Earnings call transcript: Cipher Pharmaceuticals Q3 2025 beats EPS expectations

Cipher Pharmaceuticals Inc. (CPH) reported its Q3 2025 earnings, surpassing earnings per share (EPS) expectations but falling short on revenue forecasts. The company posted an EPS of $0.21, exceeding the forecast of $0.1659, marking a surprise of 26.58%. However, revenue reached $12.8 million, below the expected $13.52 million, resulting in a 5.1% miss. Following the earnings release, Cipher's stock price decreased by 0.77% in after-hours trading, closing at $14.82.

Key Takeaways

• Cipher Pharmaceuticals exceeded EPS expectations by 26.58%.
• Revenue fell short by 5.1% compared to forecasts.
• Stock price dropped by 0.77% in after-hours trading.
• The company plans to launch a direct-to-consumer sales model in early 2026.
• Debt reduced significantly, with expectations to be debt-free by year-end.

Company Performance

Cipher Pharmaceuticals demonstrated strong year-over-year growth with a total net revenue increase of 24% for Q3 2025. The company also reported a 78% increase in nine-month net revenue, reflecting robust operational performance. Despite this growth, the revenue miss highlights challenges in meeting market expectations, which may have contributed to the negative stock market reaction.

Financial Highlights

• Revenue: $12.8 million, up 24% YoY
• Earnings per share: $0.21, surpassing the forecast
• Net income: $5.5 million for Q3 2025
• Adjusted EBITDA: $7.3 million, a 79% increase YoY
• Cash position: $8.4 million
• Debt reduced to $8 million, down from $40 million

Earnings vs. Forecast

Cipher Pharmaceuticals reported an EPS of $0.21, exceeding the forecast of $0.1659, resulting in a 26.58% surprise. This marks a significant achievement for the company, indicating strong profitability. However, revenue came in at $12.8 million, missing the forecast of $13.52 million by 5.1%, which may have tempered investor enthusiasm.

Market Reaction

Following the earnings release, Cipher's stock experienced a decline of 0.77% in after-hours trading, closing at $14.82. The stock remains within its 52-week range, with a high of $17.5 and a low of $10.61. The decrease in stock price suggests investor concerns over the revenue miss despite the positive EPS surprise.

Outlook & Guidance

Looking forward, Cipher Pharmaceuticals plans to launch a direct-to-consumer sales model in early 2026 and is pursuing the launch of Natroba in Canada. The company is focused on business development, exploring complementary product acquisitions, and out-licensing opportunities globally. With a strong cash position and reduced debt, Cipher aims to be debt-free by the end of the year.

Executive Commentary

"If we have the best product, you're going to command a bit of a premium price," stated Brian Jacobs, Executive, highlighting the company's pricing strategy. CEO Craig Mull emphasized, "We will be debt-free very close to the end of the year. From there, we're going to be accumulating cash till we find the right deal."

Risks and Challenges

• Revenue shortfall may impact investor confidence.
• Dependence on Natroba sales, which face competition and market saturation.
• Potential regulatory challenges in launching new products in international markets.
• Macroeconomic pressures could affect consumer spending and demand for healthcare products.
• Legal proceedings with Sun Pharma may pose financial and operational risks.

Q&A

During the earnings call, analysts inquired about potential government and institutional contracts, the pricing strategy, resistance to permethrin treatments, and ongoing legal proceedings with Sun Pharma. These discussions highlighted the company's strategic focus and potential challenges in expanding its market presence.

Full transcript - Cipher Pharmaceuticals Inc (CPH) Q3 2025:

Conference Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals Quarterly Conference Call for the company's Q3 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, November 7, 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 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 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 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.

Craig Mull, 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. Cipher demonstrated meaningful growth during the third quarter of 2025, which was largely attributed to the addition and performance of our U.S.-based Natroba business. Sales from Natroba and its authorized generic, Spinosad, were $8.1 million during the third quarter of 2025, a 4% sequential increase over the last quarter's revenues of $7.8 million, consistent with the product seasonality, whereby head lice and scabies infections are generally more prevalent in the warmer months of the year. Additionally, the Natroba business continues to have strong profitability, with gross profit of $7 million and a gross margin percentage of 86% during the third quarter of 2025.

Adjusted EBITDA from the Natrova business was a strong result of $5 million, which contributed to our total combined business adjusted EBITDA of $7.3 million during the third quarter of 2025. Consistent with our past track record, our earnings translate directly to free cash flow, which has allowed us to continue to deleverage the business. During the third quarter and after the quarter end, we repaid a total of $17 million on our revolving credit facility, which is now being reduced to a balance of $8 million at the present time. This is an incredible feat, given that we drew $40 million on the revolving facility to acquire the Natrova business just at the end of July 2024. Our CFO, Ryan Mailling, will provide a detailed overview of our financial results following my commentary.

I would like to spend the balance of my remaining remarks to discuss our business development activities, which we are very active in and where I am focusing the majority of my time. We have four distinct strategies ongoing at the moment to drive shareholder value and grow our business. Firstly, it is critical we continue to invest and build upon the Natroba business and the U.S. operations to position it to further grow heading into 2023. To supplement our existing sales approach, we will be launching a direct-to-consumer sales model early in 2023, which is a strategy many pharmaceutical manufacturers are taking as a direct and modern sales approach to the U.S. market. We believe Natroba is right-suited for a direct-to-consumer sales model, whereby Permethrin and related OTC products are no longer an effective solution to the needs of individual consumers and families suffering from head lice and scabies.

They simply need a better solution and an ability to get it fast when it is needed. Our platform will streamline the process to obtain a prescription, efficiently adjudicate a claim, and provide a convenient local pickup or delivery option to consumers. The strategy also includes partnerships with retailers to ensure that Natroba and Spinocid are adequately stocked in states and city centers across the U.S., so it is available through this platform. We are excited about our new DTC strategy and will provide more details on the rollout in the coming months. A second area of our business development strategy is we are actively pursuing complementary products, which can be directly commercialized through our existing U.S. sales force. We are currently active in discussions with various parties and will continue to provide updates.

However, as with all business development opportunities, the activities take time and the opportunities may or may not come to realization. A third strategy we are pursuing is launching Natrova in Canada, and we are on track to submit our new drug submission to Health Canada during the fourth quarter of 2025. We believe Natrova will fill an unmet need in Canada for highly effective treatment for head lice and scabies, and we will continue to provide updates as developments occur with Health Canada's review and the submission process. The fourth strategy I would like to discuss with you is we are actively pursuing outlicensing opportunities for Natrova globally. We continue to believe there is an unmet need for a highly effective product like Natrova to address head lice and scabies indications in other territories globally.

However, we believe it is important to find the right fit with our outlicensing partner for Natrova. Product pricing in territories outside of the U.S. is an important element we must consider when finding the right fit for the outlicensing. With that being said, we are in discussions with various organizations at the present time and hope to provide exciting updates as developments occur in this area. Thank you for joining us here today, and I look forward to answering any of your questions after our prepared remarks. I will now pass the call over to our CFO, Ryan Mailling. Please go ahead, Ryan.

Ryan Mailling, CFO, Cipher Pharmaceuticals: Thanks, Craig, and 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, Cipher Pharmaceuticals is reporting results from the company's third quarter and nine-month period ended September 30, 2025. Total net revenue for the three and nine-month period ended September 30, 2025, was $12.8 million and $38.2 million, respectively. Net revenue for the third quarter of 2025 increased by $2.4 million, or 24%, compared to the same quarter in the prior year. Net revenue from the nine-month period ended September 30, 2025, increased by $16.7 million, or 78%, over the same period in 2024. The increases were attributable to the addition of the U.S.-based Natrova business on July 29, 2024, for which only two months of revenue were included in our prior year results for the three and the nine-month periods ended September 30, 2024.

Product revenue from the U.S.-based Natroba business comprised of the brand Natroba and its authorized generic Spinocid was $8.1 million and $22.5 million, respectively, for the three and nine-month periods ended September 30, 2025. Product revenue from the U.S.-based Natroba business for the three and nine months ended September 30, 2024, was $5.5 million. Product revenue from the Canadian product portfolio for the third quarter and nine months ended September 30, 2025, was CAD 4 million and CAD 12.7 million, respectively. Canadian product portfolio revenue of CAD 4 million increased by CAD 0.2 million, or 5%, for the third quarter of 2025, compared to the CAD 3.8 million in the third quarter of 2024. For the nine months ended September 30, 2025, product revenue from the Canadian product portfolio of CAD 12.7 million represented an increase of CAD 1.9 million, or 18%, compared to CAD 10.8 million in the same period of the prior year.

Additionally, 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 nine months ended September 30, 2025, was impacted by changes in the U.S. dollar relative to the Canadian dollar. The impact was nominal for the third quarter. However, when translated on a constant currency basis for the nine months ended September 30, 2025, Canadian product portfolio revenue increased by CAD 2.2 million, representing an increase of 21% over the nine months ended September 30, 2024. The products comprising our Canadian product portfolio benefited from a combination of increased sales volumes and favorable changes in product mix for certain products for the three and nine months ended September 30, 2025, compared to the same periods in the prior year, which contributed to the overall increase in revenue. Moving on to our U.S.

Licensing revenue, total licensing revenue for the three and nine months ended September 30, 2025, was $0.8 million and $3 million, respectively. Licensing revenue decreased by $0.3 million and $2.3 million, respectively, for the third quarter and nine months ended September 30, 2025, compared to the same periods in the prior year. The overall licensing revenue of $0.8 million for the third quarter of 2025 represented a 28% decrease compared to $1.1 million in the same quarter of the prior year. The decrease is due to the Abzorica portfolio in the U.S., which contributed $0.4 million of licensing revenue in the third quarter of 2024, a decrease of $0.2 million when compared to the $0.6 million of revenue for the same quarter in the prior year.

The decline in the Abzorica portfolio licensing revenue resulted from lower royalty revenue, contributed to by reduced sales volumes and net sales realized by our distribution partner, on which Cipher earns a net sales royalty. This was combined with Cipher no longer earning a royalty on Abzorica LD in the U.S. market effective January 1, 2025. We also earned revenue from supplying product to our distribution partner. However, revenue from this remained consistent year over year in the third quarter. Overall licensing revenue for the nine months ended September 30, 2025, was $3 million, compared to $5.3 million for the same period in the prior year, representing a 44% decrease. The decrease for the nine months ended September 30, 2025, was contributed to by the Abzorica portfolio and Lipofen, including its authorized generic.

Licensing revenue from Abzorica was $1.7 million for the nine months ended September 30, 2025, a decrease of $2 million, or 54%, when compared to the same period in 2024. Revenue from Abzorica for the nine-month period was impacted by year-over-year declines in product shipments, on which we earned revenue from supplying product to our distribution partner. The decline in the Abzorica portfolio licensing revenue for the nine months ended September 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 Cipher earns a net sales royalty. This was further contributed to by lower contractual royalty rates year over year. Market share for Abzorica in the authorized generic of Abzorica was 2.9% at September 30, 2025, according to Symphony Health market data, representing a decrease of 2.7% compared to 5.6% at September 30, 2024.

The products continue to face increasing generic competition and related market dynamics within the U.S. market. Licensing revenue from Lipofen and the authorized generic of Lipofen was $1.1 million for the nine months ended September 30, 2025, representing a decrease of $0.4 million compared to the same period in the prior year, attributable to lower sales volumes and net sales realized by our distribution partner on these products, on which Cipher earns a net sales royalty. Selling, general and administrative expenses for the three and nine months ended September 30, 2025, were $3.7 million and $12.8 million, respectively. Selling, general and administrative expenses for the third quarter of 2025 of $3.7 million represented a decrease of $2.5 million, or 40%, compared to the same quarter in the prior year.

The decrease was primarily attributable to the non-recurring acquisition-related costs of $1.6 million in connection with the acquisition of the U.S.-based Natrova business, combined with $0.7 million in legal costs with respect to an arbitration process, which were incurred during the third quarter of 2024. However, these costs were not recurring in the third quarter of 2025. Selling general and administrative expenses for the nine months ended September 30, 2025, of $12.8 million increased by $3.5 million compared to the same period in the prior year. This increase is attributable to a full nine months of selling general and administrative expenses for the acquired U.S.-based Natrova business in 2025 to date, compared to only two months of selling general and administrative expenses for this business post-acquisition in the same period in the prior year.

Additionally, legal costs associated with the arbitration process were $0.5 million higher for the nine months ended September 30, 2025, compared to the same period in the prior year. These increases in selling, general and administrative expenses were partially offset by $1.9 million of non-recurring acquisition-related costs in connection with the acquisition of the U.S.-based Natrova business, which were incurred during the nine months ended September 30, 2024. However, these costs did not reoccur in the same period in the current year. Net income for the three months ended September 30, 2025, was $5.5 million, or $0.21 per diluted common share, compared to $0.3 million, or $0.01 per diluted common share for the same period in the prior year.

Prior year net income for the three months ended September 30, 2024, was adversely impacted by $1.6 million of non-recurring acquisition-related costs in connection with the Natrova acquisition and $0.7 million of legal costs with respect to the arbitration. Net income for the nine months ended September 30, 2025, was $14 million, or $0.54 per diluted common share, compared to $8.2 million, or $0.33 per diluted common share for the same period in the prior year. Net income for the nine months ended September 30, 2025, benefited from the inclusion of the U.S.-based Natrova business for the full nine months of the period, compared to the inclusion of this business for only two months post-acquisition during the same nine-month period in the prior year.

However, net income for the nine-month period ended September 30, 2025, was also adversely impacted by $0.8 million of non-cash fair value adjustments associated with the inventory acquired in the Natrova acquisition, which were recognized in cost of product sold during the period. The $5.8 million increase in net income year over year was further contributed to by the $1.9 million of non-recurring acquisition-related costs incurred in connection with the Natrova acquisition during the nine months ended September 30, 2024, which did not recur during the same period in the current year. Adjusted EBITDA for the three and nine-month period ended September 30, 2025, was $7.3 million and $21.1 million, respectively, compared to $4.1 million and $10.7 million, respectively, for the same periods ended September 30, 2024.

This represents an increase of 79% and 97%, respectively, for the third quarter and nine months ended September 30, 2025, when compared to the same periods in the prior year. The increase in adjusted EBITDA was mainly driven by the addition of the U.S.-based Natroba business for the full period in 2025, partially offset by declines experienced in U.S. licensing revenue. The company had $8.4 million in cash and $13 million in debt outstanding as of the end of the third quarter of 2025. Cipher continues to generate meaningful free cash flow from operations, with $10.8 million in operating cash flow during the third quarter of 2025 and $21 million generated from operations for the nine months ended September 30, 2025.

During the third quarter of 2025, Cipher allocated $12 million of its accumulated cash to make repayments on its revolving credit facility and utilized an additional $1.6 million of accumulated cash for repurchase of common shares under its normal course issuer bid. Subsequent to the third quarter of 2025, on October 31, 2025, Cipher further allocated a portion of its cash it had accumulated from free cash flows to make an additional repayment of $5 million on the outstanding balance of its revolving credit facility. Accordingly, after making this payment, the company now has a reduced debt balance of $8 million outstanding on its revolving credit facility and having completed $32 million in total debt repayments during the fiscal year to date, we have made substantial progress towards becoming net debt-free.

Due to the revolving nature of Cipher's credit facility, after making these repayments, we continue to have $82 million of potential financing available to us, comprising $57 million of remaining availability on our revolving credit facility, plus an additional $25 million according in option. Cipher's continued strong cash flows from operations, continued with access to capital, put Cipher on excellent footing to execute on our business strategy of pursuing growth opportunities, which Craig highlighted during his remarks. We'll now open the call for questions.

Conference Operator: Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press the star key followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star key followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, while we assemble the queue. Your first question comes from Andrey Uddin of Research Capital. Please go ahead.

Ryan Mailling, CFO, Cipher Pharmaceuticals: Operator, hi Craig, Bryan, and Ryan. Besides looking at your Salesforce and DTC advertising, can you maybe discuss if there's an opportunity for any potential contracts with the military or state prisons for Natroba?

Craig Mull, Interim Chief Executive Officer, Cipher Pharmaceuticals: Good morning, Andrey. How are you doing?

Ryan Mailling, CFO, Cipher Pharmaceuticals: I'm pretty good, thanks.

Craig Mull, Interim Chief Executive Officer, Cipher Pharmaceuticals: Very good question. Right now, we do have a kind of a strategy pillar where we're working through government contracting, as you just said. An example of a recent activity, which is just some initial discussions, is I participated just the other week in a discussion with the VA to expand the product through VA and get access there. That was kind of our first step into that, and then we wanted to then move into other government agencies. There is some traction there, but obviously, we do not highlight it because it is at an early stage, but we are certainly moving on it.

Brian Jacobs, Executive, Cipher Pharmaceuticals: Andrey, just to add to that, there are other groups of similar interest to us, including nursing home and retirement associations, school nursing associations. The military, obviously, is an area that we think that there's a great demand for this type of product. We are starting to reshape our Salesforce more to go after these, what we call them, pillars of business, where we are focused on associations and groups where we can get our message out much more efficiently and much more cost-efficiently as well.

Ryan Mailling, CFO, Cipher Pharmaceuticals: Makes sense. And just maybe could also just going along these same lines, can you discuss how the preferred drug listings for Medicaid is proceeding in some of the other states? I know you have Illinois, but you can still moving forward for Natroba.

Craig Mull, Interim Chief Executive Officer, Cipher Pharmaceuticals: It is. Some of this is kind of ongoing, so I'm not able to, call it, greatly disclose the status of those. What I can say is, at the present time, there are a number of states of similar size to Illinois that have our bid, which is submitted to do exactly what you said, which is remove permethrin 5% from the preferred listing and to favor Natrova or Spinocid if it is preferred. There are a number of states right now with bids in their hands that they're considering. How that works on an ongoing basis is the bids come up for renewal annually in the most part. Some of them go by a different tempo.

As we do that, some of the things are, one, we're adding both Natrova and Spinosad onto state formularies, which just ensures product gets dispensed, as well as provide them an option and a financially beneficial option to have our product as preferred. States like that option, and we hope to have some announcements coming forward as states decide on those bids.

Ryan Mailling, CFO, Cipher Pharmaceuticals: Beautiful. I like how you're paying down your debt. Just wondering if you could just elaborate a little bit more in terms of in-licensing for your business development pipeline. What does that look like, and where are prices? That's sort of my last question there. Thank you.

Brian Jacobs, Executive, Cipher Pharmaceuticals: On the in-licensing or acquisition side, there are lots of opportunities out there. We are really focused on those opportunities that fit best with our current U.S. operations. We are in discussions with a number of different opportunities for targets at the moment. Again, as we go through due diligence and the process, obviously, some fall off the table, but we are encouraged recently by some discussions and meetings that we have with what we consider to be products that fit well with our structure in the U.S.

Ryan Mailling, CFO, Cipher Pharmaceuticals: That's it for me. Thank you.

Conference Operator: Your next question comes from Max Chmielewski of Stifel. Please go ahead.

Max Chmielewski, Analyst, Stifel: Hi, good morning, guys. Thanks for taking my call. I'm on here for Justin today. It's exciting to hear you are joining the farm-to-table trend. I guess on that, if you could give a little bit more detail on how you think about balancing pricing. I know it's not an expensive product at baseline. Balancing pricing with volume expectations from the DTC approach and how you're thinking about marrying that with your digital marketing plans.

Ryan Mailling, CFO, Cipher Pharmaceuticals: Hey, Max. It's Brian Jacobs here. So kind of your first question is on pricing. What we've always found is it's difficult when you have a far superior, and when I say superior, efficacious product versus the alternatives to really want to compete on price. If I take our business aside, I think that that's a losing strategy for anyone. If we have the best product, you're going to command a bit of a premium price. On the flip side of that, our product is heavily covered on Medicaid and on commercial plans.

Really what it is is it's an educational item to a family because if you think about it, an alternative is you're frantic like you may have something like head lice or scabies, but for head lice, you go to a pharmacy and you try and grab someone off the shelf, and you may use it and you run out of it. You may need multiple boxes of that, and it doesn't work. You're battling with head lice for many weeks. The cost of that and the cost of the time of that is kind of a problem for families. Whereas our product, once you pay your copay on insurance and get a prescription, you wouldn't be worse off, and you would use the product once, and it kills all lice and eggs, and your kid goes back to school the next day completely lice-free.

Part of it is ensuring that when people search for the product that works, bringing them into our platform and saying, "Okay, wow, this is what I want," and then being able to get the product in their hands. That is why we are working through ensuring that the product is available at different retail outlets and giving them a delivery option so it can show up at their door. We think that is going to be a very compelling business model. Like you said, that is the farm-to-table type approach that we are working towards. This is a supplement to our existing plan. We are going to launch this, and we believe it is going to be kind of the next phase of growth for the Natrova franchise and then kind of scale around it from there.

Max Chmielewski, Analyst, Stifel: That's helpful. Thank you. My second question is based around one of your pillars of growth and how you're thinking about your overall strategy and out-licensing Natrova in global markets. Where do you think you see the most opportunity? Is it, to say this with diplomacy, more the emerging market side or developed markets? Are there areas in which permethrin doesn't have the same issue of resistance that wouldn't make sense for a marketplace? Can you just give some color on that?

Brian Jacobs, Executive, Cipher Pharmaceuticals: Sure. Craig here, Max. First of all, let me kind of see if I can address your questions in reverse order. The issue with the resistance of permethrin 5% and 1% is a global issue. Most jurisdictions, if not all, have this resistance problem from permethrin. Our product is going to shine against other products in other jurisdictions as well. The issue that we're finding is that in a lot of these underdeveloped countries or less developed countries, the pricing is not where it should be for our product. We are working with different outfits in perhaps less populated countries or less affluent countries to try to find the best kind of cost/pricing structure. Europe is a good market for this product, particularly the southern European countries, Spain, for example. They have reasonably high reimbursement of drugs in general, and this would fall into that.

Some Asian markets as well, including specifically Japan, have relatively lucrative drug payment plans. Our focus is going to be in Europe, particularly southern Europe, and Japan and a few other Asian countries. Does that address your question, Max?

Max Chmielewski, Analyst, Stifel: That's perfect. Thanks, Craig. I'll pass it on.

Brian Jacobs, Executive, Cipher Pharmaceuticals: Thanks.

Conference Operator: The next question comes from Doug Lowe of Leede Financial. Please go ahead.

Doug Lowe, Analyst, Leede Financial: Thanks, operator. Gentlemen, congratulations on solid cash for the quarter again. Maybe just a housekeeping question. As you previously announced, your debt levels are down to $13 million in the quarter. Your debt-based financial ratios are well into safe territory. Just wondering, are you comfortable with current debt levels, or do you expect to deploy any supplemental operating cash to bring debt levels down to even lower levels?

Brian Jacobs, Executive, Cipher Pharmaceuticals: Yeah, Doug, I think obviously we need to balance our priorities and cash availability and deployment, but I think, yeah, we're going to continue to look to repay our debt. There's no reason not to at this point. We don't have far to go, really. I mean, I'm thinking that we're going to start accumulating cash for our next acquisition. That is really the plan there. We will be debt-free very close to the end of the year. From there, we're going to be accumulating cash till we find the right deal.

Doug Lowe, Analyst, Leede Financial: I'll infer from that answer then that no product and licensing opportunities that would require new cash would be imminent before debt repayment would be the priority. I assume that's what you're implying with your answer.

Brian Jacobs, Executive, Cipher Pharmaceuticals: Yeah, yeah. We're waiting for the right deal to come. In the meantime, we'll pay off our debt, and we'll stockpile our cash in anticipation. Just to add on, Doug, it's a revolving facility, so we have access to it if and when needed.

Doug Lowe, Analyst, Leede Financial: Of course. Understood. Yeah, just sort of a competitive landscape question. One of the key drivers that was originally identified when you acquired Natrova and ParaPro was the emergence of resistant strains to permethrin. We certainly see that dynamic percolating through the medical literature as well. I was just wondering, is that reality broadly known within the medical communities where you had license conventionally treated, or do you think it would make sense to conduct a small study showing that Natrova is more effective than permethrin in resistant strains or treating resistant strains to which permethrin is no longer effective? I'm not sure whether that would be a prudent deployment of R&D capital, but just wondered if you'd considered that and if that might be something on the horizon. I'll leave it there. Thanks.

Ryan Mailling, CFO, Cipher Pharmaceuticals: Hey, Doug. It's Brian. We do have a study that's been out there for a while. I think it's back to 2015 that just talks about the resistance profile across the U.S. It was conducted across literally north, south, east, west states. So covered, I believe, in the high 40s number of states where they collected lice and demonstrated the fact that their resistance and the resistance profile was 98%. This was done many years ago. The one thing that you know about resistance over time, it only gets greater. We use that as part of our communications tool when we're reaching out to physicians. It's one of the tools that we have in the toolkit. There is no doubt that part of what we need to do is to get it more ingrained into the medical community.

We're now getting the attention of a lot of physicians, a lot of KOLs that are attuned to this. An example of that, as Craig said, we're working after different verticals because that's the way to really kind of go about it, tackle things at the school board level, at the long-term care home consortium level. We have a KOL at the moment who's working through writing a new protocol associated with, if there's an outbreak, this is the product to use, not only because permethrin you have to do multiple doses over a period of time while people are infectious, but just the fact that it also may no longer work. The two dosing when permethrin 5% first came out, it was a one dose.

It was broadly known as you need to do one dose, and you need to wait 10 days and then dose again. What's not broadcasted right now is it's probably getting into third or fourth until if you pour enough Permethrin on anything, it'll die, but it's absorbing into your skin during that time. It's certainly the best product out there. Ensuring we use the data that we have and attacking it at the right verticals as opposed to a door-to-door approach, as Craig was describing, that's going to be part of our strategy in 2026.

Doug Lowe, Analyst, Leede Financial: Great feedback. Thanks, Brian.

Conference Operator: As a reminder, if you wish to ask a question, please press star one. Your next question comes from Tanya Armstrong of Canaccord Genuity. Please go ahead.

Tanya Armstrong, Analyst, Canaccord Genuity: Hey, good morning, gentlemen. Just a couple for me. First on Natrova, I think Craig, you mentioned earlier in your remarks that seasonality plays a role here and sales tend to be higher in warmer months. I would have thought that sales are also quite high in that September timeframe when kids return to school. Do you guys see that? Should we expect then a downtick in revenue into Q4?

Ryan Mailling, CFO, Cipher Pharmaceuticals: Hey, it's Brian Jacobs here. Nice to meet you. I don't know if we've talked before. Your last part of your question there, do we expect Q4 to be lower than Q3 and Q2? Generally, yes. Even though Q3 is, call it the hottest, warmest season, and you have back to school, as you indicated, what we did see this year was that as opposed to having a huge spike in Q3, we found Q2 and Q3 were more balanced because the stocking and getting ready for it at the wholesale and retail channels happened earlier.

Tanya Armstrong, Analyst, Canaccord Genuity: Excellent. Okay. That's good color. Okay. With respect to this, it came up in an earlier question, but just getting on some of these bids that you've made to states outside of Illinois to get on their formularies and displace permethrin, have there been any states that you have submitted a bid and not won that?

Brian Jacobs, Executive, Cipher Pharmaceuticals: No.

Tanya Armstrong, Analyst, Canaccord Genuity: Okay.

Ryan Mailling, CFO, Cipher Pharmaceuticals: No, there haven't. Yeah. At the present time, we have a number of states that have the bids that are contemplating it. It's typically what happens there is they give you a process works as you approach the renewal of the bid. You submit it, and the states just work where they make the decision. Towards the very end, you kind of hear about it. We are hoping in the coming months, as we look at some of them renew kind of right on the calendar year, that we'll hear back on those. No, we haven't had anyone turn down that as of late.

Tanya Armstrong, Analyst, Canaccord Genuity: Excellent. Okay. And then just lastly, and apologies if I missed this in your remarks, but the compensatory damages and reimbursement for legal fees as part of that Sun Pharma litigation, how should we think about that being accounted for in Q4? Will there just be a contingent consideration line item on your balance sheet, or have they actually paid you the cash yet, or are they withholding a portion as they appeal the outcome?

Brian Jacobs, Executive, Cipher Pharmaceuticals: Tanya, it's Craig Mull here. Most of that arbitration award now is public information. You probably are aware that Sun has decided to try to vacate the arbitrator, and that's going through New York courts at the moment. We don't know how that will go. I certainly like our position a lot better than theirs. We haven't received any payment, and I don't think that we will be recording any until we hear what the New York courts say.

Ryan Mailling, CFO, Cipher Pharmaceuticals: Yeah, I can tag on that, Tanya. It's really dependent on the timing of this outcome and what the outcome is. At this point, it's contingent asset or gain, which you don't recognize until you have certainty on.

Tanya Armstrong, Analyst, Canaccord Genuity: How long do those appeals processes take? I know it varies, but for something like this, how long would you anticipate this taking?

Brian Jacobs, Executive, Cipher Pharmaceuticals: I was told by our litigators that it's likely a few months.

Tanya Armstrong, Analyst, Canaccord Genuity: Perfect. Okay. That's all for me. Thank you.

Conference Operator: If there are no further questions at this time, I will now turn the call back over to Craig Mull. Please continue.

Brian Jacobs, Executive, Cipher Pharmaceuticals: I want to thank everybody for your time today, and I appreciate that you joined our call. We look forward to reporting positive news in the coming quarters as we progress with our plans. Again, thank you very much for your time, and we appreciate your support and interest.

Conference Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

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