Nuvo Research® Announces 2015 Third Quarter Results

- Quarter Highlighted by significant Product Sales growth and
announcement of Proposed Split into Two Independent Public Companies -

MISSISSAUGA, Nov. 10, 2015 /CNW/ - Nuvo Research Inc. (TSX:NRI), a specialty pharmaceutical company with growing revenues and a diverse portfolio of topical and immunology products, today announced its financial and operational results for the third quarter ended September 30, 2015.

Third Quarter and Recent Corporate Developments: 

Financial Highlights

  • Product sales increased significantly in the quarter to $5.2 million from $2.9 million in Q2 and $1.5 million in the comparative period in 2014;
  • Total revenue in the quarter increased to $5.7 million from $3.2 million in Q2 and $3.0 million in the comparative period in 2014;
  • Gross margins on product sales in the quarter increased to 51% from 35% in Q2 and 19% in the comparative period in 2014; and
  • Cash and short-term investments were $50.8 million compared to $51.8 million at the end of Q2 and $58.3 million at December 31, 2014. The $1.0 million decrease in cash in the quarter related to spending of $1.2 million on the clinical trials for WF10 and Pennsaid 2%. For the nine-month period, the decrease in cash was $7.5 million of which $3.5 million related to spending on the clinical trials.

Corporate Developments

  • In September, the Company announced a proposed transaction to separate Nuvo into two publicly traded companies. One company, Nuvo Pharmaceuticals (Nuvo Pharma) would be a pure-play commercial healthcare company with growing revenue and EBITDA to be owned 100% by Nuvo shareholders. The second company, Crescita Therapeutics (Crescita) would be a pure-play biotech development company also initially owned 100% by Nuvo shareholders. Crescita would have a diversified pipeline of product candidates and sufficient cash resources to execute its current business plan for the next 24 months. If the transaction is approved by shareholders, the Company expects the proposed transaction (Crescita Transaction) would be completed in Q1 2016 (subject to the satisfaction of all other conditions); and
  • In November, the Company announced that Samira Sakhia had been appointed to its Board of Directors. Ms. Sakhia was most recently the Chief Financial Officer of Canada's premier specialty pharmaceutical company, Paladin Labs Inc. for 14 years.

Pennsaid® 2%

  • U.S. prescriptions of Pennsaid 2% increased from approximately 76,000 in Q2 to 97,000 in Q3 according to IMS Health. Under the terms of an exclusive manufacturing agreement, the Company earns revenue from U.S. product sales of Pennsaid 2% to Horizon Pharma plc (Horizon), which acquired the U.S. Pennsaid 2% rights from the Company in Q4 2014. Since its launch by Horizon on January 1, 2015, U.S. prescriptions for Pennsaid 2% have increased significantly from 18,000 prescriptions in Q4 2014 when it was being marketed by the Company's former U.S. licensee;
  • In July, the Company initiated a Phase 3 clinical trial in Germany of Pennsaid 2% for the treatment of acute pain to support regulatory approval applications for Pennsaid 2% in Canada and the EU. Topline results are expected in Q1 2016; and
  • NovaMedica LLC advised the Company that the Pennsaid 2% clinical trial it sponsored in Russia was successful and that it intends to apply for Russian regulatory approval to market Pennsaid 2%.

Development Business

WF10

  • 72 patients have completed the Company's placebo-controlled Phase 2 trial using WF10 for the treatment of allergic rhinitis.  Their symptoms have been recorded during exposure to grass and ragweed pollens in the field and in an environmental exposure chamber.  Topline results are expected to be available in late 2015 or Q1 2016.

Onychomycosis Product

  • In August, the United States Patent and Trademark Office (USPTO) granted a new U.S. patent covering highly permeating topical formulations of an antifungal drug, terbinafine, being developed for treating onychomycosis, a prevalent fungal infection of the nail.

IBUFOAM

  • In September, the USPTO granted a new U.S. patent covering novel topical foam formulations that include dimethyl sulfoxide (DMSO) together with certain drug actives. The claims cover Nuvo's novel topical IBUFOAM drug candidate that contains DMSO and the NSAID Ibuprofen and which is being developed for the treatment of acute pain.

Table of Selected Financial Results
For further details on the results, please refer to the Management, Discussion and Analysis (MD&A) and Consolidated Financial Statements which are available on the Company's website (www.nuvoresearch.com).


Three months ended

Nine months ended


September 30,

2015

September 30,

2014

Change

September 30,

2015

September 30,

2014


Change

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

$

$

$

$

$

$

Product Sales

5,225

1,523

3,702

12,042

4,884

7,158

Gross Margin % on Product Sales

51%

19%


42%

19%


Other Revenue

491

1,487

(996)

1,467

4,746

(3,279)

Total Operating Expenses

7,292

6,706

586

21,565

18,383

3,182

Net Income (loss)

(1,194)

49,783

(50,977)

(7,416)

44,733

(52,149)

Per Share – basic

(0.11)

4.84


(0.68)

4.55



              diluted

(0.11)

4.71


(0.68)

4.47


Q3 Financial Highlights

Product sales, which represent the Company's sales of Pennsaid 2%, Pennsaid, WF10 and HLT bulk to its licensees and distributors, were $5.2 million for the three months ended September 30, 2015 compared to $1.5 million for the three months ended September 30, 2014.  The increase in product sales was primarily related to higher sales of Pennsaid 2% to Horizon which were $5.0 million for the three months ended September 30, 2015 compared to $0.8 million of Pennsaid 2% sales to the Company's former U.S. licensee for the three months ended September 30, 2014, slightly offset by lower Pennsaid product sales.  Total product sales for the nine months ended September 30, 2015 were $12.0 million compared to $4.9 million in the comparative period.

Other revenue, consisting of royalties, license fee revenue and research and other contract revenue for the three months ended September 30, 2015 was $0.5 million compared to $1.5 million for the three months ended September 30, 2014.  The decrease in other revenue was primarily related to a decrease in royalty revenues as the Company no longer receives a royalty on Pennsaid 2% net sales in the U.S.  Other revenue for the nine months ended September 30, 2015 was $1.5 million compared to $4.7 million in the comparative period.

Total operating expenses for the three months ended September 30, 2015 increased to $7.3 million versus $6.7 million for the three months ended September 30, 2014.  The increase in total operating expenses was primarily related to the increase in cost of goods sold due to increased product sales which was slightly offset by the revaluation of cash-settled stock-based compensation (SBC) costs which are primarily included in general and administrative (G&A) costs for the quarter. Total operating expenses for the nine months ended September 30, 2015 increased to $21.6 million from $18.4 million in the comparative period.

Cost of goods sold (COGS) for the three months ended September 30, 2015 was $2.6 million compared to $1.2 million for the three months ended September 30, 2014.  The increase in COGS in the quarter was associated with increased Pennsaid 2% product sales.  The increase in product sales improved the gross margin to $2.6 million or 51% for the three months ended September 30, 2015 compared to a gross margin of $0.3 million or 19% for the three months ended September 30, 2014.  For the nine months ended September 30, 2015, COGS was $7.0 million compared to $3.9 million in the comparative period.  Gross margin on product sales for the nine months ended September 30, 2015 increased by $4.1 million to $5.0 million or 42% compared to $0.9 million or 19% for the nine months ended September 30, 2014. 

Research and development (R&D) expenses decreased slightly to $1.8 million for the three months ended September 30, 2015 compared to $1.9 million for the three months ended September 30, 2014.  The costs in the current quarter related the Pennsaid 2% Phase 3 trial for the treatment of acute pain to support regulatory approval applications for Pennsaid 2% in international jurisdictions and the 2015 WF10 Trial to assess the efficacy, safety and tolerability of WF10 for the treatment of moderate to severe allergies to grass and ragweed pollens.  In the comparative period, the Company incurred costs relating to the 2014 WF10 Trial.  For the nine months ended September 30, 2015, R&D expenses increased to $8.1 million compared to $5.3 million for the nine months ended September 30, 2014.

G&A expenses decreased to $3.0 million for the three months ended September 30, 2015 compared to $3.5 million for the three months ended September 30, 2014.  The decrease in the quarter related to a decrease in SBC primarily from the adjustment to market value for the outstanding Share Appreciation Rights and Deferred Share Units at September 30, 2015.  This decrease was partially offset by an increase in professional fees related to the proposed Crescita Transaction.  G&A expenses for the nine months ended September 30, 2015 were $6.8 million compared to $8.7 million for the nine months ended September 30, 2014. 

Net loss was $1.2 million for the three months ended September 30, 2015 compared to net income of $49.8 million for the three months ended September 30, 2014.  The net income in the comparative period included a significant gain of $52.3 million from the Company's litigation settlement.  Net loss was $7.4 million for the nine months ended September 30, 2015 compared to net income of $44.7 million for the nine months ended September 30, 2014.

Cash and short-term investments were $50.8 million at September 30, 2015, a decrease of $7.5 million compared to $58.3 million at December 31, 2014.  The cash burn of $7.5 million was primarily attributed to costs associated with 2015 WF10 Trial and Pennsaid 2% Phase 3 clinical trial slightly offset by increased margins on product sales.

The number of common shares outstanding as at September 30, 2015 was 10,984,683.

Management to Host Conference Call/Webcast
Management will host a conference call to discuss the proposed transaction tomorrow (Wednesday, November 11, 2015) at 8:00 a.m. ET.  To participate in the conference call, please dial 1 (888) 231-8191 or (647) 427-7450, reference number 77291639.  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 November 18, 2015 by calling 1 (855) 859-2056 or (416) 849-0833, reference number 77291639.

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's Proposal to Split Nuvo into Two Separate Public Companies
On September 15, 2015, Nuvo announced that it will seek to split Nuvo into two separate, publicly traded companies, Nuvo Pharma and Crescita.  The strategy is intended to enhance long-term value for Nuvo shareholders.  Nuvo Pharma will be a pure-play commercial healthcare company with growing revenue, EBITDA and EBITDA growth potential.  Crescita will be a pure-play biotech development company with a diversified pipeline of product candidates.  The companies will be distinct and separately traded public companies.  Nuvo's shareholders will receive 100% of the shares of both companies.  Nuvo's cash balance will provide both companies with sufficient cash resources to execute their current business plans for the next 24 months. Complete details of the proposed transaction and each company will be set forth in an information circular that will be mailed to Nuvo's shareholders in connection with a special meeting that will be called by Nuvo to approve the proposed transaction.  Completion of the proposed transaction is subject to certain conditions, including final approval by the Nuvo Board of Directors, confirmation of the potential tax-free nature of the transaction for Canadian and U.S. shareholders, regulatory approval requirements and the approval of Nuvo's shareholders.  If approved by shareholders, Nuvo expects the proposed transaction would be completed in Q1 2016 (subject to the satisfaction of all conditions).  However, there can be no assurances regarding the ultimate timing of the proposed transaction or that the proposed transaction will be completed.

About Nuvo Research Inc.
Nuvo (TSX:NRI) is a specialty pharmaceutical company with a diverse portfolio of products and technologies. The Company operates two distinct business units: the Topical Products and Technology (TPT) Group and the Immunology Group.  The TPT Group currently has four commercial products, a pipeline of topical and transdermal products focusing on pain and dermatology and multiple drug delivery platforms that support the development of patented formulations that can deliver actives into or through the skin.  The Immunology Group has two commercial products and an immune system modulation platform that supports the development of drug products that modulate chronic inflammation processes resulting in a therapeutic benefit.  For additional company information visit www.nuvoresearch.com.

Forward-Looking Statements
Certain statements in this press release constitute forward-looking information and/or forward-looking statements (collectively, forward-looking statements") within the meaning of applicable securities laws.  Forward-looking statements include, but are not limited to, statements concerning the potential spin-off of Nuvo's drug development business, the benefits of the spin-off to Nuvo's shareholders and to each company, the taxable nature of the spin-off, the expected financial results and condition of each company, each company's future objectives and strategies to achieve those objectives, the future prospects of each company as an independent company, potential regulatory approval for Pennsaid 2% in Russia, and other statements concerning the Company's future objectives, strategies to achieve those objectives, as well as with respect to management's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts.  Forward-looking statements generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "should", "plans", "potentially" or "continue", or similar expressions suggesting future outcomes or events.  Such forward-looking statements reflect management's current beliefs and are based on information currently available to management.  Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those contemplated by such statements.  Factors that could cause such differences include general business and economic uncertainties and adverse market conditions, uncertainties that may delay or negatively impact the spin-off or cause the spin-off to not occur; uncertainties related to each company's ability to realize the anticipated benefits of the spin-off, including new focus and anticipated growth; disruptions to operations as a result of effecting the spin-off; risks and uncertainties related to obtaining approvals, rulings and consents, or satisfying other requirements, necessary or desirable to permit or facilitate completion of the spinoff future factors that may arise making it inadvisable to proceed with, or advisable to delay, all or part of the spin-off, the impact of the spinoff on the trading prices for, and market for trading in, the shares of each company, as well as other risk factors included in the Company's Annual Information Form dated February 19, 2015 under the heading "Risks Factors" and as described from time to time in the reports and disclosure documents filed by the Company with Canadian securities regulatory agencies and commissions.  This list is not exhaustive of the factors that may impact the Company's forward-looking statements.  These and other factors should be considered carefully and readers should not place undue reliance on the Company's forward-looking statements.  As a result of the foregoing and other factors, no assurance can be given as to any such future results, levels of activity or achievements and neither the Company nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. The factors underlying current expectations are dynamic and subject to change. Although the forward-looking information contained in this press release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements.  All forward-looking statements in this press release are qualified by these cautionary statements.  The forward-looking statements contained herein are made as of the date of this press release and, except as required by applicable law, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

SOURCE Nuvo Research Inc.

For further information: Investor Relations, Email: ir@nuvoresearch.com

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