Nuvo announces second quarter 2007 financial results



    - RECEIVES FORMAL CLARIFICATION FROM FDA ON PENNSAID -

    MISSISSAUGA, ON, Aug. 2 /CNW/ - Nuvo Research Inc. (TSX: NRI) today
announced its fiscal and operational results for the second quarter ended
June 30, 2007.

    
    Highlights

    -   Subsequent to quarter end, the Company received official minutes from
        the U.S. Food and Drug Administration ("FDA") of a telephone
        conference meeting regarding the Approvable Letter for Pennsaid, its
        topical anti-inflammatory drug for the treatment of the symptoms of
        osteoarthritis. The minutes confirmed the contents of informal
        communications received from the FDA which were disclosed in a news
        release on June 19, 2007. Based on this confirmation, Nuvo will
        commence all requested long-term dermal animal studies. The longest
        study may be completed post approval, provided no safety concerns
        have arisen from any of the studies prior to resubmitting the
        application for Pennsaid approval. Nuvo has commenced other studies
        to respond to the Approvable Letter and expects to be in a position
        to file a complete resubmission of its application for Pennsaid
        approval with the FDA in the first half of 2009 and be eligible to
        receive final marketing approval in the second half of 2009. There
        can be no assurance that these anticipated timelines will be
        achieved, as they are dependant on a number of factors, including
        successful completion of other shorter studies to address other
        conditions within the Approvable Letter.

    -   Nuvo continued to validate, broaden and extend its proprietary
        formulations platform technology, multiplexed molecular penetration
        enhancer (MMPE(TM)) technology. This process has yielded several
        attractive transdermal product possibilities. Patent protection for
        several MMPE(TM) systems have been applied for.

    -   Nuvo completed a bought deal financing for gross proceeds of
        $20 million, which attracted some leading U.S. based institutional
        biotechnology investors.
    

    "Our top priority remains obtaining approval for Pennsaid in the U.S.
With clarification on the path forward from the FDA, we have a better idea of
what needs to be done to obtain final approval of Pennsaid and we remain
confident that it can be achieved," said Henrich Guntermann, President and
CEO. "In parallel, we continue to develop our pipeline of transdermal products
focusing primarily on pain with our high-throughput technology developed by
our fqubed, Inc. subsidiary in San Diego."

    
    Financial Results:

                      Three-months  Three-months    Six-months    Six-months
                             ended         ended         ended         ended
                           June 30,      June 30,      June 30,      June 30,
                              2007          2006          2007          2006
    -------------------------------------------------------------------------
    Revenue              $   1,435     $   1,360     $   2,413     $   1,993
    Loss from Operations    (3,034)       (3,762)       (6,521)       (7,480)
    Net Loss             $  (3,034)    $  (3,847)    $  (6,521)    $  (6,618)
    -------------------------------------------------------------------------
    

    Product sales and research contract revenue for the three-months ended
June 30, 2007 decreased 3% to $1.2 million compared to the three-months ended
June 30, 2006. This decrease is primarily the result of slightly lower
Pennsaid revenue of $881,000 during the three-months ended June 30, 2007
compared to $932,000 for the three-months ended June 30, 2006. The higher
Pennsaid revenue in the prior year quarter was primarily due to a spike in
Canadian sales during June 2006 as our distributor, Squire Pharmaceuticals
("Squire"), introduced Pennsaid in its new product format. This new format
consisted of a 120ml twin pack (two 60 ml bottles) versus a single 60ml
bottle. While this level of sales was not repeated in June 2007 Canadian sales
were nonetheless encouraging as they grew versus the first quarter of 2007.
Partially offsetting the decrease versus a year ago was the increase in
European sales as Vianex S.A. launched Pennsaid in Greece during February 2007
and sales to our Italian distributor increased. Product sales and research
contract revenue for the six-months ended June 30, 2007 increased to
$1.9 million compared to $1.7 million for the six-months ended June 30, 2006.
This increase is primarily a result of the launch of Pennsaid in Greece and
higher sales to our Italian distributor, partially offset by slightly lower
sales in Canada.
    During the quarter and six-months ended June 30, 2007, Nuvo recorded
$250,000 and $500,000 in license fee revenue that was previously deferred,
compared with $144,000 and $288,000 for the comparable quarter and six-months
ended June 30, 2006. This represents the systematic recognition of a portion
of the up-front fees received from Squire in 2005 and 2006 for the Canadian
marketing rights for Pennsaid.
    Total operating expenses decreased by 11% to $3.9 million and 5% to
$8.0 million for the three and six-months ended June 30, 2007 compared to
$4.3 million and $8.4 million for the comparable periods last year. This
decrease is primarily due to lower research and development costs, stock-based
compensation and interest expense offsetting increases in selling, general and
administrative costs.
    Included in operating expenses are research and development (R&D) costs
which were $1.7 million for the three-month period ended June 30, 2007,
compared with $2.2 million for the three-month period ended June 30, 2006. In
the current quarter costs declined and were lower than expected as the Company
delayed spending on some of the Approvable Letter related studies as it
attempted to clarify the path to approval with the FDA. As a result of
discussions in June 2007, that were confirmed in FDA minutes received in July
2007, the Company now has the clarity it requires to commence the longer term
dermal animal studies. As a result, research and development spending for the
remainder of 2007 is expected to be significantly higher than in 2006. In the
comparative period R&D costs were higher than in 2007 as the Company employed
a higher level of clinical, regulatory and research staff as it completed all
work related to the FDA submission for Pennsaid and incurred filing fees
related to the submission.
    Research and developments costs for the six-month period declined to
$3.4 million compared to $3.6 million for the six-month period ended June 30,
2006. The decrease is attributable to the delayed spending of the Approvable
Letter related studies as discussed above, partially offset by the costs
related to developing the plan (including all necessary studies) to address
each of the FDA's issues as outlined in the Approvable Letter and continued
activity at fqubed as the Company continues to validate, broaden and extend
its proprietary multiplexed molecular penetration enhancer (MMPE(TM))
formulations platform technology. The MMPE(TM) technology, developed through
internal HTE campaigns, uses special combinations of molecular penetration
enhancer (MPE(TM)) materials to permeabilize the skin for enhanced delivery of
a given drug. The Company is currently considering exploitation of the
MMPE(TM) technology for onychomycosis, for which fungal kill assays were
completed in the first quarter of 2007. In the comparable period ending June
30, 2006 the Company completed the analysis of the Pennsaid Phase III efficacy
and safety trial (designated 'Study 112') and the Pennsaid Phase III long-term
open-label safety trial (designated 'Study 112E') which were a key part of the
Company's June 2006 FDA submission for Pennsaid.
    The loss from operations declined to $3.0 million and $6.5 million for
the three and six-months ended June 30, 2007 compared to $3.8 million and
$7.5 million in the three and six-months ended June 30, 2006. The decrease in
the loss was a result of the increased margin on product sales and research
contract revenue, an increase in licensing fee revenue, reduced net interest
expense, lower research and development costs and stock-based compensation
expense offset partially by higher SG&A costs.
    Cash and cash equivalents decreased to $9.3 million at June 30, 2007,
compared to $11.2 million at December 31, 2006 as cash used by operating and
investing activities of $6.7 million more than offset the $4.8 million of cash
provided by financing activities.
    During the second quarter of 2007, the Company used $0.2 million to fund
scheduled debt repayments. In the comparable period, net cash provided by
financing activities totaled $13.5 million as the Company completed a bought
deal financing consisting of 37.5 million units issued at a price of $0.40 per
Unit for net proceeds of $13.7 million.
    For the six-month period ending June 30, 2007, net cash provided by
financing activities totaled $4.8 million and consisted primarily of
$5.3 million in proceeds from the exercise of warrants offset by $555,000 in
debt repayments. In the comparable six-month period ended June 30, 2006 net
cash provided by financing activities totaled $17.1 million and consisted
primarily of $13.7 million relating to the June 2006 bought deal discussed
above and the January 2006 transactions whereby the Company sold additional
Pennsaid licensing rights in Canada for proceeds of $3.75 million.

    Subsequent Event

    On July 13, 2007, the Company closed a bought deal equity financing that
was announced in June 2007 for a total of 100 million units ("Units") issued
at a price of $0.20 per Unit for gross proceeds of $20 million ("July Bought
Deal"). Each Unit consisted of one common share and one-half of a common share
purchase warrant of the Company, each whole warrant entitling the holder
thereof to acquire one common share at a price of $0.30 per share until July
13, 2009. Net cash proceeds are estimated to be $18.4 million, after deducting
the underwriter's fee of 6% and the estimated expenses of the offering. As
part of the transaction the underwriters will receive 5 million warrants (the
"Underwriter Warrants") for services provided in conjunction with the July
Bought Deal. The Underwriter Warrants are each exercisable into one Unit at a
price of $0.20 per Unit for a period of 24 months following the Closing Date.
    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 is currently no topical NSAID product approved in the approximately
$4 billion U.S. osteoarthritis pain relief market. 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 focused on developing innovative site-specific therapeutics that
are delivered topically using the Company's skin-penetrating technologies.
Nuvo's lead product is Pennsaid(R), a topical non-steroidal anti-inflammatory
drug (NSAID) used for the treatment of osteoarthritis. Nuvo intends to
leverage its skin-penetrating technologies to create a portfolio of
transdermal products targeting a variety of indications. Nuvo Research Inc. is
a publicly traded, Canadian pharmaceutical 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:



    
                             NUVO RESEARCH INC.
                         CONSOLIDATED BALANCE SHEETS

                                                         As at         As at
                                                       June 30,  December 31,
                                                          2007          2006
    (thousands of Canadian dollars)                  Unaudited       Audited
                                                             $             $
    -------------------------------------------------------------------------
    ASSETS
    CURRENT
    Cash and cash equivalents                            9,258        11,213
    Accounts receivable                                  1,009           968
    Other receivable                                       375           375
    Inventories                                          1,091         1,051
    Prepaid expenses and other                             904           892
    -------------------------------------------------------------------------
    TOTAL CURRENT ASSETS                                12,637        14,499

    Property, plant and equipment                        2,883         3,120
    Deferred financing costs                               128             -
    -------------------------------------------------------------------------
    TOTAL ASSETS                                        15,648        17,619
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT
    Accounts payable and accrued liabilities             2,569         3,008
    Short term loan                                        569           557
    Deferred revenue                                     1,367         1,352
    Current portion of long term debt
     and capital lease obligations                         166           677
    -------------------------------------------------------------------------
    TOTAL CURRENT LIABILITIES                            4,671         5,594
    Deferred revenue                                     5,952         6,552
    Long term debt and capital lease obligations           270           337
    Debentures                                           2,145         1,999
    -------------------------------------------------------------------------
    TOTAL LIABILITIES                                   13,038        14,482
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY
    Common shares                                      173,812       165,400
    Warrants                                             6,482         9,402
    Contributed surplus                                  5,387         4,885
    Accumulated other comprehensive income                 114           114
    Deficit                                           (183,185)     (176,664)
    -------------------------------------------------------------------------
    TOTAL SHAREHOLDERS' EQUITY                           2,610         3,137
    -------------------------------------------------------------------------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY          15,648        17,619
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                             NUVO RESEARCH INC.
                 CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT

                                     Three-months             Six-months
    Unaudited                           ended                   ended
    (thousands of Canadian       June 30,    June 30,    June 30,    June 30,
     dollars except per             2007        2006        2007        2006
     share amounts)                    $           $           $           $
    -------------------------------------------------------------------------
    REVENUE
    Product and research
     contract revenue              1,185       1,216       1,913       1,705
    Licensing fees                   250         144         500         288
    -------------------------------------------------------------------------
                                   1,435       1,360       2,413       1,993
    -------------------------------------------------------------------------
    EXPENSES
    Cost of goods sold               587         777         948       1,030
    Research and development       1,684       2,161       3,422       3,640
    Selling, general and
     administrative expenses       1,699       1,437       3,548       3,152
    Stock-based compensation         211         311         374         707
    Amortization of property,
     plant, and equipment            215         196         426         373
    Foreign currency gain            (91)        (63)        (81)        (36)
    Interest, net                    164         303         297         607
    -------------------------------------------------------------------------
                                   4,469       5,122       8,934       9,473
    -------------------------------------------------------------------------
    LOSS FROM OPERATIONS          (3,034)     (3,762)     (6,521)     (7,480)
    Gain on sale of assets             -           -           -         947
    Impairment charge                  -        (135)          -        (135)
    -------------------------------------------------------------------------
    LOSS FROM CONTINUING
     OPERATIONS                   (3,034)     (3,897)     (6,521)     (6,668)
    -------------------------------------------------------------------------
    NET INCOME FROM
     DISCONTINUED OPERATIONS           -          50           -          50
    -------------------------------------------------------------------------
    NET LOSS FOR THE PERIOD
     AND TOTAL
     COMPREHENSIVE LOSS           (3,034)     (3,847)     (6,521)     (6,618)

    Deficit, beginning
     of period                  (180,151)   (166,420)   (176,664)   (163,649)
    -------------------------------------------------------------------------
    DEFICIT, END OF PERIOD      (183,185)   (170,267)   (183,185)   (170,267)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net loss per common share
     - basic and diluted           (0.01)      (0.03)      (0.03)      (0.05)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                             NUVO RESEARCH INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                     Three-months             Six-months
    Unaudited                           ended                   ended
    (thousands of                June 30,    June 30,    June 30,    June 30,
     Canadian dollars)              2007        2006        2007        2006
                                       $           $           $           $
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net loss from
     continuing operations        (3,034)     (3,897)     (6,521)     (6,668)
    Items not involving
     current cash flows:
      Amortization                   215         196         426         373
      Deferred revenue
       recognized                   (307)       (374)       (583)       (524)
      Stock-based
       compensation and
       payments                      211         311         506         707
      Impairment charge                -         135           -         135
      Accretion of interest
       on debentures                 158         138         303         269
      Gain on sale of assets           -           -           -        (947)
      Other                          (57)          -         (69)          -
    Net change in non-cash
     working capital balances       (687)        236        (527)        130
    -------------------------------------------------------------------------
    CASH USED IN OPERATING
     ACTIVITIES                   (3,501)     (3,255)     (6,465)     (6,525)
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
    Acquisition of property,
     plant and equipment            (189)        (54)       (189)       (383)
    Proceeds from sale
     of assets                         -           -           -       2,744
    -------------------------------------------------------------------------
    CASH PROVIDED BY
     (USED IN) INVESTING
     ACTIVITIES                     (189)        (54)       (189)      2,361
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
    Issuance of common
     shares, net of
     related costs                     -      13,787       5,330      15,690
    Issue of debenture                 -           -           -         500
    Proceeds from license
     and supply agreements             -           -           -       3,250
    Repayment of short
     term loan                         -           -           -      (1,598)
    Repayments of long term
     debt and capital
     lease obligations              (227)       (318)       (555)       (746)
    -------------------------------------------------------------------------
    CASH PROVIDED BY
     (USED IN) FINANCING
     ACTIVITIES                     (227)     13,469       4,775      17,096
    -------------------------------------------------------------------------
    Effect of exchange rate
     changes on cash and
     cash equivalents                (71)        (23)        (76)         (2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net increase (decrease)
     in cash and cash
     equivalents during
     the period                   (3,988)     10,137      (1,955)     12,930
    Cash and cash
     equivalents, beginning
     of period                    13,246       5,509      11,213       2,716
    -------------------------------------------------------------------------
    CASH AND CASH
     EQUIVALENTS, END
     OF PERIOD                     9,258      15,646       9,258      15,646
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Interest paid                    121         159         164         202
    -------------------------------------------------------------------------
    

    %SEDAR: 00002418E




For further information:

For further information: Investor Relations: Christina Bessant, Equicom
Group Inc., (416) 815-0700 x269, cbessant@equicomgroup.com

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