Cipher reports fiscal 2007 year-end results



    Toronto Stock Exchange Symbol: DND

    MISSISSAUGA, ON, Feb. 27 /CNW/ - Cipher Pharmaceuticals Inc. (TSX: DND)
today announced its financial and operational results for the fourth quarter
and fiscal year ended December 31, 2007.

    Fiscal 2007 Summary
    -------------------
    
    -   Entered into first commercial licensing and distribution agreement in
        U.S. market. ProEthic Pharmaceuticals granted the exclusive right to
        market, sell and distribute CIP-FENOFIBRATE (approved in U.S. under
        the label Lipofen(TM)).
    -   Successfully completed commercial scale-up and delivery of finished
        packaged product to ProEthic on schedule.
    -   Lipofen launched in U.S. market toward the end of the third quarter.
    -   Received approvable letters from the U.S. Food and Drug
        Administration (FDA) for CIP-ISOTRETINOIN and CIP-TRAMADOL ER.
    -   Recorded first commercial revenue during the year; total revenue of
        $0.5 million for full year.
    -   Cash of $11.0 million at year end.
    

    "Fiscal 2007 saw us achieve several company firsts, most significantly
the launch of Lipofen in the U.S. fenofibrate market," said Larry Andrews,
President and CEO of Cipher. "This demonstrates our ability to take an early
stage formulation through to final approval and commercialization, further
validating our core business model. Advancing CIP-ISOTRETINOIN and
CIP-TRAMADOL ER through the remaining regulatory and commercialization
milestones remains our top priority this year."

    Financial Review
    ----------------
    In the fourth quarter of 2007, Cipher recorded total revenue of $162,000,
compared with nil in the same period last year. Fourth quarter research and
development (R&D) expenses were $0.7 million, compared with $0.4 million in
the fourth quarter of fiscal 2006. Operating, general and administrative
(OG&A) expenses for the fourth quarter of 2007 were $1.1 million, compared
with $1.4 million in the same period last year. Net loss for the three months
ended December 31, 2007 was $1.6 million ($0.07 per basic and diluted share),
compared with a net loss of $2.0 million ($0.08 per basic and diluted share)
in the same period last year.
    For the full year, the Company recorded revenue of $0.5 million related
to the commercial launch of CIP-FENOFIBRATE in the U.S. and Canada. No
commercial revenue was recorded in 2006. R&D expenses for fiscal 2007 were
$2.3 million, compared with $8.5 million for fiscal 2006. The decrease in R&D
spending reflects the advanced stage of development of the Company's three
current products. OG&A expenses for fiscal 2007 were $4.8 million, a slight
increase over the $4.0 million recorded in fiscal 2006, as the Company
increased personnel to support growth plans. Net loss for fiscal 2007 was
$6.4 million ($0.27 per basic and diluted share), compared with net loss of
$12.1 million ($0.51 per basic and diluted share) for fiscal 2006.
    As at December 31, 2007, Cipher had cash of $11.0 million, compared with
$15.1 million as at December 31, 2006.

    Drug Development Update
    -----------------------
    In July 2007, Cipher entered into a licensing and distribution agreement
with ProEthic Pharmaceuticals under which ProEthic was granted the exclusive
right to market, sell and distribute Lipofen in the United States. The
agreement with ProEthic is for a period of 10 years and they have the right to
extend the term for additional two-year periods. In late September 2007,
ProEthic launched Lipofen 150 mg and 50 mg capsules in the U.S. market with
the full effort of its sales and marketing teams. Lipofen is the lead product
for ProEthic as it seeks to build its presence in the important primary care
space. While it is only a few months since launch, weekly prescriptions have
shown steady growth.
    During the second quarter of 2007, Cipher received a second approvable
letter from the FDA pertaining to its CIP-ISOTRETINOIN NDA. In the letter, the
FDA indicated that Cipher's application is approvable subject to the
resolution of two remaining issues. In addition to one question related to
chemistry, manufacturing and controls, which the Company responded to, the FDA
requested that Cipher provide additional clinical safety data. The Company
appealed the position taken by the FDA in its approvable letter using the
formal dispute resolution process. Subsequently, the Company had two meetings
with the FDA as part of the first stage of the formal dispute resolution
process. In its most recent response to Cipher, the representative from the
FDA agreed with the Division of Dermatology and Dental Product's original view
that a Phase III safety study is needed to further demonstrate the safety of
CIP-ISOTRETINOIN. In the appeal response and subsequent discussions with the
FDA, Cipher was encouraged to work closely with the Division should the
Company, or a potential licensing partner, choose to pursue a Phase III safety
study. Cipher and its advisors are currently in discussions with the Division
regarding the appropriate design of a safety study. Cipher may still choose to
continue the formal dispute resolution process, however, regulations do not
allow the Company to pursue both options concurrently.
    During the second quarter of 2007, Cipher received an approvable letter
from the FDA pertaining to its NDA for CIP-TRAMADOL ER, the Company's
extended-release formulation of tramadol. In its letter, the FDA indicated
that Cipher's application is approvable subject to the resolution of certain
issues, including a request for an additional adequate clinical trial to
provide further efficacy data. In subsequent discussions, the FDA indicated
that the statistical methods used to analyze data from Cipher's clinical
trials did not adequately address missing data relating to subjects who
dropped out of the trials. In December 2007, Cipher announced that it had
appealed the position taken by the FDA using the FDA's formal dispute
resolution process. In the written response, the Acting Director of the Office
of Drug Evaluation II, Center for Drug Evaluation and Research supported the
original approvable action. In a subsequent discussion, the FDA suggested an
additional statistical sensitivity analysis of existing clinical data on
CIP-TRAMADOL ER as a means to potentially satisfy the requirements for
approval. As a consequence, Cipher has suspended its appeal and is conducting
the additional statistical analysis.

    Notice of Conference Call
    -------------------------
    Cipher will hold a conference call today, February 27, 2008, at 8:30 a.m.
(ET) to discuss its financial results and other corporate developments. To
access the conference call by telephone, dial 416-644-3421 or 1-800-731-5774.
A live audio webcast of the call will be available at www.cipherpharma.com.
The webcast will be archived for 90 days.

    About Cipher Pharmaceuticals Inc.

    Cipher Pharmaceuticals is a drug development company focused on
commercializing novel formulations of successful, currently marketed molecules
using advanced drug delivery technologies. Cipher's strategy is to in-license
products that incorporate proven drug delivery technologies and advance them
through the clinical development and regulatory approval stages, after which
the products are out-licensed to international partners. Because Cipher's
products are based on proven technology platforms applied to currently
marketed drugs, they are expected to have lower approval risk, shorter
development timelines and significantly lower development costs. The Company's
lead compound, CIP-FENOFIBRATE, received final approval from the U.S. Food and
Drug Administration and Health Canada in the first quarter of 2006. The
product is being marketed in the United States by ProEthic Pharmaceuticals
under the label Lipofen(TM). In addition, Cipher is developing formulations of
the pain reliever tramadol and the acne treatment isotretinoin.
    Cipher is listed on the Toronto Stock Exchange under the symbol 'DND' and
has approximately 24 million shares outstanding. For more information, please
visit www.cipherpharma.com.

    Forward-Looking Statements

    Statements made in this news release, other than those concerning
historical financial information, may be forward-looking and therefore subject
to various risks and uncertainties. Some forward-looking statements may be
identified by words like "may", "will", "anticipate", "estimate", "expect",
"intend", or "continue" or the negative thereof or similar variations. Certain
material factors or assumptions are applied in making forward-looking
statements and actual results may differ materially from those expressed or
implied in such statements. Factors that could cause results to vary include
those identified in the Company's Annual Information Form and other filings
with Canadian securities regulatory authorities, such as the applicability of
patents and proprietary technology; possible patent litigation; regulatory
approval of products in the Company's pipeline; changes in government
regulation or regulatory approval processes; government and third-party payer
reimbursement; dependence on strategic partnerships for product candidates and
technologies, marketing and R&D services; meeting projected drug development
timelines and goals; intensifying competition; rapid technological change in
the pharmaceutical industry; anticipated future losses; the ability to access
capital to fund R&D; and the ability to attract and retain key personnel. All
forward-looking statements presented herein should be considered in
conjunction with such filings. The Company does not undertake to update any
forward-looking statements; such statements speak only as of the date made.


    
    Cipher Pharmaceuticals Inc.
    Consolidated Balance Sheets
    (in thousands of dollars)

                                                             As at
                                                    December 31, December 31,
                                                        2007         2006
    ASSETS

    Current assets
    Cash                                            $    10,961  $    15,077
    Accounts receivable                                   1,396          160
    Income taxes receivable                                 128           95
    Prepaid expenses and other current assets                56           32
    -------------------------------------------------------------------------
                                                         12,541       15,364

    Property and equipment, net (note 3)                    208           99

    Loan receivable (note 4)                              1,377        1,986

    Intangible assets, net (note 5)                       4,592        5,058
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    $    18,718  $    22,507
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Current liabilities
    Accounts payable and accrued liabilities        $     1,059  $       921
    Deferred revenue                                        790            -
    Due to related party (note 6)                             -          123
    -------------------------------------------------------------------------
                                                          1,849        1,044

    Deferred revenue                                      1,192            -
    -------------------------------------------------------------------------
                                                          3,041        1,044
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY

    Share capital (note 7)                               49,948       49,891
    Contributed surplus (note 8)                         31,032       30,430
    Deficit                                             (65,303)     (58,858)
    -------------------------------------------------------------------------
                                                         15,677       21,463
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    $    18,718  $    22,507
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated
    financial statements



    Cipher Pharmaceuticals Inc.
    Consolidated Statements of Operations and Comprehensive Loss
    (in thousands of dollars, except per share amounts)

                                                       For the year ended
                                                    December 31, December 31,
                                                        2007         2006

    Revenues
      Licensing revenue                             $       311  $         -
      Product sales                                         227            -
    -------------------------------------------------------------------------

                                                            538            -
    -------------------------------------------------------------------------

    Expenses
      Cost of goods sold                                    171            -
      Research and development                            2,263        8,468
      Operating, general and administrative               4,846        4,014
      Amortization of property and equipment                 50           23
      Amortization of intangible assets                     466          466
      Interest income                                      (813)        (908)
    -------------------------------------------------------------------------

                                                          6,983       12,063
    -------------------------------------------------------------------------


    Loss and comprehensive loss for the year        $    (6,445) $   (12,063)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted loss per share (note 10)      $     (0.27) $     (0.51)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated
    financial statements



    Cipher Pharmaceuticals Inc.
    Consolidated Statements of Deficit
    (in thousands of dollars)

                                                       For the year ended
                                                    December 31, December 31,
                                                        2007         2006

    Deficit, beginning of year                      $   (58,858) $   (46,795)

    Loss for the year                                    (6,445)     (12,063)
    -------------------------------------------------------------------------

    Deficit, end of year                            $   (65,303) $   (58,858)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated
    financial statements



    Cipher Pharmaceuticals Inc.
    Consolidated Statements of Cash Flows
    (in thousands of dollars)

                                                       For the year ended
                                                    December 31  December 31
                                                        2007         2006

    Cash provided by (used in)

    Operating activities
      Loss                                           $   (6,445) $   (12,063)
      Items not affecting cash
        Amortization of property and equipment               50           23
        Amortization of intangible assets                   466          466
        Stock-based compensation expense                    659          449
        Imputed interest (note 4)                          (191)        (241)
    -------------------------------------------------------------------------
                                                         (5,461)     (11,366)
      Net change in non-cash operating items
       (note 11)                                            704       (2,282)
      Drawdown of loan receivable (note 4)                  800          800
      Exercise of stock options settled in cash               -         (286)
    -------------------------------------------------------------------------

                                                         (3,957)     (13,134)
    -------------------------------------------------------------------------

    Investing activities
      Purchase of property and equipment                   (159)         (36)
      Increase in intangible assets                           -         (277)
      Proceeds from loan receivable                           -          800
    -------------------------------------------------------------------------

                                                           (159)         487
    -------------------------------------------------------------------------

    Financing activities
      Issuance of share capital                               -       10,907
      Proceeds from exercise of stock options                 -          201
    -------------------------------------------------------------------------

                                                              -       11,108
    -------------------------------------------------------------------------

    Decrease in cash                                     (4,116)      (1,539)
    Cash, beginning of year                              15,077       16,616
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash, end of year                               $    10,961  $    15,077
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated
    financial statements



    Cipher Pharmaceuticals Inc.
    Notes to Consolidated Financial Statements
    December 31, 2007
    (in thousands of dollars, except per share amounts)


    1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        These consolidated financial statements have been prepared in
        accordance with Canadian generally accepted accounting principles.

        Basis of consolidation

        These consolidated financial statements include the accounts of
        Cipher Pharmaceuticals Inc. (the "Company") and its subsidiaries. All
        intercompany balances with subsidiaries have been eliminated. As part
        of the simplification of its corporate structure, the Company's
        wholly-owned subsidiaries Cipher Canada Inc., Cipher Holdings
        (Barbados) Ltd. and Cipher Pharmaceuticals Ltd. are in the process of
        being wound up by way of voluntary dissolution.

        Significant accounting policies used in the preparation of these
        consolidated financial statements are as follows:

        Translation of foreign currencies

        Revenues and expenses denominated in foreign currencies are
        translated into Canadian dollars using the exchange rate in effect at
        the transaction date. Monetary assets and liabilities are translated
        using the rate in effect at the balance sheet date and non-monetary
        items are translated at historical exchange rates. Related exchange
        gains and losses are included in the determination of the loss for
        the year.

        Use of estimates

        The preparation of these consolidated financial statements requires
        management to make estimates and assumptions that could affect the
        reported amounts of assets and liabilities at the date of the
        financial statements and the reported amounts of revenues and
        expenses during the reporting periods presented. Significant areas
        requiring the use of management estimates include intangible assets
        and income taxes. By their nature, these estimates are subject to
        measurement uncertainty. Actual results could differ from the
        estimates and assumptions.

        Property and equipment

        Property and equipment are recorded at cost less accumulated
        amortization. Amortization is computed using the straight-line method
        using the following estimated useful lives of the assets or lease
        terms:

           Computer equipment                                        3 years
           Computer software                                         3 years
           Furniture and fixtures                                    5 years
           Leasehold improvements                 over the term of the lease

        Impairment of long-lived assets

        Long-lived assets are tested for recoverability whenever events or
        changes in circumstances indicate the carrying value may not be
        recoverable. An impairment loss is recognized when the carrying
        amount of a long-lived asset exceeds the sum of the undiscounted cash
        flows from the long-lived asset. An impairment loss is measured as
        the amount by which the carrying amount of the long-lived asset
        exceeds the estimated fair value.

        Intangible assets

        Intangible assets consist of marketing and other rights relating to
        products and are initially recorded at cost. Intangible assets have a
        finite life and are amortized using the straight-line method over
        their estimated period of useful life, which is determined to be
        5 years from the date of regulatory (generally, U.S. Food and Drug
        Administration ("FDA")) approval for marketing the related product.
        Intangible assets are reviewed for impairment when events or other
        changes in circumstances indicate that the carrying amount of the
        assets may not be recoverable.

        Revenue recognition

        The Company recognizes revenue from product sales contracts and
        licensing and distribution agreements, which may include multiple
        elements. The individual elements of each agreement are divided into
        separate units of accounting, if certain criteria are met. The
        applicable revenue recognition approach is then applied to each unit.
        Otherwise, the applicable revenue recognition criteria are applied to
        combined elements as a single unit of accounting.

        Product sales - revenue from product sales contracts is recognized
        when the product is shipped to the Company's customers, at which time
        ownership is transferred.

        Licensing revenues - for up-front licensing payments, revenue is
        deferred and recognized on a straight-line basis during the estimated
        term over which the Company maintains substantive contractual
        obligations. Milestone payments are recognized as revenue when the
        underlying condition is met, the milestone is not a condition to
        future deliverables and collectibility is reasonably assured.
        Otherwise, milestone payments are recognized as revenue over the
        remaining term of the underlying agreement or the term over which
        the Company maintains substantive contractual obligations. Royalty
        revenue is recognized in the period in which the Company earns the
        royalty. Amounts received in advance of recognition as revenue are
        included in deferred revenue. Revenue from licensing and distribution
        agreements is presented on a net basis.

        Income taxes

        The Company uses the asset and liability method of accounting for
        income taxes. Under this method, future tax assets and liabilities
        are determined based on differences between the financial reporting
        and income tax bases of assets and liabilities and are measured using
        enacted or substantively enacted tax rates and laws that will be in
        effect when the difference is expected to reverse. The Company
        provides a valuation allowance for future tax assets when it is more
        likely than not that some or all of the future tax assets will not be
        realized.

        Stock-based compensation

        The fair value of stock options granted after October 1, 2002 is
        recognized as compensation expense on a straight-line basis over the
        applicable stock option vesting period. The expense is included in
        operating, general and administrative expenses in the consolidated
        statements of operations and as contributed surplus in the
        consolidated balance sheets. The consideration received on the
        exercise of stock options is credited to share capital at the time of
        exercise.

    2   CHANGES IN ACCOUNTING POLICIES

        a) Effective January 1, 2007 the Company adopted the following new
        accounting standards: Comprehensive Income, Equity and Financial
        Instruments (recognition and measurement and disclosure and
        presentation).

        Comprehensive income

        CICA Section 1530, Comprehensive Income, introduces a statement of
        comprehensive loss. Comprehensive loss represents the change in
        equity during a period from transactions and other events and
        circumstances from non-owner sources and includes all changes in
        equity other than those resulting from investments by owners and
        distributions to owners. Since comprehensive loss equals loss for the
        year ended December 31, 2007, the statement of comprehensive loss has
        been combined with the statement of operations.

        Equity

        CICA Section 3251, Equity, replaces Section 3250, Surplus, and
        establishes standards for the presentation of equity and changes in
        equity during the reporting period and requires the Company to
        present separately equity components and changes in equity arising
        from; net earnings, other comprehensive income, other changes in
        retained earnings, changes in contributed surplus, changes in share
        capital and changes in reserves.

        Financial instruments

        CICA Section 3855, Financial Instruments - Recognition and
        Measurement, and CICA Section 3861, Financial Instruments -
        Disclosure and Presentation, establish standards for recognition and
        measurement as well as disclosure and presentation of financial
        assets, financial liabilities and non-financial derivatives. Section
        3855 requires that financial assets and financial liabilities,
        including derivatives, be recognized on the balance sheet when the
        Company becomes a party to the contractual provisions of the
        financial instrument or non-financial derivative contract. It also
        requires that all financial instruments be classified into a defined
        category, namely, held-to-maturity, held-for-trading, available-for-
        sale, loans and receivables and other financial liabilities,
        depending on the Company's stated intention and/or historical
        practice. All financial instruments are required to be measured at
        fair value except for loans and receivables, held-to-maturity
        investments and other financial liabilities, which are measured at
        cost or amortized cost. Gains and losses on held-for-trading
        financial assets and liabilities are recognized in net earnings in
        the period in which they arise. Unrealized gains and losses,
        including changes in foreign exchange rates on available-for-sale
        financial assets, are recognized in comprehensive income until the
        financial assets are derecognized or impaired, at which time any
        unrealized gains or losses are recorded in net earnings.

        The adoption of these new standards resulted in the classification
        and measurement of the Company's financial instruments as follows:
        -  Cash is classified as held-for-trading and is measured at fair
           value;
        -  Accounts receivable and loan receivable are classified as loans
           and receivables and recorded at cost, which at initial measurement
           corresponds to fair value. After initial fair value measurement,
           they are measured at amortized cost; and
        -  Accounts payable and accrued liabilities are classified as other
           financial liabilities. They are initially measured at fair value
           and, if necessary, subsequent revaluations are recorded at
           amortized cost.

        The adoption of these standards had no substantive impact on the
        Company's consolidated financial statements.

        b) Effective January 1, 2007, the Company adopted CICA Section 1506,
        Accounting Changes, which prescribes the criteria for changing
        accounting policies, together with the accounting treatment and
        disclosure of changes in accounting policies, changes in accounting
        estimates and corrections of errors. The adoption of this standard
        did not affect the Company's consolidated financial statements.

        c) The CICA released new Handbook Section 1535 and Section 3862
        effective for the interim periods and year ends for fiscal years
        commencing on or after October 1, 2007. Section 1535 establishes
        standards for disclosing information on capital management strategy.
        Section 3862 establishes standards for disclosure of financial
        instruments including disclosing the significance of financial
        instruments and the nature and extent of risks arising from financial
        instruments. The Company will adopt these new standards on
        January 1, 2008 on a prospective basis. The adoption of these new
        standards will impact the Company's disclosures but will not affect
        the Company's results or financial position.

        3 PROPERTY AND EQUIPMENT

                                    December 31, 2007      December 31, 2006
        ---------------------------------------------------------------------
                                          Accumulated            Accumulated
                                  Cost   Amortization    Cost   Amortization
        ---------------------------------------------------------------------
        Computer equipment      $   91   $         58  $   76   $         43
        Computer software           35             14      20              9
        Furniture and fixtures     126             31      65             13
        Leasehold improvements      67              8       8              5
                                ---------------------------------------------
                                   319   $        111     169   $         70
        Accumulated amortization  (111)                   (70)
        ---------------------------------------------------------------------
                                $  208                 $   99
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        4 LOAN RECEIVABLE

        On February 28, 2005, the Company completed the sale of its wholly-
        owned pharmaceutical research services business, Pharma Medica
        Research Inc. (Pharma Medica). Consideration consisted of a cash
        payment of $14,000 and a deferred payment of $4,000. The deferred
        payment is non-interest bearing and is repayable in annual
        installments of $800 over a five year period. As the deferred payment
        is non-interest bearing, it was recorded at its fair value of $3,112
        based on a discount rate of 9%. Imputed interest of $191 has been
        recorded on this deferred payment during the year ended
        December 31, 2007 ($241 during the year ended December 31, 2006). In
        accordance with the terms of the deferred payment agreement, $800 of
        clinical services purchased from Pharma Medica during each of 2006
        and 2007 were offset against the annual payments that were due on
        January 30 of 2007 and 2008, respectively.

        5 INTANGIBLE ASSETS

        During fiscal 2001, the Company entered into certain agreements with
        Galephar Pharmaceutical Research Inc. ("Galephar") for the rights to
        package, test, obtain regulatory approvals and market certain
        products in various countries around the world. In accordance with
        the terms of the agreements, the Company has acquired these
        intangible rights through an investment in three separate series of
        preferred shares of Galephar. The Company may be required to pay
        additional amounts to Galephar in respect of the CIP-ISOTRETINOIN and
        CIP-TRAMADOL ER intangible rights of up to $1,482 (US$1,500) if
        certain future milestones are achieved as defined in the agreements.
        These additional payments will be made in the form of additional
        Galephar preferred share purchases. The recoverability of these
        intangible rights is dependant upon sufficient revenues being
        generated from the related products currently under development and
        commercialization.

        Upon receipt of FDA approval in January 2006, the Company began
        amortizing the intangible rights related to CIP-FENOFIBRATE.
        Currently, no other products have received FDA approval.

        With regard to CIP-FENOFIBRATE, in July 2007 the Company entered into
        a licensing and distribution agreement with ProEthic Pharmaceuticals,
        Inc. ("ProEthic") under which ProEthic was granted the exclusive
        right to market, sell and distribute Lipofen in the United States.
        Under the terms of the agreement, the Company received an initial
        payment of US$1 million in July and expects to receive the second
        payment of US$1 million in March 2008 related to the US$2 million
        up-front licensing fee. In addition, under the terms of the
        agreement, the Company could receive additional milestone payments of
        up to US$20 million based on the achievement of certain net sales
        targets and is also entitled to receive a royalty based on a
        percentage of net sales. These elements are reflected in net revenue,
        which also incorporates direct product-related expenses and amounts
        due to Galephar, the Company's technology partner.

        Over the term of the Galephar agreement, after direct product-related
        expenses are deducted and including payments to Galephar, the
        Company anticipates that it will retain approximately 50% of revenue.
        In late September 2007, ProEthic launched Lipofen in the U.S. market.

        The Company's US$2 million investment in Galephar preferred shares
        related to CIP-FENOFIBRATE will be repaid by Galephar in US$350
        quarterly payments, which commenced in the fourth quarter of 2007.
        These payments will be included in net revenue based on the remaining
        amortization period of the related intangible asset.

        The following is a summary of cost and accumulated amortization and
        writedowns for the intangible rights related to each product:

                                  December 31, 2007        December 31, 2006
        ---------------------------------------------------------------------
                                        Accumulated              Accumulated
                                       Amortization             Amortization
                               Cost  and Writedowns     Cost  and Writedowns
        ---------------------------------------------------------------------

        CIP-FENOFIBRATE     $ 3,014   $       1,614  $ 3,014   $       1,148
        CIP-ISOTRETINOIN      1,883             426    1,883             426
        CIP-TRAMADOL ER       2,161             426    2,161             426
                           --------------------------------------------------
                              7,058   $       2,466    7,058   $       2,000
        Accumulated
         amortization and
         writedowns          (2,466)                  (2,000)
        ---------------------------------------------------------------------
                            $ 4,592                  $ 5,058
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    6   RELATED PARTY TRANSACTIONS

        The Company and a related party have in common a majority of members
        of their respective boards. During the year the Company purchased
        $63 (2006 - $125) of management and payroll services from this
        related party. The agreement with the related party for the provision
        of these services was terminated effective June 30, 2007.

    7   SHARE CAPITAL

        Authorized share capital

        The authorized share capital consists of an unlimited number of
        preference shares, issuable in series, and an unlimited number of
        voting common shares.

        Issued share capital

        The following is a summary of the changes in share capital from
        December 31, 2005 to December 31, 2007:

                                                        Number of
                                                    common shares     Amount
                                                    (in thousands)         $

        Balance outstanding - December 31, 2005            21,336     38,783
          Options exercised during 2006                       200        201
          March 14, 2006 public offering (a)                2,500     10,907
                                                   --------------------------
        Balance outstanding - December 31, 2006            24,036     49,891

          Options exercised during 2007 (b)                    19         57
                                                   --------------------------
        Balance outstanding - December 31, 2007            24,055     49,948
                                                   --------------------------
                                                   --------------------------

        (a) In 2006, the Company issued 2.5 million common shares pursuant to
        the completion of a public offering. Net proceeds from the offering
        after considering share issuance costs of $1,093 amounted to $10,907.

        (b) During 2007, 19,277 shares were issued as a result of the
        exercise of 37,500 options. The Company's stock option plan provides
        that an option holder may elect to receive an amount of shares
        equivalent to the growth value of vested options, which is the
        difference between the market price and the exercise price of the
        options. There is no cash consideration for the shares issued when
        this election is chosen by an option holder.

        Stock option plan

        The following is a summary of the changes in the stock options
        outstanding from December 31, 2005 to December 31, 2007:

                                                                    Weighted
                                                                     average
                                                        Number of   exercise
                                                          options      price
                                                    (in thousands)         $

        Balance outstanding - December 31, 2005               725       1.67
          Options granted during 2006                         489       3.91
          Options exercised in exchange for common
           shares during 2006                                (200)      1.00
          Options exercised in exchange for cash
           during 2006                                       (125)      2.35
                                                   ---------------
        Balance outstanding - December 31, 2006               889       2.96

          Options granted during 2007 (a)                     274       3.90
          Options exercised during 2007 (b)                   (38)      1.90
          Options cancelled during 2007 (c)                  (112)      1.90
          Options cancelled during 2007 (c)                   (15)      4.12
                                                   ---------------
        Balance outstanding - December 31, 2007               998       3.36
                                                   ---------------
                                                   ---------------

        At December 31, 2007, 309,741 options were fully vested and
        exercisable.

        (a) During 2007, the Company issued 274,000 stock options under the
        employee and director stock option plan, which have an exercise price
        of $3.90, 25% of which vest on March 9 of each year, commencing in
        2008, and expire in 2017. Total compensation cost for these stock
        options is estimated to be $921. This cost will be recognized over
        the vesting period of the stock options.

        The stock options issued during 2007 were valued using the Black-
        Scholes option pricing model with the following assumptions:

           Risk-free interest rate                                     3.96%
           Expected life                                            10 years
           Expected volatility                                           87%
           Expected dividend                                             Nil

        (b) During 2007, 37,500 stock options were exercised in exchange for
        19,277 common shares. The Company's stock option plan provides that
        an option holder may elect to receive an amount of shares equivalent
        to the growth value of vested options, which is the difference
        between the market price and the exercise price of the options.

        (c) As a result of the departure of an employee during 2007, 112,500
        stock options were cancelled and as a result of the death of a board
        member 15,000 stock options were cancelled.

        The following is a summary of the outstanding options as at
        December 31, 2007:

        Expiry date         Exercise         Number of options (in thousands)
                               price   --------------------------------------
                                   $      Vested      Unvested         Total

        January 11, 2012        1.09         125             -           125
        September 17, 2014      2.35          63            62           125
        March 23, 2016          4.12          55           150           205
        June 28, 2016           4.00          45           135           180
        August 8, 2016          4.33           5            15            20
        September 13, 2016      2.90          17            52            69
        March 9, 2017           3.90           -           274           274
                                       --------------------------------------
                                             310           688           998
                                       --------------------------------------
                                       --------------------------------------

    8   CONTRIBUTED SURPLUS

        The following is a summary of the changes in contributed surplus from
        December 31, 2005 to December 31, 2007:

                                          Amount
                                               $

        Balance - December 31, 2005       30,267
          Options exercised during 2006     (286)
          Stock-based compensation
           expense during 2006               449
                                       ----------
        Balance - December 31, 2006       30,430

          Options exercised during 2007      (57)
          Stock-based compensation
           expense during 2007               659
                                       ----------
        Balance - December 31, 2007       31,032
                                       ----------
                                       ----------

    9   INCOME TAXES

        The provision for income taxes differs from the amount computed by
        applying the statutory income tax rate to the loss for the year. The
        sources and tax effects of the differences are as follows:

                                                          For the year ended
                                                              December 31,
                                                           2007         2006
                                                              $            $

        Statutory income tax rate of 36.12% applied
         to loss for the year (2006 - 36.12%)            (2,328)      (4,357)
        Permanent differences                               253         (255)
        Change in enacted income tax rates
         and other items                                 (1,670)       2,717
        Change in valuation allowance                     3,745        1,895
                                                       ----------------------
        Provision for income taxes                            -            -
                                                       ----------------------
                                                       ----------------------

        The significant components of future income tax assets are summarized
        as follows:

                                                                 As at
                                                              December 31,
                                                           2007         2006
                                                              $            $

        Non-capital losses                               10,382       10,131
        Excess of tax value of property and
         equipment over book value                           27           15
        SR&ED expenditure pool                            3,206        3,153
        Excess of tax value of intangible assets
         over book value                                  7,513        5,679
        Benefit of net investment tax credits             1,694            -
        Deductible share issue costs                        190          289
                                                       ----------------------
                                                         23,012       19,267
        Valuation allowance                             (23,012)     (19,267)
                                                       ----------------------
                                                              -            -
                                                       ----------------------
                                                       ----------------------

        The Company has non-capital loss carry forwards of $35,800 as at
        December 31, 2007 that expire in varying amounts from 2014 to 2027.

        The Company has Scientific Research and Experimental Development
        ("SR&ED") expenditures of $11,100 which can be carried forward
        indefinitely to reduce future years' taxable income.

        The Company has approximately $2,400 of investment tax credits on
        SR&ED expenditures that are available to be applied against federal
        taxes otherwise payable in future years and expire in varying amounts
        from 2013 to 2027.

        10 LOSS PER SHARE

        Loss per share is calculated using the weighted average number of
        shares outstanding. The weighted average number of shares outstanding
        for the year ended December 31, 2007 was 24,049,174 (for the year
        ended December 31, 2006 - 23,488,888)

        As the Company had a loss for each of the periods presented, basic
        and diluted loss per share are the same because the exercise of all
        stock options would have an anti-dilutive effect.

        11 SUPPLEMENTAL CASH FLOW INFORMATION

        The following is a summary of the changes in non-cash operating
        items:

                                                          For the year ended
                                                              December 31,
                                                           2007         2006
                                                              $            $

        Accounts receivable                              (1,236)         145
        Income taxes receivable                             (33)           -
        Prepaid expenses and other current assets           (24)         (13)
        Accounts payable and accrued liabilities            138       (2,481)
        Deferred revenue                                  1,982            -
        Due to related party                               (123)          67
                                                       ----------------------
                                                            704       (2,282)
                                                       ----------------------
                                                       ----------------------
    

    %SEDAR: 00020415E




For further information:

For further information: Craig Armitage, Investor Relations, The Equicom
Group, (416) 815-0700 ext 278, (416) 815-0080 fax, carmitage@equicomgroup.com;
Larry Andrews, President and CEO, Cipher Pharmaceuticals, (905) 602-5840 ext
324, (905) 602-0628 fax, landrews@cipherpharma.com


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890