Cipher Pharmaceuticals Inc. (CPHR-Q)

CPH has a market cap of ~$109M and operates as a specialty pharmaceutical company. Sales have been fairly lumpy over the years, and have mostly declined, but it is free cash flow positive and repurchases some shares while mostly adding cash to its balance sheet. It has an expanding balance sheet, almost no debt, a good cash balance, and its valuation is decent at a 3.9X forward sales and 1.1X price to book multiple. It has seen a nice run-up so far this year - we would be comfortable with a small position, while being mindful of small-cap risks and position sizing. 
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(A Top Pick Oct 24/14. Down 33.71%.) They were in a bit of a jam in that they had one particularly strong product but didn’t have a sales force, so they acquired a company in the US to get them a sales force. He could see this was going to drop their earnings, so he sold his position.

Have a significant drug in the US that is doing extremely well. This is kind of growth by acquisition, but is interesting because in a lot of cases there really isn't an open bidding process for some of the drugs that come up for sale. It's all about personal relationships and the CEO of this company has some pretty good contacts. Earnings are expected to be pretty much unchanged in 2015. The real key is, can they acquire more drugs in order to grow.

We are in an environment right now where pharmaceutical companies are very hot commodities. You either have to acquire things or you have to be acquired. This company is attractive in both respects. Have a great lead drug for teenage acne which is doing very well. Also, have a lot of cash. This could simultaneously be a very attractive acquisition or they could turn around and use that cash to buy other things in their product offering. They have a lot of options right now. His guess is that we are going to get reconciliation one way or another in the next six months. They are either going to buy a bunch of stuff or going to get a big pop in their rating or get taken out by somebody at a higher price. Trading at 13X earnings with about a 35% ROE.

(A Top Pick July 18/13. Up 56.25%.) The reports that are coming out are extremely favourable.

(Market Call Minute.) Has been trading sideways for about a year, but the ROE is really, really high. Have a lot of cash, and he thinks they are going to buy something soon. Stock is firming up nicely.

(A Top Pick July 18/13. Up 30.07%.) This pick was based on the announcement that somebody was going to go into production eventually of its main line. (See Top Picks.)

Over the last 12 months, this has had one of the weirdest trading patterns on the TSX. It sort of trades between $7 and $9 with no apparent reason. Its lead drug down in the US is doing great. Recent numbers were spectacular. He is meeting with management in a couple of days and wants to question what is happening with the rest of the company and what are they doing to develop the rest of the business. Wants to know what they have to do to get their lead drug moving in other countries, and with the phenomenal cash flows coming in, what are they doing to get other drugs going, etc. If you can buy this under $7.50, it is a very good buy.

Pharmaceuticals tend to gain from about July through to October. This is now consolidating and the chart shows a bit of a triangle pattern and it depends on which way it goes. Since we’re out of the period of seasonal strength, he would expect this to break to the downside. This is one you would buy on weakness as we get into June, July and August.

(Market Call Minute) Volatile but high ROE and he thinks you will see big numbers out of it in 2014.

(Market Call Minute.) Very volatile name. A generic drug manufacturer.