Q1 Earnings ReleaseNUVO PHARMACEUTICALS(TM) ANNOUNCES 2017 FIRST QUARTER RESULTS
Nuvo Pharmaceuticals Inc. is releasing its financial and operational results for the first quarter ended March 31, 2017. For further details on the results, please refer to Nuvo's Management, Discussion and Analysis (MD&A) and Condensed Consolidated Interim Financial Statements which are available on the Company's website (
www.nuvopharmaceuticals.com).
First Quarter Financial Summary (1) :
Total revenue for the three months ended March 31, 2017 was $7.0 million compared to $7.8 million for the three months ended March 31, 2016.
Adjusted EBITDA(2) decreased to $2.3 million for the three months ended March 31, 2017 compared to $3.0 million for the three months ended March 31, 2016.
Net income from continuing operations was $2.2 million for the three months ended March 31, 2017 or $0.19 per share compared to $1.9 million or $0.17 per share for the three months ended March 31, 2016.
Cash and short-term investments increased to $18.6 million as at March 31, 2017 compared to $17.6 million as at December 31, 2016.
(1) The financial information presented herein reflects results from continuing operations with Nuvo's previously disclosed segment, Crescita, presented as a discontinued operation. (2) Adjusted EBITDA is a non- International Financial Reporting Standards (IFRS) financial measure defined by the Company below.
First Quarter 2017 and Business Update
Pennsaidtrademark 2% According to IMS Health, U.S. prescriptions of Pennsaid 2% decreased slightly to 105,000 in the first quarter of 2017 compared to 119,000 for the fourth quarter of 2016.
In March, the Company entered into an exclusive license agreement with Sayre Therapeutics PVT Ltd. (Sayre) to distribute, market and sell Pennsaid 2% in India, Sri Lanka, Bangladesh and Nepal. Nuvo received an upfront payment and is eligible to receive milestone payments and a double-digit royalty on net sales. Nuvo will supply Pennsaid 2% to Sayre on an exclusive basis from its manufacturing facility in Varennes, Quebec.
In March, the Company completed a new placebo-controlled, multi-centre Phase 3 trial (2016 Pennsaid 2% Trial) in Germany to study Pennsaid 2% for the treatment of acute ankle sprains. The 2016 Pennsaid 2% Trial is being conducted to support regulatory applications for marketing approval of Pennsaid 2% for the treatment of acute pain in the E.U., Canada and Australia. The Company expects the 2016 Pennsaid 2% Trial data will be unblinded and topline results to be available later this month.
In February, the Company received notification from NovaMedica LLC (NovaMedica), its Russian licensee for Pennsaid 2%, that the marketing authorization for Pennsaid 2% had been granted by the Russian Ministry of Health. The marketing authorization is inclusive of the non-prescription, human use of Pennsaid 2% in treating back pain, joint pain, muscle pain, and inflammation and swelling in soft tissue and joints associated with trauma and rheumatic conditions. The Company and NovaMedica are in discussions respecting NovaMedica's commercial strategy and launch plans.
"2017 is off to a very positive start," said John London, Nuvo's CEO. "Our financial results were strong. We made progress on our strategy of expanding and diversifying our revenue streams through the Russian regulatory approval of Pennsaid 2% and the license agreement with Sayre that will make Pennsaid 2% available in India, Sri Lanka, Bangladesh and Nepal. We continue to be pleased that we are running a profitable company, generating net positive cash flow and debt free."
Licensing and Product Acquisitions
Nuvo is in active discussions relating to potential transactions to license or acquire additional, accretive commercial assets to further diversify the Company's product portfolio and maximize the Company's manufacturing capabilities at our GMP approved site in Varennes, Quebec. Nuvo is charting a course to build a business with product and geographic diversification.
Pennsaid 2%
Out-licensing Update
Nuvo is in a number of active discussions with potential commercial licensees of Pennsaid 2% for various global territories. Nuvo anticipates signing licensing agreements covering multiple countries throughout 2017 and 2018. Nuvo projects that incremental revenue from licensing agreements signed in 2017 will commence in 2018 and 2019, subject to obtaining regulatory approvals for Pennsaid 2% in the related territories.
Pennsaid 2% Phase 3 Clinical Trial
The 2016 Pennsaid 2% Trial was conducted in Germany and enrolled approximately 133 patients who had suffered a grade I or grade II ankle sprain as assessed by the investigator within 12 hours of injury. Patients were randomly assigned on a double-blind basis to an active arm or a placebo arm and applied either Pennsaid 2% or a placebo consisting of a topical vehicle that includes all the constituent ingredients of Pennsaid 2%, except its active ingredient diclofenac sodium, to their injured ankle twice a day for 8 days. The patients returned to the investigational site for in-depth evaluation on days 3, 5 and 8 of treatment. The primary endpoint for the 2016 Pennsaid 2% Trial is reduction in pain on movement at day 3. The 2016 Pennsaid 2% Trial will also measure a number of secondary endpoints including tenderness, ankle function, ankle swelling, overall assessment of benefit and satisfaction and use of rescue medication. The 2016 Pennsaid 2% Trial commenced in November 2016 and was fully enrolled in March 2017. Topline results for the 2016 Pennsaid 2% Trial are expected later in May 2017.
Horizon Ordering Patterns
Nuvo records revenue when it ships Pennsaid 2% commercial bottles and product samples to Horizon for Horizon's sale into the U.S. market. The amount earned by Nuvo is based on a defined transfer price for each commercial bottle and product sample shipped to Horizon pursuant to its long-term, exclusive supply agreement with Horizon. Nuvo's transfer price for Pennsaid 2% commercial bottles and product samples is not affected by Horizon's net selling price for prescriptions filled in the U.S. Nuvo also receives contract service revenue from Horizon. The timing of Nuvo shipments to Horizon do not necessarily align with when U.S. patients fill prescriptions written by their physicians.
Horizon's orders from Nuvo are influenced by demand in the U.S. market, Horizon's inventory levels and management strategies. On November 27, 2017, Federal Drug Supply Chain Security Act (DSCSA) rules come into force that require all manufacturers of drug products sold in the U.S. to serialize each individual package to enhance drug traceability in the event of an adverse event and to prevent drug counterfeiting. In order to be in compliance with the DSCSA, also known as the Serialization Track and Trace Bill, the Company has purchased new packaging equipment and technology systems to individually serialize all Pennsaid 2% packaging. In coordination with Horizon, the Company has planned to complete installation of this new equipment well before the November 27th implementation date of the DSCSA. The new packaging equipment has arrived at the manufacturing plant in Varennes, Quebec and the process of installing and qualifying it for commercial production has commenced. It is expected that the new equipment with qualified software will be available to produce individually serialized commercial bottles in the second half of Q3.
The U.S. Food and Drug Administration (FDA) was expected to publish regulations that grandfather existing non-serialized inventory in the supply chain as of November 27th, but has not released these much anticipated regulations yet. Due to the uncertainty respecting how the rule will treat non-serialized inventory, Horizon has decided to draw down its existing Pennsaid 2% inventory of non-serialized product in advance of the November 27th implementation date. Horizon has therefore advised Nuvo that it plans to defer any further commercial bottle production until the serialization equipment is operational. Sample production is not affected by the serialization issue. These anticipated production changes will have a negative impact on Nuvo's Q2 and Q3 sales and earnings relative to normal prescription trends and purchases by Horizon; however, it is expected that sales to Horizon will pick up in the remainder of the year, when the serialization equipment comes on stream and Horizon resumes its more typical ordering patterns, including rebuilding its inventory with serialized product to replace non-serialized inventory that it draws down.
First Quarter Financial Review
Table of Selected Financial Results
For further details on the results, please refer to Nuvo's Management, Discussion and Analysis (MD&A) and Condensed Consolidated Interim Financial Statements which are available on the Company's website (
www.nuvopharmaceuticals.com).
Three months ended
March 31, 2017March 31, 2016
(from continuing operations, Canadian dollars in thousands, except gross margin)$ $
Product Sales 6,653 7,325
Gross Margin % on Product Sales 58% 57%
Other Revenue 329 517
Total Operating Expenses 4,716 5,378
Net Income 2,196 1,928
Adjusted EBITDA 2,298 2,989
Total revenue, consisting of product sales, royalties and contract and other revenue for the three months ended March 31, 2017 was $7.0 million compared to $7.8 million for the three months ended March 31, 2016. The decrease in total revenue was primarily related to a decrease in product sales.
Total operating expenses for the three months ended March 31, 2017 decreased to $4.7 million compared to $5.4 million for the three months ended March 31, 2016. The decrease in operating expenses was primarily attributable to a decrease cost of goods sold (COGS) and general and administrative (G&A) expenses, slightly offset by an increase in research and development (R&D) expenses.
COGS decreased to $2.8 million for the three months ended March 31, 2017 compared to $3.1 million for the three months ended March 31, 2016. The decrease in COGS is attributable to a decrease in product sales. The decrease in product sales during the current quarter reduced the gross margin on product sales to $3.9 million or 58% compared to $4.2 million or 57% in the comparative quarter.
R&D expenses increased slightly to $0.3 million for the three months ended March 31, 2017 compared to $0.2 million for the three months ended March 31, 2016. In the current quarter, the Company incurred R&D expenses related to the 2016 Pennsaid 2% Trial for the treatment of acute ankle sprains.
G&A expenses decreased to $1.7 million for the three months ended March 31, 2017 compared to $2.1 million for the three months ended March 31, 2016. In the current quarter, a $1.0 million decrease in stock-based compensation (SBC) expense was partially offset by an increase in regulatory consulting fees and an increase in general corporate costs due to the allocation of certain corporate G&A costs to Crescita in the comparative quarter.
The Company earned net interest income of $38,000 for the three months ended March 31, 2017 compared to $56,000 for the three months ended March 31, 2016. The decrease in net interest income in the current quarter related to the significantly lower cash balances as compared to the comparative period whereby $35.0 million was transferred to Crescita on March 1, 2016 as part of the reorganization transaction.
The Company experienced a net foreign currency loss of $0.1 million for the three months ended March 31, 2017 compared to a net foreign currency loss of $0.5 million for the three months ended March 31, 2016.
Net income from continuing operations was $2.2 million for the three months ended March 31, 2017 compared to $1.9 million for the three months ended March 31, 2016. In the current quarter, the decrease in gross margin and a slight increase in R&D expenses were more than offset by a decrease in G&A expenses and a decrease in foreign exchange losses.
Adjusted EBITDA decreased to $2.3 million for the three months ended March 31, 2017 compared to $3.0 million for the three months ended March 31, 2016. In the current quarter, an increase in net income from continuing operations was more than offset by a decrease in SBC expenses.
Cash and short-term investments were $18.6 million as at March 31, 2017 compared to $17.6 million as at December 31, 2016. The $1.0 million increase in cash and short-term investments was primarily attributable to an increase in cash provided by operations.
The number of common shares outstanding as at March 31, 2017 was 11,550,897.