Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals Fiscal 2018 third quarter 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, Wednesday, November 7th, 2018. 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 securities 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 Robert Tessarolo, President and Chief Executive Officer of the company. Please go ahead, Mr. Tessarolo.
Thank you, Jessica, and good morning, everyone. Joining me on the call from Cipher is Stephen Lemieux, our Chief Financial Officer. On today's call, I will make a few opening remarks before Stephen reviews the financial results in more detail, after which we'll open the call for your questions. Note that all amounts are in US dollars.
In the third quarter, we continue to make meaningful progress in executing our strategy to build a diversified portfolio of prescription products that will deliver reliable and sustainable growth for Cipher. We are deploying the cash flow from our mature licensing business into the growth of our Canadian commercial platform. We achieved several significant milestones this quarter. In September, we received Health Canada approval for Xydalba.
Xydalba is the first and only one-dose treatment option for acute bacterial skin and skin structure infections in adults, and we plan to launch this innovative product in the first half of 2019. In October, we launched Brinavess. Brinavess is a treatment for the rapid conversion of recent onset atrial fibrillation, an irregular and often rapid heart rate, to sinus rhythm or a normal heart rate. These acute care products were acquired as part of the Cardiome acquisition that we closed in May of this year.
We have completed six transactions so far in 2018 that provide new growth avenues, transform our pipeline, and over time will significantly diversify and improve our financial operating results. In the quarter, we acquired the exclusive rights to MOB-015 from Moberg Pharma. MOB-015 is a patented proprietary formulation of terbinafine for the topical treatment of onychomycosis.
Moberg Pharma is currently running the phase III pivotal trials required for regulatory submission to Health Canada. Onychomycosis is a fungal nail infection with an estimated prescription market of CAD 58 million according to IMS Health. Under the terms of the agreement, Cipher made an upfront payment of $500,000 with additional total commitments of up to $14.1 million for the achievement of various development, regulatory, and sales milestones in Canada.
Moberg Pharma will supply finished product for Cipher. In addition to these business development successes, as we discussed in the last call, we are pleased to have executed an amendment to sustain the marketing of Absorica and bring innovative new isotretinoin products used to treat severe acne to the US market. In July, we announced the following important changes to our agreement with Sun Pharma.
The revised agreement allows Sun to launch new patented isotretinoin products prior to November 2022 in the market into the US market. Cipher's current royalty structure of Absorica has been preserved, however, extended through to the end of 2024. A new royalty has been provided to Cipher calculated on net sales of all new isotretinoin products launched by Sun prior to the end of 2024.
This is a positive development for Cipher, providing the opportunity to maximize total current revenues from the Absorica brand, provides a longer runway to execute our long-term growth strategy, and generates additional high-margin royalties we can invest in our Canadian commercial business. Another critical and important highlight of the third quarter was the stellar performance of the Canadian commercial platform. Our team continues to generate growth in demand and capture market share across the portfolio.
Revenue from Canadian commercial products increased by 27% to $1.6 million, primarily driven by Epuris, our largest product used for the treatment of severe acne, which now holds 34% market share in Canada, compared with 28% for the same period in the prior year. We launched Ozanex, a topical antibiotic in the first quarter into the contagious skin infection impetigo market that mainly affects infants and children and has achieved all launch metrics to date, outpacing our expected sales and prescription uptake.
We're pleased with the positive feedback on Ozanex and high engagement from the dermatology community, and we're seeing a significant increase in week-over-week prescribers and a high satisfaction level leading to over 60% repeat prescribing rate. With an impressive five-year CAGR of 68%, our Canadian business is a proven growth platform for Cipher.
So far this year, we have launched two new products in Canada and added multiple differentiated near-term programs through our BD efforts. Based on the transaction activity to date, we expect to bring four additional new products to the Canadian market before the end of 2020, several of which target highly valuable markets and indications.
These include Trulance, which is used in adults to treat irritable bowel syndrome and constipation, A101, a topical solution for the treatment of raised seborrheic keratosis, which is a form of non-cancerous skin growth in older adults, and Xydalba, which is used to treat acute bacterial skin and skin structure infections, as I've already mentioned. We are on schedule to pull all products through key regulatory events. Together, these catalysts provide near-term revenue generation and the potential to dramatically increase Cipher's total revenue in the coming years.
For example, we see Trulance alone as a product that can generate more than $15 million in peak sales. We continue to enhance the organizational capabilities and attract talent to our team. My many thanks go out to Cipher colleagues for delivering meaningful progress across all aspects of our business. I will now turn the call over to Stephen to review the financial results. Stephen?
Thank you, Rob. Good morning, and thank you for joining us. I will provide an overview of our Q3 results. Total net revenue for the quarter was $4.8 million compared to $10 million for the comparative period. The main impact year-over-year was lower licensing revenue of $3.3 million versus $8.8 million last year.
Licensing revenue from Absorica was $2.6 million in the third quarter compared to $7.6 million in Q3 2017. As you may recall, the decrease in Absorica licensing revenue is attributable to a promotional campaign that our partner executed from March to November of 2017. Licensing revenue from Lipofen and the authorized generic was consistent with Q1 and Q2 of 2018 at $0.6 million, but down from $1 million in Q3 2017. As Rob mentioned, a key highlight was the continued strong growth of our Canadian commercial business.
Product revenue increased by 27% to $1.6 million in the quarter, from $1.2 million in Q3 2017. The growth was led by Epuris, which recorded revenue of $1.4 million, up from $1.1 million over last year's third quarter. Operating expenses, which include cost of goods sold, research and development, and general and administrative expenses, decreased in the third quarter to $3.8 million, from $4.4 million in Q3 2017.
The decrease is primarily due to a $0.6 million impairment charge in the comparative period. Other expenses were $0.2 million in the quarter compared to $0.5 million in Q3 2017. The improvement is related to the refinancing of Cipher's debt in 2017 that resulted in a 76% year-over-year decrease in interest costs.
Overall, we finished the quarter with net income from continuing operations of $0.7 million, a decrease from $3.9 million in the comparative period, and our Adjusted EBITDA was $1.5 million in the quarter compared to $6.6 million in Q3 2017. Our balance sheet remained strong, and we finished the quarter with cash of $10 million compared to $28.2 million at year-end.
Subsequent to the quarter, we received a $1.7 million payment from EPI, which represents the holdback from the sale of our U.S. business to EPI in 2017. Our operations continue to generate positive cash flow of $5.7 million year-to-date, including $1.5 million in the third quarter. We have used approximately $25 million in cash since December to fund the cardio acquisition and the licenses of the Canadian rights for Trulance, Eskata, and MOB-015.
In addition, we drew $5 million from our accordion in our credit facility with CIBC and have made $3.7 million in scheduled debt payments, leaving our outstanding debt balance with CIBC at $19.5 million. In summary, between our cash balance, cash inflows from our operations, and our debt capacity, we continue to be in a strong financial position to continue to deliver on our growth strategy. I will now turn the call back to Rob for his closing comments.
Thanks, Stephen. We have made tremendous progress with our growth strategy in 2018. Our Canadian commercial business is growing strongly and provides a platform we can continue to build on with highly novel products in multiple therapeutic categories. With positive EBITDA, a healthy balance sheet, and robust cash flows over the next several years, we are well positioned to drive continued further growth.
The past several quarters, Cipher's product pipeline has been transformed with multiple late-stage assets that have near-term commercial potential. Before the end of 2018, we expect to continue to execute the launch of Brinavess, which started in October, and file new drug submissions with Health Canada for both Trulance and Eskata. And in 2019, we have the potential approval and launch of Trulance and Eskata, and the commercial launch of Xydalba, as well as the phase three clinical trial results for MOB-015.
We are investing significantly in business development to continue our momentum, and we look forward to reporting on our progress against these catalysts and milestones in the second half of the financial year. Jessica, we'll now open things up for questions.
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 touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received.
Should you wish to decline from the polling process, please press the star followed by the two. If you are using speakerphone, please lift the handset before pressing any key. One moment, please, for your first question. Your first question comes from Siew Ching Yeo of Echelon Wealth Partners. Please go ahead.
Hi, good morning, Rob. Very excited to see your new pipeline developments here for Cipher. Just have a few questions on the partnership developments front. So, as you know, Synergy recently ran into some issues with its debt terms. And so I was wondering if you could perhaps comment on what your existing partnership status will be going forward with Synergy and perhaps comment a bit more on your future outlook with Trulance. Thanks.
Great. Thanks. Thanks. Siew, I appreciate your question. And let me first start by saying Synergy has been a tremendous partner to us thus far. We had a very good relationship through the business development process. We've had some very supportive and substantial meetings with them to understand what's been going on with the product launch, with Trulance launch in the U.S., and as far as supporting our filing process with Health Canada.
So we've been very pleased in that regard. Now, clearly, we're watching that situation, and we're being kept abreast of that situation with respect to how they're progressing forward. I would say a couple of things. Under the terms of our agreement, Synergy must supply the product to Cipher.
And if Synergy did end up in bankruptcy or going down the bankruptcy route, we have step-in rights directly with the CMO who are manufacturing and packaging the product. So we're covered from a product flow perspective, which is number one importance to us. In terms of how we're thinking about Trulance in Canada based on the performance in the U.S., I would say a couple of things.
One, these are tremendously different markets, the U.S. and Canada. Having operated in both, there's similarities. We're both in North America, but a lot of the similarities end there. We don't have the same level of pricing or market access pressures that they have in the U.S. And so for us, we feel like we're going to have a better run with respect to market access in Canada than they've seen in the U.S. The other thing about it is if you peel back some of their results, well, their market share has been maybe less than they've expected.
With the customers that they're calling on and the customers that are really getting the Trulance message, we're seeing much higher prescription rates than they are seeing at the national market share level, and that's very encouraging to us, and so we think that our competitive landscape in Canada is going to be quite a bit different than theirs in the U.S., and for those reasons, our view on the Trulance product profile and how it's going to perform in Canada haven't changed. Hope that answers your question.
Okay. Great. Just one last question. This one will be easier. For Aclaris, you just noticed that they reported their results last night. And for A101, are you looking to perhaps expand this indication from raised seborrheic keratosis to common warts, like what they're exploring in their current clinical trials, if proven successful?
Yes. Thanks. So yeah, we've seen those results as well. And we continue to be very encouraged by the innovative profile of A101 named Eskata in the U.S. And we have, as we announced when we secured the license for raised seborrheic keratosis, we have first right of negotiation for the additional program, the additional warts indication, which we think is an exciting indication.
The phase two data was exciting when it was released at the beginning of last year. So we're tremendously interested in this product in a wholesome way. And we're also excited by what Aclaris is achieving in the US through their launch and the exciting nature of the aesthetic profile for Eskata.
Okay. Great. Thank you, Rob.
Your next question comes from Justin Keywood of GMP Securities. Please go ahead.
Hi. Thanks for taking my call. Just on the amended agreement with Sun Pharmaceuticals, I wonder if you could provide any clarity on what these potential products may be coming online and if there's any visibility on what the financial impact could be?
Great. Hey, Justin. Good morning. Thanks for your question. And I think one of the elegant things about this amendment for us is that at the end of the day, the innovation and the investment in the development of these products hasn't been borne by Cipher. So that's another way of saying these are not our products, and therefore we can't disclose information about them that the Sun hasn't already disclosed.
And to date, they've not made anything public. So at that point, we can't say much more about the product profiles themselves. I think we'll go back to, from a financial implications perspective, I think we would go back to and we would guide to say that life cycle management plans and programs are very, very common in the United States.
I think there's lots of great analogs out there with respect to how much of the business can be moved and how quickly it can get moved. And I think I would reiterate what we said earlier, which is the beautiful thing about this amendment is that the economics that we otherwise would have received have been preserved and extended.
So whatever we were expecting and we were modeling in the past for Absorica and any market share that is captured by all products would be under the same level of royalty. And then from an extension perspective, in terms of the longer it goes, the royalty goes down somewhat. But those are years that we otherwise wouldn't have been entitled to anything. So we were okay with that. Hopefully, that gives you enough information.
Thank you. That's very helpful. And then just on the outlook section, there's an expectation for the Absorica to increase compared to Q3 due to the seasonality. Just wondering if you're able to quantify that at all. And then just also on the market share of Absorica, do you think we're at a bottom level here at around 10%?
So I'll answer. So for the seasonalities, so for both Absorica and Epuris, Q3 is typically a weak quarter for those products, and Q4 is typically stronger. We're not going to give guidance as to where we think that's going to come in, but the market on both sides of the border normally grows into the fourth quarter.
And with the market shares we hold in both Canada and the U.S., we expect to see our royalty in the U.S. improve in the fourth quarter. So with respect to the 10% market share, I'll turn that over to Rob, and Rob can comment on the market share in the U.S.
Yeah. So now, since about the middle of Q2, we've been holding firm on our data. The data we're watching at somewhere at 10% plus or minus market share and prescriptions sort of oscillating around or bouncing up and down around the 3,100 script level. We expect that to continue. That's kind of what we've seen now for almost six months, which is pretty important in terms of looking at the durability and confirming that that's actually has hit the lower end of what we would expect.
Okay. Great. Thanks for taking my questions.
Thanks, Justin.
Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. There are no further questions at this time. Please proceed.
Thanks, Jessica. Appreciate everybody's interest in Cipher, and thanks for joining our call today. Have a great rest of the day and a great rest of the week. Bye for now.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.