Nuvo Research announces 2010 first quarter financial results

MISSISSAUGA, ON, April 29 /CNW/ - Nuvo Research Inc. (TSX: NRI), a drug development company focused on the research and development of drug products that are delivered into and through the skin using its topical and transdermal drug delivery technologies, and on the development of its immune modulating drug candidate WF10, today announced its financial and operational results for the first quarter ended March 31, 2010.

    
    Key Corporate Developments:

    -   Made our first shipments of Pennsaid into the U.S. to stock the
        distribution network in advance of the Pennsaid U.S. launch;

    -   Subsequent to quarter end, announced that Mallinckrodt Inc., a
        subsidiary of Covidien, commenced selling Pennsaid in the United
        States. Nuvo will receive royalties on net U.S. sales of Pennsaid at
        rates that are consistent with industry standards. Nuvo will also be
        eligible to receive sales milestone payments totaling up to US$100
        million if certain U.S. sales levels are achieved;

    -   Commenced enrolment of patients in its European Phase 2 clinical
        trial evaluating WF10 as a treatment for allergic rhinitis; and

    -   Announced that all outstanding convertible debentures were converted
        into common shares pursuant to Nuvo's notice of redemption to holders
        of its 5% convertible debentures; the initiative removed
        substantially all debt from Nuvo's balance sheet and eliminated the
        obligation to make future interest payments.
    

"We are extremely optimistic about the Company's opportunity to leverage revenues derived from Pennsaid's U.S. sales to support our continued growth as a leader in the development of new pain medications." said Dan Chicoine, Chairman and Co-Chief Executive Officer of Nuvo Research.

    
    Financial Results:
    (thousands of Canadian dollars)
    -------------------------------------------------------------------------
                                                        THREE MONTHS ENDED
                                                             MARCH 31,
                                                      -----------------------
                                                          2010        2009
                                                      -----------  ----------
    Revenue                                             $ 4,051      $ 3,047

    Net loss                                            $(3,010)     $(2,868)
    -------------------------------------------------------------------------
    

Operating Results

Revenue consisting of product sales, license fee revenue and research and other contract revenue for the three months ended March 31, 2010 was $4.1 million compared to $3.0 million for the three months ended March 31, 2009. The increase was primarily attributable to an increase in Pennsaid product sales as the Company filled Covidien's initial orders for commercial product and marketing samples ahead of the U.S. launch of the product this month, offset partially by the significant weakening of the euro and British pound against the Canadian dollar versus a year ago.

For the three months ended March 31, 2010 the gross margin on product sales decreased to $1.1 million compared to $1.2 million for the three months ended March 31, 2009. The gross margin was the second largest achieved by Nuvo with the largest being the $1.2 million in the comparative period. In the comparative period, the gross margin was unusually high as the Canadian manufacturing facility operated near full capacity as it built an inventory of finished product ahead of the Company's planned eight week shutdown in the second quarter of 2009 to expand capacity in anticipation of a U.S. launch. The decrease in the current period is attributable to the negative impact of the significant weakening of the euro and British pound against the Canadian dollar and the sale of marketing samples to Covidien for the upcoming U.S. launch of the product in the second quarter. The marketing samples have a lower contribution margin than the Company's other formats.

Total operating expenses, excluding foreign currency gains, for the three months ended March 31, 2010 were $5.1 million versus $4.8 million for the three months ended March 31, 2009. The increase in the quarter relates primarily to higher selling, general and administrative expenses (SG&A) offset by declines in research and development expenses, stock-based compensation, net interest expense and amortization.

Research and development expenses were $2.8 million for the three months ended March 31, 2010; a slight decrease compared to $2.9 million for the three months ended March 31, 2009. The decrease was possible as Covidien assumed responsibility for all Pennsaid and Pennsaid Plus development activities and costs subsequent to signing the licensing agreement in June 2009. Spending for the quarter was directed towards initiating and commencing enrolment in the WF10 Phase 2 clinical trial in Europe to evaluate WF10 as a treatment for allergic rhinitis, costs associated with advancing the Company's early stage pipeline candidates and the operating costs of the recently established Pain Group.

SG&A expenses increased to $2.1 million for the three months ended March 31, 2010, compared to $1.4 million for the three months ended March 31, 2009. The increase in SG&A expense is primarily attributable to consulting, professional fees and other fees relating to the Company's business development activities aimed at expanding its drug development pipeline.

Net interest expense was $34,000 for the three months ended March 31, 2010 compared to $212,000 for the three months ended March 31, 2009. The decrease in the period is attributable to lower non-cash accretion charges and cash interest payments on the convertible debentures due to the conversion of all outstanding debentures into common shares during 2009 and the first quarter of 2010.

Net loss was $3.0 million for the three months ended March 31, 2010 was only marginally larger than the $2.9 million loss for the three months ended March 31, 2009. Basic loss per share was $0.01 in both periods while the average basic number of shares outstanding increased to 400.7 million primarily as a result of the conversion of the debentures during the quarter and shares issued over the past year on the exercise of warrants.

Cash and cash equivalents were $36.3 million as at March 31, 2010 compared to $42.1 million as at December 31, 2009, primarily as a result of the $3.0 million loss and an investment in non-cash working capital to support the US launch.

Net cash used in investing activities totaled $234,000 compared to $55,000 in the three months ended March 31, 2009. The spending in 2010 was primarily for the purchase of additional production and laboratory equipment.

In the current quarter, net cash used in financing activities of $19,000 and related solely to payments on capital leases. In the prior year cash provided by financing activities totaled $2.1 million and was primarily attributable to the exercise of warrants under the early warrant exercise program.

A live audio webcast of the Nuvo Annual and Special Meeting of Shareholders will take place on April 29, 2010 at 9:00 a.m. ET. The webcast is available at www.nuvoresearch.com. The webcast will be archived for 6 months on the Nuvo website.

About Nuvo Research Inc.

Nuvo is primarily focused on the research and development of drug products delivered into and through the skin using its topical and transdermal drug delivery technologies, and on the development of its immune modulating drug candidate WF10. Nuvo's lead product is Pennsaid, a topical non-steroidal anti-inflammatory drug (NSAID), which is sold in Canada, several European countries and now the United States. Pennsaid was approved for marketing in the U.S. by the FDA on November 4, 2009. Nuvo intends to leverage its skin-penetrating technologies to create a portfolio of topical and transdermal products targeting a variety of indications. Nuvo is a publicly traded, Canadian pharmaceutical company headquartered in Mississauga, Ontario. Nuvo's Pain Group is located in West Chester, Pennsylvania. Its manufacturing facilities are located in Varennes, Québec and Wanzleben, Germany, and its research and development centers are located in San Diego, California and Leipzig, Germany. 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, 2009. Nuvo disclaims any intention or obligation to update or revise any forward-looking statements whether 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.
                         CONSOLIDATED BALANCE SHEETS

                                                         As at         As at
                                                      March 31,  December 31,
                                                          2010          2009

                                                     Unaudited       Audited
    -------------------------------------------------------------------------
    (Canadian dollars in thousands)                          $             $
    -------------------------------------------------------------------------
    ASSETS
    CURRENT
    Cash and cash equivalents                           36,254        42,102
    Accounts receivable                                  3,003         2,091
    Inventories                                          2,088         2,078
    Other current assets                                   989           445
    -------------------------------------------------------------------------
    TOTAL CURRENT ASSETS                                42,334        46,716

    Property, plant and equipment                        1,958         1,834
    -------------------------------------------------------------------------
    TOTAL ASSETS                                        44,292        48,550
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT
    Accounts payable and accrued liabilities             3,833         4,589
    Deferred revenue                                     1,799         2,241
    Current portion of capital lease obligations            77            79
    Current portion of debentures                            -         3,038
    -------------------------------------------------------------------------
    TOTAL CURRENT LIABILITIES                            5,709         9,947
    Deferred revenue                                       995         1,080
    Capital lease obligations                               55            65
    -------------------------------------------------------------------------
    TOTAL LIABILITIES                                    6,759        11,092
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY
    Common shares                                      216,702       210,086
    Contributed surplus                                 12,552        12,536
    Accumulated other comprehensive income                 114           114
    Deficit                                           (191,835)     (185,278)
    -------------------------------------------------------------------------
    TOTAL SHAREHOLDERS' EQUITY                          37,533        37,458
    -------------------------------------------------------------------------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY          44,292        48,550
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                             NUVO RESEARCH INC.
           CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

                                                        Three months ended
                                                      March 31,     March 31,
    Unaudited                                             2010          2009
    -------------------------------------------------------------------------
    (Canadian dollars in thousands,
     except per share and share figures)                     $             $
    -------------------------------------------------------------------------
    REVENUE
    Product sales                                        3,267         2,383
    Cost of goods sold                                   2,192         1,134
    -------------------------------------------------------------------------
    Gross margin on product sales                        1,075         1,249

    Other revenue
    Licensing fees                                         560           560
    Research and other contract revenue                    224           104
    -------------------------------------------------------------------------
                                                         1,859         1,913
    -------------------------------------------------------------------------

    EXPENSES
    Research and development                             2,810         2,934
    Selling, general and administrative expenses         2,089         1,363
    Stock-based compensation                                16           132
    Amortization of property, plant, and equipment         118           149
    Foreign currency gain                                 (198)           (9)
    Interest expense                                        60           246
    Interest income                                        (26)          (34)
    -------------------------------------------------------------------------
                                                         4,869         4,781
    -------------------------------------------------------------------------

    NET LOSS AND TOTAL COMPREHENSIVE LOSS               (3,010)       (2,868)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net loss per common share - basic and diluted        (0.01)        (0.01)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average number of common shares outstanding
     - basic and diluted (millions)                      400.7         319.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                              NUVO RESEARCH INC
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        Three months ended
                                                      March 31,     March 31,
    Unaudited                                             2010          2009
    -------------------------------------------------------------------------
    (Canadian dollars in thousands)                          $             $
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net loss                                            (3,010)       (2,868)
    Items not involving current cash flows:
      Amortization                                         118           149
      Deferred revenue recognized                         (560)         (560)
      Stock-based compensation                              16           132
      Deferred stock unit expense                            9            94
      Accretion of interest on debentures                   31           148
      Unrealized foreign exchange loss                     525             9
      Other                                                 (1)           16
    Net change in non-cash working capital              (2,350)         (309)
    Deferred proceeds from licensing arrangements           33            23
    -------------------------------------------------------------------------
    CASH USED IN OPERATING ACTIVITIES                   (5,189)       (3,166)
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
    Acquisition of property, plant and equipment          (234)          (55)
    -------------------------------------------------------------------------
    CASH USED IN INVESTING ACTIVITIES                     (234)          (55)
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
    Issuance of common shares, net of related costs          -         2,196
    Repayments of capital lease obligations
     and long-term debt                                    (19)          (62)
    -------------------------------------------------------------------------
    CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES        (19)        2,134
    -------------------------------------------------------------------------
    Effect of exchange rate changes on cash
     and cash equivalents                                 (406)           44
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net change in cash and cash equivalents during
     the period                                         (5,848)       (1,043)
    Cash and cash equivalents, beginning of period      42,102        15,219
    -------------------------------------------------------------------------
    CASH AND CASH EQUIVALENTS, END OF PERIOD            36,254        14,176
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Interest paid                                           53            95
    -------------------------------------------------------------------------
    

SOURCE Nuvo Research Inc.

For further information: For further information: about Nuvo, please contact: Media and Investor Relations, Adam Peeler, The Equicom Group Inc., Tel: (416) 815-0700 x225, email: apeeler@equicomgroup.com

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