The Life Sciences Report: Cipher Pharmaceuticals Inc. (CPHR:NASDAQ; CPH:TSX) is focused on treatments for dermatological indications. What are the biggest unmet markets in this area?
Shawn Patrick O'Brien: Two of the largest markets are pruritus and dermatitis. They're very common skin disorders, and lack effective treatments that don't have the adverse effects of thinning and reddening of the skin, which is common with steroid therapeutics. Due to the variety in levels and severity, psoriasis is another market with a high unmet need, despite advances in biologics. Finally, with more than 80 million (80M) sufferers, acne represents a huge market. With isotretinoin being the only therapeutic demonstrated to cure acne, our formulation, Absorica, addresses this need.
TLSR: Cipher has several marketed dermatology products. Which ones are the biggest revenue generators?
SO: Our biggest revenue generator is Absorica, a reformulation of isotretinoin (Accutane). Original formulations of this drug require administration with a high fat/lipid diet. Absorica is formulated to eliminate this issue. It is marketed through our partner, Sun Pharmaceutical Industries Ltd. (SUNPHARMA:NSE), and was launched in 2012. In 2014, we had gross sales of $285M and net sales of $220M. That allowed us to enjoy a royalty income of $22M last year. That's the single largest product in our portfolio.
"Absorica is the single largest product in our portfolio."
In addition to Absorica, we recently acquired Sitavig, for treatment of herpes labialis; Nuvail, for treatment of nail dystrophy; and Bionect, for dermal ulcers. These were acquired through our purchase of Innocutis Holdings LLC earlier this year. Of these products, the lead growth driver is Sitavig, having generated $2M last year.
TLSR: What is the difference between Absorica and Accutane?
SO: Accutane has always been a twice-a-day oral pill. Because Accutane requires high-lipid gut floor contents, kids need to eat large quantities of foods such as eggs, bacon and whole milk. This doesn't happen on a routine basis anymore. Our formulation does not require high fat intake for therapeutic efficacy. Furthermore, we achieved an 83% increase in serum levels of isotretinoin in a fasting state compared to Accutane. We achieved this using our Lidose bead technology, which effectively enhances the lipid environment around the therapeutic, and thus increases drug uptake in the gut lumen.
TLSR: Is your Lidose technology applicable to other lipid-dependent therapeutic agents?
SO: Yes. We used it to reformulate tramadol, an analgesic, into a once-a-day formulation. We also used it in Lipofen, a new formulation of fenofibrate.
TLSR: Let's talk about your acquired products, Sitavig, Nuvail and Bionect. Starting with Sitavig: How is this product better than other antiviral formulations targeting herpes virus?
SO: Sitavig is acyclovir formulated in a buccal tablet administered to the superficial tissues of the mouth and the lip, where the herpes virus replicates. The tablet is placed over the top of the canine tooth, and it dissolves into a gelatin that spreads between the upper lip and gum. Even with Sitavig in their mouths, patients can chew, eat and drink. In fact, the more active patients are in creating saliva, the faster our drug delivery system releases acyclovir.
Sitavig can be used at the first sign of cold sore outbreak, and extends the time between outbreaks to around 304 days. This is compared to patients who previously experienced five episodes per year.
"Our 2020 targets are to achieve $50M in our Canadian dermatology business and $250M in our U.S. dermatology business."
In addition to a reduction in the number of cold sore episodes per year, there is a financial benefit. Our product has a wholesale price of $800, but each box contains two buccal tablets, which will treat two episodes, or $400 per episode. This is compared to $800 a tube for cream-based acyclovir treatments. In fact, most patients using the cream go through approximately one-and-a-half tubes for an average treatment course.
TLSR: What is the projected revenue outlook for Sitavig over the next five years?
SO: There are four broad customer groups that drive the U.S. market for the usage of prescription cold sore medications. Dermatologists are the most concentrated prescribers but represent the lowest volume. Dentists and obstetricians/gynecologists are high prescribers with big volume groups. General practitioners are also high prescribers. Our team is focused on dermatologists in the U.S. Sitavig generated $2M in revenues last year. We have been communicating to the Street that we expect to drive this to $110M by 2020.
TLSR: Tell me about Nuvail. As a topical treatment for nail dystrophy, is this a cosmetic treatment, or does it lead to improved nails?
SO: Nuvail is cosmetic, with a clinical function of improving the quality of the nailbed. It's a breathable and permeable polymer classified as a 510(k) device. Nuvail is indicated for onychodystrophy, which means misshaped nail. It is prescribed as medically necessary for brittle or fragile nails. It is also used in combination with other products for onychomycosis (fungal nail infection), because this indication does not typically develop without some kind of nailbed issue. That being said, a 52-patient clinical study showed a 63% onychomycological biological cure rate from Nuvail treatment alone. We are currently exploring this observation in greater detail. While new medications are doing wonders for patients, these infections recur quite readily. By treating both the dystrophic nail and the fungal infection, you're going to get a better outcome.
TLSR: Can Nuvail be used by patients suffering from nail psoriasis?
SO: Nuvail can indeed be used by patients with nail psoriasis. It doesn't treat the psoriasis, but it treats the dystrophy of the nail itself.
TLSR: What is the market for products such as Nuvail?
SO: Jublia (efinaconazole) and Kerydin (tavaborole) are new brush-on treatments for onychomycosis. As a complement to these products, Nuvail is one of the growth drivers in the portfolio we bought from Innocutis. Current revenues for Nuvail are around $3M. We think we can drive it to more than $30M over the next five years.
TLSR: Bionect is a hyaluronic acid formulation for treating dermal ulcers, including diabetic foot ulcers. Can you tell me a little bit about how hyaluronic acid works to improve patient outcomes?
SO: Topical hyaluronic acid improves the healing of burns and skin wounds. Bionect is indicated for treating dermal ulcers.
As a low molecular weight hyaluronic acid, Bionect penetrates deeper into the skin, where it helps to reduce inflammation and skin irritations. We have ointments and skin formulations as variants of Bionect, and we expect to introduce a foam formulation before the end of the year. This new formulation will allow for use in skin folds and on hair surface areas where ointments and creams aren't appropriate.
"We have a significant growth story on the heels of 2015—a significant investment year for Cipher."
Like Nuvail, Bionect is a 510(k) device with a broad label. Consequently, physicians are able to use it to treat a variety of conditions where they see a benefit using hyaluronic acid, on irritations or inflammation associated with skin conditions in general. It's used both alone and in combination with other products.
TLSR: What is the market for Bionect?
SO: Last year, Bionect generated about $2.4M in revenue. Bionect is marketed in many tube sizes, from small to 100 grams. Use seems to be driven by both physicians and patients. We think that, with the team we have in place, we can drive revenue up to $8M.
TLSR: It seems that most of your products are reformulations of existing therapeutics, as opposed to new entities for treatment of diseases. Is that a fair generalization of your corporate strategy?
SO: It has been in the past, but we are evolving.
Sitavig fits in that category, but it was serendipitous because it came to us as part of the Innocutis purchase. Prior to that, we had set five growth goals for the company. The first was to expand our North American product portfolio by five products. The second was to launch two new, first-to-market products. The final three goals were financial goals for 2020: 1) to expand our Canadian dermatology business to CA$50M, i.e., through the launch of new products such as the launch of Vaniqa (an enzyme inhibitor for excessive female facial hair growth), and to submit two products to Health Canada; 2) to drive our U.S. dermatology business to $250M; and 3) expand our royalty stream business from CA$30M to $50M by 2020.
Regarding expansion of our North American product portfolio, we added 15 products in 2015. Against our second goal, we will launch Ozenoxacin—a topical antibiotic for impetigo licensed from Grupo Ferrer Internacional SA in Canada in 2017. Our second innovative NCE product is CF101, a psoriasis therapeutic initially developed by our partner, Can-Fite BioPharma Ltd. (CANF:NYSE.MKT) in Israel. In 2015, expansion of our Canadian business began with the launch of Epuris (Absorica for acne). This product is tracking with an 85% growth rate so far this year. Finally, Vaniqa was launched, and Dermadexin (for seborrheic dermatitis) and Pruridexin (for chronic pruritus) were both submitted to Health Canada so we can launch them in 2016.
In addition to the above, we are developing a new chemical entity for a rare drug disorder called discoid lupus. This is a highly disfiguring disease, and nothing has demonstrated clinical efficacy. We have a very positive Phase 2 program for AFS-1096, the enantiomer of salbutamol in a topical formulation. We hope to advance into Phase 3 in 2016, and then launch this product as an orphan drug.
TLSR: Outside prescription dermatology, Cipher also markets consumer products. What are your highlights?
SO: We have several consumer products, but this franchise is relatively small. One revenue driver is Inova, a benzoyl peroxide for acne. We also have Umecta, which is a formaldehyde urea delivery system for hyperpigmentation. Another hyperpigmentation product is Aclaro.
From our $10M in revenues last year, the majority was earned in sales of Sitavig, Nuvail and Bionect. Only $1M in revenue was due to Inova, and the rest of the consumer products generated less than $1M combined.
As far as consumer growth potential, we're most excited about Umecta. Inova is a benzoyl peroxide and doesn't have significant differentiation over other products. On the other hand, the Umecta formulation is really appreciated by the customers. We're going to see what we can do with that one in Canada and the U.S.
TLSR: Cipher also markets prescription products for pain management and for treating high cholesterol. How do these products fit in the overall corporate strategy, which is focused on dermatology?
SO: ConZip for pain, and Lipofen for high cholesterol, are both based on the Lidose bead technology.
Regarding ConZip, our partners, Vertical Pharmaceuticals LLC in the U.S. and Tribute Pharmaceuticals Canada Inc. (TRX:TSX.V; TBUFF:OTCQX), have been very successful in accelerating growth for this product, resulting in a royalty revenue stream of CA$2M for Cipher. With patent life out to 2022, we expect continued increases in revenue.
As for Lipofen, this product is now marketed as an authorized generic and sells for between $50 and $60M a year at the retail level through our partner Kowa Pharmaceuticals America Inc. From this, we end up generating $1M–$1.2M every quarter in royalty income.
These products, in addition to Absorica, generate income that allows us to pursue our priority programs in dermatology, so we can accelerate our earnings going forward.
TLSR: Your development pipeline is clearly focused on skin indications. Dermadexin and Pruridexin seem to be the most advanced. Can you tell me about these products? Do they contain the same active ingredient?
SO: They do contain the same active ingredient—nicotinamide. These products are active barrier creams, and are clinically proven to act on NF-kappaB. As such, both products have anti-inflammatory properties. The Dermadexin database is based on seborrheic dermatitis. The Pruridexin database is based on pruritus.
We've submitted both products to the FDA as 510(k) medical devices, and recently submitted them to Health Canada as natural health products. Regarding market potential, a barrier cream in the U.S. typically generates around $15–20M in the five-year period following launch. Our strategy is to launch these products in 2016, and to generate at least $20M from each product in that time period, out to 2020. After launch, we'll see what other markets we can penetrate with these products.
TLSR: You recently released results for Q3/15. Would you address the highlights?
SO: We were pleased to report a 28% increase in 2015 Q3 revenue over 2014, driven by our acquisition of Innocutis and the continued growth of Epuris and Vaniqa in Canada. Despite the fact we invested significantly in our commercial operations, we still generated $2.3M in cash from operations.
TLSR: Do you have any final thoughts for investors interested in Cipher?
SO: We are very excited about the changes and growth in the company. Cipher Pharmaceuticals was sort of a cash cow, but with no growth potential before I arrived, and now we're taking that cash and investing it in products to ensure continued growth.
Our 2020 targets are to achieve $50M in our Canadian dermatology business and $250M in our U.S. dermatology business. If we reach these targets, and then drive our current royalty business from last year's $30M to $50M, we should be able to multiply our profitability, or EBITDA (earnings before interest, taxes, depreciation and amortization), to somewhere in the range of $120–140M. This represents a more than twelvefold increase over this year's expectations. We have a significant growth story on the heels of 2015—a significant investment year for Cipher.
TLSR: Thank you for your time.
Shawn Patrick O'Brien is the president and CEO of Cipher Pharmaceuticals Inc. He has spent the past 31 years in the pharmaceutical and biotechnology sectors and has extensive experience in building highly successful global enterprises, as well as in business development, marketing, selling, licensing, researching and developing both small and large molecules, with strong sales results. O'Brien is a founder of AltheRx Pharmaceuticals and served as president and CEO, where he secured funding to acquire and develop a midstage asset from GlaxoSmithKline Inc. Previous roles include president and CEO of Profectus BioSciences Inc., where he secured two rounds of equity financing and a major vaccine licensing deal with Wyeth that provided Profectus with more than $100M in nondilutive funding. O'Brien also served as president and CEO of Solstice Neurosciences Inc., which was spun out of Elan Pharmaceuticals. At Solstice, he built a fully integrated organization of more than 150 employees and raised $125M in private financing prior to the sale of the business. Previously, O'Brien spent 17 years with AstraZeneca Pharmaceuticals, where he held multiple senior-level positions in Canada, UK and the U.S., most recently as vice president of commercial operations for emerging brands. Prior to that, he was vice president and therapy area leader, respiratory & inflammation and commercial & development group director for the oncology therapeutic area, each of which had in excess of $1 billion in annual sales. O'Brien began his career at the Upjohn Company of Canada. He received his bachelor's degree from University of Western Ontario.
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1) Daniel E. Levy conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an independent contractor. He or his family owns shares of the company mentioned in this interview: None.
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