CASE STUDY: Cipher Pharmaceuticals (CPHRF)

June 11, 2023

Cipher is a specialty pharmaceutical company with a robust and diversified portfolio of commercial and early to late-stage products.  Cipher acquires products that fulfill unmet medical needs, manages the required clinical development and regulatory approval process, and markets those products directly in Canada and indirectly through partners in the U.S., and South America.

Here is a good writeup on Value Investors Club:


Cipher’s core product is Epuris, a product marketed in Canada for the treatment of severe nodular acne based on the active ingredient isotretinoin.  Launched in July 2013, Epirus has grown at a very high rate every year – at 27% per year over the last 6 years – benefiting both from a growing market and consistent market share gains.  More importantly, Epuris is the market leader with 43% share in its category.  Because it is by far the best product in the market, Epuris should continue growing at high rates for the foreseeable future.

Epuris has high barriers to entry because the target market is not large enough to justify the investment it would take to bring a new competitor to market.


Absorica is an isotretinoin product that Cipher has licensed to Sun Pharmaceuticals for the U.S. market.  For most of Cipher’s recent existence, Absorica was almost the entire company.  But Absorica’s patents expired, driving revenues on the product from $30 million to $6 million.

Many investors mistakenly believe either that (1) Absorica is the entire company, so Cipher must be worthless; or (2) What happened to Absorica will also happen to Epirus.

First, Absorica’s earnings have stabilized around $6 million a year and are unlikely to go much lower.

More importantly, as mentioned above, Epirus is by far the best product in Canada where it is a market leader, but the market is not large enough to justify the investment a competitor would have to make to create a competing product.  Note: The price of Epirus is 1/10th that of Absorica and Epirus does not have a patent.

Two phase III product candidates

Cipher has two phase III product candidates.  Cipher does not have development risk for either product since it just has the marketing rights in Canada.  Cipher has partnered with Moberg Pharmaceuticals to develop MOB-015, which is a topical treatment for a common nail fungus.  Cipher has partnered with Can-Fite BioPharma to develop CF101, a treatment for plaque psoriasis and rheumatoid arthritis.


John Mull was the founder of CML HealthCare, a diagnostics services provider acquired by LifeLabs in 2013 for $1.22 billion.  Cipher was previously spun out of CML HealthCare.  John Mull was the former CEO of Cipher and owns 39% of the shares.  John’s son Craig is the current CEO and owns 2% of the shares.

But in between the time when John Mull stepped down as CEO and when Craig Mull took over as CEO, there were two bad acquisitions made by other CEOs.

Since taking over as CEO in 2019, Craig Mull has performed well.  He has cut costs meaningfully, maintained Epirus’s growth, extended the Absorica license to 2026, and aggressively bought back Cipher’s stock.


The market cap is $71.7 million.  The company has $33 million in cash and no debt.  So the enterprise value is $38.7 million.

The company has over $200 million in NOLs, which means it will not pay cash taxes for a long time.

Here are the current multiples:

    • EV/EBITDA = 3.31
    • P/E = 2.77
    • P/B = 1.10
    • P/CF = 2.66
    • P/S = 3.69

As noted earlier, insider ownership is 40%+.  Also, the company has bought back a great deal of stock.

TL/TA (total liabilities/total assets) is 12.7%, which is excellent.  ROE is 50.5%, which is outstanding.

The Piotroski F_score is 8, which is very good.

Intrinsic value scenarios:

    • Low case: During a recession, the stock could fall 50% from $2.83 to $1.42.
    • Mid case: The P/E is 2.77, but should be at least 5.  That means the stock price should be approximately $5.10, which is 80% higher than today’s $2.83.
    • High case: For a growing pharmaceutical company with a strong competitive position and a promising pipeline, the P/E arguably should be at least 7.5.  That would make the intrinsic value of the stock $7.66, which is 170% higher than today’s $2.83.
    • Very high case: With a large cash balance and significant free cash flow, the Mull’s are highly likely to make one or more acquisitions, creating a larger and more diversified pharmaceutical company.  The stock could be worth at least $10, which is over 250% higher than today’s $2.83.


Epuris’s growth could slow significantly for the first time, or a superior product could be developed in Canada.  The Mull’s could make a bad acquisition.  Revenues from the licensing portfolio could decline faster than anticipated.  New product candidates could fail to reach commercialization.



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