Cipher Pharma earns price target raise at Stifel

A meeting with management has increased the confidence level that Stifel analyst Justin Keywood has in Cipher Pharmaceuticals (Cipher Pharmaceuticals Stock Quote, Chart, News, Analysts, Financials TSX:CPH).

In a research update to clients October 22, Keywood maintained his “Buy” rating and raised his price target of CPH from $17.00 to $19.00.

The analyst explained the reasoning behind the move.

“We met with Cipher management and have greater conviction on the integration of transformational U.S. asset, Natroba (acq. July, US$89.5mm) and the growth prospects. Natroba doubles the FCF profile for Cipher’s business but also adds U.S. infrastructure with 50 sales reps that can support much greater revenue. We see a small but active M&A pipeline (2-4 deals) for additional U.S. assets, focused in Dermatology with an average transaction size of ~US$50-75mm. The potential deals are likely to include a relatively small initial cash outlay with royalty and milestone payments attached. M&A should serve as a positive catalyst for the stock with additional scale benefits and operating leverage with the U.S. infrastructure already in place and similar call points. We also highlight strong shareholder alignment with the Mull family owning 44% of CPH shares.”

Keywood thinks CPH will post EBITDA of $18.0-million on revenue of $33.7-million in fiscal 2024. He expects those numbers will improve to EBITDA of $26.1-million on a topline of $49.5-million in fiscal 2025.

“Cipher announced a transformational acquisition on July 29 of US$89.5mm for the global rights and commercial infrastructure of Natroba (Spinsoad), where we estimate the asset will more than double Cipher’s EBITDA,” the analyst added. “We also see the use of tax loss credits for Natroba, implying substantial FCF inflection. Natroba (Lice & Scabies) is a condition that cannot be ignored and the incumbent market share leader permethrin could be ineffective with genetic mutations, where there has been no innovation for many years, prior to Natroba. We also see the commercial infrastructure of 50 employees in the U.S. as underutilized and supporting a revenue level in excess of US$100mm. Operating leverage could be realized as we expect Natroba to grow double-digits organically in the near-term but also with the opportunity for Cipher to acquire/in-license additional U.S. products with the infrastructure to support and serve as catalysts.”