| Novadaq Reports Financial Results for Third Quarter of 2006 |
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Toronto, Ontario – November 6, 2006 Novadaq® Technologies Inc. (TSX: NDQ), a developer of medical imaging systems for the operating room, today reported its results for the third quarter ended September 30, 2006. “The third quarter was an extremely busy and strategically successful period for us. I am very proud of the milestones our team has achieved,” said Arun Menawat, President and Chief Executive Officer of Novadaq Technologies Inc. “Since the beginning of July we have made significant advancements on a number of key initiatives that will drive commercialization of our products. These include a CMS recommendation made for a reimbursement code for the SPY System, positive results from our clinical trial of the OPTTX System and initiation of the clinical development for LUNA. We have now also received regulatory approval to market OPTTX in Europe” Selected Third Quarter, 2006 Financial and Operating Highlights• SPY®: Presented to Centers for Medicare & Medicaid Services (CMS) the federal agency responsible for administering the United States’ health-related programs, resulting in a recommendation for a unique ICD-9-CM reimbursement code. Signed an exclusive European and Emerging Markets distribution agreement with Eastman Kodak Company for the SPY System. Announced the hiring of Jack Randle as Divisional Vice President, Sales for Novadaq’s Cardiac Business to further enhance the commercialization of the SPY System. • OPTTX®: Presented results from a clinical trial of 40 patients, demonstrating that, among other positive results, at the end of the treatment, on average the visual acuity was stable, and 29% of all patients seen at this visit had an improvement in vision. This percentage rose to 50% for those patients that followed the trial visit schedule. These results were a major factor in the receipt of the necessary CE Mark Certificates to market the OPTTX System in Europe. • LUNATM: Researchers from the University of Rochester won the award for Best Scientific Paper at the 24th World Congress of Endourology. The team submitted virtual posters in the areas of bladder cancer and testicular torsion visualization, as well as radical prostatectomy, for which their paper was recognized. Initiated first human clinical trial in Rochester on partial nephrectomy. Financial ResultsThree Months Ended September 30, 2006 “Q3-2006” Compared to Three Months Ended September 30 2005 “Q3-2005” Revenue increased to approximately $532,000 in Q3-2006 from approximately $222,000 in Q3-2005 including a five fold increase in procedural revenue resulting from an increase in the installed base of SPY Systems. The capital sale based revenue recorded in Q3-2006 related to the distribution agreement with Kodak which was completed in September 2006 for Europe and Emerging Markets. Procedure based revenue decreased to approximately $402,000 in Q3-2006 from approximately $500,000 in Q2-2006 or by 20%. During the summer months, 2 additional Spy Systems were placed, and SPY System utilization rates during the summer months were also lower than in the second quarter of 2006. Gross profit as a percentage of sales decreased to approximately 51% in Q3-2006 from approximately 72% in Q3-2005. The difference relates primarily to capital sales of SPY Systems completed in each period. The blended sales model employed in Europe in 2006 involves lower capital sales prices and initial gross profits on SPY Systems, and higher expected ongoing procedure based revenue streams. Gross profit as a percentage of sales decreased from approximately 58% in Q2-2006 to 51% in Q3-2006, primarily due to lower utilization rates achieved during the summer months. Sales and marketing expenses increased by approximately $798,000 to approximately $1,134,000 in Q3-2006 from approximately $336,000 in Q3-2005 to support the commercial launch of the SPY System in the US. Significant increases included the cost of hiring 12 Clinical Educators, increased commission expense, and increased marketing costs. Sales and marketing expenses in Q3 2006 decreased slightly from Q2-2006. Research and development expenses increased by approximately $362,000 to approximately $1,164,000 in Q3-2006 from $802,000 in Q3-2005. The overall increase relates primarily to increases in OPTTX System design and testing costs. Research and development costs in Q3-2006 decreased slightly from Q2-2006. General and administration expenses increased to approximately $852,000 in Q3-2006 from $512,000 in Q3-2005, and from $675,000 in Q2-2006. The overall increase over the entire period includes an increase in professional fees, salaries, investor relations costs and insurance. Depreciation expense increased to approximately $45,000 in Q3-2006 from $6,000 in Q3-2005 and from approximately $40,000 in Q2-2006. primarily as a result of additional computer hardware, software and other office equipment to support the growth of the Company’s infrastructure. The Company had a total investment return of approximately $284,000 in Q3-2006 on its cash and short-term investments, compared to $215,000 in Q3-2005. The increase in investment returns over Q3-2005 is primarily the result of higher interest rates. Net loss increased by approximately $1,614,000 to approximately $2,741,000 in Q3-2006 from approximately $1,128,000 in Q3-2005 primarily as a result of an increase in sales and marketing costs of approximately $798,000, an increase in research and development expenses of approximately $362,000, an increase in general and administrative expenses of approximately $340,000, and a reduction in foreign exchange gain of approximately $254,000, offset partially by an increase in investment returns of approximately $69,000. Net loss increased in Q3-2006 by approximately $129,000 from Q2-2006 due to increased general and administrative expenses. Nine Months Ended September 30, 2006 “YTD-2006” Compared to Nine Months Ended September 30 2005 “YTD-2005” Revenue in YTD 2006 was approximately $1,559,000, or 353% of YTD 2005 revenue of approximately $442,000. This included an increase in procedure based revenue from approximately $155,000 to approximately $1,232,000 due primarily to the increasing installed based in the US. Sales and marketing expenses increased to approximately $3,088,000 in YTD 2006 from approximately $739,000 in YTD 2005 primarily due to the expansion of commercialization activities in the US. Research and development expenses increased to approximately $3,789,000 in YTD 2006 from approximately $2,469,000 in YTD 2005 primarily due to increases in salary expense for engineering staff hired to increase product development capacity, clinical and regulatory staff to accelerate OPTTX and LUNA programs, expenses associated with the SPY patient registry and visionary programs, and patent and trademark costs incurred to protect developments in OPTTX and LUNA, and expanded applications of SPY. General and administration expenses decreased from approximately $2,201,000 in YTD 2005 to approximately $2,094,000 in YTD 2006 primarily as a result of a significant reduction in stock based compensation expense which was unusually high in YTD-2005 due to the contractual vesting of all pre-2005 options upon the initial public offering completed in June 2005. The reduction in stock based compensation was mostly offset by general increases in administrative costs to support the commercial launch of SPY in the US, and public company costs. As at September 30, 2006 the Company had cash, cash equivalents and short-term investments of approximately $19,976,000, a decrease of approximately $2,799,000 from December 31, 2005. The decrease was primarily the result of the cash used in operations of approximately $6,321,000, and cash invested in property and equipment and licenses of approximately $1,926,000, offset partly by proceeds of approximately $5,463,000 from the exercise of warrants in YTD-2006. As at September 30, 2006 there were a total of 19,709,561 common shares (21,449,872 on a fully diluted basis) and no preferred shares outstanding. Conference callNovadaq will host a conference call and live webcast on Monday, November 6, 2006 at 4:30 p.m. E.T. to discuss its third quarter 2006 results. To access the conference call by telephone, dial 416-644-3414 or 1-800-814-4862. Please connect approximately ten minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay until November 13, 2006 at midnight. To access the archived conference call, dial 416-640-1917 or 1-877-289-8525 and enter the reservation number 21208114 followed by the number sign. A live audio webcast of the conference call will be available at www.novadaq.com. Please connect at least ten minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the above website for 90 days. About Novadaq TechnologiesNovadaq Technologies Inc. (TSX: NDQ) develops and commercializes medical devices based on its proprietary imaging platform for the diagnosis and treatment of human vascular and ophthalmic diseases and conditions. Novadaq’s SPY Intra-operative Imaging System, commercially available worldwide, enables cardiac surgeons to visually assess coronary vasculature and bypass graft functionality during the course of open-heart surgery. Novadaq’s ophthalmic product, the OPTTX System, is aimed at the diagnosis, evaluation and treatment of wet Age-related Macular Degeneration (AMD) by using the same core imaging technology that is used in the SPY System. Novadaq received CE Mark approval for the OPTTX System in November 2006 and expects a limited launch in Europe by year end. Novadaq’s product for urology, LUNA is designed to enable surgeons to visualize nerve bundles during the course of urological procedures such as radical prostatectomy in order to reduce negative outcomes including impotency. For more information, please visit the Company's website at www.novadaq.com. This press release contains certain information that may constitute forward-looking information within the meaning of securities laws. In some cases, forward-looking information can be identified by the use of terms such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or other similar expressions concerning matters that are not historical facts. Forward-looking information may relate to management’s future outlook and anticipated events or results, and may include statements or information regarding the future financial position, business strategy and strategic goals, research and development activities, projected costs and capital expenditures, financial results, research and clinical testing outcomes, taxes and plans and objectives of or involving Novadaq. Without limitation information regarding future sales and marketing activities, SPY System placement targets and utilization rates, the implementation of a reimbursement code for the SPY System, future revenues and research and development activities, and the planned European commercial launch of the OPTTX System, as well as the Company’s plans for each of the SPY System, the OPTTX System and LUNA, is forward-looking information. Forward-looking information is based on certain factors and assumptions regarding, among other things, market acceptance and the rate of market penetration of Novadaq’s SPY System, the effect of a recommended reimbursement code for the SPY System, the clinical results of the use of the SPY System, the results from clinical tests of the OPTTX System and LUNA , and potential opportunities in the AMD treatment market and in image guided conventional and minimally invasive urological applications including nerve-sparing radical prostatectomy. While the Company considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. Forward looking-information is subject to certain factors, including risks and uncertainties that could cause actual results to differ materially from what we currently expect. These factors include risks relating to the transition from research and development activities to commercial activities, market acceptance and adoption of the SPY System and of the OPTTX System, the risk that a recommended reimbursement code will not be fully implemented or that it will not affect acceptance of the SPY System, risks related to third party contractual performance, dependence on key suppliers for components of the SPY System and the OPTTX System, regulatory and clinical risks, risks relating to the protection of intellectual property, risks inherent in the conduct of research and development activities, including the risk of unfavorable or inconclusive clinical trial outcomes, potential product liability, competition and the risks posed by potential technological advances, and risks relating to fluctuations in the exchange rate between the US dollar and the Canadian dollar. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While Novadaq may elect to, Novadaq is under no obligation and does not undertake to update this information at any particular time. This press release was prepared by management from information available to November 3, 2006. For further information visit our website at www.novadaq.com, or contact:
Arun Menawat, PhD, MBA
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