Echelon lowers price target on Cipher Pharma, maintains “Buy” rating

With the stock on a multi-year decline and the board looking at its “strategic options”, Echelon Wealth Partners analyst Doug Loe has lowered his price target on Cipher Pharma (Cipher Pharmaceuticals News, Stock Quote, Chart TSX:CPH).

Yesterday, Cipher announced that Craig Mull had been appointed interim CEO, replacing Robert Tessarolo. The company also announced that it had formed a special committee to “review and evaluate the strategic direction of the company”.

“We believe the Q2 results show early evidence of our commitment to increasing profitability, and we look forward to providing a more detailed operational and strategic update when we report our Q2 financial results,” Mull said.

Loe today maintained his “Buy” rating on CPH but reduced his price target, explaining that it has much to do with softening Absorica royalties that are still defining the company’s value in the near-term.

Cipher Pharma price target reduction due to multiple compression

“We are reducing our PT for CPH from C$6.50 to C$4.00 mostly from compressing the multiple (from 8x to 5x) we ascribe to our F2020 EBITDA forecasts when deriving our PT/valuation for the firm,” he writes. “We believe that multiple compression is justified in current circumstance as a measure for new business risk that another CEO transition confers onto Cipher’s specialty pharmaceutical operations, while simultaneously reflecting our caution on directionality of Cipher’s revenue/EBITDA growth trajectory, a trajectory that, while stable by recent standards, has revealed modest performance in absolute terms as compared to most fiscal years since Absorica’s US launch in FH212 (and this observation is true even if we exclude F2017 as an unusually strong outlier financial period, for reasons specific to Absorica and focused promotional efforts by partner Sun Pharma that were unique to that period).

Loe thinks CPH will post EBITDA of $9.4-million on revenue of $22.9-million in fiscal 2019. He expects those numbers will improve to EBITDA of $15.4-million on a topline of $30.1-million the following year.

The analyst’s new target implied a return of 245 per cent at the time of publication.