Cipher Pharmaceuticals Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals quarterly conference call for the company's Q2 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, August 8, 2025. 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 call over to Mr. Craig Mull, Interim Chief Executive Officer of the company. Please go ahead, Mr. Mull.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to CIFR's quarterly conference call for the company's Q2 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 button followed by the zero on your push button phone. As a reminder, this conference is being recorded today, Friday, August 8, 2025. 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 Security 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 the 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 the Canadian securities laws, the company does not undertake to update any forward-looking statements. Such statements speak only as to the date made. I'm sorry, I shouldn't have repeated all that. Again, good morning and thanks for joining us. 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. CIFR's second quarter of 2025 yielded the highest earnings quarter for total net revenue in CIFR's history. This was achieved by strong performance from the U.S. Natroba business that exceeded our initial expectations from acquisition of the business one year ago, combined with Cypher's base business performing slightly ahead of the same quarter last year. First, I'd like to spend some time on highlights from the U.S. Natroba business. Revenues were $7.8 million during the second quarter of 2025, which was ahead of our expectations when we acquired the business a year ago. in July, 2024. Given the seasonality of the product and the second quarter demonstrated a lead up to the higher demand warmer months of the year. And therefore sales in the quarter may meaningfully saw meaningful increases from the first quarter. We believe the second quarter has positioned the business well for further success as we entered the third quarter, which is traditionally a high demand quarter for the products. Revenues for the six months of the fiscal year to date were $14.4 million for the Natroba products. Additionally, the Natroba business generated gross profit of $6.6 million and gross margin of 86% when excluding non-cash adjustments. As I had mentioned on our previous earnings calls, we have completed the acquisition of the business from legacy arrangements that were in place at the time of acquisition, the results of which continue to benefit the business in Q2 2025 with this strong growth gross margin result. As we previously outlined in our first quarter earnings call, our growth strategy related to Natrova continues to be fourfold. Number one, building the business in the US where studies have shown permethrin-based products are no longer effective due to the resistance issues. Secondly, add complementary products to the U.S. sales platform through in-licensing, co-promote agreements, or acquisition. Thirdly, launch Netroba in Canada through our existing Canadian infrastructure. And lastly, Outlicense the product globally as a resistance issue is not unique to North America, but rather a global issue. In the first area of our strategy, we announced during the quarter in April that 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. We are continuing to work with various states to look to build upon this favorable development in Illinois, as we have a large number of Medicaid reimbursement arrangements across the U.S. On the second prong of our strategy, adding complementary products to the U.S. sales platform, we are making progress in identifying these products and have entered into negotiations with a number of potential opportunities. With respect to the third area of our strategy, launching Netroba in Canada, during the second quarter, we continue to make progress on preparations for our submission to Health Canada for approval of Netroba. And based on these activities, we intend to make our new drug submission in the fourth quarter of 2025. We believe Netroba will fill an unmet need in Canada for a highly effective treatment of head lice and scabies. and we will continue to provide updates as developments occur with respect to the launching of Natroba in Canada. For the fourth area of our strategy, we are also continuing to pursue opportunities for Natroba globally, as we have mentioned in past earnings calls. We continue to 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 for warm climate regions. As we have said previously, business development activities take time and may or may not come to realization as we believe it is important to find the right fit for out-licensing of Natrova. Therefore, we continue to exercise patience in this area of our strategy to ensure we are executing on opportunities that will provide growth for Cypher. As developments occur with respect to out-licensing of Natrova globally, we will continue to provide updates. Turning now to our base business, consisting of the Canadian product portfolio and the U.S. licensing portfolio, revenues and earnings were higher than a year ago, and the business continues to deliver reliable results and cash generation. Total revenues of $5.6 million. from our base business of Canadian product revenue and U.S. licensing revenue were $0.3 million or 6% higher than the second quarter of 2025, sorry, 2024. Growth in our Canadian-based product sales were partially offset by declines in licensing revenue. As Ryan Mailing will describe in more detail in his remarks, Revenue from the Canadian product portfolio was 0.4 or 12% higher, sorry, 0.4 million or 12% higher than the same quarter a year ago. The U.S. licensing business experienced a decline of 0.1 million or 9%, contributed to by lower royalty revenues resulting from lower sales volumes and net sales. net revenues realized by our licensing partner due to generic competition, including new generic entrance to the market associated with the products in the U.S., which was combined with lower royalty rates. The decline in licensing revenue associated with royalties was partially offset by increased shipments in the quarter compared to the same quarter last year. as Cypher earns revenue from supplying products to our distribution partners. Adjusted EBITDA from the base business was 3.2 million for the second quarter of 2025, an increase of 4% from the same quarter last year, and continues to be a reliable source of cash flow. I also want to highlight our total adjusted EBITDA of $7.6 million for the second quarter of 2025, and $13.8 million for the year to date. Included in the adjusted EBITDA for the year to date are one-time legal costs of $1.2 million associated with defending our product portfolio through a contractual arbitration process. We continue to await a decision from the arbitrator. However, we believe it was prudent to defend our base business through the contractual mechanisms available to us and await the outcome of this process. Lastly, as our operations continue to be a reliable source of cash generation, we will further demonstrate our track record of strong capital allocation going forward. Consistent with our existing approach to managing capital and our business strategy, we will be using our available cash as well as future cash generated from the business in a balanced approach in the following areas. Number one, Repurchases of our common share through our normal course issuer bid. Secondly, repay portions of the debt outstanding on our revolving credit facility. And continue to focus on accretive acquisitions to deliver strong shareholder returns. Finally, I'd like to highlight that we remain very active in continuing to pursue other strategic business development opportunities. with a particular focus on U.S.-based opportunities, including acquiring or in-licensing products that are complementary to our existing portfolio and company acquisitions that are either creative or that have a specific strategic purpose. We continue to be focused on identifying, evaluating, and pursuing various business development opportunities, and we are in active discussions with various partners. 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. We will continue to be selective in our approach to pursuing these opportunities to ensure that we are executing on the right opportunities, as we successfully demonstrated with our Natroba acquisition only a year ago. Thank you again for joining us 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, and good morning, everyone. Craig mentioned at the beginning of today's call, all amounts provided are expressed in U.S. dollars unless otherwise noted. Today, Cipher Pharmaceuticals is reporting results from the company's second quarter and year-to-date 2025 report. The three- and six-month periods ended June 30, 2025. Total net revenue for the three- and six-month periods ended June 30, 2025 was $13.4 million and $25.4 million, respectively. Net revenue for the second quarter of 2025 increased by $8.1 million, or 152%, compared to the same quarter in the prior year. Net revenue for the six-month period ended June 30, 2025, 2025 increased by 14.2 million or 127% over the same period in 2024. The increases were largely attributable to the addition of the Netroba business at the end of July 2024, combined with increased revenue from our Canadian product portfolio in the current year. Product revenue from the Netroba business, which is comprised of the brand Netroba and its authorized generic spinosad, was $7.8 million and $14.4 million, respectively, for the three- and six-month periods ended June 30, 2025, representing a significant portion of the total increase in product revenue, as I just described. Product revenue from the Canadian product portfolio for the second quarter and six months ended June 30, 2025, was $4.1 million and $8.7 million, respectively. Canadian product portfolio revenue of $4.1 million increased by $0.4 million, or 12%, for the second quarter of 2025 compared to $3.7 million in the second quarter of 2024. For the six months ended June 30, 2025, product revenue for the Canadian portfolio of $8.7 million represented an increase of $1.7 million, or 26%, compared to $7 million in the same period of the prior year. As the sales for our Canadian product portfolio are denominated in Canadian dollars, when translated on a constant currency basis, Canadian product portfolio revenue for the six months ended June 30, 2025 was impacted by changes in the U.S. dollar relative to the Canadian dollar. The impact was nominal for the second quarter of 2025. When translated on a constant currency basis, Canadian product portfolio revenue increased by $2 million, representing an increase of 30% over the six months ended June 30th, 2024. The products comprising our Canadian product portfolio benefited from increased sales volumes for the three and six months ended June 30th, 2025, compared to the same periods in the prior year, contributing to the overall increase in revenue. Moving on to our US licensing revenue, total licensing revenue for the three and six months ended June 30th, 2025, was $1.5 million and $2.2 million, respectively. Licensing revenue decreased by $0.1 million and $2 million, respectively, for the second quarter and six months ended June 30, 2025, compared to the same periods in 2024. The overall licensing revenue of $1.5 million for the second quarter of 2025 represented a 9% decrease compared to $1.6 million in the same quarter of 2024. The decrease is due to the Absorca portfolio in the U.S., which contributed $1 million of licensing revenue in the second quarter of 2025, a decrease of $0.1 million when compared to $1.1 million of revenue for the same quarter in 2024. The decline in the Absorca portfolio licensing revenue resulted from lower royalty revenue contributed to by lower sales volumes in net sales realized by our distribution partner, on which Cypher earns a net sales royalty, combined with lower contractual royalty rates year over year. However, the decrease in royalty revenue on the Azorca portfolio was partially offset by higher product shipments by 0.4 million during the second quarter of 2025 compared to the same quarter last year, whereby we earned revenue from supplying product to the distribution partner. Overall licensing revenue for the six months ended June 30th, 2025 was 2.2 million, compared to $4.2 million for the same period in the prior year, representing a 48% decrease. The decrease for the six months ended June 30, 2025, was contributed to by the Absorica portfolio and LipoFin, including the authorized generic. Licensing revenue from Absorica was $1.3 million for the six months ended June 30, 2025, a decrease of $1.7 million, or 56%, when compared to the same period in the prior year. Revenue from Absorica for the six-month period was impacted by a year-over-year decline in product shipments, on which we earned revenue from supplying the product to our partner. The decline in the Absorica portfolio licensing revenue for the six months ended June 30, 2025, was also impacted by lower royalty revenue contributed to by lower sales volumes and net sales realized by our distribution partner, on which we earned a net sales royalty. This was further contributed to by lower contractual royalty rates year-over-year. Market share for Absorica and the authorized generic of Absorica was 3% at June 30, 2025, according to Symphony Health market data, representing a decrease of 3.4% compared to 6.4% at June 30, 2024. Licensing revenue from Lipofin and the authorized generic was $0.8 million for the six months ended June 30, 2025, representing a decrease of $0.3 million compared to the same period in the prior year. Selling, general, and administrative expenses for the three and six months ended June 30, 2025 were $4.1 million and $9 million, respectively. Selling, general, and administrative expenses for the second quarter of 2025 of $4.1 million represented an increase of $2.5 million compared to the same quarter in the prior year. The increase was primarily attributable to the incremental selling, general, and administrative expenses from the acquired Netroba business. Selling, general, and administrative expenses for the six months end of June 30, 2025 of $9 million increased by $5.9 million compared to the same period in the prior year. Increase is attributable to the additional selling, general, and administrative expenses from the acquired Nitroba business of $4.8 million as well as $1.2 million in one-time legal costs associated with defending our product through a contractual arbitration process. Net income for the three months ended June 30th, 2025 was $5.9 million or $0.22 per diluted common share compared to $3 million or $0.12 per diluted common share for the same period in the prior year. Net income for the six months ended June 30th, 2025 was $8.5 million or $0.32 per diluted common share compared to $7.9 million or $0.32 per diluted common share for the same period in 2024. Net income for the six months ended June 30, 2025, was adversely impacted by the previously mentioned $1.2 million in one-time legal costs associated with the contractual arbitration process, as well as $0.8 million of non-cash fair value adjustments associated with inventory acquired in the Netrova acquisition that were recognized in cost of products sold during the period. Adjusted EBITDA for the three and six months period ended June 30, 2025, with $7.6 million and $13.8 million, respectively, compared to the $3.1 million and $6.6 million, respectively, for the same periods ended June 30, 2024. This represents an increase of 148% and 108%, respectively, for the second quarter and six months ended June 30, 2025, when compared to the same periods in 2024. The increase in adjusted EBITDA was mainly driven by the previously mentioned addition of the Netroba business, and growth of our Canadian product portfolio, which is partially offset by declines experienced in our U.S. licensing revenue. The company had $11.3 million in cash and $25 million in debt as of the end of the second quarter of 2025. The company continues to generate meaningful free cash flow from operations, with $6 million in operating cash flow during the second quarter of 2025 and $10.2 million generated from operations for the six months ended June 30, 2025. During the second quarter of 2025, CIFR allocated $15 million of its accumulated cash to make a repayment on its revolving credit facility and utilized an additional $2.1 million of accumulated cash for repurchases of common shares under our normal course issuer bid. Subsequent to the second quarter of 2025, on August 6, 2025, Cypher further allocated a portion of the cash it has accumulated from free cash flows to make an additional repayment of $7 million on the outstanding balance of our revolving credit facility. Accordingly, after making this payment, the company now has a reduced debt balance of $18 million outstanding on its revolving credit facility. With the strong performance from Cypher's Netroba business combined with Cypher's base business, particularly its Canadian product portfolio, performing well, The overall business continues to have meaningful cash generation. During and subsequent to the quarter, we demonstrated effective allocations of our capital, returning capital to the shareholders through the normal course issuer bid, and further delivering the balance sheet with two debt repayments totaling $22 million. We also retained the availability of financing due to the revolving nature of our credit facility, whereby after making these debt repayments, CIFRA has $47 million of financing available plus a 25 million accordion option, which in total is 72 million of total potential financing available. Accordingly, with Cypher's strong cash generation from operations and available financing, the company continues to be well positioned to execute on further growth opportunities to provide further value for our shareholders. We'll now open the call up to questions.