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NUVO RESEARCH ANNOUNCES 2010 THIRD QUARTER FINANCIAL RESULTS

October 27, 2010

- U.S. Pennsaid sales triple over previous quarter -

MISSISSAUGA, ON, Oct. 27 /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 third quarter
ended September 30, 2010.

Key Corporate Developments:

  • U.S. launch of Pennsaid progressed well as prescriptions dispensed and
    the related royalty revenue recognized by Nuvo more than tripled
    compared to the prior quarter;
  • Nuvo’s U.S. licensee, Mallinckrodt Inc., a Covidien (NYSE: COV) company,
    began dosing participants in its Phase 2 clinical study of Pennsaid
    Gel, a follow-on product to Pennsaid, featuring two times per day
    dosing (original Pennsaid dosing is four times per day) and anticipated
    patent protection;
  • Completed enrolment of a Phase 2, European clinical trial evaluating the
    safety and efficacy of WF10 as a treatment for severe allergic
    rhinitis;
  • Continued pursuit of clinical stage pain assets for in-licensing or
    acquisition;
  • The Company advanced development of its lead preclinical pain product
    candidate. Nuvo anticipates filing an Investigational New Drug
    application for this product with the United States Food and Drug
    Administration in 2011; and,
  • Concluded the third quarter with $30.9 million in cash and cash
    equivalents and took steps to reduce operating costs.

“Covidien’s sales efforts with Pennsaid gained increasing traction in
the third quarter,” said Dan Chicoine, Chairman and Co-Chief Executive
Officer of Nuvo Research.  “Weekly U.S. prescriptions for Pennsaid
continued to increase week over week during the quarter, and we are
optimistic that this upward trend will continue. Our strong cash
position and increasing revenues create opportunities to build Nuvo
into a diverse, strong, specialty pharmaceutical company focused in the
therapeutic area of pain through product acquisitions and the organic
growth of our early stage pain pipeline.”

Financial Results:

(thousands of Canadian dollars)

  Three months

ended

September 30, 2010

Three months

ended

September 30, 2009

Nine months ended

September 30, 2010

Nine months

ended

September 30, 2009

  $ $ $ $
Revenue 3,889 3,234 12,184 8,987
Net loss (2,253) (2,725) (8,125) (7,257)

Pennsaid U.S. Launch

Covidien launched Pennsaid in the U.S. in late April 2010 and although
early in the launch, management is encouraged by the continuing growth
in uptake.  Prescriptions for Pennsaid continued to increase
week-over-week during the third quarter exceeding 2,500 per week by the
end of September.  According to IMS data, 26,600 Pennsaid prescriptions
were dispensed in the third quarter, an increase of 250% compared to
7,600 in the second quarter.  The data also shows that approximately
1.27 bottles of Pennsaid are dispensed for each prescription. 

Operating Results

Revenue, consisting of product sales, royalties, license fee revenue and
research and other contract revenue for the three months ended
September 30, 2010 increased 20% to $3.9 million compared to $3.2
million for the three months ended September 30, 2009.  The increase
was primarily attributable to the 2010 U.S. launch of Pennsaid as the
Company recorded aggregate revenue of $2.0 million related to sales in
the U.S. market: $1.4 million in product sales and $0.6 million in
royalty revenue.  Revenue from U.S product sales are recorded upon
shipment from Nuvo’s Varennes manufacturing plant to Covidien’s
warehouse at the contractually agreed upon price which does not include
any royalty revenue payable by Covidien to Nuvo on Pennsaid sales. 
Nuvo records royalty revenue when Pennsaid is dispensed to the end user
in the U.S. (i.e. the patient).  The amount of royalty revenue
recognized for each bottle dispensed is determined by multiplying the
net selling price of a bottle by the royalty rate set out in the U.S.
licensing agreement.  The net selling price is equal to the gross
selling price of Pennsaid less all contractually agreed deductions
contained in the U.S. licensing agreement which is typical in the
pharmaceutical industry. 

Revenue for the nine months ended September 30, 2010 increased by 36% to
$12.2 million compared to $9.0 million for the nine months ended
September 30, 2009. The increase was primarily attributable to the U.S.
launch of Pennsaid as the Company recorded aggregate revenue of $5.1
million related to Pennsaid sales in the U.S. market: $4.3 million in
product sales and $0.8 million in royalty revenue.

Gross margin on product sales decreased slightly to $0.9 million for the
three months ended September 30, 2010 compared to $1.0 million for the
three months ended September 30, 2009. 

The decrease in the current period is attributable to a significant
decline in margin on WF10 sales which were down more than 60% in the
current quarter versus a year ago.  For the nine months ended September
30, 2010, gross margin on product sales was $3.2 million compared to
$2.9 million for the nine months ended September 30, 2009.  The
increase in gross margin is primarily attributable to higher Pennsaid
sales, partially offset by the weakening of the euro and British pound
against the Canadian dollar and the significant decline in WF10 margin.

Total operating expenses, excluding foreign currency gains and losses,
for the three and nine months ended September 30, 2010 were $4.8
million and $14.2 million versus $3.9 million and $11.8 million for the
three and nine months ended September 30, 2009.  The increase in the
quarter and nine-month period primarily relates to higher research and
development (R&D) expenses and selling, general and administrative
expenses (SG&A) offset by lower net interest expense.

R&D expenses were $2.9 million and $7.5 million for the three and nine
months ended September 30, 2010, an increase compared to $1.8 million
and $5.7 million for the three and nine months ended September 30,
2009.  For the quarter, the increase was attributable to:  costs
incurred in the Immunology Group due to their larger infrastructure
versus a year ago and costs of running the allergic rhinitis Phase 2
clinical trial, key additions to the Pain Group team made over the past
year and $0.2 million in severance charges.  For the nine month period,
the increase is primarily attributable to the Immunology Group for the
reasons noted above.

SG&A expenses increased to $1.8 million and $6.3 million for the three
and nine months ended September 30, 2010 compared to $1.7 million and
$5.1 million for the three and nine months ended September 30, 2009. 
During the quarter, the increase was primarily attributable to
consulting, professional and other fees and costs related to the
Company’s efforts to in-license or acquire clinical stage assets.  For
the nine months, the increase was primarily attributable to: an
increase in consulting, professional and other fees relating to
business development activities and an increase in compensation
expense. 

Net interest income was $58,000 and $37,000 for the three and nine
months ended September 30, 2010 compared to net interest expense of
$147,000 and $577,000 for the three and nine months ended September 30,
2009.  The decrease in both periods was 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 $2.3 million and $8.1 million for the three and nine months
ended September 30, 2010 compared to $2.7 million and $7.3 million for
the three and nine months ended September 30, 2009.  The smaller net
loss in the quarter was attributable to the inclusion of revenue earned
on U.S. sales of Pennsaid since its launch in April 2010, foreign
exchange gains and net interest income compared to foreign exchange
losses and net interest expense in the comparative period, offset
partially by higher R&D expenses.  For the nine month period, the
larger net loss is attributable to higher SG&A and R&D expenses that
were only partially offset by a higher gross margin, royalty revenue
and net interest income versus net interest expense in the comparative
period.

Cash and cash equivalents were $30.9 million as at September 30, 2010, a
modest decline of only $2.0 million since June 30, 2010.

Cash used in operating activities was $1.9 million for the three months
ended September 30, 2010 compared to $2.6 million for the three months
ended September 30, 2009, primarily as a result of the $1.2 million
royalty payment from Covidien received during the quarter, offset
somewhat by an increase in inventory levels as the Company could not
ship product to Greece in September due to a strike by truck drivers. 
For the nine months ended September 30, 2010, cash used in operating
activities was $10.1 million compared to cash provided by operating
activities of $3.4 million for the nine months ended September 30,
2009.  This change was due to the $11.3 million Upfront Payment
received from Covidien in 2009, a larger investment in non-cash working
capital during 2010 to support Pennsaid’s U.S. launch and a higher net
loss. 

Net cash used in investing activities totaled $192,000 and $796,000 for
the three and nine months ended September 30, 2010 compared to $130,000
and $333,000 for the three and nine months ended September 30, 2009. 
The additions in the quarter primarily related to new IT infrastructure
at the Company’s North American facilities.  The additions in the
nine-month period primarily relate to production automation and lab
equipment acquired for the Company’s Pennsaid manufacturing facility.

Net cash used in financing activities totaled $19,000 and $52,000 for
the three and nine months ended September 30, 2010 and related
primarily to scheduled capital lease payments.  For the three and nine
months ended September 30, 2009, cash provided by financing activities
totaled $6.1 million and $11.4 million and was primarily attributed to
proceeds received upon the exercise of warrants as part of, and
subsequent to, the early warrant incentive program.

Management will host a conference call to discuss the third quarter
results on October 28, 2010 at 8:30 am ET.  Following management’s
presentation, there will be a question and answer session, at which
time the operator will direct participants as 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 until Thursday,
November 4, 2010 by calling 416-849-0833 or 1-800-642-1687, reference
number 19403260.

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 needed to
hear the webcast. 

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, the United States and several European countries. Pennsaid
was approved for marketing in the U.S. by the United States Food and
Drug Administration on November 4, 2009 and is being sold throughout
the United States by Nuvo’s licensing partner, Mallinckrodt Inc., a
Covidien (NYSE: COV) company. Nuvo intends to create a portfolio of
products through internal research and development and by in-licensing
and acquisition. 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, Quebec 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 SHEETS

  As at

September 30, 2010

As at

December 31, 2009

  Unaudited Audited
(Canadian dollars in thousands) $ $
ASSETS    
CURRENT    
Cash and cash equivalents 30,885 42,102
Accounts receivable 2,319 2,091
Inventories 2,492 2,078
Other current assets 674 445

TOTAL CURRENT ASSETS

36,370 46,716
     
Property, plant and equipment 2,247 1,834

TOTAL ASSETS

38,617 48,550
     
LIABILITIES AND SHAREHOLDERS’ EQUITY    
CURRENT    
Accounts payable and accrued liabilities 3,610 4,589
Deferred revenue 1,525 2,241
Current portion of capital lease obligations 76 79
Current portion of debentures - 3,038

TOTAL CURRENT LIABILITIES

5,211 9,947

Deferred revenue

825 1,080

Capital lease obligations

20 65

TOTAL LIABILITIES

6,056 11,092
     

SHAREHOLDERS’ EQUITY

   
Common shares 216,707 210,086
Contributed surplus 12,690 12,536
Accumulated other comprehensive income 114 114
Deficit (196,950) (185,278)

TOTAL SHAREHOLDERS’ EQUITY

32,561 37,458
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 38,617 48,550

NUVO RESEARCH INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

  Three months

ended September 30,

Nine months

ended September 30,

Unaudited

2010

2009

2010

2009
(Canadian dollars in thousands, except per share and share figures)

$

$

$

$

REVENUE

       
Product sales 2,452 2,567 9,030 7,025
Cost of goods sold 1,537 1,555 5,792 4,138
Gross margin on product sales 915 1,012 3,238 2,887
         
Other revenue        
Licensing fees 560 560 1,680 1,680
Royalties 648 - 836 -
Research and other contract revenue 229 107 638 282
  2,352 1,679 6,392 4,849
         
EXPENSES        
Research and development 2,936 1,835 7,474 5,656
Selling, general and administrative expenses 1,822 1,744 6,331 5,117
Amortization of property, plant, and equipment 148 153 390 450
Foreign currency (gain) loss (259) 525 338 306
Interest expense 3 169 66 642
Interest income (61) (22) (103) (65)
  4,589 4,404 14,496 12,106
Loss before income taxes (2,237) (2,725) (8,104) (7,257)
Income taxes 16 - 21 -
Net Loss and total comprehensive loss (2,253) (2,725) (8,125) (7,257)

Net loss per common share – basic and diluted

(0.01) (0.01) (0.02) (0.02)

Average number of common shares outstanding – basic and diluted
(millions)

417.3 388.8 411.8 353.9

NUVO RESEARCH INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

  Three months

ended September 30,

Nine months

ended September 30,

Unaudited

2010

2009

2010

2009

(Canadian dollars in thousands)

$

$

$

$

OPERATING ACTIVITIES        
Net loss  (2,253) (2,725) (8,125) (7,257)
Items not involving current cash flows:        
  Amortization 148 153 390 450
  Deferred revenue recognized (574) (560) (1,680) (1,680)
  Stock-based compensation 43 144 90 647
  Accretion of interest on debentures - 117 31 412
  Unrealized foreign exchange loss (gain) (250) 476 398 370
  Other (4) (217) 11 (42)
  (2,890) (2,612) (8,885) (7,100)
Net change in non-cash working capital 572 39 (1,564) (863)
Deferred proceeds from licensing arrangements and royalty payments 398 - 398 11,341

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

(1,920) (2,573) (10,051) 3,378
INVESTING ACTIVITIES        
Acquisition of property, plant and equipment (192) (130) (796) (333)

CASH USED IN INVESTING ACTIVITIES

(192) (130) (796) (333)
FINANCING ACTIVITIES        
Issuance of common shares and warrants, net of related costs - 6,142 5 11,584
Repayments of long-term debt and capital lease obligations (19) (45) (57) (139)

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

(19) 6,097 (52) 11,445
Effect of exchange rate changes on cash and cash equivalents 149 (165) (318) (220)
Net change in cash and cash equivalents during the period (1,982) 3,229 (11,217) 14,270
Cash and cash equivalents, beginning of period 32,867 26,260 42,102 15,219

CASH AND CASH EQUIVALENTS, END OF PERIOD

30,885 29,489 30,885 29,489

Interest paid

3 10 58 271

SOURCE Nuvo Research Inc.


Source: newswire



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