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Nuvo Research announces 2012 Fourth Quarter & Year-End Results

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MISSISSAUGA, ON, March 27, 2013 /PRNewswire/ - Nuvo Research Inc. (TSX: NRI), a specialty pharmaceutical company dedicated to building a portfolio of products for the topical 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, 2012.

Fourth Quarter and Recent Corporate Developments:

  • Received confirmation from the Company's worldwide Pliaglis® marketing partner, Galderma Pharma S.A. (Galderma) of U.S. Food and Drug Administration (FDA) approval for the marketing of Pliaglis in the U.S.;

  • Received confirmation from Galderma of 4 additional national approvals from E.U. countries for the marketing of Pliaglis.  This brings the total number of E.U. country approvals to 14 of 16;

  • Received US$6.0 million of milestone payments from Galderma relating to approval of Pliaglis in E.U. countries;

  • Received confirmation that Galderma launched the commercial marketing and sale of Pliaglis in the U.S. in March 2013 and plans to launch Pliaglis in the EU in April 2013;

  • In January 2013, the Company and the Company's U.S. licensing partner, Mallinckrodt, Inc. (Mallinckrodt), the Pharmaceuticals business of Covidien plc reached an agreement with Apotex Inc. (Apotex); whereby, Apotex agreed that, upon approval of its generic version of original Pennsaid® by the FDA, it would not launch until the earlier of 45 days after Mallinckrodt or Nuvo makes a first commercial shipment of Pennsaid 2% in the U.S. and April 1, 2014; and

  • In March 2013, Mallinckrodt received a Complete Response Letter (CRL) to the New Drug Application (NDA) for Pennsaid 2% in which the FDA advised that Mallinckrodt must successfully complete a pharmacokinetic (PK) study comparing Pennsaid 2% to original Pennsaid before approval of Pennsaid 2%.  Mallinckrodt has indicated that it expects to complete the study, submit the results and receive a formal response from the FDA in Q1 2014.

"The highlights of the fourth quarter were the approvals of Pliaglis in the U.S. and E.U," said Dan Chicoine, Nuvo's Chairman and Co-CEO. "The commercial launch of Pliaglis in the U.S. earlier this month and the anticipated launch in the E.U. in April, provides Nuvo with another royalty stream generated by our world class partner, Galderma.  While the receipt of a CRL for Pennsaid 2% was disappointing, Pennsaid 2% now has a clear pathway to FDA approval in early 2014."

Pennsaid U.S.
According to IMS Health, a provider of dispensed prescription data, during the fourth quarter of 2012, U.S. prescriptions of Pennsaid were 51,000 with an average 1.33 bottles of Pennsaid dispensed per script.  This represents a decrease of approximately 10% from the third quarter of 2012.  For the year, approximately 295,000 Pennsaid prescriptions were dispensed, an increase of 77% over 2011 and for each prescription, approximately 1.32 bottles of Pennsaid were dispensed.

Operating Results
Revenue, consisting of product sales, royalties, license fee revenue and research and other contract revenue for the three months ended December 31, 2012 was $3.6 million compared to $5.2 million for the three months ended December 31, 2011.  The decrease was attributable to a $0.7 million decrease in royalty revenue from lower net sales of Pennsaid in the U.S., a $0.5 million decrease in license fees earned under Galderma licensing arrangements for Pliaglis which were fully amortized in May 2012 and a $0.4 million decrease in Pennsaid product sales related to lower product sales to our U.S. licensee, partially offset by higher sales to our Canadian licensee.  Sales of Synera® were consistent at $0.3 million versus the comparative period.  Total revenue for the year was $24.7 million compared to $16.7 million for the year ended December 31, 2011.

For the three months ended December 31, 2012, gross margin on product sales decreased to $385,000 compared to $446,000 for the comparable quarter in 2011.  The decrease in gross margin related to lower Pennsaid product sales. For the year, gross margin on product sales was consistent with the prior year at $1.7 million.

Total operating expenses for the three months ended December 31, 2012 were $4.0 million compared to $5.4 million for the three months ended December 31, 2011.  The decrease in operating expenses was primarily due to lower sales and marketing (S&M) costs.  Total operating expenses for the year ended December 31, 2012 were $21.2 million compared to $18.8 million for the year ended December 31, 2011.

Research and development (R&D) expenses decreased to $1.5 million for the three months ended December 31, 2012 compared to $1.7 million for the three months ended December 31, 2011.  The decrease in the quarter primarily related to lower spending on drug development programs.  R&D expenses were $6.8 million for the year ended December 31, 2012 compared to $7.3 million for the year ended December 31, 2011.

S&M expenses were $0.3 million for the three months ended December 31, 2012 compared with $1.3 million for the comparable period in 2011.  S&M expenses relate entirely to the Company's marketing costs for Synera in the U.S.  In the comparative period, the Company hired experienced pharmaceutical executives to prepare for the U.S. launch of Synera, targeting interventional pain physicians with pain specialty sales representatives using a contract sales organization (CSO).  In September 2012, the Company refocused its resources on large national accounts and terminated its agreement with its CSO substantially reducing S&M expenses. For the year, S&M expenses were $4.9 million compared to $1.3 million in 2011.

General and administrative (G&A) expenses decreased to $2.1 million for the three months ended December 31, 2012 compared to $2.4 million for the three months ended December 31, 2011.  The decrease in the quarter relates to termination benefits incurred in the comparative period.  G&A expenses decreased to $9.1 million for year ended December 31, 2012 compared to $10.3 million for the year ended December 31, 2011.

Other expenses increased to $8.9 million for the three months ended December 31, 2012 compared to other income of $1.0 million for the three months ended December 31, 2011.  The increase in the quarter is primarily related to the $11.9 million ZARS Impairment Charge (see below), partially offset by a $1.6 million increase in the gain on the ZARS Contingent Consideration (see below).  For the year, other expenses were $9.5 million compared to other income of $2.6 million in 2011.

Net loss for the three months ended December 31, 2012 was $11.2 million versus $1.4 million for the three months ended December 31, 2011.  The increased loss was substantially a result of the ZARS Impairment Charge.  Net loss for the year ended December 31, 2012 was $13.6 million compared to $6.8 million for the year ended December 31, 2011.

Cash and cash equivalents were $12.1 million as at December 31, 2012 compared to $14.7 million as at December 31, 2011.

Cash provided by operating activities for the three months ending December 31, 2012 was $1.0 million compared to cash used in operating activities of $3.2 million for the three months ended December 31, 2011.  This improvement was due to a significant recovery of the Company's investment in working capital related to the receipt of the US$5.0 million milestone payment from Galderma relating to the first two European regulatory approvals for Pliaglis.  Cash used in operating activities was $5.1 million for the year ended December 31, 2012 compared to $11.8 million for the year ended December 31, 2011.

Net cash used in financing activities totaled $0.4 million for the three months ended December 31, 2012 compared to net cash provided by financing activities of $18,000 for the three months ended December 31, 2011.  During the fourth quarter of 2012, the Company made $0.5 million of repayments on finance and other obligations. During the year, the Company received loan proceeds of $4.0 million from Paladin Labs Inc. which represented the first tranche of an $8.0 million loan. Net cash provided by financing activities totaled $2.7 million for the year ended December 31, 2012 compared to net cash used in financing activities of $3.0 million for the year ended December 31, 2011.  In the comparative period, the Company paid the entire balance of acquired bank debt from the ZARS acquisition that was payable on the acquisition date.

The number of common shares outstanding as at December 31, 2012 was 567.8 million.

Impairment Charge
The Company reviewed the carrying values of the intangible assets recognized from the acquisition of ZARS for potential impairment at December 31, 2012, as commercial efforts for Synera and the launch timing for Pliaglis did not meet expectations.  Indications for impairment did exist, and management determined that each asset was impaired.  The Company recorded an impairment charge of $7.2 million for Pliaglis and $0.3 million for Synera.

In addition, the Company reviewed the carrying value of goodwill related to the ZARS Acquisition.  The Company reviewed the forecasted discounted cash flows for U.S. operations dedicated to generating cash flows for Synera and Pliaglis and determined that goodwill was impaired.  The Company recorded an impairment charge on the entire goodwill balance of $4.4 million.

In total, an impairment charge of $11.9 million (the ZARS Impairment Charge) was recorded at December 31, 2012 related to intangible assets and goodwill recognized from the acquisition of ZARS.

Pliaglis Milestone Shares
The Company had an obligation to the former shareholders of ZARS to issue up to 114.6 million Nuvo shares upon the achievement of predefined milestones.  The most significant milestone related to Pliaglis.  The achievement of this milestone (the "Pliaglis Milestone") required that both the following events occur prior to December 31, 2012 (i) the re-approval of Pliaglis by the FDA and the first commercial sale of Pliaglis in the U.S. by Galderma after such re-approval, and (ii) the approval of Pliaglis by the Germany's Federal Institute for Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte) BfArM and the first commercial sale of Pliaglis in Europe by Galderma (Pliaglis Milestone).  The Pliaglis Milestone was not achieved.  In addition, there were 2 additional milestones representing 13.25 million shares each that were contingent upon the achievement of the Pliaglis Milestone.  Therefore, the 101.3 million remaining Milestone Shares are no longer issuable and the Company has no further obligations to the ZARS' former shareholders to issue the Milestone Shares.

Restatement of ZARS Contingent Consideration
The Company incorrectly applied IAS 32 Financial Instruments: Presentation in the second quarter of 2011, such that the remaining fair value of contingent consideration of $3.3 million was incorrectly classified as contributed surplus when it still met the definition of a financial liability.  As at June 21, 2011, the Company restated the contributed surplus of $3.3 million as a liability and recorded changes in income (loss) based on changes in the Company's share price in future reporting quarters and the revised probability attached to achieving the milestone related to Pliaglis.  As at December 31, 2012, the remaining milestones were not achieved and the liability was derecognized resulting in an accumulated gain of $2.3 million for the year then ended.  The gains (losses) that would be recorded on the ZARS Contingent Consideration were non-cash and by the end of the year ended December 31, 2012 total equity remained unchanged, as the liability was derecognized and the contingent consideration was restated in accumulated deficit from contributed surplus.

Management to Host Conference Call
Management will host a conference call to discuss the fourth quarter and year-end results on Thursday, March 28, 2013 at 8:30 a.m. ET.  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 Thursday, April 4, 2013 by calling 416-849-0833 or 1-855-859-2056, reference number 92184683.

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 Research Inc.
Nuvo Research is a publicly traded, Canadian specialty pharmaceutical company, headquartered in Mississauga, Ontario.  The Company is 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 product portfolio includes Pennsaid®, Pliaglis® and Synera®.  Pennsaid, a topical non-steroidal anti-inflammatory drug (NSAID), is 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. Pliaglis is a topical local anesthetic cream, which is U.S. Food and Drug Administration (FDA) approved to provide topical local analgesia for superficial dermatological procedures.  The Company has licensed worldwide marketing rights to Pliaglis to Galderma Pharma S.A., a global pharmaceutical company specialized in dermatology.  Synera is a topical patch that combines lidocaine, tetracaine and heat, approved in the United States to provide local dermal analgesia for superficial venous access and superficial dermatological procedures and in Europe, for surface anaesthesia of normal intact skin.  Nuvo currently markets Synera in the United States and its licensing partner, EuroCept International B.V., has initiated a pan-European launch of Synera (under the name Rapydan®) in several European countries.  Through its subsidiary, Nuvo Research GmbH, based in Leipzig, Germany, the Company is also developing the compound WF10, for the treatment of immune related diseases.

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 Consolidated Financial Statements, Management's Discussion & Analysis, as well as in Nuvo's Annual Information Form for the year ended December 31, 2012.  Nuvo disclaims any intention or obligation to update or revise any forward-looking statements, whether as 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 STATEMENTS OF FINANCIAL POSITION
    As at December 31,
2012
As at December 31,
2011
(restated)
(Canadian dollars in thousands)   $ $
ASSETS      
CURRENT      
Cash and cash equivalents   12,149 14,724
Accounts receivable   3,771 3,700
Inventories   1,156 1,844
Other current assets   1,056 1,307
TOTAL CURRENT ASSETS   18,132 21,575
       
Property, plant and equipment   1,614 1,960
Intangible assets   8,739 16,821
Goodwill   - 4,498
TOTAL ASSETS   28,485 44,854
       
LIABILITIES AND EQUITY      
CURRENT      
Accounts payable and accrued liabilities   3,360 5,208
ZARS contingent consideration   - 2,300
Current portion of deferred revenue   341 1,494
Current portion of finance lease and other obligations   1,900 55
TOTAL CURRENT LIABILITIES   5,601 9,057
Deferred revenue   57 398
Finance lease and other obligations   1,358 489
TOTAL LIABILITIES   7,016 9,944
       
EQUITY      
Common shares   228,705 228,306
Contributed surplus   13,495 13,228
Accumulated other comprehensive income   420 964
Deficit   (221,151) (207,588)
TOTAL EQUITY   21,469 34,910
TOTAL LIABILITIES AND EQUITY   28,485 44,854

 
 
NUVO RESEARCH INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
    Three months
ended December 31
Twelve months
ended December 31
    2012 2011
(restated)
2012 2011
(restated)
(Canadian dollars in thousands,
except per share and share figures)
  $ $ $ $
REVENUE          
Product sales   2,155 2,611 8,936 8,948
Cost of goods sold   1,770 2,165 7,275 7,269
Gross margin on product sales   385 446 1,661 1,679
           
OTHER REVENUE          
Royalties   1,278 1,884 8,284 5,771
Licensing fees   85 545 7,252 1,641
Research and other contract revenue   46 150 178 373
    1,794 3,025 17,375 9,464
OPERATING EXPENSES          
Research and development expenses   1,539 1,709 6,849 7,323
Sales and marketing expenses   290 1,312 4,892 1,312
General and administrative expenses   2,084 2,380 9,123 10,306
Interest expense   131 1 381 8
Interest income   (1) (23) (16) (152)
    4,043 5,379 21,229 18,797
OTHER EXPENSES (INCOME)          
Impairment of intangible assets and goodwill   11,868 - 11,868 -
Litigation settlement   - - (277) -
Gain on disposal of property, plant and equipment   (2) (114) (2) (114)
Gain on ZARS contingent consideration   (2,760) (1,162) (2,300) (2,647)
Foreign currency loss   (205) 312 224 155
Net loss before income taxes   (11,150) (1,390) (13,367) (6,727)
Income taxes   22 30 196 104
NET LOSS   (11,172) (1,420) (13,563) (6,831)
Other comprehensive income (loss)          
Unrealized gains (losses) on translation of foreign operations   244 (631) (544) 1,097
TOTAL COMPREHENSIVE LOSS   (10,928) (2,051) (14,107) (5,734)
           
Net loss attributable to:          
Owners of the parent   (11,172) (1,184) (13,563) (5,562)
Non-controlling interest   - (236) - (1,269)
    (11,172) (1,420) (13,563) (6,831)
Total comprehensive loss attributable to:          
Owners of the parent   (10,928) (1,870) (14,107) (4,433)
Non-controlling interest   - (181) - (1,301)
    (10,928) (2,051) (14,107) (5,734)
Net loss per common share - basic and diluted   $(0.020) $(0.003) $(0.024) $(0.014)
Average number of common shares outstanding   
     (in millions)
    - basic and diluted   567.7 533.6 567.7 489.3

 
 
NUVO RESEARCH INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
    Three months
ended December 31
Twelve months
ended December 31
    2012 2011
(restated)
2012 2011
(restated)
(Canadian dollars in thousands)   $ $ $ $
OPERATING ACTIVITIES          
Net loss   (11,172) (1,420) (13,563) (6,831)
Items not involving current cash flows:          
  Gain on ZARS contingent consideration   (2,760) (1,162) (2,300) (2,647)
  Impairment of intangible assets   7,491 - 7,491 -
  Impairment of goodwill   4,377 - 4,377 -
  Depreciation and amortization   157 109 674 704
  Deferred license revenue recognized   (85) (545) (1,092) (1,641)
  Deferred royalty revenue, net of royalties earned   (69) (70) (385) (331)
  Stock-based compensation   158 118 734 442
  Unrealized foreign exchange loss   (182) 172 133 369
  Inventory write-down   123 109 123 109
  Gain on disposal of property, plant and equipment   (2) (114) (2) (114)
  Accretion of long-term obligations   17 6 72 6
  Other   (3) - 11 13
    (1,950) (2,797) (3,727) (9,921)
Net change in non-cash working capital   2,997 (415) (1,348) (1,918)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES   1,047 (3,212) (5,075) (11,839)
INVESTING ACTIVITIES          
Acquisition of ZARS Pharma, Inc.   - (16) - 1,394
Proceeds on disposal of property, plant and equipment   - 173 8 173
Acquisition of property, plant and equipment   (111) (47) (149) (161)
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES   (111) 110 (141) 1,406
FINANCING ACTIVITIES          
Proceeds from other obligations   - - 4,000 -
Repayment of other obligations   (486) - (1,345) (3,022)
Issuance of common shares   39 19 61 48
Repayments of finance lease obligations   - (1) (2) (63)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   (447) 18 2,714 (3,037)
Effect of exchange rate changes on cash and cash equivalents   170 (230) (73) (75)
Net change in cash and cash equivalents during the period   659 (3,314) (2,575) (13,545)
Cash and cash equivalents, beginning of period   11,490 18,038 14,724 28,269
CASH AND CASH EQUIVALENTS, END OF YEAR   12,149 14,724 12,149 14,724
           
Interest paid   117 1 269 5
Interest received   - 26 21 161
Income taxes paid   22 27 182 90

 

 

SOURCE Nuvo Research Inc.



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