Cipher Pharmaceuticals Reports Second Quarter 2024 Results

(All figures are presented in U.S. Dollars)

• Adjusted EBITDA was $3.1 million in Q2 2024, consistent with Q2 2023
• Epuris sales volumes grew 13% compared to Q2 2023, continuing its growth trajectory for the fourth consecutive quarter
• Strong operating cash flows of $6.2 million in Q2 2024
• Management changes to take effect on August 10, 2024:
  • CFO Bryan Jacobs to transition to President, focusing on the U.S. operations
  • Vice President, Finance Ryan Mailling appointed as Chief Financial Officer

MISSISSAUGA, ON, Aug. 8, 2024 /CNW/ - Cipher Pharmaceuticals Inc. (TSX: CPH) (OTCQX: CPHRF) ("Cipher" or the "Company") today announced its financial and operating results for the three and six months ended June 30, 2024.

Second Quarter 2024 Financial Highlights
(All figures in U.S. dollars, compared to Q2 2023, unless otherwise noted)

• Total revenue was $5.3 million in Q2 2024, flat or consistent year over year
• Epuris product revenue increased by $0.5 million, or 18%, to $3.2 million in Q2 2024 compared to $2.7 million in Q2 2023
• Licensing revenue decreased by 25% to $1.6 million in Q2 2024, compared to $2.2 million in Q2 2023, due to lower product shipments and royalties from the Absorica portfolio
• Gross margin on product revenue increased by 4% to 70% in Q2 2024, compared to 66% in Q2 2023
• Adjusted EBITDA¹ was $3.1 million in Q2 2024, flat or consistent year over year

Acquisition of Natroba

• Subsequent to quarter end, Cipher announced on July 29, 2024, the signing of a definitive asset purchase agreement with ParaPRO LLC ("ParaPRO") and the closing of the acquisition of the global rights of Natroba™ (Spinosad), as well as the commercial sales team in the U.S. for total consideration of $89.5 million (the "Natroba Acquisition").
• Cipher plans to use the commercial footprint acquired from ParaPRO north of Indianapolis in Carmel, Indiana as its U.S. headquarters and a platform to launch unique dermatology and infectious disease products complementary to Natroba™ across the U.S.
• Cipher plans to submit Natroba™ for Health Canada approval later in 2024 and to commercialize this unique product in Canada directly through its existing Canadian dermatology infrastructure, with additional plans to out-license Natroba™ in countries outside North America.
• Cipher paid $80 million in cash (satisfied from $40 million cash on hand and $40 million from a new credit facility) and issued $9.5 million in common shares of Cipher to ParaPRO (1,474,097 shares at a deemed issue price of CDN$8.91).
• Cipher entered into a new credit agreement and partnership with the National Bank of Canada, with a $65 million revolving credit facility which was partially drawn to fund the Natroba™ transaction and will be available to provide financing to fuel Cipher's continued future growth plans. Under the terms of the credit agreement, Cipher also has access to an optional $25 million accordion feature. The credit facility matures three years after July 26, 2024 and has an optional annual extension clause. As a result of entering into the new credit facility, Cipher terminated its previous undrawn credit facility with the Royal Bank of Canada.

Management Commentary

Craig Mull, Interim CEO, commented: "Four years ago, the Company embarked on a phased, multi-year strategy to transform Cipher into a profitable and scalable specialty pharmaceutical business. With our base business consistently performing, I am happy to declare that the first phase of this strategy is complete, and Cipher's focus will now shift into a phase of substantial growth.

Last week's Natroba Acquisition should be viewed as the kick-off of our growth phase. Cipher's revenue and earnings profile has immediately doubled, further accelerating the overall profitability of the business. Additionally, the Company now possesses a fully established and profitable U.S. platform which will allow us to add complementary dermatology and infectious disease products over time.

We presently remain active on a number of business development initiatives in connection with our strategy in building a North American dermatology platform. We are confident our MOB-015 nail fungus pipeline product, whereby we have the exclusive Canadian marketing rights, will drive near term growth to our Canadian business, and bringing Natroba through a Health Canada approval will further accentuate the Canadian product portfolio.

Lastly, we will be focusing on out-licensing Natroba globally, as there is a profound resistance issue lice and scabies have developed over time to existing products on the market, and where Natroba fills a true unmet need. We believe the global potential for Natroba will be a significant driver of our growth."

Bryan Jacobs, CFO, commented: "I am proud to announce our new partnership with National Bank of Canada as their financial strength and in-depth industry knowledge will be tremendous assets in helping Cipher achieve its growth objectives. We have up to $50 million additional financing under the flexible revolving credit facility to support our continued growth plans.

In my transition to President, I will be focused on our newly acquired Natroba commercial operations and working collaboratively with the highly talented commercial team, especially in the indication for scabies where Natroba has only recently obtained an FDA 'complete cure' designation, and whereby we believe there is significant further growth opportunity."

Q2 2024 Corporate Highlights

• On April 23, 2024, Cipher partner Moberg Pharma AB ("Moberg") (OMX: MOB), announced demand for MOB-015 branded as Terclara® has been strong in Sweden, and initial sales were very encouraging as demand had far outpaced supply at the pharmacy level, resulting in pharmacies increasing orders to ensure the product is readily available. Cipher holds the Canadian rights for MOB-015, a product which will serve the prescription market for the Onychomycosis indication, representing a total market of approximately CDN$92.4 million², of which greater than 97% of the market is served by one main product.
• On May 6, 2024, Moberg announced MOB-015 received national approvals for all 13 countries included in the European decentralized procedure. Cipher believes this further de-risks the eventual approval of MOB-015 in Canada, for which Cipher holds the exclusive distribution rights.
• On May 20, 2024, Moberg announced that Terclara® (MOB-015) was the market leader in Sweden for April 2024, the first full month the product was available after starting consumer marketing, with 36% market share. Moberg also reported that the total market in Sweden has grown 52% compared to the same period last year since the introduction of Terclara®. Cipher believes this may be indicative of additional opportunities over-and-above the existing market in Canada.
• Effective August 10, 2024, and as a result of the Natroba Acquisition, the Company's Chief Financial Officer, Bryan Jacobs, will assume the title of President of the Company. His mandate will be to manage the transition and integration of the U.S. operations and commercial sales team. The Company's Vice President, Finance, Ryan Mailling, has in turn been appointed as the Chief Financial Officer of the Company, taking over from Mr. Jacobs.

Q2 2024 Financial Review
(All figures in U.S. dollars, compared to Q2 2023, unless otherwise noted)

• Total revenue was $5.3 million in Q2 2024, essentially flat year over year
• Product revenue increased by 18% to $3.7 million in Q2 2024 up from $3.1 million in Q2 2023
• Licensing revenue decreased by 25% to $1.6 million in Q2 2024 compared to $2.2 million in Q2 2023
• Total gross profit was $4.2 million in Q2 2024, compared to $4.2 million in Q2 2023, essentially flat year over year overall, however the composition of gross profit year over year was impacted by the decline in licensing revenue, offset by the increase in product revenue
• Net income and earnings per common share were $3.0 million and $0.12, respectively, in Q2 2024, compared to net income of $3.1 million and an unchanged earnings per common share of $0.12 for the same period in the previous year
• EBITDA¹ decreased by 29% to $2.2 million for the quarter, down from $3.1 million in Q2 2023, primarily attributable to a $0.8 million year over year change in unrealized foreign exchange
• Adjusted EBITDA¹ in Q2 2024 was unchanged from the same quarter in the previous year at $3.1 million

Business Strategy & Outlook

Cipher's near term business strategy includes the following key focuses:

• Integrating the post quarter end acquisition of Natroba with the existing Cipher business.
• Driving growth of Natroba in the anti-parasitic market in the U.S. where its current market share is approximately 22%, in a market where the market leader "Permethrin" is no longer an effective treatment but still holds 75% market share.
• Out-licensing Natroba globally where there is high unmet need, such as warm climate regions.
• Acquiring complementary dermatology products to add to our North American platform to enhance the profitability, size and scale of the business.
• Developing our MOB-015 commercial launch plan and proactively readying our Health Canada regulatory submission, for the novel product and treatment of nail fungus.
• Continue to collaborate with our partner Moberg Pharma on its MOB-015 phase III clinical trial in the U.S., whereby results are expected by January 2025.

Financial Statements and MD&A

Cipher's Financial Statements for the three and six months ended June 30, 2024, and Management's Discussion and Analysis (the "MD&A") for the three and six months ended June 30, 2024, are available on the Company's website at www.cipherpharma.com in the "Investors" section under "Financial Reports" and on SEDAR+ at www.sedarplus.ca.

Notice of Conference Call

Cipher will hold a conference call on August 9, 2024 at 8:30 a.m. (ET) to discuss its financial results and other corporate developments.

• To access the conference call by telephone, dial [phone] or [phone]
• A live audio webcast will be available at https://app.webinar.net/0Lpez7dn8v4
• An archived replay of the webcast will be available until August 16, 2024 and can be accessed by dialing [phone] or [phone] and entering conference replay code 28622#

About Cipher Pharmaceuticals Inc.

Cipher Pharmaceuticals (TSX: CPH) (OTCQX: CPHRF) is a specialty pharmaceutical company with a robust and diversified portfolio of commercial and early to late-stage products, mainly in dermatology. Cipher acquires products that fulfill unmet medical needs, manages the required clinical development and regulatory approval process, and currently markets those products in Canada, the U.S., and South America. For more information, visit www.cipherpharma.com.

Forward-Looking Statements and Non-IFRS Measures

This document includes forward-looking statements within the meaning of applicable securities laws. These forward-looking statements include, among others, statements with respect to the timing of the receipt of the topline results from MOB-015 Phase 3 North American study, the expectation of approval of MOB-015 in the U.S. and Canada, the ParaPRO transaction, our plans and intentions with respect to commercializing, out-licensing and marketing Natroba™ in Canada and elsewhere, our plans and intentions with respect to the introduction of additional dermatological products in Canada, the U.S. and elsewhere, the potential for future acquisitions, 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.  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 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, publication of negative results of clinical trials; 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 by regulators which can be 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 with new competing product entrants; requirements for additional capital to fund future operations; products may be subject to pricing regulation; dependence on key managerial personnel and external collaborators; certain of our products are subject to regulation as controlled substances; limitations on reimbursement in the healthcare industry; extent and impact of health pandemic outbreaks on our business; unpredictable development goals and projected time frames; rising insurance costs; ability to enforce covenants not to compete; 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; compliance with privacy and security regulation; our policies regarding product returns, allowances and chargebacks may reduce revenues; additional regulatory burden and controls over financial reporting; 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; 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; 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 our MD&A for the year ended December 31, 2023 and the Company's Annual Information Form, 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 and adjusted EBITDA are non-IFRS financial measures. These non-IFRS measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are unlikely to be comparable to similar measures presented by other companies. Management uses non-IFRS measures such as Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") and Adjusted EBITDA to provide investors with supplemental measures of the Company's operating performance and thus highlight trends in the Company's core business that may not otherwise be apparent when relying solely on IFRS financial measures. The Company defines Adjusted EBITDA as earnings before interest expense, income taxes, depreciation of property and equipment, amortization of intangible assets, non-cash share-based compensation, changes in fair value of derivative financial instruments, provision for legal settlement, loss on disposal of assets and loss on extinguishment of lease, impairment of intangible assets, acquisition costs, restructuring costs and unrealized foreign exchange gains and losses.

2)  IQVIA market data as at June 30, 2024.

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

(IN THOUSANDS OF U.S. DOLLARS, except for per share amounts)	Three months ended June 30, 2024	Three months ended June 30, 2023	Six months ended June 30, 2024	Six months ended June 30, 2023
	$	$	$	$
Net income and comprehensive income	2,995	3,071	7,918	5,697
Add back:
Depreciation and amortization	292	342	581	685
Interest income	(611)	(427)	(1,166)	(782)
Income taxes	(480)	99	(2,435)	181
EBITDA	2,196	3,085	4,898	5,781
Unrealized foreign exchange loss (gain)	401	(448)	1,043	(455)
Acquisition, restructuring and other costs	284	231	284	269
Share-based compensation	183	209	407	653
Adjusted EBITDA	3,064	3,077	6,632	6,248
Adjusted EBITDA per share – basic	0.13	0.12	0.28	0.25
Adjusted EBITDA per share – dilutive	0.12	0.12	0.27	0.24

Consolidated statements of income and comprehensive income

	Three months ended June 30,		Six months ended June 30,
(IN THOUSANDS OF U.S. DOLLARS,	2024	2023	2024	2023
except for per share amounts)	$	$	$	$
Revenue
Licensing revenue	1,618	2,170	4,218	3,846
Product revenue	3,686	3,118	6,953	6,328
Net revenue	5,304	5,288	11,171	10,174
Operating expenses
Cost of products sold	1,106	1,061	2,161	2,038
Research and development	—	97	—	100
Depreciation and amortization	292	342	581	685
Selling, general and administrative	1,601	1,493	3,069	2,710
Total operating expenses	2,999	2,993	5,811	5,533
Other (income) expenses
Interest income	(611)	(427)	(1,166)	(782)
Unrealized foreign exchange loss (gain)	401	(448)	1,043	(455)
Total other (income) expenses	(210)	(875)	(123)	(1,237)
Income before income taxes	2,515	3,170	5,483	5,878
Current income tax expense	—	115	—	212
Deferred income tax recovery	(480)	(16)	(2,435)	(31)
Total income tax (recovery) expense	(480)	99	(2,435)	181
Net income and comprehensive income for the period	2,995	3,071	7,918	5,697
Income per share
Basic	0.12	0.12	0.33	0.23
Diluted	0.12	0.12	0.32	0.22

Consolidated statements of financial position

	As at June 30,	As at December 31,
	2024	2023
(IN THOUSANDS OF U.S. DOLLARS)	$	$
Assets
Current assets
Cash and cash equivalents	47,984	39,825
Accounts receivable	3,776	5,088
Inventory	2,898	2,982
Prepaid expenses and other assets	301	378
Total current assets	54,959	48,273
Property and equipment, net	369	402
Intangible assets, net	1,244	1,763
Goodwill	15,706	15,706
Deferred tax assets	21,632	19,887
Total assets	93,910	86,031
Liabilities and shareholders' equity
Current liabilities
Accounts payable and accrued liabilities	4,308	4,639
Contract liability	510	519
Current portion of lease obligation	96	94
Total current liabilities	4,914	5,252
Lease obligation	200	259
Total liabilities	5,114	5,511
Shareholders' equity
Share capital	18,423	18,012
Contributed surplus	5,862	5,755
Accumulated other comprehensive loss	(9,514)	(9,514)
Retained earnings	74,025	66,267
Total shareholders' equity	88,796	80,520
Total liabilities and shareholders' equity	93,910	86,031

SOURCE Cipher Pharmaceuticals Inc.

For further information: Graham Farrell, Investor Relations - Cipher Pharmaceuticals, [email protected], 416-842-9003