Earnings call transcript: Cipher Pharmaceuticals misses Q1 2025 EPS expectations

Cipher Pharmaceuticals Inc. reported its first-quarter 2025 earnings, revealing a miss on earnings per share (EPS) compared to analysts’ expectations. The company posted an EPS of $0.10, falling short of the forecasted $0.14. Despite this, Cipher’s stock saw a modest increase of 0.56% in after-hours trading, closing at $14.42. According to InvestingPro data, the company has delivered an impressive 61.12% return over the past year, significantly outperforming broader market indices.

Key Takeaways

• Cipher’s Q1 2025 EPS was $0.10, missing the forecast of $0.14.
• Revenue increased by 105% year-over-year, driven by the Natroba acquisition.
• Stock price rose by 0.56% in after-hours trading.
• The company reduced its debt significantly by $15 million.
• Natroba is positioned as a preferred Medicaid product in Illinois.

Company Performance

Cipher Pharmaceuticals showed significant revenue growth in Q1 2025, largely due to its acquisition of the Natroba business. Total net revenue reached $12 million, marking a 105% increase from the same quarter in 2024. However, net income dropped to $2.6 million from $4.9 million in Q1 2024, reflecting a decrease in EPS from $0.20 to $0.10. The company also enhanced its Canadian product portfolio, which saw a 41% increase in revenue.

Financial Highlights

• Revenue: $12 million, up 105% year-over-year
• EPS: $0.10, down from $0.20 in Q1 2024
• Adjusted EBITDA: $6.2 million, a 73% increase from Q1 2024
• Cash balance: $22 million
• Debt: Reduced from $40 million to $25 million

Earnings vs. Forecast

Cipher’s actual EPS of $0.10 fell short of the anticipated $0.14, representing a 28.6% miss. The revenue also did not meet expectations, coming in at $12.02 million compared to the forecasted $12.93 million. This marks a significant deviation from previous quarters, where the company had generally met or exceeded estimates.

Market Reaction

Following the earnings release, Cipher’s stock price experienced a slight increase of 0.56%, closing at $14.42 in after-hours trading. This movement is relatively modest compared to the broader market and may reflect investor confidence in the company’s strategic initiatives despite the earnings miss. Trading at a P/E ratio of 22.09, the stock appears to be overvalued according to InvestingPro’s Fair Value analysis. The stock remains within its 52-week range, with a high of $19.69 and a low of $8.01.

Outlook & Guidance

Cipher Pharmaceuticals is focusing on expanding its business development opportunities, particularly in the U.S. and North America. The company anticipates revenue growth in the upcoming quarters, driven by increased demand for its Natroba product and potential expansion of Medicaid preferred status to other states. InvestingPro’s Financial Health Score rates Cipher as "GOOD" with a score of 2.96, suggesting strong fundamentals to support its expansion plans. Get access to the full Pro Research Report and detailed analysis of 1,400+ stocks through InvestingPro’s comprehensive platform.

Executive Commentary

Craig Mao, CEO of Cipher Pharmaceuticals, emphasized the company’s strategic focus on the U.S. market, stating, "Our first priority is The U.S. where we’ve got the existing infrastructure." Additionally, Brian, an executive, expressed confidence in the company’s U.S. performance, noting, "We expect pretty high performance from The U.S."

Risks and Challenges

• Market saturation and competition in the anti-parasitic market.
• Potential resistance to permethrin-based treatments affecting product demand.
• Economic pressures that could impact consumer spending and healthcare budgets.
• Regulatory challenges in expanding Medicaid preferred status.

Q&A

During the earnings call, analysts inquired about the company’s sales force strategy, confirming the presence of 36 sales representatives. Questions also focused on the impact of debt repayment on future mergers and acquisitions, with executives clarifying that the recent $15 million debt reduction does not hinder potential M&A activities.

Full transcript - Cipher Pharmaceuticals Inc (CPH) Q1 2025:

Conference Moderator: Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Cipher Pharmaceuticals Quarterly Conference Call for the Company’s First Quarter twenty twenty five 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. As a reminder, this conference is being recorded today, Friday, May nine of twenty twenty five.

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 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 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 Mao, Interim Chief Executive Officer of the company. Please go ahead, Mr. Mao.

Craig Mao, Interim Chief Executive Officer, Cipher Pharmaceuticals: 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. Natrova business. First, I would like to spend some time commenting on The U. S. Natrova business.

Revenues were $6,700,000 during the first quarter of twenty twenty five, 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 incoming 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 $5,800,000 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 twenty twenty five 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 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 Natroba the preferred product of choice, given its one dose complete cure for scabies, and whereby the incumbent treatment, Permethrin five percent, is now non preferred under Medicaid. As a greater number of physicians in Illinois will become familiar with the safety and efficacy of Natroba, 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 twenty twenty four, a pre meeting with Health Canada related to our new drug submission is planned to take place before the end of the second quarter twenty twenty five. 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 Natrova globally. As we have mentioned in the past earnings call, we believe there is a high unmet need for a highly effective product like Natrova 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 in different territories. As developments occur with respecting 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 CAD 5,300,000.0 from our base business of Canadian product revenue and U. S. Licensing revenue were 9% lower than the first quarter of twenty twenty four. However,

Brian, Executive (Possibly Chief Business Officer), Cipher Pharmaceuticals: we

Craig Mao, Interim Chief Executive Officer, Cipher Pharmaceuticals: were able to grow our Canadian based products 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 entrants 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 CAD 2,900,000.0 and continues to be a reliable source of cash flow. Included in the adjusted EBITDA are onetime legal costs associated with defending our product portfolio through a contractual arbitration process. While these one time costs of $1,000,000 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 $6,200,000 total adjusted EBITDA during the first quarter of twenty twenty five and our cash balance of $22,000,000 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, announced as announced on May 1, 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 Natrobra 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 licensing 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.

Ryan Mailing, Chief Financial Officer, Cipher Pharmaceuticals: Thanks, Craig. Good morning, everyone. As Craig mentioned at the beginning of today’s call, all amounts provided are expressed in US dollars unless otherwise noted. Today, Cipher Pharmaceuticals is reporting results from the company’s first quarter of twenty twenty five being the three month period ended 03/31/2025. Total net revenue was $12,000,000 in the first quarter of twenty twenty five, an increase of 6,100,000.0 or 105% when compared to the same period in 2024.

The increase was due to the addition of the Natroba business at the July 2024. Overall licensing revenue was 700,000 for the first quarter of twenty twenty five compared to 2,600,000.0 in the same quarter of the prior year, representing a 72% decrease. The decrease is due to lower year over year product shipments of $1,000,000 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 US related to The US licensing products. Licensing revenue from Absorica in The US was $300,000 in the first quarter of twenty twenty five, a decrease of $1,600,000 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 5,600,000.0, 5 point 6 percent at 03/31/2025, representing a decrease of 0.2% compared to 03/31/2024. Licensing revenue from LipoFin in the authorized generic of LipoFin was 400,000 for the first quarter of twenty twenty five, representing a decrease of $300,000 compared to the same period in the prior year. Moving to our product portfolio. Total product revenue was $11,300,000 for the first quarter of twenty twenty five, an increase of $8,000,000 compared to the first quarter of twenty twenty four.

Product revenue from the Natroba business comprised of the brand Natroba and its authorized generic Spinosad was $6,700,000 in the first quarter of twenty twenty five, representing a significant portion of the 8,000,000 total increase in product revenue I described. Product revenue from the Canadian portfolio in the first quarter of twenty twenty five was $4,600,000 an increase of $1,300,000 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 $1,600,000 representing an increase of 50% over the first quarter of twenty twenty four. 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 $5,000,000 for the first quarter of twenty twenty five, an increase of $3,500,000 from the comparable period in the prior year.

The increase is attributable to higher SG and A costs from the acquired Natroba business of $2,600,000 as well as the $1,000,000 of one time costs associated with the arbitration process that was previously described in Craig’s remarks. Net income for the three months ended 03/31/2025 was $2,600,000 or $0.10 per diluted common share compared to $4,900,000 or $0.20 per diluted common share for the same period in the prior year. The decrease in net income of $2,300,000 was primarily attributable to $4,300,000 of higher total gross profit, which was offset by $1,500,000 of higher amortization on the recently acquired Natrova intellectual property, one point three million lower income tax recovery in the first quarter of twenty twenty five, ’1 point ’1 million higher interest costs resulting from interest expense of 500,000 in the first quarter of twenty twenty five compared with net interest income of 600,000 in the first quarter of twenty twenty four. And the $1,000,000 of one time costs associated with arbitration process. Adjusted EBITDA for the first quarter ended 03/31/2025 was $6,200,000 compared to the $3,600,000 for the same quarter in the prior year.

This meaningful increase of 73% was mainly driven by the previously mentioned addition of the Natroba business and growth from our Canadian product portfolio, which is partially offset by declines experienced in The US licensing revenue. The company had $22,000,000 in cash and $40,000,000 in debt as at 03/31/2025 and continues to generate free cash flow from our operations. Subsequent to the first quarter of twenty twenty five, yesterday on 05/08/2025, Cipher allocated a portion of the cash that is accumulated from free cash flows to make a repayment of $15,000,000 of the outstanding balance on its revolving credit facility. Accordingly, after making this payment, the company now has a reduced debt balance of $25,000,000 outstanding on its revolving credit facility. Cypher’s base business, particularly its Canadian product portfolio combined with the Natrovo business is performing well and contributing to meaningful cash generation.

We’ve also taken steps to further delever 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, Cipher is well positioned to execute on further growth opportunities, providing further value for our shareholders. We’ll now open the call up to questions.

Conference Moderator: Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star key followed by one on your touch tone phone. You will hear a one tone prompt acknowledging your request. Your question will be pulled in the order they are received.

And if you would like to decline from the polling process, Our first question comes from the line of Andrew Udin from Research Capital. Your line is open.

Andrew Udin, Analyst, Research Capital: Brian and Ryan, I I just had a few quick questions. Can we get an update on how many, US Sales Reps you currently have?

Brian, Executive (Possibly Chief Business Officer), Cipher Pharmaceuticals: Oh, hey, Andre. Our current field rep complement is so we’re just running the quick math in my head is about 36 reps.

Andrew Udin, Analyst, Research Capital: And have you hired any MSLs or are you going to hire any MSLs? MSL? Yes. Like medical science liaisons?

Brian, Executive (Possibly Chief Business Officer), Cipher Pharmaceuticals: We have we don’t we have, like, consultants that help us on that. They’re for a long period of time have been very strong KOLs, dermatologists mainly as well as nurse practitioners that specialize in dermatology that help us with, you know, speaking at conferences. They are very bullish on the product. They love it because it’s the only thing that works. So that’s usually how we use the medical liaison.

Don’t have a full time head associated with that. But our consultants fill that role.

Andrew Udin, Analyst, Research Capital: And can you just also remind us in terms of what regions your sales force is focused

Brian, Executive (Possibly Chief Business Officer), Cipher Pharmaceuticals: Yeah, so if you take a look at the TRX for the anti parasitic market, the majority, the major states where the majority of the scripts are in order are Texas, followed by California, followed by Florida, followed by New York State. That is that’s where you would have about 40% of the total TRX and the other 60% is kind of scattered through the remainder of the states.

Andrew Udin, Analyst, Research Capital: That’s it for me. Thanks.

Conference Moderator: Our next question comes from the line of Justin Keywood from Stifel. Your line is open.

Justin Keywood, Analyst, Stifel: Good morning. Thanks for taking my call. So a follow-up on the preferred Medicaid status in Illinois. How should we interpret that? Should we expect additional states to follow?

And is this impactful on the overall financials?

Brian, Executive (Possibly Chief Business Officer), Cipher Pharmaceuticals: Hey, Justin, Brian here. When you look at an individual state basis, you know, know, it certainly contributes. Wins when we’re on formulary for Medicaid, you’ll typically have a pretty strong share, but you won’t get it all. So, you know, when you, when you then climb up and you’d say, okay, the incumbent like 5% permethrin is now non preferred, then you kind of get all of the Medicaid business in the state. That’s the kind of the way to look at it.

So it’s each state where it occurs and how much of that incremental Medicaid market share do you get as a result of what a state might implement like Illinois. The opportunity going forward is obviously when you have one state that the pharmacy directors look at the product and say clearly this is what should be prescribed and not 5% permethrin. We do believe that it’s an opportunity where other States can follow. So Medicaid contracts typically come up for renewal, like a new bid process either, it varies by state, but it’s typically annually or biannually. So what we’re doing is now when those bids come up for their natural renewal, we’re going with them with, with options on pricing, in the same regard as Illinois, if they make, Natroba the sole preferred product in the category.

And we think that’s compelling because again, it’ll already have some good volume and demand in the state. They’ll see that when the bid comes up for renewal and then they’ll see they get preferred pricing if they’re willing to, do what Illinois did. So it’s a good compelling story. So we do believe that it can, that we’re going be able to replicate it in more States. But, you know, I can’t I can’t can’t promise when and where.

Justin Keywood, Analyst, Stifel: Great context. Thank you. And we’ll look forward to those developments. And then on the, debt repayment or the credit facility repayment of $15,000,000 just trying to understand just the use of capital and capital allocation going forward, is that indication that there may not be near term M and A in the most prudent use of capital is to pay down the debt? Or how should we be interpreting that?

Craig Mao, Interim Chief Executive Officer, Cipher Pharmaceuticals: Justin, it’s Craig here. Yes, we examined different options of what to do with the cash that we had sitting in our bank account wasn’t the best use of that. But our credit facilities with National Bank allow us to draw upon a $65,000,000 credit facility at any point in time without cost. So, you know, if we don’t have a deal that we could see closing in the next couple of months, so, you know, we thought that it would be best to pay that down and lower our interest costs. We cannot re access that money at any point in time.

Justin Keywood, Analyst, Stifel: Understood. And how is the pipeline? I know there is a few active files. Have the multiples changed at all, just given the market backdrop?

Craig Mao, Interim Chief Executive Officer, Cipher Pharmaceuticals: We haven’t seen a significant change in pricing of deals. I think I said in my remarks that we’ve got a number of targets that we’re working on now. That’s after sifting through at least a dozen opportunities that the majority of them didn’t fit with our plans. So we’ll continue to be disciplined in our approach here, but I’m still optimistic that there’s deals out there that are at the right price level and would fit well with our strategy.

Justin Keywood, Analyst, Stifel: And would these assets be in Durham and would they be cross border assets or U. S. Or Canada?

Craig Mao, Interim Chief Executive Officer, Cipher Pharmaceuticals: Well, our first priority is The U. S. Where we’ve got the existing infrastructure and the sales group that Brian talked about, the 36 reps. So that would be our top priority. And at least two cases, the products would be for North America.

So we would if we decided to move forward and we’ve got a deal that we would focus on The U. S, but bring the product to Canada as well.

Andrew Udin, Analyst, Research Capital: Great. Thank you.

Conference Moderator: Our next question comes from the line of Doug Loe from LEAD Financials. Your line is open.

Doug Loe, Analyst, LEAD Financials: Thanks very much. And yes, congratulations, gents, on the quarter. Just with regard to your earlier commentary about Natroba sales perhaps exhibiting some seasonality and targeting higher incidence of head lice and stapes infestations in the summer months. Is it all possible to sort of quantify the magnitude of seasonality that we might expect on revenue bump in Q2 and

Brian, Executive (Possibly Chief Business Officer), Cipher Pharmaceuticals: Hey, Doug, it’s Brian here. The one area that I would probably point you to is, I think is part of the bar reporting. We had to have some historic financial information, and that would have been actuals from ParaPro. I think that’s a good basis to take a look at because, you know, they’re really just, you would have seen the seasonality in some of those peak times. So that’d be the easiest way.

What do I expect? I expect pretty high performance from The U. S. As does our board as do our shareholders. So you’re going to see revenue kind of step up on a quarterly basis, certainly through Q2 and Q3.

Your magnitude of that is probably going to be in the high singles, low doubles.

Doug Loe, Analyst, LEAD Financials: Okay, good context. Thanks, Brian. And then maybe just kind of building on Justin’s question with regard to the kinds of assets that you might deem to be suitable to bring into your North American pharma portfolio. Headlights is sort of derm adjacent more than derm specifically, so it’s kind of a unique market in that way. I’m just kind of wondering how are you thinking about what target therapeutic indications sort of sense in order to leverage The U.

S. And Canadian marketing infrastructure that you have in place? Like is exclusively derm sort of where you’re looking or are there other adjacent medical markets that might make sense? Just kind of talk me through that a little bit.

Craig Mao, Interim Chief Executive Officer, Cipher Pharmaceuticals: Yeah, thanks for bringing that up. I should mentioned this in responding to Justin’s question as well earlier. Our sales force, again, we’ve got some geographic focus to them, But they’re calling on they’re not necessarily calling on derms very often just given the difficulties and waiting list to see a derm. We’re focused more on nurse practitioners, physician’s assistants who often deal with cases related to licensed scabies. So products that we’re looking for would be complementary to that call point.

And that’s really our focus at the moment. It doesn’t have to be strictly derm. It could be for other indications that these particular professionals are prescribing.

Doug Loe, Analyst, LEAD Financials: Great. Thanks for that. Good feedback there. And I’d be remiss not to sort of ask a question about Absorica, which you know, years ago was doing $3,000,000 4 million 5 million dollars in quarterly royalties and now is trending to nothing. Just wonder if there was any unusual factors other than just lower shipments in the quarter or if there is some mechanism by which the trajectory there can be reversed?

Or supplemental to that question, are there any sort of contractual elements that you could bring to bear so that you might be able to acquire marketing rights for Absorica yourself so that you can generate better success that is more comparable to what you’re achieving in Canada with the purists? And I’ll leave it there. Thanks.

Craig Mao, Interim Chief Executive Officer, Cipher Pharmaceuticals: Doug, we’re disappointed in Sun’s performance with Abzurica. We think that they could be more aggressive with their pricing because it’s very much a pricing issue now for Aturica, given the generic segment that it’s in. And we’re meeting with Sun and have met with Sun to bring pressure to them, to bring more efforts to this product. So we continue to work with them, and we’d like to reverse this trend. At the end of the day, the contract expires at the December, and we’re looking at several options around what will happen when that contract expires, including the idea of bringing in an in house and bringing on people that can focus on the distribution of that product, including more competitive pricing.

So, it’s not forever. At the very least, we’ll be taking the product back at the December 2026.

Doug Loe, Analyst, LEAD Financials: Yes. No, understood. Okay. Thanks, guys. That’s it for me.

Conference Moderator: There are no further questions from our phone lines. I would now like to turn the call back over to Mr. Ma. Please go ahead.

Craig Mao, Interim Chief Executive Officer, Cipher Pharmaceuticals: Thank you very much for attending our call today. We feel that we are doing a good job executing on our plans here and look forward to giving you future updates in the coming months. Thanks again for joining.

Conference Moderator: Ladies and gentlemen, this concludes your conference call for today. Thank you for participating. You may now disconnect.

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