Cipher reports fiscal 2009 financial results

Toronto Stock Exchange Symbol: DND

MISSISSAUGA, ON, Feb. 17 /CNW/ - Cipher Pharmaceuticals Inc. (TSX: DND) today announced its financial and operational results for the fourth quarter and fiscal year ended December 31, 2009.

    
    Fiscal 2009 Summary
    -------------------

    -   Total revenue more than doubled to $3.2 million, driven by growth of
        Lipofen(R) prescriptions.
    -   Strong balance sheet at year end with cash of $9.0 million and no
        debt, compared with cash of $9.9 million at December 31, 2008.
    -   Commenced CIP-ISOTRETINOIN Phase III safety trial in Q3; with 176
        patients enrolled at year-end.
    -   Achieved tentative FDA approval for CIP-TRAMADOL ER; subsequent to
        year end, received favourable summary judgment motion relating to
        patent litigation.
    -   Strengthened Board of Directors with the addition of Dr. William
        Claypool.
    

"The continued steady growth of Lipofen(R) prescriptions helped us deliver a strong year-over-year increase in revenue and reduce our cash burn, ensuring that our financial position remains solid," said Larry Andrews, President and CEO of Cipher. "From a clinical perspective, we commenced enrolment on our Phase III safety trial for CIP-ISOTRETINOIN, and this continues to progress well. On the regulatory front, 2009 saw us obtain tentative FDA approval for CIP-TRAMADOL ER. More recently, we received a favourable judgment in pending patent litigation for this product, clearing the way for us to pursue final FDA approval."

    
    Financial Review
    ----------------
    

Total revenue in 2009 was $3.2 million, compared with $1.5 million in 2008. Revenue from Lipofen(R) totalled $2.9 million in 2009, reflecting the continued market penetration by Lipofen(R) as Kowa increases the sales and promotion effort behind the product. Revenue from CIP-ISOTRETINOIN was $0.3 million in 2009, which relates to revenue recognized on the Company's share of the US$1 million upfront milestone payment received from Ranbaxy in 2008.

Gross Research and Development ("R&D") expenditures for 2009 were $5.4 million, compared with $2.2 million in 2008. The reported R&D amount of $1.0 million for 2009 is net of reimbursements of $4.4 million from Ranbaxy related to the CIP-ISOTRETINOIN clinical study. As previously disclosed, the Company's U.S. marketing partner, Ranbaxy Pharmaceuticals, is reimbursing Cipher for all costs associated with the clinical studies required to obtain FDA approval, up to a predetermined cap. Any additional development costs associated with initial FDA approval will be shared equally.

Operating, General and Administrative ("OG&A") expenses for 2009 were $4.3 million, compared with $3.6 million in 2008. The year-over-year change reflects the increased level of activity related to pursuing pipeline expansion opportunities. The loss for the 12 months ended December 31, 2009 decreased to $2.7 million ($0.11 per basic and diluted share), compared with a net loss of $3.2 million ($0.13 per basic and diluted share) in 2008.

In Q4 2009, Cipher recorded licensing revenue of $0.8 million, compared with $0.4 million in Q4 2008. Gross R&D expenditures for the fourth quarter were $3.0 million, and reported R&D expenses were $0.3 million. OG&A expenses for Q4 2009 were $1.1 million, compared with $0.9 million in the same period last year. Loss for the three months ended December 31, 2009 was $0.6 million ($0.03 per basic and diluted share), compared with a loss of $0.5 million ($0.02 per basic and diluted share) in the same period last year.

The Company's financial position remained solid at year-end. As at December 31, 2009, Cipher had cash of $9.0 million, compared with $9.9 million as at December 31, 2008.

    
    Product Update
    --------------
    

During 2009, Lipofen(R) monthly prescriptions showed steady growth, and Cipher is hopeful that this trend will continue as Kowa increases penetration of the primary care physicians in its targeted regions and expands its sales force. Kowa's sales force reached approximately 200 at the end of the year, and additional increases are expected in Q1 2010 to support the launch of Kowa's pitavastatin product, LIVALO(R), in the second quarter of 2010.

During Q3 2009, Cipher commenced its Phase III safety trial for CIP-ISOTRETINOIN under a Special Protocol Assessment ("SPA") with the U.S. Food and Drug Administration ("FDA"). The 800-patient study is a double-blind, randomized trial comparing CIP-ISOTRETINOIN to an FDA-approved, commercially available isotretinoin product. The study is being conducted in the U.S. and Canada over an 18-month period. The study is progressing well, with enrolment reaching 176 patients at year end and currently nearing the mid-point.

Cipher received tentative FDA approval for CIP-TRAMADOL ER, the Company's extended-release formulation of tramadol, in February 2009. During Q4 2009, the Company announced that Purdue Pharma Products L.P. and Napp Pharmaceutical Group Ltd. filed a complaint against Cipher in the United States District Court for the Eastern District of Virginia, for alleged infringement of two U.S. patents. Under the applicable provisions of the Hatch-Waxman Act, this patent challenge can delay final FDA approval of Cipher's NDA by 30 months, or until the patent challenge is resolved, whichever occurs first. Subsequent to year end, the Company announced that a final judgment on the above litigation suit has been entered in favour of Cipher. The judgment removes any further stay of FDA approval of Cipher's NDA under the applicable provisions of the Hatch-Waxman Act. Cipher is moving forward to obtain FDA final approval as part of its broader CIP-TRAMADOL ER commercialization strategy.

The final judgment in favour of Cipher holds that the patents-in-suit are invalid for obviousness based on a prior decision of the United States District Court for the District of Delaware, invalidating the Orange Book-listed patents for Ultram(R) ER in litigation filed by Purdue against Par Pharmaceutical, Inc. ("Par"). That decision in the Par litigation is currently on appeal before the United States Court of Appeals for the Federal Circuit. The Court's decision is not expected until the latter half of 2010. If Par is successful in its appeal, Cipher believes CIP-TRAMADOL ER will no longer face any further risk of litigation from Purdue in connection with the Orange Book-listed patents that were asserted against Cipher.

Cipher continues to actively pursue new early stage pipeline product candidates and advance out-licensing discussions for its current products.

    
    Notice of Conference Call
    -------------------------
    

Cipher will hold a conference call today, February 17, 2010, at 8:30 a.m. (ET) to discuss its financial results and other corporate developments. To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191. 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 commercial-stage 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 Kowa Pharmaceuticals America under the label Lipofen(R). In addition, Cipher is developing formulations of the pain reliever tramadol (tentative FDA approval in February 2009) and the acne treatment isotretinoin (FDA approvable letter in April 2007).

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. The words "may", "will", "could", "should", "would", "suspect", "outlook", "believe", "plan", "anticipate", "estimate", "expect", "intend", "forecast", "objective", "hope" and "continue" (or the negative thereof), and words and expressions of similar import, are intended to identify forward-looking statements. 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. Except as required by Canadian securities laws, the Company does not undertake to update any forward-looking statements; such statements speak only as of the date made.

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

                                                              As at
                                                    December 31, December 31,
                                                        2009         2008

    ASSETS

    Current assets
    Cash                                            $     9,006  $     9,881
    Accounts receivable                                     967          512
    Income taxes receivable                                   -            6
    Prepaid expenses and other current assets               457          380
    Current portion of loan receivable (note 5)             800          608
    -------------------------------------------------------------------------
                                                         11,230       11,387

    Property and equipment, net (note 4)                     86          147

    Loan receivable (note 5)                                  -          717

    Intangible assets, net (note 6)                       3,507        4,126

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    $    14,823  $    16,377
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Current liabilities
    Accounts payable and accrued liabilities        $     1,570  $     1,178
    Current portion of deferred revenue                   1,956        1,177
    -------------------------------------------------------------------------
                                                          3,526        2,355

    Deferred revenue                                        329          994
    -------------------------------------------------------------------------
                                                          3,855        3,349
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY

    Share capital (note 7)                               49,948       49,948
    Contributed surplus (note 8)                         32,268       31,613
    Deficit                                             (71,248)     (68,533)
    -------------------------------------------------------------------------
                                                         10,968       13,028
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    $    14,823  $    16,377
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these financial statements



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

                                                       For the year ended
                                                    December 31, December 31,
                                                        2009         2008

    Revenues
      Licensing revenue                             $     3,179  $     1,543
    -------------------------------------------------------------------------

    Expenses
      Research and development (note 9)                     956        1,303
      Operating, general and administrative               4,252        3,565
      Amortization of property and equipment                 69           71
      Amortization of intangible assets                     741          466
      Recovery of legal fees and court costs                  -         (176)
      Interest income                                      (124)        (456)
    -------------------------------------------------------------------------

                                                          5,894        4,773
    -------------------------------------------------------------------------

    Loss and comprehensive loss for the year        $    (2,715) $    (3,230)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted loss per share (note 11)      $     (0.11) $     (0.13)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these financial statements



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

                                                       For the year ended
                                                    December 31, December 31,
                                                        2009         2008

    Deficit, beginning of year                      $   (68,533) $   (65,303)

    Loss for the year                                    (2,715)      (3,230)
    -------------------------------------------------------------------------

    Deficit, end of year                            $   (71,248) $   (68,533)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these financial statements



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

                                                       For the year ended
                                                    December 31, December 31,
                                                        2009         2008

    Cash provided by (used in)

    Operating activities
      Loss for the year                             $    (2,715) $    (3,230)
      Items not affecting cash
        Amortization of property and equipment               69           71
        Amortization of intangible assets                   741          466
        Stock-based compensation expense                    655          581
        Imputed interest (note 5)                           (87)        (136)
    -------------------------------------------------------------------------
                                                         (1,337)      (2,248)
      Net change in non-cash operating items
       (note 12)                                            (20)         990
      Drawdown of loan receivable                             -          188
    -------------------------------------------------------------------------

                                                         (1,357)      (1,070)
    -------------------------------------------------------------------------

    Investing activities
      Proceeds from loan receivable (note 5)                612            -
      Acquisition of intangible rights (note 6)            (122)           -
      Purchase of property and equipment                     (8)         (10)
    -------------------------------------------------------------------------

                                                            482          (10)
    -------------------------------------------------------------------------

    Decrease in cash                                       (875)      (1,080)
    Cash, beginning of year                               9,881       10,961
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash, end of year                               $     9,006  $     9,881
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these financial statements


    Cipher Pharmaceuticals Inc.
    Notes to Financial Statements
    December 31, 2009
    (in thousands of dollars, except per share amounts)

    1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        These financial statements have been prepared in accordance with
        Canadian generally accepted accounting principles. Significant
        accounting policies used in the preparation of these 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 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 the valuation of intangible assets and measurement
        of 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 estimated
        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. Amortization commences on the
        earlier of the date of regulatory (generally, U.S. Food and Drug
        Administration ("FDA")) approval for marketing the related product or
        upon substantive revenue being generated from the product under a
        commercial licensing agreement. The estimated period of useful life
        has been determined to be 3.5 years from the date of regulatory
        approval for marketing the related product. Should amortization
        commence as a result of generating revenue, the amortization period
        would include the time prior to regulatory approval. 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 and
        pre-commercialization milestones, revenue is deferred and recognized
        on a straight-line basis over the estimated term that the Company
        maintains substantive contractual obligations. Post-commercialization
        milestone payments are recognized as revenue when the underlying
        condition is met, the milestone is not a condition to future
        deliverables and collectability is reasonably assured. Otherwise,
        these 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.

        Research and development

        The Company conducts research and development programs and incurs
        costs related to these activities, including employee compensation,
        materials, professional services and services provided by contract
        research organizations. Research and development costs, net of
        related tax credits, are expensed in the periods in which they are
        incurred.

        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. Stock-based compensation
        expense is included in operating, general and administrative expense
        in the statements of operations and contributed surplus in the
        balance sheets. The consideration received on the exercise of stock
        options is credited to share capital at the time of exercise.

        Financial instruments

        Financial instruments are 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 following is the basis of classification and measurement of the
        Company's financial instruments:

           -  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.

    2   CHANGES IN ACCOUNTING POLICIES

        Goodwill and Intangible Assets

        As required by The Canadian Institute of Chartered Accountants
        ("CICA"), on January 1, 2009, the Company adopted CICA Handbook
        Section 3064, Goodwill and Intangible Assets, which establishes
        standards for the recognition, measurement, presentation and
        disclosure of goodwill and intangible assets. Application of this
        pronouncement had no impact on the reported results of operations.

        International Financial Reporting Standards ("IFRS")

        Commencing in the first quarter of 2011, the Company's financial
        statements will be prepared in accordance with IFRS, with 2010
        comparative figures and the January 1, 2010 opening balance sheet
        restated to conform with IFRS, along with reconciliations from GAAP
        to IFRS, as per the guidance provided in IFRS 1, First-Time Adoption
        of International Financial Reporting Standards.

        As part of its transition to IFRS, the Company has developed an
        implementation plan which includes an analysis of accounting
        differences between GAAP and IFRS and the assessment of the expected
        impact of the accounting differences on its financial statements. The
        Company continues to assess the IFRS component evaluation for those
        areas of the financial statements that have identified accounting
        differences between GAAP and IFRS. As part of its IFRS implementation
        plan, the Company will continue to review the impact on its business
        activities, its disclosure and internal controls over financial
        reporting and its financial reporting systems.

    3   RISK MANAGEMENT

        Financial risk management

        In the normal course of business, the Company is exposed to a number
        of financial risks that can affect its operating performance. These
        risks are: credit risk, liquidity risk and market risk. The Company's
        overall risk management program and prudent business practices seek
        to minimize any potential adverse affects on the Company's financial
        performance.

        (i) Credit risk

        Accounts receivable - the Company licenses its products to
        distribution partners in major markets. The credit risk associated
        with the accounts receivable pursuant to these agreements is
        evaluated during initial negotiations and on an ongoing basis. There
        have been no events of default under these agreements. As of
        December 31, 2009, no accounts receivable balances were considered
        impaired or past due.
        Loan receivable - the loan receivable is repaid in annual instalments
        over a five year period, with one instalment remaining as at
        December 31, 2009, which was received subsequent to year end.

        (ii) Liquidity risk

        The Company has no long term debt with specified repayment terms.
        Accounts payable and accrued liabilities are settled in the regular
        course of business, based on negotiated terms with trade suppliers.
        All components of the balance of $1,570 as at December 31, 2009 are
        expected to be settled in less than one year. The carrying value of
        the balances approximate their fair value as the impact of
        discounting is not significant.

        (iii) Market risk

        Currency risk - the majority of the Company's revenue and a portion
        of its expenses are denominated in US currency. The accounts
        receivable balance at December 31, 2009 includes a total of US$864
        and accounts payable and accrued liabilities includes a total of
        US$882. There is no currency hedging program currently in place due
        to the relatively short time frame for settlement of these balances.
        A 10% change in the US/CDN exchange rate on the net December 31, 2009
        balances would have had a $2 impact on net income.

        Capital risk management

        Shareholders' equity is managed as the capital of the Company. The
        Company's objective when managing capital is to safeguard its ability
        to continue as a going concern in order to provide returns for
        shareholders and to maintain an optimal capital structure to minimize
        the cost of capital. In order to maintain or adjust the capital
        structure, the Company may issue new common shares from time to time.

    4   PROPERTY AND EQUIPMENT

        The following is a summary of property and equipment as at
        December 31, 2009:

                                   December 31, 2009       December 31, 2008
        ---------------------------------------------------------------------
                                         Accumulated             Accumulated
                                  Cost  Amortization      Cost  Amortization
        ---------------------------------------------------------------------
        Computer equipment     $   106       $    97   $   101       $    79
        Computer software           38            34        35            24
        Furniture and fixtures     126            85       126            58
        Leasehold improvements      67            35        67            21
                               ----------------------------------------------
                                   337       $   251       329       $   182
        Accumulated
         amortization             (251)                   (182)
        ---------------------------------------------------------------------
                               $    86                 $   147
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    5   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
        instalments of $800 over a five year period. As the deferred payment
        is non-interest bearing, it was originally recorded at its fair value
        of $3,112 based on a discount rate of 9%. Imputed interest of $87 has
        been recorded on this deferred payment during the year ended
        December 31, 2009 ($136 during the year ended December 31, 2008). In
        accordance with the terms of the deferred payment agreement, $188 of
        clinical services purchased from Pharma Medica were offset against
        the annual instalment received on January 30, 2009. The final
        instalment of $800 was received on January 30, 2010.

    6   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 $1,465 (US$1,400) 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. The Company is currently amortizing the intangible
        rights related to CIP-FENOFIBRATE and CIP-ISOTRETINOIN.

        With regard to CIP-FENOFIBRATE, in July 2007 the Company entered into
        a licensing and distribution agreement with Kowa Pharmaceuticals
        America, Inc. ("Kowa"), under which Kowa was granted the exclusive
        right to market, sell and distribute Lipofen in the United States.
        The Company received an up-front licensing payment of US$2 million
        and, under the terms of the agreement, could receive additional
        milestone payments of up to US$20 million based on the achievement of
        certain net sales targets. The Company also receives a royalty based
        on a percentage of net sales. These elements are reflected in
        licensing revenue, net of product-related expenses and amounts due to
        Galephar, the Company's technology partner. During the second quarter
        of 2009, the Company received a US$1 million payment from Kowa in
        return for the partial waiver of a non-compete covenant in the
        licensing and distribution agreement for Lipofen. The waiver relates
        to a combination product and not a fenofibrate-only formulation that
        would compete with Lipofen. Under the revised agreement, the Company
        will receive additional payments should Kowa be successful in
        commercializing its combination product and it includes provisions to
        ensure Lipofen revenue is not impacted once the combination product
        reaches the market. Revenue is being recognized on this payment using
        a straight-line amortization method over the estimated commercial
        life of the product. After product-related expenses are deducted,
        approximately 50% of all milestone and royalty payments received by
        the Company under the agreement will be paid to Galephar. Lipofen was
        launched in the U.S. market in 2007.

        In August 2008, the Company entered into a development and supply
        agreement with Ranbaxy Pharmaceuticals Inc. ("Ranbaxy") under which
        Ranbaxy was granted the exclusive right to market, sell and
        distribute CIP-ISOTRETINOIN in the United States. Under the terms of
        the agreement, the Company received an up-front licensing payment of
        US$1 million and could receive additional pre- and
        post-commercialization milestone payments of up to US$23 million,
        based on the achievement of certain milestone targets. Once the
        product is successfully commercialized, the Company will also receive
        a royalty based on a percentage of net sales. In addition, Ranbaxy
        will reimburse the Company for all costs associated with the clinical
        studies required by the FDA to secure NDA approval, up to a
        predetermined cap. Any additional development costs associated with
        initial FDA approval will be shared equally. The Company is
        responsible for all product development activities, including
        management of the clinical studies required by the FDA to secure NDA
        approval and is also responsible for product supply and
        manufacturing, which will be fulfilled by Galephar. During 2009, a
        payment of $122 was made to acquire additional intangible rights for
        CIP-ISOTRETINOIN. After product-related expenses are deducted,
        approximately 50% of all milestone and royalty payments received by
        the Company under the agreement will be paid to Galephar.

        The following is a summary of intangible assets as at December 31,
        2009:

                                   December 31, 2009       December 31, 2008
        ---------------------------------------------------------------------
                                         Accumulated             Accumulated
                                  Cost  Amortization      Cost  Amortization
        ---------------------------------------------------------------------
        CIP-FENOFIBRATE        $ 2,332       $ 1,865   $ 2,332       $ 1,398
        CIP-ISOTRETINOIN         1,579           274     1,457             -
        CIP-TRAMADOL ER          1,735             -     1,735             -
                               ----------------------------------------------
                                 5,646       $ 2,139     5,524       $ 1,398
        Accumulated
         amortization           (2,139)                 (1,398)
        ---------------------------------------------------------------------
                               $ 3,507                 $ 4,126
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    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

        There have been no changes in the Company's share capital during the
        period from December 31, 2007 to December 31, 2009. The following is
        a summary of the Company's share capital as at December 31, 2009:

                                                    Number of
                                                  common shares       Amount
                                                  (in thousands)         $

        Balance - December 31, 2009                      24,055       49,948
                                                 ----------------------------
                                                 ----------------------------

        Stock option plan

        The following is a summary of the changes in the stock options
        outstanding from December 31, 2007 to December 31, 2009:

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

        Balance - December 31, 2007                         998         3.36
          Granted in 2008                                   483         0.78
          Expired or cancelled in 2008                     (105)        2.55
                                                  --------------
        Balance - December 31, 2008                       1,376         2.51

          Granted in 2009                                   224         0.60
          Expired in 2009                                   (20)        4.33
                                                  --------------
        Balance - December 31, 2009                       1,580         2.22
                                                  --------------
                                                  --------------

        At December 31, 2009, 806,974 options were fully vested and
        exercisable (540,482 at December 31, 2008).

        During 2009, the Company issued 224,375 stock options under the
        employee and director stock option plan, with exercise prices of
        $0.61 and $0.55, 25% of which vest on either February 20 or
        November 6 of each year for the next four years, commencing in 2010,
        and all of which expire in 2019. Total compensation cost for these
        stock options is estimated to be $125. This cost will be recognized
        over the vesting period of the stock options.

        The stock options issued during 2009 were valued using the
        Black-Scholes option pricing model with the following assumptions:

           Risk-free interest rate                           2.87% and 3.52%
           Expected life                                            10 years
           Expected volatility                                 106% and 114%
           Expected dividend                                             Nil

        The following is a summary of the outstanding options as at
        December 31, 2009:
                              Exercise
           Expiry date          price       Number of options (in thousands)
                                           ----------------------------------
                                  $         Vested      Unvested       Total

           January 11, 2012      1.09          125            -          125
           September 17, 2014    2.35          125            -          125
           March 23, 2016        4.12          150           50          200
           June 28, 2016         4.00          135           45          180
           September 13, 2016    2.90           52           17           69
           March 9, 2017         3.90          112          112          224
           February 28, 2018     1.05           53          160          213
           November 7, 2018      0.45           45          135          180
           December 3, 2018      0.50           10           30           40
           February 20, 2019     0.61            -          204          204
           November 6, 2019      0.55            -           20           20
                                           ----------------------------------
                                               807          773        1,580
                                           ----------------------------------
                                           ----------------------------------

    8   CONTRIBUTED SURPLUS

        The following is a summary of the changes in contributed surplus from
        December 31, 2007 to December 31, 2009:

                                                                     Amount
                                                                        $

        Balance - December 31, 2007                                   31,032
          Stock-based compensation expense in 2008                       581
                                                                    ---------
        Balance - December 31, 2008                                   31,613

          Stock-based compensation expense in 2009                       655
                                                                    ---------
        Balance - December 31, 2009                                   32,268
                                                                    ---------
                                                                    ---------

    9   RESEARCH AND DEVELOPMENT

        A total of $5,381 of research and development costs were incurred in
        2009 ($2,239 in 2008). The research and development expense reflected
        in the Statement of Operations is presented net of Ontario Innovation
        Tax Credit ("OITC") program credits of $53 ($440 in 2008) for
        qualifying research and development expenditures and an amount of
        $4,372 reimbursed by Ranbaxy ($496 in 2008). Under the terms of the
        agreement with Ranbaxy, research and development costs incurred for
        clinical studies required by the FDA to secure approval for
        CIP-ISOTRETINOIN are reimbursed to the Company and as a result, there
        was a nil impact to research and development expense with respect to
        these costs.

    10  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,
                                                           2009         2008
                                                             $            $

        Statutory income tax rate of 33% applied
         to loss for the year (2008 - 33.5%)               (896)      (1,082)
        Permanent differences                               192           57
        Change in enacted income tax rates and other
         items                                            3,382         (599)
        Change in valuation allowance                    (2,678)       1,624
                                                      -----------------------
        Provision for income taxes                            -            -
                                                      -----------------------
                                                      -----------------------

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

                                                                 As at
                                                              December 31,
                                                           2009         2008
                                                             $            $

        Non-capital losses                                9,811       10,776
        Excess of tax value of property and equipment
         over book value                                     59           49
        SR&ED expenditure pool                            3,097        3,466
        Excess of tax value of intangible assets over
         book value                                       6,194        7,581
        Benefit of investment tax credits                 2,038        2,057
        Capital losses                                      177           93
        Deductible share issue costs                         55          127
        Ontario harmonization tax credit                    120            -
        Other temporary differences                         407          487
                                                      -----------------------
                                                         21,958       24,636
        Valuation allowance                             (21,958)     (24,636)
                                                      -----------------------
                                                              -            -
                                                      -----------------------
                                                      -----------------------

        The Company has non-capital loss carry forwards of $39,300 as at
        December 31, 2009 that expire in varying amounts from 2014 to 2029.

        The Company has Scientific Research and Experimental Development
        ("SR&ED") expenditures of $12,400 which can be carried forward
        indefinitely to reduce future years' taxable income.

        The Company has approximately $2,700 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 2012 to 2029.

    11  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, 2009 and the year ended December 31,
        2008 was 24,054,878.

        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.

    12  SUPPLEMENTAL CASH FLOW INFORMATION

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

                                                          For the year ended
                                                              December 31,
                                                           2009         2008
                                                             $            $

        Accounts receivable                                (455)         884
        Income taxes receivable                               6          122
        Prepaid expenses and other current assets           (77)        (324)
        Accounts payable and accrued liabilities            392          119
        Deferred revenue                                    114          189
                                                      -----------------------
                                                            (20)         990
                                                      -----------------------
                                                      -----------------------

    13  SEGMENTED INFORMATION

        The Company's operations are categorized into one industry segment,
        being specialty pharmaceuticals. All of the Company's assets,
        including capital and intangible assets, are in Canada, while all
        licensing revenue is derived from the United States.
    

%SEDAR: 00020415E

SOURCE Cipher Pharmaceuticals Inc.

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


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