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Nuvo announces 2009 third quarter financial results

October 28, 2009

MISSISSAUGA, ON, Oct. 28 /PRNewswire-FirstCall/ – Nuvo Research Inc. (TSX: NRI), a Canadian drug development company focused on the research and development of drug products that are delivered to and through the skin using its topical and transdermal drug delivery technologies and on the research and development of its immune modulating drug candidate, WF10, today announced its financial and operational results for the quarter ended September 30, 2009.

    Reent Corporate Developments:

    -   Received funding commitments from the Development Bank of Saxony in
        Germany for two co-operative drug development projects with the
        Fraunhofer Institute in Leipzig, Germany. These two projects will
        focus on the preclinical and clinical development of WF10 as
        potential treatments for allergic rhinitis and rheumatoid arthritis;
    -   Announced that the U.S. Food and Drug Administration (FDA) set a new
        action date of November 4, 2009 under the Prescription Drug User Fee
        Act (PDUFA) for the FDA's response to the Company's application for
        U.S. marketing approval of Pennsaid, the Company's topical diclofenac
        product for the treatment of the signs and symptoms of knee
        osteoarthritis; and,
    -   As at September 30, 2009, had $29.5 million in cash and cash
        equivalents, that included $6.1 million in proceeds from warrants
        exercised in July 2009.

“We remain optimistic that the FDA will approve Pennsaid for marketing in the U.S.,” said Henrich Guntermann, President and Chief Executive Officer of Nuvo Research. “In addition, our early stage pipeline of topical pain products, the emergence of WF10 as a potential treatment for allergic rhinitis and rheumatoid arthritis, and our strong cash position put Nuvo on a path to achieving our goal of becoming a diversified, well capitalized, profitable drug development company.”

    Financial Results:
    (thousands of Canadian dollars)

                                      Three      Three       Nine       Nine
                                     months     months     months     months
                                      ended      ended      ended      ended
                                  September  September  September  September
                                   30, 2009   30, 2008   30, 2009   30, 2008
    -------------------------------------------------------------------------
    Revenue                        $  3,234   $  3,289   $  8,987   $  7,610
    Net loss                       $ (2,725)  $ (3,004)  $ (7,257)  $ (8,139)
    -------------------------------------------------------------------------

Revenue, consisting of product sales, license fee revenue, and research and other contract revenue, for the three months ended September 30, 2009 decreased slightly to $3.2 million compared with $3.3 million for the three months ended September 30, 2008. In the current period, a significant increase in product sales was offset by lower license fees as the comparable quarter included a non-recurring $0.9 million payment from our Canadian licensee to settle past obligations under their original Pennsaid(R) licensing agreements. Revenue for the nine months ended September 30, 2009 increased 18% to $9.0 million compared to $7.6 million for the nine months ended September 30, 2008. This increase is primarily attributable to a $1.5 million increase in Pennsaid product sales to our Canadian licensee and Greek distributor.

For the three months ended September 30, 2009, gross margin on product sales increased to $1.0 million compared to $0.5 million for the three months ended September 30, 2008. The increase in gross margin is almost entirely attributable to the increase in sales of Pennsaid. For the nine months ended September 30, 2009, gross margin on product sales was $2.9 million compared to $2.2 million for the nine months ended September 30, 2008. The increase in gross margin is primarily attributable to higher Pennsaid sales, offset partially by higher material costs, the strengthening U.S. dollar and costs related to the capacity expansion at the Company’s manufacturing facility.

Total operating expenses, excluding foreign currency losses, for the three months ended September 30, 2009 were $3.9 million, a decrease of 13% from $4.5 million for the three months ended September 30, 2008. The decrease in the quarter relates primarily to lower research and development expenses offset partially by increases in selling, general and administrative expenses. Total operating expenses, excluding foreign currency losses, for the nine months ended September 30, 2009 decreased to $11.8 million compared to $12.1 million for the nine months ended September 30, 2008. The decrease from 2008 relates to lower research and development expenses, stock-based compensation and amortization expense, partially offset by higher SG&A costs.

Research and development expenses were $1.8 million and $5.6 million for the three and nine months ended September 30, 2009, decreases of 29% and 18%, compared with $2.6 million and $6.8 million for the three and nine months ended September 30, 2008, respectively. The decrease in the three and nine-month periods relates to reduced spending on Pennsaid, as all studies necessary for filing the Company’s Complete Response to the Pennsaid Approvable Letter were completed prior to filing in early 2009. In addition, under the terms of the U.S. Licensing Agreement, Covidien assumed responsibility for all Pennsaid and Pennsaid Plus development activities and costs subsequent to June 15, 2009. These declines were partially offset by severance costs and increased spending on research and formulation development activities at the Company’s research labs in San Diego in the nine month period.

SG&A expenses increased to $1.6 million and $4.8 million for the three and nine months ended September 30, 2009, compared to $1.3 million and $3.6 million for the three and nine months ended September 30, 2008. The increase in the quarter is primarily attributable to executive management bonuses. For the nine months, the increase in SG&A is primarily attributable to costs relating to the U.S. Licensing Agreement, bonus payments and compensation expense incurred upon revaluation of the outstanding units in the Company’s DSU Plan to their market value.

Net loss declined to $2.7 million for the three months ended September 30, 2009 compared to $3.0 million for the three months ended September 30, 2008 as the comparative period included a $0.3 million loss on the extinguishment of the convertible debentures. For the nine months ended September 30, 2009, the net loss declined to $7.3 million from $8.1 million compared to the nine months ended September 30, 2008.

Cash and cash equivalents were $29.5 million as at September 30, 2009, a substantial increase compared to $15.2 million as at December 31, 2008, primarily as a result of the $11.3 million Upfront Payment received from Covidien and $11.6 million in proceeds received upon the exercise of warrants.

Cash used in operations was $2.2 million for both the three months ended September 30, 2009 and 2008. Although the net loss in the 2009 quarter was lower, the improvement was entirely attributable to a non-cash charge related to the extinguishment of the convertible debentures such that cash used in operations was unchanged. For the nine-month period, cash used in operations decreased only slightly to $7.0 million compared to $7.1 million for the nine-months ended September 30, 2008.

Net cash used in investing activities totaled $130,000 and $333,000 for the three and nine months ended September 30, 2009 compared to $36,000 and $92,000 in the three and nine months ended September 30, 2008. The spending in 2009 was primarily for the purchase of new production equipment in preparation for the anticipated launch of Pennsaid in the U.S.

Net cash provided by financing activities totaled $6.1 million and $11.4 million for the three and nine months ended September 30, 2009, compared to $1.4 million and $2.3 million for the three and nine months ended September 30, 2008. During 2009 all cash provided by financing activities was attributable to the exercise of warrants.

Detailed financial statements and the MD&A are available at www.nuvoresearch.com or www.sedar.com.

About Pennsaid

Pennsaid, the Company’s lead product, is used to treat the pain and symptoms associated with knee osteoarthritis. Pennsaid combines a transdermal carrier (containing dimethyl sulfoxide, popularly known as “DMSO”) with diclofenac sodium, a leading non-steroidal anti-inflammatory drug (“NSAID”), and delivers the active drug through the skin directly to the site of pain. While, conventional oral NSAIDs expose patients to potentially serious systemic side effects such as gastrointestinal bleeding and cardiovascular risks, Nuvo’s clinical trials suggest that some of these systemic side effects occur less frequently with topically applied Pennsaid. There are more than 27 million Americans suffering from osteoarthritis and the United States market for this condition is estimated at US$4 billion annually.

About Nuvo Research Inc.

Nuvo is focused on the research and development of drug products delivered to and through the skin using its topical and transdermal drug delivery technologies and WF10, its immune modulating drug candidate. Nuvo’s lead product is Pennsaid, a topical NSAID used for the treatment of osteoarthritis of the knee. 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, with manufacturing facilities in Varennes, Quebec and Wanzleben, Germany and a research and development center in San Diego, California. For more information, please visit www.nuvoresearch.com.

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. The Company 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 the Company’s Annual Information Form for the year ended December 31, 2008. The Company 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.

Summary financial statements attached:

                             NUVO RESEARCH INC.
                         CONSOLIDATED BALANCE SHEETS

                                                          As at        As at
                                                   September 30, December 31,
                                                           2009         2008
                                                      Unaudited      Audited
    (thousands of Canadian dollars)                           $            $
    -------------------------------------------------------------------------
    ASSETS
    CURRENT
    Cash and cash equivalents                            29,489       15,219
    Accounts receivable                                   2,959        2,294
    Inventories                                           1,768        1,393
    Prepaid expenses and other                              309          446
    -------------------------------------------------------------------------
    TOTAL CURRENT ASSETS                                 34,525       19,352

    Restricted cash                                          71           93
    Property, plant and equipment                         1,842        1,990
    -------------------------------------------------------------------------
    TOTAL ASSETS                                         36,438       21,435
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT
    Accounts payable and accrued liabilities              3,136        2,736
    Deferred revenue                                      2,241        2,241
    Current portion of long-term debt and capital
     lease obligations                                      150          181
    -------------------------------------------------------------------------
    TOTAL CURRENT LIABILITIES                             5,527        5,158
    Deferred revenue                                     12,982        3,321
    Long-term debt and capital lease obligations            158          320
    Debentures                                            2,912        4,774
    -------------------------------------------------------------------------
    TOTAL LIABILITIES                                    21,579       13,573
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY
    Common shares                                       209,845      189,603
    Warrants                                              4,652       10,847
    Contributed surplus                                   7,801        6,890
    Accumulated other comprehensive income                  114          114
    Deficit                                            (207,553)    (199,592)
    -------------------------------------------------------------------------
    TOTAL SHAREHOLDERS' EQUITY                           14,859        7,862
    -------------------------------------------------------------------------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY           36,438       21,435
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                             NUVO RESEARCH INC.
           CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

                                        Three months         Nine months
    Unaudited                               ended               ended
    (thousands of Canadian           September September September September
     dollars except per share         30, 2009  30, 2008  30, 2009  30, 2008
     and share amounts)                      $         $         $         $
    -------------------------------------------------------------------------
    REVENUE
    Product sales                        2,567     1,808     7,025     5,578
    Cost of goods sold                   1,555     1,281     4,138     3,366
    -------------------------------------------------------------------------
    Gross margin on product sales        1,012       527     2,887     2,212

    Other revenue
    Licensing fees                         560     1,453     1,680     1,953
    Research and other contract revenue    107        28       282        79
    -------------------------------------------------------------------------
                                         1,679     2,008     4,849     4,244
    -------------------------------------------------------------------------

    EXPENSES
    Research and development             1,810     2,556     5,586     6,793
    Selling, general and administrative
     expenses                            1,638     1,278     4,792     3,564
    Stock-based compensation               131       131       395       497
    Amortization of property, plant,
     and equipment and intangibles         153       221       450       633
    Foreign currency loss                  525       255       306        12
    Interest expense                       169       418       642     1,046
    Interest income                        (22)     (146)      (65)     (461)
    -------------------------------------------------------------------------
                                         4,404     4,713    12,106    12,084
    -------------------------------------------------------------------------
    Loss from operations                (2,725)   (2,705)   (7,257)   (7,840)
    Loss on extinguishment of
     convertible debenture                   -      (299)        -      (299)
    -------------------------------------------------------------------------
    Net Loss and total comprehensive
     loss                               (2,725)   (3,004)   (7,257)   (8,139)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net loss per common share - basic
     and diluted                         (0.01)    (0.01)    (0.02)    (0.03)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average number of common shares
     outstanding - basic and diluted
     (millions)                          388.8     310.1     353.9     304.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                             NUVO RESEARCH INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                        Three months         Nine months
                                            ended               ended
    Unaudited                        September September September September
    (thousands of Canadian            30, 2009  30, 2008  30, 2009  30, 2008
     dollars                                 $         $         $         $
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net loss                            (2,725)   (3,004)   (7,257)   (8,139)
    Items not involving current cash
     flows:
      Amortization                         153       221       450       633
      Deferred revenue recognized         (560)     (560)   (1,680)   (1,271)
      Stock-based compensation and
       payments                            131       131       395       497
      Deferred stock unit expense           12         -       251         -
      Accretion of interest on
       debentures                          117       295       412       729
      Loss on extinguishment of
       convertible debenture                 -       299         -       299
      Other                                721       408       464       147
    Net change in non-cash working
     capital                              (422)    1,400      (998)    1,058
    Proceeds from licensing
     arrangements and advances on
     research contracts                      -     1,093    11,341     1,093
    -------------------------------------------------------------------------
    CASH PROVIDED BY (USED IN)
     OPERATING ACTIVITIES               (2,573)      283     3,378    (4,954)
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
    Acquisition of property, plant
     and equipment                        (130)      (36)     (333)     (120)
    Proceeds from sale of assets             -         -         -        28
    -------------------------------------------------------------------------
    CASH USED IN INVESTING ACTIVITIES     (130)      (36)     (333)      (92)
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
    Issuance of common shares and
     warrants, net of related costs      6,142        (1)   11,584       946
    Issuance of debentures, net of
     related costs                           -     1,932         -     1,932
    Repayments of long-term debt and
     capital lease obligations             (45)     (548)     (139)     (608)
    -------------------------------------------------------------------------
    CASH PROVIDED BY FINANCING
     ACTIVITIES                          6,097     1,383    11,445     2,270
    -------------------------------------------------------------------------
    Effect of exchange rate changes
     on cash and cash equivalents         (165)      (76)     (220)     (113)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net change in cash and cash
     equivalents during the period       3,229     1,554    14,270    (2,889)
    Cash and cash equivalents,
     beginning of period                26,260    17,348    15,219    21,791
    -------------------------------------------------------------------------
    CASH AND CASH EQUIVALENTS, END
     OF PERIOD                          29,489    18,902    29,489    18,902
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Interest paid                           10         6       271       160
    -------------------------------------------------------------------------

SOURCE Nuvo Research Inc.


Source: newswire



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