Press Releases
Cipher reports second quarter fiscal 2007 results
Toronto Stock Exchange Symbol: DND
MISSISSAUGA, ON, July 24 /CNW/ - Cipher Pharmaceuticals Inc. (TSX: DND)
today announced its financial and operational results for the three and six
months ended June 30, 2007.Q2 2007 Summary
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- CIP-FENOFIBRATE introduced in select Canadian markets, resulting in
the Company's first product revenues
- Received second approvable letter from the U.S. Food and Drug
Administration (FDA) pertaining to New Drug Application (NDA) for
CIP-ISOTRETINOIN
- Received approvable letter from the FDA pertaining to NDA for once-
daily tramadol
- Continued progress preparing for commercialization of CIP-FENOFIBRATE
in the U.S., including commercial scale-up and manufacturing of
validation batches
- Subsequent to quarter end, entered into a licensing and distribution
agreement with ProEthic Pharmaceuticals under which ProEthic was
granted the exclusive right to market, sell and distribute
Lipofen(TM) in the United States"The second quarter was highlighted by important commercialization
milestones for our lead compound, CIP-FENOFIBRATE, as we recorded our first
product revenues and, subsequent to quarter end, completed a distribution
agreement targeting the $1.1 billion dollar United States fenofibrate market,"
said Larry Andrews, President and CEO of Cipher. "In addition, we received
approvable letters from the FDA for our once-daily tramadol and novel
isotretinoin formulations. Our team is working diligently to achieve the
remaining milestones as we pursue final approval for these two products in the
U.S. market."
Financial Review
----------------
Revenue from product sales was recorded for the first time in the second
quarter of 2007 as a result of shipping CIP-FENOFIBRATE to Oryx
Pharmaceuticals Inc., Cipher's marketing partner for this product in Canada.
Product revenue in the second quarter was $227,000.
Research and development (R&D) expenses for the second quarter of 2007
were $0.6 million, compared with $4.3 million in the second quarter of 2006.
The decrease in R&D spending reflects the advanced stage of development of the
Company's current products. Operating, general and administrative (OG&A)
expenses for the second quarter of 2007 were $1.5 million, compared with
$0.8 million in the same period last year. The increase in OG&A is due to
higher compensation expense resulting from an increase in personnel to support
current growth plans as well as stock options expense. Net loss for the three
months ended June 30, 2007 was $2.1 million ($0.09 per basic and diluted
share), compared with a net loss of $4.9 million ($0.21 per basic and diluted
share) in the same period last year.
As at June 30, 2007, Cipher had cash and cash equivalents of
$12.1 million, compared with $15.1 million as at December 31, 2006.
Product Update
--------------
During the second quarter of 2007, Cipher received an approvable letter
from the FDA pertaining to its NDA for CIP-TRAMADOL ER, the Company's
once-daily 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 with the FDA, Cipher
has obtained clarification on the question of efficacy. The FDA has 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. Cipher believes its submission includes sufficient
efficacy data to support regulatory approval. The Company is currently
finalizing next steps regarding the best path forward toward regulatory
approval.
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 (CMC), which the Company has responded
to, the FDA has requested that Cipher provide additional clinical safety data.
Cipher believes that the clinical question raised has been adequately
addressed in the NDA submission. The Company appealed the position taken by
the FDA in its approvable letter using the Formal Dispute Resolution process.
Cipher submitted its appeal and met with the FDA on July 11, 2007. A response
from the FDA is expected within 30 days of this meeting.
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, its
territories and possessions. Under the terms of the agreement, Cipher will
receive an up-front licensing fee of US$2 million. Cipher could receive
additional milestone payments of up to US$20 million based on the achievement
of certain net sales targets. Cipher will also receive a royalty on a
percentage of net sales, which escalates from the mid-teens to mid-twenties
based on annual sales targets and the level of promotional effort by ProEthic.
After any direct product-related expenses are deducted, approximately 50 per
cent of all milestone and royalty payments will go to the Company's technology
partner, Galephar Pharmaceutical Research, with Cipher retaining 75 per cent
of Galephar's share of these payments until its US$2.0 million investment in
Galephar preferred shares is recovered. The agreement with ProEthic is for a
period of ten years and they have the right to extend the term for additional
two-year periods. ProEthic expects to launch the product in the early part of
the fourth quarter of 2007.
During the second quarter of 2007, Oryx Pharmaceuticals introduced
CIP-FENOFIBRATE in select Canadian markets. The response to these early sales
and marketing efforts will determine longer-term plans for the Canadian
market.
Notice of Conference Call
-------------------------
Cipher will hold a conference call today, July 24, 2007, at 8:30 a.m.
(ET) to discuss its financial results and other corporate developments. To
access the conference call by telephone, dial 416-644-3417 or 1-800-732-0232.
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. Beginning
in the fourth quarter of 2007, the product will be marketed in the United
States by ProEthic Pharmaceuticals under the label Lipofen(TM). In addition,
Cipher is developing formulations of the pain reliever tramadol and the acne
treatment isotretinoin.
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. 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,
2007 2006
ASSETS
Current assets
Cash and cash equivalents $ 12,149 $ 15,077
Other receivables 266 160
Income taxes receivable 95 95
Other current assets 90 32
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12,600 15,364
Property and equipment 216 99
Intangible assets (note 4) 4,825 5,058
Loan receivable (note 3) 1,286 1,986
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$ 18,927 $ 22,507
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LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 934 $ 921
Due to related party (note 5) - 123
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934 1,044
SHAREHOLDERS' EQUITY
Share capital (note 6) 49,948 49,891
Contributed surplus 30,676 30,430
Deficit (62,631) (58,858)
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17,993 21,463
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$ 18,927 $ 22,507
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The accompanying notes are an integral part of these unaudited
consolidated financial statements
Cipher Pharmaceuticals Inc.
Unaudited Consolidated Statements of Operations and Comprehensive Loss
(in thousands of dollars, except per share amounts)
For the six months For the three months
ended ended
June 30 June 30
2007 2006 2007 2006
Revenues
Product sales $ 227 $ - $ 227 $ -
Expenses
Cost of goods sold 177 - 177 -
Research and development 1,304 6,741 647 4,341
Operating, general and
administrative 2,637 1,751 1,533 809
Amortization of property and
equipment 16 12 11 6
Amortization of intangible
assets 233 - 117 -
Interest income (367) (455) (180) (263)
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4,000 8,049 2,305 4,893
Loss and comprehensive loss
for the period $ (3,773) $ (8,049) $ (2,078) $ (4,893)
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Basic and diluted loss per
share (note 7) $ (0.16) $ (0.35) $ (0.09) $ (0.21)
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Cipher Pharmaceuticals Inc.
Unaudited Consolidated Statements of Deficit
(in thousands of dollars)
For the six months For the three months
ended ended
June 30 June 30
2007 2006 2007 2006
Deficit, beginning of period $(58,858) $(46,795) $(60,553) $(49,951)
Loss for the period (3,773) (8,049) (2,078) (4,893)
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Deficit, end of period $(62,631) $(54,844) $(62,631) $(54,844)
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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 six months For the three months
ended ended
June 30 June 30
2007 2006 2007 2006
Cash provided by (used in)
Operating activities
Loss for the period $ (3,773) $ (8,049) $ (2,078) $ (4,893)
Items not affecting cash
Amortization of property
and equipment 16 12 11 6
Amortization of intangible
assets 233 - 117 -
Stock-based compensation
expense 303 156 144 93
Imputed interest (note 3) (100) (125) (46) (59)
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(3,321) (8,006) (1,852) (4,853)
Net change in non-cash
working capital items (274) (739) 266 697
Exercise of stock options
settled in cash - (286) - (286)
Drawdown of loan receivable
(note 3) 800 - 223 -
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(2,795) (9,031) (1,363) (4,442)
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Investing activities
Purchase of property and
equipment (133) (11) (127) (1)
Proceeds from loan receivable - 800 - -
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(133) 789 (127) (1)
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Financing activities
Issuance of share capital - 10,907 - -
Proceeds from exercise of
stock options - 201 - 55
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- 11,108 - 55
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Increase (decrease) in cash and
cash equivalents (2,928) 2,866 (1,490) (4,388)
Cash and cash equivalents,
beginning of period 15,077 16,616 13,639 23,870
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Cash and cash equivalents, end
of period $ 12,149 $ 19,482 $ 12,149 $ 19,482
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The accompanying notes are an integral part of these unaudited
consolidated financial statements
Cipher Pharmaceuticals Inc.
Notes to Unaudited Consolidated Financial Statements
June 30, 2007
(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,
2007 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2007.
There have been no changes to the accounting policies as described in
Note 1 to the consolidated financial statements for the year ended
December 31, 2006, except as explained in the following paragraph and
in Note 2 below.
Revenue recognition
The Company recorded revenue from product sales for the first time
during the quarter ended June 30, 2007. Revenue from product sales is
recognized when the product is shipped to the Company's customers, at
which time ownership is transferred.
2 Changes in accounting policies
Effective January 1, 2007 the Company adopted the CICA Handbook
Section 1530, "Comprehensive income" and CICA Handbook section 3855,
"Financial instruments - recognition and measurement".
Comprehensive income
Comprehensive income introduces a new requirement to present, among
other things, certain unrealized gains and losses outside of net
income or loss. Section 1530 defines comprehensive income as a change
in net assets arising from transactions and other events and
circumstances from non-owner sources. The new standard requires
presentation of a statement of comprehensive income (loss), which has
been combined with the former statement of operations.
Financial instruments
The new standard for financial instruments prescribes when a
financial instrument is to be recognized on the balance sheet and at
what amount. It also specifies how gains and losses on financial
instruments are to be presented. Upon adoption of this new standard,
the Company has classified its cash and cash equivalents as held-for-
trading financial assets, other receivables and loan receivable as
loans and receivables; accounts payable and accrued liabilities and
due to related party as other financial liabilities.
The adoption of these standards had no substantive impact on the
Company's interim consolidated financial statements.
3 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 $100 has
been recorded on this deferred payment during the six months ended
June 30, 2007 ($125 during the six months ended June 30, 2006). The
first instalment of $800 related to this deferred payment was
collected on January 30, 2006. In accordance with the terms of the
deferred payment agreement, $800 of clinical services purchased from
Pharma Medica during the year ended December 31, 2006 were offset
against the annual payment that was due on January 30, 2007. During
the six months ended June 30, 2007, $800 of clinical services
purchased from Pharma Medica were offset against the next annual
payment, which would have been due on January 30, 2008.
4 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 intangible rights of up to $1,595 (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 agreements also require that the
Company pay Galephar certain royalty amounts based on revenue
generated by the related products. The recoverability of these
intangible rights is dependant upon sufficient future licensing
fees/royalties 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.
A summary of 2007 developments related to the products currently
under development/commercialization follows:
CIP-FENOFIBRATE
In April 2007, the Company completed its first sale of CIP-
FENOFIBRATE in Canada under the distribution agreement with Oryx
Pharmaceuticals Inc.
On July 9, 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, its
territories and possessions. Under the terms of the agreement the
Company will receive an up-front licensing fee of US $2 million
and could receive additional milestone payments of up to
US $20 million based on the achievement of certain net sales
targets. The Company will also receive a royalty based on a
percentage of net sales. After direct product-related expenses are
deducted, approximately 50 per cent of all milestone and royalty
payments will go to the Company's technology partner, Galephar,
with the Company retaining 75 per cent of Galephar's share of
these payments until its $US 2 million investment in Galephar
preferred shares is recovered.
CIP-ISOTRETINOIN
On April 27, 2007, the Company received an approvable letter from
the U.S. Food and Drug Administration ("FDA") pertaining to its
New Drug Application ("NDA") for CIP-ISOTRETINOIN. The FDA
indicated that the Company's application is approvable subject to
the resolution of two remaining issues. In addition to one
question related to chemistry, manufacturing and controls, the FDA
has requested that the Company provide additional clinical data.
The Company believes that the clinical question raised has been
adequately addressed in the NDA submission and will appeal the
position taken by the FDA in its approvable letter using the
formal dispute resolution process.
CIP-TRAMADOL
On May 3, 2007, the Company received an approvable letter from the
FDA pertaining to its NDA for CIP-TRAMADOL. The FDA indicated that
the Company's application is approvable subject to the resolution
of certain issues, including chemistry, manufacturing and controls
and a request for additional clinical data to provide further
efficacy data.
Subsequent to quarter end, the Company obtained clarification on
the question of efficacy. The FDA has indicated that the
statistical methods used to analyze data from the Company's
clinical trials did not adequately address missing data relating
to subjects who dropped out of the trials. The Company believes
its submission includes sufficient efficacy data to support
regulatory approval. The Company is currently finalizing next
steps regarding the best path forward toward regulatory approval.
5 Due to related party
The Company and a related party have in common the Chairman and a
majority of their respective boards. There is no balance owing to
the related party at June 30, 2007. At December 31, 2006 the amount
due was $123, for management and payroll services. These amounts are
treated as regular accounts payable in the normal course of
operations.
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, 2005 to June 30, 2007:
Number of
common shares Amount
(in thousands) $
Balance outstanding - December 31, 2005 21,336 38,783
Options exercised during 2006 200 201
March 14, 2006 public offering (a) 2,500 10,907
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Balance outstanding - December 31, 2006 24,036 49,891
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Options exercised during the three months
ended June 30, 2007 (b) 19 57
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Balance outstanding - June 30, 2007 24,055 49,948
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(a) On March 14, 2006, the Company issued 2.5 million common shares
pursuant to the completion of a public offering. Net proceeds from
the offering after considering share issuance costs of $1,093
amounted to $10,907.
(b) During the three months ended June 30, 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, 2005 to June 30, 2007:
Weighted
average
Number of exercise
options price
(in thousands) $
Balance outstanding - December 31, 2005 725 1.67
Options granted during 2006 489 3.91
Options exercised in exchange for common
shares during 2006 (200) 1.00
Options exercised in exchange for cash
consideration during 2006 (a) (125) 2.35
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Balance outstanding - December 31, 2006 889 2.96
Options granted during the three months
ended March 31, 2007 (b) 274 3.90
Options exercised during the three months
ended June 30, 2007 (c) (38) 1.90
Options cancelled during the three months
ended June 30, 2007 (c) (112) 1.90
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Balance outstanding - June 30, 2007 1,013 3.18
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---------------
At June 30, 2007, 309,741 options were fully vested and exercisable.
(a) During 2006, 125,000 stock options were exercised in exchange for
cash consideration of $286 representing the difference between the
exercise price of the options and the market value of the related
common shares on the exercise date. The cash consideration of $286
represents stock option compensation expense of which $48 was
expensed during 2006 and $238 was expensed in prior years. Subsequent
to March 31, 2006, the Company no longer intends to make cash
payments on the exercise of stock options.
(b) During the three months ended March 31, 2007, the Company issued
274,000 stock options under the employee and director stock option
plan, which have an exercise price of $3.90, 25% of which vest on
March 9 of each year, commencing in 2008, and expire in 2017. Total
compensation cost for the 274,000 stock options granted during the
three months ended March 31, 2007 is estimated to be $921 and will be
recognized over the vesting period of the stock options.
The stock options issued during the three months ended March 31, 2007
were valued using the Black-Scholes option pricing model with the
following assumptions:
Risk-free interest rate 3.96%
Expected life 10 years
Expected volatility 87%
Expected dividend Nil
(c) During the three months ended June 30, 2007, 37,500 stock options
were exercised in exchange for 19,277 common shares. 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. As a result of the departure of an employee
during the three months ended June 30, 2007, 112,500 options were
cancelled.
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, 2007 was
24,043,376 and 24,051,065 respectively (for the six and three month
periods ended June 30, 2006 respectively 22,933,115 and 23,986,700).
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
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