Cipher Pharmaceuticals' (CPHR) CEO Shawn Patrick O'Brien on Q2 2016 Results - Earnings Call Transcript

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Cipher Pharmaceuticals, Inc. (CPHR) Q2 2016 Earnings Conference Call August 10, 2016 8:30 AM ET

Executives

Shawn Patrick O'Brien - President and Chief Executive Officer

Norman Evans - Chief Financial Officer

Analysts

Martin Landry - GMP Securities

David Novak - Cormark Securities Inc.

Prakash Gowd - CIBC World Markets

Lennox Gibbs - TD Securities

Chunky Shah - Credit Suisse

Operator

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Cipher Pharmaceuticals’ Fiscal 2016 Second Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Following today’s presentation, instructions will be given for the question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, August 10, 2016.

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.

For additional information about factors that could cause results to vary, please refer to the risks identified in the company’s annual information form, Form 40-F, and other filings with Canadian and U.S. Securities regulatory authorities. Except as required by Canadian or U.S. Securities laws, the company does not undertake to update any forward-looking statements. Such statements speak only as of the date made.

I’d now like to turn the conference over to Shawn Patrick O'Brien, President and Chief Executive Officer of the company. Please go ahead, Mr. O'Brien.

Shawn Patrick O'Brien

Thank you, Stephanie, and good morning, everyone, and thanks to everyone for joining us. With me today is Norm Evans, our Chief Financial Officer. For today’s call, I will begin with an overview of the highlights for the quarter and other recent developments in the business. Norm will then review the financial statements and results in more detail. I’ll return for concluding remarks and before opening the call for some questions.

Q2 was a solid second quarter for the company with multiple highlights in each of the three businesses; our royalty products, our U.S. and Canadian direct product operations. And this translated into improved financial results across most key metrics.

Total revenue was up 32% from $11.7 million in revenue. Adjusted EBITDA improved by 73% to $2.7 million, and we continue to generate cash flow from operations of $3.1 million, while investing in both our U.S. and Canadian operations and capabilities.

Let me update you on our operations, beginning with our royalty business. It was a strong quarter overall, with licensing revenue up 18% to $7.4 million. Revenue for our key brand Absorica was up to $5.7 million in Q2 2016, compared to $5.1 million at this time last year.

On our last call, we talked about delays in finished goods product shipments. We’re pleased to report that these shipments were completed during the second quarter with no interruption to product supply for our partner Ranbaxy, a Sun company.

In Q2 2016, Absorica reported prescriptions by IMS decreased actually by 12% compared to Q2 2015. This lagged the overall market as total Isotretinoin prescriptions were 13% higher than the same period last year. IMS reported market share was estimated at 15.4% for Absorica in June.

However, prescriptions through non-IMS reporting specialty pharmacies, along with price increases taken earlier in the year are reflected in the 13% growth in licensing revenue reported in Q2 2016. It was also a strong quarter for our other royalty products, with combined revenues of $1.7 million for Lipofen and ConZip/Durela, up 42% from the prior year.

Now looking at our U.S. business. Product revenue in the second quarter increased roughly 80% over Q2 2015. Recall that we closed Innocutis acquisition on April 13, so this 2016 comparable period is 12 days longer. However, if you look at the sequential performance of the U.S. business, Q2 sales are up 44% over Q1 2016.

Importantly, we saw growth in three main brands; Sitavig, Nuvail, and Bionect. In addition to sales growth, we’re focused on improving our product margins and managed care access for the U.S. business, as evidence in these Q2 results. For example, improved adjudication of patient co-pay cards resulted in consistent reduction in the prescription costs.

Net sales for Sitavig, our breakthrough treatment for cold sores were $1.1 million in the quarter, which is more than doubled half a million in Q2 2015, and a 26% lift or $0.9 million in the first quarter of this year. Total prescriptions for Sitavig increased 36% compared to last year, while Sitavig currently have a strong 30% share of the market for the topical brand in antiviral market prescribed by our targeted dermatologists.

In the second quarter, we did see an overall decline in the U.S. topical antiviral market, with a corresponding pickup of the oral antivirals. We continue to believe Sitavig has tremendous upside, another direction of our new General Manager, Ralph Bohrer were pursuing several strategies to capitalize on the market opportunity and increase the penetration of Sitavig. We’re focused on increasing the share of voice to the right customer base, specifically dermatologists with high-volume topical prescribers outside of dermatology as well.

Today, 81% of Sitavig prescriptions come from dermatology offices. However, there is a large non-dermatology component to the herpes cold sore market. We plan to broaden the potential of the product by expanding promotional efforts into other specialties and primary care as well as using marketing in non-personal promotion and partnerships to grow the non-dermatology market for Sitavig.

As we discussed last quarter, we’re working with third-party specialists to optimize our managed care access for Sitavig and ensure Rx adherence by our patients. By the end of the quarter, specialty pharma represented 15% of our prescriptions, which as I mentioned are not recorded by IMS data or Bloomberg reports. In terms of product margin, we continue to see steady improvements with 2% sequential improvements in each of the past two quarters for Sitavig.

Now looking at Nuvail, our product for nail dystrophy, net revenue rose 79% year-over-year and by 6% over the previous quarter from the $0.9 million in Q2. Our highest quarter total ever despite the fact that prescriptions continue to be affected by two new topical and onychomycosis treatments, which were launched late in 2014. We’ve seen a good trend in the script data over the last several months and are optimistic our sales and marketing strategy, which has been adjusted for yields continued improvements in sales.

One of our strategy is to increase the number of podiatry calls. For podiatrists, Nuvail complements the number one procedure podiatrists charge for that is nail debriding. So when they complete the procedure in their office, they could add Nuvail prescription to improve the look and the healing of the nail.

Podiatry calls increased by one-third over Q1 2016, and we designated three pilot reps in key territories, where the average volume of podiatry prescriptions with antifungals is 81% higher than any other territory.

In the second quarter, net revenue for Bionect increased to $1 million, up substantially from the $0.4 million in Q1 this year. While prescriptions decreased roughly 12% sequentially, net sales growth reflect the price increase in the Q1, as well as planned changes in our co-pay offsets, which has reduced the number of unprofitable prescriptions that we support.

Earlier this year, we launched a foam preparation of Bionect. Foam preparation make it easier for dermatologists to treat hard reach areas. Bionect has maintained 96% share of the topical hyaluronic acid market in Q2 2016. Overall, all three products are benefiting from the use of specialty pharma distribution, resulting a reduction of abandonment of prescriptions.

Overall, the U.S. business is well-positioned for increased organic growth in the coming quarters. However, keep in mind that Q3 is seasonally softer generally for the entire dermatology space.

Now looking at our Canadian business, we continue to perform well in the second quarter, with 51% growth in product revenue in the local currency. Sales were driven by Epuris, which had net sales of US$1 million in the quarter, up from $0.7 million last year in Q2. Market share for the product increased 20% to 24% in the second quarter of 2016 compared to 17% at this time last year.

For year-to-date period, Epuris prescriptions have increased 50% over 2015. Expanding our commercial portfolio in Canada is a key priority for our business, and we continue to execute on this plan. We’ve had multiple commercialization and regulatory milestones in the last several months. Beteflam, a novel self-adhesive medicated plaster for plaque psoriasis was launched in April. Dermadexin and Pruridexin were approved in Canada ahead of expectations.

We are anticipating launching these in the first quarter 2017, as [Dexinderma SD cream and Dexinderma AD cream [ph]. More recently, we were pleased to announce that Ozenoxacin was accepted for review by Health Canada with other target approval late in Q2 2017. In total, we expect to have, at least, a product in the Canadian market in 2017. We continue to advance our other pre-commercial products in May. Our partners Tecnofarma launched our tramadol product in Argentina under the trade name Ultragesic.

Tecnofarma, if you recall, acquired the rights to Latin America in 2013. They expect to introduce the product in other markets, including Brazil and Chile, as approvals are obtained. Additional approvals are anticipated in 2017, with launches in mid-2017 and 2018. Tecnofarma has the rights to 18 markets in the South American markets.

Isotretinoin is advancing towards launch in Chile by a marketing partner, which is now expected in the first-half of 2017. The product is also on a regulatory review in Brazil and that will be marketed through our partner Ranbaxy. We continue to work with the FDA to secure marketing approval for Dermadexin and Pruridexin with the expectation to gain the approvals before the year is out.

As we look ahead the second-half of 2016, the business is well-positioned for continued organic growth, driven by improved performance from current products and early contributions from new products. While we continue to invest to drive future growth, building the platform and product portfolio, we’re also focused on optimizing these investments to achieve sustainable profitability.

Since quarter-end, we’ve eliminated six unproductive sales territories in the U.S. and reduced G&A in several areas, which we believe will enable the company to balance its objectives and continued sales growth with improved profitability.

I will now turn the call over to Norm to review the financials. Norm?

Norman Evans

Thanks, Shawn, and good morning, everyone. Given that we released preliminary results last week, my comments this morning will be fairly brief, unless otherwise indicated all figures that follow are U.S. dollars. Total revenue for Q2 2016 increased by 32% to $11.7 million from $8.8 million in Q2 2015, driven by the incremental contribution of the U.S. products acquired with the Innocutis acquisition and the continued growth of our Canadian business.

Licensing revenue, which includes the royalty revenue streams from Absorica, Lipofen and our tramadol products as ConZip in the U.S. and Durela in Canada was $7.4 million, which is up 18% from the $6.3 million we reported in Q2 last year.

Looking at the licensing revenue for each product, Absorica revenue was $5.7 million, up from $5.1 million in the prior year. Second quarter revenue for Lipofen was $1.0 million, up from $0.9 million in Q2 last year. Overall that product continues to be a steady source of cash flow to the company. As previously communicated, we are in higher royalties on the authorized generic, which now represents 80% of the unit volumes for that product.

Revenue from our extended release tramadol products marketed as ConZip and also available as an authorized generic in the U.S. and Durela in Canada was $0.7 million in Q2 2016, up from $0.3 million in Q2 2015. The authorized generic version of the product, which is marketed by Trigen in the U.S., has been the primary growth driver.

Total product revenue increased 69% in Q2 to $4.3 million from $2.5 million in the same period last year. U.S. product revenue was $3.2 million in Q2 2016, up significantly compared to $1.8 million in Q2 2015. Canadian product revenue grew to $1.1 million in Q2 2016, up from $0.7 million in the same period last year.

Now, turning to our expenses. Selling and marketing expenses for Q2 2016 increased to $3.5 million from $2.4 million in Q2 2015. That increase is mainly attributable to our U.S. operations, where we’ve invested to fuel the growth of Sitavig, Nuvail and Bionect through our internal sales force and enhanced marketing efforts.

General and administrative expense increased to $4.9 million from $3.5 million in Q2 2015. Expenses incurred by our U.S. operations in Q2 2016 were $2 million, up from $1.0 million, and $300,000 of that increase related to long-term incentive programs, which were not previously available to the U.S. debt.

Research and development expense decreased to $0.3 million from $0.5 million in Q2 2015, while we’re expecting modest increases in R&D over the balance of this year, as we continue to advance our pre-commercial products, roughly 90% of R&D costs for our pipeline products are borne by our partners.

Adjusted EBITDA for Q2 2016 increased 73% to $22.7 million, compared with $1.6 million in Q2 2015 and generated net cash flow from operating activities of $3.1 million in the second quarter.

Net loss in Q2 2016 was $3.4 million, or $0.13 per basic share compared to net loss of $0.6 million, or $0.02 per basic share in Q2 2015. The net loss for this quarter included a non-cash charge of $1.8 million to write-off debt issuance costs related to the Athyrium facility, we completed concurrent with the Innocutis acquisition. We drew down $40 million of the $100 million facility to fund that acquisition and carried approximately 60% of the debt issuance costs in prepaid expenses until this quarter.

As of the end of the second quarter, the remaining $60 million of that facility expired, therefore, we load off the remaining portion of those costs. Should we need to access the debt capital markets going forward, we would expect to improve terms and rates. We continue to maintain a strong financial position. Our reported cash and cash equivalents balance at the end of the second quarter was almost $31 million compared with $27.2 million at the end of 2015.

With that, I’ll turn the call back to Shawn for some closing remarks.

Shawn Patrick O'Brien

Thanks, Norm. Over the past year, we have transformed Cipher from a royalty stream business, with no pipeline and to integrate a dermatology growth company. But we’re still early in the execution of our plan, management is confident that the business is well-positioned for improved performance.

We have a solid commercial foundation in the U.S. and Canada. We have a growing portfolio of 13 directly marketed products. We have a robust pipeline of late-stage assets that are nearing commercialization. And we continue to optimize our investments to deliver sustainable profitability from the business.

Underpin by strong cash flows from our royalty stream products and a solid balance sheet, we continue to advance our strategy and capitalize on the opportunity we see to build a leading dermatology company in North America. We look forward to updating you on our progress at the Q3.

Right now, we’ll open up the call to your question. Stephanie?

Question-and-Answer Session

Operator

Certainly. [Operator Instructions] Your first question comes from the line of Martin Landry with GMP Securities. Your line is open.

Martin Landry

Good morning, Shawn and Norm. First question is on Bionect. The reviews were much higher than what we’re looking for. I realize that most of that comes from pricing and it was a substantial price increase that you took. Could we see scripts the decline in scripts accelerate in the coming quarters, given the substantial price increase?

Shawn Patrick O'Brien

So, Martin, Shawn here. The price increase was taken at the beginning of the year. And so some of the revenue increase you’re seeing in the second quarter reflects that we had to take a reserve as we indicated on our first quarter earnings on the price increase to – from an accounting standpoint. So that affected the sales in the first quarter and it does reflect a little bit on the second quarter gain.

But more importantly, as I highlighted, we’ve taken some actions on managed care and also the utilization of our co-pay cards to eliminate non-profitable prescriptions. So the – and the price increase really was reflective of equalizing the price on a program basis between our put-ups and the demand really was significant on a 100-gram tube and our 25-gram tube versus a 50-gram product, which we actually eliminated from the marketplace.

So going forward, most of our business is coming out of this 100-gram tube and that’s where the price change was taken to equalize it on a gram per gram basis relative to the market and to our other put-ups. So relative to decline, we anticipated a 20% decline in the prescription for Bionect, because we eliminate these non – by a change in our business rules, these non-profitable prescriptions for the business. And so really what we’ve seen in Q2 is a new base for Bionect and we’re confident that we should be able to maintain that level of prescription volume going forward.

Martin Landry

Okay, that’s helpful. And what was the – can you quantify the amount of the reserve that you took in Q1 that impacted Q2?

Shawn Patrick O'Brien

It was just…

Norman Evans

[Was it about] Bionect?

Shawn Patrick O'Brien

Bionect, yes. It was just over $0.5 million.

Norman Evans

Yes, I think that was taken in Q1.

Norman Evans

Yes.

Norman Evans

Yes, okay.

Martin Landry

Bionect yes it’s just over a $0.5 million.

Shawn Patrick O'Brien

Yes, that was taken in Q1. Yes that was okay.

Martin Landry

Okay. And then you’re talking about the elimination of sales territories, you’re talking about six sales territories. How many territories are you involved right now?

Shawn Patrick O'Brien

So we have three product territories in podiatry and we have 27 regular territories out there. We took six non-productive territories out of the business, that didn’t show that they were going to become productive. We’re constantly with Ralph’s leadership looking at where our investments are working for us and optimizing those, and that’s why we take – took the move to put our money in more productive ways for growth.

Martin Landry

And how much sales were related to these territories?

Shawn Patrick O'Brien

In total, I couldn’t tell you exact number, but they represented less than 10% of the volume as a whole business.

Martin Landry

Okay, okay. And just lastly, you also mentioned that you reduced your G&A in several areas, how much savings you think these costs reduction are going to generate on an annual basis?

Norman Evans

Well, we think that for the next two quarters, we’ll be looking at savings in the 400,000 to 500,000 range per quarter. And as far as and so the annualized impact would be [that times – that times four] [ph].

Martin Landry

Okay. Okay that’s helpful. Okay, thank you.

Operator

Your next question comes from the line of David Novak with Cormark Securities. Your line is open.

David Novak

Hey, good morning, and thanks for taking the call, and congrats on the strong quarter. Martin got most of mine, I just have two left here. Looking at the Isotretinoin and Symphony data, I noticed that Zenatane is starting to really gain material market share here. I was wondering if this is something that we should start to monitor, for example, are we starting to run into any issues like payers refusing to reimburse Absorica and then start pushing through Zenatane?

Shawn Patrick O'Brien

So I think there’s two products that are gaining, David, market share in result of Mylan actually not having product in the market. So you have to look at the dynamic that Mylan is no longer had product in the market dwindled down to almost zero in the last quarter. And we don’t know what the visibility is them returning to stock in the marketplace.

And so the gains there by Dr. Reddy’s and others have been quite significant, whereas I don’t think Teva has picked up as much market share in that opportunity. The U.S. market always remains under pressure from a pricing standpoint. We have a superior product at a premium price. And recently like, I think, we told you in Q1 that Blue Cross Blue Shield in Tennessee eliminated prescriptions covering for all of active products not just ours. And so maintaining optimization of market penetration, we didn’t have a change in the growth to net this quarter over last quarter. So we’re pleased with that and we had a record volume of Absorica sales and net sales for the business.

So the gains for Absorica were not determined by refilling the supply chain and product that we had a – that accounted maybe for roughly $0.75 and rest was two product growth for Absorica. So what you see is a combination for Absorica price increase effects and also the specialty pharmacy doesn’t cover the volume that goes – that’s unreported by IMS or Symphony and that’s not reflected in what we see in public data.

David Novak

Got it, perfect. Thank you. That’s helpful. And just a follow-up to Martin’s question on the six closed territories in the U.S., so you mentioned that that represents about less than 10% of total volumes. Are there any specific products that are disproportionately sold within those six territories that we should be aware off?

Shawn Patrick O'Brien

No, and just to be clear, while we reduced the territories some of the adjacent territories to these – we’re picking up our key customers. So it’s reallocating customers that were key in that less than 10% of the business, it ensure we maintain the coverage. So I wouldn’t look at this as we wiped out six territories and all our customer contacts with that.

In addition, we’ve introduced new white space program to contact physicians through a telesales program products that are key to their space, their business, where we don’t have reps calling on them.

David Novak

Got it, great. And just lastly on Sitavig, can we talk a little bit about the promotional efforts beyond primary care. Where are we right now with rolling out that strategy? And do we still believe that 100% year-over-year growth trajectory is sustainable going forward for the foreseeable future?

Shawn Patrick O'Brien

So relative to our reach to the non-prescribing, we have a pilot program that we’re working through on the dental area. And we had three territories working on that, two of them seem productive, the third one hasn’t been as productive, but the managed care environment for that one wasn’t as strong as the other two area.

We are in conversations with companies to look at – looking at OB/GYN and primary care penetration for the compound. As that we communicated previously, the critical thing for us is to take all the work that we’ve been doing in the managed care that we implemented this year on improving the coverage we’ve announced some improved coverages, such as, New Jersey with Horizon Blue Cross and a better position with prescripts.

And then the plans that we put in on utilizing our electronic and paper co-pay cards, so what we’re trying to do is enrich the environment to reduce the abandonment and the acceptance of our Sitavig scripts, so that the program, partnership and primary care in OB/GYN and dental will be a very productive one for us and our potential partner. So those are ongoing, but nothing is in it as of yet, David.

David Novak

Got it.

Shawn Patrick O'Brien

We do have a white space strategy for high prescribers that we’re implementing to a telesales program.

David Novak

Perfect, that’s helpful. Thank you very much, Shawn, and that’s it for me. I’ll jump back in the queue. Congrats again on the strong quarter.

Shawn Patrick O'Brien

Thanks, David.

Operator

[Operator Instructions] Your next question comes from the line of Prakash Gowd with CIBC. Your line is open.

Prakash Gowd

Thank you. Good morning, Shawn and Norm, and congratulations on your progress. Just a question on Pruridexin and Dermadexin, both of which have been approved in Canada for a couple of months now, given that their non-prescription products would likely require very different marketing, pricing and a distribution strategy.

Can you talk a little bit about what you plan on doing this yourself, or would you partner with an OTC company, Europe pharmacy, chain of some sort. And the same question would apply, I guess, for when you get FDA approvals of those two products? Thanks very much.

Shawn Patrick O'Brien

So, Prakash, just to make sure, I understood your question, while they were approved as NHP products, as you know, in Canada, we don’t have a 510(k) medical device approval program in Canada. So that’s how it became an over-the-counter natural health product in Canada. And in Europe it was deemed CE Mark medical device and approved Pruridexin earlier this year and Dermadexin just before we acquired the assets.

In the U.S., the data package was submitted based on the 510(k) medical device and the product is – was deemed by the FDA, the package is suitable for review, we announced that last summer or last fall. However, the difficulty here we have is that, we have a lot of patients in our studies, 400-plus in the Dermadexin and 300-plus in the Pruridexin study, which gives the authorities way more data than they used to in 510(k) medical device.

And that’s really where we have had difficulty and so our product demonstrates that it separates from the vehicle when you compare vehicle to the act – so-called active barrier cream. And then that situation, the FDA is trying to determine whether it’s a combination product to be looked at as a medical device or not.

So it’s a designation issue and how it’s reviewing, and I guess, the robustness of our data has created difficulty for both the FDA and ourselves to have a clear map forward as a normal medical device review. We anticipate we think it will be a combination as a barrier cream being the most significant part of the mode of action here. So that’s where we are with the FDA and we’re hopeful this will be concluded by the year end.

Prakash Gowd

But just coming back to Canada then, what are your plans in Canada, given that it’s NHP here? What sort of strategy would you be pursuing? You don’t currently do OTC, so would you be partnering with somebody to – for that launch in Q1 2017?

Shawn Patrick O'Brien

So right now, we’re – Joan’s and the team in Canada are planning to drive sort of – kind of behind-the-counter, over-the-counter strategy. Joan and his – we have – we will end up with more than just the SD and AD cream coming to the market actually in the first quarter. We maybe on track to bring three to four different versions of the compound into the marketplace. And so our strategy is to go with our own infrastructure to do behind-the-counter, over-the-counter strategy.

Prakash Gowd

Okay. Thank you.

Operator

Your next question comes from the line of Lennox Gibbs with TD Securities. Your line is open.

Lennox Gibbs

Good morning. Thanks. Can you discuss some of the sort of root causes behind the underperformance in the six closed territories? Where there any common themes? And then maybe if you can speak to what might be different about those, about the market dynamics in those particular territories relative to the remaining 27, I believe?

Shawn Patrick O'Brien

I think the combination, Lennox, of – one, the market for reimbursement for Sitavig and Nuvail in those territories. Second is the tenure and experience of the Representative. And three, the productivity in the decile of the physicians in those six territories were not as productive as the other territories. So we – where we had high productive and high decile of docs., we put them into adjacent territories to be managed going forward.

Lennox Gibbs

Thanks very much.

Operator

Your next question comes from the line of Chunky Shah with Credit Suisse. Your line is open.

Chunky Shah

Hi, thanks for taking my questions. First, clarification on the royalty income, whether the royalty income of same quarter is reported by us in revenues in the same quarter, or there is some lag in that reporting? And the amount that we shared with Galephar or partner, is it – whether is it shown in our P&L, whether it is – the revenues that we report are net off the amount we paid to Galephar or that amount is shown separately as an expense?

Norman Evans

Okay. On your first question, yes, the royalties are exactly what is reported by our partners right up to the end of the quarter end, because there’s not lag at all. We get reporting from all of our partners usually within five to 10 business days of each quarter end that we include that in our reported revenue.

And on your second question, yes, the – what we report on our P&L is net of the split with Galephar, and it’s basically 50/50, and all revenue – the royalty revenue stream is our split 50/50 and it’s netted in our presentation.

Chunky Shah

So the $5.7 million that you report this quarter for Isotretinoin would be netted, about the $7 million is netted off number?

Norman Evans

Exactly, yes.

Chunky Shah

Yes. And my second question was on Isotretinoin. So you said that, volumes in IMS were down, but the reported royalties were up, and that is because of some pharmacies not being captured. So if you look at like-for-like, will the volumes will be up YoY?

Norman Evans

So what I communicated is, the market is growing at 13% as a result of our active participation in promoting Isotretinoin in the market. And you also see Dr. Reddy’s promoting their product in the marketplace, driving that 13% prescription growth as reported by IMS.

What is not – there are pharmacies that don’t through the specialty pharmacies that are used by Ranbaxy/Sun company that are non-reporting and accounts for some of the scripts and then there was a price increase. This quarter was a record quarter for Absorica royalty revenue for the business.

Chunky Shah

Okay. And lastly on – Shawn, you mentioned a number of – about $0.5 million due to the supply chain, the delay in the supply or the delay which was there in the last quarter. So I just wanted to confirm the number, I missed it. Was it $0.5 million?

Shawn Patrick O'Brien

No, I believe we said $0.75 million. We report in the first quarter that these were product shipments and validation batches that will become commercial batches. They did not affect our continuity of supply into the marketplace of whatsoever. And our partner Galephar delivered on all these in the second quarter and so that’s reflected in the increase there that you see going up significantly. So it’s – we have revenue going up and the benefit of that 750,000 in product delivery.

Chunky Shah

Shawn, got it. Okay, thank you.

Shawn Patrick O'Brien

You’re welcome.

Operator

Your next question comes from the line of Martin Landry with GMP Securities. Your line is open.

Shawn Patrick O'Brien

Welcome back, Martin.

Martin Landry

I just wanted to have one last one. On your strategic review, is it possible for you to maybe give us high-level view of what kind of options are right now under review? And what kind of timeline the Board has in coming up with the decisions?

Shawn Patrick O'Brien

Well, as you know we just assembled the new Board earlier this week. We had our first Board call in the week and have another meeting next week. So no decisions have been made on the strategy for the business. It’s a – the clear objective for the new Board and management is always to accelerate timeline to return the entire company back to profitability and make sure we have sustainable profitability that will generate shareholder value going forward, that’s the clear objective for anything we do strategically for the business.

Martin Landry

So that the review could include asset sale, is that something that’s being analyzed right now?

Shawn Patrick O'Brien

The review would be comprehensive, but any assets that are unproductive could be an opportunity to sell. But the primary focus again is really to, how do we drive the business faster to return the entire company back to profitability, deliver on our goal, which we are confident we can deliver on making the U.S. business profitable within two years of the position, i.e., when reporting Q2 results next year. And so that’s where the focus is for the business. I can’t say anything further at this time.

Martin Landry

Okay. okay, thank you.

Operator

I’m showing there are no further questions at this time. I turn the call back over to Shawn Patrick O'Brien for closing remarks.

Shawn Patrick O'Brien

Thanks, Stephanie, and thank you, everyone, for joining us in our Q2 earnings report here. We’re pleased with the results and the progress the company is making and we’ll continue to drive our growth strategy forward. And we’re looking forward to working with our new Board to execute on this plan. Enjoy your day.

Operator

This concludes today’s conference call. You may now disconnect.

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