The Company developed new formulations to improve original Pennsaid in late 2004. Testing of a new, improved version of Pennsaid, Pennsaid 2%, through in vitro and in vivo tests indicates that Pennsaid 2% may increase the transport of diclofenac, the active therapeutic drug in both original Pennsaid and Pennsaid 2%, through the skin with less frequent dosing than Pennsaid, gel viscosity and faster drying time. This provides Pennsaid 2% with advantages over Pennsaid and other competitor products and with potentially enhanced patent protection.

Pennsaid 2% is not currently approved for sale or marketing in any jurisdiction.

Under the terms of the U.S. Licensing Agreement, Covidien has assumed full responsibility for managing, planning, executing and paying for all development activities for Pennsaid 2%. Pursuant to the terms of the license agreement, Nuvo and Covidien agreed to a development plan for Pennsaid 2% and Covidien has committed to meeting certain key timeline targets. The Covidien Pennsaid 2% development plan includes one Phase 2 trial that commenced enrolment of patients in July 2010.  In June 2011, Covidien released top-line results from the Phase 2 trial of twice-daily administration of Pennsaid 2%. The study met its primary endpoint of reducing osteoarthritis (OA) pain greater than a placebo vehicle control (p=0.042).

Covidien intends to pursue the Supplementary New Drug Application (sNDA) regulatory approval pathway for Pennsaid 2% instead of using the 505(b)(2) pathway for new drug approval, as previously planned. Covidien believes the data obtained through the Phase 2 trial can be used to support the sNDA and that an sNDA could be filed with the FDA sooner with a shorter FDA review cycle. Covidien has advised Nuvo that in the second quarter of 2012, it will be filing the sNDA with the FDA. Covidien believes this filing will make Pennsaid 2% eligible for FDA approval in either the fourth quarter of 2012 or the first quarter of 2013.

Pennsaid 2% has been licensed in several territories including the United States, Canada, Central and South America, South Africa and Israel. Additional clinical and non-clinical studies may be required to support applications for the regulatory approval of Pennsaid 2% jurisdictions in which the Company or licensees and distributors could potentially market the product. There can be no assurance that such trials will be sufficient for regulatory authorities or that studies will yield successful results or that the required regulatory approvals will be obtained.