Nuvo Research: Worth the Wait? Print E-mail
By Vinny Cassano   
Monday, 13 September 2010 00:00

The last time we discussed Nuvo Research (OTC: NRIFF.PK), the company's lead product Pennsaid -a topical non-steroidal anti-inflammatory drug - was still about a month away from a commerical launch in the United States.  Pennsaid was approved in November of last year and US partner Mallinckrodt Inc., a Covidien subsidiary, launched the product in April.  Since that time, the Covidien sales force has been reported positive trends in sales growth and Nuvo received its first royalty payment for $1.2 million. 

Although much of the sales revenue from a product's initial quarter on the market can be attributed to sales locations stockpiling their inventory, the initial number gives a glimpse of possibility that Nuvo could turn a positive quarter by early next year, as long as expenses don't increase along with royalty revenue.  Nuvo's net loss for the most recently reported quarter was roughly $3 million.

However, while Nuvo is still losing money on a fairly significant scale, the company does have cash reserves north of $32 million.  With the royalty revenue starting to roll in, and a solid amount of cash in the bank, Nuvo Research is taking shape as the nice growth stock that many - including myself - predicted it would become.

In addition to the royalties and cash reserves, Nuvo is also due to receive up to $100 million in milestone payments if certain sales figures are reached.  That's a lot of money for a still-speculative player like Nuvo, but we can't assume the required sales numbers will be reached for the time being.  A few quarters down the road and investors should have a better idea of just how strong Pennsaid will become on the US marketplace and just how much potential exists to reach the milestones, given we know what the milestones are.

For Nuvo Research, Pennsaid - already on sale in the US, Canada and some European countries - is only the beginning of the story.  A European Phase II study  evaluating Nuvo's WF10 as a treatment for allergic rhinitis is nearing completion and results should be made public later this year.

Additionally, a follow-on product to Pennsaid is being advanced through the pipeline; a Pennsaid gel for which Covidien has assumed full operational and financial responsibility.  A Phase II trial for the gel commenced in mid-2010 with a Phase III planned for 2011.

Nuvo is also looking to expand its pipeline by adding a portfolio involving treatments for therapeutic pain and is also looking to boost assets through licensing agreements or acquisitions.

Now let's take a look at the stock.  Nuvo currently has nearly 400,000,000 shares trading with a market cap of just under 75 million, as of last Friday's close.  The number of shares is likely to decrease at some point in the near future because a reverse split has recently been authorized. The intention of the split is to not only reduce the amount of outstanding shares, but also to raise the copany's share price to meet the requirements of the big boards in the US.

If Nuvo is successful in conducting an RS and ends up trading on a large US exchange, then chances are that the stock will attract a bit more legitimate attention than it does while trading on the pinks; although for a stock with four hundred million traded, the daily volume is relatively negligent.

I still firmly believe that Nuvo Research is a solid mid to long term growth pick, although at this point I think it's worth waiting for the reverse split before adding a significant amount of shares.  Most stocks quickly depreciate in price on the back end of a reverse split, and barring any very signficant increase in sales numbers or other news, there's no reason not to believe that NUVO wouldn't follow the same pattern.

Picking up a few shares for under twenty cents before the RS could be a good move, too - just in case; but the time to accumulate will most likely come after the completion of the RS.

Still a nice mid to long term growth pick, in my opinion, but each investor should do his or her own DD.


Disclosure:  Long NRIFF.

Vinny also authors the popular stock investing blog VFC's Stock House.

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