Cipher Pharma has price target cut at Stifel Canada

Following the company’s fourth quarter results, Stifel Canada analyst Justin Keywood has chopped his price target on Cipher Pharma (Cipher Pharma Stock Quote, Chart, News TSX:CPH).

On Wednesday, Ciper Pharma reported its fourth quarter and fiscal 2019 results. In the fourth quarter, the company reported net income of $2.6-million on revenue of $5.9-million, a topline that was down eight per cent over the same period last year.

“We are pleased to see continued progress on our cost reduction initiatives. Fourth quarter results showed a substantial decrease in operating expenses, which translated into a 282% improvement in Adjusted EBITDA and $2.6 million of net income during the quarter,” said interim CEO Craig Mull. “Epuris is showing strong growth, with fourth quarter revenue up 30% to $2.0 million. Epuris finished the quarter with 39% market share in the Canadian market.”

Keywood said this quarter saw the business optimize, but added that uncertainty remains.

“CPH reported good Q4 results with improved profit as the business optimizes during a transitional period,” the analyst said. “Sales were US$5.9mm, down (8%) YoY and were in line with estimates. Licensing revenue was US$3.8mm, down (19%) YoY, where Absorica still represents the majority of royalties at US$3.1mm. CPH’s Canadian unit showed strength at US$2.2mm, up 21% YoY with Epuris, an extreme acne skincare product, representing US$2.0mm. OPEX was cut substantially in Q4 at US$2.2mm, down (67%) YoY, leading to adj. EBITDA of US$4.1mm vs. US$1.1mm last year. These results demonstrate optimized operations as CPH changes its Canadian strategy from a direct sales approach to seeking strategic partners through licensing deals. However, a lawsuit is still in progress that affects one of CPH’s more valued products, Trulance, and there remains great uncertainty on the U.S. licensing stream beyond 2020. COVID-19 also presents some potential challenges in prescribing skincare products but virtual formats are being utilized. Overall, we see Q4 as progressive but a lawsuit and high uncertainty leads to our conservative rating.”

In a research update to clients today, Keywood maintained his “Hold” rating but lowered his one-year price target on Cipher Pharma from $1.45 to $0.90, implying a return of 15 per cent at the time of publication.

Keywood thinks Ciper will post EBITDA of (US) $5.0-million on revenue of $20.0-million in fiscal 2020.

The analyst explained the rationale behind his price target cut.

“We see CPH’s change in strategy as valid given the challenges of trying to market disparate products without scale,” he explained. “However, we also see potential issues with relying on third party partners to successfully market products, where there is far less control. This situation to a certain extent played out with Absorica at CPH, where its U.S. partner removed promotions that led to sharp declines. Although upfront payments under the model could reduce debt and provide capital for new assets, we believe that investor interest will be limited for essentially a royalty business. Further, uncertainty around future transactions and a lawsuit is also expected to affect valuation. As a result, we see 6x EBITDA as a multiple that may persist in the near-term. Our C$0.90 target is based on 6x 2020 EBITDA vs. C$1.45 prior based on 2019 EBITDA. “