Cipher reports Q1 2010 financial results

Toronto Stock Exchange Symbol: DND

MISSISSAUGA, ON, April 23 /CNW/ - Cipher Pharmaceuticals Inc. (TSX: DND) today announced its financial and operational results for the three months ended March 31, 2010.

    
    Q1 2010 Summary
    ---------------

    -   Total revenue increased 52% to $0.9 million, driven by growth of
        Lipofen(R) prescriptions.
    -   Net loss narrowed to $0.5 million, or $0.02 per share, compared with
        a loss of $0.8 million, or $0.03 per share, in Q1 2009.
    -   Reached enrolment mid-point of CIP-ISOTRETINOIN Phase III safety
        trial.
    -   Received favourable summary judgement motion for CIP-TRAMADOL ER,
        lifting 30-month stay of approval.
    -   New Drug Submission ("NDS") for CIP-TRAMADOL ER accepted for review
        by Health Canada.
    -   Strong balance sheet at quarter end with cash of $9.1 million and no
        debt, compared with cash of $9.0 million at December 31, 2009.
    

"Lipofen(R) prescriptions have grown solidly in recent quarters with the increased promotion behind the product, which drove a strong year-over-year increase in our revenue and enabled us to narrow our operating loss," said Larry Andrews, President and CEO of Cipher. "The first quarter was highlighted by the achievement of our 50% enrolment milestone in the Phase III safety trial for CIP-ISOTRETINOIN. More than 500 patients are currently enrolled and the trial continues to progress well. We also received a favourable judgment related to patent litigation on our extended-release tramadol, enabling us to move forward with final FDA approval. In addition, we advanced our plans to target additional markets for our existing products as we received notice that our New Drug Submission to Health Canada for CIP-TRAMADOL ER was accepted for review."

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

Total revenue in Q1 2010 was $0.9 million, compared with $0.6 million in Q1 2009. The improved performance reflects the continued market penetration by Lipofen(R) as Kowa increases the sales and promotion effort behind the product.

Gross Research and Development ("R&D") expenditures for Q1 2010 rose to $4.1 million, compared with $0.3 million in Q1 2009, driven by the CIP-ISOTRETINOIN clinical study. The reported R&D expenditure amount of $0.3 million for Q1 2010 is net of $3.8 million of reimbursed expenses by Cipher's U.S. marketing partner. Operating, General and Administrative ("OG&A") expenses for Q1 2010 were $1.0 million, consistent with the prior year. The loss for the three months ended March 31, 2010 decreased to $0.5 million ($0.02 per basic and diluted share), compared with a net loss of $0.8 million ($0.03 per basic and diluted share) in Q1 2009.

The Company's financial position remained solid at quarter-end. As at March 31, 2010, Cipher had cash of $9.1 million, compared with $9.0 million as at December 31, 2009.

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

During Q1 2010, Lipofen(R) monthly prescriptions showed steady growth, as Kowa increases coverage of the primary care physicians in its targeted regions and expands its sales force. Kowa's sales force grew to approximately 250 at the end of the first quarter to support the launch of Kowa's pitavastatin product, LIVALO(R), in Q2 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 having reached more than 400 patients (the mid-point of the enrolment period) at the end of Q1 2010. Reaching this enrolment milestone triggered a US$2.0 million payment to be paid to Cipher in Q2 from its marketing partner. Current enrolment is over 500 patients.

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 could have delayed final FDA approval of Cipher's NDA by 30 months, or until the patent challenge was resolved, whichever occurred first. In early Q1 2010, the Company announced that a final summary judgment had been entered in favour of Cipher in relation to the above litigation. The judgment terminates any further stay of FDA approval of Cipher's NDA under the applicable provisions of the Hatch-Waxman Act. The final judgment 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, dated August 14, 2009, 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 under appeal before the United States Court of Appeals for the Federal Circuit and the Court's decision is not expected until the latter half of 2010. If Par is successful in the 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.

The Company is moving forward to obtain CIP-Tramadol's FDA final approval and expects a response in Q2 2010. As part of its broader CIP-TRAMADOL ER commercialization strategy, Cipher also announced that its New Drug Submission to Health Canada was accepted for review during the first quarter. The Company expects the review to be completed by early 2011.

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, April 23, 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 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.

                       Unaudited Financial Statements

                  For the Three Months Ended March 31, 2010



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

                                                             As at
                                                     March 31,   December 31,
                                                       2010         2009

    ASSETS

    Current assets
    Cash                                            $     9,122  $     9,006
    Accounts receivable (note 3)                          3,401          967
    Prepaid expenses and other current assets               338          457
    Current portion of loan receivable (note 2)               -          800
    -------------------------------------------------------------------------
                                                         12,861       11,230

    Property and equipment, net                              73           86

    Intangible assets, net (note 3)                       3,331        3,507

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    $    16,265  $    14,823
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Current liabilities
    Accounts payable and accrued liabilities        $     2,166  $     1,570
    Current portion of deferred revenue                   1,822        1,956
    -------------------------------------------------------------------------
                                                          3,988        3,526

    Deferred revenue                                      1,702          329
    -------------------------------------------------------------------------
                                                          5,690        3,855
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY

    Share capital (note 4)                               49,948       49,948
    Contributed surplus                                  32,387       32,268
    Deficit                                             (71,760)     (71,248)
    -------------------------------------------------------------------------
                                                         10,575       10,968
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    $    16,265  $    14,823
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited financial
    statements



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


                                                   For the three months ended
                                                     March 31,    March 31,
                                                       2010         2009

    Revenues
      Licensing revenue                             $       918  $       602
    -------------------------------------------------------------------------

    Expenses
      Research and development                              278          229
      Operating, general and administrative                 968          989
      Amortization of property and equipment                 14           19
      Amortization of intangible assets                     176          188
      Interest income                                        (6)         (46)
    -------------------------------------------------------------------------

                                                          1,430        1,379
    -------------------------------------------------------------------------

    Loss and comprehensive loss for the period      $      (512) $      (777)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted loss per share (note 5)       $     (0.02) $     (0.03)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited financial
    statements



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

                                                                   For the
                                     For the three months ended  year ended
                                        March 31,    March 31,   December 31,
                                          2010         2009         2009

    Deficit, beginning of period       $   (71,248) $   (68,533) $   (68,533)

    Loss for the period                       (512)        (777)      (2,715)
    -------------------------------------------------------------------------

    Deficit, end of period             $   (71,760) $   (69,310) $   (71,248)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited financial
    statements



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

                                                   For the three months ended
                                                     March 31,    March 31,
                                                       2010         2009

    Cash provided by (used in)

    Operating activities
      Loss                                          $      (512) $      (777)
      Items not affecting cash
        Amortization of property and equipment               14           19
        Amortization of intangible assets                   176          188
        Stock-based compensation expense                    119          161
        Imputed interest                                      -          (28)
    -------------------------------------------------------------------------
                                                           (203)        (437)
      Net change in non-cash operating items               (482)        (831)
    -------------------------------------------------------------------------

                                                           (685)      (1,268)
    -------------------------------------------------------------------------

    Investing activities
      Proceeds from loan receivable                         800          612
      Purchase of property and equipment                     (1)           -
      Acquisition of intangible rights                        -         (122)
    -------------------------------------------------------------------------

                                                            801          490
    -------------------------------------------------------------------------

    Increase (Decrease) in cash                             116         (778)
    Cash, beginning of period                             9,006        9,881
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash, end of period                             $     9,122  $     9,103
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited financial
    statements



    Cipher Pharmaceuticals Inc.
    Notes to Unaudited Financial Statements
    March 31, 2010
    (in thousands of dollars, except per share amounts)

    1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of presentation

      The accompanying unaudited interim financial statements of the Company
      have been prepared in accordance with accounting principles generally
      accepted in Canada for interim reporting. Accordingly, these financial
      statements do not include all of the disclosures required by generally
      accepted accounting principles for annual financial statements and
      should be read in conjunction with the annual financial statements of
      the Company. In the opinion of management, all adjustments considered
      necessary for fair presentation have been included. All such
      adjustments are of a normal recurring nature. Operating results for the
      three months ended March 31, 2010 are not necessarily indicative of the
      results that may be expected for the fiscal year ending December 31,
      2010.

      There have been no changes to the accounting policies as described in
      Note 1 to the financial statements for the year ended December 31,
      2009.

    2 LOAN RECEIVABLE

      During the quarter ended March 31, 2010, the Company received the final
      instalment of $800 as part of the deferred payment agreement from the
      sale of Pharma Medica Research Inc. in February 2005.

    3 INTANGIBLE ASSETS

      The Company has 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 $1,422 (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 recovery 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, which
      also incorporates product-related expenses and amounts due to Galephar,
      the Company's technology partner. Revenue from licensing and
      distribution agreements is presented on a net basis. 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, distribution
      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
      commercialized, the Company will also receive a royalty based on a
      percentage of net sales. In addition, Ranbaxy will reimburse the
      Company for the 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 the quarter ended March 31, 2010, the Company achieved a
      pre-commercialization milestone as a result of reaching 50% of the
      patient enrolment level for the clinical trial. The milestone amount is
      US$2 million and is included in accounts receivable on the balance
      sheet. Full payment was received subsequent to quarter end. After
      product-related expenses are deducted and after the recovery of
      Cipher's investment in the preferred shares of Galephar, approximately
      50% of all milestone and royalty payments received by the Company under
      the agreement will be paid to Galephar.

    4 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, 2008 to March 31, 2010. The following is a
      summary of the Company's share capital as at March 31, 2010:

                                                        Number of
                                                    common shares     Amount
                                                    (in thousands)       $
    Balance outstanding - March 31, 2010                   24,055     49,948
                                                   --------------------------
                                                   --------------------------

    Stock option plan

    The following is a summary of the changes in the stock options
    outstanding from December 31, 2008 to March 31, 2010:

                                                                    Weighted
                                                        Number of    average
                                                         options    exercise
                                                    (in thousands)    price
                                                                         $
    Balance outstanding - December 31, 2008                 1,376       2.51
      Granted in 2009                                         224       0.60
      Expired in 2009                                         (20)      4.33
                                                   ---------------
    Balance outstanding - December 31, 2009                 1,580       2.22
      Granted during the three months ended
       March 31, 2010                                         222       1.60
                                                   ---------------
    Balance outstanding - March 31, 2010                    1,802       2.14
                                                   ---------------
                                                   ---------------

    At March 31, 2010, 1,034,560 options were fully vested and exercisable
    (721,974 at March 31, 2009).

    During the three months ended March 31, 2010, the Company issued 221,500
    stock options under the employee and director stock option plan, which
    have an exercise price of $1.60, 25% of which vest on February 19 of each
    year, commencing in 2011, and expire in 2020. Total compensation cost for
    these stock options is estimated to be $317. This cost will be recognized
    over the vesting period of the stock options.

    The stock options issued during the three months ended March 31, 2010
    were valued using the Black-Scholes option pricing model with the
    following assumptions:

          Risk-free interest rate              3.50%
          Expected life                     10 years
          Expected volatility                    97%
          Expected dividend                      Nil

    5 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
    three months ended March 31, 2010 and March 31, 2009 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.
    

%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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