Cipher Pharmaceuticals Q3 2024 Update - CPH.to

Quick update after Q3 2024

*Disclosure: I own shares in CPH. I am not a professional. Please do your own due diligence.

Price: $3.88 CAD / $9.75 USD

MC: 250 million USD

EV: 280 million USD

1 year performance: +218%

CPH reported yesterday after the close and held a call this morning. I had little to now expectations on the financials for this quarter given that they have only owned ParaPro for 2 months as this point and were integrating them. Results were behind the market’s expectations and the stock was down 10-11%.

*all numbers in USD unless stated otherwise

Quarter Recap

• Revenue came in at 10.4 million or up 71%.

• EBITDA (after removing acquisition costs) came in at 4.1 million. Up 13%

• Natroba and it’s generic contributed 5.4 million in revenue.

• Combined gross margin at 81%.

  • Natroba gross margin at 85%.

• Absorica revenue down to 0.6 million from 2.6 last year.

  • Market share down to 6.1% from 6.9%

• Epuris revenue at 3.4 million vs 2.5 last year.

  • Market share up to 50.3%

Call Notes

• They are transitioning away from the co-promotion arrangement for Natroba and it will take some time. They feel that it will be complete by the end of the year and financials will look much improved in Q1 2025.

• Nothing new on MOB, but they sounded positive on it’s potential in Canada.

  • They spoke with some doctors and feel that many patients will care about more mycological cure rate even if the cosmetic cure rate isn’t as high as hoped.

• They are monitoring the CF-101 situation as Can-Fite is planning on another phase 3 trial and looking to raise funds to finance it.

• M&A pipeline has 2 or 3 serious opportunities in it.

  • Look to over 30 million in revenue but didn’t comment on EBITDA contribution.

  • Sounds more like in-license than an outright acquisition. This reduces the need for them to use shares as currency.

• They didn’t have much to say about Absorica. The market share and revenue bounces around quite a bit.

Valuation

There really no point in looking at ttm numbers for CPH. Prior to the ParaPro acquisition they were a 10-12 million EBITDA business and ParaPro should double their EBITDA. So I have them at about 12x/EV run rate EBITDA. This includes zero growth from anything just full integration of ParaPro.

Closing Thoughts

The market obviously didn’t like the quarter. After listening to the call and reading the transcript a couple of times, I am a bit perplexed at such a negative reaction. This quarter and the next are going to be messy. The other indicators provided by management were positive. Natroba did 5.4 million in revenue in 2 months with 85% gross margin. That revenue number is ahead of my expectations, although it does have some seasonality to it.

The current set-up reminds me of XPEL when shares went from $2 in May 2018 to over $10 by end of 2019. There were lots of murkiness still and the valuation was high so many would over react to short term results. I just see so many ways to win with CPH even from here. I have a feeling that this post is either going to look really smart or really dumb in 18 months from now. Either way, it will be entertaining.

Thanks for reading.

Dean

* long CPH.to