Cipher reports second quarter fiscal 2008 results



    Toronto Stock Exchange Symbol: DND

    MISSISSAUGA, ON, Aug. 13 /CNW/ - Cipher Pharmaceuticals Inc. (TSX: DND)
today announced its financial and operational results for the three and six
months ended June 30, 2008.

    
    Q2 2008 Summary
    ---------------

    -   Submitted revised New Drug Application (NDA) to the U.S. Food and
        Drug Administration (FDA) for CIP-TRAMADOL ER, extended-release
        tramadol formulation; NDA subsequently accepted for review by FDA
    -   Recorded licensing revenue of $277,000 from Lipofen(R)
    -   Net loss decreased to $1.8 million, or $0.08 per share, compared with
        $2.1 million, or $0.09 per share, in the second quarter of 2007
    -   Cash of $9.9 million at quarter end, compared with $11.0 million at
        the end of fiscal 2007
    -   Subsequent to quarter end, entered into a definitive development,
        distribution and supply agreement with Ranbaxy Pharmaceuticals Inc.
        ("RPI"), for CIP-ISOTRETINOIN in the United States.
    

    "A key product development highlight during the quarter was the
submission of our revised NDA for extended-release tramadol, which we believe
provides the most expeditious path to final regulatory approval," said Larry
Andrews, President and CEO of Cipher. "We also achieved a major milestone
recently with the completion of the agreement with Ranbaxy for
CIP-ISOTRETINOIN. This agreement provides us with the financial resources to
complete CIP-ISOTRETINOIN's clinical development program while also achieving
attractive commercialization terms post-FDA approval. Sales of Lipofen, our
first commercial product, grew solidly during the quarter and we expect this
product to provide a steadily increasing revenue stream to offset some of our
operating costs and support our continued growth."

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

    In Q2 2008, Cipher recorded total revenue of $277,000, an increase of 22%
over the same period last year. Research and development expenses increased
from $0.8 million in Q2 2007 to $1.1 million in Q2 2008, as a result of
completion of additional pharmacokinetic studies for CIP-TRAMADOL ER during Q2
2008. Operating, general and administrative (OG&A) expenses for Q2 2008 were
$1.0 million, compared with $1.4 million in Q2 2007. The year-over-year
decrease reflects certain non-recurring expenses incurred in Q2 2007 related
to the move to new premises and the departure of a senior employee. OG&A
expenses are expected to increase moderately over the balance of the year as
select resources are added to the management team. Net loss for the three
months ended June 30, 2008 was $1.8 million ($0.08 per basic and diluted
share), compared with a net loss of $2.1 million ($0.09 per basic and diluted
share) in the same period last year.
    As at June 30, 2008, Cipher had cash of $9.9 million, compared with
$11.0 million at December 31, 2007.

    
    Drug Development Update
    -----------------------
    

    In July 2007, Cipher entered into a licensing and distribution agreement
with ProEthic Pharmaceuticals under which ProEthic was granted the exclusive
right to market, sell and distribute Lipofen in the United States. In late
September 2007, ProEthic launched Lipofen in the U.S. market with the full
effort of its sales and marketing teams. Since launch, weekly prescriptions
have shown steady growth and Cipher expects this trend to continue as ProEthic
increases penetration of the primary care physicians in its targeted regions
and expands its sales force. Subsequent to quarter end, ProEthic was acquired
by Kowa Company Ltd. ("Kowa"), a multinational Japanese company actively
engaged in manufacturing and trading activities in various fields, including
pharmaceuticals and life sciences. Kowa has indicated that it is committed to
supporting Lipofen and will accelerate the planned expansion of ProEthic's
sales force, particularly in regions where ProEthic does not have coverage
currently. Effective September 1, 2008, ProEthic will change its name to Kowa
Pharmaceuticals America.
    During the second quarter of 2007, Cipher received a second approvable
letter from the FDA pertaining to its CIP-ISOTRETINOIN NDA. In the letter, the
FDA indicated that Cipher's application is approvable subject to the
resolution of two remaining issues. In addition to one question related to
chemistry, manufacturing and controls, which the Company responded to, the FDA
requested that Cipher provide additional clinical safety data. The Company
appealed the position taken by the FDA in its approvable letter using the
formal dispute resolution process. After subsequent discussions, the
representative from the FDA agreed with the Division of Dermatology and Dental
Product's original view that a Phase III safety study was needed to further
demonstrate the safety of CIP-ISOTRETINOIN. Cipher and its advisors are
currently in discussions with the Division regarding the appropriate design of
a safety trial. The study protocol has been submitted for FDA review under a
Special Protocol Assessment ("SPA").
    Subsequent to quarter end, the Company entered into a definitive
development, distribution and supply agreement with Ranbaxy Pharmaceuticals
Inc. ("RPI"), a wholly owned subsidiary of Ranbaxy Laboratories Limited, under
which Cipher has granted RPI the exclusive right to market, sell and
distribute CIP-ISOTRETINOIN in the United States. Under the terms of the
agreement with RPI, Cipher received an initial upfront milestone payment of
US$1 million. The agreement includes additional pre- and
post-commercialization milestone payments of up to US$23 million, contingent
upon the achievement of certain milestone targets. Once the product is
successfully commercialized, Cipher will also receive a royalty in the
mid-teens on net sales. In addition, RPI will reimburse Cipher for all costs
associated with any remaining 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. Cipher is
responsible for all product development activities, including management of
the clinical studies required by the FDA to secure NDA approval. Cipher is
also responsible for product supply and manufacturing, which would be
fulfilled by its partner, Galephar Pharmaceutical Research. After
product-related expenses are deducted, approximately 50% of all milestone and
royalty payments received by Cipher under the agreement will be paid to
Galephar.
    In May 2007, Cipher received an approvable letter from the FDA pertaining
to its NDA for CIP-TRAMADOL ER, the Company's extended-release formulation of
tramadol. In its letter, the FDA indicated that Cipher's application is
approvable subject to the resolution of certain issues, including a request
for an additional adequate clinical trial to provide further efficacy data. In
subsequent discussions, the FDA indicated that the statistical methods used to
analyze data from Cipher's clinical trials did not adequately address missing
data relating to subjects who dropped out of the trials. In December 2007,
Cipher announced that it had appealed the position taken by the FDA using the
FDA's formal dispute resolution process. In the written response, the Acting
Director of the Office of Drug Evaluation II, Center for Drug Evaluation and
Research supported the original approvable action. In a subsequent discussion,
the FDA suggested an additional statistical sensitivity analysis of existing
clinical data on CIP-TRAMADOL ER as a means to potentially satisfy the
requirements for approval. As a consequence, the Company suspended its appeal
and conducted the additional statistical analysis. During the second quarter
of 2008, Cipher submitted a revised NDA to the FDA. After considering feedback
from the FDA appeal process and the results of the additional statistical
sensitivity analysis, Cipher and its advisors concluded that submitting the
revised NDA provided the most expeditious path to final regulatory approval.
Cipher's revised NDA includes data from additional pharmacokinetic studies
conducted by the Company comparing CIP-TRAMADOL ER to Ultram(R) ER. The
revised NDA was accepted for review, which the Company expects to be completed
by October 2008. It is possible that the submission could trigger patent
infringement litigation and a stay of up to 30 months under the Hatch-Waxman
Act. Out-licensing discussions with potential commercial partners are ongoing.

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

    Cipher will hold a conference call today, August 13, 2008, at 8:30 a.m.
(ET) to discuss its financial results and other corporate developments. To
access the conference call by telephone, dial 416-644-3431 or 1-800-814-4860.
A live audio webcast of the call will be available at www.cipherpharma.com.
The webcast will be archived for 90 days.

    About Cipher Pharmaceuticals Inc.

    Cipher Pharmaceuticals is a drug development company focused on
commercializing novel formulations of successful, currently marketed molecules
using advanced drug delivery technologies. Cipher's strategy is to in-license
products that incorporate proven drug delivery technologies and advance them
through the clinical development and regulatory approval stages, after which
the products are out-licensed to international partners. Because Cipher's
products are based on proven technology platforms applied to currently
marketed drugs, they are expected to have lower approval risk, shorter
development timelines and significantly lower development costs. The Company's
lead compound, CIP-FENOFIBRATE, received final approval from the U.S. Food and
Drug Administration and Health Canada in the first quarter of 2006. The
product is being marketed in the United States by ProEthic Pharmaceuticals
under the label Lipofen(R). In addition, Cipher is developing formulations of
the pain reliever tramadol (FDA approvable letter in May 2007) 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. Some forward-looking statements may be
identified by words like "may", "will", "anticipate", "estimate", "expect",
"intend", or "continue" or the negative thereof or similar variations. Certain
material factors or assumptions are applied in making forward-looking
statements and actual results may differ materially from those expressed or
implied in such statements. Factors that could cause results to vary include
those identified in the Company's Annual Information Form and other filings
with Canadian securities regulatory authorities, such as the applicability of
patents and proprietary technology; possible patent litigation; regulatory
approval of products in the Company's pipeline; changes in government
regulation or regulatory approval processes; government and third-party payer
reimbursement; dependence on strategic partnerships for product candidates and
technologies, marketing and R&D services; meeting projected drug development
timelines and goals; intensifying competition; rapid technological change in
the pharmaceutical industry; anticipated future losses; the ability to access
capital to fund R&D; and the ability to attract and retain key personnel. All
forward-looking statements presented herein should be considered in
conjunction with such filings. 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 Consolidated Balance Sheets
    (in thousands of dollars)

                                                              As at
                                                        June 30, December 31,
                                                           2008         2007

    ASSETS

    Current assets
    Cash                                              $   9,851   $   10,961
    Accounts receivable                                     182        1,396
    Income taxes receivable                                  22          128
    Prepaid expenses and other current assets                93           56
    Current portion of loan receivable (note 4)             655            -
                                                         10,803       12,541
    -------------------------------------------------------------------------

    Property and equipment, net                             176          208

    Loan receivable (note 4)                                684        1,377

    Intangible assets, net (note 5)                       4,359        4,592
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                     $   16,022   $   18,718
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Current liabilities
    Accounts payable and accrued liabilities          $   1,121   $    1,059
    Deferred revenue                                        935          790
    -------------------------------------------------------------------------
                                                          2,056        1,849

    Deferred revenue                                        894        1,192
    -------------------------------------------------------------------------
                                                          2,950        3,041
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY

    Share capital (note 6)                               49,948       49,948
    Contributed surplus                                  31,310       31,032
    Deficit                                             (68,186)     (65,303)
    -------------------------------------------------------------------------
                                                         13,072       15,677
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                     $   16,022   $   18,718
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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



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

                                       For the three          For the six
                                        months ended          months ended
                                          June 30               June 30
                                       2008       2007       2008       2007

    Revenues
      Licensing revenue             $   277    $     -    $   454    $     -
      Product sales                       -        227          -        227
    -------------------------------------------------------------------------

                                        277        227        454        227
    -------------------------------------------------------------------------

    Expenses
      Cost of goods sold                  -        177          -        177
      Research and development        1,092        826      1,542      1,670
      Operating, general and
       administrative                   967      1,354      1,778      2,271
      Amortization of property
       and equipment                     18         11         35         16
      Amortization of intangible
       assets                           116        117        233        233
      Interest income                  (113)      (180)      (251)      (367)
    -------------------------------------------------------------------------

                                      2,080      2,305      3,337      4,000
    -------------------------------------------------------------------------


    Loss and comprehensive loss
     for the period                 $(1,803)   $(2,078)   $(2,883)   $(3,773)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Basic and diluted loss per
     share (note 7)                 $ (0.08)   $ (0.09)   $ (0.12)   $ (0.16)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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



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

                               For the three               For the six
                               months ended                months ended
                                 June 30                     June 30
                              2008          2007          2008          2007

    Deficit, beginning
     of period         $   (66,383)  $   (60,553)  $   (65,303)  $   (58,858)

    Loss for the period     (1,803)       (2,078)       (2,883)       (3,773)
    -------------------------------------------------------------------------

    Deficit, end
     of period         $   (68,186)  $   (62,631)  $   (68,186)  $   (62,631)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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



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

                               For the three               For the six
                               months ended                months ended
                                 June 30                     June 30
                              2008          2007          2008          2007

    Cash provided by (used in)

    Operating activities
      Loss             $    (1,803)  $    (2,078)  $    (2,883)  $    (3,773)
      Items not
       affecting cash
        Amortization
         of property
         and equipment          18            11            35            16
        Amortization
         of intangible
         assets                116           117           233           233
        Stock-based
         compensation
         expense               161           144           278           303
        Imputed interest
         (note 4)              (32)          (46)          (73)         (100)
    -------------------------------------------------------------------------
                            (1,540)       (1,852)       (2,410)       (3,321)
      Net change in
       non-cash
       operating items       1,013           266         1,192          (274)
      Drawdown of loan
       receivable
       (note 4)                111           223           111           800
    -------------------------------------------------------------------------

                              (416)       (1,363)       (1,107)       (2,795)
    -------------------------------------------------------------------------

    Investing activities
      Purchase of
       property and
       equipment                (3)         (127)           (3)         (133)
    -------------------------------------------------------------------------


    Decrease in cash          (419)       (1,490)       (1,110)       (2,928)
    Cash, beginning
     of period              10,270        13,639        10,961        15,077
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash, end
     of period          $    9,851   $    12,149   $     9,851   $    12,149
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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



    Cipher Pharmaceuticals Inc.
    Notes to Unaudited Consolidated Financial Statements
    June 30, 2008
    (in thousands of dollars, except per share amounts)

    1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Basis of presentation

        The accompanying unaudited interim consolidated 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,
        2008 are not necessarily indicative of the results that may be
        expected for the fiscal year ending December 31, 2008.

        There have been no changes to the accounting policies as described in
        Note 1 and Note 2 to the consolidated financial statements for the
        year ended December 31, 2007, except as explained in Note 2 below.

        Basis of consolidation

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

    2   ADOPTION OF NEW ACCOUNTING POLICIES

        Effective January 1, 2008 the Company adopted the following new CICA
        accounting standards: Section 3862, Financial Instruments -
        Disclosures and Section 1535, Capital Disclosures.

        CICA Section 3862, Financial Instruments - Disclosures, establishes
        standards for the disclosure of financial instruments including
        disclosing the significance of financial instruments and the nature
        and extent of risks arising from financial instruments.

        CICA Section 1535, Capital Disclosures, establishes standards for
        disclosing aspects of the entity's capital management strategy. This
        standard requires disclosure of both quantitative and qualitative
        disclosures around the entity's objectives, policies and processes
        for managing capital requirements and the consequences of non-
        compliance.

        The adoption of these new standards had no impact on the Company's
        financial position or results of operations.

    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

        Cash - the Company places its cash with Canadian Schedule I banks.
        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 June 30,
        2008, no accounts receivable balances were considered impaired, nor
        past due.
        Loan receivable - the loan receivable is payable in annual
        instalments over a five year period, with two payments remaining as
        at June 30, 2008. All prior instalments have been received on
        schedule and there have been no events of default under the loan
        agreement.

        (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 $1,121 as at June 30, 2008 will 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. At June 30, 2008 the
        accounts receivable balance included a total of US$132 and accounts
        payable and accrued liabilities included a total of US$223. There is
        no active 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 June 30, 2008 balances would not have
        a significant impact on net income.
        Interest rate risk - the fair value of the loan receivable is based
        upon a discounted cash flow method, whereby a risk premium is added
        to the Bank of Canada risk-free interest rate. A 10% change in the
        risk-free interest rate would not have a significant impact on
        imputed interest.

        Capital risk management

        Shareholders' equity is managed as the capital of the Company. The
        Company's objective when managing capital is to safeguard the
        Company's 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   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 recorded at its fair value of $3,112
        based on a discount rate of 9%. Imputed interest of $73 has been
        recorded on this deferred payment during the six months ended
        June 30, 2008 ($100 during the six months ended June 30, 2007). In
        accordance with the terms of the deferred payment agreement, $800 of
        clinical services purchased from Pharma Medica during 2007 were
        offset against the annual payment that was due on January 30, 2008.
        During the six months ended June 30, 2008, $111 of clinical services
        purchased from Pharma Medica were offset against the next annual
        payment, which is due on January 30, 2009.

    5   INTANGIBLE ASSETS

        During fiscal 2001, the Company entered into certain agreements with
        Galephar Pharmaceutical Research Inc. ("Galephar") for the rights to
        package, test, obtain regulatory approvals and market certain
        products in various countries around the world. In accordance with
        the terms of the agreements, the Company has acquired these
        intangible rights through an investment in three separate series of
        preferred shares of Galephar. The Company may be required to pay
        additional amounts to Galephar in respect of the CIP-ISOTRETINOIN and
        CIP-TRAMADOL ER intangible rights of up to $1,528 (US$1,500) if
        certain future milestones are achieved as defined in the agreements.
        These additional payments will be made in the form of additional
        Galephar preferred share purchases. The recoverability of these
        intangible rights is dependant upon sufficient revenues being
        generated from the related products currently under development and
        commercialization.

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

        With regard to CIP-FENOFIBRATE, in July 2007 the Company entered into
        a licensing and distribution agreement with ProEthic Pharmaceuticals,
        Inc. ("ProEthic") under which ProEthic was granted the exclusive
        right to market, sell and distribute Lipofen in the United States.
        The Company has received an up-front licensing fee of US$2 million.
        In addition, under the terms of the agreement, the Company could
        receive additional milestone payments of up to US$20 million based on
        the achievement of certain net sales targets. The Company also
        receives a royalty based on a percentage of net sales. These elements
        are reflected in licensing revenue, which also incorporates direct
        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. Over the term of the Galephar
        agreement, after product-related expenses are deducted and including
        payments to Galephar, the Company anticipates that it will retain
        approximately 50% of revenue. In late September 2007, ProEthic
        launched Lipofen in the U.S. market.

        The Company's US$2 million investment in Galephar preferred shares
        related to CIP-FENOFIBRATE is being repaid by Galephar in a series of
        quarterly payments. The first payment of US$350 was received in
        December 2007. Subsequent to year-end, the repayment schedule was
        amended and payments of US$225 were received in March and June 2008.
        The next quarterly payment will be in the amount of US$225. These
        payments are included in revenue based on the remaining amortization
        period of the related intangible asset.

        On August 6, 2008, the Company entered into a distribution and supply
        agreement with Ranbaxy Pharmaceuticals Inc. ("RPI") under which RPI
        was granted the exclusive right to market, sell and distribute CIP-
        ISOTRETINOIN in the United States. Under the terms of the agreement,
        the Company will receive an up-front milestone 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, RPI 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. 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.

    6   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, 2006 to June 30, 2008:

                                                        Number of
                                                    common shares     Amount
                                                    (in thousands)         $

        Balance outstanding - December 31, 2006            24,036     49,891
          Options exercised during 2007                        19         57
                                                     ------------------------
        Balance outstanding - December 31, 2007
         and June 30, 2008                                 24,055     49,948
                                                     ------------------------
                                                     ------------------------

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

        Stock option plan

        The following is a summary of the changes in the stock options
        outstanding from December 31, 2006 to June 30, 2008:

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

        Balance outstanding - December 31, 2006               889       2.96
          Options granted during 2007                         274       3.90
          Options exercised during 2007                       (38)      1.90
          Options cancelled during 2007                      (127)      2.16
                                                  ---------------
        Balance outstanding - December 31, 2007               998       3.36

          Options granted during the three months
           ended March 31, 2008                               263       1.05
          Options cancelled during the three months
           ended March 31, 2008                               (50)      3.90
                                                  ---------------
        Balance outstanding - June 30, 2008                 1,211       2.83
                                                  ---------------
                                                  ---------------

        At June 30, 2008, 545,482 options were fully vested and exercisable.

        During the three months ended March 31, 2008, the Company issued
        263,000 stock options under the employee and director stock option
        plan, which have an exercise price of $1.05, 25% of which vest on
        February 28 of each year, commencing in 2009, and expire in 2018.
        Total compensation cost for these stock options is estimated to be
        $242. This cost will be recognized over the vesting period of the
        stock options.

        The stock options issued during the three months ended March 31, 2008
        were valued using the Black-Scholes option pricing model with the
        following assumptions:

        Risk-free interest rate                                        3.14%
        Expected life                                               10 years
        Expected volatility                                              93%
        Expected dividend                                                Nil

    7   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 six and three month periods ended June 30, 2008 was
        24,054,878 (for the six and three month periods ended June 30, 2007
        respectively 24,043,376 and 24,051,065).

        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.

    8   COMPARATIVE FIGURES

        Certain comparative figures for the previous year have been
        reclassified to conform to current financial statement presentation.
    

    %SEDAR: 00020415E




For further information:

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


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