Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals fiscal 2018 second 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, Friday, August 10th, 2018. On behalf of the speakers that follow, listeners are cautioned that today's presentation and the responses to questions may contain the 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, Form 40-F, and other filings with Canadian securities regulatory authorities. 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 from Cipher are Stephen Lemieux, CFO, and Chris Waters, Vice President of Corporate Development. On today's call, I will make a few opening remarks before Stephen reviews the financial results in more detail, after which we will open the call for your questions. Note that all amounts are in US dollars. In the second quarter, we continue to make important 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 robust cash flow we have from our licensing business into the growth of our Canadian commercial platform. We have completed five transactions so far in 2018 that provide new growth avenues, transform our pipeline, and over time will significantly diversify our financial results away from our mature licensing business.
In addition to these business development successes, we are pleased to have executed an amendment to sustain the marketing of Absorica and bring innovative new isotretinoin products to the United States 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 U.S. market. Cipher's royalty structure on Absorica has been preserved. However, extended through to the end of 2024. A new royalty has been provided to Cipher, calculated on the 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 cumulative revenues from the Absorica brand, provides a longer runway to execute on our long-term growth strategy, and generate additional profits we can invest in our Canadian commercial platform.
Another important highlight of the second quarter was the stellar performance of our Canadian commercial platform. Our team continues to generate growth in demand and capture market share for the key brands. Revenue from this segment increased by 33% to $1.7 million for the quarter, primarily driven by Epuris, our largest product, which now holds 33.5% market share in Canada compared with 28% for the same period last year. We launched Ozanex in the first quarter to the $38 million in impetigo market and have achieved all launch metrics for the first half of 2018, 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 are seeing a significant increase in week-over-week prescribers and high satisfaction, leading to over 40% repeat prescribers.
With an impressive five-year CAGR, our Canadian business is a proven growth platform for Cipher. So far this year, we have launched our new product and added multiple exciting programs through our BD efforts. Based on the transaction activity to date, we expect to bring five new products to the Canadian market in 2018 and 2019, several of which target highly valuable markets and indications. In Q1, we licensed Trulance, an FDA-approved once-daily tablet for adults with chronic idiopathic constipation and irritable bowel syndrome with constipation. Trulance is a high-value new and differentiated GI product targeting an attractive market with significant unmet needs. It is estimated that one in four Canadians have symptoms of constipation, with the total Canadian laxative and antispasmodic market for both prescriptions and OTCs being valued at over $200 million in annual sales.
During the second quarter, we licensed another highly novel and differentiated product for Canada, A-101 40%, which has recently been launched in the United States under the brand name Eskata. This is a topical solution for the treatment of raised seborrheic keratosis, or SKs, which are commonly occurring non-cancerous skin growths that affect more than nine million Canadian adults. Upon approval, A-101 40% would be the first and only prescription treatment for raised SKs and would further leverage our commercial organization, building upon the strong presence Cipher enjoys in the Canadian dermatology market. Additionally, we completed the acquisition of the Canadian business portfolio of Cardiome. As we outlined on our last earnings call, this deal brings multiple value components to our organization, expanding our business with a portfolio of acute care products for the hospital segment and tax attributes.
The portfolio includes two commercial products, Brinavess and Aggrastat, and two late-stage pipeline products, Xydalba and Trevyent. We are on schedule to pull all products through key regulatory events, and 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. Turning now to our global licensing business, the second quarter showed significant improvement sequentially as Absorica recovered from a weak first quarter and returned to levels consistent with pre-2017 performance. Absorica's market share at quarter end was approximately 10%, and we expect Absorica to provide a solid base of high-margin royalty revenue for the full year. We continue to enhance our organizational capabilities and attract talent to the team. During the quarter, we announced the addition of Dr.
Diane Gajewczyk as Vice President of Scientific and Medical Affairs. Over a 25-year career in the pharmaceutical industry, Diane has established a proven track record of medical affairs leadership and extensive background guiding products through the regulatory process with Health Canada and the FDA. I've had the good fortune of working with Diane at Biovail, and she is a valuable addition to the leadership team as we bring our current products through to commercialization and continue to build the portfolio. Finally, many thanks to our Cipher colleagues for delivering meaningful progress across all aspects of our business this quarter. 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 Q2 results. Total net revenue for the quarter was $7 million compared to $9.9 million for the comparative period. The main impact year over year was lower licensing revenue of $5.2 million versus $8.6 million last year. Revenue from Absorica was $4.5 million in the second quarter, returning to more normalized levels for this product compared to $2.1 million in the first quarter of 2018 and $7.5 million in Q2 2017. Licensing revenue from Lipofen and the authorized generic was consistent with Q1 at normalized levels of $0.5 million, but down from $0.8 million in Q2 2017. As Rob mentioned, a key highlight was the continued strong growth of our Canadian commercial business.
Product revenue increased by 33% to $1.7 million in the quarter, led by Epuris, which recorded revenue of $1.5 million, up 36% over last year's Q2. Operating expenses increased to $4.1 million from $3.5 million in Q2 2017. The increase is primarily due to transaction costs of $0.4 million in connection with the acquisition of Cardiome. In terms of other expenses, refinancing our debt in 2017 resulted in a 67% year-over-year decrease in interest costs. Overall, net income from continuing operations was $1.9 million, a decrease from $4.4 million in the comparative period, but an increase from our net loss of $1.1 million in Q1 2018. Adjusted EBITDA was $3.3 million in the quarter compared to $6.6 million in the comparative period. Our balance sheet remained strong as we finished the quarter with cash at $12.6 million compared with $28.2 million at year-end.
Our operations continue to generate positive cash flow of $4.2 million year- to- date, including $3 million in the second quarter. We used approximately $25 million in cash since December to fund the Cardiome acquisition and the licenses of the Canadian rights for Trulance and Eskata. In addition, we drew $5 million from our accordion in our credit facility and made a scheduled $1.7 million debt payment. 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 deliver on our growth strategy. I will now turn the call back to Rob for his closing comments. Rob?
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 equipped with capital resources to drive our growth. In 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 complete the commercial launch of Brinavess, file new drug submissions for Trulance and Eskata, and obtain Health Canada approval of Xydalba, and in 2019, we have the potential approval and launch of Trulance and Eskata and the commercial launch of Xydalba. Finally, we are investing significantly in business development to continue our momentum.
We look forward to reporting on our progress against these catalysts and milestones in the second half of the fiscal year. We'll now welcome your questions. Jessica?
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'll 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're using a speakerphone, please lift the handset before pressing any keys. Your first question comes from David Martin of Bloom Burton. Please go ahead.
Good morning. A comment on the Absorica trajectory recently. The scripts, at least on Symphony, have been weaker than we've been expecting. The data that came up this morning for the week ending August 3rd had them at 3,500, and our expectation had been that they'd stabilize around 4,500. Do you have any commentary on that? Is Sun planning another promotion for the product, or where should we expect the scripts to go going forward?
Yeah, hey, thanks. Thanks, David. Yeah, clearly we're watching the Absorica trends very closely. We are currently in the 3,000 per week range, based on we watched the IMS data, and market share was at 10% at the end of June, as we've mentioned. Keep in mind that Q3 is seasonally a lower period for isotretinoin, and Q4, historically, we see Rx's rebound. From a partner perspective, Absorica remains a differentiated product in the market and is really a flagship brand at the moment for Sun's dermatologic portfolio. And we think that the recent agreement underscores the importance of the brand to Sun, and we're very pleased with that.
Okay. That's it for me.
Thank you. As a reminder, ladies and gentlemen, should you have a question, please press the star followed by the one. Your next question comes from Justin Keywood of GMP Securities. Please go ahead.
Good morning. Thanks for taking my call. Just a point of clarification. On the OpEx increase in the quarter, I think I heard there was around $400,000 in acquisition expenses. First, is that correct?
That's correct, yes. Yeah.
Okay. And that wasn't added back to the Adjusted EBITDA?
It was not, no.
Okay. And then just on the balance sheet, I'm wondering what's the capacity for the balance of year given any anticipated tax benefits and comfort level as far as debt-to-EBITDA ratios?
Yeah, I think on the tax, so we still have some existing tax shelter from pools that we have at Cipher, so we expect to be able to utilize that this year. On the debt, so we're currently at about 1.1 times levered, so we've got capacity in our debt facility to draw from the accordion, and we have capacity internally to increase our leverage if needed to go after deals, as well as the cash we have on hand and the cash we're drawing from our operations. So we think we've got adequate resources now to execute on what we're seeing in our deal flow activity.
Okay. Any way to quantify what that might be?
No, we don't want to put a number on what our capacity is, but we can for if you're looking at you can we're at 1.1 times levered, so you could look at upping that leverage to get a better feel for what you think our capacity would be.
Okay. Thanks for taking my questions.
Thanks, Justin.
Your next question comes from Doug Loe of Echelon Wealth Partners. Please go ahead.
Yeah, thanks very much, and good morning, gentlemen. Just wanted to follow up on an Absorica theme here with regard to extending the product life cycle for Absorica, and I suppose this is more of a question for Sun, but whatever insight you can provide would be great. I mean, Sun hasn't been overly forthcoming into what its longer-term strategy would be for Absorica, but you can certainly infer where they might be going on novel formulations through its own IP patent estate on isotretinoin, which covers a pretty broad swath of topical suspensions, novel oral dosing formulations, and everything in between.
I was just wondering what your sense would be on where the sort of the medical opportunities would be to extend the isotretinoin brand and what insights you might have garnered from Sun on what its own strategy might be here going forward, maybe specifically on what additional PK studies or active clinical trials that they might have to undertake in order to get new formulations onto the market in order to generate the extended royalty revenue run rate that you talked about in your commentary? And I'll leave it there. Thanks.
Yeah. Hey, so Doug, good morning, and thanks for the questions. Those are good questions. Here's what we can say is the new formulations are patent-protected formulations, and they provide a broader portfolio for isotretinoin products under the brand name in the U.S. We can't really comment beyond that on the differences in the formulations or the medical benefits. I mean, I think that there would be a time for that once there's more information in the public domain, but at this point, we can't really comment on that any further.
That's great. Thanks very much.
Thank you. There are no further questions at this time. Please proceed.
Very good. Thank you for joining us this morning, everybody, and have a good rest of the day. 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.