Toronto Stock Exchange Symbol: DND MISSISSAUGA, ON, Feb. 22, 2012
/CNW/ - Cipher Pharmaceuticals Inc. today announced its financial
and operational results for the fourth quarter and fiscal year
ended December 31, 2011. Fiscal 2011 Summary -- Completed
CIP-ISOTRETINOIN Phase III safety study in Q2 and submitted New
Drug Application (NDA) amendment to the U.S. Food and Drug
Administration (FDA) and New Drug Submission (NDS) to Health Canada
in Q4. The NDA amendment was accepted as a complete response with a
goal date under the U.S. Prescription Drug User Fee Act (PDUFA) of
May 29, 2012. Subsequent to year end Health Canada accepted the
submission for filing with a response expected by Q1 2013. --
Entered into a U.S. distribution and supply agreement for
CIP-TRAMADOL ER with Vertical Pharmaceuticals, Inc in Q2. The
product was launched by Vertical in the U.S. in Q3 under the trade
name ConZip ™. -- CIP-TRAMADOL ER was approved by Health Canada in
Q3; product will be marketed by the Company's Canadian distributor,
Medical Futures, under the trade name Durela™, with an expected
launch in Q1 2012. -- Royalty revenue from Lipofen® increased 8%
over 2010. -- Strong balance sheet at year end with no debt and
cash of $9.6 million, versus $9.2 million at the end of Q3 2011.
"It was a successful year for Cipher with multiple commercial and
regulatory milestones, highlighted by two marketing agreements for
our once-daily tramadol, the launch of ConZip™ in the U.S. market,
and completion of the comprehensive Phase III study of our
high-potential acne product," said Larry Andrews, President and CEO
of Cipher. "Moreover, we saw steady growth in royalty revenue from
Lipofen® which helped us achieve another sales milestone subsequent
to year end. With growing revenues from our two commercial products
and an upcoming PDUFA date in May for CIP-ISOTRETINOIN, 2012 is
shaping up to be an eventful and exciting year for the Company."
Financial Review Total net revenue in 2011 was $3.6 million,
compared with $5.4 million in 2010. Fiscal 2010 revenue
included a one-time $1.0 million sales milestone for Lipofen® and
the recognition of revenue on up-front and milestone payments,
neither of which occurred during 2011. Excluding revenue
recognized on these items, net revenue increased by $1.1 million in
2011, driven by an 8% increase in Lipofen® royalties and $0.8
million in revenue from CIP-TRAMADOL ER, the first year that
revenue has been recognized for this product. Research and
Development ("R&D") expenditures for 2011 were $2.2 million,
compared with $0.7 million in 2010. Reported R&D expense is
shown net of the amounts reimbursed for the CIP-ISOTRETINOIN Phase
III clinical study and refundable provincial tax credits. The
year-over-year increase relates primarily to expenses for the
CIP-ISOTRETINOIN Phase III clinical study, which was completed
during 2011, as well as a new product development program.
Operating, General and Administrative ("OG&A") expenses for
2011 were $3.1 million, compared with $3.8 million in 2010. Net
loss for the 12 months ended December 31, 2011 was $2.3 million
($0.10 per share), compared with net income of $0.2 million ($0.00
per share) in 2010. In Q4 2011, Cipher recorded licensing revenue
of $1.0 million, compared with $1.2 million in Q4 2010. R&D
expenses in Q4 2011 were $0.6 million, compared with nil in Q4
2010. OG&A expenses for Q4 2011 were $0.7 million versus
with $0.9 million in the same period last year. Net loss for the
three months ended December 31, 2011 was $0.5 million ($0.02 per
share), compared with net income of $0.1 million ($0.00 per share)
in the same period last year. The Company's financial position
remained solid at year-end. As at December 31, 2011, Cipher had no
debt and cash of $9.6 million, compared with $9.2 million at
September 30, 2011 and $10.3 million at December 31, 2010. Product
Update Lipofen® During 2011, Cipher saw steady growth in royalty
revenue from Lipofen® as Kowa Pharmaceuticals continued its
penetration of primary care physicians in its targeted regions.
Subsequent to year end, the Company received a US$1.0 million
one-time milestone payment, which was based on sales performance
over a trailing 12-month period and reflected a steady increase in
new prescriptions during Q4 2011 and early Q1 2012. Cipher's 50%
share of the milestone will be reflected in its financial results
for Q1 2012. CIP-ISOTRETINOIN During Q4 2011, Cipher's revised NDA
was submitted to the FDA and accepted for review. Based on
the FDA's acceptance as a complete response, Cipher received a
US$1.0 million milestone payment from its marketing partner,
Ranbaxy Pharmaceuticals Inc. The target action date under PDUFA is
May 29, 2012. Once CIP-ISOTRETINOIN is commercialized in the
U.S., Cipher expects that future revenue from this product has the
potential to significantly exceed the revenue generated from the
Company's other current products. Pre-commercial manufacturing
planning is also underway for a possible U.S. launch in Q4 2012. In
addition, Cipher's New Drug Submission for CIP-ISOTRETINOIN was
accepted for review by Health Canada subsequent to year end. A
response from Health Canada is expected in Q1 2013 and, once the
product is approved, Cipher plans to market it in Canada through
its own specialty sales team. CIP-TRAMADOL ER (ConZip™/Durela™)
ConZip™ was launched by Vertical Pharmaceuticals in September 2011.
Product sales to date have been encouraging, and the Company
expects solid growth in 2012 as U.S. physicians gain more
experience with the product and Vertical expands its coverage. In
Canada, Medical Futures plans to launch Durela™ in Q1 2012 with a
dedicated sales force comprising approximately 22 representatives,
with plans for further expansion. New Products and Out-Licensing
Activities Cipher is actively pursuing out-licensing agreements for
its current products in other territories and is also seeking
products in development or approved for the Canadian market to
complement its Canadian commercialization plans for
CIP-ISOTRETINOIN. Notice of Conference Call Cipher will hold a
conference call today, February 22, 2012, at 8:30 a.m. (ET) to
discuss its financial results and other corporate developments. To
access the conference call by telephone, dial 647-427-7450 or
1-888-231-8191. 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 growing specialty pharmaceutical company that commercializes
novel formulations of successful, currently marketed molecules.
Cipher's strategy is to in-license clearly differentiated products,
advance them through the clinical development and regulatory
approval stages, and out-license to international marketing
partners. The Company's first product is a fenofibrate formulation
marketed in the United States as Lipofen®. Cipher's second product,
an extended-release tramadol, is marketed in the United States as
ConZip™ and will be marketed in Canada as Durela™. Cipher's New
Drug Application for its third product, a novel formulation of the
acne treatment isotretinoin, is currently being reviewed by the FDA
and Health Canada. 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. The words "may", "will", "could",
"should", "would", "suspect", "outlook", "believe", "plan",
"anticipate", "estimate", "expect", "intend", "forecast",
"objective", "hope" and "continue" (or the negative thereof), and
words and expressions of similar import, are intended to identify
forward-looking statements. 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. These
factors include, but are not limited to losses; the applicability
of patents and proprietary technology; possible patent litigation;
approval of products in the Company's pipeline; marketing of
products; meeting projected drug development timelines and goals;
product liability and insurance; dependence on strategic
partnerships and licensees; concentration of the Company's revenue;
substantial competition and rapid technological change in the
pharmaceutical industry; the publication of negative results of
clinical trials of the Company's products; the ability to access
capital; the ability to attract and retain key personnel; changes
in government regulation or regulatory approval processes;
dependence on contract research organizations; third party
reimbursement; the success of the Company's strategic investments;
the achievement of development goals and time frames; the
possibility of shareholder dilution; market price volatility of
securities; and the existence of significant shareholders. All
forward-looking statements presented herein should be considered in
conjunction with such filings. Except as required by Canadian
securities laws, the Company does not undertake to update any
forward-looking statements; such statements speak only as of the
date made. Cipher Pharmaceuticals Inc. Financial Statements For the
Year Ended December 31, 2011 Cipher Pharmaceuticals Inc.
Balance Sheets As at December 31, 2011, December 31, 2010 and
January 1, 2010 (in thousands of Canadian dollars) December 31,
December 31, January 1, Note 2011 2010 2010 $ $ $ ASSETS Current
assets Cash 9,636 10,328 9,006 Accounts receivable 1,782 1,808 967
Prepaid expenses and 272 465 457 other assets Loan receivable - -
800 11,690 12,601 11,230 Property and equipment, 6 25 50 86 net
Intangible assets, net 7 2,944 3,522 3,507 14,659 16,173 14,823
LIABILITIES Current liabilities Accounts payable and 8 1,912 2,440
1,570 accrued liabilities Current portion of 917 567 1,956 deferred
revenue 2,829 3,007 3,526 Deferred revenue 2,330 1,692 329 5,159
4,699 3,855 SHAREHOLDERS' EQUITY Share capital 9 50,172 49,977
49,948 Contributed surplus 5 33,032 32,890 32,585 Deficit 5
(73,704) (71,393) (71,565) 9,500 11,474 10,968 14,659 16,173 14,823
The accompanying notes are an integral part of these
financial statements Cipher Pharmaceuticals Inc. Statements of
Operations and Comprehensive Income (Loss) For the years ended
December 31, 2011 and 2010 (in thousands of Canadian dollars,except
per share data) December 31, December 31, Note 2011 2010 $ $
Revenues Licensing revenue 3,569 5,385 Expenses Research and
development 10 2,205 743 Operating, general and 3,186 3,832
administrative Amortization of intangible assets 578 704 Interest
income (89) (66) 11 5,880 5,213 Income (loss) before income taxes
(2,311) 172 Provision for (recovery of) income 13 taxes Current -
171 Deferred - (171) Income (loss) and comprehensive income (loss)
for the year 5 (2,311) 172 Basic and diluted earnings (loss) per 14
(0.10) 0.00 share The accompanying notes are an integral part of
these financial statements Cipher Pharmaceuticals Inc. Statements
of Changes in Equity For the years ended December 31, 2011 and 2010
(in thousands of Canadian dollars) Total Share Contributed
Shareholders' Capital Surplus Deficit Equity $ $ $ $ Balance,
January 1, 2011 49,977 32,890 (71,393) 11,474 Loss and
comprehensive loss for the year - - (2,311) (2,311) Exercise of
stock options 90 (43) - 47 Shares issued under the share purchase
plan 105 - - 105 Share-based compensation - stock option plan - 185
- 185 Balance, December 31, 2011 50,172 33,032 (73,704) 9,500
Balance, January 1, 2010 49,948 32,585 (71,565) 10,968 Income and
comprehensive income for the year - - 172 172 Exercise of stock
options 29 (14) - 15 Share-based compensation - stock option plan -
319 - 319 Balance, December 31, 2010 49,977 32,890 (71,393) 11,474
The accompanying notes are an integral part of these financial
statements Cipher Pharmaceuticals Inc. Statements of Cash
Flows For the years ended December 31, 2011 and 2010 (in thousands
of Canadian dollars) December 31, December 31, Note 2011 2010 $ $
Cash provided by (used in) Operating activities Income (loss) for
the year (2,311) 172 Items not affecting cash: Depreciation of
property and 37 53 equipment Amortization of intangible assets 7
578 704 Share-based compensation - share 9 16 - purchase plan
Share-based compensation - stock 185 319 option plan (1,495) 1,248
Changes in non-cash operating items: Accounts receivable 26 (841)
Prepaid expenses and other assets 193 (8) Accounts payable and
accrued (528) 870 liabilities Deferred revenue 988 (26) Net cash
generated from (used in) (816) 1,243 operating activities Investing
activities Proceeds from loan receivable - 800 Purchase of property
and equipment (12) (17) Acquisition of intangible rights - (719)
Net cash generated from (used in) (12) 64 investingactivities
Financing activities Proceeds from exercise of stock options and
from shares issued under the share 136 15 purchase plan Increase
(Decrease) in cash (692) 1,322 Cash, beginning of year 10,328 9,006
Cash, end of year 9,636 10,328 The accompanying notes are an
integral part of these financial statements Cipher
Pharmaceuticals Inc. Notes to Financial Statements December 31,
2011 (in thousands of Canadian dollars, except per share amounts) 1
NATURE OF OPERATIONS Cipher Pharmaceuticals Inc. ("Cipher" or "the
Company") is a commercial stage drug development company focused on
commercializing novel formulations of successful, currently
marketed molecules using advanced drug delivery technologies.
The Company'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. Cipher is
incorporated under the Business Corporations Act of Ontario and is
located at 5650 Tomken Boulevard, Mississauga, Ontario. 2 BASIS OF
PREPARATION AND ADOPTION OF IFRS The Company prepares its financial
statements in accordance with Canadian generally accepted
accounting principles as defined in the Handbook of the Canadian
Institute of Chartered Accountants ("CICA Handbook"). In
2010, the CICA Handbook was revised to incorporate International
Financial Reporting Standards ("IFRS"), and to require publicly
accountable enterprises to apply these standards effective for
years beginning on or after January 1, 2011. Accordingly,
these are the Company's first annual financial statements prepared
in accordance with IFRS. In these financial statements, the
term "Canadian GAAP" refers to Canadian GAAP before the adoption of
IFRS. Subject to certain transition elections disclosed in note 5,
the Company has consistently applied the same accounting policies
in its opening IFRS balance sheet at January 1, 2010 and throughout
all periods presented, as if these policies had always been in
effect. Note 5 discloses the impact of the transition to IFRS on
the Company's reported financial position, financial performance
and cash flows, including the nature and effect of
significant changes in accounting policies from those used in the
Company's financial statements for the year ended December 31, 2010
prepared under Canadian GAAP. The policies applied in these
financial statements are based on IFRS issued and outstanding as of
December 31, 2011. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The
significant accounting policies used in the preparation of these
financial statements are described below. Basis of measurement The
financial statements have been prepared under the historical cost
convention. Translation of foreign currencies The financial
statements are presented in Canadian dollars, which is the
Company's functional currency. 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 income (loss)
for the year. Critical accounting estimates and judgments The
Company makes estimates and assumptions concerning the future that
will, by definition, seldom equal actual results. The
following are the estimates and judgments applied by
management that most significantly affect the Company's financial
statements. The estimates and judgments that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial
year are addressed below. (i) Estimated useful lives and valuation
of intangible assets - management estimates the useful lives of
intangible assets based on the period during which the assets are
expected to be available for use and also estimates the
recoverability to assess if there has been an impairment. The
amounts and timing of recorded expenses for amortization and
impairments of intangible assets for any period are affected by
these estimates. The estimates are reviewed at least annually and
are updated if expectations change as a result of technical or
commercial obsolescence, generic threats and legal or other limits
to use. It is possible that changes in these factors may
cause significant changes in the estimated useful lives of the
Company's intangible assets in the future. (ii) Revenue recognition
- management evaluates the multiple elements and units of
accounting which are included within certain licensing and
distribution agreements. The recognition of revenue on
up-front licensing payments and pre-commercialization amounts are
over the estimated period that the Company maintains contractual
obligations. The estimated periods are reviewed at least
annually and are updated if expectations change as a result of
licensing partner interactions, product commercial obsolescence or
other factors. It is possible that these factors may cause
significant changes in the Company's recognition of revenue in the
future. (iii) Income taxes - management uses estimates when
determining current and deferred income taxes. These
estimates are used to determine the recoverability of tax loss
carry forwards, research and development expenditures and
investment tax credits. Financial instruments Financial assets and
liabilities are recognized when the Company becomes a party to the
contractual provisions of the instrument. Financial assets
are derecognized when the rights to receive cash flows from the
assets have expired or have been transferred and the Company has
transferred substantially all risks and rewards of ownership.
Financial assets and liabilities are offset and the net amount is
reported in the balance sheet when there is a legally enforceable
right to offset the recognized amounts and there is an intention to
settle on a net basis, or realize the asset and settle the
liability simultaneously. At initial recognition, the Company
classifies its financial instruments in the following categories
depending on the purpose for which the instruments were acquired:
(i) Financial assets and liabilities at fair value through profit
or loss: A financial asset or liability is classified in this
category if acquired principally for the purpose of selling or
repurchasing in the short term. The Company does not have any
instruments classified in this category. Financial
instruments in this category are recognized initially and
subsequently at fair value. Transaction costs are expensed in
the statement of operations. Gains and losses arising from changes
in fair value are presented in the statement of operations in the
period in which they arise. (ii) Available-for-sale
investments: These investments are non-derivatives that are either
designated in this category or not classified in any of the other
categories. The Company does not have any instruments
classified in this category. Available-for-sale investments
are recognized initially at fair value plus transaction costs and
are subsequently carried at fair value. Gains or losses
arising from changes in fair value are recognized in other
comprehensive income. When an available-for-sale investment
is sold or impaired, the accumulated gains or losses are moved from
accumulated other comprehensive income to the statement of
operations and are included in other gains and losses. (iii) Loans
and receivables: These are non-derivative financial assets
with fixed or determinable payments that are not quoted in an
active market. The Company's loans and receivables comprise
cash, accounts receivable and loan receivable, and are included in
current assets due to their short-term nature. Loans and
receivables are initially recognized at the amount expected to be
received, less, when material, a discount to reduce the loans and
receivables to fair value. Subsequently, loans and
receivables are measured at amortized cost using the effective
interest method less a provision for impairment. (iv) Financial
liabilities at amortized cost: This category includes accounts
payable and accrued liabilities. Accounts payable and accrued
liabilities are initially recognized at the amount required to be
paid, less, when material, a discount to reduce the payables to
fair value. Subsequently, accounts payable are measured at
amortized cost using the effective interest method. Financial
liabilities are classified as current liabilities if payment is due
within twelve months. Otherwise, they are presented as non-current
liabilities. Impairment of financial assets At each reporting date,
the Company assesses whether there is objective evidence that a
financial asset is impaired. If such evidence exists, the
Company recognizes an impairment loss. Impairment losses on
financial assets carried at amortized cost are reversed in
subsequent periods if the amount of the loss decreases and the
decrease can be related objectively to an event occurring after the
impairment was recognized. Cash Cash includes deposits held with
banks. Accounts receivable Accounts receivable consist of amounts
due from licensing partners for royalties and product sales in the
normal course of business and other amounts such as interest
receivable and tax credits receivable. Prepaid expenses and other
assets Prepaid expenses consist of amounts paid in advance for
items that have future value to the Company, such as insurance
policy payments, U.S. Food and Drug Administration fees, data base
subscription fees and other items paid in advance. Other
assets consist of lease and utility deposits. Property and
equipment Property and equipment are recorded at historical cost
less accumulated depreciation and accumulated impairment
losses. The useful lives of property and equipment are
reviewed at least once per year. Depreciation is computed
using the straight-line method, using the following estimated
useful lives of the assets or lease terms: Computer equipment 3
years Furniture and fixtures 5 years Leasehold improvements over
the term of the lease Intangible assets Intangible assets
consist of marketing and other rights relating to products and are
recorded at cost less accumulated amortization and accumulated
impairment losses. Intangible assets have a finite life and
are amortized using the straight-line method over their estimated
period of useful life. Amortization commences on the earlier
of the date of regulatory (generally, U.S. Food and Drug
Administration) approval for marketing the related product or upon
substantive revenue being generated from the product under a
commercial licensing agreement. The estimated period of
useful life has been determined to be 3.5 years from the date of
regulatory approval for marketing the related product. Should
amortization commence as a result of generating revenue, the
amortization period would include the time prior to regulatory
approval. The useful lives of the intangible assets are reviewed at
least once per year Impairment of non-financial assets
Non-financial assets, which include property and equipment and
intangible assets, are tested for impairment whenever events or
changes in circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognized when the
carrying amount of a non-financial asset exceeds the sum of the
estimated present value of the expected future cash flows from the
non-financial asset. The Company evaluates impairment losses
for potential reversals when events or circumstances warrant such
consideration. Accounts payable and accrued liabilities
Accounts payable are obligations to pay for goods and services that
have been acquired in the ordinary course of business from
suppliers and are classified as current liabilities if payment is
due within one year or less. If not, they are presented as
non-current liabilities. Deferred revenue Deferred revenue consists
of amounts received from licence partners in advance of revenue
recognition. Amounts expected to be recognized within one
year or less are classified as current liabilities with the balance
being classified as non-current liabilities. Share capital Common
shares are classified as equity. Incremental costs directly
attributable to the issuance of shares are recognized as a
deduction from equity. Revenue recognition The Company recognizes
revenue 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. Licensing revenues - for up-front licensing
payments and pre-commercialization milestones, revenue is deferred
and recognized on a straight-line basis over the estimated term
that the Company provides services and when the costs of fulfilling
the Company's contractual obligations can be measured
reliably. Post-commercialization milestone payments are
recognized as revenue when the underlying condition is met, the
milestone is not a condition of future deliverables and
collectability is reasonably assured. Otherwise, these
milestone payments are recognized as revenue over the remaining
term of the underlying agreement or the estimated service term
which the Company maintains contractual obligations. Royalty
revenue is recognized in the period in which the Company earns the
royalty. The gross margin on sales of finished products to
license partners is recognized when the product is shipped, at
which time ownership is transferred. Amounts received in
advance of recognition as revenue are included in deferred revenue.
Research and development The Company conducts research and
development programs and incurs costs related to these activities,
including employee compensation, materials, professional services
and services provided by contract research organizations.
Research and development costs, net of related tax credits and
contractual reimbursements from development partners, are expensed
in the periods in which they are incurred. Income taxes Income tax
comprises current and deferred tax. Current tax is the expected tax
payable on the taxable income for the year using tax rates enacted
or substantively enacted at the end of the reporting period and any
adjustment to tax payable in respect of previous years. Deferred
tax is recognized in respect of temporary differences arising
between the tax bases of assets and liabilities and their carrying
amounts in the financial statements. Deferred income tax is
determined on a non-discounted basis using tax rates and laws that
have been enacted or substantively enacted at the balance sheet
date and are expected to apply when the deferred tax asset or
liability is settled. Deferred tax assets are recognized to the
extent that it is probable that the assets can be recovered.
Tax on income for interim periods is accrued using the tax rate
that would be applicable to expected total annual earnings.
Investment tax credits The Company is entitled to provincial
investment tax credits, which are earned as a percentage of
eligible research and development expenditures incurred in each
taxation year. Investment tax credits are accounted for as a
reduction of the related expenditure items of a current nature and
a reduction of the related asset cost for items of a long-term
nature, provided that the Company has reasonable assurance that the
tax credits will be realized. Share-based compensation The fair
value of options granted to employees and directors is estimated on
the date of the grants using the Black-Scholes option pricing
model. Stock options vest over four years (25% per year),
expire after ten years and can only be settled for shares.
Each tranche in an award is considered as a separate award with its
own vesting period and grant date fair value. Share-based
compensation expense is recognized over the tranche's vesting
period based on the number of awards expected to vest, by
increasing contributed surplus. The number of awards expected
to vest is reviewed annually, with any impact being recognized
immediately. Share-based compensation expense is included in
operating, general and administrative expense in the statements of
operations and contributed surplus in the balance sheets. The
consideration received on the exercise of stock options is credited
to share capital at the time of exercise. Earnings per share Basic
earnings per share ("EPS") is calculated using the treasury stock
method, by dividing the net income (loss) for the period by
the weighted number of common shares outstanding during the
period. Diluted EPS is calculated by adjusting the weighted
average number of common shares outstanding for dilutive
instruments. Accounting standards issued but not yet applied IFRS
9, "Financial Instruments", addresses the classification,
measurement and recognition of financial assets and financial
liabilities. IFRS 9 was issued in November 2009 and October
2010. It replaces the parts of IAS 39 that relate to the
classification and measurement of financial instruments. IFRS
9 requires financial assets to be classified into two measurement
categories: those measured as at fair value and those measured at
amortized cost. The determination is made at initial
recognition. The classification depends on the entity's
business model for managing its financial instruments and the
contractual cash flow characteristics of the instrument. For
financial liabilities, the standard retains most of the IAS 39
requirements. The main change is that, in cases where the
fair value option is taken for financial liabilities, the part of a
fair value change due to an entity's own credit risk is recorded in
other comprehensive income rather than the income statement, unless
this creates an accounting mismatch. The Company is yet to
assess IFRS 9's full impact and intends to adopt IFRS 9 no later
than the accounting period beginning on or after January 1, 2013.
IFRS 12, "Disclosures of interests in other entities" includes the
disclosure requirements for all forms of interests in other
entities, including joint arrangements, associates, special purpose
vehicles and other off balance sheet vehicles. The Company is
yet to assess IFRS 12's full impact and intends to adopt IFRS 12 no
later than the accounting period beginning on or after January 1,
2013. There are no other IFRS or International Financial Reporting
Interpretations Committee interpretations that are not yet
effective that would be expected to have a material impact on the
Company. 4 RISK MANAGEMENT Financial risk management In the normal
course of business, the Company is exposed to a number of financial
risks that can affect its operating performance. These risks
are: credit risk, liquidity risk and market risk. The
Company's overall risk management program and prudent business
practices seek to minimize any potential adverse affects on the
Company's financial performance. (i) Credit risk Cash - the
Company's cash balance is on deposit with a Canadian chartered bank
that has a DBRS rating of "AA" for deposits and senior debt.
Accounts receivable - the Company licenses its products to
distribution partners in major markets. The credit risk
associated with the accounts receivable pursuant to these
agreements is evaluated during initial negotiations and on an
ongoing basis. The accounts receivable balance at December
31, 2011 is concentrated between two distribution partners.
One has been a partner of the Company for over four years, with no
defaults in the past and one is a new partner in the current
year. As of December 31, 2011, no accounts receivable were
impaired or past due. The Company's three largest customers
comprise 63%, 20% and 15% of licensing revenue (92% for the largest
customer in 2010). (ii) Liquidity risk The Company has no long term
debt. Accounts payable and accrued liabilities are settled in
the regular course of business, based on negotiated terms with
trade suppliers. All components of the balance of $1,912 as
at December 31, 2011 are expected to be settled in less than one
year. The carrying value of the balances approximate their
fair value as the impact of discounting is not significant.
Management forecasts cash flows in order to monitor liquidity
requirements and ensure that the Company has sufficient cash to
meet operational needs. (iii) Market risk Currency risk - the
majority of the Company's revenue and a portion of its expenses are
denominated in US currency. The accounts receivable balance
at December 31, 2011 includes a total of US$1,602 and accounts
payable and accrued liabilities includes a total of US$1,039.
A 10% change in the US/CDN exchange rate on December 31, 2011
balance would have had a $56 impact on net income. Capital risk
management Shareholders' equity is managed as the capital of the
Company. The Company's objective when managing capital is to
safeguard its ability to continue as a going concern in order to
provide returns for shareholders and to maintain an optimal capital
structure to minimize the cost of capital. In order to
maintain or adjust the capital structure, the Company may issue new
common shares from time to time. 5 TRANSITION TO IFRS The effect of
the Company's transition to IFRS, described in note 2, is
summarized in this note as follows: (i) Transition elections
(ii) Reconciliation of deficit, contributed surplus and
comprehensive income as previously reported under Canadian GAAP to
IFRS (i) Transition elections: IFRS 1 - First-time Adoption of
International Financial Reporting Standards - sets forth guidance
for the initial adoption of IFRS. Under IFRS 1, the standards
are applied retrospectively at the transitional balance sheet date
with all adjustments to assets and liabilities taken to retained
earnings unless certain exemptions are applied. The Company
has applied the following exemption to its opening balance sheet
dated January 1, 2010: Share-based payment transactions - the
Company has elected not to apply IFRS 2 to awards that vested prior
to January 1, 2010. With regard to the designation of financial
assets and liabilities, the Company has elected to re-designate
cash from the held-for-trading category to the loans and
receivables category. In addition, as required by IFRS 1,
estimates made under IFRS at the date of transition must be
consistent with estimates made for the same date under previous
GAAP, unless there is evidence that those estimates were in error.
(ii) Reconciliation of deficit, contributed surplus and
comprehensive income as previously reported under Canadian GAAP to
IFRS: In preparing its financial statements in accordance with
IFRS, the Company has adjusted amounts reported previously in
financial statements prepared in accordance with Canadian
GAAP. An explanation of how the transition from previous
Canadian GAAP to IFRS has affected the Company's financial
position, financial performance and cash flow is set out below.
Deficit As at As at Dec 31, 2010 Jan 1, 2010 As reported under
Canadian GAAP $ (71,192) $ (71,248) Increase in deficit for:
Share-based compensation expense - IFRS 2 (201) (317) As reported
under IFRS $ (71,393) $ (71,565) Contributed Surplus As at As at
Dec 31, 2010 Jan 1, 2010 As reported under Canadian GAAP $ 32,689 $
32,268 Increase in contributed surplus for: Share-based
compensation expense - IFRS 2 201 317 As reported under IFRS $
32,890 $ 32,585 Comprehensive Income Year Ended Dec 31, 2010 As
reported under Canadian GAAP $ 56 Increase in comprehensive income
for: Share-based compensation expense - IFRS 2 116 As reported
under IFRS $ 172 Operating, general and administrative expense Year
Ended Dec 31, 2010 As reported under Canadian GAAP $ 3,895 Decrease
in operating, general and administrative expense for: Share-based
compensation expense - IFRS 2 (116) As reported under IFRS $ 3,779
Statements of cash flows - the transition to IFRS had no
significant impact on cash flows generated by the Company. Under
IFRS, the Company accrues the cost of employee stock options over
the vesting period using the graded method of amortization rather
than the straight-line method, which was the Company's policy under
Canadian GAAP. As a result of this change, contributed
surplus increased by $317 and deficit increased by $317 as at
January 1, 2010. General and administrative expenses
decreased by $116 for the year ended December 31, 2010. 6 PROPERTY
AND EQUIPMENT The following is a summary of property and equipment
as at December 31, 2011: December 31, 2011 December 31,2010
Accumulated Accumulated Cost Depreciation Cost Depreciation
Computer equipment $ 132 $ 115 $ 123 $ 106 Furniture and fixtures
129 127 126 112 Leasehold improvements 67 61 67 48 328 $ 303 316 $
266 Accumulated depreciation (303) (266) $ 25 $ 50 7
INTANGIBLE ASSETS The Company has entered into 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 certain
intangible rights. The Company may be required to pay
additional amounts to Galephar for the CIP-ISOTRETINOIN intangible
rights of up to $661 (US$650) if certain future milestones are
achieved as defined in the agreement. The recoverability of
these intangible rights is dependant upon sufficient revenues being
generated from the related products. The Company is currently
amortizing the intangible rights related to CIP-ISOTRETINOIN and
CIP-TRAMADOL ER. In accordance with the above-noted agreements,
after certain prescribed thresholds are achieved, the Company pays
Galephar a 50% share of all amounts received, after deducting
product-related expenses under licensing and distribution
agreements. The following is a summary of intangible assets as at
December 31, 2011: CIP-Tramadol CIP-Fenofibrate CIP-Isotretinoin ER
Total As at January 1, 2010 Cost $ 2,332 $ 1,579 $ 1,735 $ 5,646
Accumulated amortization (1,865) (274) - (2,139) Net book $ $ $ $
value 467 1,305 1,735 3,507 For the year ended December 31, 2010
Opening net $ $ $ $ book value 467 1,305 1,735 3,507 Additions - -
719 719 Amortization (467) (237) - (704) Net book value $ - $ 1,068
$ 2,454 $ 3,522 As at December 31, 2010 Cost $ 2,332 $ 1,579 $
2,454 $ 6,365 Accumulated amortization (2,332) (511) - (2,843) Net
book value $ - $ 1,068 $ 2,454 $ 3,522 For theyear ended December
31, 2011 Opening net $ $ $ $ book value - 1,068 2,454 3,522
Additions - - - - Amortization - (228) (350) (578) Net book value $
- $ 840 $ 2,104 $ 2,944 As at December 31, 2011 Cost $ 2,332 $
1,579 $ 2,454 $ 6,365 Accumulated amortization (2,332) (739) (350)
(3,421) Net book value $ - $ 840 $ 2,104 $ 2,944 The Company
has considered indicators of impairment as of January 1, 2010,
December 31, 2010 and December 31, 2011 and no indicators were
identified. 8 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The
following is a summary of accounts payable and accrued liabilities
as at December 31, 2011 and December 31, 2010: As at As at Dec 31,
2011 Dec 31, 2010 Trade accounts payable $ 1,234 $ 1,861 Accrued
liabilities 678 579 $ 1,912 $ 2,440 9 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
January 1, 2010 to December 31, 2011: Number of common shares
Amount (in thousands) $ Balance outstanding - January 1, 2010
24,055 49,948 Options exercised in 2010 25 29 Balance outstanding -
December 31, 2010 24,080 49,977 Options exercised in 2011 104 90
Shares issued in 2011 under the share purchase plan 132 105 Balance
outstanding - December 31, 2011 24,316 50,172 Share purchase
plan - in 2011, the Company implemented an Employee and Director
Share Purchase Plan ("ESPP") to allow employees and directors to
share in the growth of the Company through share ownership.
Through the ESPP, employees and directors may contribute amounts
from payroll to be used to purchase shares of the Company at a 15%
discount from the prevailing trading price. Plan members must hold
their shares for a period of at least six months before they can be
sold. The plan was approved by the board of directors on
March 8, 2011. The shareholders of the Company approved the
ESPP at the annual and special meeting of shareholders held on May
12, 2011. The shares issued under the ESPP are new shares
issued from treasury and the maximum number of shares that can be
issued under the ESPP is one million. During the year,
131,417 shares were issued under the ESPP. Included in
share-based compensation expense is $16 which is the discount on
the shares issued under the ESPP during the year. Stock option plan
The following is a summary of the changes in the stock options
outstanding from January 1, 2010 to December 31, 2011: Number of
Weighted average options exercise price (in thousands) $ Balance
outstanding - January 1, 2010 1,580 2.22 Granted in 2010 222 1.60
Exercised in 2010 (25) 0.61 Balance outstanding - December 31, 2010
1,777 2.17 Granted in 2011 196 1.16 Exercised in 2011 (104) 0.45
Cancelled in 2011 (104) 0.74 Expired in 2011 (10) 1.49 Balance
outstanding - December 31, 2011 1,755 2.24 At December 31,
2011, 1,247,420 options were fully vested and exercisable
(1,114,560 at December 31, 2010). During 2011, the Company issued
196,000 stock options under the employee and director stock option
plan, with an exercise price of $1.16, 25% of which vest on March
11 of each year, commencing in 2012, and expire in 2021.
Total compensation cost for these stock options is estimated
to be $198, which will be recognized on a graded basis over the
vesting period of the stock options. The stock options issued
during 2011 were valued using the Black-Scholes option pricing
model, at $1.01 per option, with the following assumptions.
Expected volatility is based on the Company's historical
volatility, while estimated forfeitures are not considered
significant. Risk-free interest rate 3.27% Expected life 10 years
Expected volatility 90.7% Expected dividend Nil During 2011,
104,445 stock options were exercised for a total cash consideration
of $47. Capital stock increased by $90 representing the
cash consideration of $47 and a $43 transfer from contributed
surplus. The share price at the time of exercise was $1.11.
The following is a summary of the outstanding options as at
December 31, 2011: Expiry date Exercise price Number of options
(inthousands) $ Vested Unvested Total January 11, 2012 1.09 125 -
125 September 17, 2014 2.35 125 - 125 March 23, 2016 4.12 200 - 200
June 28, 2016 4.00 180 - 180 September 13, 2016 2.90 69 - 69 March
9, 2017 3.90 224 - 224 February 28, 2018 1.05 159 53 212 December
3, 2018 0.50 30 10 40 February 20, 2019 0.61 77 101 178 November 6,
2019 0.55 10 10 20 February 19, 2020 1.60 48 141 189 March 11, 2021
1.16 - 193 193 1,247 508 1,755 10 RESEARCH AND DEVELOPMENT A
total of $4,022 of research and development costs were incurred in
2011 ($12,835 in 2010). The research and development expense
reflected in the Statement of Operations is presented net of
refundable provincial tax credits of $100 ($328 in 2010) for
qualifying research and development expenditures and reimbursed
R&D expenditures of $1,717 ($11,764 in 2010). Under the
terms of the CIP-ISOTRETINOIN distribution and supply agreement,
certain research and development costs incurred for clinical
studies required by the FDA to secure approval for the product are
reimbursed to the Company and as a result, these reimbursed costs
are not reflected in reported research and development expense. 11
EXPENSES BY NATURE Year Ended Year Ended Dec 31, 2011 Dec 31, 2010
Employees salaries and other short $ $ term benefits 2,009 2,374
Directors fees 291 275 Share-based compensation 201 319
Amortization of intangible assets 578 704 Depreciation of property
and equipment 37 53 Professional fees 921 633 Contract research
1,162 - Other expenses, net of interest income 681 855 $ 5,880 $
5,213 12 COMPENSATION OF KEY MANAGEMENT Key management
includes directors and executives of the Company. The
compensation paid or payable to key management for services is
shown below: Year Ended Year Ended Dec 31,2011 Dec 31, 2010
Salaries and short-term employee $ $ benefits, including bonuses
1,189 1,345 Directors fees 291 275 Share-based compensation expense
180 287 $ 1,660 $ 1,907 13 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: Year
Ended Year Ended Dec 31, 2011 Dec 31, 2010 Statutory income tax
rate of 28.25% applied to income (loss) for the year (2010 - 31%) $
(653) $ 53 Permanent differences 115 118 Change in enacted income
tax rates and other items (98) (740) Change in deferred tax assets
not recognized 636 569 Provision for income taxes $ - $ -
The significant components of unrecognized deferred tax assets are
summarized as follows: As at As at Dec 31, 2011 Dec 31, 2010
Non-capital losses $ 12,296 $ 11,290 Excess of tax value of
property and equipment over book value 25 28 SR&ED expenditure
pool 4,378 4,186 Excess of tax value of intangible assets over book
value 2,503 3,422 Benefit of investment tax credits 2,788 2,673
Capital losses 233 217 Provincial tax credits 326 289 Other
temporary differences 614 422 $ 23,163 $ 22,527 Deferred tax
assets are recognized for tax loss carry-forwards to the extent
that the realization of the related tax benefit through future
taxable profits is probable. The Company did not recognize
deferred tax assets of $23,163 (2010 - $22,527) that can be carried
forward against future taxable income. The Company has non-capital
loss carry forwards of $49,100 as at December 31, 2011 that expire
in varying amounts from 2014 to 2031. The Company has Scientific
Research and Experimental Development ("SR&ED") expenditures of
$17,500 which can be carried forward indefinitely to reduce future
years' taxable income. The Company has approximately $3,700 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 2022 to 2031. 14 EARNINGS
(LOSS) PER SHARE Earnings (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, 2011 was 24,175,720 (for the year ended December 31, 2010 -
24,071,522). As the Company had a loss for the year ended December
31, 2011, basic and diluted loss per share are the same because the
exercise of all stock options would have an anti-dilutive
effect. For the prior year, the dilutive impact on earnings
per share is not significant. 15 COMMITMENTS The Company has
entered into an operating lease for its office facilities with the
following minimum annual payments: 2012: $76 2013: $73 2014: $73
2015: $30 16 SEGMENTED INFORMATION The Company's operations are
categorized into one industry segment, being specialty
pharmaceuticals. All of the Company's assets, including
capital and intangible assets, are in Canada, while all licensing
revenue is derived from the United States. Cipher
Pharmaceuticals Inc. CONTACT: Craig ArmitageInvestor RelationsThe
Equicom Group(416) 815-0700 ext 278(416) 815-0080
faxcarmitage@equicomgroup.comLarry AndrewsPresident and CEOCipher
Pharmaceuticals(905) 602-5840 ext 324(905) 602-0628
faxlandrews@cipherpharma.com
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