Cipher Pharmaceuticals Reports Fourth Quarter and Full Year 2019 Financial Results

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Cipher Pharmaceuticals Inc.

Mar 25, 2020, 18:00 ET

Adjusted EBITDA reaches $4.2 million and Net income increases to $2.6 million in the fourth quarter

OAKVILLE, ON, March 25, 2020 /CNW/ - Cipher Pharmaceuticals Inc. (TSX:CPH) ("Cipher" or "the Company") today announced its financial and operating results for the three and twelve months ended December 31, 2019. Unless otherwise noted, all figures are in U.S. dollars.

Q4 2019 Financial and Corporate Highlights
(All figures in U.S. dollars, compared to Q4 2018, unless otherwise noted)

  • Total revenue decreased 8% to $5.9 million from $6.4 million
  • SG&A decreased 73% to $1.3 million from $5.0 million
  • Total operating expenses decreased 62% to $2.2 million from $5.8 million
  • Adjusted EBITDA1 increased 282% to $4.1 million from $1.1 million
  • Net income increased to $2.6 million from a loss of $0.5 million
  • Earnings per common share increased to $0.10 ($0.13 in Canadian Dollars2) from a loss of $0.02
  • Epuris achieved 30% revenue growth in Canada
  • Sun Pharmaceuticals Inc. launched brand Extension program for Absorica®

Corporate Update

"We are pleased to see continued progress on our cost reduction initiatives. Fourth quarter results showed a substantial decrease in operating expenses, which translated into a 282% improvement in Adjusted EBITDA and $2.6 million of net income during the quarter," said Mr. Craig Mull, Interim CEO. "Epuris is showing strong growth, with fourth quarter revenue up 30% to $2.0 million.  Epuris finished the quarter with 39% market share in the Canadian market." 

Cipher continues to execute on the near-term priorities that were announced in conjunction with the recent management changes.  The cost structure of the business has been reduced, and after a thorough review of the pipeline, assets that did not meet internal hurdle rates have been written down.  Net income for the full year was negatively impacted by one-time restructuring costs and impairment charges, however, the Company now has a leaner cost structure and a renewed focus on the key assets that will drive future cash flow.  The business delivered material increases in profitability in the fourth quarter of 2019. 

Subsequent to year end, Sun Pharmaceutical Industries, Cipher's marketing partner for Absorica®, launched ABSORICA LD™ (isotretinoin) capsules in the U.S. for the management of severe recalcitrant nodular acne in patients 12 years of age and older.  The launch of ABSORICA LD triggered a royalty payable to Cipher until December 2024 based on U.S. net sales from Sun Pharma's isotretinoin product portfolio.

"In addition to the benefits that ABSORICA LD will bring to the patient population, we are thrilled that the launch of ABSORICA LD will trigger an extension of our agreement with Sun Pharmaceuticals, providing us with 2 additional years of royalties on Sun's isotretinoin product portfolio," said Mr. Mull.

The Company's licensing partner for MOB-015, Moberg Pharma ("Moberg") announced that MOB-015 met the primary endpoint, as well as secondary endpoints in the North American phase 3 Study.  This clinical trial included 365 patients with mild to moderate toenail onychomycosis (nail fungus) affecting 20-60% of the large toenail.  The study was conducted at 32 sites in the US and Canada.  Patients received treatment for 48 weeks and had the last follow up assessment at 52 weeks.  At week 52, significantly more patients reached complete cure when treated with MOB-015 than when treated with vehicle (p=0.019) following 48 weeks of daily treatment.   Results from the second Phase III trial in Europe are expected in the second quarter of 2020.  

In October, the Company received Health Canada approval for Trulance® (plecanatide), a Guanylate cyclase-C (GCC) agonist in the form of a once-daily tablet for the treatment of adults with irritable bowel syndrome with constipation ("IBS-C").  As part of the Strategic review of the Canadian commercial assets, the Company was in the process of selecting a distribution partner for Trulance to bring this novel product to market. 

Subsequent to year end, Cipher announced it had received a Notice of Termination (the "Notice") from Bausch Health ("Bausch" in connection with the License, Development and Commercialization Agreement (the "Agreement") of Trulance®. Cipher believes the Notice is without merit and is vigorously challenging it. 

The Notice from Bausch has impacted the timing of the Strategic review process.  At the onset of the Strategic review the Board of directors contemplated two scenarios for the Canadian commercial assets.  The first option was to sell the assets to a single buyer or multiple buyers, the second option was to find the most cost-effective means to distribute the Canadian commercial products. Progress had been made on both fronts prior to the Notice from Bausch, but due to the legal dispute with Bausch, the Company must now focus the first option on selling the assets individually, which has extended the timeline of the sale process.  The Company continues to remain confident in the process despite the timing issue created by the Notice from Bausch.

Q4 2019 Financial Review
(All figures are in U.S. dollars)

Total revenue was $5.9 million for Q4 2019, compared to $6.4 million for Q4 2018.

Licensing revenue decreased by 19% to $3.8 million for the three months ended Dec 31, 2019, compared to $4.6 million for the three months ended Dec 31, 2018.  The year-over-year decrease mainly reflects lower licensing revenue from Absorica, which was $3.1 million for the Q4 2019, a decrease of $0.6 million or 16% compared to $3.7 million for Q4 2018. 

Licensing revenue from Lipofen and the authorized generic version of Lipofen, was $0.6 million for Q4 2019, a decrease of $0.2 million compared to revenue of $0.8 million for the Q4 2018.

Licensing revenue from the extended-release tramadol product (Conzip and Durela) was $0.1 million which remained relatively unchanged from the comparative period.

Product revenue increased by $0.4 million or 21% to $2.2 million for Q4 2019, compared to $1.8 million for the comparable period in 2018.  The increase in product revenue was attributable to Epuris, which increased to $2.0 million, compared to $1.5 million in the comparative period. According to IQVIA, Epuris had a prescription market share of over 39% in Canada for the three months ended Dec 31, 2019, compared to 35% for the three months ended December 31, 2018.

Product revenue for Ozanex, Beteflam, Actikerall, Brinavess, Aggrastat and Vaniqa was $0.2 million in aggregate, compared to $0.3 million for the comparative period.

Total operating expenses decreased to $2.2 million for Q4 2019 compared to $5.8 million for Q4 2018. The decrease was primarily driven by an overall reduction in human resource related costs.

Income from continuing operations was $2.6 million, or $0.10 per basic and diluted share, in Q4 2019, compared to a loss from continuing operations of $0.6 million, or $0.02 per basic and diluted share, in Q4 2018. Adjusted EBITDA for Q4 2019 increased to $4.1 million, compared to $1.1 million in Q4 2018.

The Company had $6.3 million in cash at December 31, 2019 compared with $10.4 million at the end of 2018. The Company generated $8.9 million in cash from operating activities for the year ended December 31, 2019 and used approximately $12.9 million in cash during the year which included $10 million in principal repayments. The Company had $7.6 million in debt at December 31, 2019.

2019 Annual Highlights
(all figures in U.S dollars, compared to Dec 31, 2018, unless otherwise noted)

  • Revenue for the 12 months ended December 31, 2019 was $22.5 million compared to $22.7 million for the year ended December 31, 2018.
  • Licensing revenue decreased by $1.7 million or 10% to $14.2 million for the year ended December 31, 2019 compared to $15.9 million for the year ended December 31, 2018.
  • Licensing revenue from Absorica in the U.S. was $11.3 million a decrease of $1.8 million or 13% compared to $13.1 million for the year ended December 31, 2018.
  • Product revenue increased by $1.4 million or 20% to $8.2 million for the year ended December 31, 2019 compared to $6.9 million for the year ended December 31, 2018.
  • Product revenue from Epuris increased to $7.3 million for the year compared to $5.8 million for the prior year. Epuris had a market share of over 38% in Canada for the year compared to 33% for the year ended December 31, 2018, according to IQVIA.

Total operating expenses were $15.9 million for the year ended December 31, 2019 compared to $19.4 million for the year ended December 31, 2018. The decrease in operating expenses for the year was due to the significant reduction in selling, general and administrative costs, offset by one-time impairment and restructuring charges. The financial benefit of the cost reduction plan took effect in Q3 and Q4 of 2019 thus not reflected in the Company's six-month results.  

Restructuring costs were $1.5 million for the year.  These costs comprised of termination pay, severance benefits and professional fees. 

Adjusted EBITDA for the 12 months ended December 31, 2019 was $12.6 million, an increase of $5.7 million or 84% compared to $6.9 million in the prior period.

Income from continuing operations was $2.6 million for the year compared to $1.2 million in the prior period.

Basic and diluted income per share was $0.10 compared to $0.04 for the year ended 2018.

Outlook

Cipher anticipates several key milestones in 2020 that will continue to enhance long term value, including:

  • Full-year benefit of the cost reduction plan
  • Conclusion of the Strategic review process
  • Increased adoption of ABSORICA LD
  • Discussions with Galephar regarding new product opportunities

Financial Statements and MD&A

Cipher's Financial Statements for the year ended December 31, 2019 and Management's Discussion and Analysis (the "MD&A") for the three and twelve months ended December 31, 2019 are available on the Company's website at www.cipherpharma.com in the "Investors" section under "Financial Reports" and on SEDAR at www.sedar.com.

Notice of Conference Call

Cipher will hold a conference call on March 26, 2020, at 8:30 a.m. (ET) to discuss its financial results and other corporate developments.

About Cipher Pharmaceuticals Inc.

Cipher Pharmaceuticals (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 currently markets those products either directly in Canada or indirectly through partners in Canada, the U.S., and South America. For more information, visit www.cipherpharma.com.

Forward-Looking Statements

This document includes forward-looking statements within the meaning of applicable securities laws. These forward-looking statements include, among others, statements with respect to our objectives and 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 the Special Committee's review of the strategic direction of the Company and its strategic priorities including the anticipated benefits 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, the extent and impact of the coronavirus (COVID-19) outbreak on our business including any impact on our contract manufacturers and other third party service providers, our ability to enter into 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; our dependency on protection from patents that will expire; 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; products in Canada may be subject to pricing regulation; 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 and current uncertainty surrounding health care regulation in the U.S.; 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; products may not be included on list of drugs approved for use in hospitals; hospital customers may make late payments or not make any payments; 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 we operate; 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; legacy risks from operations conducted in the U.S.; 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 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; 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 fact that we have a significant shareholder; we do not currently intend to pay dividends; our operating results may fluctuate significantly; and our debt obligations will have priority over the common shares of the Company in the event of a liquidation, dissolution or winding up.
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 this MD&A and the Annual Information Form for the year ended December 31, 2019, 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. 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.

  2. At the Q4 2019 average exchange rate

The Following is a summary of how EBITDA and Adjusted EBITDA are calculated:

 (IN THOUSANDS OF U.S. DOLLARS)

Three months
ended
December 31,
2019

Three months
ended
December 31,
2018

Twelve months
ended Dec 31,
2019

Twelve months
ended Dec 31,
2018

$

$

$

$

Income (loss) from continuing operations

2,646

-501

2,639

1,201

Add back:



Depreciation and amortization

289

256

1187

829

Interest expense, net

153

227

786

712

Income taxes

902

961

3071

1922

EBITDA

3,990

943

7,683

4,664

Change in fair value of derivative financial instrument

3

-110

-11

-530

restructuring

-

-

1,454

-

Loss (gain) from the translation of Canadian cash balances

120

65

77

87

Impairment of intangible assets

-

-

3,454

1,832

Share-based compensation

34

189

-60

801

Adjusted EBITDA

4,147

1,087

12,597

6,854

SOURCE Cipher Pharmaceuticals Inc.

James Bowen, CFA, LodeRock Advisors, 416-519-9442

Related Links

http://www.cipherpharma.com

Organization Profile

Cipher Pharmaceuticals Inc.