Deciphering Cipher Pharma

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In just another two weeks, Canada based Cipher Pharmaceuticals Inc. (DND.TO) (CPHMF.PK) will learn the outcome of its New Drug Application for acne medication CIP-Isotretinoin resubmitted to the U.S. regulatory agency.

CIP-Isotretinoin is a novel, patented formulation of acne medication Isotretinoin. CIP-Isotretinoin is designed to offer more consistent bioavailability of the compond compared to the current Isotretinoin formulations, according to Cipher Pharma.

This is CIP-Isotretinoin's third go-around with the FDA. Cipher's investigational acne medication was rejected twice by the FDA - in May 2006 and April 2007, and the company was asked to provide additional clinical safety data. Accordingly, the company conducted a phase III safety study for CIP-Isotretinoin under a Special Protocol Assessment, and resubmitted its NDA last November. The resubmitted NDA for CIP-Isotretinoin was considered as a class 2 response by the FDA with a decision date set for May 29, 2012.

In August 2008, Cipher Pharma granted Ranbaxy Pharmaceuticals Inc. exclusive right to market, sell and distribute CIP-Isotretinoin in the United States, its territories and possessions. Following the FDA acceptance of the amended NDA as a complete response last December, Cipher Pharma received a US$1.0 million milestone payment from its marketing partner, Ranbaxy. Under the U.S. distribution and supply agreement with Ranbaxy, Cipher is eligible to receive pre- and post-commercialization milestone payments of up to US$19 million and a royalty in the mid-teens on net sales. CIP-Isotretinoin is also under review in Canada.

According to IMS Research, the U.S. Isotretinoin market in 2011 was valued at US$0.5 billion.

The company has two approved drugs:

- Lipofen for high cholesterol, marketed in the U.S. by Kowa Pharmaceuticals. Cipher receives a royalty in the range of mid-teens to mid-twenties on net sales of the drug.

- CIP-Tramadol ER for moderate to moderately severe pain, marketed in the U.S. by Vertical Pharmaceuticals and in Canada by Medical Futures as Durela. The royalty rate on net sales of CIP-Tramadol ER received by Cipher is mid-teens.

A quick look at Cipher's balance sheet...

Barring 2010, in all other years, Cipher has incurred losses. The company generates revenue under four distribution and supply agreements.

In 2011, the company incurred a loss of C$2.31 million or C$0.10 per share on licensing revenue of C$3.57 million. This compares with a profit of C$172 thousand on licensing revenue of C$5.38 million in 2010.

In the first quarter ended March 31, 2012, net income was C$0.1 million, compared with a loss of C$1.1 million in the year-ago comparable quarter. Revenue for the first quarter of 2012 was C$1.8 million, a 168% increase over the first quarter of 2011.

Cipher Pharma ended the first quarter of 2012 with cash of C$10.1 million, compared with C$9.6 million as at December 31, 2011.

Shares of Cipher Pharma, which are listed on the Toronto Stock Exchange, have thus far hit a 52-week low of C$0.64 and a 52-week high C$1.35. As the FDA decision date nears, it will be interesting to watch how the stock price plays out in the coming days. Stay tuned...

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