared to $8.8 million for Q3 2017. Absorica licensing revenue was $2.6 million for Q3 2018, compared to $7.6 million for Q3 2017. Licensing revenue from Lipofen® products decreased as expected to $0.6 million for Q3 2018 compared to $1.0 million in Q3 2017. Licencing revenue from tramadol products (Conzip® and Durela®) was $0.1 million compared to $0.3 million in Q3 2017.  

Product revenue increased by 27% to $1.6 million for Q3 2018 compared to $1.2 million for Q3 2017.  The increase was primarily driven by Epuris®, which generated revenue of $1.4 million in the period compared to $1.1 million in Q3 2017. Epuris achieved market share of more than 34%1 during the quarter, compared to 28% for the same period last year. 

Total operating expenses decreased to $3.8 million for Q3 2018 compared to $4.4 million for Q3 2017, primarily due to a $0.6 million impairment charge in the comparative period.   

Income from continuing operations was $0.7 million, or $0.03 per basic and diluted share in Q3 2018, compared to income from continuing operations of $3.9 million, or $0.15 per basic share and $0.14 per diluted share in Q3 2017. Adjusted EBITDA2 for Q3 2018 decreased to $1.5 million, compared to $6.6 million in Q3 2017.

The Company has $10.0 million in cash at September 30, 2018 compared with $28.2 million at the end of 2017. Subsequent to the quarter, the Company received the holdback from EPI of $1.7 million related to sale of the U.S. business in 2017. The Company used approximately $25.3 million in cash during the year as consideration for the six transactions that were completed. The Company has $19.5 million in debt at September 30, 2018.

Management Commentary

"It was an exciting quarter for Cipher during which we continued to work on our revised growth strategy," stated Robert Tessarolo, President and CEO of Cipher. "During the quarter, we acquired an exciting product in MOB-015, received Health Canada approval for Xydalba and launched Brinavess subsequent to the quarter. Our Canadian commercial business continues to deliver strong growth, led by Epuris, which now has over one-third market share. Looking ahead, we have multiple value-driving regulatory and commercial milestones in the coming quarters and expect to add four new products to our portfolio in 2018 and 2019, including high-potential products in TRULANCE and A-101 40%. We are investing significantly in business development to continue this momentum towards growing our Canadian commercial platform."

Outlook

Cipher is executing a three-pronged growth strategy to deliver reliable growth to shareholders. The Company is particularly focused on building its Canadian commercial business, which has generated significant organic growth over the past several years. Cipher is experiencing continued growth in its key brands and expects to add five new products from its existing pipeline to its Canadian commercial portfolio in 2018 and 2019, one of which was launched in October 2018. Management continues to pursue new in-licensing opportunities and acquisitions to further expand its near-term product pipeline.  

The Company expects its licensing business to provide a solid base of high-margin royalty revenue which provides non-dilutive financing to support the growth of its Canadian commercial platform. In the fourth quarter of 2018, the Company expects prescriptions for Absorica to increase compared to Q3 2018 due to the seasonality of the product. Absorica has maintained a market share of approximately 10%1 in Q2 and Q3 2018. 

Financial Statements and MD&A

Cipher's Financial Statements and Management's Discussion and Analysis ("MD&A") for the three and nine months ended September 30, 2018 are available on the Company's website at www.cipherpharma.com in the "Investors" section under "Quarterly Reports" and on SEDAR at www.sedar.com.

Notice of Conference Call

Cipher will hold a conference call today, November 7, 2018, at 8:30 a.m. (ET) to discuss its financial results and other corporate developments. To access the conference call by telephone, dial (416) 764-8609 or (888) 390-0605 and use conference ID 34175672. A live audio webcast will be available at https://event.on24.com/wcc/r/1865375/ECD67237F8B0A2DCCC17B86659CF5B78 or the Investor Relations section of the Company's website at http://www.cipherpharma.com. An archived replay of the webcast will be available for 90 days.

About Cipher Pharmaceuticals Inc.

Cipher (TSX:CPH) is a specialty pharmaceutical company with a robust and diversified portfolio of commercial and early to late-stage products. Cipher acquires products that fulfill unmet medical needs, manages the required clinical development and regulatory approval process, and markets those products either directly in Canada or indirectly through partners in Canada, the U.S., and South America. Cipher is focused on a three-pronged growth strategy – including acquisitions, in-licensing, and selective investments in drug development – to assemble a broad portfolio of prescription products that serve unmet medical needs. For more information, visit www.cipherpharma.com.

Forward-Looking Statements

This document includes forward-looking statements within the meaning of certain securities laws, including the "safe harbour" provisions of the Securities Act (Ontario) and other provincial securities law in Canada and U.S. securities laws. These forward-looking statements include, among others, statements with respect to our objectives, goals and strategies to achieve those objectives and goals, as well as statements with respect to our beliefs, plans, expectations, anticipations, estimates and intentions and statements relating to Cipher's acquisition of Cardiome Pharma Corp. ("Cardiome") pursuant to which the Company acquired the Canadian business portfolio of Cardiome, including statements in respect of the anticipated strategic and/or financial benefits of the acquisition and the anticipated regulatory approvals of products and the timing thereof. The words "may", "will", "could", "should", "would", "suspect", "outlook", "believe", "plan", "anticipate", "estimate", "expect", "intend", "forecast", "objective", "hope" and "continue" (or the negative thereof), and words and expressions of similar import, are intended to identify forward-looking statements.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, which give rise to the possibility that predictions, forecasts, projections and other forward-looking statements will not be achieved. Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. We caution readers not to place undue reliance on these statements as a number of important factors, many of which are beyond our control, could cause our actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to, our ability to enter into in-licensing, development, manufacturing and marketing and distribution agreements with other pharmaceutical companies and keep such agreements in effect; our dependency on a limited number of products; integration difficulties and other risks if we acquire or in-license technologies or product candidates; reliance on third parties for the marketing of certain products; the product approval process is highly unpredictable; the timing of completion of clinical trials, regulatory submissions and regulatory approvals; reliance on third parties to manufacture our products and events outside of our control that could adversely impact the ability of our manufacturing partners to supply products to meet our demands; we may be subject to future product liability claims; unexpected product safety or efficacy concerns may arise; we generate license revenue from a limited number of distribution and supply agreements; the pharmaceutical industry is highly competitive; requirements for additional capital to fund future operations; dependence on key managerial personnel and external collaborators; no assurance that we will receive regulatory approvals in the U.S., Canada or any other jurisdictions; current uncertainty surrounding health care regulation in the United States; certain of our products are subject to regulation as controlled substances; limitations on reimbursement in the healthcare industry; limited reimbursement for products by government authorities and third-party payor policies; various laws pertaining to health care fraud and abuse; reliance on the success of strategic investments and partnerships; the publication of negative results of clinical trials; unpredictable development goals and projected time frames; rising insurance costs; ability to enforce covenants not to compete; risks associated with the industry in which it operates; we may be unsuccessful in evaluating material risks involved in completed and future acquisitions; we may be unable to identify, acquire or integrate acquisition targets successfully; inability to meet covenants under our long term debt arrangement; compliance with privacy and security regulation; our policies regarding returns, allowances and chargebacks may reduce revenues; certain current and future regulations could restrict our activities; additional regulatory burden and controls over financial reporting; reliance on third parties to perform certain services; general commercial litigation, class actions, other litigation claims and regulatory actions; the effects of our delisting from the NASDAQ Global Market (the "NASDAQ") and deregistration of our Common Shares under the U.S. Securities Exchange Act of 1934, as amended (the "U.S. Exchange Act"); the difficulty for shareholders to realize in the United States upon judgments of U.S. courts predicated upon civil liability of the Company and its directors and officers who are not residents of the United States; certain adverse tax rules applicable to U.S. holders of our Common Shares if we are a passive foreign investment company for U.S. federal income tax purposes; the potential violation of intellectual property rights of third parties; our efforts to obtain, protect or enforce our patents and other intellectual property rights related to our products; changes in U.S., Canadian or foreign patent laws; litigation in the pharmaceutical industry concerning the manufacture and supply of novel and generic versions of existing drugs; inability to protect our trademarks from infringement; shareholders may be further diluted if we issue securities to raise capital; volatility of our share price; the actions of a significant shareholder; we do not currently intend to pay dividends; our operating results may fluctuate significantly; our debt obligations will have priority over the Common Shares in the event of a liquidation, dissolution or winding up; and risks associated with the arrangement with Cardiome, including, among others, the failure to satisfy closing conditions and the absence of material adverse changes or other events which may give the parties a basis on which to terminate the arrangement agreement.

We caution that the foregoing list of important factors that may affect future results is not exhaustive. When reviewing our forward-looking statements, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Additional information about factors that may cause actual results to differ materially from expectations, and about material factors or assumptions applied in making forward-looking statements, may be found in the "Risk Factors" section of our Annual Information Form and in our Management's Discussion and Analysis of Operating Results and Financial Position for the year ended December 31, 2017, and elsewhere in our filings with Canadian securities regulators. Except as required by Canadian securities law, we do not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by us or on our behalf; such statements speak only as of the date made. The forward-looking statements included herein are expressly qualified in their entirety by this cautionary language.

1) Source: QuintilesIMS

2) EBITDA is a non-IFRS financial measure.  The term EBITDA (earnings before interest, taxes, depreciation and amortization,) does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing a further understanding of operations from management's perspective. The Company defines Adjusted EBITDA as earnings before interest expense, income taxes, depreciation of property and equipment, amortization of intangible assets, loss on debt extinguishment, non-cash share-based compensation, changes in fair value of derivative financial instruments, impairment of intangible assets and goodwill and foreign exchange gains and losses from the translation of Canadian cash balances.

         

(IN THOUSANDS OF U.S. DOLLARS)

Three months
ended
Sept 30, 2018

Three months
ended
Sept 30, 2017

Nine months
ended
Sept 30, 2018

Nine months
ended
Sept 30, 2017

 

$

$

$

$

   

Restated

 

Restated

Income from continuing operations

738

3,889

1,702

6,701

Add back:

       

Depreciation and amortization

181

246

572

728

Interest expense, net

202

631

485

2,702

Income taxes

175

1,241

961

2,185

EBITDA

1,296

6,007

3,720

12,316

Change in fair value of derivative financial instrument

22

(82)

(420)

(88)

Loss (gain) from the translation of Canadian cash balances

(53)

77

22

70

Loss of debt extinguishment

-

-

-

5,223

Impairment of intangible assets

-

561

1,832

561

Share-based compensation

210

84

613

321

Adjusted EBITDA

1,475

6,647

5,767

18,403

 

SOURCE Cipher Pharmaceuticals Inc.

   
Company Codes: Toronto:CPH  

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