Cipher Pharmaceuticals Reports Third Quarter 2024 Results

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

• Successfully closed the acquisition of the U.S. based Natroba™ business on July 26, 2024
• Epuris sales volumes grew 29% compared to Q3 2023, continuing growth trajectory for the fifth consecutive quarter
• Strong product gross margin from the acquired Natroba products of 85%
• Added management depth with appointment of Dr. Hamed Ghanei, Chief Business Officer

MISSISSAUGA, ON, Nov. 7, 2024 /CNW/ – Cipher Pharmaceuticals Inc. CPH CPHRF (“Cipher” or the “Company“) today announced its financial and operating results for the three and nine months ended September 30, 2024.

Third Quarter 2024 Financial Highlights

(All figures in U.S. dollars, compared to Q3 2023, unless otherwise noted)

• Total revenue was $10.4 million in Q3 2024, an increase of 71%
• Total product revenue increased by 213% to $9.3 million in Q3 2024 compared to $3.0 million in Q3 2023
• Epuris product revenue increased by 32% to $3.4 million in Q3 2024 compared to $2.5 million in Q3 2023
• Natroba™ and its authorized generic contributed $5.4 million in product revenue in Q3 2024
• Licensing revenue decreased by 66% to $1.1 million in Q3 2024, compared to $3.1 million in an unusually strong Q3 2023, due to lower product shipments and royalties from the Absorica portfolio
• Gross margin on product revenue increased by 15% to 79% in Q3 2024, compared to 64% in Q3 2023, due to higher gross margin from the acquired Natroba business
• Adjusted EBITDA¹ was $4.1 million in Q3 2024, an increase of 13%

Acquisition of Natroba

• On July 29, 2024, Cipher announced 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 paid $80 million in cash (satisfied from $40 million from 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: “During the third quarter, we took great steps forward to close the acquisition of the Natroba business from ParaPRO LLC. We have been diligently integrating the business into the existing Cipher infrastructure, and have established our U.S. based headquarters in Carmel, Indiana. We believe this integration will be complete by the end of the year.

Having now spent in depth time with our U.S. sales team, we are highly impressed with the talent and motivation of our new Cipher employees and are highly confident in our ability to both grow the Natroba business and scale the business in the future with additional complementary products.”

Bryan Jacobs, President, U.S. Operations, commented: “Head lice and scabies greatly impacts families and ensuring parents and physicians have access to the FDA designated complete cure that Natroba offers is our focus. Our main market competitor permethrin is no longer effective due to evolving resistance over time, so we are confident in our ability to grow the Natroba business and market share.

We have recently added new territory managers and sale team members as part of a strategy to insource sales in certain states away from a prior co-promotion partner of ParaPRO LLC. While this transition will take a few months, we believe this strategy will result in a highly trained sales footprint and grow sales while achieving an overall reduction in costs in future periods.”

Ryan Mailling, CFO, commented: “Since my transition to Chief Financial Officer during the third quarter, I have dedicated a large portion of my time executing an efficient financial structuring of our Natroba Acquisition, managing our new bank financing relationship, and supporting the financial and administrative integration of the Natroba business into the existing Cipher infrastructure. I look forward to continuing to progress these activities, while also driving other efficiencies in the business.”

Q3 2024 Corporate Highlights

• Effective August 10, 2024, and as a result of the Natroba Acquisition, the Company’s Chief Financial Officer, Bryan Jacobs, assumed 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, was in turn been appointed as the Chief Financial Officer of the Company, taking over from Mr. Jacobs.
• On September 26, 2024, Cipher presented at the Planet MicroCap Showcase: Vancouver 2024 conference and participated in one-on-one meetings with stakeholders.
• On October 8, 2024, the Company announced the appointment of Dr. Hamed Ghanei as Chief Business Officer. Dr. Ghanei has expertise in business development, including extensive experience with licensing deals and other M&A opportunities in the specialty pharmaceuticals and healthcare industries, which is expected to provide Cipher with further capabilities for its next phase of substantial growth.

Q3 2024 Year-to-Date Financial Review

(All figures in U.S. dollars, compared to the year-to-date Q3 2023, unless otherwise noted)

• Total revenue was $21.5 million in Q3 2024, an increase of 33%
• Product revenue increased by 75% to $16.3 million year-to-date Q3 2024 compared to $9.3 million for the same period in the previous year
• Licensing revenue decreased by 24% to $5.3 million year-to-date Q3 2024 compared to $6.9 million for the same period in the previous year, largely resulting from a decline in revenue from product shipments to Cipher’s commercial partners
• Total gross profit was $17.4 million year-to-date Q3 2024, compared to $13.1 million for the same period in the previous year, due to higher total gross profit from the acquired Natroba business
• Net income and earnings per common share were $8.2 million and $0.34, respectively, year-to-date Q3 2024, compared to net income of $12.7 million and earnings per common share of $0.50 for the same period in the previous year, impacted primarily by transaction costs associated with the acquisition of the Natroba business, increased amortization associated with acquired intangible assets, and a year-over-year reduction in licensing revenue
• EBITDA¹ decreased by 14% to $7.4 million year-to-date Q3 2024, compared to $8.6 million for the same period in the previous year
• Adjusted EBITDA¹ for the year-to-date Q3 2024 was $10.7 million, an increase of 9% compared $9.9 million for the same period in the previous year

Business Strategy & Outlook

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

• Integrating the acquired Natroba business 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 23%², in a market where market leader “Permethrin” is no longer an effective treatment but still holds 75%² 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.
• Continue to collaborate with our partner Moberg Pharma on its MOB-015 Phase III clinical trial in the U.S., where results are expected by January 2025.
• Assessing the Canadian market potential for MOB-015 with both the new U.S. Phase III clinical trial data and the existing EU approved MOB-015 product.

Financial Statements and MD&A

Cipher’s Financial Statements for the three and nine months ended September 30, 2024, and Management’s Discussion and Analysis (the “MD&A”) for the three and nine months ended September 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 November 8, 2024 at 8:30 a.m. (ET) to discuss its financial results and other corporate developments.

• To access the conference call by telephone, dial (416) 945-7677 or (888) 699-1199
• A live audio webcast will be available at https://app.webinar.net/BxoA3Pp3dnP
• An archived replay of the webcast will be available until November 15, 2024 and can be accessed by dialing (289) 819-1450 or (888) 660-6345 and entering conference replay code 02131#

About Cipher Pharmaceuticals Inc.

Cipher Pharmaceuticals CPH 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 integration of the Natroba business into the Cipher infrastructure, the impact of insourcing sales in certain states, the timing of the receipt of the topline results from MOB-015 Phase III North American study, 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 and infectious disease 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, the 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 Company’s performance depends, in part, on the performance of its distributors and suppliers; 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; the 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; inability to meet covenants under our long-term debt arrangement; 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 September 30, 2024.

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

Consolidated statements of income and comprehensive income

Consolidated statements of financial position

SOURCE Cipher Pharmaceuticals Inc.

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