Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals Incorporated Fiscal Second Quarter 2020 Results Conference Call. At this time, all participants are in 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 zero on your push-button phone. As a reminder, this conference is being recorded today, Thursday, August 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 risk 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. Go ahead, Mr. Mull.
Thank you, Operator, and good morning, everyone. Joining me today is Scott Langille, Cipher's new CFO. I'd like to take this opportunity to welcome Scott to the team. Scott brings nearly 30 years of senior leadership roles with a solid focus on life sciences. Scott's tenure as CFO and founding member of Tribute Pharmaceuticals and his direct involvement with product acquisitions, licensing, and development deals will be invaluable to Cipher as we continue to right-size the business and look for opportunities for growth. On today's call, I will be making opening remarks before passing the call over to Scott to review the financial results in detail. Following our prepared remarks, we will open the call for questions. Note that all amounts are in U.S. dollars unless otherwise stated. The second quarter was one highlighted by economic uncertainty as the world adapted to challenges presented by COVID-19.
Cipher entered this global crisis from a position of strength with a reduced cost structure, a strong balance sheet, and a renewed focus on profitability. EPURIS continued to perform well in the quarter with revenues at CAD 1.9 million, up 4% in Canadian dollars. EPURIS finished the quarter with a 41% market share in the Canadian market, up 38% in the comparative period. In the first half of 2020, product revenues from EPURIS increased CAD 4.3 million compared to CAD 3.5 million in the six months ended June 30th, 2019. We are extremely pleased with the performance of EPURIS and the stability of the revenue and cash flow during this challenging time. In the second quarter, licensing revenue decreased by CAD 0.8 million due to declining Absorica sales. Licensing revenue from Absorica in the U.S. was CAD 1.8 million in the quarter, a decrease of CAD 1.1 million compared to the prior-year.
Absorica's market share for the three months ended June 30th, 2020, was approximately 6% compared to approximately 8% for the three months ended June 30, 2019, according to IQVIA. 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 that Absorica LD will bring to the patient population, the launch triggered an extension of our agreement with Sun, 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 notice of termination from Bausch Health for alleged breach of contract in respect to its licensing agreement for Trulance. The company is currently in arbitration to resolve the matters contained within. Despite lower revenue, our results demonstrated our commitment to expense management. Total operating costs decreased 41% in the second quarter over last year. The optimized cost structure resulted in EBITDA increasing 22% and adjusted EBITDA coming in relatively unchanged at CAD 2.9 million. We are encouraged to see EBITDA margins were up dramatically to 61% in Q2 2020 compared to 42% in Q2 2019. Net income in the quarter was CAD 0.4 million, or CAD 0.02 per share. Both net income and EPS were depressed due to a CRA tax assessment, which resulted in an additional tax expense of CAD 1.4 million in the quarter.
Excluding the impact of this tax assessment, EPS would have come in at CAD 0.07 per share or CAD 0.10 per share. The company intends to file a notice of objection with the CRA on this matter. We have taken substantial costs out of the business, and we intend to keep a close eye on the cost structure and profitability. With our cost structure largely optimized, our focus has now shifted to looking for the right opportunities for growth. Cipher will continue to work with our technology partner, Galephar, to bring new exciting products to market with a focus on the U.S. and international markets. As previously announced, the company concluded its binding arbitration with Upsher-Smith.
This arbitration was related to a patent infringement lawsuit alleging Upsher-Smith had infringed on one or on at least one or more of Cipher's patents by filing an Abbreviated New Drug Application with the FDA to market a generic version of Absorica. We believe that the launch of Absorica LD and the conclusion of the arbitration with Upsher-Smith improves and extends the competitive position of our products, placing the company in a strong position to benefit from future revenue streams associated with Absorica and Absorica LD. I will now turn the call over to Scott for a review of the financial statements for the second quarter.
Thanks, Craig. Before I begin the financial review, I'd like to say that I'm very excited to have joined the team at Cipher, and I look forward to contributing to the strategic direction of the company as we deploy our cash flow and look for the right opportunities for long-term growth. Second quarter revenue was CAD 4.7 million compared to CAD 5.6 million for the prior-year. The main driver for the CAD 0.9 million decrease in revenue was a decrease in licensing revenue. Licensing revenue was CAD 2.7 million for the three months ended June 30th, 2020, compared to CAD 3.5 million for the three months ended June 30th, 2019. Licensing revenue from Absorica in the U.S. was CAD 1.08 million for the three months ended June 30th, 2020, compared to CAD 2.9 million for the prior- period. Absorica ended the quarter with a 7% market share.
Licensing revenue from LIPOFEN and the authorized generic for LIPOFEN was CAD 0.5 million for Q2 2020, unchanged for the three months ended June 30th, 2019. Licensing revenue for the extended-release tramadol product ConZip and DURELA was CAD 0.3 million for the three months ended June 30th, 2020, an increase of CAD 0.2 million compared to revenue of CAD 0.1 million for the prior-year. Product revenue was CAD 2 million for Q2 2020 compared to CAD 2.1 million in 2019. Product revenue from EPURIS increased by 4% or CAD 0.1 million during the quarter. According to IQVIA, EPURIS has a prescription market share of approximately 41% in Canada for the three months ended June 30th, 2020, compared to 38% for the three months ended June 30th, 2019. Total operating expenses decreased by 37% to CAD 1.3 million for Q2 2020 compared to CAD 2.15 million for Q2 2019 excluding restructuring costs.
The decrease was primarily driven by a decrease in SG&A expenses. SG&A expense was CAD 1.3 million for Q2 2020, a decrease of CAD 0.8 million or 37% compared to the prior- period. The decrease in SG&A was primarily driven by overall reduction in costs related to human resources and marketing spend. During the quarter, the company received a final assessment in respect to the 2014 and 2015 CRA audit, which, in addition to evaluating the intangible assets at a lower value than reported for tax purposes, disallowed certain intangible assets for 2015. There is an additional income tax expense, including interest of approximately CAD 1.4 million, that's CAD 2 million, for amortization taken for those intangible assets from 2015 to 2018. The company believes its basis for the valuation is reasonable and intends to file a notice of objection with the CRA.
Net income was CAD 0.4 million or CAD 0.02 per basic and diluted share, that's CAD 0.03 in Q2 2020, compared to CAD 1.4 million or CAD 0.05 per basic and diluted share in Q2 2019. As Craig mentioned, excluding the one-time tax adjustment due to a CRA tax assessment, EPS would have come in at CAD 0.07 or CAD 0.10. EBITDA in the quarter increased 22% to CAD 2.9 million compared to CAD 2.4 million the prior-year. Adjusted EBITDA for Q2 2020 was CAD 2.9 million compared to CAD 3 million in Q2 2019. The company generated CAD1.9 million in cash from operating activities during the quarter. As of June 30th, 2020, the company has cash of CAD 8.7 million and CAD 3.7 million drawn on the credit facility. The company's expectation is that the credit facility will be paid off by the end of the fiscal year.
I'd like to turn the call back to Craig for closing remarks.
Thanks, Scott. Overall, we are pleased with the company's second quarter results. With our rationalized cost structure in place, Cipher will now focus on several key milestones that will enhance long-term value, including a full-year benefit of the cost reduction plan, increased adoption of Absorica LD, and a renewed focus on growth. With a profitable business and a reduced cost structure, we feel we are in an excellent position to find the right opportunity to turn Cipher to growth. We will now take calls. Operator.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment for your first question. Okay. So your first question comes from Doug Loe of Echelon Partners. Doug, please go ahead.
Yeah. Thanks, Operator. And good morning, gents. Congratulations on the strong EBITDA in the quarter. Sorry to start with a boring question, but the income tax elements certainly squashed your cash flow in the quarter. And just want to get into the weeds there a little bit. I mean, in your MD&A, you indicate that it was this valuation adjustment on intangible assets dating back to 2004. I get a sense that might be related to valuing the licensed assets that you brought in from Galephar at the time, but I don't know. Maybe just a little bit of detail about what this entails just so we can kind of understand whether or not a reversal on appeal could be imminent here.
And then sort of related to that, I was just wondering if you could comment a little bit on the tax losses that you acquired from Correvio and over what time frame that you might assume that those are going to be more impactful on cash flow. As for example, thought maybe your Correvio tax losses might have mitigated the tax expense that you had to book this quarter. So just some context there would be helpful. And then I have a follow-up.
Thanks, Doug. What I can tell you is you're right on the valuation question. It related to the patent rights for the product portfolio. There was an element of also disallowed additional expenses related to portfolio three products. And as far as your question on the Cardiome and when we're going to take advantage of that, we're obviously assessing that as we speak. And we should have further information on that in Q3.
Okay. Fair enough. And then maybe I'll shift beyond Absorica, whose royalty revenue was soft for reasons I think we can all understand. You didn't mention any of the licensed U.S. products, specifically with Can-Fite and Moberg in psoriasis and nail fungus, respectively. Just wonder if there's any update you can share there on timelines of phase three data and whether or not you still regard those p ipeline assets as being germane to your future royalty revenue prospects. And I'll leave it there. Thanks.
Doug, I'll respond. It's Craig here. The Moberg product is still undergoing clinical trials. They've come out with some results that were not where they had hoped they would be compared to the existing products on the market. But they're trying to reformulate their product to deal with, in particular, the whitening of the nail on treatment. And so they've got more work to do. We're in close contact with them. But unfortunately, it's going to be further from market now than it was before these trials were concluded. You had another product, Doug, that you referenced in your question.
Yeah. Yeah. The thing that's an adenosine analog that Can-Fite is developing that was in phase three psoriasis testing, I believe.
Yeah. We haven't heard much from them. They have slowed on their development plans. I would need to get an update. And perhaps when we talk again, that I will provide you with that update.
Good stuff. Thanks, Craig. Thanks.
Okay.
Your next question comes from Andre Uddin of Mackie Research. Andre, please go ahead.
Good morning, Craig and Scott. Just wondering if you could just give us a little bit of an update in terms of your licensing plan for your Canadian portfolio.
Sure. I can answer that. We are in advanced discussions with a marketing partner. When I say advanced, I'd say that we're moving towards a definitive agreement, and that I expect will be completed no later than the end of September. It has been delayed a bit on purpose because our sales reps, or their sales reps, are unable to get into physicians' offices right now, and we don't want to start incurring costs when we don't have to, so it will be ready to go, and we expect that we'll be able to access physicians more regularly as we move through this COVID-19 situation. We're also looking at other ways to be in touch with physicians, including virtual-type marketing, virtual meetings, and even perhaps a virtual website where physicians can diagnose the indication for treatment.
Just one other question. Could you just maybe provide a little bit of a color in terms of what your ideal product would be to bring in for licensing?
An ideal product would probably follow similar characteristics of Absorica, which was a product that we took through eight-stage development with our partner, Galephar. And it had a large market potential that was unmet. And isotretinoin had characteristics that would add value in the treatment, including no food effect and good absorption. So a product similar to that, and one preferably in the derm area.
That's great. Thank you.
Your next question comes from Prasath Pandurangan of Bloom Burton. Please go ahead.
Hi. Good morning. Congrats on the quarter. Firstly, could you provide any update on the potential authorized generic for Absorica that's going to be launched towards the end of the year? Do you have any additional information on that?
I can tell you that Actavis, who's the maker of the product or manufacturer of the product, has not registered the product with the FDA, which may indicate that they're either slow for whatever reason, or perhaps they're having some difficulties with the manufacturing of the product. But that's speculation at this point.
Okay. Okay. And could you comment on the other Galephar products that you're looking to develop right now?
The lead product that we're looking to develop is, and the first of three, a product called alitretinoin. It is a product focused on severe hand eczema. It is again a derm product in the isotretinoin family of molecules. Our development partner, Galephar, has got a great deal of experience with that molecule.
Got it. And then to follow up on the tax dispute here, could you give additional color on what your position is versus the CRA's position? And if there is a possibility of recovering this expense, what are the potential timelines we're looking at?
I can answer that to a degree. The answer is we're going to file a notice of objection. And that notice of objection is primarily going to be related to valuation and the difference of opinion on valuation. We're going to file that in September. And we're not totally sure how fast we can resolve it with Canada Revenue Agency. It would be likely in the six-month area based on the current state of the pandemic and just their services. But we hope there will be an ongoing dialogue to resolve it as soon as possible, obviously.
Got it. Thank you.
Ladies and gentlemen, as a reminder, should you have a question, please press star followed by one. Okay. It appears there are no further questions. You may proceed.
Thanks, Operator. Thank you all 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. Again, thank you for your time.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.