Cipher Pharmaceuticals Reports Second Quarter 2020 Financial Results
Income before taxes increased 36% to $2.5 million
EBITDA increased 22% to $2.9 million
Excluding a one-time tax adjustment EPS was $0.07 (CDN$0.10)
OAKVILLE, ON, Aug. 12, 2020 /CNW/ - Cipher Pharmaceuticals Inc. (TSX: CPH) ("Cipher" or "the Company") today announced its financial and operating results for the three and six months ended June 30, 2020. Unless otherwise noted, all figures are in U.S. dollars.
Q2 2020 Financial Highlights
(All figures in U.S. dollars, compared to Q2 2019 unless otherwise noted)
-- Total revenue was $4.7 million compared to $5.6 million
-- Product revenue was $2.0 million compared to $2.1 million
-- SG&A decreased 37% to $1.3 million from $2.1 million
-- Total operating expenses decreased 41% to $2.1 million from $3.5 million
-- Income before taxes increased 36% to $2.5 million compared to $1.8
million
-- Total income tax expense was $2.1 million compared to $0.5 million
-- Excluding a one-time tax adjustment EPS was $0.07 (CDN$0.10) compared to
$0.05
-- EBITDA improved to $2.9 million compared to $2.4 million
-- Adjusted EBITDA(2) was $2.9 million
Management Commentary
"The second quarter was one of heightened economic uncertainty as the world adapted to the challenges presented by COVID-19. Cipher entered this global crisis from a position of strength, with a reduced cost structure, a strong balance sheet, and a renewed focus on profitability," said Mr. Craig Mull, Interim CEO.
"Epuris continued to perform well in the quarter, with revenue of $1.9 million, up 4% in Canadian dollars. Epuris finished the quarter with a 41% market share in the Canadian market, up from 38% in the comparative period. Absorica revenue declined by $1.1 million compared to Q2 2019. Absorica's market share for the three months ended June 30, 2020 was approximately 6% compared to approximately 8% for the three months ended June 30, 2019, according to IQVIA. Market share including Sun's Absorica LD was approximately 7%."
"Despite lower revenue, our results demonstrated our commitment to expense management. Total operating costs decreased 41% in the second quarter over last year. This optimized cost structure resulted in EBITDA increasing 22% and Adjusted EBITDA coming in relatively unchanged at $2.9 million compared to $3.0 million last year. We are encouraged to see EBITDA margins were up dramatically to 61.2% in Q2 2020 compared to 42.3% in Q2 2019. Our focus for the rest of the year will be to look for the right opportunities for long term growth."
"Net income in the quarter was $0.4 million, or $0.02 per share. Both net income and EPS were depressed due to a CRA tax assessment which resulted in an additional tax expense of $1.4 million in the quarter. Excluding the impact of this tax assessment, EPS would have come in at $0.07 (CDN$0.10). The Company intends to file a notice of objection with the CRA on this matter."
Q2 2020 Financial Review
(All figures are in U.S. dollars)
Total revenue was $4.7 million for Q2 2020, compared to $5.6 million for the prior period. The main driver for the $0.9 million decrease in revenue was a decrease in Licensing revenue.
Licensing revenue was $2.7 million for the three months ended June 30, 2020, compared to $3.5 million for the three months ended June 30, 2019. Licensing revenue from Absorica in the U.S. was $1.8 million for the three months ended June 30, 2020, compared to $2.9 million for the prior period. Absorica ended the quarter with a 7.0% market share.
Licensing revenue from Lipofen and the authorized generic version of Lipofen was $0.5 million for Q2 2020, unchanged from the three months ending June 30, 2019. Licensing revenue from the extended-release tramadol product (ConZip and Durela) was $0.3 million for the three months ended June 30, 2020, an increase of $0.2 million compared to revenue of $0.1 million for the three months ended June 30, 2019.
Product revenue was $2.0 million for Q2 2020, compared to $2.1 million in 2019. Product revenue from Epuris increased by 4% or $0.1 million during the quarter. According to IQVIA, Epuris had a prescription market share of approximately 41% in Canada for the three months ended June 30, 2020, compared to 38% for the three months ended June 30, 2019.
The decrease in product revenue was attributable to the remaining brands (Ozanex, Beteflam, Actikerall, Brinavess, and Vaniqa) which was $0.1 million for the second quarter, compared to $0.2 million for the three months ended June 30, 2019.
Total operating expenses decreased 41% to $1.5 million for Q2 2020 compared to $2.5 million for Q2 2019. The decrease was primarily driven by a decrease in selling, general and administrative ("SG&A") expense.
SG&A expense was $1.3 million for Q2 2020, a decrease of $0.8 million or 37% compared to the prior period. The decrease in SG&A was primarily driven by an overall reduction in costs related to human resources and marketing spend.
The income tax expense for the three months ended June 30, 2020 was $2.1 million compared to $0.5 million for the three months ended June 30, 2019. As at June 30, 2020, the Company has recognized deferred tax assets in the interim consolidated statement of financial position of $0.9 million. The company believes that it is probable that future taxable income will be available against which tax losses can be utilized.
During the quarter, the Company received the final assessment in respect of the 2014 and 2015 CRA audit, which in addition to evaluating the intangible assets at a lower value than reported for tax purposes, disallows certain intangible assets in 2015. There is an additional income tax expense, including interest of approximately $1.5 million (CDN $2.0 million) for amortization taken on those intangible assets from 2015 through 2018. The company believes its basis for the valuation is reasonable and intends to file a notice of objection with the CRA.
Net income was $0.4 million, or $0.02 per basic and diluted share (CDN$0.03), in Q2 2020, compared to $1.4 million, or $0.05 per basic and diluted share, in Q2 2019. Adjusted EBITDA for Q2 2020 was $2.9 million, compared to $3.0 million in Q2 2019.
The Company generated $1.9 million in cash from operating activities during the quarter. As of June 30, 2020, the Company had cash of $8.7 million and $3.7 million drawn on the credit facility. The Company's expectation is that the credit facility will be paid off by the end of the fiscal year.
Financial Statements and MD&A
Cipher's Financial Statements for the second quarter ended June 30, 2020, and Management's Discussion and Analysis (the "MD&A") for the three and six months ended June 30, 2020, 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 August 13, 2020, at 8:30 a.m. (ET) to discuss its financial results and other corporate developments.
-- To access the conference call by telephone, dial (416) 764-8688 or (888)
390-0546 and use conference ID 37039570.
-- A live audio webcast will be available at
https://produceredition.webcasts.com/starthere.jsp?ei=1349740&tp_key=fe3
acf5205 or the Investor Relations section of the Company's website at
http://www.cipherpharma.com.
-- Webcast playback will be available until August 20, 2020.
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. At the Q2 2020 average exchange rate.
2. 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.
The following is a summary of how EBITDA and Adjusted EBITDA are calculated:
===
(IN THOUSANDS OF U.S. DOLLARS)
Three months
Three months
Six months
Six months
ended ended
ended
ended
June 30, 2020 June 30, 2019 June 30, 2020
June 30, 2019
---
$
$
$
$
Income from continuing operations 411 1,359 2,888 2,175
Add back:
Depreciation and amortization 294 310 601 609
Interest expense, net 87 221 183 443
Income taxes 2,089 478 3,185 901
---
EBITDA 2,881 2,368 6,857 4,128
---
Change in fair value of derivative 17 (3) 15 (15)
financial instrument
Restructuring costs 660 660
Loss (gain) from the translation of (37) (37) 17 (63)
Canadian cash balances
Share-based compensation 45 37 89 69
---
Adjusted EBITDA 2,906 3,025 6,978 4,779
===
SOURCE Cipher Pharmaceuticals Inc.
