Cipher Pharmaceuticals has a big upside, says Echelon Wealth

With the pickup of a new dermatology asset, Cipher Pharmaceuticals (TSX:CPH) is continuing with its aggressive pipeline augmentation, says Douglas Loe, analyst with Echelon Wealth Partners, who last Friday maintained his “Buy” recommendation and $10.00 target price for CPH.

Last week, Mississauga-based Cipher Pharmaceuticals announced the acquisition of the Canadian marketing rights for Eskata, a topical ultra-high hydrogen peroxide formulation for the treatment of a benign skin lesion condition called seborrheic keratosis. The drug innovator, Aclaris Therapeutics received US FDA approval this past December, with Cipher saying that a submission to Health Canada for approval will be upcoming.

“This transaction, our fourth in 2018, delivers on our commitment to bringing innovative therapies to market that address significant unmet needs,” said Robert Tessarolo, President and CEO of Cipher, in a press release. “The addition of A-101 40 per cent will further leverage our commercial organization and build upon the strong presence Cipher enjoys in the Canadian dermatology market and presents an attractive long-term growth opportunity. We are targeting a New Drug Submission to Health Canada later this year.”

Loe says the acquisition will help Cipher’s earnings over the medium term. “The ESKATA transaction represents the fourth Canadian product in-licensing transaction consummated by new CEO Rob Tessarolo (we are counting the Ozanex/impetigo launch last quarter, even though Canadian rights were originally licensed from Ferrer in Q115), all without exception favourably regarded by us and expected to augment revenue/EBITDA in the medium-term, though admittedly with minimal impact on profitability this year, “ said the analyst in an update to clients on April 6.

With the economic impact of the acquisition still several quarters away, Loe has not changed his investment thesis for CPH, maintaining his F2018 EBITDA forecast of US$23.4 million and F2018 revenue at US$39.9 million. The analyst’s valuation is based on 9x EV/EBITDA and calls for a 12-month target price of $10.00, representing a 149 per cent potential return on investment as of publication date.