On August 10, 2020 Nuvo Pharmaceuticals Inc. (Nuvo or the Company) (TSX:NRI); (OTCQX:NRIFF), a Canadian focused, healthcare company with global reach and a diversified portfolio of commercial products, reported its financial and operational results for the three and six months ended June 30, 2020 (Press release, Nuvo Pharmaceuticals, AUG 10, 2020, View Source [SID1234563379]). For further details on the results, please refer to Nuvo’s Management, Discussion and Analysis (MD&A) and Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, 2020 which are available on the Company’s website (www.nuvopharmaceuticals.com). All figures are in Canadian dollars, unless otherwise noted.
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Key Developments
Three months ended June 30, 2020 include the following:
For the three months ended June 30, 2020, adjusted total revenue(1) was $18.0 million, a decrease of 6% compared to $19.1 million for the three months ended June 30, 2019.
For the three months ended June 30, 2020, adjusted EBITDA(1) was $7.6 million, an increase of 33% compared to $5.7 million for the three months ended June 30, 2019.
The Company’s Commercial Business segment includes the promoted products – Blexten and Cambia . Revenue related to these products was $6.3 million, an increase of 14% compared to revenue of $5.5 million for the three months ended June 30, 2019. Canadian prescriptions of Blexten and Cambia increased by 34% and 11%, respectively compared to the three months ended June 30, 2019.
Principal loan repayments of $3.5 million (US$2.5 million) were made in the three months ended June 30, 2020.
Six months ended June 30, 2020 include the following:
For the six months ended June 30, 2020, adjusted total revenue(1) was $37.0 million, an increase of 2% compared to $36.2 million for the six months ended June 30, 2019.
For the six months ended June 30, 2020, adjusted EBITDA(1) was $15.6 million, an increase of 43% compared to $10.9 million for the six months ended June 30, 2019.
Revenue related to Cambia and Blexten was $12.2 million, an increase of 42% compared to revenue of $8.6 million for the six months ended June 30, 2019. Canadian prescriptions of Blexten and Cambia increased by 41% and 20%, respectively compared to the six months ended June 30, 2019.
Principal loan repayments of $15.1 million (US$11.2 million) were made in the six months ended June 30, 2020.
(1)
Non-International Financial Reporting Standards (IFRS) financial measure defined by the Company below.
Business Update
As a result of the COVID-19 pandemic, the Company has made changes to operations to ensure our employees are safe and healthy, while the business continues to supply global partners, wholesalers, pharmacies, and ultimately patients, with our healthcare products. The Commercial Business segment saw continued organic growth of its key promoted products – Blexten and Cambia. Aggregate revenue declined in the quarter year-over-year as wholesaler and pharmacy demand normalized from the increase which occurred in the three months ended March 31, 2020. The possibility of future supply disruptions resulted in forward buying linked to the COVID-19 pandemic which increased revenue in the three months ended March 31, 2020 and reduced revenue in the three months ended June 30, 2020 as the pandemic progressed and buying patterns returned to normal. It is anticipated that the COVID-19 pandemic will continue to impact the timing of revenue in future quarters and the Company will monitor market dynamics accordingly.
In June 2020, Aralez Pharmaceuticals Canada Inc. (Aralez Canada) filed the Blexten pediatric dossier with Health Canada. A regulatory decision is anticipated by mid-2021. The original license agreement for Blexten included Canadian rights for the pediatric dosage formats. Blexten pediatric dosing consists of two new formats, an oral syrup formulation (2.5mg/ml) and an orally dispersible tablet formulation (10mg tablets).
During the three months ended June 30, 2020, the Company made a $3.5 million (US$2.5 million) principal repayment on loans held by Deerfield Management Company, L.P and its related entities (the Deerfield Loans). Since January 1, 2020, the Company has repaid $15.1 million (US$11.2 million) of the Deerfield Loans – $4.5 million (US$3.5 million) to discharge the Bridge Loan which bore interest at 12.5% and $10.5 million (US$7.7 million) against the Amortization Loan which bears interest at 3.5%. As of June 30, 2020, the total remaining balances of the Deerfield Loans consisted of: US$52.3 million on the Amortization Loan and US$52.5 million on the Convertible Loan.
"Year-to-date, our key products have performed well, despite the challenges presented by the COVID-19 pandemic. Cambia and Blexten both continue to grow market share and total prescription volume. We are looking to expand the Blexten portfolio with two new formats for children with the submission of the Blexten pediatric dossier to Health Canada in June," said Jesse Ledger, Nuvo’s President & CEO. "Our total adjusted revenue for the first six months increased compared to the same period last year, in spite of the challenges we encountered with the reduction in our U.S. Vimovo royalty stream during the first six months of this year. We continue to reduce our financial leverage by making significant payments on our Deerfield Loans. Looking ahead, we are excited about our continued growth that includes the anticipated commercial launch of Suvexx into the Canadian market in September."
Second Quarter 2020 Financial Results
Total revenue is comprised of product sales, license revenue and contract revenue. Total revenue was $15.5 million and $39.9 million for the three and six months ended June 30, 2020 compared to $16.6 million and $31.1 million for the three and six months ended June 30, 2019.
Adjusted total revenue was $18.0 million and $37.0 million for the three and six months ended June 30, 2020 compared to $19.1 million and $36.2 million for the three and six months ended June 30, 2019. The $1.1 million decrease in adjusted total revenue in the current quarter was primarily attributable to a decrease of $1.2 million of revenue in the Production and Service Business segment, combined with a $0.5 million decrease from the Commercial Business segment, partially offset by a $0.6 million increase in the Licensing and Royalty Business segment. The Commercial Business segment revenue saw continued organic growth of its key promoted products – Blexten and Cambia. Aggregate revenue declined in the quarter year-over-year as wholesaler and pharmacy demand normalized from the increase which occurred in the three months ended March 31, 2020.
Adjusted EBITDA increased to $7.6 million and $15.6 million for the three and six months ended June 30, 2020 compared to $5.7 million and $10.9 million for the three and six months ended June 30, 2019. The increase in the current quarter was primarily attributable to the decrease of $2.6 million in general and administrative (G&A) expenses and sales and marketing expenses (net of amortization), largely as a result of the Company’s June 2019 restructuring. This was partially offset by a decrease in gross profit of $0.7 million (net of revenue recognized upon recognition of contract assets, amounts billed to customers for existing contract assets and inventory-step up expenses). This decline in gross profit was due to a decrease in adjusted total revenue, partially offset by an increase in gross margin percentage on product sales.
Gross profit on total revenue was $10.0 million or 64% and $28.9 million or 72% for the three and six months ended June 30, 2020 compared to a gross profit of $9.6 million or 58% and $18.7 million or 60% for the three and six months ended June 30, 2019. The increase in gross profit for the current three and six-month periods was primarily attributable to an increase in license revenue and gross margin on product sales.
Non-IFRS Financial Measures
The Company discloses non-IFRS measures (such as adjusted total revenue, adjusted EBITDA and adjusted EBITDA per share) that do not have standardized meanings prescribed by IFRS. The Company believes that shareholders, investment analysts and other readers find such measures helpful in understanding the Company’s financial performance and in interpreting the effect of the Aralez Transaction and the Deerfield Financing on the Company. Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and may not have been calculated in the same way as similarly named financial measures presented by other companies.
Adjusted EBITDA
EBITDA refers to net income (loss) determined in accordance with IFRS, before depreciation and amortization, net interest expense (income) and income tax expense (recovery). The Company defines adjusted EBITDA as net income before net interest expense (income), depreciation and amortization and income tax expense (recovery) (EBITDA), plus amounts billed to customers for existing contract assets, inventory step-up expenses, stock-based compensation expense, Other Expenses (Income), less revenue recognized upon recognition of a contract asset and other income. Management believes adjusted EBITDA is a useful supplemental measure to determine the Company’s ability to generate cash available for working capital, capital expenditures, debt repayments, interest expense and income taxes.
Management to Host Conference Call/Webcast
Management will host a conference call to discuss the results today (Monday, August 10, 2020) at 8:30 a.m. ET. To participate in the conference call, please dial 416 764 8688 or 1 888 390 0546. 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 midnight on August 17, 2020 by calling 416 764 8677 or 1 888 390 0541 / replay passcode: 492164#.
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.