Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (03-06-13 11:42 PM)

Description

Tribute Pharmaceuticals Canada Inc. Director Steven Harold Goldman bought 1,250,000 shares on 2-27-2013 at $ 0.4

BUSINESS OVERVIEW


Stellar Pharmaceuticals Inc. is an emerging Canadian specialty pharmaceutical company with a primary focus on the acquisition, licensing, development and promotion of healthcare products in Canada. The Company targets several therapeutic areas in Canada but has a particular interest in products for the treatment of pain, urology, dermatology and endocrinology/cardiology. Stellar also sells Uracyst ® and NeoVisc ® internationally through a number of strategic partnerships. On December 1, 2011, the Company acquired 100% of the outstanding shares of Tribute Pharmaceuticals Canada Ltd. and Tribute Pharma Canada Inc. (together herein referred to as “Tribute”), creating a North American specialty pharmaceutical company. As a result, Stellar has gained access to a portfolio of existing products, as well as certain rights to the future development and distribution of therapeutic products within the Canadian marketplace.

Stellar’s current portfolio of assets includes nine products: NeoVisc ® , NeoVisc ® Single Dose, Uracyst ® , BladderChek ® , Bezalip ® SR, Soriatane ® , Cambia ® , Daraprim ® , and MycoVa™. Each of these products has received regulatory approval in Canada, with the exception of Cambia and MycoVa.

Stellar markets its products in Canada through its own sales force and currently has licensing agreements for the distribution of select products in 27 countries, and continues to expand this footprint. The Company’s focus on business development is twofold: utilizing in-licensing and out-licensing for immediate impact on its revenue stream, as well as product development for future growth and stability.

Stellar’s management team has a strong track record in senior management positions at companies such as Wyeth, GSK, Syntex/Roche, Astra-Zeneca and Biovail. The team has extensive business development experience and has completed numerous prior product acquisitions, licensing and product re-formulation transactions. The senior management at Stellar has grown and managed companies with sales in excess of USD$300 million in the U.S. and over CDN$150 million in Canada. The Stellar management team also has extensive experience in product launches in Canada.

Stellar was incorporated under the Business Corporations Act (Ontario) on November 14, 1994. The Company maintains two facilities including its head office located at 57 Martin Street, Milton, Ontario, Canada L9T 2R1 and the Company’s production facility at 544 Egerton Street, London, Ontario, Canada N5W 3Z8. The Company’s telephone number is (519) 434-1540, its facsimile number is (519) 434-4382 and its e-mail address is stellar@stellarpharma.com. The Company maintains a website at www.stellarpharma.com. The information contained in, or that can be accessed through, the Company’s website is not part of, and is not incorporated into this Annual Report on Form 10-K or other filings the Company makes with the Securities and Exchange Commission (the “SEC”). The Company will make available free of charge on its website the annual report on Form 10-K, future quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. The Company will also make available all financial reports filed in accordance with US GAAP with SEDAR through its website.


Products

Approved & Marketed Products

NeoVisc ® and NeoVisc ® Single Dose

NeoVisc is a 2 mL pre-filled syringe of sterile 1.0% sodium hyaluronate solution used for the temporary replacement of synovial fluid in osteoarthritic joints. NeoVisc is classified in Canada by the Therapeutic Products Directorate (“TPD”) as a “medical device” under the Medical Devices Regulations of the Food and Drugs Act (Canada). NeoVisc is packaged, sold and marketed as a three injection therapy. The product is administered weekly by intra-articular injection, by injecting the product directly into the affected joint.

NeoVisc Single Dose is a 6 mL pre-filled syringe of sterile 1.0% sodium hyaluronate solution delivered as a single intra-articular injection and sold as a single dose therapy. Single dose therapy offers all the benefits of the NeoVisc three dose therapy plus ease of administration with just one injection, but its duration of effect is somewhat reduced in comparison to the three dose therapy.

This type of treatment, referred to as viscosupplementation, is a well-established treatment for osteoarthritis of the knee, having gained Canadian approval in 1992 and United States approval in 1997. Viscosupplementation has also been used since the mid 1980s in many European markets. Replacing or supplementing the joint fluid provides symptomatic relief from the pain of osteoarthritis of the knee for up to 6 to 12 months with the three dose products before a repeat set of injections is required. In late 2003, the first single dose product was launched in Canada and by 2009 there were four single dose therapies available in the Canadian market, including NeoVisc single dose. Single dose offers convenience of a single injection but the clinical effect lasts only 3 to 6 months.

Osteoarthritis and Treatment Options : Osteoarthritis (“OA”) is the most common form of chronic arthritis worldwide and is a key cause of pain and disability in older adults. According to the Arthritis Society of Canada, OA affects about 10% of the adult population. OA of the knee, about twice as common as OA of the hip, is becoming an increasingly important condition with the aging population. OA risk factors include injury, prior joint inflammation, abnormalities of joint shape, and obesity. OA is a degenerative and sometimes painful disease associated with long term wear on weight-bearing joints. The market for OA is expected to grow significantly in future years as the average age of the population increases.

Current OA remedies focus on symptomatic relief and postponement of surgical intervention. These remedies include:

1. Drugs: Products for pain such as aspirin, acetaminophen and other non-steroidal anti-inflammatory drugs (NSAID), such as naproxen, diclofenac, and COX/2 inhibitors;
2. Hyaluronic acid (“HA”) injections;
3. Steroidal Anti Inflammatory: Corticosteroids are also used to treat the inflammation associated with the disease; and
4. Joint Replacement: Surgical replacement with artificial joints.

Products: such as NeoVisc provide a non-pharmacological option in obtaining symptomatic improvements by supplementing the synovial fluid in the affected joint. NeoVisc can also be used in conjunction with drug treatments like NSAIDs, thereby reducing the overall cost of treatment, increasing clinical benefits and delaying or avoiding steroid use and joint replacement.

Competitive Analysis : There are a number of competitive viscosupplements to NeoVisc in Canada for both NeoVisc and NeoVisc Single Dose, including Genzyme’s products Synvisc® and Synvisc® One. The competitive landscape in the United States and other international markets is now very similar to the Canadian market. NeoVisc is an effective, high molecular weight linear format, available in a single or triple dose presentation. Furthermore, NeoVisc is the only marketed viscosupplement manufactured and packaged in Canada.

Uracyst ® (Uropol®)

Stellar developed Uracyst, a sterile 2.0% sodium chondroitin sulfate solution available in a 20 mL vial. Uracyst is used in the treatment of certain forms of interstitial cystitis (“IC”) and non-common cystitis. This product is instilled by catheter directly into a patient’s bladder.

Uracyst provides symptomatic relief for patients suffering from glycosaminoglycan (“GAG”) deficient cystitis such as IC and non-common cystitis (including radiation-induced cystitis and hemorrhagic cystitis) by supplementing and replenishing deficiencies in the glycosaminoglycan lining of the bladder wall. This GAG lining acts as a protective barrier between urine and the bladder wall. It protects the bladder wall against irritants and toxins (e.g., micro crystals, carcinogens and acid) in the urine and serves as an important defense mechanism against bacterial adherence. Many researchers believe that a large number of IC patients (over 70%) have “leaky” or deficient GAG layers in their bladder.

Uracyst is typically instilled weekly for six weeks, then once a month until symptoms resolve. Because these types of cystitis are typically chronic diseases of no known cause, patients will usually require re-treatment after a variable period of time when symptoms recur.

The Company has been issued a patent in the United States, China, Japan, Australia and Canada for the use of Uracyst treatments and has international patents pending. Uracyst is classified in Canada by TPD as a medical device under the Medical Devices Regulations of the Food and Drugs Act (Canada).

Interstitial Cystitis and Treatment Options : Interstitial cystitis is a chronic inflammation of the bladder wall and is often associated with painful symptoms of the lower abdomen. Unlike common cystitis, IC is not caused by bacteria and does not respond to conventional antibiotic therapy. IC can affect people of any age, race or sex, but is more frequently diagnosed in women.

Interstitial cystitis causes some or all of the following symptoms:

•

Frequency: Day and/or night frequency of urination (up to 60 times a day in severe cases). In early or very mild cases, frequency is sometimes the only symptom;
•

Urgency: Pain, pressure or spasms may also accompany the sensation of having to urinate immediately;
•

Pain: Can be abdominal, urethral or vaginal. Pain is also frequently associated with sexual intercourse; and
•

Other: Some patients also report experiencing symptoms such as muscle and joint pain, migraines, allergic reactions, colon and stomach problems, as well as the more common symptoms of IC described above.

At present, there is neither a cure for IC nor is there an effective treatment which works for everyone. The following treatments have been used to relieve the symptoms of IC in some people: (i) diet, (ii) bladder distention, (iii) instilled dimethyl sulfoxide (“DMSO”), heparin or HA, (iv) anti-inflammatory drugs, (v) antispasmodic drugs, (vi) antihistamines and (vii) muscle relaxants.

In severe cases, several types of surgery have been performed including bladder augmentation and urinary diversion. Products available for treating IC vary in their effectiveness. Most work for short periods of time and, in general, are effective in about 30% to 40% of patients. Some therapies can take up to six months of active treatment before patients start to show symptomatic improvement.

Competitive Analysis : The treatment of IC is a relatively small niche market. Because of low efficacy rates and relatively expensive treatment costs for competitive products, management believes the treatment of IC remains an unsatisfied market with no dominant competitive product. Ortho McNeil Pharmaceutical, Inc. is a major competitors in the IC market. Ortho McNeil Pharmaceutical, Inc (Alza Corporation) has marketed Elmiron ® (pentosan polysulfate sodium) in Canada since 1993. Elmiron ® is used as an oral GAG replenishment therapy. Side effects reported from the use of Elmiron ® include hair loss, diarrhea and extreme to mild gastrointestinal discomfort.

Bezalip ® SR

Bezalip SR (bezafibrate) is a well established pan-peroxisome proliferator-activated receptor (pan-PPAR) activator. Bezalip SR, used to treat hyperlipidemia, has over 25 years of therapeutic use with a good safety profile. Bezalip SR is under license with Actavis Group PTC ehf and is sold exclusively in Canada by Stellar. Stellar also has the development and licensing rights to Bezalip SR in the United States.

Bezalip SR is chemically known as bezafibrate, an anti-lipidemic agent that lowers cholesterol and triglycerides in the blood. Bezalip SR, available in a sustained-release 400mg tablet taken once-per-day, is a fibric acid derivative, or fibrate, and works differently from the other classes of existing therapies. Bezalip SR is also very effective in lowering triglyceride levels and has shown to increase the levels of high density lipoproteins (“HDL”) or good cholesterol and lower low density lipoproteins (“LDL”) (the “bad” cholesterol) in most patients. Bezalip SR is contraindicated in patients with hepatic and renal impairment, pre-existing gallbladder disease, hypersensitivity to bezafibrate, or pregnancy or lactation.

Bezalip SR was developed and originally introduced in Canada in 1994 by Boehringer Mannheim. Boehringer Mannheim was acquired by Roche in 1998 and Roche divested Bezalip SR on a global basis to Actavis in January 2008. Tribute licensed the Canadian rights to Bezalip SR from Actavis in 2008 and the U.S. rights in 2011.

Hyperlipidemia Treatment Options : Hyperlipidemia, or high cholesterol, is a very common chronic condition and is characterized by an excess of fatty substances called lipids, mainly cholesterol and triglycerides, in the blood. It is also called hyperlipoproteinemia because these fatty substances travel in the blood attached to proteins. This is the only way that these fatty substances can remain dissolved while in circulation.

Hyperlipidemia, in general, can be divided into two subcategories:

•

Hypercholesterolemia, in which there is a high level of cholesterol; and
•

Hypertriglyceridemia, in which there is a high level of triglycerides, the most common form of fat.

Competitive Analysis : Cholesterol-lowering drugs include: statins, niacin, bile-acid resins, fibric acid derivatives, and cholesterol absorption inhibitors. All classes of cholesterol-lowering medicines are most effective when combined with increased exercise and a low-fat, high-fiber diet. The statin class includes some of the largest-selling prescription products in the world (Lipitor ® , Zocor ® , Crestor ® , etc.). Statins dominate single-agent prescribing for the treatment of lipid disorders. The niacin (nicotinic acid – vitamin B3) class includes brands such as Niaspan®, which work primarily on increasing HDL cholesterol. The fibrates account for the third major class of cholesterol lowering treatments, and is composed of three competing molecules: gemfibrozil (Lopid ® ), bezafibrate (Bezalip SR), and fenofibrate (Lipidil ® in Canada or Tricor ® in the U.S.).

Soriatane ®

Soriatane (acitretin) is chemically known as acitretin, and is indicated for the treatment of severe psoriasis (including erythrodermic and pustular types) and other disorders of keratinization. Soriatane is a retinoid, an aromatic analog of vitamin A.

Soriatane was approved in Canada in 1994 and is the first and only oral retinoid indicated for psoriasis. Soriatane is a systemic oral agent and is often used when other products used for milder forms of psoriasis like topical steroids, emollients and topical tar-based therapies have failed.

According to treatment guidelines, Soriatane should be reserved for patients unresponsive to, or intolerant of standard treatment. In addition, Soriatane should only be prescribed by physicians knowledgeable in the use of systemic retinoids. Soriatane is teratogenic and should not be used by women who are pregnant or who are planning to become pregnant during or within three years after stopping treatment of Soriatane.

Psoriasis Treatment Options : There are a number of different treatment options for psoriasis. Typically, topical agents are used for mild disease, phototherapy for moderate disease, and oral systemic agents and biologicals for severe disease.

The three main traditional systemic treatments are methotrexate, cyclosporine and retinoids. Unlike Soriatane, methotrexate and cyclosporine are immunosuppressant drugs. Methotrexate may cause a decrease in the number of blood cells made by bone marrow, may cause liver damage, lung damage, damage to the lining of the mouth, stomach or intestines, and may increase the risk of developing lymphoma (cancer that begins in the cells of the immune system), among other serious side effects. Methotrexate may also cause serious or life-threatening skin reactions. Cyclosporines are also very strong medicines and may cause side effects that could be very serious, such as high blood pressure and kidney and liver problems. It may also reduce the body's ability to fight infections.

Competitive Analysis : Soriatane occupies a place on the continuum of care that a physician might look to when a patient’s disease increases in severity and a patient has not responded well to topical agents. Soriatane will typically be used in combination with other drugs such as topical steroids, emollients or tar-based therapies. Biologic therapies such as Enbrel®, Humira® and Remicadeare are effective in treating severe forms of the disease, but are very expensive and sometimes not reimbursed by government or other private drug plans.

BladderChek ®

Stellar licensed BladderChek for the Canadian market from Inverness Medical Innovations North America, Inc. (successor to certain contracts of Matritech, Inc.). The initial term of this license began on January 1, 2004 and ended on December 31, 2011. The Company is currently in the process of negotiating new terms under this agreement. The BladderChek test is a simple to use, point-of-care, in vitro diagnostic test for bladder cancer, and provides results (within 30 minutes) while the patient is in the physician's office. By placing four drops of urine on the BladderChek test cassette, a physician is able to detect the presence of elevated nuclear matrix protein NMP22.

The scientists that developed BladderChek discovered that high levels of NMP22 in urine frequently indicated the presence of cancer. NMP22 is found in the nuclei of cells where they contribute to nuclear structure and regulate important cell functions. NMP22 is elevated in bladder cancer cells 20 to 80 fold and is released into the urine of bladder cancer patients.

Daraprim ®

Daraprim (pyrimethamine) is a medication used for protozoal infections. It is commonly used as an antimalarial drug (for both treatment and prevention of malaria), and is also used (combined with sulfadiazine) in the treatment of Toxoplasma gondii infections in immunocompromised patients, such as HIV-positive individuals. Daraprim was licensed from CorePharma LLC in November 2010 and is sold exclusively in Canada by Stellar.

Unapproved and Non-Marketed Products

Cambia ®

Cambia (diclofenac potassium for oral suspension) was licensed from Nautilus Neurosciences, Inc. (“Nautilus”) in November 2010. Cambia was approved by the FDA in June 2009 and is currently marketed by Nautilus in the U.S.

Cambia is classified as a non-steroidal anti-inflammatory (NSAID) drug indicated for the acute treatment of migraine attacks with or without aura in adults 18 years of age or older. Cambia is available as an oral solution in individual packets each designed to deliver a 50mg dose when mixed in water. Cambia is the only NSAID currently approved in Canada for the acute treatment of migraine. Furthermore, Cambia is the only approved NSAID available that was studied and proven to be an effective treatment for migraine under guidelines published by the International Headache Society to reach statistically significant results for all four co-primary endpoints including pain free response, nausea free, photophobia free and phonophobia free. In addition, Cambia works fast to reduce migraine pain with onset of action occurring within 30 minutes.


Cambia is advantageous over currently marketed products due to its favorable characteristics, including:

•

Fast onset of action;
•

High peak blood concentration;
•

Attractive tolerability profile;
•

Safe application in various patient types; and
•

Cost advantage over competing products.

Subsequent to year end, Health Canada granted approval for Cambia (see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Subsequent Events”). Cambia will compete in the prescription migraine pain market in Canada, which was estimated to be worth approximately $150 million in 2010.

MycoVa

MycoVa (terbinafine topical suspension), developed by NexMed (a wholly owned subsidiary of Apricus Bio), combines an existing, approved drug for nail fungus, terbinafine, with the NexACT ® technology that enhances the absorption of the drug through the skin or nail bed. A combined post-hoc analysis of two randomized, double-blind, vehicle controlled, multicenter, parallel group Phase III studies to assess the efficacy, safety and tolerability of MycoVa demonstrated statistically significant results in primary and secondary efficacy endpoints in favor of active treatment in patients who did not present with comorbid tinea pedis (athlete’s foot), as these patients are considered at higher risk of reinfection.

The advantage of Apricus Bio’s MycoVa product is that it is easy to apply, and is therefore expected to improve patient compliance. MycoVa is applied to the infected nails, typically at bedtime, with minimal preparation, such as simply washing with soap and water. The formulation allows significant amounts of the drug to penetrate through the nail plate to the nail bed and surrounding area where fungus is located without significant systemic exposure.

NexMed is expected to file MycoVa with the regulatory authorities in Canada with Stellar’s cooperation. NexMed and Stellar intend to have a pre-NDS meeting with Health Canada during the first half of 2012.

Development Strategy

Stellar is an emerging specialty pharmaceutical company with a primary focus on the acquisition, licensing, development and promotion of healthcare products in Canada. In addition to growing the business in Canada, the Company is also building revenues through out-licensing its current products to international markets.

Stellar’s future product development efforts will be focused initially on developing strategic partners to assist Stellar in gaining regulatory approval in the United States and other key international markets for NeoVisc and Uracyst. Additionally, Stellar is currently considering the development of a number of new product line extensions for these proprietary products, with the intention of expanding the indications for new markets.

Stellar also intends to meet with the FDA over the next several months to discuss the ongoing development initiatives for Bezalip SR in the U.S. market. The fibrate market alone is estimated at approximately $2.5 billion annually in the U.S. and the Company will explore all possibilities to obtain a market authorization for Bezalip SR in the U.S.

Sales and Marketing

Stellar’s sales and marketing strategy is focused on the organic growth of existing marketed products through several key activities. First, our sales force ensures that it targets known prescribers of our medications or medications that compete with our products. We create demand by providing customers with reliable and trustworthy information from credible sources and by coordinating and facilitating continuing health education events in targeted areas. Secondly, we support our products by providing physicians and other healthcare practitioners with quality patient care materials. And thirdly, we ensure that our products are easy to purchase through all major wholesalers and distributors in Canada and we manage our supply chain efficiently to ensure that we can always meet demand.

We consider our sales force to be very experienced and well trained. All of our representatives have experience from other pharmaceutical companies including many of the largest companies in the industry. Additionally, Stellar offers its representatives with a competitive incentive plan based on the achievement of results.


MANAGEMENT DISCUSSION FROM LATEST 10K

The following discussion and analysis should be read in conjunction with the December 31, 2011 financial statements of Stellar Pharmaceuticals Inc. (“Stellar” or the “Company”) indicated in this annual report. All amounts are stated in Canadian dollars unless otherwise stated and have been rounded to the nearest one hundredth dollar.

FORWARD-LOOKING STATEMENTS AND SUPPLEMENTARY DATA

Readers are cautioned that actual results may differ materially from the results projected in any “forward-looking” statements included in this annual report, which involve a number of risks and uncertainties. Forward-looking statements are statements that are not historical facts, and include statements regarding the Company’s planned research and development programs, anticipated future losses, revenues and market shares, planned clinical trials, expected future expenditures, the Company’s intention to raise new financing, sufficiency of working capital for continued operations, and other statements regarding anticipated future events and the Company’s anticipated future performance. Forward-looking statements generally can be identified by the words “expected”, “intends”, “anticipates”, “feels”, “continues”, “planned”, “plans”, “potential”, “with a view to”, and similar expressions or variations thereon, or that events or conditions “will”, “may”, “could” or “should” occur, or comparable terminology referring to future events or results.

The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of numerous factors, any of which could cause actual results to vary materially from current results or the Company's anticipated future results. The Company assumes no responsibility to update the information contained herein.

CRITICAL ACCOUNTING POLICIES

The SEC defines critical accounting policies as those that are, in management’s view, important to the portrayal of the Company’s financial condition and results of operations and require management’s judgment. The Company’s discussion and analysis of its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. The Company bases its estimates on experience and on various assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about its carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. The Company’s critical accounting policies include:

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. License fees which are comprised of initial fees and milestone payments are recognized upon achievement of the milestones, provided the milestone is meaningful, and provided that collectability is reasonably assured and other revenue recognition criteria are met. Milestone payments are recognized into income upon the achievement of the specified milestones when the Company has no further involvement or obligation to perform services, as related to that specific element of the arrangement. Upfront fees and other amounts received in excess of revenue recognized are recorded as deferred revenues.


Revenues from the sale of products, net of trade, discounts and allowances, is recognized when legal title to the goods has been passed to the customer and collectability is reasonably assured. Revenues associated with multiple-element arrangements are attributed to the various elements, if certain criteria are met, including whether the delivered element has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered elements. Non-refundable up-front fees for the transfer of methods and technical know-how, not requiring the Company to perform additional research or development activities or other significant future performance obligations, are recognized upon delivery of the methods and technical know-how.

Royalty revenue is recognized when the Company has fulfilled the terms in accordance with the contractual agreement and has no material future obligation, other than inconsequential and perfunctory support, as would be expected under such agreements and the amount of the royalty fee is determinable and collection is reasonably assured.

A customer is obligated to pay for products sold to it within a specified number of days from the date that title to the products is transferred to the customer. The Company’s standard terms are typically 0.5% to 2% discount, 15 to 20 days net 30 from the date of invoice.

The Company has a product returns policy that allows the customer to return pharmaceutical products that have expired, for full credit, provided the expired products are returned within twelve months from the expiration date.

Transfer of title occurs and risk of ownership passes to a customer at the time of shipment or delivery, depending on the terms of the agreement with a particular customer. The sale price of the Company’s products is substantially fixed or determinable at the date of sale based on purchase orders generated by a customer and accepted by the Company. A customer’s obligation to pay the Company for products sold to it is not contingent upon the resale of those products. The Company recognizes revenues for the sale of products from the date the title to the products is transferred to the customer.

Acquisitions

The accounting for acquisitions requires extensive use of estimates and judgments to measure the fair value of the identifiable tangible and intangible assets acquired, including license agreement assets, and liabilities assumed. Additionally, the Company must determine whether an acquired entity is considered to be a business or a set of net assets, because the excess of the purchase price over the fair value of net assets acquired can only be recognized as goodwill in a business combination.

On December 1, 2011, the Company acquired Tribute for an aggregate purchase price of $1,036,110, net of cash acquired, 13,000,000 common shares valued at $7,423,415 and estimated contingent consideration of $1,559,405 as of the acquisition date. The Company accounted for this acquisition as a business combination. The tangible and intangible assets acquired and liabilities assumed in connection with this acquisition were recognized based on their estimated fair values at the acquisition dates. The determination of estimated fair values requires significant estimates and assumptions including, but not limited to, determining the timing and estimated costs to complete the in-process projects, projecting regulatory approvals, estimating future cash flows and developing appropriate discount rates. The Company believes the estimated fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions.

Stock-Based Consideration

The Company uses the fair value based method of accounting for all its stock-based compensation in accordance with FASB Accounting Standards Codification ("ASC") ASC 718 “Compensation – Stock Compensation”. The estimated fair value of the options that are ultimately expected to vest based on performance related conditions, as well as the options that are expected to vest based on future service, is recorded over the option’s requisite service period and charged to stock-based compensation. In determining the amount of options that are expected to vest, the Company takes into account voluntary termination behavior as well as trends of actual option forfeitures.

Stock options and warrants which are indexed to a factor which is not a market, performance or service condition, in addition to the Company’s share price, are classified as liabilities and re-measured at each reporting date based on the Black-Scholes option pricing model with a charge to operations, until the date of settlement. Some warrants have been reflected as a liability as they are indexed to a factor which is not a market performance or service condition.


RESULTS FOR THE YEAR ENDED DECEMBER 31, 2011

Total revenue for the year ended December 31, 2011 decreased by 18.3% to $3,869,900 compared to $4,737,300 in the same period in 2010. Excluding the one-time licensing and milestone revenues in the prior year of $1,851,100, total revenues increased 34.1% or $983,700. The underlying increase in sales was attributable to increases in Canadian and International product sales of 20.9% or $568,400, as well as an increase of $572,300 in licensed domestic product net sales, a new source of revenues for the Company as a result of the acquisition of Tribute.

The net loss before taxes for the twelve-month period ended December 31, 2011 was $1,498,600 compared to income of $525,700 for the same period in 2010. The reduction to net income of $2,024,300 was largely due to the one time royalty and licensing revenues, as noted above, offset by changes in cost of goods sold and other expenses. Significant movements in other expenses included:

Factors increasing net income for 2011 compared to the prior year:

•

A favorable, non-cash change in the warrant liability for a credit of $214,300 compared to an expense of $10,000 in the prior year;
•

A retirement payout expense of nil in 2011 compared to an expense of $401,000 in the prior year; and
•

A reduction in research and development expense of $65,500 compared to the prior year;

Factors increasing the net loss for 2011 compared to the prior year:

•

An increase in selling, general and administrative expenses of $546,400, explained below;
•

An increase in amortization of assets of $28,200;
•

A non-cash loss on disposal of equipment of $244,300;
•

An increase in the fair value of contingent consideration liability, an expense of $58,000; and
•

Costs related to the acquisition of Tribute, which were expensed in 2011 at $671,100.

Excluding non-operating income (expenses) in 2011 of $812,400, the 2011 net loss from operations was $686,200. This compares to the prior year net income from operations of $1,056,800; however, excluding the one-time licensing and royalty revenues of $1,851,100, the prior year would have had a normalized net loss from operations of $794,300, for an improvement in the current year income from operations of $108,100. The net operational improvement represents increases in product margins offset in part by higher selling, general and administrative costs, detailed below.

Gross Profit and Cost of Sales

Gross profit for the year ended December 31, 2011 was $2,426,500, down 32.5%, or $1,168,200 compared to the same period in 2010. The reduction in gross profit was driven primarily by the one-time licensing revenues in the prior year of $1,851,100. Excluding the one-time licensing fee, the 2010 gross margin would have been $1,743,700 compared to the 2011 gross profit of $2,426,500, an increase in 2011 of $682,800 or 39.2%. Underlying improvements in gross profit in 2011 were due to a an improvement in Canadian and International product margin percentage (2011 – 71.6%, 2010 – 65.1%) for incremental gross profit of $582,800, additional gross profit of $87,800 due to new licensed domestic product sales as a result of the acquisition of Tribute, and lower inventory write downs and product returns in 2011 of $169,400, which was offset in part by lower royalty and licensing revenues of $157,100.

Research and Development

Stellar continues to invest in research which is essential to advancing the use of its products in Canada and in international markets. For the year ended December 31, 2011, the Company recorded $50,000 (2010 - $115,500) in research and development expenses before tax credits. Government tax credits are recorded as a reduction of the expense when reasonable assurance exists that the Company has complied with the terms and conditions for the approval of the credit. In prior years, the Company determined the collection of the tax credit was less than likely. No tax credits were recorded in 2011 or 2010.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2011 were $3,034,700 compared to $2,488,300 for the same period in 2010. The increase of $546,400 or 22.0% is due to an increase of $166,100 in costs related to non-cash expenses for stock options issued to directors, officers and employees of the Company (2011 - $332,500 and 2010 - $166,400); and due to the inclusion of the post-acquisition operating expenses of Tribute in the amount of $364,100.

Warrant Liability

The revaluation of the warrant liability at December 31, 2011, has resulted in a positive effect on warrant expense with a credit of $214,300 (2010 - $10,000 expense) being recorded. Since the warrants are denominated in US dollars and the Company’s functional currency is in Canadian dollars, the fair market value of the warrants fluctuates from period to period. The fair market value is based on the current stock price, volatility, the risk free interest rate, time remaining until expiry and changes in the exchange rate between the US and Canadian dollar.

Contingent Consideration Liability

Upon approval by Health Canada for the marketing and sale of Cambia, an additional 2,000,000 common shares of the Company will be issued to the Tribute shareholders. The estimated fair value of this contingent consideration as of the acquisition date was $1,142,100, based on the Company’s stock price of $0.57 on December 1, 2011. The revaluation of the contingent consideration liability related to these common shares at December 31, 2011, resulted in the recording of an increase to the liability of $58,000, with the corresponding cost recorded in non-operating expenses (2010 - nil). See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Subsequent Events”.

Loss on Disposal of Equipment

During the year ended December 31, 2011, the Company wrote off obsolete manufacturing and computer equipment with a non-cash loss of $259,600, compared to a loss on disposal of equipment in the prior year of $15,300.

Interest and Other Income

Interest and other income during the twelve month period ended December 31, 2011 was $18,900 (2010 - $10,800). These amounts include interest received on short-term investments for both 2011 and 2010. In 2011, interest earned on the Company’s short-term investments was an average of 0.84% compared to an average of 0.64% in 2010.

Deferred Income Tax Recovery

During the year ended December 31, 2011, the Company recorded a deferred income tax recovery of $976,800 related to tax assets not previously recognized (2010 – nil), mainly as a result of the Company’s acquisition of Tribute. The Company expects to be able to use its deferred tax assets to offset the tax liability acquired. As such, $300,100 of the recovery is the tax benefit related to the current year loss before tax. The remaining $676,700 relates mainly to changes in the valuation allowance, which reflects the tax benefit of prior year tax losses that were previously not recorded by the Company.

Net Income (Loss)

The net loss for the year was $521,800, compared to income in the prior year of $525,700. This equates to a loss of $(0.02) per share for the year compared to income of $0.02 per share in 2010.

FOURTH QUARTER SUMMARY

Total revenue for the three-month period ended December 31, 2011 increased by 121.1% to $1,474,000 compared to $666,700 in the same period in 2010. Most of the increase was due to licensed domestic product net sales of $572,300, a new source of revenues for the Company as a result of the acquisition of Tribute. The balance of the increase primarily related to increases in Canadian product revenues of $64,700, or 13.0%, and international product revenues increase of $173,800, or 101.2% compared to the same quarter of the prior year.

The net loss before taxes for the three-month period ended December 31, 2011, increased $398,000 to $1,366,400 compared to a loss of $968,400 in the prior year. Excluding one-time items in the fourth quarter of 2011 of a non-cash loss on disposal of equipment of $259,600, the fair value change in contingent consideration of $58,000, and costs related to the acquisition of Tribute of $671,100, the normalized net loss before tax would have been $377,700. This is largely on par with the prior year normalized loss before tax of $371,900, which excludes one-time expenses of $596,500 (a $401,000 retiring allowance and the balance related to expired inventory and return provisions).

Gross Profit and Cost of Sales

Gross profit for the three-month period ended December 31, 2011 was $665,400, an improvement of $421,400 compared to $244,000 for the same period in 2010. This was attributable to incremental gross profit of $87,800 from the addition of licensed product sales as a result of the acquisition of Tribute improvements in product margins of $167,800 and reduced write downs for inventory and returns.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three-month period ended December 31, 2011 was $1,010,100 compared to $761,400 for the same period in 2010. The total increase of in the fourth quarter of $248,700 is due to Tribute incremental expenses of $364,100, and an increase of $145,900 in costs related to non-cash expenses for stock options issued to directors, officers and employees of the Company (2011 - $194,200 and 2010 - $48,300), which was offset in part by reduced spending in other areas of $261,300.

Interest and Other Income

Interest and other income during the three-month period ended December 31, 2011 was $7,000 (2010 - $4,800). These amounts include interest received on short-term investments for both 2011 and 2010. In 2011, interest earned on the Company’s short-term investments was an average of 1.09% compared to an average of 1.07% in 2010.

Net Income (Loss)

The net loss for the three-month period ended December 31, 2011 was $389,600, compared to a loss of $968,400 in the same period of 2010. This equates to a loss of $(0.01) per share for the quarter compared to $(0.03) per share in the same quarter of the prior year.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s cash and cash equivalents position amounted to $2,228,000 at December 31, 2011 compared with $4,352,300 at December 31, 2010.

At December 31, 2011, the Company did not have any outstanding indebtedness.

Cash utilization during 2011 included, but was not limited to, the following capital expenditures:



•

The Company acquired Tribute during the fourth quarter of 2011 with, among other contingent consideration, cash payments to the previous owners of $1,000,000 as well as acquisition costs paid of $671,100;


•

Capital expenditures in the amount of $9,990 (2010 - $307,900) related to property, plant and equipment; and


•

Capital expenditures of $42,500 (2010 - $27,200) related to patent filings.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

RELATED PARTY TRANSACTIONS

The Company entered into a fiscal advisory and consulting agreement with LMT Financial Inc. ("LMT") (a company beneficially owned by a director and former interim officer of the Company and his spouse) for services provided in the normal course of business. Advisory and consulting fees under this agreement were $6,600 per month. This agreement was cancelled on January 17, 2011.

On January 17, 2011, the Company retained LMT, as a consultant to act as Interim President and Interim Chief Executive Officer of the Company. Under the terms of this agreement, LMT ceased being paid under the fiscal advisory and consulting agreement until the appointment of a permanent CEO and President. A monthly fee of $16,700 was paid to LMT in consideration for these services. During the year ended December 31, 2011, the Company recorded and paid $175,350 (2010 - $nil) as selling, general and administrative expense under this agreement on the consolidated statement of operations and comprehensive (loss) income.

A new consulting agreement with LMT was entered into on December 1, 2011. Consulting fees under this new agreement are $12,500 per month. The new agreement expires on December 31, 2012. During the year ended December 31, 2011, the Company recorded and paid an aggregate of $15,800 (2010 - $78,000) as selling, general and administrative expense on the consolidated statement of operations and comprehensive (loss) income.

During the year ended December 31, 2011, the Company recorded $87,586, for various legal services (2010 – $nil) to a law firm in which one of the directors of the Company is a partner, of which $8,022 have been recorded as selling, general and administrative expense and $79,564 was recorded as acquisition and restructuring costs on the consolidated statement of operations and comprehensive (loss) income.

CAPITAL STOCK

The Company has authorized an unlimited number of common shares, without par value. There are no other classes of shares issued. As of the date of this report there were 39,610,042 common shares issued and outstanding.

During the year ended December 31, 2011, the Company issued 13,025,002 common shares. Of this amount, 25,002 common shares were late issuances during the year pursuant to the private placement offering during the year ended December 31, 2010 (see below). On December 1, 2011, the Company issued 13,000,000 shares in conjunction with the acquisition of Tribute with a fair value of $7,423,400.

As of the date of this report, the Company had 2,975,452 Common Share options outstanding with an average exercise price of $0.66 per option.

SIGNIFICANT CUSTOMERS

As at December 31, 2011, the Company had four customers which made up 65.1% of the outstanding accounts receivable, in comparison to four customers which made up 63.3% at December 31, 2010. For 2011, all outstanding accounts receivables were related to product sales, of which $383,853 or 50.3% were related to three wholesale accounts and $113,192 or 14.8% were related to one international customer. For 2010, outstanding accounts receivables of $118,306 or 37.4% was related to product sales; $60,582 or 19.1% was related to license fees; and $51,676 or 16.3% was related to royalty fees for three international customers, while $85,889 or 27.2% was related to a large wholesale account.

OUTLOOK

During 2011, the Company completed a number of important transactions aimed at future growth in revenue and profit. On December 1, 2011, the Company acquired 100% of the outstanding shares of Tribute Pharmaceuticals Canada Ltd. and Tribute Pharma Canada Inc. ("Tribute"), creating a premier North American specialty pharmaceutical company. As a result of the acquisition, the Company’s current portfolio of assets now includes nine medical products: NeoVisc®, NeoVisc® Single Dose, Uracyst®, BladderChek®, Bezalip® SR, Soriatane®, Cambia®, Daraprim®, and MycoVa™. Stellar’s achievements in 2011 have positioned the Company for future growth. As of December 31, 2011, the Company had cash and cash equivalents of $2,228,000 and remains debt free.

The transition of Tribute is now well underway and the Company has benefited from synergies in some areas. Tribute sales representatives have begun the promotion of NeoVisc in Canada and as a result NeoVisc is now being promoted by an additional ten sales representatives in Canada. On December 30, 2011, Stellar obtained the exclusive Canadian license to MycoVa. In 2012, Stellar expects to work diligently with its licensor, Apricus Bio, to pursue a regulatory filing with Health Canada.

The Company is now actively engaged on numerous fronts to grow its business through business development activities. There remain a number of key geographical territories globally where NeoVisc and Uracyst are not currently being marketed. In particular, both of these products remain available for the United States. Stellar intends to focus its efforts to find partners to market its brands in these international territories where the Company does not have a presence, to expand its business.

Stellar met with the FDA in the United States in March 2012 to discuss the US approval of Bezalip SR. Bezalip SR is approved in over 40 countries world-wide but not in the United States. Stellar recognizes that the US rights to develop Bezalip SR is an important asset to the Company in the largest market in the world, and will do everything it can to maximize the opportunity.

Stellar intends to continue to pursue a number of active business development initiatives to increase its business in Canada through product acquisitions, licensing, development and marketing initiatives.

Organic growth remains important to its Company and Stellar intends to continue to invest and expand its promotion through increased sales and marketing programs. Promotion is expected to be increased on Bezalip SR, Soriatane and NeoVisc in the coming year. The Company also plans to grow its international business with its current partners by providing additional support and with a more coordinated global effort.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

This document was prepared on November 1, 2012 and should be read in conjunction with the December 31, 2011 consolidated financial statements of Stellar Pharmaceuticals Inc. ("Stellar" or the "Company"). All amounts are stated in Canadian dollars and have been rounded to the nearest one hundredth dollar.
Forward-looking Statements

Readers are cautioned that actual results may differ materially from the results projected in any "forward-looking" statements (within the meaning of Section 27A of the Exchange Act, as defined below) included in this report, which involve a number of risks or uncertainties. Forward-looking statements are statements that are not historical facts, and include statements regarding the Company’s planned research and development programs, anticipated future losses, revenues and market shares, planned clinical trials, expected future expenditures, the Company’s intention to raise new financing, sufficiency of working capital for continued operations, and other statements regarding anticipated future events and the Company’s anticipated future performance. Forward-looking statements generally can be identified by the words "expected", "intends", "anticipates", "feels", "continues", "planned", "plans", "potential", "with a view to", and similar expressions or variations thereon, or that events or conditions "will", "may", "could" or "should" occur, or comparable terminology referring to future events or results.

The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of numerous factors, any of which could cause actual results to vary materially from current results or the Company's anticipated future results. The Company assumes no responsibility to update the information contained herein.

Critical Accounting Policies

There have been no material changes to the Company’s Critical Accounting Policies and Assumptions filed in the Company’s 2011 Annual Report on the Form 10-K.

Recently adopted Accounting Pronouncements

Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all recent ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s consolidated financial position and results of operations.

On January 1, 2012, the Company adopted the accounting standards set out below.

In September 2011, the FASB issued new accounting guidance that simplified goodwill impairment tests. The new guidance states that a “qualitative” assessment may be performed to determine whether further impairment testing is necessary. This guidance was effective for periods beginning on or after December 15, 2011, which is the Company’s 2012 fiscal year. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operations.

In June 2011, the FASB issued an accounting standards update that eliminates the option to present components of other comprehensive income as part of the statement of changes in equity and requires an entity to present items of net income and other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance also required an entity to present on the face of the consolidated financial statements, reclassification adjustments from other comprehensive income to net income. This guidance was effective for fiscal years beginning after December 15, 2011, which is the Company’s 2012 fiscal year. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.


In May 2011, the FASB issued an accounting standards update that clarified and amended the existing fair value measurement and disclosure requirements. This guidance was effective prospectively for interim and annual periods beginning after December 15, 2011, which is the Company’s 2012 fiscal year. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

New Accounting Standards Not Yet Adopted

In July 2012, the FASB issued an accounting standards update that gives an entity the option to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. This guidance will be effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, which will be the Company's fiscal year 2013, with early adoption permitted. The Company does not expect that the adoption of the guidance will have a material impact on the Company's consolidated financial statements.

Overview

Stellar Pharmaceuticals Inc. ("Stellar" or the "Company") is an emerging Canadian specialty pharmaceutical company with a primary focus on the acquisition, licensing, development and promotion of healthcare products in Canada. The Company targets several therapeutic areas in Canada, but has a particular interest in products for the treatment of pain, urology, dermatology and endocrinology/cardiology. Stellar also sells Uracyst ® and NeoVisc ® internationally through a number of strategic partnerships. On December 1, 2011, the Company acquired 100% of the outstanding shares of Tribute Pharmaceuticals Canada Ltd. and Tribute Pharma Canada Inc. (together herein referred to as "Tribute"), creating a North American specialty pharmaceutical company. As a result, Stellar has gained access to a portfolio of existing products, as well as certain rights to the future development and distribution of therapeutic products within the Canadian and US marketplace, as well as an experienced management team that has held senior management positions at large pharmaceutical companies in those markets.

On June 20, 2012, Stellar announced it had acquired the Canadian rights to Collatamp G ® from Theramed Corporation. Collatamp G ® is approved in over 50 countries for the local haemostasis of capillary parenchymatous in areas with a high risk of infection and has been shown to reduce post-operative infections across a range of surgical disciplines.

On July 18, 2012, Stellar together with Apricus Bio participated in a pre- New Drug Submission ("NDS") meeting with Health Canada, the agency responsible for approving drugs in Canada. Based on the agency's review of the submitted data package for MycoVa ™ , Health Canada concurred that the re-analysis of existing Phase 3 development program data by disease severity is acceptable to support an NDS filing and review in Canada. In multiple Phase 3 clinical studies, MycoVa ™ successfully demonstrated its ability to kill nail fungus and improve the appearance of the nail, but it did not meet its primary endpoint: complete cure. Given these results, Health Canada has agreed to review in the NDS the use of these successful secondary endpoints re-analyzed by disease severity to demonstrate the efficacy of MycoVa ™ . Stellar expects that the NDS for MycoVa ™ will be submitted to Health Canada in the second half of 2013 once the accelerated stability is completed at its new manufacturer.

On August 23, 2012, Stellar announced that it had entered into an exclusive promotional agreement with Pfizer Canada Inc. (“Pfizer”), to promote Gelfoam ® in Canada. Gelfoam ® is a medical device approved in Canada and the United States for use in surgical procedures as a haemostatic agent, when control of capillary, venous, and arteriolar bleeding by pressure, ligature, and other conventional procedures is either ineffective or impractical. Under the terms of the promotional agreement, Stellar is granted the exclusive Canadian promotional rights to Gelfoam ® by Pfizer. Throughout the term of the agreement, Stellar will act on behalf of Pfizer in the promotion, sales and marketing of Gelfoam ® to surgeons and other health care practitioners in Canada. Pfizer will continue to be responsible for all distribution, regulatory affairs and medical related activities.


Stellar’s current portfolio of assets includes eleven products: NeoVisc ® , NeoVisc ® Single Dose, Uracyst ® , BladderChek ® , Bezalip ® SR, Soriatane ® , Cambia ® , Daraprim ® , Collatamp G ® , Gelfoam ®, and MycoVa™. Each of these products has received regulatory approval in Canada, with the exception of MycoVa.

Stellar markets its products in Canada through its own sales force and currently has licensing agreements for the distribution of select products in 27 countries, and continues to expand this footprint including the recent agreement with Medicure of Egypt for the exclusive distribution rights to Stellar’s proprietary product, NeoVisc. The Company’s focus on business development is twofold: utilizing in-licensing and out-licensing for immediate impact on its revenue stream, as well as product development for future growth and stability.

The Company is now actively engaged on numerous fronts to grow its business through business development activities. There remain a number of key geographical territories globally where NeoVisc and Uracyst are not currently being marketed. In particular, both of these products remain available for licensing in the United States. Stellar intends to focus its efforts to find partners to market its brands in international territories where the Company does not have a direct commercial presence.

Stellar met with the FDA in the United States in March 2012 to discuss the US approval of Bezalip SR. Bezalip SR is approved in over 40 countries world-wide but not in the United States. Stellar recognizes that the US rights to develop Bezalip SR is an important asset to the Company in the largest market in the world, and will continue to seek to maximize the opportunity.

On October 1, 2012, Cambia was launched in Canada and is now widely available to migraine patients in Canada. Cambia is the only non-steroidal anti-inflammatory drug (“NSAID”) available in Canada or the United States that is approved for the treatment of acute migraine with or without aura in adults over 18 years of age. The migraine market is estimated at $150 million dollars in Canada and Cambia is the first novel product approved for migraine treatment since the first triptan was approved in 1995.

Stellar also received its second patent in Canada issued July 10, 2012, as Canadian Patent No. 2,515,512 entitled "Cystitis Treatment with High Dose Chondroitin Sulfate," The new patent for Stellar’s proprietary product Uracyst is valid through 2024.

Results of Operations for the Three and Nine Month Periods Ended, September 30, 2012

For the three month period ended September 30, 2012, total revenues from all sources increased by 366% to $3,213,500, compared to $689,200 in the same period during 2011. This increase is mainly due to licensed domestic product net sales of $2,267,500, compared to $nil in the prior year as a result of the acquisition of Tribute. International product sales increased by 70% to $369,800 for the three months ending September 30, 2012 compared to $217,400 for the same period during 2011. There was also an increase in other domestic product sales for the three month period ending September 30, 2012 of 24% to $576,200 compared to $466,500 the same period in 2011 due in part to sales of newly acquired Collatamp G.

For the nine month period ended, September 30, 2012, total revenues from all sources increased by 276% or $6,608,800, to $9,004,700 compared to $2,395,900 for the same period in 2011.

The Company’s net loss for the three month period ended September 30, 2012, was $718,600 compared to net income of $112,300 during the same period in 2011. This loss was mainly due to a significant investment in the expansion of the Company’s sales force and marketing expenses to grow its existing products, marketing and sales expenses related to the launch of Cambia ® on October 1, 2012, as well as an increase in business development activities.

For the nine month period ending September 30, 2012, the net loss was $2,076,400 compared to a prior year net loss of $132,200.

Gross Profit and Cost of Products Sold

Gross profit for the third quarter of 2012 was $1,359,200, up 179%, compared to a gross profit of $487,300 in the same period in 2011. The improved gross profit in 2012 was due mainly to the licensed domestic product net sales, less associated cost of these sales, representing a gross profit of $740,800.

For the nine month period ended September 30, 2012, gross profit was $3,855,500, up 119% compared to a gross profit of $1,761,100 for the same period in 2011.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three month period ended September 30, 2012 were $2,131,400, compared to $621,600 for the same period in 2011 for an increase of $1,509,800 or 243%. The increase is due primarily to the expansion of the Company’s sales force and Cambia ® pre-launch expenses. Additionally, there was an increase of $92,600 in stock-based compensation expense in the third quarter.

For the nine month period ended September 30, 2012, selling, general and administrative expenses was $6,240,000 compared to $2,024,600 in the same period of the prior year.

Interest Expense

Interest expense during the three and nine month periods ended September 30, 2012 was $103,600 and $158,200, respectively (2011 – $nil). The interest expense is due to the new long term debt facility.

Liquidity and Capital Resources

The Company currently manages its capital structure and makes adjustments to it, based on cash resources expected to be available to the Company, in order to support its future business plans.The Company’s cash and cash equivalents position amounted to $2,608,700 at September 30, 2012 compared with $2,228,000 at December 31, 2011. The increase was due to the new long term debt facility offset by losses from operations and the acquisition of the exclusive rights to Collatamp G ® for Canada.

Cash used by operations for the nine month period ended September 30, 2012 was $2,285,600 (2011 - $788,500) mainly as a result a significant investment in the expansion of the Company’s sales force and marketing expenses to grow its existing products, to prepare for the launch of Cambia® which occurred on October 1, 2012, as well as an increase in business development activities. Also included are changes in non-cash operating assets and liabilities, which decreased to $249,500 for the period (2011- $686,100).

Cash provided by financing activities related to a new long term debt facility for $3,500,000, less financing costs of $343,900.

Cash used in investing activities for the nine month period ended September 30, 2012 was $489,800, which relates to the acquisition of the license rights to Collatamp G ® with the balance attributable to intangible assets and fixed asset purchases.

On May 11, 2012, the Company entered into a loan and security agreement (the “Loan Agreement”) with MidCap Funding III, LLC (the “Lender”) for a 36 month term loan that is due May 11, 2015. The term loan allows for a total advancement of US$6,000,000. An amount of US$3,500,000 ($3,488,000) was drawn on execution of the Loan Agreement and the remainder will be advanced if the Company raises an amount of not less than US$6,000,000 from any combination of: an equity issuance; upfront payments associated with a pharmaceutical partnership; or upfront payments in conjunction with the acquisition or in-licensing of pharmaceutical products. Advancement of the remainder of the loan is available until March 31, 2013, and subject to Lender review. The Loan Agreement is secured by all assets of the Company and contains customary covenants that, among other things, generally restrict the Company’s ability to incur additional indebtedness. The Loan Agreement includes a financial covenant to raise not less than US$3,000,000 by March 31, 2013 in the form of an equity raise or cash from an upfront payment associated with a pharmaceutical partnership.

Payments are due monthly, with the first six (6) payments being interest-only, with principal and interest payments due thereafter. Interest is calculated at the higher of 4% or the thirty (30) day LIBOR plus 7%.

In connection with the Loan Agreement, the Company granted warrants to purchase an aggregate of 750,000 common shares of the Company common stock at an exercise price of US$0.56 ($0.55). The fair value of the warrants was $312,000. Of this amount, $208,000 for 500,000 warrants was recorded as a warrant liability, with an equal amount recorded as a discount to the carrying value of the loan in the accompanying interim consolidated financial statements. The remaining $104,000 (250,000 warrants) were granted for compensation of the transaction and has been classified as debt issuance costs.

The Company believes that the debt facility will provide the necessary funds to ensure continued investment in selling and marketing expenses to grow its existing products, the pending launch of Cambia ® , plus increased business development activities.

Off-Balance Sheet Arrangements

The Company does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Related Party Transactions

Fees were paid to LMT Financial Inc. ("LMT", a company beneficially owned by a director and former interim officer of the Company, and his spouse) for consulting services. For the three and nine month periods ended, September 30, 2012, the Company recorded and paid an aggregate of $37,500 and $112,500, respectively (2011 - $50,100 and $145,200, respectively) as selling, general and administrative expense in the consolidated statements of operations, comprehensive (loss) income and deficit.

During the three and nine month periods ending September 30, 2012, the Company paid $nil for various legal services (2011 – $41,600 and $62,600, respectively) to a law firm in which one of the directors of the Company is a partner, which have been recorded as selling, general and administrative expense in the condensed interim consolidated statements of operations, comprehensive (loss) income and deficit.

Significant Customers

During the three month period ended September 30, 2012, the Company had two significant wholesale customers that represented 54.4% of product sales, compared to 48.3% in the same period of 2011 (one major wholesaler – 37.8% and one international customer – 10.5%).

During the nine month period ended September 30, 2012, the Company had two significant wholesale customers that represented 54.3% of product sales compared to one significant wholesale customer that represented 31.3% of product sales for the same period in the prior year.

The Company believes that its relationships with these customers are satisfactory.

Capital Stock

The Company has authorized an unlimited number of common shares, without par value. There are no other classes of shares issued. During the three and nine month periods ended September 30, 2012, the Company issued nil and 2,000,000 common shares, respectively (2011 – nil and 25,002, respectively).

As of the date of this report, the Company had 39,610,042 common shares issued and outstanding.

As of the date of this report, the Company had 3,202,952 common share options outstanding with an average exercise price of $0.65 per option.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

1071548 Views