Cipher reports third quarter fiscal 2007 results
Toronto Stock Exchange Symbol: DND

MISSISSAUGA, ON, Nov. 7 /PRNewswire-FirstCall/ - Cipher Pharmaceuticals Inc. (TSX:DND) today announced its financial and operational results for the three and nine months ended September 30, 2007.

    Q3 2007 Summary
    ---------------
    -   Entered into a licensing and distribution agreement with ProEthic
        Pharmaceuticals under which ProEthic was granted the exclusive right
        to market, sell and distribute CIP-FENOFIBRATE (approved and marketed
        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
    -   Continued dialogue and correspondence with the U.S. Food and Drug
        Administration (FDA) on CIP-ISOTRETINOIN and CIP-TRAMADOL ER
    -   Recorded commercial revenue of $149,000
    -   Cash and cash equivalents of $12.1 million at quarter end

"We reached important company milestones in the third quarter with the signing of our first commercial distribution agreement in the U.S. market and, toward the end of the quarter, the launch of Lipofen in the large and growing U.S. fenofibrate market," said Larry Andrews, President and CEO of Cipher. "These successes validate our core business strategy and our transition to a commercial, specialty pharmaceutical company. During the quarter, we also continued our dialogue and correspondence with the FDA on CIP-ISOTRETINOIN and CIP-TRAMADOL ER as we work diligently to advance these two products through the remaining milestones on the path to final approval."

Financial Review

----------------

In the third quarter of 2007, the Company recorded total revenue of $149,000, compared with nil in the same period last year. Revenue for the third quarter of 2007 includes an amortized portion of the US$2 million up-front licensing fee from ProEthic. Cipher received the initial payment of US$1 million in the third quarter of 2007 and expects to receive the second payment of US$1 million in March 2008. Revenue is presented on a net basis and reflects the elements of the ProEthic licensing and distribution agreement, as well as direct product-related expenses and amounts due to Galephar, the Company's technology partner.

Research and development (R&D) expenses for the third quarter of 2007 were $0.2 million, compared with $1.4 million in the third quarter of 2006. The decrease in R&D spending reflects the advanced stage of development of the Company's current products. Operating, general and administrative (OG&A) expenses for the third quarter of 2007 were $1.1 million, compared with $0.9 million in the same period last year. The increase in OG&A is due to higher compensation expense resulting from an increase in personnel to support current growth plans, as well as stock-based compensation expense. Net loss for the three months ended September 30, 2007 was $1.1 million ($0.04 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.

As at September 30, 2007, Cipher had cash and cash equivalents of $12.1 million, compared with $12.1 million as at June 30, 2007 and $15.1 million as at December 31, 2006.

Product 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 ten 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.

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 has responded to, the FDA has 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. Cipher submitted its appeal and met with the FDA on July 11, 2007. In August 2007, the Company received a response from the FDA to its request for formal dispute resolution. In the letter to Cipher, the representative from the FDA agreed with the Division of Dermatology and Dental Product's view that a clinical study is needed to further demonstrate the safety of CIP-ISOTRETINOIN. Subsequently, Cipher has had further discussions with the FDA on the issues raised in its response letter. Cipher continues to believe that the clinical questions raised by the FDA have been addressed in the NDA submission. The appeal process is ongoing.

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 once-daily 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 with the FDA, Cipher has obtained clarification on the question of efficacy. The FDA has 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. The Company has a meeting scheduled with the FDA in November 2007 to further discuss the issues raised in the action letter. The Company will determine the most appropriate path forward to achieve final regulatory approval based in part on the outcome of these discussions with the FDA. Cipher continues to believe its submission includes sufficient efficacy data to support regulatory approval.

Notice of Conference Call

-------------------------

Cipher will hold a conference call today, November 7, 2007, at 8:30 a.m. (ET) to discuss its financial results and other corporate developments. To access the conference call by telephone, dial 416-644-3424 or 1-800-732-1073. 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.
    Unaudited Consolidated Balance Sheets
    (in thousands of dollars)


                                                             As at
                                                   September 30, December 31,
                                                        2007         2006
    ASSETS

    Current assets
    Cash and cash equivalents                       $    12,056  $    15,077
    Accounts receivable (note 4)                          1,377            -
    Other receivables                                        97          160
    Income taxes receivable                                  98           95
    Other current assets                                     83           32
    -------------------------------------------------------------------------
                                                         13,711       15,364

    Property and equipment                                  210           99

    Intangible assets (note 4)                            4,708        5,058

    Loan receivable (note 3)                              1,331        1,986

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    $    19,960  $    22,507
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Current liabilities
    Accounts payable and accrued liabilities        $       905  $       921
    Deferred revenue                                        601            -
    Due to related party (note 5)                             -          123
    -------------------------------------------------------------------------
                                                          1,506        1,044

    Deferred revenue                                      1,341            -
    -------------------------------------------------------------------------
                                                          2,847        1,044
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY

    Share capital (note 6)                               49,948       49,891
    Contributed surplus                                  30,846       30,430
    Deficit                                             (63,681)     (58,858)
    -------------------------------------------------------------------------
                                                         17,113       21,463
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                   $     19,960  $    22,507
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of these unaudited
    consolidated financial statements



    Cipher Pharmaceuticals Inc.
    Unaudited Consolidated Statements of Operations and Comprehensive Loss
    (in thousands of dollars, except per share amounts)

                                 For the nine              For the three
                                 months ended               months ended
                                 September 30               September 30
                              2007         2006          2007         2006
    Revenues
      Licensing revenue $        149  $         -  $        149  $         -
      Product sales              227            -             -            -
    -------------------------------------------------------------------------

                                 376            -           149            -
    -------------------------------------------------------------------------

    Expenses
      Cost of goods sold         177            -             -            -
      Research and
       development             1,535        8,111           231        1,370
      Operating, general
       and administrative      3,739        2,648         1,102          897
      Amortization of
       property and
       equipment                  32           17            16            5
      Amortization of
       intangible assets         350            -           117            -
      Interest income           (634)        (695)         (267)        (240)
    -------------------------------------------------------------------------

                               5,199       10,081         1,199        2,032
    -------------------------------------------------------------------------

    Loss and
     comprehensive loss
     for the period      $    (4,823) $   (10,081) $     (1,050) $    (2,032)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted
     loss per share
     (note 7)            $     (0.20) $     (0.43) $      (0.04) $     (0.08)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Cipher Pharmaceuticals Inc.
    Unaudited Consolidated Statements of Deficit
    (in thousands of dollars)

                                 For the nine              For the three
                                 months ended               months ended
                                 September 30               September 30
                              2007         2006          2007         2006

    Deficit, beginning
     of period           $   (58,858) $   (46,795) $    (62,631) $   (54,844)

    Loss for the period       (4,823)     (10,081)       (1,050)      (2,032)
    -------------------------------------------------------------------------

    Deficit, end of
     period              $   (63,681) $   (56,876) $    (63,681) $   (56,876)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of these unaudited
    consolidated financial statements



    Cipher Pharmaceuticals Inc.
    Unaudited Consolidated Statements of Cash Flows
    (in thousands of dollars)

                                 For the nine              For the three
                                 months ended               months ended
                                 September 30               September 30
                              2007         2006          2007         2006
    Cash provided by
     (used in)

    Operating activities
      Loss for the
       period            $    (4,823) $   (10,081) $     (1,050) $    (2,032)
      Items not affecting
       cash
        Amortization of
         property and
         equipment                32           17            16            5
        Amortization of
         intangible
         assets                  350            -           117            -
        Stock-based
         compensation
         expense                 473          292           170          136
        Imputed interest
         (note 3)               (145)        (207)          (45)         (82)
    ---------------------------------------------- --------------------------
                              (4,113)      (9,979)         (792)      (1,973)
      Net change in non-
       cash operating items      435       (1,780)          709         (339)
      Drawdown of loan
       receivable (note 3)       800          800             -           98
      Exercise of stock
       options settled
       in cash                     -         (286)            -            -
    ---------------------------------------------- --------------------------

                              (2,878)     (11,245)          (83)      (2,214)
    ---------------------------------------------- --------------------------

    Investing activities
      Purchase of property
       and equipment            (143)         (28)          (10)         (17)
      Increase in
       intangible assets           -         (277)            -         (277)
      Proceeds from
       loan receivable             -          800             -            -
    ---------------------------------------------- --------------------------

                                (143)         495           (10)        (294)
    ---------------------------------------------- --------------------------

    Financing activities
      Issuance of
       share capital               -       10,907             -            -
      Proceeds from
       exercise of
       stock options               -          201             -            -
    ---------------------------------------------- --------------------------

                                   -       11,108             -            -
    ---------------------------------------------- --------------------------

    Increase (decrease)
     in cash and cash
     equivalents              (3,021)         358           (93)      (2,508)
    Cash and cash
     equivalents,
     beginning of period      15,077       16,616        12,149       19,482
    ---------------------------------------------- --------------------------
    ---------------------------------------------- --------------------------
    Cash and cash
     equivalents,
     end of period      $     12,056  $    16,974  $     12,056  $    16,974
    ---------------------------------------------- --------------------------
    ---------------------------------------------- --------------------------

    The accompanying notes are an integral part of these unaudited
    consolidated financial statements



    Cipher Pharmaceuticals Inc.
    Notes to Unaudited Consolidated Financial Statements
    September 30, 2007
    (in thousands of dollars, except per share amounts)



    1   Summary of significant accounting policies

        Basis of presentation

        The accompanying unaudited interim consolidated financial statements
        of the Company have been prepared in accordance with accounting
        principles generally accepted in Canada for interim reporting.
        Accordingly, these financial statements do not include all of the
        disclosures required by generally accepted accounting principles for
        annual financial statements and should be read in conjunction with
        the annual financial statements of the Company. In the opinion of
        management, all adjustments considered necessary for fair
        presentation have been included. All such adjustments are of a normal
        recurring nature. Operating results for the nine months ended
        September 30, 2007 are not necessarily indicative of the results that
        may be expected for the fiscal year ending December 31, 2007.

        There have been no changes to the accounting policies as described in
        Note 1 to the consolidated financial statements for the year ended
        December 31, 2006, except as explained in the following paragraph and
        in Note 2 below.

        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.

    2   Changes in accounting policies

        Effective January 1, 2007 the Company adopted the CICA Handbook
        Section 1530, "Comprehensive income" and CICA Handbook section 3855,
        "Financial instruments - recognition and measurement".

        Comprehensive income

        Comprehensive income introduces a new requirement to present, among
        other things, certain unrealized gains and losses outside of net
        income or loss. Section 1530 defines comprehensive income as a change
        in net assets arising from transactions and other events and
        circumstances from non-owner sources. The new standard requires
        presentation of a statement of comprehensive income (loss), which has
        been combined with the former statement of operations.

        Financial instruments

        The new standard for financial instruments prescribes when a
        financial instrument is to be recognized on the balance sheet and at
        what amount. It also specifies how gains and losses on financial
        instruments are to be presented. Upon adoption of this new standard,
        the Company has classified its cash and cash equivalents as held-for-
        trading financial assets, other receivables and loan receivable as
        loans and receivables; accounts payable and accrued liabilities and
        due to related party as other financial liabilities.

        The adoption of these standards had no substantive impact on the
        Company's interim consolidated financial statements.

    3   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 instalments 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 $145 has
        been recorded on this deferred payment during the nine months ended
        September 30, 2007 ($207 during the nine months ended September 30,
        2006). The first instalment of $800 related to this deferred payment
        was collected on January 30, 2006. In accordance with the terms of
        the deferred payment agreement, $800 of clinical services purchased
        from Pharma Medica during the year ended December 31, 2006 were
        offset against the annual payment that was due on January 30, 2007.
        During the nine months ended September 30, 2007, $800 of clinical
        services purchased from Pharma Medica were offset against the next
        annual payment, which would have been due on January 30, 2008.

    4   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 intangible rights of up to $1,494 (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.

        A summary of 2007 developments related to the products currently
        under development/commercialization follows:

        CIP-FENOFIBRATE
           In April 2007, the Company completed its first sale of CIP-
           FENOFIBRATE in Canada under an agreement with Oryx Pharmaceuticals
           Inc.

           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 receives an up-front
           licensing fee of US $2 million, US $1 million of which was
           received on signing. The balance will be received 180 days after
           the first commercial sale of the product, which occurred on
           September 11, 2007 and is included in accounts receivable at the
           end of the third quarter. 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 will also 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.
           After direct product-related expenses are deducted, including
           payments to Galephar, the Company anticipates that it will retain
           approximately 50% of total revenue under the agreement. In late
           September 2007, ProEthic launched Lipofen in the U.S. market.

           The Company's US $2 million investment in Galephar preferred
           shares will be repaid by Galephar in US $350 quarterly payments,
           beginning 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.

        CIP-ISOTRETINOIN
           On April 27, 2007, the Company received a second approvable letter
           from the U.S. Food and Drug Administration ("FDA") pertaining to
           its New Drug Application ("NDA") for CIP-ISOTRETINOIN. The FDA
           indicated that the Company's application is approvable subject to
           the resolution of two remaining issues. In addition to one
           question related to chemistry, manufacturing and controls, the FDA
           has requested that the Company provide additional safety data. The
           Company believes that the clinical question raised has been
           adequately addressed in the NDA submission and has appealed the
           position taken by the FDA in its approvable letter using the
           formal dispute resolution process. The appeal is ongoing.

        CIP-TRAMADOL
           On May 3, 2007, the Company received an approvable letter from the
           FDA pertaining to its NDA for CIP-TRAMADOL. The FDA indicated that
           the Company'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 with the FDA, the Company has obtained
           clarification on the question of efficacy. The FDA has indicated
           that the statistical methods used to analyze data from the
           Company's clinical trials did not adequately address missing data
           relating to subjects who dropped out of the trials. The Company
           believes its submission includes sufficient efficacy data to
           support regulatory approval.

           The Company has a meeting scheduled with the FDA in November 2007
           to obtain further clarification on the issues raised in the action
           letter. The outcome of these discussions will help the Company
           determine the most appropriate path forward to achieve final
           regulatory approval in the U.S. market.

    5   Due to related party

        The Company and a related party have in common a majority of their
        respective boards. There is no balance owing to the related party at
        September 30, 2007. At December 31, 2006 the amount due was $123, for
        management and payroll services.

    6   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 September 30, 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 the
             three months ended June 30, 2007(b)             19           57
                                                  ---------------------------
          Balance outstanding - September 30, 2007       24,055       49,948
                                                  ---------------------------

        (a) On March 14, 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 the three months ended June 30, 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 September 30, 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 consideration during 2006(a)             (125)        2.35
                                                  --------------
          Balance outstanding - December 31, 2006           889         2.96

            Options granted during the
             three months ended March 31, 2007(b)           274         3.90
            Options exercised during the
             three months ended June 30, 2007(c)            (38)        1.90
            Options cancelled during the
             three months ended June 30, 2007(c)           (112)        1.90
            Options cancelled during the
             three months ended September 30, 2007(d)       (15)        4.12
                                                  --------------
          Balance outstanding - September 30, 2007          998         3.36
                                                  --------------
                                                  --------------

        At September 30, 2007, 309,741 options were fully vested and
        exercisable.

          (a) During 2006, 125,000 stock options were exercised in exchange
              for cash consideration of $286 representing the difference
              between the exercise price of the options and the market value
              of the related common shares on the exercise date. The cash
              consideration of $286 represents stock option compensation
              expense of which $48 was expensed during 2006 and $238 was
              expensed in prior years. Subsequent to March 31, 2006, the
              Company no longer intends to make cash payments on the exercise
              of stock options.

          (b) During the three months ended March 31, 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 the three months ended
                 March 31, 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

          (c) During the three months ended June 30, 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. As a
              result of the departure of an employee during the three months
              ended June 30, 2007, 112,500 options were cancelled.

          (d) During the three months ended September 30, 2007, 15,000 stock
              options were cancelled as a result of the death of a Board
              member.


    7   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 nine and three month periods ended
        September 30, 2007 was 24,047,252 and 24,054,878 respectively (for
        the nine and three month periods ended September 30, 2006
        respectively 23,304,649 and 24,035,601).

        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.

Source: Cipher Pharmaceuticals Inc.

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