Cipher net revenue decreases to $0.7 million for Q2 2011

Jul 26 2011

Cipher Pharmaceuticals Inc. (TSX: DND) today announced its financial and operational results for the three and six months ended June 30, 2011 ("Q2 2011").

Q2 2011 Summary

• Licensed the U.S. distribution rights for CIP-TRAMADOL ER to Vertical Pharmaceuticals, Inc., with plans to launch the product in Q3 2011.
• Completed a pivotal large-scale Phase III safety study of CIP-ISOTRETINOIN and disclosed positive top-line results.
• Strong balance sheet at quarter end with cash of $8.6 million and no debt.

"We had two major events in the quarter, with positive top-line safety results from our pivotal Phase III safety study on CIP-ISOTRETINOIN and the completion of a U.S. out-licensing agreement for CIP-TRAMADOL," said Larry Andrews, President and CEO of Cipher. "We expect our tramadol product to be launched in the near term, giving us two royalty-generating products in the U.S. market.  In addition, we look forward to FDA and Health Canada submissions in Q4 of this year for our high-potential isotretinoin product."

Financial Review

Net revenue in Q2 2011 was $0.7 million, compared with $2.2 million in Q2 2010. Revenue from Lipofen® in Q2 2011 totalled $0.6 million, compared with $2.1 million in Q2 2010.  In Q2 2010, the Company received a one-time sales milestone of $1.0 million. In addition, 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. Excluding the $1.0 million milestone and the non-cash revenue recognized on these items, royalty revenue from Lipofen® increased by approximately $0.1 million in Q2 2011 compared to Q2 2010.

Gross Research and Development ("R&D") expenditures for Q2 2011 were $1.0 million, a decrease of $2.5 million compared to Q2 2010. The year-over-year decrease reflects reduced spending on the CIP-ISOTRETINOIN clinical study, which was completed in Q2 2011.  The reported R&D amount of $0.6 million for Q2 2011 is net of $0.4 million 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.  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 $0.4 million during Q2 2011, and management expects the remaining share of the additional R&D costs will be approximately $0.5 to $1.0 million in 2011.

Operating, General and Administrative ("OG&A") expenses for Q2 2011 were $0.6 million, compared to $1.0 million in Q2 2010.  As a result of completing the CIP-TRAMADOL ER U.S. distribution agreement in Q2 2011, the Company was able to recover certain OG&A expenses during the quarter that were incurred in prior periods. Net loss in Q2 2011 was $0.5 million ($0.02 per share), compared with net income of $0.8 million ($0.03 per share) in Q2 2010.

The Company's financial position remained solid at quarter end. As at June 30, 2011, Cipher had cash of $8.6 million, compared with $10.3 million as at December 31, 2010.  The Company expects to receive additional milestone payments in 2011, in addition to ongoing royalties from Lipofen and early royalty contribution from its extended-release tramadol product.

Product Update

Lipofen®

Lipofen® monthly prescriptions remained steady in Q2 2011 relative to the prior quarter. The product continues to be actively promoted by Cipher's U.S. distribution partner, Kowa.

CIP-ISOTRETINOIN

During Q2 2011, Cipher completed its Phase III safety trial for CIP-ISOTRETINOIN. Subsequently, the Company announced top-line safety and efficacy results from the Phase III safety study of CIP-ISOTRETINOIN. From a safety perspective, the top-line data was positive showing no overall statistical differences in the adverse event profile between the two products. The most frequent side effects that were observed were dry skin and dry lips. In addition, initial statistics on psychiatric disorders, eye disorders, ear disorders, musculoskeletal, vascular disorders, cardiac disorders, and gastrointestinal disorders, illustrate there are no significant differences in the extent of adverse events between CIP-ISOTRETINOIN and the reference product.

The efficacy component of the study had two co-primary endpoints: (1) the total change in lesion counts between baseline and at the end of week 20; and (2) the total number of subjects that had at least a 90% clearing at the end of 20 weeks of treatment.  These two co-primary endpoints were analyzed using the per-protocol population ("PP") as well as the intent-to-treat population ("ITT").  The PP analysis comprised all subjects who completed the study according to the protocol. In this analysis both co-primary endpoints met the non-inferiority margins established for the study. The ITT population comprised all subjects who entered the study, including those who did not conclude the study for whatever reason. Those who dropped out early were assigned treatment efficacy scores based on the last observation recorded for that subject, also known as last observation carried forward ("LOCF"). In the LOCF analysis of the ITT population, the first primary endpoint was achieved while the second endpoint fell slightly outside the non-inferiority margin target. 

The safety, efficacy, and population pharmacokinetic data generated from this study, together with previously submitted data, will be used to complete a revised New Drug Application (NDA) being prepared for submission to the FDA in Q4 2011. The FDA review of this submission under PDUFA is expected to be six months. A regulatory submission to Health Canada is also planned for Q4 2011.

CIP-TRAMADOL ER

During Q2 2011, the Company entered into a definitive distribution and supply agreement with Vertical Pharmaceuticals, Inc., a U.S.-based specialty pharmaceutical company, under which Cipher has granted Vertical the exclusive right to market, sell and distribute CIP-TRAMADOL ER in the United States. Under the terms of the agreement with Vertical, Cipher received an initial upfront payment of US$0.5 million with additional payments totaling US$1.0 million due upon the first commercial sale of the product. Cipher is also eligible to receive future payments of approximately US$4 million contingent upon the achievement of certain sales milestones. In addition, Cipher will receive a royalty on net sales in the mid-teens. Cipher is responsible for product supply and manufacturing, which will be fulfilled by its partner, Galephar Pharmaceutical Research. Vertical plans to launch the product in Q3 2011 under the trade name ConZip™. Vertical's dedicated sales force will comprise 60 representatives at the time of product launch, with plans for further expansion in the first half of 2012.

During Q2 2011, the Canadian Intellectual Property Office issued a patent for CIP-TRAMADOL ER. In addition, Cipher expects a response from Health Canada concerning regulatory approval in Q3 2011.

New Products and Out-Licensing Activities

Cipher continues to actively pursue additional product candidates and advance out-licensing discussions for its current products in other territories.

Source: CIPHER PHARMACEUTICALS INC.