Nuvo Research Announces 2011 Third Quarter Results

MISSISSAUGA, ON, Nov. 2, 2011 /CNW/ - Nuvo Research Inc. (TSX: NRI), a specialty pharmaceutical company dedicated to building a portfolio of products for the topical treatment of pain and the development of its immune modulating drug candidate WF10, today announced its financial and operational results for the third quarter ended September 30, 2011.

Third Quarter and Recent Corporate Developments:

  • Quarterly Pennsaid® U.S. prescriptions continue to grow to new highs and increased approximately 14% quarter-over-quarter to a record 46,000;
  • Announced Covidien's intentions to pursue a supplementary New Drug Application (sNDA) regulatory pathway in the U.S. for Pennsaid 2% (formerly Pennsaid Viscous Solution) for the treatment of osteoarthritis (OA) of the knee. Covidien has advised that this could allow for an earlier approval than its previous 505(b)(2) regulatory strategy; and
  • Received the customary set of mid-cycle review questions from European Union regulatory authorities regarding Pliaglis.  Based on review of the questions, the Company believes that Pliaglis® remains on track for regulatory approval and launch in a number of E.U. countries in 2012.

"In the third quarter, we made progress with all three of our key commercial stage products. Pennsaid U.S. sales have continued to increase, we advanced our plans to relaunch Synera in the U.S. and we are progressing through the regulatory progress towards Pliaglis' approval and launch in the U.S. and Europe," said Dan Chicoine, Chairman and Co-Chief Executive Officer of Nuvo Research. "We look forward to achieving important value-creating events in the remainder of 2011 and through 2012, as we continue toward our goal of making Nuvo a successful specialty pharmaceutical company."

Pennsaid U.S.

During the third quarter of 2011, U.S. prescriptions of Pennsaid grew 14% quarter-over-quarter to a record of approximately 46,000 prescriptions according to IMS Health.  Since the launch of the product in the U.S. by Covidien in late April 2010, prescriptions have increased in each successive quarter.  Data from IMS Health indicates that on average 1.29 bottles of Pennsaid per script were dispensed in the third quarter.

Operating Results

Revenue, consisting of product sales, royalties, license fee revenue and research and other contract revenue for the three months ended September 30, 2011 increased slightly to $4.0 million compared to $3.9 million for the three months ended September 30, 2010.  In the current quarter, the increased royalty revenue earned on Pennsaid sales in the U.S. and Canada and Synera® sales in Europe offset a decrease in product sales.  The decrease in product sales in the quarter is primarily related to a $0.9 million decrease in sales to our Greek distributor as all topical antirheumatics, including Pennsaid lost government reimbursement in the first half of 2011 through one of Greece's austerity measures and sales for the entire class have declined materially.  Total revenue for the nine months ended September 30, 2011 was $11.5 million compared to $12.2 million for the nine months ended September 30, 2010.

For the three months ended September 30, 2011, the Company reported a negative gross margin on product sales of $0.3 million compared to a positive gross margin of $0.9 million for the three months ended September 30, 2010. The decrease in gross margin was primarily attributable to a significant change in the mix of Pennsaid produced and sold by the Company's manufacturing facility.  The reasons for this mix change are the lower sales in Greece and the sale of low margin sample formats to Covidien. In addition, the impact of the newly acquired Synera brand which has negative gross margins at current sales levels given certain fixed costs attributable to the brand and the requirement to record the initially acquired inventory at net realizable value and not its cost also contributed to the negative gross margin.  For the nine months ended September 30, 2011, gross margin on product sales was $1.2 million compared to $3.1 million for the nine months ended September 30, 2010.

Total operating expenses decreased to $4.3 million and $13.5 million for the three and nine months ended September 30, 2011 compared to $4.8 million and $14.0 million for the three and nine months ended September 30, 2010.

R&D expenses decreased to $1.5 million and $5.6 million for the three and nine months ended September 30, 2011 compared to $2.9 million and $7.6 million for the three and nine months ended September 30, 2010.  The decreases in the three and nine months ended September 30, 2011 primarily related to the closure of the Company's San Diego research facility at the end of January 2011 and a corresponding reduction in the size of the Company's early stage R&D team.

SG&A expenses increased to $2.8 million for the three months ended September 30, 2011 compared to $1.9 million for the three months ended September 30, 2010.  SG&A expenses increased to $7.9 million for the nine months ended September 30, 2011 compared to $6.4 million for the nine months ended September 30, 2010.  The increase is primarily related to the infrastructure and integration costs associated with the ZARS acquisition and initial preparations for the broader commercialization of Synera in the U.S.

Net losses were $2.2 million and $5.1 million for the three and nine months ended September 30, 2011 compared to $2.4 million and $11.7 million for the three and nine months ended September 30, 2010.  In the nine month period, the significant reduction in net loss is related to a $1.8 million gain recognized on the change in terms of the contingent consideration related to the ZARS acquisition in 2011 and a $3.5 million loss reported in the prior year on the early redemption of debentures in the quarter ended March 31, 2010.

Cash and cash equivalents were $18.0 million as at September 30, 2011.

Cash used in operating activities was $3.2 million for the three months ended September 30, 2011 compared to $1.9 million for the three months ended September 30, 2010.  The increase relates to an investment in non-cash working capital in the current quarter compared to a recovery in the comparative period caused primarily by the payment of accounts payable acquired as part of the ZARS acquisition.  For the nine months ended September 30, 2011, cash used in operating activities was $8.6 million compared to $10.0 million for the nine months ended September 30, 2010.  The improvement relates to a significantly lower net loss and a smaller investment in non-cash working capital.

Subsequent to quarter end the company received feedback from the FDA that will help it prioritize development plans for the many products in its pipeline, specifically those for Synera, this feedback also triggered one of the milestone payments to ZARS' former shareholders.  As a result, Nuvo will issue an additional 13.25 million shares during the fourth quarter.

The number of common shares outstanding as at September 30, 2011 was 518.2 million.

Management to Host Conference Call

Management will host a conference call to discuss the third quarter results on Friday, November 4, 2011 at 8:30 a.m. ET.  Following management's presentation, there will be a question and answer session, at which time the operator will direct participants to the correct procedure for submitting questions. To participate in the conference call, please dial 647-427-7450 or 1-888-231-8191. Please call in 15 minutes prior to the call to secure a line. You will be put on hold until the conference call begins.

A taped replay of the conference call will be available two hours after the live conference call and will be accessible until Friday, November 11, 2011 by calling 416-849-0833 or 1-855-859-2056, reference number 12674504.

A live audio webcast of the conference call will be available through www.nuvoresearch.com. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to hear the webcast.

About Nuvo Research Inc.

Nuvo Research is a publicly traded, Canadian specialty pharmaceutical company, headquartered in Mississauga, Ontario.  The Company is building a portfolio of products for the treatment of pain through internal research and development and by in-licensing and acquisition.  The Company's Pain Group, located in West Chester, Pennsylvania, is focused on the development and commercialization of topically delivered pain products.  The Company's product portfolio includes Pennsaid, Pliaglis and Synera.  Pennsaid, a topical non-steroidal anti-inflammatory drug (NSAID), is used to treat the signs and symptoms of osteoarthritis of the knee.  Pennsaid is sold in the United States by Mallinckrodt Inc., a Covidien company (NYSE: COV), in Canada by Paladin Labs Inc. (TSX:PLB) and in several European countries. Pliaglis is a topical local anesthetic cream, which is U.S. Food and Drug Administration (FDA) approved to provide topical local analgesia for superficial dermatological procedures.  The Company has licensed worldwide marketing rights to Pliaglis to Galderma Pharma S.A., a global specialty pharmaceutical company focused on dermatology.  Synera is a topical patch that combines lidocaine, tetracaine and heat, approved in the United States to provide local dermal analgesia for superficial venous access and superficial dermatological procedures and in Europe, for surface anaesthesia of normal intact skin.  Nuvo currently markets Synera in the United States and its licensing partner, EuroCept International B.V., has initiated a pan-European launch of Synera (under the name Rapydan) in several European countries.  Through its subsidiary, Nuvo Research GmbH, based in Leipzig, Germany, the Company is also developing the compound WF10, for the treatment of immune related diseases.  For more information, please visit www.nuvoresearch.com.

Forward-Looking Statements

This document contains forward-looking statements. Some forward-looking statements may be identified by words like "expects", "anticipates", "plans", "intends", "indicates" or similar expressions. These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Nuvo considers the assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared, but caution that these assumptions regarding future events, many of which are beyond the control of the Company, may ultimately prove to be incorrect. Factors and risks, which could cause actual results to differ materially from current expectations, are discussed in the annual report, as well as in Nuvo's Annual Information Form for the year ended December 31, 2010.  Nuvo disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information or future events, except as required by law. For additional information on risks and uncertainties relating to these forward looking statements, investors should consult the Company's ongoing quarterly filings, annual report and Annual Information Form and other filings found on SEDAR at www.sedar.com.

NUVO RESEARCH INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
       
Unaudited   As at September 30,
2011
As at December 31,
2010
(Canadian dollars in thousands)   $ $
ASSETS      
CURRENT      
Cash and cash equivalents   18,038 28,269
Accounts receivable   2,910 3,100
Inventories   1,914 1,716
Other current assets   1,255 2,143
TOTAL CURRENT ASSETS   24,117 35,228
       
Property, plant and equipment   2,141 2,016
Intangible assets   17,368 -
Goodwill   4,636 -
TOTAL ASSETS   48,262 37,244
       
LIABILITIES AND EQUITY      
CURRENT      
Accounts payable and accrued liabilities   4,834 4,203
Deferred revenue   2,074 1,056
Current portion of finance lease obligations   3 63
TOTAL CURRENT LIABILITIES   6,911 5,322
Deferred revenue   483 739
Finance lease obligations   9 11
TOTAL LIABILITIES   7,403 6,072
       
EQUITY      
Equity attributable to owners of the parent      
Common shares   226,364 216,864
Contributed surplus   16,470 12,885
Accumulated other comprehensive income (AOCI)   1,558 (257)
Deficit   (201,710) (197,617)
    42,682 31,875
Non-controlling interest   (1,823) (703)
TOTAL EQUITY   40,859 31,172
TOTAL LIABILITIES AND EQUITY   48,262 37,244

NUVO RESEARCH INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS  
Unaudited Three Months Ended
September 30,
Nine Months Ended
September 30,
  2011 2010 2011 2010
(Canadian dollars in thousands, except per share and share figures) $ $ $ $
REVENUE        
Product sales 1,758 2,601 6,337 9,179
Cost of goods sold 2,026 1,673 5,104 6,036
Gross margin on product sales (268) 928 1,233 3,143
         
Other revenue        
Royalties 1,504 648 3,887 836
Licensing fees 588 560 1,096 1,680
Research and other contract revenue 107 80 223 489
  1,931 2,216 6,439 6,148
EXPENSES        
Research and development 1,488 2,936 5,614 7,556
Selling, general and administrative expenses 2,772 1,860 7,926 6,414
  4,260 4,796 13,540 13,970
Foreign currency loss (gain) (131) (176) (157) 342
Interest expense 7 3 9 66
Interest income (32) (61) (131) (103)
Gain on ZARS contingent consideration - - (1,770) -
Loss on early redemption of debentures - - - 3,547
Net loss before income taxes (2,173) (2,346) (5,052) (11,674)
Income taxes 30 16 74 21
NET LOSS (2,203) (2,362) (5,126) (11,695)
Other comprehensive income (loss)        
Unrealized gains (losses) on translation of foreign operations 1,710 108 1,728 (48)
TOTAL COMPREHENSIVE LOSS (493) (2,254) (3,398) (11,743)
         
Net loss attributable to:        
Owners of the parent (1,747) (2,125) (4,093) (10,944)
Non-controlling interest (456) (237) (1,033) (751)
  (2,203) (2,362) (5,126) (11,695)
Total comprehensive loss attributable to:        
Owners of the parent (41) (1,927) (2,278) (11,047)
Non-controlling interest (452) (327) (1,120) (696)
  (493) (2,254) (3,398) (11,743)
Net loss per common share - basic and diluted (0.004) (0.006) (0.011) (0.028)
Average number of common shares outstanding
- basic and diluted (millions)
518.4 417.3 470.1 411.8

NUVO RESEARCH INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
Unaudited   Three months ended
September 30
Nine months ended
September 30
    2011 2010 2011 2010
(Canadian dollars in thousands) Notes $ $ $ $
OPERATING ACTIVITIES          
Net loss   (2,203) (2,362) (5,126) (11,695)
Items not involving current cash flows:          
  Loss on early redemption of debentures 13 - - - 3,547
  Gain on ZARS contingent consideration 5 - - (1,770) -
  Depreciation and amortization 16 279 144 595 371
  Deferred license revenue recognized 11 (588) (560) (1,096) (1,680)
  Deferred royalty revenue, net of royalties earned 11 (93) 885 (261) 697
  Stock-based compensation 14 128 76 324 132
  Unrealized foreign exchange loss (gain)   254 (59) 197 365
  Other   5 (18) 13 40
    (2,218) (1,894) (7,124) (8,223)
Net change in non-cash working capital 17 (985) 5 (1,503) (1,808)
CASH USED IN OPERATING ACTIVITIES   (3,203) (1,889) (8,627) (10,031)
INVESTING ACTIVITIES          
Acquisition of ZARS Pharma, Inc. 5 - - 1,477 -
Share issuance fees on acquisition of ZARS Pharma, Inc. 5 (67) - (67) -
Acquisition of property, plant and equipment   (34) (192) (114) (796)
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES   (101) (192) 1,296 (796)
FINANCING ACTIVITIES          
Repayment of acquired debt 5 - - (3,022) -
Issuance of common shares   - - 29 5
Repayments of finance lease obligations   (1) (19) (62) (57)
CASH USED IN FINANCING ACTIVITIES   (1) (19) (3,055) (52)
Effect of exchange rate changes on cash and cash equivalents   118 118 155 (338)
Net change in cash and cash equivalents during the period   (3,187) (1,982) (10,231) (11,217)
Cash and cash equivalents, beginning of period   21,225 32,867 28,269 42,102
CASH AND CASH EQUIVALENTS, END OF PERIOD   18,038 30,885 18,038 30,885
           
Interest paid   1 3 4 58
Interest received   36 50 135 90
Income taxes paid   21 - 63 -

 

SOURCE Nuvo Research Inc.

For further information:

Investor Relations John Woolford Westwicke Partners, LLC Tel:  (443) 213-0506 email: john.woolford@westwicke.com

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Nuvo Research Inc.

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