Thesis – Barriers to Entry Prevent Generics from Entering Canada: Costs of getting a generic drug approved can be substantial, at around $5m. Essentially, the current stock price suggests that a generic will steal significant market share from Epuris, the thesis suggests this is false. The company has traded between $40-80m CAD market cap over the last 4ish years, which is far too small for institutional investors and is likely why it is so mispriced. 4) The company is currently too small for institutions to invest in meaning the thesis is not widely known. In 2022 (Based on quarterlies and DCF) Absorica was only 25% of the $21.4m in revenues However, Epuris continued growth and represents 54.6%. in 2021 and Cipher combatted this by creating their own generic, but in doing this they slashed margins and significantly reduced Absorica revenues. This was a valid concern as Absorica represented 57% of the $22.8m revenues in 2018, and Epuris represented 25.4%. & Canadian markets in 2021 so they sold their shares. 3) Investors anticipated generic competition entering the U.S. company that sells Absorica) stopped their marketing campaign in anticipation of patent expiry in 2021, which significantly reduced revenues. 1) the company made a poor acquisition of another company and the pipeline drug failed FDA approval. Why this Opportunity Exists: The stock has been declining consistently from 2017 until 2021 for a few reasons. It is also important to note that Cipher has spent $1m+ in share repurchases this year, and management owns 44% of shares. At Cipher, he restructured the management team, saving $7m in SG&A, yet this hasn’t been reflected in the price. In the past, Craig was COO for CML Healthcare, helping grow the company from $20m in revenues to over $235m. Craig Mull, John’s son, became interim CEO of the company. Recently, management changed again, and for the better. New management was paying themselves millions and were responsible for a few poor acquisitions, taking on lots of debt and blowing through cash reserves. When John Mull resigned as CEO, things got ugly. Management: Cipher Pharma was spun off from CML Healthcare in 2003. Transactions are roughly $1m plus milestone payments, which allows them to save $30-50m of development costs and store cash for acquisitions. To grow their product line, Cipher purchases the North American rights to drugs being developed during clinical trials. They gained the North American rights to this product by purchasing them from Galephar, who they rely on for manufacturing the drug. Their primary source of revenue is from CIP-Isotretinoin (marketed as Epuris in Canada and Absorica in the U.S.) which is a severe nodular acne product that has 83% better fasted absorption than Isotretinoin (Accutane). They generate revenue by selling prescription products to the Canadian market and earning royalties on licensed products that partners sell in the U.S. It is important to note that its share price is in CAD, but all financials are USD.īusiness Overview: Cipher Pharmaceuticals is a microcap pharmaceutical company based in Oakville. Key Stats: Cipher is trading at a market cap of $69m USD with $30m in cash, $211m in NOL’s (we estimate the present value of the useable NOL’s is $30m), no debt, very low capex, had UFCF of $9m in 2021 which we expect to grow in the future, and has two drugs in stage 3 trials which could act as a great catalyst. Cipher Pharmaceuticals | TSX: CPH | Price – $3.55 | Target - $9.14+
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