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. 

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

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

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

 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.