Cipher Pharma (CPHR) Announces Acquisition of INNOCUTIS Holdings in $45.5M Cash Deal

Cipher Pharma (NASDAQ: CPHR) announced that it has acquired INNOCUTIS Holdings LLC ("INNOCUTIS"), a privately held specialty dermatology company, for US$45.5 million in cash. All financial references are in U.S. dollars unless otherwise noted.

"This acquisition marks our commercial entry to the U.S. market and represents an important step toward our goal of creating a leading North American dermatology business," said Shawn O'Brien, President and Chief Executive Officer of Cipher. "INNOCUTIS provides us with commercial infrastructure, revenue-generating branded prescription products, and a talented team, including a 31-person salesforce that shares our customer-focused philosophy. We see excellent opportunity to drive increased sales and profitability by growing their current branded prescription products, led by Sitavig®, and adding new products to the portfolio, including our recently acquired Pruridexin™ and Dermadexin™."

"Today's transaction marks the start of a new chapter as part of the Cipher organization, as well as the opportunity to participate in the significant upside potential of the combined company," said Joe Pecora, President and CEO of INNOCUTIS. "We are combining with a partner that is ideally suited to realize the full potential inherent in Sitavig, a treatment breakthrough for herpes labialis. The product was recently launched in the U.S. and will be filed in Canada in 2016. Together with Cipher, we are poised to extend the INNOCUTIS growth story not only in the US but also in Canada with an unwavering focus on exceeding the expectations of patients and the medical specialists who treat them. I am thankful for the hard work and dedication of our employees, and I'm confident they will make many valuable contributions to the combined company. Looking to the immediate future, all of us at INNOCUTIS are excited to work closely with the Cipher team to ensure a smooth transition."

Mr. O'Brien added, "With five transactions since the start of 2015, we are executing on our growth strategy and continue to be highly active on the business development front."

Transaction Details and Financing

For the 12 months ended December 31, 2014, INNOCUTIS recorded approximately US$10.1 million in net product revenue. Cipher expects the acquisition to be accretive to earnings per share within two years, consistent with management's stated objective.

Consideration for the acquisition is US$45.5 million in cash to be paid on closing. The agreement also includes additional INNOCUTIS management incentive payments of up to US$3.0 million in cash over a three-year period based on the achievement of certain financial performance targets.

Cipher has closed on a private offering of US$100 million in aggregate principal amount of Senior Secured Notes due 2020 (the "Notes"), provided by investment funds managed by Athyrium Capital Management (together, "Athyrium"). The Company received an initial drawdown of US$40 million, which was used to fund the majority of the upfront purchase price for INNOCUTIS. The remaining balance of the Notes will be made available, subject to certain conditions, to finance future acquisitions. The Notes bear interest at a fixed rate of 10.25% per annum, payable quarterly in arrears on the last day of each quarter, and will mature in five years, unless earlier repurchased. The Notes are interest-only and are secured by assets of the Company and its subsidiaries, subject to certain exceptions. In connection with the offering, Cipher has issued Athyrium 600,000 common share purchase warrants. The warrants are exercisable at US$9.22 (equal to the five-day volume-weighted average price on the Toronto Stock Exchange prior to closing converted to US dollars) and expire seven years following issuance.

Piper Jaffray served as exclusive placement agent in connection with the financing.

Cipher plans to file a Business Acquisition Report (as defined in National Instrument 51-102) in due course.

Cipher has prepared a presentation with additional background on INNOCUTIS and the strategic benefits of this transaction. The presentation can be viewed at www.cipherpharma.com.

Growth Strategy Execution

Since the beginning of 2015, Cipher has completed five transactions and made substantial progress on its three-pronged growth strategy:

1) Acquire dermatology companies and/or products in the U.S. and establish commercial infrastructure.

• Acquired INNOCUTIS, establishing Cipher's commercial presence in the U.S. dermatology market.
• Acquired worldwide rights to three products focused on inflammatory dermatological diseases (Dermadexin, Pruridexin, and ASF-1096) from Astion Pharma. Cipher's commercialization efforts will focus on the U.S. initially.

2) Expand Canadian dermatology franchise.

• Licensed the Canadian rights to Ozenoxacin, a topical treatment for adult and paediatric patients with impetigo.
• Announced that Beteflam Patch has been accepted for review by Health Canada.
• Licensed the Canadian distribution rights to CF-101, a novel chemical entity being developed by Can-Fite Biopharma for moderate to severe plaque psoriasis and rheumatoid arthritis.

3) Acquire potentially transformative technology that can be commercialized efficiently.

• Acquired seven pre-clinical compounds for the treatment of melanoma, skin cancer and other cancers from Melanovus Oncology Inc.

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