The Beat Goes On For Cipher Pharmaceuticals

By Jason Napodano, CFA

On July 31, 2013, Cipher Pharmaceuticals ( Toronto:DND.TO) (CPHMF) reported financial results for the second quarter 2013. Total revenues in the quarter were $5.4 million, up 241% over the second quarter 2012 and crushed our estimate for revenues of $3.4 million. The revenue up-tick was driven by the strong performance of the launch of Absorica (CIP-Isotretinoin) at Ranbaxy, and continued solid royalties from partners on Lipofen and ConZip / Durela. We note the company recorded its first product revenues of $0.088 million in the second quarter from the launch of Epuris in Canada in late June 2013.

Cipher exited the second quarter 2013 approximately $17.8 million in cash and investments. The company generated $1.3 million in cash during the second quarter. We find the current balance sufficient to fund operations for the foreseeable future, as we believe that Cipher will continue to report positive cash flow throughout 2013 even in the face of launching its own specialty dermatology sales force to promote Epuris and Betesil Patch in Canada.

Stock Still Attractive
Based on our financial projections, Cipher should report total revenues in 2013 of around $22.7 million, with net income of $13.4 million, or $0.55 per share. This equates to a P/E ratio of only 11.8x our 2013 figure. In 2014, we model growth in revenues to $38.8 million, net income of $25.2 million and EPS of $1.01. A P/E ratio of 12.5X our 2014 estimate for $0.86 in EPS yields a price target of $10.75 per share. A P/S ratio of 5.0x our 2014 projected revenue forecast of $38.8 million yields a price target of $7.80 per share. We note our EPS forecast of $0. 86 includes only a 15% tax rate given the company held $22.4 million in deferred income tax credits as of the end of the second quarter 2013. Our price target, based on averaging our P/E and P/S calculations is $9.25 per share.

We expect the company to continue to receive growth from existing products, led by Absorica, while they focus more and more on building a commercial sales and marketing presence in Canada. The company began marketing Epuris in Canada in late June 2013. This will be complemented by the Betesil Patch, should it receive Health Canada approval, in 2014. In addition, we fully expect the company to license in and/or acquire other products, with an emphasis on late-stage to commercial-stage product candidates in specialty dermatology market in Canada. Finally, we expect the company to leverage its regulatory approvals in U.S. and Canada to pursue licensing agreements in other markolor: #ffffff;"> for the second quarter 2013. Total revenues in the quarter were $5.4 million, up 241% over the second quarter 2012 and crushed our estimate for revenues of $3.4 million. The revenue up-tick was driven by the strong performance of the launch of Absorica (CIP-Isotretinoin) at Ranbaxy, and continued solid royalties from partners on Lipofen and ConZip / Durela. We note the company recorded its first product revenues of $0.088 million in the second quarter from the launch of Epuris in Canada in late June 2013.

Cipher exited the second quarter 2013 approximately $17.8 million in cash and investments. The company generated $1.3 million in cash during the second quarter. We find the current balance sufficient to fund operations for the foreseeable future, as we believe that Cipher will continue to report positive cash flow throughout 2013 even in the face of launching its own specialty dermatology sales force to promote Epuris and Betesil Patch in Canada.

Stock Still Attractive
Based on our financial projections, Cipher should report total revenues in 2013 of around $22.7 million, with net income of $13.4 million, or $0.55 per share. This equates to a P/E ratio of only 11.8x our 2013 figure. In 2014, we model growth in revenues to $38.8 million, net income of $25.2 million and EPS of $1.01. A P/E ratio of 12.5X our 2014 estimate for $0.86 in EPS yields a price target of $10.75 per share. A P/S ratio of 5.0x our 2014 projected revenue forecast of $38.8 million yields a price target of $7.80 per share. We note our EPS forecast of $0. 86 includes only a 15% tax rate given the company held $22.4 million in deferred income tax credits as of the end of the second quarter 2013. Our price target, based on averaging our P/E and P/S calculations is $9.25 per share.

We expect the company to continue to receive growth from existing products, led by Absorica, while they focus more and more on building a commercial sales and marketing presence in Canada. The company began marketing Epuris in Canada in late June 2013. This will be complemented by the Betesil Patch, should it receive Health Canada approval, in 2014. In addition, we fully expect the company to license in and/or acquire other products, with an emphasis on late-stage to commercial-stage product candidates in specialty dermatology market in Canada. Finally, we expect the company to leverage its regulatory approvals in U.S. and Canada to pursue licensing agreements in other markets for our once-daily CIP-tramadol and CIP-isotretinoin products.

For additional information, see our full PDF report available on Zacks.com: DND/July31-Napodano.pdf.
To follow Jason Napodano, CFA on Twitter: @JNapodano