Cipher Pharmaceuticals is a buy, says Research Capital

Research Capital analyst Andre Uddin maintained a “Buy” rating and C$18.60 target for Cipher Pharmaceuticals (Cipher Pharmaceuticals Stock Quote, Chart, News, Analysts, Financials TSX:CPH) in an August 8 update, saying management remains focused on expanding Natroba sales and pursuing complementary dermatology products for its U.S. and Canadian operations.

Cipher is a Canadian specialty pharmaceutical company focused on a lean structure and generating revenue primarily from product royalties in the U.S. and Canada.

In Q2, Cipher reported US$13.4-million in total revenue, matching Uddin’s US$14.1-million forecast and above the US$12.5-million consensus, compared with US$5.3-million a year earlier for 152% year-over-year growth. Natroba sales were US$7.8-million, below his US$8.5-million estimate.

But Uddin said U.S. institutional demand for Natroba is rising based on prescription trends. Excluding Natroba, Cipher’s product sales rose 11.3% year over year. Adjusted EBITDA came in at US$7.6-million, topping his US$7.1-million forecast and the US$6.2-million consensus, and up from US$3.1-million last year, a 148% increase. The company generated US$6.0-million in operating cash flow, while net income reached US$5.9-million, or $0.22 per share fully diluted, ahead of his US$4.0-million ($0.15) estimate and the US$4.0-million ($0.16) consensus, compared with US$3.0-million ($0.12) last year. As of June 30, Cipher held US$11.3-million in cash and US$25-million in debt. Debt fell to US$18-million after a US$7.0-million repayment on its revolving credit facility post-quarter.

“Cipher has a total of $72M of total debt financing available if the company can find the right acquisition opportunity,” Uddin said. “Management is focused on one: driving Natroba sales in the U.S., two: seeking Health Canada approval for Natroba, three: out-licensing Natroba outside of North America and five: adding complementary dermatology products to its portfolio.”

Cipher posted Q2 revenue of US$13.4-million, meeting internal expectations and above consensus, up 152% from last year’s US$5.3-million. Product sales rose to US$11.9-million from US$3.7-million, with Natroba contributing US$7.8-million, slightly below forecast. Excluding Natroba, product sales grew 11.3% year over year. Licensing revenue was US$1.5-million, just under expectations and similar to last year’s US$1.6-million.

Adjusted EBITDA was US$7.6-million, ahead of forecasts and more than double last year’s US$3.1-million. Net income was US$5.9-million, or US$0.22 per share, above estimates and higher than US$3.0-million or US$0.12 per share a year earlier. Operating cash flow totalled US$6.0-million. At quarter end, cash stood at US$11.3-million with debt at US$25-million, later reduced to US$18-million after a US$7.0-million repayment. Cipher also repurchased and cancelled 230,278 shares at an average price of C$12.74 under its NCIB.

“While total prescription volume for Natroba, inclusive of retail and institutional (hospital, etc) prescriptions, remains largely flat, growth in the institutional segment could possibly suggest early signs of adoption among physicians and hospital systems,” Uddin said. “This trend is encouraging, particularly as awareness of Permethrin resistance grows. In contrast, prescription volume for Permethrin continues to decline, reflecting waning demand amid concerns over its reduced efficacy due to growing resistance. We view this shift as a potential leading indicator of market share gains for Natroba over time. There is a clear seasonal trend when one views the uptake of lice drugs in the summer.”

Uddin said that Cipher should do $34-million in Adjusted EBITDA on sales of $70-million in fiscal 2025. He thinks those numbers will improve to $39-million on sales of $80-million in fiscal 2026.

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