Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals Fiscal Third Quarter 2020 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 the star followed by the zero on your push-button phone. As a reminder, this conference is being recorded today, Friday, November 13th, 2020. 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.
Thank you, Operator, and good morning, everyone. Joining me today is Scott Langille, Cipher CFO. On today's call, I will be making opening remarks before passing the call over to Scott to review financial results in detail. Following our prepared remarks, we will open the call for your questions. Note that all amounts are in U.S. dollars unless otherwise stated. The COVID-19 pandemic continued to impact the economy during the third quarter of 2020. Cipher is navigating through this environment while executing on business improvements and cost reductions. Cipher demonstrated strong profitability during the third quarter and sequential growth in revenue despite market conditions that have not fully normalized. Our focus continues to be on driving profitability, strengthening the balance sheet, and looking for the right opportunities for growth.
Epuris continued to perform well in the quarter, with revenues of CAD 1.8 million compared to CAD 1.9 million in the third quarter of 2019. Epuris finished the quarter with a 41% market share in the Canadian market, up from 40% in the comparative period. We are extremely pleased with the performance of Epuris and the stability of the revenue and cash flow during this challenging period. Licensing revenue from Absorica in the U.S. was CAD 2.3 million, up from CAD 1.8 million in the second quarter of 2020, but a decrease of CAD 3 million compared to Q3 2019. Absorica's market share for the three months ended September 30th, 2020, was approximately 6% compared to approximately 8% for the three months ended September 30, 2019, according to Symphony. Market share, including Sun's Absorica LD, was approximately 7%.
Earlier this year, Sun Pharmaceutical Industries, Cipher's marketing partner for Absorica, launched Absorica LD capsules in the U.S. for the management of severe nodular acne in patients 12 years of age and older. In addition to the benefits of Absorica LD we'll bring to the patient population, the launch triggered an extension or agreement with Sun Pharmaceuticals, providing us with two additional years of royalties on Sun's isotretinoin product portfolio. As previously communicated, the royalty rate on Absorica LD will be identical to the royalty on Absorica until December 2021. The extension allows for a reduced royalty rate in subsequent years. On January 13th, 2020, the company received a notice of termination from Bausch Health for alleged breach of contract in respect of its licensing agreement for Trulance. The company is currently in arbitration to resolve the matters contained within.
Third quarter results show sequential growth in revenue and strong year-over-year growth in earnings. Excluding an impairment charge, total operating costs decreased 18% in the third quarter over last year. This optimized cost structure resulted in an EBITDA increasing to CAD 2.7 million, or 55% of net revenue, compared to a loss of CAD 0.4 million last year. Net income increased to CAD 1.6 million during the third quarter, compared to a loss of CAD 2.1 million in the prior year, and EPS increased to $0.06, or CAD 0.08, compared to a loss of $0.08 in the prior period. We also continue to work with our development partner, Galephar, on a number of interesting projects, including alitretinoin, a drug for severe hand eczema for the U.S. market. Cipher and Galephar are working closely and expect to receive feedback on recent submissions to the FDA.
Cipher continues to evaluate the market potential for this product. In our tattoo program, the U.S. Patent Office issued a notice of allowance for the U.S. patent application covering tattoo dermal compositions. We have received encouraging results from the proof‑of‑concept studies and identified a lead candidate compound. Planning is currently underway for the next focused animal study that will incorporate test parameters that will potentially broaden and reinforce the existing IP portfolio. Our development partner, Moberg, has developed a proprietary formulation that can deliver high concentrations of active drug to the nail that competing products on the market have difficulty in matching. To date, Moberg has conducted two North American Phase 3 studies. In these studies, the overall cure rate was lower than competing products at 4.5%.
However, in contrast to the competing products, the mycological cure rate was 50% in less than 24 weeks, while the competing products required longer to reach this rate. Moberg is considering conducting additional trials to address the complete cure rate by shortening the treatment period. I will now turn the call over to Scott for financial review of our third quarter results.
Thanks, Craig. Revenue in the third quarter was CAD 4.9 million up sequentially from CAD 4.7 million.
For the three months ended September 30th, 2020, compared to CAD 3.9 million for the three months ended September 30th, 2019. Licensing revenue from Absorica in the U.S. was CAD 2.3 million up sequentially from CAD 1.8 million in Q2 2020, but down when compared to CAD 2.9 million for the three months ended September 30th, 2019. Absorica ended the quarter with a 6% market share compared to 8% for the three months ended September 30th, 2019, according to Symphony. Market share, including Sun's Absorica LD, was approximately 7%. Licensing revenue from Lipofen and the authorized generic of Lipofen was CAD 0.6 million for Q3 2020, compared to CAD 0.8 million for the three months ending September 30th, 2019. Licensing revenue from the extended-release tramadol, Conzip, and Durela was CAD 0.04 million for the three months ended September 30th, 2020, compared to revenue of CAD 0.22 million for the prior year.
Product revenue was $2 million for Q3 2020, compared to $2.2 million in 2019. Product revenue from Epuris was $1.8 million for the three months ended September 30th, 2020, compared to $1.9 million for the three months ended September 30th, 2019. Epuris had a prescription market share of approximately 41% in Canada for the three months ended June 30th, 2020, compared to 40% for the three months ended September 30th, 2019. Total operating expenses decreased by 61% in the third quarter over last year. The decrease was primarily driven by a decrease in impairment of intangibles and restructuring costs. Excluding an impairment charge, total operating costs decreased by 18%. SG&A expense was $1.6 million for Q3 2020, an increase of $0.4 million compared to the prior year. The increase in SG&A was primarily driven by an increase in costs related to legal and consulting spend.
That income was CAD 1.6 million, or CAD 0.06 per basic and diluted share in Q3 2020, compared to a loss of CAD 2.1 million or a loss of CAD 0.08 per basic and diluted share in Q3 2019. EBITDA in the quarter increased to CAD 2.7 million, or 55% of net revenue, compared to a loss of CAD 0.4 million in the prior year. Adjusted EBITDA for Q3 2020 was CAD 2.8 million, or 58% of net revenue, compared to CAD 3.7 million in Q3 2019. The company used CAD 1.8 million in cash from operating activities during the quarter. As of September 30th, 2020, the company had cash of CAD 4.7 million and CAD 1.7 million drawn on a credit facility. The company's credit facility has been paid off as of October of 2020. I will now turn the call back to Craig for closing remarks.
Cipher's business and operations have demonstrated resilience as the COVID-19 pandemic continues to impact the world. With a profitable business and a reduced cost structure, we feel that we are in an excellent position to start ramping up strategic promotional efforts to drive market share in our core brands and looking for the right opportunity to return Cipher to growth. We'll now open the call to questions. Operator.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Prasath Pandurangan from Bloom Burton. Please go ahead.
Hi, good morning. Thanks for taking my questions. Firstly, is there any progress in terms of taking advantage of the tax losses?
Yes, we've made significant progress. We are in serious discussions, including drafting of agreements with a partner that will co-promote our hospital products. And with that, we believe that we will be able to access the Cardiome losses as we are conducting an active business in the area that Cardiome had participated in. And we expect to be able to utilize those losses as soon as the end of 2020.
Okay, and I think I had more color on the working capital changes, if you could, in the quarter.
Scott will turn that over to you.
Specifically, in terms of working capital, we had a year-to-date we had a reduction in accounts receivable or usage in receivables and an increase in payables. But that was really driving the working capital change but the increase in receivables we actually had a fairly large sum from one of the licensed partners that came in just shortly after the quarter ended so that really drove the increase or use in working capital and then it'll reverse itself in Q4.
Oh, got it. Thank you.
Thank you. The next question comes from Doug Loe at Leede Jones Gable. Please go ahead.
Yeah, thanks, Operator. And good morning, Craig. So obviously, Absorica is always the product as you're in your quarterly financials. And I was just struck by the difference in prescription market share in Canada versus the U.S.. And I know that most of that is pricing strategy. But I was just wondering whether or not, in any consultation with Sun, that there might be a re-exploration of pricing as a way to drive market share here in the near term. And then sort of secondarily to that, I think we're all obviously focused on timelines when Allergan can launch its own generic of Absorica, which I believe is next month. Any update on that would be helpful. And then I have a follow-up.
Okay, so the launch of a generic is something that we're watching very closely. We're trying to get as much information that we can about any potential launch of a generic of Absorica. We have not seen it. There has been no entries into the Orange Book . We have been in touch constantly with Sun. We have talked to them about different pricing strategies. We're preparing, in the event of a launch of a generic, to be able to come out with an authorized generic and maintain a significant share of that market. So this is a day-to-day thing, and we're certainly in communication with Sun and also doing our own reconnaissance on any potential launch of a generic.
Okay. That's helpful. Thanks. And then just on pipeline, I mean, you were pretty transparent about your partnered DTR-001 program, which is great to hear that that program is being resurrected and on the ongoing Trulance dispute resolution. And obviously, the Moberg nail fungus drug. You didn't mention the psoriasis drug that Can-Fite BioPharma is developing. And I see that they had some mildly positive news on permission to go forward with interim analysis on a Phase 3 psoriasis program. Just, I mean, any update on the status of that program and your sense on timelines to when Phase 3 could conclude and when potential regulatory milestones could be forthcoming there? And I'll leave it there. Thanks.
Yeah. We're working to set up times to get a better idea of where Can-Fite is with their process and their overall schedule. I think that we could do more work in that area than we have done. The product sounds like it shows some potential of positive results. But we want to get more detail from Can-Fite with regards to the specifics of the results and what their plans are and schedule for moving the product towards approval. And those discussions are ongoing.
Great. Thanks, Craig.
Thanks. Thanks, Doug.
Thank you. Ladies and gentlemen, as a reminder, should you have any questions, please press star followed by one. Next question comes from Eshant Rao at Alliance Global. Please go ahead.
Good morning, all. Thanks for taking my question. Can you please identify in terms of the timelines for the Trulance arbitration? And also, can you please tell us in terms of the goal post in terms of the next one year, please? Thank you.
Sorry, I missed that second question.
The second question was trying to understand in terms of the timelines of where we should see the company in the next 12 months. We obviously are reducing expenses, which seems very good. But equally, the revenue from other products is going down. So I want to understand what the goal posts are for the company for the next 12 months.
Okay. Let me start with the second question first. The Canadian business, the Canadian commercial business, continues to grow. Yes, we are having declines in the Absorica royalty payments related to price competition primarily, which we are planning as the game plan there would be once the generics launch that we will launch our own generic with Sun. And we believe that coming under the Absorica name will allow the product to maintain significant market share. What the game plan is for the next two years, or even the next 12 months, is to continue to watch our cost and our cost structure, but to start focusing on the development of some of our different programs, including the Tattoo program, the Moberg nail fungus program, and then thirdly, a number of different potential projects with Galephar, the first and foremost being Alitretinoin, which is the hand eczema product.
Your second question with regard to Bausch and the arbitration that we're having with them. We are going through the process. We expect that the arbitrator will make a decision no later than the end of January of 2021, unless the matter is settled between the parties before that.
Thank you.
Thank you. The next question comes from Peter Rytych at Rytych Consulting. Please go ahead.
Good morning, Craig et al. I'm wondering with respect to the Normal Course Issuer Bid. You indicated that 30,000 shares, I think, were purchased in the period August 12th to September 30th, August 12th being the initial effective date of it. What was the average price of purchase of those shares?
I'm not sure, Peter, the exact price. But as you probably are aware, Cipher is not able to purchase stock at anything greater than the last traded price.
Right. No, I'm aware of that.
I guess if you looked in the range for those days, I don't know the average price.
Okay. That would give you an indication then.
I don't know exactly.
Okay. No, that's fine for that. It was 30,000 shares. Are you able to give us an indication of how many additional shares have been purchased in the next, basically, 45 or so days, i.e., between October 1st and yesterday?
Well, Peter, we were under a blackout for a good part of that. We were restricted from buying. I can tell you what our intentions are going forward. We expect to be an active buyer of our stock, subject to the regulatory requirements that we have to abide by. So we have been active. The stock is, as you no doubt can see, it's very thinly traded. We would like to buy as much stock as we can.
Right. Right. Okay. Fair enough. And then one follow-up, if I could, with just back to the Trulance arbitration. I appreciate that there's confidentiality provisions and you've got to abide by those. I know that well, obviously. But the question is, has the formal part of the arbitration concluded such that it is now in the arbitrator's hands to decide, or is there still more additional arbitration hours that need to be had?
I would say that it is in the arbitrator's hands at this point. Although I'm sure that there could be further discussion among the parties, but I would say that it is in the arbitrator's hands at this point.
Okay. No, fair enough, and I think we can all appreciate that the pandemic has certainly slowed all legal processes, arbitrations included, and drawn them out from what they would otherwise be, and I'd expect that would have been the case in the Trulance situation as well.
Correct.
Okay. Thank you, Craig.
Thanks, Peter.
Thank you. There are no further questions. I will now turn the call back over to Craig Mull for closing remarks.
Thank you for joining us today. We look forward to reporting on our progress throughout the balance of 2020 as we execute on the priorities discussed today. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.