Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals fourth quarter and full year 2022 results conference call. 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 star 0 for the operator at any time. As a reminder, this conference is being recorded today, Friday, March 17th, 2023. 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. 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, thank you for joining the call. Today, I will begin by providing an overview of our business and strategy, then dive into the financial updates of our product portfolio, which continue to generate strong returns and cash flows. Lastly, I will discuss our pipeline and future growth plans before turning it over to Bryan for insights into our financial performance. In recent years, Cipher has invested significant effort in laying the foundation necessary to position it soundly in the capital markets today and also for a future transition to a growth-oriented strategy. During 2022, we have invested in and transformed our business cash flows and balance sheet. Relative to our peers in specialty pharma, we believe we are uniquely positioned for the road ahead. Cipher's diversified licensing and product portfolio demonstrate its cash-generating ability with EBITDA margins of 58%.
Strong earnings and cash-generating ability allowed us to end the year with an enviable financial position with $28.8 million in cash on hand and no debt. Those are U.S. figures. Unlike our peers in the specialty pharma business, we are presently benefiting from the current interest rate environment and generated $0.5 million in incremental cash flows from interest income during 2022. In addition to this cash, subsequent to year-end, we secured a non-dilutive credit facility with the Royal Bank of Canada, which provides us with up to $35 million U.S. of additional funding to support our future M&A strategy and opportunistically capitalize on favorable market conditions, which we expect will accelerate growth and drive shareholder value.
In 2022 and prior years, our business transformation has included the successful renegotiation and extension of key distribution and supply agreements, the launch of co-promotion initiatives on key products, restructuring the business to operate in a cost-efficient manner, and strengthening our management team. Having completed these foundational changes, we look forward to reigniting our growth engine and focusing on potential profitable product and company acquisitions. I would now like to briefly touch on a few key products in our development pipeline. CF-101. In September 2022, our partner Can-Fite BioPharma announced its phase III COMFORT study for Piclidenoson, which is used in the treatment of moderate to severe psoriasis met its primary endpoint of superiority to placebo and achieved a better tolerability profile in a comparative analysis with apremilast.
In January 2023, Can-Fite submitted its market registration plan to European Medicines Agency, stating that a submission to the FDA would follow. We are pleased to see Can-Fite's positive results and are excited about the commercial potential of the product. An estimated 1 million Canadians suffer from psoriasis, and Cipher holds the Canadian marketing rights to the novel product, which we expect possesses substantial commercial potential. Can-Fite's submission to European Medicines Agency represents an important step forward towards the pivotal phase III study and subsequent marketing approval of Piclidenoson. Next, MOB-015. In May 2022, the company's partner, Moberg Pharma, began patient enrollment for the North American phase III study of MOB-015 to treat nail fungus. The North American study with MOB-015 is progressing as planned. There are now 30 different clinics in the U.S. and Canada which are treating patients in the study.
The randomized vehicle controlled multicenter phase III study will enroll a total of 350 patients with nail fungus. The patients are being evaluated over 52 weeks, and the primary endpoint will be the proportion of the subjects achieving complete cure of their target nail. The study design builds on the experience gained from the previous phase III studies, and Moberg Pharma is cooperating with the same CRO, and the same lead investigator, and the same high-performance clinics from the previous North American study. The purpose of the study is to facilitate market approval for the U.S. Food and Drug Administration and to enhance commercial claims in other territories. Cipher holds the exclusive Canadian rights to MOB-015. In Canada, according to IQVIA, the total prescription market for onychomycosis was CAD 86 million, with a single product having over 90% of the market.
We are pleased to see the continued progress from Moberg that Moberg is making to commercialize MOB-015. We look forward to competing in the large market with an innovative topical product that would provide a safe and effective treatment option for the many Canadians who suffer from the common nail infection. Lastly, DTR-001. Pre-clinical work continues on the tattoo removal cream, DTR-001. We have made good progress in optimizing our formulation for clinical use and look forward to conducting key studies in the near future. We believe DTR-001 holds significant market potential, and we look forward to providing future updates as we achieve these key milestones. As we enter 2023, Cipher's primary focus remains on effectively allocating our capital in order to maximize value for our shareholders.
This involves a continued emphasis on investing in our commercial products to drive organic growth, assessing opportunities for profitable product and company acquisitions, advancing our product development pipeline, and executing on our normal course issuer bid. With these levers at our disposal, we are confident in our ability to accelerate growth and drive shareholder value. I will now turn the call over to Bryan for a review of our financial results.
Thank you, Craig. Good morning, everyone. First, I'll provide highlights on results from our fourth quarter in the three-month period ended December 31, 2022, then turn my comments to highlights from our 2022 annual results. Total net revenue was $4.9 million in the fourth quarter of 2022, compared to $5.9 million in the comparative fourth quarter of 2021. Licensing revenue was $2 million for the fourth quarter, compared to $2.8 million in the prior year quarter. Licensing revenue from the Absorica product portfolio in the U.S. was $1.3 million, compared to $1.6 million in the prior fourth quarter. Revenue from the Absorica portfolio was higher by $0.1 million sequentially when compared to Q3 of 2022, and has been relatively stable throughout our recent 2022 quarters.
Revenue from Lipofen and the authorized generic of Lipofen was $0.7 million for the quarter compared to $1.1 million in the comparative quarter. Total product revenue was $2.9 million compared to $3.1 million for the comparative period of 2021. The decline of $0.2 million was primarily due to foreign exchange as our product portfolio is denominated in Canadian dollars. On a constant currency basis, total product revenues were flat quarter-over-quarter. Sales from Epuris in the fourth quarter of 2022 was $2.6 million, compared to $2.9 million in the prior year quarter. Approximately one half of the $0.3 million dollar decline was due to higher foreign exchange rates from the U.S. dollar relative to the Canadian dollar.
Selling general and administrative expenses were $1.4 million for the fourth quarter, compared to $1 million for the three months ended December 31, 2021. Excluding higher non-cash amortization and stock-based compensation expense of $0.4 million, SG&A was flat quarter-over-quarter at $1 million. Adjusted EBITDA for the fourth quarter was $3.1 million compared to $4.1 million in the prior year quarter. The decline is primarily due to quarterly licensing revenue of $0.8 million, resulting from lower negotiated royalty rates in early 2022 with our commercial partner in the US who distributes and sells our Absorica product portfolio. I will turn my comments to our annual year-over-year results. Total net revenue for the year ended December 31, 2022 was $20.7 million, compared to $21.9 million for the year ended December 31, 2021.
The change year-over-year was due to a decrease in licensing revenue of $2.3 million or at 22%. That was offset by 22% growth in higher product revenue of $1 million. Licensing revenue for the year was $8.1 million compared to $10.4 million in the prior year. Licensing revenue from the Absorica portfolio in the U.S. was $5.2 million for the year ended December 31, 2022, a decrease of $2.4 million compared to $7.6 million for the year ended December 31st, 2021. The change year-over-year was due to the genericization of Absorica in April of 2021 and lower contractual royalty rates I previously described.
Absorica and the authorized generic of Absorica and Absorica LD market share for the year ended December 31, 2022, was 5.9% compared to approximately 5.4% in the prior year. Product revenue increased by $1 million or 9% to $12.5 million for the year ended December 31, 2022, compared with $11.5 million for the year ended December 31, 2021. Product revenue from Epuris grew to $11.3 million, an increase of 4% for the year ended December 31, 2022, compared with $10.9 million in the comparative year. Product revenue from all other Canadian portfolio products was $1.2 million for the year ended December 31, 2022, compared with $0.6 million in the prior year, representing a 100% increase.
Selling General and Administrative Expenses were $5.5 million in the year compared to $5.1 million in the previous year. Excluding higher year-over-year non-cash amortization and stock-based compensation expense of $0.5 million, SG&A costs were lower year-over-year by $0.1 million. We believe this is an area of strength of the business and resilience as high inflationary cost environment has made it challenging for many businesses to control their fixed costs. Income tax recovery was $15.2 million for the year ended December 31, 2022, compared to an income tax expense of $3.3 million in the prior year. The increase of total tax recovery of $18.5 million was primarily due to the recognition of previously unrecognized deferred tax assets.
At the end of the year, the company recognized a deferred tax asset of approximately $16.7 million. The company believes that it's probable that future tax income will be available, to which these tax losses can be utilized. Adjusted EBITDA for the year was $12.4 million compared to $13.9 million in the previous year. The decline is primarily due to the declines in licensing revenue I previously described related to the Absorica portfolio. Our EBITDA and Adjusted EBITDA margins were 58% and 60% respectively, which we believe continue to be strong metrics relative to our peers in the industry and demonstrate the earnings potential of the business.
Net income for the year ended December 31, 2022 was $26.6 million or $1.05 per common share, compared to net income of $7.8 million or $0.29 per common share in the prior year. The increase is primarily due to the recognition of deferred tax assets I previously described. At the end of the year, Cipher ended with $28.8 million in cash and no debt. Cipher generated $10.6 million in cash from operating activities and had a total net increase in cash balances of $8.3 million in the year. In addition to our commercial portfolio, which continues to generate positive cash flow, we have assembled an attractive organic development portfolio and will continue to move these products through commercialization.
I'm also proud to highlight our recent closing of our $35 million credit facility with RBC, which will be at our disposal and greatly expands our reach for future M&A activities. With both our cash on hand and available credit facilities, this places Cipher in a unique and opportunistic position to act quickly on future growth activities. I'll now open up the call to questions. Operator?
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. If your question has been answered and you would like to withdraw from the queue, please press star followed by the number two. If you are using a speakerphone, please lift your handset before pressing any keys. One moment please for your first question. Your first question will come from Doug Loe at Leede Jones Gable. Please go ahead.
Thank you. Good morning, gentlemen. Thanks for the update on the Q4 results. Congratulations. Just one point of clarification. In your Q3 MD&A, you indicated that Absorica market share was 4.7%, I think. I'm staring at it right now. In the Q4 MD&A, you say it's 1.5%. I assume that last quarter you were referring to the once-daily Absorica or isotretinoin market. This quarter you're referring to the overall isotretinoin market. Can you just confirm that for me?
Yes, that's confirmed.
Okay, perfect. Which, Part B of the question is, you know, 1.5% of the overall market, you know, based on the, you know, the highly positive bioavailability, that is, you know, relevant to all of the once dailies, but specifically to Absorica. Still seems awfully low to me. I was just wondering if, you know... I've asked this question, you know, many times in prior calls, but just wondering what sort of insights you might have had either discussing with Sun or internally what sort of strategies you might have in order to lift your market share above what are, you know, pretty, you know, threshold bottom levels for the product.
Doug, it's Craig here.
Yeah.
We're in discussions with Sun at the moment about, you know, their distribution channels. We also believe that the market share is low given the quality of the product. We're working with them to expand, you know, the various distribution channels that they could be using. We also think that there's work to be done at the wholesale level on making sure that our product is in the right places at the right prices. This is ongoing with Sun.
Got it. Okay. Fair enough. A couple of other things. Appreciate you went into some detail on your alliances with Can-Fite and Moberg, which seem to be advancing quite well, specifically on the Piclidenoson's EU filing a couple of months ago. Can you just provide me with an update on what the cash obligations from Cipher to your partners would be based on any imminent clinical or regulatory milestones, presumably on EU approval? There, you know, there might be some de-risking of your future Canadian filing that might trigger a payment, but maybe not. Maybe just kind of summarize over the next 24-36 months, what's your cash obligations to partners would be.
Well, let's start with the MOB-015, the nail fungus product. Yes, we have milestone payments that are scheduled for the future based on reaching certain milestones, the next milestone being that they, you know, that the results of the trial show results that are superior to the main product on the market. That's the first milestone, the next milestone. There's then future milestones based on net revenue figures. We see those as all positive. You know, if we were able to get a product that performs better than JUBLIA, we're happy to pay up the milestones.
Right.
Doug, if you're.
Yeah. Yeah. Are you able to quantify that to some degree, like cumulatively are they in the high six figure, low seven figure range or at another level?
We disclose these figures, Doug. I'd point you to in our financial statements, note 17, under the development milestones, indicate amounts for both Moberg and for Can-Fite.
Will do. Okay, perfect. Lastly, you know, as one way to augment your pipeline, and you've talked in the past about perhaps expanding your relationship with Galephar perhaps to use their Lidose platform to improve bioavailability of other hydrophobic drugs that may or may not be off patent. Just kind of wondering if there's any update there and whether that could be one avenue that you could be pursuing on augmenting your pipeline. I'll leave it there. Thanks.
Yes, thanks for the question, Doug. Yes, we're working with Galephar on a number of potential products, none of which I think that we would wanna go into a lot of detail with at the moment. They have been our development partner for a long time, and we have, you know, weekly calls with them with regards to the products under development. There is potential there.
Okay. Fair enough. Thanks, guys.
Your next question comes from Andre Uddin at Research Capital. Please go ahead.
Hi, Craig and Bryan. Just had a couple questions here for you. When would you expect to actually get the phase III data on MOB-015? When, when should we expect that data?
I would, we expect it in the within the next nine months. I think that I mentioned in my speech for the earlier that the enrollment for the study of 350 patients is complete, and the investigators now are going through the protocols. Based on what we've heard from Moberg, we'll see data in nine months from now.
Let's assume that data is positive. When do you think the NDS would be filed in Canada then?
Well, it would be filed immediately, and I think that There's a six-month period of time that Health Canada has to review the file.
Okay, that's great. If we're looking also at the Can-Fite psoriasis product, when do you think the NDS would be filed in Canada?
Again, you know, Can-Fite has to move through and complete the study that they're in. I would say that that's more like 12 months out as opposed to the nine months for MOB-015.
If you look at right now in the pharmaceutical market in the US right now, there's quite a few companies have been raising drug prices at roughly around 7% trying to match inflation. Do you think you can do that with any of your U.S. product portfolio? Is that possible?
It's possible. I think you've probably seen some pushback by the FDA on some of these increases that, you know, in the 7% range. I think some of those are under review at the moment. For our product portfolio in the U.S., I think that, you know, we're gonna be able to achieve price increases in the range of 4%-6%.
Do you think if you look at it, I know you haven't given guidance historically, but if you look on a year-over-year basis, you know, going from 2022 to 2023, do you think there could be some growth, year-over-year on the top line?
Well, on our product portfolio, which are primarily our Canadian assets, we're budgeting growth on most, if not all, of the products. You know, in the U.S., the Absorica genericization will have meant that, you know, the things have slowed. The growth obviously has slowed in that area. I think from the other product, U.S. products that we're gonna, you know, achieve price increases and we're gonna see growth on the top line with those products.
To add on to what Craig was saying, Andre, is I think it'll be important, we focused in on foreign exchange year-over-year for the fourth quarter 'cause that's primarily when it hit. When we convert where we may have growth in the Canadian product portfolio year-over-year, it'll be facing a headwind on the FX 'cause I think as you know, the U.S. dollar is very strong today, relative to where it was at the beginning of last year.
That sort of leads me to another question. You've had a pristine balance sheet so far. Can you discuss some of the contingencies and the interest rates of your new line of credit if you were to tap into it?
I can't disclose our actual contractual rates, but they are fixed fee or fixed to SOFR in the U.S. and CDOR loans for Canada should we have a Canadian dollar loan. The spread of them does range based on the leverage, and it's in the range of 1%-3%.
Useful. Doug talked a little bit about this. He was asking about, you know, the products with Galephar. Those products that you're developing with them or that you're assessing, are those later stage products? Are they in phase III pivotal trials? Can you talk a little bit about where they are in development?
The products that we're looking at would likely take a 505(b)(2) path. They're later stage, basically making improvements on existing approved products. That's been our strategy from the beginning and it has been Galephar. We're continuing with that. I would say that the products are more later stage than, you know, early stage phase I type products.
Great. That's all for me. Thanks.
Ladies and gentlemen, once again, if you would like to ask a question, please press star one now. There are no further questions. I will turn the conference back to Mr. Craig Mull for any closing remarks.
Thank you for joining us today. We look forward to reporting on our progress throughout the balance of 2023 as we execute on the priorities discussed today. I hope that you have a great St. Patrick's Day and a great weekend. Thank you for your time.
Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank everyone for participating and ask at this time you please disconnect your lines.