Nuvo Research Announces 2013 Third Quarter Results

MISSISSAUGA, ON, Oct. 30, 2013 /CNW/ - 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
                                                      
                               As at September 30,   As at December 31,

Unaudited                                     2013                 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                          1,479                1,614
equipment

Intangible assets                            1,891                8,739

TOTAL ASSETS                                23,667               28,485
                                                                       

LIABILITIES AND EQUITY                                                 

CURRENT                                                                

Accounts payable and accrued                 3,723                3,360
liabilities

Current portion of deferred                    143                  341
revenue

Current portion of finance                   1,994                1,900
lease and other obligations

TOTAL CURRENT LIABILITIES                    5,860                5,601

Deferred revenue                                 -                   57

Finance lease and other                      3,953                1,358
obligations

TOTAL LIABILITIES                            9,813                7,016
                                                                       

EQUITY                                                                 

Common shares                              228,772              228,705

Contributed surplus                         13,720               13,495

Accumulated other                              949                  420
comprehensive income

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  
                                   
                                  Three Months Ended Nine Months Ended

Unaudited                           September 30,      September 30,
                                                2012               2012
                                     2013 (restated)    2013 (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
                                   
                                  Three months ended Nine months ended

Unaudited                            September 30       September 30
                                                2012               2012
                                     2013 (restated)    2013 (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                                               460
  contingent consideration              -    (1,150)       -

  Depreciation and amortization       451        154   1,153        517

  Deferred license revenue                                      (1,007)
  recognized                         (85)       (85)   (256)

  Deferred royalty revenue, net                                   (316)
  of royalties earned                   -      (218)       -

  Stock-based compensation            226         87     329        576

  Unrealized foreign exchange                                       315
  loss                                  5        336      25

  Interest and accretion of                                          55
  long-term other obligations          15       (42)      48

  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. 
Investor Relations Email:ir@nuvoresearch.com 
To view this news release in HTML formatting, please use the following URL: 
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CO: Nuvo Research Inc.
ST: Ontario
NI: MTC ERN  
-0- Oct/30/2013 21:00 GMT