NUVO RESEARCH ANNOUNCES 2010 FOURTH QUARTER AND YEAR-END FINANCIAL RESULTS

MISSISSAUGA, ON, Feb. 24 /CNW/ - Nuvo Research Inc. (TSX: NRI), a pharmaceutical company dedicated to building a portfolio of products primarily for the treatment of pain and the development of its immune modulating drug candidate WF10, today announced its financial and operational results for the fourth quarter and year ended December 31, 2010.

Fourth Quarter and Recent Corporate Developments:

  • U.S. launch of Pennsaid continued as prescriptions dispensed increased by 20% compared to the third quarter of 2010;
  • Nuvo's U.S. licensee, Mallinckrodt Inc., a Covidien (NYSE: COV) ("Covidien") company, completed enrolment subsequent to quarter end for its Phase 2 clinical study of Pennsaid Gel, a follow-on product to Pennsaid, featuring two times per day dosing (original Pennsaid dosing is four times per day) and anticipated patent protection. The trial remains on track to conclude in the first half of 2011;
  • Nuvo's European Phase 2 clinical trial evaluating WF10 as a treatment for severe allergic rhinitis met its primary endpoint. These results support the Company's view that WF10 has the potential to become an effective treatment for patients with certain autoimmune conditions, such as severe allergic rhinitis;
  • Discussions continued for possible in-licensing or acquisition of clinical stage pain assets;
  • The development of its lead preclinical pain product candidate advanced to the point where Nuvo anticipates filing an Investigational New Drug application for this product with the United States Food and Drug Administration in 2011;
  • Nuvo's U.S. subsidiary was awarded approximately US$1.3 million of grants under the U.S. Government's Qualifying Therapeutic Discovery Project (QTDP) program. The grants relate to 2009 and 2010 research programs for topical and transdermal formulations being developed by the Company; and,
  • Nuvo concluded the fourth quarter with $28.3 million in cash and cash equivalents and implemented operating cost reductions by transitioning the Company's San Diego-based research and development capabilities to Nuvo's facilities in Varennes, Québec.

"We are very pleased with the growth of Pennsaid U.S. prescriptions filled in the fourth quarter," said Dan Chicoine, Chairman and Co-Chief Executive Officer of Nuvo Research. "While the level of Pennsaid prescriptions in the most recent weeks has remained similar to those seen in the fourth quarter of 2010, we believe that as Covidien secures reimbursement arrangements with private and public insurers, most importantly Medicare, prescription growth will accelerate."

Financial Results:

(thousands of Canadian dollars)

  Three months
ended
December 31, 2010
Three months
ended
December 31, 2009
Twelve months
ended
December 31, 2010
Twelve months
ended
December 31, 2009
  $ $ $ $
Revenue 4,837 29,660 17,021 38,647
Net Income (Loss) (1,568) 22,275 (9,693) 15,018

Pennsaid U.S. Launch
Covidien launched Pennsaid in the U.S. in late April 2010.  According to IMS Health, a provider of prescription data, approximately 32,400 Pennsaid prescriptions were dispensed in the fourth quarter and approximately 67,000 in 2010.  The prescriptions dispensed in the quarter represent a 20% increase over the previous quarter.  The data also shows that approximately 1.29 bottles of Pennsaid are dispensed for each prescription. 

Operating Results
Revenue, consisting of product sales, royalties, license fee revenue and research and other contract revenue for the three months ended December 31, 2010 was $4.8 million compared to $29.7 million for the three months ended December 31, 2009.  However, the fourth quarter of 2009 included $27.3 million in-licensing fee revenue earned under the U.S. licensing agreement with Covidien (U.S. Licensing Agreement) that consisted of the $11.3 million initial payment and the $16.0 million FDA approval payment.  Excluding these one-time payments, aggregate revenue in the quarter actually increased by $2.4 million primarily driven by revenues generated from the U.S. market consisting of royalty revenue of $0.9 million and product sales of $1.5 million.

Revenue for the year ended December 31, 2010 was $17.0 million compared to $38.6 million for the year ended December 31, 2009. Excluding the one-time milestone payments, revenue increased by approximately 50% or $5.7 million compared to 2009,primarily due to revenue of $7.7 million related tosales of Pennsaid in the U.S. market, $6.0 million in product sales and $1.7 million in royalty revenue.  These sales were partially offset by lower product sales in Canada and Europe.

Gross margin on product sales increased to $0.9 million for the three months ended December 31, 2010 compared to $0.3 million for the three months ended December 31, 2009.  The increase in the current period was attributable to a significant increase in Pennsaid product sales.  For the year, gross margin on product sales was $4.0 million compared to $2.9 million for the year ended December 31, 2009.  The increase in gross margin was primarily attributable to higher Pennsaid sales, partially offset by the weakening of the euro which reducedreported European product sales. 

Total operating expenses, excluding foreign currency gains and losses, for the three months ended December 31, 2010 were $3.5 millionversus $5.5 million for the three months ended December 31, 2009.  Included in the fourth quarter of 2010,was a $1.3 million grant awarded under the U.S. Government's Qualifying Therapeutic Discovery Project (QTDP) program and the fourth quarter of 2009 included $0.6 million of costs related to the FDA approval of Pennsaid in the U.S.  Excluding these one-time items, total operating expenses decreased slightly to $4.8 million in the fourth quarter of 2010 compared to $4.9 million in the fourth quarter of 2009.  Total operating expenses, excluding foreign currency losses, for the year ended December 31, 2010 increased slightly to $17.4 million compared to $17.0 million for the year ended December 31, 2009.  The increase from 2009 related to higher SG&Aand R&D expenses and amortization expense, offset by net interest income in the current year compared to net interest expense in the comparative period. 

R&D expenses were $1.6 million for the three months ended December 31, 2010compared to $3.1 million for the three months ended December 31, 2009.  The decrease in the quarter related to the $1.3 million grant awarded under the U.S. Government's QTDP program that was recorded as a reduction to R&D expenses.  In 2010, R&D was $9.0 million compared to $8.7 million in 2009.  The increase for the year was attributable to: the costs of running the Phase 2 allergic rhinitis trial in the Immunology Group including the necessary infrastructure, key staff additions to the Pain Group and costs related to reducing the size of the formulation development team in San Diego.  These increases were substantially offset by the $1.3 million QTDP grant.

SG&A expenses declined to $1.9 million for the three months ended December 31, 2010 compared to $2.3 million for the three months ended December 31, 2009.  During the quarter, the decrease related to lower compensation expense and severance costs.  For the year ended December 31, 2010, SG&A expenses increased to $8.2 million compared to $7.4 million for the year ended December 31, 2009.  The increase was primarily attributable to consulting and professional fees related to the Company's efforts to in-license and acquire clinical stage assets. 

Net interest income was $58,000and $95,000 for the three months and year ended December 31, 2010 compared to net interest expense of $0.2 million and $0.7 million for the three months and year ended December 31, 2009.  The improvement in both periodswas attributable to lower non-cash accretion charges and cash interest payments on the convertible debentures as all outstanding debentures were converted into common shares during the first quarter of 2010.

Net loss for the quarter was $1.6 million compared to income of $22.3 million for the quarter ended December 31, 2009.  The decrease inincome of $23.9 million was primarily related to the $27.3 million in licensing fee revenue from the U.S. Licensing Agreement, offset somewhat by the QTDP grant, higher margin and lower operating costs.For the year ended December 31, 2010, the net loss was $9.7 million compared to net income of $15.0 million for the year ended December 31, 2009. 

Cash and cash equivalents were $28.3 million as at December 31, 2010. 

Cash used in operating activities of $2.3 million was significantly lower than the cash provided by operating activities of $12.9 million for the three-month period ended December 31, 2009 due to the receipt of the $16.0 million FDA approval payment from Covidien in the fourth quarter of 2009.  Overall cash used in operating activities was $12.4 million for the year ended December 31, 2010 compared to cash provided by operating activities of $16.3 million for the year ended December 31, 2009 almost entirely attributable to the two payments received under the U.S. Licensing Agreement in 2009.

Net cash used in investing activities totaled $46,000 for the three months ended December 31, 2010 compared to $58,000 in the three months ended December 31, 2009.  Net cash used in investing activities totaled $842,000 for the year ended December 31, 2010 compared to $391,000 for the year ended December 31, 2009 and in each period was entirely attributable to the acquisition of property, plant and equipment.  In 2010, capital expenditures related primarily to production automation and lab equipment acquired for the Company's Pennsaid manufacturing facility. 

Net cash provided by financing activities totaled $59,000 for the three months ended December 31, 2010, compared to $16,000 for the three months ended December 31, 2009.  For the year, net cash provided by financing activities totaled $7,000 compared to $11.5 million in the prior year.  In 2010, the cash provided by financing activities related primarily to $76,000 in employee contributions under the Share Purchase Plan, offset by regularly scheduled capital lease payments.  In 2009, net cash provided by financing activities was primarily attributable to proceeds received upon the exercise of warrants as part of, and subsequent to, the early warrant incentive program.

Management will host a conference call to discuss the fourth quarter and year-end results on February 25, 2011 at 8:30 am EST.  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, March 4, 2010 by calling 416-849-0833 or 1-800-642-1687, reference number 39060258.

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 needed to hear the webcast.

About Nuvo Research Inc.
Nuvo is a publicly traded, Canadian pharmaceutical company headquartered in Mississauga, Ontario.The Company is dedicated to 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 lead pain product is Pennsaid, a topical non-steroidal anti-inflammatory drug (NSAID), 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. Through its subsidiary Nuvo Research, AG 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.

For more information about Nuvo, please contact:

Media and Investor Relations
Adam Peeler
The Equicom Group Inc.
Tel:  (416) 815-0700 x225
email: apeeler@equicomgroup.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 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
December 31, 2010
As at
December 31, 2009
(Canadian dollars in thousands) $ $
ASSETS    
CURRENT    
Cash and cash equivalents 28,269 42,102
Accounts receivable 3,100 2,086
Inventories 1,767 2,078
Other current assets 2,143 450

TOTAL CURRENT ASSETS

35,279 46,716
     
Property, plant and equipment 2,064 1,834

TOTAL ASSETS

37,343 48,550
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
CURRENT    
Accounts payable and accrued liabilities 4,203 4,589
Deferred revenue   1,056 2,241
Current portion of capital lease obligations 63 79
Debentures - 3,038

TOTAL CURRENT LIABILITIES

5,322 9,947

Deferred revenue

739 1,080

Capital lease obligations

11 65

TOTAL LIABILITIES

6,072 11,092
     

SHAREHOLDERS' EQUITY

   
Common shares 216,864 210,086
Contributed surplus 12,811 12,536
Accumulated other comprehensive income 114 114
Deficit (198,518) (185,278)

TOTAL SHAREHOLDERS' EQUITY

31,271 37,458
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 37,343 48,550




NUVO RESEARCH INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

 
  Three months
ended December 31,
Twelve months
ended December 31,
 

2010

2009

2010

2009

 

(unaudited)

(audited)

(Canadian dollars in thousands, except per share and share figures)

$

$

$

$

REVENUE

       
Product sales 3,305 1,770 12,484 8,795
Cost of goods sold 2,433 1,515 8,521 5,902
Gross margin on product sales 872 255 3,963 2,893
         
Other revenue        
Licensing fees 561 27,873 2,241 29,553
Royalties 871 - 1,707 -
Research and other contract revenue 100 17 589 299
  2,404 28,145 8,500 32,745
         
EXPENSES        
Research and development 1,565 3,062 8,966 8,717
Selling, general and administrative expenses 1,901 2,259 8,232 7,377
Amortization of property and equipment 139 7 306 208
Foreign currency loss 403 383 741 689
Interest expense 2 173 68 815
Interest income (60) (14) (163) (79)
  3,950 5,870 18,150 17,727
         
Income (loss) before income taxes (1,546) 22,275 (9,650) 15,018
Income taxes 22 - 43 -
NET INCOME (LOSS) AND TOTAL COMPREHENSIVE INCOME (LOSS) (1,568) 22,275 (9,693) 15,018

Net income (loss) per common share

       

basic $(0.00) $0.06 $(0.02) $0.04

diluted $(0.00) $0.05 $(0.02) $0.04

Average number of common shares outstanding (millions)

       

basic 417.4 391.4 413.2 363.4




NUVO RESEARCH INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 
  Three months
ended December 31,
Twelve months
ended December 31,
 

2010

2009

2010

2009

 

(unaudited)

(audited)

(Canadian dollars in thousands)

$

$

$

$

OPERATING ACTIVITIES        
Net income (loss) (1,568) 22,275 (9,693) 15,018
Items not involving current cash flows:        
  Amortization 230 97 620 547
  Deferred license revenue recognized (561) (561) (2,241) (2,241)
  Royalties earned in excess of collections (577) - (179) -
  Deferred proceeds from licensing arrangements - (11,341) - -
  Stock-based compensation 175 176 265 823
  Accretion of interest on debentures - 126 31 538
  Unrealized foreign exchange loss 319 118 777 488
  Other - (168) 11 (75)
  (1,982) 10,722 (10,409) 15,098
Net change in non-cash working capital (345) 2,159 (1,969) 1,161

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

(2,327) 12,881 (12,378) 16,259
INVESTING ACTIVITIES        
Acquisition of property, plant and equipment (46) (58) (842) (391)

CASH USED IN INVESTING ACTIVITIES

(46) (58) (842) (391)
FINANCING ACTIVITIES        
Issuance of common shares and warrants, net of related costs 79 120 84 11,704
Repayments of long-term debt and capital lease obligations (20) (104) (77) (243)

CASH PROVIDED BY FINANCING ACTIVITIES

59 16 7 11,461
Effect of exchange rate changes on cash and cash equivalents (302) (226) (620) (446)
Net change in cash and cash equivalents during the period (2,616) 12,613 (13,833) 26,883
Cash and cash equivalents, beginning of the period 30,885 29,489 42,102 15,219

CASH AND CASH EQUIVALENTS, END OF YEAR

28,269 42,102 28,269 42,102

Interest paid

2 92 60 363

SOURCE Nuvo Research Inc.

For further information:

Media and Investor Relations
Adam Peeler
The Equicom Group Inc.
Tel:  (416) 815-0700 x225
email: apeeler@equicomgroup.com

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Nuvo Research Inc.

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