Cipher Pharmaceuticals Inc (CPHRF) (Q2 2026) Earnings Call Highlights: Epuris Growth and ...

Negative Points

• Natroba revenue declined to $6.3 million in Q2 2026 from $7.8 million in Q2 2025, driven by reduced sales volumes to state Medicare programs.

• Total net revenue decreased 10% year-over-year in Q2 2026, impacted by lower Natroba sales and reduced licensing revenue.

• Net income for Q2 2026 fell to $4.0 million from $5.9 million in Q2 2025, partly due to an unrealized foreign exchange loss.

• The company abandoned an advanced acquisition opportunity in Q2 2026, incurring $0.3 million in due diligence costs without a deal.

• Free cash flow was weaker in Q2 due to working capital movements related to payer rebates, which may continue to fluctuate.

Q & A Highlights

Q: Can you characterize what exactly is impacting the sales channel with respect to Medicaid, how many publicly covered patients are falling off due to recent regulation, and how you expect to mitigate this via your stocking program and DTC traction? A: Bryan Jacobs (President): While we can't control legislative changes to Medicaid, we are mitigating the impact of reduced covered lives by focusing on commercial growth. We have launched a first-in-class direct-to-patient model that allows patients to get a script within an hour and schedule delivery or route it to a nearby pharmacy. Additionally, we have closed a deal to make Natroba and its authorized generic Spinosad available at every Walmart across the U.S., which represents a tremendous opportunity for future growth.

Q: Regarding business development, you noted stepping away from a transaction in the quarter. What criteria moved you away from the deal, and how near-term are the rest of the pipeline opportunities? A: Craig Mull (Interim CEO): We are under a CDA with the other party, so I can't provide many details. It was a larger outfit that would have added significant bulk to the company, but a combination of concerns about some products and price meant that at this point in time, it was not the right deal for Cipher. We continue to actively source and evaluate other opportunities.

Q: Free cash flow was weaker in the second quarter due to working capital movements with contract liabilities. Is this still related to payer rebates, and could we expect free cash flow normalization for the rest of the year? A: Ryan Mailling (CFO): Yes, this is related to payer rebates. With the decline in revenues in the U.S. business this quarter, payments from prior quarters' rebates came through at a higher rate than the cash collected and parked on the balance sheet for future rebate liabilities. This will ebb and flow with quarterly revenue changes, but the meaningful change from prior quarters caused the reversal this quarter.

Q: What is the expected impact of the pCPA Letter of Intent on Epuris growth and market share? A: Craig Mull (Interim CEO): The Letter of Intent with the pan-Canadian Pharmaceutical Alliance is expected to expand patient access to Epuris by including it on additional federal, provincial, and territorial public drug plans. We expect our market share to grow meaningfully in time, particularly in key markets where a high proportion of patients have coverage through publicly funded drug plans. We are actively collaborating to finalize product listing agreements, which we expect to be finalized over the next 30 to 60 days.

Q: Can you provide more detail on the Natroba revenue decline and your expectations for improvement? A: Ryan Mailling (CFO): Natroba revenue was $6.3 million in Q2 2026, down from $7.8 million in Q2 2025, impacted by reduced sales volumes to state Medicare programs. Our expectations for the product have not changed. We expect performance to improve in future quarters as our strategy takes effect, including an expanded focus on commercial channels, the direct-to-patient platform, and retail partnerships like the Walmart program.

Q: What is the status of out-licensing opportunities for Epuris and Natroba outside of North America? A: Craig Mull (Interim CEO): We have made progress in pursuing out-licensing opportunities, particularly for Epuris. We have seen interest from a number of parties in exploring partnership and distribution agreements in their respective territories. Given Epuris is the leading isotretinoin product in Canada, we believe it could perform strongly in other similar markets. For Natroba, we continue to believe there is high unmet need, but product pricing in territories outside the U.S. varies considerably, so we are taking time to find the right markets and partners.

Q: What drove the reduction in SG&A expenses, and is this sustainable? A: Ryan Mailling (CFO): SG&A expenses decreased 16% in Q2 and 30% year-to-date, driven by two main components: non-recurring costs in the prior year (including $1.2 million in legal costs related to arbitration and $0.1 million in restructuring costs) and operational efficiencies. On a normalized basis, SG&A declined $0.8 million in Q2 and $1.7 million year-to-date, primarily from savings in employment-related costs from a rationalized employee complement and reduced selling and marketing costs in the U.S. business.

Q: Can you elaborate on the company's acquisition strategy and the $90 million financing availability? A: Craig Mull (Interim CEO) & Ryan Mailling (CFO): We continue to believe Cipher would benefit from additional size and scale. We are pursuing three distinct strategies: acquiring or in-licensing complementary products, out-licensing Epuris and Natroba outside North America, and company acquisitions. We ended the quarter with $9.1 million in cash and have access to $90 million of potential financing ($65 million revolving credit facility plus $25 million accordion), which positions us well to continue investing in our growth strategy.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .