Nuvo Research Announces 2013 Third Quarter Results

MISSISSAUGA, ON, Oct. 30, 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 third quarter ended September 30, 2013.

Third Quarter and Recent Corporate Developments:

  • 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 (Galen Upfront Payment) received on closing, royalties of 10% of net sales and sales milestone payments 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;

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

  • In August 2013, Mallinckrodt Inc. (Mallinckrodt), the Company's U.S. marketing licensee for Pennsaid® and Pennsaid 2%, advised Nuvo that the U.S. Food and Drug Administration (FDA) had accepted for filing and review the New Drug Application (NDA) for Pennsaid 2%, submitted by Mallinckrodt on August 7, 2013.  The FDA indicated to Mallinckrodt that it expects to respond to the NDA by February 7, 2014;

  • In August 2013, the Company commenced legal action against Mallinckrodt asserting that it had breached its contractual obligations to Nuvo as set out in a Licensing Agreement pursuant to which Nuvo licensed to Mallinckrodt the rights to market and sell Pennsaid and Pennsaid 2% in the U.S.  The Company is seeking damages of not less than $100M and a declaration that it is entitled to terminate the Licensing Agreement which would result in the rights to market and sell Pennsaid and/or Pennsaid 2% in the U.S. reverting to the Company. The Company has not terminated the Licensing Agreement which continues pending the Court's decision; and

  • In October 2013, Galderma Pharma S.A. (Galderma), the Company's global marketing partner for Pliaglis, received approval for the marketing and sale of Pliaglis in Brazil which entitles the Company to a US$2.0 million milestone payment (Pliaglis Milestone Payment) that it expects to receive in early 2014.

Pennsaid U.S.
According to IMS Health, a provider of dispensed prescription data, during the third quarter of 2013, U.S. prescriptions of Pennsaid were 34,000 with an average 1.30 bottles of Pennsaid dispensed per script.  This represents a decrease of approximately 6% over the number of prescriptions in the second 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 September 30, 2013 was $9.1 million compared to $3.5 million for the three months ended September 30, 2012.  The significant increase in the quarter was attributable to the Galen Upfront Payment and the Pliaglis Milestone Payment.  Total revenue for the nine months ended September 30, 2013 was $14.7 million versus $21.1 million a year ago.

The Company reported a negative gross margin on product sales of $0.3 million for the three months ended September 30, 2013 unchanged from the comparative period.  The negative gross margin on product sales was attributable to lower product sales of WF10 and Synera that were offset by an improved margin related to higher Pennsaid product sales.  For the nine months ended September 30, 2013, the Company reported a negative gross margin of $0.5 million compared to a positive gross margin of $1.3 million for the comparative periods in 2012.

Total operating expenses for the three and nine months ended September 30, 2013 were $4.6 million and $13.1 million compared to $5.2 million and $17.2 million for the three and nine months ended September 30, 2012.  The decrease in operating expenses was primarily due to lower sales and marketing (S&M) costs.

Research and development (R&D) expenses were consistent at $1.7 million for the three months ended September 30, 2013 and 2012.  In the quarter, expenses related to the advancement of the WF10 development program were entirely offset by lower external drug spending on the HLT Patch.  R&D expenses decreased to $5.1 million for the nine months ended September 30, 2013 compared to $5.3 million for the nine months ended September 30, 2012.

S&M expenses were $0.3 million and $0.6 million for the three and nine months ended September 30, 2013 compared to $1.2 million and $4.6 million for the comparative periods in 2012.  In the quarter, the Company sold the U.S. rights to Synera to Galen and incurred termination costs of $0.2 million.  The comparative period included marketing costs related to the Company's efforts to sell Synera in the U.S.

General and administrative (G&A) expenses were $2.3 million for the three months ended September 30, 2013 compared to $2.2 million for the three months ended September 30, 2012. The small increase in G&A expenses in the quarter related to increased amortization expense on the intangible assets and fees related to the Mallinckrodt litigation.  Partially offsetting these increases was a reduction in operating costs related to the closing of the Company's office in Salt Lake City.  G&A expenses were unchanged at $7.0 million for the nine months ended September 30, 2013 and September 30, 2012.

Net loss for the three months ended September 30, 2013 was $2.9 million compared to $2.0 million for the three months ended September 30, 2012.  In the quarter, the increase in revenue related to the Galen Upfront Payment and the Pliaglis Milestone Payment and the decrease in operating expenses was entirely offset by the $6.4 million impairment charge on intangible assets (see ZARS Impairment Charge below).  In addition, the comparative period included a $1.2 million gain related to the revaluation of the ZARS contingent consideration.  Net loss for the nine months ended September 30, 2013 was $8.4 million compared to $2.4 million for the nine months ended September 30, 2012.

Cash and cash equivalents were $14.6 million as at September 30, 2013 compared to $12.1 million as at December 31, 2012.  The US$2.0 million milestone payment for Pliaglis is not due from Galderma until the first quarter of 2014.

Cash provided by operating activities for the three months ended September 30, 2013 was $3.7 million compared to cash used in operating activities of $1.7 million for the three months ended September 30, 2012. The increase in cash provided by operations was attributable to the receipt of the Galen Upfront Payment.  For the nine-month period, cash used in operating activities was $0.1 million compared to $6.1 million a year ago.

Net cash provided by financing activities totaled $3.5 million for the three months ended September 30, 2013 compared to net cash used in financing activities of $0.7 million for the three months ended September 30, 2012.  During the quarter, Paladin advanced the second tranche of the loan facility in the amount of $4.0 million on closing of the Amended Paladin Debt arrangement.  Net cash provided by financing activities was $2.7 million for the nine months ended September 30, 2013 compared to $3.2 million in the prior period.

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

ZARS Impairment Charge
The Company reviewed the carrying values of the intangible assets recognized from the acquisition of ZARS for potential impairment at September 30, 2013, as commercial efforts for both Pliaglis and Synera have not met expectations.  Indications for impairment did exist, and management determined that each asset was impaired.  The Company recorded an impairment charge of $6.1 million for Pliaglis and $0.3 million for Synera.

Advance Notice By-Law
The Board of Directors of the Company has approved a By-Law ("By-Law Number 2") that requires advance notice to the Company when director nominations are made by shareholders of the Company, other than nominations made by or at the direction or request of one or more shareholders pursuant to a proposal submitted to the Company in accordance with the Business Corporations Act (Ontario) (the "Act") or a requisition of meeting submitted to the directors in accordance with the Act. For an effective nomination to occur, a shareholder is required to provide the Company with certain information, enumerated in By-Law Number 2, about the nominating shareholder and its proposed nominees in the time frame set out below.

In the case of an annual meeting of shareholders, notice to the Company must be made not less than 30 nor more than 65 days prior to the date of the annual meeting; provided; however, that in the event that the annual meeting is to be held on a date that is less than 50 days after the date on which the first public announcement of the date of the annual meeting was made, notice may be made not later than the close of business on the 10th day following such public announcement.

In the case of a special meeting of shareholders (which is not also an annual meeting), notice to the Company must be made not later than the close of business on the 15th day following the day on which the first public announcement of the date of the special meeting was made.

By-Law Number 2 is effective immediately. Shareholders will be asked at the next shareholder meeting to confirm and ratify By-Law Number 2, a copy of which has been filed under the Company's profile at www.sedar.com.

About Nuvo Research Inc.
Nuvo (TSX:NRI) is a specialty pharmaceutical company focused on improving patient's lives by developing and commercializing innovative products that address unmet medical needs.  The Company has a diverse portfolio of products in the areas of topical pain and immunology.

Nuvo's marketed products include Pennsaid® (a topical treatment for the signs and symptoms of osteoarthritis of the knee), Pliaglis (a topical local anesthetic) and the heated lidocaine/tetracaine patch (HLT Patch).  Further information is available on the company's website www.nuvoresearch.com or by contacting:

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 September 30,
2013
  As at December 31,
2012
(Canadian dollars in thousands)   $   $
ASSETS        
CURRENT        
Cash and cash equivalents   14,646   12,149
Accounts receivable   3,904   3,771
Inventories   1,053   1,156
Other current assets   694   1,056
TOTAL CURRENT ASSETS   20,297   18,132
         
Property, plant and equipment   1,479   1,614
Intangible assets   1,891   8,739
TOTAL ASSETS   23,667   28,485
         
LIABILITIES AND EQUITY        
CURRENT        
Accounts payable and accrued liabilities   3,723   3,360
Current portion of deferred revenue   143   341
Current portion of finance lease and other obligations   1,994   1,900
TOTAL CURRENT LIABILITIES   5,860   5,601
Deferred revenue   -   57
Finance lease and other obligations   3,953   1,358
TOTAL LIABILITIES   9,813   7,016
         
EQUITY        
Common shares   228,772   228,705
Contributed surplus   13,720   13,495
Accumulated other comprehensive income   949   420
Deficit   (229,587)   (221,151)
TOTAL EQUITY   13,854   21,469
TOTAL LIABILITIES AND EQUITY   23,667   28,485
         

             
NUVO RESEARCH INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF LOSS AND
COMPREHENSIVE LOSS  
       
Unaudited   Three Months Ended
September 30,
Nine Months Ended
September 30,
    2013 2012
(restated)
2013 2012
(restated)
(Canadian dollars in thousands,
except per share and share figures)
  $ $ $ $
REVENUE          
Product sales   831 1,012 3,105 6,781
Cost of goods sold   1,102 1,327 3,594 5,505
Gross margin   (271) (315) (489) 1,276
           
Other revenue          
Royalties   1,472 1,356 4,337 7,006
Licensing fees   6,828 1,099 6,998 7,167
Research and other contract revenue   6 33 268 132
Net revenue   8,035 2,173 11,114 15,581
OPERATING EXPENSES          
Research and development expenses   1,748 1,653 5,128 5,310
Sales and marketing expenses   310 1,208 649 4,602
General and administrative expenses   2,328 2,233 6,970 7,039
Interest expense   220 150 431 250
Interest income   (26) (5) (50) (15)
Total operating expenses   4,580 5,239 13,128 17,186
OTHER EXPENSES (INCOME)          
Impairment of intangible assets   6,358 - 6,358 -
Litigation settlement   - (277) - (277)
Loss (gain) on ZARS contingent consideration   - (1,150) - 460
Foreign currency loss (gain)   16 319 (20) 429
Net loss before income taxes   (2,919) (1,958) (8,352) (2,217)
Income taxes   27 48 84 174
NET LOSS   (2,946) (2,006) (8,436) (2,391)
Other comprehensive income (loss)          
Unrealized gains (losses) on translation of foreign
    operations
  (139) (786) 529 (788)
TOTAL COMPREHENSIVE LOSS   (3,085) (2,792) (7,907) (3,179)
Net loss per common share -          
    Basic and diluted   (0.34) (0.23) (0.97) (0.27)
Average number of common shares outstanding
    (in thousands)
    basic and diluted
  8,746 8,732 8,746 8,731
           

 
NUVO RESEARCH INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
       
Unaudited   Three months ended
September 30
Nine months ended
September 30
    2013 2012
(restated)
2013 2012
(restated)
(Canadian dollars in thousands)   $ $ $ $
OPERATING ACTIVITIES          
Net loss   (2,946) (2,006) (8,436) (2,391)
Items not involving current cash flows:          
  Impairment of intangible assets   6,358 - 6,358 -
  Loss (gain) on ZARS contingent consideration   - (1,150) - 460
  Depreciation and amortization   451 154 1,153 517
  Deferred license revenue recognized   (85) (85) (256) (1,007)
  Deferred royalty revenue, net of royalties earned   - (218) - (316)
  Stock-based compensation   226 87 329 576
  Unrealized foreign exchange loss   5 336 25 315
  Interest and accretion of long-term other obligations   15 (42) 48 55
  Other   (2) (2) (13) 14
    4,022 (2,926) (792) (1,777)
Net change in non-cash working capital   (352) 1,227 711 (4,345)
CASH PROVIDED (USED) IN OPERATING ACTIVITIES   3,670 (1,699) (81) (6,122)
INVESTING ACTIVITIES          
Acquisition of property, plant and equipment   (116) (23) (189) (38)
Proceeds on disposal of property, plant and equipment   - 8 - 8
CASH USED IN INVESTING ACTIVITIES   (116) (15) (189) (30)
FINANCING ACTIVITIES          
Proceeds from other obligations   4,000 - 4,000 4,000
Repayment of finance lease and other obligations   (481) (692) (1,346) (861)
Issuance of common shares   - - - 22
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   3,519 (692) 2,654 3,161
Effect of exchange rate changes on cash and cash equivalents   10 (200) 113 (243)
Net change in cash and cash equivalents during the period   7,083 (2,606) 2,497 (3,234)
Cash and cash equivalents, beginning of period   7,563 14,096 12,149 14,724
CASH AND CASH EQUIVALENTS, END OF PERIOD   14,646 11,490 14,646 11,490
           
Interest paid   158 152 347 152
Interest received   20 6 40 21
Income taxes paid   29 54 77 160
         

 

 

SOURCE Nuvo Research Inc.



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