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Nuvo Pharmaceuticals Inc NRIFF


Primary Symbol: MRVFF

Nuvo Pharmaceuticals Inc is a Canadian focused healthcare company doing business as Miravo Healthcare with global reach and a diversified portfolio of commercial products. Its product targets several therapeutic areas, including pain, allergy, and dermatology. The company's strategy is to in-license and acquire growth-oriented, complementary products for Canadian and international markets.


OTCQX:MRVFF - Post by User

Bullboard Posts
Post by need2stockupon Nov 12, 2014 8:00pm
819 Views
Post# 23122651

Christmas article for the masses. Need2

Christmas article for the masses. Need2Nuvo Research biotechnology stock has the potential for great reward
FABRICE TAYLOR
RTGAM

Fabrice Taylor, CFA, publishes the President's Club investment letter. His letter and The Globe and Mail have a distribution agreement.

The problem with investing in biotech stocks is the terrifyingly binary nature of the outcome. The stock either goes to the moon or goes to zero, with either possibility determined by the results of unpredictable clinical trials. And because more of them go to zero than to the moon, it's tough to know how to price them.

So as a general rule, I keep biotech to a very small percentage of my investments. But I made an exception with Nuvo Research Inc. because while current clinical trials for a new drug will likely have the customary binary result - good or not good - the company has so much cash that the stock has little downside if the result is negative. And if the result is positive, the upside looks extremely attractive. This kind of asymmetric risk-reward scenario is rare, and when it appears, investors should jump on it.

Nuvo is the former Dimethaid, which had a rough time of it for about a decade, so much so that it changed its name and management a few years ago.

Today, the company has top-notch management and a commercial product called Pennsaid 2 per cent, a topical treatment for knee pain caused by osteoarthritis. (The root of the brand name is the pharmaceutical acronym NSAID, which stands for non-steroidal anti-inflammatory drug.)

Pennsaid has had an interesting life. It was developed by Nuvo, first in its original formulation, which is now off-patent, and then in the much improved 2-per-cent form, which is patent protected. Pennsaid 2 per cent was then licensed to a U.S. distributor. Although it is superior in many ways to its No. 1 competitor, Voltaren, the distributor didn't seem very interested in pushing the product, and Nuvo sued for damages.

It recently won a $10-million (U.S.) judgment and then relicensed the product to a new U.S. distributor for $50-million cash. This, net of expenses and taxes and in addition to cash on hand, brings Nuvo's cash hoard to about $50-million (Canadian), or about $5 a share.

Meanwhile, it still hasn't sold the rights to Pennsaid 2 per cent elsewhere in the world. I estimate, based on other transactions I've seen, that this could bring in an additional $25-million of cash, meaning the company could, soon enough, have $7.50 a share of cash. The stock trades for less than $6.

Plus, Nuvo also sells other products that produce small revenues.

So the downside at current prices seems minimal. What about the upside?

The drug alluded to earlier, which is undergoing the last stages of its second Phase II trial, is called WF10. It's an allergy drug that uses a highly innovative approach to treating a variety of allergies.

The drug has already undergone one Phase II test, which was a resounding success, but it was too small to be considered scientifically significant. So this second test is essentially the same as the first, but big enough to be accepted by regulators should the results impress.

Admittedly, I am no scientist, but I figure that if it did well in the first test, notwithstanding the small size, it probably has better odds of doing well in the second, more formal trial.

If so, this would lead to a Phase III trial, and I would have to guess a much higher share price. And of course if Phase III works out, the stock goes "to the moon" because allergies are a huge business for pharmaceutical companies, with annual drug and treatment sales of about $30-billion (U.S.).

What kind of a valuation could Nuvo get? Circassia Ltd. is a European biotech developing an allergy drug that aims to do what WF10 does. It is further along in its clinical trials but nonetheless has a market value of about $1-billion compared to Nuvo's $60-million, suggesting that Nuvo may already be significantly undervalued (or the competitor is overvalued, or some combination thereof).

At that valuation, Nuvo's stock would be quoted at $100. This isn't a prediction, of course. But I think it does lay out rather neatly that Nuvo Research is not a typical biotech speculation.

You get a shot at the moon, but if they fail, you'll still be standing on terra firma.

I like the odds.
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