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Cipher Pharmaceuticals Reports Q1 2017 Financial Results

Results highlighted by 92% increase in Adjusted EBITDA, 18% increase in revenue

MISSISSAUGA, ON, May 11, 2017 /CNW/ - Cipher Pharmaceuticals Inc. (TSX:CPH) ("Cipher" or "the Company") today announced its financial and operational results for the three months ended March 31, 2017. Unless otherwise noted, all figures are in U.S. currency.

U.S. Asset Sale

On May 1, 2017, the Company announced that it sold substantially all the assets of Cipher Pharmaceuticals US LLC ("Cipher U.S.") (formerly known as Innocutis). Prior to the Cipher U.S. asset sale, the Company operated two distinct business operations: Canada and the United States. Subsequent to the sale, the Company will only operate one segment. In the Company's Q1 2017 financial results, the U.S. segment assets and liabilities have been reclassified as held for sale on the consolidated statements of financial position and the operating results as discontinued operations on the consolidated statements of income (loss) and comprehensive income (loss).  The following discussion is focused on the continuing operations, which is the Canadian segment.

Investors are encouraged to review Cipher's complete Financial Statements and Management's Discussion and Analysis ("MD&A") for the three months ended March 31, 2017, which are available on the Company's website at www.cipherpharma.com and on SEDAR at www.sedar.com.

Financial & Business Highlights for Q1 2017

(all figures compared to Q1 2016, unless otherwise noted)

  • Total revenue from continuing operations of $8.1 million, an increase of 18% from $6.9 million in Q1 2016.
    • Licensing revenue of $6.9 million, an increase of 16% compared with $5.9 million in Q1 2016.
    • Product revenue of $1.3 million, up 32% from $0.9 million in Q1 2016.
  • Loss from continuing operations of $1.6 million, or $0.06 per basic share, compared with income from continuing operations of $1.8 million, or $0.07 per basic share, in Q1 2016. Results for Q1 2017 include a loss on debt extinguishment of $5.2 million related to the early partial prepayment of senior secured notes (the "Notes").
  • Adjusted EBITDA1 from continuing operations of $5.2 million, compared with $2.7 million in Q1 2016.
  • $33.7 million in cash at quarter end, compared with $34.5 million at December 31, 2016. During the quarter, the Company completed an amendment to the Notes, allowing Cipher to prepay $20.0 million of the $40.0 million outstanding Notes, which was paid subsequent to quarter end.
  • Appointed Robert Tessarolo as President and Chief Executive Officer.
  • Subsequent to quarter end, received Health Canada approval of OZANEX (ozenoxacin cream, 1%) a novel topical antibiotic for impetigo.

"The first-quarter results were highlighted by the strong overall performance of our licensing business, led by Absorica, which drove a 16% year-over-year increase in licensing revenue," said Robert Tessarolo, President and CEO of Cipher. "Our Canadian commercial operations also performed well in the period, with 32% sales growth. Epuris prescriptions rose 35% and now holds 26% market share. The strong increase in first quarter Adjusted EBITDA underscores the profitability of our core business and reflects our efforts to reduce our cost structure and improve operating performance."

"The recent sale of our U.S. assets was an important milestone for Cipher and marked the conclusion of our strategic review that began last year. With these changes behind us, we move forward with a confident outlook on the growth prospects for the company. We have a solid balance sheet, strong organic growth in our Canadian commercial operation, and a highly profitable global licensing business providing cash flow for disciplined investment in future growth."

Financial Review
(All figures are in U.S. dollars)

Revenue

Total revenue from continuing operations increased by 18% to $8.1 million for Q1 2016, compared to $6.9 million for Q1 2016.

Licensing revenue increased by 16% to $6.9 million in Q1 2017, compared to $5.9 million for Q1 2016.  Absorica® licensing revenue increased to $5.6 million for Q1 2017, compared with $4.5 million for Q1 2016. Revenue from Lipofen® and the authorized generic version of Lipofen increased to $1.2 million, compared to $0.9 million for Q1 2016. Licencing revenue from tramadol products (Conzip® and Durela®) decreased to $0.1 million in Q1 2017 from $0.5 million in Q1 2016.

Product revenue increased by 32% to $1.3 million for Q1 2017, compared to $0.9 million for Q1 2016.  The increase was driven by Epuris®, which generated revenue of $1.1 million for the three months ended March 31, 2017, compared to $0.8 million for the three months ended March 31, 2016. Prescriptions for Epuris during the three months ended March 31, 2017 increased by 35% over the comparative period in the prior year.

Expenses

Total operating expenses from continuing operations decreased by 23% to $3.5 million for Q1 2017, compared to $4.5 million for Q1 2016, mainly because of a $1.1 million decrease in selling, general and administrative expense. Total other expenses were $6.5 million in Q1 2017, compared to $0.5 million in Q1 2016. The majority of the increase in other expenses related to the $5.2 million loss on the debt extinguishment. 

Adjusted EBITDA/Income (loss) from Continuing Operations

Adjusted EBITDA from continuing operations for Q1 2017 increased by 92% to $5.2 million, compared to $2.7 million in Q1 2016. Loss from continuing operations was $1.6 million, or $0.06 per basic share, compared with income from continuing operations of $1.8 million, or $0.07 per basic share, in Q1 2016. Results for Q1 2017 include a loss on debt extinguishment of $5.2 million related to the early partial prepayment of the Notes.

Financial Statements and MD&A

Cipher's Financial Statements and MD&A for the three months ended March 31, 2017 will be available on the Company's website at www.cipherpharma.com in the "Investors" section under "Quarterly Reports" and on SEDAR at www.sedar.com.

Notice of Conference Call

Cipher will hold a conference call today, May 11, 2017, at 8:30 a.m. (ET) to discuss its financial results and other corporate developments. To access the conference call by telephone, dial 647-427-7450 or 1­-888-231-8191. A live audio webcast will be available at http://bit.ly/2oGtdjK or the Investor Relations section of the Company's website at http://www.cipherpharma.com. An archived replay of the webcast will be available for 90 days.

About Cipher Pharmaceuticals Inc.

Cipher (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 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 certain securities laws, including the "safe harbour" provisions of the Securities Act (Ontario) and other provincial securities law in Canada and U.S. securities laws. These forward-looking statements include, among others, statements with respect to our objectives, goals and strategies to achieve those objectives and goals, as well as statements with respect to our beliefs, plans, objectives, 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 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, our ability to enter into in-licensing, 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; 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; reliance on third parties to manufacture our products; we may be subject to 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; 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; 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; 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 it operates; 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; operations 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 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; our delisting from the NASDAQ Global Market (the "NASDAQ")  and deregistration of our Common Shares under the U.S. Securities Exchange Act of 1934, as amended (the "U.S. Exchange Act"); 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; certain adverse tax rules applicable to U.S. holders of our Common Shares if we are a passive foreign investment company for U.S. federal income tax purposes; 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; volatility of our share price; 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 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 Annual Information Form and in our Management's Discussion and Analysis of Operating Results and Financial Position for the year ended December 31, 2016, 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 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, (gain) 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:



Three months ended
March 31, 2017

Three months ended
March 31, 2016



$

$

Net income (loss) from continuing operations


(1,562)

1,783

Add back:







Depreciation and amortization


242

249


Interest expense


1,424

1,333


Income taxes


(270)

162

EBITDA


(166)

3,527


Change in fair value of derivative financial instrument


(98)

82


(Gain) loss from the translation of Canadian cash balances


9

(1,441)


Loss of debt extinguishment


5,223

-


Share-based compensation


209

526

Adjusted EBITDA


5,177

2,694