The settling of an outstanding lawsuit removes the overhang from Cipher Pharmaceuticals (TSX:CPH, Nasdaq:CPHR) and will likely signal the end of a long share price decline, says Laurentian Bank Securities analyst Joseph Walewicz.
Yesterday, Cipher Pharmaceuticals and its partners Ranbaxy Pharmaceuticals Galephar Pharmaceutical Research announced they had entered into a settlement agreement with Actavis Laboratories F1 Inc., Andrx Corp., Actavis Inc. and Actavis Pharma Inc. that dismisses the patent litigation suit relating to Actavis’s abbreviated new drug application (ANDA) for a generic version of Absorica (isotretinoin capsules). Under the settlement agreement, Cipher, Ranbaxy and Galephar annonced they have entered into a non-exclusive licence agreement with Actavis under which Actavis may begin selling its generic version of Absorica in the United States on Dec. 27, 2020, which is about nine months before the expiration of the patents in September, 2021.
Walewicz says the removal of the lawsuit pulls back the curtain on a well capitalized company that looks cheap.
“While near term results may be choppy, the current valuation is compelling,” says Walewicz. “The settlement of the outstanding litigation removes uncertainty, and improving Sitavig and Nuvail sales demonstrate traction with the Innocutis acquisition. We have changed our valuation to solely a DCF (WACC of 8.72% terminal growth of 1.5%, previously a blended target based on comparable multiples and a WACC of 8.69% / 2% terminal growth). Investors should add/start positions at current price levels.”
In a research update to clients this morning, Walewicz upgraded Cipher Pharmaceuticals from “Hold” to “Buy”, while maintaining his one year target price of (U.S.) $8.50.