Nuvo Research announces 2013 second quarter results

MISSISSAUGA, ON, July 31, 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 second quarter ended June 30, 2013.

Second Quarter and Recent Corporate Developments:

  • In July 2013, Mallinckrodt plc, Nuvo's U.S. marketing partner for Pennsaid® and Pennsaid 2%, advised Nuvo that it successfully completed the pharmacokinetic study required by the U.S. Food and Drug Administration (FDA) in the FDA's March 2013 Pennsaid 2% Complete Response Letter (CRL) to Mallinckrodt and that it expects to submit the study results with its response to the CRL in the third quarter of 2013 and receive a formal response from FDA six months from the date of the submission;

  • The U.S. Patent Office granted a WF10 U.S. Patent for the treatment of allergic asthma, allergic rhinitis and atopic dermatitis creating a potential commercial opportunity for the existing formulation of WF10;

  • In July 2013, the Company sold the exclusive rights to market and sell Synera in the U.S. for its current indication to Galen US Incorporated (Galen) for US$4.5 million received on closing, royalties of 10% of net sales and sales milestones of US$5.0 million upon gross annual U.S. sales reaching US$25.0 million and an additional US$5.0 million upon gross annual U.S. sales reaching US$50.0 million (Synera U.S. Licensing Agreement);

  • In July 2013, the Company amended its loan arrangements with Paladin Labs Inc., whereby Nuvo drew down the second $4.0 million loan tranche in July 2013 and may draw an additional third tranche of $4.0 million upon the achievement of predefined milestones;

  • The Company completed a share consolidation on the basis of 65 pre-Consolidation common shares for one post-Consolidation common share reducing the number of common shares outstanding to 8.7 million;

  • The European Patent Office issued a notice of Intention to Grant an E.U. Patent covering the Pennsaid 2% formulation and its use; and

  • Galderma Pharma S.A., the Company's global marketing partner for Pliaglis, launched the commercial marketing and sale of Pliaglis in the E.U. in April 2013 at the Anti-Aging Medicine World Congress & Medispa in Monaco.

Pennsaid U.S.
According to IMS Health, a provider of dispensed prescription data, during the second quarter of 2013, U.S. prescriptions of Pennsaid were 36,000 with an average 1.36 bottles of Pennsaid dispensed per script.  This represents a decrease of approximately 16% over the number of prescriptions in the first quarter of 2013.

Operating Results
Revenue, consisting of product sales, royalties, license fee revenue and research and other contract revenue for the three months ended June 30, 2013 was $3.3 million compared to $11.4 million for the three months ended June 30, 2012.  The decrease was attributable to a $5.4 million decrease in licensing fee revenue primarily due to the $5.1 million in milestone payments earned by the Company upon the marketing approval of Pliaglis in the first two European countries in the comparative period and a decrease in Pennsaid royalty revenue and product sales in the U.S. as the prior year revenue included significant shipments to the U.S. due to the temporary shortage of Voltaren Gel.  Total revenue for the six months ended June 30, 2013 was $5.6 million versus $17.6 million a year ago.

For the three months ended June 30, 2013, the Company reported gross margin on product sales of $150,000 compared to $0.8 million for the comparative period in 2012.  The decrease in gross margin was directly attributable to a significant decrease in Pennsaid produced and sold by the Company's manufacturing facility.  For the six months ended June 30, 2013, the Company reported a negative gross margin of $218,000, compared to a positive gross margin of $1.6 million for the comparative period in 2012.

Total operating expenses for the three and six months ended June 30, 2013 were $4.1 million and $8.5 million compared to $5.6 million and $11.9 million for the three and six months ended June 30, 2012.  The decrease in operating expenses was primarily due to lower sales and marketing (S&M) costs.

Research and development (R&D) expenses decreased to $1.5 million for the three months ended June 30, 2013 compared to $2.0 million for the three months ended June 30, 2012. The decrease related to lower external drug spending primarily on Synera and cost savings from the closure of its office in Salt Lake City (SLC).  R&D expenses decreased to $3.4 million for the six months ended June 30, 2013, compared to $3.7 million for the six months ended June 30, 2012.

S&M expenses were $0.2 million and $0.3 million for the three and six months ended June 30, 2013 compared with $1.4 million and $3.4 million for the comparative periods in 2012.  The S&M expense reduction relates to the U.S. marketing costs for Synera in the comparative period during which the Company launched Synera in the U.S.  In August 2012, the Company refocused its internal resources on large national accounts and accordingly, reduced its sales force.  Subsequent to the quarter, the Company sold the U.S. rights to Synera to Galen.

General and administrative (G&A) expenses increased to $2.3 million for the three months ended June 30, 2013 compared to $2.2 million for the three months ended June 30, 2012. The slight increase in G&A expenses related to increased amortization expense on the intangible assets related to Pliaglis and the heated lidocaine/tetracaine patch, as well as transaction costs related to the Synera U.S. Licensing Agreement and the amendment to the Paladin Loan.  Partially offsetting these increases was a reduction in operating costs related to the closing of the Company's office in SLC.  G&A expenses decreased to $4.6 million for the six months ended June 30, 2013 compared to $4.8 million for the six months ended June 30, 2012.

Net loss for the three months ended June 30, 2013 was $2.2 million versus net income of $4.0 million for the three months ended June 30, 2012.  The increase in net loss was attributable to lower revenue that more than offset the decrease in operating expenses.  Net loss for the six months ended June 30, 2013 was $5.5 million compared to $0.4 million for the six months ended June 30, 2012.

Cash and cash equivalents were $7.6 million as at June 30, 2013 compared to $12.1 million as at December 31, 2012.  Subsequent to the quarter, the Company received US$4.5 million from Galen under the terms of the Synera U.S. Licensing Agreement and drew the second $4.0 million loan tranche from Paladin.

Cash used in operating activities for the three months ended June 30, 2013 was $2.0 million compared to $1.0 million for the three months ended June 30, 2012. The increase in cash used in operations that was related to the increase in net loss was partially offset by a reduced investment in non-cash working capital.  For the six month period, the cash used in operating activities was $3.8 million versus $4.4 million a year ago.

Net cash used in financing activities totaled $0.5 million for the three months ended June 30, 2013 compared to net cash provided by financing activities of $3.8 million for the three months ended June 30, 2012.  The cash used in the quarter was for repayments of the Company's finance and lease obligations.  Net cash used in financing activities totaled $0.9 million for the six months ended June 30, 2013, compared to $3.9 million of cash provided by financing activities in the prior period.

The number of common shares outstanding as at June 30, 2013 was 8,745,828.

About Nuvo Research Inc.
Nuvo 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.  The Company's product portfolio includes Pennsaid®, Pliaglis and a heated lidocaine/tetracaine patch (HLT patch).  Pennsaid, a topical non-steroidal anti-inflammatory drug (NSAID), is used to treat the signs and symptoms of osteoarthritis of the knee(s).  Pennsaid is sold in the U.S. by Mallinckrodt plc, in Canada by Paladin Labs Inc. and in several European countries.  Pliaglis is a topical local anesthetic cream which provides 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.  Galderma launched the marketing and sale of Pliaglis in the U.S. in March of 2013 and in the E.U. in April of 2013.  The HLT patch is a topical patch that combines lidocaine, tetracaine and heat and is approved in the U.S. to provide local dermal analgesia for superficial venous access and superficial dermatological procedures and in Europe, for surface anaesthesia of normal intact skin.  Nuvo's licensing partner, Galen US Incorporated markets the HLT patch (under the name Synera) in the U.S.  In Europe, Nuvo's licensing partner, Eurocept International B.V., has initiated a pan-European launch of the HLT patch (under the name Rapydan).  The Company is also developing WF10, for the treatment of immune related diseases.

Forward-Looking Statements
Certain statements in this news release constitute forward-looking statements within the meaning of applicable securities laws.  Forward-looking statements include, but are not limited to, statements concerning the Company's future objectives, strategies to achieve those objectives, as well as statements 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" 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 the need for additional financing, the current economic environment, dependence on sales and marketing partnerships, competitive developments, as well as other risk factors included in the Company's annual information form dated March 27, 2013 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 news 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.  Certain statements included in this news release may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this news release.  All forward-looking statements in this news release are qualified by these cautionary statements.  The forward-looking statements contained herein are made as of the date of this news 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.

NUVO RESEARCH INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
                       
Unaudited             As at June 30,
2013
      As at December 31,
2012
(Canadian dollars in thousands)             $       $
ASSETS                      
CURRENT                      
Cash and cash equivalents             7,563       12,149
Accounts receivable             2,404       3,771
Inventories             1,431       1,156
Other current assets             905       1,056
TOTAL CURRENT ASSETS             12,303       18,132
                       
Property, plant and equipment             1,468       1,614
Intangible assets             8,748       8,739
TOTAL ASSETS             22,519       28,485
                       
LIABILITIES AND EQUITY                      
CURRENT                      
Accounts payable and accrued liabilities             3,009       3,360
Current portion of deferred revenue             228       341
Current portion of finance lease and other obligations             2,095       1,900
TOTAL CURRENT LIABILITIES             5,332       5,601
Deferred revenue             -       57
Finance lease and other obligations             355       1,358
TOTAL LIABILITIES             5,687       7,016
                       
EQUITY                      
Common shares             228,772       228,705
Contributed surplus             13,613       13,495
Accumulated other comprehensive income             1,088       420
Deficit             (226,641)       (221,151)
TOTAL EQUITY             16,832       21,469
TOTAL LIABILITIES AND EQUITY             22,519       28,485
                       
                       

NUVO RESEARCH INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME
(LOSS) AND COMPREHENSIVE INCOME (LOSS)
                       
Unaudited       Three Months Ended
June 30,
    Six Months Ended
June 30,
        2013 2012
(restated)
    2013     2012
(restated)
(Canadian dollars in thousands, except per share and share figures)       $ $     $     $
REVENUE                      
Product sales       1,670 3,040     2,274     5,769
Cost of goods sold       1,520 2,197     2,492     4,178
Gross margin on product sales       150 843     (218)     1,591
                       
Other revenue                      
Royalties       1,481 2,723     2,865     5,650
Licensing fees       85 5,532     170     6,068
Research and other contract revenue       84 62     262     99
Net revenue       1,800 9,160     3,079     13,408
OPERATING EXPENSES                      
Research and development expenses       1,508 1,961     3,380     3,657
Sales and marketing expenses       162 1,392     339     3,394
General and administrative expenses       2,349 2,213     4,642     4,806
Interest expense       99 80     211     100
Interest income       (14) (5)     (24)     (10)
Total operating expenses       4,104 5,641     8,548     11,947
OTHER INCOME                      
Loss (gain) on ZARS contingent consideration       - (690)     -     1,610
Foreign currency loss (gain)       (113) 127     (36)     110
Net income (loss) before income taxes       (2,191) 4,082     (5,433)     (259)
Income taxes       29 60     57     126
NET INCOME (LOSS)       (2,220) 4,022     (5,490)     (385)
Other comprehensive income (loss)                      
Unrealized gains (losses) on translation of foreign operations       350 520     668     (2)
TOTAL COMPREHENSIVE INCOME (LOSS)       (1,870) 4,542     (4,822)     (387)
                       
Net income (loss) per common share -                      
                       
    Basic and diluted       (0.25) 0.46     (0.63)     (0.04)
Average number of common shares outstanding (in thousands)                      
    basic       8,746 8,732     8,746     8,730
    diluted       8,746 8,779     8,746     8,767
                       
                       

NUVO RESEARCH INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
                       
Unaudited       Three months ended
June 30
    Six months ended
June 30
        2013 2012
(restated)
    2013     2012
(restated)
(Canadian dollars in thousands)       $ $     $     $
OPERATING ACTIVITIES                      
Net income (loss)       (2,220) 4,022     (5,490)     (385)
Items not involving current cash flows:                      
  Loss (gain) on ZARS contingent consideration       - (690)     -     1,610
  Depreciation and amortization       454 163     702     363
  Deferred license revenue recognized       (86) (386)     (171)     (922)
  Deferred royalty revenue, net of royalties earned       - (239)     -     (98)
  Stock-based compensation       (37) 130     103     489
  Unrealized foreign exchange (gain) loss       (128) 108     20     (21)
  Interest and accretion of long-term other obligations       16 78     33     97
  Other       (6) (4)     (11)     16
        (2,007) 3,182     (4,814)     1,149
Net change in non-cash working capital       (22) (4,136)     1,063     (5,572)
CASH USED IN OPERATING ACTIVITIES       (2,029) (954)     (3,751)     (4,423)
INVESTING ACTIVITIES                      
Acquisition of property, plant and equipment       (38) (8)     (73)     (15)
CASH USED IN INVESTING ACTIVITIES       (38) (8)     (73)     (15)
FINANCING ACTIVITIES                      
Proceeds from other obligations       - 4,000     -     4,000
Repayment of finance lease and other obligations       (484) (156)     (865)     (169)
Issuance of common shares       - -     -     22
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES       (484) 3,844     (865)     3,853
Effect of exchange rate changes on cash and cash equivalents       122 (45)     103     (43)
Net change in cash and cash equivalents during the period       (2,429) 2,837     (4,586)     (628)
Cash and cash equivalents, beginning of period       9,992 11,259     12,149     14,724
CASH AND CASH EQUIVALENTS, END OF PERIOD       7,563 14,096     7,563     14,096
                       
Interest paid       89 -     189     -
Interest received       15 4     20     15
Income taxes paid       28 69     48     106

 

SOURCE Nuvo Research Inc.




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