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Cipher Pharma adopts 5-by-5 mantra for future growth

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Cipher Pharmaceuticals (OTCBB:CPHMF; TSX:DND), with newly installed CEO, Shawn O’Brien, has adopted a five-by-five strategy that sets objectives for its future growth.

Shawn O’Brien

Shawn O’Brien

“I want to emphasize that this is not guidance, but within five years, we want our dermatology business in Canada to grow from $2-million this year to $50-million, we want to have five new products on the market in the U.S. and Canada that we will commercialize on our own and we want to increase our market cap from around $200-million to $1-billion,” Mr. O’Brien says in an interview with BioTuesdays.com.

“And five years later, in 10 years from now, we would like our market cap to reach $5-billion,” he adds.

Mr. O’Brien is no stranger to building highly successful global enterprises. In various executive positions with AstraZeneca, he led the business unit for respiratory and inflammation, he was the commercial leader for the oncology therapeutic area and was VP of commercial operations for emerging brands.

While at AstraZeneca, Mr. O’Brien played a leadership role in the development of five blockbuster brands – Seroquel, Arimidex, Zoladex, Symbicort and Pulmicort Respules – with combined annual sales of more than $10-billion.

And after leaving AstraZeneca, he ran three closely-held pharma companies, including AltheRx Pharmaceuticals, Profectus BioSciences and Solstice Neurosciences.

“I bring a diverse tool box to Cipher,” he says, noting that Cipher already has delivered 10 consecutive record quarters for revenue, EBITDA and net income, and is the only Canadian company with three FDA-approved drugs.

“Our three-pronged approach to value creation and growth, will be expansion of our dermatology focus in Canada, acquisition of transformative technologies and a specialty bio-pharma focus on M&A in the U.S.,” he adds.

In a research report at the end of July, Cormack Securities analyst, David Dean, said that after spending time Mr. O’Brien, “we are excited about the possibilities that his expertise brings to Cipher, especially considering the power that can come from its pristine balance sheet, that its Canadian sales force is waiting for another product(s), and an apparent mandate from the board to build (likely through acquisition) a boots on the ground operating unit in the U.S.”

Mr. Dean raised his price target for Cipher to $11.50 from $10 after the company’s second quarter results this year and after applying his EBITDA and EPS multiples to estimated results for 2015. The stock finished at $12.10 on Friday.

Ten Record Quarters: Income, EBITDA & Revenue

Ten Record Quarters: Income, EBITDA & Revenue

Cipher’s product portfolio covers products for dermatology, including Absorica in the U.S. and Epuris in Canada, both for severe acne; cardiovascular disease with Lipofen in the U.S., which is used in combination with statins to treat high cholesterol; and moderately-severe pain, including ConZip in the U.S. and Durela in Canada.

Mr. O’Brien says the company’ plans to submit its Betesil patch for regulatory approval in Canada by the end of 2014, with plans to launch in the first quarter of 2016. The patch is designed to treat plaque psoriasis.

Absorica is Cipher’s formulation of isotretinoin and is the company’s major revenue driver currently. It was launched by marketing partner, Ranbaxy Laboratories, in the U.S. in November 2012. Ranbaxy has 50 full time sales reps promoting Absorica and Mr. O’Brien says Absorica is Ranbaxy’s most important branded product.

Ranbaxy’s sales in 2013 were about $150-million as the market for isotretinoin prescriptions rose 15%. Mr. O’Brien suggests that Absorica sales are on track to top $300-million this year. “We see the product eventually reaching a 30% market share,” he adds.

“Our severe acne formulation differentiates itself from the competition by offering greater absorption under fasting conditions and dosing without regard to meals, which is a significant advantage with teenagers,” Mr. O’Brien points out.

He adds that there is an opportunity to get Absorica on additional third party payer plans in the U.S., where about 25% of the patient population is not covered yet.

In Canada, Epuris is the cornerstone of Cipher’s commercial operations. The product was launched in mid-2013 and Cipher now has a team of seven people selling Epuris, which claimed a 13.4% market share after 12 months on the market.

The company plans to more than double its sales team in Canada as Epuris gains access to provincial drug plan formularies in Quebec and Western Canada, and additional products are launched over the next two years.

Cipher recently teamed up with Andromaco for a planned market launch of its isotretinoin product in Chile in the first quarter of 2015 and with Ranbaxy in Brazil for a launch in the second quarter of 2016. “About 60% of the isotretinoin market in South America is in Brazil,” Mr. O’Brien adds.

CIP-Isotretinoin (Absorica/Epuris):  Currently Cipher's Major Revenue Driver

CIP-Isotretinoin (Absorica/Epuris): Currently Cipher’s Major Revenue Driver

The patent on Lipofen, Cipher’s fenofibrate formulation for high cholesterol, expires in January 2015 and the company, in a preemptive move, authorized the launch of generic Lipofen in the second quarter of 2014. Lipofen has been sold in the U.S. by marketing partner, Kowa Pharmaceuticals, since 2007.

According to Mr. O’Brien, the authorized generic flattened the decline in fenofibrate prescriptions. In addition, the generic was launched at a higher price than branded Lipofen was 12 months ago, which has improved margins.

Lipofen: Competes in US$1.6B Fenofibrate Market

Lipofen: Competes in US$1.6B Fenofibrate Market

Cipher’s tramadol franchise for moderate-to-moderately severe pain, such as osteoarthritis, is the only tramadol product to offer rapid onset of action under fed and fasting conditions, and full 24-hour control. “Nobody else has that,” Mr. O’Brien claims. However, the company’s ConZip drug was the third once-daily tramadol to launch in the U.S.

Second quarter prescriptions rose by 11% in the U.S., where ConZip is sold by Vertical Pharmaceuticals. In Canada, the once-daily tramadol product is sold as Durela by Medical Futures. Durela sales rose 73% in the second quarter over the same period last year.

“This is a great product but in a tough market,” Mr. O’Brien admits, noting that for every three prescriptions written for ConZip in the U.S., only one is filled at the pharmacy because ConZip is interchangeable with other versions of once-daily tramadol. “We need to work with third party payers and pharmacists to reverse that.”

In 2013, Cipher teamed up with Tecnofarma International to distribute its once-daily tramadol in Latin America, including Brazil and Mexico. An initial launch in the first two countries is expected in the first quarter next year.

CIP-TRAMADOL ER (ConZip/Durela)

CIP-TRAMADOL ER (ConZip/Durela)

Cipher ended the second quarter this year with about $40-million of cash and Mr. O’Brien figures the company will be generating $5-million of new cash per quarter going forward. “The issue now is to put our cash to work.”

In discussing Cipher’s business development strategy, he says the company hired a U.S. investment banker at the end of July for its M&A specialty needs.

“We’re willing to look at acquiring products or a company that will be accretive in two years,” he points out. “We’re not interested in things like rheumatology and low-T, where there is too much competition with Big Pharma. But we’re willing to look at dermatology, oncology and orphan drug indications, for example. Essentially, any specialty pharma play but not a primary care business.”

He explains that specialty pharma businesses have the advantage of efficient commercialization and are in markets where drug prices generally are higher. He figures a move into the U.S. will take at least 12-to-18 months.

In the short-term, he says the focus will be on the company’s dermatology franchise in Canada, again where any acquisition or licensing deal will be accretive in two years. “Since I joined Cipher in June, we now have three term sheets that are active in this category,” he adds.

Cipher also is looking to obtain technologies and de-risked programs that are in areas of high unmet medical need and that can get a product to the market quickly. “We have one active term sheet in this area,” he adds.


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