Q: Cipher Pharma made a major acquisition today that they say will double their sales and profits. The new products acquired are also superior to the existing treatment, which has 71% of the USA market, so lots of room there for growth, plus they plan to get approval in Canada and make a deal for ex-North America sales. They also have their drug for toenail fungus, a big market, set to produce final results in about 6 months, with sales expected starting in 2026. This looks like a good growth stock to me, trading at a cheap valuation, given the profit from the new products, and I am wondering what your take is on the acquisition and the stock.
5i Research Answer:
The acquisition looks quite good, and the stock remains cheap at 13X earnings despite its 88% gain this year. The valuation looks OK and adding new products with high potential certainly makes sense. CPH has the financial capacity, going into the deal with a strong balance sheet. Analysts have not updated their models yet, and going into this deal CPH was expected to see lower EPS in the next 18 months. But the deal changes its growth rate and size of the company, which should get it a better valuation, over time. It is still fairly small, and not all deals succeed, but the news looks quite good to us.