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Nuvo Research announces 2010 second quarter financial results

Friday, July 30, 2010 Research News J E 4
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MISSISSAUGA, ON, July 29 /PRNewswire-FirstCall/ - Nuvo Research Inc. (TSX: NRI), a drug development company focused on the research and development of drug products that are delivered into and through the skin using its topical and transdermal drug delivery technologies, and on the development of its immune modulating drug candidate WF10, today announced its financial and operational results for the quarter ended June 30, 2010.

Key Corporate Developments:

    -   Announced that Mallinckrodt Inc., a Covidien (NYSE:COV) company
        ("Covidien"), Nuvo's licensee, began selling Pennsaid, a topical
        NSAID, in the United States. Nuvo receives royalties at rates
        consistent with industry standards from Covidien on net U.S. Pennsaid
        sales. Nuvo is also eligible to receive sales milestone payments
        totaling up to US$100 million if certain U.S. sales levels are
        achieved;

    -   Completed enrollment in Nuvo's European Phase 2 trial evaluating WF10
        as a treatment for allergic rhinitis. The Company anticipates
        completing the in-patient portion of the study and receiving topline
        results in late 2010;

    -   Subsequent to quarter end, Nuvo received its first royalty payment in
        the amount of CDN$1.2 million from Covidien relating to U.S. sales of
        Pennsaid;

    -   Subsequent to quarter end, Covidien began recruiting participants in
        its Phase 2 clinical study of Pennsaid Gel, a follow-on product to
        Pennsaid with two times per day dosing and anticipated patent
        protection.

"We are pleased with Covidien's launch of Pennsaid in the United States," said Dan Chicoine, Chairman and Co-Chief Executive Officer of Nuvo Research. "Covidien has indicated that Pennsaid is doing well in the marketplace. While it is early in the process, we are optimistic that Pennsaid will continue its upward sales trend in the U.S. We are also encouraged that it appears that Pennsaid's commercial launch is expanding the overall U.S. topical NSAID market. An expanding market creates heightened awareness and acceptance among physicians and patients about the benefits of this relatively new U.S. drug class, which could result in increased future Pennsaid sales and revenue for Nuvo."

    Financial Results:
    (thousands of Canadian dollars)


                      Three months  Three months    Six months    Six months
                             ended         ended         ended         ended
                     June 30, 2010 June 30, 2009 June 30, 2010 June 30, 2009
    -------------------------------------------------------------------------
                                 $             $             $             $
    -------------------------------------------------------------------------
    Revenue                  4,244         2,706         8,295         5,753
    Net loss                (2,862)       (1,664)       (5,867)       (4,532)
    -------------------------------------------------------------------------

Operating Results

Revenue consisting of product sales, royalties, license fee revenue and research and other contract revenue for the three months ended June 30, 2010 increased 57% to $4.2 million compared to $2.7 million for the three months ended June 30, 2009. The increase was primarily attributable to the launch of Pennsaid in the United States in late April 2010 as the Company recorded $1.3 million in Pennsaid product sales and royalty revenue earned on the net sales of Pennsaid in the U.S. Although early in the launch, management is encouraged by the market data and metrics for prescriptions, average units dispensed per prescription, patient days dispensed and the qualitative feedback received from our U.S. licensee Covidien. Revenue for the six months ended June 30, 2010 increased by 44% to $8.3 million compared to $5.8 million for the six months ended June 30, 2009 primarily due to the U.S. launch.

Gross margin on product sales increased to $1.2 million for the three months ended June 30, 2010 compared to $0.6 million for the three months ended June 30, 2009. The increase in gross margin is primarily attributable to higher Pennsaid sales as a result of the U.S. launch and the negative impact that the planned eight-week shutdown of the Pennsaid manufacturing facility had on the comparative period. For the six months ended June 30, 2010, gross margin on product sales was $2.3 million compared to $1.9 million for the six months ended June 30, 2009. The increase in gross margin is primarily attributable to higher Pennsaid sales, partially offset by the significant weakening of the euro and British pound against the Canadian dollar.

Total operating expenses, excluding foreign currency gains and losses, for the three and six months ended June 30, 2010 were $4.8 million and $9.3 million versus $3.1 million and $7.9 million for the three and six months ended June 30, 2009. The increase in the quarter and six-month period relates primarily to higher selling, general and administrative expenses (SG&A), research and development (R&D) expenses offset by lower net interest expense and amortization.

R&D expenses were $2.2 million and $4.5 million for the three and six months ended June 30, 2010, an increase compared to $0.9 million and $3.8 million for the three and six months ended June 30, 2009. The increase observed this quarter versus a year ago is primarily related to a $0.9 million reimbursement payment received from Covidien in June 2009 for specific R&D costs incurred prior to the Effective Date under the terms of the U.S. Licensing Agreement. The remaining increase in the three and six-month periods primarily related to establishing the Pain Group in the U.S. and conducting the Phase 2 allergic rhinitis trial for WF10, which is partially funded by the SAB, in Leipzig, Germany.

SG&A expenses increased to $2.5 million and $4.5 million for the three and six months ended June 30, 2010 compared to $1.9 million and $3.4 million for the three and six months ended June 30, 2009. The increase in both periods is primarily related to an increase in compensation costs. During the quarter, the Compensation Committee retained the services of Radford, the leading executive compensation consultant to the life sciences industry in North America to help establish an executive and senior management compensation philosophy and to make compensation recommendations. The recommendations were implemented in the quarter. Also contributing to the increase is consulting, professional fees and other fees relating to the Company's business development activities aimed at expanding its drug development pipeline.

Net interest income was $13,000 for the three months ended June 30, 2010 compared to net interest expense of $218,000 for the three months ended June 30, 2009. For the six months ended June 30, 2010, net interest expense was $21,000 compared to $430,000 for the six months ended June 30, 2009. The decrease in both periods is attributable to lower non-cash accretion charges and cash interest payments on the convertible debentures as all outstanding debentures were converted into common shares during 2009 and the first quarter of 2010.

Net loss was $2.9 million and $5.9 million for the three and six months ended June 30, 2010 compared to $1.7 million and $4.5 million for the three months ended June 30, 2009. The larger net loss in both periods is attributable to higher SG&A, R&D expenses and foreign currency losses that were only partially offset by a higher gross margin, U.S. royalty revenue and lower interest expense.

Cash and cash equivalents were $32.9 million as at June 30, 2010, a $9.2 million decrease from $42.1 million as at December 31, 2009, primarily as a result of the $5.9 million loss and a $2.1 million investment in non-cash working capital primarily related to the U.S. launch of Pennsaid.

Cash used in operations was $3.2 million and $6.0 million for the three and six months ended June 30, 2010 compared to $2.0 million and $4.9 million for the three and six months ended June 30, 2009. The increase in cash used in operations is primarily attributable to the higher net loss in both periods.

Net cash used in investing activities totaled $370,000 and $604,000 for the three and six months ended June 30, 2010 compared to $148,000 and $203,000 for the three and six months ended June 30, 2009. The additions in the three and six months ended June 30, 2010 primarily represent the purchase of production automation and laboratory equipment.

Net cash used in financing activities totaled $14,000 and $33,000 for the three and six months ended June 30, 2010 and related primarily to scheduled capital lease payments. For the three and six months ended June 30, 2009, cash provided by financing activities totaled $3.2 million and $5.3 million and was primarily attributed to proceeds received upon the exercise of warrants as part of and subsequent to the early warrant incentive program.

About Nuvo Research Inc.

Nuvo is primarily focused on the research and development of drug products delivered into and through the skin using its topical and transdermal drug delivery technologies, and on the development of its immune modulating drug candidate WF10. Nuvo's lead product is Pennsaid, a topical non-steroidal anti-inflammatory drug (NSAID), which is sold in Canada, several European countries and the United States. Nuvo intends to leverage its skin-penetrating technologies to create a portfolio of topical and transdermal products targeting a variety of indications. Nuvo is a publicly traded, Canadian pharmaceutical company headquartered in Mississauga, Ontario. Nuvo's Pain Group is located in West Chester, Pennsylvania. Its manufacturing facilities are located in Varennes, Québec and Wanzleben, Germany, and its research and development centers are located in San Diego, California and Leipzig, Germany. For more information, please visit www.nuvoresearch.com

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 annual report, as well as in Nuvo's Annual Information Form for the year ended December 31, 2009. Nuvo disclaims any intention or obligation to update or revise any forward-looking statements whether 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 BALANCE SHEET
                     FOR THE PERIOD ENDED JUNE 30, 2010

                                                         As at         As at
                                                       June 30,  December 31,
                                                          2010          2009
                                                     Unaudited       Audited
    (Canadian dollars in thousands)                          $             $
    -------------------------------------------------------------------------
    ASSETS
    CURRENT
    Cash and cash equivalents                           32,867        42,102
    Accounts receivable                                  3,735         2,091
    Inventories                                          1,571         2,078
    Other current assets                                   985           445
    -------------------------------------------------------------------------
    TOTAL CURRENT ASSETS                                39,158        46,716

    Property, plant and equipment                        2,204         1,834
    -------------------------------------------------------------------------
    TOTAL ASSETS                                        41,362        48,550
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT
    Accounts payable and accrued liabilities             3,276         4,589
    Deferred revenue                                     2,351         2,241
    Current portion of capital lease obligations            93            79
    Current portion of debentures                            -         3,038
    -------------------------------------------------------------------------
    TOTAL CURRENT LIABILITIES                            5,720         9,947
    Deferred revenue                                       910         1,080
    Capital lease obligations                               26            65
    -------------------------------------------------------------------------
    TOTAL LIABILITIES                                    6,656        11,092
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY
    Common shares                                      216,707       210,086
    Contributed surplus                                 12,582        12,536
    Accumulated other comprehensive income                 114           114
    Deficit                                           (194,697)     (185,278)
    -------------------------------------------------------------------------
    TOTAL SHAREHOLDERS' EQUITY                          34,706        37,458
    -------------------------------------------------------------------------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY          41,362        48,550
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                             NUVO RESEARCH INC.
           CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
                     FOR THE PERIOD ENDED JUNE 30, 2010

                             Three months                  Six months
                            ended June 30,              ended June 30,
    Unaudited                 2010          2009          2010          2009
    (Canadian dollars
     in thousands, except
     per share and share
     figures)                    $             $             $             $
    -------------------------------------------------------------------------
    REVENUE
    Product sales            3,311         2,075         6,578         4,458
    Cost of goods sold       2,063         1,449         4,255         2,583
    -------------------------------------------------------------------------
    Gross margin on
     product sales           1,248           626         2,323         1,875

    Other revenue
    Licensing fees             560           560         1,120         1,120
    Royalties                  188             -           188             -
    Research and other
     contract revenue          185            71           409           175
    -------------------------------------------------------------------------
                             2,181         1,257         4,040         3,170
    -------------------------------------------------------------------------

    EXPENSES
    Research and
     development             2,229           865         4,538         3,821
    Selling, general and
     administrative
     expenses                2,506         1,900         4,509         3,373
    Amortization of
     property, plant,
     and equipment             124           148           242           297
    Foreign currency
     (gain) loss               192          (210)          597          (219)
    Interest expense             3           227            63           473
    Interest income            (16)           (9)          (42)          (43)
    -------------------------------------------------------------------------
                             5,038         2,921         9,907         7,702
    -------------------------------------------------------------------------
    LOSS BEFORE INCOME
     TAXES                  (2,857)       (1,664)       (5,867)       (4,532)
    -------------------------------------------------------------------------
    Income taxes                 5             -             5             -
    -------------------------------------------------------------------------
    Net Loss and total
     comprehensive loss     (2,862)       (1,664)       (5,872)       (4,532)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net loss per common
     share - basic and
     diluted                 (0.01)        (0.01)        (0.01)        (0.01)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average number of
     common shares
     outstanding -
     basic and diluted
     (millions)              417.3         352.6         409.1         336.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                             NUVO RESEARCH INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                     FOR THE PERIOD ENDED JUNE 30, 2010

                             Three months                  Six months
                            ended June 30,              ended June 30,

    Unaudited                 2010          2009          2010          2009
    (Canadian dollars
     in thousands)               $             $             $             $
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net loss                (2,862)       (1,664)       (5,872)       (4,532)
    Items not involving
     current cash flows:
      Amortization             124           148           242           297
      Deferred revenue
       recognized             (579)         (560)       (1,120)       (1,120)
      Stock-based
       compensation             22           277            47           503
      Accretion of
       interest on
       debentures                -           147            31           295
      Unrealized foreign
       exchange loss
       (gain)                  123           (75)          648           (66)
      Other                     16          (273)           15          (257)
    -------------------------------------------------------------------------
                            (3,156)       (2,000)       (6,009)       (4,880)
    Net change in
     non-cash working
     capital                   214          (201)       (2,136)         (510)
    Deferred proceeds
     from licensing
     arrangements,
     royalty payments
     and advances on
     research contracts          -        11,318            14        11,341
    -------------------------------------------------------------------------
    CASH PROVIDED BY
     (USED IN) OPERATING
     ACTIVITIES             (2,942)        9,117        (8,131)        5,951
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
    Acquisition of
     property, plant
     and equipment            (370)         (148)         (604)         (203)
    -------------------------------------------------------------------------
    CASH USED IN INVESTING
     ACTIVITIES               (370)         (148)         (604)         (203)
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
    Issuance of common
     shares and warrants,
     net of related costs        5         3,246             5         5,442
    Repayments of
     long-term debt and
     capital lease
     obligations               (19)          (32)          (38)          (94)
    -------------------------------------------------------------------------
    CASH PROVIDED BY
     (USED IN) FINANCING
     ACTIVITIES                (14)        3,214           (33)        5,348
    -------------------------------------------------------------------------
    Effect of exchange
     rate changes on cash
     and cash equivalents      (61)          (99)         (467)          (55)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net change in cash
     and cash equivalents
     during the period      (3,387)       12,084        (9,235)       11,041
    Cash and cash
     equivalents,
     beginning of
     period                 36,254        14,176        42,102        15,219
    -------------------------------------------------------------------------
    CASH AND CASH
     EQUIVALENTS, END
     OF PERIOD              32,867        26,260        32,867        26,260
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Interest paid                2           166            55           261
    -------------------------------------------------------------------------

SOURCE Nuvo Research Inc.

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