Nuvo announces second quarter 2008 financial results



    MISSISSAUGA, ON, July 31 /CNW/ - Nuvo Research Inc. (TSX: NRI), a
Canadian drug development company focused on the research and development of
drug products that are delivered to and through the skin using its topical and
transdermal drug delivery technologies, today announced its financial and
operational results for the three and six months ended June 30, 2008.

    
    Key Corporate Developments:

    -  The Company remains on track to resubmit its Pennsaid application to
       the U.S. FDA in early 2009 and to be eligible to receive final U.S.
       marketing approval six months later. It has completed the majority of
       the non-clinical studies that it is conducting to respond to
       conditions raised in the FDA's Approvable Letter. No major issues have
       been identified in the completed studies. The remaining studies are
       ongoing;
    -  Revenue for the three-months ended June 30, 2008 increased 45% to
       $2.1 million compared with $1.4 million for the three-months ended
       June 30, 2007. The significant increase is due primarily to a
       $0.6 million increase in Pennsaid product sales to the Company's Greek
       distributor;
    -  The Company in-licensed from Paladin Labs Inc. (TSX: PLB) ("Paladin")
       the exclusive rights to develop and commercialize a novel topical pain
       formulation with the potential to treat inflammatory and neuropathic
       pain conditions. As part of the transaction, Paladin invested
       $1.0 million in Nuvo by way of a private placement for common shares
       and warrants; and,
    -  Subsequent to the end of the fiscal quarter, the Company further
       strengthened its cash position by restructuring its Canadian
       distribution agreement with Squire Pharmaceuticals Inc. ("Squire"), a
       subsidiary of Paladin. The Company received a $2.5 million payment in
       lieu of future payments related to Canadian Pennsaid sales and an
       additional $2.0 million through the issuance of a convertible
       debenture. These transactions extend the Company's cash financial
       runway beyond mid 2009 when it expects to receive U.S. FDA approval of
       Pennsaid, a topical non-steroidal anti-inflammatory drug (NSAID) used
       to treat the pain and stiffness associated with knee osteoarthritis.

    "Quarter by quarter, we are steadily moving closer to our goal of
achieving Pennsaid's approval in the U.S., while ensuring we have suitable
cash resources beyond this milestone," said Henrich Guntermann, President and
Chief Executive Officer, "At the same time, we are excited about our expanding
pipeline, which we strengthened in the second quarter through internal
research and development activities and by our agreement to in-license the
exclusive rights to develop and commercialize a novel, early stage topical
pain formulation."

    Financial Results

    (thousands of     Three months  Three months    Six months    Six months
     Canadian dollars)       ended         ended         ended         ended
                           June 30,      June 30,      June 30,      June 30,
                              2008          2007          2008          2007
    -------------------------------------------------------------------------
    Revenue              $   2,085     $   1,435     $   4,321     $   2,413
    Net loss             $  (2,864)    $  (3,034)    $  (5,135)    $  (6,521)
    -------------------------------------------------------------------------
    

    Revenue for the three-months ended June 30, 2008 increased 45% to
$2.1 million compared with $1.4 million for the three-months ended June 30,
2007. The significant increase is due primarily to a $0.6 million increase in
Pennsaid product sales to the Company's Greek distributor and an increase in
sales of WF10 based products. Revenue for the six-months ended June 30, 2008
increased 79% to $4.3 million compared with $2.4 million for the six-months
ended June 30, 2007. The increase is primarily due to significantly higher
sales of Pennsaid to our Greek distributor which launched Pennsaid in the
first half of 2007 and higher sales to our Canadian distributor.
    As a result of the increased sales volumes, gross margin on product sales
improved significantly to $0.8 million and $1.7 million for the three and
six-months ended June 30, 2008 compared to $0.1 million in both the three and
six-month periods ended June 30, 2007.
    Total operating expenses, excluding foreign currency gains and losses,
for three and six-months ended June 30, 2008 were $3.9 million and
$7.6 million, an increase from $3.6 million and $7.3 million for three and
six-months ended June 30, 2007. The increase in the three and six-month
periods is due to higher spending on research and development activities. This
highlights the impact of the Company's efforts during the third and fourth
quarters of 2007 to focus its resources on research activities rather than
administrative costs. For the six-month period, research and development
expenditures represented 56% of operating expenses (before currency gains and
losses) versus 47% in the comparative six-month period of 2007.
    Research and development expenses were $2.1 million and $4.2 million for
the three and six-months ended June 30, 2008 an increase of 24% and 22%
compared with $1.7 million and $3.5 million for the three and six-months ended
June 30, 2007. The majority of spending for the current three and six-month
periods is related to the on-going studies to address the conditions raised by
the FDA in the Pennsaid Approvable Letter. During the first two quarters, the
Company made excellent progress towards the completion of several of the Short
and Long Term Studies required for the Complete Response.
    SG&A expenses decreased to $1.2 million and $2.3 million for the three
and six-months ended June 30, 2008, compared to $1.3 million and $2.8 million
for the three and six-months ended June 30, 2007. The decrease is primarily
attributable to activities undertaken during the third and fourth quarters of
2007 including the closure of the Company's international marketing office in
Barbados and staff reductions at the corporate head office.
    For the three-months ended June 30, 2008 the net loss declined slightly
to $2.9 million from $3.0 million for the three-months ended June 30, 2007.
The Company was able to reduce the net loss as higher research and development
expenditures and foreign exchange losses were more than offset by the
increased gross margin generated from higher product sales and a reduction in
SG&A costs. For the six-months ended June 30, 2008 the net loss declined by
21% to $5.1 million from $6.5 million for the six-months ended June 30, 2007.
    Cash used in operations was $2.6 million for the three-months ended
June 30, 2008 compared to $2.8 million for the three-months ended June 30,
2007. The decrease of 9% was primarily the result of the reduced net loss
during the quarter. Overall, cash used in operating activities decreased to
$2.3 million for the three-months ended June 30, 2008 versus $3.5 million for
the three-months ended June 30, 2007 as the Company's investment in non-cash
working capital improved significantly. For the six-month period ended June
30, 2008 funds used in operating activities decreased to $5.2 million from
$6.5 million for the six-month period ended June 30, 2007 primarily due to the
smaller loss in the period.
    Net cash used in investing activities totaled $57,000 and $56,000 for the
three and six-months ended June 30, 2008 compared with $189,000 for both the
three and six-months ended June 30, 2007. The investment in the quarter
relates to the acquisition of a new data management and biostatistics computer
system. The Company also invested $191,000 in new laboratory equipment during
the quarter at its San Diego research facility that was financed through the
use of capital leases and acquired a sublicense to a patent related to its
topical and transdermal drug delivery pipeline in exchange for 961,538 common
shares of the Company having a value of $125,000.
    Net cash provided by financing activities totaled $0.9 million for the
three-months ended June 30, 2008, compared to net cash used in financing
activities of $0.2 million for the three-months ended June 30, 2007. During
the quarter, the Company closed a private placement equity financing. At
closing, a total of 7.7 million shares and 769,230 common share purchase
warrants of the Company, each whole warrant entitling the holder thereof to
acquire one common share at a price of $0.169 per share until May 29, 2010
were issued for gross proceeds of $1 million. Once expenses associated with
the financing were deducted, net cash proceeds were $947,000. These proceeds
were partially offset by scheduled long term debt and capital lease payments.
In the comparable period last year, net cash used in financing activities
related to scheduled debt repayments.
    Net cash provided by financing activities totaled $0.9 million for the
six-months ended June 30, 2008, compared to $4.8 million for the six-months
ended June 30, 2007. For the current period, the net cash provided by
financing activities relates to the financing discussed above and scheduled
debt repayments. In the comparable period last year, net cash provided by
financing activities totaled $5.0 million and consisted of $5.3 million in
proceeds from the exercise of warrants offset by $328,000 in debt repayments.

    Subsequent Events

    On July 7, 2008 Paladin demanded repayment of the December 2006
Convertible debenture in the amount of $500,000 as per its rights under the
terms of the debenture and the Company paid the amount in full. In addition,
the Company repaid the $250,000 upfront payment for Pennsaid Plus received
from Paladin as per the terms of the Pennsaid Plus License Agreement as it did
not reach a required milestone by May 21, 2008.
    Additionally, the Company and its Canadian distributor, Paladin, reached
an agreement to amend the Pennsaid and Pennsaid Plus licensing arrangements.
Under the terms of the new arrangements Paladin's wholly owned subsidiary,
Squire, agreed to make payments totaling $2.5 million to the Company in lieu
of future payments relating to Canadian sales of Pennsaid prior to January 1,
2011 and to repay certain receivables. Subsequent to January 1, 2011, Squire
will pay the Company a royalty on all Canadian sales of Pennsaid. Squire also
invested $2.0 million in the Company by way of a two-year convertible
debenture. This debenture bears interest at 8% per annum and is convertible
into Nuvo common shares at a price of $0.138.
    On July 29, 2008, Paladin informed the Company that it had received
notices of reassessment from the Canada Revenue Agency related to Squire
(formerly Dimethaid Health Care Ltd. ("DHCL")) for the 2005 and 2006 tax years
(the "Tax Years"). These reassessments contained adjustments relating to
transactions occurring in 2005. Under the terms of the August 2005 agreement
(the "Sale Agreement") whereby the Company sold DHCL to Paladin, the Company
provided certain indemnities (the "Indemnities") related to DHCL's tax assets.
The Company disagrees with the position taken by the CRA, believes it is
without merit and intends to contest the reassessment. The Company estimates
its obligations under the Indemnities to be in the range of $3.5 million to
$4.5 million, plus interest and penalties of approximately $1.7 million
related to the Tax Years. In addition, the Company expects the obligation
under the Indemnities to increase once interest and penalties are assessed on
Squire's 2007 tax filings. The CRA may take action to immediately collect 50%
of the reassessed amount from Squire for the Tax Years as it is permitted to
do. As a result, Squire may make a claim of approximately $1.5 million under
the Indemnities.
    Detailed financial statements and the MD&A are available at
www.nuvoresearch.com or www.sedar.com.

    About Pennsaid

    Pennsaid(R) is a topical non-steroidal anti-inflammatory drug (NSAID)
used for the treatment of osteoarthritis and is currently approved for sale in
Canada and several European countries. Pennsaid(R) allows the diclofenac
solution to be delivered to a specific site via the surface of the skin and
thus limits complications associated with systemic delivery. According to
published clinical trials, Pennsaid(R) is as effective as the maximum daily
dose of comparable oral medication at relieving pain and stiffness associated
with osteoarthritis of the knee, as well as improving overall well-being.
There are more than 21 million Americans suffering from osteoarthritis, a very
painful and debilitating condition, and the United States market for this
condition is estimated at US$4 billion annually. In December 2006, the U.S.
Food and Drug Administration issued an approvable letter that indicated
Pennsaid(R) is approvable subject to Nuvo satisfying certain conditions.

    About Nuvo Research Inc.

    Nuvo is a Canadian drug development company primarily focused on the
research and development of drug products that are delivered to and through
the skin. Nuvo is also involved in research and development activities
involving WF10, a chlorite-based, immunomodulating drug through its 60%
interest in Dimethaid AG.
    Nuvo believes it is uniquely positioned to research and develop new drug
product candidates for delivery to and through the skin using its multiplexed
molecular penetration enhancers ("MMPE(TM)"s), that interact with the skin and
enhance its permeability thereby allowing certain drug molecules to pass into
and through the skin to proximate tissues and its high throughput
experimentation systems that allow its scientists to rapidly screen
combinations of existing molecular penetration enhancers ("MPE(TM)s") with
large numbers of potential drug formulations to measure their ability to
permeabilize and permeate the skin. Nuvo's lead product Pennsaid(R), a topical
non-steroidal anti-inflammatory drug (NSAID) utilizes the Company's technology
to treat the symptoms of osteoarthritis of the knee locally. Nuvo intends to
leverage its technologies to create a portfolio of topical and transdermal
products targeting a variety of indications. Nuvo Research Inc. is a publicly
traded company headquartered in Mississauga, Ontario, with manufacturing
facilities in Varennes, Québec and Wanzleben, Germany and a research and
development facility in San Diego, California. For more information, please
visit www.nuvoresearch.com.

    This release may contain forward-looking statements, subject to risks and
uncertainties beyond management's control. Actual results could differ
materially from those expressed here. Risk factors are discussed in the
Company's annual information form filed with the securities commissions in
each of the provinces of Canada. The Company undertakes no obligation to
revise forward-looking statements in light of future events.

    Summary financial statements attached:

    
                         CONSOLIDATED BALANCE SHEETS

                                                         As at         As at
                                                       June 30,  December 31,
                                                          2008          2007
                                                     Unaudited       Audited
    (thousands of Canadian dollars)                          $             $
    -------------------------------------------------------------------------

    ASSETS
    CURRENT
    Cash and cash equivalents                           17,348        21,791
    Accounts receivable                                  1,375         1,802
    Other receivable                                       579           579
    Inventories                                          1,523         1,042
    Prepaid expenses and other                             663           789
    -------------------------------------------------------------------------
    TOTAL CURRENT ASSETS                                21,488        26,003

    Restricted cash                                         88            79
    Property, plant and equipment                        2,317         2,475
    Intangible assets                                      208            90
    -------------------------------------------------------------------------
    TOTAL ASSETS                                        24,101        28,647
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT
    Accounts payable and accrued liabilities             1,972         2,994
    Short term loan                                        662           587
    Deferred revenue                                     1,000         1,211
    Current portion of long term debt and
     capital lease obligations                             159            94
    Current portion of debentures                          500           500
    -------------------------------------------------------------------------
    TOTAL CURRENT LIABILITIES                            4,293         5,386
    Deferred revenue                                     4,669         5,169
    Long term debt and capital lease obligations           320           222
    Debentures                                           2,440         2,006
    -------------------------------------------------------------------------
    TOTAL LIABILITIES                                   11,722        12,783
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY
    Common shares                                      189,147       187,877
    Warrants                                            10,847        11,243
    Contributed surplus                                  6,446         5,670
    Accumulated other comprehensive income                 114           114
    Deficit                                           (194,175)     (189,040)
    -------------------------------------------------------------------------
    TOTAL SHAREHOLDERS' EQUITY                          12,347        15,864
    -------------------------------------------------------------------------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY          24,101        28,647
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


       CONSOLIDATED STATEMENTS OF LOSS, COMPREHENSIVE LOSS AND DEFICIT

                                    Three-months             Six-months
    Unaudited                           ended                   ended
    (thousands of Canadian       June 30,    June 30,    June 30,    June 30,
     dollars except per             2008        2007        2008        2007
     share amounts)                    $           $           $           $
    -------------------------------------------------------------------------
    REVENUE
    Product sales                  1,795       1,067       3,770       1,769
    Cost of goods sold             1,001         921       2,085       1,676
    -------------------------------------------------------------------------
    Gross margin on product
     sales                           794         146       1,685          93

    Other revenue
    Licensing fees                   250         250         500         500
    Research and other contract
     revenue                          40         118          51         144
    -------------------------------------------------------------------------
                                   1,084         514       2,236         737
    -------------------------------------------------------------------------

    EXPENSES
    Research and development       2,133       1,716       4,237       3,462
    Selling, general and
     administrative expenses       1,162       1,333       2,286       2,780
    Stock-based compensation         216         211         366         374
    Amortization of property,
     plant, and equipment
     and intangibles                 207         215         412         426
    Foreign currency (gain) loss      36         (91)       (243)        (81)
    Interest expense                 325         273         628         539
    Interest income                 (131)       (109)       (315)       (242)
    -------------------------------------------------------------------------
                                   3,948       3,548       7,371       7,258
    -------------------------------------------------------------------------
    Net Loss for the period and
     total comprehensive loss     (2,864)     (3,034)     (5,135)     (6,521)

    Deficit,
     beginning of period        (191,311)   (180,151)   (189,040)   (176,664)
    -------------------------------------------------------------------------
    DEFICIT, END OF PERIOD      (194,175)   (183,185)   (194,175)   (183,185)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average number of basic
     and diluted common shares
     outstanding for the
     period (millions)             303.1       197.1       301.3       194.9
    -------------------------------------------------------------------------
    Net loss per common share
     - basic and diluted           (0.01)      (0.01)      (0.02)      (0.03)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                    Three-months             Six-months
                                        ended                   ended
    Unaudited                    June 30,    June 30,    June 30,    June 30,
    (thousands of Canadian          2008        2007        2008        2007
      dollars)                         $           $           $           $
    -------------------------------------------------------------------------

    OPERATING ACTIVITIES
    Net loss                      (2,864)     (3,034)     (5,135)     (6,521)
    Items not involving current
     cash flows:
      Amortization                   207         215         412         426
      Deferred revenue
       recognized                   (450)       (309)       (711)       (585)
      Stock-based compensation
       and payments                  216         211         366         506
      Accretion of interest on
       debentures                    227         158         434         303
      Other                           91         (57)       (261)        (69)
    Net change in non-cash
     working capital balances        284        (685)       (342)       (525)
    -------------------------------------------------------------------------
    CASH USED IN OPERATING
     ACTIVITIES                   (2,289)     (3,501)     (5,237)     (6,465)
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
    Acquisition of property,
     plant and equipment             (57)       (189)        (84)       (189)
    Proceeds from sale of assets       -           -          28           -
    -------------------------------------------------------------------------
    CASH USED IN INVESTING
     ACTIVITIES                      (57)       (189)        (56)       (189)
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
    Issuance of common shares
     and warrants, net of
     related costs                   947           -         947       5,330
    Repayments of long term
     debt and capital lease
     obligations                     (16)       (227)        (60)       (555)
    -------------------------------------------------------------------------
    CASH PROVIDED BY (USED IN)
     FINANCING ACTIVITIES            931        (227)        887       4,775
    -------------------------------------------------------------------------
    Effect of exchange rate
     changes on cash and cash
     equivalents                    (298)        (71)        (37)        (76)
    -------------------------------------------------------------------------
    Net decrease in cash and
     cash equivalents during
     the period                   (1,713)     (3,988)     (4,443)     (1,955)
    Cash and cash equivalents,
     beginning of period          19,061      13,246      21,791      11,213
    -------------------------------------------------------------------------

    CASH AND CASH EQUIVALENTS,
     END OF PERIOD                17,348       9,258      17,348       9,258
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Interest paid                    128         121         154         164
    -------------------------------------------------------------------------
    

    %SEDAR: 00002418E




For further information:

For further information: Investor Relations: Adam Peeler, Equicom Group
Inc., (416) 815-0700 x225, apeeler@equicomgroup.com

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