Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Cipher Pharmaceuticals quarterly conference call for the company's Q2 2024 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, August 9th 2024 . 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 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 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.
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 based in U.S. dollars, unless otherwise specified. I will keep my commentary brief on our Q2 results, given it was another quarter of consistent and predictable revenue, earnings, and cash flow from our legacy business in the U.S. and Canada. Our Chief Financial Officer, Bryan Jacobs, will walk you through the financial results in a few moments. I would like to spend the majority of my time on our recent acquisition of the Natroba business in the U.S. and our strategy moving forward, which is an exciting phase of Cipher's growth.
Our recent quarters, and quite frankly, over the past number of years, we have been transparent that we have been looking for an accretive acquisitions but would be patient in our approach. We have turned over many stones in the process and evaluated a significant number of opportunities, and I'm confident when I say today that we have found exactly what we were looking for. On Monday, July 29th, Cipher Pharmaceuticals announced the acquisition of Natroba, its authorized generic, spinosad, and its U.S.-based commercial infrastructure, headquartered in Carmel, Indiana. This acquisition excites us for many reasons. With respect to Natroba, this product truly fills an unmet need of patients, given it is highly effective to. It's a highly effective treatment for head lice and scabies.
Existing products in the market, such as permethrin, are no longer effective due to the resistance profile developed by lice and parasites over time. The resistance is not just a concern locally in North America, but an issue worldwide, which represents an area that we believe will unlock significant growth and revenue streams down the line. Specifically in the U.S., Natroba's product indication was expanded to scabies in 2021 and carries an FDA exclusivity period until 2033. The scabies market in the U.S. is larger than the head lice market, and the healthcare guidance provided to patients suffering from scabies recommends that all household members use the product, and it is the only scabies product on the market with a complete cure offered to patients suffering from scabies.
For these reasons, we believe the sales volumes and upside potential for the product in the U.S. alone is significant. Natroba currently has approximately 22% of the antiparasitic market in the U.S., and permethrin has 75%, according to IQVIA market data. The former owners of the Natroba business, being ParaPRO, believe in the growth profile we have just described, which is why they took back 9.5 million of Cipher, $9.5 million of Cipher common shares as a portion of the total $89 million - $89.5 million we paid for the Natroba business. In addition to further organic growth in the United States, we will be taking Natroba global.
We are already engaged in discussions to out-license Natroba to select European and Asian countries, as well as have plans to bring the product to Canada, leveraging our Canadian direct sales platform. Natroba will fit well with our dermatology product portfolio in Canada, including Epuris, the market leader for the treatment of severe acne and our near-term pipeline product, MOB-015, for the treatment of nail fungus. We have developed relationships in dermatology in Canada, and we believe that it would be a natural fit for Natroba. Lastly, Cipher now has an established, profitable North American sales and distribution platform, which we plan to further build out by acquiring unique, complementary products.
There are opportunities to cross-pollinate our existing portfolio of products, as well as in licensing new products that fit well into our expertise in dermatology and infectious disease. In order to finance our future growth plans, we obtained a revolving credit facility with the National Bank of Canada, which was only partially drawn down upon this acquisition. We see Natroba as only one step in our future growth, and we remain active in discussions to acquire complementary products, as I have described above. In the interest of time, I will leave the rest of the discussion around the transaction with Natroba to the question and answer portion of the call, as I know there is a lot to unpack. One last thing before I pass the call over to Bryan, is to touch on our near-term pipeline product, MOB-015. It's remarkable success this year in Sweden.
We now have real use case evidence that supports our previously discussed enthusiasm for this product, as the sales data coming out of Sweden after its February launch is meaningful. Shortly after the product launch under the brand name Terclara, MOB-015 has become the market-leading nail fungus treatment in Sweden, capturing 30% of the market by way of value and 31% of the market in units. Additionally, and what has always been a large part of our growth thesis in Canada, is that the overall market in Sweden has grown 52% compared to the same period as last year. We attribute the success to the fact that current nail fungus treatments are ineffective and highly tedious to administer, and MOB-015 addresses these issues.
We believe significant brand recognition will continue to develop, as it was announced in May that MOB-015 had received national approvals in 13 additional European countries. Cipher owns the rights to MOB-015 for the Canadian market, and the first sales of the product are expected in the second half of 2026. The data out of Sweden solidifies our view that we will rapidly capture more than most of the CAD 92 million market, which represents the current market size in Canadian dollars. To wrap up my commentary, I will briefly summarize the main items. Cipher's legacy business continues to generate predictable cash flow, contributing to the bottom line and has built a strong foundation for the company to build upon.
The company has now entered into a new phase of substantial growth, kicked off by the acquisition of Natroba and a U.S. sales and distribution platform, which we plan to leverage and scale. Furthermore, we are one quarter closer to further clinical data results from MOB-015 in January 2025. An already highly effective nail fungus treatment, which we believe will quickly become the market leader in Canada, as it has in Sweden. Lastly, with a strong balance sheet, with low leverage, available financing and inviolable market position, Cipher will opportunistically seek to further expand our business. I thank you for your time this morning, and will pass the call over to our CFO, Bryan Jacobs, for an overview of our financial results.
Post quarter end, I've asked Bryan to take on a new role as president to oversee the transition and integration of the Natroba into our existing Cipher business. I'm confident in Bryan's leadership abilities and that he will continue the track record he has demonstrated in his role as CFO. Bryan, please go ahead.
Thank you, Craig, and good morning, everyone. As a reminder, all amounts provided on this call are in U.S. dollars, unless otherwise noted. Today, Cipher Pharmaceuticals is reporting results from the company's three- and six-month periods ended June 30th 2024. Our highlights include: Total revenue for the three- and six-month periods ended June 30th 2024, were $5.3 million and $11.2 million, respectively. Net revenue for the second quarter was flat year-over-year. However, net revenue for the six-month period ended June 30th 2024, represented an increase of 10% over the same period in the prior year. Total licensing revenue was $1.6 million for the second quarter and $4.2 million for the year to. On a year-to-date basis, compared to $2.2 million and $3.8 million, respectively, in the prior year.
This represents a decrease of 25% in the quarter. However, a total increase of $0.4 million, or 10% on a year-to-date basis compared to the same periods in the prior year. Licensing revenue from Absorica portfolio in the U.S. was $1.1 million in the second quarter of 2024, and $3 million for the year-to-date to June 30th 2024, representing a 26% decrease in the quarter, yet a $0.6 million or 25% increase on a year-to-date basis compared to the same periods in 2023. This difference clearly represented a timing item. Market share for the overall Absorica portfolio decreased by 0.9 million to 7% at June 30th 2024, compared to 7.9, 7.9% market share at June 30th 2023, according to Symphony Health Market Data.
Licensing revenue from Lipofen and the authorized generic of Lipofen was $ 0.5 million in the second quarter of 2024, and $ 1.1 million on a year-to-date basis, a decrease of $ 0.1 million for both periods, which was driven by lower sales volumes on which the company earns a royalty. Moving to product sales. Total product revenue for the three- and six-month periods ended June 30th 2024, was $ 3.7 million and $ 7 million, respectively, an increase of $ 0.6 million or 18% for the quarter, or $ 0.7 million and 10% on a year-to-date basis compared to the comparable periods in 2023. The increase in product sales was primarily driven to higher year-over-year Epuris sales.
Market share for Epuris has decreased by 2% to 44.2%, down from 46.2% market share in the prior year, according to IQVIA Market Data. However, the total Canadian isotretinoin market has grown by 13% over the comparative periods, of which Epuris has maintained a significant market share, contributing to an overall increase in the volume of sales. Selling general and administrative expenses was $ 1.6 million for the second quarter of 2024, an increase of $ 0.1 million, or 7%, from the comparable period in the prior year. The increase is primarily attributable to higher professional fees, acquisition, restructuring, and other costs incurred, partially offset by lower non-cash share-based compensation.
Selling, general and administrative expenses for the six-month period ended June 30th 2024, was $3.1 million, an increase of $0.4 million, or 13%, from the $2.7 million reported in the six months ended June 30th 2023. This increase was due to a combination of higher salary and benefit costs, professional fees, and other general expenses incurred, partially offset by lower non-cash share-based compensation. Adjusted EBITDA for the three and six-month period ended June 30th 2024, was $3.1 million and $6.6 million, respectively, compared to $3.1 million and $6.2 million in the comparative year.
On a year-to-date basis, our Adjusted EBITDA is ahead at $0.4 million over the prior year as we turn the page, heading into the next quarter of growth in revenue and earnings from our Natroba acquisition, which occurred in July of this year. Our business ended the quarter with $48 million in cash on hand, and we utilized $40 million of cash, combined with $40 million drawn on a new revolving credit facility to fund the $80 million cash portion of the Natroba acquisition. We are proud to welcome the National Bank of Canada as our new lead arranger, sole book runner, and financial partner of a syndicated revolving credit facility. National Bank has provided Cipher with a total of $65 million revolving credit facility, with an additional $25 million conditional accordion feature available.
As I previously indicated, the company subsequently drew $ 40 million from this facility as part of funding Natroba. However, the credit facility terms were designed to allow for maximum flexibility, both with principal repayments, but also provide Cipher with substantial additional capability to finance our future acquisitions. What is most important to note is we executed in a manner that great companies do, which was having generated cash savings from our existing business to pay for half the sticker price of the Natroba acquisition, which is just good business. In this regard, we stand above our peers in the industry. Cipher's balance sheet, low leverage, and ongoing available liquidity places the company in an enviable position within the Canadian specialty pharma sector. As Craig mentioned earlier, the company has entered an exciting phase of growth, and we look forward to announcing progress as new milestones are achieved.
Before I open up the line for questions, I'll take this opportunity to follow up with what Craig indicated earlier on the call, that today's call will be my last earnings call as Cipher's CFO. As of August 10th, I will be transitioning to the role of president, with my main focus to fully integrate, transition, and grow our new U.S. pro- platform. Therefore, we're happy to announce the promotion of Ryan Mailling to Chief Financial Officer of Cipher. Ryan has been working closely with me as Vice President of Finance at the company, and with his background in the pharmaceutical industry and strong financial acumen, he will serve the company and its shareholders very well going forward. With that, we'll open up the call to questions.
Thank you. Ladies and gentlemen-
Sorry. Sorry, the host, I just have one last closing remark here. Before signing off, I'd like to take this opportunity to welcome our new team members in Carmel, Indiana, as well as thank all Cipher employees for the tremendous accomplishments you've made to date. This is just the beginning of what I see being an exciting and very rewarding journey as we build North America's next highly successful specialty pharma company. Thank you for joining us today, and we will now take your questions.
Thank you very much. Again, ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone 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 followed by the number two. If you are using a speakerphone, please leave the handset before pressing any keys. One moment, please, for your first question. Our first question will be coming from Andre Uddin from Research Capital.
Hi, Craig, Bryan, and Ryan. Congratulations on your acquisition. I'm not sure if you've had a chance yet, but if you have, can you please discuss, you know, the global opportunity for Natroba outside of the U.S.? And also, if you've had a chance, in terms of looking for potential partners, would they need to run a phase III trial in Europe? Thank you.
Andre, it's Craig here. I'll take a shot at it, and, Bryan, please add in as you see fit. The company had already, before the closing of the acquisition, had received quite a number of inquiries from U.S. potential licensors or licensees. They just simply didn't have the bandwidth to, you know, tackle that project as well. Quite frankly, during the acquisition process, which lasted six to nine months, you know, they're focused on that, and they were, you know, planning to get back at these calls and the inquiries that they've had. We've already had inquiries from potential commercial partners in Europe. You know, we think that the FDA data that Natroba has would likely be sufficient for European applications.
We're just getting into it, so we don't have a lot of specifics, but, you know, it's clear that there are a number of interested parties out there, based on the inbound calls we've already got. Bryan, anything you'd like to add on that?
Yeah, and good question, Andre. One of the things that's important to note is, you know, Natroba, Natroba's biggest opportunity is warm climates where, you know, these indications are most prevalent. And a lot of, call it the, call it the non, you know, larger, call it G-12 type company, countries. A lot of those countries allow for FDA products to come into, their market and use that approval, as you know, without, you know, for lack of a better term, good enough for the health authorities in their country. So that's where we see there's a lots of opportunity where, you know, an already FDA-approved product that's been on the market with a long track record of very safe, efficacious profile.
We don't see any concern with bringing it to other markets, and that's why, as Craig said, there's a lot of inbound calls in that regard.
In terms of the European market size, for example, have you figured out how big that could be and some of the other larger areas as well?
It's probably a little early for us to be able to quote market size data, but, you know, you can follow the population size as one indication. Now, this resistant issue that we brought up with regards to permethrin, where lice and scabies have developed, you know, they genetically modified to resist permethrin. That's a worldwide issue. And, I mean, there's lots of information that you can find about, you know, that particular issue throughout the world. So we believe that there's a demand there. We need to get to the bottom of, you know, market size and, you know, what we could expect to be paid for the product. And that's what we're embarking on now.
Just one last question. It's, I know, it's always hard to predict business development timing, but when do you think we could start to see some licensing deals for Natroba outside of the U.S.?
Well, I think within the next 12 months.
Thank you.
Next question online will be coming from Doug Loe, from Leede Financial.
Yeah, thanks, operator, and congratulations, gentlemen, on the update on the quarter, and congratulations, Bryan, on your new roles and responsibilities at Cipher. Good stuff. But before I forget, just Craig, your comments on MOB-015 and its sales traction that it's garnering in Sweden. Is Jublia approved in Sweden, and is 015 capturing any market share from Jublia? And if it's not, maybe just any insights you have on the market dynamics on what other nail fungus products from which it might be capturing market share. Just sort of helpful to understand how it might, you know, impact the Canadian market, should it be approved.
I don't know the exact market share in Sweden, but, you know, based on your question, I'm gonna find out. The product in Sweden and the Scandinavian countries is considered an OTC product. And I'm not sure whether Jublia has that same designation or not, but we'll find that out, and, you know, I'll get back to you on that. But again, you know, like, it's clear that it's a very effective product, much more effective in Sweden than any other product, you know, just based on the fact that it has grown the market by 52%. So if you have any further questions on that, Doug, just please let us know here.
Sure. No, no, that, that sounds fine. And then, you know, Andre hit on, you know, several of the, you know, questions that sort of surround, you know, timelines to expanding the Natroba global marketing footprint, and maybe I'll just ask another one through the back door here. I mean, you know, you already are generating substantial revenue from royalty agreements with several partners, and so you have some understanding of what royalty revenue could be applied on a product-by-product basis. Just sort of wondering if you can kind of benchmark us on any of your rest-of-world out licensing agreements.
Should we assume that, any royalty revenue that would be in, future contracts would sort of approximate what you're generating with Absorica or Lipofen, sort of in around 15% that you share with Galephar? Or would you consider that to be, I don't know, either aggressive or a conservative, benchmark for us to consider for modeling purposes?
No, I think from a benchmark standpoint, that would be appropriate, the 15%. And Bryan, you can let them know what your opinion is as well. But we'd also be striving so for some milestone payments for that. And, you know, the rest of the world, I think, is a significant market, and we—the question is, you know, how much we can get paid for the product?
Mm-hmm.
Bryan, anything further on that?
Yeah, no, just more of Doug, you're you know, 15% is a middle-of-the-road. That would be, you know, a very common royalty rate, some of the other opportunities we're looking at right now are in that kind of low- to mid-teens royalty rate. So I think you're. That's a good middle-of-the-road estimate.
Good stuff. And just one last question. Again, in your commentary, you spoke to the magnitude of resistance to permethrin as an issue worldwide, and, you know, we certainly see evidence of that in the medical literature. I mean, the genetic mutations, you know, strains are all over the place. So, is the emergence of genetic mutations that are, you know, resistant to currently approved therapies that aren't named Natroba, is that still just kind of a notional thing that doctors are talking about in the medical literature, or is that tangibly impacting permethrin revenue in ways that you think could immediately lead to Natroba revenue growth, in comparison to trailing data? And I'll leave it there, guys. Thanks.
I can-
I can-
Go ahead. I can take that question, Craig.
Yep.
So, Doug, the way to think about it is, you know, less so a saying, you know, an actual use case of this is, we had spoke with an individual who knew this product very well, because it was impacting their family. And those family members, when lice is in the house and it's passed to another family member, and they look up what works and what doesn't work, it's very clear that permethrin does not work, or someone's been using it, and it only got rid of half the problem, and it came back.
Yeah.
That impacts a family greatly. You know, it, it impacts sleep, it impacts people having to stay home from work. And this individual, who spoke with Craig and myself, had said, "We looked it up to find out the only one that worked when we were living in Chicago was Natroba. And we went, and we went to the doctor, and we said, 'We want Natroba.'" So our plan on making sure we educate not just physicians, but patients out there, is to make sure that Natroba is the product that's available that works. And if you want the one shot to cure your problem, you don't use permethrin.
So that's where we see the biggest opportunity, is to focus on educating not just physicians, but also educating patients, which has got some digital and other types of means to really kind of get that message out there. Because I know what I'd do as a parent. I would make sure I just go out and get the one shot that's gonna cure my family, so I can move on with day-to-day life.
Great insight, Doug. Thanks. Oh, sorry, Craig. Go ahead.
Yeah, I was just gonna add, you know, you've, you've talked a lot about the, asked some questions about the rest of the world, et cetera. You know, our, our first focus is going to be on, you know, going after that 71% that permethrin still has in the U.S. market. That will be the easiest thing, the lowest hanging fruit that we can go after. And, you know, the fact that it has 71% tells me that, you know, the doctors may just be using it because they, they're not aware of anything else. And so I think that, you know, with, with the correct marketing, and boots on the ground, we, we need to get that message out more and go directly after that 71% of the market. That's gonna be the most profitable segment that we can do.
Agreed. Thanks, Doug. Appreciate it.
Thanks.
There are no further questions at this time. I'd now like to turn the call back over to Mr. Craig Mull for final closing comments.
I'm sorry. I must have made a mistake, because the closing remarks are already said, but I'd like to say it again. Very happy to welcome our new team members in Carmel, Indiana, and I thank all of the existing Cipher employees for their work and contribution to moving the company forward. And we're very excited about the future, and we hope to have additional news in the not-too-distant future about further growth. So thanks again, and I appreciate your time this morning.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.