Cipher Pharmaceuticals has recently hit a 52-week high, does this indicate a resurgence in the stock or simply a cyclical movement?
In January 2021, after being found in breach of contracts which resulted in the termination of a license agreement for Trulance and having to pay an impairment charge of $5.3m, Cipher’s stock hit a new 52-week high in their Q2 FY2021 performance. The company’s result demonstrated a strong sequential and year-over-year growth in revenue, EBITDA, and earnings per share. Hence, this raises the question as to whether they will be able to maintain this growth or not?
Founded in 2000 in Canada, Cipher (TSX: CPH) is a speciality pharmaceutical company that manages the required clinical development and regulatory approval process of prescription medications by utilizing drug delivery technologies or new pharmaceuticals which are served worldwide.
Company’s financial outlook
Cipher recently announced an arbitration ruling in its dispute with Bausch Health over Trulance, an oral tablet approved by Health Canada designed for the treatment of irritable bowel syndrome with constipation in adults. The legal provision in the impairment of Trulance had a negative impact on Q1 financial results. Despite the impact, in the last six months their stock has found fondness by investors, with a sudden rise driven by the growth of their license and product portfolios.
Their launch of Absorica AG with their marketing partner Sun Pharmaceutical Industries, Inc. (“Sun Pharma”) in Q2 FY2021 has maximised the value of their isotretinoin portfolio. Additionally, the rise in the U.S isotretinoin prescription market of 18.2% is further driving their licensing revenue growth. This has resulted in the Company’s returns to significantly exceed the Canadian Pharmaceuticals return over the past year.
Cipher continues to evaluate the market potential with their development partners, Galephar and Moberg. Along with the completion of proof-of-concept studies, Cipher aims to advance their tattoo program, known as DTR00 for which preparation is currently ongoing for the succeeding focus animal studies to incorporate test parameters that will potentially broaden and reinforce the existing IP portfolio.
Cipher Pharmaceuticals is forecasted to grow faster in the future than it has in the past, with revenues expected to display 7.1% annualised growth until the end of 2021. This would be a much better result than the 11% annual decline over the past five years.
Although Cipher’s earnings and revenue are forecasted to grow, they may still be very slow in the Canadian market as their share price is extremely undervalued and is trading significantly below the fair value estimate of (CA$17.31). Their future performance may still be quite bleak as their low ROE indicates that they have not been very efficient in utilising shareholders money to generate profits.
The company’s exposure to numerous financial risks can severely affect its operating performance over the standard course of the business. These risks include credit risk, liquidity risk in meeting its financial liability obligations, currency risk related to the fluctuation of foreign exchange rates, interest rate risk and capital management risk.
Even though Cipher’s business and operations have demonstrated great resilience in the past, the future outlook could still be unfavourable if they fail to execute effective cost reduction plan and selectively pursue products and business acquisition, allowing them to catch up with other companies in the Canadian Pharmaceutical Industry.