Press Releases
Cipher reports fiscal 2007 year-end results
Toronto Stock Exchange Symbol: DND
MISSISSAUGA, ON, Feb. 27 /CNW/ - Cipher Pharmaceuticals Inc. (TSX: DND)
today announced its financial and operational results for the fourth quarter
and fiscal year ended December 31, 2007.
Fiscal 2007 Summary
-------------------- Entered into first commercial licensing and distribution agreement in
U.S. market. ProEthic Pharmaceuticals granted the exclusive right to
market, sell and distribute CIP-FENOFIBRATE (approved in U.S. under
the label Lipofen(TM)).
- Successfully completed commercial scale-up and delivery of finished
packaged product to ProEthic on schedule.
- Lipofen launched in U.S. market toward the end of the third quarter.
- Received approvable letters from the U.S. Food and Drug
Administration (FDA) for CIP-ISOTRETINOIN and CIP-TRAMADOL ER.
- Recorded first commercial revenue during the year; total revenue of
$0.5 million for full year.
- Cash of $11.0 million at year end."Fiscal 2007 saw us achieve several company firsts, most significantly
the launch of Lipofen in the U.S. fenofibrate market," said Larry Andrews,
President and CEO of Cipher. "This demonstrates our ability to take an early
stage formulation through to final approval and commercialization, further
validating our core business model. Advancing CIP-ISOTRETINOIN and
CIP-TRAMADOL ER through the remaining regulatory and commercialization
milestones remains our top priority this year."
Financial Review
----------------
In the fourth quarter of 2007, Cipher recorded total revenue of $162,000,
compared with nil in the same period last year. Fourth quarter research and
development (R&D) expenses were $0.7 million, compared with $0.4 million in
the fourth quarter of fiscal 2006. Operating, general and administrative
(OG&A) expenses for the fourth quarter of 2007 were $1.1 million, compared
with $1.4 million in the same period last year. Net loss for the three months
ended December 31, 2007 was $1.6 million ($0.07 per basic and diluted share),
compared with a net loss of $2.0 million ($0.08 per basic and diluted share)
in the same period last year.
For the full year, the Company recorded revenue of $0.5 million related
to the commercial launch of CIP-FENOFIBRATE in the U.S. and Canada. No
commercial revenue was recorded in 2006. R&D expenses for fiscal 2007 were
$2.3 million, compared with $8.5 million for fiscal 2006. The decrease in R&D
spending reflects the advanced stage of development of the Company's three
current products. OG&A expenses for fiscal 2007 were $4.8 million, a slight
increase over the $4.0 million recorded in fiscal 2006, as the Company
increased personnel to support growth plans. Net loss for fiscal 2007 was
$6.4 million ($0.27 per basic and diluted share), compared with net loss of
$12.1 million ($0.51 per basic and diluted share) for fiscal 2006.
As at December 31, 2007, Cipher had cash of $11.0 million, compared with
$15.1 million as at December 31, 2006.
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. The
agreement with ProEthic is for a period of 10 years and they have the right to
extend the term for additional two-year periods. In late September 2007,
ProEthic launched Lipofen 150 mg and 50 mg capsules in the U.S. market with
the full effort of its sales and marketing teams. Lipofen is the lead product
for ProEthic as it seeks to build its presence in the important primary care
space. While it is only a few months since launch, weekly prescriptions have
shown steady growth.
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. Subsequently, the Company had two meetings
with the FDA as part of the first stage of the formal dispute resolution
process. In its most recent response to Cipher, the representative from the
FDA agreed with the Division of Dermatology and Dental Product's original view
that a Phase III safety study is needed to further demonstrate the safety of
CIP-ISOTRETINOIN. In the appeal response and subsequent discussions with the
FDA, Cipher was encouraged to work closely with the Division should the
Company, or a potential licensing partner, choose to pursue a Phase III safety
study. Cipher and its advisors are currently in discussions with the Division
regarding the appropriate design of a safety study. Cipher may still choose to
continue the formal dispute resolution process, however, regulations do not
allow the Company to pursue both options concurrently.
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
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, Cipher has suspended its appeal and is conducting
the additional statistical analysis.
Notice of Conference Call
-------------------------
Cipher will hold a conference call today, February 27, 2008, at 8:30 a.m.
(ET) to discuss its financial results and other corporate developments. To
access the conference call by telephone, dial 416-644-3421 or 1-800-731-5774.
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(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.
Consolidated Balance Sheets
(in thousands of dollars)
As at
December 31, December 31,
2007 2006
ASSETS
Current assets
Cash $ 10,961 $ 15,077
Accounts receivable 1,396 160
Income taxes receivable 128 95
Prepaid expenses and other current assets 56 32
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12,541 15,364
Property and equipment, net (note 3) 208 99
Loan receivable (note 4) 1,377 1,986
Intangible assets, net (note 5) 4,592 5,058
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$ 18,718 $ 22,507
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LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 1,059 $ 921
Deferred revenue 790 -
Due to related party (note 6) - 123
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1,849 1,044
Deferred revenue 1,192 -
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3,041 1,044
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SHAREHOLDERS' EQUITY
Share capital (note 7) 49,948 49,891
Contributed surplus (note 8) 31,032 30,430
Deficit (65,303) (58,858)
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15,677 21,463
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$ 18,718 $ 22,507
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The accompanying notes are an integral part of these consolidated
financial statements
Cipher Pharmaceuticals Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands of dollars, except per share amounts)
For the year ended
December 31, December 31,
2007 2006
Revenues
Licensing revenue $ 311 $ -
Product sales 227 -
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538 -
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Expenses
Cost of goods sold 171 -
Research and development 2,263 8,468
Operating, general and administrative 4,846 4,014
Amortization of property and equipment 50 23
Amortization of intangible assets 466 466
Interest income (813) (908)
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6,983 12,063
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Loss and comprehensive loss for the year $ (6,445) $ (12,063)
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Basic and diluted loss per share (note 10) $ (0.27) $ (0.51)
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The accompanying notes are an integral part of these consolidated
financial statements
Cipher Pharmaceuticals Inc.
Consolidated Statements of Deficit
(in thousands of dollars)
For the year ended
December 31, December 31,
2007 2006
Deficit, beginning of year $ (58,858) $ (46,795)
Loss for the year (6,445) (12,063)
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Deficit, end of year $ (65,303) $ (58,858)
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The accompanying notes are an integral part of these consolidated
financial statements
Cipher Pharmaceuticals Inc.
Consolidated Statements of Cash Flows
(in thousands of dollars)
For the year ended
December 31 December 31
2007 2006
Cash provided by (used in)
Operating activities
Loss $ (6,445) $ (12,063)
Items not affecting cash
Amortization of property and equipment 50 23
Amortization of intangible assets 466 466
Stock-based compensation expense 659 449
Imputed interest (note 4) (191) (241)
-------------------------------------------------------------------------
(5,461) (11,366)
Net change in non-cash operating items
(note 11) 704 (2,282)
Drawdown of loan receivable (note 4) 800 800
Exercise of stock options settled in cash - (286)
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(3,957) (13,134)
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Investing activities
Purchase of property and equipment (159) (36)
Increase in intangible assets - (277)
Proceeds from loan receivable - 800
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(159) 487
-------------------------------------------------------------------------
Financing activities
Issuance of share capital - 10,907
Proceeds from exercise of stock options - 201
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- 11,108
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Decrease in cash (4,116) (1,539)
Cash, beginning of year 15,077 16,616
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Cash, end of year $ 10,961 $ 15,077
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The accompanying notes are an integral part of these consolidated
financial statements
Cipher Pharmaceuticals Inc.
Notes to Consolidated Financial Statements
December 31, 2007
(in thousands of dollars, except per share amounts)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles.
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.
Significant accounting policies used in the preparation of these
consolidated financial statements are as follows:
Translation of foreign currencies
Revenues and expenses denominated in foreign currencies are
translated into Canadian dollars using the exchange rate in effect at
the transaction date. Monetary assets and liabilities are translated
using the rate in effect at the balance sheet date and non-monetary
items are translated at historical exchange rates. Related exchange
gains and losses are included in the determination of the loss for
the year.
Use of estimates
The preparation of these consolidated financial statements requires
management to make estimates and assumptions that could affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting periods presented. Significant areas
requiring the use of management estimates include intangible assets
and income taxes. By their nature, these estimates are subject to
measurement uncertainty. Actual results could differ from the
estimates and assumptions.
Property and equipment
Property and equipment are recorded at cost less accumulated
amortization. Amortization is computed using the straight-line method
using the following estimated useful lives of the assets or lease
terms:
Computer equipment 3 years
Computer software 3 years
Furniture and fixtures 5 years
Leasehold improvements over the term of the lease
Impairment of long-lived assets
Long-lived assets are tested for recoverability whenever events or
changes in circumstances indicate the carrying value may not be
recoverable. An impairment loss is recognized when the carrying
amount of a long-lived asset exceeds the sum of the undiscounted cash
flows from the long-lived asset. An impairment loss is measured as
the amount by which the carrying amount of the long-lived asset
exceeds the estimated fair value.
Intangible assets
Intangible assets consist of marketing and other rights relating to
products and are initially recorded at cost. Intangible assets have a
finite life and are amortized using the straight-line method over
their estimated period of useful life, which is determined to be
5 years from the date of regulatory (generally, U.S. Food and Drug
Administration ("FDA")) approval for marketing the related product.
Intangible assets are reviewed for impairment when events or other
changes in circumstances indicate that the carrying amount of the
assets may not be recoverable.
Revenue recognition
The Company recognizes revenue from product sales contracts and
licensing and distribution agreements, which may include multiple
elements. The individual elements of each agreement are divided into
separate units of accounting, if certain criteria are met. The
applicable revenue recognition approach is then applied to each unit.
Otherwise, the applicable revenue recognition criteria are applied to
combined elements as a single unit of accounting.
Product sales - revenue from product sales contracts is recognized
when the product is shipped to the Company's customers, at which time
ownership is transferred.
Licensing revenues - for up-front licensing payments, revenue is
deferred and recognized on a straight-line basis during the estimated
term over which the Company maintains substantive contractual
obligations. Milestone payments are recognized as revenue when the
underlying condition is met, the milestone is not a condition to
future deliverables and collectibility is reasonably assured.
Otherwise, milestone payments are recognized as revenue over the
remaining term of the underlying agreement or the term over which
the Company maintains substantive contractual obligations. Royalty
revenue is recognized in the period in which the Company earns the
royalty. Amounts received in advance of recognition as revenue are
included in deferred revenue. Revenue from licensing and distribution
agreements is presented on a net basis.
Income taxes
The Company uses the asset and liability method of accounting for
income taxes. Under this method, future tax assets and liabilities
are determined based on differences between the financial reporting
and income tax bases of assets and liabilities and are measured using
enacted or substantively enacted tax rates and laws that will be in
effect when the difference is expected to reverse. The Company
provides a valuation allowance for future tax assets when it is more
likely than not that some or all of the future tax assets will not be
realized.
Stock-based compensation
The fair value of stock options granted after October 1, 2002 is
recognized as compensation expense on a straight-line basis over the
applicable stock option vesting period. The expense is included in
operating, general and administrative expenses in the consolidated
statements of operations and as contributed surplus in the
consolidated balance sheets. The consideration received on the
exercise of stock options is credited to share capital at the time of
exercise.
2 CHANGES IN ACCOUNTING POLICIES
a) Effective January 1, 2007 the Company adopted the following new
accounting standards: Comprehensive Income, Equity and Financial
Instruments (recognition and measurement and disclosure and
presentation).
Comprehensive income
CICA Section 1530, Comprehensive Income, introduces a statement of
comprehensive loss. Comprehensive loss represents the change in
equity during a period from transactions and other events and
circumstances from non-owner sources and includes all changes in
equity other than those resulting from investments by owners and
distributions to owners. Since comprehensive loss equals loss for the
year ended December 31, 2007, the statement of comprehensive loss has
been combined with the statement of operations.
Equity
CICA Section 3251, Equity, replaces Section 3250, Surplus, and
establishes standards for the presentation of equity and changes in
equity during the reporting period and requires the Company to
present separately equity components and changes in equity arising
from; net earnings, other comprehensive income, other changes in
retained earnings, changes in contributed surplus, changes in share
capital and changes in reserves.
Financial instruments
CICA Section 3855, Financial Instruments - Recognition and
Measurement, and CICA Section 3861, Financial Instruments -
Disclosure and Presentation, establish standards for recognition and
measurement as well as disclosure and presentation of financial
assets, financial liabilities and non-financial derivatives. Section
3855 requires that financial assets and financial liabilities,
including derivatives, be recognized on the balance sheet when the
Company becomes a party to the contractual provisions of the
financial instrument or non-financial derivative contract. It also
requires that all financial instruments be classified into a defined
category, namely, held-to-maturity, held-for-trading, available-for-
sale, loans and receivables and other financial liabilities,
depending on the Company's stated intention and/or historical
practice. All financial instruments are required to be measured at
fair value except for loans and receivables, held-to-maturity
investments and other financial liabilities, which are measured at
cost or amortized cost. Gains and losses on held-for-trading
financial assets and liabilities are recognized in net earnings in
the period in which they arise. Unrealized gains and losses,
including changes in foreign exchange rates on available-for-sale
financial assets, are recognized in comprehensive income until the
financial assets are derecognized or impaired, at which time any
unrealized gains or losses are recorded in net earnings.
The adoption of these new standards resulted in the classification
and measurement of the Company's financial instruments as follows:
- Cash is classified as held-for-trading and is measured at fair
value;
- Accounts receivable and loan receivable are classified as loans
and receivables and recorded at cost, which at initial measurement
corresponds to fair value. After initial fair value measurement,
they are measured at amortized cost; and
- Accounts payable and accrued liabilities are classified as other
financial liabilities. They are initially measured at fair value
and, if necessary, subsequent revaluations are recorded at
amortized cost.
The adoption of these standards had no substantive impact on the
Company's consolidated financial statements.
b) Effective January 1, 2007, the Company adopted CICA Section 1506,
Accounting Changes, which prescribes the criteria for changing
accounting policies, together with the accounting treatment and
disclosure of changes in accounting policies, changes in accounting
estimates and corrections of errors. The adoption of this standard
did not affect the Company's consolidated financial statements.
c) The CICA released new Handbook Section 1535 and Section 3862
effective for the interim periods and year ends for fiscal years
commencing on or after October 1, 2007. Section 1535 establishes
standards for disclosing information on capital management strategy.
Section 3862 establishes standards for disclosure of financial
instruments including disclosing the significance of financial
instruments and the nature and extent of risks arising from financial
instruments. The Company will adopt these new standards on
January 1, 2008 on a prospective basis. The adoption of these new
standards will impact the Company's disclosures but will not affect
the Company's results or financial position.
3 PROPERTY AND EQUIPMENT
December 31, 2007 December 31, 2006
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Accumulated Accumulated
Cost Amortization Cost Amortization
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Computer equipment $ 91 $ 58 $ 76 $ 43
Computer software 35 14 20 9
Furniture and fixtures 126 31 65 13
Leasehold improvements 67 8 8 5
---------------------------------------------
319 $ 111 169 $ 70
Accumulated amortization (111) (70)
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$ 208 $ 99
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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
installments 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 $191 has been
recorded on this deferred payment during the year ended
December 31, 2007 ($241 during the year ended December 31, 2006). In
accordance with the terms of the deferred payment agreement, $800 of
clinical services purchased from Pharma Medica during each of 2006
and 2007 were offset against the annual payments that were due on
January 30 of 2007 and 2008, respectively.
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 $1,482 (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.
Under the terms of the agreement, the Company received an initial
payment of US$1 million in July and expects to receive the second
payment of US$1 million in March 2008 related to the US$2 million
up-front licensing fee. 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 and is also entitled to receive a royalty based on a
percentage of net sales. These elements are reflected in net revenue,
which also incorporates direct product-related expenses and amounts
due to Galephar, the Company's technology partner.
Over the term of the Galephar agreement, after direct 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 will be repaid by Galephar in US$350
quarterly payments, which commenced in the fourth quarter of 2007.
These payments will be included in net revenue based on the remaining
amortization period of the related intangible asset.
The following is a summary of cost and accumulated amortization and
writedowns for the intangible rights related to each product:
December 31, 2007 December 31, 2006
---------------------------------------------------------------------
Accumulated Accumulated
Amortization Amortization
Cost and Writedowns Cost and Writedowns
---------------------------------------------------------------------
CIP-FENOFIBRATE $ 3,014 $ 1,614 $ 3,014 $ 1,148
CIP-ISOTRETINOIN 1,883 426 1,883 426
CIP-TRAMADOL ER 2,161 426 2,161 426
--------------------------------------------------
7,058 $ 2,466 7,058 $ 2,000
Accumulated
amortization and
writedowns (2,466) (2,000)
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$ 4,592 $ 5,058
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6 RELATED PARTY TRANSACTIONS
The Company and a related party have in common a majority of members
of their respective boards. During the year the Company purchased
$63 (2006 - $125) of management and payroll services from this
related party. The agreement with the related party for the provision
of these services was terminated effective June 30, 2007.
7 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 December 31, 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
--------------------------
Balance outstanding - December 31, 2006 24,036 49,891
Options exercised during 2007 (b) 19 57
--------------------------
Balance outstanding - December 31, 2007 24,055 49,948
--------------------------
--------------------------
(a) In 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 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 December 31, 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
during 2006 (125) 2.35
---------------
Balance outstanding - December 31, 2006 889 2.96
Options granted during 2007 (a) 274 3.90
Options exercised during 2007 (b) (38) 1.90
Options cancelled during 2007 (c) (112) 1.90
Options cancelled during 2007 (c) (15) 4.12
---------------
Balance outstanding - December 31, 2007 998 3.36
---------------
---------------
At December 31, 2007, 309,741 options were fully vested and
exercisable.
(a) During 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 these stock
options is estimated to be $921. This cost will be recognized over
the vesting period of the stock options.
The stock options issued during 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
(b) During 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.
(c) As a result of the departure of an employee during 2007, 112,500
stock options were cancelled and as a result of the death of a board
member 15,000 stock options were cancelled.
The following is a summary of the outstanding options as at
December 31, 2007:
Expiry date Exercise Number of options (in thousands)
price --------------------------------------
$ Vested Unvested Total
January 11, 2012 1.09 125 - 125
September 17, 2014 2.35 63 62 125
March 23, 2016 4.12 55 150 205
June 28, 2016 4.00 45 135 180
August 8, 2016 4.33 5 15 20
September 13, 2016 2.90 17 52 69
March 9, 2017 3.90 - 274 274
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310 688 998
--------------------------------------
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8 CONTRIBUTED SURPLUS
The following is a summary of the changes in contributed surplus from
December 31, 2005 to December 31, 2007:
Amount
$
Balance - December 31, 2005 30,267
Options exercised during 2006 (286)
Stock-based compensation
expense during 2006 449
----------
Balance - December 31, 2006 30,430
Options exercised during 2007 (57)
Stock-based compensation
expense during 2007 659
----------
Balance - December 31, 2007 31,032
----------
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9 INCOME TAXES
The provision for income taxes differs from the amount computed by
applying the statutory income tax rate to the loss for the year. The
sources and tax effects of the differences are as follows:
For the year ended
December 31,
2007 2006
$ $
Statutory income tax rate of 36.12% applied
to loss for the year (2006 - 36.12%) (2,328) (4,357)
Permanent differences 253 (255)
Change in enacted income tax rates
and other items (1,670) 2,717
Change in valuation allowance 3,745 1,895
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Provision for income taxes - -
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The significant components of future income tax assets are summarized
as follows:
As at
December 31,
2007 2006
$ $
Non-capital losses 10,382 10,131
Excess of tax value of property and
equipment over book value 27 15
SR&ED expenditure pool 3,206 3,153
Excess of tax value of intangible assets
over book value 7,513 5,679
Benefit of net investment tax credits 1,694 -
Deductible share issue costs 190 289
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23,012 19,267
Valuation allowance (23,012) (19,267)
----------------------
- -
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The Company has non-capital loss carry forwards of $35,800 as at
December 31, 2007 that expire in varying amounts from 2014 to 2027.
The Company has Scientific Research and Experimental Development
("SR&ED") expenditures of $11,100 which can be carried forward
indefinitely to reduce future years' taxable income.
The Company has approximately $2,400 of investment tax credits on
SR&ED expenditures that are available to be applied against federal
taxes otherwise payable in future years and expire in varying amounts
from 2013 to 2027.
10 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 year ended December 31, 2007 was 24,049,174 (for the year
ended December 31, 2006 - 23,488,888)
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.
11 SUPPLEMENTAL CASH FLOW INFORMATION
The following is a summary of the changes in non-cash operating
items:
For the year ended
December 31,
2007 2006
$ $
Accounts receivable (1,236) 145
Income taxes receivable (33) -
Prepaid expenses and other current assets (24) (13)
Accounts payable and accrued liabilities 138 (2,481)
Deferred revenue 1,982 -
Due to related party (123) 67
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704 (2,282)
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----------------------%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