Cipher Pharmaceuticals Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cypher Pharmaceuticals quarterly conference call for the company's first quarter 2025 results. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the call, you may press the star followed by the zero on your push button phone. As a reminder, this conference is being recorded today, Friday, May 9 of 2025. On behalf of the speakers that follow, listeners are cautioned that today's presentations and the responses to questions may contain forward-looking statements within the meaning of safe harbor provisions of the Canadian Provincial Securities Laws. Forward-looking statements involve risk 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 result 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 risk 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 Maul, Interim Chief Executive Officer of the company. Please go ahead, Mr. Maul.

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. Cypher's first quarter results were a combination of continued strength from Cypher's base business and strong momentum from our recently acquired U.S. Netrova business. First, I would like to spend some time commenting on the U.S. Netrova business. Revenues were $6.7 million during the first quarter of 2025, which was consistent with our expectations when we acquired the business this past July. Given the seasonality for the product, generally lower during colder months of the calendar year and higher demand in the upcoming warmer months of the year, we believe this revenue result has positioned the business well to start 2025. Additionally, the business generated gross margins of $5.8 million, or approximately 87%, when excluding non-cash adjustments. As I previously described in our results from the business in 2024, we have completed the transition of the business from legacy arrangements, which have benefited the business in the first quarter of 2025 with this strong gross margin result, but more importantly, are expected to provide a strong benefit to the business for the remainder of 2025 and beyond. Our growth strategy related to Natroba continues to be fourfold. Building the business in the U.S. where studies have shown permethrin-based products are no longer effective due to resistance issues. Second, launch Natroba in Canada through our existing Canadian infrastructure. And thirdly, out-license the product globally as the resistance issue is not unique to North America, but rather a global issue. And lastly, in-license or acquire complementary products to be sold by the existing U.S. sales force. Demonstrating momentum on the first area of our strategy, we are proud to announce that recently the State of Illinois made Netroba the preferred product of choice given its one-dose complete cure for scabies, and whereby the incumbent treatment, permethrin 5%, is now non-preferred under Medicaid. As a greater number of physicians in Illinois will become familiar with the safety and efficacy of Netroba, we believe this will be a catalyst in their prescribing habits moving forward. We will be continuing to work with various states as we have a large number of Medicaid reimbursement arrangements across the U.S. to look to build upon this great development in Illinois this past month. With respect to the second area of our strategy, launching Natroba in Canada, we had previously indicated that our earnings call on the fourth quarter of 2024, a pre-meeting with Health Canada related to our new drug submission is planned to take placed before the end of the second quarter of 2025. We are continuing to make progress with respect to our plans to bring Natroba to Canada and will provide updates as developments occur. For the third area of our strategy, we are also continuing to pursue opportunities for Natroba globally. As we have mentioned in the past earnings call, we believe there is a high unmet need for a highly effective product like Natroba to address lice and scabies indications in other territories globally, with the product being particularly well-suited in warm climate regions. We currently have ongoing out-licensing discussions with seven parties that are interested in Natrova in different territories. As developments occur with respect to out-licensing of Natrova globally, we will continue to provide updates. I will speak further on our fourth leg of growth later in my discussion. Turning now to our base business, although our revenue and earnings were lower than a year ago, the business continues to deliver reliable results and cash generation. Total revenues of $5.3 million from our base business of Canadian product revenue and U.S. licensing revenue were 9% lower than the first quarter of 2024. However, we were able to grow our Canadian-based product sales to partially offset declines in our licensing revenue. As Ryan Mailing will describe in further detail, revenue from the Canadian product portfolio was 41% higher than this quarter a year ago. The U.S. licensing business experienced a decline due to lower contractual royalty rates, continuing generic competition including new generic entrance to the market associated with the products in the U.S. and reduced shipments as Cipher earns revenue from supplying product to our distribution partners. Adjusted EBITDA from the base business was $2.9 million and continues to be a reliable source of cash flow. Included in the adjusted EBITDA are one-time legal costs associated with defending our product portfolio through a contractual arbitration process. While these one-time costs of a million dollars are significant, we believe it was prudent to defend our base business through the contractual mechanisms available to us and expect results from the arbitration process when reporting our second quarter results. Lastly, I want to highlight our 6.2 million total adjusted EBITDA during the first quarter of 2025. and our cash balance of $22 million at the end of the quarter. As we have shown a track record of strong capital allocation in the past, we will continue to do so going forward. We will be using our available cash as well as future cash generated from the business in a balanced approach in the following areas. Repay portions of the debt outstanding on our revolving credit facility. Number two, as announced on May 1st, we have recommenced our normal course issuer bid with an intention to utilize block repurchases. And thirdly, continue to focus on accretive acquisitions, such as our recent Netrobra acquisition, to deliver strong shareholder returns. Finally, I would like to highlight that we are continuing to pursue other strategic business development opportunities, including acquiring or in-license products that are complementary to our existing portfolio and company acquisitions that are either accretive or that have a specific strategic purpose. Our chief business officer continues to be focused on identifying, evaluating, and pursuing various business development opportunities and we are in active discussions with several parties. However, as we have said before, these discussions do take time and the opportunities may or may not come to realization, but we will continue to provide updates as developments occur. As we demonstrated with our recent Natroba acquisition, we will continue to be selective in our approach to pursuing these opportunities to ensure that we are executing on the right opportunities. Thank you again for joining us here today, and I look forward to answering your questions after our prepared remarks. I will now pass the call over to our CFO, Ryan Mailing. Please go ahead, Ryan.

Thanks, Craig. Good morning, everyone. As Craig mentioned at the beginning of today's call, all amounts provided are expressed in U.S. dollars unless otherwise noted. Today, Safer Pharmaceuticals is reporting results from the company's first quarter of 2025, being the three-month period ended March 31, 2025. Total net revenue was $12 million in the first quarter of 2025, an increase of $6.1 million, or 105%, when compared to the same period in 2024. The increase was due to the addition of the Netroba business at the end of July 2024. Overall licensing revenue was $700,000 for the first quarter of 2025, compared to $2.6 million in the same quarter of the prior year, representing a 72% decrease. The decrease is due to lower year-over-year product shipments of $1 million, whereby we earn revenue from supplying product to the distribution partner. The remaining decrease of $900,000 is due to lower contractual royalty rates and increasing generic competition in the U.S. related to the U.S. licensing products. Licensing revenue from Absorica in the U.S. was $300,000 in the first quarter of 2025, a decrease of $1.6 million, or 84%, when compared to the same period in 2024. Revenue from Absorica was primarily impacted by the year-over-year decline in product shipments that I previously mentioned. Market share from Absorica and the authorized generic of Absorica was 5.6% at March 31, 2025, representing a decrease of 0.2% compared to March 31, 2024. Licensing revenue from LipoFen in the authorized generic of LipoFen was $400,000 for the first quarter of 2025, representing a decrease of $300,000 compared to the same period in the prior year. Moving to our product portfolio, total product revenue was $11.3 million for the first quarter of 2025, an increase of $8 million compared to the first quarter of 2024. Product revenue from the Netroba business, comprised of the brand Netroba and its authorized generic spinosad, was $6.7 million in the first quarter of 2025, representing a significant portion of the $8 million total increase in product revenue I described. Product revenue from the Canadian portfolio in the first quarter of 2025 was $4.6 million an increase of $1.3 million or 41% compared to the same quarter in the prior year. Additionally, as sales for our Canadian product portfolio are denominated in Canadian dollars, when translated on a constant currency basis, the Canadian product portfolio revenue increased by $1.6 million, representing an increase of 50% over the first quarter of 2024. All products in our Canadian product portfolio saw increased sales compared to the same quarter in the prior year, contributing to the overall increase in revenue. Selling, general, and administrative expenses were $5 million for the first quarter of 2025, an increase of $3.5 million from the comparable period in the prior year. The increase is attributable to higher SG&A costs from the acquired Netroba business of $2.6 million as well as the $1 million of one-time costs associated with the arbitration process that was previously described in Craig's remarks. Net income for the three months ended March 31st, 2025, was $2.6 million, or 10 cents per diluted common share, compared to $4.9 million, or 20 cents per diluted common share for the same period in the prior year. The decrease in net income of $2.3 million was primarily attributable to $4.3 million of higher total gross profit, which was offset by $1.5 million of higher amortization on the recently acquired Netrova intellectual property, $1.3 million lower income tax recovery in the first quarter of 2025, $1.1 million higher interest costs resulting from interest expense of $500,000 in the first quarter of 2025, compared with net interest income of $600,000 in the first quarter of 2024, and the $1 million of one-time costs associated with the arbitration process. Adjusted EBITDA for the first quarter ended March 31, 2025, with $6.2 million compared to the $3.6 million for the same quarter in the prior year. This meaningful increase of 73% was mainly driven by the previously mentioned addition of the Netroba business and growth from our Canadian product portfolio, which is partially offset by declines experienced in the U.S. licensing revenue. The company had $22 million in cash and $40 million in debt as of March 31, 2025, and continues to generate free cash flow from our operations. Subsequent to the first quarter of 2025, yesterday, on May 8, 2025, CIFR allocated a portion of the cash that is accumulated from free cash flows to make a repayment of $15 million of the outstanding balance on its revolving credit facility. Accordingly, after making this payment, the company now has a reduced debt balance of $25 million outstanding on its revolving credit facility. Safer Space Business, particularly its Canadian product portfolio, combined with the Netrovo business is performing well and contributing to meaningful cash generation. We've also taken steps to further de-lever the balance sheet subsequent to quarter end, which is already at a comparatively low leverage, while retaining the availability of this financing. With a strong financial posture and established growth leverage, Cypher is well positioned to execute on further growth opportunities, providing further value for our shareholders. We'll now open the call up to questions.