Cipher reports Q3 2009 financial results

Toronto Stock Exchange Symbol: DND

MISSISSAUGA, ON, Nov. 4 /CNW/ - Cipher Pharmaceuticals Inc. (TSX: DND) today announced its financial and operational results for the three and nine months ended September 30, 2009.

    
    Q3 2009 Summary
    ---------------

    -   Total revenue increased 59% to $1.1 million, compared with $0.7
        million in Q3 2008.
    -   Continued steady growth of Lipofen(R) prescriptions.
    -   Commenced CIP-ISOTRETINOIN Phase III safety trial.
    -   A strong balance sheet at quarter end with cash of $9.3 million and
        no debt.
    -   Subsequent to quarter end, strengthened Board of Directors with the
        addition of Dr. William Claypool.
    

"The third quarter saw us deliver a solid year-over-year increase in revenue from Lipofen(R) and enroll our first patient in the phase III safety trial for CIP-ISOTRETINOIN, reaching an important clinical milestone for this product after significant trial planning and preparation," said Larry Andrews, President and CEO of Cipher. "Patient enrollment in the CIP-ISOTRETINOIN trial is progressing well and we are also encouraged by Kowa's increased sales and promotion efforts for Lipofen(R), which should drive continued prescription growth for the product."

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

Total revenue in Q3 2009 was $1.1 million, an increase of 59% compared with $0.7 million in Q3 2008, driven mainly by the continued market penetration of Lipofen(R) as Kowa expands its sales force.

Gross Research and Development ("R&D") expenditures for Q3 2009 were $0.5 million, compared with ($0.2) million in Q3 2008. The reported R&D amount of $0.2 million for Q3 2009 is net of reimbursements of $0.3 million from Ranbaxy related to the CIP-ISOTRETINOIN clinical study. Operating, General and Administrative ("OG&A") expenses for Q3 2009 were $1.2 million, compared with $0.9 million in Q3 2008. The year-over-year change reflects the increased level of activity related to pursuing in-licensing and out-licensing opportunities. The loss for the three months ended September 30, 2009 was $0.5 million ($0.02 per basic and diluted share), compared with net income of $0.2 million ($0.01 per basic and diluted share) in Q3 2008. A number of one-time items, including the recovery of $0.4 million in tax credits, contributed to net income in Q3 2008.

For the year-to-date period, revenue was $2.3 million, compared with $1.1 million in the same period last year. The loss for the first nine months of 2009 was $2.1 million ($0.09 per basic and diluted share), compared with $2.7 million ($0.11 per basic and diluted share) in the first nine months of 2008.

The Company's financial position remained solid at quarter end. As at September 30, 2009, Cipher had cash of $9.3 million, compared with $9.9 million as at December 31, 2008 and $9.6 million at the end of Q2 2009.

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

During Q3 2009, Lipofen(R) monthly prescriptions showed steady growth, and Cipher expects this trend to continue as Kowa increases penetration of the primary care physicians in its targeted regions and expands its sales force. Since the Kowa acquisition, the number of sales reps has increased from approximately 65 to 180 currently, with further increases planned in 2010.

During Q3 2009, the Company 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. As previously disclosed, the Company's U.S. marketing partner, Ranbaxy Pharmaceuticals, is reimbursing Cipher for all costs associated with the clinical studies required to obtain FDA approval, up to a predetermined cap. Any additional development costs associated with initial FDA approval will be shared equally.

During Q2 2008, Cipher submitted a revised NDA to the FDA for CIP-TRAMADOL ER, the Company's extended-release formulation of tramadol. Cipher's revised NDA received tentative FDA approval in February 2009. In Q3 2009, the Company filed a Paragraph IV Certification with the FDA, which states that the relevant patent listed in the FDA's Orange Book for Ultram(R) ER is invalid, unenforceable, and/or will not be infringed by the manufacture or sale of Cipher's drug product. Subsequent to quarter end, the Company announced that Purdue Pharma Products L.P. and Napp Pharmaceutical Group Ltd. have filed a complaint against Cipher in the United States District Court for the Eastern District of Virginia, for alleged infringement of two U.S. patents. Under the applicable provisions of the Hatch-Waxman Act, this patent challenge can delay final FDA approval of Cipher's NDA by 30 months, or until the patent challenge is resolved, whichever occurs first.

Cipher management believes that this type of litigation is common and considers it to be within the ordinary course of business. Cipher intends to vigorously defend itself against the suit and is confident in the strength of its application.

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

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

Cipher will hold a conference call today, November 4, 2009, at 8:30 a.m. (ET) to discuss its financial results and other corporate developments. To access the conference call by telephone, dial 416-644-3419 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 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 (Phase III safety study in progress).

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 Balance Sheets
    (in thousands of dollars)

                                                             As at
                                                   September 30, December 31,
                                                          2009       2008

    ASSETS

    Current assets
    Cash                                            $     9,342  $     9,881
    Accounts receivable                                   1,353          512
    Income taxes receivable                                   -            6
    Prepaid expenses and other current assets               135          380
    Current portion of loan receivable (note 2)             780          608
    -------------------------------------------------------------------------
                                                         11,610       11,387

    Property and equipment, net                              99          147

    Loan receivable                                           -          717

    Intangible assets, net (note 3)                       3,683        4,126

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    $    15,392  $    16,377
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Current liabilities
    Accounts payable and accrued liabilities        $     1,394  $     1,178
    Current portion of deferred revenue                   1,932        1,177
    -------------------------------------------------------------------------
                                                          3,326        2,355

    Deferred revenue                                        627          994
    -------------------------------------------------------------------------
                                                          3,953        3,349
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY

    Share capital (note 4)                               49,948       49,948
    Contributed surplus                                  32,103       31,613
    Deficit                                             (70,612)     (68,533)
    -------------------------------------------------------------------------
                                                         11,439       13,028
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    $    15,392  $    16,377
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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              For the nine
                                    months ended              months ended
                                    September 30              September 30
                                 2009         2008         2009         2008

    Revenues
      Licensing revenue   $     1,067  $       672  $     2,347  $     1,126
    -------------------------------------------------------------------------

    Expenses
      Research and
       development                247         (220)         701        1,322
      Operating, general
       and
       administrative           1,157          879        3,203        2,657
      Amortization of
       property and
       equipment                   19           18           56           53
      Amortization of
       intangible assets          188          117          565          350
      Recovery of legal
       fees and court
       costs                        -         (176)           -         (176)
      Interest income             (26)        (119)         (99)        (370)
    -------------------------------------------------------------------------

                                1,585          499        4,426        3,836
    -------------------------------------------------------------------------

    Income (loss) and
     comprehensive
     income (loss)
     for the period       $      (518) $       173  $    (2,079) $    (2,710)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted
     earnings (loss)
     per share (note 5)   $     (0.02) $      0.01  $     (0.09) $     (0.11)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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              For the nine
                                    months ended              months ended
                                    September 30              September 30
                                 2009         2008         2009         2008

    Deficit, beginning
     of period            $   (70,094) $   (68,186) $   (68,533) $   (65,303)

    Income (loss) for
     the period                  (518)         173       (2,079)      (2,710)
    -------------------------------------------------------------------------

    Deficit, end
     of period            $   (70,612) $   (68,013) $   (70,612) $   (68,013)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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              For the nine
                                    months ended              months ended
                                    September 30              September 30
                                 2009         2008         2009         2008

    Cash provided by (used in)

    Operating activities
      Income (loss)       $      (518) $       173  $    (2,079) $    (2,710)
      Items not affecting
       cash
      Amortization of
       property and
       equipment                   19           18           56           53
      Amortization of
       intangible assets          188          117          565          350
      Stock-based
       compensation
       expense                    165          149          490          427
      Imputed interest
       (note 2)                   (20)         (31)         (67)        (104)
    -------------------------------------------------------------------------
                                 (166)         426       (1,035)      (1,984)

    Net change in
     non-cash operating
     items                       (123)         (73)          14        1,119
    Drawdown of loan
     receivable                     -           77            -          188
    -------------------------------------------------------------------------

                                 (289)         430       (1,021)        (677)
    -------------------------------------------------------------------------

    Investing activities
      Proceeds from loan
       receivable
       (note 2)                     -            -          612            -
      Acquisition of
       intangible rights            -            -         (122)           -
      Purchase of
       property and
       equipment                   (3)          (4)          (8)          (7)
    -------------------------------------------------------------------------

                                   (3)          (4)         482           (7)
    -------------------------------------------------------------------------

    Increase (Decrease)
     in cash                     (292)         426         (539)        (684)
    Cash, beginning of
     period                     9,634        9,851        9,881       10,961
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash, end of period    $    9,342   $   10,277   $    9,342  $    10,277
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited financial
    statements



    Cipher Pharmaceuticals Inc.
    Notes to Unaudited Financial Statements
    September 30, 2009
    (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 nine months ended
        September 30, 2009 are not necessarily indicative of the results that
        may be expected for the fiscal year ending December 31, 2009.

        There have been no changes to the accounting policies as described in
        Note 1 and Note 2 to the financial statements for the year ended
        December 31, 2008.

    2   LOAN RECEIVABLE

        On February 28, 2005, the Company completed the sale of its wholly-
        owned pharmaceutical research services business, Pharma Medica
        Research Inc. (Pharma Medica). Consideration consisted of a cash
        payment of $14,000 and a deferred payment of $4,000. The deferred
        payment is non-interest bearing and is repayable in annual
        instalments of $800 over a five year period. As the deferred payment
        is non-interest bearing, it was originally recorded at its fair value
        of $3,112 based on a discount rate of 9%. Imputed interest of $67 has
        been recorded on this deferred payment during the nine months ended
        September 30, 2009 ($104 during the nine months ended September 30,
        2008). In accordance with the terms of the deferred payment
        agreement, $188 of clinical services purchased from Pharma Medica
        were offset against the annual instalment received on January 30,
        2009.

    3   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 $1,501 (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. During
        the second quarter of 2009, the Company received a US$1 million
        payment from Kowa in return for the partial waiver of a non-compete
        covenant in the licensing and distribution agreement for Lipofen. The
        waiver relates to a combination product and not a fenofibrate only
        formulation that would compete with Lipofen. Under the revised
        agreement the Company will receive additional payments should Kowa be
        successful in commercializing its combination product and it includes
        provisions to ensure Lipofen revenue is not impacted once the
        combination product reaches the market. Revenue is being recognized
        on this payment using a straight-line amortization method over the
        estimated commercial life of the product. After product-related
        expenses are deducted, approximately 50% of all milestone and royalty
        payments received by the Company under the agreement will be paid to
        Galephar. Lipofen was launched in the U.S. market in 2007.

        In August 2008, the Company entered into a development, 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 of 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.

    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, 2007 to September 30, 2009. The following is
        a summary of the Company's share capital as at September 30, 2009:


                                                    Number of
                                                  common shares       Amount
                                                  (in thousands)         $

        Balance outstanding - September 30, 2009         24,055       49,948
                                                 ----------------------------
                                                 ----------------------------

        Stock option plan

        The following is a summary of the changes in the stock options
        outstanding from December 31, 2007 to September 30, 2009:

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

        Balance outstanding - December 31, 2007             998         3.36
          Options granted during 2008                       483         0.78
          Options that expired or were cancelled
           during 2008                                     (105)        2.55
                                                 ---------------
        Balance outstanding - December 31, 2008           1,376         2.51

          Options granted during the three months
           ended March 31, 2009                             204         0.61
                                                 ---------------
        Balance outstanding - September 30, 2009          1,580         2.27
                                                 ---------------
                                                 ---------------

        At September 30, 2009, 766,974 options were fully vested and
        exercisable (540,482 at September 30, 2008).

        During the three months ended March 31, 2009, the Company issued
        204,375 stock options under the employee and director stock option
        plan, which have an exercise price of $0.61, 25% of which vest on
        February 20 of each year, commencing in 2010, and expire in 2019.

        Total compensation cost for these stock options is estimated to be
        $114. This cost will be recognized over the vesting period of the
        stock options.

        The stock options issued during the three months ended March 31, 2009
        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                         99%
           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 and nine month periods ended September 30,
        2009 and for the three and nine month periods ended September 30,
        2008 was 24,054,878.  Due to rounding, earnings per share for the
        individual quarters in the current year may not sum to earnings per
        share year to date.

        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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