Cipher Pharmaceuticals Inc. (CPH) Earnings Call Transcript

Good morning, everyone, and thanks for holding. I'd like to welcome you to Cipher Pharmaceuticals' quarterly conference call covering the company's fourth quarter and full year 2025 results. Right now, everyone is in a listen-only mode. After today's presentation, we'll provide instructions for the question-and-answer session. Should you need operator assistance at any point, just press star 0. Please note that this conference is being recorded today, Friday, March 13, 2026. On behalf of the speakers who follow, we remind listeners that today's presentation and the answers to questions may include forward-looking statements under the safe harbor provisions of Canadian provincial securities laws. Such forward-looking statements carry risks and uncertainties, and you should not place undue reliance on them. In making forward-looking statements, certain material factors or assumptions are applied, and actual results could differ materially from those expressed or implied in such statements. For more information on factors that cause results to vary, please see 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.

At this point I'd like to hand the call to Mr. Craig Mull, the company's Interim Chief Executive Officer. Mr. Mull, please go ahead.

Good morning, and thank you for being with us on today's call. Before I get started, I want to remind everyone that unless otherwise specified, every figure we discuss today is stated in U.S. dollars. Cipher's 2025 fiscal year was a period of — of substantial growth, with revenue and earnings more than doubling compared to the last complete fiscal year before we acquired the U.S.-based Natroba business. Since we acquired the Natroba business in July 2024, it has exceeded our expectations. During the fourth quarter of 2025, sales from Natroba and its authorized generic, spinosad, came to $7.4 million, which is a 14% increase over the $6.5 million in sales from the same quarter last year. For the full year 2025, sales from Natroba and its authorized generic, spinosad, reached $30 million, versus $12 million for the five months of 2024 in which we owned the business. On top of that, the Natroba business remains strongly profitable, posting a gross margin percentage of 83% during the 2025 fiscal year. That strong profitability helped drive adjusted EBITDA from the Natroba business of $17.4 million for 2025 fiscal fis- fiscal year, which contributed to adjusted EBITDA of $29 — sorry, $28.1 million for 2025 across our total combined business.

Cipher's core Canadian business remained a dependable contributor of revenue and earnings overall, generating $20.5 million in revenue for the full year 2025, versus $21.4 million for 2024, along with adjusted EBITDA of $10.7 million in 2025, compared with $10.6 million in 2024. Nearly every product in that base portfolio posted year-over-year gains, with Epuris leading the way. Those gains, though, were offset by lower licensing revenue from Cipher's products that commercial partners market and distribute in the U.S. The last complete fiscal year before we acquired the U.S.-based Natroba business was fiscal 2023, a period in which Cipher recorded $21.2 million in revenue and $12.7 million in adjusted EBITDA. By contrast, in the fis- first fiscal full full fiscal year after the acquisition of the of the Natroba business, fiscal 2025, total revenue reached $50.5 million and adjusted EBITDA came to $28.1 million, which represents growth of 138% in revenue and 121% in adjusted EBITDA relative to our pre-acquisition revenue and adjusted EBITDA. Our earnings kept converting almost directly into free cash flow, giving us available funds to deleverage the bui- business. Over the course of 2025, we made a series of repayments on our revolving credit facility tolding — totaling $35 million, bringing the outstanding balance of our credit facility down to $5 million as of December 31st, 2025.

That means we will have almost completely paid back, within 18 months, the $40 million we drew on our revolving credit facility to help finance the purchase of the Natroba business. Few other companies are able to claim they have accomplished this, and it underscores Cipher's robust cash generation as well as our disciplined method of allocating capital. Ryan Mailling, our CFO, will give you a thorough over- overview of the financial results after my remarks. I want to use the rest of my time to update you on our business development activities, where we are quite active, and where I, together with numerous members of our team, are devoting a substantial portion of our time. At present we have four separate strategies underway aimed at creating shareholder value and expanding our business: first, putting investment into the Natroba business and our U.S. operations; second, we are seeking acquisitions or in-licensing of complementary products, especially for our U.S. platform; we are awaiting Health Canada's approval so that we can launch Natroba in Canada; we are highly engaged in talks and negotiations with out-licensing partners for Natroba around the world; and finally, examining potential acquisitions of strategic value, which I have refu- fer- referred to as opportunistic acquisitions within this particular part of our growth strategy.

The first strategy involves investing in and expanding the Natroba business and U.S. operations so that it serves as a platform for additional growth, and that includes launching a direct-to-consumer, or DTC, sales model to implement our current sales approach or supplement it. We believe this model fits Natroba well. A great deal of effort has gone into developing the DTC sales model, and just recently, within the last week, we launched this DTC platform. People who need an effective treatment for head lice and scabies can now visit natroba.com to connect directly with a healthcare professional and find out whether they qualify for a prescription for Natroba. If they qualify, our platform will streamline the process of obtaining a prescription, efficiently adjudicate a claim, and offer consumers a convenient option for local pickup or delivery. The strategy also includes partnerships with retailers to ensure that Natroba and spinosad are adequately stocked in states and city centers across the U.S. and that it is available through this platform. We are excited about the launch of our new DTC strategy and expect it to provide an efficient way for those who need an effective treatment for head lice and scabies to obtain a prescription for our product, Natroba.

The second part of how we're growing the business is going after complementary products we can either buy or in-license, ones that could be sold straight through the U.S. and Canadian commercial operations we already have in place — especially our strong U.S. sales force. Right now we're in active talks with a number of parties, we keep moving those talks forward, and we're also looking at further opportunities. As we've noted before, even though we keep chasing different opportunities, development work between businesses does take time, and these opportunities may or may not come to realization. We'll keep giving updates on this front. Strategy number three is launching Natroba in Canada. As was announced not long ago, on January 28th, Health Canada accepted our new drug submission for Natroba for review. That brings us one step closer to giving Canadians an effective single treatment option for head lice and scabies, and we think Natroba will fit an unmet need in Canada for a highly effective treatment. We expect Health Canada's decision on its review of Natroba by the end of 2026. We'll keep providing updates as things develop with Health Canada's review process. The fourth strategy we're undertaking is pursuing out-license opportunities for Natroba globally.

Our view remains that a substantial unmet need exists for a very effective offering such as Natroba, covering both head lice and scabies indications across additional territories around the world. That said, as we noted on earlier calls, locating the appropriate match with our out-licensing partner for Natroba matters greatly to us, and because of that, this strategy is requiring time. Pricing of products in markets outside the U.S. is a key factor we have to weigh while seeking the proper fit for out-licensing. Having said that, we hope to share exciting updates as developments occur in this area. Fifth and finally, part of our strategic plan for growing the business involves assessing and pursuing acquisitions of companies that may carry strategic value for Cipher. We believe Cipher would gain from greater size and scale, including through its pursuit of the business development strategies I mentioned earlier. As such, buying companies that would add to our size and scale, along with delivering other strategic benefits, has likewise become a focus of our strategies for driving shareholder value. As such, we are actively sourcing, assessing, and pursuing company acquisitions that meet these objectives. We look forward to sharing updates on this part of our business as we make progress.

We appreciate you being with us on this call, and I'm eager to take your questions following our prepared comments. At this point I'll hand things over to Ryan Mailling, our CFO. Ryan, the floor is yours.

Thanks, Craig. Good morning, everyone. As Craig noted at the start of today's call, every amount we provide is in U.S. dollars unless we say otherwise. Today, Cipher Pharmaceuticals is reporting results for the company's fourth quarter and full fiscal year 2025 — the 3- and 12-month periods that ended December 31st, 2025. I'll begin with the highlights from our fourth quarter results, and then I'll move my comments to our 2025 annual results. Highlights for the fourth quarter include: total net revenue for the three-month period ended December 31st, 2025 was $12.2 million. Net revenue for the fourth quarter of 2025 rose by $0.4 million, or 3%, compared to the same quarter in the prior year. That increase was attributable to growth of the U.S.-based Natroba business and Canadian product portfolio, which is partially offset by reduced licensing revenue. Product revenue from the U.S.-based Natroba business, comprised of the brand Natroba and its authorized generic, spinosad, was $7.4 million for the fourth quarter of 2025, compared to $6.5 million for the same period in the prior year, representing an increase of $0.9 million, or 14%. Product revenue for the Canadian product portfolio for the fourth quarter of 2025 was $4.2 million, compared to $4 million for the same period in 2024, representing an increase of $0.2 million, or 5%.

For the fourth quarter of 2025, the products that make up our Canadian portfolio gained from both higher sales volumes and improved product mix on certain items versus the same period a year earlier, which drove the total rise in revenue. Turning to U.S. licensing revenue, total licensing revenue came to $0.6 million in the fourth quarter of 2025. For the three months ended December 31st, 2025, licensing revenue fell by $0.8 million versus the prior-year period, mainly because of lower revenue from product shipments to Cipher's distribution partners, along with reduced net sales those distribution partners achieved, on which Cipher earns a royalty. Gross margin was 81% in the fourth quarter of 2025, versus 57% in the same period of 2024. The fourth-quarter 2024 gross margin was affected by fair value adjustments to acquired inventory included in cost of products sold, tied to the company's acquisition of the U.S.-based Natroba business in the prior year. Leaving aside those non-recurring prior-year fair value adjustments, Cipher saw roughly a 1% year-over-year improvement in gross margin, helped by added Natroba revenues and partly offset by lower licensing revenue in the fourth quarter of 2025.

For the three months that closed on December 31st, 2025, SG&A expenses came in at $3.9 million, versus $5.7 million across the three months that closed on December 31st, 2024. Fourth-quarter 2025 selling, general, and administrative expenses of $3.9 million marked a drop of $1.8 million, or 32%, against the same quarter a year earlier. That decline stemmed mainly from non-recurring acquisition-related costs booked in the prior year tied to the U.S.-based Natroba acquisition, along with a $0.7 million reduction in legal costs linked to a matter subject to arbitration during the fourth quarter of 2025 versus the same period in 2024. The rest of the decrease comes from operational efficiencies achieved year-over-year in selling, marketing, and general and administrative expenses inside the U.S.-based Natroba business. Net income for the three months that ended December 31st, 2025 reached $13.3 million, or 51 cents per diluted common share, against $3.3 million, or 13 cents per diluted common share, in the comparable period a year earlier. Extra operating income during the fourth quarter of 2025 from the U.S.-based Natroba business helped lift net income, including lower operating expenses thanks to $2.7 million in non-recurring fair value adjustments to inventory and $0.9 million of non-recurring acquisition-related costs connected with the Natroba acquisition, which took place in the fourth quarter of 2024.

On top of that, fourth quarter 2025 net income got a boost from the $0.7 million decrease in the legal costs we mentioned earlier, versus the same period in 2024. Lastly, foreign exchange rate movements in the comparative period affected net income in the opposite direction as well, producing a foreign exchange gain of $0.5 million from translating the company's net assets and earnings denominated in Canadian dollars in the fourth quarter of 2025, versus a foreign exchange loss of $1.8 million in the same period of 2024. Adjusted EBITDA came in at $7 million for the fourth quarter of 2025, up from $5 million in the fourth quarter of 2024 — a $2 million increase, or 40%. The growth in adjusted EBITDA was primarily driven by the U.S.-based Natroba business. In the fourth quarter of 2025, we kept generating robust cash flows from operations, with the business producing $8.7 million in cash during that quarter. Now I'd like to direct your attention to how we performed for the full year of 2025. Total net revenue for the year ended December 31st, 2025 was $50.5 million, versus $33.4 million for the year ended December 31st, 2024. Net revenue for 2025 rose by $17.1 million, or 51%, compared to 2024.

A big driver of that gain was our U.S.-based business, along with expansion in the Canadian product portfolio, and those were partly offset by lower licensing revenue. For the year ended December 31st, 2025, product revenue came in at $46.9 million, versus $26.7 million the prior year. That works out to a $20.2 million increase, or 75%, over 2024. One factor behind the rise in product revenue for the year ended December 31st, 2025 was a full year of sales activity for Natroba and its authorized generic, spinosad, versus a five-month period in 2024, which followed the July 2024 acquisition of this business. Product revenue for the U.S.-based Natroba business, made up of the brand Natroba and its authorized generic, spinosad, reached $30 million for the year ended December 31st, 2025, compared with $12 million for the year ended December 31st, 2024. Product revenue for our Canadian product portfolio was $16.9 million for the year ended December 31st, 2025, versus $14.7 million for 2024. That was a $2.2 million increase, or 15%, driven largely by Epuris and further supported by higher revenue from the vast majority of the remaining products in our Canadian portfolio. Revenue from Epuris rose $1.7 million, or 13%, from $13 million for the year ended December 31st, 2024 to $14.7 million for 2025.

When you look at it on a constant currency basis — so leaving out the effect of foreign exchange translation — Epuris revenue rose by $2.2 million, or 15%, in '25 versus 2024. That growth in Epuris revenue came mostly from higher sales volumes compared with the prior year. Taking it all together, licensing revenue came to $3.6 million for the year ended December 31st, 2025, which was down by $3 million from $6.6 million in 2024. Licensing revenue from the Absorica portfolio in the U.S. totaled $1.8 million for 2025, a decrease of $2.7 million versus 2024. Absorica revenue for 2025 took a hit from year-over-year declines in product shipments, since that is how we generate revenue by supplying product to our distribution partner. The drop in the Absorica licensing portfolio for 2025 was also driven by lower royalty revenue, which reflected lower sales volumes and net sales achieved by our distribution partner, and Cipher earns a net sales royalty on that. These products keep facing pressure in a market that is highly competitive and saturated with generic competition. Royalties earned on net sales came under even more downward pressure during 2025, because those royalties were earned at a reduced rate for the entire year of '25, whereas that lower rate only affected the second half of 2024, with the contractual rate reduction taking effect in the third quarter of 2024.

Looking ahead, there are additional cuts coming to licensing revenue from the portfolio, because Cipher will stop earning a royalty on Absorica LD in the U.S. market for 2025. For 2025, licensing revenue from Lipofen and the authorized generic Lipofen came in at $1.6 million, which is a decrease of $0.4 million versus the same period in 2024. The reason was lower sales volumes and net sales realized by our partner on these products, on which Cipher earns a net sales royalty. Selling, general, and administrative expenses for the year ended December 31st, 2025 were $16.7 million, an increase of $1.7 million, or 11%, compared to $15 million for 2024. That increase was attributable to a full year of SG&A expenses for the acquired U.S. business in 2024, compared to only five months of these expenses in 2024 post-acquisition. These increases in selling, general, and administrative expenses were partially offset by $2.7 million in non-recurring acquisition-related costs in connection with the U.S.-based Natroba business acquisition, which occurred in 2024, and these costs did not recur in 2025. Net income for the year ended December 31st, 2025 was $27.3 million, or $1.05 per diluted common share, compared to $11.5 million, or 46 cents per diluted common share, in 2024.

Net income for the year ended December 31st, 2025 got a boost because the U.S.-based Natroba business was included for the full year, versus just five months in 2024 after we acquired that business. The year-over-year rise in net income was also helped by the fact that $2.7 million of non-recurring acquisition-related costs and $1.9 million of non-cash fair value adjustments to acquired inventory tied to the Natroba acquisition, which happened in 2024, did not recur in 2025. Adjusted EBITDA for the year ended December 31st, 2025 came in at $28.1 million, compared with $15.7 million for 2024. That 79% increase in adjusted EBITDA versus 2024 was mainly driven by the results of our U.S.-based Natroba business for 2025, together with growth in the Canadian product portfolio led by Epuris, partly offset by the declines we saw in U.S. licensing revenue. As of December 31st, 2025, the company had $7.5 million in cash and $5 million in outstanding debt. Cipher keeps generating strong free cash flow from operations, with $29.7 million in operating cash flows during 2025, including $8.7 million during the fourth quarter of 2025. Over the year, Cipher put $35 million of its accumulated cash toward repayments on its revolving credit facility, and used an additional $5.4 million of accumulated cash for repurchases of common shares under our normal course issuer bid.

Since Cipher's credit facility revolves, once those repayments are made we still have $85 million in potential financing available to us — that's $60 million left available on our revolving credit facility plus a further $25 million accordion option. Cipher is well-capitalized, with very low leverage, strong cash flows from operations, and access to debt financing, and that puts us in a very good position to execute our business strategy of pursuing growth opportunities, which Craig highlighted during his remarks. We'll now open the call up to questions.

Thank you. Ladies and gentlemen, the question-and-answer portion of today's call starts now. If you'd like to ask something, on your touchtone phone press the star key and then the 1. To withdraw your request, press the star key and then the 2. Those on a speakerphone should pick up the handset before? pressing any keys. To repeat, it's star 1 if you want to pose a question. Our first question comes from Justin Keywood of Stifel. Your line is now open.

Morning, and thanks for having me and for the summary. Regarding the DTC — direct-to-consumer — strategy, could you share a bit more detail on that approach? Does it involve a single partner or several? What’s the mechanics of it? Are there added opex costs to support that effort? And how should we think about Natroba’s growth as a result for 2026?

Justin, this is Craig Mull. What we outlined in our commentary is truly a fully integrated, end-to-end process letting a patient go online, first learn about the product, then consult a physician over the internet and get a prescription. After that, the product gets shipped to their home, or they're told where they can collect it near where they live. It's a completely integrated system. Given the nature of the head lice and scabies indications, we think Natroba fits this well. People want the product as fast as they can. They don't really want to stand in line to see their family doctor, or wait for an appointment and then see the doctor. They also want to be able to get the product quickly. We think this DTC platform we've built would address a lot of those needs. Beyond that, we might be able to add other products to the same platform that share similar characteristics, or for indications with characteristics similar to head lice and scabies. We believe that once it's working effectively, it's possible we could actually bring our sales cost down.

Regarding how much this platform could grow, the fact that the product is so easy to obtain might drive a substantial rise in volumes simply because of that convenience. We're pretty enthusiastic about it, and as I mentioned, it launched roughly 7 days ago. Justin, did that address what you asked?

Oh, thanks. Perhaps just one more question on this. From what I understand, this DTC platform was built in-house, correct?

There are various groups and third-party firms that specialize in the different areas I mentioned as part of our partnership. This isn't something we really build directly in-house. We've got consultants and advisors assisting us with it.

Got it. So how do consumers find out about the platform? In what ways do they become aware of it?

With the goal of boosting awareness for the platform, we're leveraging Google alongside various social media channels to bring in and inform patients, so they understand where they should go.

Got it. I suppose it's still quite early. You mentioned it only launched last week, correct?

We're now just a handful of days out.