Laurentian lowers price target on Cipher Pharmaceuticals, maintains Buy

A quarter that fell below his expectations has Laurentian Bank Securities analyst Joseph Walewicz lowering his one-year price target on Cipher Pharmaceuticals (Cipher Pharmaceuticals Stock Quote, Chart, News: TSX:CPH), although the analyst still believes the stock is undervalued.

On Friday, Cipher Pharmaceuticals reported its Q3, 2016 results. The company lost (U.S.) $21.8-million on revenue of $9.3-million, a 10 per cent topline bump over the same period a year earlier.

“In what is typically a slower season in dermatology, our total revenue in the third quarter increased by 10 per cent, led by the solid performance of our royalty business, which generated $6.8-million in high-margin revenue in the quarter and more than $20-million year to date,” said interim CEO Stephen Lemieux. “While the Canadian commercial operation continues to perform well, the growth trajectory of the U.S. business has not met the company’s expectations and, as a result, we took a non-cash impairment charge in the quarter. Despite these challenges, we recorded cash from operating activities of $2.0-million in the quarter.”

Walewicz says in the near term Cipher Pharma’s results don’t matter as much as the strategic review process the company is currently engaged in, and says that as a sum of the parts it is still undervalued, in his mind.

“Results came in well below our forecasts, but given the market data the royalty business was a pleasant surprise,” says the analyst. “We believe that the current market price does not reflect the true value of the company’s assets. We expect the ongoing strategic review will surface shareholder value, and it is possible that this review could catalyze broader strategic discussions. While this could take some time, investors should use the current weakness to position for value enhancing outcomes.

In a research update to clients today, Walewicz maintained his “Buy” rating, but lowered his one-year price target on Cipher Pharma from (U.S.)$8.25 to $6.00.

The analyst believes Cipher will post Adjusted EBITDA of $5.7-million on a topline of $40.48-million in fiscal 2016. He thinks these numbers will improve to EBITDA of $12.1-million on sales of $47.7-million the following year.