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Nuvo Pharmaceuticals™ Announces 2017 Third Quarter Results

- Pennsaid 2% U.S. Q3 prescriptions remain steady -

- Cash and short-term investments of $17.7 million with no debt -

- Nuvo to Host Conference Call/Audio Webcast November 2 at 8:30 a.m. ET -

MISSISSAUGA, ON, Nov. 1, 2017 /PRNewswire/ - Nuvo Pharmaceuticals Inc. (Nuvo or the Company) (TSX:NRI), a commercial healthcare company with a portfolio of commercial products and pharmaceutical manufacturing capabilities, today announced its financial and operational results for the third quarter ended September 30, 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).

Third Quarter 2017 and Business Update

  • U.S. prescriptions of Pennsaid 2% were 108,000 in the third quarter of 2017 compared to 103,000 prescriptions in the third quarter of 2016 according to IMS Health. For the first nine months of 2017, U.S. prescriptions of Pennsaid 2% were 324,000 compared to 338,000 for the first nine months of 2016.

  • In August 2017, the Company announced it had secured a $6.0 million operating revolving credit facility (Facility) with Royal Bank of Canada (RBC). The Facility is a standby Facility that can be drawn by Nuvo for working capital requirements and general corporate purposes. Drawings are limited to a percentage of the Company's then outstanding accounts receivable and inventory. The Company has not drawn any amount of the Facility.

Third Quarter Financial Summary(1)

  • As previously disclosed, the Company's supply of commercial bottles of Pennsaid 2% to its U.S. partner Horizon Pharma plc (Horizon) was affected by the installation of new packaging equipment to facilitate compliance with the U.S. Federal Drug Supply Chain Security Act and Horizon's plan to draw down existing inventory during the installation process.

  • Total revenue for the three months ended September 30, 2017 was $3.0 million compared to $5.5 million for the three months ended September 30, 2016.

  • Adjusted EBITDA(2) decreased to $(0.1) million for the three months ended September 30, 2017 compared to $1.4 million for the three months ended September 30, 2016.

  • Net loss from continuing operations was $0.2 million for the three months ended September 30, 2017 or $(0.02) per share compared to net income from continuing operations of $1.3 million or $0.11 per share for the three months ended September 30, 2016.

  • Cash and short-term investments decreased to $17.7 million as at September 30, 2017 compared to $20.0 million as at June 30, 2017. The change was largely attributable to a $2.3 million investment in working capital in the quarter.

(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.

"Pennsaid 2% prescriptions, which anchor our core U.S. business with Horizon, remained steady in the third quarter," said John London, Nuvo's CEO. "During the quarter, we completed the installation of serialization equipment to our Pennsaid 2% commercial bottle line that resulted in reduced Pennsaid 2% commercial bottle production for both Q2 and Q3 2017. We anticipate a return to more normal commercial bottle production volumes for Q4 2017. Importantly, we were able to effectively manage our costs during this period while Horizon was drawing on its inventory, positioning Nuvo for stronger future financial performance."

Mr. London added, "We also continue to work toward expanding and diversifying our revenue streams and have advanced discussions ongoing for out-licensing of Pennsaid 2% in international jurisdictions and for strategic product acquisitions."

Growth Strategy

The Company's focus, in the short-term, is to continue to monetize Pennsaid 2% through out-licensing to commercial partners in international markets, while at the same time, identifying new opportunities to acquire additional, accretive, late or commercial-stage products or businesses to further diversify the Company's existing product portfolio and revenue streams, and to better utilize the Company's manufacturing facility in Varennes, Québec.

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 FDA approved site in Varennes, Québec. Nuvo will continue to actively seek appropriately priced bolt-on or transformative transactions that are strategically aligned with the Company's business plan and will deliver shareholder value.

Pennsaid 2% Out-licensing
Despite the failure of the 2016 Pennsaid 2% Trial, Nuvo continues to be in active discussions with potential commercial licensees of Pennsaid 2% for various global territories. Nuvo anticipates signing licensing agreements covering multiple countries by the end of 2017 and throughout 2018. Nuvo projects that incremental revenue from licensing agreements signed in 2017 will commence in late 2018 or early 2019, subject to obtaining regulatory approvals for Pennsaid 2% in the related territories.

Pennsaid 2% U.S. Update

Federal Drug Supply Chain Security Act Compliance
The Federal Drug Supply Chain Security Act (DSCSA) rules require all manufacturers of drug products sold in the U.S. to serialize each individual drug 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, the Company has purchased new packaging equipment and technology systems in coordination with Horizon. The Company commenced the process of installing and qualifying the new packaging equipment at its manufacturing plant in Varennes, Québec for commercial production; however, on June 30, after the Company had stopped commercial production of non-serialized commercial bottles for Horizon, the FDA announced that it was extending the date for serialization compliance by one year to November 27, 2018. As a result of this change, Horizon requested that the Company deliver some non-serialized commercial bottles during the third quarter before the qualification process is completed. The Company expects to complete qualification and be fully compliant with the DSCSA before the end of this year.

Horizon Adjustment of Sales and Marketing Resources
When Horizon released its Q1 results, it indicated that due to reimbursement pricing pressures, the profitability of its primary care group that sells Pennsaid 2% and other drug products had decreased. As a result, Horizon indicated that it was reallocating resources to better align its costs and profits. The reallocation included a reduction in the size of Horizon's primary care sales force that markets Pennsaid 2% to physicians. Nuvo gets paid a fixed price per commercial bottle supplied to Horizon and is not directly impacted by any reduction in Horizon's profitability. With prescription volumes relatively consistent quarter-to-quarter in fiscal 2017, the Company has not yet seen a negative effect from Horizon's sales force reduction that might impact Horizon's typical commercial bottle ordering patterns moving forward. The Company expects Horizon's cost reallocation initiatives to result in a decrease in the number of product samples Horizon distributes to physicians. A reduction in sample product orders from Horizon will have a negative impact on the Company's future financial results.

Third 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

Nine months ended


September 30,

2017

September 30,

2016

Change

September 30,

2017

September 30,

2016


Change

(from continuing operations, Canadian
dollars in thousands, except gross margin)

$

$

$

$

$

$

Product Sales

2,700

4,988

(2,288)

12,139

19,630

(7,491)

Gross Margin % on Product Sales

40%

49%

(9%)

52%

55%

(3%)

Other Revenue

256

530

(274)

899

1,836

(937)

Total Operating Expenses

3,052

4,362

(1,310)

11,015

15,348

(4,333)

Net Income (Loss)

(226)

1,251

(1,477)

1,767

2,490

(723)

Adjusted EBITDA

(51)

1,399

(1,450)

2,133

7,564

(5,431)

Total revenue, consisting of product sales, royalties and contract and other revenue for the three months ended September 30, 2017 was $3.0 million compared to $5.5 million for the three months ended September 30, 2016. The decrease in total revenue was primarily related to a decrease in product sales. Total revenue for the nine months ended September 30, 2017 was $13.0 million compared to $21.5 million for the comparative nine-month period.

Total operating expenses for the three months ended September 30, 2017 decreased to $3.1 million compared to $4.4 million for the three months ended September 30, 2016. The decrease in operating expenses was primarily attributable to a decrease in cost of goods sold (COGS) and research and development (R&D) expenses. Total operating expenses for the nine months ended September 30, 2017 decreased to $11.0 million from $15.3 million in the comparative nine-month period.

COGS decreased to $1.6 million for the three months ended September 30, 2017 compared to $2.5 million for the three months ended September 30, 2016. The decrease in COGS was attributable to a decrease in product sales. The decrease in product sales during the current quarter reduced the gross margin on product sales to $1.1 million or 40% compared to $2.5 million or 49% in the comparative quarter. For the nine months ended September 30, 2017, COGS was $5.8 million compared to $8.8 million in the comparative nine-month period. Gross margin on product sales for the nine months ended September 30, 2017 was $6.3 million or 52% compared to $10.8 million or 55% for the nine months ended September 30, 2016.

R&D expenses were $38,000 for the three months ended September 30, 2017 compared to $0.4 million for the three months ended September 30, 2016. R&D expenses were $0.5 million for the nine months ended September 30, 2017 compared to $0.8 million for the comparative nine-month period. The decrease in spending in the current nine-month period related to the 2016 Pennsaid 2% Trial for the treatment of acute ankle sprains. The 2016 Pennsaid 2% Trial was completed in May of 2017 and as such the majority of the costs were previously recognized. R&D expenses incurred in the comparative nine-month period, primarily related to the completion of the 2015 Pennsaid 2% Trial.

G&A expenses decreased to $1.4 million for the three months ended September 30, 2017 from $1.5 million for the three months ended September 30, 2016. The decrease in the current quarter was primarily attributable to decreased professional fees incurred by the Company as the comparative three-month period included professional fees related to a potential merger transaction the Company did not pursue. G&A expenses were $4.8 million for the nine months ended September 30, 2017 compared to $5.8 million for the nine months ended September 30, 2016.

Net interest income was $46,000 and $0.1 million for the three and nine months ended September 30, 2017 compared to $29,000 and $0.1 million for the three and nine months ended September 30, 2016. The Company earns interest income on its short-term investments and its high interest savings account.

For the three months ended September 30, 2017, the Company experienced a net foreign currency loss of $0.1 million compared to a net foreign currency gain of $0.1 million in the comparative quarter. For the nine months ended September 30, 2017, the Company experienced a net foreign currency loss of $0.3 million compared to a net foreign currency loss of $0.5 million in the comparative nine-month period.

Net loss from continuing operations was $0.2 million for the three months ended September 30, 2017 compared to net income from continuing operations of $1.3 million for the three months ended September 30, 2016. The decrease in the current quarter was primarily attributable to a $1.4 million reduction in gross margin on product sales, a $0.3 million decrease in royalties, contract and other revenue, partially offset by a $0.4 million decrease in R&D expenses. Net income from continuing operations was $1.8 million for the nine months ended September 30, 2017 compared to $5.7 million for the nine months ended September 30, 2016.

Adjusted EBITDA decreased to $(0.1) million for the three months ended September 30, 2017 compared to $1.4 million for the three months ended September 30, 2016. In the current quarter, a decrease in Adjusted EBITDA primarily related to a decrease in gross margin. Adjusted EBITDA decreased to $2.1 million for the nine months ended September 30, 2017 compared to $7.6 million for the comparative nine-month period.

Cash and short-term investments were $17.7 million as at September 30, 2017 compared to $17.6 million as at December 31, 2016 and $20.0 million at the end of the second quarter of 2017. The change included a $2.3 million investment in working capital in the quarter.

The number of common shares outstanding as at September 30, 2017 was 11,550,897.

Non-IFRS Financial Measures

Adjusted EBITDA
EBITDA is a non-IFRS financial measure. The term EBITDA does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. The Company defines Adjusted EBITDA as net income from continuing operations before net interest income, plus income tax expense, depreciation, amortization and SBC. Management believes Adjusted EBITDA is a useful supplemental measure from which to determine the Company's ability to generate cash available for working capital, capital expenditures and income taxes.

The following is a summary of how EBITDA and Adjusted EBITDA are calculated:


Three Months ended

September 30

Nine Months ended

September 30


2017

2016

2017

2016

in thousands

$

$

$

$

Net income (loss) from continuing operations

(226)

1,251

1,767

5,670

Add back:





Net interest income

(46)

(29)

(118)

(107)

Income tax expense

1

-

1

-

Depreciation and amortization

62

57

174

170

EBITDA

(209)

1,279

1,824

5,733

Add back:





Stock-based compensation

158

120

309

1,831

Adjusted EBITDA

(51)

1,399

2,133

7,564

Management to Host Conference Call/Webcast
Management will host a conference call to discuss the results tomorrow (Thursday, November 2, 2017) at 8:30 a.m. ET. To participate in the conference call, please dial 1 (888) 231-8191 or (647) 427-7450, reference number 93716145. 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 two hours after the live conference call and will be accessible until November 9, 2017 by calling 1 (855) 859-2056 or (416) 849-0833, reference number 93716145.

A live audio webcast of the conference call will be available through www.nuvopharmaceuticals.com. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to hear the webcast.

About Nuvo Pharmaceuticals Inc.
Nuvo (TSX:NRI) is a commercial healthcare company with a portfolio of commercial products and pharmaceutical manufacturing capabilities. Nuvo has three commercial products that are available in a number of countries; Pennsaid 2%, Pennsaid and the heated lidocaine/tetracaine patch. Pennsaid 2% is sold in the U.S. by Horizon Pharma plc (NASDAQ:HZNP) and is available for partnering in certain other territories around the world. Nuvo manufactures Pennsaid for the global market and Pennsaid 2% for the U.S. market at its FDA, Health Canada and E.U. approved manufacturing facility in Varennes, Québec. For additional information, please visit www.nuvopharmaceuticals.com.

Forward-Looking Statements
This Press Release contains "forward-looking statements" within the meaning of applicable securities laws. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company's current beliefs, expectations and assumptions regarding the future of its business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company's control. Nuvo's actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, readers should not rely on any of these forward-looking statements. Important factors that could cause Nuvo's actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the risk factors included in Nuvo's most recent Annual Information Form dated March 1, 2017 under the heading "Risks Factors", and as described from time to time in the reports and disclosure documents filed by Nuvo with Canadian securities regulatory agencies and commissions. These and other factors should be considered carefully and readers should not place undue reliance on Nuvo'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 none of Nuvo or any other person assumes responsibility for the accuracy and completeness of these forward-looking statements.

Any forward-looking statement made by the Company in this Press Release is based only on information currently available to it and speaks only as of the date on which it is made. Except as required by applicable securities laws, Nuvo undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

SOURCE Nuvo Pharmaceuticals Inc.