Q2 2026 Cipher Pharmaceuticals Inc Earnings Call

August 12, 2026

Operator: Call for the company's Q2 2026 financial results. At this time, all participants are in listen only mode. Following today's presentations, 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, Wednesday, 12 August 2026. 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.

Speaker #1: Call for the company's Q2 2026 financial results. At this time, all participants are listen-only mode. Following today's presentations, instructions will be given for the question-and-answer session.

Speaker #1: 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, Wednesday, August 12, 2026.

Speaker #1: 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.

Speaker #1: Forward-looking statements involve risk 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.

Speaker #1: For additional information about factors that could cause results to vary, please refer to the risk identified in the company's annual information form and other filings with Canadian regulatory authorities.

Operator: 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. Such statements speak only as of the date made. Now I would like to turn the call over to Mr. Craig Mull, Interim Chief Executive Officer of the company. Please go ahead, Mr. Mull.

Speaker #1: Except as required by Canadian Securities Laws, the company does not undertake the update any forward-looking statements. Such as statements speak only as of the date made.

Speaker #1: And now, I would like to turn the call over to Mr. Craig Mull, Interim Chief Executive Officer of the company. Please go ahead, Mr. Mull.

Speaker #2: Good morning, everyone, and thank you for joining us today. Before I begin, I would like to remind everyone that all figures discussed on today's call are expressed in U.S.

Craig Mull: Good morning, everyone, and thank you for joining us today. Before I begin, I would like to remind everyone that all figures discussed on today's call are expressed in USD unless otherwise specified. Cipher's Q2 2026 continues to represent a highly profitable specialty pharma platform company that delivers strong shareholder returns. Cipher's combined business, led by Natroba in the US and Epuris in Canada, is robust and continues to generate strong cash flows for our shareholders. In the quarter, the US-based Natroba business experienced pressure with respect to sales volumes. However, in other aspects of the product portfolio, such as the Canadian product portfolio, we experienced growth and market share gains.

Speaker #2: dollars. Unless otherwise specified. CIPHER's Q2 2026 continues to represent a highly profitable, especially pharma platform company that delivers strong shareholder returns. CIPHER's combined business, led by Nutroba in the U.S.

Speaker #2: and a Puris in Canada, is robust and continues to generate strong cash flows for shareholders. In the quarter, the U.S.-based Nutroba business experienced pressure with respect to sales volumes.

Speaker #2: However, in other aspects of the product portfolio, such as the Canadian product portfolio, we experienced growth and market share gains. Looking ahead, we believe the Canadian portfolio will continue to its growth, whereby we announced a positive development related to public reimbursement coverage for EPURIS, with the signing of a letter of intent between CIPHER and the Pan-Canadian Pharmaceutical Alliance.

Craig Mull: Looking ahead, we believe the Canadian portfolio will continue its growth, whereby we announced a positive development related to public reimbursement coverage for Epuris with the signing of a letter of intent between Cipher and the pan-Canadian Pharmaceutical Alliance, which is expected to expand patient access to Epuris with the product's inclusion on additional federal, provincial, and territory public drug plans. Revenue from Natroba for the Q2 2026 was $6.3 million, compared to $7.8 million for the same quarter in the prior year, impacted by reduced sales volumes to state Medicaid programs. Looking ahead, we are investing in and building new business verticals to expand the US business to grow commercial payer volumes, which include, first, implementing strategies to grow volumes in our direct-to-patient platform recently launched earlier this year.

Speaker #2: Which is expected to expand patient access to EPURIS with the products inclusion on additional federal provincial and territorial public drug plans. Revenue from Nutroba for the Q2 2026 was $6.3 million, compared to $7.8 million for the same quarter in the prior year.

Speaker #2: Impacted by reduced sales volumes to state Medicare programs. Looking ahead, we are investing in and building new business verticals to expand the U.S. business to grow commercial payer volumes, which include: first, implementing strategies to grow volumes in our direct-to-patient platform, recently launched earlier this year.

Speaker #2: Given the acute nature of Nutroba's indication to treat head lice and scabies, we believe the product is consumer-focused and more susceptible to sales growth in this vertical, arguably more so than other pharmaceutical medications.

Craig Mull: Given the acute nature of Natroba's indication to treat head lice and scabies, we believe the product is consumer-focused and more susceptible to sales growth in this vertical, arguably more so than other pharmaceutical medications. Second, making the product easier to get to patients, either through direct mail or same-day delivery partners we have established and put in place. Third, investing in programs with large retailers to have Natroba and/or Spinosad on the shelf in large retailer settings, such as most recently launched a program to have the product available at Walmart, which represents an area we see as a tremendous opportunity for growth in the future. Epuris has demonstrated growth during the quarter, with revenue from Epuris of $4.1 million of the Q2 2026, an increase of $0.5 million or 14% compared to $3.6 million in the Q2 2025.

Speaker #2: Second, making the product easier to get to patients, either through direct mail or same-day delivery partners, we have established and put in place. Third, investing in programs with large retailers to have Nutroba and/or Spinocet on the shelf in large retailer settings, such as most recently launched the program to have the product available at Walmart, which represents an area we see as a tremendous opportunity for growth.

Speaker #2: In the future. EPURIS has demonstrated growth during the quarter, with revenue from EPURIS of $4.1 million of the Q2 2026, an increase of 0.5 million or 14% compared to 3.6 million in the Q2 2025.

Speaker #2: During the Q2 2026, sales volumes increased 8% compared to the same year same period in prior year. And market share for EPURIS grew by 1.3% for the first half of 2026 to 47.1%, market share as of June 30, 2026, according to Acuvia market data.

Craig Mull: During the Q2 2026, sales volumes increased 8% compared to the same period in prior year, and market share for Epuris grew by 1.3% for the H1 2026 to 47.1% market share as of 30 June 2026, according to IQVIA market data. Epuris continues to expand its position as the market-leading isotretinoin product in Canada. We are also optimistic that recent developments surrounding the letter of intent signed with the pCPA establishing a path for expanded public drug plan coverage across Canada will provide growth for Epuris. Following the execution of the letter of intent with the pCPA, we have been actively collaborating with federal, provincial, and territorial drug plans to finalize product listing agreements, which we expect to be finalized over the next 30 to 60 days.

Speaker #2: EPURIS continues to expand its position as the market-leading isotretinoin product in Canada. We are also optimistic that recent developments surrounding the letter of intent signed with the PCPA establishing a path for expanded public drug plan coverage across Canada will provide growth for of intent with the PCPA, we have been actively collaborating with federal provincial and territorial drug plans to finalize product listing agreements, which we expect to be finalized over the next 30 to 60 days.

Speaker #2: Listing on these additional public drug plans provides wider access for EPURIS for patients who are not covered elsewhere. And accordingly, expands CIPHER's addressable market for the product as there is a subset of patients that EPURIS can now reach since they did not previously have coverage for the product.

Craig Mull: Listing on these additional public drug plans provides wider access for Epuris for patients who are not covered elsewhere, and accordingly expands Cipher's addressable market for the product, as there is a subset of patients that Epuris can now reach since they did not previously have coverage for the product. We expect our market share to grow meaningfully in time, particularly in certain key markets whereby a high proportion of their patient population has drug coverage through the public-funded drug plans as opposed to private insurance plans. The public drug plan coverage is something we have been pursuing in key markets with limited success for some time. Therefore, the signing of the letter of intent with the pCPA is an exciting achievement for Cipher and Epuris, and truly beneficial to the Canadian patient population navigating severe nodular acne.

Speaker #2: We expect our market share to grow meaningfully in time, particularly in certain key markets whereby a high proportion of their patient population has drug coverage through the public-funded drug plans, as opposed to private insurance plans.

Speaker #2: The public drug the public drug plan coverage is something we have been pursuing in key markets, with limited success for some time. Therefore, the signing of the letter of intent with the PCPA is an exciting achievement for CIPHER and EPURIS.

Speaker #2: And truly beneficial to the Canadian patient population, navigating severe nodule acne. While CIPHER's total adjusted EBITDA for the Q2 2026 2026 was ultimately reduced compared to the prior year, and the most recent quarter, we have maintained our overall profitability with adjusted EBITDA margins of 57%, calculated as adjusted EBITDA divided by revenue.

Craig Mull: While Cipher's total adjusted EBITDA for the Q2 2026 was ultimately reduced compared to the prior year and the most recent quarter, we have maintained our overall profitability with adjusted EBITDA margins of 57%, calculated as adjusted EBITDA divided by revenue. Adjusted EBITDA margins for the Q2 2026 were consistent with the Q2 2025. Adjusted EBITDA margins for year to date, 30 June 2026, remained elevated at 59% compared to 54% for the same period in the prior year. Our CFO, Ryan Mailling, will provide a detailed overview of our financial results following my commentary. For the remainder of my commentary, I would like to provide an update on our business development activities, which are a key area of focus for Cipher, and we continue to be very active in this area during the Q2 2026.

Speaker #2: Adjusted EBITDA margins for the Q2 2026 were consistent with the Q2 2025. Adjusted EBITDA margins for the year to date June 30, 2026, remained elevated at 59% compared to 54% for the same period in the prior year.

Speaker #2: Our CFO, Ryan Mailling, will provide a detailed overview of our financial results following my commentary. For the remainder of my commentary, I would like to provide an update on our business development activities which are a key area of focus which are a key area of focus for CIPHER, and we continue to be very active in this area during the Q2 2026.

Speaker #2: Myself and along with several members of our team are continuing to focus on a significant amount of our time on these activities. We have three distinct strategies aside from our existing business.

Craig Mull: Myself and along with several members of our team are continuing to focus a significant amount of our time on these activities. We have three distinct strategies aside from our existing business we are pursuing to drive future shareholder value and growth in our business. Firstly, acquisition or in-licensing of complementary products. Secondly, out-licensing of Epuris and Natroba to markets outside of North America. And lastly, company acquisitions that are of strategic value to Cipher. The first area of growth strategy is the pursuit of acquiring or in-licensing complementary products which can be directly commercialized through our existing Canadian and US commercial infrastructures. We are currently active in discussions with various parties and continue to source and explore further opportunities. Although we continue to pursue these opportunities similar to other areas of business development, these activities do take time.

Speaker #2: We are pursuing to drive future shareholder value and growth in our business. Firstly, acquisition or in-licensing of complementary products. Secondly, out-licensing of EPURIS and Nutroba to markets outside of North America.

Speaker #2: And lastly, company acquisitions that are of strategic value to CIPHER. The first area of growth strategy is the pursuit of acquiring or in-licensing complementary products which can be directly commercialized through our existing Canadian and U.S.

Speaker #2: commercial infrastructures. We are currently active in discussions with various parties. And continue to source and explore further opportunities. Although we continue to pursue these opportunities, similar to other areas of business development, these activities do take time.

Speaker #2: The time horizons on each opportunity vary, and the opportunities may or may not come to realization in the end. Second strategy we have undertaken is pursuing out-licensing opportunities for both Nutroba and EPURIS outside of North America.

Craig Mull: The time horizons on each opportunity vary, and the opportunities may or may not come to realization in the end. Second strategy we have undertaken is pursuing out-licensing opportunities for both Natroba and Epuris outside of North America. We have made progress in this area during and subsequent to the Q2, particularly in pursuing opportunities to out-license Epuris to territories outside of North America. We have seen interest from a number of parties in exploring a partnership for distributing Epuris under license in their respective territories, and we are actively in discussions with these parties and evaluating the potential opportunities for the products in these territories. Given Epuris is the leading isotretinoin product in the Canadian market, we believe Epuris could also perform strongly in other territories with similar markets to Canada and represents a further avenue of growth for Cipher.

Speaker #2: We have made progress in this area during this during and subsequent to the Q2, particularly in pursuing opportunities to out-license EPURIS to territories outside of North America.

Speaker #2: We have been we have seen interest from a number of parties in exploring a partnership or distributing EPURIS under license in their respective territories, and we are actively in discussions with these parties in evaluating the potential opportunities for the products in these territories.

Speaker #2: Given EPURIS is the leading isotretinoin product in the Canadian market, we believe EPURIS could also perform strongly in other territories with similar markets to Canada, and represents a further avenue of growth for CIPHER.

Speaker #2: Similarly, with respect to Nutroba, we continue to believe there is a high unmet need for a highly effective product like Nutroba to address head-license scabies indications in other territories.

Craig Mull: Similarly, with respect to Natroba, we continue to believe there is a high unmet need for a highly effective product like Natroba to address head lice and scabies indications in other territories. However, product pricing in territories outside of the US varies considerably from the US market, and therefore the execution of this strategy is taking time as we believe it is important to find the right markets and out-licensing partners for Natroba to ensure commercial success of the product in territories outside of North America. The third area of strategy for growing the business is evaluating and pursuing company acquisitions which may have strategic value for Cipher. As we have said previously, we continue to believe that Cipher would benefit from additional size and scale, both in its pursuit of the other business development strategies I mentioned, as well as its ongoing and future operations.

Speaker #2: However, product pricing in territories outside of the U.S. varies considerably from the U.S. market, and therefore the execution of this strategy is taking time as we believe it is important to find the right markets and out-licensing partners for Nutroba to ensure commercial success of the product in territories outside of North America.

Speaker #2: The third area of strategy for growing the business is evaluating and pursuing company acquisitions which may have strategic value for CIPHER. As we have said previously, we continue to believe that CIPHER would benefit from additional size and scale.

Speaker #2: Both in its pursuit of the other business development strategies I mentioned as well as its ongoing and future operations. Accordingly, acquiring companies that could add to our size and scale as well as provides other strategic benefits continue to be an area we are placing a great deal of focus.

Craig Mull: Accordingly, acquiring companies that could add to our size and scale as well as provides other strategic benefits continues to be an area we are placing a great deal of focus. During the Q2, we were in advanced stages of a process for an acquisition target. However, we ultimately determined that not continuing with the process was the right decision at this time. Cipher, and therefore the deal did not materialize. We are currently assessing other opportunities and also continue to actively source, evaluate and pursue potential acquisitions that achieve our objectives. We remain optimistic that we will achieve success in finding and executing on the right opportunity. I will now pass the call over to our CFO, Ryan Mailling. Please go ahead, Ryan.

Speaker #2: During the Q2, we were in advanced stages of a process for an acquisition target. However, ultimately, we ultimately determined that not continuing with the process was the right decision at this time.

Speaker #2: CIPHER and their CIPHER and therefore the deal did not materialize. We are currently assessing other opportunities and also continue to actively source evaluate and pursue potential acquisitions that achieve our objectives.

Speaker #2: We remain optimistic that we will achieve success in finding and executing on the right opportunity. I will now pass the call over to our CFO, Ryan Mailling, please go ahead, Ryan.

Speaker #3: Thanks, Craig. And good morning, everyone. As Craig mentioned at the beginning of today's call, all amounts provided are expressed in U.S. dollars unless otherwise noted.

Ryan Mailling: Thanks, Craig, and good morning, everyone. As Craig mentioned at the beginning of today's call, all amounts provided are expressed in USD unless otherwise noted. Today, Cipher Pharmaceuticals is reporting results from the company's Q2 and year to date 2026, the three and six-month period ended 30 June 2026. Total net revenue for the three and six months ended 30 June 2026, was $12.1 million and $24.6 million respectively. Net revenue for the Q2 2026 decreased by $1.3 million or 10% compared to the same quarter in 2025. Net revenue for the six months ended 30 June 2026, decreased by $0.8 million or 3% compared to the same period in 2025. Revenue was impacted for both Q2 and year to date 2026 by lower revenue from Natroba. However, it was partially offset by revenue growth from Epuris.

Speaker #3: Today, CIPHER Pharmaceuticals is reporting results from the company's Q2 and year-to-date 2026, the 3 and 6-month period ended June 30, 2026. Total net revenue for the 3 and 6-month ended June 30, 2026, was $12.1 million and $24.6 million respectively, net revenue for the Q2 of 2026 decreased by $1.3 million or 10% compared to the same quarter in 2025, net revenue for the 6-month ended June 30, 2026, decreased by $0.8 million or 3% compared to the same period in 2025.

Speaker #3: Revenue was impacted for both Q2 and year-to-date 2026 by lower revenue from Nutroba; however, it was partially offset by revenue growth from EPURIS. Additionally, for the Q2 of 2026, due to reduced product shipments to CIPHER's distribution partners, which are subject to variability from period to period, licensing revenue also contributed to the reduction in total net revenue during the quarter.

Ryan Mailling: Additionally, for the Q2 2026, due to reduced product shipments to Cipher's distribution partners, which are subject to variability from period to period, licensing revenue also contributed to the reduction in total net revenue during the quarter. Although Natroba experienced sales volume pressure contributing to lower revenue during the Q2 2026, this was primarily the result of evolving market dynamics with respect to Medicaid programs. Our expectations for the product have not changed despite market dynamics that may emerge over time. We expect performance of the product to improve in future quarters as the implementation of our strategy related to Natroba and its authorized generic, Spinosad, takes effect, including an expanded focus on commercial channels, which Craig discussed in his remarks. The overall business continued to remain highly profitable despite a slight decline in margins for the Q2 2026.

Speaker #3: Although Nutroba experienced sales volume pressure contributing to lower revenue during the Q2 of 2026, this was primarily the result of evolving market dynamics with respect to Medicaid programs.

Speaker #3: Our expectations for the product have not changed despite market dynamics that may emerge over time. We expect performance of the product to improve in future quarters as the implementation of our strategy related to Nutroba and its authorized generic Spinocid takes effect, including an expanded focus on commercial channels, which Craig discussed in his remarks.

Speaker #3: The overall business continued to remain highly profitable despite a slight decline in margins for the Q2 of 2026. On a year-to-date basis, margins for the ongoing business remain consistent when compared to the same period in 2025.

Ryan Mailling: On a year-to-date basis, margins for the ongoing business remain consistent when compared to the same period in 2025. Gross margin for the Q2 2026 was 80%, a decrease of 1% from 81% in the Q2 2025. Gross margin during the quarter was impacted by reduced licensing revenue, as well as lower revenue from Natroba compared to the three months ended 30 June 2025. On a year-to-date basis, gross margin increased by 2% to 81% for the six months ended 30 June 2026, compared to 79% for the six months ended 30 June 2025. The increase in gross margin for the year to date is largely due to the non-recurring fair value adjustments to acquired inventory, included in the cost of sales for the six months ended 30 June 2025, in connection with the company's acquisition of the US-based Natroba business.

Speaker #3: Gross margin for the Q2 of 2026 was 80%, a decrease of 1% from 81% in the Q2 of 2025. Gross margin during the quarter was impacted by reduced licensing revenue as well as lower revenue from Nutroba compared to the 3-month ended June 30, 2025.

Speaker #3: On a year-to-date basis, gross margin increased by 2% to 81% for the 6-month ended June 30, 2026, compared to 79% for the 6-month ended June 30, 2025.

Speaker #3: The increase in gross margin for the year-to-date is largely due to the non-recurring fair value adjustments to acquired inventory included in the cost of sales for the 6-month ended June 30, 2025, in connection with the company's acquisition of the U.S.-based Nutroba business, excluding the impact of these fair value adjustments in the prior year CIPHER's gross margin has remained consistent year over year at 81%.

Ryan Mailling: Excluding the impact of these fair value adjustments in the prior year, Cipher's gross margins remain consistent year over year at 81%. We have also maintained our approach of continuously monitoring and evaluating our cost base. As a result of this approach, we have seen a reduction in our selling, general, and administrative expenses for both the three and six months ended 30 June 2026. Selling, general, and administrative expenses for the Q2 2026 were $3.4 million compared to $4.1 million during that same quarter in the prior year, representing a 16% reduction. For the six months ended 30 June 2026, selling, general, and administrative expenses decreased by 30% to $6.3 million from $9 million during the same period in the prior year. There were two main components contributing to the reduction in our selling, general, and administrative expenses. One, non-recurring costs, and secondly, operational efficiencies.

Speaker #3: We've also maintained our approach of continuously monitoring and evaluating our cost base. As a result of this approach, we have seen a reduction in our selling general and administrative expenses for both the 3 and 6-month ended June 30, 2026.

Speaker #3: Selling general and administrative expenses for the Q2 of 2026 were $3.4 million compared to $4.1 million during that same quarter in the prior year, representing a 16% reduction.

Speaker #3: For the 6-month ended June 30, 2026, selling general and administrative expenses decreased by 30% to $6.3 million from $9 million during the same period in the prior year.

Speaker #3: There were two main components contributing to the reduction in our selling general and administrative expenses. One, non-recurring costs, and secondly, operational efficiencies. In the prior year, during the 3 and 6-month ended June 30, 2025, we incurred non-recurring legal costs associated with the arbitration proceedings relating to defending the company's intellectual property, which were concluded in CIPHER's favor.

Ryan Mailling: In the prior year, during the three and six months ended 30 June 2025, we incurred non-recurring legal costs associated with the arbitration proceedings relating to defending the company's intellectual property, which were concluded in Cipher's favor. These costs amounted to USD 200,000 for the Q2 2025 and USD 1.2 million for the six months ended 30 June 2025. Costs related to this matter were negligible in the current year. There were also USD 0.1 million of restructuring-related costs incurred in the prior year during the six months ended 30 June 2025. In the current year, however, there were certain non-recurring costs incurred related to professional services fees and other due diligence activities in connection with the advanced stages of pursuing an acquisition opportunity, as Craig mentioned in his remarks. We incurred USD 0.3 million in costs for these activities during the Q2 and year to date 2026.

Ryan Mailling: In the prior year, during the three and six months ended 30 June 2025, we incurred non-recurring legal costs associated with the arbitration proceedings relating to defending the company's intellectual property, which were concluded in Cipher's favor. These costs amounted to $200,000 for the Q2 2025 and $1.2 million for the six months ended 30 June 2025. Costs related to this matter were negligible in the current year. There were also $0.1 million of restructuring-related costs incurred in the prior year during the six months ended 30 June 2025. In the current year, however, there were certain non-recurring costs incurred related to professional services fees and other due diligence activities in connection with the advanced stages of pursuing an acquisition opportunity, as Craig mentioned in his remarks. We incurred $0.3 million in costs for these activities during the Q2 and year to date 2026.

Speaker #3: These costs amounted to $200,000 for the Q2 of 2025 and $1.2 million for the 6-month ended June 30, 2025. Costs related to this matter were negligible in the current year.

Speaker #3: There were also $0.1 million of restructuring-related costs incurred in the prior year during the 6-month ended June 30, 2025. In the current year, however, there were certain non-recurring costs incurred related to professional services fees and other due diligence activities in connection with the advanced stages of pursuing an acquisition opportunity as Craig mentioned in his remarks.

Speaker #3: We incurred $0.3 million in costs for these activities during the Q2 and year-to-date 2026. When removing these non-recurring costs, selling general and administrative expenses on a normalized basis have declined $0.8 million for the Q2 and $1.7 million for the 6-month ended June 30, compared to the same periods in prior year.

Ryan Mailling: When removing these non-recurring costs, selling, general, and administrative expenses on a normalized basis have declined USD 0.8 million for the Q2 and USD 1.7 million for the six months ended 30 June, compared to the same periods in prior year. This remaining decrease is primarily driven by operational efficiencies gained within the US business, including savings and employment-related costs from a rationalized employee complement and reduced selling and marketing costs. Net income for the three months ended 30 June 2026, was USD 4 million or USD 0.15 per diluted common share compared to USD 5.9 million or USD 0.22 per diluted common share for the same period in prior year.

Speaker #3: This remaining decrease is primarily driven by operational efficiencies gained within the U.S. business, including savings in employment-related costs from a rationalized employee complement and reduced selling and marketing costs.

Speaker #3: Net income for the 3-month ended June 30, 2026, was $4 million or $0.15 per diluted common share compared to $5.9 million or $0.22 per diluted common share for the same period in prior year.

Speaker #3: The decrease in net income for the Q2 of 2026 was attributable to reduced gross profit arising from the impacts on revenue described previously, combined with an unrealized foreign exchange loss from the effects of the U.S.

Ryan Mailling: The decrease in net income for the Q2 2026 was attributable to reduced gross profit arising from the impacts on revenue described previously, combined with an unrealized foreign exchange loss from the effects of the US dollar's appreciation relative to the Canadian dollar on the translation of certain net assets of the company denominated in Canadian dollars. Net income for the six months ended 30 June 2026, was USD 10.2 million or USD 0.39 per diluted common share compared to USD 8.5 million or USD 0.32 per diluted common share for the same period in the prior year. This increase in net income for the six months ended 30 June 2026, was contributed to by non-recurring costs incurred during the six months ended 30 June 2025, totaling USD 2.1 million, including legal costs related to the arbitration, restructuring related costs, and fair value adjustments to acquired inventory.

Speaker #3: dollar's appreciation relative to the Canadian dollar, on the translation of certain net assets of the company to denominated in Canadian dollars. Net income for the 6-month ended June 30, 2026, was $10.2 million or $0.39 per diluted common share compared to $8.5 million or $0.32 per diluted common share for the same period in the prior year.

Speaker #3: This increase in net income for the 6-month ended June 30, 2026, was contributed to by non-recurring costs incurred during the 6-month ended June 30, 2025, totaling $2.1 million including legal costs related to the arbitration, restructuring-related costs, and fair value adjustments to acquired inventory.

Speaker #3: The reduced cost structure as a result of these non-recurring costs in the prior year was partially offset by lower gross profit during the 6-month ended June 30, 2026.

Ryan Mailling: The reduced cost structure as a result of these non-recurring costs in the prior year was partially offset by lower gross profit during the six months ended 30 June 2026. Adjusted EBITDA for the Q2 2026 was USD 6.8 million compared to USD 7.6 million for the Q2 2025, representing a decrease of USD 0.8 million or 10%. The decrease in adjusted EBITDA was largely contributed to by the lower gross profit. However, this was partially offset by reductions in SG&A expenses, mainly driven by the efficiencies in our cost structure. Adjusted EBITDA for the six months ended 30 June 2026, was USD 4.6 million compared to USD 13.8 million for the six months ended 30 June 2025. This represents an increase of USD 0.8 million or 6%. The increase in adjusted EBITDA was primarily attributable to those reductions in selling, general, and administrative expenses, which I previously mentioned.

Speaker #3: Adjusted EBITDA for the Q2 of 2026 was $6.8 million compared to $7.6 million for the Q2 of 2025. Representing a decrease of $0.8 million or 10%.

Speaker #3: Decrease in adjusted EBITDA was largely contributed to by the lower gross profit; however, this was partially offset by a reduction in SG&A expenses. Mainly driven by the efficiencies in our cost structure.

Speaker #3: Adjusted EBITDA for the 6-month ended June 30, 2026, was $4.6 million compared to $13.8 million for the 6-month ended June 30, 2025. This represents an increase of $0.8 million or 6%.

Speaker #3: The increase in adjusted EBITDA was primarily attributable to the those reductions in selling general and administrative expenses, which I previously mentioned. Despite facing pressure on our top line during the Q2 of 2026, CIPHER continues to be highly profitable, cash generative, and remains debt-free.

Ryan Mailling: Despite facing pressure on our top line during Q2 2026, Cipher continues to be highly profitable, cash generative, and remains debt-free. Cipher ended the quarter with CAD 9.1 million in cash and generated cash flow from operations of CAD 7.6 million during H1 2026. Additionally, having fully repaid the outstanding balance on our revolving credit facility as at the end of Q1 2026, we retained availability to CAD 90 million of potential financing, comprised of a CAD 65 million revolving credit facility plus a CAD 25 million accordion. This potential financing, combined with positive operating cash flows, position us well to continue investing in our growth strategy, which Craig had outlined in detail during his commentary.

Speaker #3: CIPHER ended the quarter with $9.1 million in cash and generated cash flow from operations of $7.6 million during the first half of 2026. Additionally, having fully repaid the outstanding balance on our revolving credit facility as at the end of the first quarter of 2026, we retained availability to $90 million of potential financing comprised of a $65 million revolving credit facility plus a $25 million accordion.

Speaker #3: This potential financing, combined with positive operating cash flows, positioned us well to continue investing in our growth strategy which Craig had outlined in detail during his commentary.

Speaker #1: Thanks, Ryan. Before we open the call for questions, I wanted to reiterate and leave you with a few key items from our commentary. First, CIPHER remains highly profitable with gross margins of 81% and EBITDA margins of 59% on a year-to-date basis.

Craig Mull: Thanks, Ryan. Before we open the call for questions, I wanted to reiterate and leave you with a few key items from our commentary. First, Cipher remains highly profitable with gross margins of 81% and EBITDA margins of 59% on a year-to-date basis. Second, our expectations for the U.S. business have not changed. Despite impacts from market dynamics which may arise over time, we expect performance to improve in future quarters as the programs we are implementing related to Natroba take effect. Third, expanded public reimbursement for Epuris is expected to drive market share growth, especially in key markets, with the additional public drug plan listing enhancing patient access to the product, which already had the position as the market-leading isotretinoin in Canada prior to the expanded coverage.

Speaker #1: Second, our expectations for the U.S. business have not changed. Despite impacts from market dynamics, which may arise over time, we expect performance to improve in future quarters as a program we are implementing related to NATROBA take effect.

Speaker #1: Third, expand public reimburs expanded public reimbursement for EPURIS is expected to drive market share growth, especially in key markets with the additional public drug plan listing enhancing patient access to the product which already had the position as the market-leading isotretinoin in Canada prior to the expanded coverage.

Speaker #1: And finally, we continue to remain highly active in the area of business development, including opportunities for in-licensing of products, acquisition of products or companies, and out-licensing of our existing portfolio.

Craig Mull: Finally, we continue to remain highly active in the area of business development, including opportunities for in-licensing of products, acquisition of products or companies, and out-licensing of our existing portfolio. We view these activities as a key growth driver for Cipher. We will now open the call for questions. At this point, I will ask our operator to provide instructions for the questions and answer session. Operator, please go ahead.

Speaker #1: We view these activities as a key growth driver for CIPHER. We will now open the call for questions. At this point, I will ask our operator to provide instructions for the questions and answer session.

Speaker #1: Operator, please go ahead.

Speaker #2: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number 1 on your touchstone phone.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number 1 on your touchtone phone, and you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. One moment for your first question. Your first question comes from the line of Max of Stifel. Please go ahead.

Speaker #2: And you will you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2.

Speaker #2: One moment for your first question. And your first question comes from the line of Max of Stifel. Please go ahead.

[Analyst] (Stifel): Yeah. Good morning, gentlemen. On for Justin this morning. A couple of questions. Firstly, just curious on sort of the Natroba dynamics. Can you characterize what exactly is kind of impacting the sales channel with respect to Medicaid and sort of how many patients who would be publicly covered patients are falling off, maybe due to recent regulation or legislation at the federal level, and kind of how you expect to mitigate this via, one, through your stocking program and two, any traction in the DTC. Thank you.

Speaker #4: Good morning, gentlemen. On for justice this morning. A couple of questions. Firstly, just curious on sort of the NATROBA dynamics. Can you characterize what exactly is kind of impacting the sales channel with respect to Medicaid and sort of how many patients would be publicly covered patients are falling off, maybe due to recent regulation or legislation at the federal level?

Speaker #4: And kind of how you expect to mitigate this via one, through your stocking program, and two, any traction in the DTC? Thank you.

Speaker #1: Thanks for the question, Max. Ryan, would you like to address address Max's question?

Craig Mull: Thanks for the question, Max. Ryan, would you like to address Max's question?

Speaker #5: Hi, Max. Good morning. It's Brian Jacobs. As you know, I'm the president of the U.S. Business. The question on Medicaid, you know, you know, answering, you know, what what's happening in the overall Medicaid plan and covered lives is, you know, a little bit kind of beyond, you know, what we can we can talk about.

Bryan Jacobs: Hi, Max. Good morning. It's Bryan Jacobs. As you know, I'm the President of the U.S. business. Your question on Medicaid, answering what's happening in the overall Medicaid plans and covered lives is a little bit kind of beyond what we can talk about that's widely covered in the news. What we can say and what's going to that impacts us is one of the strengths of the business is that we've always had very strong Medicaid coverage in the U.S. business. That will continue to be a strength going forward, whether there's an increase or what we're seeing is a decrease in covered lives in Medicaid. The business will have to ebb and flow on that.

Speaker #5: You know, that's, you know, that's widely covered in the news. But, you know, what we can say and what's that impacts us is one of the strengths of the business is that we've always had very strong Medicaid coverage in the U.S.

Speaker #5: business. And, you know, that will continue to be a strength going forward, whether you know, there's an you know, an increase or what we're seeing is a decrease in covered lives in Medicaid.

Speaker #5: So the business will have to ebb and flow on that. But really then to answer the question of, well, what are we kind of doing about it?

Ryan Mailling: But really to answer the question of, well, what are we kind of doing about it, because we can't control legislative changes to Medicaid, we can only control what we want to do in making sure that the Natroba business continues to grow.

Bryan Jacobs: But really to answer the question of, well, what are we kind of doing about it, because we can't control legislative changes to Medicaid, we can only control what we want to do in making sure that the Natroba business continues to grow.

Speaker #5: Because we can't cover legislative we can't control legislative changes to Medicaid. We can only control what we want to do in making sure that the NATROBA business continues to grow.

Speaker #5: We didn't start that just yesterday. We've been looking at that and expanding it over the course of the last year. It took a tremendous amount of time to get a, you know, first-in-class direct-to-patient model.

Bryan Jacobs: We didn't start that just yesterday. We've been looking at that and expanding it over the course of the last year. It took a tremendous amount of time to get a first-in-class direct-to-patient model. We don't just have a telehealth type service built onto our website. We have a first-in-class design so that you can get a script within an hour, and you can schedule delivery or have a script routed to your nearest pharmacy instantly so that you can pick it up. We've been working on that for the better part of a year ahead of this quarter. In addition to that, we've had discussions with very large retail pharmacies like the one that we've talked about here. Those conversations have been going on for the better part of a year.

Speaker #5: You know, we don't just have a, you know, tele tele telescript-type service bolt onto our website. We have a first-in-class design so that you can get a script within an hour and you can schedule delivery or have a script routed to your nearest pharmacy.

Speaker #5: Instantly so that you can pick it up. That we've been working on that for the better part of a year. Just, you know, ahead of this quarter.

Speaker #5: In addition to that, we've had discussions with very large retail pharmacies like the one that we've talked about here and those conversations have been going on for the better part of a year.

Speaker #5: And we're we're happy to announce that we we closed one of them to make NATROBA and Spinosid available at every single Walmart across the U.S.

Bryan Jacobs: We're happy to announce that we closed one of them to make Natroba Spinosad available at every single Walmart across the US. Those are both initiatives to focus on commercial growth, so that we're not just ebb and flowing with changes in Medicaid that occur.

Speaker #5: So those are both initiatives to focus on commercial growth. So that we're not just ebb and flowing with changes in Medicaid that occur.

Speaker #1: Max, you had one question at the end there as well. Second question there.

Craig Mull: Max, you had one question at the end there as well. Second question.

Speaker #4: No, I think Brian did a good job. It was mostly just kind of relating what the impact of these dynamics are and how you're going to or expect to mitigate them through both the stocking or sort of retail access and DTC.

[Analyst] (Stifel): No, I think Ryan did a good job. It was mostly just kind of relating what the impact of these dynamics are and how you're going to or expect to mitigate them through both the stocking, retail access and DTC, so that adequately answered the question. My second question is just on sort of business development. You noted in the quarter that you stepped away from a transaction. I understand that maybe details will be scarce, but any additional color on maybe what criteria moved you away from the deal? How near-term are the rest of the pipeline opportunities?

Speaker #4: So that that adequately answered the question. My second question is is just on sort of business development. You know, you noted in the quarter that that a transaction you stepped away from a transaction.

Speaker #4: I understand that, you know, maybe details will be scarce, but, you know, any additional color on on maybe what criteria moved you away from the deal?

Speaker #4: And and how near-term are the rest of the pipeline opportunities?

Speaker #1: You know, we're under a CDA with the other party. So I'm going to I'm going to not give you a lot of the details that you want, but it you know, it was a larger outfit that we thought would fit very well with CIPHER's business model.

Craig Mull: We're under a CDA with the other party, so I'm going to not give you a lot of the details that you want, but it was a larger outfit that we thought would fit very well with Cipher's business model. It would have added significant bulk to the company. But as many things, a combination of concerns about some products and price meant that at this point in time, at this date, it's probably not the right deal for Cipher.

Speaker #1: It would have added significant bulk to the company. But, you know, as many things a combination of, you know, concerns about some products and price meant that at this point in time, at this date, that it's probably not the right deal for CIPHER.

Speaker #4: That's that's fine. Maybe one last question. I I noticed that in the second quarter, you know, pre-cash flow is a little bit weaker. Some working capital movements with regard to contract liabilities.

[Analyst] (Stifel): That's fine. Maybe one last question. I noticed that in Q2, free cash flow is a little bit weaker. Some working capital movements with regard to contract liabilities. I think we discussed this last quarter, but any insight on what that entails? Is that still sort of payer rebates that are causing that, and could we expect sort of free cash flow normalization for the rest of the year?

Speaker #4: I I think we discussed this last quarter, but any insight on what that entails? Is that still sort of payer rebates that are that are causing that?

Speaker #4: And and could we expect sort of free cash flow normalization for the rest of the year?

Speaker #3: Hi, Max. It's Ryan. Yeah, I can I can address that. So yeah, there that is related to payer rebates. With the the decline in revenues in the U.S.

Ryan Mailling: Hi, Max, it's Ryan here. I can address that. So yeah, that is related to payer rebates. With the decline in revenues in the US business this quarter, what's happening is you're seeing the payments which trail from prior rebates that arose in prior quarters. You're seeing those payments essentially come through at a higher rate this quarter than the cash we've basically collected and parked on the balance sheet as a future liability for rebates this quarter that will be paid in a future quarter. So that will kind of ebb and flow as we do see changes from quarter to quarter in revenues. But given the meaningful change, I guess you can say, from prior quarters, that's why you've seen this reversal this quarter.

Speaker #3: business, this quarter, what's happening is you're seeing the payments, which trail from prior rebates that were arose in prior quarters. You're seeing those payments essentially come through at a higher rate this quarter than the cash we've basically collected in, you know, parked on the balance sheet as a feature liability for rebates this quarter that will be paid in a future quarter.

Speaker #3: So that will kind of ebb and flow as we do see changes from quarter to quarter in revenues. But, you know, given the, you know, the meaningful change, I guess you can say, from prior quarters, that's why you've seen this reversal this quarter.

Speaker #4: Very helpful. Thanks so much.

[Analyst] (Stifel): Very helpful. Thanks so much.

Speaker #2: Again, if you wish to ask a question, please press star 1 to join the queue. And there are no further questions at this time.

Operator: Again, if you wish to ask a question, please press star one to join the queue. There are no further questions at this time. I will now turn the call over to Mr. Craig Mull. Please continue.

Speaker #2: I will now turn the call over to Mr. Craig Mull. Please continue. Oh.

Speaker #1: Thank you, Operator. And thank you, everybody, for joining the call today. We appreciate it. Just before signing off, I'd like to take the opportunity to again thank everybody for joining the call.

Craig Mull: Thank you, operator. Thank you everybody for joining the call today. We appreciate it. Just before signing off, I would like to take the opportunity to again thank everybody for joining the call, and we look forward to reporting more positive quarters going forward. Thank you very much.

Speaker #1: And we look forward to reporting more positive quarters going forward. Thank you very much.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you everyone for joining. You may now disconnect.