Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals Fiscal 2018 first 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, Thursday, May 10th, 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, Form 40-F, and other filings with Canadian and U.S. securities regulatory authorities. Except as required by Canadian or U.S. securities laws, the company does not undertake to update any forward-looking statements. Such statements speak only as of the date made. Thank you. You may begin your conference.
Good morning, everyone. It's Robert Tessarolo, President and Chief Executive Officer of Cipher. Thank you, Luke, and good morning, everyone. Joining me from Cipher are Stephen Lemieux, CFO, and Chris Watters, Vice President of Corporate Development. On today's call, I will make a few opening remarks, and Chris will review two of our recent transactions 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 U.S. dollars. Cipher has undergone a significant transformation over the last 12 months. We have clearly and successfully repositioned the company for growth, and we are executing on our new strategy. Let me begin with a review of the Q1 highlights of our current operation.
While total revenue was down in the quarter, which we pre-released last month, a major highlight was the 45% revenue growth from our Canadian commercial business. The increase was primarily driven by Epuris, our largest product, which continues to perform well, having reached an all-time high in TRx in the quarter. We continue to win share and currently hold more than 30% market share compared with 26% for the same period last year. As we discussed in the last call, we launched OZANEX in the quarter, and while it's early, OZANEX has achieved all our launch metrics, and we're pleased with the qualitative feedback and high engagement from key dermatologists, as well as the extensive coverage on private healthcare plans. Actikerall is also demonstrating healthy growth, achieving 93% year-over-year growth in total prescriptions.
This segment of our business has an impressive five-year CAGR of 68%, and we have several catalysts to support the continued organic growth. Over the past year, we've enhanced our organizational capabilities by attracting accomplished sales and marketing leaders with rich histories of leading commercial outcomes in Canada, and you are seeing some of the early results. Turning to our global licensing business, which experienced a material revenue decline over the prior year to CAD 2.8 million in the quarter due to the previously disclosed impact on Absorica. Recall that 2017 was a record year for Cipher's Absorica revenues based on our partner's successful promotional campaign. However, as we discussed in our Q4 earnings call, we were cautious heading into 2018. Following changes to this program at the end of November 2017, Absorica prescriptions decreased as expected in December 2017 and Q1 2018.
Absorica's market share, which peaked at 22% during 2017, ended March 2018 at approximately 12%. Looking ahead, prescriptions have stabilized and market share has leveled off to approximately pre-promotion levels, and we expect Absorica to provide a solid base of high-margin royalty revenue for the full year. In 2017, as part of our transformation plan, we introduced an exciting new growth strategy for Cipher to assemble a broad portfolio of prescription products that will diversify our business, deliver reliable growth for shareholders, and reduce our revenue concentration in the Absorica royalty stream. We redoubled our efforts in business development beginning in June last year to ensure Cipher would have a highly productive deal flow in 2018, and the results to date have been outstanding.
We launched one new product in Canada and announced four transactions that we expect will add six products to our Canadian commercial portfolio in 2018 and 2019, providing additional revenue diversification, growth avenues in new therapeutic categories, and near-term catalysts. I will introduce Chris to discuss these transactions. Chris?
Thank you, Rob. Good morning, everyone. On our last call, we profiled the acquisition of a differentiated new product, TRULANCE, an FDA-approved once-daily tablet for adults with chronic idiopathic constipation and irritable bowel syndrome with constipation. The organization is very excited about this product. First off, it brings a high-value, new, and differentiated GI product into our Canadian portfolio. TRULANCE has established a strong and remarkably consistent efficacy and safety profile in clinical trials with more than 4,700 patients and offers a differentiated tolerability profile. Secondly, this is an attractive market. Both CIC and IBS-C patients have significant unmet needs characterized by a steady incidence of new patients and minimal advancements in available therapeutic options. It's 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 CAD 200 million annual sales.
Finally, it's a market that several of our team members know very well, having launched a Canadian market leader in this category. We expect to follow our NDS with Health Canada in the second half of this year. In April, we licensed the second highly novel and differentiated product for Canada, A-101 40%, which has recently launched in the U.S. under the brand name of ESKATA. This is a topical solution indicated 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. The most commonly used approaches for SKs are surgical procedures such as cryotherapy, which can cause discomfort, cosmetic imperfections, and require wound management. A-101 40% is a proprietary, high-concentration hydrogen peroxide-based topical solution that is applied directly to raised SKs using a pen-like applicator.
Because this product can clear raised SKs without cutting, burning, or freezing the skin, we believe it is a particularly compelling proposition for SKs on the face, neck, and hands. Upon approval, A-101 40% would be the first and only prescription treatment for raised SKs, and we further leverage our commercial organization, building upon the strong presence Cipher enjoys in the Canadian dermatology market. We are targeting a New Drug Submission to Health Canada later this year. I will now turn the call back to Rob.
Thanks, Chris. The third key transaction since our last call was a definitive agreement to acquire Cardiome's Canadian business portfolio. This deal is an exciting step for Cipher and brings multiple value components to our organization. First and foremost, it's an attractive acute care portfolio with revenue, growth programs, and near-term launch opportunities. These products provide us a foothold in the hospital segment, which has attractive dynamics, including strong growth and lower commercial investment versus general medicine opportunities, thereby providing less stress on our P&L as we scale into the market. We anticipate peak sales for this product portfolio to be in the CAD 8 million-CAD 12 million range, led by Brinavess and Xydalba. Brinavess is indicated for the rapid conversion of recent onset atrial fibrillation to sinus rhythm and has demonstrated superior efficacy versus the other IV products, namely faster onset and higher percentage of patients cardioverting.
Brinavess is approved in Canada and available to patients. However, it has not been commercially launched. Xydalba is used for acute bacterial skin and skin structure infections, also known as ABSSSI. In March of this year, Health Canada accepted the New Drug Submission and granted priority review status to the application. This decision underscores the significant medical need that exists for Canadians suffering from ABSSSI. These are serious, life-threatening infections. Xydalba is the first and only 30-minute, once-dose treatment option that delivers a full course of IV therapy. This compares with other aggressive anti-infectives and antibiotics that require daily dosing for 10-14 days, which can be challenging for patient compliance and place additional stress on hospitals vis-à-vis discharge. Additionally, the proposed transaction structure allows the preservation of Cardiome's existing tax attributes, thereby providing strong and immediate cash flow accretion for Cipher.
The transaction was approved by Cardiome shareholders yesterday in their special meeting, and we expect to close the transaction this quarter. In short, 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. 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. Total net revenue for Q1 was CAD 4.6 million, compared with CAD 8.1 million in the same period last year. The main impact year-over-year was lower licensing revenue of CAD 2.8 million versus CAD 6.9 million last year, caused by a decline in prescriptions for Absorica. In addition to the impact of reduced prescriptions, as Rob discussed, royalty revenue was affected by a reduction in shipments from Cipher's partner to their distributors as inventory levels were adjusted to reflect the previously mentioned decrease in demand. We expect this to normalize in the second quarter. Licensing revenue from Lipofen and the authorized generic was CAD 0.5 million, down from CAD 1.2 million in the comparative period. Product revenue increased by 45% in the quarter, led by Epuris, which recorded revenue of CAD 1.2 million in the quarter, up 27% over last year's first quarter.
Other products increased to CAD 0.4 million, compared with CAD 0.1 million last year. Operating expenses increased in the first quarter to CAD 5.8 million from CAD 3.5 million in Q1 2017. The increase is related to a CAD 1.8 million non-cash impairment charge for Dermadexin and Pruridexin. In addition, SG&A expenses increased by CAD 0.5 million, related to CAD 0.4 million of transaction costs incurred in executing the four transactions in 2018. In terms of other expenses, the refinancing of our debt in 2017 has resulted in significantly lower interest costs. Our profitability matrix was also affected by lower licensing revenue. Adjusted EBITDA for Q1 2018 decreased to CAD 1 million, compared to CAD 5.1 million in Q1 2017, and we recorded a small net loss from continuing operations of CAD 1 million, compared with a loss from continuing operations of CAD 1.6 million in the comparative period.
Our balance sheet remained strong, and we finished the quarter with cash of CAD 28 million, compared with CAD 28.2 million at year-end. We invested in the CAD 5 million upfront payment for TRULANCE and made a scheduled CAD 1.7 million debt payment to CIBC in the quarter to lower our outstanding debt to CAD 16.5 million. As Rob mentioned, we expect to close the Cardiome transaction this quarter, which will be financed mainly from cash on hand. In summary, between our cash balance, our debt capacity, and our cash flow generation, 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.
Thanks, Stephen. At Cipher's core, it's a profitable business with strong positive cash flows, positive EBITDA, a clean balance sheet, and solid financial position to support our future growth prospects. With robust cash flows over the next several years, we are equipped with non-dilutive financing to drive our growth, and we've been putting that capital to good work. With our recent transaction activity, Cipher's product pipeline has been transformed with multiple late-stage assets that have very near-term commercial potential. In 2018, we expect to close the Cardiome acquisition, launch Brinavess commercially, file New Drug Submissions for TRULANCE and ESKATA, and obtain Health Canada approval for Xydalba. In summary, we have significant opportunity to enhance the value Cipher provides to investors, and our team remains focused on propelling Cipher forward by executing our plan.
Specifically, our focus is on driving organic growth in our Canadian commercial business, achieving key transaction milestones to unlock value that has been brought to the company in these transactions, and building on our business development momentum and increasing our investment to drive deal flow and transaction activity. These are exciting times for Cipher, and we look forward to reporting on our progress against these catalysts and milestones for the balance of 2018. We'd now be pleased to take your call. Operator?
At this time, if you would like to ask a question, simply press star, followed by the number one on your telephone keypad. We'll pause for a moment to compile a Q&A roster. Your first question comes from the line of André Uddin with Mackie Research Capital. Your line is open.
Good morning, Rob. And Stephen, just wondering, I had actually two questions. One is, are you going to be adding any more sales reps to market the Cardiome products that you're getting? And then the second one is, you've been pretty active on the BD side. And just based on what you're currently reviewing, do you expect that trend to continue in 2018? Thanks.
Hey, good morning, André. Thanks for your question and your interest, and we appreciate it. Yeah, so in terms of scaling for the hospital segment, we certainly see this as a very attractive segment for Cipher to build into. It is most clearly and definitely a different segment than the dermatology business that we're in, and so we will indeed be building some commercial structure to support our entry into the hospital business. Both myself and Chris Watters, our Vice President of Corporate Development, have run businesses in the Canadian hospital sector. We love this area. We think it's a high-growth sector with some real nuances around entry and access and being able to drive growth once you're in that sector. We think with this portfolio of acute care products, it gives us a real strong foothold to make a nice, good entry into this area.
In terms of your second question around business development activity, so clearly we're pleased with the results thus far, but we're not satisfied with respect to the number of transactions we've done. And the quality of transactions we've done has been awesome, and we want to continue to do those high-quality transactions that we think will create value. So we're not, as I sort of said at the end, one of our three-point execution plan is to sort of redouble our efforts again on business development, not taking our foot off the gas pedal in that regard, continuing to invest, and continuing to pull through good transactions that have differentiated products and create value for Cipher in the long game, over the long term. Hopefully, that answers your question.
It does, yeah. Thanks, Rob.
Once again, if you would like to ask a question, simply press star, followed by the number one on your touch-tone phone. Your next question comes from Ryan Abezgauz from Bloom Burton. Your line is open.
Hi, good morning. I'm on the line for David Martin. I've got a couple of questions on the TRULANCE market, if you will. Of the one in four Canadians who suffer from constipation, how many do you think would fit into these diagnoses of IBS-C and CIC? And what's the approximate split between the two indications, given that there's likely to be more competition in the IBS-C space?
My second.
Sorry, my second question would be, Constella, the main composition of matter patent goes off in 2024. So do you model generic pressure in the market four years from TRULANCE launch, assuming an early 2020 launch? So if this is the case, do you think that it's sufficient time for you to reach peak sales, given that it would be a new market for Cipher?
Hey, thanks for your question. So we're going to take the first one around TRULANCE market, but can I ask you to repeat the second question because we didn't catch the product that you were inquiring about?
Oh, it was again about TRULANCE. So Constella goes off patent in 2024, so do you model generics within four years of TRULANCE being launched? So in that case, do you think that's sufficient time for you to reach peak sales?
Right, okay. So I'll take the second part of that question, and then Chris is going to make a comment with respect to market size. Yeah, so I think it's important that you bring up Constella, which is the market leader, and if it's facing generic competition in the future, we certainly believe that this market will maybe erode it from a price perspective, but from a volume perspective, there'll be lots of patients for us to access. We also believe that we have sufficient time with respect to the TRULANCE marketing plan in Canada for both indications to reach peak sales, and we're very confident that we've got enough time to invest adequately to compete in this market and win market share rather quickly. Maybe I'll ask Chris to comment on the market dynamics.
Yeah. For both CIC and IBS-C and CIC, total market's about nine million Canadians that suffer from those two indications. We don't have actual data on number of patients that actually consult for conditions. We do know, though, that there are a majority of patients out there that do not consult physicians. So the opportunity we see in this marketplace is patients who are seeking therapy, as well as current patients that are on OTC therapies that don't go out and seek treatment.
Okay, thank you.
Thanks for that.
There are no further questions at this time. I turn the call back to the presenters.
Thanks again for joining us this morning. We appreciate your interest, and we are hosting our annual general meeting today at 11:00 A.M. in Toronto. Our details are on our website. Thanks again.
This concludes today's conference call. You may now disconnect.