Cipher Pharmaceuticals has a 208 per cent upside, Echelon Wealth says

Specialty pharma company Cipher Pharmaceuticals (Cipher Pharma Stock Quote, Chart: TSX:CPH) just announced the Canadian launch of its atrial fibrillation drug Brinavess, but Echelon Wealth Partners’ Douglas Loe says that the launch was already baked into his model, meaning no change to his “Buy” rating and C$8.75 price target.

On Wednesday, Cipher announced the launch of Brinavess, a drug approved by Health Canada in 2017 and initially launched by Correvio Pharma (TSX:CORV) before its Canadian marketing rights were acquired by Cipher in May of this year.

“We are excited to bring this safe and effective treatment to Canadians who are suffering from acute onset atrial fibrillation,” said Robert Tessarolo, President and CEO of Cipher, in a press release. “Brinavess is Cipher’s second product launch this year and seventh marketed product in Canada. We are committed to further expanding our Canadian business with future product launches and by continuing to assemble a broad portfolio of prescription products that serve unmet medical needs.”

Concerning Brinavess’ impact on Cipher’s top line over the next few quarters, Loe says his expectations are modest, especially when referencing the drug’s performance in Europe, where it has been EMA-approved since 2010.

“Brinavess’ launch this quarter is consistent with our current revenue/EBITDA forecasts, with our valuation still based on 9x EV/F2020 EBITDA of $21.9 million,” says the analyst in a client update on Wednesday. “The firm’s main value driver is now as it has been since F2012 its flagship CIP-isotretinoin formulation Absorica, for which we project quarterly royalty revenue at or above $4 million in all periods until FQ420 when generic competitors are legally allowed to launch alternative isotretinoin formulations.”

The analyst also notes that CPH’s valuation is currently suffering from investors’ exaggerated focus on the company’s likely lack of growth from Absorica, saying that this has led to CPH’s currently compressed EV/EBITDA multiples — about 4.4 times 2019 EBITDA estimates, which compares well to an average of 10.6 times for Cipher’s peer group.

“We see no reason to assume that Absorica-derived revenue will fall off a cliff post-genericization in late FH220,” says Loe.

Cipher Pharma stock has upside

The analyst thinks CPH will generate revenue and EBITDA in 2018 of $26.8 million and $11.1 million, respectively, and revenue and EBITDA in 2019 of $33.9 million and $15.7 million, respectively. Loe’s C$8.75 target represents a projected 12-month return of 208 per cent at the time of publication.

(All figures in US dollars unless otherwise noted.)