Cipher first quarter net revenue decreases to $0.7 million

May 12 2011

Cipher Pharmaceuticals Inc. (TSX: DND) today announced its financial and operational results for the three months ended March 31, 2011 ("Q1 2011").  The first quarter of 2011 represents the Company's first reporting period under IFRS.

Q1 2011 Summary

• Lipofen® royalty revenue increased by $0.2 million in Q1 2011 compared to Q1 2010.
• Strong balance sheet at quarter end with cash of $9.1 million and no debt.
• Subsequent to quarter end, completed the CIP-ISOTRETINOIN Phase III study.

"In the first quarter our team continued to make good progress on the CIP-ISOTRETINOIN safety study, which just finished on schedule with more than 900 patients included," said Larry Andrews, President and CEO of Cipher. "Lipofen® continues to provide a steady revenue stream as we prepare to launch our other two products in the U.S. and evaluate additional markets for these products."

Financial Review

Net revenue in Q1 2011 was $0.7 million, compared with $0.9 million in Q1 2010. Revenue from Lipofen® in Q1 2011 totalled $0.6 million, a decrease of $0.2 million compared to Q1 2010.  In 2010, the Company was still recognizing quarterly revenue on the original up-front licensing payment (received in 2007) from Kowa Pharmaceuticals America Inc. ("Kowa"), as well as a milestone payment received in 2009, both of which were being amortized over several quarters, ending in 2010. In Q1 2010, non-cash revenue recognized on these items totalled $0.4 million. Excluding these non-cash items, royalty revenue from Lipofen® increased by $0.2 million in Q1 2011 compared to Q1 2010.

Gross Research and Development ("R&D") expenditures for Q1 2011 were $1.7 million, a decrease of $2.4 million compared to Q1 2010. The year-over-year decrease reflects reduced spending on the CIP-ISOTRETINOIN clinical study, which was approaching completion at the end of Q1 2011.  The reported R&D amount of $0.5 million for Q1 2011 is net of reimbursed R&D costs related to the CIP-ISOTRETINOIN Phase III clinical study and the impact of R&D refundable tax credits recorded in the quarter, which together totalled $1.2 million.  Reported R&D expense in Q1 2010 was $0.3 million. In Q1 2011, the Company reached the contractual cap on the amount of R&D to be 100% reimbursed by its commercial partner for the CIP-ISOTRETINOIN clinical study. Going forward, 50% of the remaining study costs will be borne by Cipher. The Company's share of these additional R&D costs was $0.3 million during Q1 2011. Cipher expects its share of the additional R&D costs for the CIP-ISOTRETINOIN Phase III study will be approximately $1.0 to $1.5 million to complete the trial.

Operating, General and Administrative ("OG&A") expenses for Q1 2011 were $1.2 million, compared to $0.9 million in Q1 2010.  The year-over-year change primarily reflects increased business development activity in Q1 2011 related to exploring new product opportunities. Net loss in Q1 2011 was $1.1 million ($0.05 per share), compared with a loss of $0.5 million ($0.02 per share) in Q1 2010.

The Company's financial position remained solid at quarter end. As at March 31, 2011, Cipher had cash of $9.1 million, compared with $10.3 million as at December 31, 2010.

Product Update

Lipofen® monthly prescriptions remained steady in Q1 2011 relative to the prior quarter. The product continues to be actively promoted by Cipher's U.S. distribution partner, Kowa.

During Q1 2011, Cipher entered into the final stages of its Phase III safety trial for CIP-ISOTRETINOIN. Subsequent to quarter end, the trial was completed, with more than 900 patients enrolled. Cipher expects to report top-line results in late Q2 2011 and complete its FDA and Health Canada submissions by Q4 2011. The FDA review of this submission under PDUFA is expected to be six months, and the Company is targeting the second half of 2012 for the U.S. commercial launch of the product.

During Q1 2011, the Company continued with pre-commercial activities for CIP-TRAMADOL ER, including the completion of the manufacturing validation batches and out-licensing discussions with potential U.S. distributors. The Company is hopeful of completing out-licensing negotiations in Q2 2011 and is targeting late Q3 2011 for the commercial launch. In addition, Cipher expects a response from Health Canada concerning regulatory approval in Q3 2011.

Source: CIPHER PHARMACEUTICALS INC.