Cipher Pharmaceuticals Inc. (CPH) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for standing by. I'd like to welcome you to the Cipher Pharmaceuticals quarterly conference call covering the company's Q1 2026 financial results. Please note that all participants are in a listen-only mode at this time. After today's presentation, we'll provide instructions for the question-and-answer session. Should anyone need help at any point during the call, you can press the star key followed by the zero on your push-button phone. As a reminder, this conference is being recorded today, Friday, May 8, 2026. On behalf of the speakers who follow, listeners are cautioned that today's presentation and 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 regulatory authorities. Except as required by Canadian securities laws, the company does not undertake to update any forward-looking statements.

Comments of that kind are valid only as of when they were given. At this point, I'd like to hand things over to the company's Interim Chief Executive Officer, Mr. Craig Mull. Mr. Mull, the floor is yours.

Morning, everyone, and thanks for being with us today. First, a quick reminder: unless we say otherwise, every figure we discuss on this call is in US dollars. Cipher's Q1 2026 built on what we accomplished in fiscal 2025. Natroba, our US-based business, keeps delivering solid profitability — an 87% gross margin percentage and $4.4 million in adjusted EBITDA for the first quarter, which is up 30% from $3.4 million in Q1 2025. On top of that, our Canadian product portfolio remains a dependable revenue source and contributes meaningfully to the overall business. In fact, the Canadian portfolio, led by Epuris, posted its third consecutive quarter of sequential growth, with $4.5 million in revenue, compared with $4.2 million in Q4 2025 and $4 million in Q3 2025. Total adjusted EBITDA for Q1 2026 came in at $7.7 million, up 25% versus the same quarter last year and a 10% sequential increase over Q4 2025. Our earnings keep generating considerable free cash flow. The cash we had accumulated went toward fully repaying the $5 million outstanding balance on our revolving credit facilities before the quarter ended.

In the span of 20 months since we bought Natroba and the US commercial operations, we've paid back in full the $40 million of debt that had been drawn to help finance that acquisition. That's a remarkable achievement, and it really shows off Cipher's strong cash generation, how efficiently we operate, and a disciplined approach when it comes to allocating capital. Just recently, on May 1st, we announced that our normal course issuer bid, or NCIB, has been renewed for another 12-month period, which lets Cipher buy back as many as 1.5 million of its common shares. Before that renewal, under our most recent NCIB, we had purchased close to 533,000 common shares, which returned roughly $5.4 million in capital to shareholders. Our CFO, Ryan Mailling, will walk you through our financial results in detail after my comments. I'd like to use the rest of my time to give you an update on our business development activities, an area where we've stayed very active through the first quarter of 2026 and up to today. Several members of our team, myself included, are putting a significant amount of time and energy into this area. There are four distinct strategies we're pursuing in order to drive shareholder value and grow our business: first, investing in the Natroba business together with our US operations; second, making acquisitions or in-licensing complementary products for our US platform; third, out-licensing Natroba around the world; and finally, acquiring companies that hold strategic value.

Our first strategy involves investing in and expanding Natroba business operations in order to position and grow the platform, and that includes launching a direct-to-consumer, or DTC, sales model that supplements the sales force we already have. Given how acute head lice and scabies are, we think Natroba fits this DTC sales model quite well. This platform launched in March of 2026, and we keep pursuing and refining the strategy around it. The second area of our business development strategy is seeking to acquire or in-license complementary products that can be commercialized directly through the Canadian and US commercial infrastructures we already have. Right now we are active in discussions with various parties, and we keep sourcing and exploring additional opportunities. While we continue to pursue these opportunities, as with other parts of our business development, these activities take time, the time horizons of each opportunity vary, and in the end the opportunities may or may not come to realization. The third strategy we have undertaken is pursuing out-licensing opportunities for Natroba globally. We still believe there is a high unmet need for a highly effective product like Natroba to address head lice and scabies indications in other territories globally. However, product pricing in territories outside the US varies considerably from the US market, and so we believe finding the right markets and out-licensing partners for Natroba matters to ensure commercial success of the product in territories outside North America.

So once again, this strategy takes time. The fourth pillar of our plan for expanding the business is assessing and going after acquisitions of companies that could hold strategic value for Cipher. As we've noted before, our view remains that Cipher would gain from greater size and scale — both in pursuing the other business development strategies I discussed earlier and in its current and future operations. So acquiring companies that would add to our size and scale, along with delivering other strategic benefits, remains an area where we're putting a great deal of focus. We are actively sourcing, assessing, and going after potential acquisitions that meet these objectives. We look forward to sharing updates on this part of our business development strategy as they happen. Beyond these key strategies I've mentioned, we continue to pursue launching Natroba in Canada, with our new drug submission to Health Canada and its acceptance for review announced in January of 2026. We're now awaiting feedback from Health Canada regarding its review of Natroba, and we expect a final decision by the end of 2026. Thank you again for joining us here today, and I look forward to answering your questions after our prepared remarks.

At this point I'll hand things over to Ryan Mailling, our CFO. Ryan, the floor is yours.

Thank you, Craig, and good morning to all of you. As Craig noted at the start of today's call, every figure we provide is stated in US dollars unless we say otherwise. Today, Cipher Pharmaceuticals is reporting results for the company's first quarter of 2026, the three-month period that ended March 31st, 2026. Total net revenue came to $12.5 million for the first quarter of 2026, which is an increase of $0.5 million, or 4%, compared to the same quarter in 2025. That increase was attributable to higher licensing revenue, combined with net revenue growth from the US-based Natroba business, partially offset by reduced revenue from the Canadian product portfolio. US licensing revenue for the first quarter of 2026 was $1.1 million. Licensing revenue rose by $0.4 million, or 51%, for the three months ended March 31st, 2026, compared to the same period in the prior year, contributed to by $0.2 million of increased revenue from product shipments to Cipher's distribution partners. This was combined with higher net sales realized by our distribution partners on which Cipher earns a royalty, contributing to a year-over-year increase in royalty revenue of an additional $0.2 million. Product revenue for the US-based Natroba business, comprised of the brand Natroba and its authorized generic, spinosad, was $6.9 million for the first quarter of 2026, compared to $6.7 million for the same period in the prior year, representing an increase of $0.2 million, or 3%.

For the first quarter of 2026, revenue from the Canadian product portfolio came in at $4.5 million, versus $4.6 million in the same period of 2025 — a decline of 2%. During the first quarter of 2025, Epuris gained extra market share thanks to temporary market conditions created by stockouts of competing products. Those conditions have since normalized, and in the first quarter of 2026 Epuris has held onto some, though not all, of that additional share. Gross margin was 82% in the first quarter of 2026, up from 76% in the same period of 2025. The first quarter of 2025 gross margin took a hit from non-recurring fair value adjustments to acquired inventory, which were included in cost of products sold and related to the company's acquisition of the US-based Natroba business. When those prior-year fair value adjustments are excluded, Cipher has seen gross margin rise 1% year-over-year, helped by additional licensing revenue in the first quarter of 2026. Selling, general, and administrative expenses totaled $2.9 million for the three months ended March 31st, 2026, compared with $5 million for the three months ended March 31st, 2025.

SG&A expenses in Q1 2026 came in at $2.1 million lower, a 42% drop, versus the same quarter a year earlier. A big part of that decline came from non-recurring costs booked in the first quarter of 2025, including $1 million of legal costs tied to arbitration proceedings and $0.1 million in acquisition-related costs from entering that period. The rest of the decrease stems mainly from operational efficiencies, such as lower employee costs, reduced selling and marketing costs, and lower general and admin costs. Net income for the three months ended March 31st, 2026 was $6.2 million, or 0.24 cents per diluted common share, versus $2.6 million, or 10 cents per diluted common share, in the same period of 2025. The first-quarter 2026 rise in net income was helped by the non-recurring costs incurred in the first quarter of 2025, which totaled $1.8 million, including legal costs related to the arbitration, acquisition-related costs, and fair value adjustments to acquired inventory. That lower cost structure, resulting from these non-recurring costs incurred in the prior year, was combined with additional licensing revenue and the reduced selling, general, and administrative expenses during the first quarter of 2026, driving this year-over-year increase in net income.

For the first quarter of 2026, adjusted EBITDA came in at $7.7 million, versus $6.2 million in the first quarter of 2025 — that's a rise of $1.5 million, or 25%. This improvement in adjusted EBITDA came about because licensing revenue grew while selling, general, and administrative expenses came down. During the first quarter of 2026, we kept producing robust cash flows from operations. The business brought in $4.5 million in cash from operations in the quarter, so before the quarter ended we paid off the remaining $5 million outstanding balance on our revolving credit facility, and as of March 31st, 2026, we held $6.4 million in cash on our balance sheet. Now that we have fully repaid the outstanding balance on our revolving credit facility during the first quarter, kept our access to $90 million of potential financing, and continued to see strong cash flows from operations, we are well positioned to put our capital to work for future growth once we find the right opportunity, consistent with the strategies Craig outlined in his remarks. At this point we'll open the call for questions.

Thanks. Now we'll move on to the Q&A portion, ladies and gentlemen. If you'd like to ask something, hit star then one on your phone's keypad. A prompt will confirm that your hand has been raised. To withdraw your request, press star then two. When on a speakerphone, kindly pick up the handset prior to pressing any keys. Just a moment, please, while we take the first question. Thank you. Our initial question is from Max Czmielewski at Stifel. The line is yours.

Craig and Ryan, this is Max covering for Justin Keywood today. Solid quarter.

Appreciate that, Max. I

I’m curious, as my first question, whether you could give some detail on the kinds of prescription volumes you’re seeing in these early innings through the DTC channels? And maybe following on from that, should we expect net pricing dynamics as this potentially grows into a larger share of the sales mix, with the understanding that Natroba may not be the priciest product to begin with, but any color on that would be helpful.

Max, this is Craig Mull. Ryan Mailling is here with me — he’s taking part in our presentation — and Bryan Jacobs, who serves as President of the US operations, is also with us. I’ll direct the question to Bryan.

Hi Max. I believe your initial question concerned the direct-to-consumer platform. As you’re aware, our approach when launching it—since February and March tend to be seasonally slower periods for the disease state—was really to get the platform up and confirm it was functioning and operating correctly and efficiently alongside the partners. We work with several partners, including telehealth as well as product distribution and shipping, and we wanted to make sure everything was working correctly. You could argue we wouldn’t want to spend a great deal of marketing resources during our slowest period. In Q1, volumes weren’t really meaningful, but we’re glad to provide an update on that in the second quarter, when we expect much more marketing to bring people to the website and onto the platform. That’s roughly what lies ahead. On your second question, could you say that again?