Cipher reports Q2 2010 financial results

Toronto Stock Exchange Symbol: DND

MISSISSAUGA, ON, July 28 /CNW/ - Cipher Pharmaceuticals Inc. (TSX: DND) today announced its financial and operational results for the three and six months ended June 30, 2010.

    
    Q2 2010 Summary
    ---------------

    -   Net revenue increased to $2.2 million from $0.7 million in Q2 2009,
        driven mainly by the achievement of a US$1 million commercial
        milestone for Lipofen(R).
    -   Net income for the quarter was $0.7 million, or $0.03 per share,
        compared with a loss of $0.8 million, or $0.03 per share, for
        Q2 2009.
    -   Achieved final FDA approval for CIP-TRAMADOL ER, the Company's
        extended-release tramadol product.
    -   Reached 75% enrolment (over 700 patients) in CIP-ISOTRETINOIN
        Phase III safety study.
    -   Strong balance sheet at quarter end with cash of $10.3 million and no
        debt, compared with cash of $9.0 million at December 31, 2009.
    

"The second quarter was highlighted by final FDA approval of our extended-release tramadol - our second product approved in the U.S. market," said Larry Andrews, President and CEO of Cipher. "We are working diligently to finalize a marketing partnership as we prepare for commercial launch, targeted for the first quarter of 2011. Achievement of a sales milestone for Lipofen(R) during the quarter reflects Kowa's continued commercial success in the U.S. and further strengthens our financial position."

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

Net revenue in Q2 2010 was $2.2 million, compared with $0.7 million in Q2 2009. The improved performance reflects a continuing trend of higher royalty revenue for the product during the quarter, as well as the achievement of a one-time US$1 million commercial milestone for Lipofen(R).

Gross Research and Development ("R&D") expenditures for Q2 2010 rose to $3.5 million, compared with $1.5 million in Q2 2009, driven by the CIP-ISOTRETINOIN clinical study. The reported R&D expenditure amount of $0.2 million for Q2 2010 is net of $3.3 million of reimbursed expenses by Cipher's U.S. marketing partner. Operating, General and Administrative ("OG&A") expenses for Q2 2010 were $1.1 million, consistent with the prior year.

For the three months ended June 30, 2010, the Company recorded net income of $0.7 million ($0.03 per basic and diluted share), compared with a loss of $0.8 million ($0.03 per basic and diluted share) for Q2 2009.

For the first half of 2010, the Company recorded net revenue of $3.1 million, compared with $1.3 million in the first half of 2009. Net income for the first six months of 2010 was $0.2 million ($0.01 per basic and diluted share), compared with a net loss of $1.6 million ($0.06 per basic and diluted share) in the first half of 2009.

The Company's financial position remained solid at quarter-end. As at June 30, 2010, Cipher had cash of $10.3 million, compared with $9.0 million as at December 31, 2009 and continued to have no debt.

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

During Q2 2010, Lipofen(R) monthly prescriptions showed steady growth, as Kowa increased 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 second quarter to support the recent launch of its pitavastatin product, LIVALO(R).

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 700 patients at the end of Q2 2010. The Company is expecting to complete enrolment toward the end of Q3 2010.

In May 2010, Cipher announced that the FDA has approved CIP-TRAMADOL ER, the Company's extended-release tramadol product, for the treatment of moderate to moderately severe chronic pain in adults. Also during Q2 2010, the United States Court of Appeals upheld the lower court's original decision on patent infringement litigation initiated by Pharma Products L.P against Par Pharmaceutical Companies, Inc. relating to Ultram(R) ER, the reference product in Cipher's New Drug Application for CIP-TRAMADOL ER. This affirmed the invalidity of the asserted claims of the Orange Book-listed patents for Ultram(R) ER. These are the same patents that were originally asserted against Cipher and for which Cipher was granted summary judgment in January 2010. This decision confirms Cipher's long-held view that these patents are invalid, and further mitigates any remaining risk of patent litigation on these patents against CIP-TRAMADOL ER. Cipher is currently preparing for the U.S. commercial launch of the product, which includes securing a marketing partner and finalizing commercial manufacturing requirements. The Company is targeting Q1 2011 for commercial launch.

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

    
    Conference Call and Webcast
    ---------------------------
    

Cipher will hold a conference call today, July 28, 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 (FDA approval in May 2010) 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 June 30, 2010




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

                                                             As at
                                                      June 30,   December 31,
                                                       2010         2009

    ASSETS

    Current assets
    Cash and cash equivalents                       $    10,310  $     9,006
    Accounts receivable (note 2)                          2,851          967
    Prepaid expenses and other current assets               153          457
    Loan receivable (note 3)                                  -          800
    -------------------------------------------------------------------------
                                                         13,314       11,230

    Property and equipment, net                              72           86

    Intangible assets, net (note 4)                       3,490        3,507

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    $    16,876  $    14,823
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Current liabilities
    Accounts payable and accrued liabilities        $     2,784  $     1,570
    Current portion of deferred revenue                   1,405        1,956
    -------------------------------------------------------------------------
                                                          4,189        3,526

    Deferred revenue                                      1,224          329
    -------------------------------------------------------------------------
                                                          5,413        3,855
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY

    Share capital (note 5)                               49,977       49,948
    Contributed surplus (note 5)                         32,503       32,268
    Deficit                                             (71,017)     (71,248)
    -------------------------------------------------------------------------
                                                         11,463       10,968
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    $    16,876  $    14,823
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of these unaudited financial
    statements



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

                        For the three months ended  For the six months ended
                                    June 30                   June 30
                               2010         2009         2010         2009

    Revenues
      Licensing revenue   $     2,218  $       678  $     3,136  $     1,280
    -------------------------------------------------------------------------

    Expenses
      Research and
       development                245          225          523          454
      Operating, general
       and
       administrative           1,052        1,057        2,020        2,046
      Amortization of
       property and
       equipment                   14           18           28           37
      Amortization of
       intangible
       assets                     176          189          352          377
      Interest income             (12)         (27)         (18)         (73)
    -------------------------------------------------------------------------

                                1,475        1,462        2,905        2,841
    -------------------------------------------------------------------------

    Income (loss) and
     comprehensive
     income (loss)
     for the period       $       743  $      (784) $       231  $    (1,561)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted
     earnings (loss)
     per share
     (note 6)             $      0.03  $     (0.03) $      0.01  $     (0.06)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 three months ended  For the six months ended
                                    June 30                   June 30
                               2010         2009         2010         2009

    Deficit, beginning
     of period            $   (71,760) $   (69,310) $   (71,248) $   (68,533)

    Income (loss) for
     the period                   743         (784)         231       (1,561)
    -------------------------------------------------------------------------

    Deficit, end of
     period               $   (71,017) $   (70,094) $   (71,017) $   (70,094)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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  For the six months ended
                                    June 30                   June 30
                               2010         2009         2010         2009

    Cash provided by
     (used in)

    Operating activities
      Income (loss)       $       743  $      (784) $       231  $    (1,561)
      Items not affecting
       cash
        Amortization of
         property and
         equipment                 14           18           28           37
        Amortization of
         intangible
         assets                   176          189          352          377
        Stock-based
         compensation
         expense                  130          164          249          325
        Imputed interest            -          (19)           -          (47)
    -------------------------------------------------------------------------
                                1,063         (432)         860         (869)
      Net change in
       non-cash
       operating
       items                      458          968          (22)         137
    -------------------------------------------------------------------------

                                1,521          536          838         (732)
    -------------------------------------------------------------------------

    Investing activities
      Proceeds from loan
       receivable                   -            -          800          612
      Purchase of property
       and equipment              (13)          (5)         (14)          (5)
      Acquisition of
       intangible
       rights
       (note 4)                  (335)           -         (335)        (122)
    -------------------------------------------------------------------------

                                 (348)          (5)         451          485
    -------------------------------------------------------------------------

    Financing activities
      Proceeds from
       exercise of
       stock
       options
       (note 5)                    15            -           15            -
    -------------------------------------------------------------------------

    Increase (Decrease)
     in cash                    1,188          531        1,304         (247)
    Cash and cash
     equivalents,
     beginning of
     period                     9,122        9,103        9,006        9,881
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash and cash
     equivalents,
     end of
     period               $    10,310  $     9,634  $    10,310  $     9,634
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of these unaudited financial
    statements



    Cipher Pharmaceuticals Inc.
    Notes to Unaudited Financial Statements
    June 30, 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 six months ended June 30,
        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   FOREIGN EXCHANGE FORWARD CONTRACT

        During the second quarter of 2010, the Company entered into a foreign
        exchange forward contract related to the net sales milestone of
        US$1 million under the Lipofen licensing and distribution agreement
        which was achieved at the end of the quarter. The contract matures on
        July 30, 2010 at an exchange rate of $1.031 against the US dollar.
        This foreign exchange forward contract is considered as an effective
        hedge to the US$1 million milestone and as such has been included in
        Accounts Receivable at the hedge rate.

    3   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.

    4   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 $1,145 (US$1,080) 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.

        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. Lipofen was
        launched in the U.S. market in 2007. During the second quarter of
        2010, the Company reached a cumulative net sales level for the
        product that resulted in a contract milestone of US$1 million being
        achieved.

        CIP-ISOTRETINOIN - 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 the product in the
        United States. To date, the Company has received an up-front
        licensing payment of US$1 million and a milestone payment of
        US$2 million as a result of reaching 50% of the patient enrolment
        level for the clinical trial. Under the terms of the the agreement
        the Company could receive additional pre- and post-commercialization
        milestone payments of up to US$21 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. 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 royalties received by the
        Company under the agreement will be paid to Galephar.

        CIP-TRAMADOL ER - In May 2010, the Company received final approval
        from the FDA for its extended-release tramadol product for the
        treatment of moderate to moderately severe chronic pain in adults.
        The achievement of FDA approval triggers additional milestone
        payments to Galephar as the Company prepares for commercial
        manufacturing. During the second quarter of 2010 a payment of $335
        was made to acquire additional intangible rights for CIP-TRAMADOL ER.

    5   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, 2008 to June 30, 2010:


                                                      Number of
                                                    common shares     Amount
                                                    (in thousands)       $

        Balance outstanding - December 31, 2008
         and December 31, 2009                             24,055     49,948
          Options exercised during Q2 2010                     25         29
                                                    -------------------------
        Balance outstanding - June 30, 2010                24,080     49,977
                                                    -------------------------
                                                    -------------------------


        Stock option plan

        The following is a summary of the changes in the stock options
        outstanding from December 31, 2008 to June 30, 2010:


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

        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 (a)                                 222       1.60
          Exercised during the three months
           ended June 30, 2010 (b)                            (25)      0.61
                                                    --------------
        Balance outstanding - June 30, 2010                 1,777       2.17
                                                    --------------
                                                    --------------


        At June 30, 2010, 1,054,560 options were fully vested and exercisable
        (766,974 at June 30, 2009).

        (a) 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

        (b) During the three months ended June 30, 2010, 25,000 stock options
        were exercised for a total cash consideration of $15. Capital stock
        increased by $29 representing the cash consideration of $15 and a $14
        reduction in contibuted surplus. No stock options were exercised in
        the three months ended June 30, 2009.

    6   EARNINGS PER SHARE

        Earnings per share is calculated using the weighted average number of
        shares outstanding. The weighted average number of shares outstanding
        for the three and six month periods ended June 30, 2010 was
        24,071,087 and 24,063,027 respectively (for both the three and six
        month periods ended June 30, 2009 the amount was 24,054,878). The
        dilutive impact on earnings per share for the three and six month
        periods ended June 30, 2010 is not significant.

        Basic and diluted loss per share for prior year comparative figures
        are the same because the exercise of stock options would have an
        anti-dilutive effect due to the net losses incurred in 2009.
    

%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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