DND - Cipher Pharmaceuticals

[jm25]

TSX:DND

 

Cipher is a growing specialty pharmaceutical company with three commercial products and a fourth in development. Product candidates are typically improved formulations of successful, currently marketed drugs. We in-license a product, manage the required clinical development and regulatory approval process, and either out-license it to a marketing partner, or, in Canada, they may market the product themselves.

 

Market Cap - $215

 

Products

• Lipofen - treatment of hyperlipidemia, a cholesterol disorder
  
• CIP-ISOTRETINOIN - treatment of severe acne
  
• CIP-TRAMADOL ER - management of pain
  

 

Highlights

• Growing revenue streams, positive EBITDA, strong and increasing cash balance
  
• Focused on growth through new products
  
• Proven Management team with meaningful insider ownership (40%)
  
• Valuation looks attractive (7.9x EBITDA; 8.1 P/E)
  
• No debt - cash balance of $34 million
  
• Attractive quarterly and annual growth
  
• Impressive returns on capital
  

 

Am I missing something here? This seems like a great investment.

[jm25]

Investor Presentation:

http://www.cipherpharma.com/files/April%202014%20-%20DND%20-%20Presentation%20FINAL_v001_o02086.pdf

 

Annual Report:

http://www.cipherpharma.com/files/doc_financials/Cipher%202013%20Annual%20Report%20-%20Final.pdf

 

 

[KCLarkin]

How does the patent portfolio look?

 

http://www.law360.com/articles/485288/ranbaxy-sues-actavis-to-block-generic-absorica-acne-drug

 

[lschmidt]

Please take this with a grain of salt from someone who has never invested in a pharmaceutical company. The only problem I see is that these products are not highly differentiated and more expensive than the generics while enacting a minor improvement. The sales are highly dependent on whether the prescribers can justify the higher cost to the insurance companies.

 

My off-the-cuff thoughts:

1) Lipofen - the main problem here is that this class of medications is simply not useful. They haven't been proven to decrease cardiac mortality, and the research is focusing away from triglycerides. I think prescribing will decrease in favor of statins.

2) Absorica - this is 2-3 times more expensive than generic isotretinoin (but in an important acne niche market). The only improvement is that it doesn't have to be taken with food. Will the insurance companies continue to pay this amount for a small improvement?

3) Conzip - haven't looked at this medication, but it's also a small improvement in rate of onset of a popular pain medication. More expensive, of course, than the alternative.

 

Bottom line: hard for me to predict sales trends of a small number of niche products. There are also future forces that may work against higher cost drugs.

[rykelsap]

I think you need to adjust your valuation metrics for non-recurring items. Specifically I am referring to the recognition of the deferred tax asset and milestone payment in Q4 2013. As per the company's news release:

 

"Excluding the impact of the milestone and the deferred tax asset, net income would have been $13.1 million, or $0.53 per basic share."

 

This would increase the P/E multiple to ~14.2x. The company could still be attractive but I don't know the industry well enough to comment.

 

 

[jm25]

I think you need to adjust your valuation metrics for non-recurring items. Specifically I am referring to the recognition of the deferred tax asset and milestone payment in Q4 2013. As per the company's news release:

 

"Excluding the impact of the milestone and the deferred tax asset, net income would have been $13.1 million, or $0.53 per basic share."

 

This would increase the P/E multiple to ~14.2x. The company could still be attractive but I don't know the industry well enough to comment.

 

I was just taking the Capital IQ figures for what they were - I haven't scrubbed the numbers yet. Thanks.