Nuvo Research Inc. (TSX: NRI), a Canadian 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 year and the fourth quarter ended December 31, 2009.
2009 Key Corporate Developments: - Attained U.S. Food and Drug Administration (FDA) approval to market the Company's lead drug Pennsaid(R), a topical non-steroidal anti- inflammatory drug (NSAID), in the U.S.; - Entered into a license and development agreement with Mallinckrodt Inc., a subsidiary of Covidien plc (COV), a leading global provider of healthcare products, granting it exclusive rights to market and sell Pennsaid, and its follow-on product, Pennsaid Plus(R), in the United States; - Awarded the bronze medal in the Science and Medical category of the 2009 Edison Awards for the Company's High Throughput Experimentation Platform for the research and development of topical and transdermal drug delivery formulations; and, - Finished the year with $42.1 million in cash and cash equivalents, which will be utilized to move Nuvo's internal pipeline of product candidates forward, and potentially to acquire complementary late stage products to fit within the Company's pipeline.
"In 2009, we laid the groundwork for Nuvo to mature into a profitable, diverse, drug development company with a focus on pain-related therapeutics," said Dan Chicoine, Chairman and Co-Chief Executive Officer of Nuvo Research. "We are eagerly anticipating Covidien's launch of Pennsaid in the first half of 2010. We believe that our best-in-class topical NSAID marketed by a partner like Covidien has the potential to generate significant revenue that will allow us to more aggressively invest in our pipeline and build our Company."
Pennsaid FDA Approval
On November 4, 2009, the FDA approved the New Drug Application for Pennsaid permitting it to be sold and marketed in the United States. This approval significantly impacted the Company's fourth quarter results. The quarterly revenue includes $27.3 million in licensing fee revenue comprised of milestone and licensing payments received pursuant to the U.S. Licensing Agreement with Covidien. In addition, the Company incurred several costs directly related to the approval including: $0.1 million, representing a 0.5% royalty payable to Paladin under the terms of its current licensing arrangements ("Royalty Payment") and a $0.5 million milestone payment ("Milestone Payment") related to proprietary research. The net impact of these approval related items is an increase to net income of $26.7 million.
Operating Results
Revenue consisting of product sales, license fee revenue and research and other contract revenue for the three months ended December 31, 2009 was $29.7 million compared to $3.1 million for the three months ended December 31, 2008, an increase of $26.6 million. The increase was primarily attributable to licensing fee revenue of $27.3 million related to the U.S. Licensing Agreement (see Pennsaid FDA Approval), offset by a $0.6 million reduction in product sales. This decrease in product sales was primarily attributable to lower sales of Pennsaid to Greece as the fourth quarter of 2008 was, and still represents, the highest quarterly sales to Nuvo's Greek distributor, Vianex. For the year, revenue increased significantly to $38.6 million from $10.7 million. The increase was primarily attributable to the licensing fee revenue earned pursuant to the U.S. Licensing Agreement with Covidien and an increase in Pennsaid product sales.
For the three months ended December 31, 2009, gross margin on product sales decreased to $0.4 million compared to $1.0 million for the three months ended December 31, 2008. The decrease in gross margin was primarily attributable to a decrease in Pennsaid sales and sales of WF10 based products and the impact of higher raw material prices versus a year ago. For the year, gross margin on product sales was $3.3 million compared to $3.2 million for the year ending December 31, 2008. The increase in gross margin was 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 in Varennes, Quebec.
Total operating expenses, excluding foreign currency losses, for the three months ended December 31, 2009 were $5.6 million versus $5.0 million for the three months ended December 31, 2008. The increase in the quarter relates primarily to higher research and development expenses and selling, general and administrative expenses. Total operating expenses, excluding foreign currency losses, for the year ended December 31, 2009 increased slightly to $17.4 million compared to $17.1 million for the year ended December 31, 2008. The increase from 2008 relates to higher selling, general and administrative expenses, offset by lower research and development expenses, stock-based compensation and amortization expense.
Research and development expenses were $3.0 million for the three months ended December 31, 2009, compared with $2.5 million for the three months ended December 31, 2008. The increase in the quarter relates to the Milestone Payment and severance, while other R&D spending was lower as the fourth quarter of 2008 included expenses related to completing studies for the Company's Complete Response to the Pennsaid Approvable Letter. For the year, research and development was $8.6 million compared to $9.3 million for the year ending December 31, 2008. The decrease for the year relates to reduced spending on Pennsaid and Pennsaid Plus, offset by increases in costs related to research and formulation development activities at the Company's research labs in San Diego and severance costs.
SG&A expenses increased to $2.2 million for the three months ended December 31, 2009, compared to $1.6 million for the three months ended December 31, 2008. The increase in the quarter relates primarily to the Royalty Payment, compensation expense and severance. For the year ended December 31, 2009, SG&A expenses increased to $7.0 million compared to $5.2 million for the year ended December 31, 2008. The increase was primarily attributable to increased compensation expense, legal fees and the Royalty Payment.
For the three months and year ended December 31, 2009, net income was $22.3 million and $15.0 million compared to net losses of $2.4 million and $10.6 million for the three months and year ended December 31, 2008, respectively. The significant increase in both periods relates to the Pennsaid FDA Approval related items.
Cash and cash equivalents on hand at December 31, 2009 of $42.1 million were $12.6 million more than the $29.5 million at September 30, 2009. The increase was almost entirely attributable to cash received for the FDA Approval Payment, offset partially by other net spending during the quarter.
Cash provided by operating activities of $12.9 million was significantly higher than the cash used in operating activities of $4.2 million for the three-month period ended December 31, 2008 due to receipt of the FDA Approval Payment and a recovery of the Company's investment in non-cash working capital due primarily to lower accounts receivable and an increase in accounts payable and bonus and severance accruals at December 31, 2009. For the year ended December 31, 2009, cash provided by operating activities was $16.3 million compared to cash used in operating activities of $9.1 million for the year ended December 31, 2008.
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