Shawn Patrick O'Brien - President and CEO Norman Evans - CFO

David Dean - Cormark Securities Doug Loe - Euro Pacific Joe Walewicz - Laurentian Bank Securities Jason Napodano - Zacks Investment Research

Thank you, Lisa, and good morning, and thank you for participating in today’s conference call. Joining me today is Norm Evans, our Chief Financial Officer.

On today’s call, we will review the financial results and provide an update on our product operational activities. After that, we’ll open the call to your questions.

I’m excited it was an excellent year for the company with revenue, EBITDA and cash growing strongly. I’ll have Norm start with the financials.

Norm?

Thank you, Shawn, and good morning, everyone. I’ll take you through the key highlights of financial performance for the fourth quarter and the full-year.

We delivered strong performance on all our key financial measures in 2014. Total revenue was $32.3 million, up 20%, from $27 million in 2013, reflecting solid performance from our isotretinoin products, that’s Absorica in the U.S.

and Epuris in Canada, as well as from Lipofen. You may recall that in Q4 2013, we recognized a $5.3 million non-recurring milestone, which provided a substantial lift to our reported revenue and bottom line results last year.

I’ll provide several comparative figures that exclude this milestone to give you a more accurate picture of our core growth rates. Excluding the impact of the non-recurring milestone payment in 2013, revenue grew by 49% year-over-year.

In Q4, 2014, total revenue was $8.5 million, compared with $7.2 million in the same period last year, again adjusted for the non-recurring item, which is an increase of 18%. Revenue from our lead product, Absorica, increased by 42% over 2013 to $22.5 million, again adjusted for the non-recurring item last year.

Fourth quarter revenue from Absorica was $5.9 million, up 13% from the prior year, again excluding that milestone. Epuris, which was launched in Canada in late June of 2013, and is reported as product revenue in our financial statements, generated $2.1 million in net revenue for the full-year, a five-fold increase over 2013.

Cost of products sold was $563,000, generating a gross margin of 73% for the product. It was also a good year for Lipofen, with net revenue of $5.6 million, a 65% increase over the same period last year.

Fourth quarter revenue from Lipofen was $1.5 million, up 20% from the prior year. Lastly, our extended-release tramadol product, which is ConZip in the U.S.

and Durela in Canada, contributed $2.1 million of net revenue in 2014, up slightly from $2.0 million in 2013. Our selling and marketing expenses rose modestly over the comparable periods in the prior year.

Selling and marketing expenses in Q4, 2014 were $0.6 million compared to $0.4 million in the fourth quarter of 2013. And they increased $0.2 million for the full-year to $2.3 million.

That increase reflects additional effort towards the promotion of Epuris in Canada. As expected, general and administrative expenses also increased over the prior year, as we expanded our employee group and increased our business development activities.

G&A expense in Q4 2014 was $2.6 million, compared to $1.0 million in the fourth quarter of 2013. That increase in G&A reflects additional resources for business development, as well as increased stock-option expense, which was due to the rise in share prices.

We also incurred certain expenses in Q4 2014 to the NASDAQ listing approval, the product acquisitions that we announced in early January and other initiatives related to future growth opportunities. For the full-year, G&A expense was $7.7 million, an increase of $3.5 million compared to 2013.

In addition to the items I just described, the year-over-year change also reflects $1.3 million in a one-time cost related to the departure of two executives. On profitability, that continues to be very strong as well.

Q4 2014, adjusted EBITDA was $5.3 million, compared to $10.9 million in Q4 2013, which of course included the one-time milestone of $5.3 million. For the full-year, adjusted EBITDA was $22.4 million, an increase of 12% over 2013.

However removing the one-time milestone, adjusted EBITDA for our core operations actually grew 52% year-over-year. Net income for the full-year was $20.7 million or $0.82 per basic share, compared to net income of $25.0 million or $1.02 per basic share in 2013.

Excluding the impact of the deferred tax asset and the one-time milestone payment, net income in 2013 would have been $13.1 million or $0.53 per basic share. So, on a like-for-like basis, the $0.53 per share for 2013 compares to $0.81 per share for 2014 which is an increase of 52%.

Our strong operating performance enabled us to continue to grow our cash balance and we ended the year with $52.6 million, an increase of $5.0 million from the end of Q3 this year and an increase of $28.5 million for the full-year. From a financial perspective, we are well positioned to continue to execute on our growth plans.

I’ll turn it over to Shawn, who’ll discuss these plans and our current products in more detail. Shawn?

Thanks, Norm. Let me start with an update on our current portfolio.

Then I’ll spend a few minutes on our business development efforts and priorities. Beginning with our isotretinoin franchise, as Norm mentioned, Absorica continues to perform well, achieving 20% market share by December 2014.

Total isotretinoin prescriptions climbed 8% in Q4 from Q3 2014, which is consistent with the historical seasonal patterns. As Ranbaxy works to further increase market share of Absorica, one of the strategies is new and unique dosage strength, which gives physicians greater flexibility in the way base dosing regimen required for isotretinoin.

In September, Ranbaxy launched 25 milligram and 35 milligram strength. Early results appear encouraging.

It appears that we’re not getting switches from other Absorica strengths, but actually driving new business. In terms of other growth leverage for the products, our partner Ranbaxy continues to work on additional formulary coverage to increase the number of covered life.

The overall U.S. isotretinoin market continues to grow with prescriptions increasing by 4% throughout the entire year in 2014 versus 2013.

In Q4 2014 versus Q3 2014, we saw an 8% TRX as expected, due to the lower volumes of prescriptions that we see in the summer as a result of the increased sunlight and lower high score regimes. As we have discussed, this product is subject to the Paragraph IV challenge from Watson/our friends at Actavis.

Ranbaxy and Cipher intend to vigorously defend Absorica’s intellectual property rights and pursue all available legal and regulatory pathways in defense of this product. Absorica is currently protected by two patents listed in the FDA’s approved products list, the Orange Book, which expires September 2021.

A third patent was issued February 10, and we expect this to be listed in the Orange Book soon. With respect to Epuris, isotretinoin in Canada the brand name, prescription market share rose to 15.5% by December, continued strong growth trajectory, driven partly by our efforts and the overall market continues to increase.

Epuris isotretinoin market in Canada grew by 6.2% in 2014 over 2013. We expect to build on this solid base to expand in private and public coverage.

In total, public coverage in Canada represents approximately 16% of the market, but also influences heavily for private coverage, especially in Quebec. On the public side, we have provincial formulary coverage now in Saskatchewan, Ontario, Nova Scotia and Manitoba.

We’re working to secure the remaining provinces such as Quebec, British Columbia and Alberta, with the largest one being Quebec. The majority isotretinoin prescriptions are filled through private plans, where many of these are linked to the local provincial plan.

In 2014, we extended the reach of isotretinoin franchise with two out-licensing transactions in Latin America, with Ranbaxy for Brazil and Andrómaco for Chile. In both markets, regulatory reviews progress well and are underway.

We expect the product will be commercialized in Chile later this year, and in Brazil late next year. These deals will generate additional high margin revenue and increase the aggregate value of our active franchise.

Now turning to Lipofen, it was a strong year as Norm mentioned for the product. Our partner, Kowa, launched an authorized generic version in Q2 last year, and it’s performed above our expectations.

Combined performance for the product during Q4 2014 was encouraging in total prescriptions. Lipofen plus the authorized generic remained consistent with the preceding quarter.

Predictably prescriptions continue to move from the branded to the generic. Roughly 55% of the Rx are for the brand and 45% for the authorized generic.

This is a positive for us, as we drive better economics with the authorized generic version of Lipofen. Turning to our extended-release tramadol product.

In Q4 2014, ConZip prescriptions increased by 10% compared to Q4 2013. In Canada, sales of Durela were 18% higher in the quarter than they were in Q4 2013.

And for the full-year 2014, sales were 44% higher than they were in 2013. On our last earnings conference call and in our meetings with the investment communities throughout the year, we’ve been consistently articulating our three-pronged growth strategy.

Let me update you on our progress. One of our key strategies is to build a much larger derm franchise in Canada under the leadership of Joan Chypyha, through a combination of in-licensing and acquisitions.

Subsequent to the year-end, we licensed into the Canadian rights to Ozenoxacin, a topical treatment for adult and pediatric patients with impetigo, from Ferrer, This is a topical non-fluorinated quinolone antibiotic design to provide the efficacy of a quinolone antibiotic class without light sensitivity. In addition, this product has demonstrated a broad spectrum of action against resistance strains including MRSA.

In addition, the product is played twice daily for five days therapy, compared with our competitors, which are usually applied three times that day for seven to 10 days of therapy. We believe Ozenoxacin has high potential in topical impetigo market, which is roughly $22 million in Canada.

The current competitors are not actively promoting their products, so we see an opportunity to enter the market with a differentiated product supported by a strong promotional plan. Ferrer successfully completed a Phase III clinical trial in 2013 and that is published, and we’ve commenced a second Phase III trial for Ozenoxacin in June of 2014.

They anticipate the second Phase III study will complete at the end of this quarter in 2015, allowing us to finish the program and submit. We have another positive development recently with the news of our submission to help Canada for Beteflam Patch.

This was previously called Betesil Patch, which was accepted for review. As a reminder, this is a novel, self-adhesive medicated plaster containing betamethasone valerate for inflammatory skin conditions such as chronic plaque psoriasis.

Plague psoriasis is the most prevalent form of psoriasis, found in about 90% of subjects with the disease and can finally impact the quality of life for these patients. The Beteflam Patch offers several important advantage over current treatments and we believe will be well received by the Canadian derm community based on the feedback we’ve gotten from our clients.

In addition to these two products, we have a growing pipeline of opportunities for Canadian derm assets. We expect to have more news here in 2015.

Our second growth strategy is to use our strength in efficient drug development to invest prudently and potentially for transformative assets for North America. In this category, we acquired the global rights to seven pre-clinical compounds for melanoma and other cancers from Melanovus Oncology.

The compounds originate from work done by Dr. Gavin Robertson, Professor at Penn State University and Director of the Penn State Hershey Melanoma Center.

The lead candidate, Nanolipolee-007, is a liposomal formulation of a plant-derived compound that is a cholesterol-transport inhibitor. The compound has demonstrated any proliferative activity against certain melanoma cell lines, including B-raf resistance strains in vitro and in the early in-vivo studies.

Our plan is to pursue preclinical studies leading to IND status with the FDA, Health Canada and other health authorities. In discussing this product candidate with investors, we’ve underscored that this is a unique opportunity and that we will pursue a financially conservative clinical development path.

In this case, we see an efficient path to get the lead product to the market with a low investment required, if the pre-clinical data holds in the clinical setting for these resistant patients. In 2015, we expect to roughly invest $1.5 million in our pre-clinical work.

For a product targeting a very large market, we see an appropriate risk-reward proposition here. The third very important component of our strategy is to establish commercial infrastructure in the U.S.

focused on dermatology. We’ve set a goal of either acquiring a business or businesses and/or building a presence there locally, organically by the end of this year.

Our team are pushing hard on this front, and we hopefully will have more to share with you in the coming months. At the higher level, we’ve been articulating our vision to build a high quality customer-focused dermatology business that has commercial presence, both in Canada and U.S.

Wit the consolidation activity in this segment of the market, we see a clear opportunity to build a great business and create substantial value for our shareholders. I look forward to updating you on our progress at the end of Q1 at the latest.

Thank you. Operator?

Hi guys. Thanks for taking the questions.

Can you give us an update on the dispute with Watson, any relevant dates for the Markman and that kind of thing?

Sure, good morning, David. The Markman hearing was pushed back to April 2 from originally it was going to be held this month.

Nothing in the procedures to really call back. It was just a scheduling issue.

And so we’ll know more obviously at the April 2 timeframe, but as I’ve communicated earlier, the definitions between the two parties there aligns. So we don’t see any significant activity happening at the Markman hearing.

But as you know, these are always non-predictable.

Okay. And what about updates on Ozenoxacin timing for the data?

So currently, David, Ozenoxacin, we expect data closure before the first half result, and be able to complete the [indiscernible] and submit to the authorities by the end of year.

Okay. Are we still expecting - sorry, you said by - so in Q2, are you thinking now for data, because I think it might have been Q1 earlier?

Do I have that wrong?

Q1 is when the study should be finished and data closure in the second quarter.

Okay.

So the study will complete data closure and then data collection and submissions to the health authorities by year-end. We submit in our establishment license for that product.

Okay. Is there any relevant activities coming up for [indiscernible], any FDA inspections or anything like that?

Nothing on the radar at this point. We’ve had inspections through our partners and everything is solid there.

And recently, you may be aware, where the DEA had inspected and approved our facility for tramadol for the new classification.

Okay, great. I wasn’t aware of that.

Can you - and I think I asked you a question along these lines last quarter just on the expanded formulary coverage. Can you give us a little bit more detail on that, where Ranbaxy might be in that process?

Okay. In the United States, so I think the two key ones that we’ve communicated in the past for [indiscernible] health.

Ranbaxy has been working with both parties proposals to get acceptance. And if those were accepted, those would take effect on July 1.

Okay. Thanks a lot guys.

That’s all for me. I will jump back in the queue.

Thanks David.

Yes, good morning, and thanks very much for the update gentlemen. Just a couple of additional questions for me.

One on Lipofen, one on Absorica. Shawn, I don’t know if you could just provide me with a bit of an update on your rest of world isotretinoin then partnership and regulatory review strategy?

I know the firm has marketing rights in Latin America and certain Asia-Pacific markets. Just maybe shed some color on timelines or expectations for when you might be submitting regulatory documents in markets other than Brazil and Chile, for which you’ve provide an update already.

And then second of all, just on Lipofen, I mean, your core patent for that product expired this quarter, if my memory serves right. Just suspect if you were given a Paragraph IV certification notification on that product, you would have personally said already, but just maybe just any color and your expectations over what timelines you think that a generic Lipofen might be approved, and to which Lipofen would be subjective to additional competition there?

And I’ll leave it there. Thanks.

Okay, Doug, good morning. So just answering your first question, Latin America.

So as you correctly illustrated, we have signed a deal with Ranbaxy for Brazil and Andrómaco for Chile. We expect Chile to come on board this year.

Brazil, as I said late, in 2016. And it’s just a longer process down there in the Chile market.

Relative to other Latin American markets, we are active with other potential partners to penetrate those markets to out-licensing deals, and we’ll continue to pursue that activity. And also many Middle East or North Africa, there is opportunities we believe there for us to monetize this product and we’re in active conversations for distributors in those regions.

Relative to timing on those, I really can't give you any more clarity than that. Hopefully that answers the questions on monetizing our isotretinoin franchise globally.

And relative to Lipofen, as you correctly pointed out, the patent did expire in January of this year and we have seen no generics in the marketplace. It could be that the size of the market is not attractive.

And now that we have an authorized generic in the market, it’s not as attractive for some of those. So there is no Paragraph IV.

So this would be - since the patent has expired, it would be a full and not a challenge to Paragraph IV to the marketplace and that hasn’t happened as of yet. So our guidance that we are giving on relative to Lipofen sales going forward is that you should see the same level of sales in Q1 that you saw in Q4 of this year.

And that it may still migrate slightly to the authorized generic on the market share over time, which the economics favor us for that to happen. And so generally we have a four to six month window if we don’t have any products approved in the generic markets for exclusivity.

And currently, there are no registered or pending approvals that we’re aware of.

That’s great. Thanks a lot to you guys, Shawn.

Okay.

Yes, good morning, gentlemen. Just a few additional questions here.

First of all, just on the Ozenoxacin. Just to be clear the date will be coming out - the study will be complete in Q1.

You’ll have data locked and the database closed and the final results in Q2 and you’re looking at filing by end of the year, if I’m correct - if I heard that correctly. So in terms of milestones relating to that programs, do you have any milestones on filing or those be pushed back to approval that you’ll be paying to the licensor?

Yes, Joe, the milestone on that is approval.

Okay, great. And just with regards to - another question with regards to the U.S.

dollar. I mean, we’ve had a huge move in last few weeks.

I know you hedge out some of this, but if you could just comment on what that might look like sort of at these levels, and how we should be thinking about that going forward? And then with regards to R&D, I mean with Melanovus’ acquisition, any comments on where we should see the R&D numbers directionally speaking for 2015?

Well, let me answer that question first, and then I’ll let Norm respond to the currency exchange strategy. Relatively R&D, as they highlighted briefly, that we expect to spend about $1.5 million this year on progress in the pre-IND program for the lead compound Nanolipolee-007, and that is all about getting product finishing in the 28-day toxic and doing the proper CMC work, so that you can move on to the Phase I program with the proper formulation.

So that’s the work in front of us there. And relative to rest of the portfolio, we’ll be making decisions how to progress those.

There are topicals, orals and IVs. And what I’ve communicated in the past is, we think that there will be an emerging market for the dermatology that physicians fit in and the dermatologist faced have limited activity in the events to these and they obviously do the laser or the surgical removal of skin cancer, but they sit there in a nervous position not being to offer a patient anything to ensure that they won't progress to a more aggressive disease in the long-term.

And that’s what we think we have an opportunity with this franchise is to build a new markets for dermatologists and that would be the adjuvant therapy for skin cancer, so that the proper progression of the disease after surgical procedure. So that’s how we’re looking at this whole portfolio and why we think it fits the dermatology franchise.

And relative to R&D investments, beyond Melanovus and the leap compound Nanolipolee-007, as we make further acquisitions and licenses that require R&D, we will be investing prudently in those programs to ensure that we deliver commercial success. So hopefully I answered your question and I’ll pass it to Norm to respond on the currency exchange.

So Joe on the hedging strategy and the currency situation, I think as everyone is aware, a very, very large percentage of the amount we reported licensing revenue was actually denominated U.S. currency, probably 95% of that number historically over time has been denominated in the U.S.

currency. In Q4 of the current year, the average exchange rate for the quarter was 1.143.

And if you look to Q4 of the prior year, it was 1.056. So over the course of 2014, we generally had about 9% to 10% lift period-over-period.

Now we’ve seen even more dramatic swings occurring in Q1 of the current year and we’ll see how that settles that over the course of the year. But with regard to hedging strategy, we have almost taken the position of trying to hedge the net U.S.

cash flow of surplus, just because we do have some expenses in U.S. currency, but only when that amount is known.

We don’t speculate on that. And with royalty reporting being the key element of our revenue stream in U.S.

currency, we have to wait until we have some visibility on how our partners are doing. So typically what happened in the past is some time in the last month of a given quarter, we figured out what that expected cash flow surplus is and we put a hedge in place for that.

So at year-end, we’ve made that estimate around the middle of December and hedged about US$4 million, and I think it was at 1.1598 and the year-end close of 1.16. And then when the cash comes in from our partners, we close our hedge out and that’s typically about 45 days into the subsequent quarter.

Okay, great. So going forward, I mean, it’s getting to be more and more - numbers are getting larger just, will that strategy continue for the balance of 2015.

Is that how you see it going forward?

Well, yes, practically speaking, we don’t like to hedge until we have visibility on what the net cash flow of surplus is. So as soon as that is known, we put a hedge in place.

Okay.

But on a quarterly basis, we will continue to hedge as appropriate going forward.

Okay, great. And one final question that - thanks for all that extra detail on the ConZip and Durela.

If you look at the end-user numbers, obviously things are still going well there, but if I look at your reported number, it looks like it was a little bit sequentially and year-over-year a little bit down. I just wondered if you could comment just is there anything inventory-related or just timing of revenues there, if you could comment on that?

And that will be it for now. Thanks.

Great. Well, for ConZip and Durela.

Durela is a small element of that revenue stream, but that continues to grow steadily. So we’re happy with that.

As Shawn mentioned, there was a change in the scheduling of the tramadol products in the U.S. that resulted in some returns to our partner in the U.S., that was adjusted for in Q4.

So Q4 was slightly lower because of the goals to net adjustments related to the returns they had. But that’s now being clear to the system and see that there is - steady improvement continuing into 2015.

Well, the other thing just on the tramadol front, and the partner vertical [ph]. They have investment for investor capital, and Brian Markison, the former CEO of King Pharmaceuticals now the Executive Chairman and we’ve been working with Brian and the team there and plans to help accelerate the growth there.

So I’m very confident that Brian and the team will implement plans that will be more successful than the past.

Okay, great. Thanks for all that detail.

Hello everyone.

Good morning, Jason.

I wonder if you could give us a sense of - I know you said the economics are better for the authorized generic. Could you just walk us through that, exactly why the economics are better for the generic versus the branded?

Yes, the generic, the royalty rate is slightly higher. I think we’ve announced previously that on the brand, it was about - it’s now at 18% at the current levels we’re at.

And the authorized generic is slightly higher than that. And there is a more favorable formula on the gross to net calculation as well.

So net-net as the balance swings from one to the other, it’s slightly more favorable for us.

Okay. And then, I mean, ultimately you would expect the generic to take the majority of the share I would assume?

Over time, it would be, but we are quite surprised actually Jason to seeing that it took off quickly and then kind of slowed its growth dramatically relative. The total prescription of the authorized generic and the brand actually increased from - it was in a declining pattern before the authorized generic came out in earlier last year.

And really I think it reflects the fact that really there wasn’t a substitutable product to Lipofen technically, because it’s a different dosage strength, 150 was equivalent to 200, but it clearly was going on there was some substitution going on across the product. And once, there was a generic there, that’s why the trend in the prescriptions change.

So as time goes on, we expect that, but right now there is only about 20% price difference between the generic and - the authorized generic at the retail level and the brand.

Got you. Okay.

As far as Ozenoxacin, which is a difficult word to say, I’m wondering if you could give us a sense of the overlap with the prescriber base right now to Epirus?

Sure. There is some overlap, and obviously the non-overlap would be with the pediatricians.

So the dermatologists do play heavily in the Canadian markets, but also there would be pediatrician calls in addition to the dermatologists there.

So I know we’re looking out in the future here, but if you did get this product on the market, you guys would be looking to go out and add this product, not only to your derm sales force bag, but also maybe build a specialty ped sales force as well?

Well, we expect and I think we’ve communicated this, as we have seven reps in the country right now, we expect to expand that with our future product launches to 16 specialty reps that would cover a blend of dermatologists and pediatricians.

Okay. I guess the same question for the b Beteflam Patch.

Did you have a sense of the prescriber overlap?

Prescriber overlap was very tight there. It’s a derm-driven market and it’s a very nice fit.

As far as the trial that IBSA did, I think they compared it to Dovobet. Do you have a sense of - and sorry for my ignorance here, but is Dovobet on the market in Canada?

No. Dovobet.

I’m scratching my head right here, Jason. Because one formulation, the GSK product, is slightly different than what’s available in Canada than what was trialed against in Europe.

So it’s a slight different formulation. And then the - let me get back to you instead of trying to starch my head here for you.

Okay. I guess my question mainly, I just wanted to try to get a sense of how big that market is, and if you come to market with a superior product, what kind of share you could take?

Well, that I think it’s a little earlier. I think you got to look at this in a different way, and that relative to the marketplace, this is the only topical steroid coming in, in the Canadian marketplace that is in a patch formation, after put bandages on the patient, it’s a very convenient.

So the market uptake for this will be strong, because it’s unique physical delivery. And that’s really the big things.

So I wouldn’t be so confined by looking at the marketplace strictly on Dovobet.

Okay. And then I guess last question, you’ve filed the NDS.

Is there a set - I know in the U.S. there is PDUFA.

Is there something similar to that in Canada? What was the action date expected?

So the Canadian system, you just have to go with historical norms, which is about a year right now. So there are no PDUFA dates on that.

What we communicated previously was the fact that the filed and reviewed and the health authorities did what they call a screening and felt that file was suitable for review. So that’s the first step, and that usually happens within 45 days of this package, and that was pretty close to that.

We’ve submitted in September or December 15 and we’re able to communicate that successful screening to you. From there on, there is no significant communication until we get the approval.

Got you. Okay.

Thanks for taking the questions guys. Congrats on the quarter.

Thanks Jason. I believe that’s the last question, or is there one more?

Thanks. I really appreciate everybody’s time, and we’re really excited about the performance of the company in 2014, and look forward to communicating more exciting developments on our business development front as we progress in 2015.

Enjoy your day.